The next item of business is a statement by Nicola Sturgeon giving an update on the fiscal framework. The First Minister will take questions at the end of her statement, and there should therefore be no interventions or interruptions.
14:22
I want to take this opportunity to update Parliament on the progress of the negotiations to agree a fiscal framework to accompany the Scotland Bill. Over recent days we have continued to work with the United Kingdom Government to secure a fair deal. I am determined that that work should continue for as long as necessary to secure agreement, subject, of course, to the views of the Devolution (Further Powers) Committee and Parliament as a whole.
The Deputy First Minister updated the Devolution (Further Powers) Committee this morning and will update the Finance Committee tomorrow. It has always been our intention to allow Parliament adequate time to consider and scrutinise any agreement. In the continued absence of such an agreement, I think that it is right that I explain to Parliament why our discussions have not yet reached a satisfactory conclusion.
As members know, for the new powers contained in the Scotland Bill to be delivered, a fair fiscal framework has to be agreed between the Scottish and UK Governments. That framework will determine how the powers proposed by the Smith commission can be used, so it is as important as, if not more important than, the Scotland Bill itself.
In setting out the current position on the fiscal framework, I want to remind the Parliament of the key principles set out by the Smith commission. The Smith commission said that the Barnett formula should continue to determine the size of the block grant. That is the benchmark against which all the proposals for the block grant adjustment should be assessed. Crucially, Lord Smith set out his interpretation of the principle of no detriment—that Scotland’s budget should be no larger or smaller simply as a result of devolution. That means that, if tax policy and economic performance in Scotland remain the same as in the rest of the UK, the Scottish budget should be no better or worse off than it would have been under the Barnett formula had tax powers not been devolved. Equally, the rest of the UK should be no better or worse off either.
It is about the appropriate transfer of risk and responsibility. We have always accepted that, if the Scottish Government changes tax policy, or if our economic performance diverges from that of the rest of the UK, the costs and benefits of that should fall to the Scottish budget. However, if nothing changes—if tax policy remains the same and we match UK economic performance—our overall budget should not change either. That embodies the Smith principle of economic responsibility.
The Scottish Government has engaged constructively in the negotiations. Since March last year, there have been 10 meetings between the Deputy First Minister and the Chief Secretary to the Treasury through the joint exchequer committee. The Deputy First Minister has also discussed the issue with the Chancellor of the Exchequer, and I have discussed it with the chancellor and the Prime Minister. I am pleased to advise Parliament that, as a result of all those discussions, we have now reached or are close to reaching an agreed position on all the main issues other than the block grant adjustment mechanism. For example, on the financial transfers required to meet implementation and administration costs, we have reached what I think is a fair resolution. On capital and resource borrowing, we have made good progress on ensuring that the Scottish Government will be able to manage tax volatility and economic shocks while also securing additional flexibility to invest in infrastructure.
Getting to this point has required compromise on both sides. However, I believe that we have secured results that are fair to Scotland and to the UK and that reflect the recommendations of the Smith commission. The key issue on which we have not yet reached agreement is the block grant adjustment. The Scottish Government has considered a number of proposals that have been put forward by the UK Government, all of which would deliver detriment to the Scottish budget. The method of adjusting the block grant that the Scottish Government has proposed—per capita indexed deduction—would deliver no detriment as set out by the Smith commission.
Per capita indexed deduction is predictable, transparent and sustainable, and it guarantees the outcome of no detriment regardless of changes in Scotland’s population share. It is considered by distinguished economists such as Professor Anton Muscatelli and by the Scottish Trades Union Congress to be the best way of delivering no detriment. It also has the support of many members across this chamber and of the Finance Committee of this Parliament and the Scottish Affairs Committee of the House of Commons. In proposing per capita indexed deduction, we have listened to concerns from the UK Government about its implications for the second Smith principle—taxpayer fairness. As a result, we amended our proposal to ensure that Scotland would not benefit from any changes to devolved taxes in the rest of the UK.
In summary, the proposal that we have put forward guarantees no detriment to taxpayers both in Scotland and in the rest of the UK, but we remain unable to reach an agreement with the UK Government on the issue. In my view, the reason for that is not just that we have a difference of opinion on how to reach an agreed outcome; it is more that we have a difference of opinion about the outcome that we are seeking to achieve. In short, the UK Government does not share our interpretation of the principle of no detriment. Our interpretation of “no detriment” is as I have set it out, and I think that it has widespread support across Scotland. The UK Government’s view is that, in the years following the transfer of powers, the Scottish budget should bear detriment as a result of relatively slower population growth even though we are gaining no new powers to influence population growth.
