With permission, Mr Speaker, I would like to make a statement about the new fiscal framework for Scotland, which was agreed yesterday by the United Kingdom and Scottish Governments.
I begin by paying tribute to everyone who has worked so hard to arrive at this point: my right hon. Friend the Chief Secretary to the Treasury and the Deputy First Minister of Scotland, John Swinney, who have led these negotiations with skill; my colleague the Under-Secretary of State for Scotland, Lord Dunlop, whose contribution has been invaluable; and the dedicated teams of officials from Her Majesty’s Treasury and the Scottish Government who have worked tirelessly on behalf of their respective Governments. They can be proud of what has been achieved and the service they have given.
This is a truly historic deal that will pave the way for the Scottish Parliament to become one of the most powerful and accountable devolved Parliaments in the world. We have respected all the principles set out in the cross-party Smith agreement and delivered a deal that is fair for Scotland and fair for the whole United Kingdom. As Lord Smith said himself yesterday evening:
“When the Smith Agreement was passed to the Prime Minister and First Minister both gave their word that they would deliver it into law—they have met that promise in full”.
Scotland’s two Governments will give more details in the coming days, but I would like to set out a few key elements of the deal.
The Scottish Government will retain all the revenue from the taxes that are being devolved or assigned, including around £12 billion of income tax and around £5 billion of VAT. The Scottish Government block grant will be adjusted to reflect the devolution and assignment of further taxes and the devolution of further spending responsibilities. We have kept our commitment to retain the Barnett formula, extending it to cover areas of devolved welfare. For tax, we will use the UK Government’s preferred funding model. Under that model the Scottish Government hold all Scotland-specific risks in relation to devolved and assigned taxes, just like they do for devolved spending under the Barnett formula. That is fair to Scotland and fair to the rest of the UK.
However, for a transitional period covering the next Scottish Parliament, the Governments have agreed to share those Scotland-specific risks as these powers are implemented. Specifically, the Scottish Government will hold the economic risks while the UK Government will hold the population risks, so the Scottish Government will not receive a penny less than Barnett funding over the course of the spending review simply due to different population growth. By the end of 2021, a review of the framework will be informed by an independent report so we can ensure that we are continuing to deliver Smith in full, with the Scottish Government being responsible for the full range of opportunities and risks associated with their new responsibilities.
We have also agreed that the Scottish Government will have additional new borrowing powers. That will ensure that the Scottish Government can manage their budget effectively and invest up to £3 billion in vital infrastructure. In line with the recommendation of the Smith agreement, we will provide the Scottish Government with £200 million to set up the new powers they will control.
The Government have delivered more powers to the Scottish people, ensuring that they have one of the most powerful devolved Parliaments in the world and the economic and national security that comes from being part of our United Kingdom. That is what we have agreed and that is what we have delivered in full. Now that we have agreed this historic devolution deal, the conversation must move on to how these new powers are to be used.
The Scottish Government will have extensive powers on tax, welfare and spending. They will have control over income tax and be able to change the rates and thresholds. They will be able to create new benefits, and of course the permanence of the Scottish Parliament is put beyond any doubt.
The people of Scotland voted for these new powers, and they deserve to hear from the parties in Scotland how they will use them. They are new powers that, if used well, can grow Scotland’s economy, and indeed population, and bring greater opportunity and prosperity. Now that we have agreed this fiscal framework, I hope and trust that this House and the other place will welcome it, while of course subjecting it to full scrutiny. I commend this statement to the House.
I thank the Secretary of State for advance notice of his statement, and indeed for coming to the House yesterday to indicate he would be making it today. I begin by welcoming unequivocally the news that an agreement has been reached on the fiscal framework, and I would also like to echo the thanks to both Governments, the Deputy First Minister, the Chief Secretary to the Treasury, who is in his place, and of course the Secretary of State himself for working so hard to secure this historic deal. Our heartfelt thanks also go out to the officials of both Governments, who we all know are the people who do the real work in these negotiations.
Yesterday’s agreement marks the removal of the final obstacle to the transfer of significant and substantial powers to Scotland, and, as Lord Smith himself has said, the agreement
“sees the recommendations of the Smith commission delivered in full.”
