Hansard

I provided an update to Parliament earlier today on the negotiations between the United Kingdom and Scottish Governments to reach a deal on the fiscal framework that is required to accompany the Scotland Bill. At that time, I confirmed that we had made significant progress on a range of issues but the negotiations on the key issue of the block grant adjustment mechanism were on-going and that further proposals had recently been received from the Treasury.

I made it clear this afternoon that, for this Government to sign up to a deal on the basis of a transitional arrangement, we also required there to be a fair review mechanism that did not prejudge the outcome and that would not default to a funding proposal that delivered population-driven detriment to the Scottish budget. I have been clear throughout that I would not sign up to a systematic cut to Scotland’s budget, whether that cut was applied today or by a prejudged review in five or six years’ time.

During the afternoon, negotiations have continued on that basis, and I have spoken to the Chancellor of the Exchequer. As a result of those conversations, I can report to Parliament that there is now an agreement in principle that I believe we can recommend to Parliament. Draft heads of agreement will be published for scrutiny by Parliament by the end of this week.

That agreement, if it is supported by the Parliament, will secure the following outcome. There will be not a single penny of detriment to the Scottish Government’s budget as a result of the devolution of powers during the transition period for the next six years to March 2022. The UK Government will guarantee that the outcome of the Scottish Government’s preferred funding model, which is per capita indexed deduction, is delivered in each of those years. In addition, we have agreed that, at the point of review, the conditions that I set out to Parliament this afternoon will be met in full.

The transitional funding arrangement will be reviewed following the UK and Scottish Parliament 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. Crucially, the fiscal framework will not include or assume the method for adjusting the block grant beyond that transitional period. The two Governments will require to jointly agree that method as part of the review.

We have also agreed that the method adopted will deliver results consistent with the Smith commission’s recommendations, including the principles of taxpayer fairness, economic responsibility and, crucially, no detriment.

The agreement that we have reached on the block grant adjustment ensures that there will be no detriment for the next six years and that there can be no default by the UK Government to a funding model that would deliver detriment in the future. We have secured no detriment now and for the next six years, and we have ensured that there can be no detriment imposed on Scotland at any point in the future.

As the Deputy First Minister and I have made clear, there has been give and take in the negotiations. We did not get everything that we wanted but, when the discussions began in June last year, the Deputy First Minister faced a proposal from the Treasury that would have delivered £7 billion of detriment to the Scottish budget over the next 10 years. During the negotiations, we have made absolutely sure that there will not be £7 billion or £3 billion of detriment; the deal will not allow a single pound or even a penny to be taken from the Scottish Government’s budget. [Applause.]

The deal will ensure that the funding for Scotland cannot be changed without the Scottish Government’s agreement. It protects the Barnett formula and will allow the powers in the Scotland Bill to be delivered.