On a positive note, the UK Government has now signalled some movement towards our position. The Treasury has now offered to deliver—on a transitional basis—a no-detriment outcome for the period up to 2021-22. That would be achieved by annual adjustments to a Treasury-proposed methodology rather than by our preferred method of per capita indexed deduction. However, given that it would deliver exactly the same outcome as PCID, we would be prepared to accept that as welcome progress.
The key remaining question is: what happens at the end of that five-year period? In my view, that is now the only substantive issue standing in the way of agreement. Both Governments are prepared to agree a review after five years, but we do not yet agree on what the purpose of that review should be. The Scottish Government considers that the review should be to reach agreement on a longer-term block grant adjustment method that delivers results consistent with the Smith commission’s recommendations, including the principle of no detriment that I have set out. We have put forward a proposal on that basis and discussions continue. However, so far, it appears that, as far as the UK Government is concerned, the purpose of the review is to decide how—not if, but how—we move to a position where the Scottish budget starts to bear population-driven detriment. Over the past couple of days, the Treasury has been suggesting that, if we cannot reach agreement on how to do that, there will be an automatic default to its preferred comparability model of block grant adjustment, without the transitional arrangements that deliver no detriment continuing to be in place.
I am well aware that this all sounds highly technical—it is technical—but it also has very real implications for Scotland’s budget over the medium and longer term. I will spell out what those implications are.
If we were to agree the Treasury’s preferred approach, over the 10 years from the end of the transitional period in 2022 Scotland’s budget would be reduced systematically, compared with Barnett, by a cumulative total of £2.5 billion. That reduction would happen even if Scotland’s tax rates and economic performance matched the UK’s 100 per cent.
None of us knows exactly what the world will look like in future. It is no secret that I hope that Scotland will become an independent country in future, but I could not reach agreement in the full and certain knowledge that, if current constitutional arrangements remain in place, the deal will deliver an on-going, substantial and systematic cut to Scotland’s budget, relative to the Barnett formula, after just a single parliamentary term. That would not live up to Smith, because it would not protect the Barnett formula. Therefore, I think that it would be a clear breach of the vow.
The Treasury’s approach would instead see the UK Government extract a significant price in return for the powers that Scotland was promised. The only concession that it would be making is that it would give us five years before it started to collect the payments.
The powers that Scotland was promised did not have a price tag attached to them when the vow was made. The vow was made freely and unconditionally. The question remains: will it now be delivered? I continue to hope that it will be. I want the new powers. Regardless of whether we get a deal, I have made it clear that I will publish a manifesto that sets out what we would do with those new powers.
My Government will continue to work to secure agreement for as long as the Parliament allows us to do so. Indeed, even as we speak, discussions are on-going with the Treasury in an attempt to secure movement and find agreement. However, given that the vow was signed by the Prime Minister and that the Prime Minister established the Smith commission, today I am writing to David Cameron to suggest that, if agreement cannot be reached with the Treasury, he and I should seek to resolve the matter directly between us.
Let me be clear: I am prepared to sign up to a deal that includes a transitional arrangement followed by a fair review if, first, the review is governed by a shared and continuing commitment to the principles of Smith, including the principle of no detriment that I have set out; and, secondly, there is no assumption of a longer-term adoption of a model that delivers population-driven detriment, or any suggestion of an automatic default to such a model, in the event that no agreement is reached, but I will not sign up to a systematic cut to Scotland’s budget, whether that cut is applied now or by a prejudged review in five years’ time.
Within the past hour, we have received further proposals from the Treasury, which we will now take time to consider. It is against the test that I have set out that we will judge those proposals and take a reasonable view of them.
I am grateful for the opportunity to update Parliament. I think that it was appropriate for me to do so. I hope that the Scottish Government will have the full support of Parliament in seeking to secure—even at this 11th hour—a deal that is fair to Scotland and that lives up to the promise that was made to the Scottish people. [Applause.]
I will now take questions on the issues that were raised in the First Minister’s statement—or rather, the First Minister will take questions on the issues that were raised in her statement. I intend to allow 20 minutes for questions, after which we will move on to the next item of business.
I thank the First Minister for an advance copy of her statement.
