 Good morning. I welcome members to the seventh meeting of the Devolution Further Powers Committee. I can arrange members to switch their phones off or at least put them in the mode that won't interfere with the proceedings this morning. I know that some members will need to leave to undertake other committee duties as later on in the process of this morning, so I apologise on their behalf as they leave later on. Agenda I from one involves taking evidence on the Scotland bill and the fiscal framework. Therefore, I warmly welcome the witnesses to the meeting this morning. We have John Swinney MSP, the Deputy First Minister, Cabinet Secretary for Finance, Constitution and Economy, Ken Thomson, the director general strategy in external affairs and Alasdor Brown, who is the head of finance. Welcome to you all. Welcome, Deputy First Minister. Thank you for attending today. I appreciate the fact that, whilst the negotiations are on-going, you have been prepared to attend in person this morning. I think that the Deputy First Minister would accept that the committee has been very patient so far in giving both governments a maximum amount of private time and space to reach an agreement on the fiscal framework. We respected the position that there would be no running commentary, although that means that, as a result, no parliamentary scrutiny to date has been able to be undertaken on the agreement itself. I am sure that you will recognise that, from both a committee and a parliamentary perspective, that is far from ideal. The Scottish Parliament is being prevented from undertaking the necessary scrutiny work because of the delay in agreement being reached. Obviously, that situation cannot continue indefinitely. I know that you have been a strong advocate about this Parliament's role in scrutinising any deal that you reach with the HM Treasury. I am sure that you will make that point to them and will continue to do so. But time is not on our side and dissolution is rapidly approaching. I am sure that you will appreciate that we will have lots of questions this morning and we must finish our proceedings by 10 am. Will you make an opening statement with that background? I am grateful for the opportunity to update the committee on the negotiation around the fiscal framework and on other issues in the Scotland Bill. I want to place on record my appreciation for the patience and forbearance of the committee in the fact that an agreement has not been able to be brought before the committee for earlier scrutiny. I intend to update the committee as far as I can this morning and subject to the agreement of the Parliamentary Bureau. The First Minister intends to update Parliament in a statement this afternoon. Paragraph 94 of the Smith commission report recommended that the devolution of further tax and spending powers to the Scottish Parliament should be accompanied by an updated fiscal framework for Scotland. Smith also recommended that the Scottish and United Kingdom Government should jointly work together to agree this framework. I have engaged with the United Kingdom Government since March last year on this task. The Joint Exchequer Committee has met 10 times to date, compromises have been made by both Governments and I remain fully committed to reaching a deal. I can set out today in broad terms where progress has been made and what further work is needed in order to reach an agreement. On 7 October I set out to Parliament the areas where we needed to reach agreement as part of an acceptable fiscal framework. Those were on the block grant adjustment for tax on the implementation and on-going costs associated with the devolution of welfare benefits and securing additional capital and resource borrowing powers. I have made significant progress with the United Kingdom Government on a number of those issues. On the financial transfers to meet implementation and administration costs, I am satisfied that the proposals before us satisfy the Smith commission recommendation that Scotland should receive a share of the costs. On capital and resource borrowing, again I believe that the proposals before us ensure that the Scottish Government will receive the powers necessary to manage tax volatility and economic shocks, whilst also securing the additional flexibility to invest in infrastructure in Scotland and so improve our economic performance. However, we have so far been unable to reach a satisfactory agreement on the adjustment of the block grant for the new tax powers. That is due to a fundamental disagreement on the issue of no detriment. My clear position is that no detriment means that if tax policy and economic performance in Scotland remains the same as in the rest of the United Kingdom, then the Scottish budget should be no better or worse off either at the point of devolution or in the future than it would have been under the current funding framework. We accept that if the Scottish Government changes policy or if our economic performance diverges from the rest of the United Kingdom, then the costs and benefits of this should fall on the Scottish budget. However, if nothing changes, then our budget shouldn't change either, compared to what it would have been without the new powers. Similarly, the UK should be no better or worse off under those arrangements. I do not think that there is any ambiguity in what the Smith commission said about those vitally important issues. I have made it clear that I consider per capita index deduction to be the block grant adjustment mechanism that best fulfills the Smith commission principles and that is fairest to the Scotland and the United Kingdom. There is a clear consensus of support amongst academic experts and commentators for per capita index deduction as the method which best meets the Smith principles. Furthermore, the relevant committees of both the Scottish and United Kingdom parliaments have now endorsed per capita index deduction as the most appropriate mechanism for block grant adjustment. As I have said, this mechanism has also been supported by members of the Smith commission from four of the five parties who took part. The UK Government does not