The Secretary of State for Scotland outlines why May's new Scottish Parliament will be different to its predecessor.
Good morning. Thank you for coming and a very Happy New Year to you all.
January is always a good time to look ahead and consider what the next twelve months might bring.
In 2016, in Scotland, we don’t need to look far to see just what an exciting and pivotal year this will be – not just for the political classes but for every man, woman and child in Scotland.
Because this is the year of a new Scottish Parliament.
I don’t just mean that literally.
Of course there will be a new set of MSPs elected on 7 May, who will then gather in Holyrood to be sworn in and begin their terms.
But the Scottish Parliament to which they will be elected in May will be a different parliament to its predecessor.
With major new powers being devolved to that parliament in the Scotland Bill – which by the time of the Scottish elections should be an Act – there will be many more decisions for which it will be responsible.
Decisions that will affect the daily lives of everyone in Scotland.
The Scottish Parliament will see a huge increase in its financial accountability to the people of Scotland.
The major new powers of tax, welfare and other matters will give added weight and effectiveness to the powers it already possesses.
So significant are the changes to its powers, and so immense the potential for their use, the Scotland Bill will create, in effect, a new Scottish Parliament.
In tech-speak, you could say that this will be ‘Holyrood 2.0’.
The transformation of Scotland’s devolution settlement, with the biggest transfer of powers in the history of devolution in the UK.
And Scotland retaining the strength and security that comes from membership of the United Kingdom.
The strongest possible Scottish Parliament inside a strong and sustainable United Kingdom.
Exactly what people in Scotland voted for, decisively, in the referendum.
This will be the basis for the public debate in Scotland in the coming months: exactly how should this new Scottish Parliament use its powers for the benefit of the Scottish people?
It is a debate I have been encouraging for some time, and one I will continue to promote in the coming months.
This is a debate that is important for all of you here today, with the organisations and bodies you represent, each of which will be affected by the decisions taken for the first time in Scotland.
This makes it vital that the debate is an informed one.
The Scottish Parliament’s electors must understand how Holyrood will be able to use the new powers, and what that means for them.
The Scottish Parties must be up-front and tell people what their plans are.
Everyone has a responsibility to hold them to account.
This is what I will talk to you about this morning.
The Scotland Bill
We arrive at this momentous outcome from a set of events you will all be familiar with, but which bear repeating:
The decision of the people of Scotland to remain part of the United Kingdom, with a stronger Scottish Parliament.
The unique and historic coming together of all five of Scotland’s main political parties - the culmination of lively constitutional debate.
Agreement reached on Scotland’s new powers under the chairmanship of Lord Smith of Kelvin.
And the delivery of those powers in the Smith Agreement by way of the Scotland Bill, the very first Bill to be debated in the UK Parliament after the General Election in May of last year.
All to be underpinned by a new fiscal framework that is fair for Scotland and fair for the UK as a whole. Both Governments are committed to reaching an agreement as soon as we can.
Delivering the Smith Agreement was a manifesto commitment not just of the Conservative Party, but of each main political party standing in Scotland at those elections.
Commitments made to the people of Scotland and commitments delivered, to the challenging timetable that the unique circumstances following the referendum demanded.
Delivering the Smith Agreement in Full
The Agreement has been taken forward in good faith.
Translating such a text into legislation is no straightforward task, but the UK Government has never claimed a monopoly of wisdom as to how the Scotland Bill should best be drafted.
A series of events were held across Scotland in the spring of last year to explain the legislation and to seek feedback.
Businesses, organisations and individuals from Inverness and Aberdeen to Glasgow and the Borders had their say on the draft Bill and other elements of the Smith Commission Agreement.
Both the UK and Scottish Parliaments scrutinised the Bill in a series of debates and evidence sessions and are continuing to do so.
I promised that the UK Government was listening to the views expressed and would respond.
And that is exactly what we did.
At the Bill’s final stage of debate in the House of Commons, before all of Scotland’s MPs, the UK Government made over 100 amendments to the Bill. It then passed unopposed.
This put beyond doubt, to any reasonable observer, that the Bill delivers the Smith Agreement in full.
But it was not just me saying that.
Influential voices from Gordon Brown to the Daily Record newspaper agreed.
And when the Bill reached the House of Lords, Lord Smith of Kelvin himself spoke. He confirmed that the Bill honours the agreement reached by Scotland’s five main political parties in full.
A balanced devolution settlement
In the year of a new Scottish Parliament, this will have a significant and transformational effect on the devolution settlement.
