 Dyna hwnnw ymlaen nhw'n fwy o'r ffaith o'r awddiad o'r awddiad yng Nghymru, i'r awddiad yr Ymlaen nhw'n ymlaen nhw'n ymlaen nhw'n ymlaen nhw'n ymlaen nhw'n ymlaen. Mae'r awddiad yr awddiad yr awddiad er mwyn, mae'r awddiad yng ngharu'r awddiad. Mae'r awddiad yn unig i gael Alasyn Johnson yn y gael ymlaen nhw. Mae'n gwybod i'n meddwl i'r argyfleniwyd ar Patrick Harvey arrawfodiadau i ni allu i gael ei tyll nag oherwydd ddewidio i gael. Fe ddiwylau fitnodd gyda'r cyfrifigedd Cymru yn y glur o'r gweithio i chi'n i gael oherwydd arleidio i'r cyfrifigedd Cymru. Mae'r rhaglen i'r gondol o, ac rydym ni'n garchelio i chi'n gwybod i gael o'rをfynu ar gyfer chi'r cyfrifigedd Cymru, a mynd i gweld i'r cyfrifigedd Cymru yn y cyfrifigedd Cymru ar remarkable i chi gael o'i cynnig oedden nhw, yn y Cyfrifigedd Cymru a r�ie. Mae'r llygwin yn answr i'n sgolwches ac, fod yn arweithio'n sgolwches, mae Mark McDonald, wedi gweld i ysgrifenni gwybodaeth i Mark McDonald, yn allan. Mae yna nhw'n hoffi'r pwn, nad yw'n hoffi'r wneud, chi Echo. Mae'n cyfrydol ar gyfer y pwyllgor yng Nghymru, lle i ystod yng nghymru, ddiu gennych nhw y ddeliadau ymlaen. Yn ddigon nhw, gallwn subscriber i'n ddalwch yn y cyfrifoedd o'r ddeliadau No relevance to declaration. No interest to declaration. Mark McDonald, you are very welcome, Alison Kerr. Thank you very much for that. That's on in that case swiftly. That's agenda item 2, the Smith Commission on Evidence. I am very warmly welcome, Lord Smith of Kelvin, to the committee, and thank him for agreeing to come to the committee first, I think, before any other committees. I know that you have done lots of media opportunities since the announcement last week, but since The Publications report that is the first committee appearing that you have had anywhere and also welcome Jenny Bates, who is the head of the secretariat at the Commission. She is also here to assist Lord Smyth in giving evidence. But, just before I invite Lord Smyth to make any opening remarks to present his report to us, I would like to remind the committee give and recognising state that his role has been as a mediator and Chair of the Smyth Commission and ultimately it was for the political parties ddim yn lleol i fod yn adeiladol. Mae'r cyfnod i'n gwneud am ymddangos ar gael y ddechrau. Felly, rydyn ni'n adeiladol ar y canlyniad i'r wych yn cael ei ddweud o'r gweithio. Felly, rydyn ni'n meddwl i'r Ffyrdd Macdonald, ydy'n dod. Yn gyfrifod ar gyfer gweithio eich gwasanaeth, rydyn ni'n meddwl i'r cyfeithiol yn ei ddechrau'r ddydd o'r go'w tax welfare constitutional issues, so that we can keep everything together in that regard and I would ask members to stick to that structure, trying not to jump ahead but obviously catch my eye if you feel we need to... Our time is pretty limited with Lord Smith this morning, he's got other commitments which is totally understandable so if we could keep our questions brief and I will try to do the same then we can probably make more progress during the meeting. Yn ddim ddod, ond yw i'n bwysig i fy yw'r gwych mewn cyntafol i'r dyfodol. Rwyf yn fawr i'r ddweud o ôl y ddod, ond gallw'n ddod i'r gwaith o gofyn niadau i eich dŷ. Felly, mae'n gydych chi'n gofyn i chi. Felly, dwi'n ddod am fwy o'r ddod i gael i chi'n gweithio i'r ddod i ddod, ddiw i'n ddod i'n ddod i'ch ddod i gael i'ch ddod i'ch ddod i'ch ddod i gael i'ch ddod, Nid oes pan o gwaith o parlymenau ar hyn ar eich c transglyde mento gyda'r dyfyniadau ar gyfer ddyliadau glas gyda'r Cyngor, a chi'n sorg oedd o'r disglu sydd ydych chi'n ddefnyddio i ddefnyddio fel ddannu sydd yn lleol yng ngyfnodiad cyflawnyddau. A rydym doedd y cyflawn broker ond mae'r cyfarfма chi yn trafodaeth o'r cwysylltiad ar yr adnod arfer. Mae fforsgtuad ar yr teimlo eu gwych ar y cyflawnio i organisio'r parlymenau to listen to the debate and the referendum so it's fitting that another visit is one of my last acts too. I wanted to take the opportunity of a short opening statement to make four very brief points. First, we achieved cross-party agreement. It was tough and intense at times and I feared we might not get there but we did and all five parties signed up. That in itself is important and I pay tribute to the nominees for that. This agreement is their agreement. I just helped them get there. Secondly, we are fortunate starting position. Almost all of the parties entered to talks, having already undertaken their own analysis and discussion, and they had already reached important conclusions on how the powers of parliament should be strengthened. Without that work, I have no doubt it would have been much more difficult, if not impossible, to reach a conclusion in the limited time scale we had. Thirdly, we had some great support. I was backed by an exceptional secretariat drawn from Scottish Government, Scottish Parliament and the UK Government. The secretariat was supported by both Governments who provided an alluson advice all the way through the process to ensure that the agreement could be delivered and would work. I'm pleased, as you say, to be joined today by Jenny Bates, who led the secretariat throughout this process. Lastly, a few words about my role. My job was straightforward, to convene and to chair cross-party talks. I had no voice in the debate and have offered no view on the outcome. I entered the process politically unaligned and without a declared view on a constitutional debate and I'd like to leave it that way. It's not for me to provide a commentary on interpretation of the agreement or an analysis of its impact and I don't believe it'd be right for me to do so even today. The weight of this appointment has never been lost on me. It followed what I consider to be one of the most extraordinary political events of my lifetime, the referendum. I never, for a moment, expected the agreement to satisfy everyone. That would have been impossible. Some people strongly believe that the agreement doesn't go far enough and some believe that it goes too far. I respect and I understand both of those positions. My object was to chair a process that was well run, fair and resulted in a package of new powers to strengthen the Parliament and I believe that we've achieved that. I'd be delighted to take questions now, chair. Thank you very much for your statement, Lord Smith. I'm very grateful. Many people have recognised that the late Donald Dewar, only the cleverest decisions he made in negotiating the Scotland act in 1998, was to tackle the issue of what powers would come to the Scottish Parliament by reversing the question and asking his then cabinet colleagues to justify what would be reserved. That's why the act obviously has a list of reserved powers not devolved. If it's not listed, then it's not devolved. Can I begin by asking Lord Smith what was the nature of the approach followed by yourselves in the commission? Did you start with the premise that unless a power could be justifiably reserved, it should be devolved? Or did you assume that all matters remain reserved unless all parties present at the commission and the UK government could agree that they could be devolved? Arguably, I would suggest that the latter approach would always potentially result in fewer powers for Scotland, so your approach on that would be understanding that it would be very useful. Almost a hybrid of those. What I did was, I mentioned I came to Parliament, I met the leaders of all the parties and I asked them to nominate two people from each of their parties, who are probably one of whom ought to be an MSP, because I wanted to reach deep into the parties rather than have gurus, if you like, and we agree with them and