Importantly, the vow stipulated clearly that the Barnett formula should remain the key mechanism for calculating Scotland’s budget. That has now been agreed and Barnett has been secured.
I note the Secretary of State’s commitment to publishing details of the agreement by the end of this week, and I welcome that commitment, but can he indicate whether this House will have time to scrutinise the agreement in detail? I have been saying for some time that greater transparency is required in the way these deals are negotiated. This process has highlighted the fact that future intergovernmental relationships must be improved to make these powers work for Scotland. Lord Smith’s recommendations that both Governments need
“to work together to create a more productive, robust, visible and transparent relationship”
and that the Joint Ministerial Committee
“must be reformed as a matter of urgency”
echo in this process. Can the Secretary of State confirm that this will be done?
We all know that the major stumbling block was the indexation method used for the block grant adjustment. Under the compromise reached, there will be a five-year transitional period, which will cover the full term of the next Scottish Parliament. Towards the end of that period, an independent review and recommendation will be published that will form the basis of a more permanent solution. When he gave evidence to the Scottish Parliament’s devolution Committee last night, the Secretary of State suggested that the period between the review being published and the transitional period ending at the end of March 2022 could be as little as 12 weeks. If no agreement is reached, what happens then?
On the transitional period itself, it is my understanding that the Scottish Fiscal Commission will carry out the necessary forecasts of Scottish GDP and tax revenues. Can the Secretary of State confirm that, under the terms of the fiscal framework negotiations, those forecasts will be fully independent of the Scottish Government? Last week, the Scottish Finance Committee voted against allowing for that independence.
There also seems to be some confusion over the block grant adjustment during the transitional period to 2022. The First Minister said it would be done according to the Treasury’s favoured method but with the Scottish Government’s favoured outcome. Can the Secretary of State confirm what method will be used? Will it be the catchily named tax capacity adjusted levels deduction, which I understand was the Chief Secretary to the Treasury’s latest offer?
Further clarity is also needed on the timeframe for the devolution of powers. The Secretary of State has said that the new income tax powers will be available by April 2017. However, the Deputy First Minister has said he does not agree that that timeframe is realistic. Is the Secretary of State able to confirm that the new tax powers will be transferred by April 2017?
Today the Scottish Government are passing the Scottish budget. Twelve months from now, at the time of the next Scottish budget, we want them to have full control of income tax and air passenger duty and the deployment of 50% of Scotland’s VAT revenues. We also want them to have the considerable powers over welfare, which will allow us to design a new social security system for Scotland.
I welcome the review and the fact that it will be fully independent. I have stated several times that impartial oversight and, if necessary, arbitration should be an established part of intergovernmental relations. Will the Secretary of State tell us how the review body will be chosen, and can he confirm that it will be done in a spirit of consensus with the full agreement of both Governments? Will he also tell us to what extent the recommendations of the review will influence the decision taken on the long-term solution for block grant adjustment?
I close by welcoming once again the agreement that has been reached. Today marks an historic date in Scotland’s devolution journey: the creation of one of the most powerful devolved Parliaments in the world. The promises made to Scotland in 2014 have been met—the Smith agreement implemented, Barnett protected, powers transferred, the vow delivered. Scottish politics will never be the same again thanks to these new powers. We have entered a new and exciting era of devolution. What an opportunity to transform Scotland for everyone—an opportunity that my party will grasp with both hands.
I agree with most of what the hon. Gentleman said about the opportunity this presents to change Scottish politics. I think the people of Scotland want us to move on from discussing process to discussing policies and the difference that we can make for them with these extensive new powers. It is my full expectation that the agreement and associated details should be available tomorrow, and I very much hope that that will afford the maximum amount of scrutiny. It will of course be open to Committees of this House to scrutinise the arrangements as they see fit.
For understandable reasons, the hon. Gentleman makes reference to intergovernmental relations, but it is important to look at what Lord Smith said about how this agreement was arrived at. He said:
“It is difficult to imagine a bigger test of inter-governmental relationships and while it was obviously a very tough negotiation, what matters is that an agreement was reached.
