Scottish Affairs Committee backs John Swinney's position in Fiscal Framework negotiations

The Scottish Affairs Committee has unanimously backed John Swinney’s preferred block grant reduction plan in negotiations over the fiscal framework.

Talks over the fiscal framework have stalled as the Scottish and UK Governments have clashed over how to reduce the block grant.

The Treasury argues for indexing the adjustment to the block grant to an amount equivalent to a population share of the change in rest of UK revenues – known as the ‘levels deduction method’.

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But the committee report warns the Levels Deduction method would breach the principle of no detriment, which stipulates that any deal must not leave Scotland worse off than if further powers had not been transferred.  

It says: “In effect, under the Levels Deduction approach, tax revenues in Scotland would need to increase at a faster rate than in the rest of the UK in order for the existing levels of public spending in Scotland to be maintained”.

Instead, the report backs the per capita method of indexation, which the Committee says protects Scotland from relative lower population growth and the associated dampening effect on revenue growth.

The report says the per capita method satisfies the ‘no detriment’ principle in the Smith Agreement, but warns that if left unchecked “this approach would see the level of redistribution rising. This is because a population-based share of spending would be greater than a revenue-based adjustment to the block grant and that gap would be expected to grow if current population trends continued”.

As such, the report recommends that an additional adjustment could be made to the Per Capita Indexed Deduction approach to ensure Scotland’s funding per capita does not increase beyond a certain point relative to the rest of the UK.

Kirsty Blackman, one of the SNP members of the committee, said: “It was clear from all the evidence we received and from our analysis of the propositions being put forward that only the per capita indexed deduction method can meet the central Smith principle of "no detriment" to the Scottish budget. The Scottish Affairs Committee now joins a growing expert and political consensus that this should be the basis of any agreement to the adjustment to the block grant.

“The firm view of the vast majority of witnesses was that any other means of determining the block grant could cost billions of pounds to the Scottish budget over the course of the next few years.

“The Prime Minister has made clear his concern that any deal is fair to English taxpayers.  I hope that this report from a Westminster committee - with a majority of members representing English constituencies reassures him.”

The Treasury released a statement saying: “The offer we have placed on the negotiating table is not only in line with the ‘no detriment’ principle but would have delivered more funding for the Scottish Government than the existing Barnett Formula since devolution in 1999.

“From the outset our position on the fiscal framework has been clear; we stand ready to do a deal that is fair for Scotland and fair for the rest of the UK.”

The report also recommends that economic forecasting should be provided by an independent body, with the Scottish Fiscal Commission given additional powers and that the Scottish Government should borrow from the market, underwritten by UK government, to instil market discipline and transparency in borrowing.

A specific limit on current borrowing should be set and published to indicate additional risk being undertaken by Scottish government and measure performance, the committee said.

It also recommended the Scottish Government should retain any additional VAT intake from improved economic performance and that the operation of fiscal framework to be reviewed after four years.