Hansard

I am grateful to the members of Finance Committee for their report on Scotland’s fiscal framework. The written submissions and oral sessions all underline the importance of a sound fiscal framework for Scotland’s future. I agree whole-heartedly with the convener that the fiscal framework is an integral part of the devolution of further responsibilities. It is essential that the work that is undertaken to develop the fiscal framework properly takes into account all the relevant considerations that will be important in ensuring the financial future of Scotland under those responsibilities. The work of the committee has helped to shape how we approach the programme of work around the on-going negotiations on a fiscal framework.

I would like to provide some context for the work on the fiscal framework that is currently under way with the UK Government. Paragraph 94 of the Smith commission report recommended that the devolution of further tax and spending powers to the Scottish Government should be accompanied by an updated fiscal framework for Scotland. Crucially, Smith said that it was for the Scottish and UK Governments to jointly work together via the joint exchequer committee to agree the revised fiscal and funding framework for Scotland. That is the process in which I am currently engaged with the UK Government.

My overarching aim is to ensure that the new fiscal framework is fair and workable and that, as Smith also identified, Scotland’s budget should be no larger or smaller simply as a result of the initial transfer of powers. We want a fiscal framework that gives the Scottish Government the flexibility that it needs to create a fair and prosperous Scotland and the ability to use the powers that we have effectively. This must be about genuine autonomy and choice, and we know that it must be done in a responsible and sustainable way, building on the platform of our existing fiscal powers.

We need a fiscal framework that will ensure that further devolution provides the right incentives and increases accountability, linking the Scottish Government’s budget to Scottish economic performance in so far as that is possible given the range of responsibilities that are being transferred following the Smith commission’s report. Scotland should retain the rewards of her success in the same way as we must bear the risks of the policies and actions that we pursue. It is essential that the fiscal framework allows us to pursue our own distinct policies that meet the needs and wishes of the people of Scotland and does not tie us to UK Government policies.

I agree with the committee at paragraph 24 of its report, where it states:

“while Scotland’s revised fiscal framework needs to be consistent with the UK’s overall fiscal framework this does not mean that they need to mirror each other. For fiscal devolution to work it is essential that the Scottish Government has some flexibility to pursue distinct fiscal policies consistent with the overall UK fiscal framework.”

I believe that to be a central argument in the process that led to the Smith commission’s reforms, and it must be a central argument in how the fiscal framework applies to the management of the public finances in Scotland, creating the scope for this Parliament to take different decisions that allow us to pursue a distinctive fiscal policy approach. The fiscal framework will need to be agreed jointly by both Governments. The joint exchequer committee has met three times to date, and we will meet again later this month with the aim of concluding negotiations during the autumn. Let me make it clear, however, that the determining factor is getting the framework right rather than observing a particular timescale for that process.

The Finance Committee has also emphasised the importance of parliamentary scrutiny of the framework and its operation. I heard clearly the convener’s point that there should be scrutiny of a draft of the fiscal framework before its agreement. I will advance that point with the Treasury in setting out the Finance Committee’s position, and I will advise the committee and Parliament as part of the process to ensure that Parliament is fully informed about the development of the fiscal framework.

Paragraph 30(2)(b) of the Smith commission’s report recommended that there be

“pro-active reporting to respective Parliaments”.

Paragraph 95(9) recommended:

“The two governments should provide updates to the Scottish and UK Parliaments, including through the laying of annual update reports, setting out the changes agreed to Scotland’s fiscal framework.”

The Parliament will be aware that, under section 33 of the Scotland Act 2012, Scottish and UK ministers report on the implementation and operation of the finance powers and functions that are devolved under that act. I intend to update the Scottish Parliament on the implementation and operation of the fiscal framework in a similar way.