agree with the definition of no detriment and so far all the options that they have proposed include varying degrees of detriment to the Scottish budget. We continue to discuss the mechanism for adjusting the block grant with the UK Government but I will only agree to a proposal that achieves the Smith principle of no detriment in a way that is effective, transparent and sustainable. To summarise the progress that we have made, I believe that we have reached an acceptable agreement on all issues with the exception of the key question, the method of block grant adjustment. The reason for that fact is that there remains a fundamental difference on the principle of no detriment. I believe that no detriment means that our budget should not be cut as a consequence of the devolution of those powers. The UK Government takes a different view. The negotiations that I have said, I need to conclude soon, I remain committed to sharing as much information as I can so that both parliaments have time to scrutinise the framework and the Scottish Parliament can consider it alongside the bill and the legislative consent motion. There has been progress, that is good to hear. Obviously, we are now down to the area of indexation and block grant adjustment. The no detriment element had two elements to it, of course. It had no detriment to the Scottish position but it also effectively said on the second element that I think I got it right. There should be no detriment in regard to the impact on the rest of the UK. From what I have seen from public commentary, the Scottish Government has attempted to persuade the UK Government from the methodology that is being used that there would be no detriment for the UK taxpayer as a result of the proposals put forth by the Scottish Government. Can you walk us through that so that it can be a bit clearer to us? All that we have obviously seen is the public commentary. There are two Smith principles of no detriment. The first is essentially the principle that I have outlined in my opening statement whereby if tax policy and economic performance in Scotland remains the same as in the rest of the UK, then Scotland will be the same. There should be no better or no worse off. Equally, the United Kingdom should be no better or no worse off from the current arrangements. There have been some issues raised about the application of per capita index deduction whereby, in certain circumstances, for example, if the United Kingdom Government was to decide to increase taxation, for example, in the rest of the UK, to pay for investment, investment in the health service, that would be the raising of a devolved tax, a devolved tax in the rest of the UK, which would create a Barnett consequential from which we would be a beneficiary. I accept that that contradicts the second no detriment principle that was inherent in the Smith commission report. We have put forward mechanisms that would temper that fact within the per capita index deduction methodology. I have accepted that there is an issue that creates an unwarranted gain for Scotland that has to be addressed as a consequence of the arrangements that we put in place. Why have the Treasury not accepted that modified proposal from your perspective? It is for the United Kingdom Government to explain their stance. I understand that the Secretary of State for Scotland is coming to the committee later on today and I am sure that we will be happy to address that point. I come back to the fundamental question that we have wrestled with, which is the principle of no detriment. Fundamentally, we are not in agreement with the principle of no detriment means that the Scottish budget should, in no way, be subject to systematic reduction as a consequence of the devolution of these powers. That is the issue that we have wrestled with throughout the negotiations that have been under way. You might be reluctant, Deputy First Minister, to get into some of the numbers on this, but there has been some public commentary, obviously. In terms of the position that the UK Treasury finds itself in now, have the Scottish Government made an estimate of what the potential impact would be on the Scottish budget from the most recent position from the Treasury? The approach of the UK Government has involved a variety of proposals and there have been public assessments made of what the implications of those proposals would be. My estimate on the current proposals that we have from the UK Government in that respect is that we could be looking at a reduction in the Scottish budget of in excess of £2 billion over a 10-year period. That, to me, was not what the Smith commission was recommending. It was not what the Smith commission had in its mind when it said that there should be no detriment arising out of the devolution of these powers. That is the fundamental issue with which we still wrestle. If the differences could appear quite fundamental, can a deal be done? Do you have any idea how long that might be? I think that what I have tried to do today is to demonstrate to the committee, and I will take this opportunity to reiterate it to the committee. On all other issues, I believe that we are in a position of agreement. I would be in a position to recommend a deal, to part the deal that is currently on the table with the exception that I cannot recommend the position that we have reached on the block grant adjustment. I think that a lot of progress has been made. There have been compromises on both sides to get us to the position that we find ourselves in now. The discussions about the block grant adjustment have not just cropped up in the last 24 hours. They have been part of the discussion for the entirety of the 10 meetings of the Joint Exchequer Committee. We have been wrestling with the same point for all that time. That is not a new issue that has just cropped up. It has been a persistent issue with which we have been trying to resolve the details. I am sure that everybody else would like to repeat that. You have referred to some movement that you have been able to make in terms of concerns about the second principle about taxpayer fairness. I think that some