 We guests and welcome to the 10th session of the United Devolution Committee in the Scottish Parliament. I want everybody to switch off their mobile phones and to mention that Mark MacDonald will join us during the proceedings of the morning. He is currently at the finance committee where I understand that the chief secretary is giving evidence. Welcome to our panel this morning. We have we have Johnson Swinney, Deputy First Minister Cabinet Secretary for Finance, Constitution, Economy, Lly曾. You have Sean Neil, deputy director of finance and Gerail Burn, who is the team leader in the Scotland Bill group." I am sure that the committee will appreciate that we are tight for time this morning and will try to keep the committee's questions as tight as they can. The answers are tight as we can. In the meantime, do you wish to make a short opening statement? The way in which there have beenields of the fiscal framework in recent weeks.é I appeared before the committee shortly before we were able to conclude the negotiations on the fiscal framework. At some of the ground we have covered before today, but obviously in light of the agreement of the fiscal framework last Tuesday the Government has now been able to submit to imbeddiolaidd, ac yn het sefydliadau iddyn nhw ddim yn nodio defnyddio bod efallai warehouse te 【 ógly 임 goneth d оказol iddyn nhw ddysgu hynny konfodol yn uwch. Felly, in the course of the period that lies ahead we will submit a motion to Parliament that enables Parliament to consider that question once the committee has completed it. Obviously on issues in relation to the Scotland Bill and the fiscal framework, I am very happy to answer questions from the Committee this morning.werth, your being for us this morning, it was a rather fast-moving day the last time you appeared before us. It ended in quite a remarkable then. But during the process, you've been pretty consistent in stressing the importance of Parliament being able to scrutinise the fiscal framework. You've previously stated in writing to the committee that you intend to publish the key documents in the fiscal framework to support the process. I'll just be useful to hear from you if that is in size of the key documents, do you intend to publish them? Are there any factors outside your control, outside pressures, that would not enable you to publish those documents? The key document in this respect is the agreement, which is now before Parliament, and is i'n ddenfodol i chi gyda chi i'n ddynnu cyffaint, ac mae gael ei wneud o'ch gweithio'r Fforbeth mewn ddweud o fod gennymau teccnicol i ddifallu'n dwinnu, ac mae oeddwn i'n gweithio'n gweithio â ddweud o ddweud o'r fforddau fathoddau ac oeddwn i'n ddweud o'r fforddau a'i Month Carthage. Mae'n gweithio'n gweithio'n gweithio'n ddweud o'r fforddau ac yn y dweud o ddweud o'r There are a whole range of documents that have been part of that process. I would like to be in a position to publish as many of those key documents as I possibly can do. Obviously, there will be some documents in which I need to lize with the Treasury about, as to whether they are content for those to be published into the bargain. I am actively exploring and discussing with the Treasury what documents we can publish to further enhance the scrutiny of the committee as we are able to undertake in this process. In the way of any feeling at this stage of the timescale that these documents have come available? I think that that has to be done timmiously, convener of the committee. I am aware of the timescale under which the committee is operating. If the committee wishes to consider any of these documents as part of the scrutiny process, then obviously that information will have to be available very swiftly. I am working very much with in that context to try to publish material as soon as it is practically possible? Obviously, some of the stuff that underpins the heads of agreement is the technical agreement area, and that will be much more complex and full of no-doubt algebraic formula in some sort. Nevertheless, it will be important that that stuff becomes available particularly for the committees of this Parliament and outside commentators to understand what the actual detail is. Have you got a feel for when that might be published? Again, I would like to see that done as soon as possible. I would caution the committee about the sense that there is any new ground going to be covered in the technical documents. There will certainly be more detail in the technical documents, but the substance of the agreement is encapsulated in the document that was published last Thursday evening jointly by the Scottish Government and the United Kingdom Government. It captures essentially the details of the agreement that we have put in place. On the general transparency issue, I will just follow that theme through. Obviously, the fiscal framework makes reference to a number of range of processes and procedures that need to be in place, including things like the independent review process, the audit reports, the methodology of assignment of VAT, the revised member of understanding, the member of understanding between the Scottish Fiscal Commission and the OBR, and the operational governance issues behind it. Those things will be on-going processes. What discussions has the Treasury and the Scottish Government had about making sure that, as the process unfolds, the appropriate committees in the Parliament are kept up to speed on what is going on? I think that all those documents to which you refer, convener, are documents that are material to the transparency and scrutiny process, so I think that they have to be in the public domain. As I have tried to do in this process around the fiscal framework, and as I conceded to the committee, I have been first to acknowledge that it has not been perfect, that I have not been able to be as open with the committee as I would have liked to have been. I think that those documents are more easy to make available to committees as part of the on-going scrutiny process of the fiscal arrangements that will have to exist to underpin the implementation of the Scotland Bill. I think that probably the natural place to go at this stage would be to stir— Can I just follow up a little bit on the information that could and should be made available? I think that the committee itself was very considerate in its initial response that, during the process of negotiation, it would be difficult to give around in commentary, but we are now at a different stage. I think that everybody would agree. We have had warm words from Mr Mundell and the Scottish Government about wanting to provide that full disclosure. I do not think that that is simply for the committee, but some of the evidence that we have had in the last couple of days from academics, from interest groups, want to understand the detail, not simply the heads of agreement, which, as I would understand it, are the principles that have been agreed in that we go forward. Mr Mundell and Mr Hans are here today. Do you plan to meet them when they are here today? Have they been scheduled in? I have no plans to meet them today. They are here, and if there are any obstacles about—you suggested that there may be obstacles and not agreement to disclose the information—the key documents, we will put that question to them as well. Can we get you all together while you are in this building today and ask you to deliver the key documentation that has been hinted at and has been promised? You certainly have a will to provide that information. Can we clear that up today and provide that to the committees of this Parliament? As I said publicly, convener, I would be happy to set out the key documents that are involved in the process. It is not my business to point the committee into any of its questioning that it may undertake, but it is a very legitimate issue to raise with myself. Exactly. As I said, I have no plans to meet the chief secretary today. We had looked at the possibility of meeting today, but just in terms of the parliamentary commitments that I have today and that Mr Hans has in terms of the committee appearances and his travel arrangements, I do not think that it is literally physically possible for us to meet today, given the amount of time that might depend on how long the committees of Parliament detain Mr Hans today. However, we are unable to arrange a practical physical opportunity for us to meet, but as I said to the committee, I am very happy to publish the key documents and I am trying to secure the necessary agreement. I suppose that the finishing remark is that we should publish in midam. Well, it may well come to that. Thank you. I think that you have given us a good pointer about where our questions need to be focused in the next session. I think that the right place to go at that stage is to keep in the area of transparency is to go to the view process issues later first. Thank you very much, convener. The Deputy First Minister, we appreciate it if you were able to lay out your understanding, or rather the Scottish Government's understanding, of what has been agreed in terms of the first five years leading up to the review post and then the actual review process itself, what will take place and what the arrangements will be. Firstly, if there is an agreement at that point, and secondly, if unfortunately there is not an agreement, what do you expect to happen? In the delivery of the commitments around block grant adjustment, in the period between now and 2022, the agreement sets out at sections 15 to 19, the exercise that will be undertaken to undertake the block grant adjustment essentially the key paragraph in this respect is paragraph 17 where the United Kingdom Government's comparability model will be run, it will produce an outcome, which will be reconciled to the outcome that would have been delivered with per capita index deduction, which is the model that I had advanced in the negotiations. When we strip out all of the text fundamentally, the outcome that has to be delivered is per capita index deduction and delivered on an annual basis, and that is secured by this agreement up until 2022. When it comes to the point of review, after the 2021 Scottish parliamentary elections, there will be an independent review commissioned, an independent report commissioned by both Governments, so that will be commissioned jointly by both Governments. Both Governments will have to consent to who will be undertaking that independent report and how it will be undertaken. It will report to both Governments at the same time, and both Governments will then consider that report. By the end of the French year 2021-22, both Governments will have to agree what steps to take forward as a consequence of the receipt of that report and the review that is undertaken, and that requires agreement on the part of both Governments at that time. The obligation of the agreement that has been reached is that both Governments have to come to an agreement at that stage, and that is what we will endeavour to do. Thank you very much, Deputy First Minister. I just want to be clear here, though. Given that the review will have to conclude as I understand it by the end of the calendar year 2021, and the intention is that both Governments will come to an agreement by the end of the French year 2021-22—effectively, that is a period of roughly three months or 12 weeks—if that agreement cannot be reached within that 12-week period, is it the case that the status quo—which you have just laid out, the no-detriment model that you have just laid out—will carry on beyond that 12-week period, until such time as both Governments have come to an agreement? That would be a reasonable conclusion. Is that the actual agreement that has been agreed back to the two years ago? There is no pre-judging of that agreement process that is undertaken at 2022. Is it possible, in your view, for one or other Governments to withdraw from that agreement effectively? Is it the case that it will carry on automatically, or could, for example, if there is no agreement reached, the UK Government could say, well, we have had enough and we are going to go ahead with a new model? That could not happen, because the agreement at clause 23 says that the two Governments will jointly agree that that method is part of the review. The fiscal framework does not include or assume the method for adjusting the block grant beyond the transitional period. The two Governments will jointly agree that method as part of the review. The method adopted will deliver results consistent with the Smith commission's recommendations, including the principles of no detriment, tax payer fairness and economic responsibility. The cynical might say that one of the conveniences of the arrangement is that it kicks the whole issue well into the future, well into the long grass, so to speak. However, I am right in thinking that we will have the relevant figures for both methodologies available to us on an annual basis so that we can draw comparisons as the years go by. The first thing that I would say, and I am absolutely stunned that Mr Johnson is descending into