Ffawr, wrth gwrs, ac ymgwrs gwaith i'r gweithio y ffianfrannu gwaith mae'r Gweithredu Slynyddiant yn ffianfrannu gweithredu gyda chi, dda chi, mwy ffianfrannu gweithredu i gael eich gwneud, sy'n gwybod ei ddweud. Fy holl yma, mae gennym ni'n gweithredu i gael i'r gwithredu 4 a 5 yn ffianfrannu. Fy holl o'r cyflawn i'r gwneud, mae'n cydweithio ei gael i'r gwneud. Fy holl o'r cyflawn i'r gwneud, mae'n cydweithio of the land and buildings transaction tax amendment bill at stage 2. We are joined for the item by the Deputy First Minister, who is accompanied by Robert Bucking, and Willie Ferri and Greg Walker. I would like to welcome all to the meeting. We now turn to formal stage 2 proceedings on the bill. I would like to call amendment 1, in the name of the Deputy First Minister, grouped with amendment 18, Deputy First Minister to move amendment 1 and speak to both amendments in the group. The committee gave care for consideration to a number of calls for relief from the supplement, whilst cautioning that a preponderance of relief could give rise to complexity and opportunities for tax avoidance. Having reflected on the written and oral evidence, the committee recommended in its stage 1 report a relief for purchases of six or more dwellings. In my response to that report, I was pleased to accept the committee's recommendation, as I am well aware that the assistance given to first-time buyers through the introduction of the supplement needs to be balanced with the need to protect investment in the private rented sector. I note that the decision to introduce this relief has been welcomed by the property sector. Amendment 18 in this group delivers the relief that is recommended by the committee. Amendment 1 is consequential and inserts a reference to relief into the overview paragraph, summarising the content of new schedule 2A, to reflect the fact that there will be provision about relief in the schedule if amendment 18 is agreed. I move amendment 1. I welcome the amendments. I think that they reflect the committee view. Clearly, the Government here has listened to the committee and probably privately to industry, and I think that without them there would have been a risk to the housing supply, and I simply want to put on the record that I welcome them. Okay, thank you very much. Deputy First Minister, anything further to add? Eh, nothing to add, convener. Okay, thank you. The question is, is amendment 1 agreed to? Are we all agreed? Yes. We are all agreed. I call amendment 2 in the name of the Deputy First Minister, a group with amendments 4, 5, 9, 13, 15, 16, 21, 22 and 24. Deputy First Minister, to move amendment 2 and speak to all amendments in the group. Convener, this group is a collection of technical drafting amendments. The bill team has been careful to ensure that the wording of the bill is as clear and as consistent as possible, so as to minimise the risk of doubts or disputes over interpretation. Amendments 2, 4, 5, 21 and 22 ensure that the bill refers consistently to a dwelling being the subject matter of a transaction rather than the main subject matter. In some cases, there may be other property involved in addition to the dwelling. Amendments 13, 15, 16 and 24 are similar and ensure consistency in references to a dwelling being or being part of the subject matter of a transaction or of trust property. Again, other property in addition to the dwelling may be involved in some cases. Amendment 9 clarifies the operation of paragraph 4, 3b of proposed schedule 2A to the Land and Buildings Transaction Tax Scotland Act 2013. That provides that, where a transaction is a mixed property transaction containing residential and non-residential elements, the supplement is chargeable to the proportion of the chargeable consideration attributable to the dwelling or dwellings. Amendment 9 has a particular anti-avoidance function, which is to ensure that any subordinate real rights relating to a dwelling that are acquired along with the dwelling are not to be artificially severed when working out how much of the consideration is attributable to acquisition of the dwelling. As I indicated to the committee in my stage 1 evidence, the Scottish general anti-avoidance show is on hand to deter and counteract artificial tax avoidance schemes, but this should go hand-in-hand with legislation that is as clear and well-ordered as possible. I move amendment 2. The question is that amendment 2 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 3, in the name of the deputy First Minister, a group with amendments 6, 10, 11, 12 and 33. Deputy First Minister, I move amendments 3 and speak to all amendments in the group. Amendment 3 and 6 ensure that only transactions with consideration of £40,000 or more are relevant to proposed schedule 2A. The bill currently includes a £40,000 threshold in relation to the value of properties that are already owned, but those amendments clarify that this threshold is also separately relevant to the chargeable consideration that is paid for the purchase of a dwelling. There are detailed rules for determining chargeable consideration in existing schedule 2. Amendments 10, 11 and 12 ensure that the £40,000 threshold for the consideration paid for the purchase of a property is included as one of the conditions for the purchase of a dwelling when there are joint buyers. Amendment 33 makes a consequential amendment to the order-making power in paragraph 9.3, reflecting that there are now three references to the £40,000 figure. We will separate the debate and the parliamentary procedure, applicable to paragraph 9.3 orders in one of the later groups. I move amendment 3. The question is whether amendment 3 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 43, in the name of Gavin Brown, grouped with amendment 17. Gavin Brown, to move amendment 43 and speak to both amendments in the group. I am grateful. Amendment 43 is an attempt to deal with something that has become known as the accidental second homeowner. For someone who has a simple main residence and decides to change their main residence, if they purchase a new one but have not managed to sell by the time they purchase, they would be liable to pay the tax. A huge number of transactions quite simply do not settle on the same day for a huge number of reasons. Some, of course, fall through entirely in the first instance, which can lead to a delay of weeks or months, and some simply take longer to sell than was envisaged under difficult market conditions, so it is an attempt to avoid that from happening. I draw members' attention to the Chartered Institute of Taxation paper that is written submission to the committee. The inclusion of reliefs and exemptions should follow the policy objectives. Clearly, the policy objectives that are set out in the memorandum from the Government are not to bring people in this category within the realms of this tax, particularly some of them who may be purchasing properties that would otherwise not be subject to LBTT whatsoever, because they are under the threshold. All of a sudden, they may have to pay 3 per cent on the entire purchase price. The Chartered Institute of Taxation then said that, in addition, consideration should be given to the Adam Smith principles, an issue on which I know the cabinet secretary, the Government and indeed the committee have attempted to stick to pretty closely. In terms of ability to pay the first of those principles, again, for a number of those people suddenly finding thousands of pounds at short notice to cover the shortfall, even if they get it back—in most cases, I am sure they would get it back—but having to get that money in the first instance, I think, may be challenging for someone, which is not necessarily linked to ability to pay. Gavin Brown for taking an intervention on this. He has mentioned a significant number of transactions that would fall into this category. When we took evidence at stage 1, we were unable to get any kind of hard data behind what was essentially anecdotal evidence. Does Gavin Brown have a number to put on this, if he is speaking about a significant number? Does he have that data to hand? Is he able to put it on the record? No. It is a perfectly fair point that Mr MacDonald raises. Anecdotally, when I only did convincing for six months, convener, it was pretty obvious to me that somewhere between 10 and 15 per cent of transactions did not settle on the same day. That is anecdotal. I have formally requested the data, which Mr MacDonald fairly asks for. I was hoping to have some for stage 2, but it looks like it will—well, it is not here for stage 2. It looks like it will be stage 3, and I think that that is a perfect point to make. However, if the anecdotal from my experience is correct and it is 10 to 15 per cent, given that there were 99,000 transactions last year, you are potentially up in 10,000 transactions, which would automatically, therefore, affect every single constituency within this country, potentially. However, I accept that that is not an official figure. I advise everyone to treat it with caution, but it would not surprise me in the slightest if, when the figures come in, it is of that magnitude. I am happy to give way to Mr Mason. In a sense, from the other point of view that I thank him for giving way, if he wonders how this would work in practice, because at the moment it is fairly clear cut, people have to pay the LBTT. If somebody is going to have to chase 10,000 people, or maybe even more, 60 days after, are we just not inviting the opportunity for people to slip through a loophole and never pay? I do not think that we are. I think that I would probably take a more generous view of the taxpayer than the picture that Mr Mason attempts to create. Given the fact that, particularly, all of those transactions by their very nature will involve solicitors, or almost all of them, to complete the legals, there is a limited number of firms, obviously, who are using the system at all, but particularly the online system. I think that keeping track of those, given that most of them would ultimately settle, people do not want to pretend to move house, they do actually want to move house, and I think that, ultimately, it would be more straightforward to keep track of. You avoid the bureaucracy of taking in £3,000 here, £10,000 here, and £20,000 here into the pot and having to then pay it back a week later, or a month later, or nine months later, or 17 months later. Actually, I think that the system that is proposed in the bill is slightly messier, or at least as messy and complex as what is being proposed here. In terms of the principles, I do not think that it is linked to ability to pay. In terms of certainty, you can be certain that, if you do not sell your house in time, you will be paying it, but that adds, it is a bit arbitrary, it means that you do not know whether you are definitely going to sell your house on the day or not. Therefore, I think that there is an uncertainty in the tax system by bringing it in. The principle of convenience is, well, it is pretty inconvenient to suddenly have to find the money if your house does not sell on time, and all the other stresses and strains that are added to that in addition to trying to find some kind of bridging. In terms of the bureaucracy that it creates, I think that it is greater than the bureaucracy that would admittedly be created with some form of conception. There is a personal injustice here on those who have to pay it at a time of stress. I think that there is a degree of bureaucracy. If you have a chain of transactions all relying on each other to happen on the same day, if one of them falls through, if one of them cannot find the £5,000 or the £10,000 that they suddenly need to pay at short notice and they pull out, what impact does that have on the market as a whole and on that particular chain? From a wider, longer-term market perspective, if we end up in a situation where you pretty much have to sell before you buy, that would be a huge change to the way in which the market has operated in Scotland for decades, if not centuries. That would ultimately see a reduced number of transactions. People would just be a lot more cautious before moving house. For all those reasons, that is why the committee reached the view that we did. We did not agree as a committee on the timing, so members may not agree with the 60 days that I put forward. However, I have tried to reflect the average time taken to sell, so that if your transaction does fall through, in most cases, you want to be able to get your sale through. For those reasons, I move amendment 43. The question of a grace period has been discussed by the committee and was one of the main topics of interest at the stage 1 debate. Both the Law Society and Revenue Scotland have been contributing their technical expertise on the matter to assist the Government in its consideration. Amendment 17 allows for the possibility that a person could claim exemption from the supplement in the initial LBTT return. That might be possible where the sale of the previous main residence is completed before the LBTT return for acquisition of the new main residence