suggestions were made by the Scottish Affairs Committee on that. Is the proposal that you have made in relation to the example that you gave about extra spending on devolved areas in England? Is that the substance of that, or is there anything else that you have offered or could offer that was consistent with the per capita principle that would help to allay some fears, if you have any legitimate fears? I make two points in response to Mr Chisholm. The first is to say that he is absolutely right to link that question to the Barnett formula, because the principle that the Smith commission established in clause 95.1, that the Barnett formula should continue to determine the size of the Scottish budget. That is essentially the test that any mechanism must perform against. We can work out what Barnett would give us in terms of public expenditure. Any block grant adjustment must therefore be tested against that line. If it is flat as a pancake, then it meets the test. That is what per capita index deduction does. It is flat as a pancake with Barnett. If you look at anything that delivers a lower line than Barnett, then that is detriment, and the proposals with which I am dealing involve detriment. Mr Chisholm is absolutely right to link it back to Barnett, because that was the commitment that was given in advance of the referendum. That was what was taken forward by the Smith commission as clause 95.1. It determines the test on which this issue has to be resolved. The second point that Mr Chisholm made was about what variation could be undertaken. The Scottish Affairs Select Committee, I thought, explored this issue very openly and effectively and brought forward some suggestions and some questions about how per capita index deduction could be adapted to meet those particular tests. I have offered those mechanisms. If there were other ways in which I could consider adjusting that approach to try to resolve the issue, I would be happy to consider that. I do not consider that to be a closed issue. If there were other ways in which we could adjust the application of per capita index deduction to address any potential anomalies, I would be prepared to do so within the consistency of the principles of the no detriment approach that was set out by Smith. It seems to me that the Treasury is behaving as the Treasury always does behave. In just looking ahead, does the Deputy First Minister see any way of getting out of this impasse? I suppose many people might think that it really needs to get the Prime Minister's attention. He is obviously occupied with other matters. Just looking at the week ahead, is there any more meeting scheduled? Is there any suggestion that the Prime Minister would get involved? Because it looks as if, as far as negotiations with the Treasury goes, there is an impasse? I want to characterise the discussions as fairly as I possibly can do. I think that there has been a great deal of progress made in these discussions to the point that I can come before the committee and say that all other issues are resolved in a fight. I have not got everything the way that I would like it to be, but I think that there is a perfectly reasonable proposition on the table on all other questions, apart from the block grant adjustment. The block grant adjustment issue is, in my view, at odds with the Smith commission report. I do not consider that I have the right to negotiate away what was agreed by my colleagues in the Smith commission of all parties and what was set out as the response of the Smith commission to the challenge arising from the demand for extra powers after the referendum. There has been a good effort to try to resolve those issues, but there is a fundamental point of principle that we are not yet able to get across. What is the means of addressing that? I am pretty clear that we need to see movement from the United Kingdom Government on this question, because I do not believe that I am in a position to move forward. There is a way from the principle that the Smith commission set out and what was in the mind of the Smith commission when it formulated its recommendations. I think that we are going to have a lot of this going back around the same questions this morning, but I want to be clear about the UK Government's approach. It seems to be that they must find a formula that provides fairness for the rest of the UK taxpayers to sum up. However, this morning, you seem to have suggested, Deputy First Minister, that the per capita index deduction model, plus the adjustments for any changes that the UK Government might make to—for example, you gave us in health if there was a change in income tax in the rest of the UK, which then went to health. If it was not a change put in place, that would provide additional funding through Barnett, which would not be fair to the rest of the UK taxpayers. Am I correct in saying that you have accepted that the per capita index deduction model with the adjustments that you would not accept additional monies that would otherwise have come through Barnett for changes in taxation in devolved areas in the rest of the UK? That is correct. I am struggling to understand why the UK Government objects to that. That seems to meet Smith on the one hand, but it also seems to meet its argument that we have to be fair to the rest of the UK taxpayers. I am struggling, but I am not understanding why they have a problem with that. The important point is in relation to two points in that respect. One is on the issue of tax policy decisions, which is the point that I have made in relation to accepting where tax policy changes are driven by UK Government actions and approaches that we need to take account of in per capita index deduction. That is exactly what we have done. The second point, which is the fundamental answer to Mr Max's question, is in relation to the question of what is judged to be fair in those arrangements to the rest of the UK. The test of fairness that I am applying is the test that the Smith commission applied, which was that Scotland and the rest of the UK should be no better or no worse off as a consequence of the devolution of those powers, from