Public Finances: Scotland

– in the House of Commons at 4:53 pm on 3rd February 2016.

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Photo of Natascha Engel Natascha Engel Second Deputy Chairman of Ways and Means 4:53 pm, 3rd February 2016

I inform the House that Mr Speaker has selected the amendment in the name of the leader of the Scottish National party.

Before I call the shadow Secretary of State to move the motion, I remind the House that there are a lot of speakers and very little time, so there will be a three-minute limit on Back-Bench speeches, but still we might not get everybody in. With that in mind, if the Front Benchers could make their contributions more like bullet points than great oratorical flourishes, the House will be grateful.

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland 5:26 pm, 3rd February 2016

I beg to move,

That this House
notes the ongoing negotiations between the Scottish and UK Governments in the Joint Exchequer Committee on a revised fiscal framework to accompany the Scotland Bill;
regrets that, despite both Governments repeatedly stating that the negotiation of a revised fiscal framework would be concluded by autumn last year, no agreement has been reached;
further regrets the complete lack of transparency with which negotiations have been conducted;
notes that, until agreement is reached, the measures in the Scotland Bill will not be implemented and the substantial new powers it contains will not be deployed for the benefit of the Scottish people;
believes that both the UK and Scottish Governments have a duty to ensure that the negotiation of a revised fiscal framework which is fair to Scotland is completed in time for the Scotland Bill to be approved by the Scottish Parliament prior to its dissolution, so that it can use its current and future powers for the benefit of the people of Scotland;
and calls on the UK Government to publish all minutes and papers from the Joint Exchequer Committee negotiations, and to assure the House that every effort is being made to ensure that agreement on a revised fiscal framework is reached, and the Scotland Bill is passed, prior to the Scottish Parliament elections.

I am sorry that you do not want an oratorical flourish, Madam Deputy Speaker, because that is what I was preparing to give—but never mind; we will continue with the debate. I appreciate that this debate has been curtailed because of the previous debate, which was on an incredibly important issue, and because of the Prime Minister’s statement. We have to accept how the House works in such circumstances.

It is a pleasure to open this debate for the Opposition. At its core, this debate is about the transfer of new powers to Scotland under the Scotland Bill, which completed its passage through the House in November and is currently in the other place. It is worth briefly reflecting on the Bill, to put this debate about Scotland’s public finances and the fiscal framework into context. The Bill had its genesis in the vow and the Smith commission, the recommendations of which were agreed by all five major Scottish political parties. When passed, the Bill will transform the Scottish Parliament into one of the most powerful devolved Parliaments in the world.

Scotland will have control over all income tax, apart from non-savings and non-dividends income, which generated almost £11 billion in revenues in 2013-14. The Scottish Parliament will have the power to vary the rates and bands of income tax, to increase or decrease those revenues. This greatly enhances the powers devolved under the Scotland Act 2012, under which the Scottish Parliament controls just 10p in the pound. On that note, the Scottish Labour leader, Kezia Dugdale, announced yesterday that, faced with a choice of cutting into Scotland’s future or using the powers of the Scottish Parliament, we would use the latter to set the Scottish rate of income tax at 11p, rather than the 10p in the SNP Budget, to invest in that very future for Scotland and to protect the low-paid. We made that point in the debate in the Scottish Parliament today.

These new revenue-raising powers are accompanied by new spending powers, such as control over £2.5 billion of welfare spending. The Scottish Parliament will be able to top up existing UK benefits and, thanks to concerted pressure from Labour and our amendments, will have total autonomy to create new benefits in devolved areas. When these new powers are enacted, the Scottish Parliament will be able to make different choices to create a better Scotland.

Photo of John Redwood John Redwood Conservative, Wokingham

Who in the hon. Gentleman’s party speaks for England to make sure that the settlement is fair to England as well as to Scotland?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

The settlement has to be fair to the rest of the UK as well, including England, but I will come to that later.

Photo of Alex Cunningham Alex Cunningham Shadow Minister (Environment, Food and Rural Affairs)

We hear of cheers in the Scottish Parliament this afternoon when the Scottish Finance Minister tried to justify public expenditure cuts by the Tories. Is that not the final proof that the socialist credentials that the SNP claims have no foundation whatsoever?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

I am grateful to my hon. Friend for that intervention, because what we have seen this afternoon in Scotland is a Scottish Labour party determined to use the current powers of the Scottish Parliament to try to do something different from Conservative austerity. The result of that is a Scottish Finance Minister and a Scottish Government just managing that Conservative austerity. As I said earlier, when faced with the choice of managing the Tory austerity or creating a different future for Scotland, we have chosen to create that different future.

I was explaining the principles behind the Scotland Bill. However, before the Scotland Bill can be enacted they must be underpinned by a new fiscal framework for Scotland. That runs alongside the legislative process, which is slightly different from what happened with the Scotland Act in 2012.

It is crucial to state that the Smith commission stipulated that the Barnett formula would be retained as the mechanism for determining Scotland’s block grant. That is not in question in this debate. However, Scotland’s block grant will need to be adjusted to reflect both the new tax-raising powers and new expenditure responsibilities that are being devolved, and that is at the heart of today’s debate. Until that revised framework is agreed by the UK and Scottish Governments, the Scotland Bill cannot be enacted and the new powers and responsibilities it transfers cannot be implemented. We need a negotiated agreement in order to move on, otherwise the new powers will lie dormant and Scotland’s financial position in the future will remain very uncertain.

Photo of David Mowat David Mowat Conservative, Warrington South

The hon. Gentleman mentioned the Barnett formula and the vow, and of course he is right that the Barnett formula will be retained, but he will also be aware that it is not based on relative need and therefore is not fair to England, and in particular to Wales. Will he therefore, as a member of a party of the left, support reform of the Barnett formula to make it more progressive for the whole island?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

There is consensus across the entire Chamber that the Barnett formula should stay in place. It was in the vow signed by all the major party leaders who went into the general election. The Smith agreement has been signed by all five political parties, and that includes the maintenance of the Barnett formula. The hon. Gentleman, from the Conservative Back Benches, wants to renew and review the Barnett formula, which means only the Labour party in this Chamber will defend it. It would seem that the policy from the Conservative Back Benches is to do away with Barnett and that the Scottish National party want full fiscal autonomy, which would also do away with the Barnett formula. We will defend the Barnett formula, because it is in the interests of our constituents to do so.

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

I am happy to give way to the hon. Gentleman again, while bearing in mind that this debate is very much curtailed.

Photo of David Mowat David Mowat Conservative, Warrington South

I do not want to do away with the Barnett formula. I would just like to see it revised so it is based on relative need, because that seems to me to be a very fair way forward.

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

The Barnett formula is based on that need. It was designed in the 1970s to take into account of not only the contribution that Scotland makes to the United Kingdom but its public service requirements and geographical nature. It commands broad political consensus and I do not think we should break that. That would be a very difficult message to send out.

The message from today is that it is the job of the Scottish and UK Government Ministers to get a deal. We heard today that the Chief Secretary to the Treasury, who I am delighted is in his place, will be in Edinburgh for talks all day on Monday. The people of Scotland will expect nothing less than a final deal that is signed, sealed and delivered. We support the Scottish Government in their efforts to reach an agreement that is fair, equitable and consistent with the Smith agreement. Again that is not in question, but reach an agreement they must.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland

Surely before the Scottish referendum the Scottish people were promised these extra devolved powers and they will be extremely disappointed with all this shilly-shallying around and failure to come to an agreement after 18 months?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

That is the crux of our calling for this Opposition day debate. I will come on very soon to the issues around timescales and what should have been delivered by now, but nobody will forgive us in Scotland, or indeed across the rest of the United Kingdom, for breaking the promise of getting these powers through so that the Scottish Parliament can choose a different course, if it so wishes, than the rest of the UK.

As I was saying, reach an agreement they must. I believe there is broad consensus on this point across the Chamber. Indeed the SNP chair of the Scottish Affairs Committee, Pete Wishart—I am delighted he is in his place—has also said that he wants

“assurances…that a deal will be reached in time.”

We do not agree on very much, but we certainly agree on that particular point. Few people would understand if both Governments were to walk off the job before it was done and instead start a blame game.

I want to highlight two key issues in the debate. The first is the secretive nature of the negotiations and the consistent refusal of both Governments to publish any meaningful papers or minutes from the Joint Exchequer Committee meetings.

