Welcome to the third meeting in 2010 of the Scotland Bill Committee. I make the usual plea that people turn off all electronic devices. There are no apologies today, and we are joined by Jeremy Purvis MSP, who is not a member of the committee. Welcome, Jeremy.
Thank you very much. John Swinney and I are joined by David Rogers and Gerald Byrne from the constitution unit, and Gary Gillespie and Graeme Roy from the economics department.
Thank you for those full opening remarks. We will move straight on to financial aspects. The committee plans to cover three subjects—the Scottish Government’s preferred approach, the criticisms that the Government has levelled at the bill and potential improvements to the bill.
I apologise in advance for the condition of my throat. I will do my level best, but my voice will be somewhat hoarser than usual.
I want to pursue that further. In October, you were reported as saying that you intended to publish an alternative budget based on fiscal autonomy. Where is it?
It is contained in chapter 4 of the Government’s 17 November publication.
I am interested in the modelling on fiscal autonomy, given the First Minister’s reference in the debate on the Scotland Bill to a detailed proposal for fiscal autonomy that he had put to the UK Government in the course of 16 meetings. Will you show the committee that proposal? Does it include any modelling of fiscal autonomy?
My answer to your first question essentially covered that ground. In the course of an extensive series of discussions with the UK Government over the summer, the Scottish Government made a number of different points and put forward a range of different proposals, some of which I am sure we will come to this afternoon. Those points and proposals were designed to assist the UK Government in reaching a conclusion on the contents of the Scotland Bill. I was not present at all of those discussions—most were conducted by our officials—but I have seen the ministerial and official correspondence surrounding them, and I think that both sides recognised that the discussions were helpful and positive in pointing out areas of weakness in the proposals that the UK Government was considering, and in which we could certainly offer alternatives.
I still have to press you on why the Scottish Government did not model fiscal autonomy itself.
Obviously, we could readily have done what you suggest, but we judged that there was an opportunity to have a dispassionate debate about the opportunities that are offered by fiscal autonomy that would be best informed by a contribution from independent academics. We are all familiar with the way in which Government data and the assumptions that underpin them can be kicked around—indeed, we have already covered some of that ground—and we felt that having independent academic opinion create a dispassionate climate in which both sides of the argument could consider certain issues would be helpful in general public debate.
I think that people will be surprised to learn that, despite its proposing fiscal autonomy in 16 meetings with the UK Government, the Scottish Government did not at any stage in those lengthy deliberations model it. Why was that?
That question misses the substance of my previous answer. Given the clear indication of the UK Government’s willingness to consider the right and proper approach to financial responsibilities, the Scottish Government came to the view that it would be most productive for the debate to be informed not by a proposition or set of numbers that it put forward, which would, after all, have taken us into the territory of political debate—I am not complaining about that; that is simply where we are—but by the numbers that are set out in a very detailed academic study. We felt that such an approach might help the UK Government to reach a conclusion in its deliberations.
Given the desire to have a helpful debate, do you think that it would be helpful to prepare a consistent set of models that would compare on a like-for-like basis the various proposals in the Scotland Bill with the proposals that the Scottish Government is advocating?
The Scottish Government would be happy to model on the questions of fiscal responsibility. However, I come back to my point that it helps the debate if we have reference points of independent judgment, rather than just Government data, to aid the different parties and contributors to the debate.
It seems slightly odd that you have deployed considerable Government resource to produce a critique of the UK Government’s proposals, which by definition—and by your own standard—is not produced by external academics to inform debate. If you were able to do that, why are you not similarly able to produce a critique of your own proposals, or leave it to academics to do so, to help to inform debate in exactly the same way?
We have a bill from the UK Government that contains a specific proposition. The modelling has been undertaken on the basis of the information that is available to the Scottish Government on the contents of that proposition.
You say that it can be done, as indeed it can. Do you propose to do it? If so, when?
If the committee wants that information at its disposal, we would be happy to provide it by carrying out the appropriate modelling.
Given that we have been talking about academic modelling, I note that the economists Jim and Margaret Cuthbert recently published an article in which they argue that there is a fundamental flaw in the Scotland Bill, in that it would lead to a situation in which
It is clear that Jim and Margaret Cuthbert have undertaken substantial work on that question, and I certainly understand and accept the logic of their argument. On the question of what can be done to remedy the situation, I suspect that brings us to questions about the nature and the limitations of the financial powers that the Scotland Bill contains.
Can you spell out for us the additional powers that would be required to allow a situation that is not “Heads you lose, tails you lose”?
A range of responsibilities—in particular, having control over a wider range of taxation—would assist in that respect. Business taxation is one example. The proposals that were implicit in the report of the Steel commission had a very robust model at their heart. Essentially, it recognised that all taxation should be devolved, with the exception of VAT. That would provide the flexibility to manage the implications of difficulties arising in one area but not another. There is a lot of strength in the argument for having a broad range of powers.
You have expressed concern that the Scotland Bill would transfer too much risk to the Scottish budget. How might you want to go about reducing that risk? Would you like the Scottish budget to receive a greater share of the revenues from the higher rates of income tax? If so, would not that add to the risk? How would you deal with the issue of stability, which we heard so much about from UK ministers last week? They were desperate to protect the Scottish Parliament and people from too much risk. Are you willing to be a risk taker or do you want stability?
I certainly want us to have a range of financial powers that would enable the Scottish economy to grow, and the proceeds of that growth to be retained and reinvested in Scotland.
You are willing to take on appropriate risk, but how would you improve the proposals in the white paper in order to manage that risk appropriately and get the appropriate reward for taking that risk?
The answer lies in the range of financial responsibilities that would be available to the Scottish Government. Without a broad range of powers that can enable the Parliament and the Government to take account of particular circumstances and to take actions to address an inherent risk that might undermine revenue and could have a negative effect on levels of public expenditure, there has to be the ability to take action that can create greater economic activity and greater economic impact. That would be the Government’s approach to the issue.
One of the issues here is whether the bill is perceived as being about accountability for the Scottish budget or about levering economic growth. We can look at comparisons elsewhere. You will know about the current debate in Northern Ireland, which is considering going to 12.5 per cent corporation tax in order to generate income and create an estimated 180,000 jobs within six years. Obviously, Northern Ireland is taking a decision about accepting risk and shortfall in the short term in order to benefit in the longer term. There are other areas, such as excise duty—we have just had an interesting debate about that during the passage of the Alcohol etc (Scotland) Bill. Some have argued for using excise duty in a policy way and not just necessarily in an economic way.
I want to go back to the different scenarios. I begin by defining terms such as fiscal autonomy and fiscal responsibility. I take fiscal autonomy to mean the Scottish Government raising all its own taxes and perhaps remitting to Westminster a payment in respect of the bill for services that Westminster carries out for us. However, it could mean a spectrum between the present situation at one end through to independence at the other, with a variety of stopping points in between. Is that broadly where the Scottish Government is coming from? You want to move up the level of fiscal responsibility towards one in which you have substantial if not complete control of the raising of all Scottish tax revenues.
That is a fair summary of the issue. Mr Brown’s illustration of the issue as a spectrum is how I would characterise the way in which the Scottish Government went about its interaction with the UK Government over the summer. We said to the UK Government, using a similar inference to that of Mr Brown, if not the same words, that there is a range of responsibility. At one end of the spectrum would be the Parliament without its current tax-varying powers, and at the other end would be Scottish independence. On that spectrum, there are various choices that can be made about the level of financial responsibility that could be exercised. There is no perfect science for which tax falls on which side of the argument, but there is undoubtedly a spectrum of debate that can be taken forward in that respect.
That is very helpful. I should say to the cabinet secretary in passing that if he is going to quote the Steel commission’s proposals, he could at least do it accurately.
It is not an analysis that I would accept, from what I heard of it last week.
In what respect?
