Behind the scenes of Scotland’s devolution deal

The results of the negotiations were revealed at the National Museum of Scotland. Picture: Alex Hewitt

The results of the negotiations were revealed at the National Museum of Scotland. Picture: Alex Hewitt

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TOM PETERKIN and David Maddox reveal the inside story of the Smith Commission talks – at times as convoluted as a ‘5D game of chess’

AT a particularly fraught stage of the Smith Commission talks, one participant commented that getting a deal was like “a five dimensional game of chess played with pieces made from bars of soap”.

It was memorable turn of phrase that seemed to sum up the slippery and complex constitutional challenge that consumed Scotland’s five political parties for six weeks of intensive negotiations.

The deal arrived at by Labour, the SNP, the Conservatives, Lib Dems and Greens was published last week by Lord Smith of Kelvin, the genial but hard-nosed peer given the unenviable task of bringing sworn enemies together. That Smith’s report was delivered by its St Andrew’s Day deadline was an achievement in itself, given the tight timetable, the complicated subjects under discussion and the fractious nature of Scottish politics.

But under Smith’s gaze, the parties overcame many differences and endured explosive flashpoints, including a last-minute one that came from left field – a row over the devolution of abortion law that threatened to derail the entire process.

The fruits of Smith’s labours, and those of the negotiators acting on behalf of their parties, is a package of powers that will define the next stage of Scotland’s constitutional journey.

As the detailed expression of the “vow” made by David Cameron, Ed Miliband and Nick Clegg as the referendum campaign reached its climax, pro-UK politicians hope Smith’s report will finally settle the constitutional question.

The pro-Union parties have hailed the package as one that will give Scotland one of the most powerful devolved parliaments in the world. It will give Scotland responsibility for £20 billion of taxes plus control over welfare powers worth £2.5bn.

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Despite all this, however, it remains very much open to question whether Smith’s package will draw a line underneath matters constitutional in a country that saw the rise of an energised, highly-motivated minority clamouring for independence during the referendum.

That there are more battles to come was evident within hours of the document being signed by the SNP’s lead negotiator John Swinney. The ink from his pen was barely dry, when he stood up at Lord Smith’s press conference in the National Museum of Scotland on Thursday and complained that the package did not go far enough.

Despite their complaints, the SNP took full part in a negotiating process that was noteworthy in that while the deal was being thrashed out no-one walked out of the Commission’s offices in Edinburgh’s Morrison Street.

Using an office owned by the Green Investment Bank, which is chaired by Smith, the ten negotiators (two from each party) faced each other in a seventh floor room with huge windows affording spectacular views over Edinburgh and the Firth of Forth.

First names were the order of the day when the talks began some six weeks ago. Around the table were, Swinney, his SNP negotiating partner Linda Fabiani, and Iain Gray and Gregg McClymont of Labour.

For the Conservatives the talks were led by their former Scottish leader Annabel Goldie and Professor Adam Tomkins, the impressive professor of public law at Glasgow University who had played a big behind-the-scenes role in the Better Together campaign.

The Lib Dems were represented by the former Scottish secretary Michael Moore and Tavish Scott, a former Scottish leader of the party. Patrick Harvie and his Green colleague Maggie Chapman made up the full complement of political representatives.

At the outset it became clear that Swinney and Fabiani’s approach to the talks would be reasonably pragmatic. They were not going to go down to the wire on issues like pensions and the licensing of offshore oil and gas – issues which they appeared relaxed about leaving under the auspices of the UK government.

To their opponents, this was a sign that the SNP had privately conceded the Smith process would not result in a so-called devo max settlement, defined by the SNP as the transfer of all powers to Holyrood save foreign affairs and defence.

It was, perhaps, a tacit acknowledgement that the comfortable No majority in the referendum had supported a Better Together campaign based around the pooling and sharing of resources, like pensions and oil, across the UK.

The more practical explanation, however, was that the SNP had worked out that time and energy would be better expended on other battles.

