First Minister Nicola Sturgeon’s statement on Fiscal Framework negotiations

Nicola Sturgeon MSP, First Minister of Scotland.

Nicola Sturgeon MSP, First Minister of Scotland.

The First Minister today held her regular press conference.  This is her opening statement.

Thanks for coming today.

I will be happy to answer your questions shortly.

However, I’d like to begin with an update on the fiscal framework negotiations and set out steps the Scottish government is taking to seek to break the current impasse and reach a deal that will allow us to recommend that legislative consent be given to the Scotland Bill before the Scottish Parliament is dissolved next month.

Firstly, the DFM has written today to Bruce Crawford, Convener of the Devolution (Further Powers) Committee asking what flexibility can be offered in the timetable for parliamentary scrutiny to enable negotiations to continue beyond 12th February. Copies of that letter are available.

Secondly, as confirmed by the DFM last night, following his meeting with the Chief Secretary to the Treasury, the Scottish Government will within the next couple of days submit a revised proposal consistent with the principles of the Smith Commission. As we have made clear throughout, per capita index deduction is the best way of meeting the Smith Commission ‘no detriment’ principle. However, we will propose a modification that will also meet the other Smith Commission principle – that of ‘taxpayer fairness’ – i.e. changes to the tax burden on taxpayers in the rest of the UK in respect of taxes that are devolved to Scotland should not affect Scotland’s budget.

Thirdly, and perhaps most importantly if a deal is to be reached, I am writing to the Prime Minister today, seeking to address what I consider to be the central issue of principle that is standing in the way of a deal – the fact that we are not currently working to a shared understanding of what ‘no detriment’ means.

In my view, there is no ambiguity in what the Smith Commission meant by ‘no detriment’.

It means that if tax policy in Scotland remains the same as in the rest of the UK and if Scotland’s economic performance matches that of the rest of the UK, the Scottish budget should be no better or worse off – either at the point of devolution or in the future – than if current funding arrangements continued without further devolution.

Of course, if future Scottish governments decide to vary tax rates, or if our economic performance diverges from the rest of the UK, then the costs and benefits of these decisions and trends would fall on the Scottish budget. We accept that. But if nothing changes, then our budget shouldn’t change either, compared to what it would have been without the new powers.

That is what ‘no detriment’ means and it is the outcome that the Scottish government is seeking to achieve.

However, it has become increasingly clear that what the Treasury seems to want to achieve is an outcome that would systematically reduce the Scottish budget as a result of our differential growth in population – even though the Scotland Bill gives us no additional powers to grow our population.

Indeed, the current proposal on the table from the Treasury – which has been described by them as a concession – would, by our estimation, and all else being equal, reduce the Scottish budget by almost £3 billion over the next ten years.

That is simply not acceptable. It would mean Scotland having to grow receipts from income tax much faster than the rest of the UK just to stand still.

I do not believe anyone who signed up to the Smith Commission did so believing that it would result in a systematic reduction of our budget – even in circumstances where our tax policy and economic performance remain 100% consistent with the rest of the U.K.

That was not what the Smith Commission recommended.

And it was absolutely not what was promised to the Scottish people in the pre-referendum vow.

We were promised additional powers – not additional powers in exchange for an automatic and systematic reduction in our budget.

Much is being made by the UK government of the need to ensure that any deal is fair to people in the rest of the U.K. I agree that is important and I am clear that our proposals will meet that test.

But – in current circumstances – surely there is another element to that test. As we approach an EU referendum, people anywhere in the UK have a right to know that what the UK government says in a referendum campaign can be trusted and will be delivered.

So, I am writing to the PM today – and in the interests of transparency publishing the letter – to ask him to confirm that he shares my understanding of ‘no detriment’.

If he does, our negotiating teams can then get on with striking a deal which delivers ‘no detriment’  – rather than doing what the Treasury seems to want to do, which is have a negotiation about how much detriment Scotland should agree to bear.

It would also enable more attention to be given to the other important issues that require to be agreed if an overall deal is to be reached.

Let me make one final point.

I want to reach a deal. I want these additional powers. I have spent my entire adult life campaigning for a Scottish Parliament that is as powerful as possible.

As First Minister, my job is to stand up for Scotland. I will not allow Scotland to be shortchanged.”

Please see below the full letter to the Prime Minister David Cameron.

I am writing with respect to the ongoing fiscal framework negotiations between our respective governments, following the Joint Exchequer Committee meeting in Edinburgh yesterday afternoon.  I remain committed to securing an agreement between us. I understand that John Swinney has offered to set out a further proposal to Greg Hands this week to help move the joint process forward to a successful conclusion.  I suggest that it is very important to our ability to make progress that we have a shared understanding of the key principles articulated by the Smith Commission.  Time is short if we are to secure an agreement and give both Parliaments the opportunity to scrutinise the proposed fiscal framework before the Scottish Parliament dissolves next month.