has to be submitted. Therefore, no supplement would need to be paid, and that creates a grace period as part of the transaction. I recognise that this does not provide a solution for all instances where the purchase of a new dwelling takes place before the sale of an old one, because the purchaser will need to submit their tax return in order to register the title to the property. As I have explained at the stage 1 debate, I will monitor the situation for the first six months and decide whether a further relief is required for a grace period, because that would give us the opportunity to tabulate the data to make sure that we have an informed debate about the extent of the issue with which we are wrestling. The resort of making power in the bill to allow this to be done by secondary legislation. Amendment 43 in Mr Brown's name would amend the bill so that the supplement only applies if, at the end of the 60th day after the effective date of the transaction, the buyer owns more than one dwelling. It is not clear how this amendment is intended to work administratively, since the LBTT return must be submitted within 30 days of the effective date. Essentially, the 60-day grace period would apply to all cases, which would cause a potential conflict with the requirement of the legislation for a return to be submitted within 30 days. It is unclear the interaction between those two, and that would apply to all cases. There would be no way of exempting that. On the 60th day, it is unlikely that the buyer will still be a client of the solicitor who submitted the return or have any on-going engagement in that respect. There are compliance concerns that I would have about the obligation to ensure that all issues were resolved satisfactorily. What opens up is the possibility of increased costs of compliance and the necessity of the need to pursue potential debt liabilities. One of the founding approaches of Revenue Scotland has been to minimise debt approaches that are available. A facility is an individual who experiences a situation in which they inadvertently end up owning two properties where they can claw back the supplement if the sale goes through within 18 months of purchase. If there are concerns about the operation of the property market, that strikes me as being a more comprehensive protection for individuals than believing that those issues can be resolved within 60 days, as suggested by amendment 43. I hope that the committee can take my assurance that amendment 17 allows for a grace period in certain circumstances that I will monitor the number of cases where the supplement is repaid shortly after being paid to establish whether a further grace period is required. On that basis, I therefore ask Gavin Brown not to press amendment 43 and invite the committee to support amendment 17 in my name. Gavin Brown, to wind up and press or withdraw his amendment. On the technical points, there would need to be a change to the return from the amendment, but there is going to be a need to change the return anyway as a consequence of the bill, because we currently do not have a 3 per cent surcharge on all second homes. Changes to the return itself, I am sure, are not captured in the legislation specifically and can be dealt with by regulatory powers. I do not say that that is a huge objection, and certainly when the Chartered Institute of Tixation made its recommendation of a three-month period, which is longer than the one that I am having, it certainly did not see that as an issue that could not be resolved. I am sure that I am happy to give way to the Deputy First Minister. It is an issue that can be resolved. The question is whether it is desirable to resolve it. The issue that Parliament has to be mindful of is that there is an obligation within the tax arrangements that we have put in place to collect taxation liabilities timmiersly. The issue that Parliament settled on about the LBC legislation was that that had to be completed within a 30-day period. Respecting that point of timmiers resolution of those issues, that would not be available if we were to accept amendment 43. I do not accept that. Changes to the return could easily capture as they submit a return. There could easily be a box saying that we are selling our main residence. We are purchasing only a main residence. We are not attempting to be a second homeowner, and therefore it is our intention to pay it within six days if we have not sold. In terms of the guard that we set up, which is pretty wide-ranging, to me there is no huge risk to people slipping through the net. I think that the greater risk is to the property market and the injustice to individuals in terms of having to pay this up front. It might be administratively nice, and I am quite sure that Revenue Scotland would favour that approach. When he says that the Government is speaking to law society as well, certainly in my conversations over the past week with the law society, it certainly does not appear to be their view in terms of the evidence that they gave, in terms of the draft amendment that they submitted and in terms of their view at the moment that they certainly do not, in my view, favour the approach that is suggested by the Government. I do not think that the 30 days is a hurdle that would block this amendment. In terms of the issue that there would no longer be a client of the solicitor, I am not sure that I accept that either. Ultimately, if they have to pay the money up front and in the future claw it back, for many people the issue of clawing it back would require the assistance of a solicitor. Some people, I am sure, would deal directly with Revenue Scotland, but given that most people are not attached to the online system, they might well use the services of a solicitor to claw it back, so they are going to be involved in those cases potentially anyway. I am not sure again that that is a strong objection to the amendment. If I have an indication from the Deputy First Minister that he was not against the principle of what I am suggesting in that he is genuinely open to exploring how we exclude those kinds of transactions from the ambit of the tax. If he sincerely wishes to explore that and attempt to agree one that captures all risks and makes sure that we do not inadvertently set that up, I would be prepared not to press, but my impression is that he does not accept that principle. He wants to monitor it for six months. Although initially that may have been an unforeseen consequence, I think that it is now a foreseen consequence. In the absence of a hint from him that he accepts my principle, I would intend to press the amendment. The question is that amendment 43 be agreed to. Are we all agreed? No. We are not agreed. We will have a division. All those in favour of amendment 43, all those against. The amendment is defeated. I call amendments 4, 5 and 6, all in the name of the Deputy First Minister and all previously debated. I invite the Deputy First Minister to move amendments 4 to 6 on block. Is any member object to a single question being put on amendments 4 to 6? No one objects. The question is that amendments 4 to 6 are agreed to. Are we all agreed? Yes. We are all agreed. I call amendment 7, in the name of the Deputy First Minister. I call amendments 8, 14, 25 and 37. I call the Deputy First Minister to move amendment 7 and speak to all amendments in the group. The convener, amendment 8 in this group is the main one. It relates to paragraph 3 of schedule 2A, which applies to purchases by non-individuals, for example companies, but it also applies to purchases by individuals in certain circumstances, in particular when individual purchases are dwelling in the course of a business. The amendment changes the definition of business in that paragraph, so that an individual's business is only relevant to paragraph 3 if it has a sole or main activity of trading in or investing in property. Amendment 8 also ensures that the definition covers a business carried on by individuals through a partnership. Amendment 8, together with amendment 7, also applies paragraph 3 to purchases by individuals acting as trustees, unless the beneficiaries of such trusts have a relevant interest in the property. Amendment 37 provides a definition of what constitutes a case where the beneficiary has a relevant interest—basically an interest similar to ownership. The definition that is inserted by amendment 37 will apply to a number of references in the bill to such beneficiaries and, as a consequence, amendments 14 and 25 take out two existing definitions that are no longer needed. I move amendment 7. Thank you. Anything further to add? Okay. The question is that amendment 7 be agreed to. Are we all agreed? Yes. We are all agreed. I call amendments 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 and 18, all in the name of the Deputy First Minister and all previously debated, and I invite the Deputy First Minister to move amendments 8 to 18 on block. Does any member object to a single question being put on amendments 8 to 18? It could be. Okay. The question is that amendments 8 to 18 are agreed to. Are we all agreed? Yes. We are agreed. I call amendment 19 in the name of the Deputy First Minister and a group of its own. I call the Deputy First Minister to move and speak to amendment 19. I give you this amendment ensures that there is no double counting of properties that are treated as being owned by an individual and those treated as being purchased by a business. The amendment ensures that if the supplement is charged on the purchase of a dwelling because it is made by a business—for example, a sole-traded property investment business or partnership—it is not included as being owned by the individual when that individual purchases a dwelling in their own right. Amendment 19 also ensures that properties purchased through such businesses elsewhere in the world are similarly not included as being owned by the individual. That reflects the principle of equivalence. I move amendment 19. Nothing further to take it. The question is that amendment 19 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 20 in the name of the Deputy First Minister and a group of amendments 23, 26, 27, 28, 29, 35 and 36. Deputy First Minister, you move amendment 20 and speak to all amendments in the group. Convener, the policy for this bill is that to determine if the supplement applies, it is necessary to count the number of dwellings owned by the buyer at the end of the effective date. In many cases, this will be a simple exercise since the ownership in question will be a simple ownership in Scotland or elsewhere. However, what counts as ownership is not always straightforward. The key principle underpinning this group is the principle of equivalence. Amendment 20 clarifies how the rule about only counting dwellings worth £40,000 or more is intended to apply. The subtle change is that for counting owned properties, when no longer looks to the market value of the dwelling as such, but at the market value of the ownership interest, this takes account of the fact that ownership interests will include equivalent interests that are deemed to be ownership, as we shall see in other amendments in the group. That reflects, for example, that the market value of a 90-year lease will be less than the market value of full ownership. Amendment 20 also has an anti-avoidance function to clarify that the value of subordinate real rights attached to an ownership interest are not to be artificially severed so as to take the market value under 40,000. Amendment 23 ensures that where a dwelling is subject to a bear trust, the beneficiary is treated as the owner. That treats bear trusts in the same way as other similar trust arrangements under which the beneficiary has a significant interest in the dwelling forming part of the trust property. Amendment 26 is a technical drafting amendment for clarity and consistency. Amendment 27 reflects the no double counting principle. It clarifies that trustees and executors are not treated as owning property in their care unless they are the owner for another reason—for example, when they are a relevant beneficiary. That is the counterpart to paragraph 11, which treats the beneficiary as the owner. Amendment 28 is principally intended to cover leasehold interests in England. The nuance is that that is done by reference to the closest approximation in Scots law, the notion of long leases that are leases over 20 years. Long residential leases have always been rare in Scots law, and, following implementation of the Long Leases Scotland Act 2012, they are now very rare. Nonetheless, a handful of long residential leases still exist, so where they exist, they are counted as ownership. That better delivers the principle of equivalence so that a 90-year residential lease in Scotland and a 90-year leasehold in England, which will exist quite commonly, will be treated equivalently. Amendment 29 delivers equivalence between trust life rents, which are already dealt with under paragraph 11 of proposed schedule 2A, and what are known as proper life rents in Scots law. Amendments 35 and 36 clarify definitions in paragraph 15 that