 ond wrth cael fash идrach o beanb Expectyl gyfaith sonol anghyddolaeth a'i gwleidio'r cymhu'r cyff再見ol i gyd, fhotri'n gwirio angen iawn i siarad gyda chi ddweud y flysea hwn. A dweud i'r fawr, yn allwch i ddarparu y cymuned o gyda'r cymaint a'r proses i ddweud i'r fawr a'r dweud i'r fawr gwyneb, ac mae'r ddigon o'r defnyddio'r ddweud i'r bwrdd fawr, yn cyfodol a'r ddweud i'r fawr, ac mae'r ddweud i'r ddweudio'r dyfnogiau cynllunol, yn cyfomodol, yn ôl i ddweud i'r grwp hefyd. Mae'r ddweud i'r ddweud i chi gwybodaeth o'r llwp yma eich dweud, Rwyf i gyd, yn ymgynghwylwch yn cyfnodig iawn a dyn nhw, felly sefydliadau y mynd gennymau uchydig i chi'w gweld ar y cwmentech. Felly mae'r deuno yn ddych ochr i fynd i'r cymysgol o'r cyfu iawn i gyd, mwy o'r ffordd. Dylunio cael eu swadfaeth bryd i gyd, yn cael ei gweld iddi, amser i'w bwyl wrth agurau â gyrthir â'i cymysgol sydd wedi amddangosu athoedd yng nghymru, annual implementation report concerning the financial provisions in the Scotland Act 2012. Since then, work has continued with Her Majesty's Treasury to consider this issue and to work to make progress towards being able to reach an agreement. I have emphasised that this needs to be made in time to inform the Scottish Government's draft budget for 2015-16. In my written submission to the committee, I set out an update as to how the issue has progressed since April and I would take this opportunity to quickly summarise that note. The position on the intended block grant adjustment for the devolved taxes is clearly set out in the command paper as a one-off cash adjustment. However, because of the need to move this issue forward, I offered a proposal that the initial adjustment could be indexed to the GDP deflator, as I indicated to the committee in April. This approach is simple, easily understood and would maintain the value of the initial one-off block grant adjustment over time. As the committee is aware, the UK Government has proposed an approach that applies an additional deduction to the block grant, coupled to a reduction in all future Barnett consequentials. We do not believe that this methodology has any basis in the command paper, as is demonstrated by the Treasury's need to refer to the Wales command paper published in March of this year to explain this approach. In our view, the proposed Barnett abatement mechanism also fails on the principle of increasing the accountability of the Scottish Parliament, which the Scotland Act 2012 is supposed to improve. Under the proposed approach, a substantial factor affecting the Scottish Government's spending power in relation to the devolved taxes will be the policy choices of the United Kingdom Government on growth in public spending over which the Scottish Parliament has no influence. For example, in order for the Scottish budget to benefit from the tax choices that the Scottish Parliament makes, revenue growth would need to exceed growth in public spending, which would be determined by the United Kingdom Government. Since I last met with the committee, officials in the Scottish Government and HMT have analysed how each mechanism might perform under a range of scenarios and have set out the implications for the Scottish budget. This work has proved useful in understanding how the different mechanisms may perform. The analyses have also highlighted further areas of concern. I see a fundamental flaw in a central assumption in the Treasury's analysis. It has suggested that, on a set of assumptions produced by the Treasury on future tax revenue growth and on growth in UK public spending, there should be no cumulative gain or loss to the Scottish budget over a long period extending to 2030. If devolved tax receipts outperform those assumptions, the Scottish budget could be better off. However, I have strong doubts about the validity of the assumptions used, especially around the future-likely path of taxes as HMT has used the OBR's forecast. A further concern is the negative path that the HMT assumptions set the Scottish budget on following the end of the observed time period. That trend means that, the longer the time period is considered, the increasingly worse off the Scottish budget would be. We also do not accept that there is a basis for implementing such a constrained approach. The command paper made no mention of such an approach. Despite the disagreement over the analysis that I have conducted, I am very aware that my draft budget for 2015-16 requires certainty over the block grant adjustment for the devolved taxes to ensure a complete budget. To this end, I had a constructive discussion with the chief secretary to the Treasury last week with positive engagement around the key issues in being able to agree a mechanism. There was an equally good understanding of the pressing need for an agreement. To that end, the chief secretary and I agreed a number of issues that my and Treasury officials will follow up on. Following the conclusion of the additional work, the chief secretary and I will have a further meeting to seek an agreement. I previously made the commitment to seek the approval of this committee for the final choice of the block grant adjustment mechanism. I remain committed to doing this, and in the meantime, I look forward to discussing those issues with the committee this morning. I am sure that we have all got a number of questions that we want to ask on some of the details. I noticed that, in the paper from the secretary to the Treasury, David Gawke, day-to-day of August, he said that, as I quote, the UK Government has no plans to impose an adjustment. Both sides remain committed to agreeing a timely and equitable solution, which is obviously very positive. However, at the same time, a solution has to be arrived at, and it looks as if there is still quite a considerable distance between both sides. What he has suggested is, for example, that there could be an interim adjustment in such an interim solution. He could use OBR's forecast