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Chapter 5: United Kingdom

• Background
  • Population
  • History
• Political structure
  • Parliament
  • House of Lords Reform
• Scottish and Welsh devolution
  • Scotland
  • Wales
• Financial relations between the United Kingdom, Scotland and Wales
  • Current funding arrangements for Scotland
  • Funding for Scotland after devolution
  • The tax-varying power
  • Costs of the devolution arrangements
  • Funding for Wales after devolution
• Intergovernmental relations
  • Scotland and Wales in Europe
• Summary of observations
• Endnotes

5.0 In many respects the United Kingdom of Great Britain and Northern Ireland has been the archetypal unitary nation, governed by a single Parliament possessing absolute sovereignty unconstrained by a written constitution. However, a number of recent developments have resulted in the structure of government in Great Britain taking on a quasi-federal character.

Background

5.2 The Northern Ireland Assembly is not simply an exercise in the devolution of power, but is also an important component of the solution negotiated with the various parties in Northern Ireland, and with the Republic of Ireland, to the long-running conflicts arising out of the partition of Ireland. It will therefore not be examined in this report. The focus of this report will be on the Scottish Parliament and the Welsh Assembly, which will introduce into Great Britain devolved government of a quasi-federal character.

Population

England	Scotland	Wales	Northern Ireland
49,284,200	5,122,500	2,926,900	1,675,000

History

5.5 The conquest of Wales by England began under William I, and was completed by Edward I in 1282. However, it was not until 1536 that the Statute of Wales integrated Wales fully into England, making the law of England the law of Wales, and establishing Welsh representation in the English Parliament at Westminster.

5.6 In 1603 James VI of Scotland ascended the English throne as James I, ending centuries of conflict between the two nations. However, while the Kingdoms of Scotland and England were united under one crown, separate Parliaments continued to meet in Edinburgh and Westminster until 1707, when the Scottish and English Parliaments passed the Acts of Union. This joined the two nations under one Parliament of Great Britain, to meet at Westminster, with Scottish representation in the House of Commons and the House of Lords, and with a Secretary of State for Scotland.

5.7 In 1709 responsibility for Scotland was given to the Secretary for Great Britain, but this post was often vacant and Scottish affairs were managed by the Lord Advocate, the principal law officer in Scotland. The Parliament appointed separate Secretaries of State for Home and Foreign Affairs in 1782, and the Home Secretary, advised by the Lord Advocate, became responsible for domestic affairs in Scotland, as in England and Wales.²

5.8 Calls for devolution - ‘Home Rule’ for Scotland - began more than a century ago.³ In 1885, a Secretary for Scotland was appointed and the Scottish Office was established at Dover House in Whitehall. The Secretary for Scotland took responsibility for administering Scotland’s separate legal system and the Scottish Boards for agriculture, education, local government and health. The position of the Secretary for Scotland was upgraded to Secretary of State in 1926, and in 1928 the Scottish Boards became departments of the Scottish Office. In 1939, St Andrew’s House in Edinburgh became the headquarters of the Scottish Office and Dover House was retained as a liaison office in Whitehall. By 1997 the Scottish Office had responsibility for most functions of the United Kingdom Government in Scotland, with the major exceptions of defence, foreign policy, taxation and social security.⁴

5.9 The Office of the Secretary of State for Wales was created in 1964, and the Welsh Office was established in 1965. The responsibilities of the Welsh Office have grown to include roads, housing, local government, health, industry, agriculture, and economic policy.⁵

5.10 In 1978 the United Kingdom Government legislated for a Welsh Assembly and for a Scottish Parliament. However, the implementation of both proposals was made subject to referendum. In 1979 the proposed Welsh Assembly was defeated at referendum, by four to one.⁶ In the referendum on the proposed Scottish Parliament, also held in 1979, a majority voted in favour. However, a clause in the Act for Scottish devolution required that the Government repeal the Act if fewer than 40 per cent of those entitled to vote in the referendum opted to vote in favour of devolution, and this 40 per cent requirement was not met. In the resulting parliamentary debate the Government was defeated in a vote of no confidence, with the Scottish National Party voting against it. The new Government repealed the Act.⁷

5.11 In 1997 the Blair Government announced renewed plans for Scottish and Welsh devolution. In both cases a referendum would be held first and, if successful, legislation to effect devolution would be introduced into Parliament. Both referenda were held in September 1997.