have to go back and get political backing. Then I said, within two weeks, I want you to give me your position on what powers you think should be devolved. I didn't say, maximise, I didn't say what should be reserved, I said powers that should be devolved. Within two weeks, all parties, because there were things like Struth Clyde, Ming Campbell and various other papers that had been produced by parties, and all five parties produced what they thought they could or thought, in their opinion, it was right to devolve. When we got to our first plenary meeting, we all knew what the various positions were around the table, and from there I just tried to get some sort of common ground between the parties. That's how I went about it. Did we dig a bit further on that particular issue? Was the work in principle behind the overall package that the UK pooling and sharing model is described by the Westminster party leaders in their statement around the vow, would it be retained in areas such as welfare and social security, or was it the principle that we should maximise autonomy, just in terms of the process and how it was set out? The very first meeting, subsequently, we agreed that we had agreed at that first meeting syffin principles. You'll see from the syffin principles that it was a substantial and cohesive package of powers enabling delivery of outcomes meaningful to people of Scotland, strengthening the devolution settlement and the Scottish Parliament within the UK, including Parliament's levels of financial accountability. A durable but responsive democratic settlement will retain Scotland in place in the UK, not be conditional, and that may come up later on in questioning, on the conclusion of other political negotiations elsewhere in the UK, not cause detriment, as the movement of powers happened, not cause detriment one way or the other, and not cause the UK Government or the Scottish Government to gain or lose financially simply because we are devolving power and to be implementable. Those were the principles, and that's what we worked against. Thank you very much. That's very helpful in understanding that at the beginning. Thank you very much, and good morning. I read very carefully the forward and the other comments that you've made regarding the work of the commission, and there's clearly a number of imperatives operating on you, and I'd be interested in your comments on them, particularly the requirement on the one hand to achieve a consensus, to achieve agreement among parties. On the other hand, the objective clearly of defining a coherent set of proposals, and also finally the work that you did on Initiated Yourself to make sure that other voices were heard in the work of the committee. How did you balance those imperatives, and how did you choose which way, how you would ensure that they were all reflected in the work of the commission? Saying that this would be a theme that comes across each time, I wasn't choosing anything. There were 10 people around the table, and they were making the decisions at the end of the day, and I was just bringing what skills I have as a chairman to just try and make sure that people met somewhere, and I don't mean the lowest common denominator. I mean powers that people could get around and agree that they were useful for Scotland, and into that mix, as well as the initial submissions that we got from the five parties, we encouraged people, the public, to write in. We got more than 18,000 emails, and even if you take out some of the slightly scurrilous ones, there was a lot of information in there that the politicians actually had to take into consideration. I also wrote out to, I think, it was 129 civic organisations, and that's everything from trade unions to third sector, people at voluntary sector and so on, and to business organisations and other interested people, and 407 of them replied. There are more civic organisations out there than even I had realised, and the submissions that came in from these people were of very, very high quality. Within days of receiving these, we had them up on our website, so it was a transparent process, and we shared them immediately with all the five parties, so we were informed hugely by what we'd learned, and you probably know I went walkabout in Scotland. I went from the borders, which was easy for me, around Scotland, as Aberdeen and Inverness and, indeed, in Stirling and Glasgow and so on, and I met quite a number of people. They were not getting preferential treatment, but what I wanted was simply to hear the word on the street, the mood music, to add to the submissions that were coming in. It was the submissions that we based it on, and that helped to inform our discussion round the table to supplement the five submissions that had come in from the political parties. I fully recognise that the coherence of the proposals is not ultimately your responsibility, but what I was interested in in particular was the efforts that you did make, as you say, travel the country in current submissions, went out and sought submissions, so to understand the means by which you ensured that the responses that you got to all of that were not just fed in but were reflected in the discussions among the parties. We actually had two meetings, a meeting, split into two here in Holyrood as well, where a number of civic society people came in, and the five parties could actually address them and say, look, I don't understand what you're saying here, explain it more carefully to me, but we weaved in, we made sure that we looked at all the themes that came out of the emails and all the themes that came out of the civic society, and we talked about them openly round the table. That's very helpful. You said in concluding the report that it had required some parties to move further along the devolution route that perhaps they wanted, and it meant for others accepting an outcome that fell short of their ultimate admissions. Do you feel, since you stood up on Thursday morning, that parties have accepted the outcome of the commission and supported them in that spirit in which you presented the report? I think they accepted it. I've obviously read what's been said by people since then, and I respect their position taking one particular thing. If you believe in independence, you're going to say that you still believe in independence. That doesn't change people's political convictions, and if they want full independence and they want all powers, I absolutely understand that, but for the purposes of this particular commission, which I'd now like to be called an agreement by the way, commissions tend to last a couple of years and take evidence from people and so on. This was 10 weeks, but we did get agreement, and all five parties were happy that I stood up and said that we had arrived at an agreement among all parties. That's unprecedented. That hasn't been done before. Kalman didn't work that way. The original settlement didn't work that way. All five parties signed up to this, but, of course, they have their own political convictions outside. Thank you. I think that it might help to seeg into the taxation element through a convener. I just wanted to pick up on your seven principles, not your seven principles, Lord Smith-Baggerburn, and the commission's seven principles, particularly five and six, and not cause detriment to the UK as a whole nor any of its constituent parts, because neither the UK Government nor the Scottish Government to gain or lose financially simply has a consequence of devolving a specific power. Obviously, the question of detriment could be said to be subjective in some