UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 775-v

HOUSE OF COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE THE

SCOTTISH AFFAIRS COMMITTEE

THE SCOTLAND BILL

TUESDAY 1 MARCH 2011

GERALD BYRNE, FIONA HYSLOP and GRAEME ROY

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Scottish Affairs Committee

on Tuesday 1 March 2011

Members present:

Mr Ian Davidson (Chair)

Fiona O'Donnell

Mr Alan Reid

Lindsay Roy

Dr Eilidh Whiteford

Examination of Witnesses

Witnesses: Gerald Byrne, International and Constitution Directorate, Scottish Executive, Fiona Hyslop, Minister for Culture and External Affairs, Scottish Executive and Graeme Roy, Office of the Chief Economic Adviser, Scottish Executive gave evidence.

Chair: I welcome you to the Committee. As I have just said to my colleagues, do switch off BlackBerrys and things. I had a new one at the last meeting with Michael Moore, and I have just been reminded that I had not quite mastered it and did not switch it off completely, but I have managed that today.

As I understand it, Fiona, you have to get a plane at about 1 o’clock, and you want to be out of here by 11.15, so we will proceed as quickly as we can.

As we discussed briefly outside the meeting, I am concerned about the report in a BBC News press release this morning of what the Committee was going to discuss. You are quoted as saying what you intended to discuss with us. We have outlined our understanding that the legislative consent motion dealing with these matters will come back to us after the election, and that there will be two legislative consent motions. The legal one will come back after the election, and we will therefore have the opportunity to discuss it further. We welcome the opportunity to discuss those matters with you or your successor after the election. That is our understanding of the timetable. While you might want to mention it in passing, we do not want to have a substantial amount of today’s Committee hearing devoted to that particular subject.

We propose to ask you to introduce yourselves. I have some initial questions, and then I will bring in my colleagues for about five or eight minutes, and we will go on from there. Towards the end, we will ask you whether there are any final comments you want to make. I wonder if, for the record, you could introduce yourself and your colleagues.

Fiona Hyslop: My name is Fiona Hyslop. I am the Minister for Culture and External Affairs in the Scottish Government, responsible for the Scotland Bill process in the Scottish Parliament. I have with me Gerald Byrne from the Constitution Unit in the Scottish Government and Graeme Roy from the Office of the Chief Economic Adviser.

Q684 Chair: May I start by asking who exactly you are representing? You are here as a representative of the Scottish Government, but I am not clear whether your evidence has been endorsed by the Scottish Parliament.

Fiona Hyslop: As you know, there is a difference between the Ministers, the Executive and the Parliament in Westminster. My responsibility is the Scottish Government. In terms of major pieces of UK legislation, on publication of a Bill, the Scottish Government give a legislative consent memorandum to the Scottish Parliament. The Scottish Parliament’s appropriate Committee-in this case, a special Committee-considers evidence and gives its views on the recommendations provided by the Scottish Government in a motion. When we get a report back from the Committee, the normal process is for the Scottish Government to lay a legislative consent motion, which is then debated by Parliament.

There are issues around the time scale, which I think you might have alluded to at the start. Clearly, we are in a process just now, and I understand that the Scottish Parliament’s Committee will report by the end of the week. It is intended that there will be a debate in the Scottish Parliament on 10 March, but that is subject to the Bureau’s discussion. Our real concern about that time scale is that next week amendments on the non-financial aspects will be tabled, debated and voted on, including on the areas I have very serious concerns about-the legal issues in relation to human rights and the Lord Advocate. That will happen next week from 7, 8, 9 March, before either the Scottish Parliament has had a view or indeed the Scottish Government can have meaningful dialogue to try to influence that.

I welcome the fact that, with your understanding, the legislative consent motion from the Scottish Parliament on 10 March will not be the last say in the matter for the Scottish Parliament. I completely agree with you. Can I say, however, that we have not had assurances from the UK Government that there will be an opportunity for either the non-financial or the financial issues to come back to the Scottish Parliament? It would be very helpful to both the Scottish Government and the Scottish Parliament if this Committee said that in serious areas of concern-legal, financial or others-there will be an opportunity for such issues to come back to the Scottish Parliament after the House of Commons Committee stage.

Q685 Chair: That is not entirely what I was saying. The point I made earlier was that it was intended that the legislative consent motion relating to the Lord Advocate and the legal issues was coming back after the election. Indeed, that was the substance of the evidence that we were given by the Secretary of State. Can I come back to the substance of the point that I made at the beginning about who you represent? The evidence that you are providing us with has been endorsed by only your own political group. Is that correct? Has it been endorsed by the Parliament?

Fiona Hyslop: We are the elected Government of the people of Scotland. Our views represent the people of Scotland as represented by the Scottish Government.

Q686 Chair: The people of Scotland have elected quite a lot of people to the Scottish Parliament, of whom you are a minority. The views you are expressing here today are the views of that minority rather than the views of the people of Scotland as expressed through the Parliament as a whole. Is that correct?

Fiona Hyslop: They are the views of the elected Government of the people of Scotland.

Q687 Chair: Right. It is important for us to clarify that it is the SNP’s position that you are giving us today, and it has not been endorsed by the rest of the Parliament.

Fiona Hyslop: No. It is not the SNP’s political position. It is the position of the elected Government of the people of Scotland.

Q688 Chair: Who else has endorsed it?

Fiona Hyslop: When UK Ministers have spoken to the Scotland Bill Committee, I am not sure that they have come with endorsement from Parliament.

Q689 Chair: They have a majority in Parliament. When a UK Minister comes in front of us, we know that they have a majority in Parliament behind them. We want to be clear about whether you have the majority of Parliament behind you.

Fiona Hyslop: We will know the position on 10 March. What is of real concern is that there are major issues, including changes to the appeal system for justice in Scotland, which is a fundamental change. Whether you agree with it or not, it is a shift to develop the Supreme Court as an avenue for appeals. Cathy Jamieson-a member of your own Committee-said on 29 January 2004 that she saw no reason to permit an appeal to the new Supreme Court in criminal cases, and that was not her position at the time.

Q690 Chair: We will want to discuss that issue subsequently and we have agreed, we understand, to come back after the election to discuss it, which is why we do not want to do so now.

Fiona Hyslop: You cannot assume that we have the endorsement of Parliament, but neither can you assume that we do not.

Q691 Chair: Right. Okay. We cannot assume that you don’t have the endorsement-that is a clear position.

Did the Scottish Government provide all the evidence that you have supplied now to Calman before Calman reported?

Fiona Hyslop: Gerald, can you indicate what the Government provided to Calman?

Gerald Byrne: We did provide evidence to the Calman commission. Mr Russell, who was then the relevant Minister, also met with Sir Kenneth Calman to discuss both the national conversation that was going on under the Scottish Government at the time, and the work of the Calman commission. Then we answered specific questions that the commission had asked us-factual questions that were asked of the Scottish Government during their process.

Q692 Chair: But the evidence that you are giving us now about a variety of issues that you believe should be dealt with in the Bill, was all that provided to Calman?

Gerald Byrne: To Parliament?

Chair: To Calman.

Fiona Hyslop: Can I answer that? Clearly the remit of your Committee identifies that there are things in the Scotland Bill that were not in Calman, and there were things that were not in Calman that are in the Bill. So you cannot equate what we did with Calman with this Bill. What we must do is concentrate on the legislation in front of us.

Q693 Chair: To be fair, the way this works is that we decide what we want to ask, and then we ask it. At the moment we are wondering whether all the things that you are saying to us now were considered by Calman because they were submitted to him, or whether they have all come along subsequently.

Fiona Hyslop: No. I think it is the case that some will have been discussed with Calman and some will not. That would be a fair assessment.

Q694 Chair: Okay. Am I right in thinking that there is nothing that we can say to you, Fiona, that will satisfy you? As a nationalist, you are in favour of independence and Calman was not set up to produce that, so you are here to find fault with the legislation.

Fiona Hyslop: We are here to improve the legislation. I laid a motion in the Scottish Parliament that welcomed the transfer of power within the Scotland Bill, particularly in certain areas, but there were obviously concerns about the financial areas, particularly at that time, when we had no idea about the justice issues that have come forward subsequently.

For each and every item, non-financial or financial, we have provided briefing both to the Scottish Parliament Committee and the UK Government, which sets out suggested improvements by way of amendments, and I am happy to make sure that Committee members all have a copy of that.

Clearly, on the financial areas we think that the preferred option is to make sure that we have the full responsibilities that, yes, we can have within independence. But more importantly, we have set out how you can improve the Bill, even within the United Kingdom, and we recognise that a number of your members will share that.