We must not think of these new powers in isolation. It is only by considering them in the context of what the Scottish Parliament can already do, that we can see how they make this a new Scottish Parliament.
The new powers make the existing ones more meaningful. They provide for a more balanced settlement.
The Scottish Parliament is responsible today for a budget of around £40 billion. It controls almost 60% of public expenditure in Scotland.
Those are extensive spending powers, by any definition.
But the Parliament has little responsibility for raising the funds it wishes to spend – it only raises around 10% of its funding.
Some people have called this a ‘pocket-money Parliament’, where an annual cheque from the Treasury provides almost all of its funding.
This leads to a deficit in the Parliament’s accountability to the people of Scotland.
That will not be the case in the new Scottish Parliament.
Once the Scotland Bill comes into effect, for the first time the Scottish Parliament will be responsible for raising more than 50% of what it spends.
The new Scottish Parliament will be a powerhouse Parliament. Compared to the devolved parliaments of its type, it will be one of the most powerful in the world.
And Scotland still retains the benefits of being part of the UK:
our shared independent currency,
the business opportunities of a deeply integrated single market,
our social union, which pools risks and resources,
and common defence and security in an uncertain world.
Everything people in Scotland voted for in record numbers in the referendum.
What the new powers allow
New decisions on tax
As well as a stable settlement, the Scotland Bill provides for a much broader range of decisions for the Scottish Parliament and Scottish Ministers to take.
If anyone is of the view that things haven’t really changed, they only need look at the kinds of issues the new Scottish Parliament will be grappling with. The new Parliament will have a very different job to do, when compared with its predecessor.
One important example concerns income tax.
The Deputy First Minister chose not to vary income tax in his final Scottish budget before the elections.
But the Scottish Government elected in May will be able to set a budget in the new Scottish Parliament that reflects the devolution of income tax on earnings.
It will be able to set a zero per cent rate, effectively increasing the personal allowance for Scottish tax payers, if it chooses to do so.
It could introduce a 50 per cent tax rate, or new bands and rates altogether.
This decision will be paramount in the minds of Scottish taxpayers, of course, as well as making the Scottish Government far more accountable in a very direct way.
Whatever the Scottish Government decides, it will have unimpeded power to do so, but it will need to explain to people how it will fund this and what the impact will be.
The Scottish Parliament will be provided with around £12 billion in revenues from this income tax devolution, at the current UK rates. They can of course increase that figure, if they wish to do so, by asking Scottish taxpayers to pay more tax. And they can keep it and raise their budget accordingly – it won’t be clawed back through an adjustment to the block grant.
Not just spending money on schools and hospitals, but raising it too.
In November, the Scotland Office and the Treasury held an event in Edinburgh hosted by ICAS. It was attended by Scotland’s wider business community: organisations and individuals with a professional interest in how the tax powers will be used, as well as a personal one.
Some of the people who contributed to the informative discussion at that event are in the audience today. I know they will be looking ahead as to how the powers will be used, and contributing to that debate.
And it’s not just income tax that will make the new Scottish Parliament so different from its predecessor.
The Scottish Government will be assigned half of all VAT receipts in Scotland, worth around £4.5 billion of revenue, and the Scottish Parliament will determine the tax on air passengers departing Scottish airports. Whether we have any such tax in Scotland, and if we do – what the rate will be.
I am confident the Scottish Government can take positive decisions that will see the economy grow. If they do so, Holyrood will be able to keep more VAT revenue. In addition, more people will want to work in Scotland and contribute to the economy.
It is that kind of incentive to achieve growth that will bolster the new Scottish Parliament, and benefit Scotland, if the Scottish Ministers get it right.
These new tax powers present a huge opportunity to the new Scottish Parliament.
The chance to determine policies that attract people to Scotland, grow the population and increase the tax base.
The new devolution settlement enables the Scottish Parliament to increase the life chances of people in Scotland.
The current Scottish Parliament already has tools to engineer this, but the new one will have even more.
That is real change, in the interests of everybody in Scotland.
All of this will be underpinned by the new fiscal framework for Scotland – one that is fair and designed to last.
New decisions on welfare
In a similar vein, the Smith Commission agreed a new settlement for welfare. Our social union, in which risks and resources are pooled, is an important benefit of being part of our United Kingdom.
It is right that pensions, Universal Credit and the main out-of-work benefits should remain reserved, but it was also clear to the Smith Commission that it is appropriate to devolve a number of welfare benefits that strengthen the powers already exercised by Scottish Ministers in the fields of social care and health.