ways. We've seen, for example, the recent response from the Labour Party at UK level regarding APD with its letter to the Chancellor of the Exchequer implying that there could be detriment as a result of that power. What analysis was applied to those principles from outside of the commission or the members of the commission in order to inform the conclusions that were arrived at? I might ask Jenny to come in in a second, but every time we spoke about devolving a particular power, we did quite a bit of research. We asked the UK Government and the Scottish Government, in particular, to provide research to us. I well remember on one occasion 330 pages of analysis coming from the UK Government, not to be outdone, the Scottish Government sent a bigger document with a slightly different analysis, by the way. All based on empirical evidence, of course, but with a slightly different conclusion. Incidently, can I just say this, that this evidence was coming from the UK and the Scottish Governments. Of course, members of the UK and the Scottish Governments were getting this information directly. We went to the UK Government and the Scottish Government and said, the Labour Party and the Green Party are being disadvantaged in this. May they have copies of all this and both agreed? All this information was given to all the parties around the table. When we looked at what is detriment and, of course, the subjectivity in the thing, we looked carefully to see whether there would be detriment and whether there would be UK or Scottish Government gaining or losing financially as a result. Jenny, do you want to add to that? What I would add to that is that, based on the fact that the parties had all put proposals into the commission, we made sure that the analysis and the evidence that came from both Governments covered every single proposal that had been put to the commission, so that we had information looking at every proposal for a devolved power. I would add also that, obviously, some of the material that we received from the civic organisations had evidence attached to it, so that some people sent us evidence and analysis as well as views about which powers they thought were devolved. That was obviously factored into the discussions so that we can make sure that every decision that the parties were looking at was based on some understanding of the impacts of creating powers. So, did any recommendations come out before the final report on the basis of those principles or the basis of input? That is the short answer. I do not want to go into—I have been reading blow-by-blow accounts and the Glasgow Herald and the Scots and so on about exactly what happened inside, so I do not want to go into that. However, yes, there were some proposals that we felt could have caused detriment, some proposals that looked as if they might be unworkable. We had to look at the practicalities and the implementability of a lot of those things, and, obviously, some things we felt we could not go forward with. Was that quite late on in the process? The media reports have spoken about there being a draft conclusions that were revised following input from outside of the commission. We had nine plenary meetings and there were nine drafts. So, you know, things were changing all the time. By the way, those hands that were shredding the thing in the herald are not my hands. Mine are quite stubby, and they were very elegant long fingers. I was quite impressed. Good morning, Lord Smith. You said in one of your four items that you got support and analysis and advice from the Scottish and UK Governments. You said that the parties agreed—the five parties made the agreement, ultimately—but the advice from the Scottish and UK Governments must have weighed heavily in some instances. How did the views of the parties weigh against the advice of Governments, particularly in the final draft of the report? I was, first of all, going to pay tribute to the quality of the people who were sitting around the table. You might smile, but I genuinely mean that. I have got a long career in private and public sector. The 10 people sitting around that table were high-quality people. I believe that they were taking their own position on a lot of things. I am quite sure that they were being fed advice from—I can call them superiors—in the various parties, but they were listening to arguments and they were actually taking part in a discussion arriving at conclusions. I believe very much from their own thoughts, as much as being informed by the Scottish Government, the UK Government or by anyone else who was out there. I thought that they were amazingly robust in the discussions. I will leave it at that. Whether you are a senior or a superior, I guess both would be at the trouble end. I am new to politics. By the way, I am going to remain new to politics. Before we move on to the areas of taxation issues, I think that Drew... Briefly, it was just two points. I will just ask them together for time, Bruce, if that is okay. It was just picking up. Lord Smith, welcome to the committee, good morning. You mentioned some of the reports that we have seen in the media since the publication of the report. Obviously, you were very clear, while the commission was sitting, that you wanted that to be a confidentiality and you thought that was important to the process. I suppose that once these things start, it becomes inevitable that, if one version of events go out, then a differing view will be put. Publicly, do you have any view about that? I suppose that the second point that I wanted to get your view on, Lord Smith, is to what extent the pressure of time that hung over the whole process helped you to drive towards consensus and, if that time pressure had not been there, you might not have been able to achieve as much as you had or whether it was a difficulty throughout. Okay, I'm just taking the first one first. I mean, I... Well, I don't know which one to go for here. The first question was... Regarding this issue around the confidentiality of the... People talking after the event. Look, I think I've already alluded to that. I absolutely respect people's political opinions. They have to speak to their people outside. What I do know is that the negotiations that I was party to and I chaired were conducted in a good spirit. It got heated from time to time, but humour was there as well. All five parties agreed that what we wrote down there, line by line, they all bought into... I'm quite sure people have political ambitions beyond that. There may be people who felt in parties that they had gone too far, but that's what we agreed at the time and I have not heard any of the parties turn round and say they thought the process was wrong. They all say it was well conducted and I believe they all stand by the outcomes. So I'm not particularly disappointed in anything that's been said and I respect the right to say it. On the timing, I think it actually worked on a favour. What we have to remember is that had I been given two years to do this... By the way, I wouldn't have taken the job if it had been two years, but if it had two years to do this, we have all sorts of additional analysis and so on. These subjects have been talked about in great detail with the Ming Campbell report, the Strathclyde report, the 2012 act. Lots and lots have been written about this. The parties were able to come up with very reasoned arguments within two weeks because the material was there. I'm always feeling that if you allow people another three months, they'll take another three months. Did we manage to do enough analysis on this? Let me tell you that there