On fiscal autonomy and improving issues on borrowing and the different range of taxes that are available, which I know some of your members are concerned about, we have provided draft amendments that would be helpful for those who are trying to improve the Bill. We have done that even within the confines that we would challenge, so we have tried to be constructive in making improvements.

Q695 Chair: That is helpful, because in the section of the legislative consent motion-it may seem irrelevant, but it deals with Antarctica-you say that as a matter of principle the Scottish Government are opposed to any powers being taken back to Westminster. There seems to us to be a danger of approaching the whole thing through that prism-an ideological view that nothing should ever be transferred back and therefore everything can only be a one-way street, which mitigates to some extent against evaluating individual proposals on their merits.

Fiona Hyslop: We are saying that we have reservations in principle about taking powers away from Scottish Parliament in the practical details. Antarctica is perhaps not the strongest of those areas, but health professionals and insolvency certainly are.

There is an important area in the Bill that I hope, as parliamentarians, you would appreciate. The Bill, as it stands, takes away more powers from the Scottish Parliament than it gives. The power that it gives is on airguns, but it reserves three others-so for one power given, three are taken away. The Scotland Bill provides the Scottish Executive and Ministers with more powers, but weakens the powers and responsibilities of the Scottish Parliament. Obviously, I know there is a running issue here between the powers of the Parliament in Westminster versus Whitehall, Downing Street and Ministers. That is an important area to be aware of-there is a weakening of the Parliament’s powers, with three taken away and one going to the Scottish Parliament.

Q696 Fiona O'Donnell: Good morning, Fiona. May I clarify? Are you saying that, if the Scotland Bill is enacted, the Scottish Parliament will have less influence over the lives of Scottish people post-Bill than it does now?

Fiona Hyslop: The Scottish Parliament will lose three powers and will get only one back. In terms of the financial aspects, which are the core of where people argue that more powers will be given, most powers are to be given to Scottish Ministers and not to the Parliament. Even within the financial aspects, an area where we have real concern-that is why it is really important that it is not just the justice issues, but the finance areas that come back-the Treasury is left deciding on the block grant adjustment.

Q697 Fiona O'Donnell: So is the answer to the question then that you believe that there will be less power? In which case, why do you welcome the Bill?

Fiona Hyslop: Well, as you might imagine, as a Minister, we welcome powers as a Government and as Ministers, but I am conscious of the constitutional position. That is very important, because on the financial aspects I would argue-if you agree with me, because you are right to say it is really for the people that the Parliament must get more powers-that the Scotland Bill should include a provision, which is not there currently, for the Scottish Parliament to agree. If the Scottish Parliament got to agree at the time of commencement of the financial aspects, the answer to you would be, yes, they would be getting more powers. But if the Bill is left as it is, the Parliament itself would be more limited, but the powers would remain with UK Ministers, particularly the Treasury, and Scottish Ministers in the Government. That is why one of the important amendments we have proposed is that any commencement of the financial aspects, which we know are at the core of the debate here, should be endorsed by the Parliament. That provision is not currently in the Bill. Again, I would welcome the Committee’s support on that area.

Q698 Lindsay Roy: People have expressed concerns about the impartiality of HMRC. Is that a view you share, Fiona?

Fiona Hyslop: Yes, I do.

Q699 Lindsay Roy: On what basis?

Fiona Hyslop: On the basis that the tax system will be a variable item in terms of what comes forward and how it comes forward. Even now, in terms of how much this would cost us, there is nothing definitive. We don’t think it should cost us in the Parliament, because it is an initiative from the UK Government. We have already had Francis Maude acknowledging in relation to the Public Bodies Bill, which is currently going through, that any proposal initiated by the UK Government under the statement of funding policy with the Scottish Government should be funded by the UK Government. That is my concern.

Chair: To be fair, the point was about trusting HMRC.

Q700 Lindsay Roy: Are you saying that it is a mark of transparency and trust?

Fiona Hyslop: I think the issue is about transparency-

Q701 Lindsay Roy: Not trust.

Fiona Hyslop: I do not think it would be appropriate for any Minister to undermine the trust of the civil service and professional officials in other Departments, in other areas. I am not prepared to do that. I do think that there is an issue about transparency and accountability. That is the issue. One of the proposals for improvement could be making sure that that relationship is improved. Again, one of the positive suggestions in the Bill, which we think should start now and does not need to wait until the Bill is passed, is a joint fiscal committee between the UK and Scottish Governments.

Q702 Lindsay Roy: That is not insurmountable.

Fiona Hyslop: No. We think that, rather than wait until the Bill is established, it would make absolute sense to establish the joint fiscal committee to allow these issues to be more transparent, more accountable and relate to concerns.

Q703 Chair: The point of the structural change you are suggesting, about the joint committee, is to achieve transparency. Is that correct?

Fiona Hyslop: It is, first, to improve. We have worked very hard, from the early days. In fact, my first discussion of the Bill was with the previous Secretary of State for Scotland, Danny Alexander, before he was moved on. We have engaged right through the period to argue our case, that we think full powers-

Q704 Chair: I understand that. I am trying to identify the objective you are seeking to achieve. If you want the joint structure in order to achieve transparency, we have said on a number of occasions that we are in favour of transparency and showing workings in a variety of things. Now, that does not necessarily mean a joint committee. A joint committee implies joint control. What we want to be clear about is the point of the joint committee you are suggesting. As I said, if you are looking for transparency, it is pretty clear from the views that we have been expressing over a period, that we want to, say, show workings in a number of areas. I am wondering whether that would satisfy your expressed intention.

Fiona Hyslop: I suppose we had better be careful when we use the term "committee" in terms of Parliament and Westminster, because this is a Committee, and I do not necessarily mean this type of structure; it is more about working between Finance Ministers and officials. Graeme, could you explain the benefit of having such a-joint group is perhaps too weak a term-committee? There’s a terminology within the Bill. That would help with some of the issues, particularly in relation to how the OBR and forecasting in different areas is resolved.

Q705 Chair: That’s all showing working, like when you had to show your working to get extra marks at school. If we can show the workings, that achieves your objective of transparency, does it not?

Fiona Hyslop: I think it is slightly more sophisticated than that. Take borrowing, for example. One of our real concerns is that, when you look at the forecasting provided by the UK Government, there is a danger that we will be about a billion pounds out on some of the issues that we will have to address with a very limited borrowing capability.

Let’s take it back a step. We think that there are real concerns with the Bill as it stands. The finance committee aspects, which are being put forward by the Government, cover how it will operate once things are up and running. Some of those provisions might not come in until 2019, so the Government think that it is a long play over a long time. We think that we can get on now with a lot of work. It is not only about transparency, which I think Lindsay referred to, but it is about saying, "Okay, what are the flaws in this and how can we actively improve it?" That is what we have been trying to do.

Q706 Chair: But there are dialogues. Maybe we are getting hung up on terms, but there has always been dialogue between officials from here and officials from the Scottish Parliament and the Scottish Government on these sorts of matters. I remember from my time in local government that there was always a row on Edinburgh not showing its workings when it came to grants for local authorities. I do not know whether you are completely transparent in your grants to local authorities or health boards.

Fiona Hyslop: I am delighted to say that the relationship with local government has improved. Under this Administration, we have far more regular and open discussions.

Q707 Chair: It is not transparent though, is it?

Fiona Hyslop: I think it is far more transparent than previously. It is recognised as such.

Q708 Chair: So that’s a no then, isn’t it?

Fiona Hyslop: I am not the Finance Minister, so I cannot tell you what is shown to local government. As far as I am aware, it is as open as we can make it.

Q709 Chair: You see, that is our intention. We want to be more transparent than your relationship is with local government or with, for example, health boards and the calculation of financial provision. I am not clear on whether or not you are getting hung up on the question of joint committees and whether it is the wrong way to proceed.

Fiona Hyslop: I may be misunderstanding where you are coming from. Maybe we are starting from two different points. I am not accountable to this Committee or to this Parliament. I am accountable to the Scottish Parliament. Similarly, UK Ministers are accountable to you, but not to the Scottish Parliament. That does not mean that we cannot have Government-to-Government working, if we get into the space of working together on what improvements can be made in how things are calculated and operated. Borrowing is an area where-whatever different perspectives people have on the Scotland Bill-there is a strong appetite for improving what is available. That is a good example of where there have been dialogues and discussions, but more on a formal basis with officials and Ministers. It would be better if it were put on a footing with a regular, established forum, so that that could happen Government to Government. That would be better than an ad hoc-

Chair: Okay, I think we understand that point.