Arguably the most far-reaching of those battles was the one for income tax. It was a battle from which Swinney, who became hugely respected by his opponents for his astute and shrewd style, was determined to extract as much as he could.

But in this case the most significant fault line was between Labour, who only wanted partial devolution of the levy, and the Tories and Lib Dems who were adamant that control over income tax bands and rates should be transferred to Holyrood.

To begin with Gray and McClymont shrugged off demands to go further by referring their opponents to their Devolution Commission document, which recommended that income tax devolution ought to be limited to control of 15p of the basic rate.

For Labour there was a huge amount at stake.

Gordon Brown had warned that devolving all bands and rates would see Labour fall into a “Tory trap”. Full devolution of income tax to the Scottish Parliament would allow David Cameron to argue that his plans for English votes for English laws (Evel) would mean that Scottish MPs should not be allowed to vote on any UK budget at Westminster that included income tax measures.

For a Labour Party that has relied on its large number of Scottish MPs when in power, such a move would undermine the scope of its economic power, should leader Miliband take residence in Downing Street.

Labour’s big guns in the form of Brown and shadow foreign secretary Douglas Alexander were rolled out. Brown and Alexander telephoned Tomkins urging the Conservatives to think again.

Despite this, well over a week out from Smith’s deadline it became clear that Labour was prepared to move.

In fact, Labour’s first concession had been on VAT. While Brown was arguing for maintaining some income tax bands and rates at a UK level, he proposed his own “more powers” package.

Included in it was the possibility of assigning some VAT to Scotland. Brown’s suggestion opened the door for Labour to accept that the first 10p of the standard rate of VAT should be assigned to Scotland. It was a compromise that is worth £4.6bn in assigned taxes.

When the talks narrowed in on income tax, there was little option for Labour with the Tories, Lib Dems and SNP playing hard-ball. To assuage Labour fears that they would be harpooned over Evel, an important paragraph was included in the final document.

Crafted by Tomkins, the key paragraph said that Scottish MPs should continue to vote on the budget and income tax in Westminster. It provided some slim reassurance for Labour at the time, but with Cameron signalling that Scottish MPs could be denied Commons votes on income tax bands and rates, a can of worms has been opened.

In the meantime, Swinney and the SNP were arguing that income tax personal allowance should be devolved alongside the bands and rates. This was resisted by the pro-Union parties.

Unsurprisingly the SNP’s proposal was a no-go for a Labour Party which had to be persuaded of the merits of going as far as they did on income tax. The Lib Dems were opposed to devolution of the personal allowance, because one of Nick Clegg’s key policies has been to make people better off by raising it.

Similarly, the SNP was also arguing that National Insurance employers’ contributions should be devolved. That, however, was always going to be rejected by the other parties, because of its close link to pensions. The SNP’s tactics set alarm bells ringing for those of a Unionist persuasion.

“They pitched these demands as job creating powers,” said one source close to the talks. “Immediately everyone could see what was going on – they were going to demand these levers as they call them in the knowledge that they weren’t going to get them. You could see the strategy – pitch for a couple of things you want, but know you are not going to get so you can turn round and say that the deal was not good enough.”

For those sitting across the table from the SNP, it appeared Swinney and Co did not seem to have the same interest in the transfer of welfare powers as they did for the transfer of taxes. There was enthusiasm and success when it came to their arguments for increasing Scottish Government representation in UK bodies like Ofgem and the BBC. But there was an impression that the enthusiasm was not shared when it came to the contentious issue of welfare.

Welfare had been the main sticking point going into the final week of talks. The parties had come to the table with widely differing proposals. Crucially, the Lib Dems had changed their stance from one of minimum welfare devolution to a far more ambitious package that would consider transferring Universal Credit, the new benefit made up of a package of payments including housing benefit and Jobseeker’s Allowance, to Holyrood.

The Lib Dems also wanted to look at devolving non-Universal Credit benefits. The Labour and Tories proposals were based on the devolution of housing benefit and attendance allowance.

With the parties singing off different hymn-sheets, Lord Smith made his presence felt and the Work and Pensions Secretary Iain Duncan Smith made a dramatic intervention.