“This provides an excellent basis for constructive engagement between the governments long into the future.”
I accept that fully. I believe that when the transition period is over and the independent reports have been published, it will be possible for the Governments to reach agreement.
The hon. Gentleman has asked many times why it has taken so long, but many important agreements are reached at the eleventh hour, just by the very nature of doing a deal. I am sure that we will be able, on the basis we have set out, to ensure that that is the case at the end of the transitional period. The independent review, to which he referred, will indeed be a matter for agreement between the two Governments, but as he is well aware, many people in Scotland hold themselves out as being independent but are perhaps not as independent as they superficially seem. It is therefore important that there is agreement between the two Governments as to how that independent review should go forward.
On the Fiscal Commission, the agreement with the Scottish Government is that its forecasts will be fully independent. Finally, this Government will place no impediment on the transfer of powers. Obviously we cannot impose the income tax powers on the Scottish Government, and we would not seek to do so, but I would have thought and hoped that they would want to take them on as soon as possible, and that is the end to which we will be working.
First, I congratulate my right hon. Friend on his apparent success in achieving a settlement of this difficult issue—we look forward to the details tomorrow. Can he assure the House that when the settlement is implemented, it will not only give a strong Scottish Government the powers they need to conduct their devolved affairs properly, but do nothing whatever to impair the ability of United Kingdom Governments to maintain financial discipline and healthy public finances for the British economy? That, surely, is an essential condition for the future growth and prosperity of the English, British, Welsh, Irish—United Kingdom—economy.
May I begin by thanking the Secretary of State for advance sight of his statement and indeed for the conversations he had yesterday, given the constraints of parliamentary time and being able to make a statement only today? We appreciate his having done so.
I speak on behalf of all Scottish National party Members in welcoming the agreement on the fiscal framework, and we all look forward to the draft heads of agreement being published for parliamentary scrutiny in this place and in the Scottish Parliament later this week. My SNP colleagues in the Scottish Government were clear throughout these protracted negotiations that they would not sign a deal that included a threat to the Scottish budget. Members on the SNP Benches here, too, pursued the UK Government’s commitment to the principle of “no detriment”, a promise made during the Smith commission negotiations and a promise that the SNP has ensured has been delivered.
When negotiations began, Scotland’s budget faced a threat from the Treasury of a cut of £7 billion. This week, it was £3 billion, and yesterday morning it was £2.5 billion, but last night my colleagues in the Scottish Government secured a deal that will ensure that Scotland will not be a pound or even a penny worse off, and that the new powers that were promised will be delivered. I pay tribute to the First Minister, Nicola Sturgeon, and the Deputy First Minister, John Swinney, for their efforts to stand up for Scotland and for being stronger for Scotland.
I welcome the fact that the UK Government will guarantee that the outcome of the Scottish Government’s preferred funding model—the per capita indexed deduction—is delivered in each of the next six years. I understand that a transitional funding arrangement will be reviewed following the UK and Scottish parliamentary elections in 2020 and 2021 respectively. The review will be informed by an independent report, with recommendations presented to both Governments by the end of 2021. In that context, let me say this: the Smith report was crystal clear that the fiscal framework had to be agreed by both the UK and Scottish Governments. The Treasury tried to engineer an agreement that would have allowed it to impose a model of indexation in five years’ time—those are the facts of the matter. That would have seen billions cut from Scotland’s budget. Let me therefore ask the Secretary of State the following questions: will he confirm that the Treasury no longer has the power to impose a method of indexation? Will he confirm that the review will go ahead without prejudice to the outcome? And will he confirm that there is no default indexation option and that the Scottish Government’s agreement is required before any new indexation model can be adopted?
I thank the right hon. Gentleman for welcoming the parts of the agreement that he did. This has been a negotiation, and this is the point arrived at in the agreement; it is not possible for the Treasury or the UK Government to have engineered an agreement, as what was needed was the agreement of the Scottish Government, and that is what has been achieved. The two parties have been able to reach an agreement on a fiscal framework that is both fair to Scotland and fair to the people of Scotland.