The welfare powers that will be available to the new Scottish Parliament and Scottish Government, worth around £2.7 billion in 2014/15, will help a broad range of people in Scotland – carers, disabled people, those living in social housing and those looking to find employment.
The Scottish Parliament will be able to help people at all stages of their lives.
When I spoke at the SCVO conference in September, I heard from its membership and from a wide range of third sector partners.
They were saying how important it is to understand how the welfare powers can be used to support those who need it in Scotland.
The new powers will require a level of partnership working within Scotland and between Scottish and UK bodies that is even closer than has been the case in the past.
It struck me in that discussion, as I am sure it did others, just how much of an opportunity the full array of welfare powers presents for Scotland to shape its welfare provision.
The new Scottish Parliament will have the power to tailor support that helps people struggling to meet certain one-off expenses, to reflect Scottish circumstances.
This includes winter fuel payments, cold weather payments, sure start maternity grants and funeral payments.
These payments can be increased, decreased or abolished in Scotland. It could mean different payments made in island or remote rural communities. And indeed, the Scottish Government’s own paper last autumn confirmed they were considering the eligibility criteria for cold weather and winter fuel payments.
It will be for the Scottish Parliament to determine this support, and for the Scottish Government to fund any changes.
The new powers devolve a significant policy space to allow the Scottish Parliament to act.
It will have the flexibility to determine what support is provided to carers and disabled people – that means choosing how much to pay, in which circumstances and how to provide the support.
I know some organisations do not like Personal Independence Payments. The new Scottish Parliament will have the power to scrap those payments and replace them with something else. If you have ideas, get involved in the debate and make the case for change.
In addition, if the Scottish Parliament considers the provision of a reserved benefit is insufficient for recipients in Scotland, it will be able to top that payment up, if it can find the money to do so.
If third sector organisations represented here today think Job Seekers Allowance should be topped up, you should make the case for it. The new Scottish Parliament will have the income tax powers to pay for it.
There will be increased freedom to provide short-term discretionary payments to individuals.
This is a good example of how the new powers of the Scottish Parliament will interact with the existing ones, as it strengthens the Parliament’s current ability to help vulnerable people establish or maintain a home.
Holyrood will have a much wider set of options in this area: it will be able to legislate for a benefit to provide assistance for a short-term need if this is essential for an individual’s well-being.
If it decides payments are required for people coming out of prison, it can make them. Another option would be to make discretionary payments towards housing costs for renters.
And a broad new power was agreed as the Scotland Bill left the House of Commons.
It will allow the Scottish Parliament to create new benefits in devolved areas, and the Scottish Government will be responsible for running and paying for any of these new benefits created under this power.
This gives the freedom to design and deliver welfare provision that is specifically tailored to the needs of people in Scotland.
Scottish Ministers will have a number of flexibilities over Universal Credit, which remains a reserved benefit, allowing them to make decisions in line with local needs.
If they so decide, they will be able to vary the frequency of Universal Credit payments, make housing costs payments direct to landlords and split payments between couples.
If Scottish Ministers decide claimants should receive payments on a more frequent basis – say weekly, or fortnightly – that is exactly what will happen in Scotland.
Another policy area that shows how the new powers will interact with existing devolved responsibilities is that of employment programmes to support those at risk of long-term unemployment, and programmes to support disabled people.
It seems to go unnoticed at times, but the Scottish Government and its agencies are already responsible for the majority of spending on employability in Scotland: around £600 million each year.
The new powers relate to the employment programmes currently contracted by the Department of Work and Pensions, which are mainly delivered through the Work Programme and Work Choice.
These new powers are being devolved in a way that does not limit the Scottish Parliament to replicating the support that the UK Government has put in place. Instead, the space in which UK Ministers currently exercise the powers will be devolved.
This means the new Scottish Parliament will have freedom to create its own longer-term programmes to support some of the hardest people to help – those furthest from the labour market.
This is a real example of how the Scottish Parliament will operate in the new devolution settlement: with existing responsibilities strengthened and with many more decisions to take in other areas.
Scotland’s political parties are writing their manifestos as we speak. By joining in this debate you can take advantage of this opportunity to shape Scotland’s future.
Other new powers in the bill
Tax and welfare devolution is central to the new settlement.
But there are many decisions in other areas of public life that will be taken for the first time by the new Scottish Parliament.