cynicism, stunned. Aside from that, once I have recovered from that, that has not been kicked into the long grass. That is the mechanism that will adjust the block grant, but it is really important that we do not just glide past the next few years. We have in place a mechanism that will deliver the Smith principle of no detriment and ensure that the Scottish budget is not a penny worse off than it would have been had those powers not been devolved. That is a very significant assurance and guarantee for the people of Scotland. That is in place up until 2022. What the Smith commission report envisaged, and there are other provisions in the fiscal agreement later on at section 111 onwards, where the consent to further review of fiscal arrangements was recommended by the Smith commission and has been put into practice in the fiscal framework. What the Smith commission recommended was that we should not be in constant revision mode on that type of agreement. What we should do is have in place agreements that were reviewed over a longer period of time, and that is why the review mechanism is compatible with the thinking of the Smith commission report. Being less cynical, my concern is that we are in a position where we may, at the end of that three-month period that we just described, find ourselves in a similar position to the one that we were in last Tuesday, where negotiations go down to the wire. Are you confident, firstly, that understanding will grow and that when we get into the mechanism described, we will be in a much more informed and proactive environment? Are you confident that the mechanism that you set out will not create a situation like the one that we had last Tuesday, where it all goes down to the wire again? First, I apologise to Mr Johnson, but I did not answer his final question in his first question, which was, will the annual information be available? Yes, there will be an output from the comparability model that will show the information that it shows and the analysis from the per capita index deduction model, and it is the per capita index deduction model that will drive our budget. That information will be available on an annual basis for scrutiny. That will inform the process. We will have a period of data that will get us to 2022, which will enable that to be part of the review. I certainly cannot rule out that discussions will go down to the wire. Most things in my experience in this type of negotiation tend to go to the wire. The fact that we have a relatively short window between the completion of the independent report at the end of calendar 2021 and the necessity for the review to be resolved by the end of the financial year 2021-22 in March 2022 places an obligation on both Governments to come to an agreement. Of course, public expenditure will be driven by those decisions, so it is important that we have assurance in place that enables us to plan and predict public expenditure in the like of that agreement. Two brief supplementaries. First, on the point that you just made to Mr Johnson on the data to be published on an annual basis, does that mean that comparable expenditure per capita on devolved services for Scotland and the rest of the UK will be published on an annual basis so that we might understand that detail? I would think that the PISA statistics probably provide that already. Perhaps I would better write to the committee to confirm that. I am pretty sure that the PISA statistics will give that information already. However, what this process will identify is what would have been generated by the application of the comparability model and what would be generated by per capita index deduction. I am sure that the clarity would be helpful on that. I still do not understand to be blunt what the actual model is now being used, because I very strongly supported the approach that you and your Government took in relation to what I am going to loosely describe as the Scottish model. If I read clause 23 that you have already discussed with Mr Maxwell, it seems to me that the default position there is whatever model we now have. I totally take your point that there is no financial detriment whatsoever, but the mechanism strikes to me is quite important. What model is it that is now in place in this agreement? The relevant clause is number 17, which sets out that the block grant adjustment for tax should be affected by using the comparable model that Scotland shares while achieving the outcome that is delivered by the index per capita model method for tax and welfare. Is that an amalgamation of both, or am I being just stupid about this? The Treasury model is being run, but it has to deliver the outcome that is delivered by per capita index deduction. The key point—I think that the interests are trying to be absolutely crystal clear about this. The reason why the Government—when I came to this committee last Tuesday morning—said to the committee that everything else was sorted out, apart from the block grant adjustment. In the course of Tuesday, we got to an agreement whereby we were able to secure the outcome of per capita index deduction, and that is what enabled the Government to sign the fiscal framework. I am grateful for that. It would be interesting to ask Mr Hans to explain what the comparable method is and how it differs from the outcome of the per capita index reduction. That is up to us to ask these questions, obviously. On those same issues, obviously there is going to be an independent body that will look at all this as it comes to the review period. Has there been any decision yet on how they will appoint these independent advisers? There has been no discussion in that question, convener. We have obviously concentrated on getting the agreement in place, having it published in a timuous way, so that both this committee and the Scottish Parliament and the House of Lords can explore and examine those issues. We will address those questions in due course. I am assuming that, from the tenor agreement, whoever the advisers were, they had to be agreed jointly by ourselves and the UK Government. The provision is that the review has to be put in place by agreement between both Governments. Before we come to Malcolm Chisholm, you have already said to others that the Scottish Parliament and its committees will see the appropriate documentation as we go through the process. Can we also have the assurance that, when we come to having that independent report, it will be put also before the Scottish Parliament for scrutiny at the appropriate time? I think that that process will require to be entirely transparent, utterly and totally transparent. To go back to the question that Mr McNeill asked me earlier on, that is not a negotiated process. That is a process of inquiry and research, which, for the benefit of public information and public debate, should be an entirely transparent process. Both Governments have agreed what would be published and how it would be published. Is there an agreement there with both Governments? No. I am simply proffering my opinion about what should be required there. There is no agreement yet. There is no agreement yet, but I am making the distinction between the point that Mr McNeill was asking me earlier on, which was a helpful acknowledgement that, in a negotiation between two Governments, it is difficult to provide a running commentary on those questions. However, when you have an independent review process, it is much more practical and possible to have a more transparent process. Okay, one final one. Just to make sure that we tie that down completely. In terms of the actual document that we have produced as part of this independent review, now, during this process of Scottish Parliament, understandably, for making sure that the two Governments were able to work in private space, the Parliament and its committees were obviously a bit behind in terms of the information that we have been able to receive. Do you think that you will be able to give us some level of assurance that when that independent report is published, it can also come to the Parliaments at the same time, and the parliamentary committees at the same time, as the two Governments get it, to allow Parliament in these circumstances to have an appropriate overview? I cannot give a commitment on behalf of the United Kingdom Government, but I cannot give a commitment on behalf of the Scottish Government that that would be our wish that that was the case. I think that people are concentrating on the review, because for the next five years in practice, it is done and dusted in terms of the principle of it. I think that the one question that remains for me is the baseline adjustment. I take it that that will be based for 2017-18 on the forecast of the OBR for tax revenues in Scotland for that year? The baseline position will be a year-zero calculation, which will be based on 2016-17. It will be the reference point for 2017-18. So it is their prediction for that year? Correct. However, there will be a reconciliation of tax revenues for one year on. However, the other thing that is important for the OBR is the base year, so will the base year become the real? At what point will we know the real tax out term for 2016-17 or for 2018-19? Will it still be using their prediction or will we know the real tax revenues for that year at that point? By 2018-19, the tax information for 2016-17 will be near to finalisation. It might not quite be there. It might be maybe in 1920, but it will be not far away from it, I would not have thought. At a certain point, it will be the real figure that is the baseline. I think that that is clear. The rest of it is quite clear for that. If I could just ask one other question, someone will come on to capital borrowing in a moment, but revenue borrowing is obviously related to the sentence about a Scottish-specific economic shock that is triggered when onshore Scottish GDP growth is below 1 per cent in absolute terms on a rolling four-quarter basis. Does absolute mean cash or real terms? It means cash terms. Rolling four-year quarter basis could mean at least two different things, so what does it mean? It means that it could be quarter one to quarter four of any given year, or it could be quarter three, quarter four, quarter one, quarter two. Right, so it is successive quarters. I think that you have some questions around capital borrowing. Good morning, Deputy First Minister. First of all, what considerations led the two Governments to consider that the £3 billion would be a sufficient borrowing capital? Essentially, it is a product of a negotiation. One of the issues that the Smith commission required of us was that whatever agreements and arrangements were put in place, they had to operate within the fiscal framework of the United Kingdom. That is a product of the fact that, in constitutional terms, Scotland remains part of the United Kingdom, so it is understandable that there should be a requirement that we operate within the UK's fiscal framework. One of the issues that I have to be mindful of is that the UK Government has obviously set at its own UK fiscal framework, which requires by 2019-20 that there will be no borrowing. Obviously, we take a different philosophical question on that subject. Therefore, any borrowing facility that we would want to have as a Government has to be undertaken in a compatible fashion with the wider fiscal framework of the United Kingdom. Therefore, I have to be mindful of the fact that the UK Government was going to have to reach an agreement that would essentially contradict their wider fiscal framework. For that reason, I accepted that we could not have a prudential borrowing regime because I accepted that the Treasury required to have some degree of limitation on our borrowing limits so that it understood the extent to which we planned to borrow. For that reason, we negotiated a cap of £3 billion as the aggregate total of the capital borrowing on the available to Scotland. That is helpful. It also clarifies the situation regarding the prudential borrowing. However, one of the things that struck me when I was reading through the framework and the agreement was in certain paragraphs, paragraph 57 from the capital borrowing and paragraph 78 to 76 regarding the reserve. It struck me just in terms of a couple of agreements, across border agreements that are taking place, particularly the city deals. At some point down the line, because of previous agreements between the two Governments, and also this subsequent agreement, if there was to be a situation in which the UK Government decided that it did not want to put in the level of expenditure that it previously had agreed to do so, would the Scottish Government then be compelled to fund that particular shortfall because of the fiscal agreement? Is that a question in relation to city deals? Yes. Well, if the UK Government was to depart from its commitments to contribute to city deals, I would consider that to be a breach of contract. The fiscal framework should be of no effect. The point that Mr MacMillan raised is that paragraph 57 is relevant in the sense that it makes reference to the fact that the