We in the Scottish Labour Party support the First Minister fully as she works to secure a good and fair deal for Scotland in the negotiations. That means securing the new powers on top of those that have already been transferred and protecting the Barnett formula. The message should go out from everyone in the chamber that we stand behind Barnett and for Scotland.
There is a month until the Parliament dissolves and the business of government gives way to campaigning. Although it is disappointing that we do not have a deal on the fiscal framework, the First Minister has made it clear that she wants such a deal—a fair deal that is in line with the principles of Smith. We absolutely support that position.
Will she assure the Parliament that she and the Deputy First Minister, John Swinney, will stay at the table, however long it takes to secure these powers, which the majority of people in Scotland want for Scotland?
I thank Alex Rowley for his question and for the support that he expressed for the Scottish Government’s position. I made it clear in my statement and I make it clear now that I want a deal and that I and the Deputy First Minister are prepared to stay at the table for as long as it takes to get a deal. Of course, it is up to this Parliament to decide how long it would require to scrutinise such a deal before giving legislative consent to the Scotland Bill prior to dissolution. That is a decision not for me, as First Minister, but for the Devolution (Further Powers) Committee and ultimately, of course, for the Parliament as a whole.
It should be said—this is an obvious point that I am about to make—that every day that passes without a deal is a day less that the Scottish Parliament will have to apply that scrutiny. That is a position that I think everybody will understand. I hope that we can get a deal, as I said in my statement; I apologise that the additional proposals were not in the advance copy of my statement but they came in after I circulated it. We have received additional proposals from the Treasury and we will consider them. I very much hope that they will move us closer to that deal.
However, as I said, although I want a deal, I am not prepared to sign up to a deal that is unfair to Scotland and does not deliver on the promises made. If I were to sign up to what has been on the table from the Treasury in recent days, then, frankly, the Scottish people should be seriously displeased. I will not, as First Minister, sign up to a deal that systematically cuts Scotland’s budget.
I thank the First Minister for early sight of her statement. I am encouraged to hear that on capital borrowing and financial transfers an agreement has been concluded and it is good to hear the First Minister’s confirmation in her statement that both sides are close to an agreement on the fiscal framework and an acknowledgement of the movement of the Treasury throughout this process.
I said last week that I wanted both sides to go the extra mile in order to reach an agreement, and it seems that we have substantially less distance to travel now. I am sure that the First Minister’s proposals in her statement on the question of a review will be considered, and I trust and believe that they will be examined without prejudice by the UK Government.
Following the update from the Treasury in the past hour, I understand that the Chancellor of the Exchequer is hoping to speak to the First Minister directly as soon as possible, and I am pleased that that is taking place. With an agreement so close—within touching distance—will the First Minister work over the coming hours to find a compromise with the UK Government on the question of how a review is conducted?
I have always been willing to compromise. The Deputy First Minister has compromised in getting us to the position that we are in now. If we get a deal, as I hope we do, and when Parliament begins to scrutinise the deal, the evidence of that compromise on a range of issues will be clear. However, I have also said consistently that I will not compromise on the principle of no detriment, because once we compromise on that principle, we compromise on the delivery of the promise that was made to the Scottish people and I will not compromise on that.
The willingness of the Scottish Government to compromise has already been made clear by the fact that I have signalled that we would accept a transitional arrangement. It will not be based on our preferred model, but because it delivers the same outcome as our preferred model, we will compromise on that. However, the outcome—and the principle underpinning the outcome—of no detriment to the Scottish budget is the key one, and that is the principle that I do not think the Scottish people should be prepared to allow me or the Deputy First Minister to compromise on.
First Minister, four out of five parties involved in the Smith commission, the STUC and almost all respected independent academic experts have argued for the per capita indexed reduction method as a means of ensuring that Scotland does not face a huge loss of income right from the start. First Minister, I am glad that you said that there has been progress and that discussions are on-going, but agreement is still to be achieved and the clock is ticking towards dissolution. The Prime Minister might have had other things on his mind of late, but does the First Minister agree that it is high time that he got himself fully engaged in the discussions to guarantee that his so-called vow is delivered?
Bruce Crawford is right to outline the breadth of support that there is for the Scottish Government’s position. Let me say, though, that what has mattered and will continue to matter to the Scottish Government is the outcome that we reach. We have put forward a proposal that we think best delivers that outcome, but it is the outcome rather than the precise route to the outcome that is the most important thing of all. I hope that we can reach agreement with the Treasury, and I hope that we can do that sooner rather than later.
