Scottish and UK governments agree a deal on fiscal framework

James Nickerson
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Scotland To Control Income Tax And Welfare Spending In Far-Reaching Reforms
The deal has been agreed after months of negotiations (Source: Getty)

The Scottish and UK governments have finally reached agreement on the financial arrangement that will support new devolved powers.

Negotiations over the fiscal framework have been ongoing since March 2015, with both governments in deadlock over how to resolve Scotland's block grant.

“We have reached a deal which is fair to Scotland and fair to the whole of the UK. It delivers accountability to the Scottish government and transforms politics in Scotland," Prime Minister David Cameron said. "It means May’s Holyrood elections can be fought on the issues which matter most: how the Scottish government should use these extensive new powers, rather than what they are."

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The deal lays out how Holyrood - the Scottish parliament - will be funded when new tax raising powers are transferred across the border.

First Minister Nicola Sturgeon said that the deal will "not allow a single pound or even a penny to be taken from Scotland's budget."

"It protects the Barnett Formula and allows the powers in the Scotland Bill to be delivered," she added.

The two sides had not previously been able to resolve a key principle in the Smith Commission agreement on devolution, which stated there should be "no detriment" to either the UK or Scottish budgets arising from the deal.

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Scotland's block grant from the UK is to be reduced when the new fundraising powers are realised. As Scotland's population is projected to grow more slowly than that of the UK's in the coming years, the two sides could not agree on how to balance out the financial impact of this after the first five years of the deal.

The deal involves a five year programme during which there would be no automatic cuts to Scotland's budget arising from the devolution of new powers. After that, there would be a review without any prejudice as to the outcome, according to BBC Scotland.

Chancellor George Osborne said that the arrangements reached with the Scottish government are fair to Scotland and fair to taxpayers in the rest of the UK. “This clears the way for the debate in Scotland to move on to how these tax and spending powers should be used.”

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