Scotland’s Fiscal Framework — Statement

Part of the debate – in the House of Lords at 3:38 pm on 24th February 2016.

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Photo of Lord Dunlop Lord Dunlop The Parliamentary Under-Secretary of State for Scotland 3:38 pm, 24th February 2016

My Lords, with the leave of the House I will now repeat a Statement made in the other place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows.

“Mr Speaker, with permission I would like to make a Statement about the new fiscal framework for Scotland, which was agreed yesterday by the United Kingdom and Scottish Governments.

I begin by paying tribute to everyone who has worked so hard to arrive at this point: my right honourable friend the Chief Secretary and the Deputy First Minister, John Swinney, who have led these negotiations with skill, and the dedicated teams of officials from Her Majesty’s Treasury and the Scottish Government who have worked tirelessly on behalf of their respective Governments. They can all be proud of what has been achieved and the service they have given.

This is a truly historic deal that will pave the way for the Scottish Parliament to become one of the most powerful and accountable devolved parliaments in the world. We have respected all the principles set out in the cross-party Smith agreement and delivered a deal that is fair for Scotland and fair for the whole United Kingdom. As the noble Lord, Lord Smith, himself said yesterday evening:

‘When the Smith Agreement was passed to the Prime Minister and First Minister, both gave their word that they would deliver it into law - they have met that promise in full’.

Scotland’s two Governments will give more details in the coming days, but I would like to set out a few key elements of the deal.

The Scottish Government will retain all the revenue from the taxes that are being devolved or assigned, including around £12 billion of income tax and around £5 billion of VAT. The block grant to the Scottish Government will be adjusted to reflect the devolution and assignment of further taxes and the devolution of further spending responsibilities. We have kept our commitment to retain the Barnett formula, extending this to cover areas of devolved welfare. For tax, we will use the UK Government’s preferred funding model. Under this model, the Scottish Government hold all Scotland-specific risks in relation to devolved and assigned taxes, just like they do for devolved spending under the Barnett formula. That is fair to Scotland and fair to the rest of the UK.

However, for a transitional period covering the next Scottish Parliament, the Governments have agreed to share these Scotland-specific risks as the powers are implemented. Specifically, the Scottish Government will hold the economic risks while the UK Government will hold the population risks. So the Scottish Government will not receive a penny less than Barnett funding over the course of the spending review simply due to different population growth. By the end of 2021, a review of the framework will be informed by an independent report so that we can ensure we are continuing to deliver

Smith in full, with the Scottish Government responsible for the full range of opportunities and risks associated with their new responsibilities.

We have also agreed that the Scottish Government will have additional new borrowing powers. This will ensure that the Scottish Government can manage their budget effectively and invest up to £3 billion in vital infrastructure. In line with the recommendation of the Smith agreement, we will provide the Scottish Government with a £200 million share to set up the new powers that they will control.

The Government have delivered more powers to the Scottish people, ensuring that they will have one of the most powerful devolved parliaments in the world and the economic and national security that comes with being part of our United Kingdom. That is what we have agreed and what we have delivered in full. Now that we have agreed this historic devolution deal, the conversation must move on to how these new powers are to be used.

The Scottish Government will have extensive powers over tax, welfare and spending. They will have control over income tax and be able to change the rates and thresholds. They will be able to create new benefits. The permanence of the Scottish Parliament is also put beyond any doubt.

The people of Scotland voted for these new powers and deserve to hear how parties in Scotland will use them—new powers that, if used well, can grow Scotland’s economy and population, and bring greater opportunity and prosperity. Now that we have agreed this fiscal framework, I hope and trust that this House and the other place will welcome it while of course subjecting it to full scrutiny. I commend this Statement to the House”.