 Ie. Ie. Mwneud iawn, hon. Welcome to the eighth meeting of the Devolution Further Powers Committee. Just remind everyone about the usual convention on mobile phones. Mark McDonald, who will not be joining us today may be a couple of weeks for Mark's back, who, I don't know, have heard, unfortunately Mark is an accident and broke his leg. We have a build kid here as a substitute. He was, indeed. sympathy all round the table. We will move on to agenda item one. It proposes us to develop further powers to Scotland in the scrutiny of the UK's Government's draft legislation clauses. I welcome, John Swinney, the Deputy First Minister and Cabinet Secretary for Finance, Constitution, Economy to the Meeting. The Deputy First Minister has with him Sean Neil, who is the Acting Deputy Director of Finance and Fiscal Responsibility Division, Donald McGilvery, Deputy Director of Elections and Constitution and Stephen Kerr, who is the head of social security policy and delivery. For our witnesses' information, we have our three advisers with us today, Christine O'Neill, Heidi Poon and Nicola McEwan, who are to your right. We have only got two hours, so I said to my colleagues earlier that let's try to make your questions succinct and, every First Minister, you could do the same with your answers. That would be most helpful. I wonder, would you like to make an opening statement? I'll make a brief opening statement, convener. I'm grateful for the opportunity to set out for the committee the Scottish Government's response to the draft clauses published by the United Kingdom Government to devolve further powers to the Scottish Parliament. Following the publication of the draft clauses on 22 January, I made a statement to Parliament on the 27th. I've also written to the committee setting out the Scottish Government's views on a number of Smith-related issues. The Scottish Government does not believe that the Smith provisions go nearly far enough, but they are nevertheless an important step in providing the Parliament with further levers to improve the lives of the people of Scotland. The Scottish Government's objective now is to develop a bill that commands broad support and will be ready for introduction as soon as possible after the United Kingdom general election in May. There are a number of areas that the Scottish Government wishes to see improved. I've set those out previously, but the key areas include employability programmes, the power to create benefits and the degree to which some of the clauses require consent from a United Kingdom Secretary of State. As well as draft legislation, the UK Government command paper sets out a discussion of various aspects of the proposed fiscal framework. This will be a key element of the package, and I met the Chancellor of the Exchequer on 2 March to progress this aspect of the work. I was encouraged by the fact that the command paper recognised the need to proceed by negotiation and agreement in this area. My objective is to work on the legislation and the fiscal framework will proceed in parallel and that both will be ready before the Scottish Parliament is asked to pass a legislative consent motion in the spring of 2016. The reality of the dissolution at Westminster on 30 March means that time is now short to make progress on the draft clauses with ministerial input. The Scottish Government has been pressing for progress in key areas such as the clauses on employability programmes, but today we have no commitment from the United Kingdom Government that there will be any movement on those questions before the election, but we continue to take forward those discussions. I'm very happy to discuss these issues with you. Thank you, First Minister. Just for your information, we had a quick discussion before we arrived on how we were going to deal with this question session. We would start off with welfare, move into tax and borrowing, crown the state and then constitutional inter-government relations. Normally I would have an opening question, but I want to get straight into the meat. I want to go across to Stuart Maxwell, who will open up on this issue with issues about welfare. Thank you very much, convener. Good morning, Deputy First Minister. I wanted to start with a general question about the idea of whether the draft clauses reflect the spirit of the Smith commission recommendations. You'll be aware of a number of quotes from a number of organisations. For example, the SDUC said that it's very clear that key areas such as welfare recommendations will not match the intentions of the Smith commission proposals. We had Paul Spicker, Professor of Public Policy, Robert Gordon in front of us recently. He's been quoted as saying, I will follow some way short of even the rather restricted settlement of Smith. That is not what was promised. I just wondered what the Scottish Government's view of the clauses in general in relation to what was recommended by the Smith commission is and are there any particular areas where you agree that they don't match up to what was in Smith? I think that it would be fair to say that there's a different position in respect of some of the different clauses that have been set out by the United Kingdom Government in the command paper. In some of the clauses, we think that they come either very close to or fulfil what was expected under the Smith commission, but there are a number where we do not believe that that is the case. We have made those representations to the UK Government. I suppose to highlight the ones where we think that the commitments have been fulfilled. We think that that is the case in relation to elements of paragraph 49 of the Smith commission report in relation to benefits for carers, disabled people and those who are ill, and benefits that currently comprise the regulated social fund, where we believe that the commitments have been properly translated into draft legislation. We also think that that is the case in relation to paragraph 51 of the Smith commission report, which looks at allocating to the Parliament the autonomy in determining the structure and the value of the benefits that were viewed in paragraph 49 of which I have just referred. We do not believe that the Smith commission proposals have been properly translated into detailed legislation or in relation to clauses 2021 of the draft Scotland bill on universal credit nor in relation to the power to create new benefits, such as clause 18 in the bill, nor in relation to paragraph 55 of the Smith commission report, which is essentially provided for benefits or discretionary payments introduced by the Parliament, providing additional income for recipients. We also have issues about employability programmes and the arrangements that are in place there. That is a fairly comprehensive summary of where we think that the terms of the Smith commission have been translated into detail of the clauses and areas where we need to have further dialogue to improve that. Thank you, that was very helpful. Before I move on to the general powers to create new benefits, which you mentioned, I think that the draft clause 18, can I ask for a quick response on the argument that has been taken place about whether there is or there is not vetoes in place by the UK Government over some of the areas that are supposed to be getting devolved? The number one point that I made in my opening statement, which is about the degree to which the provisions in clauses 20 and 21, particularly those that require the agreement from the Secretary of State on changes made by Scottish ministers in relation to universal credit. This is an area of particular difficulty within the command paper and the draft bill, because I do not think that it is terribly difficult to foresee how what appears to be pretty innocuous requirements to consult the Secretary of State and secure his or her agreement could be translated into essentially a blocking power because all sorts of excuses are used to stop something happening. Our concern is that the way that clauses 20 and 21 are drafted essentially conveys that ability of a UK minister to stop the Scottish Government doing something. If they have a reasonable explanation for why they are doing it, then that passes the test of the clause. That, to me, therefore gives the UK Government the ability to veto a decision that the Scottish Government and the Scottish Parliament wish to take. The UK Government would contend that the arrangements in clauses 20 and 21 are about administrative operation and efficiency and all the rest of it, but having just spent a couple of years of my life trying to make progress on the block grant adjustment and being stalled, delayed, more analysis, etc. Before you know it, two years of your life has passed. I think that these clauses present a very serious impediment to the ability of the Scottish Parliament to exercise the powers that were envisaged by the Smith commission. There is also another important point of principle involved in this, which is about the proper definition of devolution. Devolution, to me, involves passing over the power to the Scottish Parliament to do as the Scottish Parliament sees fit. Not to say, well, we will pass over the power subject to us agreeing that this is all fine for it to proceed. That is not devolution. That contains control within the United Kingdom Government in the form of a veto to say that we do not approve of what is happening here and we will find some way of stopping it happening. In the interests of clarity so that we have a clear and well understood devolved settlement and devolved arrangements, I think that those clauses need to be revisited. I am assuming from that that you think that there is at least the potential for any changes that any future Scottish Government or Scottish Parliament wishes to make to get bogged down in some serious delaying discussions. Is there the possibility that the will of the Scottish Parliament could be blocked by any future UK Government? I think that that is entirely possible. Can I move on to, if you do not mind, the general power to create new benefits? Just tease that a wee bit more. In terms of the clauses that we have drawn, I have heard what the Deputy First Minister said, but I think that the Deputy First Minister would also recognise that a UK Government faced with a potential change that had significant technical or financial implications for it in terms of its IT or other such areas. There needs to be a mechanism still in place to allow that discussion to take place between the Scottish Government and the UK Government in any future settlement. I accept that there is a need for proper administrative arrangements. If I look at what is happening on the devolved taxes, for example on land and buildings transaction tax or, I should call it, stamp duty land tax that was being devolved and the landfill tax, we have gone through very clear administrative arrangements with the United Kingdom Government, with various agencies of government involving HMRC and revenue Scotland. We are now at the point where the agreement has been reached between the both Governments that all of the practical arrangements are in place so that the UK Government can now proceed to switch off stamp duty land tax and landfill tax with effect from the First of April in Scotland. I will be in a position to switch on land and buildings transaction tax and landfill tax. All of those arrangements are now proceeding to operational implementation in a completely orderly fashion, as I indicated that the Parliament would be the case. It is entirely possible at an operational and administrative basis to do so, but, crucially, I have taken a fundamentally different approach on land and buildings transaction tax to the original stamp duty land tax that was being devolved. Of course, the UK Government has now mirrored the reforms that I have put in place, but we are taking a completely different approach on that tax. I was free to do so and to take a different approach, but it has been able to be put in place in orderly administrative fashion. Therefore, the administrative and operational arrangements can be perfectly taken forward in dialogue with the UK Government. However, what that provides is a statutory ability for the UK Government to