Scottish Affairs Committee - Minutes of EvidenceHC 139-I

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Oral Evidence

Taken before the Scottish Affairs Committee

on Wednesday 27 June 2012

Members present:

Mr Ian Davidson (Chair)

Fiona Bruce

Jim McGovern

Iain McKenzie

David Mowat

Pamela Nash

Mr Alan Reid

Lindsay Roy

________________

Examination of Witness

Witness: Jeremy Purvis, Reform Scotland, gave evidence.

Q718 Chair: Good afternoon, Jeremy. Thank you for coming along to this meeting of the Scottish Affairs Committee. Can I say that at one point you were my late mother’s MSP, and she always thought you were a nice man? Whether or not that is true we will possibly see later on this afternoon. Can I also say we are agreed that what has been produced is a very thorough piece of work, with an enormous number of exceedingly helpful facts and figures? I think it is in noticeable contrast, as many of us were remarking, to the lack of material that has been produced by the Scottish Government about any plans they might have for these or related matters. Can I first ask you to introduce yourself? Tell us your background and about the organisation you represent.

Jeremy Purvis: Thank you, Chairman, or convener, a term which I am more familiar using in my previous profession. Thank you very much for the opportunity to give evidence this afternoon. I am a member of the advisory board of the Edinburgh-based think tank Reform Scotland, which is a charitable public policy institute that has been in existence for going on five years now. I am a member of the advisory board with others from other political backgrounds-former SNP, Labour, Conservative and Liberal Democrat MSPs are on that advisory board. Reform Scotland has a very broad representation with its perspective. In 2009 it published a set of broad proposals termed "Devolution Plus", and earlier this year it asked if I, together with a number of sitting MSPs, would help with putting together firmer proposals of how potentially those outline proposals could be implemented. Alex Ferguson, former Presiding Officer and Conservative MSP, Tavish Scott, Liberal Democrat MSP and former leader of the Scottish Lib Dems, and Duncan McNeil, Labour MSP, are on the Devo Plus Group, so again there is broad political representation.

The first report we have put forward, which I think the Committee has and you have referred to, "A Stronger Scotland Within the UK", is our first set of proposals looking primarily at tax and fiscal policy. We are currently considering and will be publishing our second report on better outcomes, looking more at social protection areas and the interaction of welfare, which is a live topic at the moment. The third piece of work that we will do in the Devo Plus Group is looking at potential procedural changes that we think may be required if we are going to be seeing the delivery of devo plus. That is the focus of our work and the background of what we are doing.

Q719 Chair: Can I press you a little on the nature of the group? We did check the website. While it is true that there is a token Labour Party Member, an SNP Member, a Tory and yourself, and also somebody from the SNP VO on there as well, overwhelmingly it is bloated capitalists and people with a Conservative background. Is this a right of centre think tank?

Jeremy Purvis: I think you would be brave saying that Wendy Alexander is a token member of the advisory board. All of us who are part of that wish to contribute to better dialogue in Scotland and put forward proposals for the work programme of Reform Scotland, whether or not it is looking at reforming local government or broadband investment, which you may argue is procedural and economic. Currently you may have seen some of the work that it has put forward with the Centre for Scottish Public Policy on the Commission on School Reform. It is a broad approach. Similarly, I have been very keen that the devo plus approach does not come with any party ideology or baggage but is a set of proposals that addresses some of the fundamentals that we think should be addressed going forward for Scotland. I am sure you will be asking about that.

Q720 Chair: To pursue that, the funders that are named are Deloitte, Dundas & Wilson, the Buccleuch Group, who are not known for their enthusiasm for land reform, for example, and Skanska Scotland, with whom we may be having discussions in relation to another inquiry. It is a very establishment-oriented, right-wing grouping of sponsors that you have, is it not? To what extent does that influence your judgments, and to what extent are you completely free from external influence?

Jeremy Purvis: The work that I have done for Devo Plus and the report that has been published are my views and those of the MSPs on that group. We have not been influenced by any external factors, either from what you may consider the left or right or funders or nonfunders. They have not had any influence at all.

Q721 Lindsay Roy: Can I just echo what a very helpful and comprehensive report this is? For the record, could you tell us what further powers you consider should be devolved?

Jeremy Purvis: I do not wish to answer this in a lengthy way, but, if it is helpful, I can give a very brief snapshot as to why we have come to some of the conclusions we have.

Lindsay Roy: That would be most helpful.

Jeremy Purvis: We have looked quite closely at the way that the Scottish Parliament currently operates. We find it a very strong institution but it can be improved upon, and the relationship between Scotland and the rest of the UK similarly can be improved upon. If the question going forward for Scotland is, "What is the right relationship between the Scottish Parliament and Scottish institutions and the rest of the United Kingdom for the long term?", we have come to the conclusions that enhanced devolution and further powers are appropriate. It meets the principle that each level of Government should broadly be responsible for raising the revenue that it spends, with a strong caveat of equality. If Scotland is to be part of the United Kingdom, being able to gain the benefits from the United Kingdom-for example, tax returns in the south-east of England and redistribution when there is a need for it-it is appropriate to have some form of equalisation.

Similarly, it is very appropriate that MSPs are properly accountable for decisions that they make. Part of our early analysis was looking around the world at other more federal-type approaches. There are no other examples that neatly fit the constitution of the UK, as you have been looking at, but there are broad examples-certainly, the OECD, which we looked at as well-which show that the UK is too centralised financially as a United Kingdom. Similarly, that has negative consequences when it comes to the operation of the Holyrood Parliament. So it meets two aims: for Scotland to continue to contribute to the UK and gain the benefit of being in the UK, but similarly to make sure that MSPs are more accountable and responsible to the people of Scotland for the decisions that they make.

Q722 Lindsay Roy: That comes through very clearly in terms of taxation and finance. Are there any other areas you feel that should be devolved?

Jeremy Purvis: The conclusion, therefore, looking at what the right balance is for the powers that the Parliament should have, is that we have been broadly comfortable with the principle established after the referendum in 1997 that all powers should be devolved other than when a specific case is made for their retention at UK level. We have questioned whether or not that should apply to fiscal powers also. That is why we have drawn the conclusions that we can move towards a situation where the Scottish Parliament should be responsible for most of the revenue that is raised, but there are very practical and pragmatic considerations that are taken into account for that. Therefore, when we have gone through the tax basket, in our report we have drawn a conclusion about those taxes where a case is made for them to be purely Scottish and the responsibility of the Scottish Parliament, those that could be shared at a UK level, and those that should be fully retained at UK level. That draws the conclusion about the taxes that should be devolved.

The work that we are currently doing for social protection is using broadly the same principle of looking at the areas of social protection spend and powers in Scotland. I will be open with you, Chairman. It is a complex area at the moment, given the fact that the implementation of the welfare reform legislation is live. There are some areas that it has chosen to implement that have not been resolved yet in the Scottish Parliament and there is still the secondary legislation here. That is the work that we will be drawing to conclusion in a couple of months’ time.

The third key area is looking at the operation of UK bodies-UK regulatory functions. What is the right level of accountability that they should have to the Scottish Parliament? For example, the Sea Fish Industry Authority is statutorily responsible to this Parliament and the Holyrood Parliament for the regulation of white fish, but energy and broadcasting regulators are not accountable to the Scottish Parliament for areas that have an impact upon devolved issues, but not statutorily; their work has an impact on devolved areas. Again, we will be reporting on that in a few months’ time.

Q723 Lindsay Roy: That is a very comprehensive programme. Again, can I echo that it is a very helpful paper? How does your group plan to go about achieving its objectives?

Jeremy Purvis: They are a slight distraction to some extent from a proper discussion about what is the right solution. A lot of the discussion is about process. I do not mean that in a pejorative way for your inquiry, but we have tried to focus not on process or tactics but to try and identify what is the best long-term relationship and right balance of powers. That is why we have the position that we are neither pressing for nor calling for a separate question, a separate referendum, or any particular type of process, for the strong reason that we believe many of our proposals could be implemented in a normal statutory manner as the Scotland Act has been delivered, but there are options that this Parliament, the Holyrood Parliament, Governments and you all should consider and take as the way forward. There are a number of options on process. We have tried to stand back from that and focus on how we would be able to deliver it.

Q724 Lindsay Roy: To sum up, you would argue that you might not need a referendum to implement the programme that you are setting forward.

Jeremy Purvis: I believe that we would not. The Devo Plus Group of MSPs believe that we would not. We believe the focus should be on trying to find agreement among the political parties that this is the best way forward and to have it implemented in a managed and staged way. Our report "A Stronger Scotland Within the UK" outlines what we believe could be a way forward over two terms of a UK Parliament in a managed way to address the technical aspects, if we are going to go down that route. Because we are not pressing for it in the referendum, we have been focusing on what would be required even if there was not a referendum.

