Public Finances: Scotland

Ian Murray Excerpts

Wednesday 3rd February 2016 Commons Chamber

[Ian Murray (Edinburgh South) (Lab)]

I beg to move,

That this House notes the ongoing negotiations between the Scottish and UK Governments in the Joint Exchequer Committee on a revised fiscal framework to accompany the Scotland Bill; regrets that, despite both Governments repeatedly stating that the negotiation of a revised fiscal framework would be concluded by autumn last year, no agreement has been reached; further regrets the complete lack of transparency with which negotiations have been conducted; notes that, until agreement is reached, the measures in the Scotland Bill will not be implemented and the substantial new powers it contains will not be deployed for the benefit of the Scottish people; believes that both the UK and Scottish Governments have a duty to ensure that the negotiation of a revised fiscal framework which is fair to Scotland is completed in time for the Scotland Bill to be approved by the Scottish Parliament prior to its dissolution, so that it can use its current and future powers for the benefit of the people of Scotland; and calls on the UK Government to publish all minutes and papers from the Joint Exchequer Committee negotiations, and to assure the House that every effort is being made to ensure that agreement on a revised fiscal framework is reached, and the Scotland Bill is passed, prior to the Scottish Parliament elections.

I am sorry that you do not want an oratorical flourish, Madam Deputy Speaker, because that is what I was preparing to give—but never mind; we will continue with the debate. I appreciate that this debate has been curtailed because of the previous debate, which was on an incredibly important issue, and because of the Prime Minister’s statement. We have to accept how the House works in such circumstances.

It is a pleasure to open this debate for the Opposition. At its core, this debate is about the transfer of new powers to Scotland under the Scotland Bill, which completed its passage through the House in November and is currently in the other place. It is worth briefly reflecting on the Bill, to put this debate about Scotland’s public finances and the fiscal framework into context. The Bill had its genesis in the vow and the Smith commission, the recommendations of which were agreed by all five major Scottish political parties. When passed, the Bill will transform the Scottish Parliament into one of the most powerful devolved Parliaments in the world.

Scotland will have control over all income tax, apart from non-savings and non-dividends income, which generated almost £11 billion in revenues in 2013-14. The Scottish Parliament will have the power to vary the rates and bands of income tax, to increase or decrease those revenues. This greatly enhances the powers devolved under the Scotland Act 2012, under which the Scottish Parliament controls just 10p in the pound. On that note, the Scottish Labour leader, Kezia Dugdale, announced yesterday that, faced with a choice of cutting into Scotland’s future or using the powers of the Scottish Parliament, we would use the latter to set the Scottish rate of income tax at 11p, rather than the 10p in the SNP Budget, to invest in that very future for Scotland and to protect the low-paid. We made that point in the debate in the Scottish Parliament today.

These new revenue-raising powers are accompanied by new spending powers, such as control over £2.5 billion of welfare spending. The Scottish Parliament will be able to top up existing UK benefits and, thanks to concerted pressure from Labour and our amendments, will have total autonomy to create new benefits in devolved areas. When these new powers are enacted, the Scottish Parliament will be able to make different choices to create a better Scotland.

[John Redwood (Wokingham) (Con)]

Who in the hon. Gentleman’s party speaks for England to make sure that the settlement is fair to England as well as to Scotland?

[Ian Murray]

The settlement has to be fair to the rest of the UK as well, including England, but I will come to that later.

[Alex Cunningham (Stockton North) (Lab)]

We hear of cheers in the Scottish Parliament this afternoon when the Scottish Finance Minister tried to justify public expenditure cuts by the Tories. Is that not the final proof that the socialist credentials that the SNP claims have no foundation whatsoever?

[Ian Murray]

I am grateful to my hon. Friend for that intervention, because what we have seen this afternoon in Scotland is a Scottish Labour party determined to use the current powers of the Scottish Parliament to try to do something different from Conservative austerity. The result of that is a Scottish Finance Minister and a Scottish Government just managing that Conservative austerity. As I said earlier, when faced with the choice of managing the Tory austerity or creating a different future for Scotland, we have chosen to create that different future.

I was explaining the principles behind the Scotland Bill. However, before the Scotland Bill can be enacted they must be underpinned by a new fiscal framework for Scotland. That runs alongside the legislative process, which is slightly different from what happened with the Scotland Act in 2012.