capital borrowing limits are in addition to the Scottish Government's capital block grant, which the committee will be aware of is around £3 billion. That is an implicit part of our financial arrangement with the United Kingdom Government. If that was to change, that would be a very substantial departure from the existing financial arrangements of the United Kingdom, and I would have been entirely hostile to that approach. If the UK Government was to say to us in due course that we have decided that we are not going to fund the city deals any more, I think that that would be a breach of contract, and it would be politically unacceptable. I am reaching a piece of evidence that suggests to us that they welcome the agreement and that they hope that now that the devolution can be according to the proposed timetable in terms of welfare. The Joint Executives Checker Committee was set up as a temporary basis in order to run the tax powers devolved under the Scotland Act 2012, but it has fallen into disuse. Are there agreed terms of reference for the operation of the GEC and will these be revised to accommodate the fiscal framework agreement and will you commit to publishing the terms of reference and the outcomes of any meetings of the GEC? The GEC has certainly not fallen into, I think that it was disrepair or disrepute that Mr Gibson raised. Disuse, disuse, disuse. My apologies. The joint committee has had 10 meetings on the subject of the fiscal framework, so it might have been in abeyance, but it has certainly been very busy and very active in the past nine months. The Joint Executives Checker Committee's remit will be published as an annex to the technical document that will support the agreement that has been published already. I would expect the Joint Executives Checker Committee to, what the agreement sets out, is that the Joint Executives Checker Committee will take the financial decisions in relation to what the financial implications are. Consider the financial issues in relation to the devlation of welfare powers, but the Joint Ministerial Committee on Welfare will oversee the transfer of the welfare responsibilities, which, by their nature, will have to be a carefully managed process, given the dependence of individuals on particular benefits. Thank you, Deputy First Minister. Is this joint ministerial working group on welfare beyond the implementation phase? Can we see a similar role continuing for it? The joint ministerial group on welfare will have to supervise the arrangements for the devolution of welfare powers. There is not a timetable specified in the agreement about when that will be undertaken. Governments will wish to do that as swiftly as possible. Clearly, we have to be mindful of the operational issues that will be involved in ensuring that that happens and that happens in a fashion that does not disrupt or interrupt the access to payments and benefits by individuals within Scotland. Deputy First Minister, will there be an agreed terms of reference as they will be published and reported to Parliament? I am not sure if there is a published terms of reference, but let me check that point out. I am pretty sure that there will be a terms of reference for that group, but whether it is published or not, I am not certain, but I will endeavour to put that in the public domain if it is not there yet. Can the Deputy First Minister confirm that it is your position that all the intergovernmental arrangements that are set out in the fiscal framework will be covered in the written agreement between the Scottish Parliament and the Scottish Government that is currently being developed in relation to that? My objective is to reach a satisfactory agreement with Parliament on the agreement between the Government and the Parliament about intergovernmental activity. I was looking at some papers on that just last night, and I certainly hope that my objective is to get to an agreement that is acceptable to the committee in that respect. I think that you want to ask some questions on the fiscal commission. I want you to accept, Deputy First Minister, that the Scottish Fiscal Commission is an essential part of Parliament's ability to properly scrutinise both the framework and the Government expenditure more generally. The Scottish Fiscal Commission has a specified role in legislation to undertake a range of functions. It will be expanded and given more authority as a consequence of the agreement that has been reached, particularly in relation to the forecasting of tax of non-domestic rates of GDP in Scotland. The Fiscal Commission will have that responsibility. Mr Scott's question went into broader questions about scrutinising the words of public expenditure and public finances. That is an issue that I have been pressed on by the FFCC, but I do not believe that it is part of the role of the Fiscal Commission to undertake that activity. I believe that that is undertaken by Parliament and by Audit Scotland. That is why I asked the question, because I wondered if you did not accept that the Parliament is in a stronger institution, the FFCC and other parliamentary committees, if it has really effective independent analysis of the public finances. That is proven by Audit Scotland. Audit Scotland is the way in which the public audit committee of this Parliament works really effectively, and it only happens because Audit Scotland is quite independent of all of us. Do you think that that would equally and strongly apply to the FFCC in relation to the public finances and, indeed, to your own fiscal rules? I think that we are perhaps talking about cross purposes here. What I do not want the FFCC doing is what Audit Scotland has already constituted to do. Audit Scotland has a duty to look at the management of the public finances and it exercises those responsibilities. I do not want to see that being confused with the role of the FFCC, which is essential to give us now official independent forecasts of the taxes that will be raised in Scotland by what are called the smaller taxes and income tax and also non-demetic rates and GVP. I quite agree. I couldn't agree more. There's no benefit whatsoever to any of us having two public bodies mixed up in their position, but my understanding of the FFCC was that its recommendation was very different to that role of Audit Scotland. They were after the long-term financial sustainability of the public finances, which is very different from the role of the Scotland work that I see every year, and I have been on it for five years. That is not what Audit Scotland is going to do. I think that what we have got to be clear about is—I have had this discussion with the FFCC before, and I dare say that we will have it again at stage 3, depending on what provision—at stage 3 of the Scottish Fiscal Commission Bill, depending on what comes forward. I have asked the FFCC—some of its members, I don't think that it's a unanimous view of the FFCC—that what they have in mind in the scrutiny of fiscal rules—I am very clear about the fiscal rules in which I operate—number 1 is that I have to live within my means. I know that some people criticise me for having an underspend. There would be a queue of people to demand my head if I had an overspend, so an underspend to me is a consequence of not having an overspend. It's a rather symmetric equation. Fiscal rule number 1 is that, if we are undertaking capital borrowing under this agreement—we can't capital borrow from more than £450 million if we try to—we will be in breach of our fiscal rule. There is another fiscal rule that is quite easily tested and undertaken. There are a whole variety of different rules like that. I have an internal rule about the degree to which we will support long-term investment by revenue finance mechanisms, and that is clearly auditable and reported upon within the budget document on an annual basis. I think that that is what I have in my mind about what the fiscal rules are. I have asked the finance committee members if they have any other rules in mind in all of us to consider what shape that looks like. However, that is all tangible and transparent and able to be scrutinised by the Parliament. I have to confess that I remember other people criticising underspends in previous administrations, but there we are. That is what people are like, unfortunately, Mr Scott. I wish that I brought the official report from 2005, but there we are. One final question, if I may, presumably you would accept that the fiscal commission will have, because of the remarks that you made earlier about its role and responsibilities in relation to independent forecasting, does it have a greater call on public resources? Does it need to be augmented as a public body in terms of specialist staff, statisticians and others, or is the plan to boost up that organisation? Those issues are yet to be resolved in finalise, but I accept the principle of Mr Scott's question. There will have to be independent capacity within the Scottish Fiscal Commission to undertake what is going to be a very significant role, because essentially the Fiscal Commission will be responsible for a forecast of GDP, which will have a significant effect on the testing of the triggers for resource borrowing in relation to Scottish-only economic shock that Mr Chisholm questioned me about earlier, and also the forecasting of taxes on which public expenditure will be dependent. What I have in my mind for this is that one of the criticisms is that the Fiscal Commission has been quite resistant to undertaking the role of being the official forecasters. They have raised the fair question, which is if we have made the forecast, who challenges our forecast? What is in my mind, and what I am discussing with the Fiscal Commission, is that there will be a professional staff within the commission, a commission staff appointed by the commission, who will do the detailed work to formulate the forecast, and that will then be challenged by the members of the commission who are appointed by Parliament and who will be there to scrutinise the professional forecast that comes from individuals appointed for that purpose and appointed for that by the Fiscal Commission's agreement. I told the finance committee yesterday that I thought that it was unlikely that those arrangements could be in place credibly and dependably for the 2017-18 budget, because that process will have to be concluded by September 20. That is a tall order to ask the Fiscal Commission to be equipped to handle that in such a short timescale, but there will have to be some form of interim arrangement put in place for which I am sure that Parliament will understand for 2017-18, but I would want us to be in a position where that independent capacity was available as soon as possible thereafter to undertake those tasks. I suppose that I might just observe that Brian Ashcroft will not go away, he will still be independently forecasting. Yes, of course, and that will be as it should be, because that will give some wider context to the forecast of GDP that is produced by the Fiscal Commission. Perhaps I should also add that the agreement envisages significant interaction between the Scottish Fiscal Commission and the OBR, which is very important, given the fact that we have had quite significant deviations in forecast sub-out taxation that we believe could be raised in Scotland, which the OBR thought could be higher. In fact, what we will see in the current financial year is that the forecasts of the Scottish Government have been much closer to what would be envisaged. I just wondered how the comparability factors were decided upon. Was there much dispute about that, or was that fairly straightforward? They are essentially a product of the comparison of tax contributions that are generated by Scotland, and that essentially drives those factors. That was quite easy for VAT, as well as the other ones, was it? The issues around VAT are slightly uncertain, given the fact that we have yet to agree the methodology that will underpin all of that analysis. However, I felt that it was a reasonable basis on which we could conclude those issues. I would like to go back to where we started this conversation. It was very clear during the Smith commission that everyone involved felt that, in any kind of negotiation, both Governments should be treated as equal partners. I would just like your view on how that applies in the run-up to the negotiations that will come after the agreed period, during them and beyond that, and generally with the dealings of anything round about this entire process. I think that the Smith commission was very clear that there had to be a process entered into that would see a fiscal agreement arrived at by both Governments on a mutual basis and on an equal basis. That is exactly what has happened here. One of the issues that the First Minister and I were determined to ensure was the case that, when it came to review in 2022, the same dynamics existed for the Scottish Parliament and the Scottish Government. We will have that ability to secure agreement on an equal basis in 2022, just as we have been able to exercise that in line with the Smith