The Prime Minister is talking about the UK Government’s commitment to equality today. The new powers present a significant opportunity to the new Scottish Parliament in this field.
It will have the power to require public authorities to consider how their decisions might help reduce social and economic inequalities, and to introduce gender quotas for public sector boards.
A chance to determine how equal opportunities should be safeguarded in Scotland.
Policy over abortion is to be devolved, ending an anomalous health reservation and enabling the Scottish Parliament to take decisions on this important issue as they already do in relation to palliative care, the NHS and criminal justice in Scotland.
It is important to make clear that the existing abortion laws under the 1967 Act will continue to apply in Scotland unless and until the Scottish Parliament chooses to change them. And the First Minister has indicated that her party has no plans to do so.
Policy relating to energy offers another example of how the new powers interact with those already devolved.
Scottish Ministers and the Scottish Parliament already have substantial control of onshore oil and gas activities through planning controls and environmental regulation, which are fully devolved.
Holyrood will see its role increase with the devolution of the licensing of onshore oil and gas extraction in Scotland.
A range of consumer and business issues which affect citizens will be more responsive to the particular circumstances of Scotland thanks to the new powers of the Scottish Parliament.
The devolution of consumer advocacy and advice will enable the Scottish Parliament to implement a Scottish model to provide information and guidance and to pursue complaints relating to consumer matters, electricity, gas and postal services.
The power to prevent the proliferation of fixed odds betting terminals in Scotland gives the Scottish Parliament greater say over how gambling policy should operate. If local communities don’t want to see more of these terminals in the high streets, the Scottish Parliament will be able to act.
In addition to the new decisions taken at Holyrood, a number of bodies relevant to Scottish public life will become more accountable to the Scottish Parliament.
For example, there will be a formal consultative role for the Scottish Parliament in setting the strategic priorities for OFCOM for its activities in Scotland.
And for other issues as varied as broadcasting, energy and transport, the Scottish Parliament will be better able to hold bodies to account on behalf of the Scottish people.
I believe this package helps to knit our United Kingdom together more closely, even as we devolve more power to the different parts of it.
The new Scottish Parliament will also see a change in how it is operated and run.
For the first time, Holyrood will decide how many MSPs it should have. It will also have powers in relation to campaign spending, the franchise and the voting system for elections to the Scottish Parliament and local government elections in Scotland.
The Smith Commission Agreement is of course wider than the Scotland Bill. The Agreement also identified a number of areas for further consideration between the UK and Scottish Governments and areas where non-legislative action was required. I will be tabling a Written Ministerial Statement today in the UK Parliament to update on this work.
New parliament: a new phase
Let’s think back to what the Smith Commission was tasked to do – to strengthen the powers of the Scottish Parliament within the UK.
That is what this package delivers.
It is not about weakening or loosening the Union, but strengthening it and making it more durable.
These changes mean that this year marks a new phase in the devolution settlement. And what a year it promises to be.
The Scotland Bill is expected to complete its parliamentary passage and become an Act.
Work is well underway to agree a new fiscal framework for Scotland.
A new Scottish Government will be elected, and will be able to set a budget which includes the totality of the newly devolved income tax powers.
Emotive and important decisions will be taken for the first time in Scotland, by a Parliament that raises most of its revenue.
Conclusion: a call for debate
With just a few months until the elections that will determine how Scotland will use its full range of new powers, the parties standing for office have a great responsibility.
They will need to tell us what their plans are for the new powers.
How will they use their new and increased influence over the tax people in Scotland pay and the welfare benefits they may receive?
It is vital that people in Scotland understand the change that is coming. Lord Smith of Kelvin made a personal recommendation that work is required to increase public knowledge of the devolution settlement.
I intend to use the coming months to promote discussion and debate aimed at doing just that.
I have already set out my views on another Lord Smith personal recommendation on further devolution within Scotland. And I will soon set out my views on the working relationship between the two governments.
We look forward to the Scottish Parliament election campaign and to hearing from the parties about their plans.
You are all voters, as well as being people with huge expertise in your fields. You all have a role to play – this is not just for politicians. Challenge the candidates, hold your MSPs to account.
Once the Bill is passed, the powers are no longer the property of politicians to debate and scrutinise.
As they come into effect in the new Scottish Parliament, it becomes a question that affects all of our lives.
How much money we take home,
the health system that looks after us,
the welfare support for those in need.
The way these powers work together is the change that we will see. That’s how important Scotland’s new settlement is.
That’s the new Scottish Parliament.
I know we will all work hard to make it a success.