what would have been the position had those powers not been devolved. That is essentially the test set by clause 95.1 of the Smith commission report in relation to the application of the Barnett formula, which of course was one of the central commitments of the vow made just days before the referendum. I simply want to make sure that we are consistent with what would have been delivered under the Barnett formula and that the UK Government takes a different view. The UK Government's position is that Smith seems to be clear that the agreement reached was that it is not the devolution of the power itself that causes changes, it is the use of the power that causes change. Therefore, the Scottish Government could be better off or worse off on the basis of that change and you would have to live with that risk or that benefit. I accept that there are two stages to that. From the devolution of the powers, I believe that I am well-founded in this view from the Smith commission conclusions that we should be no better or no worse off as a consequence of the devolution of the powers. The second point is that when we then exercise those powers, if there is a revenue gain, we get to hold on to it. If there is a revenue loss, we have to deal with the consequences of that. That is the principle of fiscal responsibility that is also inherent in the Smith commission report. There is a difference between the devolution of the powers to the exercise of those powers and the living with the consequences of exercising those powers. If a future Scottish Government, let's assume for a moment that those powers were devolved, and a future Scottish Government did nothing to change the taxation levels in relation to what the taxation levels were in the rest of the UK, then under the model being proposed at the moment by the UK Government, what you are saying is that the Scottish Government's budget would fall by, I think you said, £2 billion over a period of 10 years. By doing nothing, effectively, we end up in a situation where our budget is cut by £2 billion over that period of time. As a consequence of acquiring those powers, I don't believe for a moment that the members of the Smith commission were taking the view that when they were arguing for the devolution of those powers and the application of the principle of no detriment on the devolution of those powers, that the Smith commission had in its mind that there should be, essentially, an automatic reduction in the budget of the Scottish Parliament as a consequence. I agree with the tenor of your remarks, Deputy First Minister, on the process being all but agreed other than this one point of fundamental disagreement. The committee very strongly understands that. In that context, has the First Minister spoken or discussed that with the Prime Minister, as Malcolm Chisholm was asking earlier? There has been a discussion between the First Minister and the Prime Minister, which took place, I think, about 10 days ago, if I am correct in my dates, if I need to correct that, I will do that, but it is of that order. Obviously, there has been more recent discussion with the Treasury. I was in the Treasury on Friday, I met with the chief secretary and with the chancellor of the Exchequer, and yesterday I had further telephone conversations with both the chancellor and the chief secretary. Do you think that it was fair to suggest to you earlier on that the way in which this fundamental disagreement is going to be resolved is at that level, is at the First Minister and Prime Minister level? I think that that is, in my view, other than parliamentary scrutiny and parliamentary discussion, the other channel that exists to try to resolve this issue. Thank you. Would it be fair to assume, therefore, that when the First Minister updates Parliament this afternoon she would have something to say on that, given that that is obviously the one area that does need to be resolved? Yes. Thank you. The other other question that I wanted to ask is, I am trying to, again, like other colleagues, understand what the Treasury's position is, and you are right that we can obviously ask the Secretary of State that later today. At any time, have they played in the changes that are going on within England that, in particular, the chancellor is making much of? Does that have any bearing on the financial model and the specific per capita discussions that have been taking place? Mr Scott will appreciate that. I am trying very hard to be open with the committee, but without breaching the nature of the negotiation process in which I have been involved. I can surmise that the United Kingdom Government has, in its mind, the implications of what might be agreed in this particular discussion for other parts of the United Kingdom. I do not think that that is a unique process. I think that Tavish Scott too, I think. Maybe rerun it again within this context. There is an agreement within reach that is still the big difficult bit to go. Do you see your role in that complete now? Do you have space in your diary put aside this week to have further talks on this issue? What date does the First Minister have her diary to meet with the Prime Minister this week? I want to make it clear to the committee that the Scottish Government, the First Minister and myself will make ourselves available for any conversation that is required to try to advance those discussions. I do not think that anybody could layer charge at me that I have not allocated the necessary amount of time to try to resolve this at great inconvenience. If Mr McNeill wishes to consult with my constituents who were expecting to see me on Friday and who did not see me on Friday because I went to London to pursue those discussions, he will understand the sense of priority that I have given to this particular issue. The work that you have put in, I would suggest that you have taken it as far as you have possibly taken it. I am just taking your remarks on what you have said this morning. I am looking for this next closing stage and what we would expect from a negotiation like this, where the Prime Minister and the First Minister come together when this