Ian Swanson: Get fiscal deal spot on or we'll pay

THEY failed to see eye to eye in time for a Valentine's Day deal. But talks between the Scottish and UK governments on the crucial financial arrangements underpinning new tax and welfare powers for Holyrood are continuing with a new deadline of Tuesday next week.

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Rather surprisingly, given the urgency of the situation, the chief UK negotiator, Chief Secretary to the Treasury Greg Hands, has apparently taken off to his holiday home in France and has been conducting the latest instalment of the talks by phone.

A spokesman for Nicola Sturgeon was quoted saying: “It is time for the UK government to decide if they are really serious about reaching a deal.”

Agreement on the so-called “fiscal framework” is important because without it, the new powers – promised by the pro-Union parties during the independence referendum in The Vow and enshrined in the Scotland Bill now going through Westminster – will not happen.

The key issue is how the block grant from the UK to Scotland is calculated in future, once control of most aspects of income tax has been transferred north of the Border.

The focus of disagreement has been the “no detriment” principle laid down by the cross-party Smith Commission. This means that neither Scotland nor the UK should be better or worse off simply as a result of powers being transferred. Any benefit or loss as a result of the policies they each then choose to pursue is a different matter.

The UK government says Scotland should not continue to share in billions of pounds from growth in UK income tax receipts. But Nicola Sturgeon has argued Westminster is not making proper allowance for Scotland’s slower rate of population growth – and experts say that could leave Scotland billions of pounds worse off.

The Scottish Parliament’s devolution committee has said a deal must be reached by Tuesday next week if everything is to be approved before Holyrood is dissolved ahead of the elections in May.

Finance Secretary John Swinney has made clear throughout that he will not sign up to a deal he believes is bad for Scotland. It may seem odd for the SNP to risk allowing new powers to slip through its fingers, but its insistence that further devolution must not be at any price is surely a sensible stance.

And Labour’s Kezia Dugdale has signalled her support for the Scottish Government in trying to secure the best deal. “Taking on responsibility for Scottish taxes means we should shoulder the risks,” she says. “But it shouldn’t mean losing the rewards we get from being part of the UK and the system that shares money out across the country.

“The deal that is struck between the two governments will largely decide how much money the Scottish Govern­ment has to spend on schools and the NHS, not just now but for many years into the future.”

There has been talk of whatever deal is reached being “reviewed” after a period, but the chances are that what is agreed now will stick.

The Barnett formula was adopted in 1978 as a temporary fix, but it outlived the man who devised it, Labour’s then Chief Secretary Joel Barnett, and is still used to calculate Scotland’s funding almost 40 years later.

The worst scenario now might be if, after all the prolonged negotiations, the two sides feel hurried into a deal which is not then properly scrutinised but is signed, sealed and delivered nonetheless. This is no time for fixes – or we really will be paying the price for years to come.

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