Hansard

Thank you very much, Presiding Officer. I know that in the past you have felt bad about cutting me short, so I appreciate all the time that I have been given today.

This has been quite a sensible debate. If we were being honest, we would probably say that we do not always have sensible debates in this place, but this debate has been quite good.

Before I address some of the key points that have been made this afternoon, I want to touch on a couple of the main issues in our report that the convener, through lack of time, was unable to cover in his opening speech but which, in fact, have featured in the debate. One of the main issues to emerge from the committee’s recent work on further fiscal devolution is the need for much greater transparency and accountability in relation to the calculation of the block grant. The Barnett formula is viewed as opaque and there are real concerns about the role of the Treasury as the sole decision maker on the block grant; I will return to that point later.

The House of Lords select committee on the Barnett formula, which Joan McAlpine referred to, found Barnett’s workings to be “opaque” and the data “inadequate and inaccessible”. It recommended that the Treasury publish its workings on the operation of the Barnett formula

“in a single, coherent and consistent publication.”

However, it has been pointed out to us that the recommendation has not been acted on in a comprehensive manner. The Finance Committee therefore recommended that the UK Government

“publishes details of the operation of ... Barnett ... and”

the block grant adjustments

“arising from”

further

“fiscal devolution alongside each UK budget and Autumn Statement”,

and we will pursue that issue when we take evidence from the Chief Secretary to the Treasury following the publication of the fiscal framework.

The committee also examined intergovernmental relations, which Alex Salmond touched on during his interventions. In relation to fiscal issues, Lord Smith highlighted the weakness of the intergovernmental relations in his foreword to the commission’s report, stating that

“a more complex devolution settlement means the problem needs to be fixed.”

The Devolution (Further Powers) Committee has stated that the current arrangements are not fit for purpose and the Scottish Government has recognised that the IGR machinery requires overhaul. The United Kingdom Government has stated that reformed IGR will be underpinned by stronger and more transparent parliamentary scrutiny, but the committee identified two interrelated difficulties.

First, most bilateral relations between the two Governments take place on an ad hoc and informal basis, which leads to a lack of transparency and accountability. As one of our witnesses pointed out, most intergovernmental relations take place below the radar and that raises questions about the feasibility of effective parliamentary scrutiny. There is therefore a need for a more formal and structured approach, including at least biannual meetings of the joint exchequer committee and the finance ministers’ quadrilateral. There also needs to be a more systematic approach to reporting of the meetings of the joint exchequer committee and the finance ministers’ quadrilateral. That should include, as a minimum, advance notification of agendas to allow the Scottish Parliament to contribute its views, along with a detailed and timeous minute of discussions to allow for effective parliamentary scrutiny.

A number of members touched on those issues, especially Jackie Baillie and Gavin Brown. To be fair, the committee accepts that there has to be a balance. Delicate negotiations cannot always be conducted in public so there is a trade-off between how open the two Governments can be with each other, and how open each Government can be with its respective Parliament.

Secondly, the formal institutions that exist are consultative bodies without any co-decision powers. In particular, as I have already said, there are concerns about the role of the UK Treasury as the sole decision maker on fiscal matters. As many members who have spoken today and many witnesses to the committee stated, that is not sustainable. The UK Government has to be willing to work with the devolved institutions in seeking agreement on fiscal matters post-Smith. That will require cultural change in the Treasury and at all levels of intergovernmental relations.

For example, the statement of funding policy that sets out the current fiscal arrangements for the devolved institutions has not been updated since 2010, despite the devolution of fiscal powers in the Scotland Act 2012. Although the statement is discussed with the devolved Governments, it is agreed between the Chancellor and the Secretary of State for Scotland. As the Deputy First Minister told the committee, that is absurd. As a minimum, the statement of funding policy needs to be agreed between the UK Government and the three devolved institutions.

A number of our witnesses suggested that there is a need to establish an independent body, like the Australian Commonwealth Grants Commission, to act as arbiter. That was the point that Alex Salmond made during his interventions. Such a body could be used to resolve disputes on issues such as the block grant adjustment. The committee recommended that consideration should be given to establishing such an independent body.