week are they coming together to close this deal? I think that discussions will be pursued to try to do that, but I cannot give the committee any fixed dates on that question. There has been some suggestion from some quarters, Deputy First Minister, that essentially a means of breaking the impasse would be for the Treasury to say that we will underwrite any shortfall in the Scottish funding and we can review it all after a three to five year period. What is your take on that position that has been advanced? The question really relates to what is the underlying method of block grant adjustment. In all my discussions on this question, I think that I have come ever more sharply to the view that that issue cannot be fudged, it cannot be put off. If you put it off to some review at a later stage without knowing what is the reference point or the anchor point for the block grant adjustment, you have uncertainty about what the block grant adjustment would be. I do not think that that is a stable mechanism that is the type of requirement that the Smith commission put upon us. Your view would be that what needs to be put in place needs to be sustainable in the long term. It cannot be something that is put in place in order to get a deal done and then we will all come back to it in five years time. If it has not worked the way that was intended by Smith, we can unpick it. I suppose that opens up future risk in terms of who is going to be around the negotiating table at that stage as well. I think that there has to be a very clear understanding of what happens if an issue was to be put off to review at a later date. There has to be a clear understanding of what happens if agreement cannot be reached at that stage. If there is not a clear understanding of what happens at that stage, that bridge uncertainty within the details of what will be the financial framework that underpins the devolution of those powers. That would be a significant increase in the risk that would be carried as a consequence. I guess that the following on that would be in terms of what the UK Government is continuing to put forward. We have discussed the no detriment issue. Has the chief secretary outlined in detail what his understanding of no detriment is? I mean, you have been very plain to us today about what you see as no detriment. I think that that would be the view that this committee has taken of what no detriment is. Has the chief secretary given an understanding of how he interprets no detriment from his perspective, given that he obviously is at odds about what it means? Yes, he has given a very clear explanation of his view of no detriment. Just before we move on to another area, the key issue for this committee is when more information is going to be available for us to scrutinise the agreement. I realise that there is no deal until everything is sorted out. Obviously, there is a lot of information available of the areas of agreement that already exist. That might be an agreement by two Governments, but this committee has not agreed that those areas are areas that we are satisfied on. I wonder how soon we can see some of that information so that we can begin as a committee to make a judgment on whether or not the areas that have already been agreed on that we find acceptable. I have to preface my remarks in response to your question, convener, by saying that I have tried to give the committee the clearest possible sense of what are the remaining issues in relation to the resolution of this issue, and it is in fact the block grant adjustment, as I have set out. The committee has to understand that I am not suggesting that there is an agreement here already. As you have just said, nothing is agreed until everything is agreed, but what I am trying to say to the committee is that if we could resolve the block grant adjustment issue, I would be able to bring forward an agreement to the committee really very quickly. However, I have to be realistic with the committee that if I cannot resolve the block grant adjustment issue, I cannot see how I can bring a wider agreement to the committee for scrutiny, and I cannot bring part of the agreement to the committee for scrutiny because nothing is agreed until everything is agreed. I understand that point. The final question that I will ask before I go to Stuart McMillan would be, if there is no agreement, will you publish the papers, at least so that we can understand the detail, even though there is no agreement on the table? I have committed publicly that I will publish all documentation that is relevant to the discussions before dissolution of Parliament. Stuart McMillan. Good morning, Deputy First Minister. I have a couple of questions regarding the fiscal rules and borrowing. I have listened to what you have said this morning, and things have certainly progressed in that particular area. One of the underlying features of the whole fiscal arrangements should be around fairness. You did say that both sides have compromised on a number of areas. In a position to provide the committee with any details on any levels of compromise that have been undertaken by both sides on the issues of the fiscal rules and borrowing. I prefer not to go into detail beyond what I have said, other than to say that I believe that the position that we have reached on capital borrowing provides us with increased flexibility in relation to the undertaking of capital investment activity. On resource borrowing, I think that additional flexibility has been generated to enable us to deal with both economic shocks that are Scottish specific and the issue of tax volatility, which will be a more significant consideration for the Scottish Government in due course. In terms of the discussions, have discussions between the two Governments included whether or not the UK Government should have a particular stance on bailing out of the Scottish Government if that was required? It is not terminology that I would recognise. I am very clear that we operate within fiscal rules under the current arrangements and they are obligatory fiscal rules. If there are different set of fiscal rules that were to apply with the