stop us doing something in an area where I think that we all believe—and all of us who were in the Smith commission believed—should be the ability of the Scottish Government to exercise that discretion. Was that done through the mechanism of the Joint Exchequer Committee, or was it done through a different mechanism? I suppose that, in principle, the Joint Exchequer Committee oversaw that, but there was then an inter-governmental assurance board, I think that is the problem of the term. The inter-governmental assurance board undertook—my officials were full participants and UK Government officials were full participants. The point of reaching comfort that the arrangements could be switched off in the UK and switched on in Scotland was reached only because the inter-governmental assurance board said that we are confident in the arrangements that are now in place. That terminology—inter-governmental assurance board—certainly is new to me, yet it would be useful to get some information about that so that the committee can see as much of that as transparently as possible. We are very happy to share that with the committee. It is an inter-governmental mechanism that enables us to do the detailed work that has got to be done to make sure that things can be changed into effect—the political choices that are made by ministers. Are you going into a slightly different area? It is the power to create new benefits, I want to go. Okay, I will take a couple of supplementaries here to that area first. I was just in the general proposition because we have come from one stage of devolution, I think, where the administration said that the health service was already being administered in Scotland and the devolution of the health service in Scotland was relatively easy. I think that that was recognised in the Smith commission. As we devolve further and get greater opportunities and risk through the further devolution that has been shared, where those responsibilities are shared, it raises those challenges, does it not? Was there not a complete expectation that there would need to be new arrangements about how we share the devolution of welfare? Was that not implicit in the Smith agreement when the issue was highlighted about better working arrangements with the Governments? Why would it be a surprise and why is a reasonable request that Governments work more effectively together is described as a veto? It is entirely possible to overcome that. It is entirely possible to reach an agreement, just as it is entirely possible to go into a negative situation. Both scenarios are possible. Let me put on record at this point, convener, the commitment to the Scottish Government to work constructively in an intergovernmental fashion. I have just relayed to the committee how on the devolution of the two taxes on land and buildings, transaction tax and landfill tax, it has been a completely orderly process of doing that, with the exception of the block grant adjustment, which has been a bit fraught, but that involves money and most things involve money are fraught. That has been done. I commit myself in general to good intergovernmental working on those questions. I think that there are a lot of examples where that takes its place. The difference with section 24 of the Scotland bill is that it essentially provides a statutory backstop for a UK Secretary of State to stop something happening. As long as they can present that as reasonable, that is their entitlement to do so. That is not, in my view, in the spirit of the type of intergovernmental working that Mr MacNeill referred to, convener, in his question. If there is an acknowledgement that there has to be joint working to co-operate to implement that, I would not be making an issue with that. However, what clause section 24 does is give a UK minister the ability to stop something that the Scottish Parliament may consider should happen in this area if they can present reasonable expectations in that perspective. Are they refusing to move from that? Have we engaged with them and raised our strong view as the ministerial meetings taking place? Are they sticking to their position? Is that a hard position that they are taking? The discussions that we have had at both official and ministerial level do not yet have any movement involved in that question. We will continue to pursue that as part of the work that we take forward in our discussions with the UK Government. However, that is one of the issues that we have raised with the UK Government about the content of the clauses. Still on supplementaries, Lewis and then Tavish. On the same basis, Mr MacNeill talked about implicit in the Smith commission. Actually, is it not explicit in the Smith commission that the paragraphs that relate to universal credit say explicitly that the Scottish Government will be given the administrative power to change the frequency of universal credit payments? That is in the context of paragraph 43 of the Smith commission. Universal credit will remain a reserved benefit administered and delivered by the DWP within the framework that the Scottish Parliament will have the powers outlined below. If that is the case, the Smith agreement says that universal credit will be devolved within a framework of overall reservation. That requirement that it should be a shared benefit rather than wholly devolved, as you would have wished, is quite clear in the agreement. It comes down to a pretty simple concept. Are we able to do it or not? We can only do it if we have the agreement of the UK Secretary of State. That, to me, is not devolving that administrative responsibility without a veto. The point of devolution from the outset in the very first act and in the Smith agreement is that it is not a simple choice between wholly devolved and wholly reserved areas. There are a number of areas in which, for example, executive powers are devolved and legislative powers are reserved, and the Smith agreement seems to say that universal credit is reserved and that anything that is done is done in that context. The Smith agreement is quite clear that there should be the ability to vary those provisions according to the will and the wishes of the Scottish Parliament. What clause 24 says is that it is subject to a decision by a United Kingdom Secretary of State who can stop that happening. That, to me, is not consistent with what the Smith commission agreed to. Will you not accept the point that the Smith commission says explicitly that universal credit will remain a reserved benefit? Of course I accept that universal credit remains a reserved benefit, but if a power has been devolved to the Scottish Parliament, which we cannot actually use because we have got to secure the agreement of a United Kingdom Secretary of State, then no power has been devolved. We should not try to suggest to people that there is a power devolved if it has not actually been devolved. Mr Middall cannot have it both ways. On the one hand, he is trying to sustain an argument to me that says that there is a power devolved. He will tell me that the chamber has a power been devolved, and he is now sitting here saying to me, well, of course you have got to accept that the UK Government has got to be able to decide because it is a reserved benefit. Well, which one is it? It is either devolved or it is reserved. I am putting to you that whether you have signed up to something that you like or not, that is what you signed up to. Perhaps you are trying to have it both ways. Oh no, oh no. I am not trying to have it both ways. I am trying to make sure that the commitments that we are given, an ability to vary in terms of universal credit, were being allocated to the Scottish Parliament to enable the Scottish Parliament to take those decisions, are fulfilled. What Mr McDonald is now suggesting to me is that it is acceptable for the United Kingdom Government to constrain that, to veto it. That is not acceptable to the Scottish Government. I am not suggesting any conclusion. I am simply trying to draw out your understanding of the agreement to which you agree. Well, I am absolutely crystal clear about what I signed up to. I signed up to the ability of the Scottish Parliament to be able to vary the terms of universal credit. That is what I signed up to. I have now been asked to accept a clause that gives the UK Government a veto over that. I am simply saying to the committee that that is not consistent with what I signed up to in the Smith commission. I cannot speak for others, but maybe some of them might start to speak in a moment. The view and the nature of the discussion, and I added the advantage over Mr McDonald that I was in the room of the Smith commission along with my friends Linda Fabiani and Tavish Scott, was the intent of the Smith commission. I wonder if I could risk a factual question, Mr Swinney. You very fairly described the intergovernmental discussion since the welfare clauses that Mr Mack was rightly introduced this morning have been published. How many ministerial meetings have there been and official meetings that have been to go through the issues that you have discussed? How many are planned before or are planned before Perda, so we get some fuel for that engagement? There have been two formal meetings of a ministerial working group on welfare issues. One was yesterday and one was a few weeks ago. I think it was during the recess in February, I was down in London for that. There was one yesterday, which I should have participated in, but I was involved in the chamber of business yesterday. Mr Neil, Ms Cunningham and Mr Fitzpatrick represented my interests at that meeting yesterday. If my memory serves me right, at least one other preparatory meeting for that between Mr Mundell and Mr Neil in advance of the two formal meetings. As to official meetings, I would have to be helped out with how many of those have taken place, but there have been a number of discussions in video conferences to try to advance. Are there more plans before—I take your point about the UK general election, but are there more plans before Perda gets into London? I think that what I would say—what I could commit to is certainly official discussion, because I think that we all accept that minds are going to—well, formally by the end of March—ministers will be quite entitled to be active on election matter—involving election matters full-time. In advance of that, it will become more difficult to engage at ministerial level, but the commitment has been reached. One of the points in my discussion with the Chancellor on 2 March, which strays on to wider territory, but I think that it is illustrative to help the answer—I reassure Mr Scott on that point—is that the Chancellor and I agreed with my recognition that he had an election to fight, and we have passing involvement in it as well. Who knows that our officials would take forward many of the substantive discussions on the fiscal framework to try to make sure that by the time ministers are able to re-engage after the UK election, as many of the issues are either wrestled with or identified and evidenced, so that ministers can engage at a more advanced stage in the discussions, so that we do not lose—short and bluntly—68 weeks of the process, so that as much official work to create a platform for decision making can be made for ministers. I am grateful for that. I would probably be helpful to the committee if it was possible to give us some illustration of how many meetings had taken place at official level—not what goes on in those meetings, but how many had taken place. It might be helpful to do that across the whole range of different provisions, because that type of dialogue will have been happening on all subject areas. Alex, do you want to supplement at this stage? I will need to move on after you and go back to Stuart. The late Tamash has gone on to the area. I wanted to deal with just a couple of extra questions. First of all, has the joint ministerial working group proved, in any way, an effective mechanism for dealing with the type of dispute that you are describing? I think that we have to be careful with our terminology here, because those are not disputes. Those are us properly engaging to try to ensure that we get the best outcome in implementing the Smith