Q710 Lindsay Roy: This is to do with the respect agenda, and further cultural and attitudinal change about working together, because that is the only way that we will succeed.

Fiona Hyslop: I think you are right. The progress that has been made is variable. I have said to Nick Clegg, who is the constitutional lead for the UK Government, that it is important that we recognise that some of the relationships are better than others. Although I might come and say to you that there are concerns about this and that, I also want to make sure that good, successful and productive relationships are recognised. I think that there is something to be gained from it.

If you look at what we are trying to argue in terms of the financial aspects, and if you go back to Calman, you will see that one of the proposals in Calman was for welfare benefits to be transferred. When I was the Minister with responsibility for this, I worked with Tony McNulty on integrating skills development with Jobcentre Plus. We put people together and had joint policy on the work that we launched in, I think, Greenock. Early evaluations of the results of that pilot, which has now been rolled out across Scotland, showed that 44% of the people who went for it were more likely than the controlled group of customers to experience a positive employment outcome and 47% of the people going into that programme went into work. That’s huge. It shows you that integrating policy, by itself, can get you a benefit in policy terms. What we haven’t got in the Bill, which we want, are the financial levers on economic growth to allow us to improve the jobs.

Q711 Chair: But that is an argument in favour of joint working. I don’t think anything in the Bill proposes that there should be no joint working.

Fiona Hyslop: That was done in the teeth of resistance of the DWP at the time. It effectively meant that we had to have an independent decision making-

Chair: But as I am sure you have discovered, most things that Government do are in the teeth of opposition of civil servants. That’s what they’re there for, isn’t it? To explain to you in great detail why this is not the right time or, "That’s a very brave decision, Minister." The fact that it was done in the opposition to the DWP is neither here nor there. The fact is that it was done. I’ve got joint working between council departments in my own area that hate each other, but it doesn’t mean to say that we cannot achieve it.

Let’s go on to a number of other issues. Fiona, you wanted to raise a number of points.

Q712 Fiona O'Donnell: Fiona, you have referred several times to your view that financial powers should be in the Bill. Your statement earlier was that the Scotland Bill as it stands would take more powers away. Do you think that the Scottish Government and Parliament will have more powers on financial matters and economic levers under the Scotland Bill than they have at present?

Fiona Hyslop: Let’s distinguish between the Scottish Government and the Scottish Parliament. The Scottish Government would have more powers on the financial aspects, but not on economic growth. UK Ministers and those involved in the Calman process have made it clear that they think that the Bill is not about economic growth, but about public accountability and prudential responsibility. That implies that they think that the Scottish Parliament and Government are currently neither accountable enough nor prudentially responsible enough. That’s a view that people can make a judgment about in the election. My concern, which I raised earlier, is that Parliament itself will receive one power back in terms of air guns-

Fiona O'Donnell: I want to concentrate on finance.

Fiona Hyslop: On finance, the Bill will change the block grant adjustment. We still don’t know from the Treasury how it is going to do that. There is a kind of feeling of, "Don’t worry. The Treasury will see you all right." I don’t know what your dealings with it are; it’s a bit like the DWP officials.

Chair: So in your view the Government wouldn’t be doing it.

Fiona Hyslop: I think that’s quite worrying, because you are about to vote in-we don’t even get a legislative consent motion-provisions that say, "Don’t worry. We’ll sort it out over time." That’s a bit like signing a blank cheque, and that’s the worrying part.

In terms of growth and income tax, it is a narrow basis-only one tax. We’ve already seen in fuel duty and VAT changes that the UK Government are using a variety of levers to try to achieve economic growth. To rely on one single tax-income tax-to be a lever to make changes is a risky way of going forward.

Q713 Fiona O'Donnell: Regarding the present situation, John Swinney, in his evidence to the Scotland Bill Committee, was clear in saying that economic growth and job creation are the core of everything that the Scottish Government do. What powers do you currently have to foster economic growth?

Fiona Hyslop: I will give you a good example in terms of our capital budget. Our capital budget has been slashed by 37% by the Westminster Government going forward, but we were the first part of the UK that brought forward capital acceleration to invest in public infrastructure, whether on housing, schools, roads or railways. As for the employment statistics for Scotland, Scottish unemployment is going down and the UK’s is still going up. Our employment is still at a very high level in comparison. Growth in the construction industry in Scotland was very strong indeed. As for the growth for the quarter going up over the summer period last year, Graeme might give me information about the construction figures. We have used the levers we have to create economic growth.

As for the example that I gave about trying to get people back into work in terms of the skills aspect, we also managed to get 20,000 apprenticeships for young people last year to help take the edge of some of the charges they face, so we can use the levers we have.

Q714 Fiona O'Donnell: So the reason why you are arguing for full fiscal autonomy for the Scottish Government is that you believe it would give you the levers that you need to achieve economic growth.

Fiona Hyslop: Yes.

Q715 Fiona O'Donnell: What is the basis for that?

Fiona Hyslop: It is about if you want to support your growth sectors and have economic levers on tax incentives. For example, you have taken evidence about what might be provided in the video games industry. Canada uses that. If you look at other countries such as the Basque country, in terms of its growth and the levers that it has had to use for economic growth, it has managed to outperform the rest of the Spanish economy. Economic levers can be successful, if they are used properly.

Q716 Fiona O'Donnell: That is the key. I would surely be surprised if you did not refer to the evidence of Hughes Hallett and Scott at some point during the proceedings. Their research was part of the basis of the view of the Scottish Government.

Fiona Hyslop: There are two aspects to this. One is that there will be efficiency and growth by having powers that can be deployed.

Q717 Fiona O'Donnell: Is that based on the Hughes Hallett and Scott research?

Fiona Hyslop: Yes. We presented that as evidence, but we have also provided examples from other countries. I have mentioned the Basque country. Having levers allows us to be creative in what we do. There are two steps to this: one is the efficiency of having the integration of policy and influence, an example of which I have given, and, secondly, if you have levers in corporation tax and other areas, you can do things differently.

Q718 Fiona O'Donnell: In their evidence to this Committee, they said, "We have made it clear that, for a good reason, the empirical evidence is inconclusive on the question of whether it does or doesn’t lead to an increase in the growth rate systematically." Is it not about the powers you have, but what you do with them.

Fiona Hyslop: There are two aspects: there is a one-off gain from having powers where we can be more efficient in how we make decisions. A good example is the future jobs fund. With the powers that we have, we could set up an equivalent. The UK Government have obviously got rid of the current one. We could set up a version of the subsidised employed aspects of the future jobs fund, but we would not benefit from the savings of unemployment benefit that the DWP would make. We have one half of the coin, but we cannot get the payback. We would be spending, but we would not be saving. It would be more expensive for us to do the equivalent of the future jobs fund in Scotland under the current devolution system. That is the first level.

The second point is what you do with economic levers once you have them. We think that that can lead to economic growth, as do Professor Hughes Hallett and Drew Scott. Again, it is the choice of what you do with the levers when you have them.

Q719 Fiona O'Donnell: One point that was outstanding from the evidence to the Scotland Bill Committee was when John Swinney said that, by 2018 or 2019, the norm of public spending rising faster than income tax revenues would have returned. That is in relation to the debate around the deflationary bias, but Dr Goudie said that the period of fiscal consolidation would continue until 2025. So who is right-John Swinney or Dr Goudie?

Fiona Hyslop: It is not an either/or. Graeme, do you want come in?

Graeme Roy: Essentially, the material that Dr Goudie was referring to was not about the end of the fiscal consolidation, but just the point at which public spending would return to pre-crisis levels, so it’s the point where the level effect kicks back in to where it was in 2009-10. The end of the consolidation on current plans-the end to the cuts to public spending-is forecast to be 2015-16, with the potential for something else in 2016-17.

Q720 Fiona O'Donnell: So to clarify, Graeme, the point at which the Scottish Government would expect public spending to be greater than income from tax would be 2025.

Graeme Roy: The 2025 date is when the level of public spending will be back at 2009-10 levels, so that does not have anything to do with income tax. What will happen is that we know the path of public spending for the next four or five years, at which point it will no longer be being cut. The key point after that is what happens to the growth in public spending from that trough versus the growth in income tax, and which one is faster. If income tax grows faster and the Scotland Bill provisions are in place, the budget would be slightly larger; if it were to grow more slowly, the budget would grow more slowly.

Q721 Fiona O'Donnell: Do you have predictions for what share of the take of revenue will come from income tax beyond the four years?

Graeme Roy: We do not forecast beyond that. The UK Government wouldn’t forecast beyond that either.