5.12 The referendum on Scottish devolution asked two questions: should there be a Scottish Parliament?, and should that Parliament have tax-varying powers? The vote in favour of a Scottish Parliament was 74.3 per cent, and in favour of tax-varying powers was 63.5 per cent, with a 60.4 per cent voter turnout.⁸ The devolution legislation was then introduced into Parliament on December 17^th 1997, and received Royal Assent on November 18^th 1998. The inaugural elections to the Scottish Parliament are to be held on May 6^th 1999, with the Parliament to open and take on its full powers on July 1^st 1999.⁹

5.13 The referendum on Welsh devolution asked a single question: should there be a Welsh Assembly? The vote in favour of a Welsh Assembly was 50.3 per cent, with a 50.3 per cent voter turnout.¹⁰ The devolution legislation was then introduced into Parliament in November 1997 and received Royal Assent in July 1998. The inaugural elections to the Welsh Assembly are to be held on May 6^th 1999.

Political structure

Parliament

5.16 The Prime Minister is typically the leader of the party with a majority of the seats in the House of Commons. The Ministry is appointed by the Prime Minister, and must be Members of Parliament. The Government must resign if it loses the confidence of the House of Commons.

5.17 The House of Lords has only limited legislative powers. Appropriation bills must originate in the House of Commons, and the House of Lords may not amend or reject them, but may only delay them for one month. All other legislation comes into force, regardless of the opposition of the House of Lords, if the House of Commons votes for it in two sessions with at least one year elapsed between them.

House of Lords Reform

5.19 A Royal Commission has been established by the Government which has been asked to make recommendations on the role, function and composition of the second chamber. It is due to report by December 31^st 1999 and will be chaired by Lord Wakeham. Its recommendations will be considered by a Joint Committee of both Houses of Parliament.

5.20 Arrangements for a transitional chamber have been made, and this chamber will sit until the reforms are fully implemented. This transitional chamber will consist of 91 hereditary peers, and the remaining life peers. An independent Appointments Commission, removed from the sole power of patronage of the Prime Minister, will make appointments to the transitional chamber. The Prime Minister will retain the right to decide the number of peers appointed at any one time, but will lose the right to veto nominations from other party leaders.¹²

5.21 The Government’s White Paper, Modernising the Parliament: Reforming the House of Lords, has not committed the Government to accepting the recommendations of the Royal Commission and has indicated the Government’s preferred options. With regard to the role of the House of Lords, the Government has expressed the opinion that the Lords should continue to

complement rather than duplicate¹³

have some overt role as the representative of the regions, or of the regional bodies.¹⁴

Scottish and Welsh devolution

Scotland

Observation 20:

Intergovernmental institutions

It is possible for an individual to be a Member of the Scottish Parliament and a Member of the United Kingdom Parliament, increasing the links between the two levels of government, and the co-ordination of their activities.

5.25 The Parliament will appoint the First Minister,¹⁸ who will then appoint the rest of the Scottish Executive subject to Parliamentary approval.¹⁹ Ministers must be Members of the Scottish Parliament.²⁰ The Parliament will have the power to compel the resignation of the First Minister and the Executive through a vote of no confidence,²¹ and to legislate in a number of areas.²² Governmental responsibility in those areas will be transferred to the Scottish Executive.²³ The Scottish Parliament will have the power to legislate in respect of all matters relating to Scotland except the following, which will be reserved to the Parliament and Government of the United Kingdom:²⁴

• the constitution, including the structure of devolution;
  

• security and defence, foreign affairs, control over external borders, extradition and European Union law;
  

• human rights and equal opportunity law;
  

• social security, and some other health and welfare matters;
  

• free trade between England and Scotland, the regulation of the professions, and a number of other business, financial and consumer protection matters;
  

• a number of infrastructure matters including communications, broadcasting, energy and transport;
  

• industrial relations and workplace health and safety; and
  

• a number of other matters, including drugs, data protection, censorship of films, firearms and other weaponry, gambling and live animal experimentation.