commission's recommendations in formulating the fiscal framework. There are a couple of issues within the framework that I would feel that that would also apply to, and I would like some reassurance. One of them is the dispute resolution process. I notice that, as part of that, there is an element where it is a senior staff, as opposed to ministers who would try and sort out the dispute. Does that parity of esteem extend directly from ministers to senior staff who are acting on their behalf? The aim of the dispute resolution mechanisms is to essentially try to get to agreement as quickly as possible. In my experience, on inter-governmental disputes, the longer they go on, the more difficult they are to resolve and the more protracted they become. If they can be resolved at official level, if there could be some agreement in place that addresses that, that would be, in my view, very advantageous as a consequence. The focus on ensuring that early intervention is delivered to resolve disputes and to resolve them on an agreed basis is implicit in the dispute resolution mechanism. If one of my officials was trying to resolve a dispute with the UK Government counterpart, they would only be able to close that dispute down if they could come to me and say that they would manage to get something that they think is a reasonable level of agreement. If they cannot, they will just go up the ladder until it gets to ministers. If it gets to ministers, well, sometimes it is easier to resolve, sometimes it is more difficult to resolve, but the moral of the story for me is that the earlier we can resolve those questions, the better. The other thing that I was interested in was that no detriment to what has been referred to in relation to policy spillover effects. Can you give us a rough outline of how you would see that kind of discussion taking place? The whole question of policy spillovers is aimed to be addressed on an evidence base. We have tabulated within the agreement the categories of policy spillovers between direct effects and behavioural effects. We have specifically ruled out second round or indirect effects from the process, which I think is really very helpful. Direct effects will be much more tangible to determine. There will be sufficient data to inform an assessment of behavioural effects. Of course, as part of the process, we can draw on information from the OBR and the Scottish Fiscal Commission to try to help us to resolve any outstanding questions in that respect. I am just looking at some of the written evidence that Professor Muscatelli says that the main issue will be whether the two Governments will always agree what a direct effect is and what a behavioural effect is or what material represents in the context of behavioural effects. Do you think that potentially there are some issues there that might become quite contentious? There could be, because I think that the fact that we have ruled out second round effects or indirect effects helps this area quite significantly because it clears away a lot of territory that could be the subject of speculation around areas that may result in policy spillovers. There are some direct effects that will be really quite tangible if the Scottish Government expands access to a particular benefit, which is a passport benefit in the United Kingdom, and it leads to a disproportionate upsurge in DWP claims. I think that that will be pretty demonstrable, and that is why I cite evidence as part of that process. There will be examples where it is possible to put together evidence that will substantiate a position. Both Governments have entered into this in good faith, and we should be aware of the potential implications of any of our decisions as we take them and how they may affect other parts of the United Kingdom. On that area, in paragraph 50 of the agreement on behavioural effects, in particular, it talks about behavioural effects that impact tax revenue can be taken into account where in exceptional circumstances they are demonstrated to be material. Who decides what the exceptional circumstances are? That would be decided by agreement between the two Governments. Essentially, the reading of paragraph 50 could only be read in a fashion to say that that is a very high bar that would be material and demonstrable exceptional. That is not an everyday occurrence, it is a very rare occasion on which that would happen, so there would have to be an acceptance of the exceptional nature of circumstances that would give rise to such a claim, and that would have to be agreed between both Governments. If there was not an agreement about whether an exceptional circumstance or material change was in play in clause 52, any decision or transfer relating to spill over effect must be jointly agreed by both Governments. Without a joint agreement, no transfer or decision will be made. Is there any development on any work being carried out in and around how we could reduce disputes in and around that high bar and how that would be described by that dispute resolution? Is that something that has been developed? There is a terms of understanding about whether a situation would escalate or not, whether it would be resolved at an earlier stage or not. What development is being carried out there between the two Governments? In relation to the resolution of those questions, my answer to Linda Fabiani was designed to illustrate through the dispute resolution mechanism how the dispute resolution mechanism does not automatically involve the issues that have been escalated to the Prime Minister and the First Minister as the first port of call. There is a gradation of involvement, the presumption being that we should try to resolve those issues at official level as quickly as we possibly can do to avoid them becoming issues of great significance. The presumption in the agreement is to try to resolve those matters early. The second issue is about the wording of paragraph 50. Paragraph 50 has been worded to essentially create that very high bar, so it would not be a rudimentary issue that would be dealt with. From a previous life, I understand the principle agreement of a head's agreement. That is why I am concentrating a bit on the detail. At what I am asking is, is there a process that has been developed that ensures that if you have a dispute that has got to be clearly defined, it has got to be within a scale? If you fail to agree early on in that process, what takes you to the next? I am just wondering if that detail has been left out, or indeed, if it is necessary between— I think that that last point is the key point. There will be no further definition of what material means. You can declare that yourself if you wish. We have to agree what is material. I am satisfied with that approach, because I find it very difficult to agree long-term parameters of what we decide to be material, demonstrable or exceptional. I think that we will know it when we see it, and we will have to make a judgment about what we believe we need to argue for, given the development of certain circumstances. On the issue of welfare, Professor Spicker, in his submission, points out that the framework document states that the Governments have agreed that any new benefits or discretionary payments introduced by the Scottish Government must provide additional income for a recipient and not result in automatic offsetting by the UK Government in their entitlement anywhere else in the UK benefits system. He certainly believes, as do others, that it is not quite sure yet how that effect is to be achieved, and the situation is a bit unclear. I wonder if the Deputy First Minister could provide some clarity on that question. I think that the section gives all of the necessary clarity. It essentially makes the point that was crucial in the Smith commission deliberations that if the Scottish Government was enhancing or creating an enhancing existing benefit or creating a new benefit, the impact of that on an individual could not be clawed back by any other intervention of the UK system and its interaction. That puts the onus on the United Kingdom Government to ensure that it does not act in a fashion that potentially contradicts the impact of a benefit change that the Scottish Government might decide to do. Professor Spicker is concerned about how that will work in practice. He believes that, as things stand, that if the Scottish Government were to introduce a top-up to the state pension, it might reduce entitlement to pension credit and housing benefit. Is work on-going at the moment to ensure that those systems will be in place when they need to be? Clearly, the clause in the fiscal framework, which is simply taking forward the conclusions of the Smith commission at clause 55 in the Smith commission report, would have to be taken into account by the UK Government in any exercise of its reserve responsibilities to ensure that the value of that change delivered by the Scottish Government was protected for an individual involved. We are not at that point yet, but if we go to that point, that is what would be required by virtue of this agreement. The child poverty action group in its submission today on topping up reserved benefits is asking, is it feasible that, if the Scottish Government decided to top up a reserved benefit such as child benefit or child tax credit, it might ask that that top-up be administered by the UK Government in return for a reasonable and proportionate administrative charge? Is that something that has been looked at? Certainly, I am sure that that would be a possibility to be considered, but no decisions have been made and no consideration has been given to that question. I have one other area that I would like to chat about, which is the sole convention issue, because in paragraph 32 of the supplementary legislative consent motion, a suggestion from the Scottish Government that the sole convention could be more fully implemented than has already happened. There is no real explanation beyond that about what is meant by it, so I would like to understand why that was there. What we had hoped for was that the Scotland bill would contain on the face of the bill a stronger and more comprehensive explanation of what is involved in the sole convention, what happens, what is required and what the obligation is to simply preserve the arrangement or to put into statute the arrangements that have existed as a convention since the commitment was given by Lord Sewell in the House of Lords in 1997. What the bill does is essentially restate the words used by Lord Sewell at that time, but we would have preferred there to be a greater description of what is involved in the process so that the interests of the Scottish Parliament were more emphatically protected by statute on an on-going basis. The UK Government has chosen not to do so. I assume that that would have also provided more clarity in what issues were in play under an LCM process in which were not. Essentially that approach would give a more visible statutory anchoring to the process, and therefore, because it was a factor in statute, I think that it creates greater obligation to be more mindful of the implications of the sole convention. Any hint from the UK Government at this stage that might be prepared to... My judgment is that the UK Government essentially believes that the Scotland bill issues are now complete. Are you seeing the Secretary of State's Government? I came in late last night as a supply from the Secretary of State. I would be surprised if the UK Government is... On the wider question about the legislative consent memorandum, the legislative consent memorandum is worded in a fashion to say to the committee that we and to Parliament, the Scottish Government has not got all that it wanted out of the Scotland bill. We think that there's a number of other provisions where the Scotland bill could have been strengthened and the sole provisions is one of those areas. But stepping back from it, looking at the Scotland bill and the fiscal framework in the round, the Government has taken the view that as it's currently proposed, the Scotland bill is worthy of legislative consent by Parliament. Of course, there has been quite a significant enhancement of the Scotland bill since it started its parliamentary journey in the House of Commons some time ago. We welcome the changes that have been made to the bill by the United Kingdom Government. It has made it easier for the Scottish Government to recommend the bill for legislative consent. One last request of you. There's been a number of areas where there's obviously on-going discussion between the Treasury and the UK Government and the Scottish Government across a range of areas. I mentioned some of them earlier in a contribution that I made myself. I think that it would be useful if you could write to us and tell us what you think, what that menu of remaining areas is that this committee needs to either, if it's reconstituted after the election or recommend to a successor committee, what areas it needs to be aware of on the on-going process over the coming years. On that question, I'm happy to do that, convener. I'll give that