I can reassure the right hon. Gentleman that the review will go ahead on an independent basis, without prejudice or a predetermined outcome, and it will be concluded by the end of 2021. There will be no imposition of any formula at the end of that period, and what happens will be by way of agreement. As I said in my previous comments, when I quoted what Lord Smith said, I believe that this process, through some of the most difficult types of negotiation, gives us confidence that in a maturing relationship the UK Government and the Scottish Government will be able to reach such an agreement.
There will be no additional cost to England, Wales and Northern Ireland from the powers being transferred compared with if we were not proceeding with this devolution settlement, because the sum being delivered to the Scottish Government is exactly the same as would have been delivered under the Barnett formula.
The Scottish Government have committed to halving air passenger duty in 2018, if still in government. That leaves Newcastle airport, in my constituency, most at risk from cross-border tax competition. Following today’s statement, when can we expect a decision from the Government on support for regional airports, as promised by the Prime Minister? Ongoing uncertainty is very damaging to regional economies, and an approach of “wait and see” is not acceptable.
I note what the hon. Lady says. Of course people in Scotland will know that the SNP position used to be to abolish air passenger duty completely, so there is somewhat of a change there. None the less, she makes an important point. There is a review, and I am sure that those issues will be considered as the Budget process goes ahead in this Parliament.
Is not the measure of statesmanship the imagination to give to others what one demands for oneself? For centuries, the English have demanded full control over our spending and taxation. Why should the Scottish people feel any different? Does the Secretary of State not realise that there must be some merit in the argument that as long as we maintain the outmoded, outdated and unfair Barnett formula, which thoroughly disadvantages the English, we will simply stoke up resentment on both sides of the border, and that will ultimately lead to more calls for independence?
My hon. Friend, as we well know, is the staunchest advocate of full fiscal freedom in this Chamber—more staunchly so than those on the SNP Benches when he moved his amendment for complete fiscal freedom. My response is that the people of Scotland would not respond well to having a £10 billion annual black hole in their finances, and that full fiscal freedom is not the answer. Further devolution as set out in the Scotland Bill to create a powerhouse Parliament is what the people of Scotland want and it is what this Government are delivering.
Let me congratulate all the parties involved on managing to agree on a position that got us here, which is that principle of no detriment. I also thank the Chief Secretary to the Treasury and the Deputy First Minister for attending the Scottish Affairs Committee. I hope that the Chief Secretary will agree to attend the Committee again to explain a little bit more about the details of this fiscal framework. At the beginning of the process, we heard that the Treasury intended to cut £7 billion from the Scottish budget. Why did the Treasury intend to cut billions of pounds from the Scottish budget, and what did he, as the Secretary of State for Scotland, attempt to do about it?
I know the hon. Gentleman does not understand the concept of negotiation, in which two sides work together to get an agreement. Assertion and soundbites sound good, but they do not deliver for the people of Scotland. What delivers for the people of Scotland is the two Governments working together to produce a sustainable agreement. That is what we have done; we have an agreement that underpins the Scotland Bill, which means that Scotland can get these extensive new powers over tax and welfare. People will now want to move on from the process debate to hear the policy ideas.
During the inquiry of the Scottish Affairs Committee into the fiscal framework, we asked searching questions of our witnesses about the new welfare powers that have been devolved to Scotland. Has my right hon. Friend heard any details from the Scottish Government about how they plan to use the new welfare powers?
I very much welcome the fact that the First Minister and the Deputy First Minister have indicated that they plan to set out how they intend to use the powers. It was interesting to hear some of the media reports in Scotland that suggest that the SNP plans to increase significantly the tax burden on middle income earners in Scotland. Obviously, we will have to await the detail in the manifesto, but there will be no excuses now. SNP Members can come here and complain about certain welfare changes, but they will have the ability within Scotland to set their own welfare arrangements.
The Scottish Government have been able to achieve their chosen deduction method through their vigorous and skilled negotiation strategy. What advice will the Secretary of State give to the Welsh Government when it comes to negotiating the fiscal framework for Wales? Does he think that the Labour Government’s usual passive compliance with the Treasury will work?