The United Kingdom Government will be able to vary the extent of these reserved matters without the need for legislation.²⁵

5.26 The principal devolved areas will therefore be:

• most areas of health, welfare and housing;
  

• education and training;
  

• local government, planning, the environment and heritage protection;
  

• economic development including financial assistance to industry;
  

• agriculture, food standards, forestry and fisheries;
  

• some aspects of transport;
  

• most aspects of the criminal and civil law, the criminal justice and prosecution system, courts, police and emergency services;
  

• tourism, sport and the arts; and
  

• statistics, public registers and records.²⁶

The Scottish Parliament will also have the power to vary the basic rate of income tax for residents of Scotland.²⁷

5.27 Acts of the Scottish Parliament that exceed its competence will not be law.²⁸ However, there will be provision for the courts to remove, limit or suspend the retrospective effects of a decision that an Act of the Scottish Parliament, or a decision of a Scottish Minister, is unlawful.²⁹ There will also be provision for the enactment of subordinate legislation of the United Kingdom Parliament to remedy the defect.³⁰ While the devolution legislation provides for the validity of Scottish legislation to be tested in the courts,³¹ it also establishes a process for the scrutiny of bills prior to enactment. The Lord Advocate (the Chief Scottish Law Officer, appointed by the First Minister with Parliamentary approval³² and a member of the Scottish Executive),³³ the Attorney-General and the Advocate General for Scotland (a Minister of the United Kingdom Government responsible for Scottish law matters)³⁴ will have the power to refer a bill, within four weeks of its being passed in the Parliament, to the Judicial Committee of the Privy Council, which may then declare whether or not the proposed law is within the competence of the Scottish Parliament.³⁵ If it is not, the bill must be returned to the Parliament for reconsideration.³⁶

Observation 21:

Role of the legislature

The process of law-making in the Scottish Parliament contains provision for judicial scrutiny of bills prior to enactment, to determine if they are within the scope of Scottish legislative power. This is likely to reduce the extent of conflict between Scottish and United Kingdom legislation.

5.28 The Secretary of State for Scotland will have the power, within four weeks of a bill being passed by the Scottish Parliament, to disallow the bill on the grounds that it is incompatible with any international obligations or with the interests of defence or national security, or that it makes modifications of the law as it applies to reserved matters which would have an adverse effect on the operation of the law as it applies to reserved matters.³⁷ The Secretary of State may also disallow an action of the Scottish Executive on the grounds that it would be incompatible with an international obligation, and may compel the Scottish Executive to take action, including the introduction of a bill into Parliament, necessary to implement an international obligation.³⁸

5.29 The devolution legislation provides for the transfer of property from the United Kingdom Government to the Scottish Executive,³⁹ and for the creation of a Scottish civil service.⁴⁰ It is anticipated that the staff of the Scottish Office and other Scottish departments will transfer to the Scottish Executive.⁴¹

Wales

5.31 Functions slated to be transferred to the Assembly include:

• health, housing and social services;
  

• education and training;
  

• economic development, transport, highways and industry;
  

• agriculture, forestry, fisheries and food;
  

• local government, planning and the environment;
  

• sport, recreation and tourism; and
  

• culture, heritage and the Welsh language.⁴⁷

5.32 While there is to be no Welsh government as such, the Assembly must elect an Assembly First Secretary,⁴⁸ who may then appoint a number of Assembly Secretaries.⁴⁹ Together they constitute the Executive Committee, which must answer the questions of the Assembly concerning the performance of the Assembly’s functions.⁵⁰ The Assembly is obliged to create a number of other committees, including one for each subject area with which it deals,⁵¹ one for the scrutiny of subordinate legislation,⁵² an Audit Committee,⁵³ and a committee responsible for each Welsh region.⁵⁴ The Assembly has the power to delegate its functions to any committee, or to the Assembly First Secretary.⁵⁵

Observation 22:

Role of the States in the federation

The Welsh Assembly will administer and implement legislation passed by the United Kingdom. This will allow regional concerns and interests to determine the impact on Wales of centrally determined policy.