relates to trusts. Members will have noted the complexities that can arise when less common forms of ownership are an issue. I will ask members to bear that in mind when we debate the further group of amendments concerning delegated powers. I move amendment 20. Is amendment 20 agreed to? Are we all agreed? We are all agreed. I call amendments 21, 22, 23, 24, 25, 26, 27, 28 and 29, all in the name of the Deputy First Minister and all previously debated. I invite the Deputy First Minister to move amendments 21 to 29 on block. Does any member object to a single question being put on amendments 21 to 29? No member objects. The question is that amendment 21 to 29 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 30, in the name of the Deputy First Minister, a group with amendments 31 and 32. Deputy First Minister, move amendment 30 and speak to all amendments in the group. Convener, the policy for the bill is that the supplement applies when the buyer owns two or more dwellings at the end of the effective date. Often all relevant dwellings will be in Scotland, however, all existing property holdings anywhere in the world are to be counted. An important principle within the bill is the principle of equivalence, that an interest in a dwelling situated outside Scotland should be counted as ownership if the interest is equivalent to ownership in relation to a dwelling situated in Scotland. Currently, the bill cross-references UK stamp duty land tax legislation for interest dwellings situated in the rest of the UK. Stakeholders have commented that this is not a particularly clear approach and I accept that. The amendments in the group adopt a simpler approach, which better delivers the principle of equivalence. The test for what counts as ownership for dwellings situated outside Scotland will be the same whether the dwellings are in the UK or outside of the UK. The test is whether they are equivalent to the Scottish ownership interests that are set out in a bill. In assessing whether an interest in a dwelling outside Scotland is equivalent to an ownership interest, a count will also have to be taken off the deemed ownership rules and scheduled 2A for special cases, as discussed in the previous group. Nothing further to add then, Deputy First Minister. The question is that amendment 30 be agreed to. Are we all agreed? Yes. We are all agreed. I call amendments 31, 32 and 33, all named by Deputy First Minister and all previously debated, and by Deputy Deputy First Minister move amendments 31 to 33 on block. Is there any member object to a single question that we can put on amendments 31 to 33? No one objects. The question is that amendments 31 to 33 be agreed to. Are we all agreed? We are all agreed. I call amendment 34 in the name of the Deputy First Minister, group with amendment 38. I doubt if you first minister move amendment 34 and speak to both amendments in the group. Convener, at the stage 1 debate, members raised the particular challenges of legislating to an expedited timetable, particularly the risks as they saw them of unintended consequences. The Land and Buildings Transactual Tax Scotland at 2013, which this bill will amend, contains a number of delegated powers to ensure that there is flexibility with an LBTT legislation to react to changing circumstances. Those powers allowed for the development, for example, of a targeted sub-sale development relief that was enacted by order last year. When introducing the bill, I proposed a measured package of delegated powers for the supplement that is contained in paragraph 14 of the proposed schedule 2A. Having reflected on the stage 1 evidence, I consider it appropriate in the interests of flexibility and future proofing to propose additional delegated powers to amend certain aspects of proposed schedule 2A. That is what amendment 34 does. Partnerships and trust arrangements can be very complex and give rise to some of the most difficult aspects of LBTT policy and practice. There are existing regulation-making powers in the 2013 act to amend the LBTT treatment of partnerships and trusts, but those do not extend to schedule 2A for the supplement. Therefore, amendment 34 would introduce equivalent power for schedule 2A, which is consistent with the existing power. In a previous group, we discussed amendments to part 6 of schedule 2A to improve and clarify the rules on what counts as ownership. I consider that this is another aspect of schedule 2A where there should be power to adjust the provisions by regulations in the months and years ahead. I have in mind the complexity of some ownership arrangements, particularly cross-border arrangements, to mask true ownership. Lastly, I propose power to amend the interpretive paragraph 15, which is consistent with the existing power in the 2013 act allowing for the definition of dwelling to be adjusted in other schedules should that prove necessary in future. Amendment 38 ensures that the regulation in making power inserted by amendment 34 is subject to affirmative procedure, which I consider to be appropriate given the exercises of the power that would affect taxpayers' position in terms of their liability to the supplement. I move amendment 34. Thank you very much. The question is that amendment 34 be agreed to. Are we all agreed? Yes. We are all agreed. I call amendments 35, 36 and 37 on the name of the Deputy First Minister and all previously debated. I invite the Deputy First Minister to move amendments 35 to 37 on block. Does any member object to a single question and put on amendments 35 to 37? There are no objections. The question therefore is that amendments 35 to 37 be agreed to. Are we all agreed? Yes. We are agreed. The question is that section 1 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 38 on the name of the Deputy First Minister, all previously debated with amendment 34. Deputy First Minister to formally move. I move. The question is that amendment 38 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 39 on the name of the Deputy First Minister, group with amendment 41. Deputy First Minister to move amendment 39 and speak to both amendments in the group. Convener, the bill includes an order making power to vary the 40,000 threshold by order. As drafted, this order is subject to negative procedure. The France Committee endorsed the recommendation of the Delegated Powers and Law Reform Committee that the order making power should be subject to the provisional affirmative procedure. I am persuaded by the arguments that the committees have presented, and therefore amendment 39 is to apply provisional affirmative procedure to the Delegated Power to modify the £40,000 figure. Amendment 41 makes a consequential amendment to the Revenue Scotland and Tax Powers at 2014. I move amendment 39. Thank you. The question is that amendment 39 be agreed to. Are we all agreed? Yes. We are agreed. I call amendment 40 on the name of the Deputy First Minister, group with the zone. Deputy First Minister to move and speak to amendment 40. Convener, this amendment is technical in nature. Changes were required to the rules for multiple dwelling relief to ensure that the calculation for that relief still works given the introduction of the supplement. No changes have been made to the principles underpinning multiple dwelling relief. This amendment is required to ensure that the calculation of multiple dwelling relief still works given the introduction of the supplement. It may be payable on some, but not all, properties that are subject to a claim for multiple dwelling relief. Having decided to accept the committee's recommendation on the relief for the purchase of six or more dwellings in one transaction, a further change was required to the rules to ensure that the supplement is not included in the calculation of multiple dwelling relief for transactions in which the relief for the purchase of six or more dwellings is claimed. Amendment 40 delivers both a new method of calculation for all purchases to which the supplement applies and multiple dwelling relief is claimed, and also changes to the calculation for cases where the relief of six or more dwellings are purchased. I move amendment 40. Shall we agree that amendment 40 is on the name of the Deputy First Minister or has I already debated with amendment 39? Deputy First Minister, do you want to move formally? I agree. That is on the name of the Department of Justice or the Department of Justice, do you want to move on to amendment 40? I agree. That is on the name of the Deputy First Minister and I agree on the name of the Department of Justice. Felly mae'n iawn i gyr� o'r ddech chi eisiau fewn o'r piliadau y byddol yn ein gydag datblygu ar wedi'w gynllawn ar gyfer i ddechrau cymrydau cymrydau ar y eu ddigon i mun accused of the United Kingdom. Yr ydych chi'n newid o'r gyfrisegol, oherwydd, na dyluniau'n gwneud o hyd y diwylliant hefyd ac mae'n holl drawd ar gyfer ddechrau'i cyfriseg ar gyfer dweithio ydynnu'n gweld. ac yn cyfrifio ar 16 oes yn 2015, oedd eu cyfnodol yn gweithio gweithio gweithio'r bidr o'r LBTT seplemwynt. Mae LBTT yn gweithio i ddweud hynny o'r date oeddiol. Mae LBTT yn gweithio i ddweud hynny o'r date oeddiol. Felly mae'r gweld i'r Gwrs Gwll Blwydd yn gyfieithiol y ffordd oedd y cyfrifio o'r gweithio i ddweud hynny o'r date oeddiol. Mae'r ddweud hynny o'r date oeddiol I have sympathy with those cases. I therefore propose changing the conclusion of Mrs Cut-off date to 28 January 2016, which is the date on which the bill and accompanying documents were published. The transitional policy will therefore be that the bill will apply in relation to a chargeable transaction, where Mrs were concluded on or after 28 January 2016 and the effective date of the transaction is on or after the first date that was onwr afft o 1 April 2016. Maen nhw'n gweld gael bai cyfraidau cyfraidau aisetwch gan cael eu hwnnw sy'n gweld ei oedd yn bwyd i gwylliantaeth o fforddolol, a gennym y Cymryd Ym Mwyddorewin 42. Y cwestiwn y mae'n cwestiwn y Cymru yw i'w grithio, rydyn ni'n mwy o'r láf. Y cwestiwn y peth yw Ibgryd 3. Y peth yw i'w grithio, rydyn ni'n mwy o'r láf. Y cwestiwn y peth yw Ibgryd 4. Y peth yw i'w grithio? The question is that the long title be agreed to are we all agreed. We are agreed and that ends stage 2 consideration of the bill. The bill will now be reprinted as amended and will be available in print tomorrow morning. Parliament has already agreed that stage 3 proceedings will take place next Tuesday, 8 March, and that the deadline for lodging stage 3 amendments will be noon this Friday, 4 March. I would like to now suspend the meeting to allow a change over all officials. I will be back in just a couple of minutes. The next item is to take evidence from the Deputy First Minister on Scotland's fiscal framework. Mr Swinney is joined for this item by Sean Neil and Alison Byrn of the Scottish Government. We will take evidence from the Chief Secretary to the Treasury on the same subject tomorrow before submitting our views on the agreement between the two Governments to the Devolution Further Powers Committee later this week. Members have received copies of the agreement and, given the fact that we had a statement from Mr Swinney last week, we will go straight to questions. Of course, those questions will begin with questions from myself. I am pleased to say in terms of the document that a number of these questions are actually answered by the document itself. I do have some 16 questions, but I am aware that the First Minister has to be away by 11 o'clock and that colleagues also wish to come in, so I shall limit myself to just a few. I will be 17 if you do not watch it. I was going to ask Gavin to ask a meeting with himself. I do not want to list the least thunder on that one. Pargraf 23, the fiscal framework does not include or assume the method for adjusting the block grant beyond the transitional period. The two Governments will jointly agree that that method is part of the review, and the method adopted will deliver results consistent with the Smith commission's recommendations, including the principles of no-determined taxpayer fairness and economic responsibility. You are probably aware that Professor Bell made some comment about that in the media this morning. I am just wondering what he is basically suggesting is that this kicks the issue into the long grass, so what would your comment be in terms of that? What the agreement does is that it essentially delivers the outcome that the Scottish Government sought in terms of the block grant adjustment mechanism. It delivers the outcome that would be generated by per capita index deduction, which we believe is the most effective way of delivering the principles set out by the Smith commission and fulfilling the commitments that were made in that respect. The review mechanisms are consistent with the Smith commission's proposition that such measures should be reviewed but not require persistent intervention, which is the point that was made in paragraph 20 of the agreement. The details of paragraph 23 essentially ensure that the Scottish Government has as much control over the process of the review as we have had over the