I absolutely agree with my hon. Friend. I am sure that he will have read my speech of 21 December delivered in Glasgow City chambers making exactly the case for devolution within Scotland. Unfortunately, in recent times, Scotland has become one of the most centralised countries in terms of government. The new Scottish Government that will be elected in May should devolve further powers. The best way to achieve that is to elect more Conservative MSPs under Ruth Davidson’s leadership.
How great it is to follow that remark from the Secretary of State!
How does the amount agreed by the UK Government for the implementation costs compare with the Government’s current calculations for implementing the deal agreed at last week’s EU summit on benefits for foreign workers in the UK?
I welcome the hon. Lady’s question, because of course she and I were both Scottish Conservative candidates for the Scottish Parliament in the dim and distant past—[Interruption.] I am sure that the detail of this agreement and the issues that she raises will stand up to scrutiny.
Thank you, Mr Speaker. I thank the Secretary of State for his statement. Does he agree that the conclusion of this new agreement shows that Scotland’s two Governments can work together? Will he undertake to keep pressing the Scottish Government to reveal details of how they will use these new powers?
I certainly do agree with my hon. Friend, and I have, on a number of occasions in this Chamber, paid particular and sincere tribute to the Deputy First Minister of Scotland, John Swinney. He and I have had numerous conversations throughout this process and, although at times we have been in disagreement, they have always been cordial and civil. That is the basis of the relationship that I want to see with the Scottish Government. My hon. Friend is right: what this agreement means is that the Scotland Bill can pass through this House and, hopefully, receive the legislative consent motion at Holyrood. There will then be no hiding place on these issues for the Scottish Government. If they want to spend more, they will have the tax powers to do so, and if they want higher welfare, they will have the ability to achieve that.
My constituents will welcome this agreement. In particular, they will welcome the fact that the Scottish Government were able to persuade the Treasury to abandon its initial position, which would have meant £7 billion of cuts to Scottish finances, and to come to the Smith position that there should be no detriment. They will observe though that had that been the original position for the Treasury, we might have been able to get this agreement before Christmas rather than spend all this time on it. Will the Secretary of State confirm that it is now the case, beyond doubt, that the principle of no detriment to the Scottish budget is enshrined in his Government’s thinking both now and in the future?
The vow was very clear that Barnett would be retained. That has been done, and rightly so. The starting point for public spending in Scotland now is 115% of the UK average. Can the Secretary of State tell the House, in terms of his modelling, what that percentage per capita will be at the end of this Parliament?
As my hon. Friend asks for complex calculations, I will certainly be happy to write to him in that regard. Although I respect his strongly held views in relation to the Barnett formula, I have to say that the Government’s clear position is that the Barnett formula is being retained.
Following yesterday’s devastating votes on the Lords amendments to the Welfare Reform and Work Bill, can the Secretary of State say a little more about when welfare powers will be transferred to Scotland, so that at least in Scotland we can do something to prevent the appalling effects of poverty on children and disabled people?
Obviously, I do not agree with the hon. Lady’s perspective on specific policies, but she is right that the Scottish Parliament will now have specific and detailed responsibilities in relation to welfare. We have a joint ministerial group on welfare, which includes myself and Scottish Ministers Alex Neil and Roseanna Cunningham, and we look to work though that group on the transfer of the specific powers. We do not want a transfer of power without new arrangements being in place, because the people in receipt of the benefits must be our prime concern. We will work closely together. An enormous amount of work has been done by officials to date and I am confident that once we know what the Scottish Government’s proposals are—we do not know fully—we will be able to make an effective transition.
In his reply to my hon. Friend the Member for Perth and North Perthshire (Pete Wishart), the Secretary of State seemed to confirm that the Treasury’s opening bid in these negotiations—the so-called level deductions approach, which would have led to a £7 billion cumulative cut in Scottish spending—was merely a negotiating ploy. If that is the case, will the Secretary of State confirm that it was disrespectful of the negotiations to start with a position so far from the vow, and will he confirm that that will never happen again?
What complete and utter nonsense. A deal is done that is good for Scotland and good for the United Kingdom, and hon. Members on the Scottish National party Benches have to trawl through newspaper reports to find something that they can complain about. This is a good deal for Scotland which gives Scotland new powers. Let us talk about how we use those powers for the benefit of Scotland, and let us put the grievance agenda to bed once and for all.