Financial relations between the United Kingdom, Scotland and Wales

Current funding arrangements for Scotland

5.34 The “Barnett formula” links funding of Scotland and Wales to the level of public expenditure in England. It determines the amount of funds to be transferred to Scotland and Wales on the basis of a population ratio between Scotland, Wales and England. The 1992 calculations of population ratio established the Scottish population as 10.06 per cent of the population of England and Wales and 10.66 per cent of the population of England. The first calculation of 10.06 per cent determines that Scotland will receive the equivalent of 10.06 per cent of law and order expenditure allocated to England while the second calculation determines that Scotland will receive the equivalent of 10.66 per cent of all other public expenditure allocated to England. For example, should £1 billion be added to public health spending in England, then Scotland would receive an additional £106.6 million in its Scottish Block.⁵⁶

5.35 Alterations to the Scottish Block can occur outside the Barnett formula. In the case of a transfer of responsibilities from Whitehall to a territorial department, appropriate financial compensation would occur. A 1992 decision by the United Kingdom Government to fully fund a pay settlement with nurses required financial settlement with Scotland outside the Barnett formula.⁵⁷

Funding for Scotland after devolution

5.37 The financial arrangements for Scotland after devolution come into effect in the financial year 1999-2000, and will retain many of the features of the Scottish Block. Renamed the Scottish Consolidated Fund,⁵⁸ it includes:

• funding calculated according to a slightly modified Barnett formula;
  

• funding for nationalised industries and the agriculture, fisheries and food programme;
  

• funding from the European Union’s European Regional Development Fund which has been allocated to Scotland through the United Kingdom; and
  

• sufficient funds to cover the costs of devolved powers from Whitehall to the Scottish Parliament.⁵⁹

Expenditure decisions will be made by the Scottish Executive.

5.38 The formula currently used for calculating funding transfers from the United Kingdom Government to the Scottish Office will be retained, with only minor adjustments. The calculation of the population ratio in the Barnett formula will be modified to incorporate mid-year population assessments from the Office of National Statistics. The first financial year to which it will apply is 1999-2000. These revised statistics put the Scottish population at 10.45 per cent of the English population (rather than the previous calculation of 10.66 per cent) and at 9.86 per cent of English and Welsh populations (rather than 10.06 per cent). Operation of the Barnett formula will be made public for the first time in the financial year 1999-2000.⁶⁰

5.39 Changes to the Scottish Consolidated Fund can be made outside the Barnett formula. Should the Government of the United Kingdom make decisions which have financial implications for either the Scottish Parliament or the Scottish Executive, then appropriate financial arrangements will be made (either an increase or decrease in funding). The United Kingdom Government has decided that the long standing convention whereby the body who makes the decision bears its costs, will continue to apply.

5.40 Other circumstances will also justify changes to the amount of funding received by Scotland. Uniform general adjustments to public expenditure programmes in England will have their echo in Scotland. Capital receipts from the disposal of assets in which the United Kingdom taxpayer (who financed the original purchase) has a continuing interest, will be distributed between Scotland and the United Kingdom. Proceeds from other disposals can be recycled within Scotland. Additional funding may be granted from the United Kingdom Reserve in exceptional circumstances such as unforeseen domestic costs which could not be reasonably contained within the domestic budget (eg natural disaster).⁶¹

The tax-varying power

• spend at least as much time during the year in Scotland as in some other part of the United Kingdom;⁶² or
  

• maintain a principal place of residence in Scotland for at least as much time during the year as a principle place of residence is maintained in some other part of the United Kingdom;⁶³ or
  

• hold a seat in the Scottish Parliament, or a Scottish seat in the United Kingdom Parliament, or a Scottish seat in the European Parliament.⁶⁴

5.42 Section 73 allows the Scottish Parliament to apply, for one tax year, an increase or reduction in the basic income tax rate of not more than 3 per cent. The rate variation must be a whole number or a half of a whole number (0.5 per cent, 1 per cent, 1.5 per cent, 2 per cent, 2.5 per cent, 3 per cent). Each 1 per cent increase will yield approximately £150 million based on current revenue, and hence the tax-varying power may produce a yield or loss of a maximum £450 million.⁶⁵ If any change to the United Kingdom Income Tax Acts is proposed, Section 76 requires the United Kingdom Treasury to recommended to the House of Commons any change in the tax-varying power necessary to preserve the real value of this maximum yield or loss. The first such statement by Treasury appears in the 1999-2000 United Kingdom Budget Papers:

After the changes outlined above [to the United Kingdom income tax], a one penny change in the Scottish variable rate in 2000-2001 could then be worth approximately plus or minus £230 million, compared with plus or minus £180 million prior to these changes. In the Treasury’s view, an amendment of the Scottish Parliament’s tax-varying powers is not required as a result of these changes.⁶⁶

5.43 Sections 77 and 78 outline the administrative arrangements for the Board of Inland Revenue in the case of an increase or decrease for Scottish taxpayers. In the case of an increase, the Board will pay into the Scottish Consolidated Fund the estimated amount of revenue. In the case of a decrease, the Scottish Consolidated Fund will pay the Board the estimated revenue excess. There is provision for subsequent adjustments in the event of inaccurate estimates.