Q725 Lindsay Roy: So, whatever the process, you would be looking for a consensual and collaborative approach.

Jeremy Purvis: I have found in my own experience that the best way of delivering constitutional change is through that process. On the way to the Committee I was thinking about how many different options and permutations there could be. I counted at least five; there is a yes/no referendum; there is a yes if no referendum; there is a yes/no plus other option referendum; there is a yes/no referendum plus other option referendum; and there is a statutory yes referendum, plus an advisory other option referendum.

Lindsay Roy: It sounds a bit complex.

Q726 Chair: We have considered this and taken the view that if you have identified only five options you have not been trying hard enough.

Jeremy Purvis: Plus there have been other considerations in the past. I think that highlights the difficulty that a group such as us would be in if we wished to chase after process. That is why we have chosen not to. We have not framed our proposals predicated on there either being a referendum or not a referendum; we have framed the proposals on what we consider to be the best way forward. It is for the political process to decide on the best way of delivery, but my reflection and experience is that by far the most effective way is broad party agreement. Obviously, there is one party that will never agree to the conclusion of our proposals of keeping within the UK, but, notwithstanding that, getting broad political consensus means there is broad public support with it.

Lindsay Roy: Congratulations again on the very detailed work you have done; it is very comprehensive.

Q727 Chair: Can I follow that up? The process of establishing a consensus as far as possible presumably would apply not only within Scotland. Some of your proposals would require a degree of consensus with parties in England as well, wouldn’t they? I am sorry; Hansard doesn’t record nodding.

Jeremy Purvis: Yes, I agree with you. In fact it is not just parties in England; it is the other Administrations in the rest of the UK. For example, if we are looking at powers over duties, currently we have a UK excise system. For example, as much as there could be merit, as the Calman commission considered, in alcohol and tobacco duties having social aims as well as raising revenue, they are linked with already devolved powers, but you cannot unilaterally argue that the UK excise system should be changed purely for Scotland. That is why in our report we have indicated that that would have to be in a third category of taxes that would have to come after there is wide UK support by the Welsh and Northern Ireland Administrations and the rest of England.

Q728 Chair: In terms of process-I am sorry to drag you into this-many of the proposals you are putting forward in a sense stand alone. It need not be the case that individual suggestions can only proceed if everything proceeds. On some of these things progress can be made more speedily than on other things.

Jeremy Purvis: That is correct. There are some areas where, for example, we could look to use the current Scotland Act proposals that have now received Royal Assent. They could be used for other taxes to become fully devolved. There are other areas where that could be used to have shared taxes through secondary legislation. However, we would not want to lose the fact that we have put forward a broad package, the conclusion of which means that the Scottish Parliament would be responsible for most of the revenue, though not entirely. That is a fairly fundamental element of our proposals, because it does shift the balance of accountability away from what the Scotland Act proposals would be, where Holyrood is responsible for 30% of its revenue, to well over half its revenue. That does change the way that that institution works, and to the better in our view. That is why, yes, it can be an incremental approach, but we would like that to be an incremental approach with a broad acceptance of the aim.

Q729 Chair: There is an argument that says the Scottish Parliament in particular has an unwise obsession with constitutional change at the expense of spending time, attention and focus on the matters for which it already has responsibility, and your suggestions would continue that. For example, we have been speaking to people recently in the highlands and islands about land reform where, as far as I can see, virtually all the powers are already with the Scottish Parliament; similarly, for improvements in health and education, which are, sadly, needed, virtually all the powers are already with the Scottish Parliament. Are you not diverting attention in the direction of constitutional change at the expense of improving those services for which the Scottish Parliament already has responsibility?

Jeremy Purvis: No. Parliament is perfectly equipped to consider a number of different areas, as this Parliament can as well. I do not think it is to the exclusion of that. I served in the Parliament during the whole of the Calman process, two UK Government White Papers, the conclusion of Calman and also publication of the draft Bill in the last Administration and introduced in the current Administration. It did not change my day-to-day work as a constituency MSP; it is just one of the things that is going to be necessary. But it is a judgment call whether or not you think that the Parliament being simply a legislature and spending body is the right approach when it is responsible for over £30 billion, but the discussion and interaction with the public in Scotland over the areas where there is responsibility for dividing up the cake and how it is spent is about whether or not, as an institution, that brings in some perverse incentives.

For example, in our report-I know it is slightly economic techy-speak-moral hazard is referred to, as in the political imperative of Scottish MSPs and the Scottish Administration to show that they are growing their grant or their budget. Because it has limited powers over raising that, the definition of success for a devolved Scottish parliamentarian is if the Administration wins a dispute over the size of its budget. That means there is more focus on that and less on the better delivery of schooling and health, because what people believe is the accountability of MSPs is determined by how successful they have been in winning disputes with Westminster rather than how successful they are at delivering devolved policies. Most constituents, when they are in discussions with you at elections, have an interest in how money is raised and taken from them, and how they hand it over, as much as in how it is spent. Holyrood has a considerable deficiency, even though it is a strong legislature and has been broadly effective at spending money efficiently. That is a personal view, but I think it is accepted. It is that accountability gap that the Calman commission had identified but we do not think it had properly addressed the solution for it.

Q730 Chair: Coming back to the question of land reform in particular, all the powers that are necessary to introduce quite a drastic programme of land reform are already with the Scottish Parliament, and regrettably it has done virtually nothing, or insufficient, with them. You are saying that that is because the whole dispute has been centred on who gets what from Westminster.

Jeremy Purvis: No, I am not. As to the areas where you could have legislative changes in Holyrood that have little financial implications, whether or not it is freedom of information legislation, PR for local government-all the areas on which I have gone through debates-as a legislature that is a broadly sound approach. That is why our approach is not to want to go back over all of the current powers that have been devolved since the Parliament was established. That is why we broadly accept the principle that the powers were devolved unless there was a specific case for their retention. The point we make is about the personality of the overall institution and whether or not it is broadly successful and, in broad terms, whether or not the country believes it is an effective institution or the politicians believe it is.

It is our view-we may be challenged-that moral hazard and perverse incentives are starting to creep in because of lack of accountability. On an academic basis, the OECD finds that, and that is why most, but not all, countries that have central levels of Government or other legislatures have much greater financial power and accountability than the Scottish Parliament does at the moment. It is that area we have focused on, because, broadly, when it comes to looking at the devolution settlement, that is one of the key areas that we think currently needs to be addressed.

Chair: I understand the argument. I was going to say I am not entirely convinced; in fact I am not convinced at all actually. I think poverty of ambition is one of the difficulties that has faced the Scottish Parliament on things like land reform.

Q731 Iain McKenzie: To take you back briefly to the issue of tax, the Scottish Parliament is a Parliament because it has tax-raising and tax-lowering powers; from day one it has had them. If you accept that it spends money wisely and efficiently, why do you think the Scottish Parliament, regardless of who has been in control of that Parliament, has never used those tax-raising or lowering powers?

Jeremy Purvis: There are a couple of reasons. For the record, the only MSP who has moved a motion calling on the Scottish Government to use the tax-varying powers is me. It did not go very far.

Q732 Iain McKenzie: Was it up or down?

Jeremy Purvis: To cut it as a fiscal stimulus at the beginning of the recession and to identify savings from other areas, but it was not supported. One of the reasons is that it is a very blunt instrument. One of the concerns about the Scotland Act element that has a flat 10p reduction across the different bandings is that, similarly, that will be a blunt instrument. There are few countermeasures that any finance Minister could use to balance that within reason. That was why the tax power had never been considered properly to be used. The jury is out as to whether or not the Scotland Act power will be used if there are not very many other counteracting measures. The ability to borrow, however, under the Scotland Act is quite appropriate.

I was on the finance committee for five of the eight years I was in Holyrood and took part in all of the budget debates I was a member of, and I cannot recall much debate about how the money that we were spending was raised. Therefore, all of the debates tend to move towards competing interests of expenditure. You may argue that is fine if the role of the Parliament is to be simply a spending institution and the focus is on how you spend it, but, as you rightly say, Mr McKenzie, it is a Parliament and therefore it does not have many of the requisite fiscal levers that would allow the proper implementation of the legislative powers over other areas that it has.

All of this is within balance. In our proposal we absolutely and categorically reject devo max, which you may come on to-

Chair: Oh yes, we will.

Jeremy Purvis: -for the reasons that it has to be within a balanced approach, but one of the reasons the powers have not been used is that it was a very blunt instrument.