Q722 Dr Whiteford: I would like to pick up where Fiona left off by asking about economic growth and jobs. You have put forward proposals for levers that would deliver economic growth, and I wonder whether you could say a bit more about those?

Fiona Hyslop: The example that I have just given of the future jobs fund is a classic example, where a lever for growth would be to have savings and benefits to help people get back into work, which at this time we are all very conscious of. Whatever the Bill does, if it is not seen through the prism of economic growth and jobs and what benefit it can give, you are changing a constitutional funding arrangement, but you are not actually serving people by helping them on the economy and jobs.

On economic growth, there are different levers that can be used. A good example is in relation to corporation tax. In Northern Ireland, where there are obviously arguments for having corporation tax powers now, there are predictions that that would make a significant difference and would actually pay back the investment by encouraging growth sectors. On other areas related to economic growth, I come back to some of the issues around borrowing. You will have a situation where the Scottish Government have fewer powers than the city of Birmingham or the City of London to be able to borrow to make sure that we can invest and build. Again, we have shown with the example of construction, that one way out of the recession is to make sure-

Q723 Chair: Sorry, can I be clear? On the question of borrowing powers, is your objection simply to the level that’s being proposed?

Fiona Hyslop: There are two aspects: there’s certainly the level, but there’s also the pattern in trying to make adjustments on whether the forecasts-

Q724 Chair: Do you have alternative levels?

Fiona Hyslop: It has to be what can be sustained. We recognise that at the minute-

Q725 Chair: That’s right. Sorry, Eilidh, but I think that this is an important point for us to clarify.

Fiona Hyslop: In terms of the borrowing aspect, obviously we understand that, within the UK parameters, there would have to be some kind of understanding as to what could be sustained. We think that in terms of prudential borrowing arrangements and the types of arrangements that can be made available-the city of Birmingham had a major investment, and the City of London has also managed that-it’s how you can sustain your investments to pay for them. As you know, our biggest issue, and I’m sure Lindsay would be interested in this as the second new-

Q726 Chair: Sorry, I understand that. What I am not clear about-I will add this on to Eilidh’s time-is whether or not you have alternative figures in mind. We have heard objections saying that the borrowing levels being proposed are too low. Do you have alternative figures, or are you just saying it’s too low in general?

Fiona Hyslop: That is exactly the sort of discussion that we should be having, Government to Government, in this joint fiscal-

Q727 Chair: So you don’t actually have an alternative figure?

Fiona Hyslop: That is exactly the sort of dialogue and discussion that we would need to have. Graeme, is there anything you want to provide on that?

Graeme Roy: The material that has been shared with the Scotland Bill Committee in Holyrood puts forward the proposal of a prudential regime, so it does not actually have a fixed limit imposed on it-

Q728 Chair: You are hostile to the limits being proposed, because you regard them as too low, but you don’t actually have a figure in mind.

Fiona Hyslop: We would have to have that dialogue-unless, again, we had complete powers transferred. But even if you are looking at the borrowing arrangements within the remaining settlement with the UK, obviously we would have to have that discussion with them. The concern is that it isn’t happening to the degree or extent that we think it should be.

Q729 Dr Whiteford: We have had quite a lot of discussion about the borrowing powers in this Committee, particularly in the context you alluded to the 37% cut in capital expenditure. Turning the question the other way round, what would the impact be if the borrowing powers as they are presented went through? What constraints would that be likely to put on the Government?

Fiona Hyslop: There is an absence in terms of what we can do to support capital investment, but the other area is the concern about not having access to cyclical borrowing to allow us, if we anticipate, for example, another downturn, to ensure things. The whole funding formula we have been presented with is based on forecasting. Even if we understand that the forecasting might be out because we anticipate something, we cannot borrow-we would end up borrowing at the wrong time of the cycle, during times of recession, as opposed to necessarily being able to be more flexible.

The whole point about economic growth is being nimble, agile and flexible. That allows you, for example, in Scotland, to take sector-specific approaches, such as for energy, which is a big growth area for Scotland and we have opportunities around that sector. Similarly, with creative industries, the area I am responsible for, there are some things that we could do to help boost that sector, rather than have this one-size-fits-all, UK approach. That might suit the majority of the population, in particular those based in London, but it does not necessarily suit our flexibility.

Q730 Chair: Sorry, I understand those words, but I am genuinely unclear what you are actually saying to us in terms of amounts.

Fiona Hyslop: I think you are confusing the different things about the borrowing in terms of capital, for amounts, and in terms of how to adjust and any problems that might come out of the funding formula. It might be helpful if Graeme were to come in on this point.

Graeme Roy: There are two bits to separate out, the capital borrowing and the current borrowing. On capital borrowing, the evidence that Mr Swinney has given puts forward the idea of prudential regime, which does not actually have a fixed limit. The idea is that it is based on the affordability of revenue raising and budgets going forward, so it would not have a limit on it, just like a local authority-

Q731 Chair: Unlimited borrowing.

Graeme Roy: It is constrained by affordability, but the affordability is not a fixed limit, so you would not be able to borrow an infinite amount because it would be based on your affordability. A set of arrangements would determine what is classed as affordable, based on future tax streams, etc.

Q732 Chair: Assessed by whom as being affordable?

Graeme Roy: If you had it under a prudential-type regime, it would essentially be an overall framework for affordability, which could be assessed partly by outside assessors-

Q733 Chair: Outside. Just clarify-who would decide what was affordable?

Graeme Roy: It would be an overall framework. The Government could decide what was affordable, subject to-

Q734 Chair: So the Scottish Government would decide what was affordable.

Graeme Roy: Ultimately, the Parliament would have to decide.

Q735 Chair: So there would be unlimited Government borrowing subject only to the agreement of the Government and the Parliament.

Graeme Roy: In the same sense as a local authority.

Fiona Hyslop: As in a local authority, and what is wrong with that?

Q736 Chair: We just want to be absolutely clear. We have had a number of people coming to us and saying that particular figures are right and particular figures are wrong. John Swinney mentioned a figure of £1 billion, compared with £500 million, being too low, and so on. We just want to be clear about whether you had particular figures in mind for what you are saying, as I think you are now saying that you want unlimited borrowing subject only to the self-imposed restraint from the Scottish Government and Parliament.

Fiona Hyslop: Affordability is absolutely key.

Q737 Dr Whiteford: It would be helpful to talk about application, because this is about a framework and a way of looking at it in slightly more conceptual terms, rather than just clearly in numbers, which is not possible to do.

Fiona Hyslop: Absolutely. That is why I am very pleased to lay the evidence that we provided to the Scottish Committee, on borrowing, because we are quite clear that it is about a framework. Affordability is absolutely key.

Graeme Roy: It could be governed as part of the code between the Scottish and UK Governments. It could be part of an overall code for prudential borrowing. It would be something set and determined by the Scottish Government, but part of an overall code agreement-

Fiona Hyslop: For which this intergovernmental bilateral committee on fiscal devolution would be useful to discuss-we don’t have to wait until 2019 to do it. It needs to be done sooner than that.

You asked about economic aspects in particular. You can try to change the issues around borrowing and other areas, but you need economic levers to do it for growth. My concern is that the UK Government do not see the Bill as one for economic growth and jobs, but one for public accountability. I just think that that is not good enough.

Q738 Dr Whiteford: Another area where there has been a lack of clarity, which you have already described this morning as a blank cheque, is the mechanism for the reduction of the block grant. What is your assessment of the risks of the Bill’s proposals at the moment, and how would you improve it?

Fiona Hyslop: Well, the risk is that you, as MPs in the UK Parliament, are going to have to vote within the next few days, in some cases, and certainly within the next few months, on a system that has yet to be established. The whole premise of the income tax changes is that you would have a calculation where the Treasury would do a block adjustment. Our concern is that we don’t know what that is. Even the Scotland Office, in presenting its explanation to the Scottish Parliament, gave us a figure and said, "This has not had Treasury approval." That hasn’t happened yet.

I suspect that the Treasury is saying, "Well, it won’t happen for several years. It will be 2018 or 2019 before it is fully fledged." The issue has been kicked into the long distance, but that’s not good enough if you are expected to vote on it here and now. That is why one useful amendment to the Bill would be to say, "Anything to do with financial provisions should be subject to a time of commencement and to approval by the Scottish Parliament." Otherwise, you would give a blank cheque and rely on the Treasury to have a veto on what is given.

Dare I refer to Lord Forsyth to the current membership of this Committee? He has known for a long time-he used to be Secretary of State-that there were people in the Treasury who would be quite happy to get their hands on the block adjustment, because they were unhappy about where it was. Perhaps he has some sense of what the concerns are. We cannot have a blank cheque, which is why it’s essential that in the Bill, even while the work is going on, there are provisions for adjustment.