Photo of Catherine McKinnell Catherine McKinnell Labour, Newcastle upon Tyne North

I thank my hon. Friend for giving way. I did not mean to interrupt his flow; he is making an important speech. The Communities and Local Government Committee has published an important report today, not about Scottish devolution but about English devolution, and it contains major criticisms of the lack of openness over deal negotiations. Does he share my concern that the Government seem to be operating in an underhand way in relation to these negotiations as well?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

I agree with my hon. Friend. This seems to be very much the way in which this Government operate. We have just had a debate about taxation, and we have also discussed the devolution settlements that the Communities and Local Government Committee’s report mentions. It is important that we have transparency, because the only way to carry the public with us on the fundamental issue of devolution to local communities is to ensure that the arrangements are transparent, robust and democratic.

That brings me to my second concern in this Opposition day debate, which is the need to agree the framework so that the Scotland Bill can be passed in time for the Scottish parliamentary elections in May. For months now, the negotiations in the Joint Exchequer Committee have dragged on behind closed doors, shielded from public scrutiny. According to Scottish Government sources, agreement is as far off as it has ever been, while the tone of the Secretary of State suggests that he is straining every sinew to get a deal. There was always a danger that, away from the spotlight, the two Governments would fiddle and fixate and that the momentum to reach a deal would be lost. And so it has proved. This relates to the concern raised earlier by my hon. Friend Helen Goodman.

At first, agreement was going to be reached by last autumn. The Scottish Secretary consistently referred to an autumn deadline, as did the Chief Secretary to the Treasury and the Deputy First Minister in Scotland, but no agreement materialised. Then the deadline was moved to mid-February. In mid-December, the First Minister talked up the prospect of a Valentine’s day deal, but come January her deputy, Mr Swinney, struck a downbeat note emphasising the big gap between the two Governments. He also introduced an arbitrary deadline of 12 February for a deal on the fiscal framework. If negotiations were not concluded by then, he would not table a legislative consent motion prior to the

Scottish Parliament’s dissolution before the elections in May. I have yet to find out why that is the case, because the Scottish Parliament does not dissolve until late March. If no agreement is reached, the Scotland Bill will effectively be kicked into the long grass. That would mean no new powers for the foreseeable future.

For all that, I remain confident that if the political will exists, a deal can be reached. To test that political will, however, we need to bring the negotiations out into the open and allow the public to see whether this is brinkmanship or a proper negotiation. From the very beginning, I have bemoaned the absence of transparency at the heart of these negotiations. It is simply unacceptable that the process of redrawing Scotland’s fiscal terrain is taking place behind closed doors in vapour-filled rooms.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

Does my hon. Friend agree that a key reason for the deal to be done before the Scottish parliamentary elections is to give the Scottish electorate some confidence in the promises being made by the political parties on spending and taxation? Does he also agree that there is great interest in this matter across the rest of the United Kingdom because of the asymmetric nature of devolution? We want to see how Scotland uses these powers.

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

My hon. Friend is absolutely right. Without having the Scotland Bill on the statute book and available to be used from 1 April 2017, there will be obfuscation about what can go into party manifestos come May, and we will be having a constant debate about the constitution rather than about the transformation of Scotland. He is also right to suggest that this is not just about a fiscal framework for Scotland. It is important for these negotiations to run in parallel with the Scotland Bill, but they also have significant implications for the rest of the United Kingdom. The no detriment principle for Scotland works both ways; it is also a no detriment principle for the rest of the United Kingdom. That point is often lost in these discussions.

As I was saying, I have bemoaned from the very beginning the absence of transparency. It is simply unacceptable that the process of redrawing Scotland’s fiscal terrain is taking place behind closed doors. David Bell, the respected economist, has noted the secretive nature of these discussions. He said:

“These discussions are taking place behind closed doors with little information publically available about the options being considered and the effects of these options.”

Asked to offer his thoughts on these proceedings, Professor Muscatelli said:

“I will be honest, it is difficult for anybody on the outside to see what exactly the stumbling block is” in these negotiations. Even the Chair of the Scottish Affairs Committee—this might be the second time we have agreed—said that the negotiations and the transparency at their heart are “not good enough”. I also warmly welcome the Scottish Affairs Committee’s in-depth inquiry on this issue, which it will publish soon.

I ask why both Governments refuse to publish papers and minutes, as requested. On 9 September, I wrote to the chairs of the Joint Exchequer Committee, John Swinney and the Chief Secretary to the Treasury, with the perfectly reasonable request to publish papers and minutes from the meetings, but they refused to do so. I also tabled written and oral questions to ask that we be kept updated on the progress of the negotiations and that substantial details of the discussions be placed in the public domain, but, once again, my request was rejected. Both Governments said that they would not provide a “running commentary” on the negotiations, while providing the very same running commentary through the media. Meanwhile people in Scotland are very much in the dark. That has allowed politicians on both sides to seek to exploit the secrecy, rather than getting on with finalising the deal.

Photo of Stella Creasy Stella Creasy Labour/Co-operative, Walthamstow

Does that not also trouble my hon. Friend, because it goes back to the very principles of the Smith commission, pillar one of which explicitly said that one challenge faced in this new constitutional settlement was having much stronger, transparent parliamentary scrutiny of the work? It particularly identified the JEC. If we cannot get it right now, what hope do we have for the future?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

That is a timely intervention, because when everyone talks about making sure that the Smith agreement is delivered in spirit and in substance, they tend to forget the bits of the substance that it is inconvenient for them to remember, and that is one such bit. The JEC has not been transparent. One key plank of the Smith agreement was intergovernmental relations, and without that transparency we cannot see whether intergovernmental relations are actually working. One key thing about the whole devolution project, be it in Scotland, Wales, Northern Ireland or in the discussions about England, is to make sure that all the components of that devolved body of the United Kingdom can work together in partnership.

Let me compare these negotiations with the fiscal framework negotiations that sat alongside the Scotland Act 2012. I have here the minutes of the first meeting from that process, which took place on 27 September 2011, and they are a dusty tomb of information, giving details of who attended, points that were discussed, things that were agreed and things that were to come back to be agreed. By contrast, let me give a flavour of the communiqués from this year. The one relating to the 1 February meeting states:

“The Joint Exchequer Committee met in London today, chaired by John Swinney, Deputy First Minister and Cabinet Secretary for Finance, Constitution and Economy. HM Treasury was represented by…Chief Secretary to the Treasury.

This was the eighth meeting of the JEC since the publication of the Smith Commission report…The Ministers continued their discussion…

Both Ministers agreed to meet next week”.

The minutes on the 21 January meeting again introduce who was at the meeting, with their very long titles. They then state:

“This was the seventh meeting of the JEC since the publication of the Smith Commission report. The Ministers continued their discussion on the indexation methodologies for the Block Grant Adjustments and also discussed the initial transfer of funding for new welfare powers….

Both Ministers agreed to meet again shortly”.

They go on, running to less than a third of a page—a couple of paragraphs of minutes. I am not sure that having no details and no substance is acceptable.

It is not acceptable because the Scottish Government have threatened to veto the Bill if it is “not fair to Scotland.” The problem is that we do not know what, in their opinion, or in the UK Government’s opinion, is a fair deal for Scotland and what that looks like. We do not know in what way the current detail on offer from the UK Government is deficient on that test of fairness. It would appear that the main stumbling block is on the method used for the future indexation of the block grant. Of the methods being considered, the Scottish Government now favour the per capita index deduction. People can go to the Library to find out what that is—I will not explain it at this juncture. [Hon. Members: “Go on!”] I can go through the formula if Members want, and give a prize if they get the answer at the end. Less than a year ago, however, the Deputy First Minister told the Scottish Parliament’s Finance Committee that he favoured the indexed deduction, which takes into account population growth. There is clearly some confusion over which method is best for Scotland, which is why transparency of discussions is incredibly important.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

I understand that the Labour party is feeling a bit sad, because, as it has not been successful enough to be in government in either country, it is not involved in these negotiations. Now that the shadow Secretary of State has the opportunity to have his say, can he please tell us what method of block grant adjustment Labour would favour?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

Well, we do not know—[Laughter.] Let me answer the question! We have not seen the negotiations, but, as the leader of the Scottish Labour party has said, we prefer the per capita index reduction model, because it is important that we have that particular debate. It is strange that the intervention gave the impression that we are being locked out. It is not the Labour party that has been locked out of these discussions, but the Scottish people, which is why we called this debate. We want to shed some light on these very secret discussions.

I noticed that the hon. Lady did not say whether she supports doing something in Scotland with the powers that her party currently has, or whether she is willing just to manage Conservative austerity.

Photo of Alex Cunningham Alex Cunningham Shadow Minister (Environment, Food and Rural Affairs)

I thank my hon. Friend for giving way again. Does he agree that there are some amazing parallels between these negotiations and the Prime Minister’s EU negotiations, where we were kept totally in the dark all along and then we found out that there was nothing to see anyway?

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

Absolutely. I suspect that that is part of the problem that we have now.

