There is only one issue left for the UK and Scottish governments to agree to secure a devolution deal for Holyrood – but it is a £2 billion gulf, John Swinney has revealed.
The Deputy First Minister went before MSPs this morning to explain why an agreement had not been reached on the so-called fiscal framework.
The deal is to set out how new tax and welfare powers will be transferred from Westminster to Holyrood so that neither loses out financially, which is known as the “no detriment” principle.
Mr Swinney said they have agreed on everything – including set-up costs surrounding new welfare powers and the rules on future Scottish borrowing – except how to reduce the block grant from the UK to Scotland.
“I believe we have reached an acceptable agreement on all issues with the exception of the key question of the method of block grant adjustment,” he told Holyrood’s devolution committee.
“The reason for this fact is there remains a fundamental difference on the principle of no detriment. I believe no detriment means that our budget should not be cut as a consequence of the devolution of these powers. The UK Government takes a different view.”
The offer on the table from the UK Government would lead to a cut to the Scottish budget of “in excess of £2bn over a 10 year period”, Mr Swinney estimated.
“That to me was not what the Smith Commission was recommending. It was not what the Smith Commission had in its mind when it said there should be no detriment arising out of the devolution of these powers,” he said.
The new powers, which include control over income tax and the ability to create new welfare payments, are contained in the Scotland Bill, which is based on the Smith Commission’s findings.
The two governments disagree on the formula to use to reduce Scotland’s block grant as Holyrood takes further control of income tax.
Mr Swinney warned that “nothing is agreed until everything is agreed”, but said he would continue to do all he could to secure a deal.
He added he felt “profoundly uncomfortable” at not being able to open up the fiscal framework process for scrutiny by parliament.
Earlier, Scottish Minister Lord Dunlop said negotiations were at a “sensitive and critical point”.
But he added “significant progress” had been made and while nothing was certain “a deal now seems within reach”.
The Scottish Secretary David Mundell is due to appear before the Holyrood committee tonight via video link.