for 2015-16, for example, but revisited once a permanent arrangement has been agreed. Is that something that you would be willing to consider, or are you concerned that what might happen is that we end up having an interim adjustment year in, year out, if no permanent solution is found? The first thing to say, convener, is that I am very happy to engage in these discussions to try to get to a reasonable solution. I think that the committee will understand that my position is anchored in what was in the command paper, because the command paper was what informed Parliaments deliberations about the issue and the passage of the legislative consent motion on the Scotland Act 2012. I am very happy to engage in discussions around those points. It would be more desirable to have an agreement that was sorted out and addressed, and we would proceed with it rather than having an interim arrangement, which, as I think we know from other examples and other walks of life, keeps on recurring. It would be better to address the issue based on the detail of the command paper. In terms of David Gock's letter, he has said, and unfortunately he is not able to be here with us, although we did ask him. He has said, and I quote, that it is also worth noting that officials have considered the impact of using a baseline deduction based on the unactuals. He has said that this approach, according to Scottish Government officials, could gain the Scottish Government some £1.8 billion over the period to 2029-2032 with expected gains thereafter. He is basically saying that that goes against the agreement that both sides would not gain from this arrangement. What is your view of that? I think that the core of this goes back to the contents of the command paper. The command paper published in November 2012 stated that, when the smaller taxes are devolved, currently planned to be April 2015, there will be a one-off reduction that will then be deducted from the block grant for all future years. On the face of that comment, I would read that to say that there should be one cash sum removed from the block grant and that cash sum should be removed every year thereafter. I do not think that I am misreading that paragraph. The command paper, to be fair, then goes on to say that the process should be transparent, equitable to both the UK and Scottish Governments and parliaments and based on the best data available, which will include out-turn data on Scottish income tax receipts accrued during the transition period and independent forecasts of Scottish tax receipts published by the OBR. There are other considerations to be viewed in all of this, but, fundamentally, we come back to that one-off adjustment. When I look at the minutes of the joint-exchequer committee on 27 September 2011, the paper that we discussed referred to the devolution of the small taxes. There will be a one-off reduction to reflect the devolution of stamp duty land tax and landfill tax, which will be then deducted from the block grant for all future years. Fundamentally, we go back to that point. That was what was in the proposition from the UK Government. In order to try to address the issue of equity, I have accepted that the block grant adjustment, the one-off adjustment to begin with, should then be the subject of an indexation measure by the GDP deflater, which I think is a pretty simple, transparent way of saying that there is an additional adjustment. We apply a factor of inflation, and we get on with operating, collecting, determining the taxes that have been devolved to us. I think that what the Treasury is thinking is just now is that we are looking to go into ever more constrained elements of how that adjustment is operated by the point that there can be essentially no gain, no loss over an extended period of 29, 20, 30. I just don't think that that's anchored in the material that's come from the command paper. You're concerned, obviously, that the Treasury's proposals are becoming increasingly Byzantine in terms of how they're actually arrived at, but how are we going to resolve that situation? I mean, we've been here three or four times already, and despite all the talk of everyone wanting to get a solution quickly, which we've heard from the Secretary of the Treasury last September, we don't seem to have moved that fella forward. Both sides seem to be not budging for one of a better phrase. How do we actually resolve that matter? We simply have to continue those discussions to get to the point where we can get to an agreement, convener. I'm signed up to that. I was anxious to have a discussion with the chief secretary about those issues, which I was able to have last week, and I will continue to press to resolve those issues. I hope that the committee will understand that I feel a very strong obligation to the basis on which Parliament gave its support to the Scotland Act, and I think that we're shifting more and more away from that basis. I've already moved with the indexation proposal, which, on the basis of the command paper, I could legitimately say, look, there's no basis for indexation under any circumstances, but I have moved to try to get some form of agreement. I think that that's an indication of goodwill to try to get to some point of agreement, so I can certainly assure the committee that I will give it my best efforts to resolve that. Of course, there is a point at which the discussion has to stop, and that is that I have to set a budget, and I have to inform Parliament what I expect to be the tax take from the devolved taxes, which is obviously the subject of the remit of the responsibility of myself as the finance minister. Obviously, there is a verification process required on that by the Scottish Fiscal Commission, and that work is now under way, but it also needs to have the blocked-and-adjustment number to make the budget complete. As the committee well knows, that process has to be concluded by 9 October. That was the next question