was a cottage industry in the civil service, both south of the border and up here, with people producing information. If we needed to know about a particular tax or about a particular welfare provision, we got experts in DWP or in Treasury or whatever to produce or in Scottish Government to produce information for us very quickly. This stuff is implementable. I know it is. We've argued it through a lot. Some of the detail is not there in some cases, but we know that it is implementable because we did sufficient research. Those who say that we didn't have enough time reject that. We did have enough time and have arrived at a good conclusion. Those who said that they'll never get five parties to agree, we did get five parties to agree, whatever is being said outside now. I'm relaxed about the process. I'll move into the broader area. I'm more generally of taxation now. Alison Johnstone, do you want to kick that off? Thank you. Good morning. I'd like to explore the rationale for where the boundary was drawn between taxis, devolved and taxis reserved in a couple of specific cases. How did the commission agree that the first 10 per cent of VAT receipts should go to the Scottish Government's budget? We're looking at assignment because you cannot devolve VAT. VAT is controlled by EU and it can't be split. You can't have a VAT rate in Scotland relative to the rest of the UK. That rate is going to be set somewhere. Then we decided how much of this could be assigned. There were discussions about whether it could be 15 per cent as a rate, because that's the minimum rate in Europe. We discussed it and there were arguments about volatility of tax receipts. There were arguments about how far it should go in those things. The problem is that if you're raising a lot of money in one particular area and we're talking here about something like £9 billion in VAT receipts in Scotland, where should you actually draw the line? Eventually, we came out with a figure of 50 per cent of the rate, but it's not 50 per cent of the receipts, it's 50 per cent of the rate, and that was fixed at 10. If Scotland prospers as a country, then that 10 per cent will grow, the receipts will grow. If something happens to Scotland's economy, that will go down. If there is, for example, more cutting by the UK Government, that should not direct effect, because the 10 per cent of the VAT will come out of block grant. That's now standing alone. Here is something that's riding on the Scottish economy. With power comes responsibility. That part of the thing is funding a big chunk of the welfare spending and other spending that Scotland has. Why 10 per cent and not 9 per cent or 15 per cent? We should have been inside the room to take part in the discussion, but that's where we came out. Patrick's looking embarrassed now and rightly so. If we look at corporation tax, which— Sorry. I've got a clarity on that issue just before you go into the corporation tax, because just so I understand this. Obviously, I get the package on VAT and it's an assigned revenue. Is it the case then, though, as a sign revenue, as I understand in the past has been, that there's also a reduction in the block grant to the same level? If so, would there be a net benefit? I just need a bit of clarity around that, because I'm not sure. It's a time of transfer. There should be no benefit and no loss, but it is a direct deduction from a block grant. It's a treasury expert, but it is. If that money, at the time of being passed over, there is no plus or minus straight off the block grant, and now it's raised against the economy, if you like, as 10 points on VAT. After the first year and the first implementation, there will be no yearly adjustment after that then. The way to think about it is that you're switching something that's funded by the block grant for something that's now dependent on what happens to VAT revenues. In the past, the change over time would be a function of what was happening to the block grant. In the future, under this world, the change to revenues is going to be a function of what's happening to VAT revenues, so they would normally grow over time a little bit based on the growth inflation in the economy, so the nominal figure usually goes up, but the point that Lord Smith is making is that variability in that income is going to be a function of what happens in the economy. If consumption goes up, you get more VAT revenues. If consumption goes down, you get less VAT revenues. Go back to that main question that I just asked there. Will the block grant be adjusted? If the VAT income increases, will the block grant be reduced to reflect that in the annual settlement? If 10 per cent of the VAT-able activity goes up, Scottish Government keeps that. It's rise and fall on economic activity. More VAT paid, 10 points of that, the Scottish Government will keep. There's no adjustment to the block grant. It's useful to get that clarified, because it's different to how the assigned process would normally work, so that's very helpful. Alison, sorry to interrupt you there. Corporation tax, I think. On that specific point, sorry, Alison, on that area. Thank you. Good morning. On that particular point, this may well be a hypothetical question, but in terms of the process, did you look ahead to any potential policy changes? I'm not suggesting any particular ones, but if a Government decided to change the VAT rate or to change how VAT would be implemented or remove VAT from a particular area further down the line, how that would affect Scotland and the revenues that Scotland could potentially have. This is about the devolution of a power, rather than how the power is operated. That was a common principle across the work of the commission. We looked at whether a power should be devolved rather than the policy choices that might happen once that power is devolved. That was the general way that we went about it. As Lord Smith has said, the way that the VAT assignment would work, if there's a change in the rate from 20p, given that Scotland would take the first 10p and the rest would go to the UK, a change in the rate at the UK level doesn't directly affect the amount of revenue that Scotland would receive. As we've said, what does affect the revenue that Scotland would receive is the nature of the economy in Scotland, whether that was growing fast or slow. I think that there's also a technical question on supposing someone decides that children's shoes or whatever happens to be no longer attracts VAT or will attract VAT or something. There are two points to make in relation to that. The first is that, as you'll be aware, VAT is a European-wide tax and decisions about VAT are made at European level. Changes to VAT are something that would need to be decided at EU level as a result of that. That's the way that the policy would be made. The second point to make is that if there was a change to the base in terms of the things that are taxed or not taxed in either direction, that would affect the revenue that's received. Has there been a mechanism built in looking ahead in terms of if there were to be VAT removed from a particular item in terms of the consultation that Scotland, the Scottish Government, at the time would have with the UK Government at that particular time? Will you ask about the detail of how the Governments operate the system in future? We've said very strongly in here that consultation between Governments has to be improved. Say that in the four items that I personally raise, but we've also got things in here about the Scottish voice has to be listened to, so it's certain that we'll be picked up. I just like to