settlement of the issues that have been at stake in the formulation of the agreement at this stage in the light of the establishment of the fiscal framework. I do not agree that the issue is in the long grass because the issue had to be resolved for the application of the block grant adjustment and that will be the application that will now take its course. The implications of that agreement are not to delay anything, but that agreement provides for a block grant adjustment mechanism that will be necessary and required to implement the agreement and to do so on 1 April 2017. Do you now feel, after months of negotiation, that the positions between both Governments have changed somewhat? Are you of a view that the relationship was much more of a bilateral relationship than it perhaps was previously? The key characteristic of those discussions, which is reflected in paragraph 23, is that the Scottish Government has been in a position whereby we have been able to agree with the Treasury and the United Kingdom Government the details of the fiscal framework. That has been something that has required our consent. The financial arrangements under which we normally operate do not tend to operate in that fashion. I have previously explained to the committee my frustration over the details of the approach that is taken in the statement of funding policy, for example, which formally controlled the arrangements around the financial management of the Scottish Government. However, it was agreed between the United Kingdom Government and the Secretary of State for Scotland. I was never a signatory to that document, but I had to operate within its constraints. I have clearly been a signatory to that agreement, and that is a much greater advance on our normal position. That puts things on a much sounder footing as we go forward. Paragraph 20 of the agreement says that revenues from courts and tribunals in Scotland will be retained by the Scottish Government from April 2017. How much on an annualised basis would that amount to? I do not have a figure to hand, convener, but I will certainly write to the committee about that. The following paragraph says that the implementation dates for welfare will be agreed by the John Ministerial Working Group on welfare, and the John XJ committee will oversee the transfers of funding. When is that likely to be? Do you have any further information on when that is likely to be? That is an area where we will want to make as swift progress as we possibly can, but I have to forgive me, convener, that I appeared in front of two committees on the subject last week, so I may have said this to the other committee or I may have said it to the finance committee, so I have said it to the finance committee on it last week, but we will have to put in place the necessary arrangements to ensure the continuity of provision at the very minimum for individuals who will be recipients of welfare payments. That will require careful preparation to ensure that all of the necessary arrangements are in place to enable that to happen. The Scottish Government, and I have no reason to believe that the United Kingdom Government will take any different view. We will want to proceed with that in as timorous a fashion as we possibly can do, but we have to acknowledge that there will be a range of practical issues that we have to be wrestled with to undertake that particular change. In terms of administration implementation costs, there are 10 paragraphs on that. There are a number of questions that I was going to ask, but it might be easier to ask an overall question. In line with the Smith commission recommendations, the UK Government will transfer funding to support the share of the associated implementation running costs for the functions being devolved. Last week, it was asked questions about the £200 million that spoke to the implementation of new powers, the baseline transfer of £66 million to cover on-going administration costs, etc. There was information about additional administration and programme costs associated with the exercise of powers in Pagas 44 to 45 of the Smith commission heads of agreement. I wonder if you could give us a wee bit more information on what your broadest—or fact here—most accurate estimates of the costs of administration implementation will be and what the overall likely support from the UK Government is going to be relative to that cost. For example, in paragraph 35, it says that the Scottish Government will reimburse the UK Government for net additional costs wholly and necessarily incurred as a result of implementation and administration of income tax powers. I am looking for—once the dust settles—what will the cost of implementation be and what will be the funding that the Scottish Government has to deliver that and whether there will be any gap that we have to fund from existing resources? The funds that will be available are clear in the agreement. There will be a one-off transfer of £200 million to support the implementation of the powers that are involved in the agreement and there will be a transfer of £66 million on an annual basis that will be uprated in line with the Barnett formula to support that operation. It is absolutely clear what funding will be available as a transfer from the UK Government to the Scottish Government. What costs the Scottish Government is, partly, directly under our control—although I have estimate—I will come on to give the detail about the estimates that have been made of those factors within the Scottish Government, but we will have the determinants of the costs of the implementation of those provisions by the decisions that we take. Obviously, I will be trying to minimise the impact of that cost on the public purse. There will be other costs. For example, the devolution of the Scottish rate of income tax, which becomes effective on 1 April, under the existing funding arrangements, the Scottish Government has paid for the implementation costs of that change. That is really a product of the statement of funding policy and the arrangements that have operated habitually on that question. I envisage that there may be some further but pretty minor costs in relation to income tax, given that the overwhelming majority of the income tax devolution has essentially been affected by the Scottish rate of income tax being applied. There will be other specific costs to which you have referred in this section. For example, on the costs around VAT assignment, we have agreed to share equally all costs wholly and necessarily incurred as a result of the implementation and the administration of VAT assignment. There are specific provisions that will be in place in that respect. When it comes to the estimates that we have made, we made estimates that were based on DWP data and further research that the Scottish Government undertook that suggested that there was a cost range between £400 million and £600 million in relation to the implementation of the welfare provisions. The Smith commission agreement said that the UK Government should pay a share of those costs and that the share that has been agreed is £200 million, which is a fair account on those issues. However, I come back to my point, convener, that I made a moment ago. Although we may have made those estimates that that will be the cost, I will be undertaking the exercise of these responsibilities with the objective of minimising the cost to the public purse. I know that Lord Forsyth and others are unhappy even at the £200 million and the £636 million a year, but that is clearly set out in the document. I am just looking to see what kind of margins there are and what additional costs the Scottish Government is likely to have. I know that you are trying to minimise those costs, but when do you think that we will have some hard and fast figures on what the Scottish Government's contribution to those will be? I think that there will be a number of stages at which that becomes apparent. In the provisions here, for example, in paragraph 33, there is a different cost arrangement put in place where it is repeated that the Smith commission heads of agreement indicated that the Scottish Government would meet the costs of varying the elements of universal credit. I cannot possibly unpick what was the Smith agreement proposition in this respect. I have to respect that. Obviously, we will be acting to minimise those costs as we proceed through the devolution of those responsibilities. Equally, to go back to paragraph 37, the equal share of costs on the assignation of VAT will become apparent as we go through the process of joint working with the United Kingdom Government on that work. I do not, for example, expect that I would be very surprised if the costs in relation to the assignation of VAT reached between the two Governments anything in seven figures, for example. I would be very surprised if I got to seven figures some. There will be varying levels, but, on an on-going basis, it will be important that the Government updates Parliament on the negotiation of those costs. If I go back to the Scottish rate of income tax, I think that the early estimates of the cost of the devolution of the Scottish rate of income tax were of the order of £45 million, if my memory serves me right, but we are now significantly less than that, as the programme has been taken forward. Obviously, ministers will be anxious to minimise the costs that are involved to the public purse. Thank you very much for that. We know that there has been much discussion about that. You have got 10 paragraphs in here about no-determinate duty policies, spillover effects and, as we know, the Smith commission stated that there should be no determinant as a lot of UK Government or Scottish Government policy decisions post-devolution. In paragraph 52, it says that any decision to transfer relating to a spillover effect must be jointly agreed by both Governments without a joint agreement, no transfer or decision will be made. Prior to that, in paragraph 47, it talks about the main categories of those that can be divided into direct effects, which are financial effects directly and mechanically existing as a lot of the policy change and then behavioural effects resulting from people changing behaviour following a policy change. Do you have any concrete examples of what a direct effect could be in terms of that particular agreement? I am not sure that I can speculate on what direct effects might be like, but in welfare, for example, the Scottish Government was to increase eligibility for certain devolved benefits in Scotland, which automatically passport the recipient on to certain reserve benefits. That would be a direct effect of what the actions of the Scottish Government had taken. We had taken a decision to extend eligibility around a passported benefit, which was not the case in the rest of the United Kingdom, giving rise to, essentially, increased costs for the DWP. That would be very clearly identifiable. That is one example of how that could be crystallised, but the approach has to be very clearly demonstrated and evidenced to the satisfaction of both Governments. One other section before I open up to colleagues is on capital borrowing. paragraph 54 says that due consideration was given to the merits of a prudential borrowing regime in line with the Smith commission's recommendation. Of course, that was also a recommendation of the finance committee. I am just wondering why that was rejected. My sense of it would be, convener, that this is where there has to be given taken in negotiation. The UK Government has taken forward an approach in which it is perfectly entitled to take forward within its reserved responsibilities to create a fiscal framework for the United Kingdom that involves by 2019-20 no borrowing whatsoever. The chief secretary and the treasurer are anxious—they make the fair point to me that if there are facilities for Scotland to borrow, consistent with the Smith commission and the fiscal framework, then there has to be some compatibility between that borrowing and the fiscal framework of the United Kingdom. Of course, the Smith commission report made it clear that we had to operate within the fiscal framework of the United Kingdom. That was, after all, the conclusion of the referendum in September 2014. Therefore, what I had to accept was that, in exchange for securing additional borrowing powers and borrowing capacity that I have been able to secure, I managed to do that within an environment that enables the UK Government to continue to protect the fiscal framework that it believes to be important to protect in relation to the management of the macroeconomic issues of the United Kingdom. In a sense, prudential borrowing would have not given the UK Government the context in which it could have operated and fulfilled its commitments in relation to its own fiscal framework. Essentially, that would have been a decision-making undertaken by the Scottish Government and the Scottish Parliament to look at what we could judiciously and prudentially borrow to support long-term investment. The UK Government fairly made the point that it needed to have some greater