Commission proposals. I know a dispute when I see one. Indeed. Has the UK Government proved to be open to discussion over those areas? It is certainly open to discussion, but we are not at a point—I cannot report to the committee that we have a point of conclusion whereby we have the UK Government to change their minds. In reality, the UK Government has put the clauses out in January, and they are consulting about those clauses. They are talking to us and stakeholders in a wide variety of areas. Some of the points that Mr Maxwell made in his earlier questions highlighted some of the issues that stakeholders were raising about the clauses, some of which are similar to the points that I would argue. We are in a period in which the UK Government is considering those questions. We have not got to conclusions of those discussions. Nothing has been closed down in that process. I would expect, in reality, given my answer to Tavish Scott a moment ago, that many of those questions probably will now not be resolved until ministers are re-engaging after the Westminster election. At the welfare meeting yesterday, a number of points were discussed on different questions, and Mr Mundell agreed to consider those points. Whether we have a substantive response to that by the time the United Kingdom Parliament is prorogued is a different matter. What I would certainly say to Mr Johnson is that nothing has yet been closed down in the process. Having asked that the UK Government was open to discussion on those matters, I am tempted to ask the next question were you, but I will not go that far. Is it an effective mechanism or does it need to be developed beyond its current status in order to begin to deliver the decision-making processes that we need to make this work? Ultimately, my view is that those issues are only ever sorted out at political level between ministers. Fundamentally, you can have all the mechanisms that you want. If I illustrate the block grant adjustment, we have had the Joint Exchequer Committee, Mr Crawford and I, when Mr Crawford was in Government, started off the Joint Exchequer Committee to discuss the block grant adjustment. We had all the processes and all the means of resolving it, and ultimately, with all the evidence work and research that was done by our officials, the resolution of that came down to a 15-minute conversation between the chief secretary, the treasurer and myself. Ultimately, those questions will be resolved politically by ministers. As long as there is a willingness to do that, what I would like to put on the record to the committee is that the approach of the Scottish Government is about simply trying to make sure that what we consider came out of the Smith commission is turned into legislative reality. We are not trying—I cannot remember—I think it was maybe the finance committee I made this point to before. We are not going into this process trying to extend what was in the Smith commission report or trying to get things into this process that was not agreed by the Smith commission report. We are not trying to do that. We are simply trying to get into legislation what the Smith commission conceived should be in the agreement. I will close with an observation that what the cabinet secretary has said I agree with entirely. Ministerial agreement is the secret of success in this area, but I find it hard to interpret how this committee monitors that and works alongside it. That is part of the job that we have to do next week. We will have a session on intergovernment relations specifically, and that will be a long list to get under that skin a bit. I want to take us back to draft clause 18, if I may. We have had a reasonable amount of evidence on the issue or the question of the ability or the power of the Scottish Parliament to create new benefits. My understanding is that the effect of the Smith commission said that new benefits in areas of devolved responsibility would be what was agreed, but there now seems to be in the draft clause 18 that it is about new benefits or it is restricted to those areas that are being discussed to be devolved. It is not new benefits across all areas of devolved responsibility. Just for the record, could you express the view of the Scottish Government whether or not you agree with the clause or whether you agree with some of the evidence that was received as to whether or not the clause meets what was laid out and published by the Smith commission? I do not think that the clause meets what was set out by the Smith commission, because, in the Smith commission, there was a quite explicit discussion about whether that was about creating the ability to establish new benefits in the areas that were being devolved or in areas of devolved responsibility. My very clear recollection was that the agreement was about the creation of new benefits in areas of devolved responsibility. That, to me, should shape the clause, and that is not the case in relation to clause 18. I wonder whether or not you believe that the clauses, as published, can be amended in some way, or is there a serious issue here that means that they would have to be completely redrafted in that regard? Is there any scope for change in the draft clauses at the moment? I am quite sure that there is. The clauses might have to be entirely redrafted, but I do not think that we should consider that to be a gargantian task. There may be ways of revising the wording that is here to fulfil the commitment that I believe was the agreement that was reached in the Smith commission, or it may be that we have to draft the wording. However, I do not think that we should view that as something that is unbearable. Of course, to go back to my earlier point, in this period where ministers from the UK Government are not as close to engaging in the process because of election issues, it would be a good opportunity to do the drafting so that, when UK ministers come into office after the UK election, we can come to an agreement at that point. Obviously, there is drafting capacity within the Scottish Government, but we would be only too happy to work collaboratively on producing such an approach. Can I ask if it is the Scottish Government's view that the draft clauses could be implemented or incorporated without removing the general reservation on the assistance for social security purposes, which is in schedule 5 of the Scotland Act 1998? Is it possible to incorporate the draft clauses without removing that general reservation? I think that it would be realistic about it. I think that it would be inconceivable that the United Kingdom Government will remove the reservation in schedule 5. To be practical about it, in terms of thinking about lines of argument, I might try to advance. I feel that that is one that would not get me very far in any context of the UK Government. We have to make sure that sufficient space and scope is carved out to ensure that the policy position that was envisaged by the Smith commission can actually be delivered within the context of a reservation of social security functions in schedule 5. My concern is—I am asking for the Deputy First Minister's view on that—that the disagreement about clause 18 is not resolved as to whether it was effectively devolved, areas of devolved responsibility or new benefits in the areas of the bits that are about to be devolved. Is it not the case that the Scotland Act 1998 Scotland will effectively govern what the position is? Therefore, all those areas that are currently reserved and the current position that exists will, in fact, be the de facto position. What was in the Smith commission about areas of devolved responsibility will not happen. That would be the reservation on social security provisions. Members should be fully aware of the limitations and the difficulties caused by that reservation on social security. It is an issue that has stretched us significantly in trying to resolve policy equations, particularly on the council tax reduction scheme, where the social security reservation was a very significant impediment to the Scottish Government being able to work with our local authority partners on making good the reduction that was applied in council tax benefit by the UK Government. The social security reservation was a major impediment in how we resolved that. We were able to do so, but it was a major impediment, and we should not underestimate the significance that that reservation applies to the handling of legitimate aspirations on the part of the Scottish Government and the Scottish Parliament to act in that particular area where it was limited by that reservation. That is why, in my previous answer to Mr Maxwell, I made the point that it is vital that sufficient scope is carved out of that reservation to enable what the Smith commission envisaged of the ability to create new benefits in areas of devolved responsibility that are actually able to be fulfilled. Felly, I thank you very much, Deputy First Minister. When new benefits or discretionary payments would be introduced by the Scottish Parliament, we would obviously not be wanting to be robbing Peter to pay Paul. Therefore, seeing the DWP clawback through deductions and other benefits and payments that already exist in the UK, how would we be sure that explicit provision was provided in legislation guaranteeing that those new benefits could be delivered without the sphere of reduction in clawback? The issue—the problem here is that the command paper indicates that instead of there being a legislative provision within the Scotland Act to enable individuals to gain the benefit of any new benefit provision without any loss of existing benefit provision is not put into any legislative form. The UK Government will consider that case-by-case basis. Again, Smith was absolutely crystal clear that if a new benefit is being created, it should not be used as a device to reduce any other existing benefit that is provided by the UK Government. The legislative provision that could be put in place is something that would be perhaps a Scottish welfare provision disregard within the bill, and that would make it explicit and a guarantee on all circumstances where the Scottish Government and the Scottish Parliament decided to act in this area, then the individual was protected from loss of benefits as a consequence. Paul Sticker, in evidence to the committee previously, along with others, expressed concern that there could be a dilution of existing devolved competence in the sphere. The clauses may exempt provision for discretionary payments to people who have been subject to a benefit sanction, and unless that need was addressed in the immediate and short term, such as the Scottish welfare fund, which also exists in exceptional circumstances, would be superseded by the UK Government's benefits system. The fact that we already have the Scottish welfare fund, which works successfully, could be undermined in this new system. Is there any provision to cover to ensure that new benefits that are being introduced will not actually find themselves in a similar circumstance? I think that what is important here is that we translate the principle of what the Smith commission was proposing into legislative reality. What Smith envisaged was that individuals should gain the benefit of any additional benefits that a Scottish Parliament put in place, and that is what we should legislate for. There should be absolute protection for those new benefits and for them to have no consequential loss at an individual level, and that should be legislated for. I think that it would be fair to say that under the Scottish welfare fund currently, the legislative protection is in place to protect Scottish welfare fund payments from any such netting off, if we call it that, by actions by the UK Government. Therefore, we should simply ensure to guarantee that the Smith provisions are turned into legislative reality, that the same provisions are put in place for the benefit of any new benefits that would be envisaged and applied by the Scottish Parliament. That is very reasonable. Thank you very much. Linda, I catch what you wanted to say. A supplementary point to make is to make it clear that it is not just about new benefits, but it is about top-up benefits of existing