It might be helpful if I set out the context for our further proposal from the Scottish Government’s perspective. Firstly, we remain fully committed to securing agreement on a fiscal framework that reflects the principles set out by the Smith Commission in their report of November 2014, and which both our governments have accepted.  I firmly believe that a fiscal framework can be agreed that delivers the Smith principles and is fair to people in Scotland and in the rest of the UK. In terms of timing, we also remain committed to working to secure an agreement that will allow the Scotland Bill to be enacted, following scrutiny by and with the consent of the Scottish Parliament, ahead of the Scottish elections.

However, I am clear that an agreement will only be possible if we have a shared understanding of the ‘no detriment’ principles – set out in paragraphs 95(3) and (4) of the Smith Commission’s report – and I am concerned that this is not currently the case.

The Scottish Government’s objective is to agree a BGA that delivers – in letter and in spirit – what the Commission said about ‘no detriment’.  My clear position is that no detriment in respect of the block grant adjustment for tax devolution means that, provided tax policy in Scotland remains the same as in the rest of the UK and Scotland’s economic performance matches that of the rest of the UK, the Scottish budget should be no better or worse off – either at the point of devolution or in the future – than if current funding arrangements continued without further devolution.  Equally, no detriment under these conditions also means that the rest of the UK would be no better or worse off either.

The Smith Commission’s second no detriment principles means that changes to the tax burden on taxpayers in the rest of the UK in respect of taxes that are devolved to Scotland should not affect Scotland’s budget.  Provided this is applied fairly and symmetrically, and does not impose automatic reductions to the Scottish budget, the Scottish Government supports this.

I do not think there is any ambiguity whatsoever in what the Smith Commission said about these vitally important issues.   As Lord Smith himself put it in the recent House of Lords debate on the Scotland Bill: “when taxes are raised the money is kept and is available and, when taxes are reduced, the money comes off the block grant.  There should be no change between the two countries aside from that.” (Hansard, 24 November).

I want to make clear that we are prepared to accept the responsibilities that the Smith Commission indicated should fall on Scotland, both upside and downside.  If future Scottish governments decide to vary tax rates, or if our economic performance diverges from the rest of the UK, then the costs and benefits of these decisions and trends would fall on the Scottish budget.

What we are not prepared to do is to accept risks which are not symmetrical, over which we have little influence and no control, and about which Smith made no recommendation.  The UK Government’s proposals for adjusting the block grant would require Scotland to grow receipts from devolved taxes more rapidly than the corresponding receipts in the rest of the UK simply to ensure its budget was not reduced.  This does not meet the Smith Commission’s no detriment principles.  In addition, we could not accept the risk that Scottish funding might be reduced below what it would have been under current funding arrangements simply as a result of differential population growth.  The Scotland Bill does not give the Scottish Parliament control over the levers that would allow us to grow our population at a faster rate.  We could not accept that relative demographic trends within the UK – which have been built up over generations – should lead to a reduction in the Scottish budget.

These are the key points of what I believe the Smith Commission intended in its articulation of ‘no detriment’. The proposals that have been put forward by your government thus far do not meet this ‘no detriment’ principle – on the contrary, they would result in a systematic reduction in the Scottish budget, amounting to billions of pounds over a ten year period. This is not what the Smith Commission recommended and it was not what was promised to the Scottish people in the pre-referendum ‘Vow’.

Given this, it seems to me essential that we now have your assurance that the UK Government is working to the same understanding of these key recommendations.  Only in this way will it be possible to achieve an agreement.  I have asked John Swinney, when he writes to Greg Hands shortly with a further proposition, to set out how that proposition satisfies the Smith no detriment principles, including fairness to taxpayers throughout the UK and appropriate allocation of risks.  It would be very helpful also to have your assurance that John’s proposition will be considered constructively by the Treasury in the same spirit – testing what is proposed fully and fairly against the Smith Commission’s principles. I must make clear that the approach taken by the Treasury so far – which seems to focus, not on delivering ‘no detriment’ but instead on seeking agreement on the amount of detriment that Scotland should bear – is simply not acceptable to the Scottish Government.
I hope that you can appreciate why it is important that our respective negotiating teams are working to the same interpretation of Smith’s recommendations.  That greatly increases the probability of a successful outcome.

That would clear the way for a meaningful discussion on how this is achieved.  It would also allow the teams to devote appropriate attention to the other important issues that remain outstanding, including set-up and administration costs, capital and revenue borrowing, fiscal oversight and dispute resolution.

This suggestion is based on my assumption that you are committed to achieving an outcome consistent with Lord Smith’s articulation of ‘no detriment’.  If that is not the case, I think it is vital that you make that clear.

Lastly, on the issue of timescale, I note continued reference to a Scottish Government imposed deadline of 12 February. Let me be clear that the deadline is driven, not by the Scottish Government, but by the Scottish Parliament’s need to scrutinise any agreement in time to enable a properly-informed vote on a legislative consent motion on the Scotland Bill before the Scottish Parliament dissolves for the elections in May.  However, John Swinney has today written to Bruce Crawford, Convener of the Devolution (Further Powers) Committee to ask what flexibilities the Committee may be willing to agree to facilitate more time to help reach a conclusion.

I should stress, though, that more time for negotiations will only be of any use if we are able to agree clearly what we are seeking to achieve in the negotiations.

I look forward to hearing from you.”

Leave a Reply

Your email address will not be published. Required fields are marked *