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Fiscal Framework

Published: 23 Feb 2016 17:30

First Minister informs Parliament of agreement between Scottish and UK Governments.

First Minister Nicola Sturgeon has updated MSPs on the agreement that has been reached on the fiscal framework to underpin the transfer of new powers under the Scotland Bill.

Ms Sturgeon also confirmed that a Draft Heads of Agreement will be published for scrutiny by Parliament by the end of the week.

The First Minister told Parliament:

"I provided an update to Parliament earlier today on the negotiations between the UK and the Scottish Governments to reach a deal on the fiscal framework that is required to accompany the Scotland Bill.

"At that time I confirmed that we had made significant progress on a range of issues but that negotiations on the key issue of the Block Grant Adjustment mechanism were ongoing and further proposals had recently been received from the Treasury.

"I made clear that for this Government to sign up to a deal on the basis of a transitional arrangement we also required there to be a fair review mechanism that did not prejudge the outcome and that would not default to a funding proposal that delivered population driven detriment to the Scottish budget.

"I have been clear throughout that I would not sign up to a systematic cut to Scotland's budget - whether that cut is being applied today or by a pre-judged review in five or six years time.

"During the course of this afternoon, negotiations have continued on that basis and I have spoken to the Chancellor.

"As a result of these conversations, I can report to Parliament that there is now an agreement in principle that I believe we can recommend to Parliament. Draft Heads of Agreement will be published for scrutiny by Parliament by the end of this week.

"That agreement – if it is supported by this Parliament – will secure the following outcome.

"There will be not a single penny of detriment to the Scottish Government's budget as a result of the devolution of powers during the transition period, for the next six years to March 2022.

"The UK Government will guarantee that the outcome of the Scottish Government's preferred funding model, which is Per Capita Indexed Deduction, is delivered in each of those years. In addition – we have agreed that at the point of the review, the conditions that I set out will be met in full

"Transitional funding arrangements will be reviewed following the UK and Scottish Parliament elections in 2020 and 2021 respectively.

"The review will be informed by an independent report with recommendations presented to both governments by the end of 2021.

"And crucially the fiscal framework will not include or assume the method for adjusting the block grant beyond this transitional period. The two governments will require to jointly agree that method as part of the review. We also agreed that the method adopted will deliver results consistent with the Smith Commission's recommendations, including the principles of taxpayer fairness, economic responsibility and, crucially, the principle of no detriment.

"In summary, the agreement we have reached on the Block Grant Adjustment ensures that there is no detriment for the next six years and that there can be no default by the UK Government after that to a funding model that would deliver detriment in the future.

"We have secured no detriment now, and for the next six years, and we have ensured that there can be no detriment imposed on Scotland at any point in the future.

"As the Deputy First Minister and I have made clear, there has been give and take in these negotiations, we did not get everything we wanted. But when these discussions began in June last year, the Deputy First Minister faced a proposal from the Treasury which would have delivered £7 billion of detriment to the Scottish budget over the next ten years.

"During these negotiations we have made absolutely sure there will not be £7 billion or £3 billion of detriment. This deal will not allow a single pound, or even a penny, to be taken from the Scottish Government's budget.

"This deal will ensure that the funding for Scotland cannot be changed without the Scottish Government's agreement. It protects the Barnett formula. And it will allow the powers in the Scotland Bill to be delivered."