ones, etc. If we are talking about a Scottish disregard, I have concerns about whether the systems that are in place for the UK Government are changing to universal credit, personal independent payments and so on, and if we are able to cope with that, do we have there been discussions around that? The other issue of some of the things that have come in through the draft clauses, I would mention as an example direct housing payments, would seem to me not to reflect the spirit of what was discussed during the Smith talks and the ability to make any changes. What I am trying to get to is that whole picture. If there are some benefits that we are only talking about having the administration benefit for rather than being able to make changes and top-up, if there are issues around even at this late stage talking about the potential of a Scottish disregard, how far down the road are we of actually trying to achieve what was applauded in the Smith agreement by so many people and, in fact, has been put out there as something that is already happening? We are at a fairly critical time in that process, because when the United Kingdom Parliament reconvenes, this bill will need to start to make very early progress, if it is to complete its parliamentary processes in Westminster and attract a legislative consent motion in this Parliament before the Scottish Parliament rises for the 2016 parliamentary election. This is a very critical period. My view is that the space to influence this process is between now and the bill being introduced in the House of Commons after the UK election. After that, I think that it will be much more difficult to amend the process and amend the substance of it. I also take at face value the fact that the UK Government says that it is consulting about these provisions. I hope that that means that they are open to the issues that are being raised. I think that the advantage of this very detailed scrutiny that the committee is undertaking, the dialogue that is being facilitated by the committee, is that it is able to reach a range of individuals who were participants in the process. I do not just talk about Mr Fabiani, Mr Scott, myself and our colleagues who were on the Smith commission, but those who made representations to the Smith commission and who have engaged with the UK Government subsequent to that on many of those questions. Who would share many of the points that I am expressing here today? It is important that that is all considered and consumed by the UK Government, listened to by the UK Government, and that changes to the clauses are brought forward in advance of the introduction of the bill in the UK Parliament after the election. We have got to a situation where, if we do not get into taxation and borrowing, we will not be able to apologise, but I am sorry to cut that shot so quickly. We need to make our questions a bit sharper, perhaps our answers a bit sharper as well. Let me try to show an example. What discussions have you had with the UK Government around the fiscal framework and what progress has been made? I met the Chancellor of the Exchequer on 2 March for a discussion on how we would take forward the fiscal framework. We acknowledged that the timing of the election was going to interrupt ministerial engagement on that question, so we agreed that a process would be led by senior Treasury and senior Scottish Government officials to take forward the detail work that will have to be undertaken on the fiscal framework to enable ministerial engagement and discussion after the election. That was agreed on 2 March, and there has already been a discussion between Scottish Government and Treasury officials on that question, and there are various further discussions to take place on those issues. We had a discussion about the impact on discussions between ministers earlier, but I am assuming—I am rather right in assuming—that, despite the fact that there would not be any ministerial contact, all through the period of the general election, there will still be opportunities for officials to develop further the whole process. I should have made that explicit, convener. That was the very point that the Chancellor agreed. We wanted to make sure that as much of the groundwork that could be undertaken on the fiscal framework was undertaken by officials to marshal the evidence, trying to get to a sense of how we could resolve some of those questions and what arrangements could be put in place, so that when ministers are able to interact on that after the UK election, the discussions are not where they are today, but the evidence and the detail that will have been gathered together is much ground that can be closed off—is closed off—by the time that ministers engage after the UK election. That is quite helpful, because that means that there is no inertia in the system, really, in terms of what is still going on. Therefore, there is still the opportunity for those who want to influence outcomes. As far as the committee is concerned, indeed the wider Parliament, however, the transparency of what that fiscal framework will look like, will be hugely important to us. Therefore, what assurances can you give us that we will be played in as much as possible ourselves—the Finance Committee, others, the Parliament in general—about how that is developing? Obviously, there will then come the crucial issue of whether or not that agreement can be found and arrived at before we come to an LCM next February. What is your view on that? I think that this is quite difficult territory, to be honest, convener, because— Thank you for that helpful remark. It is always nice to be encouraged. If I look back at the block grant adjustment discussions, I essentially—what I said to Parliament for the best part of two years is that discussions are on-going on this question, because I did not feel that I could say, well, they have said this and I have said that, and they have said this and I have said that. I just think that that removes the scope for, bluntly, ministers to come to some form of compromise. Ultimately, the block grant adjustment was a compromise between the chief secretary and myself, between two different numbers, £524 million and £461 million, and we settled halfway at £494 million. In a very well-evidence fashion, Mr Scott, and after detailed consideration, as you would expect, it was halfway in the middle. That involved compromise on both of our parts, and I acknowledge that, and the chief secretary acknowledged that from his perspective as well. I think that, although I wish to be as open as I possibly can be with Parliament, there has to be some—I have to honestly tell Parliament—of the difficulty of being as open about all of the steps in the process, because that may restrict the room for compromise. Do you accept that the Parliament, the French Committee as well, would need to be absolutely clear what the agreement was before any LCM was passed? There has to be a fiscal framework in place that is acceptable to Parliament before any LCM can pass. I do not think that it is in any way possible or plausible for an LCM to be passed without an agreed fiscal framework being in place. That is to the satisfaction of Parliament. Just in the context of that, and I have seen the civil servants with you, you have got a bit crestfallen when you dismissed the efforts almost, and all we need in these things is a 15-minute meeting, and anything else that went before it. I have seen that your officials with you just diminished slightly at that point. It would certainly slim down the civil service, Mr Milliam. I am sure that you are making an important point, but for the understanding and transparency, it is important that we know the terms and references of the engagement at least. We know the type of issues that are coming up. We know the rules of engagement about how the facts and figures and the analysis is agreed, what is neutral and what is not. We can make a judgment about the statements that a UK Government would be making, or indeed a Scottish Government would be making in public, because there have been public statements about the difficulties, whereas we never saw that in your own experience with local government. When you had to concord that, there were closed meetings and everybody accepted that, and any difficulties were resolved in private and access to the appropriate people. We just want to be sure that the terms and references and what we can get as committees of the Parliament in that process and the real understanding of what is the negotiation that is taking place, there must be a level of information that would be available to the committees and, subsequently, to the people who are outside. I do not, in any way, want to appear as if I trivialised the issue by the 15-minute remark. That is about saying that the final point of agreement ultimately is that point. I think that Mr McNeill makes an absolutely fair point about understanding what are the issues involved, what are the topics being considered, borrowing, application of no detriment, administrative arrangements, cost arrangements, all of those questions will be material to a fiscal framework. To understanding, I do not see any issues about that all being shared with committees, there will obviously be an evidence-based that is being gathered and subject to dialogue with the United Kingdom Government. I think that we should be as open as possible about what is the evidence-based part of the exercise that civil servants, just to reassure them that they have got things to do in the same period. Part of what civil servants have to do is to try to work their way through all of the possible evidence that could be considered around resolving just one question within the fiscal framework of which there will be many, many questions to be resolved, to marshal that evidence, to test that evidence and to get it to a point where they can extract from that evidence the issues that ministers need to resolve, so ministers can then, after the election out of the way, consider the evidence and see out of that evidence what are the issues that need to be resolved. I think that we should be open to considering how much of that evidence can be shared with parliamentary committees to ensure that parliamentary committees have the confidence. Although there was a 15-minute discussion on the block grant adjustment, there was a lot of detailed work that went into evidencing both propositions that we resolved, but ultimately we had to resolve it somewhere and we resolved it in the middle. However, there was plenty of evidence that supported £5 million to £6 million as a block grant adjustment and plenty of evidence that supported £4 million to £6 million as a block grant adjustment. We came to a political agreement about what was reasonable within that. I think that, subject to reaching an agreed position with the United Kingdom Government about how comfortable they are about information sharing with committees, I would be very keen to be as open as possible about this process because I acknowledge the importance of Parliament being satisfied that there is a robust fiscal framework in place. Alex Rowden I will try to brush through this to try to please the convener. The first thing that I wanted to ask about in terms of taxation is that we have seen what has been described as gaming around issues of tax and the example of what happened with stamp duty is an example of that. When it comes to the Scottish rate of income tax, what should view on how accountability and transparency can be achieved to avoid that continuous gaming going on in future? Alex Rowden I think that this is quite a general issue because it affects the parliamentary processes of this institution versus the parliamentary processes of the Westminster Parliament. We have a very different budget process in this Parliament compared to the UK. I am required to set out by agreement with the French Committee a draft budget by 20 September to consult on that for an eight-week period, and then to come to Parliament to legislate for it over a succession of three weeks. The chancellor can stand up at 12 o'clock and announce something, and it takes effect at midnight or even earlier. We are operating in two very different spheres of parliamentary