I have no desire to sour the tone of consensus on an historic day for Scotland, but many of my constituents believe that the funding arrangements for Scotland, and specifically the operation of the Barnett formula, are unfair to northern England. Does the Secretary of State acknowledge that grievance and how does the new fiscal framework change that?
I acknowledge that people have those feelings. A number of people on both sides of the House have raised issues about the Barnett formula. That is their job as representatives of different parts of the United Kingdom. My position is clear: the Barnett formula is good for Scotland, and this Government are keeping the Barnett formula.
I can produce a list and send it to the hon. Gentleman. I am not focused on other assemblies around the world. I am focused on the Scottish Parliament and making it a powerhouse Parliament with the powers that make a difference in Scotland. That is the state of the debate. The hon. Gentleman’s constituents will not want to hear about Parliaments in South America and other parts of the world: they will want to hear about what his party intends to do on income tax and welfare.
We have had a particularly mild November, December and January because the Secretary of State for Scotland promised the Scottish Affairs Committee an agreement by the autumn. Can he let us know when he expects the Bill to complete its passage through the House of Lords; when he expects it to come back to the House of Commons; and when he expects it to get Royal Assent?
I thank the Secretary of State for advance sight of his statement. I note that he mentions the UK Government holding population risks. Will he concede that the limited powers available to the Scottish Government do not allow for population growth? Will he now listen to calls for a Scottish post-study work scheme?
On the latter subject, I have had the pleasure of appearing before the Scottish Affairs Committee and being grilled by the hon. Lady on the issue of student work visas. I made it clear that I would look closely at the report produced by the Committee, and I repeat that undertaking. However, I do not accept the premise of her question. I believe that, properly used, the tax and other powers that the Scottish Government have will allow them to grow the Scottish economy, create jobs and grow the population of Scotland.
The Secretary of State talks about negotiations. This is an important point. When the Treasury first considered making £7 billion worth of cuts to the Scottish budget, can the Secretary of State—Scotland’s man in the Cabinet—tell us what personal interventions he made to the Treasury to protect Scotland?
I have been closely involved in these discussions throughout, but they are negotiations—they are not about the Treasury imposing. As Lord Smith recognises, they are about the two Governments coming together in difficult circumstances to negotiate about money, which is often the most contentious thing that is ever the subject of negotiations. We have demonstrated that both Governments had the maturity to reach a deal which is good for Scotland and good for the rest of the United Kingdom.
The Secretary of State for Scotland has just confirmed that the initial proposal put forward by the Treasury of a £7 billion cut to Scotland’s budget was not an opening negotiation position, but a serious proposal. In the light of that, does he consider himself Scotland’s man in the Cabinet, or the Cabinet’s man in Scotland?
What complete and utter nonsense. This was a negotiation. Of course, it was conducted not by SNP MPs, but by John Swinney, who adopted a completely different tone—a civil and cordial tone—throughout. I respect his objective of getting the best deal for Scotland. That is my objective too, but we had to get an agreement, and we got one. It is a good agreement. It is an opportunity to move away from the grievance agenda, but this afternoon’s proceedings leave me in doubt that, even with these extensive new powers, the SNP will be able to leave that grievance agenda behind.
The Secretary of State has repeatedly criticised the SNP for allegedly failing to set out how it will use the new powers contained in the legislation, yet barely an hour ago the Prime Minister floundered badly when asked whether the Scottish Conservatives would reduce the tax rate on high earners. I am sure the Secretary of State will want to avoid suggestions of hypocrisy and extend his criticism to his boss.
I have nothing but admiration for Ruth Davidson. She is the one person in the Scottish Parliament who can stand up to the SNP and hold it to account. If people do not want a one-party state in Scotland, the way to achieve that is by voting Scottish Conservative. The Prime Minister did not flounder; he told us exactly what the position was. Ruth will set out the tax proposals and they certainly will not be the same as the SNP’s proposals, revealed in the Scottish press today to hit middle earners hard.