matter some thought, but the Parliament itself needs to consider how the implementation of the Scotland bill is overseen. That's obviously an issue for the next parliamentary term to consider, because there will be very significant issues around the implementation of all of those provisions that will require extensive parliamentary scrutiny. Obviously, that issue will be with Parliament to resolve. Okay. Thank you very much for coming along and giving us evidence to date. We're most grateful. I now suspend this meeting until 10.25. Thank you very much. Okay. Colleagues, welcome to our second panel of witnesses this morning. We have with us today the right hon. David Medell, the Secretary of State for Scotland, the right hon. Greg Hans, the chief secretary of the Treasury, and the official supporting member is Francesca Vosovska, who's the director of the Scotland office. I've got that right, Francesca. We've got quite a number of questions that we want to get through, so I ask my colleagues to keep the questions as tight as we can and say the same to our witnesses this morning. Two secretaries, do you want to make an opening statement to begin this process? Mr Crawford, thank you very much for accommodating us this morning, and thank you particularly for accommodating me by video link last week. I'm pleased to be here in person and not down on the floor as I was last week. Mr Hans has given an opening statement of over an hour before your colleagues in the finance committee, including Mr MacDonald, who is doubling up this morning. I just wanted to give you a very short update on where the bill is within the parliamentary process. On Monday, the bill completed its report stage in the House of Lords. At that stage, we were able to make the amendments in relation to the borrowing powers that came forth from the fiscal framework. We now await the Parliament's consideration of the legislative consent motion, of which your committee and its report will play a very important part in the Parliament coming to its deliberation. However, I want to put on record that I very much welcome the fact that the Scottish Government in its proposal recommended that an LCM is agreed. Subject to the Parliament agreeing the LCM, the bill will proceed to third reading in the House of Lords. At that stage, there would only be proposals for some technical amendments agreed with the Scottish Government and also a proposal to include powers in relation to irresponsible parking, which is a matter that the Parliament is taking forward. The bill would then need to come back to the House of Commons for confirmation of those amendments that have been made in the Lords. I do not anticipate that, if that was the case, there would be any significant challenge to those amendments, and then the bill would proceed to royal ascent. I have set out in my letter to you of yesterday a timetable in relation to implementation of specific parts of the bill, which was one of the issues that we discussed in our previous evidence session. You will be aware that the Deputy First Minister here has said quite clearly that he wants to publish all of the key documents as far as the discussions that preceded the Fiscal Framework Agreement prior to the dissolution of the Scottish Parliament in order to scrutiny by the committee and by the wider Parliament. Do you support the publication of those documents? First of all, Mr Chairman, let me thank you for inviting me this morning, and I will not make a statement because the Secretary of State has already made one, but I thank you for the opportunity to come along and answer questions about the fiscal framework. I think that the first thing to say is that there already is a lot of documentation out there. Obviously, there is the framework itself, the technical annex, which will follow, and also from the 10 meetings of the Joint Exchequer Committee. There are the communicates from those as well. There has been a reasonable amount of documentation there to be able to see the progress and see the issues that have been debated. However, the two Governments agreed not to have a constant running commentary on the negotiations, and the second area that I would say is to be consistent with previous negotiations. I think that it is very important for the two Governments to be able to negotiate in a space where they have confidence that the papers or matters under discussion will not be released in that way. Given the fact that this is not the first and it certainly will not be the last negotiation between the two Governments, I think that it is important that the papers remain confidential. I think that there has been a lot of commentary out there. I think that I am very happy to talk about things like the different models that have been proposed and so on. However, I think that the actual papers would, in the long run, be unhelpful to release those. The committee, all the way through the process, has understood the need for space to be made available for the two Governments to be able to discuss those matters. We understood that there should not be a run commentary. I think that we are pretty patient on it, as far as that process is concerned. However, there is now an agreement in place. Certainly, in terms of the key documentation of that, you have laid out some of the broad areas of documentation. However, there is a lot of the process that allowed that final outcome to be arrived at. It is something that this committee has never had the opportunity to see that detail. Would you object to that level of detail being published? I think that we would certainly like to see it published. I think that it would be very unhelpful for the integrity of inter-governmental negotiations in this area. Do not forget that the UK Government does negotiations with other devolved administrations. The most important thing now is to start talking about how the powers will be deployed rather than how we got to the agreement. The agreement is in place. Both Governments are happy with the agreement. Both Governments have said that this is a major step forward. Both Governments feel that the agreement can be defended, justified to their parliaments, is fair on taxpayers in Scotland, fair on taxpayers in the rest of the UK. Now is the time to move forward in terms of how we all debate how those powers should be used. That is not just about an agreement between two Governments. This is about the Scottish Parliament being able to clearly understand what has been agreed. We have, as our responsibility, is to publish, to give our recommendation to whether there should be a legislative consent motion passed in the Scottish Parliament. We are still to decide that as a committee. We will decide that in the course of the next week or two. In those circumstances, it would aid us significantly to be able to see those key documents before we come to a situation where we have to sign off our report from this committee. I ask you again, in that light, would you object to those key documents being published? I stick to my position, Mr Crawford. If you are asking whether you need more information to understand what has been agreed, I would think that that is essential to be able to understand what has been agreed. It is all there in the agreement, in the fiscal framework. I do not think that one needs to see the papers that will be flying around between the two Governments to understand what has been agreed and what is in front of us in terms of the fiscal framework. Ultimately, what has been agreed is in the agreement. The slight problem that I have with that line of argument has been in the agreement, but we are back here in five years' time. The point that the convener is rightly making about publishing information that would allow the committee to scrutinise what has been agreed is something that we will need for five years' time hence anyway. The one thing that the Deputy First Minister said this morning is that you are committed—you might want to confirm this from the UK Government's point of view—to providing detailed evidence on an annual basis as to how this fiscal framework is going to work, because we are all going to be right around the same room in the same table discussing it again in five years' time. Does that support the point that the convener is making about publishing the data and the full information now? Let me try to deal with the two parts of that. I think that in terms of the information on the workings of the fiscal framework, yes, Smith states that there will be an annual report done on the working of the fiscal framework. That is correct. In terms of the review in five years' time, I think that we are forgetting two important things here. First is that it will be an independent review, and that is written into the agreement. There will be an independent report into the workings of block grant adjustment. That is followed by a review of the whole fiscal framework. The other thing is that by that point it will be informed by five years' experience of the fiscal framework. Whereas today we can debate hypotheticals and different models and how different models might perform in the future and perhaps did perform or would have performed in the past, we are dealing with real-life experience over five years. That is why I have a lot of confidence in the ability of that independent review to come up with a solution that will suit both Governments. Ultimately, both Governments will have to agree in terms of the precise model that is taken forward from that time. I understand that. We are interested in what suits parliaments, not so much Governments, because that is what we are here to do, to scrutinise what you are actually doing. Conveners are asking you to give us information to help us to do that. I hear what you say on that. Can you clarify, since you mentioned the models, my understanding of reading clause 23 of the agreement is that it says that it will be open to either Government to propose changes to the fiscal framework when it goes on to make some other points. The Deputy First Minister said an hour ago that we now have a Treasury-run model that delivers no financial detriment. Is that fair? Is the model that is now in place the Treasury-run model, but what it does, in effect, is, as we know clearly, because that is what the agreement says, that there is no financial detriment to the Scottish Government nor to the Scottish Parliament? Let me try and answer the different parts of that question. I mean, going back to the original point about documentation, I mean, I think that if the committee has got questions about how the fiscal framework will work, then I think that those questions could be addressed to both Governments without the need to have access to those papers. I think that that is a genuine thing. I cannot really speak on behalf of the Deputy First Minister, but I think that if people have questions to me as to what the Treasury view is, how the fiscal framework works, then I would be happy to answer those. In terms of going forward, I mean, I think that the most important thing is that, at all points, we have proposed things that have been consistent with Smith, and that, I think, has been incredibly important in this whole process to be correct and aligned with Smith. In terms of how our model works, or how the agreed model works, the comparability model, it works in a very similar way to Barnett. You take the change in the comparable UK tax, you multiply it by a population share for Scotland, and then you multiply it by a comparability factor, very similar to how Barnett works. That comparability factor takes what today is paid by the average person in Scotland and those particular taxes. For income tax, that percentage is 89 per cent, because the average Scott pays 89 per cent of what the average UK taxpayer pays in income tax, and that rises up to, I think, the aggregates levy, for example, as 189 per cent. So all of the different comparability factors, rather like Barnett on spending, reflect the amount of tax paid by Scots in those areas. Can I ask one final question, convener? You said earlier on, Chief Secretary, that you didn't want to publish the information because you also negotiated with other areas of the UK, but wouldn't it be fair to say that our Welsh colleagues and our Northern Irish colleagues, never mind Metropolitan Manchester and the other things that you're doing within England, be very keen to see this kind of information, because you are effectively rolling negotiations on lots of aspects of finance, and all these formulas are very important for all the parts of nations of the United Kingdom. Never mind just the Treasury and the Scottish Parliament. Again, I think that the most important thing is the integrity of inter-governmental negotiations is the most important thing to preserve, and I think that that's in the best interests of both Governments in trying to reach a deal. I'm not going to let you in any secrets, not being always straightforward to get to this fiscal framework agreement. We've had 10 meetings over a period of, I think, about nine months, and I wouldn't want to do anything that would make