I am conscious of the time, so let me quickly wrap up by paying some attention to the SNP amendment that has been selected in the name of Angus Robertson. I cannot quite fathom why the party has tried to amend what is a very uncontentious motion. I thought that we could work together on this important issue given that we share the same goals for a fair deal for Scotland. Our motion merely reflects the views that have also been expressed by the Chair of the Scottish Affairs Committee. I have no problem at all with the SNP amendment as it is written, but it is a wrecking amendment, as it would completely replace everything that we are asking for in our amendment. I wish that the SNP had tabled the amendment as an addendum, and we could have gone forward together in consensus. The purpose of this debate is to get transparency and to ensure that a fair deal is done, and I would have thought that SNP Members would have agreed with that. I welcome the fact that they are now defenders of the Barnett formula, as a few months ago they were voting in this Chamber with the Conservatives to scrap the Barnett formula in favour of full fiscal autonomy. It does pose the question of whether they are really interested at all in getting these particular issues resolved.

Let me finish by talking a little about the democratic deficit, which was the second plank at the heart of these negotiations. We must close that deficit. The Scotland Bill is much too important for us not to do that.

I will conclude by posing a few questions, which I hope can be answered by the Secretary of the State in his opening remarks, or by his colleague, the Chief Secretary to the Treasury, at the conclusion of this debate. The Chief Secretary to the Treasury announced today that he will be in Scotland for more talks on Monday. What are the Secretary of State’s aspirations for that meeting, and is a deal expected at those talks? Does the Secretary of State recognise 12 February as a final deadline, and what will happen if a deal is not reached by that date? Will negotiations continue regardless of dissolution and the Scottish parliamentary elections? Will the Secretary of State publish the final offers from both parties for transparency purposes so that the public can determine whether or not these were good deals for Scotland? Has consideration been given to agreeing a deal for a trial period thus allowing for assessment and adjustment?

Our motion urges both Governments to work together and to stay at the table until a deal is agreed. It also calls on the UK Government to publish all minutes and papers from the Joint Exchequer Committee, and I commend it to the House.

Photo of Natascha Engel Natascha Engel Second Deputy Chairman of Ways and Means

Order. I now have to announce the results of today’s two deferred Divisions. On the motion relating to social security regulations, the Ayes were 297 and the Noes were 73, so the Question was agreed. On the motion relating to the social security pensions Order, the Ayes were 301 and the Noes were 70, so the Question was agreed.

[The Division list is published at the end of today’s debates.]

Photo of David Mundell David Mundell The Secretary of State for Scotland 5:48 pm, 3rd February 2016

Let me add my welcome to this debate this afternoon. A debate on Scottish public spending is important at any time, but it is particularly apposite today, as our colleagues at Holyrood are debating the latest draft Scottish Budget.

I am sure that we will be hearing a lot from SNP members about austerity, even as their counterparts in the Scottish Parliament vote through massive cuts to Scottish local government, while maintaining a council tax freeze which prevents councils from addressing their shortfalls and making use of the new Scottish rate of income tax. Public spending is about choices, and I am proud to be part of a Government who cut tax for over 2.3 million people in Scotland, reducing the tax paid by a typical taxpayer by £825 and taking 290,000 Scots out of paying any income tax at all.

Photo of David Mundell David Mundell The Secretary of State for Scotland

I have not started yet. I will give way to the hon. Gentleman in due course.

On the motion and the amendment, let me start by reminding the House what the Government are working on in relation to the fiscal framework. We are implementing the Smith commission—a cross-party agreement for the future of Scotland. I am determined to deliver the legislation required to implement the Smith agreement in full. That is why we are negotiating a new fiscal framework agreement for the Scottish Government. That is what the people of Scotland voted for—a stronger Scottish Parliament in a strong United Kingdom. They did not vote for independence. As the SNP’s former adviser Alex Bell has noted,

“the SNP’s model . . . that it was possible to move from the UK to an independent Scotland and keep services at the same level, without either borrowing a lot more or raising taxes” is “broken”.

We base our position on the principles set out in the all-party Smith agreement. Smith stated that a fiscal framework needed to be agreed—that there should be no detriment at the initial point of devolution, that there should be appropriate indexation to adjust the block grant in future years, that this should be fair to taxpayers across the UK, and that we should address so called “spillover effects”. That means that the Scottish Parliament and Government will take on more economic responsibility and accountability.

Photo of Callum McCaig Callum McCaig Shadow SNP Westminster Group Leader (Energy and Climate Change)

The Secretary of State quoted the Smith agreement as stating that, at the point of devolution, there should be no detriment to the Scottish public finances, but does he agree that the key to that is ensuring that the fiscal agreement does not build in detriment in the coming years, which is the crux of the deal and the problem in reaching agreement?

Photo of David Mundell David Mundell The Secretary of State for Scotland

The crux of the deal is to deliver a settlement that is fair to Scotland and fair to the United Kingdom. As the hon. Gentleman knows, a number of mechanisms have been set out that could achieve that and they are part of the ongoing negotiation.

Photo of Melanie Onn Melanie Onn Shadow Deputy Leader of the House of Commons

Will the Secretary of State give me a little more information about what he considers to be fair? Will he explain the mechanisms that are being discussed?

Photo of David Mundell David Mundell The Secretary of State for Scotland

If the hon. Lady is new to this debate, she will be able to find many detailed discussions about all the mechanisms. Under the new proposals, the Scottish Government would benefit from good decisions that they take which produce additional revenue for them, but they would bear some of the risk if they take decisions that lead to less revenue than had been anticipated. That is what I think is at the heart of fairness in the proposals being debated.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

Following on from what my right hon. Friend has just said, does he therefore confirm that the per capita indexed deduction is not the right way forward?

Photo of David Mundell David Mundell The Secretary of State for Scotland

I do not think even my hon. Friend would expect me to express a view because I am not going to negotiate the arrangement on the Floor of the House. I am happy to comment on a number of aspects of the negotiation, but the Deputy First Minister of Scotland has made it abundantly clear to the United Kingdom Government that it is he who is negotiating these arrangements on behalf of the Scottish Government, not MPs, not the First Minister and not members of the Scottish National party. I have confidence in his wish to reach an agreement and to conduct those negotiations, as we have done so far, on the basis that we committed to—that is, by not giving a detailed running commentary.

Several hon. Members rose

Photo of Pete Wishart Pete Wishart Shadow SNP Westminster Group Leader (Leader of the House of Commons), Chair, Scottish Affairs Committee

We have heard from the Labour party that it does not know which index it favours in these negotiations, and I think that the Secretary of State is saying that he does not have a view about the indexation he prefers. Surely we need to know what both respective parties favour. We know what we want. What does he want?

Photo of David Mundell David Mundell The Secretary of State for Scotland

The hon. Gentleman has just heard me set out the position. We are in an ongoing negotiation, and I remain optimistic that it will reach a positive conclusion. I must say that I do not recognise some media reports that say there is a gulf between the two Governments. I believe that we are both on the same page—one Government might be at the top of the page and the other might be at the bottom, but it is eminently possible for us both to move to the middle. That is what my colleagues the Chief Secretary to the Treasury and the Deputy First Minister will continue to do when they next meet. The Government are doing all we can to reach an agreement based on the Smith principles.

Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Fair Work and Employment)

The Secretary of State is unwilling to state his position today, but surely he agrees with Professor Anton Muscatelli, and indeed with the Scottish Trades Union Congress, that these powers cannot come at any cost. He must commit today to a position on non-detriment to the Scottish budget.

Photo of David Mundell David Mundell The Secretary of State for Scotland

What I commit to is a fair settlement for Scotland. The discussions are ongoing. I am confident that we will be able to achieve a fair settlement for Scotland. Ian Murray alluded to the fact that the Joint Exchequer Committee has met eight times, with constant engagement at official level. I have met John Swinney on numerous occasions during this period. Work at official level continues. Senior UK Government officials will meet Scottish Government officials in Edinburgh tomorrow. My right hon. Friend the Chief Secretary to the Treasury has today confirmed that he will be available all day on Monday for further discussions. We stand ready to agree a deal. Our door is open and our efforts continue.

Photo of Stella Creasy Stella Creasy Labour/Co-operative, Walthamstow

The Minister is setting out the discussions that have taken place and are taking place. I take him back to the Smith principles, to which he alluded, which state that there should be

“pro-active reporting to respective Parliaments of, for example, the conclusions of Joint Ministerial Committee, Joint Exchequer Committee and other inter-administration bilateral meetings established under the terms of this agreement.”

Is he really telling us that refusing today’s request for the minutes meets that principle, because it does not sound like it, and we have had so little detail of so much work?

