1. Scotland in the United Kingdom: An enduring settlement

2. Overview 1)Key events to date – slide 3 2)Smith Commission Agreement – slides 4-10 3)Next steps – slides 11-14 4)Group discussion – slide 15 2Scotland in the United Kingdom: An enduring settlement

3. Key events to date 19 September – Prime Minister establishes the Smith Commission to consider further powers for Scotland 27 November – Smith Commission publishes its Heads of Agreement 22 January – UK Government publishes draft legislation and a Command Paper in line with our commitment to do so before Burns Night 3Scotland in the United Kingdom: An enduring settlement

4. The Smith Commission Agreement Outlined a series of further powers for Scotland, including: Significant financial powers including tax raising powers; A new fiscal framework for Scotland; A range of welfare powers; A range of constitutional powers; and Other powers in areas such as oil and gas, transport and equalities. Also outlined a number of other areas that would not require legislation, such as: Improved intergovernmental working And outlined a number of areas that should be given further consideration, such as: Health, immigration, food levies etc. The recommendations were made without prejudice to whether devolution should take place and in what form. 4Scotland in the United Kingdom: An enduring settlement

5. Taxation Income tax will remain a shared tax Scottish Government (SG) will set Scottish rates and thresholds for non-savings income tax There will be no restrictions on the rates or thresholds and SG can create new bands The personal allowance remains reserved SG will receive all non-savings and non-dividends income tax Currently worth c£11bn so forms a substantial part of the SG’s funding First 10ppts of standard rate of VAT and 2.5ppts of reduced rate VAT will be assigned to SG APD and Aggregates Levy Smith Agreement Paragraph 86: Power to tax air passengers leaving Scottish airports will be devolved Paragraph 89: Once legal issues are resolved, power to tax commercial exploitation of aggregate in Scotland will be devolved -Both taxes are being fully devolved -UKG will ‘switch off’ existing UK taxes -SG will decide whether and how to implement replacement taxes 5Scotland in the United Kingdom: An enduring settlement

6. A new fiscal framework for Scotland Arrangements need to be agreed by UK and Scottish Governments Barnett Formula will continue as part of updated framework, which will also include fiscal rules and reflect the principle of ‘no detriment’ Importance of Scotland’s fiscal framework Fiscal devolution provides new incentives & increases accountability by directly linking Scottish Government budget to Scottish economic performance Fiscal framework ensures that Scottish devolution settlement is workable, sustainable and credible within the overall UK framework 6Draft legislation launch event Elements of a Scottish fiscal framework Tools for managing risks Independent fiscal institutions Credible fiscal rules Consistency with overall UK fiscal policy Sustainable funding model

7. Designing a new fiscal framework for Scotland Step 1: Smith Agreement sets out new tax/spending powers Step 2: Smith Agreement summarises where risks are held Step 3: Evolve funding model to reflect new powers/risks Step 4: Determine tools for SG to manage these powers/risks Step 5: Fiscal rules and institutions to ensure sustainable outcome 7Draft legislation launch event PowersRisksFundingToolsRules

8. Welfare A wide range of welfare powers will be devolved including: Control over disability, industrial injuries and carers benefits Discretionary housing payments Powers to make employment schemes to help those at risk of becoming long-term unemployed and disabled people into work. Power to legislate for discretionary payments to people in any area of welfare 8 Scotland in the United Kingdom: An enduring settlement

9. Universal Credit remains a reserved benefit across the UK: To pool risk of labour market cycle and economic shocks across the UK To maintain work incentives and simplicity for claimants But Scotland will have flexibility on housing costs within UC: To vary rates paid in respect of rented property in Scotland In the social and the private rented sector Including setting the rate of the “under-occupancy charge” And will be able to decide when alternative payment arrangements are appropriate: Split payment within a couple More frequent payment (2x or 4x a month) Direct payment of housing cost elements to landlords In addition there will be practical arrangements to ensure the UK and Scottish Governments work together to deliver UC effectively. 9 Scotland in the United Kingdom: An enduring settlement

10. Other aspects of the Smith Agreement New constitutional powers for the Scottish Parliament including: Powers to run Scottish Parliament and local government elections Powers to extend the franchise to 16 & 17 year olds in Scottish Parliament and Scottish local government elections Powers over arrangements and operations of the Scottish Parliament Further powers for the Scottish Parliament include: Consumer advocacy Onshore oil and gas extraction Roads 10 Scotland in the United Kingdom: An enduring settlement

11. Next steps Labour, the Liberal Democrats and the Conservatives have all set out their intention to introduce a Scotland Bill after the General Election Work continues to prepare the Bill for introduction to the UK Parliament 11 Scotland in the United Kingdom: An enduring settlement 22 Jan Draft clauses published 07 May UK General Election TBC Queen’s speech Discussions on non-legislative areas of the Smith Commission Agreement Questions of commencement and consequential amendments will need to be informed by an understanding of what the Scottish Government intends to do with the new powers

12. Example: Scotland Act 2012 – New devolved taxes LBTT & SLfT Stamp Duty Land Tax and Landfill Tax devolved to the Scottish Parliament Scottish Government decided to replace the devolved taxes with the Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT) Scottish Government decided to establish Revenue Scotland to administer the new devolved taxes New taxes planned to take effect from April 2015 Implementation is supported by governance structures at official and Ministerial level in both UK and Scottish Governments HMRC provides support to Revenue Scotland, including through staff secondments and operational advice 12 Scotland in the United Kingdom: An enduring settlement

13. Further engagement Continuing engagement with stakeholders as we prepare the draft legislation for introduction to Parliament, through: Bilateral engagement on areas of specific interest Through existing contacts or facilitated by the Scotland Office as required Stakeholder events 5 Scotland Office run events with stakeholders throughout Scotland Support to organisations running their own events Public information campaign To provide information about the current devolution settlement and how it is changing through the Scotland Act 2012 and the Smith Agreement. 13 Scotland in the United Kingdom: An enduring settlement

14. Contacts Scotland Office first points of contact: Laura.Crawforth@scotlandoffice.gsi.gov.uk James.Dowler@scotlandoffice.gsi.gov.uk HMT Treasury first point of contact: Claire.Brook@hmtreasury.gsi.gov.uk Claire.Brook@hmtreasury.gsi.gov.uk Kenny.Nairn@hmtreasury.gsi.gov.uk DWP first point of contact: Denise.Horsfall@dwp.gsi.gov.uk For comments on the draft clauses or requests for the Scotland Office to facilitate engagement on areas of interest please email: draftlegislationcomments@scotlandoffice.gsi.gov.uk draftlegislationcomments@scotlandoffice.gsi.gov.uk 14 Scotland in the United Kingdom: An enduring settlement

15. Group Discussion 1.What are your thoughts on the draft clauses? 2.How do you envisage these powers being used in Scotland? 3.Areas you would like to engage on as we continue to prepare the legislation? 4.In what ways do you think Scotland’s two governments can strengthen intergovernmental working in the context of these new powers? 15 Scotland in the United Kingdom: An enduring settlement