understand how agreement was reached to devolve APD while a decision was made to reserve corporation tax when you could apply similar arguments to the impact that both might have in a way. If APD is devolved, we might see a race to the bottom. The same argument has been used time and time again in discussion about corporation tax. I'd just like to better understand how those decisions were reached. Overwhelmingly, if you look at the evidence, this is where the input from Civic Scotland and others is very important. APD, there was overwhelming demand for something to be done about APD. It came in several different areas. One is businesses saying that moving from a hub down to London, for example, to go and do business, makes business life in Scotland very expensive and we're disadvantaged and could something be done about that? Could we have the power to at least think about that? Tourism is a huge voice from tourism saying that we are being disadvantaged. Here is an opportunity. I can tell you, and I'm not speaking out of school, but I would imagine that the Greens may well take the view. It's less of control over APD because actually we're concerned about CO2 emissions and so on. What happens to powers when they're devolved is entirely a matter for the politicians who are going to exercise those powers, but a lot of people wanted the power over APD and I didn't hear very many arguments against APD coming. It's different for corporation tax. Corporation tax is an interesting lever, but Civic Scotland and I mean the STUC, the employer's organisations like CBI and others, and even the institute that cannot be attacked in its objectivity, the Institute of Chartered Accountants of Scotland of which I remember, a large number of those organisations were saying, do not tinker with corporation tax. It will lead to strange behaviours and in the end you'll regret what you're doing, and that was coming from the trade union side, it was coming from employers, it was coming from disinterest observers who understand tax. So there's a very strong view out there. Never mind what the politicians were saying round the table, do not interfere there. Can I just add something else in that there's been talk about possible devolution of corporation tax to Northern Ireland? We were aware of rumours around that there might be corporation tax going to Northern Ireland. This is where a chair steps into his own in these things and I said, we are here, remember what we said about not conditional on the conclusion of political negotiations elsewhere in the UK, what is right for Scotland, if it's right for us to devolve corporation tax, let's talk about that and how it would happen and so on. If it's not right, then never mind that someone over here is getting a bag of sweeties, we ought to have that bag of sweeties. Why do we want this bag of sweeties, why? We talked about it at great length and eventually decided that it's not something that would be in the interests of Scotland to have as a power. Just for record, were HMT or the Chancellor's Office asked the review about it as you began to discuss the Northern Ireland situation? We asked views of Scottish Government, UK Government, Treasury, Biz, Off-Gem and DEC and so on. We spoke all over the place to people about what was possible and what their views were, but the views that we signed up to were our views. I'm specifically on corporation tax as well, Lord Smith. Absolutely, that decision was made inside the room. Now, I've got three other people who have indicated that they want to contribute on the tax term. I'm just watching the time here, so we need to rattle on a bit. Bill Kidd, please. Thank you very much and thank you for all the work that yourself and your commission have carried out. In terms of the increased borrowing powers that are being suggested, I'm not an expert in this at all, and it might be Ms Bayes who might be the right person to ask. In terms of that, the fiscal baseline that we envisioned will include, no doubt, the Barnett formula as well as variations that might take place in taxation under the Scottish Parliament. Would that leave the Scottish Parliament or the Scottish Government in enacting those powers in a position of relative advantage or disadvantage? I know you're saying that there shouldn't be any advantage or disadvantage, but with the Barnett formula still being there to a degree or to an element that's still got to be agreed. How would you see the borrowing powers being used in terms of supporting capital infrastructure projects? What the report says is that the recommendation is that borrowing powers should be increased and substantial and agreed with the UK Government. The detail of the borrowing powers is something that will be sorted out as part of the implementation of the Smith commission. To be honest, what happens to those borrowing powers is ultimately a decision for a future Scottish Parliament in how it wants to exercise the use of those powers. It's a bit difficult to say sitting here what the effect of that would be. It's ultimately a decision for the future Parliament how it wanted to exercise and use additional borrowing powers. You're right on the Barnett formula. The report is very clear that the Barnett formula will continue to be in operation for the block grant and there will continue to be some block grant funding under the impact of those proposals. The block grant would still continue to operate and the Barnett formula would continue to be the mechanism that determined the block grant. Did you take evidence as a commission on how the Barnett formula would be updated and view of the changes included in the agreement? If so, is that evidence relevant to the work that will clearly have to be done in the next few months by Governments in making that happen? There was a fairly strong consensus around the table that the Barnett formula would remain and that is what the commission has agreed. It wasn't something that we looked at in a lot of detail, how you would change or amend it. The commission just said that it's something that should continue to operate. Lord Smith, the National Union of Students in Scotland has welcomed the proposed powers for the Scottish Government to set rates and thresholds for income tax raised from non-dividend and non-savings incomes, as I do. However, we're concerned that the exclusion of non-dividend and non-savings incomes from the reach of those new powers will mean that the Scottish Parliament is unable to exercise its own tax policy, as it says, where it matters most. I'm just interested to know how you came up with that sort of formula. If I understand the question, can we just go back to the powers that the Scottish Government has at the moment or will have after the 2012 act comes in? It does take about three years for those things to bite as you'll have gathered. Even with the 2012 act coming in, the Scottish Government with the ability to vary tax rates 10 per cent, there are three levels of tax, 20 per cent, 40 per cent, 45 per cent. They will be able to vary those but in lockstep. If you want to increase your 45 per cent to say 50, your 40 has to go up to 45, your 20 has to go up to 25. If you want to take five off, your 20 goes down to 15, your 40 to 35, your 45 has to come down to 40. Our proposal here or our agreement, as I like to keep calling it, is much more powerful than I expect the people around this table to ensure that this agreement finally finds its way into a statute book. It is not in lockstep. You can raise tax, you can increase rates, bands, reduce rates, bands, you could raise this rate, reduce that