“The weekend before the report’s publication we had four very different views on welfare which were a long way apart. [Lord] Smith was so worried that he called around each one of us at the weekend to tell us we had to come to an agreement,” one insider said.

It was during these phone calls that Smith dropped his almost affectionate, mickey-taking style that he used during the formal talks and adopted a far more blunt approach.

“Basically Smith said if we didn’t come to an agreement then the vow would be broken,” another source said.

The call to action saw Labour and the Tories hold a separate bilateral meeting to agree a common policy.

During a tetchy video conference, Duncan Smith effectively vetoed his colleagues from interfering with Universal Credit, because he feared doing so would further delay its implementation.

So Universal Credit was retained at Westminster on the basis that keeping it controlled on a UK basis was consistent with the notion of pooling and sharing resources. The compromise was that Holyrood would gain powers to tweak the aspects of it relating to housing.

The behaviour of the SNP in all this was intriguing. The SNP’s opponents claimed Swinney had difficulty with a key paragraph allowing the Scottish Parliament to create its own benefits in devolved areas. Despite the SNP’s official position of trying to grab as many powers as possible, his opponents claimed Swinney believed it was misleading because it suggested more powers than were being handed over in reality.

The Tories, whose original idea the new power had been, agreed to dump the proposal leading to a furious confrontation with Labour in the final coffee break at 6:40pm a mere half an hour before the agreement was signed off.

Gray was said to be “apoplectic” with the Tories’ change of stance. Labour felt that ditching the proposal was caving in to a politically astute SNP, who recognised that giving Holyrood the new power would limit their ability to blame Westminster for future problems. After Gray’s intervention, the policy was reinstated in the final document.

The SNP, however, disputes this version of events saying that the SNP was, in fact, arguing for the devolution of the entire welfare system.

The final package on welfare allowed Holyrood to make “discretionary payments in any area of welfare”, including those reserved to Westminster – one of the most wide-ranging powers in the whole Commission report.

There was more high drama when the abortion issue came to a head. Devolving abortion law was raised in the penultimate week and was pushed hard by the Green negotiator Chapman and the SNP negotiator Fabiani. Other parties, save Labour, appeared to be in favour, recognising that it was one of the few health-related policies not under Holyrood control.

Labour, however, saw serious problems with its devolution, pointing out that it could result in differing abortion limits on each side of the Border. Labour also feared that rather than heralding a more liberal approach to abortion a Scottish Government would be put under pressure to introduce a more conservative abortion law. The prospect of women being forced to make journeys south of the Border to deal with an unwanted pregnancy alarmed Labour.

The party contacted the Home Secretary Theresa May and the senior Lib Dems Jo Swinson, Clegg and Willie Rennie in an attempt to pressurise their negotiators. The Tories shifted, although they denied that May put pressure on them. Moore, however, was not so keen on budging. Swinney was said to be “silent in the room”. Indeed, Labour sources have said the SNP used a “backdoor approach” to make it clear Swinney did not want the power handed over, even though Fabiani was Chapman’s main ally.

Last night a Scottish Government spokesman said it was “categorically untrue” that Swinney had made contact with Labour in that way.

As the Wednesday deadline crept ever closer, at the end of the final break McClymont called Miliband to ask for permission to threaten to refuse to sign the final package if abortion was included. According to sources close to Miliband, he was given the go ahead to make abortion a red-line issue.

McClymont asked for a private talk with Smith at 7:03pm. When the meeting reconvened, McClymont put Labour’s deal-threatening objection on the table.

Perhaps mindful that a firm commitment to devolving abortion might mean that his commission became remembered for its stance on that touchstone issue rather than taxes and welfare, Smith appealed to the parties to reach agreement. With the clock ticking down, another compromise was reached.

The final report recognised that parties were “strongly of the view” that devolving abortion should be done, but rowed back from doing so by saying “further consideration” was required.

With that, the five dimensional game of chess was finally over. Even so it will be some time before Scotland finds out who were the true victors.

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