that I was going to ask, because we are putting out a call for evidence today. I was going to ask you what impact that is going to have on those preparations, and what really is the kind of deadline, so to speak, for having this resolved before you were in real difficulties in terms of your budget? Well, in terms of the Fiscal Commission's work, there really is no impediment to the Fiscal Commission, because I will make a tax forecast based on the decisions that I make about the tax rates and tax bans on the two taxes. We will do the workings on that, pass that to the Fiscal Commission, and the Fiscal Commission will make a judgment about that, and that is all in one compartment, essentially. The issue comes into then what do I, assuming I get agreement from the Fiscal Commission that that is a reasonable estimate, I then have to consider what is being deducted from the budget. I have to have knowledge of that as I am finalising the budget, which will be in a couple of weeks running up to 9 October. I am going to open out the session now to colleagues around the table, and first two folk to ask questions will be John, before I, Jamie. Thanks, convener. Yes, reading the two letters. First of all, on timescales, Mr Swinney, in your letter you quote the state, there should be no cumulative gain or loss to the Scottish budget over a long period extending to 2030, which is kind of what I thought we were looking at. In Mr Gox's letter it says, so while a fixed real adjustment could be equitable from 1516 to 2930, beyond this point the Scottish Government would be expected to make substantial gains, et cetera. That suggests to me that there is room for compromise up to 2030, if that was all we were looking at, but his main concerns appear to be what might happen after 2030, which just seems incredibly far ahead. Am I understanding that correctly? That is a fair understanding. I think that we are essentially, in my view, getting to a level of artificiality about this whole process, when we start talking about having absolute no gain or no loss until 2029, 2030. We start getting into predictions of what stamp duty land tax would have generated 14 to 15 years after it has been abolished in Scotland. We can all do projections of all sorts of things, but I do think that we are getting into an element of real speculation when we have abolished these taxes and we have got to be in a constrained environment of no gain or loss. That is why I thought that the indexation, my proposal of linking it to the GDP deflator, was a reasonable way of saying, look, there is a one-off adjustment that you put on the GDP deflator, and then everything else is up to you to get on with it on these taxes. I am not saying that we must absolutely have the command paper position. The committee could quite rightly say to me, look, you should be saying that, or that is what the command paper said. In trying to get a balanced position between what the command paper said and the need for there to be equity in both the UK and Scotland to be treated fairly, I thought that the GDP deflator approach gave a measure of change which related to economic performance and the general management of economic issues, which I thought was a reasonable test to be applied to. When we start getting into living within constraints over a period of 29, 20, 30, I think that we are becoming just too contrived. It seems to me that there are so many other factors that could come in before we got to 20, 30 that could have an impact. Anything could almost happen in the next 15 years. For example, I would love to see a flatter system in Scotland that incomes were less diverse and, presumably, house prices were less diverse, but, if something like that happened, that would have an impact on either stamp duty land tax or land and building transaction tax, so it just seems to me that there are too many factors to bring in. We would also be making what I would consider to be a contrived comparison, which is to stamp duty land tax in 2026, for example, which was abolished in 2015. I think that we are getting into too contrived an exercise when we look at all of that. When he said, I mean, I quoted earlier on this whole bit about the Scottish Government would be expected to make substantial gains, have you calculated or have they calculated at all what any of these figures would be? I mean, are we talking, what kind of amounts are we talking about, but this is not a major tax anyway? I'm guessing it's not major amounts. It's not major, but they're not major taxes of themselves. They represent about 1.6, 1.7 per cent of our block grant, so we're not in a vast part of the block grant that's affected by this. The further out we go, the more assumptions we have to make about performance and what tax take might be likely to be. We would have to be making assumptions about the growth of stamp duty land tax, which is predicting the housing market in many years hence, which I think is subject to a whole host of variables, none of which that we will know at this stage. I mean, can you give any idea of what kind of actual figures they are talking about or what you're talking about? I don't think that I've got any detail beyond that period in front of me, but if there's any further analysis we can help the committee with, we certainly will. Okay, that's great. Thanks so much. Jamie. Thank you, convener. I can't say to Mr Gox's letter to the convener he says in relation to the block grant adjustment that the UK Government has been consistently clear, which was a bit of a surprise to me because I don't know what would necessarily be here if that was the case. Was your view on the UK Government's consistency of clarity on the block grant adjustment? I think that we've essentially gone through three phases in this. One was the command paper, which taught, as I've said to the committee already, about a one-off reduction that we have applied in all future years, although I do accept that there