acquisition of new powers, then we would have to operate under those obligatory fiscal rules. We have to make sure that we live within them and that the parameters of fiscal flexibility, particularly in relation to resource borrowing, should be sufficient to enable the Scottish Government to exercise fiscal responsibility. We should be prepared and able to do that in all circumstances. On the borrowing thing, before I come to Tavish Scott, in general terms, I realise that you cannot go into some of the detail obviously. Our committee had a preference in our report that we produced for a prudential borrowing regime. Is it in that particular sphere or is it more about higher borrowing limits being available to a future Scottish Government? The borrowing arrangements that I consider to be satisfactory are within the context of a framework for borrowing, which is not prudential. Can I just ask—you answered the convener earlier on by saying that you would publish all the papers prior to dissolution whether to be no agreement, which begs the question, if there is no agreement, is that it? Is the bill dead? What does happen at that stage? Because presumably whatever Government is elected after may—I would have thought—want to take forward and try and reach agreement? What is your perspective on what happens if we literally do achieve nothing before we all cease to become elected members? That is a particularly difficult question. I think that the issue is most easily resolved by getting to a fiscal agreement about that. I do not think that we should delude ourselves that the issue becomes any easier, the later it goes on. I think that the discussions in a sense become more prolonged and protracted potentially. My hope is that we can resolve those issues and resolve them timurously so that we can proceed to give legislative consent on the Scotland bill. It has always been my position that that was what we should try to do. I know that the committee will understand that that has to be on an acceptable basis. I agree with that, and I think that we all do. On Duncan Neill's point, is it this week's make-or-break? We are all under enormous pressure on time, not least for the Government itself. Is this week it? Throughout the discussions with the UK Government, I have been stressing the importance that I attach to making sure that Parliament has the opportunity to properly scrutinise this arrangement. I have felt distinctly uncomfortable for some considerable time about the fact that I have not been able to open up this process to scrutinise it. It is not the way that this institution works. It is not the way that I have been—essentially—experienced parliamentary scrutiny. It is a very open institution, and I have not been able to fulfil that. That has been profoundly uncomfortable for me for some considerable time. I feel that I have absolutely no alternative today. I am afraid to share some detail. There may be some exception taken to the amount of detail that I have shared with the committee this morning, but I am afraid that I just have to be lived with, because I cannot see how I can sit here and not answer the committee's reasonable questions on this point. It is so important that Parliament has confidence in the arrangements that have been negotiated on its behalf, and free, if Parliament judges it, to say that we do not believe that those arrangements are strong enough or appropriate enough. I am very mindful of parliamentary opinion. I can listen to what members have said. I can look at what committees have said for a sustained period. I am aware of what Parliament expects to see from this agreement. I am confident that, on all issues other than the block grant adjustment, I have a set of proposals that I could confidently defend with Parliament, but I could not defend the proposals that have been put to me on block grant adjustment other than the ones that I have advanced on per captain's deduction. As we move on to areas of welfare now, it is fair to say at this stage that, given your comments to the Deputy First Minister, this committee cannot be in a situation where we are rubbing rubber stamping something at the end. I think that you accept that from the comments that you make. We need to make these points later to the Secretary of State. It is imperative that we are able to scrutinise the detail of this agreement. I think that we would all be very anxious if we were in that situation of simply rubber stamping, because we need to put a considered report with lots of detail in front of the Parliamentarians of the Chance to examine the detail. We will leave that point, that particular bit of questioning at that stage. In Linda, you want to move into areas of welfare. Deputy First Minister, it seems quite clear, both from what you have said today and from what we have heard in evidence to this committee, that neither the spirit nor the substance of the Smith agreement is being met in terms of block grant adjustment. You said that you had recognised that there had to be compromises in both sides on other things that you feel have come together. Can I ask whether, in terms of both welfare and the work programme, both of those things have impacts on the other, whether you feel that the potential agreement that you have reached on that meets the spirit and substance of the Smith agreement? One of the issues in relation to employability support is the fact that, since the Smith commission agreement was made in November of 2014, and a commitment given to devolve employment programmes, particularly the work programme, the United Kingdom Government has changed its policy position on these programmes and has particularly reduced the amount of funding that has been made. That, quite clearly, has been an issue of concern for us. In November 2014, the prospect of devolution of employability support was a greater prospect than what is proposed to be devolved by the UK Government when the process comes for devolution. At some stage in the future, there is a diminished proposition on employment support than what we would have imagined was the case when the Smith commission reported in November 2014. That