7Conclusion
98.In this Report we have focused on what we perceive to be the key challenges faced by those charged with revising Scotland’s fiscal framework. We have made recommendations against which we will judge the framework when it is published but this was not our original intention. We had hoped that we would be able to scrutinise a published fiscal framework at the same time as the House of Commons was considering the Scotland Bill so that our work could inform Parliament’s scrutiny of the legislation.
99.The Deputy First Minister has described the fiscal framework as “just as important, arguably more so, than the legislation on new powers”117 and yet Parliament has been required to consider the legislation without any sight of the framework underpinning it. This latest round of devolution looks, and is, rushed. This cannot make for good policy. Such circumstances make effective scrutiny all the more important but the opportunity for such work has been severely constrained. The way in which the Scotland Bill and fiscal framework have been progressed has been unsatisfactory. Substantial changes are going to be made to the relationship between Scotland and the rest of the United Kingdom and it is to the detriment of everyone who will be affected that the process will not have been subject to the level of examination it deserves.
100.The Chief Secretary to the Treasury told us that he was “committed to there being parliamentary scrutiny of the fiscal framework.” He continued, “I am happy to look at what is being proposed in the Scottish Parliament and to look at whether doing something similar would be appropriate here in our Parliament.”118 We are encouraged by the Chief Secretary’s comments and look forward to the House of Commons being given the opportunity to debate the fiscal framework once it is made public.
101.The agreement of the fiscal framework and enactment of the Scotland Bill (which, at the time of writing do not appear guaranteed, at least in the short-term), is not the end of the process. Much work remains to be done, in creating the environment to enable the powers to be transferred, the process of moving the powers across and their implementation. There are crucial roles for HM Revenue and Customs and the Department for Work and Pensions and a good working relationship between these bodies and the Scottish Government will be essential and must be reinforced by goodwill at a political level. This will be put to the test as the governments negotiate how the costs of setting up and administering the new system will be met.
102.More and better data will also be required to determine such things as VAT assignment and whether detriment has occurred. The calculation of the block grant may come under more scrutiny. A number of witnesses to our inquiry felt that there should be a great deal more transparency over how devolved funding is determined. Professor Heald told us that nobody will be able to judge whether the system is fair unless there is transparent information.119
103.We also heard calls for there to be an independent arbiter who would step in when disputes over fairness and detriment could not be resolved at a political level. If the system that has been agreed is sufficiently mechanical then we hope such a role will be unnecessary. There are, however, a number of areas where dispute might arise, for example in judging the accuracy of forecasts or determining whether detriment has occurred and a transfer is required. Experience will tell us the extent to which these can be resolved at a political level alone. We recommend that the operation of the fiscal framework be subject to review after four years. Such a period is long enough for it to be determined whether the framework is working but short enough to prevent any perceived unfairness from having a substantial impact. A four year period will also mean that the effects of at least one spending round are included in the review.
104.Throughout this inquiry we have sought to examine how the powers recommended by the Smith Commission will operate in practice. For the settlement to work it is important that the system is fair to both governments and to people either side of the border. This means that both no detriment principles should be respected. We cannot have a devolution settlement that requires one government to have to increase tax revenues just to maintain the status quo on the spending side, that does not constitute fairness. Equally, whatever agreement is reached should not affect the current level of funding redistribution. We have discussed a compromise that should prevent such situations from occurring.
105.We are conscious that the existing funding framework is perceived to favour Scotland but we do not believe that the implementation of the Smith Agreement and fulfilment of the Vow represent the appropriate juncture to address such concerns, not least because the Barnett Formula was placed at the heart of this latest round of devolution. Any change to the way in which the devolved administrations are funded should not be solely dictated by the Treasury but require proper debate involving all the devolved administrations.
106.Finally, during this Parliament we expect to scrutinise progress of the implementation of the Scotland Bill and the effectiveness of the fiscal framework that will underpin it. From the outset, this latest round of devolution has been about increasing the accountability of the Scottish Government to the people of Scotland and giving it more powers to address their needs. Through our work we will examine the extent to which this has been achieved and assess whether the Scotland Bill has truly delivered the recommendations and spirit of the Smith Agreement.
117 Daily Record, John Swinney: We do not just want these powers. We insist upon them. But not at any price, 31 January 206
118 Q180
119 Q8
© Parliamentary copyright 2015
Prepared 9 February 2016