Photo of David Mundell David Mundell The Secretary of State for Scotland

I am sure that the hon. Lady could find a lot more detail if she studied the Scottish press and looked through the various debates that have been conducted on the issue. We will report what happened in full. I do not recall important negotiations being reported in detail and on a daily basis in the House of Commons or elsewhere when Labour were in government. We do not intend to do that. We intend to reach an agreement that is fair for Scotland and fair for the rest of the United Kingdom. That is where our efforts are focused.

I remain an optimist. We are making progress, and I believe that we will reach an agreement. A deal can and will be reached if both sides want it. I know that the UK Government want a deal, and I believe the Scottish Government when they say that they want one too. The two Governments have agreed to speak again in the coming days. Although there are still some difficult issues to resolve, we remain confident that a deal can be reached that is fair to Scotland and fair to the rest of the UK, now and in the future.

Photo of John Redwood John Redwood Conservative, Wokingham

I am grateful to the Secretary of State, who is doing a difficult task with great skill. Has a recent model been produced for how the income tax might work, because we have seen in previous debates that the forecasts for oil revenue were grossly exaggerated, and there is an unfortunate danger that with the collapse of the oil price will come the collapse of oil-related incomes in Scotland, which would have a bad impact on income tax receipts?

Photo of David Mundell David Mundell The Secretary of State for Scotland

My right hon. Friend makes an important point, which speaks against those who argued just a few short months ago for full fiscal autonomy. It is quite interesting to look back at the amendment launched by the SNP in November to bring about full fiscal autonomy, which the Institute for Fiscal Studies predicted would create a £10 billion gap in Scotland’s finances. When the SNP asked for that full fiscal autonomy, it did not ask for what they now claim are the levers it needs to grow the Scottish population and offset the risk it is being asked to take on in relation to the Smith commission proposals.

The Government have been as open and transparent as possible in these negotiations, and each meeting has been notified to the House. Just this afternoon, the Chief Secretary appeared before the Scottish Affairs Committee. Last month, we responded in detail to the Economic Affairs Committee in the other place on fiscal devolution, having previously submitted written evidence to that Committee.

Photo of Catherine McKinnell Catherine McKinnell Labour, Newcastle upon Tyne North

It is vital that these negotiations have the confidence of not just the Scottish people, but the people of the whole UK. Does the Secretary of State recognise that there is a significant risk of these negotiations suffering from the same problems as the negotiations over devolution in England, which the Communities and Local Government Committee report published today clearly states have lacked openness?

Photo of David Mundell David Mundell The Secretary of State for Scotland

I do not recognise, for the reasons I have just set out, that those circumstances characterise the negotiations we have been conducting with the Scottish Government, and I make the case that a degree of privacy for negotiations of this type is required.

Ian Murray mentioned deadlines. I do not think in terms of self-imposed or arbitrary deadlines. Personally—keen though I am to have a warm and supportive relationship with the Scottish Government—I have never felt that the St Valentine’s day date had much relevance to this process. I am willing to continue working towards a deal for as long as that takes and for as long as we can. However, the usual channels have agreed to move the next day of Committee on the Scotland Bill in the other place to 22 February, as discussions on the framework continue to progress, to enable us to give their lordships as full an update as possible.

We have shown flexibility in the negotiations. While I cannot, as I have said, give a commentary to the House, Members will have seen via media reports that the UK Government have put compromise proposals on the table. That is a clear signal of our commitment to reach agreement and of our willingness to be as flexible as we can be, within the Smith principles.

Without commenting on the proposals, I would point out that the House will be aware of some of the tenets of those on the table. There are some suggestions that the Scottish Government should retain all income tax raised in Scotland, as well as a guaranteed share of the growth in income tax in England, Wales and Northern Ireland. Professor Muscatelli, who was referred to earlier, told the Scottish Parliament that such an approach would not meet the test of taxpayer fairness. This seems, once again, to be the Scottish Government wanting to have their cake and eat it—indeed, to have a slice of everyone else’s cake while they are at it. That might be understandable enough politics, and an understandable enough position to adopt at the start of a negotiation, but it cannot really be said to be a credible position.

Once the powers are devolved, Scotland

“should retain the rewards of our success, as we will bear the risks.” —[Scottish Parliament Official Report, 16 December 2015; c. 23.]

Those are not my words, but those of John Swinney. Mr Swinney has been very clear in the past about exactly what he meant by “risks”. He meant the risk that Scotland’s population might decline relative to the rest of the UK’s.

When asked at the Scottish Parliament’s Finance Committee by Malcolm Chisholm MSP if the Scottish Government would seek to be protected from the possibility that the rest of the UK’s population will expand more quickly than Scotland’s, John Swinney was very clear:

“That is another of the wider range of risks that we take on as a consequence of gaining the responsibilities.”

The Daily Record newspaper, sometimes brandished by SNP MPs, set this out clearly, finding it hard to see why

“a tax-raising Scotland should benefit from a growth in tax receipts in England and Wales” and stating that

“there is an undeniable logic” to opposing that view.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

The Daily Record completely misunderstood how per capita indexed deduction works. Academics have been clear that the Barnett equivalent is per capita indexed deduction. If the Secretary of State supports anything other than PCID, he is attempting to undermine Barnett. Is he trying to scrap Barnett to appease his Back Benchers?

Photo of David Mundell David Mundell The Secretary of State for Scotland

I respect the hon. Lady’s imagination, which, I am afraid, she still sometimes lets run riot. We are committed to the Barnett formula. We are committed to delivering an agreement that is fair to the people of Scotland and fair to the rest of the United Kingdom, and that is what these negotiations are about.

Photo of David Mundell David Mundell The Secretary of State for Scotland

The position set out in the Daily Record reflects the reality. If the population of the rest of the UK were to rise at a faster rate than Scotland’s, that would cause an increase in demand on public services such as schools and hospitals in the rest of the UK, which would need to be funded. How could it be fair that those services be denied the funding required to sustain them because part of the income tax growth was being transferred to the Scottish Parliament? What would people in Carlisle, Newcastle or Liverpool say if their local services were not able to keep up with demand because the Scottish budget was being increased?

Photo of David Mundell David Mundell The Secretary of State for Scotland

Let us imagine if the situation were reversed. Does anyone think for a minute that the Scottish Government would accept a deal in which a growth in Scottish income tax relative to the rest of the UK was clawed back by the Treasury in Whitehall, to the detriment of Scottish public services? Of course they would not, and quite rightly. I want Scotland to enjoy the benefits when good decisions are made at Holyrood. As John Swinney said,

“If we take on a responsibility and make a success of it, we should bear the fruit of that; if we get it wrong, we must bear the consequences.”

Photo of Ian Blackford Ian Blackford Shadow SNP Spokesperson (Pensions)

I am grateful to the Secretary of State for giving way—I almost thought I had become invisible. We are having a very important debate. He talked about his responsibility to put the Scotland Bill through this House. Surely he has to see that the fiscal arrangements that are put in place are central to that. He must have a view on what is in Scotland’s best interest if we are to avoid detriment to Scotland. Is he really Scotland’s man in the Cabinet or the Cabinet’s man in Scotland?

Photo of David Mundell David Mundell The Secretary of State for Scotland

The hon. Gentleman is not invisible, unlike some of his colleagues. He will find that I am very clear on my responsibility, which is to deliver the Scotland Bill and the powers that the people of Scotland voted for comprehensively in the referendum. The fiscal framework underpins that. It is to be based on the

Smith principles of no detriment and fairness to taxpayers in Scotland and across the rest of the UK. That is what I am determined to achieve. Because my glass is half full, I have confidence in the Scottish Parliament to do what is right for Scotland—to pass a legislative consent motion to agree a fiscal framework. The powers contained in the Scotland Bill will present the Scottish Parliament elected in May with a great opportunity to show how devolution can really benefit the people of Scotland.

I want to say a couple of things about population risk. I do not accept the counsel of despair that says that Scotland needs a more lax immigration system if it is to address the issue of relative population growth. The Government rightly wish to see net immigration come down, and we are taking steps to achieve that, but I am afraid we do still have some way to go. The latest figures show that annual net migration stands at 336,000 and there were 636,000 migrants coming to the UK in the past year. Those are considerable numbers, and if Scotland is not getting a share of that migration, the Scottish Government have some serious questions to answer.

The levers that the Scottish Parliament has over health and education, among other things, can be used to make Scotland the attractive place to live and work that it should be. The powers contained in the Scotland Bill will give the Scottish Government even more levers to make Scotland even more attractive. If they use the new tax powers in the Bill cleverly, they can attract more taxpayers to Scotland to make a contribution, boost the population and increase the tax take. Of course, if they adopt the frankly ludicrous proposals put forward by the Scottish Labour party this week to increase the income tax bill for most Scottish taxpayers by 5%, they may not succeed in making Scotland a more attractive place to live and work.