What the Bill is trying to achieve is very complicated. If it doesn’t achieve economic growth or help to provide jobs for Scotland, why are the UK Government spending up to £145 million to implement this new system? What is it about accountability and responsibility? We have to think long and hard about whether there is anything we can do to ensure that the Bill delivers on growth and jobs as opposed to just bringing a different funding system. That’s all this is-a different funding system. That’s my concern. There are many question marks about it that we haven’t had answers to. We don’t know what the block adjustments will be, which is why we have tried very hard since May in a series of meetings to understand them.

Chair: I am conscious that you have to escape in a little while. I think you’ve outlined the general case quite well. Perhaps you could now get the answers to be a bit shorter, if that’s possible. Eilidh, are you finished?

Q739 Dr Whiteford: There is one more question that I want to ask-I have asked every panel this. How adequate do you think that the Bill’s proposals on the Crown Estates are?

Fiona Hyslop: I’ve already described them as inadequate and feeble. They don’t come near to what the Calman commission proposes or to what Scotland needs. We think that there should be devolution of the powers over the Crown Estate. You have to look at the land mass of Scotland, our coastal areas, our interests and the Crown Estates Commissioner, whose purpose is to generate value for the Scottish Exchequer. There’s more to management and stewardship. I know that there are some good individuals working hard in partnership with people in Scotland at different levels, but there is an issue when, even under the Bill’s proposals, the appointment will not even be made by the Secretary of State for Scotland, but by the Treasury Minister. That says it all: it is all about trying to make financial gains as opposed to gains in some of the others areas. So we have some real concerns, which are shared by a number of people on a cross-party basis; the councils in the Highlands and Islands are a good example where a strong case has been made.

Q740 Chair: Maybe it’s worth mentioning at this stage that we’ve agreed to look at the Crown Estates after we’ve finished this.

Fiona Hyslop: That’s very welcome. I’ll be interested in your time scale, bearing in mind that the vote is next week.

Chair: To be fair, we take account of the nature of reality. Given that there is not a majority at the moment for the radical changes being proposed for the Crown Estate, it is unlikely that there will be any substantial change to what is proposed in the Bill. However, that is not to say that we can’t look at things either before the final element of the Bill, which will be well after the election, or indeed on any subsequent occasion.

Fiona Hyslop: May I suggest-I will try to do this politely-in terms of a defeatist approach and the Liberal Democrats and their previous position on the Crown Estate, I would think that, certainly within the Scottish Parliament, and I would hope within the coalition, there might be influence to try to improve this position? If you look at the first substantive UK legislation on Scotland and parties that have championed home rule for decades, it seems very sad that we have actually got-whether it is on finances or whether it is on Crown Estates-

Q741 Chair: You are trying to lead me down the road of commenting on what I think about the Liberal Democrats. I will decline. There might be families watching this programme.

Fiona Hyslop: I very much welcome the fact that your Committee will be looking at that area. It is long outstanding. I know there have been strong recommendations in another inquiry at Westminster. It is worthy of inquiry. I look forward to seeing your deliberations.

Q742 Lindsay Roy: May I go back to corporation tax? In his evidence, Professor McLean described devolution of corporation tax as a terrible idea. Why do you want devolution for corporation tax?

Fiona Hyslop: It would give us the flexibility to have a competitive environment for key sectors. We could emulate other areas where it seems to be of benefit. If you look at what Northern Ireland is doing and its pursuance of this, it has anticipated that growth and jobs would be 180,000 over a six-year period. That is what it thinks it would be able to generate. I acknowledge that Northern Ireland is a particular case, because of its close relationship with the Republic of Ireland’s economic situation, but a corporation tax would provide us with flexibility, particularly in key growth areas.

Interestingly, in Scotland we had a UK Treasury Minister implying there was not much opportunity with corporation tax. I don’t know whether that is because they do not plan to do anything on a UK-wide basis, but we are trying to encourage growth areas, and it is important that we try to ensure we have the levers to do that. Remember, the problem with the financial aspects and relying on income tax and funding is that we don’t get the full benefit of the higher rate on income tax. In a lot of growth areas and companies, it helps to generate larger numbers of people in the higher rate band. Unfortunately, even the funding system would not benefit from that.

Q743 Lindsay Roy: In his evidence to the Scottish Parliament, John Swinney suggested that the business community would have mixed views on the option of a corporation tax. Can you explain why that is and why it is so important to take this forward?

Fiona Hyslop: The issue is that the Bill was presented without the levers for economic growth. As in many areas, you get different views on tax from different parts of business, and they might want to see continuity. But there are also certain sectors, particularly growth areas, where we would want to see more flexibility for growth. There might be issues around administration, although I don’t want to second-guess what those might be. It would be wrong to say that if we can get economic growth by lowering corporation tax in particular areas, we should try to pursue it, but we think that is an opportunity that should be open to Scotland.

It goes back to Fiona O’Donnell’s question. It is what you do with what you’ve got in terms of economic levers as to whether we will be successful. Some evidence says, "We don’t think corporation tax matters." If it doesn’t matter, let the Scottish Parliament have those powers, and we can determine whether it makes a difference. If it doesn’t matter, I don’t see why there is such resistance to letting us have those powers.

Q744 Lindsay Roy: If you reduced corporation tax, presumably there would be a funding gap. How would you propose to fill it?

Fiona Hyslop: That is why we would want more levers than just corporation tax, or indeed more levers than just income tax as a provision. Part of that is to use a basket of other materials to help you. It allows you to plan. That is one of the things about the spending reviews. You can plan for different years and spread your provisions. It would also allow flexibility on borrowing, so you could work between those two different powers to manage the overall budget. Unfortunately, that is not the place that we are in. You will spend a great deal of time scrutinising the UK Treasury Ministers in relation to how they are managing that pot, but that is why having the range is more important, rather than having one simple, narrow, lower rate income tax-or standard rate.

Q745 Lindsay Roy: How do you stop companies brass-plating in Scotland and employing their work force elsewhere in the UK?

Fiona Hyslop: That can happen now under the current arrangements, as it might happen in future. Greater economic powers are likely to be more headquarter-based and high value. Again, it comes back to the type of jobs that we want, which are high-wage and high-skilled. You know about the competition that UK and Scottish workers have elsewhere. We must try to build our economy on strength, quality and skills, particularly in areas such as food and drink, which is why it is important to open up the market to salmon and whisky, for example. It is important to get the skill base for renewable energies, so that we have higher value jobs.

Obviously, the higher the base of investment for those high-wage, high-skilled jobs that can attract the headquarters of those businesses, the better. But we are not necessarily suggesting that we want to turn into a Guernsey or a Jersey, if that is what you are implying; we recognise that it will be a different system.

Q746 Lindsay Roy: To pursue another matter, do you agree that economic growth comes from success of policy implementation?

Fiona Hyslop: It is two things-policy and economic levers.

Q747 Lindsay Roy: There has been devolved control over education for 10 or 12 years. How far has education come in relation to international league tables? How are we doing?

Fiona Hyslop: You will be very interested and familiar with this-as a former head teacher and Education Minister. My understanding of the figures is that Scotland is holding its own and its position. In relative terms, there are slight improvements. Other countries are improving at a faster rate, but Scotland’s is still a highly regarded education system. Our qualification performance is at its highest level for a number of years.

We could be here all day on this, but it depends on how you judge it. The real challenge for us is not necessarily on the top performers or the high performers; it is on the youngsters who are not achieving. It is about the gap between the top performers and the bottom ones, which is why the curriculum for excellence and early years intervention are key areas.

Chair: Let us not spend too much time on the detail of education.

Q748 Lindsay Roy: Why have the Scottish Government decided not to participate in the international league tables? Why have they withdrawn?

Fiona Hyslop: They have not withdrawn from all international league tables, but they are certainly concentrating on those that are most highly regarded and respected, and are maintaining their subscription to those. There is obviously a great deal of expenditure and time spent by teachers on a lot of those assessments, so it is important still to benchmark ourselves internationally, but in a way that will benefit education. I am sorry-

Q749 Chair: Life is too short to discuss that, too. May I return to one point? We heard evidence from the Federation of Small Businesses and asked it about a variety of things. One of the issues that it raised was the high levels of innumeracy and illiteracy among young people who were coming to it to look for work. That is an area in which the Scottish Parliament has had responsibility for some considerable time. You have powers in that area, but you have not used them adequately, because the problem has not been resolved. I understand why we have some hesitation about saying that the answer is additional powers, when you have clearly not used the powers that you already have.

