The Smith Commission Agreement, published on 27 November 2014, set out proposals for substantial fiscal devolution to the Scottish Parliament. The Scotland Bill – due to receive Royal Assent shortly – will enshrine these powers in law.
Both the Smith Commission Agreement and the UK Government’s subsequent Command Paper, ‘An Enduring Settlement’ recognised that the devolution of fiscal powers has to be accompanied by the development of a new Fiscal Framework for Scotland.
Without such a framework there could be no fiscal devolution. It is essential in order to set out rules such as: how the Scottish Government’s block grant will be calculated in light of its new fiscal powers; what level of borrowing powers Scotland will have to enable it to deal with the additional economic risks and revenue volatility that it will face; the extent and scope of fiscal rules governing Scottish Government deficits and debt; arrangements for independent fiscal scrutiny, including fiscal forecasting; and arrangements for governing the increasingly complex interactions between Scottish and UK fiscal policy, including dispute resolution.
This report reviews and appraises the Fiscal Framework Agreement, with a particular focus on this issue of block grant adjustment.