was the caveat that it had to be equitable, which is just for completeness. We then moved on to having the Barnett abatement proposition added in, which has been part of the development of the position. Thirdly, we've now got the constraint analysis being applied, which essentially says, over a defined period of time, we are to be no better or no worse off as a consequence. I think that there's been a developing position emerging from the UK Government. In relation to the Barnett abatement mechanism that the UK Government proposes, I put it to Mr Glock when he was here that this was an alteration to the Barnett formula, which of course the UK Government said that it wouldn't do. He said in his words that it wasn't an alteration. It was just tweaking it. Do you think that that's semantics from Mr Glock? I think that it is an alteration to the Barnett formula because one of the issues that the committee discussed with me before was about the comparison that the UK Government makes where they say that this is very similar to when business rates were devolved. Essentially, the only thing that was changed was that a 100 per cent comparability factor in the Barnett formula went to zero because of the devolution of the entirety of business rates. I don't accept that analysis because when business rates were devolved, there was a budget line on which there was comparability. You could see how, and I accept within the Barnett formula, there will be when there are relevant powers, when, for example, transport functions were devolved to the Scottish Parliament, there's a change to comparability factors within the Barnett formula. I don't think that that's a change to the Barnett formula. I think that that's a change to the distribution of responsibilities and the Barnett formula is essentially—the internal workings of the Barnett formula are simply catching up with that devolution of responsibilities. In some areas of the Barnett formula, we have 100 per cent comparability on functions. On others, we will have 10, 20, 30 per cent comparability, and those factors can change given the way in which responsibilities are set out. The difference with stamp duty land tax and landfill tax is that there is no relationship to the Barnett formula, none whatsoever. The Barnett baitment mechanism has been created to amend the Barnett formula to accommodate this, where there has previously been no relationship. I'm going back to Mr Gox's letter. He says that the Scottish Government's position, which you've articulated, wouldn't be consistent with the UK Government's aim of increasing the Scottish Government's accountability. Equally, your proposed Barnett baitment mechanism also fails in the principle of increasing accountability of the Scottish Parliament. I wonder if you could just talk a little bit more about your perspective on that. The point that I made a moment ago in response to Mr Mason's question was that I thought that the GDP deflator example was a helpful one because it is acknowledging a relationship to a point of performance over which I would accept that the Scottish Government has some degree of influence, and that is about the performance of the Scottish economy. I think that there are things that we do that influence the performance of the Scottish economy, so therefore the GDP deflator would be a reasonable factor to be influencing. The decisions about UK public spending are taken by UK ministers. They are not taken by me, they are not taken by this Parliament. Therefore, I think that there is a fundamental disconnect between the objective of the Scotland Act, which is to increase the accountability of the Scottish Parliament and the operation of the block grant adjustment mechanism. Final question. From what you have said, the Scottish Government has been reasonable and has tried to move towards accommodating some of the perspective of the UK Government in these matters. In what way is the UK Government moving towards accommodating the Scottish Government's perspective? I think that we are obviously not in agreement, so I have tried to acknowledge that I could have held out for a position that said, look, the command paper says one of reductions, which will be deducted from the block grant for all future years, and I could have just held to that and said, look, that is it. One sum, one number does not change forever, done. I think that I could have sustained that position. I do not think that we would have got us to agreement, but I could have legitimately sustained that position. However, I have accepted, in the interests of transparency and equity, to apply an indexation factor to try to reach agreement. What I am concerned about now is that we having gone on to that indexation territory, we are now going on to this constrained analysis territory, and I just see absolutely no basis for that whatsoever, because we will be going back to trying to work out what stamp duty land tax would have been in 2030 if we hadn't abolished it, and I just forgive me, but I think that that is just an inappropriate basis for the judgment to be made. I apologise, convener, and cabinet secretary for missing the opening part of this meeting. If my questions have been answered already, please say so, so we don't duplicate. I suppose that the key thing, I guess, from looking at it from my point of view, is what is the schedule now as we see it? When are the next officials, when is the next time, when are the officials going to meet and discuss the issue, when is the next planned ministerial meeting? Obviously, you had one fairly recently. What is the schedule like at the moment for trying to move matters forward? The Intergovernmental Assurance Board met on 31 July, and there was discussion around that. The chief secretary and I had a follow-up after that between officials. The chief secretary and I had a conversation last week. The officials are back in touch as a consequence of the discussion that the chief secretary and I