A couple of weeks ago, I spoke to the Prime Minister by telephone. I think that it is entirely understandable that he has been engaged in other matters over the last week or so. However, I am very clear that if we do not manage to reach agreement with the Treasury on the key issue of the principle of no detriment, it will be incumbent on the Prime Minister to seek—with me—to reach an agreement that delivers the promise that he made. I remind the chamber and the wider public that that promise—the vow that we are talking about—is not my vow; it is the Prime Minister’s vow and it is incumbent on him to deliver it.
I welcome the First Minister’s statement and I support her and the Deputy First Minister in working to secure the best deal for Scotland. I agree that there can be no compromise on the fundamental principle of no detriment.
The First Minister is right to underline the importance of Barnett transfers to the funding of Scottish public services. What analysis does the Scottish Government have of the value of Barnett to Scottish spending?
I think that all of us accept that Barnett should continue while we remain in the current constitutional arrangements. That was the basis of the vow that was made. Once we get to a point at which we have a deal, or if we do not have a deal in time for the end of the session, we will, as the Deputy First Minister said, publish the analysis and correspondence that underpinned the negotiations.
Let us not get away from the key issue. The promise that was made was about Barnett, its continuation and the benchmarking of all the proposals against Barnett. The continuation of the Barnett formula was emblazoned all over the front page of the Daily Record. Therefore, it is right that we judge proposals against the Barnett formula.
I thank the First Minister for advance sight of her statement.
I want the First Minister to stick to the Scottish position. This morning, John Swinney told the Devolution (Further Powers) Committee that there was a fundamental difference. I am not sure what has changed in four hours. There now seems to be a compromise agreement based on the Treasury model that the First Minister disagrees with so fundamentally; a point that John Swinney has been making for a number of weeks.
If the First Minister says, as she does, that the model makes no difference for five years, why does she not stick to the Scottish position so that we can enter the uncertainty of the review in five years’ time from a strong position, rather than from a position based on the Treasury model? Why is she asking us to abandon the fundamental principle of the model that she has been promoting for the last few weeks? Why is that the case?
I have made it clear that I want to deliver an outcome of no detriment. What is on the table would deliver that outcome for a transitional period. I think that that is significant progress and significant movement on the part of the Treasury.
If we have a review, it is absolutely vital that it is not prejudiced or based on an assumption such that, in the absence of agreement, we revert to a comparability model that would deliver detriment. That is the continuation of that application of principle. That is what will continue to guide the Scottish Government and I hope that the Treasury continues to move towards that position. We will make our judgment based on whether the deal that is on the table delivers that fundamental principle of no detriment.
During the Smith process, certain principles were key. I, and others in the chamber, can confirm that the principle of no detriment was one of those key principles. Can the First Minister confirm that the approach taken by the Scottish Government will continue to reflect reasonableness, fairness and no detriment to Scotland?
No detriment is the principle that we have insisted on all along, and it is the principle that we will continue to insist on.
As I set out, no detriment is not about trying to avoid the responsibility of new powers. Under the no-detriment principle that we set out, we would take responsibility for exercising tax policy and for matching UK economic performance. That is not insignificant. However, we will not take on responsibility over population change, which we do not have the powers to determine.
The principle of no detriment drives everything that we have done, and it will continue to drive the position that we take.
I thank the First Minister for her statement. Although it is encouraging to see progress being made, there is obviously concern that the Treasury seems to view the fiscal framework as a means by which to cut Scotland’s budget in the longer term. Does the First Minister believe that the Treasury’s approach thus far matches the so-called respect agenda that the Prime Minister has spoken of so often?
As I said in my statement, a promise was made freely and unconditionally. It did not have a £2 billion or £3 billion or however many billions of pounds price tag attached to it. In return for the devolution of the powers, the approach that has been taken thus far would see the Scottish budget being cut by a significant amount over a period of time. I do not think that that either shows respect or delivers on the promise that was made. We have seen some movement so that the principle of no detriment is being agreed for a transitional period, but we have to make sure that any review after that transitional period is also based on the important principle of no detriment.
The Parliament clearly wants to see a deal as soon as possible. Bruce Crawford referred to the fact that dissolution is fast approaching. Is the First Minister prepared to negotiate on behalf of the Scottish people beyond dissolution if it takes a bit longer?
Let us concentrate on trying to negotiate to a successful conclusion in advance of dissolution. If we cannot do that, it will be for the Scottish people to express their view in a democratic election.