Q733 Iain McKenzie: Do you foresee in the future that, if more tax powers are devolved to the Scottish Parliament, it will not simply be a case of marking where the Westminster Parliament is putting tax on or off but will be decisions taken in Holyrood differently?

Jeremy Purvis: I certainly would not deny it and I think it would be naive to say that there would not be any consideration of what happens in other parts of the UK, because that happens in legislation and spending choices. It is already up to MSPs to make those choices if they decide what happens in other parts and if they wish to do more or less within the bounds of their powers. That would be the same with financial powers, but the difference is that to a large extent you would remove what is starting to develop, which is a convenient response. "If decisions are not made in Scotland it is because we would like to do this but we can’t because our grant has been cut." Perhaps that will never ever go because the Scottish Parliament will always be a devolved Parliament, but it will remove a lot of that on the basis that MSPs would have to make decisions.

You mentioned land reform, for example. One of the interesting aspects about how that will operate will be decisions taken over stamp duty and decisions made by Ministers over that. They are consulting on it; they will be held to account whether or not they have a different approach in rural areas. They have already indicated a willingness to look at different bandings, so MSPs will be held to account for those decisions rather than simply saying, "We would like to have done this but we have been constrained because of Westminster." I am not naive; I am sure it will not remove that tendency in its entirety, but it will remove a lot of that, and it will mean that they can be more accountable for the decisions that they make.

Q734 Jim McGovern: Listening to what you have got to say is very interesting, but when you talk about lack of accountability, tax-raising powers and so on, going on from what my colleague Iain McKenzie said, it sounds like you are almost making the argument for a separate Scotland.

Jeremy Purvis: Not at all. I am not sure how I can categorically deny that in very strong terms. We have an opportunity now to look at what the long-term relationship should be between a fully functioning and properly devolved Parliament with the right balance of powers to make sure that there is a long-term relationship between that and the rest of the UK. The work we have done identified that one of the areas of deficiencies was the lack of breadth of fiscal responsibility. That would mean that, when that is addressed, that broadly puts the UK-

Q735 Jim McGovern: When what is addressed?

Jeremy Purvis: The deficiency at the moment. Holyrood is not functioning as it should do as a devolved legislature.

Q736 Jim McGovern: You agree with that.

Jeremy Purvis: On a constitutional basis, not simply because of policy choices, the UK is massively centralised, disproportionately, looking at comparable size countries around the world. That means that for the delivery of services in one part of the UK, as in Scotland, I repeat that moral hazard comes in. It means that, progressively, services would not be delivered as effectively as they could be. It will mean that the policy choices, which I think was the intention of having a Parliament in the first place, will not be able to be delivered properly. That is why we refer back to the OECD, if we are looking at international best practice at a more decentralised level, but it is not a stepping stone or a continuum to independence. We believe that it would allow devolution to move away, in Donald Dewar’s words, from being a process to being a settlement. If the intention is to have a devolution settlement, then devo plus, with Parliament being responsible sustainably over a long period for between two thirds and 80% of the revenue it raises, sitting within the UK, still having a grant component but having a broad spread of fiscal powers, is what we believe to be the component of devolution as a settlement. I personally would like the debate to move away from devolution being a process, because we need to say for the future-for generations to come-that this is where Scotland comfortably sits within the UK, and the institutions and powers it has are strong enough for it to deliver devolved services, but, equally, it is still gaining from and contributing to the rest of the UK. So it is a stronger argument against independence.

Q737 Jim McGovern: But you do not believe we have that situation just now.

Jeremy Purvis: I do not, because the relationship is imbalanced. It is broadly strong in the legislative area; it is weak in financial areas, and, given the way it is configured, the Scottish Parliament is funded effectively through a departmental budget of the UK Government, which could arbitrarily be changed tomorrow. It is a statement of funding policy that has no basic standing in any statutory framework. That is not the right level of constitutional relationship that exists. Therefore, it allows there to be constant issues with regard to grievance at an institutional level, which are unhelpful. I think they can be resolved in a measured way, and it does bring about a situation where, in a generation’s time, we will not still be fighting issues about technical relations; it is more of a debate about the delivery of services.

Q738 Mr Reid: Thank you for coming along, Jeremy. It is a very thorough paper, and I commend you on that. In the paper you looked at an option that the media often describe as devo max, but you decided to reject that. First, can you tell us what you understand by devo max?

Jeremy Purvis: This is where I think I may well struggle with the rest of the Committee. It is a concept that has not been fully outlined, as far as we are aware, but what has been outlined we don’t think would work; in fact it would be negative. There are two main reasons for it. First, we analysed the reference that the Scottish Government have given for it to be operable in the Basque and Navarre regions of Spain and we showed that that could not be properly reflected within the Scottish context without considerable negative consequences. Secondly, it is a counter-argument to the issue of accountability that we raise. What we are seeking is that MPs are accountable for the decisions that they make, and MSPs are more accountable for decisions that they make. If under devo max you have a situation, as we understand it, that all revenue is raised within Scotland and then there is a subvention to Westminster for UK services, that does not aid accountability for the delivery of those UK services.

There is a practical consideration for why we have rejected it outright and there is also a principled reason why we have rejected it. We have been concerned that it had been approached as or maybe considered to be quite an easy shorthand for a middle way or middle option. That was why we launched our proposals and are doing the work. Because we do not think devo max would work-in fact it would be negative-that is why we have been fairly strong in trying to analyse why it would not work. With regard to the assessment in our report if it was a Basque and Navarre illustration, the modelling using UK figures and Scottish Government data, as we understand it, is the only modelling that has been done. Therefore, as it is put forward, it is more akin to a brand in search of a product than a worked-up scheme. It is very hard to identify named individuals who are putting it forward, but, if you are putting a car on the market, you should at least tell people whether or not it has an engine in it. At the minute it is a woefully inadequate response to this debate.

Q739 Mr Reid: What do you think would be the practical negative consequences for Scotland?

Jeremy Purvis: Using Scottish Government data from the GERS documentation, we found that, using comparable data, there would be not only a deficit in devolved expenditure but a deficit in the quota back for UK services. The sums are £7 billion for devolved services and £3 billion for UK services respectively. That would mean that the incentive for UK delivery of services would be not to invest in Scotland. It does not address a fundamental, as I indicated before, which is an understanding of how a balancing and equality framework should exist. We propose moving progressively towards a needs-based formula to move away from Barnett.

Q740 Mr Reid: Is your interpretation of devo max that there would be no equalising grant at all?

Jeremy Purvis: That is as I understand it. The slight difficulty is that the clearest outline of what devo max is-even then it is not that clear-has been from the Scottish Government, and that is now three years old. They did it in their National Conversation document. I reread it on the train on the way. It is quite interesting that in their conclusions they talk about devolution of other areas, which has been called "Devolution Max". It says: "Unfortunately the various proponents of this approach have yet to bring it forward in a form in which it could provide the basis for a question in a multi-option referendum, although the inclusion of the concept in the National Conversation policy papers, and in this paper, will have helped that process." It is up to the Committee to decide whether or not that did indeed help that process given that, as far as we are aware, there has been no further information about how devo max would work. That is why we have categorically rejected it.

Q741 Mr Reid: Do these calculations of the deficit also take into account that all of the oil revenues in Scotland’s waters would go to Scotland?

Jeremy Purvis: Yes. The comparable way for Basque and Navarre would be that Scotland would raise all revenue other than VAT and a component of national insurance, because the Basque and Navarre regions levy VAT but do not have authority over changing the rates, because you can’t within the EU; and they do not have their work-related taxes-their payroll taxes-at a devolved level. We have used comparable information for the tax revenue, but that does include a geographical share of North sea oil.

I think there is a glaring problem with some of the proposals for devo max as well, which comes through a little in the GERS documentation. They have been selective in the way North sea oil revenue has been considered, in that a geographical share should be used, but when it comes to the expenditure side, they believe that, when it comes to the financial services intervention, a population share would be appropriate rather than a geographical share of the actual institutions that received it and where they were headquartered. That is why we say it is more a brand in search of a product. We think we have done the clearest modelling using data within our country, and that is why we have drawn some of our conclusions from it.

Q742 Chair: It is not unreasonable for anybody involved in any negotiations where you have inconsistent measures to choose whichever one suits them best and hope that the people with whom they are negotiating accept their framework. Presumably, all of this will have to get sorted out in the wash when we do actually get to the process of haggling. Therefore, these inconsistencies on bases, whether it is population or geography, can all be resolved at some point later on.

Jeremy Purvis: From our perspective, we don’t want to get to a situation where it would have to be haggled over in negotiations, because we think our proposals are better and they can be implemented. The difficulty with devo max is that it is put forward, as far as we understand it, as a concept that should be ratified through a referendum process. As far as I am aware, devo max has not been put forward as a mechanism that can be delivered through an alternative route, for the good reason that I don’t think you can have devo max and the UK. I don’t think they are compatible for practical as well as constitutional reasons.