it any more difficult to get to that sort of an agreement. Thank you. I need to tease this out just a bit more, because there will be papers that have been jointly put together by both the Treasury and the Scottish Government. That's inevitable as part of a process that's been going on. If I got the sense of what the Deputy First Minister was telling us earlier, he would be content for those sort of papers to be published now. He didn't say that, but that's the intent, I'm sure, behind what he said. In those circumstances, if the Scottish Government wanted to publish, would you object to those papers being published? I think that you're asking me, Ms Crawford, like a hypothetical situation where it would be difficult for me to comment. I think that I've given my view clearly on what I think the merits or demerits of publishing the papers in the negotiations have been, and I'll stick to that. That concerns me, because it's not just about this committee. There are also people who have given evidence to us from across Scotland over the period of the past months. Experts have come and given us guidance on what to do, and we effectively will be denying not just this committee but the people who have been discussing issues with this committee and the experts who have been involved with access to the information to enable them to decide whether the deal was the appropriate deal for Scotland and, in the longer term, what the appropriate arrangements might be. We start off from a very difficult position. Duncan, do you want to come in? I apologise, chief secretary, for returning to this question, because this is a complete departure from the narrative that we have had from the Secretary of State for Scotland and the Deputy First Minister of Scotland. We, as a committee, have been very patient, as the convener said, in respect to not wishing to have a running commentary about the negotiation, but the heads of agreement have been signed. We have fully expected, until today, that we would have sight of those key documents, as promised. We are entering a new era in moving on from devolution into shared powers. I am sure that the Secretary of State and the briefing papers that you had have indicated how important that we believe that the shared information is essential to the success and sustainability of those new shared powers. Today, it is clear, chief secretary, that you are putting an embargo on the information that this Parliament and its committees can have and that it is not acceptable. I hope—I do not expect you to change my mind here right now. I do not expect that, but I expect you to go back and seriously reflect about what this Parliament and its committee needs in terms of evaluating the workings of the Government and the context that we find ourselves in at this point to make an appropriate recommendation to this Parliament. Currently, the information that we have is not acceptable. We need to get what we expected. If we do not get what we expected, it is not acceptable in any manner of means. Thank you. I can just try to answer that in three ways. First of all, in terms of whatever promises that have been made to this committee have not been promises made by me and I have been asked by the Scottish Affairs Committee and the House of Commons also. That is not a promise that I have made. Secondly, I am not aware that documentation in this kind of negotiation has been published before. If you were to tell me that documentation, joint papers, Scottish rate of income tax negotiations have been published, then I am all ears. The third thing, and I think most importantly, is moving on from here. I have stated my willingness on behalf of the UK Government to give you whatever information is needed to understand the workings of the fiscal framework, the agreement that has been signed and agreed, and that is surely the most important thing, is understanding how the fiscal framework will actually operate in practice. Again, the most important thing that we can move on to now is having the debate about the use of the powers and how those powers would work. I am very happy to answer any questions on how the fiscal framework has agreed between the two Governments will work. We are not going to make any progress in that. I think that it is disappointing that that is the position that the Treasury has taken on the publication of material that this Parliament expects and I am sure that other committees would find very useful, but let us move on from that. Given the publication of the agreement between the two Governments, what will be in place for the next five years? Could you, chief secretary, take us through what the Treasury's understanding is of the review process and what would happen if an agreement is reached by the end of the financial year 2021-22? Possibly, more importantly, what would happen if no agreement is reached on what is to follow after the five-year period by the end of the financial year 2021-22? Okay, thank you. Let me talk a little bit about that. The review process, there are really two parts to the review process. First of all, during the course of—and this is all in the agreement—and signed up to, obviously, by both Governments who are happy with this process. During 2021, to report by the end of 2021, there will be a report on the block grant adjustment mechanism, which will be an independent report done by a person or persons or bodies, which will be agreed by the two Governments. I have got a lot of confidence in that process and, finally, the right people or bodies to do that independent report. There will then be early in 2022 a review of the whole of the fiscal framework commissioned by the two Governments, or worked on, I should say, between the two Governments, which will inform that whole process. Going beyond that, there is no default option. There is no prejudice in favour of one model or another, or whatever other new models may come along. It is no secret that a variety of models have been looked at in the process over the last nine to ten months. However, there is genuinely no prejudice for or against any particular model this far out in advance. Probably the most important thing, though, is that that process will be informed by real experience over those five years in a way that is impossible to have today. It is impossible for us to—I have seen different numbers flying around, and I have seen different graphs produced by different academics and different outside bodies. When we get to 2021-22, there will be real experience out there, which I think will make the process very much easier. Thank you. That is very clear. I do not think that anybody was suggesting any different, but given that there will be five years of experience that you have made a great play of just there in place. As I said, we reached the independent review and then an agreement between the two Governments. If that agreement is not reached at that point, I presume that the model that is in place for those five years will carry on. As I said, Ms Crawford, there is no prejudice in favour or against any particular model. Most importantly, I am confident that the two Governments will come to an agreement. We have done it time and again. We did it over the Scottish rate of income tax, we have just done it over the fiscal framework. Informed by an independent review, informed by five years of experience, I am confident and upbeat that the two Governments will be able to have the will to make that agreement when that time comes. I am sure that we all would hope that that is the case, and we would expect that to be the case, but I am not sure why you are having a difficulty here. The Deputy First Minister was very clear this morning that, effectively in his view, the Scottish Government's view, the no detriment model that is in place for the next five years would carry on until such times as an agreement was made. When I asked the Secretary of State for Scotland last week, is it your understanding that the no detriment arrangement will carry on after that period, on after that period, he said that he confirmed that no mechanism would be imposed at the end of that period without agreement? Therefore, if there is no agreement, it must surely be the case—I do not know why you are having a difficulty here—that the model that is currently in place in no detriment model, which is agreed for the next five years, will carry on until such times as there is an agreement between the two Governments. Is not that the case? Well, let me try to answer both parts of that, because the model that has been agreed for the next five years is the comparability model before the transitional period should Scotland's population grow differently to that in the rest of the UK. It will be reconciled to what PCID would have delivered, so that is what, if you like the status quo, is. Secondly, going into that independent review, there is no prejudice. There is no default option in favour of the continuation of any particular model going into that. Again, I just have confidence that the Governments will be able to deal with that when we get there informed by a lot of experience and informed by an independent review. That is entirely the right and proper way for that to proceed. Sorry, chief secretary, but I do not think that anyone suggested that there is a particular model post the agreement that the position would be. That is to be agreed. What I am trying to understand is why you are having a difficulty—I was trying to ask what I thought was a straightforward question—if there is no agreement. There cannot be nothing happens after the end of March 2022. There must be something in place—there must be a fiscal framework that underpins all the transfer of powers, income tax and all the other stuff with welfare that has been agreed in the Scotland bill. Therefore, something must be in place if it is not to carry on the model that has already been agreed—the comparability model with the no-determinate effect that equals the per capita indexation reduction model. What is it that will replace it? As an unprejudiced position, there will be no default indexation model. Both Governments are clear on that and that is part of the agreement that we will put that to the independent review report and the review process at the time when we get there. I remain confident that John Swinney or the UK Government's ability to come to those agreements is the most important thing. I am not questioning your confidence or John Swinney's confidence or whoever is in those posts at that time. It must be extremely easy for you to say that if there is no agreement in place by my end of March 2022, the model that is being used at that point will carry on until such time as both Governments agree. That surely must be the case. You cannot have nothing in place at that point. If it is not the model that is already in place, what is it? If you are saying that it is not that, what is it? The model that will be in place over those years is the comparability model, subject to a reconciliation with PCI-D. That is the model that is in place between now and the review for the transitional period. Beyond that, there is genuinely no prejudice, no preconception of which model will be used beyond that. That is the purpose of the independent report and the review process that both Governments will do in those years. I cannot understand why the cheap secret treasure cannot answer an absolutely straightforward question. What would happen in the event of a no agreement being reached at that point? Let's see if Alec Johnson can get there, and I'll come to Mark McDonnell. I was just going to say that my view is that the position that has been put forward with Stuart Maxwell would surely be a position that would allow whichever side felt themselves to be in a position of strength by not agreeing at that point five years in the future. It would simply use the opportunity to default in the negotiations to the position that benefited them. Surely, if there is going to be serious negotiation and a serious settlement, then it is essential that we keep the area beyond that blank and do not commit to any default position that is suggested by Stuart Maxwell. I think that that is again a reasonable point of view on that. That is why we have agreed a no prejudice on the model. The other thing that I would say, Mr Crawford, is that, given the fact that both Governments will commission the independent review and by definition will be happy with that process, because A, that is what we have agreed now, and B, that will be the process that will be agreed when we set up this independent review, when the independent review is established in the year 2021. I think that it will be very hard for either Government to go against the centrality and the substance of that independent review. There may be, and in any way trying to speculate how this independent review might happen, there may be one or two things where the two Governments will sit around and discuss. In terms of the centrality of the recommendations, I think that it will be very hard for either of the Governments, given the fact that independent review will have