has been an issue of discussion with the UK Government and one where I have to say that I have not got all that I wanted but I am prepared to live with the consequences of what has now been the way that we have reached on that issue. Have we got better than the Pretty Battles argument to us in a letter that said that the budget would be reduced by 87 per cent? Is that still the area that we are in? That is still the area that we are in. That is fine. Quite clearly, neither the spirit nor the substance in that regard was met. I think that what I am trying to say to the committee this morning is that in all the issues that we have looked over, we have not managed to reach conclusions that are perfect from my point of view. In the round, I am prepared to look at them and say that that looks to me to be a reasonable set of propositions. We have broadly got to that position on a whole host of questions, but the block grant adjustment remains the stand-out issue, which is of such significance that I could not in all faith say to the committee that I am going to hold this deal up because of employability arrangements. I am not ecstatic about them, but I am not going to hold up. I think that you are ever reasonable, Mr Swinney. One of the things that was of general concern on the Smith commission was that there should be no detriment to individuals as a consequence of taking over powers on welfare, and indeed there was the view that we should be able to create and top up. Can I ask if you feel that the potential agreement reached matches those things? Certainly, on the—since we move over on this question, I think that more importantly on to the contents of the Scotland bill and in this respect, I think that the latter clauses that were added to the Scotland bill by the Secretary of State in the House of Commons gave us the necessary flexibility to enable us to do that, so I am satisfied with those legislative provisions. Clearly, we have to make sure that all necessary financial arrangements are in place to make sure that those powers could be exercised. Would it be fair to say that that is all fine in one regard, as long as you get a reasonable and fair settlement matching the Smith commission on adjustment of the block grant? Without that, everything else would be up in the air. That is why it is so important that we recognise the equality of significance of both the Scotland bill and the fiscal framework. We cannot give legislative consent to the Scotland bill without having a fiscal framework that enables us to know how the basis upon which we would be exercising the powers in the Scotland bill. I accept entirely the point that Linda Fabiani makes, that there has to be an acceptable fiscal framework in place to enable us to exercise those responsibilities. The headline top stuff affects the individual. Following on from Linda Fabiani's questions, has there been any movement when it comes to welfare administration costs? Because it seemed that there was a considerable gulf there to be bridged, the HM Treasury were estimating that only £50 million was needed to cover all transition costs, whereas the Scottish Government felt that on-ground costs were needed. Does that mean that the growing administration costs for a devolved welfare system might be in the region of £200 million upwards? We have reached a position that I consider to be acceptable on the implementation and operational costs arising from the devolution of those responsibilities. There has been some positive movement there that you feel will be acceptable to Parliament. Obviously, the acquisition of new powers to the Parliament involves ever closer working with Westminster, and the committee spent an inconsiderable amount of time looking at inter-governmental relations. Do you feel that this has been a positive experience? Are you content with the way that it has been going? It is quite a question to consider whether it has been a positive experience or not. It has certainly been the experience. There is no doubt about that. I think that we have to see this. This is not just about inter-governmental working. This is also about a negotiation of its nature. It is not going to be a straightforward or easy process. There have been some tough issues to crack. I think that we have managed to crack a lot of those issues. It has involved compromise on my part, compromise on the part of the United Kingdom Government. I welcome that. We have got very far along the process, but there remain outstanding issues that have to be resolved. I think that what I have been anxious to do is to also make sure that in the inter-governmental, where we stray out of negotiations and inter-governmental working, we have in place mechanisms that will effectively and satisfactorily ensure that we can undertake good inter-governmental working to advance issues that will require a lot of joint working to implement the details of the Scotland Bill and the details of the fiscal framework. I would like to pursue this a bit, because clearly, if the set-up costs and the running costs of the welfare administration are greater than you expect in any deal that can be reached, then there has to be some means and a time scale in which those can be reassessed. That and many other things beg the question following on from what Alison Johnstone has said about a review period given the agreement that could be reached in the next short period and its implementation within the next two or three years. Has there been any discussions about how that might take place? On the question of the nature of the fiscal agreement, I have very much had in my mind the requirement of the Smith commission that we should be agreeing arrangements and then not constantly revisiting them. I think that that is the best way in which I could summarise the Smith commission agreement. I have been trying to get to sustainable arrangements that would not require to be reconsidered. When I, for example, have signed up to anything, we reached a point of agreement about the set-up costs and the implementation costs on welfare administration powers. I consider that to be closed, so that is up to me. If