Chair: You have certainly taken some of the discussion on devo max further than others. Many of us here and the other witnesses have seen devo max as a bit like the third way or the big society. It is a nebulous concept, and any time you try to define it it becomes more opaque. Therefore, it was not something that people were floating seriously, except as a means of exerting pressure maybe to move things forward a little. That has been very helpful.

Q743 Jim McGovern: Jeremy, I was going to ask about the comparisons with the Basque country and Navarre, but possibly you have already covered that. Following on from what the Chair said about how understandable this paper is, I take it this is your paper.

Jeremy Purvis: Yes.

Q744 Jim McGovern: I don’t know if it is meant for public consumption or just for politicians, but there is a paragraph here: "While it is hard to discern what the additional devolved spend would be under Devo Max, as the proposals so far have been only general in nature, in order to calculate the Net Quota for Scotland we can make the balanced assumption that under the published information by the Scottish Government all spend other than what is termed ‘non-identifiable’, would be devolved." What does that mean?

Jeremy Purvis: If you are saying that I should have put some semicolons in it, I take your point.

Q745 Jim McGovern: It is not the punctuation that is wrong; it is just that I do not understand what it means.

Jeremy Purvis: I think that could appropriately have been in three sentences. The first is that, to have a proper comparison with what we understand to be devo max, we had to make a judgment on what they thought would be more spending in Scotland. The second sentence is that to do that-

Q746 Jim McGovern: It is one sentence actually.

Jeremy Purvis: I am saying it would probably have been better if it had been written in three sentences. That is the first sentence. The second sentence is that I think the information we use to try to be consistent has been from the GERS paper-publications by the Scottish Government, and, before that, the Scottish Executive-looking at expenditure and revenue in Scotland. That document uses what they term "non-identifiable expenditure" to calculate an estimate of what the UK spends within Scotland on UK services but which is not identified line by line. For example, on defence, there is not a line-by-line MOD item saying, "This is how much we spend in the borders, in Pennycuick or the highlands." The estimate is non-identifiable expenditure. We used that in our calculations and that is where we drew that.

As for those people who will have an interest in it, it is a mixed audience, but, whatever way forward is put into the public domain, people should understand it. When we tested public opinion through a Reform Scotland opinion poll last week, the question was asked, "Which level of Government do you think is best to raise the revenue that the Scottish Parliament spends?" I think that people understand that. A large proportion of people felt that the Scottish Government should raise the revenue. When we tested opinion about devo plus, the question was framed as, "If the Scottish Parliament was responsible for raising most of its revenue, is that something you would support?" That is the language that we term, but we recognise that, within all of these, to have further changes and reforms there are complex areas, and that is why sometimes there are technical documents and language, I am afraid.

Q747 Jim McGovern: I would regard my mother and father as reasonably politically savvy, but if I showed them that they would say, "What’s this person talking about? Does he visit planet earth once a year, or what?"

Jeremy Purvis: I am afraid I can only use what the previous Labour/Lib Dem Executive and current SNP Government use for their Government expenditure and revenue documents. If they called it something different from GERS-I suspect most people would think the debate about "Gers" at the moment relates to something else-

Q748 Jim McGovern: Is that OldCo Gers or NewCo Gers?

Jeremy Purvis: I will retreat from that fiscal debate.

Q749 Chair: You have mentioned the Basque country and Navarre. Are there other examples abroad that might be more appropriate to be examined in this context to which you would draw our attention?

Jeremy Purvis: For devo max?

Q750 Chair: Yes, or for forms of devolution along the lines that you are proposing. The proponents of devo max have identified these as being their role model. Do you have an alternative role model?

Jeremy Purvis: The answer to the first part about looking at other areas for devo max is no-I’ve not been able to find, and I don’t think it has ever come up that others have found, an international example of how it can be used. We have used the example that the SNP Government used, which they cited in their paper, of the National Conversation and "Fiscal Autonomy in Scotland".

Q751 Chair: But that is not the strongest basis on which it is possible to proceed, of course.

Jeremy Purvis: If they have put forward the strongest basis for it, even then, we have found that it is fundamentally weak. I am being careful with language now. On our proposals, we do not necessarily want to take a federalist or fiscal model from the OECD, but Australia, Canada and Germany follow a broadly similar approach. They are federal countries with federal written constitutions and federal arrangements. We know we cannot unilaterally impose that on other parts of the UK, but the basic essence of it and the balance of financial and legislative power that the Scottish Parliament have would put Scotland comfortably within the provinces and other devolved areas of most federal countries. In our report we put in the OECD charts about the areas that have a broad balance between devolved spend and revenue. It would put us squarely within a comfortable bracket.

Q752 David Mowat: I want to ask you about taxation. In your proposal you have come up with a different allocation of taxes from devo max. The one I was most interested in was that you have excluded oil taxation. Can you explain to the Committee why you have done that?

Jeremy Purvis: We started our consideration on the premise that it is a taxation of a natural resource. Most of it is squarely within the geographical waters of Scotland and in an already defined and agreed UK shelf, so we start from the strong basis that it could be devolved. The next thing we looked at was the benefit or otherwise of dividing up the UK continental shelf for regulatory reasons and the way the oil and gas industry operates. We felt that that had some strong negatives, historically as well as legislatively. We also looked at very practical considerations. If we look at the profile of revenue, oil and gas has been the most volatile. If we take 10-year data using the data of the Scottish Government and their predecessor, our calculations showed that the standard deviation from the average is £2.5 billion, from a peak of £8.5 billion in 2003 to £3 billion in 2009. Our figures are in the report. It would be massively destabilising if it was devolved.

Those are the two principal reasons we do not think it is a candidate, but, when you look at it closely, there are three components of the tax regime. There is the historical tax on the fields linked with the decommissioning rights-the corporation charge. You may question whether there should necessarily be a different, principled approach if corporation tax is levied on an oil field in the North sea or an offshore wind farm.

The third area is the supplementary charge, which is not ring-fenced and is levied on profits. We simply explore that there could be discussions as to how that is used. We reflect, for example, on how the Green Investment Bank is being capitalised and how a component of that is being ring-fenced for investment within Scotland, because the Treasury knows it will have to capitalise that anyway. It is a fairly smart use of fossil fuel funds, and the use of that resource could be triggered for that. We use that as an illustration to show that there is a component of it that can be debated in the future.

Q753 David Mowat: One of your points on it was that the standard deviation is very high, so the volatility is high. In a sense you anticipate one of the potential problems of separation.

Jeremy Purvis: Absolutely.

Q754 David Mowat: Obviously, on separation, all the oil revenue would go to the separate Government, but it would begin to have some of the characteristics of a petro-currency, because you could have extremely good years and extremely bad ones because of that.

Jeremy Purvis: Yes. Part of the benefit of being within the UK is that, because the public finances are much broader across the UK, volatility can be evened out for that source. If, with devolved Scottish expenditure, or if there was independence, there was reliance on all revenues raised in Scotland, that becomes a much higher proportion of the revenue, so it is much more volatile.

Q755 David Mowat: Your position is totally logical. I just wondered when I saw it whether or not there was an emotional issue. One of the issues here is Scotland’s oil, and that is the bit you are leaving in UK residual. As I read your paper, it was a surprise, but I understand how you got to the conclusion.

Jeremy Purvis: Chairman, you asked about other examples. We did look at Canada where, for example, natural resources are an area that the provinces have the right to tax over. You received evidence from Professor Kemp earlier in your consideration in a different context. I would probably highlight Alberta that almost had a reverse situation of devolution when it realised that its finances were becoming increasingly dependent on one predominant source of revenue. When that crashed, it felt it would gain more from being part of the federal system.

Q756 David Mowat: As to the thrust of your proposals about accountability, you could argue that you do not get much of that depending on what the oil production was that year.

Jeremy Purvis: Absolutely. Perhaps I should have said before that one of the key elements of our proposals was that the candidates for devolution of taxes should be as closely linked as possible to the decisions that MSPs make. For some it is clearer than others. Stamp duty is a clear example. If MSPs make a bad decision, in your view, and revenue goes down, they should become accountable for that and pay the electoral price for it. Similarly, if they make good decisions, the tax base increases and it goes up. Oil is a key example where MSPs, with the best will in the world, will not shape wholesale prices.

Q757 David Mowat: It is, as I say, very logical. Can I just ask a question about chart 2 in here? Mine is not in colour, so it may be I have misread it. It shows that the total Scottish expenditure for the last decade has been higher than the taxes plus the oil revenue.

Jeremy Purvis: Correct.