5.44 Section 79 permits the United Kingdom Treasury to modify its own enactments in order to take into account the Scottish Parliament’s exercise of its tax-varying power. Section 80 provides for the reimbursement of administrative expenses incurred by any Minister of the Crown or government department, to be paid by the Scottish Ministers. Section 110 clarifies the treatment of social security recipients under the exercise of the tax-varying power.

Costs of the devolution arrangements

5.46 The cost to the United Kingdom Government of establishing the mechanisms for tax variation in Scotland is calculated to be approximately £10 million. Running costs are estimated at £8 million per year, but will vary depending on whether the Scottish Parliament chooses to exercise its tax-varying power. The administrative costs borne by the Board of Inland Revenue will be met by the Scottish Parliament.⁶⁹

5.47 The establishment costs for employers are estimated to be £50 million (this may be phased in) and annual running costs are calculated to £6-15 million. An employer with 5 Scottish resident taxpayers can expect setting-up costs in the range of £50-100. Larger companies with up to 200 employees operating on the Pay As You Earn system face setting-up costs of between £700-1,400.⁷⁰

Observation 23:

Federal financial arrangements

The implementation of its programmes by the Scottish Executive will be largely dependent on funds transferred by the Government of the United Kingdom. However, the Scottish Parliament’s tax-varying power will give the Scottish Executive some control over its financial decision-making.

Funding for Wales after devolution

5.49 The Welsh Office will continue to operate after devolution and its operating costs deducted from the Welsh Block prior to its transfer to the Assembly. It will be the duty of the Secretary of State for Wales to notify the Assembly of the amount of its Block for the year, the manner in which the Barnett formula was applied and the amount allocated for the Welsh Office.

5.50 As will be the case with Scotland, the Assembly will be able to determine the allocation of agricultural funds but will not be able to vary the spending on these schemes. These amounts will have been previously determined by the United Kingdom Government and the European Commission.⁷¹

Intergovernmental relations

5.52 The Government of the United Kingdom intends the Secretaries of State for Wales and Scotland to represent the Assembly and the Parliament in any discussions with the Government of the United Kingdom on Welsh and Scottish expenditure, and to have an advocacy role in general government discussions on expenditure programmes.⁷³ The Secretaries of State for Wales and Scotland will continue to participate in the formulation of government policy, in legislative and resource decisions and to represent Wales and Scotland in Cabinet and Cabinet Committees. The Secretaries will also sit on relevant Standing Committees in the House of Commons considering legislation affecting Wales or Scotland.⁷⁴ Some critics have suggested that the primary loyalty of the Secretaries of State to the Government of the United Kingdom will undermine their ability to represent the interests of the Scottish Parliament and the Welsh Assembly.⁷⁵

5.53 The Secretary of State for Wales will have the power to attend and be heard in the Welsh Assembly, but will not have a vote,⁷⁶ and is obliged, where appropriate, to consult with the Assembly concerning the legislative programme of the United Kingdom Government at the beginning of each session of Parliament.

Observation 24:

Intergovernmental institutions

The role of the Secretaries of State for Scotland and Wales will be similar to that of a Minister for Federal Affairs: they will be members of the Government of the United Kingdom with special responsibility for relations between that Government and the Scottish Parliament and Executive, and the Welsh Assembly.

Scotland and Wales in Europe

5.55 It will be possible for the Secretary of State for Wales or Scotland to participate in meetings of the Council of Ministers and to represent the United Kingdom. The United Kingdom Permanent Representation in Brussels will continue to represent Welsh and Scottish interests. It will be open to the Welsh Assembly and to the Scottish Parliament to decide the form of their own representation in Brussels. Members of the Assembly and Parliament will sit on the Committee of the Regions. The Welsh and Scottish Offices currently negotiate programme funding and implementation of the European Union Structural Funds. These functions will be transferred in full to the Assembly and to the Parliament.⁷⁷

Summary of observations

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Endnotes