framework that assured it of the compatibility of the borrowing arrangements with the wider UK fiscal framework. It still seems enormous to me that councils in Scotland can have prudential borrowing with not the Scottish Government, but just one last point on borrowing, which is in terms of interest rates. In paragraph 59, the Scottish Government may borrow through the UK Government from the National Loans Fund by waiver commercial loan. Is there any special rate that the Scottish Government has been able to negotiate in terms of borrowing or will be able to negotiate? Obviously, when we borrow, we will be involved in negotiation on what is the cheapest borrowing that is available, and that is what we will pursue on every occasion. Previously, there was a concern that the UK Government might have to pay above odds, but the UK Government was looking that perhaps it would have to pay one or even two per cent above commercial rates. Is that not going to be the case? I would not see what the justification would be for that. I will open up now to colleagues around the table. The first to ask a question will be a lesion to be followed by the deputy convener. Can I ask the deputy First Minister about paragraph 66, when we had discussed this, and it was really useful to have the text? I think that it is just about the wording of the paragraph. I think that it is not as clear. When we say that Scotland-specific economic shocks triggered when on-shore Scottish GDP growth, is that meaning GDP growth there? Yes. If we are going to be held to this, we would want that sort of clarity, so it is GDP growth. Is below 1 per cent in absolute terms, does that mean in real terms? No. If it grows, there is a growth calculation. If on-shore Scottish GDP growth is 1 per cent below in absolute terms, just in 1 per cent. When you look at the figures, I think that it would be better for our interest if it was in real terms. I have had a spice look at it as well, because if there is an economic shock, it is determined by this. Also, if it goes on about 1 per cent on a rolling quarter basis, what do you mean by that? Do you mean that there is an annualised GDP growth on a quarterly basis? I mean four quarters rolling, one, two, three, four. Do you mean that I am moving average then? No, I mean one quarter, quarter one, quarter two, quarter three, quarter four. If you are moving... I mean that it might start at quarter two, quarter three, quarter four, quarter one, or it might start at quarter three, quarter four, quarter one, quarter two. Okay, okay, so you mean a difference? It's sequential four quarters. Okay, okay, I'm a wee bit concerned about that, because if you look at the figures, if you look at the data, we wouldn't... Over the last... since the figures that we've had since 1999, then we wouldn't... the criteria would never be met. Okay. Well, they might not be met because... No, no, no, no, no. It was during the recession, right? So... But, but, but, but, but, but... Forgive me, well, okay, let's just, let's just, let's just, let's just take stock here. No, but I've just... Oh, no, no, let me just take stock here. What I'd like to reassure Leslie Brennan about is that macroeconomic, United Kingdom economic shocks, the management and dealing with those issues is a matter for the United Kingdom Government because these issues are reserved. So in the economic downturn of 2008, 2009, 2010, whatever time period you want to take it over, that is entirely the responsibility of the United Kingdom because there is a United Kingdom economic shock. Paragraph 66 refers only to a set of circumstances where Scottish economic performance is... Where there is no United Kingdom economic shock and Scottish economic performance is poor in comparison and paragraph 66 defines what a Scottish only economic shock would be like. Okay, can I, can I, because I asked, I asked people at Spice, the economists at Spice, to have a look at this as well, okay? And one of the, the Spice researchers has said, if it is like quarter one, the change from quarter one to quarter two, right? So if you're looking at additionally quarterly growth in quarterly GDP is unlikely to be above 1%. That would give anual GDP growth of 4.1% or more. So he's saying that it's, yeah, he's saying that, I presume you mean annualised GDP growth on a quarterly basis. I think that that's a misreading of what's here because I think, you know, when onshore Scottish GDP is below 1% in absolute terms on a rolling four quarter basis, so that's over a four quarter period. So if Scottish GDP, onshore GDP, over a four quarter basis is 1% below in absolute terms and 1% below UK GDP growth over the same period, we have a Scottish only economic shock. I'm honestly not trying to be critical. I'm being, but I just want to make sure that if we put in the fiscal rule in that actually the threshold is not, it's not, it's not too high that we'll never actually, if there was a downturn and a Scottish only downturn, there actually is almost unrealistic to actually meet that threshold. So the other thing, because it says here about the the outturn, because obviously they're lagging the data. So to be able to identify an economic shock based on the outturn data, it's 18 months after the economic shock starts. It will be about that, yes, potentially. Maybe not 18, might be 15 months, but it'll be, you know, but then, you know, an economic shock, you know, it happens over a period of time. So we have to be, you know, that's, what that is triggering is resource borrowing to deal with circumstances. If I feel an economic shock is coming and happening, I'll be changing policy and I'll be doing things differently and I'll be, you know, let me give an example. If I see an economic, you know, we don't just sit around for 15 months thinking, oh, where is this economic shock coming from? We, whenever we see that economic data turning, we start acting. If we go back to the summer of 2008, I started in the summer of 2008 to revise my capital investment programme because I could see a problem in the housing market as we headed towards the financial crash of the autumn of 2008. The cabinet took decisions to change our investment programme and I started shifting resources into capital expenditure to shore up capital investment, so right away I started to act. What this is about is about then giving me the financial flexibility to deal with the consequences of that if it was a Scotland-only economic shock. To go back to the 2008 example, what I had to do then was I had to go to the Treasury and say, could you perhaps give me a bit of flexibility over my capital borrowing, my capital del budget over a series of years to allow me to inflate capital expenditure in the short term and to the credit of Majesty's Treasury, they agreed to that at that time. What this would do is it would allow me to take some decisions in the short term to change spending priorities and different interventions and then this would give me the resource borrowing capability to deal with that economic shock if it was a Scotland-only. If you are confident and comfortable with that, the Fraser Islander Institute article says that it is titled, How Wrong Were We? It shows that models prefer poorly in protecting turning points. When we are forecasting, we are going to be forecasting quarterly GDP growth, and forecasting GDP growth is obviously going to be more challenging than forecasting annual GDP growth. That is what the experts suggest. The forecast issues about GDP will be designed by the Scottish Fiscal Commission, as I have indicated, and I have agreed to those changes as part of the fiscal framework. The Fiscal Commission will give us a quarter by quarter performance. It will have to give us a quarter by quarter performance to enable us to arrive at an annualised estimate. If you are comfortable with that, that was my concern when I read paragraph 66 about the language. I thought that I could be doing a bit of firming up on the language, just to make sure that there was clarity. If the Government has been held to account to that, that is the threshold. If there was an economic shock in Scotland, Scotland specific, and then income or the other taxes, the receipts that you were expecting to come in, have not been met, you would want to draw down additional resource. That was my concern, to make sure that the threshold is not unrealistic. I think that we have gone through a lot of analysis and discussion around those circumstances. The United Kingdom Government, and you can ask the chief secretary about that when you see him tomorrow, is very clear that it is their responsibility to deal with a UK economic shock. I am talking about a Scotland specific one. I am crystal clear about that. It is very clear about their responsibility for a UK economic shock. What that does is to acknowledge that there would be certain implications for Scotland if there was a Scotland-only economic shock. Having looked at the analysis, that is a reasonable trigger point for that to be undertaken. Can I ask about paragraph 19, just quickly? Can you just talk with me through about the constituency here during the transitional period up to 2021-22? However, there will be an annual reconciliation process to achieve the indexed per capita outcome. Can you just talk with me through that? Essentially, the comparability model will be run and it will give a certain outcome. The per capita index deduction model will be run and it will give a certain outcome. If there is a difference between the two, it will be reconciled to the per capita index deduction outcome. Cabinet Secretary, last week I asked you about VAT and I think that we postponed the discussion a bit until we all saw the document. If I could go back to VAT, could you just give us again the thoughts as to why we are using the consumption method, which I understand means that it is all based on the final consumer. The downside to that I had thought would be that if we built a new factory and it was value added, we would not gain any of the VAT in that. I am just wondering if it is a kind of admin question more than anything else, but I would be interested in your comments on that. I think that I am not sure that we will be able to go much further into the detail of all of this beyond the fact that we have agreed in principle a consumption-based approach. The methodology for all of this literally has to be composed to enable this to be undertaken, and that methodology will be taken forward, as the agreement says, as a joint initiative between the Scottish and United Kingdom Governments for Implementation in 2019-20. The work that will have to be undertaken will look at a range of questions around household expenditure, around VAT on business expenditure, VAT on government expenditure and housing expenditure. We will look at a number of different techniques that enable us to undertake that activity. There will be a comprehensive exercise that has to be done to identify and to resolve many of the detailed points that will be implicit in the methodology, and that will be available for the committee to scrutinise as it is formulated. If there is some kind of process that goes through 10 steps, then the way that VAT works, as I understand it, is that there is a bit of VAT added at each of the 10 steps. My assumption is that to divide all of that in a Scottish basis would just be incredibly complex. You have already answered the convener saying that you are hoping to keep the admin costs down on that, so would that be one of the reasons why we have gone for the consumer, and we are just literally looking at the final step? Yes, and ultimately I think that we have got to remember that this is an asignation process. It is not an actual revenue generation process, so you have got an assessment being undertaken of the total amount of VAT that is being generated within Scotland on this methodology. There will then be—50 per cent of that will be assigned to the Scottish budget, and the block grant adjustment will be calculated accordingly. It is all within that overall block grant assessment that the exercise will be undertaken, which gives a flavour of the degree of risk that we carry around that. Is it 50 per cent or is it 10 per cent? If the VAT varies to 19 per cent or 21 per cent, how does that affect us? It is 50 per cent of the rates. Right, so then we get 9.5 per cent of 19 per cent or 10.5 per cent of 21 per cent? Yes. On no detriment, I think that we have kind of agreed the first step, but it was more the second stage of any kind of spillover and the agreement that talks about it in paragraph 44 onwards. It was interesting that paragraph 55 in particular talks about behavioural effects that involve a material on demonstrable welfare cost or saving. It talks about exceptional circumstances and behavioural effects that are demonstrated to be material, and both Governments agree that it is appropriate to make an adjustment. Can you give any examples of where that might happen? It really would follow from any policy decision that would be taken by individual Governments. I am not really in a position to speculate about all of this, other than