Q758 David Mowat: My guess would have been that it was roughly in balance once you took in the oil revenue. It might be that is over two decades. What you are showing in that chart is that Scotland is getting-I hate to use the word "subsidy"; it is the wrong word-more than it earns in terms of its public expenditure.

Jeremy Purvis: That is correct, certainly over the last decade.

Q759 David Mowat: Perhaps in the previous decade it was the other way. I thought that, in the round, once you put the oil in, Scotland came out roughly about right, even though the Barnett settlement was quite generous. I just note the fact. You have quoted your source.

Jeremy Purvis: The difficulty comes when you try to capture what devolved expenditure is. There is no strong equivalent to that before 1999, so it is a case of simply taking the previous estimates for expenditure in Scotland. I won’t conjecture; it is in our report.

Q760 David Mowat: That is your number; that is what you are saying.

Jeremy Purvis: Yes.

Q761 David Mowat: That takes us to the Barnett formula, which you address at the back of your report. Your position on it also surprised me, because you said that, if it went to a needs basis, which is what Holtham and many others, including the House of Lords, have said, you did not think that the difference between that and the current settlement would be that much, whereas others have said different things.

Jeremy Purvis: The principled position is: what is the core basis of the appropriate level of spend in Scotland? That is more akin to a macro-economic judgment as to what the right balance of spend is in Scotland on a per head basis compared with other parts of the UK. We believe it is fair to say that can be done on a broader UK judgment as to what spend is.

Then the question is how far that can go up and down depending on choices made within Scotland or other parts of the UK. That is effectively the Barnett minus. You have the block grant and then reduce it in terms of its relationship with what revenue is raised. That is a fairly core fundamental, which we are broadly comfortable with, but the proposal is to try to have that as reduced as possible.

Q762 David Mowat: I understand that once you start devolving things. Maybe I misread the paper, but at the moment Scotland gets roundabout 120% of the UK average. It has been said that a fairer number would be 108%, but in a sense that doesn’t matter. I was just interested that you seemed to think that, if it went to a needs basis, as some people say it should, it would not give that answer.

Jeremy Purvis: The data for the 121% relate to the Welsh position from the Holtham commission.

Q763 David Mowat: And the House of Lords.

Jeremy Purvis: I am sorry. It is 105% for Scotland and 121% for Northern Ireland. If England is 100%, Wales is 115%, Scotland is 105% and Northern Ireland is 121%.

David Mowat: I did not see that in your report. I do not think those are the Holtham numbers, but we probably do not need to go any further.

Q764 Chair: This is relevant to matters that we have been and will be discussing.

Jeremy Purvis: For the record, it is page 42, table 16. Those are the calculations of the Independent Commission on Funding and Finance for Wales on relative need per capita compared with the English average. That is relative needs. That is what they would estimate to be the need, if it moves towards a needs-based formula.

I alluded before to the difficulty of having comparable spend at the moment. For example, how do you classify what spend on the financial services intervention would have been? There are a number of areas where I think an argument could be made from whichever perspective. The fundamental is: do you want to move away from the Barnett formula to adjust the block grant, or can you have a needs-based formula that replicates it? We accept the Calman commission view, which was that there could be long-term merit in moving towards a needs-based formula, but we also recognise that there are major technical aspects of that before you get to that situation, and the time you would wish to do that would be if you are moving the statement of funding policy, which effectively the Barnett formula is, on to a different footing.

Q765 David Mowat: What you are saying is that you would need a period of transition.

Jeremy Purvis: Yes.

Q766 David Mowat: I agree. But you accept the principle of a needs-based formula.

Jeremy Purvis: We certainly think that there is absolute merit in it, but the reason I am being cautious in the reply is that I think I am right in saying that the last exercise to look at how that would operate in Scotland was in the 1970s. The Holtham commission has the advantage that it has done modelling and looked at it. That is the caveat to my answer, but, broadly, yes.

Q767 David Mowat: I agree that a needs-based review might come up with lots of different answers and the devil is in the detail. That would be inevitable, and it would take a long time to agree all of that stuff. As to the various proposals, you have got devo plus, devo max and then independence. One thing that is clear about independence is how many Scottish MPs there would be in Westminster-that, at least, is a clear point- whereas, with devo plus and devo max, presumably that would be a negotiation. How would you imagine that happening? Your paper does not cover that point.

Jeremy Purvis: It does not; that’s right. We will be considering that in our third paper looking at some of the areas that may be required for some procedural changes. Broadly, we recognise that, if there are increased powers to Holyrood, it raises the issue of the role of Scottish MPs at Westminster. Fundamentally, that is a relationship that Westminster will need to resolve itself. We cannot put forward firm proposals on the basis that it has an impact on the relationship among English, Welsh, Northern Irish and Scottish MPs, but the continuing role of MPs would be absolutely necessary. Indeed, we think there is a case to say that it could aid public understanding of what MPs are responsible for. I have certainly found in my experience as an MSP that the electorate did not think I was responsible for raising the revenue that funded the Scottish Parliament, but many thought I was responsible for council tax. There is a fairly skewed situation at the moment. On devo max, I am not equipped to answer that question because I do not think it has ever been said, but I cannot see that there would be a role for Scottish MPs other than if their entire job was to do with foreign affairs and defence.

Q768 David Mowat: But there would have to be some representation in the UK Parliament, I would imagine, wouldn’t there?

Jeremy Purvis: For devo max we just don’t think it would work, and therefore it is another deficiency.

Q769 Chair: Presumably, under the Liberal proposals we would all be in the House of Lords under devo max. Lots of vacancies would be created there, so, you and I would be there, Alan, surely.

Jeremy Purvis: That was a rhetorical question.

Q770 David Mowat: I suppose that, if ever there was to be a vote on this question in a referendum, one of the things that would have to be clear is what the answer to that question would be. So, if the Scottish people were voting for devolution max or devolution plus, they would have to understand what that meant in terms of their representation in Westminster as part of that vote; otherwise, it would be a nonsense.

Jeremy Purvis: That was not a rhetorical question, was it?

David Mowat: No, it’s not. It wasn’t, no.

Jeremy Purvis: Where we stand as far as concerns devo plus is that, by the autumn, we will have put forward the three areas that we believe have been worked through to an extent that they can be the basis of delivery. Whether or not it is an issue of technical-speak or elsewhere, they will be in the public domain and they can be delivered and implemented, and it will be clear. It is incumbent on each side or group that has views on the future similarly to make those clear. I have been critical this afternoon about devo max because I think that is insufficient. We believe it is incumbent on the yes side for independence to explain clearly what that is. At the moment it is looking more like devo max than independence, but it is for them to outline what they are in favour of, and, similarly, for those who want Scotland to stay within the union, to outline what the consequences of a no vote would be, whether or not there is further devolution or it is the status quo. It is our belief that the broad public view is to strengthen the devolution settlement but for Scotland to stay within the UK, and it is our hope, therefore, that the parties that do not support independence will coalesce around a proposition that can then be delivered. We would like that to be devo plus. The process of the delivery-whether or not it is simply taking forward the Scotland Act, further regulations and other things-is a procedural question.

Q771 David Mowat: But it would be a fair question to you. You have come up with devo plus as being superior to devo max-I follow the logic of that-and therefore you would like it to take over in consciousness as the other alternative to a yes or no vote. Given that, I suppose a reasonable question to you would be: how many Scottish MPs do you think there should be in Westminster if this proposal was implemented?

Jeremy Purvis: As to the judgment of the number of Scottish MPs, you will be able to correct me, but there were two fundamental considerations in the mid-1970s and the early 2000s of the right number of electors per constituency MP. I think that periodically happens. It may well happen once there is a further process of devolution, notwithstanding discussions or debates going on in Parliament at the moment about the size of constituencies. Something broadly similar happens with what the number of MSPs should be.

Q772 David Mowat: But the key point is not the number per MP; it is the relative number compared with parts of the United Kingdom that do not have that much devolution-that is the key point-and, therefore, what scaling down factor you would use.

Jeremy Purvis: I don’t wish to go too far because all I recognise is that there will be a debate about that. As to the conclusion of that debate, we do not feel equipped to put forward the proposals because to a large extent they are not core to what we would wish enhanced devolution-the better proposals-to deliver, but we are not naive. If you devolve further powers from Westminster and Whitehall to Holyrood and the Scottish Government, then there are consequential aspects. We are not naive, but I do not think it is our role to be prescriptive either.

Q773 Chair: That is helpful. The road that you are travelling seems to assume a reduction of MPs as powers are transferred. That is not necessarily something many of us here would accept on the basis that, if England chooses not to devolve itself into different regions, that is its choice, and the number of Scottish MPs involved at Westminster should not necessarily be allowed to be reflected by that figure. We would still want to have a fair proportion for defence, foreign affairs and all those matters that are retained centrally. That is a matter that we will continue to debate.