accountability. I have worked consistently within the parliamentary framework that has been put in place here, and I have no desire to change it, but I think that we have to acknowledge the risk that there is the potential for that gaming to take place as a consequence of the different parliamentary arrangements that we have in place. Alex Rowden The specific instance where you will acquire through this process the right to define rates and thresholds, but you will not have the power to define the tax base, which could change quite radically. How would a future Government build contingency into the budgetary function to buffer against variations such as that that might strike you unexpectedly? That is where it gets into some of the substance around the fiscal framework and the interpretation of the term no detriment. I can quite easily see how there could be detriment to the Scottish tax base of a decision taken by the chancellor to effect, for example, issues beyond my control on income tax, but which would have an effect on income tax take in Scotland. There will be an issue of detriment that comes out of that as a consequence of those actions. The fiscal framework is very material to determining all of those points. That is on the question of no detriment. There will be a couple of other things that we have to think about in terms of our protection. One is about the establishment of a cash reserve to deal with the fact that a very much more significant part of our budget will now be dependent on a revenue stream that will require prediction, so there will be volatility around that. We have to establish a cash reserve to do that. Secondly, there has to be the acknowledgement that revenue borrowing will be required or may be required to provide us with the capacity to deal with any fluctuations that take place and affect us in a significant fashion. We need to make the material to the agreements around the fiscal framework. Changes that are proposed for income tax come on top of a set of changes that we have agreed but have still to be implemented. We have spoken to accountants at an advanced stage of preparing for the next set of changes, but the subsequent set of changes will have to be built on top of that. What kind of timescale do you see for the implementation of the changes that are being proposed? What can be achieved and what needs to be achieved? I am working on the assumption that we will be able to reach agreement on all questions for the Scotland bill to be passed by the spring of 2016. Of course, in April 2016, the Scottish rate of income tax under the Kalman proposals will begin to take effect. The Kalman proposals envisage a two to three-year period of transition or assurance around the sums that will be raised from the Scottish rate of income tax. We are in a transition period for at least a two to three-year period. I cannot give Mr Johnson a definitive idea today about when I could see the full tax powers implemented. My preference would be to move as quickly as we could towards the full provisions envisaged by Smith, rather than having a prolonged period of the Kalman implementation. However, we would have to test out the detail of all that to determine how readily that could be translated into practical reality. Obviously, that is dependent on interaction with HMRC, as it will be collecting the Scottish rate of income tax under both the Kalman and the Smith scenarios. I had intended to go on and talk about borrowing, but was there another tax issue? I will let Dalish in first on supplementary. Thank you. Can I just ask one supplementary, Deputy First Minister? You mentioned the cash reserve to Mr Johnson there. If I caught you correctly, is that a new financial line that you think either needs to be in place now or will be in place in your accounts because of the changes that are envisaged as a result of the transfer of powers? The cash reserve provision comes in as a consequence of Kalman. Under the current pre-Kalman arrangements, I am unable to carry a reserve. The only reserve function that I really have is the ability to use the budget exchange mechanism to carry forward around £190 million of expenditure from one year to another. However, I am prevented from having a long-standing reserve. The Kalman proposals change that to enable us to put into that cash reserve resources that we could utilise to protect for volatility on some of the tax changes that are now being implemented. That is a Kalman arrangement. The issue that becomes more aposite out of the Smith commission is the access to revenue borrowing. I will stand to be corrected on that point, but once the resources are put into the cash reserve, they can only be used for mitigating volatility. I could not put it into the cash reserve to mitigate volatility. I will, for example, spend it on new roads in Shetland or something like that. I will clarify that for the ones that are out. It has to go in for that purpose alone and be accessed for that purpose alone. However, as we move into the Smith provisions, the parameters for potential volatility are much greater. Therefore, what is envisaged is the cash reserve and revenue borrowing to provide us with a greater degree of flexibility in financial management. That is fair. Forgive me for my lack of knowledge. Have you already set out a statement of policy in this area, or is this something that you will to the finance committee in the course of next year's budget or, at a certain point, set out a position of policy on what envisage that cash reserve is in the context of the Smith transfer of powers? I have not set out any particular details on the amounts of money that I would allocate into that. For example, if I was to find a situation where, on the application of the first year of the smaller taxes, as they are called, there was a surplus beyond what I thought would be raised, I would put that into the cash reserve. That is one of the policy approaches that I would consider taking. I am obviously free if I so choose to allocate other resources to go in there, if I thought that was important. However, I have to be careful about that in relation to the locking away of resources that I cannot use for another purpose. However, the arrangements around the cash reserve are sensible arrangements, because we need to have that ability to protect against volatility. Alex Whirkin is back to you on boring. I think that we have said an issue about no detriment, which probably plays into this bit of the discussion. Yes, simply following up the point that you made about the legislative consent motion must be clear about the fiscal framework, and you have described the process of reaching agreement on the block grant adjustment. In terms of what the Smith commission says about no detriment post-evolution, in other words, the procedure for ensuring that neither Government disadvantages the other post-implementation, how far do you envisage a detail of how that would work being included in an LCM this year? In other words, how far do you say it as something that needs to be pinned down in detail in advance? I think that that has to be crystal clear. How do you envisage it clearly without asking for your negotiating position in advance? What broadly are the terms in which you would seek to reach agreement over the next few months? I think that this is quite difficult territory, to be honest. I think that the no detriment principle at the point of devolution is probably recently clear about what that envisages. The secondary issues are much, much harder to grapple with. I think that we need to use the period that we have over the next few weeks to do some very detailed work on what that might involve, and how that could be taken forward before coming to any conclusions. Do you think that that might require further legislation to follow, or is it something that would be best incorporated in the act that comes forward? I think that it is absolutely critical that the issue is nailed down beyond peradventure in the fiscal framework. Alex Rowley, on the subject of borrowing, are you confident that the spirit of the Smith commission will be delivered and that it will give you powers to borrow more than the £2.2 billion limit provided by the 2012 act? Again, we are in negotiation territory here. What is in my mind on borrowing is that we need to have what I think was in the Smith commission report and what I think we have to put into practical reality is that there has to be an acknowledgement of the importance of the revenue borrowing point. I was discussing a moment ago to deal with the volatility in revenues. I think that there has to be a greater flexibility and facility for us to undertake capital borrowing, borrowing for capital investment purposes, and the fiscal framework has to determine how that should be put in place and how it should be deployed. All of that has to be in addition to the acceptance and principle that there is a continuing role for capital del within the Scottish Government budget. I have picked up some sense that borrowing for capital purposes might remove the CDL provisions of the Scottish Government. I want to be absolutely crystal clear with the committee that that is not my interpretation of Smith. I think that Smith envisages us having on-going CDL capability and the ability to use capital borrowing to enhance and to add to our CDL provision. The revenue borrowing is quite a different proposition altogether. In terms of revenue borrowing—of course, she rightly matched that responsibility for covering tax revenue volatility—what level of borrowing do you interpret as being necessary to cover the level of tax that is being devolved under the Smith process? We are at an early stage in trying to determine that. I think that, despite what I said in my answer to Mr Johnson about the transition period on the common proposed Scottish rate of income tax, that transitional period will give us more detailed information about the Scottish income tax base and the performance of the Scottish income tax base, which will give us better detail about what our likely revenue borrowing requirement might be in the years to come. The data on Scottish income tax performance and collection will need to see more of that before we come to a definitive conclusion on revenue borrowing, and we will see that emerging over the course of the next couple of years. Volatility or perceived volatility will inevitably have an effect on cost and opportunity to borrow. Without going into the details, for example, if you were exposed to the volatility of oil revenues in Scotland, the revenue borrowing requirement would consequently have to be much higher. Do you see anything that we are doing in the current process as having the capacity to significantly change the revenue borrowing requirement that you would have to have in place? Certainly, when we move from the common Scottish rate of income tax proposals to the Smith Scottish rate of income tax proposals, the risk is greater, purely and simply, because of the sums of money that are involved in the proportion of the budget that would be involved in the process. So, yes, there is a facility that would be necessary to look at that arrangement. What borrowing mechanisms do you envisage achieving that? There will be a variety of different models in place for us. For capital borrowing purposes, we have a number of options. We could go to the public works loan board, we could go to markets, we could undertake bonds, and there is a variety of different options that would be in place. Obviously, we have to make careful judgments about the terms and conditions of any such borrowing. Although many of those variables are hard to assess at this stage, do you interpret that the Scottish Government would have to pay a significantly higher interest rate to borrow than the UK Government does? No. Given the potential additional volatility that you will be exposed to, are there any circumstances in which you could envisage where there may be a demand for a different rate of interest in the Scottish Government? I do not, because of two things. One is that all of this discussion has to take place within an acceptance reluctantly on my part because Mr Johnson is familiar with my politics within the fiscal