Let me conclude as I began. We are negotiating in good faith to deliver on the Smith commission principles, and I am confident that a deal can be reached. I give an absolute undertaking to this House that I will do everything in my power to achieve a deal that is fair to Scotland and fair to the whole United Kingdom. I remain optimistic that we can get such a deal, and that our debates can move on to how those new powers and the existing powers of the Scottish Parliament can be used to improve the lives of the people of Scotland.

Several hon. Members rose

Photo of John Bercow John Bercow Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Speaker of the House of Commons

Order. I remind the House that this very short debate finishes at 7 pm, and that there will have to be two Front-Bench winding-up speeches, which I hope will be mercifully brief. Even so, there is very little time, a point of which I know the hon. Gentleman who is about to take the Floor will take note, although he is not subject to a time limit. I call Mr Stewart Hosie.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party 6:11 pm, 3rd February 2016

I beg to move an amendment, to leave out from “accompany the Scotland Bill
to end and add:

“notes that the Smith Commission recommended that a fiscal framework be agreed between the UK and Scottish Governments on the basis that the Barnett Formula be maintained and that Scotland would be no worse or better off simply as a result of the transfer of additional powers;
notes the clear statement by the Scottish Government that it will not recommend any fiscal framework to the Scottish Parliament that breaches the Smith Commission recommendations and which locks in a long-term financial disadvantage to Scotland;
supports the efforts of the Scottish Government to secure a fair arrangement;
and urges the UK Government to commit to the principle of no detriment so that a fair framework for the transfer of powers can be agreed and that the people of Scotland can benefit from the additional devolution of powers that they were promised by the UK Government following the referendum on Scottish independence in September 2014.”

Before I turn to the amendment and the motion, I will make a comment or two about the Scottish Secretary’s entertaining contribution. He said that his glass was half full—unlike the Benches behind him. Before he makes jibes about invisible SNP MPs, who are here in rather considerable numbers, he might like to have a glance around him.

The motion is entitled “Public finances in Scotland”, although it is not about the public finances in Scotland. At best, it can be described as being about the fiscal agreement, although in truth it is about the negotiations around the fiscal agreement. There is no reference in the motion to the continuation of the Barnett formula, which is a key point of the negotiations, although it was referenced in the speech. Neither is there any reference in the motion to “no detriment”, an important principle from Smith around which the negotiations are taking place, although it was referenced in the speech.

That does not take away from the fact that the fiscal agreement is vital. As Lord Smith said,

“it is fundamentally important to making Scotland’s new powers work…It is the final interlocking piece of the jigsaw.”

We could not agree more.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

I will give way in a moment. The shadow Secretary of State laid out the context for potential new powers, and I will do the same for the current state of play of Scotland’s public finances, and the situation in which we are negotiating the fiscal agreement. The UK Government’s cuts to Scotland’s fiscal departmental expenditure limits between the start of the last Parliament and the end of this one will be almost £4 billion, which represents a 12.5% real-terms cut. Almost half of that—£1.5 billion—will be between now and the end of the Parliament. That is, to put it another way, a 4.2% cut to Scotland’s fiscal DEL.

Even on capital, notwithstanding the Government’s assertion that it is being increased, Scotland will see a reduction of £600 million between the start of 2010 and the end of the Parliament. That is before we even get to the possibility of in-year cuts to the Scottish block grant, as we have seen in the past, having a real, immediate and direct impact on budgets that the Scottish Parliament has already set and agreed.

Photo of Alex Cunningham Alex Cunningham Shadow Minister (Environment, Food and Rural Affairs)

Pete Wishart said that the SNP knew what it wanted. If that is the case, will Stewart Hosie tell us what the SNP wants and where the Tory Government’s offer falls short?

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

I will certainly speak to our amendment and comment on the motion tabled by the hon. Gentleman’s Front Benchers. I may even touch on what I think would be the best possible outcome for Scotland. I hope that will make him happy.

The cuts I have described are vital to the context in which the fiscal agreement is being negotiated. The cuts are not driven by a fiscal agreement or by the Scottish Government, but by the UK Government’s fiscal charter. The fiscal charter is a requirement to run a budget surplus of enormous proportions—a £10 billion absolute surplus and a £40 billion current account surplus by the end of this Parliament. The framework is being negotiated in the context of this Government’s cutting £40 billion a year more than is required to run a balanced current budget. That means we are negotiating on it in the context of being in the middle of a decade of UK austerity.

The alternative is clear: a modest rise in public expenditure. That would still see the deficit fall, the debt as a share of GDP fall and borrowing come down. A modest 0.5% real terms increase in expenditure would release about £150 billion for spending and investment, and make the cuts we are seeing, which are partly driving the fiscal agreement discussion, absolutely redundant.

Photo of Kevan Jones Kevan Jones Labour, North Durham

I would say this to the hon. Gentleman, whom I consider a friend. He is talking about percentage cuts to the Scottish budget, but he should look at areas, such as the north-east, that have had far bigger cuts proportionally. Unlike him, his party and his Government, people in those areas do not have the ability to raise taxes. Why have the Scottish Government not used the tax-raising powers they already have to fill some of the gap he is describing?

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

That question is important, and I will come on to the use of tax-raising powers. We often hear such an argument from members of the Labour party but let us be under no illusion, because it is wrong. The Scottish Government use their tax powers daily. A council tax freeze to protect families for eight years was the use of a tax-raising power. The small business bonus to protect 100,000 businesses, which now pay no or lower business rates, was a good use of a tax-raising power. The power to mitigate the entire effect of the bedroom tax was a good use of such a power. The idea that powers are not used is simply wrong.

Photo of Kevan Jones Kevan Jones Labour, North Durham

Use them to raise money.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

For the hon. Gentleman’s benefit, I will come on to the specific issue of raising tax in a just a moment.

Before I leave the context of the UK fiscal charter, let me say that we all recall the vote on 13 January 2015 on the implied £30 billion of cuts, when we made many of the same points we are making today. The great tragedy then and now is that the Labour party supported £30 billion of extra Tory pain and austerity.

Photo of Ian Murray Ian Murray Shadow Secretary of State for Scotland

Let us just dispel this constant nonsense from the Scottish National party. The hon. Gentleman’s own First Minister said, when she launched the Scottish business partnership at Tynecastle stadium in June, that the framework on which there was a vote on 13 January 2015 gave Governments enough flexibility to do as they wished. It was very similar to the fiscal framework or charter that he promoted back in November. He refuses to use such powers; he would rather demolish and demoralise Scottish public services.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

As the arguments are complicated, it is so much easier simply to quote in full from the 15 January issue of the new Labour leadership’s favourite newspaper, the Morning Star:

“Labour MP Diane Abbott accused her party’s leaders yesterday of doing working people a ‘great disservice’ by backing Tory plans for permanent austerity.”

The hon. Gentleman keeps getting it wrong.

The key thing is that Scotland’s budget has been cut and will continue to be cut by this Government, which makes the achievements of the Scottish Government all the more remarkable. That makes it all the more important not simply that we get any old fiscal agreement, but that we get it right. We must ensure that the Smith commission principle of “no detriment” is adhered to and that we do not embed unfairness in the system, so that we are not subject to possible additional cuts of about £350 million a year. We need to avoid that outcome so that we can continue to do good things and build on the progress we have seen in health spending, which is up to £12.3 billion this year and will be £13 billion next year, and in education.

Photo of Greg Hands Greg Hands The Chief Secretary to the Treasury

May I bring the hon. Gentleman back to the fiscal framework? I am interested in the amendment that he has tabled, because it seems to quote from the Smith commission—particularly paragraph 95(3) on no detriment, which states that

“the Scottish and UK Governments’ budgets should be no larger or smaller simply as a result of the initial transfer of tax and/or spending powers”.

The amendment carefully deletes some important parts of the Smith agreement. It states that

“Scotland would be no worse or better off simply as a result of the transfer of additional powers”.

Why has he deleted the word “initial”, which is very important in respect of the transfer of powers, and any reference to fairness to the UK taxpayer?

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

For the sake of brevity. Let me be very clear that the negotiations that are under way are founded on a number of principles, including no detriment as a result of the devolution of further powers initially and no detriment as a result of the policy decisions of the UK Government or Scottish Government post-devolution. I would have thought that the Chief Secretary might have known that.

The whole point of getting this right is to avoid a potential cut of an additional £3.5 billion over a decade, so that the Scottish Government can continue their good work. We do not want those additional cuts to be made, because they would weaken our ability to internationalise the economy; hinder our support for businesses seeking to innovate and to do research and development; suck vital resources out of our plans to invest in education and infrastructure; and undermine all the work being done by the Scottish Government to deliver the fall in unemployment and the highest employment rates in the UK.

We understand the trajectory that Scotland’s public finances will take if the wrong block grant adjustment is chosen. As I say, it will perhaps mean the loss of £3.5 billion over a decade.