David Mowat: A fair proportion, whatever that means.

Chair: A fair proportion; absolutely.

Jeremy Purvis: The core of our proposals is looking at financial powers, but there are some other areas that would have some consequences.

Q774 Pamela Nash: Let’s move on from David trying to get rid of most of the people at this table. It is mentioned in the introduction to this report that the Devo Plus Group "believe that there is merit in devolving more social protection spend from the UK Government". That is the exact phrase used, although I appreciate that is not gone into in depth in the current report.

Jeremy Purvis: Correct.

Q775 Pamela Nash: Would you be able to tell us a bit more about the Devo Plus Group’s opinion on welfare and social protection spend, as it is referred to here, being devolved to Scotland?

Jeremy Purvis: We use the term "social protection" because that is the broad term that is used in the Government papers, and it does capture health and welfare payments. The proposition is broadly similar to legislative areas and tax powers that we would look at. For example, the principle behind devolving legislation to the Scottish Parliament was that powers are devolved unless there is a case for them to be reserved. We think that is broadly acceptable for financial powers, and we question whether or not that is broadly acceptable for all social protection as well. What it means is that when it comes to legislation, there is a strong case for some areas to be done across the UK; when it comes to financial powers there are some elements that we think continue to be done by the UK. That is why with income tax we think there is a case for having all of the powers over the rates of income tax being devolved, but there is a case for saying that the personal allowance should be reserved. So, if you are a worker in Cornwall or Kirkwall, you know that the personal allowance kicks in. Broadly, that should be the same for the operation of the single market: employment benefits and pension entitlements. There are those where a very strong case can be made that, if you are a worker, you know what the entitlements are regardless of any part of the UK in which you are working.

On top of that there is quite a bit of discretionary social protection spend. I don’t know if you get casework on it but I certainly did from an alternative angle. People would ask about their winter fuel payments. One constituent said, "Why is the fuel payment coming from Gordon Brown, whereas my free boiler is coming from Alex Salmond?" As far as the constituent is concerned, with regard to the free central heating programme, the discretionary spend, and, in the jargon, passported benefits-the devolved areas of free school meals, education support allowance and so on-there are blurred lines as to how they operate. We are looking at taking a step back to say: what is the principled reason why these should be delivered on a UK basis, and what is the additional benefit if Scotland wishes to do it through its own budget?

Q776 Pamela Nash: Is that just existing benefits through a UK basis? You just referred to the boiler scrappage scheme. Would you re-reserve that or keep it within the Scottish Parliament?

Jeremy Purvis: That is the starting point in looking at it. The next stage is complicated by the fact that I am giving evidence to the Committee today. If I was giving it in six months’ time the situation may be different, because there has not yet been agreement on the way the Welfare Reform Act will be implemented in Scotland, the relationship with how the universal credit is calculated, the floor for it and entitlements associated with it, and how that links in with existing devolved spend. Therefore, we have been hampered by timing, but we certainly think there is the potential for increased devolution of some of the components of the universal credit to Scotland to ensure much better delivery of them. One of the areas, for example, is the way that work programmes are funded. I think there are 47 school leaver programmes in operation across the UK at the moment. Some work okay with a linking-in with Scottish colleges and Jobcentre Plus in Scotland, and for some there are problems. I have casework on that and you may as well.

Q777 Pamela Nash: Is that an argument for further devolution or, "We don’t like that policy and we want to bring it to Scotland"? Is it working any better in England?

Jeremy Purvis: It’s a very good question. We have tried to be careful not to conflate the policy choices that could be made from the power with where that power resides. Yesterday, I was attacked for being effectively part of a neo-Liberal conspiracy and agenda to slash tax and spend.

Chair: We are coming on to that.

Jeremy Purvis: The week before, the accusation made against me was that, if you devolve all these taxes, corporation tax and personal income tax will be hiked; it is going to be a socialist state. When you separate out what is the appropriate level for that power to reside, sometimes it is hard not to overlay it with some decisions on what that policy would do. What we thought was lacking in the debate on the welfare changes was that it was not preceded by a debate about the appropriate support and entitlements at a UK level for a UK worker and citizen. If Scotland wishes to make additional entitlements, how is that linked in with that? If councils then wish to make further entitlements, how do they lie on top of that?

At the moment we may well have a situation where councils have to make administrative changes for the operation of council tax benefit forced upon them by Scottish Government and UK spend in fairly arbitrary ways rather than taking a step back. I am sorry it is a broad answer, but what we are trying to identify is whether you can establish in a broad area of principle the right balance of entitlements. If we are part of the UK, what does it mean to be a UK citizen, earner and worker, and, if you need support and entitlement, what is the right level of that?

Q778 Pamela Nash: I am trying to see where the line is between the policies we like and those we don’t like, and where that power should lie. For instance, I might not like the work programme, but I would want to fight for that to be changed at UK level. I don’t think it is a problem particularly for Scotland; it is the UK. That was just one example that we picked out.

Jeremy Purvis: I have watched some of the debates on welfare reform, and certainly Scottish MPs in the Chamber here have raised the poor interaction between work programmes that Jobcentre Plus is delivering at a UK level and decisions made by the Scottish Parliament. You can have a perverse situation that a young person can be eligible for one but cannot be eligible for the other on an arbitrary basis because they are funded in different ways, because if the same person is able to benefit from a work programme, they should not fall between those two stools. There are other examples. Eligibility for the energy assistance package of the Scottish Government may well be different from the components of the universal credit.

Q779 Pamela Nash: Would that not be an argument to keep it reserved to ensure universal access to these benefits?

Jeremy Purvis: It would effectively mean that the Scottish Parliament would have no discretion over additional entitlements or support. That is not what we are proposing. I use the example-I am not arguing its merits-of council tax benefit being devolved. You could consider that to be a positive; you may consider it to be a considerable negative that has had a 10% cut in it, but it is being devolved. That means it is linked much closer to the actual person. The council tax discount scheme is much more related to the personal circumstances of the individual rather than set from Westminster. It may mean that for better delivery of some of these services you devolve the budget, and then it is up to the Scottish Parliament to make sure that links better with the entitlement. What happens to that devolved budget and how it links with the remainder of the grant is a matter for political debate, but there is merit in having that debate in the approach we have outlined.

Q780 Chair: There are two things about that. The first is the question of a postcode lottery and there are all the pressures against that. Secondly, it raises the question of Glasgow, for example. You quoted, quite rightly, all the polling evidence that said people wanted to have this in Scotland rather than in Westminster and so on. The same would apply in Glasgow. They would much rather have lots of these things decided in Glasgow by Glaswegians and people they elect rather than by the Scottish Parliament. Indeed, part of my constituency includes Govan, where many people still regret Govan borough being incorporated into Glasgow in 1912. Therefore, there is a balance to be struck. I am not sure that we are going to get this resolved today. It seems to me this is one of the big issues that will be part of the wider debate when we start moving down the road of what could be devolved and in particular the balance between centralisation and equality, and what seems to be equality as distinct from democracy at a local level.

Jeremy Purvis: I agree with you entirely. You know the borders extremely well. The same case that I would make repeatedly within the area I formerly represented is that there is little point in having a constitutional debate on powers if it is simply about Holyrood rather than where the services are most appropriately delivered. One of the elements of devo plus is that, while it can’t be replicated identically, the core principle is robust for local government too.

Q781 Chair: I do understand that, but the principle of devolution is also applicable to local government, and the exact opposite has been the path followed by successive Scottish Governments, who have centralised various functions, facilities and policy over the years. One of the major disappointments of the devolution process is that it has not been carried through. We did tours of various parts of Scotland in relation to our inquiry into the Crown Estate. It was quite clear that a lot of people felt that Holyrood was not looking after their interests and was sucking power into the centre. This perhaps is a discussion for another day because we could spend some considerable time on that. Having links in the borders, I am aware that they do not necessarily see Edinburgh as being any closer to them than London, even though geographically it might be.

Jeremy Purvis: Correct. If you establish the principle about services and the level of Government people rely on and if, as they see it, it does not have any financial power or accountability, they perceive it differently. As a personal view, probably many people think the Scottish Parliament is now almost entirely responsible for council tax because of decisions made continuously to freeze it, even though it should be councillors who make the decisions and are accountable for them.