rate, keep that one where it is. I think that there's a huge amount, huge amount of power and leverage in there. By the way, it amounts to £6.8 billion of income. The responsibility of how you go about that and so on will now rest with the Scottish Parliament. I think that that gives a huge income. I think that what we were concerned about was when you start interfering with savings, with dividend income and with interest income. You know that there's a huge industry in Scotland and a lot of people's pensions have depended on that. If you start to create differences across borders in those areas—justice and pensions and so on—you're taking a very, very big step and it could lead to a lot of confusion. Following that up, there's experience when there was a £50 tax rate under the last Labour administration where the highest earners were often able to avoid tax by receiving bonuses or other non-dividend income. That means that the potential under income tax is restricted considerably in order to be able to raise that money, whether it's down south or east. No, I think that we're talking anti-avoidance here and I am absolutely for anti-avoidance. I think that the UK Government certainly speaks very strongly about that and I think that a Scottish Government ought to be the same. I have no trunk with people who avoid paying income tax. Incidentally, since I'm much older than most of the people around this room, I can tell you at one point that people in the UK, when I was a young lad, were paying income tax at 83 per cent and at 98 per cent on charmingly called unearned income, that's savings and dividends and so on. We've been in different regimes. I'm not suggesting that these rates are things that should apply in Scotland, but I'm just saying that it has happened in the past. We'll need to move on. I'm watching the clock here. I think that we need to move into the welfare area. I'll just talk too much. Well, I wouldn't let you filibuster anyway, so I'll do it later. Right, welfare area. Mark McDonald, I think that you indicated earlier that you'd like to do something. Yeah, a couple of questions on this one. I'll make them brief. I note that you've mentioned a number of times now the input from Civic Scotland. In relation to welfare, there was an overwhelming almost universal call for full welfare devolved to Scotland from civic society, charities, et cetera. What was the bulwark against that that led to the conclusions in the commission's report? I think that there's a system called universal credit, which, as you know, is a major neuroform in the welfare system. The parties agreed that, around that, it's quite difficult to break that asunder, that Scotland could have some flexibilities. That would be particularly around things like the housing element, because you know that a lot of housing is already devolved, so it made a lot of sense and complementarity for the Scottish Government to have the housing element of universal credit. Quite, quite different issues about housing in Scotland from elsewhere in the UK to increase or reduce housing payment, flexibility around timing and so on, but actually to take universal credit, it was felt it was not somewhere that we could actually go, and it was arriving at some sort of consensus around the room. Outside universal credit, there are something like £2.5 billion of extra cost benefits being fully devolved, things like disability, living allowance, winter fuel payments—there's a whole list of them in our report here. That's £2.5 billion. The current amount of benefits that's under the control of the Scottish Government is £400 million, so an extra £2.5 billion is quite an increase in that area. Just to go back to the discussion that we were having earlier, the reporting of which we've discussed has suggested that universal credit was in a draft report and was dropped quite late in the process. Is that a fair reflection of what happened? I'm not prepared to go into what—the final report is a final report. I'm not prepared to go into blow-by-blow and who set what to whom. Okay, that's fine. You've mentioned and the report has mentioned about the flexibility for Scotland to create new benefits, and that obviously is a responsibility that would have to be funded accordingly. The question around coherence is, as we just had with the taxation discussion, that without a panoply of tax options in order to create the funding to derive those new benefits, they'd either have to be funded through reductions elsewhere or dropping of other benefits or use of income tax as the only instrument. Did the coherence element play any role in discussions around having new benefits created but not necessarily having that broad tax power base to be able to fund new benefits that were created? The block grant is used in different ways as well, so that would not be—but that's available. In fact, about half of the funding of devolved powers would still be in the block grant and about half of it in directly raised funds, including the VAT assignment. You've got £6.8 billion and existing £4 billion or so or about £4.5 billion for VAT adds up to about £15 billion out of the £30 billion or so, very roughly speaking, of spend. I think then it's up to Government to make choices. It's just—there's a finite amount of— One last very brief one. DLA or PIP is going to become—is muted for devolving to Scotland. Obviously, at present, there are proposals for reductions in that budget and changes to the criteria through which people can apply for payments. Was that factored into the discussions when looking at future projections, when looking at devolving that power? The general principle here is that the commission was looking at which powers to devolve and making a discussion based on the powers that were around and available now. That's the way that the discussions were approached. The precise details of how this will be done is something for the two Governments to look at in due course as they do the implementation. You're right that many of these policy areas are policy areas that continue to evolve and move as we are speaking. As this process of implementation takes hold, that will be the case. That's where Governments have to talk. We make this point very strongly, and the Scottish voice needs to be heard. Stuart McMillan. Thank you. Just a quick list, please. On this particular point, certainly principle 5 and principle 6, regarding not-cause detriment and also the cause of neither the UK or Scottish Governments to gain or lose financially. Reading with that as a baseline, the whole issue of the welfare, particularly paragraph 54 of the document and the issue of the creating of new powers. What really was the rationale behind that particular area? Any particular Government of the Scottish Parliament, if they did want to utilise these and create some new benefits, surely there would be a financial cost implication to them? Yes, there would. If the Scottish Government wants to bring in additional benefits, it would have to find some way of paying for that. That's almost exactly the answer to the earlier question. There could be an argument with that being the case that the Scottish Government could therefore be considered to be at a negative position, at a disadvantage, as compared to the situation. If they've decided to pay additional benefits, that's got to be funded. It's not a case of saying that we want to pay additional benefits, can we have the money to do that? That has to be found. One point of clarity just on universal credit before we move on to the constitutional sort of area. I know that you can't go into the detail of what party