My point is essentially that, if you look at the detail of the period since 1999-2000, you can see that total managed expenditure in Scotland grew by approximately 74 per cent. In comparison, the growth in total revenue over the same period was 75 per cent—the figures are virtually identical. That strikes me as the more appropriate analysis of the changes in expenditure and revenue over the period.
I think that you misunderstood my point. I accept entirely that the Scottish Administration had revenues of the sort that you describe. I am asking whether you accept from the GERS figures that if Scotland had had control over and receipt of all the tax revenues that accrued in Scotland, receipts would have gone up by 47 per cent, as our witness told us at last week’s meeting, when he quoted the GERS figures for the period since 1999-2000. The matter seems fairly straightforward and I am surprised that there is any dispute about it.
The analysis that I just quoted is from GERS. Total managed expenditure in Scotland has grown by approximately 74 per cent since 1999-2000, and total revenue in Scotland has grown by 75 per cent over the same period.
To what are you referring when you say “revenue”? Do you mean the revenue that the Scottish Government actually receives?
I am talking about all revenue, which includes the geographic share of North Sea oil revenues, as is set out in the analysis in GERS.
That is a helpful clarification. If we exclude the oil revenues, do you recognise the 47 per cent figure?
We can always remove factors. The important analysis in this debate is the 74 and 75 per cent argument, which I set out.
I am asking whether, if we exclude the oil revenues, you accept that the figure is 47 per cent. We will come to the oil revenues in a minute.
I do not have all the detail in front of me. The most important reference point is the 74 and 75 per cent analysis.
Can you confirm that the Scottish budget has increased by 94 per cent since 1999, as we were told last week? You seem to be suggesting that you do not agree with that.
We can trade numbers all we want, but the analysis that is substantiated by GERS is the 74 and 75 per cent analysis.
Perhaps I can help. I would be grateful if you could clarify whether there was a 94 per cent rise in the Scottish budget. I think that when you talk about total managed expenditure you are including all UK spending in Scotland. Is that correct?
Yes, of course.
Therefore, the 94 per cent figure is accurate, as is the 75 per cent figure. We agree that the Scottish budget grew by 94 per cent. That is, the Scottish Parliament’s budget grew by 94 per cent—I think that I heard a “yes”.
Let me make clear what numbers I am talking about. Since 1999-2000, total managed expenditure in Scotland has grown by approximately 74 per cent, compared with growth in total revenue of 75 per cent over the same period.
However, that includes all UK Government spending in Scotland and does not refer to the Scottish budget, which grew by 94 per cent. I think that we agree.
I am simply citing the information that has emerged from the GERS analysis.
If the argument is about fiscal autonomy, it is obvious that we must look at spending and revenues in Scotland. The UK might choose to use figures that exclude other spending in Scotland, to make the figure smaller; all that we are saying is that GERS shows the 74 and 75 per cent figures. If the question is put in the context of fiscal autonomy, it is not unreasonable that we should consider total revenue and expenditure figures. In that context, the GERS figures that the cabinet secretary cited are correct.
Let us look at the matter slightly differently, because it is important. If Scotland had had control of its tax receipts during the past couple of years, during the recession, what implications would there have been for receipts across the different tax baskets over which you seek to have control in Scotland?
There would have been significant reductions in the volume of certain tax take in the period. That takes us back to the realms of how much responsibility the Administration can exercise. I return to the point that I made to Mr Adam: the broader the range of responsibilities that any Administration carries, the greater its ability to manage any strain in one or more budget lines that arises from the tax revenues that it manages.
Last year, Scotland’s income tax take was down £549 million, its corporation tax take was down £641 million, its VAT take was down £402 million, its stamp duty take was down £300 million, its inheritance tax take was down £91 million and oil revenues were probably down by £6.5 billion. How could an independent Scotland with fiscal autonomy have managed that situation?
As Mr Brown will appreciate, it is impossible, impractical and inappropriate to make a judgment on the finances of any self-governing country on the basis of one year. There are challenges in any one financial year for any one country. For example, Scotland ran a cumulative current budget surplus that was worth £3.5 billion in the four years up to 2008-09. During the same time, the United Kingdom ran a current budget deficit that was worth £72.3 billion.
I probably agree with the direction of the question if not the answer.
Probably the best comparative example is the Basque Country where a significant degree of individual financial responsibility is exercised at that level of authority within Spain. That allows the Basque Country to pursue an approach to economic growth and development that enables it to be broadly more prosperous than the rest of Spain and to have a lower level of unemployment. Obviously, the proposition is exercised in the context of the constitutional structures of Spain.
The integrity of the Spanish state and the equalisation of welfare arrangements across Spain are built into that sort of calculation. That may look like fiscal autonomy but, in practice, it is not. Is that not the reality?
The gross domestic product per capita of the Basque Country is about 30 per cent higher than that of Spain. Clearly, the arrangements that are in place in the Basque Country create a different outcome and performance from that of Spain as a consequence. I accept that all of that is delivered within the constitutional structures of Spain. That point takes me back to Mr Brown’s first question. A range of different scenarios could be deployed within the constitutional structures of the United Kingdom. For a long time, I was told that our current arrangements were not necessary; we now have them. At various stages, I was then told that we do not need any more responsibilities; we are now on course to get more responsibilities. My proposition is this: there are plenty of other scenarios before we get near to the scenario that is clearly my preference—I have spent my political life trying to secure it—of an independent sovereign Scotland. I am prepared to discuss and consider those scenarios. I hope that the committee will look at the best set of arrangements that can be put in place, now that we have a window of opportunity to influence the contents of the Scotland Bill and to ensure that it best meets the aspirations and needs of the people of Scotland at this time.
We can probably agree on that, if not on the earlier question of whether greater responsibility per se is the issue. Is the real issue not what is best for Scotland, the Scottish economy and the Scottish people?
It was in the spirit of pursuing that objective that the Scottish Government engaged with the United Kingdom Government on the formulation of the Scotland Bill over the summer. As the First Minister made clear in the parliamentary debate earlier this month, we wanted the United Kingdom Government to include a more ambitious proposition in the bill. We were engaged in a discussion to enable that to happen.
Good afternoon. Further to Robert Brown’s questions, I wonder whether we can nail the myth of the Basque Country that you have again perpetuated. Is it not correct that the Basque Country does not have full fiscal autonomy and that, rather, it has a higher degree of autonomy than we have?
That is a fair point.
Good. The Government’s paper, to which you referred earlier, points out in paragraph 4.1—written, no doubt, by your own fair hand—that the Basque Country has
Yes.
Do you also recognise as accurate the statement in the same paper that there is an economic agreement between the Basque Country and the Spanish Government that guarantees—I think that that word is used—
There is nothing unusual about the arrangement that Mr McLetchie has just outlined, which illustrates how it is possible within the structure of a unitary state for mature agreements to be reached between a devolved legislature and central Government that enable the devolved Administration to deploy a significant degree of economic flexibility without somehow jeopardising the integrity of the state.
That is not your preferred option. You want independence and full fiscal freedom; you want to destroy the British state. You are not in favour of any intermediate systems, are you?
I am trying, as always, to be as helpful as I can to parliamentary committees. If Mr McLetchie wants, I can sit here and explain that, throughout my adult life, I have been driven by the wish to secure the establishment of an independent Scotland. Nothing would give me greater joy politically than to achieve that objective. However, I have always accepted—as Mr McLetchie will acknowledge—that that argument must be won in Scotland. While we make that argument, I have a duty as a member of the Parliament and a Government minister to engage with others to try to strengthen the Scottish Parliament as best I can.
Yes, but the same spirit does not allow you to publish your proposals and have them properly costed and modelled, as was apparent from the discussion that we had in response to the convener’s questions. You are not participating in this debate at all. You have not brought your proposals, properly modelled, to the debate.
Of course we have.
Well, where are they? Where is the model?
It is contained in the publication of February 2009, the white paper of November 2009 and chapter 4 of the budget document. I would imagine that Mr McLetchie complained about the preparation of each of those things.
