Our final item of business is a report on the recent fact-finding visit to the Basque Country by Richard Baker and me, accompanied by Jim Johnston and Ross Burnside. Members have received copies of a short written report summarising our findings. I am not going to go through it all, but I want to highlight some points. I will then let Richard come in and if there is anything that he wants to add, he is free to do so.
The report summarises the key findings from our visit. The Basque Country is a fascinating part of Spain. It is less than a tenth of the size of Scotland, and it has 2.2 million people. It comprises three very prosperous provinces. The level of productivity per person is 34.5 per cent above the Spanish average. Its human development index is higher than that of Iceland, Norway and Sweden. It has less than 5 per cent of Spain’s population, but accounts for more than 6 per cent of its gross domestic product. It is interesting that the Basque Country’s contribution to the Spanish state is fixed at 6.24 per cent—it is known as the quota—so it pays 6.24 per cent of Spanish state expenditure in areas not devolved to the Basque Country.
Everything has been set up through something called the economic agreement, which regulates the financial and tax relations between the Spanish state and the Basque Country. It derives from historical power held in the Basque territories to regulate, manage and collect taxes. It was drummed into us when we were there that that goes back well into the mists of time and is part of their historical rights, about which they feel very strongly. As such, the Basque Country has a history of a specific Basque tax system with its own Treasury and tax collection infrastructure. Because the economic agreement is bilateral, the intergovernmental machinery provides equal weighting to the Basque and Spanish representatives. The bilateral relationship was considered to be a key element of the economic agreement.
Nearly all the politicians and officials we met were strongly supportive of the economic agreement. It was seen as an effective mechanism for governing, which has allowed the Basque Country to develop a successful and distinctive economic and industrial policy. There was agreement about the strong causal link between the economic agreement and the positive economic and social indicators evident in the Basque Country. For example, on GDP per capita, productivity, employment, research and development spending, inequality and higher education participation, the Basque Country significantly outperforms Spain and the European Union average. A key message was that Scotland’s tax powers must be for a purpose, and usable.
The visit was also interesting in showing a common “team Basque” approach to success. Last week the committee discussed behavioural patterns and the effect of taxation on them, and we asked questions about that. Despite the fact that the Basque Country has higher personal income taxes than the rest of Spain, that was not perceived as an issue, because the quality of the workforce, infrastructure, and research and development investment was seen as more critical.
That sums up the key points. It is important to put on record how helpful the Basque Government and Parliament were with the committee’s inquiries. They provided us with a huge amount of information. The key thing that I took from the visit was the importance of the bilateral approach in agreements between the Basque and Spanish Governments. While there is certainly consensus in the Basque Country about the financial arrangements and the economic agreement, they are disputed in parts of Spain; but they have survived, clearly because of the bilateral approach to agreeing the tax regime and dealing with disputes about it and broader economic policy.
In the context of the Scotland Bill, we have been discussing what will happen in any disputes between the UK and Scottish Governments as a result of our new tax powers and whether to have an independent arbiter. In fact, the experience of the Basque Country is rather that there should be joint committees with equal representation of the two Governments. That was a helpful model to examine, and we should take it into account as we go on with consideration of the new fiscal framework.
The final point, which you made very well, convener, was that the approach to personal taxation and related issues was not much of an issue for people moving to and from the Basque Country; other factors were more important. Clearly there is an economic success story there, and we can learn more broadly from that.
Yes, the economic agreement has lasted 34 years under different Madrid and Basque Country Governments, which shows how robust it is. While Madrid, like the UK Government, holds the upper hand constitutionally, the Basques have significant bargaining power. We asked what happens when there is disagreement; what does Spain do? They laughed and said, “We collect the taxes; we have got the money in our pocket, so they have to work with us,” and that equality of partnership is significant.
It was a bit remiss of me not to say that the level of assistance that we were given was such that the day before he was to present the budget to Parliament, the finance minister spent an hour and 45 minutes with us, going in great detail through the approach to the fiscal framework and how, historically, the present situation was reached. All the Basques were extremely hospitable about working with us and trying to help us. They are keen to develop a relationship with Scotland and other countries.
12:30
I am interested that the quota has not been touched since 1981. It is the equivalent of the block grant, although it goes the other way. It is the balancing amount. Presumably, it is quite a sensitive issue for them, as the block grant is for us.