framework of the United Kingdom. That is one element of the discussion. Secondly, of course, is that there is track record and performance. The administration in Scotland, since 1999, of all political colours, has operated within an orderly financial regime. I think that that counts a great deal for the reliability that can be considered about the handling of public finances by successive administrations. Alex, I think that I'm doing pretty well here. I want to open a slightly different area on the borrowing issue, so maybe you were going there anyway. Calman 2012 Scotland Act 2012 gave us the ceiling of £2.2 billion, with had experts before us that said that that should be nearer £5 billion. There are also other experts who said to us that there should be no false limit put in place and that it should be down to potential borrowing and affordability. What's your view? Ultimately, the most robust place to be is to have a prudential regime in place, because it essentially reinforces the point that I've just been making to Mr Johnson about financial stewardship, that it requires Parliament to consider all of the questions of affordability and sustainability. We've already embarked on some of that in relation to our views around the financial framework that we have in place about revenue-financed investment. We have a framework in place that indicates that we should essentially be anchoring 5 per cent of our total debt budget in supporting revenue-financed investment as essentially a rule on sustainability, and I think that that's the most robust and reliable mechanism that we can utilise. There's a lot of merit in a prudential borrowing arrangement. Does it have any impact in your view on the answer that you gave a moment ago to Alex Johnson around the credibility of operating within the UK fiscal framework, protecting the level of interest rates at which the Scottish Government will be able to borrow? No, because the same strictures of financial performance will be required of the Scottish Government to participate in the public finances of the United Kingdom. For example, with whatever happens with Smith, the Minister for Finance and the Scottish Government is still going to have to deliver a budget that is balanced and that is consistent with all the fiscal rules that are applied to the finance minister that undertakes his responsibilities today and has done since 1999. Can I just move on to VAT? I think that we've got to get some stuff on the record on VAT, and then I'll move on to Crown Estate after that, if that's okay for me. I like you, okay if I do that. I just wonder what discussions have taken place between the Scottish and UK Government in regard to the proportion of VAT that OBS will be assigned and how that is going to be calculated, because we had some very interesting evidence from experts at an earlier session. I think that an understanding of that would be very useful to the committee. There is going to have to be a lot of technical and analytical work done to determine what should be the basis for the assignation of VAT. As with all those things, there's never one straightforward way of doing it, so there will be a multiplicity that we'll have to work our way through. Again, the opportunity to define much of that presents itself in the work that will be undertaken that the chancellor and I have commissioned from civil servants over the course of the next eight weeks or so. That work that has been commissioned is also looking at how Scotland will retain any benefit from increased VAT take in Scotland, and is that part of that mix? I think that there's two separate issues in here, convener. There is one that is establishing the analytical base for how VAT should be apportioned, and then there's the policy question of guaranteeing that, if those estimates are exceeded, Scotland retains the benefit of that improved economic performance and improved VAT take as a consequence. Those two separate issues have to be resolved as part of this exercise, but the policy question is an inherent part of the fiscal framework that's got to be put in place. You indicated earlier that you'd let us know a bit more about some of the progress that's being made on welfare and issues to do with the fiscal framework. There's obviously a fair bit of work being commissioned. Could the committee be provided with an outline also of what that work that's been commissioned looks like? I think that it would be quite helpful to us, so we know the sort of challenges that we face. Yes, certainly, convener. I think that you have to go back to the question that Mr McNeill asked earlier about the transparency of all this process. There is a very strong argument for that analytical work on the way in which VAT could be assigned to Scotland. It's more widely understood and appreciated, and because there have been individuals with considerable expertise in this area who will have advised the committee in evidence, it would be beneficial to see some of that material being considered more actively. Those are parts of the process where there has to be an understanding about why it's done this way and why it's not done that way, so it's important that there is a wider public understanding and scrutiny of those questions. That's a very good example of where we might be able to share material, subject, again, to the views of the United Kingdom Government that would address the point that Mr McNeill raised. That's very helpful. I think that we'll move on to Crown Estate area now and start with Tavish. Thank you, convener. I suppose that the first question, Mr Swinney, does your Government believe that the clauses give effect to what the Smith agreement said on transferring the Crown Estate to Scotland and to the Scottish Parliament, and if not, dare I ask you with a heavy heart what discussions are on going to resolve any outstanding issues? I think that the best answer that I could give is that I'm not sure on that point because we don't have quite the detail that's necessary to enable us to come to that conclusion. I think that this is an area where we do need to do more work to be absolutely satisfied that the intent that was in the Smith commission process has actually been translated into the proper legislative form. Is that on the afford that would be part of the on-going official discussions that would then lead to ministerial discussions post-election? Have there been discussions, again, at official level between the Scottish Crown Estate team, in other words the team here in Edinburgh, just to look at some of those aspects? The other question that I was going to ask here, you'll be familiar with that in evidence last week, Angus Campbell representing the three island authorities made clear in terms of devolution within Scotland, in other words to the islands, which as you'll recall is one of the clauses in Smith, that the islands are looking to see both management of the seabed and the revenues devolved. I very much understand your position on the revenues but I wonder if you'd be so good as to set it out in terms of the management of the seabed as well. That's one of the material issues that we need to understand better about what is envisaged within the scheme that comes forward in that respect, because on one particular issue, some of the issues that the UK Government proposed to put into the scheme I think would be better undertaken through a memorandum of understanding approach as opposed to by statutes, so there's quite a bit of detail that we need to go through to satisfy ourselves that those issues can be properly addressed. That's fair, I just wonder if I may, Deputy First Minister, in the context of the seabed out to 12 miles, that's very familiar, that's the bit that the island authorities are particularly keen to, as I dare say it, have control of in respect of both the management and the revenue functions. Is that a reasonable proposition from the Government's point to view? That's the area of our active discussion with the island authorities on those points. We're very open to pursuing that discussion with the island authorities. We recognise very clearly their specific and special interests in this area, and it's for that reason that Mr Mackay is working with the island authorities on those points, but we'll have to see that within the wider context of the framework that's put in place. Thank you, and the last question I was going to ask, convener, was I have to confess a bit of surprise and a suspect to Linda Fabiani and I, which is that Crown of State is going to continue, as we heard last week in evidence to this committee to invest in Scotland, this is the continuing Crown of State. I mean, dear, I ask what your Government's perspective might be on that issue, which I must confess was a bit of a surprise to the rest of us. The Crown of State continuing it is a very interesting concept. I think that this is where we get into the space where I think the spirit of the Smith commission is not being respected. We all know what we're talking about here. This has been around for a long time, and lots of people have long-standing commitments in this area and thought that they were being fulfilled by the Smith commission, and then, hey presto, one Thursday morning the committee gets advised, well, actually, okay, we might have kind of devolved this bit to you, but we're still going to be here continuing our activities. I just think that it's disrespectful to the spirit of the Smith commission and what it concluded. There may be an argument, and you would have a better view than I do, that an investment vehicle bringing money into Scotland to invest in projects is a good thing, but that's different from devolving seabed, which is what we are predominantly arguing about, I guess. I think that there are differences there, but I do think that this gets into the territory where I think that essentially we used the term crown estate continuing. It could be crown estate continuing and competing, and I don't think that that is in any way respectful of what the Smith commission was putting in place. I would like to pursue that issue. Any future property acquisition by the Crown Estate Commissioner would be owned by the Crown in a situation where the responsibility for the administration and revenues of those property rights has since been devolved. It seems to me that that is a very difficult situation. Would it not make more sense that, if the Crown Estate Commissioner carries on investing in Scotland, he immediately passes over those assets for the management of and no responsibility for revenues of too, in order to try to stop the kind of competition that we're very concerned to learn about? I think that I'd sort of go back to what the Smith commission was talking about, the devolution of the Crown Estate to Scotland and, obviously, a wider perspective within Scotland to our island communities. If the Smith commission had been sitting around and had been added to the discussion, oh yes, we'll devolve the Crown Estate and then we'll allow the Crown Estate to continue in Scotland. I think that people would have just, their jaws would have hit the table. I think that there's a real danger that we have, well, A, we have a competitive environment here, which I think is undesirable and confusing. More importantly, I think that we've got a fundamentally disrespectful view being taken by the Crown Estate, whereby in looking at an issue that has been a long part of the political discussion and debate within Scotland, we get to this point of agreement where we think that we've got the clarity and the opportunity to take it forward in terms of the Smith commission proposal. It's notwithstanding what I've said about the clauses and I need to look at it in more detail. The Crown Estate comes along and tries to thwart that agreement and I just don't think that's the right way to proceed. Can I just be clear as someone who wasn't on the Smith commission? When you were having those deliberations, everybody assumed that the Crown Estate was going to be devolved in its entirety. There wasn't a discussion like, at this date, you will have all these assets and from then on we will continue to build a large portfolio again. So this is quite a surprise. Oh yes, it's a surprise. I