it costs us more, then it is an issue that I have to resolve as a finance minister. If it costs us less, then we have managed to operate something more efficiently and we have a gain out of it. If it costs us more to implement administration of such matters, I could not go back to the UK Government and say that I need you to reopen the issue, because I have entered into the negotiation of good faith, we have the agreement and that is an end to the matter. The only question of review has come into the question of trying to make progress on the block grant adjustment, but I dealt with questions from Mr McDonald earlier on about what we have to be mindful of in entering into a review on some questions in relation to the block grant if we do not know what would be the basis for resolving any disagreement about the nature of the block grant adjustment mechanism that might prevail, should there be no agreement in that review? I am going to come back to you, First Minister, because Alison Johnstone in fairness asked you a pretty fair question in terms of the amounts of money that were involved in welfare administration. You have told us pretty significantly already in terms of the employment programme area with a reduction from £53 million to £7 million in terms of what is available, so there is a compromise being made there. There is obviously some level of compromise being made in the level in regard to the administrative costs on welfare. For this committee to understand just how much, this is the tone of the negotiation that I am trying to get to here, because you have compromised there, there has obviously been some compromise in the area of welfare administration. I think that it would be fair for the committee to understand a bit more about what the scale of that was, because we can make a judgment at some stage. If you are being reasonable and compromising, we can ask the Secretary of State later what you have been reasonable and compromising on to get to a deal. To enable us to get to that situation, being able to have more information from you on that area would be very helpful. I do not think that I have placed on the record the numbers that you have said about employability. I think that I have been careful to say that the issues are off. There is no change in the UK Government's policy position on the approach to employability supports. I have been careful not to put specific numbers on the record, and I do not particularly feel keen to do so today. The point that I would make in relation to the welfare administration issues is that the Smith commission recommended that there should be a share of the costs that are paid by the UK Government. That is the outcome that we have been trying to secure. We have secured that outcome that is consistent with that definition. I would like to push you further, but I know that that is not going to get me any further in that area. I am sure that you understand the tone of negotiations that have helped us. I think that I can help the committee so far as to say that I have not got everything that I wanted out of this process. I am sure that the UK Government would say the same thing. I am sure that those things would rather not have had to have agreed with me about it. I am sure that I can give the committee a flavour about that. You have given the syndication areas where you have been compromising and being reasonable. We will see what they say later on in the evening. I was just going to say something that you might expect me to say. Is it not fair to say that you built in plenty of room for compromising your initial figure? I noticed that the estimated cost for welfare set up costs of up to £660 million. Less than two years ago, Alex Salmond was telling us that he could set up a whole independent Scottish administration for under £200 million. It is assuredly that you built a margin in there that you could negotiate away. Let me just say this. The Department for Work and Pensions estimates that the set up cost for the social security arrangements involved in the Scotland Bill is £350 million. What has been agreed as the UK Government's contribution towards that is less than that figure? I am correct to say that that is £50 million. The common three has been that it is £50 million. The Department for Work and Pensions estimates that the set up costs under the Scotland Bill are £350 million. The agreement that I have got to with the UK Government on their contribution to that one-off cost is less than that figure. Satisfied, Mr Jordan? Indeed. In that case, we will go to Rob Gibson. I think that he wants to ask a question around Crown Estate areas. Yes, indeed. In the Scotland Bill context, the committee has written to the Treasury about concerns about the memorandum of understanding being too restrictive and lacking in clarity. Has there been any further movement in that in the recent time that the negotiations have covered or is that part of the area that has been agreed to? On the provisions within the Scotland Bill, no. The United Kingdom Government has maintained its position on the Scotland Bill. The committee will be familiar with the position of the Scottish Government in that respect. In relation to the financial provisions, we have been involved in negotiations as part of this exercise. There is a proposition on the table in relation to the Crown Estate, which is not perfect, but it is something that I am prepared to live with. I think that we have come to the end of our discussions this morning. Thank you for giving us your time. We have a window of opportunity that is closing us as far as the solution and the Parliament is concerned. We encourage the UK Government to come to a conclusion as early as possible so that the committee can go about its job of scrutinising the fiscal framework and the issues that remain with the Secretary of State. On behalf of the people of Scotland, that will affect whether that is what we are doing. Thank you very much to you and your officials for attending this morning. We meet tonight again in video conferencing with the Secretary of State. The time is 6.45. I close this meeting of the committee.