Photo of Maggie Throup Maggie Throup Conservative, Erewash

Given how the hon. Gentleman is speaking, it almost sounds as if the SNP MPs are having second thoughts about the new powers in the Scotland Bill. Is that because they are afraid of taking them on board?

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

No. The hon. Lady is absolutely wrong; we are not having second thoughts about the powers. We want the powers—indeed, we want more powers—but the agreement that is reached must deliver a Scotland Bill in line with the Smith commission principles, in particular that of no detriment.

We want to avoid a potential additional cut of £3.5 billion over a decade.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

Not at the moment.

What is remarkable is that the motion does not talk about public finances or the impact of getting the fiscal agreement wrong. It is almost exclusively focused on the process of negotiating a formula—a formula that, of course, must deliver no detriment, which was one of the key principles identified by Lord Smith. Although fairness for Scotland is recognised in the motion, many other drivers of Scotland’s public finances are not.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

Not at the moment.

There was a cursory passing reference to Labour’s plan, which was announced yesterday, to make Scotland the highest-tax part of the UK. That has a bearing on the public finances. It is a Labour plan to add to the tax burden of half a million Scottish pensioners. It is a plan to add to the tax burden of 2.2 million taxpayers. In essence, it is a plan to change the public finances by taxing Scots more to pay for Tory cuts. That is the weakness in Labour’s plan.

Photo of Stewart Hosie Stewart Hosie SNP Deputy Leader, Shadow SNP Westminster Group Leader (Economy), Deputy Leader, Scottish National Party

No, I am conscious of time and it would not be fair to give way.

It is absolutely right that the negotiations are done privately. Imagine if there was a running commentary and slight snippets of information, out of context, became the fodder for a new “project fear” campaign run by Labour. We do not want that. We want a Labour party that, instead of sniping from the sidelines, is determined to support fair play, and a fair settlement that delivers on the principle of “no detriment”. Instead, we have this thin motion, combined with Labour MSPs who last week backed the Tories and refused to back the per capita index deduction block grant adjustment mechanism, which would deliver the “no detriment” principles that Labour signed up to in the Smith agreement.

In my view, that is economic and political madness from Labour, but it is not a surprise. After all, in advance of the fiscal agreement, before agreement is reached on a LCM, and before powers are transferred, the Labour party has spent many times over the modest cost of a reduction in air passenger duty—a policy that will create 4,000 jobs and put £200 million of economic activity into the economy—by committing to spend £650 million of Scotland’s public finances from a pot that does not yet even exist. No wonder Labour Members are more interested in talking about process than policy.

As the First Minister has said, the Scottish Government are negotiating the fiscal agreement in good faith, but they will not sign up to a deal that systematically cuts Scotland’s budget, regardless of anything that they, or any future Scottish Government, might do. That message has been reiterated many times by the Deputy First Minister, who said a few moments ago that the reason why we do not have a fiscal agreement right now is that there is no basis to be agreed that is consistent with the Smith commission, and we will not sign up to any document that is not consistent with the Smith commission report.

Let me conclude by being even clearer on behalf of my party: we will not agree to a fiscal agreement that abandons the principle of “no detriment” and embeds unfairness into the Scotland Bill. We will not support Labour tonight. This is a silly motion about publishing minutes that does not address the core substance of the fiscal agreement. We have tabled an amendment to that motion, and I commend it to the House.

Several hon. Members rose

Photo of Christopher Chope Christopher Chope Conservative, Christchurch 6:27 pm, 3rd February 2016

It is a pleasure to follow Stewart Hosie, but I cannot agree with him that the principles of per capita indexed deduction, which he and the Labour party support, are consistent with the Smith commission. That commission had two “no detriment” principles, and that system of indexation and deduction does not comply with both those principles. It will be difficult for the rest of the United Kingdom to accept any deal that is premised on such a biased indexation system.

Professor Gallagher stated in his article “Algebra and the Constitution” that, under per capita indexation, Scotland’s devolved tax yield would be increased each year by roughly the growth in the rest of the United Kingdom population, and that would be on top of Barnett. Although he concedes that that might be to Scotland’s advantage, he stated that

“it hardly seems fair to the rest of the UK, which will carry the spending burden created by the new taxpayers”.

When I look again at the article by Professor Gallagher, I see that public expenditure per head on devolved services in Scotland is £1,400 per person higher than it is on average for the rest of the United Kingdom. It is 24% higher than in the rest of the UK. The proportion of spending is enormously higher. We—the English and the rest of the UK taxpayers—are contributing to that, and we have not heard much thanks for that from the Scottish National party this evening.

This is an important issue. When the Minister replies, will he tell the House who is representing the rest of the United Kingdom in these negotiations? The Joint Exchequer Committee contains somebody from the United Kingdom Government and from the Scottish Government, but there is nobody who represents the rest of the United Kingdom.

Photo of Liz McInnes Liz McInnes Shadow Minister (Communities and Local Government) 6:29 pm, 3rd February 2016

On 8 June 2015, the Financial Secretary said:

“We have agreed to aim to finalise the fiscal framework by the autumn, alongside the passage of the Scotland Bill through Parliament.”—[Hansard, 8 June 2015; Vol. 596, c. 1012.]

1 believe he meant autumn 2015, not autumn 2016. Some would say even the latter is looking hopeful. The First Minister, on 14 December 2015, raised expectations of a Valentine’s day agreement, following a meeting with the Prime Minister. However, that is only 11 days away now and somehow I doubt there will be an agreement among the hearts and flowers.

Since July 2015, the Joint Exchequer Committee has met eight times. Press releases have been published after each meeting, giving a summary of the broad topics discussed but without going into any great detail. My hon. Friend Ian Murray, the shadow Secretary of State for Scotland, has consistently asked that greater details of those meetings be published in the interests of transparency and democratic accountability, yet both the Scottish and UK Governments have refused to publish papers and minutes from the meetings. The opacity of the negotiations has allowed both Governments to exploit them for political purposes. It is disappointing that the Joint Exchequer Committee appears to want to conduct business behind closed doors.

That is not just the opinion of the Labour party. Witnesses appearing before the House of Lords Committee on Economic Affairs were concerned about the lack of information on the progress of the fiscal framework. Some felt it possible for information to be provided, for instance on points of disagreement and on the timetable for conclusion. That is an important point: if points of disagreement were made available, everyone would be able to see the main sticking points.

I call on the SNP in this House to play its part in bringing forward the deal and to be open about the sticking points in negotiations with the Government.

I have relatives in Scotland. They passed on to me SNP election literature that they received. It states:

The SNP will play a constructive role in Westminster and bring ideas forward in a positive spirit.”

Now is the ideal opportunity for the SNP to fulfil its election promise to my relatives and to the people of Scotland, by supporting Scottish Labour MSPs who voted today to increase income tax to escape Tory cuts to Scotland’s public services.

Photo of John Redwood John Redwood Conservative, Wokingham 6:32 pm, 3rd February 2016

I wish to speak for England. The current settlement between Scotland and England, as the constituents of many of my right hon. and hon. Friends know, is not fair. It is very important that the Government take full account of the needs of England, as well as being scrupulously careful to meet the promises they and the other leading parties made to each other during the Scottish referendum. Please do not make the settlement even less fair to England as a result of the changes going through with the transfer of tax revenues, particularly income tax, to the Scottish Parliament and Government.

It is extremely difficult to know what factors lie behind an increase or a diminution in revenues. Some of us study it and we feel we get somewhere near the truth by looking at historical patterns, but it is clear that sometimes when the tax rate is put up we receive less, rather than more, revenue. Models have to reflect those perverse effects, particularly on higher levels of tax. Sometimes a tax increase may in itself, if it is one of the lower tax rates, produce some increase in revenue, but then something else happens that actually reduces the revenue. Conversely, there can be windfall effects through no particular action by the Government.

Scotland has had a very good windfall effect, not just from oil revenues proper, but from income tax revenues as a result of the very high price of oil in recent years and the way that drove up a large number of incomes in the oil and oil service sector. Unfortunately, from Scotland’s point of view, that may now be reversing. The model we use to assess what the revenues are now and what they are likely to be in the future has to be able to capture that complexity. I fear that a lot of the models used in the past by both Governments have not captured that because there are rather extreme effects when there is a big change in the price of oil. That needs to be used to inform the debate about how the grant should adjust to the changes in tax revenue.

It appears from what the Scottish nationalists have been saying that, while they want the power to vary income tax, there are absolutely no circumstances in which they would ever do so. They would always wish to keep the income tax rate in Scotland absolutely in line with England’s. That seems to be their very clear position. We have not been able to draw out of them any circumstances in which they would do so, but that makes the modelling a bit easier, because many of the changes in revenue are not going to come from changes in tax rates—as I say, they do not want to do that. They will come from the economic effects of their other policies.