It is crucial to state that the Smith commission stipulated that the Barnett formula would be retained as the mechanism for determining Scotland’s block grant. That is not in question in this debate. However, Scotland’s block grant will need to be adjusted to reflect both the new tax-raising powers and new expenditure responsibilities that are being devolved, and that is at the heart of today’s debate. Until that revised framework is agreed by the UK and Scottish Governments, the Scotland Bill cannot be enacted and the new powers and responsibilities it transfers cannot be implemented. We need a negotiated agreement in order to move on, otherwise the new powers will lie dormant and Scotland’s financial position in the future will remain very uncertain.

[David Mowat (Warrington South) (Con)]

The hon. Gentleman mentioned the Barnett formula and the vow, and of course he is right that the Barnett formula will be retained, but he will also be aware that it is not based on relative need and therefore is not fair to England, and in particular to Wales. Will he therefore, as a member of a party of the left, support reform of the Barnett formula to make it more progressive for the whole island?

[Ian Murray]

There is consensus across the entire Chamber that the Barnett formula should stay in place. It was in the vow signed by all the major party leaders who went into the general election. The Smith agreement has been signed by all five political parties, and that includes the maintenance of the Barnett formula. The hon. Gentleman, from the Conservative Back Benches, wants to renew and review the Barnett formula, which means only the Labour party in this Chamber will defend it. It would seem that the policy from the Conservative Back Benches is to do away with Barnett and that the Scottish National party wants full fiscal autonomy, which would also do away with the Barnett formula. We will defend the Barnett formula, because it is in the interests of our constituents to do so.

[David Mowat]

rose—

[Ian Murray]

I am happy to give way to the hon. Gentleman again, while bearing in mind that this debate is very much curtailed.

[David Mowat]

I do not want to do away with the Barnett formula. I would just like to see it revised so it is based on relative need, because that seems to me to be a very fair way forward.

[Ian Murray]

The Barnett formula is based on that need. It was designed in the 1970s to take into account not only the contribution that Scotland makes to the United Kingdom but its public service requirements and geographical nature. It commands broad political consensus and I do not think we should break that. That would be a very difficult message to send out.

The message from today is that it is the job of the Scottish and UK Government Ministers to get a deal. We heard today that the Chief Secretary to the Treasury, who I am delighted is in his place, will be in Edinburgh for talks all day on Monday. The people of Scotland will expect nothing less than a final deal that is signed, sealed and delivered. We support the Scottish Government in their efforts to reach an agreement that is fair, equitable and consistent with the Smith agreement. Again that is not in question, but reach an agreement they must.

[Helen Goodman (Bishop Auckland) (Lab)]

Surely before the Scottish referendum the Scottish people were promised these extra devolved powers and they will be extremely disappointed with all this shilly-shallying around and failure to come to an agreement after 18 months?

[Ian Murray]

That is the crux of our calling for this Opposition day debate. I will come on very soon to the issues around timescales and what should have been delivered by now, but nobody will forgive us in Scotland, or indeed across the rest of the United Kingdom, for breaking the promise of getting these powers through so that the Scottish Parliament can choose a different course, if it so wishes, from the rest of the UK.

As I was saying, reach an agreement they must. I believe there is broad consensus on this point across the Chamber. Indeed the SNP chair of the Scottish Affairs Committee, the hon. Member for Perth and North Perthshire (Pete Wishart)—I am delighted he is in his place—has also said that he wants

“assurances…that a deal will be reached in time.”

We do not agree on very much, but we certainly agree on that particular point. Few people would understand if both Governments were to walk off the job before it was done and instead start a blame game.

I want to highlight two key issues in the debate. The first is the secretive nature of the negotiations and the consistent refusal of both Governments to publish any meaningful papers or minutes from the Joint Exchequer Committee meetings.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I thank my hon. Friend for giving way. I did not mean to interrupt his flow; he is making an important speech. The Communities and Local Government Committee has published an important report today, not about Scottish devolution but about English devolution, and it contains major criticisms of the lack of openness over deal negotiations. Does he share my concern that the Government seem to be operating in an underhand way in relation to these negotiations as well?