Fiona Hyslop: I am accountable to the Scottish Parliament on these issues, and I have spent a great deal of time in discussion with the Scottish Committees. Scotland’s numeracy and literacy is of a standard that has been maintained. We are improving-particularly in early years-and the focus on numeracy and literacy will come with the qualifications that are being brought forward.

On performance, there had been a relative decline over a number of years in some areas, which we have stopped. The performance is standard-as I have said, it is maintaining. It is about how we stand in relation to the speed of growth of other countries.

Q750 Chair: Scotland is slipping backwards, comparatively.

Fiona Hyslop: We are in a much better place than England. I am delighted that Wales has taken a great deal of interest in our curriculum for excellence and is recommending that the Welsh look at the Scottish education system.

Q751 Chair: Do you understand out anxiety about having a group such as the FSB coming along, identifying an area for which the Scottish Parliament and Government have full responsibility and identifying the situation as not being satisfactory? We have listened to your telling us that you need more powers. Here is an area where you have complete powers, and you have not achieved as much as is desirable.

Fiona Hyslop: We are making significant progress and have done so over the past three years. That is the difference. I can send you the charts that show that. I do not want to get into the political issue of what happened in the first eight years relative to the past three years, but we can show-

Q752 Chair: We are not looking at that at all.

Fiona Hyslop: If you did, it would show that we are making a difference. In terms of powers that we can use, the small business bonus is something that the FSB is delighted that we are using.

Q753 Chair: To be fair, that is not tackling the issue of illiteracy and innumeracy. That is the issue that we have.

Fiona Hyslop: Our children are not illiterate and innumerate. We can make improvements, most certainly, in areas of deprivation, but one of the biggest challenges, which I put back to you as a Committee, is that the responsibility for tackling some of the issues around poverty-which has a major impact on the life chances of our young people-lies with this Parliament and Government, because they have key levers of influence. Before they get to the age of five, many young people are disadvantaged. It comes back to whether we have influence on welfare and benefits. If you want to tackle the issues of illiteracy and innumeracy in Scotland, give us the powers over welfare reform, so that we can ensure that we improve the life chances of these young people, many of whom have real challenges even before they get to school. It is one of the reasons why we have increased the hours of education available for three and four-year-olds. There has been a big increase in the number of hours available at those times. We have reduced class sizes in the early years, so that there is more time and attention on literacy, reading and writing up to the age of eight-

Q754 Chair: We welcome lots of these things, but the results have not shown through yet.

Fiona Hyslop: I would hardly say that the argument against more economic powers is that the results have not shown through yet, when I am telling you that, in terms of performance, we have halted any reduction there may have been in the first few years.

Chair: Another issue that we intend to look at is having some comparisons between Scottish education and parts of England and Wales over the period. We would welcome co-operation from yourselves on that. Lindsay, are there any issues that you want to raise?

Lindsay Roy: No. I have one or two questions for the end.

Q755 Mr Reid: We touched on the Crown Estate earlier. When we asked Professor Calman why the commission had not recommended devolving the Crown Estate, he said that it was a very complicated matter and that they had not had time to look at it. What is your response to that?

Fiona Hyslop: I am not here to judge the Calman commission on the extent of what evidence it did or not take, and what it evaluated. On the Scotland Bill, there has been extensive evidence, including from one of the inquiries here at Westminster, that there need to be more powers. On the comparison between the Crown Estate and the marine environment, it seems crazy that we have control over the fish and the seas, but we do not have control over the Crown Estate, when it is in the same landmass area. When you are managing a country such as Scotland, with such an extensive coastline and extensive interests in relation to the marine, we need to have closer protection. I do not want to criticise the Calman commission unnecessarily.

Q756 Chair: Can I clarify whether, when the Calman commission was doing its work, the Scottish Government submitted something on the Crown Estate?

Fiona Hyslop: We would need to get back to you about what we discussed.

Q757 Chair: It would be helpful if you did, because it would be helpful if we knew whether you had made any proposals on the Crown Estate.

Fiona Hyslop: We have also, in terms of our proposals, had the national conversation White Paper and other-

Q758 Chair: I understand that. We are working on the basis that the Bill has flowed from Calman, although not exclusively. It would be helpful to know whether Calman had the benefit of your views on the Crown Estate when it was drawing up its report.

Fiona Hyslop: We need to check that.

Q759 Mr Reid: The Scottish Parliament already has widespread powers to legislate on property rights. What powers do you need that you do not already have in relation to the Crown Estate?

Fiona Hyslop: Part of it is what is sold and when, and for what reason and for what purpose. It is taking the holistic view.

Q760 Mr Reid: But the Crown Estate does not sell off the sea bed.

Fiona Hyslop: You have talked about the Crown Estate generally. In Princess Street, it is also-

Q761 Mr Reid: I am sorry, but I want to concentrate on the sea bed. The evidence that we have had is concerns from coastal communities about the Crown Estate and the use of the sea bed. I want to concentrate on that area.

Fiona Hyslop: It is so we can take a more holistic view of the management of that area and arena in terms of how things are used. You know that offshore wind farms are a major issue for different communities for different reasons. Part of it is the economic growth argument, but also part of it is the communities themselves and their ability to have influence. You can have protocols and the electoral accountability of the Scottish Parliament or, indeed, working with local authorities like Highlands and Islands, which is very important indeed.

Q762 Mr Reid: All the offshore wind farms on the sea bed, on the Estate, that are being proposed-at the end of the day, it is the Scottish Government who decide through the planning system whether or not they go ahead and all the conditions that are imposed. What other powers do you feel that you need that you do not already have?

Fiona Hyslop: There is the revenue aspect.

Q763 Mr Reid: But on revenue, Calman said that only 5% of the Crown Estate’s revenue, UK-wide, was raised in Scotland, and that Scotland was only to get 5% of the Crown Estate compared with the share that it currently gets of UK public services, and 5% sounds a very bad deal.

Fiona Hyslop: Again, that is part of the issue about transparency, if it is Treasury-led-Exchequer-led. It is quite interesting that the Bill is compounding that. It is not even saying that Scottish Ministers should appoint somebody to be the Crown Estate commissioner, and there is no requirement regarding the Scottish interests within that. It becomes more of a mechanistic, revenue-raising regime controlled by the Treasury for revenue-raising purposes rather than the broader policy range, which I certainly would like to see.

Q764 Mr Reid: In terms of policy, I still don’t understand what the Scottish Government would do if the Crown Estate were devolved, which it cannot achieve at the moment through its existing powers of planning and right to legislate on property rights.

Fiona Hyslop: Stewardship and management of resources should not be driven by planning decisions. They should be focused; they are focused, and they are constrained and controlled by very tight legislation that is-

Q765 Mr Reid: That is devolved.

Fiona Hyslop: Yes. I am tempted to go back to education. If you had education decisions about schools and school capacity driven slowly by planning, you would recognise that that was not the correct way to determine how big a school should be. Similarly, if you determine your policy purely by planning decisions, it is a very narrow focus that is actually very much legally bound in different areas. I suppose that the argument I am trying to put across-

Q766 Mr Reid: You have the powers.

Fiona Hyslop: But it is very dangerous to take the view that stewardship-which, in effect, it is-of a geographical area should be determined by planning applications. That is a very narrow view of the world. I would be very concerned if that was the sole power that we could use.

Q767 Mr Reid: If the powers of direction over the Crown Estate were devolved to Scottish Ministers, in what way would you be able to use those powers to the benefit of coastal communities that does not happen at the moment?

Fiona Hyslop: That is where transparency and accountability are absolutely key. It is to make sure that there is that transparency and accountability with local communities as well. I do not want to be disparaging and say that the Crown Estate commissioners are not trying to achieve that. I am just saying that it would make it more democratically accountable because the Crown Estate commissioners are not democratically accountable to the people. The Scottish Government would be.

Q768 Chair: Feel free to be disparaging about the Crown Estate commissioners. Don’t let us hold you back.

Fiona Hyslop: I am very conscious that I am sitting between two civil servants, and I have every respect for the professional quality of people doing the job. I do not want to be in the position that you have invited me to be in. It is about transparency and accountability. That is the ultimate issue. It is the balance between revenue raising and the wider public interest. The wider public interest isn’t necessarily always served simply by the planning application process, if that makes sense.

Q769 Mr Reid: On taxes, we were talking earlier about the powers to vary income tax and the adjustment to the block grant. You clearly felt that there was a lot that was wrong with those proposals. If you compared the Bill’s proposals with the status quo, which would be your preference?