I am negotiating now, in good faith, to seek an agreement that will give us the powers that were promised. It is no secret that I do not think that the powers that are on the table go as far as they should, or indeed that they go as far as what was promised, but they are what is on the table right now, and it is essential that the UK Government lives up to its promise to deliver them. I will focus on trying to secure that agreement before dissolution so that we can get into the position that the Parliament was told it would be in.
I join the Scottish Labour Party in giving full support to the First Minister’s position. There are no sides in this; there is only Scotland’s side.
Recently, the Prime Minister secured a pre-referendum commitment from 27 other heads of state around Europe about what would happen after a European referendum. Had he not better hope that they keep their pledge to him rather better than he has kept his vow to Scotland thus far?
That is an important point. During the next few months, the Prime Minister will be campaigning in a referendum in which he will ask people to put faith in his commitments—the commitments that he has secured through the recent negotiations. It would not be helpful to what he wants to achieve in the forthcoming referendum—the same things that I want to see achieved, albeit that we are coming at it from different perspectives—if people see in this context that his word, given freely in a referendum campaign, cannot be trusted.
The First Minister has stressed the principles of no detriment. Will they apply to the multimillion pound cost of setting up the administration of Scottish welfare powers, which could take several years to work? The Deputy First Minister told the Devolution (Further Powers) Committee this morning that the Treasury’s best offer on set-up costs for welfare is a figure below the Department for Work and Pensions’s estimates for the costs of setting up welfare. Can the First Minister confirm that that is an example of an area in which the Scottish Government has been more than reasonable in the negotiations?
Yes, and that will be borne out as we get into the scrutiny of a deal or, indeed, why there is no deal. The Smith commission said that we should be paid a fair share of the costs of setting up new responsibilities. We have compromised on that, as we have compromised on a range of areas, in order to get to a deal that we think is fair and reasonable. That fairness and reasonableness approach is one that we will continue to take, but we cannot compromise on our core principles. No detriment is a core principle, which is why we have made it so central to the entire discussion.
Will Parliament be able to scrutinise the proposed transitional arrangement properly during the last few weeks of the parliamentary session? Following the suggested transitional period, who will be involved in any review? Will the Parliament and wider Scotland be more involved than it has been to date?
I want Parliament to have the ability to fully scrutinise all aspects of any deal that is forthcoming. That is why, notwithstanding what I have said about being prepared to stay at the table for as long as it takes, I am also mindful of the fact that every day that we remain at the table is a day less for Parliament to perform that essential scrutiny role.
On Alison Johnstone’s question about who will undertake the review, such matters remain under discussion as we seek to ensure that we can get to a principle and an outcome that satisfy the tests that I have set out. However, I want this Parliament—and I am absolutely sure that this Parliament wants this Parliament—to have adequate time to properly scrutinise the outcome of the negotiation ahead of a vote on a legislative consent motion.
The First Minister has previously said that the Scottish Government would put proposals on the table based on per capita index reduction but tweaked to ensure that, if the rest of the UK increased tax rates and spent it on rest of the UK services, none of that money would come to Scotland. Can the First Minister confirm that that delivers on the second no-detriment principle, sometimes referred to as the taxpayer fairness principle?
Yes. The UK Government said that, in its view, our original per capita index reduction proposal would not meet the second Smith commission principle of taxpayer fairness. We therefore modified that proposal to take account of that.
The proposal that we have put forward satisfies both the principle of no detriment and the principle of taxpayer fairness. I will repeat that it is those principles that we are seeking to satisfy and it is those principles that we will continue to seek to achieve in the remainder of the negotiations.
Professor Anton Muscatelli and others have put estimates in the public domain of how much the different methods of indexation would cut Scotland’s budget by, ranging from £7 billion to around £2.5 billion. Will the First Minister tell members whether the UK Government has at any point put an option on the table that delivers Smith’s principle of no detriment, or has it only ever put options on the table that would see Scotland’s budget being cut?
Until recently, all the UK Government’s proposals would have delivered detriment. To be fair to the UK Government, I do not think that it is trying to hide that to any great extent. It has been fairly explicit that it thinks that Scotland’s budget should suffer detriment because of relatively slower population growth—although I am sure that it would not articulate it in that way.
That has changed in the past few days. As I said in my statement, we now have a proposal on the table that would guarantee no detriment for a transitional period, with the potential of a review. However, whether we can get to an agreement on a review that would continue to ensure that no detriment would be the guiding—or a guiding—principle is one of the issues that we continue to seek to resolve.
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