[Ian Murray]

I agree with my hon. Friend. This seems to be very much the way in which this Government operate. We have just had a debate about taxation, and we have also discussed the devolution settlements that the Communities and Local Government Committee’s report mentions. It is important that we have transparency, because the only way to carry the public with us on the fundamental issue of devolution to local communities is to ensure that the arrangements are transparent, robust and democratic.

That brings me to my second concern in this Opposition day debate, which is the need to agree the framework so that the Scotland Bill can be passed in time for the Scottish parliamentary elections in May. For months now, the negotiations in the Joint Exchequer Committee have dragged on behind closed doors, shielded from public scrutiny. According to Scottish Government sources, agreement is as far off as it has ever been, while the tone of the Secretary of State suggests that he is straining every sinew to get a deal. There was always a danger that, away from the spotlight, the two Governments would fiddle and fixate and that the momentum to reach a deal would be lost. And so it has proved. This relates to the concern raised earlier by my hon. Friend the Member for Bishop Auckland (Helen Goodman).

At first, agreement was going to be reached by last autumn. The Scottish Secretary consistently referred to an autumn deadline, as did the Chief Secretary to the Treasury and the Deputy First Minister in Scotland, but no agreement materialised. Then the deadline was moved to mid-February. In mid-December, the First Minister talked up the prospect of a Valentine’s day deal, but come January her deputy, Mr Swinney, struck a downbeat note emphasising the big gap between the two Governments. He also introduced an arbitrary deadline of 12 February for a deal on the fiscal framework. If negotiations were not concluded by then, he would not table a legislative consent motion prior to the Scottish Parliament’s dissolution before the elections in May. I have yet to find out why that is the case, because the Scottish Parliament does not dissolve until late March. If no agreement is reached, the Scotland Bill will effectively be kicked into the long grass. That would mean no new powers for the foreseeable future.

For all that, I remain confident that if the political will exists, a deal can be reached. To test that political will, however, we need to bring the negotiations out into the open and allow the public to see whether this is brinkmanship or a proper negotiation. From the very beginning, I have bemoaned the absence of transparency at the heart of these negotiations. It is simply unacceptable that the process of redrawing Scotland’s fiscal terrain is taking place behind closed doors in vapour-filled rooms.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Does my hon. Friend agree that a key reason for the deal to be done before the Scottish parliamentary elections is to give the Scottish electorate some confidence in the promises being made by the political parties on spending and taxation? Does he also agree that there is great interest in this matter across the rest of the United Kingdom because of the asymmetric nature of devolution? We want to see how Scotland uses these powers.

[Ian Murray]

My hon. Friend is absolutely right. Without having the Scotland Bill on the statute book and available to be used from 1 April 2017, there will be obfuscation about what can go into party manifestos come May, and we will be having a constant debate about the constitution rather than about the transformation of Scotland. He is also right to suggest that this is not just about a fiscal framework for Scotland. It is important for these negotiations to run in parallel with the Scotland Bill, but they also have significant implications for the rest of the United Kingdom. The no detriment principle for Scotland works both ways; it is also a no detriment principle for the rest of the United Kingdom. That point is often lost in these discussions.

As I was saying, I have bemoaned from the very beginning the absence of transparency. It is simply unacceptable that the process of redrawing Scotland’s fiscal terrain is taking place behind closed doors. David Bell, the respected economist, has noted the secretive nature of these discussions. He said:

“These discussions are taking place behind closed doors with little information publically available about the options being considered and the effects of these options.”

Asked to offer his thoughts on these proceedings, Professor Muscatelli said:

“I will be honest, it is difficult for anybody on the outside to see what exactly the stumbling block is”

in these negotiations. Even the Chair of the Scottish Affairs Committee—this might be the second time we have agreed—said that the negotiations and the transparency at their heart are “not good enough”. I also warmly welcome the Scottish Affairs Committee’s in-depth inquiry on this issue, which it will publish soon.

I ask why both Governments refuse to publish papers and minutes, as requested. On 9 September, I wrote to the chairs of the Joint Exchequer Committee, John Swinney and the Chief Secretary to the Treasury, with the perfectly reasonable request to publish papers and minutes from the meetings, but they refused to do so. I also tabled written and oral questions to ask that we be kept updated on the progress of the negotiations and that substantial details of the discussions be placed in the public domain, but, once again, my request was rejected. Both Governments said that they would not provide a “running commentary” on the negotiations, while providing the very same running commentary through the media. Meanwhile people in Scotland are very much in the dark. That has allowed politicians on both sides to seek to exploit the secrecy, rather than getting on with finalising the deal.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Does that not also trouble my hon. Friend, because it goes back to the very principles of the Smith commission, pillar one of which explicitly said that one challenge faced in this new constitutional settlement was having much stronger, transparent parliamentary scrutiny of the work? It particularly identified the JEC. If we cannot get it right now, what hope do we have for the future?

