Cynulliad Cenedlaethol Cymru / National Assembly for Wales Y Pwyllgor Cyllid / The Finance Committee Future Funding For Wales Inquiry / Ymchwiliad i Ariannu Cymru yn y Dyfodol FIN(4) FF07 Ymateb gan Llywodraeth yr Alban Response from Scottish Government Information provided by the Scottish Government in relation to the Future Funding inquiry 1. The Scottish Parliament Finance Committee’s Report “Further Fiscal Devolution” – available at Appendix A 2. Scottish Government written evidence to the report – available at Appendix B 3. The Scottish Parliament’s Devolution (Further Powers) Committee Interim Report – available at Appendix C 4. Ongoing finance committee inquiry into the Scotland’s fiscal framework: http://www.scottish.parliament.uk/S4_FinanceCommittee/Meeting%20Papers /Public_papers(5).pdf 5. House of Lords: Select Committee on the Barnett Formula http://www.publications.parliament.uk/pa/ld200809/ldselect/ldbarnett/139 /139.pdf Our constraint as officials in the Scottish Government is that we do not have deep knowledge and understanding of the current financial settlement for Wales, its potential weaknesses, and how it might develop in future. In addition, because our Ministers do not have a position on these and other related issues listed by the Committee, we cannot offer to explain the Scottish Government’s policy on them. What we can do is to explain the Scottish Government’s policy on funding for Scotland, bearing in mind that this is an issue of current interest in the context of the report of the Smith Commission and the Scotland Bill which was given its Second Reading in the House of Commons on 8 June. It is also an issue that – as the papers sent on by Dave Ferguson demonstrate – has generated a lot of Scottish Parliamentary scrutiny and also commentary from others. If the Committee would find it helpful in advance of the hearing, we can provide links to further papers prepared by academics based in Scotland on relevant issues such as Barnett and convergence. In any comments on these papers, Sean and I can seek = to state and explain the Scottish Government’s position on the issues. Also relevant to the Committee’s considerations is the statement in the Smith Commission’s report (see paragraph 95(1)) that “the block grant from the UK Government to Scotland will continue to be determined via the operation of the Barnett Formula.” Our Ministers have welcomed this. In addition to the papers provided by Dave, Committee members might also find it helpful to be aware of the Scottish Government’s submission to the Smith Commission from October last year: http://www.gov.scot/Publications/2014/10/2806/6 I would draw your attention in particular to chapter 4 - SCOTLAND'S ECONOMY AND PUBLIC FINANCES – which includes commentary on how the Scottish Government envisages the Barnett formula would operate during the transition to full domestic economic and fiscal autonomy. Finance Committee 6th Report, 2015 (Session 4) Further Fiscal Devolution Published by the Scottish Parliament 4 March 2015 SP Paper 677 Session 4 (2015) Parliamentary copyright. Scottish Parliamentary Corporate Body Information on the Scottish Parliament’s copyright policy can be found on the website - www.scottish.parliament.uk Any links to external websites in this report were working correctly at the time of publication. However, the Scottish Parliament cannot accept responsibility for content on external websites. Finance Committee Remit and membership Remit: 1. The remit of the Finance Committee is to consider and report on- (a) any report or other document laid before the Parliament by members of the Scottish Government containing proposals for, or budgets of, public expenditure or proposals for the making of a tax-varying resolution, taking into account any report or recommendations concerning such documents made to them by any other committee with power to consider such documents or any part of them; (b) any report made by a committee setting out proposals concerning public expenditure; (c) Budget Bills; and (d) any other matter relating to or affecting the expenditure of the Scottish Administration or other expenditure payable out of the Scottish Consolidated Fund. 2. The Committee may also consider and, where it sees fit, report to the Parliament on the timetable for the Stages of Budget Bills and on the handling of financial business. 