Having carefully read the February 2009 document, I can assure you that it is most certainly not in that document. I suggest that you reread that as well as all the sections about the Basque Country and Navarre. Would you accept in the interests of clarity that we should get away from talking about gradations of fiscal autonomy? Your concept of fiscal autonomy is Scotland fiscally autonomous as an independent nation. The rest of us who do not subscribe to that view of Scotland are prepared to debate gradations falling short of that, but we both come to this from a completely different premise and starting point. Is that not correct? You have no intermediate proposal to offer us, do you?
Of course we do.
Well, where is it?
It is contained in—
Well, what is it? Describe it for us.
It is contained in the February 2009 publication and it is contained in—
Where is it in the February 2009 publication? I have it here. Which page is it on?
The whole concept is underpinned by that document.
Which page is it on?
The document sets out exactly the possibilities that can be achieved within the structure of the United Kingdom; it sets out how the Parliament can achieve greater responsibility over financial matters. That is an inherent part of the November 2009 white paper on independence. We have advanced those arguments, which are not the core proposition of the Scottish National Party—of course not. Mr McLetchie is absolutely right that the Scottish National Party is an independence political party, but we have been prepared to engage in a discussion and say to people, “What are the options between the current position and the achievement of independence?” For example, the First Minister made it clear that he was prepared to consider within the context of a referendum bill the possibility of a scenario—I think that it was affectionately called devomax—which would have maximised the responsibilities for financial powers within the constructs of the United Kingdom. That is not the position of the Scottish Government or the Scottish National Party, because we believe in independence, but it represents a broader view that could command the support of a wide range of individuals or parties.
But there is no model that you have advocated. Would you like to outline for us the model, falling short of independence, that you advocate should be in the bill?
The model that could be in the bill is that all taxes with the exception of VAT would be set in Scotland and, from those revenues, Scotland could make a payment to the United Kingdom for the services that have been received from being part of the United Kingdom, such as defence and foreign policy; Scotland could be more fully responsible for all other aspects of public spending, including welfare; Scotland would have full borrowing powers to manage investment responsibly; borrowing could be overseen by an independent commission that could create the type of mature relationships that exist between, as I cited before, the Government of Spain and the Government of the Basque Country; and, in a direct parallel of that relationship, an economic agreement would establish the parameters within which the Scottish and United Kingdom economic and fiscal policies could complement each other to ensure that Scotland accepted within the constraints of the United Kingdom that its economic policy decisions could have ramification for the rest of the United Kingdom, and that those would have to be managed in some way.
That is the Government’s proposition, is it?
That is the model—it is a proposition.
I am not asking what a proposition is; I am asking what the Government’s proposition is. The United Kingdom Government has a proposition that we are examining. We keep hearing about alternatives. What is your alternative, short of independence for Scotland? I am asking you to express that. Is what you have just described your model?
I am saying to you that there is a model of that nature—
There are lots of models.
Pardon?
There are millions of models. I am asking you what the Scottish Government’s model is.
It was set out in November 2009, in the white paper. Quite some time ago, I set out a model that could be implemented—
No, no—not a model. What is the Scottish Government’s model?
The Scottish Government’s policy position—which is no surprise—is that we believe in Scottish independence. That is—
You have no model for this.
No—
Exactly. That is my point.
No, Mr McLetchie, you cannot get away with that kind of nonsense.
Oh, I think that I can because it happens to be true, but carry on.
No, you cannot, Mr McLetchie. In the past three and a half years, the Scottish Government has accepted, maturely and responsibly, that we do not yet have a majority in favour of Scottish independence, which is the Government’s position. We have, therefore, enabled a debate to take place about the potential alternatives that would increase the powers of the Parliament but would not represent Scottish independence. That is a mature and responsible position for the Government to have taken. It is not for the Government to prescribe the alternative model; it is for us to facilitate a debate, which we have done through the two papers that I have talked about, one of which was published in February 2009 and the other of which, to which the minister has just referred, was published in November 2009.
You have arrived at no position, maturely and responsibly; you have simply scattered into the debate a range of options among which you have no particular preference. You maturely and responsibly accept that there is no mandate for independence, which was well evidenced in the recent general election, but you maturely and responsibly have no intermediate position to contribute to the debate, although you have plenty to say about the position of Her Majesty’s Government—is that correct?
We advanced a substantial amount of material in our discussions with the United Kingdom Government over the summer, to enable it to come forward with a bold proposition that would allow Scotland to prosper. Frankly, what has emerged from the UK Government is not a proposal that will allow Scotland to prosper; it is a proposal that enshrines some significant risks to the people of Scotland and their public finances.
Let us return to the Scotland Bill, which we are meant to be examining today. It has been said that the bill represents the biggest transfer of fiscal responsibility since devolution. What analysis has the cabinet secretary undertaken of the responsibility for revenues that are earned in Scotland? Can you put into context how the additional powers in the bill compare to those in other jurisdictions that you know about or those of local authorities?
In the current framework, about 7 per cent of Scottish tax revenues are devolved to the Scottish Government. That figure would rise to 15 per cent as a consequence of the decisions that are proposed in relation to the Scotland Bill. On the question of how much more flexibility the bill would deliver, there are a number of examples in the local authority sector of local authorities having control over a proportion of their resources. Equally, there is a range of different levels of financial responsibility in the other jurisdictions. However, the increase from 7 to 15 per cent puts the Scotland Bill changes into perspective.
How does that position compare with that of the Basque Country, or other jurisdictions? What revenue does your analysis show that they are responsible for compared with the additional powers that we are getting, which will take us up to the grand sum of 15 per cent?
Clearly, the Scotland Bill proposals are set at a much more modest level than is the case for the Basque Country. I have gone through the range of arrangements that are in place there. The comparison demonstrates and reinforces the point that I made to Mr Brown. There is a range of responsibilities that could be transferred depending on the choice that is exercised in this respect.
The borrowing powers in the Scotland Bill are considerably less than the borrowing powers of Northern Ireland, and indeed those of our Scottish local authorities. What effect will the limitation on the borrowing powers have on the Scottish Parliament? What benefits would there be from more extensive borrowing powers? Are there any specific examples that you would like to share with the committee?
There is a welcome element to the borrowing powers, because they provide the opportunity to undertake long-term borrowing to support capital expenditure. Needless to say, however, there are constraints within that, and the limit of £230 million of capital borrowing in any financial year is a significant constraint.
I was just coming on to the Government’s presentation last week. There did not seem to be any clear explanation of why 2015 was chosen, and there did not seem to be any clear explanation of why there was a limit on borrowing each year. My colleague Brian Adam suggested that it was control freakery on behalf of the Treasury, and I suggested to the Treasury minister David Gauke that he was “all heart”, and that he actually wanted to save Scotland from itself.
All those issues were marshalled in front of the Treasury as part of the discussions that we had over the summer, which were principally conducted by officials.
I take you back to a question that Brian Adam raised earlier, as I did not fully understand the argument that you made about risk. You seemed to argue that the Scotland Bill “inherently”—I think you used the word—enshrines risk to the Scottish budget. However, you also gave the contrasting impression that the wider autonomy of the fiscal measures that you envisage is almost risk free. Can you clarify that?
If I suggested that it was risk free, that was not my intention. My point to Mr Adam was that there will of course be risks in all financial decisions—I manage risks in financial decisions in my responsibilities every day. The question is whether we have enough counterbalancing powers to accommodate the risks that will emerge from the income tax powers under the bill. I do not think that there is a sufficiently broad range of interventions to enable us to counterbalance the risks that are inherent in the bill.
The figures that Robert Brown gave were illustrative of reductions in income that would stem from a number of the fiscal measures that you would be looking to have control over, including those on oil, where the situation is extremely volatile. Do you accept that the risks from the package of measures that you would like to be in place are potentially much higher in the short term compared with what is contained in the Scotland Bill?