I think it is. The Basques have 4.6 per cent of the population and 6.07 per cent of GDP, but they are expected to contribute 6.24 per cent. I think their view is that given the fairly small difference between GDP and the quota, there is no reason to go to all the trouble of noising up the Spanish Government and creating all sorts of political battles when they are doing much better than the rest of Spain; there is no real reason to quibble.
Of course, if the Basque economy continues to develop and grow and its share goes above 6.24 per cent of GDP, they will still be held to that 6.24 per cent, so they will be able to say to Spain, “When it was below, we did not quibble about reducing the quota, so we are not going to quibble about it now.” It is about making that judgment.
It has to be said that the left nationalists who make up 21 of the 75 members of the Basque Parliament, as opposed to what you might call the mainstream nationalists—the PNV have got 27—want to renegotiate the quota, because they say that it should not be spent on things that they do not agree with, such as the Spanish monarchy, defence and so on. The rest of the parties basically take the view that it is really up to Spain to decide how it spends its money, just as it is up to the Basque Country to decide how it spends its money, so they have a non-interference policy.
Is there anything else anybody wants to ask about? The clerk has just pointed out that because it has to be agreed unanimously, it makes it difficult to change, but broadly, across the Basque Country, there is no real urge to change it at this point.
Can I ask about it from a slightly different angle? One of the issues that we have been looking at both in this committee and in the Devolution (Further Powers) Committee is the scrutiny that can be applied to intergovernmental relations and intergovernmental agreements, particularly around the fiscal framework. I note that an arbitration process is mentioned in the briefing paper, but I wonder what scrutiny, if any, is applied to the discussions and negotiations that take place between the Basque Government and the Spanish Government, particularly in relation to financial operations and the economic agreement.
My understanding is that the scrutiny is quite in depth. Not only is there the arbitration board, but when the two sides have discussions, they are represented by six individuals each. The Basque Country is represented by three representatives from the Basque Parliament and one from each of the regional provinces, each of whom wants to look at the impact on them. There is quite extensive scrutiny, because it is a key aspect of their entire financial structure. I think they scrutinise it quite effectively.
The key point that Mark brings up is that whatever structure we come up with, it needs to be very open to parliamentary scrutiny. The convener is right: there is great representation from the municipalities as well as the Basque Government; but I did not get a strong sense of what the parliamentary scrutiny was. Certainly for us in learning about the process there is a structure there, but we have a different parliamentary structure here, so I think we would have to attach that. Obviously, we want to establish best practice in scrutinising how the process works. The learning point for me is in the fact that there has to be a bilateral approach. The joint committee is the big thing to take from the model, but I think we will have to develop our own process of scrutiny, to be honest.
To be fair, we were looking a lot at the relationship between the Spanish state and the Basque Country and the transparency about how the two institutions operate. We did not really pay as much attention to how the Basques feed back to their own provincial Governments and Parliament, but one imagines that they scrutinise that. I would have thought that the Basque Parliament would want to know exactly what its representatives were doing in Madrid on the agreement and to ensure that everybody was playing by the rules. There certainly seems to be a broad consensus that it has been beneficial for both sides. We now have the third Scotland Bill in fewer than two decades, whereas there seems to have been a level of stability in the Basque Country that has allowed those areas to develop significantly over the years.
This is only a related thought. The committee has made some effort to visit Stockholm, the Basque Country and Ireland. Has there been any interest from the Westminster Government in looking at those examples before declaring this the most devolved region in the world? Did it spend any time looking at how the Basque region works within Spain or how any other devolved region works in order to draw that conclusion?
I do not know that I can speak for the Westminster Government. However, I would not necessarily agree that this is the most devolved place on earth. That is not the case at all. Clearly it seems that there is greater devolution. In the report, you will see a whole list of taxes that are administered by the state, but they are all kind of collected in the Basque Country—everything from VAT to excise duties, income tax and corporation tax. Incidentally, corporation tax is different in the Basque Country, and it also has a wealth tax. There are a lot of different taxes, so there certainly seems to be more devolution there, and it has been seen to be able to operate with a high level of stability over a long period of time.
Thank you.
Anyone else? If not, I thank everyone for their contributions today.
Meeting closed at 12:36.