[Ian Murray]

That is a timely intervention, because when everyone talks about making sure that the Smith agreement is delivered in spirit and in substance, they tend to forget the bits of the substance that it is inconvenient for them to remember, and that is one such bit. The JEC has not been transparent. One key plank of the Smith agreement was intergovernmental relations, and without that transparency we cannot see whether intergovernmental relations are actually working. One key thing about the whole devolution project, be it in Scotland, Wales, Northern Ireland or in the discussions about England, is to make sure that all the components of that devolved body of the United Kingdom can work together in partnership.

Let me compare these negotiations with the fiscal framework negotiations that sat alongside the Scotland Act 2012. I have here the minutes of the first meeting from that process, which took place on 27 September 2011, and they are a dusty tomb of information, giving details of who attended, points that were discussed, things that were agreed and things that were to come back to be agreed. By contrast, let me give a flavour of the communiqués from this year. The one relating to the 1 February meeting states:

“The Joint Exchequer Committee met in London today, chaired by John Swinney, Deputy First Minister and Cabinet Secretary for Finance, Constitution and Economy. HM Treasury was represented by…Chief Secretary to the Treasury.

This was the eighth meeting of the JEC since the publication of the Smith Commission report…The Ministers continued their discussion…

Both Ministers agreed to meet next week”.

The minutes on the 21 January meeting again introduce who was at the meeting, with their very long titles. They then state:

“This was the seventh meeting of the JEC since the publication of the Smith Commission report. The Ministers continued their discussion on the indexation methodologies for the Block Grant Adjustments and also discussed the initial transfer of funding for new welfare powers….

Both Ministers agreed to meet again shortly”.

They go on, running to less than a third of a page—a couple of paragraphs of minutes. I am not sure that having no details and no substance is acceptable.

It is not acceptable because the Scottish Government have threatened to veto the Bill if it is “not fair to Scotland.” The problem is that we do not know what, in their opinion, or in the UK Government’s opinion, is a fair deal for Scotland and what that looks like. We do not know in what way the current detail on offer from the UK Government is deficient on that test of fairness. It would appear that the main stumbling block is on the method used for the future indexation of the block grant. Of the methods being considered, the Scottish Government now favour the per capita index deduction. People can go to the Library to find out what that is—I will not explain it at this juncture. [Hon. Members: “Go on!”] I can go through the formula if Members want, and give a prize if they get the answer at the end. Less than a year ago, however, the Deputy First Minister told the Scottish Parliament’s Finance Committee that he favoured the indexed deduction, which takes into account population growth. There is clearly some confusion over which method is best for Scotland, which is why transparency of discussions is incredibly important.

[Kirsty Blackman (Aberdeen North) (SNP)]

I understand that the Labour party is feeling a bit sad, because, as it has not been successful enough to be in government in either country, it is not involved in these negotiations. Now that the shadow Secretary of State has the opportunity to have his say, can he please tell us what method of block grant adjustment Labour would favour?

[Ian Murray]

Well, we do not know—[Laughter.] Let me answer the question! We have not seen the negotiations, but, as the leader of the Scottish Labour party has said, we prefer the per capita index reduction model, because it is important that we have that particular debate. It is strange that the intervention gave the impression that we are being locked out. It is not the Labour party that has been locked out of these discussions, but the Scottish people, which is why we called this debate. We want to shed some light on these very secret discussions.

I noticed that the hon. Lady did not say whether she supports doing something in Scotland with the powers that her party currently has, or whether she is willing just to manage Conservative austerity.

[Alex Cunningham]

I thank my hon. Friend for giving way again. Does he agree that there are some amazing parallels between these negotiations and the Prime Minister’s EU negotiations, where we were kept totally in the dark all along and then we found out that there was nothing to see anyway?

[Ian Murray]

Absolutely. I suspect that that is part of the problem that we have now.