Fiona Hyslop: The real danger of what is currently there is a deflationary bias. Had the Bill been in place since 1999, we would have seen a £8 billion difference. I think that that is the danger. The Secretary of State has acknowledged that there is a deflationary bias, even though he might dispute with me how much that was. The argument seems to be that the only time that Scotland would benefit from the new funding regime would be when public spending was being slashed, because the slashing, as we are currently seeing in both revenue and capital terms, would be more severe than the impact on income tax. The idea that the only time the Bill would benefit Scotland in financial terms was in a period of slash and burn public finances is hardly a recipe for confidence at a time when we’re looking for economic growth.

Q770 Mr Reid: So you prefer the status quo, then?

Fiona Hyslop: We want to see more powers come to Scotland.

Q771 Mr Reid: But more powers bring risks as well as opportunities.

Fiona Hyslop: Absolutely. I think that that comes to the nub of it. The risk of the current proposals on finance is that only one taxation is used-income tax. Even then, it’s just the low or standard rates that we will have the majority of influence on.

Q772 Mr Reid: You’re still not giving a yes or no answer to my question.

Fiona Hyslop: Because we hope to have an opportunity to work with the UK Government to improve the Bill. That’s what we have been trying to do.

Q773 Mr Reid: So where would you like to see this part of the Bill improved? What would be your proposal?

Fiona Hyslop: We have made it clear that we think the best solution would be to provide the Scottish Parliament and Government with powers over 85% of the Scottish revenue.

Q774 Mr Reid: What other taxes would you like to vary?

Fiona Hyslop: Everything bar VAT, because there are issues with that within the European Union.

Q775 Mr Reid: So the likes of excise duties, fuel and alcohol? Is there not a risk that if all four countries in the UK had the opportunity to vary those taxes, we would just end up with a competition downwards to have lower taxes and fewer public services?

Fiona Hyslop: I think you could use that argument for between the UK and Ireland, the UK and France or the UK and the Netherlands. We would have to have a sensible understanding of what was in the common interest.

Excise duties are a really good example. One problem that we had in the Scottish Parliament in trying to pursue our policies on alcohol is that we wanted to see minimum pricing, but the other parties in the Parliament voted that down, and one argument was that it would be better dealt with through alcohol pricing duties.

Q776 Mr Reid: If you reduced alcohol duty, say, in Scotland, would that not force the UK Government to do the same in England because of cross-border purchasing?

Fiona Hyslop: One of our proposals is to make sure that we can pursue issues such as health. Let’s go back to the issue of the challenge for young people in Scotland, many of whom are disadvantaged right from the start-

Q777 Mr Reid: I think that is going away from the question, which was about competition. If there was competition in excise duties, would it not just force them all downwards?

Fiona Hyslop: If you are trying to tackle a booze and blades culture, you can try, for the booze culture, to do it through minimum pricing, which we have tried to do. The argument against that was that we should be using powers on alcohol pricing and excise duties, but we currently don’t have those powers to make improvements in health policy. So I would like to have those, not just for economic growth or to look at opportunities, but to implement good health policies.

Q778 Mr Reid: But you are not answering my question. If you increase duties on alcohol, what’s to stop people from popping over the border to buy it cheaper there?

Fiona Hyslop: That might be an argument for debating what would be the benefits to health policy of having an opportunity to influence excise duty. We have had that debate in microcosm, I suppose, in the debates on alcohol pricing in the Scottish Parliament. Obviously, that was a differential pricing regime that we thought would help improve the health of the people of Scotland. Nobody is against trying to use alcohol pricing, and some MPs in this Parliament have said that they would like to use variable pricing on alcohol to impact positively on health. We would just like to have the opportunity to do that ourselves, and we would have done so, but our jurisdiction was limited to minimum pricing. The arguments about what taxes we need are, yes, about economic growth, but also about the social consequences of what you can do with some of these powers as well.

Q779 Mr Reid: I still feel you are not answering my question. If you increase alcohol duties for the health reasons that you have mentioned, what is to stop people just popping over the border to buy cheaper alcohol?

Fiona Hyslop: That is a debate that would happen, as it did with minimum pricing, around whether people would actually do that to the extent that it would have an impact. I am sure that that is a debate that not just this Committee, but other Committees in this Parliament will look at, because it is a running issue. It shows you that the transfer of financial powers is not just about economic growth; it is also about social impact. I have talked about that in relation to the future jobs fund, and in terms of alcohol.

Q780 Chair: I am conscious that you’ve now got 14 minutes. On booze and blades, you’ve wanted powers over airguns in order to ban them, which we understand. You have powers over knives, but you haven’t been effective in dealing with the knife culture. It comes back to the question of why you are seeking extra powers when you don’t adequately utilise the powers that you have. Is this not a difficulty for us in acceding to your constant requests for more powers, when it is visible that you don’t actually work adequately with what you have already?

Fiona Hyslop: You will find that we have had an impact on the knife culture. I am very conscious that there have been some dreadful examples of knife crime recently, and I wouldn’t diminish that and the impact of that at all. That’s why-looking at the work of John Carnochan, the violence reduction unit and the impact that it has-the fact that those convicted of serious crimes and knife crimes are serving longer sentences under our Administration than previously, shows there has been an impact. I don’t think that that’s necessarily a particularly strong argument to use against the progress of more powers. It’s an evaluation. Our accountability of whether we’re successful on knives, on education or in other areas is through the Scottish Parliament and the Scottish people-we will be accountable to them. While the Westminster Parliament still has control over many areas of our lives in economic terms, the issue comes back to the central point-is there any evidence from the UK Government that the Bill will improve economic growth and the job prospects of the people of Scotland?

Q781 Lindsay Roy: The Scottish Government have proposed a supermarket tax for minimum pricing of alcohol. What would have happened if there had been a majority in the Scottish Parliament-would that have become law, or would they have had to defer to the UK Government?

Fiona Hyslop: Obviously, if that had been endorsed by the Scottish Parliament, we would have carried it out.

Q782 Lindsay Roy: You already have a facility, but the reason that that did not go through was that there wasn’t a majority in the Scottish Parliament.

Fiona Hyslop: As much as, as a Minister, I would want to exercise different powers, this goes back to Fiona O’Donnell’s central point that Scottish Government Ministers are given powers under the Scotland Bill, but not the Parliament. It is always important that the Parliament-any Parliament-has a check and balance on its Government and its Ministers to ensure that there is a view, and I accept that.

Fiona O'Donnell: We are in the mopping-up stage, so I will jump to another subject. You have made clear your opposition to the Scottish Parliament picking up the tab for collecting income tax. In terms of full fiscal autonomy, do you have estimates of the costs of collecting the full range of taxes in Scotland? Would the Scottish Parliament pick up the costs of that, or would you still expect the UK Government to pick that up?

Fiona Hyslop: In the statement of funding policy, it is quite clear that if the UK Government initiate the policy, they pick up the funding for it; if the Scottish Parliament and Government initiate the policy, they are responsible for it. So, clearly we acknowledge that there would be some responsibility with full fiscal responsibility for the Scottish Government over those costings. Obviously, we acknowledge that there would have to be discussions and negotiations with HMRC, which goes back to Lindsay’s point. If you look at other countries, and we’ve published information-

Q783 Fiona O'Donnell: The UK Parliament would have legislated to give you the full range of fiscal powers, so why would it not be solely the responsibility of the UK Parliament?

Fiona Hyslop: I would love the Scottish Parliament to be able to legislate to give us full fiscal responsibility. Unfortunately, those levers of power are still held by Westminster.

Q784 Fiona O'Donnell: So you would still argue for the full cost-

Fiona Hyslop: It has happened over a number of issues. If you are operating within a UK system of taxation, that is why having that intergovernmental bilateral committee-

Q785 Fiona O'Donnell: So you would negotiate. How much do you think would be fair for Scotland to pick up? Have you done any estimates about the costs?

Fiona Hyslop: I think it is too expensive as it is. One of our proposals, and the information and evidence we put in our "National Conversation" paper, concerns how much cheaper it is for other countries to collect taxes than for the UK Government. HMRC has a very expensive system, and we would expect any Scottish system-

Q786 Fiona O'Donnell: What savings? With those savings in mind, do you have a cost?

Fiona Hyslop: I cannot give you that information now. If any is available, I am happy to provide it, but I think it is more a case that when you set up a system, you would have your dialogue with the UK Government and-

Fiona O'Donnell: And then have another agency to collect?

Fiona Hyslop: What is the difference between 85% and 70%? There should be negotiations between the different Departments. Unfortunately, we are not even at that level in the Bill in front of us, which is for a smaller amount.