3. In these Rules, "public expenditure" means expenditure of the Scottish Administration, other expenditure payable out of the Scottish Consolidated Fund and any other expenditure met out of taxes, charges and other public revenue. (Standing Orders of the Scottish Parliament, Rule 6.6) Membership: Richard Baker (from 14 January 2015) Gavin Brown Malcolm Chisholm Kenneth Gibson (Convener) Jamie Hepburn (until 25 November 2014) John Mason (Deputy Convener) Mark McDonald (from 26 November 2014) Michael McMahon (until 13 January 2015) Jean Urquhart Committee Clerking Team: Clerk to the Committee Jim Johnston Senior Assistant Clerk Catherine Fergusson Assistant Clerk Alan Hunter Committee Assistant Tom Williams FIN/S4/15/R6 Finance Committee 6th Report, 2015 (Session 4) Further Fiscal Devolution The Committee reports to the Parliament as follows— INTRODUCTION 1. The Committee agreed at its meeting on 8 October 2014 to undertake an inquiry into further fiscal devolution. The Committee considered both the options for the devolution of further financial powers and a number of implementation issues. The Committee‘s Adviser drafted a summary of the evidence received in relation to the taxes considered by the Smith Commission and this is attached as Annexe A. The main body of the report focuses on implementation issues and builds on the previous work of the Committee in scrutinising the implementation of the financial powers within the Scotland Act 2012. 2. The Committee published a call for evidence on 8 October and received 23 submissions.1 The Committee also held a number of oral evidence sessions including with the Chief Secretary to the Treasury (CST) and the Cabinet Secretary for Finance, Constitution and Economy (―the Cabinet Secretary‖). The Committee would like to thank everyone who gave evidence to the inquiry. 3. The Committee has also published a call for evidence2 on the proposals for a fiscal framework for Scotland recommended by the Smith Commission3 and set out in more detail in the UK Government Command paper, Scotland in the United Kingdom: An enduring settlement.4 4. It is intended that the findings in this report will help to inform the Committee‘s consideration of the proposed fiscal framework. Scotland’s Fiscal Framework 5. The Smith Commission recommends that the ―devolution of further responsibility for taxation and public spending, including elements of the welfare 1http://www.scottish.parliament.uk/parliamentarybusiness/CurrentCommittees/83965.aspx 2 http://www.scottish.parliament.uk/parliamentarybusiness/CurrentCommittees/86486.aspx 3 http://www.smith-commission.scot/wp-content/uploads/2014/11/The_Smith_Commission_Report- 1.pdf 4 https://www.gov.uk/government/publications/scotland-in-the-united-kingdom-an-enduring-settlement SP Paper 677 1 Session 4 (2015) Finance Committee, 6th Report, 2015 (Session 4) system, should be accompanied by an updated fiscal framework for Scotland, consistent with the overall UK fiscal framework.‖ The UK and Scottish Governments should jointly work via the Joint Exchequer Committee (JEC) to agree the framework which should include: Funding of the Scottish budget; Adjustments to the block grant arising from further devolution; Operation of borrowing powers and cash reserve; Fiscal rules; Independent fiscal institutions. 6. Chapter 2 of the UK Government‘s command paper sets out its view on the proposed fiscal framework for Scotland. It defines a fiscal framework as the ―set of rules and institutions that are used to set and coordinate sustainable fiscal policy.‖5 Two key elements are identified: fiscal rules and fiscal institutions. 7. The Command paper states that the new fiscal framework ―will be agreed and implemented jointly by the UK Government and Scottish Government through the Joint Exchequer Committee, with suitable engagement with both the UK and Scottish Parliaments.‖6 8. The CST anticipates that ―the framework will be established early in the next UK Parliament, alongside the introduction of a debate on the proposed legislation in the House of Commons.‖7 The Cabinet Secretary‘s view is that the ―negotiations on the fiscal framework will be more complex than those on the block grant adjustment for the Scotland Act 2012, although we can build on that experience.‖ In response from questioning from the Committee he agreed that a defined timescale for the negotiations on the fiscal framework would ―probably help‖ and that it should be tied to the ―enactment of the legislation.‖8 9. The Committee recommends that a clear timetable is agreed and published by the UK and Scottish Governments for the implementation of Scotland’s fiscal framework. This should include allowing sufficient time for consultation with both parliaments on a draft framework. No Detriment 10. The Smith Commission recommended that there should be ―no detriment‖ as a result of the decision to devolve further powers which means both Governments‘ ―budgets should be no larger or smaller simply as a result of the initial transfer of tax 5https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/397079/Scotland_End uringSettlement_acc.pdf paragraph 2.2.3 6https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/397079/Scotland_End