Q782 Chair: A point about benefits was mentioned. Can I come back to the question of corporation tax and the neo-Liberal conspiracy theory? The argument, presumably, is that that is something that has to be dealt with on a UK-wide basis because, otherwise, you just simply have a race to the bottom. The plutocrats whom you would be seen as representing in your Reform Scotland group and who fund it are clearly more interested in cutting corporation tax than raising it. It would result in all the deleterious effects that have been much discussed. In those circumstances, there is an argument that corporation tax surely should not be devolved. A lot of this debate has developed since your original paper was written. Would you reflect upon that and perhaps see that corporation tax is not as appropriate for decentralisation as you once thought?

Jeremy Purvis: I alluded to the fact before that there has been some comment that I am seen as part of a neo-Liberal plot to cut tax and slash spending, and, on the other side, that you are simply going to be the midwife to a perpetually socialist Scotland. Of course neither is the case at all. On corporation tax, we approached it on the same basis of the principled reason why it should not be devolved on a constitutional basis and similarly for legislation. There isn’t a strong principled argument why corporate income tax should not be devolved, but, when businesses pay rates on the land they use, that should be fully devolved, so there is no question if you are a business. For 95% of businesses in Scotland that would pay business tax, it is going to be income tax because they are not past the threshold for paying corporation tax. The same argument has not been used for small businesses, where there is an understanding that they will be liable to pay the new Scottish rate of income tax under the Scotland Act. That is the broad aspect.

As to the specifics, if you are a business across the UK, is there a case to stay at the UK level and the thresholds make sense on a practical, administrative basis and should be retained at that level? We have broadly accepted that case. We have also looked at international experience of other countries where corporation tax is devolved. Again, we refer to the OECD. There are eight countries in the OECD that have corporation tax devolved. The political imperative they found is that the sub-central level of government wants stability in its revenue, because it knows that if it wishes to engage in tax competition with central Government it is unlikely ever to win. The OECD therefore came to the conclusion that there had been little tax competition between a sub-central level of government and the national level of Government.

The proposition that has been used by the SNP in particular-the First Minister in Los Angeles was arguing that they would instantly cut corporation tax to 20p-is problematic, because there is similarly very little evidence that that would promote a change in the way investment profiles are made, given the fact that the Scottish Government have not done any modelling about what actual yield is. We stress in our report that the debate is hampered because there is little robust data about actual yield. Mr Mowat made reference to the Holtham commission, which gave the spread of what it found in Wales. If you use the GERS criteria in Wales to estimate corporation tax, it was £1.2 billion for the last year; if you look purely at Welsh-registered businesses, the estimate is £600 million. There is a huge variation. We need the Scottish Government to do a proper modelling of its proposals.

In essence, there isn’t clear evidence internationally of a race to the bottom. There is a case for devolving not only rates, because there isn’t a much stronger argument against it on a principled basis.

Finally, we looked at the operation of the reliefs. Similarly, there is no strong, principled constitutional reason why the Scottish Parliament, if it so chooses, should not self-finance targeted reliefs, whether that is on employing young people or capital investment. That is why we have drawn the conclusions that we have. That illustrates, hopefully, that it is neither a neo-Liberal nor socialist plot for either one of them. If we want to have the Scottish Parliament broadly responsible for more than half its revenue, corporation tax revenue plays a component in that. But we have indicated that there are complexities to it, and that is why we have put it in the category of category 2 taxes.

Q783 Chair: There is an argument for retaining the rate centrally, but the take, as it were, goes locally on the basis that those who grow their business by other means would benefit. I understand the argument that if all of it goes to the centre there is no incentive to grow business. The issue that concerned us, as typified by Ireland, was about unfair competition, and also parasitic places like Jersey, Guernsey and Isle of Man and the practice of brass-plating where profits are transferred. There was a genuine anxiety, which I am sure you understand, about Scotland becoming a tartan tax haven for people who would switch profits around the UK simply to benefit from the lower rate, and that would be seen as an act of economic aggression by our partners in England, Wales and the rest of the United Kingdom. You then get into a circumstance of conflict and so on rather than having the harmony we would want to see if there was separation.

Jeremy Purvis: One of the core elements is the proper incentives for MSPs and the decisions they make. At the moment there is little incentive for them to grow the tax base in Scotland, even though they have statutory responsibility for economic development. I will give you one example from my own experience. You have a situation where the previous Executive identified market failure and made a decision to invest in broadband in the Scottish highlands and lowlands. That budget line was removed because there was a decision that telecommunications was a reserved matter and the UK should pay for this. There was political dispute over who paid for it, because to some extent you might think that, if there is going to be economic benefit and an increased tax base because businesses are doing better but Holyrood does not gain from that, why on earth it would put in an incentive to grow the economy.

It is no coincidence that for the five years I was on the finance committee across two different sets of parties’ Administrations, with three parties in power-the Lib Dems, Labour and SNP-every one of its reports on the Budget said that the statements that the Government made about growing the Scottish economy were not matched by their spending lines, for, I think, the reasonable reason that there is little incentive for them to be spending on growing the economy if they don’t get any return from the increased theoretical tax base of the prosperity that comes. They are much better to give away free things.

Chair: Further discussion is to take place. We are coming to the last three hours of our meeting.

Q784 Fiona Bruce: As you say, we have talked a lot about taxation. So, very briefly, because I think my colleagues want to move on to other issues, is there anything you want to add with particular reference to the powers available under the Scotland Act? Are they sufficient to devolve more taxation powers to the Scottish Parliament? If not, where would you start?

Jeremy Purvis: From our view of them, they are certainly able to be used to devolve some others. Under section 80 you can certainly devolve other aspects of devolved taxes. There would need to be other primary legislation across the tax basket, whether or not that is a further Scotland Act or simply a managed process of looking at other secondary legislation. Most of it is secondary legislation.

Q785 Lindsay Roy: We know your views about whether a referendum is required to implement what you are proposing, but we know too that there is going to be a referendum. Should a further devolution option be on the ballot paper for the referendum?

Jeremy Purvis: We are certainly not pressing for that. We certainly agree that there should be absolute clarity as to whether or not people would wish to continue to be part of the UK.

Q786 Lindsay Roy: So, if there were to be something about further devolution, what level of detail would be required? You have been quite scathing in your comments about the lack of detail in devo max, for example.

Jeremy Purvis: The discussions we have had with the political parties have been on the basis that we hope our proposals can form the basis of consensus among them in advance of the referendum, so that when people vote in the referendum they are aware that by voting no to independence, whatever that may well be, it means there will be further devolution to strengthen the Scottish Parliament. That is the focus of our work and one of the objectives or the reason why the group has been established. That is the position we are taking at the moment, and we are having further meetings to seek to persuade them to do that.

Q787 Lindsay Roy: So, your position, quite clearly, is that it is a single-question referendum.

Jeremy Purvis: I am trying to be careful with language. Tempting as it is to engage in the issues of process, I still think that as a group we will never leave those issues. We think there is a stronger case to persuade the parties that don’t support independence to coalesce around our proposals. Ultimately, whether or not it is one of the five options I talked about before-we looked at many more-is up to yourselves, the Parliaments and the process. As much as I am tempted to think I am still an active politician, I am not, so it is over to you.

Q788 Chair: Why are we having a referendum in your view? The question of why we are having a referendum on one thing to some extent determines whether or not something else should be the subject of that referendum as well.

Jeremy Purvis: That is fair.

Q789 Chair: So why do you think we are having a referendum?

Jeremy Purvis: The Scottish Government have a natural and to some extent moral mandate to put to the people whether or not Scotland should be an independent country. I don’t think they have a moral mandate to put anything else to the Scottish people. If there are those who do not agree with independence, what is the most effective way forward to deliver what we believe is a strong case to improve the devolution settlement and strengthen Scotland? There are a number of options other than that, given the fact there will be a referendum. That is where it comes to the process, but effectively the only mandate is to put the question as to whether or not Scotland should continue to be in the UK.

Q790 Chair: Can I press you on that? What is the electoral mandate?

Jeremy Purvis: The opposition party’s stance in the Parliament when I was there was that, if there was a majority of MSPs in the Scottish Parliament in favour of independence, they would be able to have the electoral mandate to test that. There was not a majority in the last Parliament; there is a majority now. If Willie Rennie, Ruth Davidson or Johann Lamont were here, they would have to explain for themselves. The Devo Plus Group acknowledges that the Scottish Government have that entitlement, if they wish. The question becomes therefore: how is anything else tested? There is the case that the best way of securing devolution for the long term is to have that ratified by popular mandate. The counter-argument is that people decided in a previous referendum to have a Scottish Parliament with financial powers. This is simply enhancing those powers in a staged way. That is why I think that we as a group could do nothing else other than talk about process.

Q791 Chair: I want to be clear. You continue to recognise the mandate that came from the referendum as establishing the Parliament and having financial powers, and it is not necessary to reiterate that in order to continue to have a mandate to explore further devolution.