Fiona O'Donnell: Any other detail on that would be useful.

Q787 Chair: May I clarify? One of the points that Michael Moore made to us was about additional powers to introduce new taxes. I wondered whether you had any observations on that.

Fiona Hyslop: Helpful as it is, I think it is an excuse for not transferring some of the other taxes that Calman recommended-whether passenger duty or the aggregates levy, arguments against that are cases in the European Court. They were there when Calman was looking at it, so-

Q788 Chair: You will be aware of what he said about that, that once the matters are resolved, he intends to devolve them.

Fiona Hyslop: I think that is why that clause is there. Obviously, that might provide an opportunity for other powers and other taxes to be-

Q789 Chair: That is right. I presume you have read the evidence from when Michael Moore was in front of us. I think you will have heard or read our exchange about the potential for you to devise new taxes. I think I identified taxing either alcohol with a high percentage of caffeine in it-a Buckfast tax-or, alternatively, landed estates or acreage in some way, a Buccleuch tax as it were. You could have a Buckfast tax and a Buccleuch tax if you met the criteria established by the Treasury. Do you not welcome these opportunities?

Fiona Hyslop: The clause itself is helpful. It is there for a reason, because of the aggregates tax and the air passenger duty issues. I suppose the question is, who should decide what taxes are transferred? Should the Scottish Parliament and Government have a say or influence? Could they request taxes to be transferred under this? That might be a useful thing-

Chair: You can always request.

Fiona Hyslop: Or should it be enshrined in the legislation?

Q790 Chair: We have divided responsibilities. We are the representatives of the Scottish people, just as much as you are, so Scotland’s representatives in Westminster have input into these sorts of discussions.

This is coming back to the question of whether you welcome there being what I recognise as a quite innovative proposal, giving you the opportunity to devise new taxes, if you were able to pursue that. And the clause would give you the opportunity to run them past the Treasury, to make sure that there was not a distorting or undermining effect, or cannibalising and so on-all the things you would naturally expect-but it does give you an incentive to look for new ways of levying tax, say to overcome any deficiency that might result in the Budget from cutting corporation tax.

Fiona Hyslop: If you look at the Bill, you as parliamentarians in this Parliament will have to vote on what is there in black and white. Accompanying the Bill is the Command Paper, and in the Command Paper, on the clause we are talking about, are a number of conditions and restrictions. The issue is, do you think that flexibility within the background would be useful, although the Command Paper is quite tight in what it is saying? Or do you think the provision is open-ended so as to allow other taxes to be transferred? I am of the view that it should be as open-ended as possible, to enable more powers and to allow us-

Q791 Chair: To be fair, you’re a nationalist, and therefore, in a sense, you have a predetermined outcome. In terms of the governance of Scotland and how we improve it, do you not welcome this opportunity?

Fiona Hyslop: If it can be used to transfer more power, that is something that we would welcome. You might want it for caffeine. I might want it for economic levers. That is perhaps the spectrum of difference between what powers we think need to be transferred. It is a bit like the point we touched on at the beginning in relation to the Scottish legal justice system. It doesn’t matter what is said-it matters what is said in the background as to what is intended. But what really matters is what is in black and white in legislation.

Q792 Chair: You have mentioned the justice system. I raised one other point where co-operation would be important, which relates to immigration. The judicial review system that operates in Scotland and the general slowness of the Scottish legal system, which seems to be far worse than in England and Wales, causes the UK Border Agency substantial difficulties in getting cases resolved. In my own constituency, I have cases that have been waiting months to get their way through the Scottish legal system. They go through far faster in England and Wales. Whether it is a question of deportation or somebody getting consent to remain here, delay is in nobody’s interest. I wonder whether it is possible for you to be taking back the need for the Scottish justice system to work more closely with the Home Office to expedite such matters. It has been a long-standing grievance among many of us at Westminster.

Fiona Hyslop: I suspect you want me to go back to Scotland with a shopping list.

Q793 Chair: It has to be a two-way street. You’ve come here and moaned about a whole number of things, quite understandably, but we also have some anxieties-

Fiona Hyslop: I think I’ve been very constructive.

Q794 Chair: I said at the beginning that you were not here to be satisfied.

Fiona Hyslop: I will not say what I was thinking. You have made a very good point about justice and immigration. On immigration, Calman recommended that there should be variability. Indeed, I know the Lib Dems also held that position before the election.

Q795 Chair: That was then, to be fair to the Lib Dems.

Fiona Hyslop: Variability was recommended to allow us to respond to our circumstances. Again, something that was recommended by Calman is not in the Bill. In terms of justice and immigration, I gave you an example earlier about how UK employment has integrated with Scottish responsibility and skills to give a better outcome for individuals. Had we more control over immigration, as recommended by Calman, we could also integrate justice to ensure we could address any issues about improvement in terms of policy and process.

Q796 Chair: I understand that. But you are constantly predisposed to say that the answer to a rubbing, as it were, between the jurisdictions is that you should get the powers transferred. On the other hand, there does not seem to be any reason why a working together-a meshing-and joint discussions could not be another way of moving forward. You seem to constantly set your mind against constructive joint working.

Fiona Hyslop: Yes, it could. But in terms of the process, we have published our correspondence on the Scotland Bill. It is available to the Scottish Committee and it is available publicly. It is about all the things we have tried to do constructively. Despite these constructive proposals-some of them are small and minor and perhaps evolutionary; with some of them perhaps we can understand a political difference. But when you don’t have that dialogue and engagement that improves the Bill, that is when we worry. When you have a situation, as we have had recently, only in the last few weeks, when we’ve got the thinking of the Advocate-General on one of the key areas in justice, you can see where we have our concerns. We have had that dialogue. We want to have that dialogue. I am delighted that you want to make sure that it is given public scrutiny, but I think that we have to have a system of Government-to-Government dialogue. I go back to how people view things. There are too many Whitehall Departments and, indeed, some UK Ministers who seem to treat Scotland as some kind of Department of Whitehall as opposed to a Government.

Q797 Chair: That is the nature of civil servants. When I was a councillor in Strathclyde, I remember bemoaning the way in which the Scotland Office, as it was then, in its various departments in Edinburgh, treated the west of Scotland badly as if we were just serfs. It is in the nature of civil servants to treat everybody else as a lesser being.

Fiona Hyslop: There is a really serious point. The test of the relationship will be from the beginning of next week when amendments are put down. If there is no movement on trying to improve some areas of the Bill, and if the UK Government try to ram through without due consideration-

Q798 Chair: We will see what comes from your own commissioners.

We have Fiona, and then we will have to let you escape.

Q799 Fiona O'Donnell: I have a quick question about full fiscal autonomy. Would you see the Scottish Government in that situation having to transfer funds back to cover areas of reserve policy to the UK Government?

Fiona Hyslop: That is about what revenue is raised and what revenue is spent. What you are probably alluding to is something-

Q800 Fiona O'Donnell: On defence, would you make a contribution from that pot, from the moneys that you raise under full fiscal autonomy?

Fiona Hyslop: Some of the examples that are worth looking at are in relation to the Spanish. The Calman commission looked at whether you could disperse and send money back. Under our agreement and arrangements, obviously we would have revenue raising in relation to our spending in Scotland. The dialogue about relationship is where we want to get to.

Q801 Fiona O'Donnell: You are proposing it, but you do not have further thoughts just now about what contributions.

Fiona Hyslop: That is exactly why we want to have a bilatersal inter-governmental committee, which is what is proposed in Scotland. We just think that these things should be set up now. You do not need a Bill to do that. It is a decision to be taken by Ministers.

Chair: Are there any final points that you want to make, as an alternative to missing your plane?

Fiona Hyslop: Thank you very much for giving me the opportunity to meet you. We have provided written evidence, and we will watch your deliberations with great interest. I express my concerns that decisions will be made in the House of Commons before either the Scottish Parliament’s Committee or others have had a chance to have an input in terms of the parliamentary vote next week. I am sure that you will be watching the process with vigilance, as much as the content and policy.

Chair: I want to make it clear that, notwithstanding any votes that take place next week, there will still be time for anything decided next week to be undone before the legislation becomes law. There will still be opportunities, whether in the Lords or at further stages in the Commons, even after any decisions are taken on Monday, to reverse decisions. It would be a mistake to go away thinking that anything decided on Monday was absolutely and utterly final.

Fiona Hyslop: Prevention is better than cure. With great respect, I do not want to have the last word.

Chair: That is right. I am determined to make sure of that, even at the cost of your missing your plane. Thank you very much to yourself and your colleagues.