Greg Hands, the Treasury chief, is “ready to deal” in a bid to break the deadlock with John Swinney over implementing Holyrood’s new tax powers before the February 12 deadline as he revealed he had cleared his diary and would travel to Scotland on Monday for more crunch talks.
His declaration came as David Mundell announced that the next House of Lords debate, scheduled for next Tuesday, had been put back to Monday February 22 so that peers could debate the Scotland Bill in light of any agreement on the so-called fiscal framework, the mechanism by which the new powers will be implemented.
The Scottish Secretary set out the change in a letter to Bruce Crawford, convenor of Holyrood's Further Powers Committee, and stressed how he wanted to "ensure both the Scottish Parliament and the House of Lords have as much information as possible for their consideration".
The February 12 deadline has been set by First Minister Nicola Sturgeon to enable the Holyrood committee time to scrutinise the hoped-for intergovernmental agreement on the framework.
Ahead of a Commons debate on it, Mr Hands stressed how he was determined to get a deal that was fair to Scotland and fair to the UK and remained “hopeful to confident” that he and the Deputy First Minister would succeed.
His optimistic tone contrasted with that of Mr Swinney, who cut a somewhat downbeat figure after Whitehall talks on Monday, when he emphasised how there was “still some considerable distance to travel” to resolve the disagreements.
The nub of the deadlock rests on how to reduce Scotland’s £30 billion annual block grant as the new tax powers are introduced from April 2017.
From the Scottish Government’s view option A - the per capita indexed deduction - is the best mechanism as, it believes, this will preserve Scottish funding levels into the future, if, as is predicted, the UK population grows more strongly than Scotland’s.
It opposes option B - indexed deduction – which, it argues, would leave Scotland £3.5bn out of pocket over 10 years and option C – levels deduction – which it says would cost Scotland £7bn over 10 years.
But the UK Government insists it would be unfair if, as the UK population grows, the UK taxpayer should pay more to fund Scottish public services given that, already, spending per head north of the border is higher by £1200 a year than it is south of the border.
Whitehall sources insist the UK Government has “bent over backwards” and “moved considerably” to compromise on the negotiations yet still the Scottish Government is not budging on Option A.
Asked at the Commons Scottish Affairs Committee if the SNP Government’s preferred per capita option was the best one, Mr Hands described it as “an interesting question”, later saying no it was not.
Stressing there was no academic consensus on which was the best mechanism, the Chief Secretary nonetheless talked up those who favoured Option C; the one Mr Swinney most strongly opposes.
Mr Hands highlighted the view of Oxford academic Professor Jim Gallagher, who argued the Scottish Government’s demands, if realised, would be unfair to the UK.
“But,” explained the minister, “he went on to say and this is very important: ‘It would be hard to explain to English taxpayers…that if their population grows, they must provide services for them but also send some of the tax these taxpayer pay to support additional services in Scotland, where the population has not grown.’”
The Tory frontbencher also pointed to how the respected economic think-tank, the Institute for Fiscal Studies, was favourable towards the Option C levels deduction mechanism.
Asked by Mr Wishart if he personally supported Option C, Mr Hands replied: “Levels(deduction) best answers(the) Smith(Commission) overall. There are different parts of Smith better answered by different models but if you were look right the way across the whole piece, then Levels best answers Smith.”
Mr Wishart pointed out how the Scottish Government feared Scotland could lose billions of pounds in the coming years if the wrong mechanism were used and asked if the Treasury appreciated its concerns.
Mr Hands explained it all depended what assumptions were put into any particular model, covering such issues as tax take, tax rates, population, absolute economic performance and the relative economic performance between Scotland and the rest of the UK.
When it was suggested the two governments were “miles apart”, Mr Hands pointed out how London and Edinburgh had done it before in relation to the 2012 Scotland Act and the Scottish rate of income tax.
“It can be done; it was done only a few years ago. I remain optimistic,” he declared.
But Mr Wishart insisted Mr Hands’s optimism would not secure a deal and suggested the Scottish Government was right to say No if the deal on the table would cost Scotland billions of pounds.
The minister added: “I’m ready to deal. I’m off to Edinburgh on Monday. I’m upbeat…notwithstanding the important and difficult issues. The UK Government remains absolutely committed to getting that deal.”
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