Lord Wallace of Tankerness: Break-up of the UK is not on agenda

TODAY I will be speaking at The Scotsman conference on fiscal powers for Scotland. The publication of the Scotland Bill on St Andrew's Day means this is a timely conference. There are a lot more fiscal levers coming to Scotland and next year will see plenty of debate in Holyrood and Westminster on the Scotland Bill.

The bill signals the start of the biggest transfer of fiscal powers from London since the creation of the United Kingdom. The coalition government is moving quickly to deliver on the recommendations of the independent Calman Commission established to review the first decade of devolution in Scotland. It is often overlooked that the main finding of the commission was that devolution in Scotland has been a great success. That is something we should all be proud of before we move on to debating what improvements are required.

As a commission, we believed strongly that what needed to change at Holyrood was that MSPs must have a greater role in raising the revenue they spend. Their accountability for spending money should be extended to increase their accountability for taxation.

That is the fundamental change the Scotland Bill will bring about. Holyrood will now be responsible for raising around 35 per cent of what it spends. The other 65 per cent will still come in the shape of a block grant from the UK government.

At present, with the additional fiscal levers we are proposing, the Scottish Parliament would have to make revenue decisions each year which would raise around 9 billion. On top of that, it will also have new saving powers to help deal with budget fluctuations and borrowing powers to help fund major capital projects. With around a third of revenue raised by Holyrood and the other two thirds from UK controlled taxes, this will provide a bedrock of funding for public services in Scotland while maintaining the crucial economic union with the UK.

For me, and the majority of the people in Scotland, this last point is very important. I can readily identify the benefits of devolving more fiscal power to Edinburgh and remaining part of a strong United Kingdom. It is about accountability, empowerment and stability. The Scotland Bill process has always drawn strength from the fact it was inclusive. The Calman Commission was established by majority support in the Scottish Parliament, it was supported throughout by the three main UK-wide political parties and produced a comprehensive and unanimous report.With the majority of its membership drawn from civic Scotland, the commission was truly representative and independent.

The centrepiece of our bill is the tax and borrowing package. Most significantly, we will create a new Scottish rate of income tax. The current block grant funding from the UK government will be adjusted in exchange for power for the Scottish Parliament to raise its own taxes. The imbalance between power and responsibility within the existing Scotland Act will be addressed in the bill. This new tax raising power will operate alongside the existing UK-wide income tax. The Scottish Parliament will then make a tax decision which can either match UK rates, or go higher, or lower.

The Calman finance recommendations were carefully crafted and the finance changes will be introduced in a planned and phased way. Our taxation principles drew on established practices operating in advanced economies, including Canada and Australia. Transitional arrangements will be put in place to ensure there is no windfall gain or adverse shock to the Scottish budget, nor to the UK budget. The new tax raising powers will not arrive overnight but transition and implementation arrangements will be in place for the Scottish Parliament elected in 2015.

Our fiscal reforms extend to borrowing. The Calman Commission recommended greater borrowing powers for the Scottish Parliament. The Scotland Bill will deliver them. The Scottish Parliament will get a total of 2.7bn of new borrowing powers - 500m to cover current spending when the tax take is less than expected and up to 2.2bn to direct into long-term capital projects.

These are radical and far-reaching recommendations. They are built on solid foundations, based on consultation and have been taken forward with consensus.

Of course, the Scotland Bill and the accompanying command paper, Strengthening Scotland's Future, extend beyond purely fiscal reforms.

New powers will be devolved on matters such as airguns, on drink-drive limits and on the Scottish national speed limit.

We are adjusting the settlement to reflect practical experiences and make devolution work better for Scotland. The bill adjusts reserved and devolved responsibilities to provide common sense solutions.

As a participant in many episodes of the devolution story, it has been remarkable to see how the process has evolved. Devolution has brought government closer to the people and has provided Scottish solutions to Scottish problems. The devolution settlement was not cast in stone. It has evolved and we can now look forward to a lot more changes in the next few years.

As a participant in the devolution story, I have also heard more than my fair share of all the arguments why devolution can never go far enough and why independence would be better. I am confident that those who hold to these views will continue to be frustrated in the years ahead.The simple reason for this is that the majority of people in Scotland do not think breaking up the UK would be a good idea. Also, when you look beyond that fundamental principle, there is an inherent weakness in the claims those such as the Scottish Government makes for independence and the complaints it makes about the Scotland Bill.

If people listened to the Scottish Government in the past few years they would have heard something like this: "Let us join the arc of prosperity. Scotland should be a Celtic lion. We want lots of new tax powers so that we can cut them all and at the same time increase revenue. Scotland would be far better off financially being a small, independent country."

However, if the same people had half an eye on global events in the past few years they will have seen a different picture emerging in some of the countries held up as paragons, as well as witnessing Scotland's two main banks being rescued by the UK government and the Scottish Parliament estimating the rescue cost at 470bn - three time Scottish gross domestic product.

With the Scotland Bill it is a similar refrain. The Scottish Government complains that such a new fiscal arrangement might end up with less revenue overall.

They complain that there will be costs associated with putting these new tax powers in place. Their answer? Set up a tax collection system from scratch and remove the stability that comes from sharing the tax revenues collected from the much broader base of the UK.

As I said, it doesn't ring true to people, even less so when you bring into the equation the further 20bn spent in Scotland on reserved issues such as social security and defence each year.

So alongside empowerment and accountability, arising from cross-party consensus, there is a third factor which makes the Scotland Bill the sole option. That factor is stability - the security Scotland derives from being a key part of the UK, the world's sixth-largest economy, our most important trade partner and the destination for over two-thirds of our exports.

• The Rt Hon the Lord Wallace of Tankerness QC is Advocate General. He is the first speaker at today's Scotsman Conferences event, The TaxingQuestion: What Fiscal Powers Does Scotland Need?