come back to my point because if this had been put forward as a proposition around the table of the Smith commission, I would have been very confident that the members of the Smith commission would have said we're having none of that because of the nature of the discussion that was going on about the Crown Estate within the Smith commission. Given that's the case, are you hopeful that this can be resolved satisfactorily? I think—well, the issue's only been aired and we'll now have to—it's aired last week and we'll now have to pursue it. Can I just ask one further question, convener? Very briefly, one issue that we touched upon last week was the fact that Fork and Airdd, which is a large property in Lothian region, is not going to be devolved because of various legal and accounting reasons. I just wondered if the Government has a view on the fact that this very important economic asset won't be transferred and potentially there could be similar cases in future if people find a way to prevent that from happening. I think that that would—I think that it's a very good example of—if that was to happen, if Fork and Airdd was not to be devolved, that would strike me as being just not in the spirit of what the Smith commission has agreed. In your discussions about clause 23, I wonder if you've bottomed out the question of what the Scottish zone actually is, and given that definitions are usually attached to bills, is this an appropriate time to sort this out before the bill is published and the definitions added so that, for example, it includes what Andy Wightman suggested in his evidence last week, ownership of the seabed excluding hydrocarbons within Scotland's territorial seas out to 12 miles limits, where that has not been granted out, rights over the continental shelf to minerals excluding hydrocarbons and sedentary species from Scotland's territorial seas to 200 nautical mile limit, as laid out in the statements in the report on land reform. My view on this is that the Smith commission was very clear that the management of the Crown of States economic assets in Scotland should be transferred to the Scottish Parliament and that that should extend to 200 miles and cover the seabed. Forgive me if I've rehearsed this with the committee before. I might have done this when I perhaps was here before, but one of the reasons why I'm so absolutely certain and confident that the Smith commission was envisaging out to 200 miles is because of the inclusion of clause 34 in the Smith agreement, which covered concern that was being expressed within the commission about the issues around a United Kingdom interests in relation to national critical infrastructure on defence and security, oil and gas and energy. Clause 34 was drafted to address concerns that were expressed by some of my colleagues in the Crown of States that, in the context of going out to 200 miles, some critical UK interests had to be taken into account, and that's why Clause 34 is there. The context was that we would go out to 200 miles and we would make sure that the issues about which the UK has critical interests are covered by a memorandum of understanding, and that is what I think should be made explicit. My view on this is my response to Tavish Scott a moment ago was reflected on the fact that we don't know all of the detail here to enable us to be conclusive about it. I think that it's really important that we have that detail absolutely crystal clear before Parliament delivers its view on a legislative consent motion so that these things are beyond dispute after the passage of the Scotland bill. So it should still be able to be discussed between now and the UK election, even after the Pardau period, so that Bill coming in actually deals with that. Given the draft clauses talk about the way in which the Treasury may make a scheme transferring, we've discussed this before about the fact that Donald Dure said that there shall be a Scottish Parliament. Do you think that this drafting is respectful of the conditions of devolving all of the current estate assets in Scotland, in Scottish Sew and etc? Could the argument be made that it would be easier to get the scheme to work if it did say shall and therefore reaches some sort of timetable in which this can be done speedily? Stakeholders such as Aquaculture people are terribly concerned about the length of time that it takes to actually get these agreements put into place and the uncertainties therein? I think that it would be better if two things happened, if the clause was to say the Treasury shall, or even wills a bit firmer than shall, and secondly that we under all circumstances perhaps, but I think that may is a word that is used in legislative terms to suggest discretion, as opposed to obligation, which is what shall is designed to say, so I think that that would clarify that point firmly. Secondly, I think that we need to interact very closely about the scheme, because the scheme looks very complicated when in fact what was envisaged was the current estate function would be devolved and the management of those assets would be devolved to the Scottish Parliament, but in looking at the scheme it looks to me to be just overly complicated for the realisation of the policy objectives that we all want to share. In that regard, the subsection 3 of 90B talks about the exclusion of limited partnerships registered under the limited partnerships act of 1907. That probably refers to Fort Canard, I suspect, but is there any intention in the discussions before the bill is framed as to whether there can be any exceptions with regard to that in terms of Scottish property? Indeed, can I ask you, do you think that it might be possible for the Crown Estate continuing to invest in the offshore area in competition with the Crown Estate in Scotland? I suppose that that is technically feasible, yes—undesirable, but technically feasible. I come back to my point that there is a clear policy intent here, and I think that we have to be careful with the wording of section 23 that it is intensely complex and runs the risk of leaving circumstances in a fashion that we find out a whole variety of exceptions and exceptions that we do not think should be in there. The exemptions that have been placed in the draft clauses were something that you would have found completely unacceptable had it been discussed at the time of Smith. The Secretary of State for Finance is very clear about that. Section 32 of Smith says that responsibility for the management of the Crown Estate's economic assets in Scotland and the revenue generated from those assets will be transferred to the Scottish Parliament. There are no exceptions. There are issues about—it goes on to define Crown Estate's sea bed, urban assets, rural estates, mineral and fishing rights and the Scottish foreshore for which it is responsible. It could not be clearer. To then put in exemptions and exceptions, I think that it does not properly give due regard to the Smith commission recommendations. I am sure that it will be interesting to see what the Secretary of State for Scotland has to say on these. I am curious to pursue the question of the Crown Estate and the successor bodies, because, as Mr Swinney has expressed his surprise in the way that other members of the Smith commission have, it would be fair to say that the expectation in wider Scotland was that the devolution of the Crown Estate's assets was focused primarily on the foreshore and seabed assets and rights in the way that is being described. That perception may be out there in Scotland, but I think that the Smith commission clause was absolutely crystal clear. That one includes the Crown Estate's seabed, urban assets, rural estates, mineral and fishing rights and the Scottish foreshore for which it is responsible. It goes beyond the perception, but it is defined as economic assets. Do you accept the distinction between the assets that you have described and investment portfolio acquisitions that may be acquired by any public commercial body in any part of the UK? We are not talking about any commercial operation, we are talking about the Crown Estate. I think that what Mr MacDonald is trying to get into is why on earth would I be concerned about a commercial operation in the UK investing somewhere in the United Kingdom and that may be in Scotland? I have absolutely no objection to a commercial operation in the United Kingdom investing in Scotland, absolutely no problem with that at all. What I have a problem with is the Smith commission coming up with a view that the economic assets of the Crown Estate should be devolved to Scotland and then finding ourselves with that objective being thwarted after all these years by the Crown Estate saying that we will keep on doing what we do. I just think that that is disrespectful. But surely what the Crown Estate does that is the centre of public attention is manage the property of the Crown. The fact that it may operate in a commercial way, as for example Scottish Water might do in certain circumstances, is not is not odd or unusual for a public corporation in the tradition that we already have in the UK? It is not unusual, but it is not every corporation that gets mentioned over four clauses in a landmark constitutional document signed by all five political parties in Scotland that says that those functions should be devolved to the Scottish Parliament. That is not every other public corporation or investment vehicle that is mentioned in that fashion. For that to be defined and then for the Crown Estate to say that we are going to go over the top of that, I just think that it is disrespectful. What is your proposition? Would you propose to say that the Crown Estate would be specifically the only public commercial body that could not invest in Scotland? What I am simply saying is that what the Smith commission suggested should be respected. That is all I am saying. My entire line of argument through my time with the committee this morning is that the Smith commission report should be respected. I think that this is a classic example where it has not been respected. Clearly, the assets that the Crown Estate transfers to a successor body in Scotland become then the assets on which the Scottish successor body operates. Would you regard it as unusual if that successor body chose to make investments other than in those assets in order to make a return for those assets? No, because that would be the legitimate function of the devolved Crown Estate. Would you think that it would be legitimate for that devolved Crown Estate to make business investments to support its central core elsewhere in the UK? I do not think that that would be a legitimate proposition to be taken forward by the Crown Estate in Scotland. Unless you make a legal adjustment, that would be a policy decision whether it was by the Scottish successor body or the UK successor body. That is why we have to get the detail of all of this correct as to what is appropriate and what is not appropriate. If we are going to say that the Scottish Crown Estate is not going to invest in England, then we should say to the rest of the Crown Estate continuing that we should allow the Crown Estate in Scotland to get on with its business and not compete with another Crown Estate. I am looking at your remit as a finance minister. I am wondering why you regard investment by the Crown Estate in Scotland as competitive rather than sportive. Why would external investment not always be welcome? I am simply saying that the first thing that I want to say, and I want to reiterate this point, because I do not want Mr MacDonald to go away creating misconceptions here. I welcome investment in Scotland. I regularly get criticised for some of the investments that I bring forward into Scotland, but I welcome it nonetheless. What I think is that the Crown Estate is not any old investor. The Crown Estate is a significant body within the structure of the United Kingdom, which the Smith commission has judged appropriate to say should be subject to the management of the economic assets and the revenue generated from those assets should be within the province of the Scottish Parliament. I simply think that that should be respected as part of the design of the scheme here. Stuart McMillan