No. To use the same example, oil revenues remain buoyant, and if oil revenues had not remained as buoyant, there would have been significantly more weakness for the United Kingdom Government’s public finances.
You seem to be suggesting that, at a time of economic turbulence, when revenues are crashing, you would have sufficient levers in the short term—I stress in the short term—to counteract the reductions in income through, I presume, the tax measures that you would have at your disposal. Are you seriously trying to suggest that you could do that in the short term without greater risk to the various services that are provided in Scotland?
Let us look at one of the counterbalancing factors that could be brought into play, which is the forecast for North Sea oil revenues. The outturn in 2009-10 was £6.5 billion, and the forecast is £9.1 billion for 2010-11, £9.8 billion for 2011-12, £9.4 billion for 2012-13, and £8.6 billion for 2013-14. In each of those four financial years, the outturn is forecast to be in excess of £2 billion greater than the outturn in 2009-10. That is my point about having at our disposal other taxation arrangements to provide us with the ability to counterbalance.
You seem to be depending on oil to balance any reduction in other taxes. I thought that oil revenues would go into a separate oil fund.
It is just one example of where there is inherent strength in having at our disposal other elements of taxation.
You may want to pick up the point about the oil fund. I understood that your policy position was that income from oil would go into an oil fund, but perhaps you want to say more about that. If the policy is to subsidise reductions in other forms of income, you might want to clarify that.
Mr Peacock’s question rather ignores what is happening in the UK at the same time. Let us just compare the figures. Earlier, I told the committee that over the four years to 2008-09, Scotland ran a cumulative budget surplus of £3.5 billion; over the same period, the UK Government ran a cumulative current budget deficit of £72.3 billion. Now, if we look at—
I wonder whether the cabinet secretary can give us the total budget figures rather than the current ones. Does he have those available?
I do not have them in front of me, but—
You do not have both the current and capital figures. Budget deficits usually combine current and capital.
The point undermines the whole nature of long-term capital investment to support our economy’s development, but I am not altogether surprised that Wendy Alexander has made it, given the Labour Party’s proposed ransacking of capital budgets. Now if we look—
What you have given us is a partial, not full, budget deficit, cabinet secretary. One usually gets a full budget deficit figure, not a partial one.
Let me give Wendy Alexander the numbers that I have in front of me. The Scotland Office report estimates that, between 1980-81 and 2007-08, there was a cumulative Scottish deficit of £23.5 billion; over the same period, the cumulative UK deficit was £462 billion. Scotland’s per capita share of the UK deficit would be £38.9 billion, or about twice the Scotland Office’s worst-case scenario. That is the figure for the combined cumulative Scottish deficit, which is what Wendy Alexander was looking for. It shows that there is a deficit, which is hardly surprising, but it is half as serious as the UK deficit.
Is your measure of Scotland’s success that it would have a lower deficit than that for the rest of the UK?
My measure of success is that Scotland is more prosperous, which could be achieved if it had the full range of financial powers that I have talked about this afternoon.
And you say that, even given the totals in GERS—which, I point out, are your figures—of a deficit of between £26 billion and £69 billion over that period.
I have already given the numbers to the committee. Over the four years to 2008-09, Scotland ran a cumulative budget surplus of £3.5 billion; at the same time, the UK had a current budget deficit of £72.3 billion. On the debt question, Scotland ran a cumulative budget deficit of £23.5 billion, while the UK’s cumulative deficit was £462 billion. Those strike me as pretty compelling arguments that we need to do something different than what we are doing at the moment.
It strikes me as slightly odd that, at the same time as you are arguing that as an oil-rich nation we should be prospering, you are arguing that a measure of success is to have a deficit that is slightly less than that for the UK—and which will be kept down by those oil revenues.
I gently point out to Mr Peacock that in the period that we have been talking about—between 1980-81 and 2007-08—all of these things came under the constitutional arrangements of the UK.
I am not clear what your point is.
I am saying that we need at our disposal a range of responsibilities that allow us to compensate for the volatility in income tax. One of the options could be greater short-term borrowing; however, I would prefer to have a broader range of options to enable us to grow the Scottish economy and to retain the proceeds in Scotland to deal with the strain that would come with having lower-than-expected income tax revenues.
I want to ask about the projection of an £8 billion deficit in figures that you have published. First of all, we should be clear that these things did not actually happen but are assumptions based on various figures to which you have alluded. Do you accept that, if you had made the same assumptions looking forward as you have looking back, any forward projections would show Scotland in a better-off position in future?
No. The fundamental problem with the Scotland Bill’s tax proposals is that they have what can accurately be described as a deflationary bias. As the figures from Her Majesty’s Government last week demonstrated, because tax revenues have grown more slowly than public expenditure has, the proposals have an inherent deflationary bias. I therefore do not accept your proposition.
On the basis of the UK figures, Scotland would be in surplus by more than £300 million for the spending review period to come. I am asking about your figures. Have you projected your figures in the same way?
Yes, we have.
Will you publish those figures?
I would be delighted to publish those figures, which show that the cumulative loss to the Scottish budget would be between £9 billion and £10 billion.
You answered no to the question whether, on your assumptions, Scotland would move into surplus in the coming three years. Can we have clarity on that point? If we look forward to the next three years, the UK Government makes its contention precisely because spending is to be lower while tax receipts rise. You said no—that Scotland would not move into surplus on the basis of your assumptions. I am asking whether you stand by that assertion.
My officials will advise me, but the information that is in front of me is that, if we carried forward to 2014-15 the analysis that gave us the £8 billion figure, the estimated cumulative loss to the Scottish budget would be between £9 billion and £10 billion.
I am not asking for a cumulative loss. On your figures, do we move into surplus in the next three years? You said no. I do not think that your figures show that.
I will be corrected; my officials can—
Can I explain about—
No.
No. In the next three years, on your methodology, does Calman give Scotland more money?
That depends on the way in which the situation is modelled.
If you model on the same basis on which you modelled your £8 billion, does Scotland move into a more favourable position of surplus in the next three years?
If the power was introduced in 1999—so we make a comparison with the £8 billion figure—as income tax receipts fall, the cumulative loss becomes larger. If we assume that, in the period afterwards, spending cuts are made because income tax is at a low level and then income tax starts to grow, the cumulative loss starts to decrease from its peak, but it is still a cumulative loss.
We are not asking about a cumulative loss. We are asking whether, if we start from this year on exactly the same assumptions as you used to calculate the £8 billion, Scotland moves into surplus on the Calman proposals in the next three years.
I reserve my position so that I can give the committee a definitive view, because I do not have the specific breakdown of each year in front of me. I make the general observation that we are assessing a situation in which the Calman tax powers that the Scotland Bill envisages deliver for Scotland only when swingeing cuts are made in public expenditure. If that is the triumph, it is a strange triumph to achieve.
You are changing your ground.
No, I am not.
I am afraid that you are. On the cumulative loss, can we be clear that nothing has been lost until this point, so only looking forward is relevant? We did not lose £8 billion—we got what we got, which was not an £8 billion loss, as a different system applied. Moving forward is the important point.
If a cumulative loss of £8 billion increases to £10 billion, that is an increase in the loss. Irrespective of what happens in an individual year, that is bound to be the case if a further loss of between £1 billion and £2 billion is incurred over the next three years.
Members need to speak through the chair. Cabinet secretary, the floor is yours.
I will give the committee the information that it requests when I have it to hand. That will enable us to give the committee the precise answer.
That is fine.
No, we made an assumption that was based on applying that approach over a 10-year period.
But it is based on one year.
No—
You picked a figure for one year and projected it over 10 years.
But it involved applying the change over a 10-year period.
Yes, you applied a figure, but you picked the figure for one year. My point is that you have modelled—
Let us explain the methodology.
Did you choose one year?
No, we started, yes—
Thank you.
It was in line with the calculations that were set out by the Commission on Scottish Devolution on pages 13 and 14 of its final report, and interpreted by the Holtham commission on page 53 of its final report.