said what etc, and I'm not expecting you to do that. Just on universal credit, was it considered to be technically impossible, or was it politically difficult, the decision not to devolve it? What's the right answer to that? A general useful discussion was heard, and the consensus was arrived at. Not good enough answer. I think that's a pretty reasonable question, just because I'm not asked for specific detail. I think the answer is we looked at both the technical implementation and the choice about whether you would want to devolve the full amount of universal credit or not, and both of those were factors that played into the discussion. It was a conversation, as with many, around what is the right view about what should happen in terms of how much power should be devolved? So it could, but it was the issue that was the issue then. So it could be done, but the issue was the issue. I mean, what I can say is that both of those issues were looked at in terms of the discussion around universal credit. Okay. But there was agreement that the coherent thing was to keep it together with the flexibilities around housing and timing that you described. Yes. Okay. Constitutional stuff, and Drew wanted in on that issue, didn't he? Yeah, thanks very much. Convener, a lot of things you mentioned a number of times, you know, the issues of the two Governments working together, and I suppose this is a kind of hardy perennial of the whole discussion around Scotland's constitutions of how we create partnership arrangements. You know, something you've particularly highlighted in your report, I wonder if there's anything you wanted to share with the committee on putting the record as to what it is that you think needs to change? Can I just preface that by saying there are a huge amount of authority, if this all is enacted, coming to Scottish Parliament. They can decide the number of MSPs, the Parliament will be made permanent within UK law, 16-17-year-old voting, if the Parliament decides to go for that, even boundaries changes, all sorts of things are available, so there's an amazing embodiment of power, if you like, coming to the thing. The question, sorry, I just want... Well, I mean, there's been discussion around how the Joint Ministerial Committee's work in the past has been such a discussion about how the Parliament's come together. I just wonder if you had any... It was very obvious to me, and I think to other members as they listened to Civic Scotland, that it's not just perennial comments about, on fisheries policy, we're not really listened to, or in agricultural policy, both of which are very important to Scottish economy, we're not really listened to. The process of devolution has led to governments saying, while that's devolved, we don't really need to talk, and that's just wrong. Also, where common cause has been made, whether it's in Europe or somewhere else, it could be an energy policy, so when an energy policy is being thought about, fuel poverty or energy efficiency or something, hey, is Scotland a wee bit different in this area? Instead of having one-size-fits-all, let's listen to the Scottish voice, and you'll know some of the areas that I'm talking about. There's a different kind of fuel poverty in Scotland, and what we're saying to institutions like Off-Gem or DEC, or you don't mind if I use your shorthand, you know what I'm talking about, Department of Energy and Climate Change and so on, or indeed European matters or other matters, that the two Governments, there ought to be mutual respect, they ought to listen to each other and actually communicate, so it's across a whole range of areas. Most of it, you're always hearing about hey, our fisheries thing, we weren't really represented so on, and we're talking about setting up, not just saying, got to try harder, actually have a memorandum of understanding so that the voices are heard. In the case of Off-Com or Off-Gem, you have to consult with Scottish people before you bring in new policies on whatever might be energy areas or broadcast areas or whatever. That's all we're saying. It's kind of broke, and it's not working perfectly, and it's getting in the way of it. I'm talking about civil servants as well, but if you fix it at ministerial level and fix it quite formally at ministerial level, then you have an opportunity for that to cascade down. I think that that's a helpful contribution to the debate around that, but I'd like to hear more of what you've got to say about it. To move on, I wondered if I could ask you another issue that you raised yourself, which is around the public's understanding of the constitutional framework in Scotland. To what extent do you see the success of your agreement being dependent upon a degree of public understanding that is beyond where it is at the moment? I think that it's fundamental. I was quite surprised in my travels when people were saying to me that you've got to ensure that the health service is a matter for a Scottish Parliament. I was even surprised myself to find out that the health service was devolved in 1948 when I was four. It was devolved because all the health services were set up independently. Education that I knew from the school days has been devolved since about 1451. We just have a different education system, but the perception out there is that we don't really control our health service. We don't really control education. We think that we control this, but maybe we don't. There's a lot of confusion out there. I have to say that, even among people that I thought should know these things, I thought by the way of the 16-17-year-olds that a better grasp of some of this. For these things to work—we're bringing in additional taxation powers here and we're bringing in additional welfare powers—people need to understand what is in the hands of the Scottish Government and people in the UK and Westminster need to understand what's been devolved. I think that there's a lot of misunderstanding about it. All I'm saying is that, as well as Governments talking together, for goodness sake, let's make sure that people understand what is devolved and how it works. Do you find that surprising when we just had a referendum debate? One of the comments that's often made is how educated our whole country has become in Martyr's political, and that is seen as a positive thing. I suppose perhaps people maybe have stronger and better articulated views about how they would like the country to be run, but they don't seem to have a great understanding of how it actually is. There's still a long way to go, but I think what happened this year, and maybe to an extent last year as well, in running up to the referendum has been great. 