Scotland Office
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 dont 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 dont 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 Scotlands 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 Parliaments 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 Scotlands main political parties - the culmination of lively constitutional debate.
Agreement reached on Scotlands 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 Bills final stage of debate in the House of Commons, before all of Scotlands 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 Scotlands 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 Parliaments 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 havent 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 wont 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 Scotlands 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