to say that the wording in the agreement sets a very high bar as to when these issues would come into consideration. So this would not be a routine issue. The language is material, detrimental, exceptional. This is not an everyday occurrence. Both Governments have to agree those provisions and those factors. This is not something that is going to be happening on a habitual basis. The worry before was that almost anything that anybody did in both sides of the border would have some kind of knock-on effect. We are sweeping out all of those minor things. I think that what I am clear about is that the language of the agreement sets a very high bar before any of those provisions would be involved. On the block grant adjustment, I am seeking a bit of clarification on some of the different taxes. The suggestion in the agreement that I am reading is that it is the year before a change is made, either income tax or LBTT or whatever, and the adjustment would be based on that. For LBTT, for starters, we would previously talk to them about a five-year rolling average or something along those lines, depending on whether we would look back or look forward. Is that now replaced by the idea that we are just looking at one year for the block grant adjustment? For the baseline adjustment, it is based on a year zero calculation of what was the revenue generated in that year before devolution, and that drives the baseline adjustment. For income tax, the point has been made that, for the year 2017-18, we will not know the receipts until March 2019. Will the adjustment be made on the forecast of the receipts? How does the SFC and the OBR work on that if they have different forecasts? The forecast that will matter under the new arrangements that I intend to put in place will be the forecast generated by the SFC, subject to a provision that I want to reserve the right to use an alternative forecast if I do not have confidence in the SFC forecast, but that is an issue that we will come on to discuss in the SFC Bill at stage 3, if Parliament is agreeable to that. The forecast by the SFC is reconciled as receipts become clear to the forecast. So there is a reconciliation over time of any change in relation to the forecast of what was anticipated. So there will be a block grant adjustment for 2017-18 based on the SFC forecast, but then that block grant adjustment could change depending on what the actual receipts are. That is correct, yes. Right. For 2016-17, you have agreed £600 million as the block grant adjustment. That would also be revised as we go forward and we find out what the receipts are. I think that there is provision within the agreement that says that this is without prejudice. I do see that part. To the changes for 2015-16, the issues around 2016-17 will be the subject of some further discussion with the Treasury, given the fact that we agreed that block grant adjustment outwith the details of the fiscal framework negotiations. Okay. My final area was just on the SFC forecast themselves. Have you had any discussions with them and about timescales for them being up and running? Will they be able to do forecasts for 17-18? That is a subject that is under active discussion because the forecast for 17-18 will essentially have to be available by September when the normal statutory budget process would take its course. That strikes me as being—well, there are two things about that. The first is that I may as well rehearse some of this territory convener for the benefit of the committee and the wider audience. The changes in the agreement in relation to fiscal scrutiny that can be enacted by Parliament, if Parliament agrees to do so, in relation to the stage 3 of the Scottish Fiscal Commission Bill, which will come to Parliament on 10 March, can only relate to the Scotland Act 2012, because we do not yet have legislative competence to exercise any changes in relation to the Scotland Act 2016. The only changes that we can bring forward will be to put in place a rolling five-year forecast on LBTT, landfill tax and income tax, non-domestic rates over a five-year— Sorry, can I just clarify that? Are you saying that we won't have power over the full range of income tax until that's passed in Westminster? Can we not even forecast these things before we've got the power? No. I can't mandate the Fiscal Commission to do that statutorily because we don't have the legislative competence to do so. That will only arise once the Scotland Bill gets royal assent, so we can't legislate for things for which we don't yet have legislative consent. That would be—that's not allowed. I'm afraid to say. We'll make those changes and we will go through—I'm yet to clarify exactly how far the Fiscal Commission will be able to go in its forecasting responsibilities, even in relation to a forecast for 2017-18 on land and buildings transaction tax, for example, given that the Fiscal Commission today, on 2 March, doesn't have that independent forecasting capability that rests within Government. There will also be important information about having access to data, which was part of a reciprocal agreement with the United Kingdom Government. Once the out-turn figures are there, you run the comparable model with the per capita index deduction model. If there is a difference, then an adjustment is made. If the per capita index deduction is more favourable, then that's helpful to the Scottish Government. In the hypothetical situation, where the comparable model would actually have been better for Scotland in any one fiscal year, what happens? Do we move to PCID anyway? I think that Mr Brown is getting his—he's adding one hypothetical on to another hypothetical and to try to imagine circumstances that will not materialise. I don't think that I'm adding one hypothetical to another. If that system, for whatever reason, turned out to have been better in one fiscal year, would make the change to PCID anyway, is that technically correct? In terms of the independent report, there is input from both Governments in setting it up. It is produced by the end of 2021. What is the status of that report? Is that report legally binding on both Governments, or is it politically highly persuasive? Is there a formal status of that report? It's a report provided to both Governments. So it's not legally binding in any way, but it's then a matter for Governments to agree how to treat that report. The paragraph 22 is very clear. The review will be informed by an independent report with recommendations presented to both Governments by the end of 2021. You've been asked a couple of questions by the convener and the deputy in relation to behavioural effects, which I guess are captured mainly at paragraph 50 and 51 of the agreement. You've talked about there being a high bar. You've talked about high perthetorals and so on. My own view, having read it, is that there would be some merit in both Governments sitting down before disputes arise, i.e. now when you're producing various annexes. Could you not give a number of hypothetical situations that could be covered in the way that I suppose when you did the LBTT bill a couple of years ago, or at least the consultation for that, you outlined probably half a dozen hypotheticals to work out what sort of treatment would be given. It strikes me that there's merit in Governments doing that now when there isn't actually a dispute. Have you had that discussion with the UK Government? I've gone through certain hypothetical circumstances with the UK Government on what might be or might not be envisaged in that respect. I don't actually think that that type of analysis helps in that respect. The difference with the LBTT proposition is that I wasn't giving hypothetical situations. I was mortalling particular scenarios and setting out what would happen in terms of revenue raising if I did certain tax decisions. It's fundamentally different from identifying what one Government might do and how that might have an effect on the effects of another. I think that what's clear, though, is that the language of this section is designed to set a very high bar before we'd get into this territory. Let's see what might actually occur then. If you're a re-elected Deputy First Minister in terms of your commitments that you've made publicly, we get APD in 2018. Your stated commitment is to reduce that by 50 per cent over the lifetime of a Parliament. If that helps airports in Scotland and airports in the north of England lose business, is it clear how that would be? In terms of the agreement that you've structured, is it clear how that scenario, should it arise, would be treated? We would have to go through a process of negotiation and discussion around any of the issues around that question. Okay. Could you be a bit more vague? Forgive me, I'm just… I mean, forgive me, I don't… That sounded a bit childish. It certainly did. I accept that, but it's a very fair account of it. There are some disputes that we know may arise. I'm just trying to put the point forth. Is it not worth doing a bit more groundwork now, instead of when they arise in a couple of years time, then working out what does this agreement mean? We've got an agreement here, which essentially sets out the approach that to be taken in relation to spillover effects is set out in some considerable detail from section 44 onwards. There are direct effects, which we can quite easily tabulate. There are behavioural effects, which are less easy to tabulate. We've agreed to take account for all direct effects, and I think that that's a pretty clear approach that's been set out. Okay. I won't press that any further. In terms of capital boring then, I mean again, you've been asked some questions on that. Are you able to just give us an indication of the practical effect of the changes? It goes up to £3 billion, and I think that you're allowed 15 per cent of Cdell instead of 10 per cent. If this financial year you're allowed to borrow is at £304 million, in a sort of annualised sum, what are you likely to be able to borrow once the agreement is enforced? The first point is to correct Mr Brown. The 15 per cent is off the overall borrowing cap, which is different from the Scotland Act 2012 provisions, which were set at 10 per cent off the Scottish Government's capital budget or Cdell total. If I was to take that number, the capital borrowing limit for the current financial year is £304 million, for 2016-17 it is £316 million, and what the 15 per cent off the overall cap on capital borrowing would be £450 million. The number on capital borrowing under the Scotland Act would have changed over the duration of the spending review, because it's a factor of Cdell, and the Cdell line is rising. I think that by about 2019-20 the Cdell borrowing total would have been about £330 million, by the end of the spending review, and the equivalent number would be £450 million. The £450 million would be the annual figure at the end of the spending review. The capital borrowing limit is 15 per cent off the overall borrowing cap. The borrowing powers go into effect on 1 April 2017, or the new borrowing powers. On 1 April 2017, in that financial year 2017-18, the borrowing limit would be £450 million. Under the Kalman proposals of the Scotland Act 2012, I would have imagined that that number would be something like about £322 million. In terms of the agreement that says that resource borrowing takes place over a period of three to five years, for any individual item of resource borrowing, do you agree whether it's three, four or five, or can you simply decide that we want this one's three, this one's four, this one's five? Is that entirely new? It's at my discretion, the Scottish Minister. Paragraph 76, I don't think that this came up last week, the Scotland reserve, the captain aggregate of £700 million just for the sake of the record, can you outline just the basics of the Scotland reserve? I don't think that we did cover it last week. What the Scotland reserve does is bring together the cash reserve provision of the Scotland Act 2012, which essentially was a reserve fund held at the treasury into which excess proceeds of our, which arose on our devolved taxes generated in Scotland, which we had not predicted to be deployed in our public expenditure, would go into excess proceeds. If we said that we were going to generate, let's say, £500 million in tax and we generated £525 million, if we'd agreed with the Treasury £500 million and we generated £525 million, then £25 million would go into the cash reserve in the UK Treasury, capped at £125 million. That could only be used to deal with any shortfall in tax revenue in a later year, so if in a later year we were short by £10 million, we could dip into that cash reserve and everything would be neutral. The Scotland reserve is a combination of that facility with our budget exchange mechanism, so those two are combined, they have a combined aggregate of £700 million, and we have the ability to undertake annual drawdowns from that reserve of £250 million for resource and £100 million for capital. That is less restrictive than the terms of the cash reserve in the Scotland Act 2012. A big change then is that you can