the confidence that the two Governments will be based on real-life experience over five years. For either of the two Governments to say, I am going to completely ignore the independent review and, instead, I am going to carry on in one way or the other, impose something one way or the other, I think would be extremely difficult. That is why I have got really confidence in the ability of the two Governments, because we have done it before. We have done it time and again to find agreements in these bases and move forward on that basis. Do you interpret the agreement as being that nothing will happen until the review process kicks in, or do you perceive the situation being one in which a common view may emerge in the intervening five years? In terms of whether the fiscal framework could be changed, well, I think that if both Governments thought that there were serious issues and both Governments came to an agreement, I do not see why not that there should not be the ability to, effectively, in some way or another, temper the effects. Convener, I am keen for this not to feel too much like Groundhog Day, so I just want to wind back ever so slightly. You mentioned, both at Finance Committee and here, that the Treasury went in with a position that met the recommendations of the Smith commission, but your model has been adjusted to give effect to that which the Scottish Government wanted, and you are still telling us that the outcome meets the recommendation of the Smith commission. I am just wondering how those two positions can possibly be reconciled. Yes, well, let me try and deal with that, because the Smith principles, as laid out particularly in paragraph 95 and 94.95, are subject to differing interpretations. In my view, the Smith principles are clear. Nevertheless, again, this is a negotiation between two Governments and compromises get made. The funding model is essentially a compromise between the two Governments, both of us think that it fulfills Smith and both of us think that we can defend the model, the arrangements, the fiscal framework that has been signed and agreed. I just want to go back to the point that Alex Johnson was making there, which I think is a find difficult to fathom in the sense that, as we discussed this at Finance, right now, if we were in a position where there was no agreement, the simple fact is that the Scottish Government would be placing a recommendation that we do not agree a legislative consent motion. Six years hence from now, we will be in a position where powers will have been in place, we will have been exercised, people will be receiving welfare payments, etc. We cannot have a situation where there is essentially a void at the end of that process. What we are not saying, and I do not think that the questioning from Stuart Maxwell or from myself this morning at Finance was about saying what happens after the review. We are not looking for that, because the review will take place. What we are pointing out is that there is a perfectly legitimate hypothetical scenario in which the Governments are unable to come to an agreement after the outcome of that review. What we need to have some assurance of is that there will be something in place post-March 2022, during which time, undoubtedly, negotiations will continue. The point is that, for those individuals who are relying on receipt of benefit or other services or payment of taxation, which is underpinned by the fiscal framework, they need to have confidence and assurance that there will be something in place beyond 2022. All that we are asking is that, if at that point in 2022 there needs to be on-going negotiation but there has to be something in place, is it simply that the transitional model would continue for that period until such time as an agreement could be arrived at? Again, Ms Crawford, there would be no prejudice on the use of the model going into that independent review process. Both Governments are satisfied with the arrangements that we have signed up to in the fiscal framework. If you will forgive me, you are conflating two different things here. Let us park the issue of what the review comes up with. I appreciate no prejudice, but it is for the review to determine. The point is that, if there is disagreement on what the review comes up with, that cannot be resolved in time for the end of March 2022, something has to be there as a continuation, as a bridging mechanism, in order to ensure that the fiscal framework and the powers can continue to be exercised until such time as whatever the outcome of the review is, results in an agreement between the Governments. I am not asking you to prejudice the review or the outcome of the review or anything like that, I am simply asking you to confirm to us that, in that instance, there would be something in place and would that something be the continuation of the transitional model, which is what the Deputy First Minister has said is his interpretation of what would happen? Well, okay, it is clear that there will be no default model, there will be no prejudice going into that process, and the independent reporter followed by the review, that process is also clear, written into the agreement, and this is the agreement signed up by the Governments. I am not asking about the independent review, okay? I am not asking about the independent review, I am just asking about what it is about. I think that independent review is a crucial part of that process, though. I think that we have got as far as we can in that area. Listen, I just want to ask a couple of questions, just about some of the detail about the independent adviser process. We are assuming, because from what we have heard so far, Chief Secretary, that however the independent advisers, whatever the body is, however it is made up, that that will be agreed jointly between the Treasury and the Scottish Government. I also asked the Deputy First Minister on that area again at the review on the independent report when it is published, so that the Parliament here has a chance to examine its detail and scrutinise it at the appropriate time. As it is published, and both Governments get a copy, it can be of some assurance that the Parliament will get a copy at that time as well. When the independent report is produced, which will go to both Governments to enable Parliament here to scrutinise it properly, will the Parliament here be provided with a copy of that independent report at the same time as the Governments? I know that it is looking a bit further forward, but it is quite important to us. Can I write you on that? It is slightly difficult for me to predict, because obviously the two Governments in the future would have to agree the basis of the independent review and the report. I do not want to, in any way, prejudice the procedure that might be used by future Governments in terms of what they would do with that report, but can I just think about that and write you on that? If it is going to be published then, obviously, in these circumstances, if you take that and take out my rate test, that would be helpful. Malcolm, I think that you had some questions. I want to go into the spillover effect, but as someone who congratulated the Scottish Government on First Minister's questions last week for their part in this, can I thank the UK Government for being willing to move from some of its original positions and being part of a document that is, in many ways, very impressive? I suppose that the one area that I wanted to home in on, where I thought that it might benefit from more clarity and perhaps less ambiguity, is in relation to the spillover effects. Just to brief quotes, Professor Muscatelli says that the main issue will be whether the two Governments will always agree what a direct effect is and what a behavioural effect is, or what material represents in the context of behavioural effects. Then David Phillips, as you know from the IFS, along with the two David professors that Stirling says, the agreement provides no indication as to what level of financial spillover effect might be considered material, so that will be entirely a matter for each Government to decide on a case-by-case basis that could open the door to further dispute. In the next five years, it seems to me that this might be one area where there is the most likelihood of some disagreement. I wonder if you could give any more detail about what the terms direct behavioural material are, and there is a reference to other second hand as well in the IFS school framework. Thank you, Mr Chisall. Let me try to explain the three kinds of effects. There are the direct effects, behavioural and what are called the second round effects. The second round effects will be entirely discounted, which, if you like, are purely speculative as to connecting different things that may have no causality between them at all. The direct effects are pretty clear. This is where, for example, one Government or the other were to change something like, say, a welfare devolved benefit in Scotland that would have an impact on a reserved benefit run by the UK Government or on a reserved tax run by the UK Government, et cetera. Where that would be predictable, easily quantifiable and so on, those are the direct effects that will definitely come under the agreement on spillover effects. The questions revolve around the behavioural impact. Here, I am clear, and I think that John Swinney is clear as well, that what we are talking about here is something that will be generally pretty exceptional and likely to have been unforeseen. At the end of the day, we want to have an element of flexibility. We do want to have the ability of the Scottish Government to set its own tax rates. That, if you like, is the purpose behind income tax devolution. We want to make sure that the behavioural impact is not something that will effectively negate the purpose of doing the tax devolution in the first place. If the Scottish Government were to make a decision on tax, which would have an impact in the rest of the UK, we would in no way want to prevent that happening merely because it might have a behavioural impact. I think that that would be used in exceptional cases. It would need to be shown that it is a material impact as well, and then we would use an appropriate mechanism to deal with it, but it would have to be agreed by the two Governments. It is, if you like, a kind of a backstop position to look at something that has perhaps not been foreseen as a way for the two Governments to assess that impact. However, I see that that is being used in fairly exceptional cases. Will you be able to give an example of where it might be used? It is difficult to speculate, but it has to be material and it has to have been exceptional and probably unforeseen. It is difficult to speculate on what might be an unforeseen impact, because, by definition, it is unforeseen. Rob Gibson, I think that you had some questions. Indeed, I do. Thank you. Good morning, Chief Secretary. The Joint Checker Committee has been very busy, but it is going to have new powers to take forward matters relating to the fiscal framework. Sam H, the Scottish Association of Mental Health, was concerned that, instead, they were pleased to have reached an agreement and that the powers agreed to the Scotland Bill can now be devolved according to the proposed timetable. The question about welfare and the way in which that will work out is something that they are keen to see that the framework will work. Are there agreed terms of reference for the operation of the GEC? I said that the Scottish Association of Mental Health is just a paper that we have received from them, and they are keen to see that the proposed timetable for the devolution process works out. I will say an initial remark, Mr Gibson, because I jointly chair that committee along with Alex Neil. It has been agreed that that committee would be the conduit through which the decisions in relation to timing of welfare devolution will take place. The committee has terms of reference that are available if you do not already have them, and I will share them with you, but, as you alluded to, there will need to be some enhancement of those terms. I am committed to the transparency of that process. As I said in my remarks last week, what both Governments absolutely agreed to is that the prime concern relates with the end user in relation to the welfare changes. We cannot have a process that, in any way, prejudices the end user or leaves the end user between the two Governments. We are absolutely clear that that will be what determines it. From our perspective, there is not any impediment on a timescale, but it will be an agreed timescale. What I should also say—I think that it is worth putting on the record—is that there have been extensive engagement between officials in the two Governments on those areas. There have been secondments from the UK Government into the Scottish Government. At that official level, that process is working extremely well. I welcomed Mr Neil's announcement this week, but, obviously, we have a long way to go in understanding further detail of what measures might be brought forward and