But not in line with the bill.
I suppose the answer with regard to the bill is yes, the command paper talks about an average.
Yes.
Yes.
So why did you build your model on an assumption that was explicitly rejected by the command paper? The figure of £8 billion is built on an assumption—choosing a single year—that the command paper explicitly ruled out. Why?
The command paper gives us no clarity about how the approach will be taken forward, and the secretary of state has said that it is illustrative. I am not sure how we can make any judgment based on what is in the command paper when it is illustrative, and when the secretary of state has made it clear that any definition of where we might be on that question will have to wait until after the bill has been enacted. How can the Parliament scrutinise legislation on that basis?
Is that not the exact principle that you advocated to the committee just a few minutes ago, when you said that one should not base a judgment on one year but should look at the evidence over a number of years and come to a judgment? I agree with that. The approach is not in the command paper, which is potentially to Scotland’s huge benefit in comparison with picking any one year and working on that assumption.
The success of the command paper analysis is predicated on the somewhat optimistic scenario of a massive windfall in the first few years of the implementation of the tax powers. The answers given by the UK Treasury are predicated on exactly that, but it seems to be an unlikely proposition.
Sorry—that was the subsequent paper, not the command paper. Nonetheless, I have made the point that you have picked one year and rolled it forward.
In my experience of negotiations with Her Majesty’s Treasury on such issues—which I am surprised Mr Peacock thinks are a good thing—they tend to result in an outcome that is not to the benefit of Scotland.
But hang on a minute—the UK Government explicitly says that a process will be undertaken between the Scottish Government and the UK Government. That surely makes sense, does it not?
Yes, but we go through such things all the time, as I am sure that Mr Peacock did when he was a minister. There would be discussions with the UK Government about financial arrangements, which would result in an outcome that was favourable to Her Majesty’s Treasury and not particularly favourable to the Scottish Government.
That displays a remarkable lack of confidence in your ability to negotiate a deal.
It reflects the question, which the Scottish Parliament must think about, of where the ultimate power over public expenditure lies within a unitary state. It lies with the Treasury.
Given the uncertainty around the whole business of a grant reduction mechanism, because no mechanism has been published, we are being asked to buy into a system that is clearly a pig in a poke. It is unfair to ask the cabinet secretary precisely to define his mechanism for doing things, when the command paper makes it clear that there is no such mechanism in the bill.
I am just trying to establish the position. Cabinet secretary, given what you said about the Government being, in general, disposed to try to make the bill work in the interests of Scotland, what is your alternative in relation to the grant reduction negotiations that must take place?
When we get into the realms of such questions with the UK Government, and given that the final decision-making power on many issues will rest with the Treasury, ultimately the most advantageous position for us will be one in which we have a mechanism that creates a level playing field between the Scottish and UK Governments. For example, there might be some form of independent assessment of the strength of respective cases, which would enable us to take some questions forward—we have advanced that approach in relation to dispute resolution on financial matters.
You have known that a point will come at which there must be a discussion about grant reduction in the context of the Calman proposals. During the 16 meetings, did you put forward specific principles that you wanted to be enshrined in such negotiations?
In our discussions with the UK Government we have tried to arrive at a position of maximum strength in relation to the financial arrangements for Scotland and we have suggested ways in which the risks that are inherent in the Scotland Bill provisions could be mitigated to Scotland’s advantage.
A serious problem, which the committee must address, is that regardless of what we have said about the £8 billion problem in relation to the experience of the past 10 years, the UK Government’s published figures do not make the same comparison and answer a different question. That is exactly the point that Peter Peacock made. It is about how we handle the grant reduction. If we consider the figures that the UK Government produced last week, we can see that the UK Government is saying that there would have to be a windfall to the Scottish Government in order to compensate for and try to tackle some of the budget problems that committee members have identified as a result of the UK Government’s slashing of public expenditure during the next few years. That is not a secure way to go forward. That is what the committee should be identifying—
I do not think that the language of windfalls appeared anywhere in what was published, but we do not have time to pursue the issue. I am mindful that the cabinet secretary has been generous with his time. I will bring in Jeremy Purvis, who is a guest at the committee, before I bring in committee members again.
I am grateful.
Total managed expenditure.
Will you confirm that in one year there was a difference between TME and total expenditure on services, excluding the accounting adjustment that is used in the documentation, of around £2 billion?
That is correct. In essence, TME is total expenditure on services plus an accounting adjustment—to get back to TME.
I think that you have the report in front of you. It says in the third bullet point of the executive summary:
I have a later version of GERS in front of me, but that would be correct, yes.
In a single year—2007-08—the net deficit of capital was £3.8 billion. Do the figures that you use for TME include capital?
Yes.
Yes.
Therefore, when the cabinet secretary answered Robert Brown’s questions on growth in expenditure as opposed to growth in revenue, the figures that he gave on growth in expenditure included capital. However, when you calculate whether there is a deficit, you strip out capital. Is that correct?
The figures that I gave to Robert Brown showed that, since 1999-2000, total managed expenditure in Scotland has grown approximately 74 per cent.
That includes capital.
It is total managed expenditure, and it compares to a growth in total revenue of 75 per cent over the same period.
When you were answering Mr Peacock’s questions about whether there would be a fiscal deficit, you chose to strip out the capital. Is that correct?
I did for the short-term analysis of the four years to 2008-09, but not for the long-term analysis of 1980-81 to 2007-08.
Thank you. I was just interested in getting that difference on the record.
Which table are we talking about?
The table that shows the workings for the £8 billion. How did you arrive at the estimated reduction in share in each of the years?
Essentially, the modelling makes the starting point zero sum. We replace an element of the block grant with the income tax revenues that are raised in that year. The budget that we start with is an illustrative budget, an element of which is replaced by income tax. That is then pushed forward, with the income tax element growing by the change in income tax year on year, and the departmental expenditure limit component growing as it would grow normally.
Jeremy, can you keep going? The number of people who will be following all this is small, although we have covered some of the territory before.
Did you pick one year and then average it out over the decade?
No.
It starts as a zero sum and then pushes forward. Every change that you see in the block grant replicates what would have happened to the total block grant.
The grant reduction figure that was used was the one from 1999-2000 and it was projected forward. So it was the figure for one year rather than an average of the figures for all years, which is what the UK Government uses in its modelling and which reflects much more closely the command paper that says that a number of years would be involved. That is the point that we have reached. I am a little bit reluctant to pursue the subject much further because there are other issues that we have not yet touched on.
To be fair, that was not my understanding of the information that the officials gave. I understood that they picked 2007-08 and worked out what the figures would have been in 1999-2000. Obviously that is incorrect.
There is a slight confusion. To get to the estimate of the share that Scotland would have received in total Scottish income tax at the start, we used data from 2008-09.
Oh yes, it was 2008-09.
Giving Scotland its 50 per cent share of the basic rate, 25 per cent of the upper rate and a fifth of the top rate, that gives an estimated figure of £4.2 billion and 39 per cent of total income tax revenue. We then put that 39 per cent into the model in 1999-2000. The 39 per cent share is fixed; it does not deal with the second point about differential growth in bands.
That is different from simply taking 1999 as the base year. For the following eight years from 1999 to 2007-08, you did not look at any real sample data for income as a proportion of DEL, did you?
We have the numbers here.
Can you answer that specific question? For each of those years, did you use the sample data for income as a proportion of the DEL outturn?
No.
Please be very quick, Jeremy. Some of this can be pursued by advisers offline. I am aware that there is new material to be touched on.
I just have one final thing that I could not find. Where can I see the published information on the figures that are used for DEL outturn?
These are our Treasury DEL figures. They are from our finance department, which I am sure would be happy to share them with the committee. They are the same DEL figures that appear in the expenditure outlook analysis, the state of the economy and the independent budget review.