Jeremy Purvis: That is correct. Our proposals are as valid even if there was not a referendum. I put forward an early paper in 2004, well beyond the prospect of there being an SNP Administration, saying that the structures were not appropriate and there needed to be further enhancement of powers. Those that have argued, for example, on a home rule proposition take a similar stance, and those who may be part of the Red Paper Collective will be taking a stance, all separate from whether or not there is going to be a referendum. The point for us is that there is a case for this.

Q792 Chair: That is helpful. You will understand that we are trying to clarify it. Your view, as I understand it, is that the party that won a majority of MSPs had a stipulation in its manifesto that that was what it was seeking. It got a majority and, therefore, that goes forward, whereas other things were not on offer and not campaigned for and, therefore, do not have the same mandate from the electorate, which is the moral point, as I understand it.

Jeremy Purvis: That seemed similarly to be the Scottish Government’s case in their 2009 document, when they said that those who wanted devo max should present the case for it and a case had not been made. All I observe is that it continues not to have been made.

Q793 Chair: Ah yes, but that was before it looked as if they might lose.

Jeremy Purvis: Was that another rhetorical question?

Chair: Not entirely-not entirely.

Q794 Pamela Nash: Is the Devo Plus Group completely against a multi-question referendum?

Jeremy Purvis: It is tempting, again, to involve process. To be as clear as I can, in the response to consultations from both the Scottish and UK Governments, Reform Scotland as a think tank said it had no preference on process but there could be a number of options available to implement it. We have rehearsed some of those before. The Devo Plus Group, however, simply said that, whatever that process is and whoever decides it, the result of whether or not Scotland is part of the UK should be very clear. That is then a platform for devo plus, but the clarity is enhanced if the parties that don’t support independence coalesce around an agreed position so that makes the position very clear in the referendum. That is why we are not pressing for any other questions or issue, because, broadly, we accept that there is a mandate for a question to test independence and nothing else.

Q795 Pamela Nash: That is very clear. Does the group have an opinion on other groups, namely, the Scottish Government, pushing for a multi-option referendum paper at the moment? You said that at the end of the day it was about the clarity of the decision. To turn that round, do you feel that decision would not be clear if we go ahead with a multi-option referendum?

Jeremy Purvis: I can reflect on what the Secretary of State, Willie Rennie and Johann Lamont have said. All have raised difficulties about some of the ways that questions could be framed if there are multi-options. They have said that. I would probably refer back to our proposition that the best way of having clarity is that the public are aware that there is broad party support for a way forward. It is a judgment call-this is the point Mr McGovern was making-whether or not the public will understand and it is sufficiently clear if the parties come together behind devo plus, enhanced devolution, home rule or whatever you call it. I feel they will do if it is presented in a clear case, and that is part of the discussions we have been having with the different parties so that there can be a clear position.

We tried, for example, to enhance the debate in our paper when we put the spectrum of different choices-it is going to be hard to explain for the Official Report-from a unitary state preScottish Parliament right through to full republican independence. In the coming two years, it is incumbent on anyone who has a position to make sure that the facts are there and to try to have as little baggage as possible, for it not to be pejorative and to get that information out.

Q796 Pamela Nash: I don’t want to put words into your mouth. I want to be very clear on the original point about why a multi-option referendum ballot paper might not be as clear as others. Is it just the confusion around a multitude of options and getting the definition of each of those options out there, or are you also thinking about the figures in the result and how a result would be calculated? For instance, if there was a new settlement reached through the referendum where the minority of those who voted actually got their way, is your group looking as well at how the result is calculated or just the facts at the start?

Jeremy Purvis: It is a very fair question. We did an opinion poll. Of course, it is an opinion poll and we accept there will be others in the mix. We asked, "To what extent do you agree or disagree that those who want to stay in the UK should campaign for more powers for the Scottish Parliament within the UK as an alternative to independence?" We were asking people, "Do you think the pro-union parties should come together on a view?" The MORI poll indicated that 66% of people agreed with that and 17% disagreed with that. We believe there is an appetite among Scots for those who don’t support independence to come together and have a broadly agreed position of what no means in the referendum. Similarly, that is why we believe we have a strong case that those who believe in yes should clearly outline what that is. What is not clear at the moment is the difference between devo max and independence.

Q797 Chair: Separatists are being delightfully-and deliberately- vague about what the implications would be, but I am not sure that the poll you quoted is an entirely fair one. If you give people the choice, to paraphrase slightly, "Would you agree that all the political parties should come together on an agreed pattern of devolution, or would you rather they continued to fight like ferrets in a sack?", it is fairly clear what the answer will be. I do not think that your phrasing of the question, as I understood it, is all that far away from that. Therefore, in these circumstances you will get the response that the question is skewed to bring forward. I am not sure we are going to get all that much further on this.

Jeremy Purvis: First of all I broadly accept your point. I read with interest-I agreed with it-your report "Do you agree this is a biased question?" I accept your point. However, we do believe that, rather than there being three different versions of what a no vote might be, the public would prefer those parties that don’t support independence to coalesce around an agreed way forward. One of the reasons we have that view is that there are precedents within the Scottish Constitutional Convention and the Calman commission. That is less so in the Calman commission but stronger on the basis that one of the conclusions of that commission was that the three parties that stood in the 2010 general election had the implementation of Calman in their manifestos, and the public were simply aware that there was broad political agreement. The SNP chose not to, but that was its choice.

Therefore, it comes back to the earlier question: what is the most effective way of delivering constitutional change? Broad political support, finding common ground in the convention, followed by the constitutional steering group, which was a transparent piece of work, led to the Scottish Parliament. The Calman process led to the improvements, but it comes back to our proposition that Calman analysed the problem correctly but further work needs to be done.

Chair: Iain, do you want to pursue that?

Q798 Iain McKenzie: No. I think that eventually Pamela covered all the positions on multi-options. I think that eventually Mr Purvis did say that Devo Plus was not supportive of a multi-option question. That was my take on what you eventually arrived at.

Jeremy Purvis: We are not pressing for that.

Chair: Kremlinologists will pore over the text later on.

Q799 Jim McGovern: Would it not be fair to say that, in a single-question referendum, whatever the wording of the question, if separatism is rejected, any further powers could be negotiated after that, rather than muddying the waters by putting umpteen different questions on a ballot paper?

Jeremy Purvis: That is a political judgment that the parties will have to make.

Q800 Jim McGovern: Yes, but I am asking your opinion.

Jeremy Purvis: I think that the case against separation, as you put it, and the case against independence as others have put it, is much stronger if the public are aware that the parties that are part of the Better Together campaign have an agreement as to what devolution will be afterwards and what the process will be under way. We have put forward what we believe is the best basis for that. They will make a judgment as to whether or not they coalesce around a single view-we would like it to be devo plus-or they go into the referendum campaign with three separate positions. We know, for example, that the Scottish Labour Party has established a commission through Johann Lamont to look at further devolution.

Q801 Jim McGovern: It is a fairly straightforward question. Do you not think that one question on the ballot paper would be sufficient? Following that, if the electorate vote to say they want Scotland to be separated, presumably that would happen. If they say they do not want Scotland to be separated, we could then discuss further powers.

Jeremy Purvis: My point is that it is better to do it now and find agreement because, as I was saying, two of the parties have established their policy commissions.

Q802 Jim McGovern: One question or multi-questions.

Jeremy Purvis: As I have said, it is absolutely-

Q803 Jim McGovern: You can say yes or no.

Jeremy Purvis: Is that going to be the question?

Q804 Jim McGovern: Do you want one question or multiple questions on the ballot paper?

Jeremy Purvis: The most effective way of going forward-

Q805 Jim McGovern: No, tell me: one question or multiple questions.

Jeremy Purvis: One question.

Jim McGovern: Thank you; that will do.

Q806 Chair: I think we have just about covered everything. I hope you feel you have had a fair hearing.

Jeremy Purvis: I do, Chairman, other than that I just will not be able to have my last half-sentence on the Official Report.

Q807 Chair: I was just going to ask: are there any answers you have prepared to questions that we have not asked? Are there any points that you are absolutely bursting to share with us, which might include the second half-sentence of the answer to the point raised by Mr McGovern? Alternatively, depending on how the report was written, it might be the third sentence of what should have been or was originally a single sentence.

Jeremy Purvis: No, Chairman. You have been very kind with my long answers to the questions. I am very grateful. The final point is that, if there is going to be a single question, the best way of securing the answer of no is if the parties coalesce in advance of that referendum around proposals for devo plus rather than wait until after the referendum. That is the most effective way of securing a no vote.

Chair: I think, if by no other means than reiteration, we have grasped that that is your position. Thank you very much for coming along.