Photo of Deidre Brock Deidre Brock Shadow SNP Westminster Group Leader (Scottish Parliament/Scottish Government Liaison), Shadow SNP Spokesperson (Devolved Government Relations) 6:35 pm, 3rd February 2016

Like everyone in Scotland, we have an interest in these negotiations. I thank the Leader of the Opposition for bringing this debate to the Chamber, especially in view of the time pressures. It is important to conclude the negotiations quickly. As has been mentioned, the parties standing in the Holyrood elections will want to fashion their manifestos with the extra responsibilities in mind and lay their plans before the Scottish people in good time.

Labour’s leader in Scotland, Kezia Dugdale, has already started with her proposed tax increase, which would mean that basic rate taxpayers would pay 5% more tax than they do now, that being the effect of a 1% rise in the base rate. It is a brave strategy and I am sure we will watch her progress with interest.

We note from the motion that Labour wants all the negotiations out in the open. May I gently remind that party that the Smith commission was not the first to examine Scottish devolution? It followed the Calman commission, which resulted in the 2012 Act, and that followed the constitutional convention of the 1990s. Never were the negotiations over the fiscal model conducted in public. The Treasury statement of funding policy to the devolved Administrations, now in its seventh edition, was presented as a fait accompli. It was never fair to Scotland, and it became a hurdle that the Scottish Government had to clear in trying to deliver for Scotland.

The introduction of local income tax in Scotland was held back as a result of the refusal of the then Chancellor, now in the other place, to amend the funding policy to allow council tax benefit to be applied to a new tax system. Of course, Labour was in government both in London and Edinburgh at the time the funding policy was created, and the negotiations were in private. As we would expect, nothing was made public at that time. At least with the involvement of the SNP Scottish Government, we know that someone in there is standing up for Scotland, and we are hearing at least some of the details.

We understand Labour’s frustration—we all want to know what is going on—but it would be a foolish negotiator who gave away their entire position with the first round of tea. Time is running out, however, and if the deal is not done, the Scottish Government will be left with no choice but to take the issue back to the people. A deal that is not good for Scotland will not be acceptable either to the Scottish Government or to we who sit on these Benches casting a gimlet eye in the UK Government’s direction.

A couple of weeks will determine whether the coming Scottish Parliament election is fought in a spirit of good-spirited competition. The alternative will be a Scottish electorate once more setting their face against a UK Government who have forgotten that governing can be done only by consent. The ideal solution, of course, is independence, but we will have to wait a little while longer for that. In the meantime, we must have a system that can serve Scotland’s people well.

Photo of David Mowat David Mowat Conservative, Warrington South 6:38 pm, 3rd February 2016

My remarks will be very brief. I take note of the comment just made on independence and the concern about the Labour income tax. My understanding in terms of what has happened to North sea oil is that independence would require income tax to go up by approximately 20p in the pound. The point I want to make, however, is that we are talking about two terms: “fairness”, which has been mentioned a lot, and “no detriment”, which has also been mentioned a lot. I am not at all sure, having heard the dialogue, that those two things are reconcilable.

My right hon. Friend John Redwood said that we accept that the Barnett formula has been conceded and that it means that per capita expenditure in Scotland is 115% of that in England. That was what was agreed and it will presumably be the cornerstone of the agreement. However, it would not be right if, as a result of the agreement currently being negotiated, “no detriment” means that, whatever happens in Scotland and whatever decisions are made by the Scottish Government, the 115% ratio will stay the same indefinitely. I shall have a great deal of difficulty with that, as will my constituents. I should add that my constituents entirely agree with the concept of a Scottish Parliament. They agree that it is right for the people of Scotland to be able to choose their priorities, whether it is a question of prescriptions or tuition fees.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

In all his years of learning, has the hon. Gentleman not grasped the fact that the Barnett formula is specifically designed to bring per capita levels of spending in every region and nation of the United Kingdom to the same level?

Photo of David Mowat David Mowat Conservative, Warrington South

In all those years, I stayed away from the Barnett formula, but since the hon. Gentleman has raised the point, I will respond to it. No one who has seriously considered the Barnett formula thinks that it is an attempt to be a proxy for relative need; nor is it true that the Barnett squeeze to which the hon. Gentleman has just referred really happens. I note that no Welsh Members are present, but the Barnett formula has caused a massive problem in Wales.

It strikes me that the formula presented an opportunity to the Scottish nationalist party to show how progressive and internationalist they were. It seems to me that a progressive party of the left, an internationalist party, would not say, “We in Scotland want every single penny that we can get.” The approach of such a party would take account of need in Wales, in England, in my constituency, and elsewhere.

I ask the Chief Secretary, in the negotiations that he is currently leading, to bear in mind that, however we interpret the phrase “no detriment”, the ratio of increased expenditure in Scotland—the figure should be higher than it is in England on the basis of need, but not as much higher as it is now—should not be allowed to continue and be built on, no matter what decisions are made in respect of the relative economies over the next few years.

Photo of Kevan Jones Kevan Jones Labour, North Durham 6:41 pm, 3rd February 2016

This is an important debate not just because it proposes a fiscal framework for Scotland, but because of the huge impact on my electors in North Durham.

The Secretary of State said that he wanted no detriment to Scotland and a fair deal for the rest of the United Kingdom, but we do not know that there will be a fair deal for the rest of the United Kingdom. The Secretary of State said, strangely, that the negotiations required “a degree of privacy”, but what we actually have is secrecy. He then used what I considered to be new terminology, although it has clearly been well practised by this Government: he said that one of the roles of the press was to leak. At the end of the day, however, my constituents and I have no way of influencing or scrutinising what happens in the negotiations.

Photo of John Redwood John Redwood Conservative, Wokingham

Does the hon. Gentleman think that the current distribution of grant and other money between England and Scotland is fair?

Photo of Kevan Jones Kevan Jones Labour, North Durham

No, I do not. Scottish Members were crying over Barnett, but my constituents would welcome the levels of expenditure that we see in Scotland. The main point is this, though. How can I, a Member of the House of Commons, scrutinise this deal if it is done behind closed doors, in a way that is clearly intended to satisfy the Scottish nationalist party—[Interruption.] The point is that I will not have any opportunity to scrutinise that process.

Stewart Hosie trotted out, again, the argument about how badly Scotland had been treated. Let me gently say to him that he needs to look at the percentage of expenditure that the north-east of England has lost. The north-east is not a wealthy region; indeed, it is the poorest region in the United Kingdom, with the highest levels of unemployment, and its views should not be ignored.

Mr Chope asked who spoke for England, or the United Kingdom, in the negotiations. If the answer is the Conservatives, I have to say that they have been no friends of the north-east for many years, and we will get a very bad deal. The real test, however, relates to the powers that will be given to the Scottish Government. They already have the alternative of raising revenue, but they do not use it. Instead, they are aping the Conservatives with notions such as the freezing of council tax, which is not at all progressive in terms of redistribution.

The House should have the ability to look at how the deal will affect constituents in the rest of the UK. That said, I do not think we will need to bother, because it is quite clear what the Scottish nationalist party will do. It is going to string it out until May, cry foul and then use its victim mentality, which it has turned into an art form, to persuade the Scottish people that they are getting a raw deal from the rest of us. I do not think, therefore, that we will find ourselves in that position, which is sad, because it means we are not going to have a debate this May in Scotland about the use of the powers; instead, we are going to have the victim mentality. The SNP will blame the rest of us in the UK for the poor deal it has got, when, frankly, it does not give a damn about my constituents or any others in the UK.

Photo of Maggie Throup Maggie Throup Conservative, Erewash 6:45 pm, 3rd February 2016

As everybody in the House is aware, the vote in Scotland in 2014, despite the SNP’s thinking it gave the wrong answer, has resulted in the largest shift of power and fiscal responsibility our nations have ever seen. At the time, some of my constituents wanted a say in whether Scotland remained part of the

UK, yet the system denied them that vote. I can understand why they wanted their say—on the whole, they felt we were better together.

My constituents did not cry about the fact that public spending per head in the east midlands was £8,219, as opposed to £10,275 per head—over £2,000 more—in Scotland, yet the SNP gripes about every little thing that does not fit its narrow agenda. Only the Conservatives, skilfully led by Ruth Davidson in Scotland, are standing up for the 2 million Scottish voters who overwhelmingly rejected independence at the ballot box. They want not another divisive independence debate, but a plan to tackle the everyday issues that affect them most, such as health, education and jobs. That is what this Government are delivering.