has a question. I will cover some of the constitutional inter-government relations stuff, although I have had a fair bit inter-government relations discussion already. Stuart McMillan, do you have a question in this area? In terms of the Crown Estate and sections 32 and 33 of the Smith commission were very clear in terms of what was being looked for. After what we heard last week, it struck me that if there were to be two Crown Estates effectively in operation in Scotland and after the Crown Estate and Scotland is further devolved to local authorities to the islands, as per section 33, it struck me that that could be overly bureaucratic. It could actually be a bit more complex, as you have already indicated earlier, but it also struck me that in terms of local authorities, they could actually have an additional cost burden if they are having to try to deal with two different Crown Estates when it comes to potential investment. I do not know if you think that that is an argument that could be deployed against two Crown Estates. I think that there is less of an issue in this sphere, although I suppose that the recipe for confusion opens up if the Crown Estate starts to become involved in areas that are under the responsibility of the Scottish Parliament, in which we agree to devolve to local authorities. I suspect that there is certainly an opportunity for confusion, whether it is an opportunity for more bureaucracy, is a different question. We will move on to the constitutional area for one of a better description and inter-government relations, although we have had a fair bit of discussion about that already. What does the Deputy First Minister take on the causes that are drawn up on Sule and permanency? On the issue of permanency, I would say that there are particular words that are used in the clause that are recognised as the purpose of adding those words in. I think that it would be clearer if those words were not in the first clause. In section 1, subsection 2, part 1a, a Scottish Parliament is recognised as a permanent part of the United Kingdom's constitutional arrangements. It would be blunter if it was a Scottish Parliament as a permanent part of the United Kingdom's constitutional arrangements. We all know the limitations of that type of arrangement, so given our knowledge of what are the limitations of that type of arrangement, I think that it would be better if we just stated it as boldly as we possibly could do. I think that everyone recognises that, in terms of the legal standing of that, it is only as good as it is in the next UK Government. I think that everyone accepts that, but I guess that the purpose of this being in the Smith proposals and being in the clauses is to give a political assurance, effectively, that the Scottish Parliament is as embedded and as permanent as can be achieved. Was that the tent behind Smith? Yes, that is right. I think that people were very clear around the table of the Smith commission. I should possibly say the outset, convener. I was a member of the Smith commission and I am here giving evidence, but obviously other members of the Smith commission may have a different view of some of the things that were transacted. I simply expressed my view on behalf of the Scottish Government. I obviously dwell on my experience as a member of the Smith commission. I think that everybody agreed to the clause on the clear understanding that in the absence of a written constitution, there was no stronger assurance than this type of mechanism. I think that it would be clearer if the words were recognised as they were not there. That is one of the points that was raised. On the Sule convention, the draft clause puts the Sule convention as a convention into statute, rather than putting the convention on a statutory footing, so there is an issue there that I think that we need to explore with the UK Government. On Sule, as you know, Sule seems to have run in my blood for a fair bit of time when there was a minister. From my perspective, the Sule convention seemed to work reasonably well. Yes, there were occasions when there were challenges, but that allowed for a bit of discussion, a bit of movement. Do you think that there is any danger in having Sule made in a permanent way in statute that it might reduce flexibility, room for movement and finding a way forward? I think that we have to take care to ensure that there is always room for flexibility and negotiation. As we embark on the issue, we have to take care to ensure that we are not unnecessarily restrictive in what we have put in place to define those arrangements. If you could expand just a little on your distinction between putting Sule on a statutory footing and putting Sule into statute, what is your concern now? What the issue is about is whether the substance, the process, is put into statute to give us confidence around the substance of Sule, as opposed to that there shall be a Sule convention, which will be in statute. That gets to the convener's point about whether, if you put more of the substance into statute, does that restrict flexibility to negotiate around some of those questions? All I am saying is that, if we put the substance into statute, we have to do that in a fashion that respects the point that the convener has made about the necessity for flexibility. Do you regard it as adequate, as it currently stands? You sound quite open-minded about it. No, I think that we would benefit from putting the Sule convention into statute, but in the fashion that the convener set out on his question. Stuart McMill. We have heard issues regarding the Intergovernmental Assurance Board, the GMC and the Joint Exchequer Committee. Are there any other examples that you could tell the committee about in terms of intergovernmental relations that take place? Are there any lessons that we can learn from the experience of the Joint Exchequer Committee? There are a number of mechanisms that exist just now. There is the Joint Ministerial Committee, the Joint Exchequer Committee, the French Minister's Quadrilateral, which is the French ministers of each of the United Kingdom Administrations, or the Administrations within the United Kingdom that meet to discuss relevant issues. There is the Joint Ministerial Committee domestic and European, and there will be the welfare reform or the welfare devolution working groups. In addition to that, there will be a variety of other intergovernmental interactions that will take place in addition to those questions. Do you think that those various examples that you provide are adequate? Do you think that they are suitable or should they be increased or improved upon? I certainly think that they should be improved upon. One of my frustrations with the French minister's Quadrilateral is that, ultimately, if we do not like what happens, the Treasury view tends to prevail. I do not think that that enables there to be an outcome that is satisfactory to the Scottish interests in all circumstances. One of the issues that I think has to be explored is how we can make this type of intergovernmental machinery more meaningful as part of the process and enable discussions to take place in a fashion that lead to devolved Administrations feeling as if they have perhaps made some progress, as opposed to being thwarted by a final view that has been taken by the Treasury or the UK Government. There is a specific in there that Duncan would like to deal with. We have almost got an order of all of these points of contact, but I was interested in hearing you mention the necessity to improve the machinery as it currently stands, and I am sure that many of us would support you on that. We read from some of our papers, and one particular was the information for government paper that said that work is already under way to reform the UK's intergovernmental machinery, and a working group has been established to revise principles and structures of that machinery. The first meeting was February 2015. Are the Scottish Government participating in that working group? Are they there alone? Are they representative from the Welsh and Northern Ireland groups there? What positions do you take into that working group in regards to what principles need to be established and what reform needs to take place? If that could be shared by the committee, that would be useful for us. On that exercise, the Scottish Government is participating, as are the other devolved Administrations. The meeting in February was chaired by a member of the Scottish Government, a civil servant of the Scottish Government. Those discussions have all happened at the official level. Subject to the necessary checking of comfort from other Administrations about sharing of information, we will happily share what information we can with the committee. What do we take into those committees? I want to do a bit of an equality. Could you write to us on what you take into it? I do not want to curtail the discussion, but I have a bit of time issues here. I know that Stuart McMillan has not finished, so I will go to Alice and get something on the record on equality issues. In your evidence, Deputy First Minister, you gave the example of the budget processes that the two parliaments have and how they differ. Post the Smith being implemented and devolution post Smith, how do you see the parliamentary processes having an effect on intergovernmental workings? I think that Governments have to relate to the requirements of their parliaments. I am a servant of Parliament and the public. If Parliament wants to design how it wants to interact with ministers, that is Parliament's business, and I should respect it. I am not altogether sure that I—one of my points in answer to some of my questions today has been that, first, I might wish to be open with Parliament here about particular issues on evidence and all the rest of it. I would have to out of respect say to the UK Government, are you comfortable with this? It is the proper way to act. The parliamentary culture here might be more open than the parliamentary culture or the parliamentary requirements in the House of Commons, but the only bit of intergovernmental activity that I would have to be mindful of is whether the UK Government was comfortable with me responding positively to the requirements of Parliament. I need to go to Alison now on equality issues to get some of the stuff on the record. Thank you, convener. The Smith commission report stated that the Scottish Parliament would have all powers in relation to elections to the Scottish Parliament. However, there is no mention of gender quotas for the Scottish Parliament, so do you agree that it is the case that the Parliament does not really have all the powers in relation to elections? Just a final question, if I may. Does the Government consider that the drafting of clause 24 is sufficient to allow the Scottish Parliament to legislate to impose gender quotas on public bodies as a starting point? I think on Alison Johnston's final point. The command paper says that that should be the case, but our reading of the clause is that it is far from clear that that is actually the provision there, so it might be drafting and interpretation, but we certainly would want to have that ability to act in that fashion, but we are not confident that legislation in front of us enables us to do so. On the first part of the question about elections, we certainly would want to engage constructively to ensure that that point was properly addressed. That would certainly be my objective, to ensure that that was the case. If there were concerns about the provisions that are in place, I would want to make sure that they were properly acted upon. I think that we have come to the end of the session and I have got to be very careful of the clock here, and I know that you have to think about questions and so on that you are coming up soon. There are obviously a number of areas where we still haven't managed to complete all of our discussions, so we might write to you just to follow through with some further questions, and you have already given us a commitment to follow up and writing a number of areas already, so we are very grateful. To you and your officials, thank you for being here today, and we now move on to the private session.