had last week, and those discussions are on-going. As we see the work emerging from the officials' discussions, the chief secretary and I will speak again, but we do not have a date for that at this stage. We will be a product of the discussions that are taken forward by officials, which have been taken forward as a matter of priority. In the eventuality, the agreement cannot be reached for a permanent arrangement in advance of the draft budget being released. There is a mention that there could be some kind of interim solution, presumably for year 1. At what point does the UK Government and the Scottish Government say, Luke, that we cannot reach agreement at the moment? Let us decide that we are going to just have an interim agreement. Is there a kind of backstop date at which point, in terms of producing your own draft budget, you need to have some kind of finality at it? At what point is that reached? I covered something that is going to be convenient on, but I would require to know what is the size of the block grant adjustment. I think no later than last week in September is the absolute backstop that I could finalise a budget with an agreed block grant adjustment number in it. I tend to agree with your approach around the GP deflator, but I am a bit constrained because I do not totally understand the constrained analysis approach. If you could help me to understand that, do you think that there are any circumstances in which the UK Government's approach would result in a financial benefit to the Scottish budget in certain years or do you think that it would always be negative? If our performance on generating stamp duty land tax and landfill tax receipts exceeded the growth in public spending and exceeded the constrained factor analysis set by the UK Government, then yes, there is the possibility that we could gain against the block grant adjustment, but we would have to gain against those two tests. My point is that I can live with one factor of indexation, although if I go back to the original interpretation of the command paper, I do not really think that I should have to, but I am prepared to live with one. To live with two I think is not acceptable. Also, there is an artificiality about the constrained factor analysis and the burn abatement mechanism that the UK Government is talking about essentially is a mechanism over which I have no control and the Scottish Parliament has no control and no influence because it is related to the growth of UK public spending. In both of those respects, I am trying to find a mechanism in which, in the interests of accountability and transparency, we settle on a factor like the GDP deflator, in which I think that we would accept that we have some influence in that performance, which gives us an ability to answer some of the issues that have been raised by the Treasury in this process. I suppose that another way of asking is what would be your explanation of the motivation of the UK Government? Why do you think that they are going down that route rather than accepting your proposal? In a sense, I do not quite understand what the rationale of it is. If the rationale is to increase the accountability and responsibility of the Scottish Parliament for the decisions that it takes, which was a purpose of the Scotland Act 2012, I see that as being undermined by both the Barnett abatement mechanism and the constrained factor, because it is essentially constraining what we can actually do. It is not actually saying to the Scottish Parliament that here are a couple of tax responsibilities. You go off and you do them and you take the risks and rewards for your decisions. It is all getting put into this very contrived analysis, and I do not think that that to me contradicts the purpose of the Scotland Act 2012. Do you accept that that is the reason that they are doing it, or do you think that there is some other reason that is not being stated? I think that that is probably the reason why they are doing it. I think that there is a sense that the UK Government, having given out those responsibilities, wants to hem them in at the same time. In terms of the initial grant itself, is it going to be the block grant adjustment itself? Is it going to be the calculation that is going to be based on 2013-14 actual figures? Again, that is a point that I think that I saw last time in answer to Mr Brown by saying that we cannot agree the basis of the one-off sum of money and the block grant adjustment without the wider debate on other factors that have been taken into account. There are different ways of calculating the block grant adjustment. I think that there is an analysis that we have data, obviously, up to the end of 2013-14 actual data. There will be estimated data for 14-15, which will be confirmed shortly after the close of the financial year. We have set out arguments—it has been discussed already—about the time frame in terms of a historic analysis of looking back maybe over five years or even over 15 years to give a much greater breadth of performance over a number of years. We are open to that discussion as to what it could look like. The other factor in the one-off adjustment is the extent to which we project forward what tax receipts might have been in 2015-16. That is obviously another factor that could be part of the analysis, but, as I said, those points have not yet been agreed. You were looking at averaging over five years, and I was just wondering if at least progress had been made on that particular issue. I think that the answer that I gave to Mr Brown last time is the one that stands. You knew that this gets agreed as a one-off package. That particular aspect remains in the mix. We appear to have no further questions from members of the committee, so I thank the cabinet secretary. The committee will not be meeting over the next few weeks. The next meeting should take place on Wednesday 1 October, so we have no further business today. I now close the meeting.