Hansard

Thank you, convener—that is appreciated.I will reiterate two questions that the Government believes are crucial to consideration of the bill. First, do the propositions in the bill offer any meaningful transfer of fiscal and economic levers to Scotland? Secondly, what are the likely impacts and risks of the changes that will arise from the bill for the Scottish budget and—more important—for households and businesses across our country?The Government has consistently outlined its concern that the bill in its current form fails on both those questions. Our evidence has highlighted the potential risks from a deflationary bias; the lack of meaningful economic powers; the inadequate borrowing provisions to manage budgetary volatility; the economic inefficiency of the income tax proposals; the modest capital borrowing powers; the lack of detail on the block grant adjustment, the no-detriment rule and the costs of set-up and continuing administration; and concern about the transparency and long-term sustainability of a system that depends on an on-going series of ad hoc technical fixes and adjustments.Since taking office in 2007, the Government has made delivering increasing and sustainable economic growth our core purpose. The bill is not about improving economic growth or providing an opportunity to make a fundamental difference to the lives of the people of Scotland. Without real access to the levers of growth or to social policy, we will simply be changing the accountability arrangements for Scotland’s budget from Whitehall. Under the bill, Westminster will continue to collect and control 85 per cent of Scottish tax revenue. Scotland will remain a part of one of the most centralised systems in the developed world and will have limited power over taxation. We can contrast that with the spectrum of devolution that is offered in other countries and which others, such as the Steel commission, have recommended as a possible solution for Scotland.As is well known, the Scottish Government believes that Scotland’s future will be best secured by independence. However, we recognise that others in the Scottish Parliament do not share that view. That is why we have also proposed an alternative framework—full financial responsibility—that would provide the maximum policy autonomy in a United Kingdom macroeconomic framework.As the paper that I have shared with the committee outlines, a framework of full financial responsibility would devolve to Scotland all tax revenues except VAT; allow the co-ordination of benefit and employment policy in Scotland; provide control over the levers that are crucial to business; and allow us to control the key policy instruments in Scotland. It would also transfer the levers that are required to manage that fiscal transfer by providing proper saving and borrowing powers.The consensus seems to be that raising more of Scotland’s revenues directly will increase the Scottish Parliament’s financial responsibility. That is a key objective of the bill that the committee is scrutinising. I agree with that objective, but it cannot be achieved by assigning a small proportion of income tax revenues, as the bill proposes.The bill’s proposals will create a significant risk to Scotland’s budget and economy. We have highlighted the prospect of a deflationary bias, the inadequate revenue borrowing powers, the modest capital borrowing powers and the lack of clarity on key issues such as administration costs, the block grant adjustment and the no-detriment rule.I turn to the economic benefits of greater financial responsibility. “The Government Economic Strategy” sets out our view on the drivers of economic growth, population, participation and productivity and the importance of economic levers to improve economic performance. Financial responsibility would increase the economic levers for revenue and expenditure that are available to the Scottish Government and would provide the opportunity to enhance the Scottish economy’s productivity and economic performance. That could be manifested in several ways in relation to tax powers and tax changes.Such performance-enhancing levers are not part of the bill’s proposals, which is why it is straightforward to consider the financial impact of the changes relative to the status quo. The committee has been asked to consider a bill that simply replaces one part of the block with an assigned income tax revenue. That is the key difference between our proposals and the bill. The UK Government proposes a revised funding mechanism, whereas full financial responsibility would provide new opportunities to enhance Scotland’s economic performance and increase the Parliament’s accountability and responsibility.