The Scottish Parliament information centre could not correlate them with the Scottish DEL figures, the consolidated accounts or the public expenditure statistical analyses, so I wonder where they are.
There are a number of reasons why they differ.
We have provided the advice to SPICe and we can write to the committee to explain.
It is important. The fact that the Scottish Government is using DEL figures that are not publicly available makes it very difficult for us to make the like-for-like comparisons that the cabinet secretary has made.
Robert Brown touched on the issue of corporation tax. On the tax powers that the Scottish Government wants, can you spell out to the committee what the implications for the Scottish economy would be of having corporation tax powers similar to those in places such as the Isle of Man and Jersey?
The Scottish Government’s objective is to be enabled to use business tax powers to support economic growth in Scotland. That foundation of our thinking is about ensuring that the Parliament has a range of financial responsibilities and attributes that will enable us to deliver a higher level of economic performance. That may manifest itself in, for example, the way in which we provide tax reliefs to certain sectors of the economy; how we incentivise and encourage the development of research and development activity; and how we create an advantageous corporation tax regime on which we can establish the most competitive position in the international marketplace. Having that range of powers would enable the Scottish Government to exercise a greater degree of financial flexibility and responsibility in contributing to economic growth in Scotland.
Last week, in response to a question from Mr McLetchie, the UK Exchequer Secretary indicated that in the short term—and almost in the medium term—any cut in corporation tax would lead to a cut in revenue. He did not recognise that as a lever to stimulate the economy. Do you share his view?
It is the aspiration of my colleague, the Minister of Finance and Personnel in Northern Ireland, to have the ability to reduce corporation tax, and I think that he would marshal a compelling argument as to why that would be advantageous for the Northern Ireland Executive. It is a pretty well understood technique in taxation that reductions in corporation tax can incentivise higher tax take.
Can I just clarify that in relation to the figures to which Brian Adam is referring? The Exchequer Secretary suggested that the United Kingdom Government proposes to reduce corporation tax throughout the United Kingdom by 4p over the next four years. He said in evidence—as I am sure you know—that every 1p reduction would result in a loss of £800 million in revenue to the Treasury. So, the cumulative loss would be more than £3 billion. If Scotland had a share of that, it would be around £300 million, would it not? Where would all the extra revenues come from? If you then exercised a power to reduce corporation tax even further, to below the level that is envisaged by the UK Government, how much lower would it go?
Whether a reduced corporation tax level contributes to economic growth in our society depends on the assumptions that the Exchequer Secretary adopts. That is a fundamental point that would require to be explored. I take the view that reduced business taxation provides the opportunity to create a higher level of economic activity, which is welcome.
Yes, but the Exchequer Secretary assumes, for budgetary purposes, that every 1p reduction in corporation tax leads to a loss in revenues of £800 million a year. Would your department make similar assumptions about corporation tax reductions leading to a loss of revenue?
There might well be short-term issues with revenue, but they would be compensated for by long-term gain. That plays into the argument that I have deployed, which is that the way to manage many of those challenges and to deliver the best outcome for Scotland is to have the fullest possible range of responsibilities.
So if you had the full range of responsibilities, your ideal policy would be to set a lower level of corporation tax than the UK Government proposes to set, but you accept that in the short term, at least, that would have a negative revenue consequence for the Scottish budget and would necessitate increases in other taxes to compensate. Is that correct?
We accept that, fundamentally, there is a long-term gain to be made. That is the important point that was missing from the explanation that Mr McLetchie has just given.
Northern Ireland anticipates that it would recoup any losses and move into surplus within six years, by which time it would have benefited from the creation of 180,000 jobs. The proposal to reduce corporation tax in Northern Ireland is live and is being actively considered.
Northern Ireland’s position is very much conditioned by the position in the Republic of Ireland, which I think you will find will change rather dramatically in the next few years.
We are incredibly pushed for time. I have a few questions and then, if we have time, we will wrap things up.
Yes, I think that it is.
In that case, would you lay out for us where, under fiscal autonomy, the fiscal burden of bank rescues would fall? Would it fall on the Scottish treasury or the English treasury, as it would then be? Where would the fiscal burden of the bank bail-out have fallen if Scotland had had fiscal autonomy?
If we look at where the financial support for many of the global banking institutions came from, we find that it came from a range of countries. That was the case with the Benelux situation. A number of Governments have the potential to contribute to the rescue of financial institutions.
I note that you have not answered whether the fiscal burden would lie with the Scottish treasury or the English treasury, so let me ask you this, just to put the issue in context: will you indicate for us, in broad terms, the scale of the guarantees that were extended to Scotland-based institutions during the financial crisis and how that compares with Scottish tax revenues over the past two years?
It is important to consider the issue of guarantees in relation to not just the tax revenue base, or income tax for example, but the asset base of a country.
I asked about the scale of the guarantees. Can we just get that on the table?
I am answering your question by explaining that any analysis of the issue would have to take into account a country’s asset base. Anyone who looked at the asset base of an independent Scotland would realise that the volume of Scotland’s exploitable assets as regards North Sea oil revenues would give us an anchor for supporting the recovery of our financial institutions. As I said, we should bear in mind the point that, after the journey that they are now on, those financial institutions will return a profit to the taxpayer.
I return to my original question. Roughly what was the scale of the guarantees that were extended to Scotland-based institutions over the past couple of years?
I am simply saying that any assessment of the question must take into account the importance of the country’s asset base and what that can contribute to the process.
I accept that, but I do not think that it is unreasonable to ask the finance minister of Scotland roughly what was the scale of the guarantees that were extended to Scottish financial institutions in the past couple of years.
The finance minister of Scotland has given you an answer—which is the correct answer—about the importance of taking into account the country’s asset base.
I want a number for the scale of the guarantees that were extended.
I have given you an explanation of the importance of recognising the country’s asset base in that calculation.
If Scotland’s asset base is the relevant consideration, that implies that in any bank rescue responsibility would reside with Scotland. Is that the position?
I am saying that Scotland’s asset base would have enabled us to handle the financial challenge that such a situation would have delivered to us. Of course, we would have been in a position to benefit from the financial gain from which the United Kingdom will benefit whenever the United Kingdom Government decides to sell its stake in the banking institutions.
George Mathewson, the head of the Council of Economic Advisers, testified last week to the Economy, Energy and Tourism Committee that, in his view, the liability accruing to Scotland as a result of the bail-out would be simply an employment or activity share. He put a figure of 5 per cent on that. Do you share the view that, as he postulated, any future Scottish treasury would be responsible for only 5 per cent of the bank bail-out?
I saw the evidence that George Mathewson gave to the Economy, Energy and Tourism Committee last week. He marshalled an argument that was based on the strength of his understanding of and perspective on the United Kingdom banking sector. In my answers, I have indicated that it is important that when considering the question we in no way lose sight of the strength of Scotland’s asset base.
What is the total asset base of Scotland—its GDP—compared with the current asset base of RBS or RBS plus the HBOS part of Lloyds Banking Group?
I cannot give you a definitive number for that. I am here and have been briefed to discuss the Scotland Bill, but we are having an encyclopaedic tour of the issues. I am happy to engage with the committee on that, but I am here to talk about the Scotland Bill.
In the 16 meetings that took place with the Treasury, was there any discussion of how a bank bail-out would have been managed under fiscal autonomy?
No.
As we watch the evidence emerge in Europe, where monetary authority and autonomy are separated from fiscal autonomy, do we not see that there are some risks for Scotland? The burden of fiscal adjustment is not borne equally by the peoples of Europe but falls squarely on national jurisdictions. Is not an incredible risk for Scotland associated with fiscal autonomy while remaining in a monetary union? I invite you to clarify which monetary union that would be.
I do not see the issues for Scotland as being particularly different from those with which the United Kingdom is currently wrestling. I cannot see what would be uniquely different about Scotland’s circumstances.
The point is that the United Kingdom has one fiscal union and one monetary union. You are proposing that Scotland should be in either a European monetary union or a UK monetary union but that there should be a separate fiscal union for Scotland. Is that not what fiscal autonomy is?