85 per cent of people who could vote and engaged in things—people I know who don't have a political bone in their body—were asking questions about how things are running and so on. Those people have not gone away, incidentally. I think that that's a good thing for democracy. I would just play in case we're run out of time here that the people around this table ensure that the work that we've done over the past 10 weeks is seen through in the current agreement form into legislation, and that some of the things that I've pointed to on improving the education, improving the knowledge of people about what's happening here is done as well. Anyway, I'm sorry, it's a long-winded answer. I think it was at Mark. Mark Wooddonald very quickly, and then I'm going to come to Lewis to deal with some of the issues that you made, personal recommendations. I'll be very quick, convener. You've mentioned Lord Smith creating this permanence for this institution within law. I just wonder, given that there is no written constitution in the UK and no government by definition can bind its successor, how you envisage that being a reality? The UK law will say that this is permanent. That's our intention. Nothing's permanent. I think since Magna Carter or something, nothing can quite be, and I'm told by constitutional experts down in London in what used to be called Doverhouse, which is probably Scotland House now, that you can't actually do it because it's binding future parliaments. We intend to be written in such a way that a plague of boils or something will break out if anyone in the future ever decides to pro-rogue or whatever you call it, this Parliament. It will be said in a strong language as possible to be, but you're absolutely right. There's nothing as permanent because future governments democratically elected can change those things, but this is going to be as permanent, and it will be described as permanent in UK law, which of course can be changed. If you knew a way of making it, tell me, because that's the will of the Scottish people. It's called a written constitution, actually. That's the next task. That would probably help that particular process. Ben, we'll not go there. Lewis, can I ask you to… Thank you very much. The Smith agreement, as you have described it very well, does create a Parliament with even greater responsibilities, with a broadened range of responsibilities and of expertise required and Government the same. I'm interested in your recommendations on parliamentary and independent oversight of the Scottish Government with that extension of powers. Could you tell us a little bit about your thinking behind that and where you feel that the scrutiny that currently exists within the Scottish Parliament would fall short in the situation where these additional powers are made available to the Scottish Government? I think that a number of people have said to me that they feel that the… I'm just mouthing what other people have said to me that the committee system in the Scottish Parliament doesn't work as well as the one in Westminster. I don't quite know why, but there isn't as strong scrutiny of what's happening as there is in Westminster, and you've seen some of the Westminster… I'm going before a Westminster committee tomorrow by the way, so thank you for the opportunity to rehearse. I believe that it's a blood sport down there, but I think that that's one thing. The other thing is, if you have huge powers to increase or reduce taxis and huge powers to do things in the welfare area, you actually need the Parliament itself to be scrutinising in plenary sessions as well. You know, people have to… I'm just saying you have to step up to the plate, if you like. If you are accountable now to an electorate for some almost £15 billion worth of taxation and certainly in direct devolved stuff through this commission of £6.8 billion as a starting point of income tax, MSPs who now will be able to decide how many they are and which boundaries, and whether it's £16 or £17, all that for a mature, mature Parliament, they need to think very carefully about the great responsibility, if you like. Part of that is the committee system, and part of it is simply the Parliament itself operating properly and scrutinising everything that's going through. I very much concur with your reference to maturity of the institution being critical here, and the convener referred to Dollyndur at the outset. At that point, it was said that, because the committee system will effectively be a second chamber, then a unicameral Parliament will do, given the range of powers that were being devolved. Has that changed in your view, given that the committee system hasn't lived up to perhaps expectations in terms of the level of scrutiny? I'm only reporting what people told me. I've never actually sat in a committee until fairly recently. Whether you need a second house—by the way, I'm not looking for a job there, I just want you to know—a house of lairds, or perhaps. I don't think that you need a second chamber at all, I think that it just adds another complication to the thing, but I do think that you need to look at, I have been told, at how the committee system works, how diligent it is, how strong it can be in calling a Government and, indeed, other organisations to account. In our report, we're expecting a number of UK organisations to have to come before the Scottish Parliament. Again, I would want that scrutiny to be pretty strong as well. With power comes responsibility. That's really what I'm talking about. I had another ask at the community if nobody is rushing to come in, which was one of your other particular ones around devolution from the Scottish Parliament to local communities, and you say in your conclusions that that will require significant further thought. Is that an additional layer, if you like, of improving democracy within Scotland? I believe so. Let me tell you that this was a very strong voice. It came through in all those different areas, but particularly in areas such as welfare, charitable and so on. Cities and rural areas were saying to me, look, it's all very well, Holyrood getting extra powers and we welcome that, but if you take areas of welfare, particularly around poverty and so on, it's absolutely the case that rural poverty is different from inner city poverty. It is absolutely proven academically that the closer you get to point of need, the better is the welfare provision, because you understand what you're dealing with rather than being up here. It's in Holyrood, and all I'm saying is that lots of people were saying, could you think about devolving power more down to the point of need in a lot of areas? That's all. It's just a voice on the street. I'm not saying whether all five parties bought into that. It's my views. It's what I was hearing, time and time again. All I'm saying to Holyrood is that, with the additional powers that you're getting and even with the existing powers that you have, think about how you could devolve some of that to everyone's advantage. It is indeed. Scottish Parliament committees cannot compel witnesses like the UK can. Do you think that that should change? I think that that's a matter for democratically elected people like you, but if you think—I know that your presiding officer is looking at the committee system right now, and I would just say more power to her elbow—if you decide—I'm not here to provide solutions to that thing, but if you decide as parliamentarians here, elected by the people, that you should have the ability to force people to come up with it, then I think you should look at that. Well, thank you very much. We're coming along, given that I know the time was short this morning, so I'm very grateful for you coming and giving us the time you've had. We could probably spend quite easily two or three hours on this, but we recognise diary pressures, however. What happens next? We get the UK Government and the Scottish Government on Thursday. There'll be—I suspect the questions will be a bit more searching in terms of where we go now. I think certainly around the table we all recognise the scale of responsibility we've got to make sure that when the legislation eventually flows, that we've got quite a job to make sure to make sure that it's all practical and recognise that. Last piece of advice would give you—blood sports were actually outlawed, so you can tell them that tomorrow. Thank you very much for coming along with you and Jenny for giving evidence this morning. Very grateful to you. We'll meet on Thursday. Thank you very much.