I am conscious of the time, so let me quickly wrap up by paying some attention to the SNP amendment that has been selected in the name of the right hon. Member for Moray (Angus Robertson). I cannot quite fathom why the party has tried to amend what is a very uncontentious motion. I thought that we could work together on this important issue given that we share the same goals for a fair deal for Scotland. Our motion merely reflects the views that have also been expressed by the Chair of the Scottish Affairs Committee. I have no problem at all with the SNP amendment as it is written, but it is a wrecking amendment, as it would completely replace everything that we are asking for in our amendment. I wish that the SNP had tabled the amendment as an addendum, and we could have gone forward together in consensus. The purpose of this debate is to get transparency and to ensure that a fair deal is done, and I would have thought that SNP Members would have agreed with that. I welcome the fact that they are now defenders of the Barnett formula, as a few months ago they were voting in this Chamber with the Conservatives to scrap the Barnett formula in favour of full fiscal autonomy. It does pose the question of whether they are really interested at all in getting these particular issues resolved.

Let me finish by talking a little about the democratic deficit, which was the second plank at the heart of these negotiations. We must close that deficit. The Scotland Bill is much too important for us not to do that.

I will conclude by posing a few questions, which I hope can be answered by the Secretary of the State in his opening remarks, or by his colleague, the Chief Secretary to the Treasury, at the conclusion of this debate. The Chief Secretary to the Treasury announced today that he will be in Scotland for more talks on Monday. What are the Secretary of State’s aspirations for that meeting, and is a deal expected at those talks? Does the Secretary of State recognise 12 February as a final deadline, and what will happen if a deal is not reached by that date? Will negotiations continue regardless of dissolution and the Scottish parliamentary elections? Will the Secretary of State publish the final offers from both parties for transparency purposes so that the public can determine whether or not these were good deals for Scotland? Has consideration been given to agreeing a deal for a trial period thus allowing for assessment and adjustment?

Our motion urges both Governments to work together and to stay at the table until a deal is agreed. It also calls on the UK Government to publish all minutes and papers from the Joint Exchequer Committee, and I commend it to the House.

[Madam Deputy Speaker (Natascha Engel)]

Order. I now have to announce the results of today’s two deferred Divisions. On the motion relating to social security regulations, the Ayes were 297 and the Noes were 73, so the Question was agreed. On the motion relating to the social security pensions Order, the Ayes were 301 and the Noes were 70, so the Question was agreed.

[The Division list is published at the end of today’s debates.]

--- Later in debate ---

[Stewart Hosie]

For the hon. Gentleman’s benefit, I will come on to the specific issue of raising tax in a just a moment.

Before I leave the context of the UK fiscal charter, let me say that we all recall the vote on 13 January 2015 on the implied £30 billion of cuts, when we made many of the same points we are making today. The great tragedy then and now is that the Labour party supported £30 billion of extra Tory pain and austerity.

[Ian Murray]

Will the hon. Gentleman give way?

[Stewart Hosie]

I will happily give way.

[Ian Murray]

Let us just dispel this constant nonsense from the Scottish National party. The hon. Gentleman’s own First Minister said, when she launched the Scottish business partnership at Tynecastle stadium in June, that the framework on which there was a vote on 13 January 2015 gave Governments enough flexibility to do as they wished. It was very similar to the fiscal framework or charter that he promoted back in November. He refuses to use such powers; he would rather demolish and demoralise Scottish public services.

[Stewart Hosie]

As the arguments are complicated, it is so much easier simply to quote in full from the 15 January issue of the new Labour leadership’s favourite newspaper, the Morning Star:

“Labour MP Diane Abbott accused her party’s leaders yesterday of doing working people a ‘great disservice’ by backing Tory plans for permanent austerity.”

The hon. Gentleman keeps getting it wrong.

The key thing is that Scotland’s budget has been cut and will continue to be cut by this Government, which makes the achievements of the Scottish Government all the more remarkable. That makes it all the more important not simply that we get any old fiscal agreement, but that we get it right. We must ensure that the Smith commission principle of “no detriment” is adhered to and that we do not embed unfairness in the system, so that we are not subject to possible additional cuts of about £350 million a year. We need to avoid that outcome so that we can continue to do good things and build on the progress we have seen in health spending, which is up to £12.3 billion this year and will be £13 billion next year, and in education.