17 February 2016
First Minister Nicola Sturgeon has today written to the Prime Minister on the fiscal framework. The full text of the letter is below:
I am writing again about the fiscal framework.
I appreciate that you are heavily engaged this week with EU negotiations – and understandably so – but I feel I have no option but to seek your attention on this matter. Since the conduct of this negotiation is a matter of increasing public concern in Scotland, I have again concluded that I should make this letter available publicly.
You may be aware that the Scottish Government passed a revised proposal to the Treasury last Friday. The Deputy First Minister discussed that with the Chief Secretary on Tuesday, by telephone. The Chief Secretary continues to maintain that he cannot accept this proposal on the basis that it advocates the per capita index deduction (PCID) model for determining the block grant adjustment. This is notwithstanding the fact that PCID is considered to be the best way of satisfying the Smith Commission’s principles, not just by the Scottish Government, but also by committees of both the House of Commons and the Scottish Parliament, the broad consensus of academic opinion, the STUC and four out of the five parties represented on the Smith Commission.
The Chief Secretary’s continued reluctance to entertain this proposal makes it hard to avoid the conclusion that your government is unwilling to agree the principle of ‘no detriment’ in the terms set out in my letter to you of 9 February. If that were the case it would mean, in my view, that you had failed to honour both your pre-referendum Vow and your commitment to implement in full the recommendations of the Smith Commission. I think that view would be widely shared in Scotland.
In light of the strong support for the Scottish government’s proposal – and in view of the fact that your government’s current position would deliver substantial detriment to the Scottish budget – I would suggest that it is the Treasury, not the Scottish Government, that now needs to signal movement on the issue of the block grant adjustment.
It is also important to stress that to reach agreement, it will also be necessary for the Treasury to agree a fair and reasonable outcome on other outstanding issues set out in the Deputy First Minister’s proposal of last Friday, where there is still considerable distance between us, including capital and revenue borrowing and the transition costs – set up and administration – associated with the devolution of powers within the bill and specifically welfare powers.
For example, on the last of these issues, based on information provided by DWP and our own analysis of published data from DWP’s Personal Independence Payment and Universal Credit business cases, we estimate ongoing administration costs to be approximately £200m annually, and set up costs to be between £400m-£660m. Smith was clear that the devolution of welfare should be accompanied by an increase in Scotland’s block grant equivalent to existing UK expenditure in Scotland, including administrative savings and a share of the implementation and running costs “sufficient to support the functions being transferred”. The Deputy First Minister has indicated a willingness to compromise on these estimates – however, I hope you will appreciate why the Chief Secretary’s current offer of £50m to cover all transition costs associated with the fiscal framework (tax, welfare and other areas of spending) is not acceptable to us, and would not be recognised by people in Scotland as fair and reasonable.
Though time is running out, I remain committed to reaching an agreement. However, if we are to do so we must make substantial progress – and see significant movement from the Treasury – in a short space of time. I hope you will be prepared to intervene to make sure that this happens.
The Deputy First Minister remains available to travel to London at any time this week. If it will help to bring matters to a conclusion, I would also be willing to meet with you in London on your return from the European Council.
I must stress that if the Scottish Parliament is to have adequate time to scrutinise any agreement it is possible for us to reach, it is essential that we reach agreement on the key areas of principle by the end of this week, and ensure adequate time for thorough due diligence on all of the detail before any agreement is finalised and before the Scottish Parliament gives its consent to the Scotland Bill.
I am copying this letter to the Deputy First Minister, the Chancellor, the Secretary of State for Scotland, Lord Dunlop and the Chief Secretary to the Treasury.