Indeed, and it would give us a great deal more fiscal responsibility and control than we have today or will get from the Scotland Bill.
So the fiscal union would consist of Scotland only. Who would bear the fiscal adjustment in any financial crisis? Would the fiscal burden lie on the fiscal union, which would consist of Scotland only?
The fiscal burden and the fiscal benefit arising from the transaction that would follow would have to be addressed by the Scottish Government. Essentially, this is about the risk and the reward, convener. I know that it is terribly inconvenient to talk about the reward, but we have to remember that there are rewards and not just risks, whereas with the Scotland Bill and its income tax provisions, it is all risk and no reward.
Others might have comments, but I say in conclusion that it seems a startling revelation that, whereas the First Minister told the Parliament in the chamber that he put a detailed proposal for fiscal autonomy to the UK Treasury and discussed it on more than 16 occasions, the cabinet secretary appears to have told us today that what was actually presented was an academic paper that was not modelled, and that there was no discussion of how the burden of fiscal adjustment would be managed in the context of a crisis.
Convener, you think that that is a revelation. Frankly, I think that there is a lot more that could be described as a revelation, beyond that.
Are there any other final, concluding remarks?
I was going to observe that the issue might seem theoretical, but we have a practical example from next door, in Ireland. Its banking problems were not anything like as great as ours, although they were substantial, and they almost brought the country down. That is a practical example of what happens with the fiscal responsibility to bail the thing out.
The opportunity to pursue bonds carries with it inherent flexibility to manage the financial challenges and arrangements for long-term investment. I would cite the number of authorities other than the United Kingdom that undertake bond issues. Transport for London is one, and Birmingham City Council has issued £215 million of bonds to finance debt and undertake capital investments. There is no inherent obstacle to—
But I am asking you about the advantages. Maybe limits and things like that apply to those authorities in relation to other forms of borrowing.
The advantage comes down to the degree of long-term investment that can be secured, the cost of servicing bonds and the issuing of bonds within an overall framework for what I might call long-term borrowing activities.
You are thinking of bonds as a way round the borrowing limits. I am really looking for the substantive advantages of bonds per se, forgetting about borrowing limits and all that for the moment. That is another issue.
A bond issue is another device to facilitate capital investment—that is clearly the advantage of having a bond issue.
My point is that it would be at a higher interest rate.
It would depend on where the negotiation of the interest rate settled, which would be influenced by the credit rating of the Scottish Government, its ability to repay and a variety of other questions. People have taken decisions in the past, for example, to procure private finance initiative schemes at higher interest rates than the Public Works Loan Board interest rates. They have paid more—much, much more—in interest rates than they would have with PWLB interest rates. Many of my predecessor ministers took decisions to procure capital investment at much higher interest rates than the PWLB rates. They took those decisions and are accountable for them, and I am having to pick up the financial pieces and the wreckage and damage that are a consequence of those decisions. However, people sometimes do choose to go for higher interest rates, and some of them were members of the Scottish Executive.
Can I get back to the Scotland Bill and its implementation costs? The minister may be aware that last week at the committee we had the UK Treasury minister David Gauke, who was quite adamant that the costs of the Scottish income tax, the landfill tax and stamp duty will be met by the Scottish taxpayer. I have a series of questions. First, what information has the Scottish Government been given about the £45 million up-front cost plus the £4 million a year cost thereafter of the Scotland Bill? Secondly, has the UK Government explained to you why the first figure is so high and what exactly we are going to get for that money? Thirdly, what is the Scottish Government’s understanding regarding which jurisdiction—Westminster or Scotland—should meet the cost of the implementation of the income tax proposals in the Scotland Bill?
On the overall costs, I stand to be corrected but I think that we have had one letter from the Secretary of State for Scotland in addition to the command paper, which does not really go into much more detail than the £45 million cost and the £4.2 million thereafter. Our view settles on the statement of funding policy that makes it clear that
So what you are saying is that the income tax proposals force on Scotland changes to the income tax system. There is not necessarily a choice about whether we do it; there is only a choice about the level of income tax. Therefore, according to the funding policy that you have just articulated, the costs should be met by Westminster rather than the Scottish Government.
That would be my view.
That is very helpful, thank you. I thank the cabinet secretary for his generosity with his time today. I am mindful that we do not want to deprive the Cabinet of two cabinet secretaries unnecessarily, so I am happy to excuse him and to indicate to Fiona Hyslop that we will try to be very quick.
No, it is fine.
I am delighted to return to the substance of the Scotland Bill instead of the flights of fancy of the past few minutes. My questions are on two matters that are subject to reservation: insolvency and the health professions. What is the basis of Scottish Government concerns on those areas? Also, what is the Government’s view on the omission of the marine environment? The marine environment was included in the Calman proposals but has been omitted from the bill.
I turn first to health professionals. One important thing of which the committee should be aware is that, in giving evidence to the Calman commission, nobody asked for any reservation to be made. Indeed, the UK Department of Health said that there was no need for reservations because administrative co-operation, Government to Government, had worked particularly well.
Some of the royal colleges asked for that.
I am sorry; I should have said that the only evidence on the matter came from a profession that is not proposed for reservation. The suggestion for reservation came from neither the relevant health professionals nor the UK Department of Health. Health is substantially devolved to Scotland. It is clear that familiarity with the issues surrounding the quality frameworks and other aspects of Scotland’s health service means that people think it better for the health professions to remain under the devolved settlement. As far as we can see, no one has identified any difficulty in how things have operated so far. We are very much against that reservation.
I gather that there were concerns about the powers of the Scottish housing regulator regarding registered social landlords and potential failures.
The issue is very serious. In my opening statement, I made the point that RSLs are to come under reserved insolvency proposals. Right up until the bill was published, we were told that RSLs would not be covered in that way. We need to bear in mind that the Scottish Parliament has just passed the Housing (Scotland) Act 2010, which gives real powers to the Scottish housing regulator that can be used even for companies that get into difficulties. There is a real conflict in this proposal. Alex Neil has written to the Secretary of State for Scotland to set out all the issues.
And the marine environment?
Again, there is the strange anomaly of our having control over certain areas but not others. In 2008, the Parliament agreed to a motion that said that it wanted to ensure devolution of responsibility for the marine environment, in particular marine conservation. The commission said that the marine environment should be devolved at the earliest opportunity. This is an ideal early opportunity. There is cross-party support for the measure. I hope that the committee will look into the issue very seriously indeed.
My questions are on speed limits, drink driving and airguns. The bill will devolve some power over those areas. That is welcome, but they all are subject to caveat. For example, “specially dangerous” airguns will not be devolved. When I asked the minister at the Scotland Office for an explanation of that last week, he said that “specially dangerous” airguns were, by and large, banned, which is why they could not be devolved. Caravans will have a speed limit imposed on them if they are being towed by a car, yet we have control over the speed limit for cars. The Parliament does not have the ability to introduce random breath tests.
Yes, we have. I am happy to expand on our concerns regarding those issues. Where the UK Government has been considering other aspects of an issue such as speed limits, for example speed limits on heavy goods vehicles, if in doubt it has left it out of the bill. That weakens the commission’s original proposals.
Thank you. That was very helpful.
In an element of the Government’s legislative consent memorandum, it objects to the proposition that specific provisions of Scottish bills, rather than the bill as a whole, might be referred to the Supreme Court for rulings on competence. Why do you object to a specific aspect of the bill being examined and determined in that way?
That is a serious issue. Under section 33 of the Scotland Act 1998, the law officers can refer a question about legislative competence to the Supreme Court. The issue is whether parts of a bill could be referred. There has been one occasion on which there have been difficulties with a section of a bill, when the Parliament accidentally passed a law on the taxation of care homes. An order made under section 107 of the Scotland Act 1998 was used to reverse it. That mechanism has been used once in 10 years. If difficulty arises in an area, there is always a mechanism to try to tackle it.