It is worth saying that this is one of the big differences between devolution and federalism. Yesterday, a large delegation from Bavaria visited the Parliament and the Finance Committee had a brief meeting with them, when we saw how they operate differently from us. Places such as Australia and the United States have written constitutions that make it possible for the two bodies that would be involved to go to the courts or to an independent arbiter, but that is not the case in the UK. It has to be asked whether it will ever be possible to resolve the issue satisfactorily without a written constitution.

The final area in the committee’s report that I wanted to mention was the importance of economic and fiscal data for Scotland. A number of our witnesses questioned the availability and quality of that data, and there was also a question over access to HMRC data. The committee has requested that the Fiscal Commission identifies specific areas in which economic and fiscal data need to be updated and that they are addressed by the Scottish Government as a matter of priority.

I will now mention some of the issues that have been raised in the debate, some of which I have already covered in my remarks. The first and most obvious issue, which we expected to come up this afternoon, is the question of forecasting. It is perhaps the issue that Gavin Brown highlighted the most, with regard to whether the Fiscal Commission should be doing the forecasting.

It would be fair to say that there was a range of opinions within the committee. I think that we all agree that independent forecasting is absolutely essential. Various questions were raised, to which perhaps we did not really get answers. For example, if the Fiscal Commission was doing the forecasting, who would be checking the forecasts or looking at them independently? One member of the committee raised the example of Audit Scotland. That is quite a good example of an organisation that comments and looks at something from the outside. In my opinion, it is fairly highly respected and has a big impact because its reports often appear in the media, yet it is not involved in doing the work itself. That is certainly one valid way for the Fiscal Commission to operate, albeit that around the world there are examples of a number of ways of doing that.

Malcolm Chisholm raised the question whether the Fiscal Commission could be involved in giving advice and improving the system or whether that meant that it would lose its independence. We return to independence being the key thing, but I do not think that we have an answer to that question.

Chic Brodie mentioned that some people who gave evidence wanted to have a Scottish equivalent of the OBR. Committee members feel that we do not have to copy England in every regard and we could perhaps do things a little bit differently, in our own way.

The question of resources also came up at the committee. I do not think that that has been mentioned. If we have two parallel forecasting systems, one for the Fiscal Commission and one for the Government, there is clearly a resource issue as well as duplication and I wonder whether that needs to be the case. Richard Baker mentioned that the Fiscal Commission needs to be resourced. We were concerned about that as a committee, but I think that we are now somewhat reassured that that will be okay.

This afternoon, we have had quite a lot of discussion about no detriment and Mark McDonald painted a picture showing that it is almost impossible in practice to work that out at the part 2 stage of no detriment. The example often given has been airport passengers who might not go to Newcastle but travel directly from Scotland if we have control of APD. However, the question then arises about some of the passengers possibly being in Newcastle because of detriment to Scotland so it would not be new detriment to England; it would be about undoing or rebalancing the detriment that is already there to Scotland.

I disagree with James Kelly, who raised the point that no detriment was important because Scotland was spending more than its income. That has clearly not been the case every year. It varies from one year to another. It is also true that the UK is still spending more than its income and has been for some considerable time. The no-detriment principle is more fundamental than that and is not about current spending.

Borrowing is another issue that has been raised a number of times. As Linda Fabiani said, prudential borrowing seems to work very well in local government—that is certainly my experience. However, preventative borrowing, which was mentioned by the Institute of Chartered Accountants of Scotland and was touched on by Jim Eadie, can be a bit of a vague issue and we did not really reach a conclusion as to whether we could pin that down.

The other issues—I will run out of time to cover them, even though I was given until 5 o’clock—were about changing the attitude at Westminster and whether there is any sign of that happening. However, the whole budget process at Westminster is clearly quite different. Here, there is a lot more consultation, as John Swinney explained.

I could also talk about data, which is an issue with regard to the block grant adjustment, as Joan McAlpine and others mentioned. There is also the issue of transparency. Gavin Brown talked about not wanting to make a binary choice, which I agree with.

This subject is extremely important. The Finance Committee has put a lot of time and effort into examining it. We are very grateful to the expert witnesses, to the clerks and to others who have supported us in the process. It is still unusual for devolved Administrations to have such a Fiscal Commission and I think that we have the opportunity in Scotland to lead the way. I look forward to further debates on the bill itself and I commend the report to the chamber.