Hansard

That would be an essential part of the process. Independent arbitration gives us confidence that, in a necessarily adversarial relationship with Her Majesty’s Treasury, we will be able to ensure that the interests and perspectives of the Scottish Parliament and the Scottish public finances are assessed appropriately.

It is important to recognise that it is for the Scottish Parliament itself to decide how it wishes to scrutinise the operation of the fiscal framework, and nothing that is agreed as part of the negotiations on the fiscal framework should prevent that key role from being undertaken. I recognise that the Parliament and the Finance Committee want to have on-going discussion on the fiscal framework negotiations. Today’s debate is helpful in informing me of Parliament’s perspective on a variety of issues that are being addressed as part of the negotiations. Information is published after every joint exchequer committee meeting, and I am happy to report back to the Parliament at the appropriate opportunity on the issues that are discussed. I gave my commitment to Parliament on 16 September that it will be able to consider and analyse the fiscal framework that emerges from those discussions before we move to any acceptance of the Scotland Bill through a legislative consent motion.

I have touched on the committee’s views on the need for distinct fiscal policies. The committee made a number of other recommendations that are relevant to the issues with which we are dealing in the joint exchequer committee.

We agree with the recommendation that there be “significantly increased” revenue borrowing facilities—those must give us the tools to manage tax volatility and Scottish economic shocks, and to provide us with the flexibility to be able to manage the greater risk that will inevitably flow from the management of the responsibilities from the Scotland Bill.

We agree with the committee that the Scottish Government needs more capital borrowing facilities in addition to the existing capital departmental expenditure limit and Scotland Act 2012 provisions. That is important in securing the flexibility to improve economic opportunity in Scotland, as we have shown in recent years with our expanded capital programme.

We agree that no detriment is a complex and potentially contentious issue to implement. It needs to be transparent and sustainable; it will need to be applied.

Devolution takes time and resources to implement properly. The full cost of administering and delivering the new powers, particularly the welfare package, needs to be met by the United Kingdom Government. As Smith said, the funding needs to be

“sufficient to support the functions being transferred”

to the Scottish Parliament and the Scottish Government.

Finally, we agree with the committee’s concerns about the transparency of the calculations of the block grant adjustment. I will not sign up to any adjustment that is not fair to Scotland. I am clear that the methods used to calculate the adjustments should reflect Smith’s core principle of no detriment. The baseline for Scottish public expenditure must continue to be set through the Barnett formula. That was promised in the vow. An adjustment will inevitably then be applied to the block grant to account for our new tax and spending powers. Any adjustment mechanism that simply seeks to reduce Scotland’s funding year after year, irrespective of the policies that we pursue, will not be acceptable to this Government. That would breach the vow and Smith, and we will not agree to such a provision within the fiscal framework.

I welcome the committee’s detailed and thoughtful consideration on the creation of the Scottish Fiscal Commission. We have drawn on the committee’s findings in developing our legislative proposals. Smith recommended that the Scottish Parliament should seek to expand and strengthen the independent scrutiny of Scotland’s public finances. I believe that the Scottish Fiscal Commission and our Scottish Fiscal Commission Bill, which places the commission on a statutory footing, will enable that to happen.

Our proposals will create a very different relationship between the Scottish Government and the commission. The commission ultimately has a veto over devolved tax forecasts. I revised downwards our non-domestic rates forecast in the 2015-16 budget after the commission reported that the initial buoyancy assumption “seems optimistic”. That stands in contrast to the relationship between Her Majesty’s Treasury and the Office for Budget Responsibility, characterised by paragraph 3.9 of the “Charter for Budget Responsibility: Summer Budget 2015 update”, which states:

“The government has adopted the OBR’s fiscal and economic forecasts as the official forecasts for the Budget Report. The government retains the right to disagree with the OBR’s forecasts”.

The committee questioned our approach to forecasting. The forecasting approach that we have set out in our legislation maximises transparency as both the forecasting methodology and the results of independent scrutiny are publicly reported.

The Scottish Government has made clear that we will not bring a legislative consent motion to this Parliament without an agreed fiscal framework that is fair to Scotland. That remains the case. As I told Parliament on 16 September, we see the fiscal framework and the Scotland Bill as one and the same thing. There is no point in having the powers if we do not have the fiscal framework that allows us to exercise the powers without prejudice to the interests of Scotland.

In considering legislative consent, this Parliament will consider the bill as a whole and as individual provisions. It will also consider whether the bill reflects the recommendations of the Smith commission. The secretary of state has promised substantive amendments at report stage, and I await those with considerable anticipation.

On 16 September, this Parliament again pointed the Secretary of State for Scotland to the work of the cross-party Devolution (Further Powers) Committee in identifying amendments that need to be made to deliver the recommendations of the Smith commission. The secretary of state should now take heed of this Parliament’s view.

I commend the committee for its work on Scotland’s fiscal framework and will engage further with it on the important work that will be done to ensure that the fiscal framework is designed in a fashion that meets the needs of the people of Scotland and the Scottish Parliament.