It is there, perhaps, because the relevant minister in Her Majesty’s Government is a man who has considerable experience of the workings of this Parliament and is now fulfilling the role of the Advocate General for Scotland. He is one of the law officers to whom you have referred.
First, we have not needed to use the existing measure, and there is also a point that the proposal probably leaves us open to more confusion. My point about the principle of whether the Supreme Court should determine the commencement of a bill still stands—that is a principled argument.
If you are concerned about disputation, there is no surer way of solving it than to get the Supreme Court to make a speedy adjudication on the matter that is allegedly in dispute. Everybody would know where they stood, and it would be beyond peradventure or appeal to any higher body. Is that not reasonable?
But there are regular discussions between Governments—
Unless, I should say, it is Kenny MacAskill—for whom a higher power is part of the administration of justice.
Given the proximity of 25 December, I will intervene. We have had a helpful airing of the issue, and we will certainly look in more detail at a submission and take further evidence on it. I am grateful to the committee member and the minister.
To some extent, the whole issue of the UK Supreme Court is a matter of philosophical difference in what I suggest is a developing quasi-federal system. As you know, following the Cadder decision and its aftermath the court has been the subject of an informal consultation by Jim Wallace as the Advocate General for Scotland on what should happen in criminal appeals with devolution and human rights aspects. Has the Scottish Government made a submission to Jim Wallace’s expert group on that? Broadly speaking, what is your view on the Supreme Court’s role?
That is an area of serious concern. An increasing number of devolution cases has been raised on human rights grounds; that is a consequence of the position of the Lord Advocate being subject to the Scotland Act 1998, which has implications for human rights responsibilities, as well as the human rights legislation itself.
Can we get copies of those submissions before we consider the matter in more depth?
Yes.
We need to know your starting position in some detail to consider it and decide whether we agree with it.
That is fine.
I have another not-quite-legal but broadly related question on proposals to allow UK ministers concurrent powers to implement international obligations. On first take, we felt that they were sensible, co-operative measures but if you are going to disabuse us of that notion please do so.
These things happen at the moment under various sections of the Scotland Act 1998—we need think only of the Scottish Government’s devolved responsibilities in relation to the European Community and our implementation of various European measures. In fact, I refer you to a report by the European and External Relations Committee, suggesting better ways of implementing and anticipating what might come out of Europe, and I point out that the Scottish Government has one of the best rates of implementation in the UK, with only one transposition as yet not enacted.
To some extent, it all depends on the extent or frequency of difficulties that arise. We heard from the UK Government last week, but if these particular difficulties prove to be as rare as you say, that might influence the committee’s deliberations. In any case, it would be helpful if you could provide some detail.
I want to ask about the Crown Estate commission. I was going to ask about the BBC, but you made your position clear in your opening remarks.
What about BBC Alba?
Actually, I very much welcome that move.
The Scottish Parliament has raised and debated concerns that the Crown Estate has in the past operated without reflecting Scotland’s policy needs. In other words, it provides tax revenues and resources to the Treasury without necessarily reflecting Scotland’s policy interests.
Have you developed any specific proposals for how such policy oversight could be achieved? Do you have any proposals that you could put to the UK Government?
We have done so on a regular basis. The committee should be aware that we have had very constructive engagement with the UK Government on a range of policy issues, both financial and non-financial. Richard Lochhead and I have both discussed matters concerning the Crown Estate with UK ministers, highlighting the need to be more sensitive to the policy needs of Scotland. We hoped that there would be something in that regard in the Scotland Bill—there is not, unfortunately, but there is always room for improvement, so we are encouraging the Parliament to improve the bill in that regard.
You do not have a specific mechanism for making such an improvement. The consultation on the matter that you said Richard Lochhead had commenced argues, in part, for the creation of a fund from Crown Estates receipts from Scotland, which could build up over time. The net receipts amount to about £8 million a year, so it is not a huge sum of money in the great scheme of things. You have indicated that the big prize lies in influencing the Crown over renewables and other investments. In many ways you could regard the Crown Estate as being more akin to a development agency, in that regard, with capital to deploy. Have you considered looking into that in a way that involves the Welsh and Northern Irish in joint ministerial committees?
The British-Irish Council that I attended in June discussed many issues around renewable energy in particular. However, there is a big issue around the proposals in front of us: if the bill even contained the provisions that were proposed by the Calman commission, to have policy involvement by the Scottish ministers along with UK ministers, that would have been an improvement on what we have before us. The bill covers only involvement in the appointment of Crown Estate commissioners. That is welcome, but it is token.
I have a small point to make about reverse Sewel motions, under clause 10. The Scottish Government has indicated that it is not particularly in favour of the mechanism. I understand your position—you wish powers to be transferred permanently. However, I would have thought that it would do no harm to have a power to make a temporary transfer under such a mechanism. That might be of use on occasion. Why is the Scottish Government so set against it?
First, we have such a mechanism already under section 30 of the Scotland Act 1998. It had to be used, for example, for transferring legislative competence in the Somerville case. The problem with that case was that we wanted a more permanent transfer, which was not an imperative for the UK Government, and it was not an imperative, with respect to timing, for the Government to resolve the matter on a UK basis. We were left in a limbo-land; we are all familiar with that.
I accept entirely the point about Somerville, but there will always be issues involving different levels of government when priorities are viewed slightly differently. The issue concerns a mechanism for dealing with such instances in a slightly more formal way. That could give the Scottish Government greater power to push for things—if a mechanism is in place, it is there to be used. Would that not be helpful, to a degree? I do not quite see the objection.
That anticipates things that might not happen. How often have such instances arisen over the past 10 years? Are the provisions of section 30 orders under the 1998 act sufficient to deal with what we need? It is mostly about Government-to-Government co-operation, and the more that things can be improved in anticipation of difficulties, the less likely will be the need for last-minute fixes. Rather than last-minute fixes being entrenched under the Scotland Bill, I would much prefer the clarity of the current arrangements, with the flexibility of section 30 of the 1998 act if we need it.
Minister, I understand the difficulties that you have with the re-reservations proposed in the case of the non-medical health professions and in relation to insolvency and the difficulties with the reverse Sewel. Are you opposed to re-reservation in principle in all circumstances or just in those cases?
Generally, yes. There is a difficulty about re-reservation of what is currently within the Scottish competence. Very few Governments would ever give back power in areas for which they have responsibility. However, we recognise that we have to be sensible and take a pragmatic view of most things and that is what we have tried to do.
In that context, does the minister have any views on Antarctica, just for the record?
I found it interesting that it was labelled as coming under technical amendments. I am not quite sure that re-reservation of relationships with a whole continent should carry the label of technical.
That might be important not just for its own sake, given some of the interesting evidence that was news to me last week about who licensed who in doing what from Scottish universities. Is that persuasive? I do not know whether the minister has had a chance to look at the evidence—
We are very familiar with it, because we decided some time ago to agree that Scottish ministers could be represented by UK ministers in relation to licensing research activities by universities on Antarctica. That has happened without the Scotland Bill. We have managed to get a sensible solution without the Scotland Bill. Perhaps we might have drawn that to the attention of the committee or the Parliament subsequently. Our claim on Antarctica is not something that I think would disturb the committee, but the example shows that sensible Government-to-Government co-operation means that some of the issues that might come up can be dealt with without the sledgehammer of legislation.
On that point, is the minister aware that a former Secretary of State, Michael Forsyth, is on his way to Antarctica right now? Does she think that he is perhaps going to plant the saltire before it is taken away from him?
I think that we should wish Michael Forsyth well in his charitable expedition. I am sure that if he manages to plant a saltire he can get a donation from the committee.
I can think of no better note on which to end our formal deliberations before Christmas. I thank the minister very much for her time. I am aware of the coming break, but it would be helpful if officials could write in due course to officials about all the matters that we have touched on today.
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