what the transitional measures will require to be. The terms of reference are available. That is fine. What about the outcomes of any meetings of the JEC? Are they going to be made available? At the moment, that is not the case, because it is a ministerial group. I am quite happy to commit to engage with what we have done, in fact, because Mr Neil and I, with the third sector in Scotland, co-chaired or co-met, however one wants to put it, following one of the meetings here in the Scottish Parliament, with various representatives from the third sector in Scotland. I think that we would want to make sure that liaison with the third sector in Scotland and other representatives' end-users was a part of the process that we followed. In order to scrutinise what Mr Mundell does, the idea of having some idea of what the outcomes of those meetings are would be helpful to the Parliament. I think that both Mr Neil, Ms Cunningham and Mr Swinney, who are the Scottish Government representatives, have been available before committees in the Parliament. I am quite happy to continue to make myself available to the Parliament in relation to the work of that committee. Thank you for that. The agreement notes on an on-going role for the JEC in overseeing the fiscal framework. It is a similar on-going role envisaged for the joint ministerial working group on welfare beyond the implementation phase. I do not want to pre-empt the decision of the group. Obviously, where the powers that are being devolved allow joint working on reserved benefits, for example, on the topping up of benefits, I think that there would be value in the continued existence of the group beyond the simple implementation of the powers that will be devolved exclusively to the Scottish Parliament. That is my view. I do not know whether it would be a view shared by the Scottish Government, but I certainly think that there would be a benefit of that on-going process, because what was agreed, essentially, in the Smith commission, was that certain parts of welfare would be a shared space and would be a shared space for an indefinite period. Does the UK Government have agreement that there should be terms of references published for the joint ministerial working group? Will those be able to be reported to Parliament once they are published? Are they on-going? There are terms of reference, as I have said now. What I am happy to commit to is that our next meeting of the group, which will probably be within the next Scottish Parliament because of the period, should take that issue forward, because I think that it is a perfectly legitimate issue and that the revised terms would be published. Malcolm, do you want to read something on baseline adjustment, then I am going to go to Stuart McMillan. In terms of the baseline adjustment for the first year, my understanding is that that will be based on the OBR predictions of tax for the year 1516. It is really just to ask when will the real tax receipts, when are they published, when would they be published? The baseline, presumably, will become the actual tax receipts. In terms of the first year tax adjustment, so it will be based on the OBR's predictions for 2015-16, is that right? It will depend on which tax. Income tax will be done on the out-turn, will be what it is going to be done on, will be looking back at the out-turn of the year before devolution. It will be effective. According to the agreement, it will be effective in April 2017. In terms of 2017-18, it will only be the predictions for 2015-16 that can be used to work out the assumption about how much tax is used. If I can write to the committee precisely, I think it would be helpful, given the different starting dates for the different taxes, if we just be absolutely clear precisely when the baseline will be assessed for each of those taxes. VAT is also in turn different because that will be done in 2019-20 in terms of the VAT assignment. In general terms, for the block grant adjustment, after the first year it will be done on the OBR predictions for the relevant year, the actual year rather than the previous year. If I write to the committee, Mr Crawford will be the right way to do that. What considerations led to the two Governments to consider the £3 billion would be the sufficient borrowing cap? In terms of the capital borrowing cap, yes. Smith is interesting in this regard, Mr Crawford, if I may, through you. Smith was clear in paragraph 95 in terms of the borrowing powers that there should be sufficient capital borrowing powers and sufficient additional resource borrowing powers. There, the use of the word additional in relation to resource rather than capital was very distinctive and is a clear part of the agreement. If one were to strictly interpret Smith, he does not mention anything about additional capital borrowing powers. However, in our willingness to get an agreement and to find something that both Governments can work with, we did agree between the two Governments to increase the capital borrowing limit which under the previous arrangements, i.e. the Scotland Act 2012, of £2.2 billion to increase that to £3 billion and also to increase the amount that could be borrowed in each year from having been previously 10% of CDEL to be 15% of the limit. That would be a £450 million annual borrowing power, so long as you do not exceed the overall £3 billion limit, which I think will make a significant difference. By the way, the Scottish Government already has a generous CDEL settlement over the spending review period, up significantly than the previous spending review period. I think that it is 14% higher. There is a lot of generosity there, and I look forward to seeing the Scottish Government deploying that generosity well in terms of capital projects and infrastructure projects in Scotland that will make a real difference to the Scottish economy. I really look forward to seeing that happening. It showed quite clearly that infrastructure spending in Scotland was ahead in Scotland and the public sector spending in that area than any other part of the UK in comparison per head of population, just as a matter of interest. Stuart, do you have any other questions? Yes, thank you. Why did the two governments decide not to opt for a prudential regime for capital borrowing? Again, that is a very good question. Smith was clear that a prudential borrowing regime should be considered, although Smith did not necessarily recommend that it should be adopted. We did consider that. We did look at it. We did discuss it, but both Governments were satisfied and content to adopt the arrangements that we have made, which is an increase in the borrowing based on the existing arrangements. Finally, I pose a question to the Deputy First Minister this morning, and I will put a similar question to you. Certainly, in terms of paragraph 57 of the fiscal framework and paragraph 73 to 76, particularly paragraph 74, regarding the payments that were made to the capital reserve, can you confirm that, as a result of the fiscal framework, the UK Government will pay its previously agreed contributions to the city deal projects in Scotland and not expect the Scottish Government to contribute more now that there are greater borrowing powers to come to this Parliament? Sorry, in terms of future city deals. Well, the current and proposed city deal projects. City deals are always bespoke, and I think that it would be difficult to predict in advance exactly how the city deals would be financed, but the UK Government, as you know, is committed to delivering those city deals. It has got a very, very good record. In terms of the city deals done for Glasgow and in Aberdeen earlier this year, back in January, when the Prime Minister came up, I think that one should have confidence in our ability to deliver those city deals, and I think that they have been a big success. I am seeking confirmation that, as a result of the new fiscal framework and the powers that this Parliament will now have, the UK Government will not reduce its contribution to the city deal projects because of expecting the Scottish Government to then pick up that shortfall. Where of any reason why that would be the case going forward, that any funding for city deals should be affected by the fiscal framework? I cannot foresee any reason. A couple of questions from the chief secretary. It was very clear, chief secretary, during the Smith commission itself, that all parties involved felt very strongly that both Governments were of equal status in any negotiations that went on. I appreciate your view on that in terms of how the negotiations went to reach the agreement that we now have and how that will carry on in the future. I thank Mr Fabiani for that question. Yes, we have been scrupulous in ensuring equal status in the negotiations. Almost without exception, we have alternated the venue for the meetings between Edinburgh and London. We have alternated the chair of the particular Joint Extractor Committee meeting. The papers that have been produced have either been joint papers or Scottish Government papers or UK Government papers. The officials have worked very well together in a good spirit, in a good collaborative way, again on the basis of parity of esteem between the two Governments. I think that that has worked well. I am looking forward to working in the future with John Swinney on the same basis. I have spent quite a bit of time in Edinburgh over the past year. I think that this is my fifth visit today. I know that he is down in London quite a bit, and I would expect that to continue on that basis. Thank you. In relation to that, there are two issues that I would like to bring up. One of them is that you mentioned papers. In that, there is parity of esteem. Although Mr Swinney was fairly diplomatic today in how we talked about publication of papers, I seem to remember that my impression is that last week he expressed positivity about giving papers to the committee to scrutinise. You, quite clearly today, have said that you would not like to do that. Is that something that could be discussed now by your respective teams in that there is parity of esteem in views, and perhaps we can reach a compromise? I think that that is a slightly different question to parity of esteem. I think that here to release the confidential discussion papers would need agreement between both Governments or should have agreement between both Governments. I do not think that that in any way reflects on the parity of esteem between the two Governments. I think that an inter-governmental negotiation between both Governments by definition should agree. On another aspect that I would say is fairly similar, I think that I am remembering rightly that the First Minister in fact was quite clear in something that she said in the chamber about her view being that the default position at review time was the status quo, which would be what was happening there and absolutely no detriment to Scotland. Again, would you agree that that view and your own view of there being no default position are both equally valid? The most important thing is what is in the agreement, and it really is up to both sides to justify their statements in their respective parliaments. In that sense, there is inequality. We all have to justify what we say, and we all have to abide by what is in the agreement. I ask the Secretary of State a quick question. It was just, first of all, I very much appreciated the attachment, Secretary of State, that you gave with your letter an interesting reading. However, what I would also appreciate is some dates put on what you explained to us at the beginning in your statement about the process through the House of Commons and just confirmation that the Scotland Bill will go through before the solution of this Parliament, assuming that the legislative consent motion goes through this Parliament. As you would appreciate, Ms Fabiani, the one thing that I did not want to do in my opening remarks was to pre-empt the report of this committee or the sitting schedule of this Parliament. My understanding from informal sources was that possibly the debate on this LCM might take place around about 17 March. If that was the date, I would be hopeful that we would be able to complete the House of Commons stages of the following week, but I am not in control of the House of Commons timetable. I will hear from whips and Mr Crawford has previously been in this role in this Parliament that it is not for ministers to set the timetable of parliaments, but it is certainly my endeavour if that was the timetable that you were operating to, and if the Parliament chose to pass the LCM that we would seek to do everything possible to complete the two outstanding stages of the bill prior to the beginning of the period. I always found that the force of personality can always achieve much more than you sometimes expect in these circumstances. I thank the secretary of state and the chief secretary for coming and giving evidence to this morning. I will now close the session of this particular meeting. We do not have time to go into item number two. Thank you very much. The committee is now closed.