draw down reserve or capital for any areas of public spending on which you want to use, as opposed to shortfalls and tax. Obviously, on the budget exchange mechanism, there was an annual limit on that of around about £150 million of resource, about £40 million of capital, which we were free to roll forward and to utilise in the careful and prudent management of public finances. Thank you. Thank you very much, convener. I just wanted to ask a couple of questions. The first was around the use of year prior to devolution for baseline adjustment, in some instances, as opposed to perhaps an average calculated over a number of years. In terms of that, if the year prior to devolution is a year of poorer economic performance or output than perhaps previous years averaged out would have been, has the risk factor inherent in that being taken into consideration when agreeing to that model? Yes, because the pattern of taxation tends to be fairly stable on most items, although there can be variations in the economic shock. We have to be mindful of all that, but in the current context, in looking at the period in which those decisions will be taken, that is a reasonable risk, with the exception that some provisions are more volatile. We have specific provisions in the agreement on cold weather payments, because the performance on those is wildly varied, given the temperature, and the agreement takes in the cold years, in averaging it out. In terms of the issue around no detriment and dispute resolution, I note the disaggregation of indirect and second round effects. I wondered if there was any determination given as to how far after a policy decision had taken effect before you would consider something to be a second round effect, as opposed to a delayed behavioural response, if you follow my logic. The ratio of second round effects is covered by section 48, which says that the Governments have agreed that the financial consequences of those should not be included in the scope of the no detriment principle. To me, that is a very clear direct effect that is essentially the central proposition that is in scope. The causality—I know that it talks about assessment of causality a number of times during that. Is that an assessment that is to be undertaken by, for example, the fiscal commission in OBR or by others, or will it be the Governments themselves who look at how causality is to be determined? Essentially, the Governments will look at this information, but there may be occasions in which we seek wider counsel on those questions, but the fundamental thing is about the Governments that will undertake that. That brings me on to the section on dispute resolution, from 98 to 104, which I think you have alluded to there. I note that, essentially, it says that if no agreement can be reached, then the dispute falls. There would be no specific outcome for the dispute and so no fiscal transfer between the Governments. I guess the concern that I would have from a Scottish perspective is that, if there were to be intransigence in relation to a decision that the Treasury had taken that affected the Scottish budget and the Treasury simply dug their heels in, is there the potential then that no fiscal transfer might take place as a consequence of that? I suppose that, in the interests of fair play for which I am renowned, I would have to accept that there might be intransigence perceived in transigence at the other end of the east coast main rail line. I am not talking about Aberdeen in that respect. What the dispute resolution procedure is designed to do is to encourage an evidence-based approach to the formulation of a resolution of those issues. It walks through step by step how evidence can be gathered. At paragraph 101, the technical input on the dispute may be sought from the OBR and the Scottish Fiscal Commission, which brings in some other independent empirical analysis in the process. I think that the provisions are there to provide a fair process of resolving any of those questions that may arise based on the evidence that is available in those circumstances. I note as well that the findings of technical input and analysis would also be published. I know that, through the devolution and further powers committee on which I also sit, we have discussed how to improve those intergovernmental relations and negotiations that take place. Is it being a much more public mechanism for resolving disputes than perhaps would have otherwise been the case under previous joint executive committees? It is more transparent. There is more evidence presented about what this is about. There is work undertaken by both Governments. It is a joint process. It is encouraged to be resolved in a timious fashion. It can be informed by external opinion. I think that there is a lot to be confident about that process being able to be operated in the spirit of good faith. It is not mentioned in the heads of agreement, but would you envisage a role for either this committee or a successor committee or if there is a successor committee to the devolution and further powers committee in terms of probing into the dispute that exists and what the positions of the Governments are? I suppose that, since it is entirely a matter for committees and for Parliament to decide what they decide to look at, there is an intergovernmental process set out here to try to resolve those issues. If Parliament or committees felt that they wished to exercise some scrutiny of that from their own perspectives, I could see no reasonable basis of resisting that. I start with the question of transparency that was raised by Mark McDonald. Obviously, we have not yet seen the detailed annexes to the agreement. I suspect that a lot of the detail that we crave may well lie in there. I think that you are at the finance committee or certainly in a letter to us and at the devolution committee indicated that you would be looking to publish those. Have we any sense of when they are likely to be published? I cannot give a definitive timescale on that. I am not sure that the answers that Jackie Bailey is looking for will be in that detailed work, because I expect that to be very technical information about how the agreement is constructed. There is not another document that will give us more of the agreement, but there will be technical information that will underpin the agreement. I understand that. In your evidence to both committees, you talked about the key documents on the fiscal framework that would support the scrutiny process. You know at least some of the committee's attention to detail. We had been led to believe that there were underpinning documents that you would publish. I think that that would certainly be very useful if you could review that commitment. There will be technical documents that support the agreement and will be public documents, but I am simply saying that I am just giving the committee a flavour of where the substance of the issues that have been agreed between the Governments are essentially represented by the document that the committee has in front of it just now. The technical information is simply to support what is here in the agreement. We look forward to receiving that. Can I take you to paragraph 12 on forestalling? I think that I did with you separately that the forestalling adjustment figure for LBTT appears to be £20 million. The committee got quite excited previously that the OBR suddenly agreed that forestalling was £30 million and perhaps expected more money to come to the Government as a consequence of that. I wonder whether you would address that point, but also in a related point, if no additional forestalling will be available for new powers, I am concerned about the mechanisms that we use to set budgets and the timeline that is involved in that for new tax powers, for example. I wonder whether that is not something that we may be captured for a legacy paper for the finance committee, but I would welcome your comments in the meantime. On the first point that Jackie Baillie has raised, the £20 million figure represents the gain that is assessed by the OBR to have been made by the UK Government in stamp duty land tax that they have gained at the time difference in the changes being announced. That figure is beyond dispute and is calculated by the OBR, and I have accepted that. Jackie Baillie has raised a fair point in relation to the second part of section 12 of the agreement, which is something about which Parliament and Government have to be mindful in taking decisions about tax issues. Essentially, the agreement closes off any further forstalling effects that are being taken into account in intergovernmental relations. That is one of the issues that we have agreed on. It creates an issue that Parliament has to be mindful of if we are taking any decisions in the future. However, it opens up some questions for Parliament and the committee about how our financial procedures and our tax decisions are actually taken. I would welcome the consideration of the committee on the issues around the interaction with the budget process in the Scottish Parliament. In 1999, when I was one of the members of the distinguished committee that did the preparatory work on the public finance and accountability of the Scotland Bill, our tax powers were essentially restricted to the Scottish variable rate. They did not count any of those provisions around borrowing, about different forms of taxation and all sorts of issues. Those very good and robust arrangements were put in place for the budget process, which, given the Parliament, a very commendable exemplary process of budget scrutiny might not be appropriate for the issues that we now wrestle with in terms of tax decisions. That is not necessarily an issue, but I have some opinions about that from my experience. However, it would be helpful if the committee considered those points in its legacy approach. Sticking with the impact on the budget timetable, the leading time for the Scottish Fiscal Commission to assume its new powers and to have them effectively operational is an issue that will bump up against the immediacy of the budget process. If SFC and OBR are both doing forecasting, we have already acknowledged the data limitations. They forecast at different times OBR is biannual, whether we would have that married together. In terms of the timetable for next year's budget, what do you think are the potential consequences? Do you think that SFC will be ready by September, or are you looking to implement later? It is unlikely that the Fiscal Commission will be ready for September. In all fairness to the members of the Fiscal Commission, it would be a lot to ask of them. Given what I have said about the fact that what we could only ask them to do would be around LBTT, landfill tax, income tax and non-domestic rates. Even on non-domestic rates, the Fiscal Commission will not have—we will not have given them legis to the authority to give them access to information held by the assessors, which the Government has, but they do not have. I think that for 2017-18, we will be looking at how our process will have to be appropriate for the powers and the capability that exist for that circumstance. I am keen to get the Fiscal Commission into a position that can exercise its full responsibilities as quickly as possible, but I think that it would be only fair for me to say to the committee today that I do not think that that would be the case for 2017-18. You do not see them exercising their powers in advance of 2017-18. Does that therefore mean that some of the choices that we have about exercising those new powers are put off until such time as the Fiscal Commission is able to forecast? I am not following the point that— Okay. If we are saying a loss of the data on which you would base your budget, it is going to be down to the Fiscal Commission forecasting. If they are not up and running, it is just simply an administrative point. If they are not up and running and they are able to advise on those things, does that mean that, as a consequence of that, decisions that you chose to, as it is rumoured, raise the top band of income tax to £50? We look forward to seeing that announcement in due course. However, if that is the case, does that have any practical implication on your ability to do that in 2017-18 if the Fiscal Commission has not done anything in advance? No, not at all, but what it means is that it will not have the Fiscal Commission's imprimatur on it as a forecast from them. However, for example, my LBTT forecast for 2017-18 will go through the same amount of scrutiny that the Fiscal Commission has applied to them over the past couple of years. Okay, but not in terms of new powers. Just to clarify that, because ideally then we would want the Fiscal Commission in place as quickly as possible. Yes, but I think that in all fairness it would be a lot to ask members of the commission to take on that responsibility to be ready for September. Okay, I understand that. Can I move on to the block grant adjustment? This is my final area of questioning. The mechanism is obviously in place for five years, subject to review. Now, it is clear that