Everything done for Scotland by the UK Government, whether on the fiscal framework or the Scotland Bill more widely, is based on the Smith principles. If the powers in the Bill are used well by the Scottish Government, Scotland will do well. I disagree fundamentally with the SNP and its dogged determination to break up our country, but at least it fights for what it believes is best for the Scottish people. Sadly, that cannot be said for Labour, which clearly has no plan for Scotland, as shown by this debate.

It is all well and good debating how much of taxpayers’ money goes from one pot to another, but with devolution comes responsibility for the countries within the Union to make their own way in the world. Labour and the SNP both oppose Trident. If they got their way, thousands of jobs would be lost and it would have a major impact on the Scottish economy and Britain’s security.

Above all, I am concerned about British taxpayers, whether north or south of the border. I therefore urge my right hon. Friend the Chief Secretary, who is leading the negotiations on the fiscal framework, to ensure adequate protections in any agreement, so that future Scottish Governments cannot simply come back, cap in hand, to the UK Treasury because they have taken the wrong fiscal decisions.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health) 6:48 pm, 3rd February 2016

It is not fashionable these days to describe oneself as British, but I am proud to be British. I was born to a Scottish mother, which is where I get my name Andrew, of Welsh parentage, which is where I get my surname Gwynne, and I am proud to be English, Mancunian and Dentonian.

The powers being extended to the Scottish Parliament and Government have far-reaching implications for the rest of the UK. I want the asymmetric nature of devolution evened out across the UK, and I want the Scottish Parliament within the UK to succeed using its fiscal and welfare powers, because that is exactly where the Greater Manchester Combined Authority and the Mayor of Greater Manchester want to take devolution in my city region. I call on the Government to press ahead with the deal. Let us challenge the Scottish Parliament to use those powers, and let us extend them to the rest of the UK.

Photo of Seema Malhotra Seema Malhotra Shadow Chief Secretary to the Treasury 6:49 pm, 3rd February 2016

May I start by thanking all Members who have made important contributions to the debate? I will mention just a few because of the brief time we have left. My hon. Friend Liz McInnes spoke about how we need transparency to see if the agreement is fair, and challenged the SNP not just to manage Tory austerity but to do something about it. John Redwood talked about how the position of the SNP is not to use tax powers, but it has given no indication of ever using them; indeed, Deidre Brock refused to say whether they would use new powers and seems to want local income tax.

Several hon. Members rose

Photo of Seema Malhotra Seema Malhotra Shadow Chief Secretary to the Treasury

I am afraid that, in the interests of time, I will have to proceed.

My hon. Friend Mr Jones said that there is a critical issue about the rest of the UK and the need to scrutinise the deal to make sure his constituents, too, are represented. While Stewart Hosie commented on the performance of the Secretary of State, he may want to work harder on getting his own facts right. He claimed that the Labour party has spent air passenger duty twice, and it is true: once on mitigating tax credit cuts, when Labour in the end no longer needed to use it for that, and then, secondly, reallocating it to supporting people to buy their first home.

As my hon. Friend Ian Murray observed, the focus of today’s debate is the transfer of new powers to Scotland—powers that will transform the Scottish Parliament into one of the most powerful devolved Administrations in the world with the ability to make different choices to create a better Scotland. That is the essence of devolution: the chance to take a different path based on different circumstances; the chance to reject the short-term Tory cuts—false economies that will hurt Scotland. The new powers to be devolved to the Scottish Parliament will only enhance the range of choices on offer. The Scotland Bill that is due to transfer those powers was based on the recommendations of the Smith commission— recommendations which were agreed by all parties.

Of course, the Smith commission was based on the solemn promise made to the people of Scotland. The Scotland Bill was passed in this place and is currently being debated in the other place. The only sticking point—the only remaining obstacle—is agreement on the fiscal framework. Until that revised framework is agreed by the Conservative Government and the SNP Government, the Scotland Bill cannot be enacted, and without agreement, Scotland will never get the power and responsibility it has been promised. As Labour’s motion states, the lack of transparency from the Tories and the SNP continues to block progress.

The deadline for concluding the negotiations has consistently been pushed back, yet no one outside the two Governments knows the reasons why. We need a negotiated agreement in order to move on, otherwise the new powers will lie dormant; and we need an agreement before the Scottish Parliament rises for the Holyrood elections in May.

There has been a democratic deficit at the heart of the negotiations of Scotland’s revised fiscal framework. It is a deficit that must be closed, and that is the purpose of today’s debate. It is a deficit caused by the Tories in

Westminster and the SNP in Holyrood, a deficit that is hurting, not helping, the people of Scotland—

[Interruption.]

An agreement has not been reached. Only when the Scotland Bill is enacted and the powers transferred can we truly move on from the constitutional wrangling that has come to dominate the political discourse in Scotland.

The questions that my hon. Friend the Member for Edinburgh South has asked remain unanswered, so I will reiterate them. The Chief Secretary to the Treasury announced today that he would be in Scotland—[Interruption.] I hope that he will have a chance to listen to me in a moment. He announced today that he would be in Scotland for more talks on Monday. What are his aspirations for that meeting? Perhaps he could share them with us today. Does he recognise 12 February as a final deadline? What will happen if that deadline is missed? Will the Secretary of State publish the final offers for both parties, for transparency purposes? Has consideration been given to agreeing a deal for a trial period, to allow for assessment and adjustment? I call upon the UK Government to publish all minutes and papers from the Joint Exchequer Committee negotiations and to assure the House that every effort is being made to ensure that an agreement on the revised fiscal framework will be reached and the Scotland Bill will be passed prior to the Scottish Parliament elections.

Photo of Greg Hands Greg Hands The Chief Secretary to the Treasury 6:55 pm, 3rd February 2016

This Government are united in their belief in a successful and prosperous Scotland—a Scotland that is strengthened through being part of the United Kingdom and whose presence makes the United Kingdom itself stronger. It is clear to us that the Scottish people should have greater control over their affairs and that the Government in Edinburgh should be more accountable. The referendum of 2014 was a defining moment in Scotland’s history. The Scottish people’s voice was clear: they wanted to make Britain stronger and not to break Britain up. It is now right that we should deliver a fair and lasting settlement that works for Scotland and for the UK as a whole. The UK Government are committed to delivering the Smith agreement, which, let us remind ourselves, was agreed by all five parties in Scotland, including Labour and the Scottish National party. That commitment has driven every step of our work.

Photo of James Berry James Berry Conservative, Kingston and Surbiton

What assessment has the Chief Secretary to the Treasury made of Labour’s recently announced plans to put up income tax in Scotland? What impact does he think that would have on the Scottish economy?

Photo of Greg Hands Greg Hands The Chief Secretary to the Treasury

I was amazed by Labour’s announcement in the Scottish Parliament yesterday about wanting to increase income tax. I think it would be a disaster for the Scottish economy and for the people of Scotland, so I wholly agree with my hon. Friend.

The Smith agreement was clear: the Scottish Government should bear the economic responsibility for their decisions; or, as the Scottish Deputy First Minister has put it:

“If we take on a responsibility and make a success of it, we should bear the fruit of that; if we get it wrong, we must bear the consequences”.

I want to make three main points. Why are we doing this taxpayer devolution? The answer is to give Scotland one of the most powerful and accountable devolved Parliaments in the world. The stress there must be on the word “accountable”. Since 2010, the amount of taxes raised in Scotland and spent by the Scottish Government will have increased from around 10% to around 20% under the Scotland Act 2012, and to 40% under these proposals. These measures would also allow the Scottish Government the opportunity to grow their economy, to use new devolved powers and to see the fruits of their efforts.

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs)

The Chief Secretary to the Treasury is right to say that accountability is at the heart of this matter. That is why we must have a deal, and if we do not get one, we in this House and those in the Scottish Parliament need to be told the reason why. Without a deal, the people of Scotland face the prospect of going to the polls in May not knowing exactly what powers will be given to the Parliament.

Photo of Greg Hands Greg Hands The Chief Secretary to the Treasury

I thank the right hon. Gentleman for that intervention, which leads me nicely on to the fact that the UK Government are absolutely committed to getting a deal. I announced earlier today, before the Scottish Affairs Committee, that I will be going to Edinburgh on Monday to continue the negotiations. I am hopeful that we will get—

Photo of Michael Weir Michael Weir SNP Chief Whip

claimed to move the closure (Standing Order No. 36).

Question put forthwith, That the Question be now put.

Question agreed to.

Question put accordingly (Standing Order No. 31 (2)), That the proposed words be there added.

The House divided:

Ayes 54, Noes 297.

Division number 186

See full list of votes (From The Public Whip)

Aye

No

Question accordingly negatived.

Question put (Standing Order No. 31(2), That the original words stand part of the Question.

The House divided:

Ayes 201, Noes 295.

Division number 187

See full list of votes (From The Public Whip)

Aye

No

Question accordingly negatived.