the outcome that you want is index capital deduction. That is going to be achieved as a consequence of this, and that is very helpful. Can I ask then why are we using the comparable model as well? Is it a sign, forgive me for asking this, that the Treasury has not quite given up on it and what we are doing is delaying that debate for five years? I think that if Jackie Baillie wanted to probe Treasury intentions, I would gracefully say to her that I am not the man to ask about that. But you have an opinion on most things, cabinet secretary, so I wondered whether I might have placed you to share. We have come to an agreement whereby I have got the outcome that I wanted on block grant adjustment. The route by which we have got it is somewhat circuitous, but we have got the outcome that I wanted. I absolutely understand that. Will you publish both numbers? I think that it would be very interesting for us to see the relative advantage that your model may well have over the comparable model that the Treasury is supporting. I could see no good reason why that would not be the case. It strikes me—again, I do not know, but I am making assumptions—that the real consequences for our budget arise when there is a more divergent level of population between the rest of the UK and ourselves. The effects of that are much further down the road. Is this not just a case of putting it off until the numbers become more acute later on? No. We already carried population risk within the Barnett formula, and that is an established part of our financial arrangements. Secondly, the agreement that we have arrived at is that the outcome of per capita index deduction will be delivered in the short term and the medium term, and those issues will be considered in the review in 2021-22, at which point the Scottish Government has as much negotiating leeway and influence over the process as we have had in this particular process. I know that I have explored that before, but let me do so again. If there is disagreement, and I know that you are such a consensual politician, that is unthinkable for you. However, let us just assume that there is disagreement at the end of the review. Despite all the reassurances that you are given, what would be our full-back position? Is it the status quo, as is set out in the dispute resolution mechanism? If that is so, is the status quo what existed prior to the agreement or post agreement? I want to know what we are left with. There can only be one status quo, which is the one that is there at the time. Is that so? That was not a rock band comment. There is only one status quo, but there can only be one status quo, which is the one that is there at the time. So that is post agreement? Well, that is agreement. That is what will be there in 2022. Okay, that is fine. As long as that is your understanding, I will undoubtedly explore that with Treasury as well. We have a shared understanding on what happens in the event of disagreement. I think that the key point about the shared understanding of what happens in 2022 is that there has to be an agreement between the two Governments. That is the shared understanding. Okay, but although that is the desirable outcome, there will be circumstances in which that shared agreement might not be reached. I seek to understand the totality of what is on the table with all people. There is a requirement to come to an agreement. That is the requirement. We have gone through that process and got to this point of agreement already. Can I ask, in terms of the overall review of the fiscal framework, will that be published in due course? I do not think that there is a great deal of information about who is in the review, etc. The review at sections 20 to 23 will be the subject of discussion and agreement between the two Governments. Of course, that will have to be set out to Parliament to enable the Parliament to consider those issues. At sections 111 to 113, there is a further detail given about the review to ensure that all of those matters and other issues in relation to the Smith commission recommendations are considered appropriately. The finance committee certainly had a recommendation for some kind of independent arbiter. I understand that there is a review of the protocol on the resolution and avoidance of disputes. Is that something that you are likely to recommend as part of that process? What would I be likely to recommend? The finance committee's recommendation to you, which is an independent arbiter that might be useful in a dispute resolution process. I would be quite happy with the concept of independent arbitration and argued for it in the discussions with the UK Government, but I was unable to secure agreement on that point. Cabinet Secretary, could I just ask about the administration implementation costs on page 5? At paragraph 31, we are talking about the £200 million that was estimated to be between £400,000 and £600,000, and an agreement was £200,000, but the last sentence, the profile of the transfer, is to be agreed by the Joint Exchequer Committee. What does that mean? Is it a one-off payment of £200 million in 2016, or is it £450 million over a four-year period? That is still the issue. The Joint Exchequer Committee is referred to quite often, and it is still to be agreed by. What does the Joint Exchequer Committee look like, and how open will their discussions be in those negotiations? The Joint Exchequer Committee is essentially the chief secretary and me. That is the Joint Exchequer Committee, supported by our respective officials. The Joint Exchequer Committee is obliged to work in a fashion that secures agreement. The terms of reference of the Joint Exchequer Committee are included in the technical annex that I referred to Jackie Baillie about a second ago. Essentially, the working approach of the Joint Exchequer Committee is to try to reach agreement on particular issues that are referred to them or which they have a responsibility to try to address. The Barnett formula is still a mystery to most people. There is a reference to it throughout some of the evidence that we have been taking about understanding the Barnett formula. Do you understand the Barnett formula? I would like to believe so, but whether I entered the mastermind with my special subject being the Barnett formula would be a different question, but I would like to think that I understand it. Would the committee like an explanation? The Barnett formula essentially looks at the decisions that are taken by the UK Government about public expenditure in England. The Barnett formula is then applied to the changes that are made and the Scottish budget is varied to take account of those changes. The core calculation is driven by a set of comparability factors that are published in the statement of funding policy. At one extreme health, there is a comparability factor of 100. If the health budget increases by £100 million, Scotland will get a population share of that £100 million increase. If the defence budget increases by £100 million, the comparability factor is zero, so we will get no financial benefit from the increase in the defence budget directly to the Scottish block of expenditure. At any fiscal event, the changes in departmental budgets in England are tabulated by the Office for Budget Responsibility. We can see those visibly. The comparability factor is applied to that. It all appears in a spreadsheet that is available to me, my officials, and I scrutinise that to our satisfaction that the Barnett formula has been properly applied. Barnett, fundamentally, is a population share model that is applied to changes in public expenditure in England. On page 13, there is reference to the Crown Estate Parish being devolved. I should get this, but I am a bit confused. The Government's block grant will be equal to the net revenues generated by Crown Estate assets in Scotland, I understand, and transferred. I am not quite sure of the net costs. Does that mean that the net costs of running the Crown Estate in Scotland are still met by the UK Government? No, because the Crown Estate is devolved. The net revenues are paid out of Scottish revenue. However, they are also deducted from the amount that is being transferred. Essentially, what is happening is that the revenues of the Crown Estate and the Crown Estate are being devolved to Scotland. Out of those revenues, we have to run the Crown Estate. Why would there be any transfer of income then? If the Crown Estate in Scotland is now an independent entity, why would it affect the Barnett formula or any other calculation or any other Westminster tax, would it not be operating like an independent apartment in Scotland? I am not following the issue that Gennar Curtis troubled by. Essentially, the Crown Estate is devolved and then the revenues that would be generated in Scotland from that activity become available to the Scottish Crown Estate to fund its activities? Yes, but we are still talking here about them affecting the block grant. Governments have agreed that a baseline deduction to the Scottish Government's block grant will be equal to the net revenues generated by the Crown Estates. Does that mean that the Crown Estate in Scotland, all the revenues will still go to Westminster and will be transferred back? No, we will keep them. There is no effect on the block grant. Essentially, the Crown Estate revenue flows into the Treasury across the United Kingdom. The Crown Estate revenue flows into the Treasury and goes into the big pot. If we are getting to retain the revenues from Scotland for the Crown Estate, our block grant therefore has to be reduced to make that a neutral transaction. Net of the costs of running it? No, the costs of running it will be within the revenues that are generated in Scotland. On a neutral basis, the block grant will be reduced to take account of the fact that Scotland is going to retain the revenues that are generated from Crown Estate activities within Scotland, apart from the Fork and Air Shopping Centre. That will flow into the Scottish Government and our block grant will come down. It will be replaced by revenues in the Crown Estate and we have to pay for the running of the Crown Estate in Scotland from those revenues. Essentially, it is the application of the no detriment principle. That gives us full control of the Crown Estate too, I presume. We then stray out of the fiscal framework into the Scotland bill, where my criticism and the Government's criticism of the mechanism that has been selected for the devolution of the Crown Estate is—I do not think that it is quite as simple as Jeane Urquhart has just expressed there that we have full control. It is a scheme of devolution. It is terribly cumbersome. It is terribly restrictive. I think that that could have been done in a much simpler fashion. We suggested alternatives to the United Kingdom Government as to how that could be done, but they were intent on taking forward. It is probably one of the remaining handful of issues with which we still have a disagreement about the contents of the Scotland bill with the United Kingdom Government, because we consider those provisions to be unnecessarily restrictive. Should the Scottish Government introduce a new tax—a land tax, for example—which could do with that effect for a block grant, would that be—is there any challenge to Scotland about growing taxes? If we wanted to introduce a new tax, we would have to secure the prior consent of the United Kingdom Government to do so. That is a provision that has existed since the Scotland Act 2012, whereby we have the ability to generate a new tax if we wish to do so, but we have to seek the prior consent of the United Kingdom Government, given the fact that it has reserved responsibility for taxation, unless it devolves to us through provisions such as the Scotland Act 2012 or the Scotland Act 2016. Thank you very much. That is a clear question for the committee. It is just one issue of clarification. APD was raised a couple of times. I understood that, in terms of the no detriment principle, the chancellor had said in 19 January last year that he did not consider the devolution of APD to be a breach of no detriment at all. I think that the chancellor made a very helpful contribution to the Treasury Select Committee in that discussion, where he put into proper context some issues such as the change in APD and essentially being an illustration of the fact that, if Governments wish to do something differently and to take different steps, they should be free to do so. Thank you very much for that. Just before I wind up this session, I want to thank Professor Gavin McEwen for all the tremendous and invaluable advice that he has given the committee. This is going to be the last committee at which he attends. I have to say that a lot of the work that we have done has been highly complex and, if it was not for Professor McEwen, I think that it would have been a much more difficult task for the Finance Committee. I want to put on record our thanks for all the work that he has done for the Finance Committee. That being the end of our public deliberations, we will now close the public part of this meeting.