UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 140 - vii i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

SCOTTISH AFFAIRS Committee

THE REFERENDUM ON SEPARATION FOR SCOTLAND

wednesDAY 23 OCTOBER 2013

RT HON DANNY ALEXANDER MP, RT HON ALISTAIR CARMICHAEL MP, STEPHEN FARRINGTON and CHRIS FLATT

Evidence heard in Public Questions 3666 - 3731

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Oral Evidence

Taken before the Scottish Affairs Committee

on Wednesday 23 October 2013

Members present:

Mr Ian Davidson (Chair)

Mike Crockart

Pamela Nash

Sir James Paice

Simon Reevell

Mr Alan Reid

________________

Examination of Witnesses

Witnesses: Rt Hon Danny Alexander MP, Chief Secretary to the Treasury, Stephen Farrington, Deputy Director, Economics Group, HM Treasury, Rt Hon Alistair Carmichael MP, Secretary of State for Scotland, and Chris Flatt, Deputy Director, Constitution, Scotland Office, gave evidence.

Q3666Chair: Ministers, welcome to this meeting of the Scottish Affairs Committee. It is perhaps unfortunate that we are in this room with so far between us, but I am sure the gap can easily be bridged. I understand that both of you have to be away, so we will try to rattle through a number of issues.

One of the members of this Committee could not stand the pace and, therefore, we want formally to note that Eleanor Laing has gone off to be Deputy Speaker, which is an indication of this Committee being a stepping stone to lesser things.

Could I start by asking both of you to introduce yourselves and briefly outline the key themes and purpose of the paper?

Mr Carmichael: I am grateful to you for the invitation to be with you today. It is a happy coincidence of diaries that it has come as early in my tenure as it has. Indeed, I regard myself as returning to the Scottish Affairs Committee, having served with you on and off for most of the first two Parliaments: 2001 to ’05 and 2005 and ’10. I know that you took evidence regularly from my predecessor, and this is an appropriate point to pay tribute to Michael Moore for the tremendous contribution that he made in his time in the job. I very much look forward to continuing to have as warm and productive a relationship with the Committee as I know he had.

I am very pleased to be here to talk about the "Scotland analysis" programme. As Secretary of State, I am going to continue to review closely and assess these papers and make sure that they provide people in Scotland with factual information based on evidence and analysis. I see it as an important part of my role over the next 11 months that I am able to promote this information right across Scotland, and I want to make sure that our detailed analysis is accessible to all. The programme we have embarked on is very open. All the workings-out are presented so that people can check and challenge them if they choose to. We are building up a substantial body of information in which the people of Scotland can put some trust.

Let me be quite clear. This programme is setting out the positive case for the continuation of the United Kingdom, despite what others may claim to the contrary. We have had five papers to date which show the benefits of economic integration across the United Kingdom. The UK’s true domestic market supports the free movement of goods, services, capital and people. Businesses benefit from this through access to a large domestic market; consumers benefit from a great number and variety of goods and services at lower prices.

The paper we are discussing today contains full analysis, available to anyone to scrutinise, of the advantages for Scotland and the rest of the United Kingdom of our fully integrated economy. If I may say so, I think this contrasts with the approach taken by the Scottish Government. While they have been putting out their own papers, time and again we see that their story changes. They are prepared to say one thing in public but something very different in private. We have heard them talk of a new oil boom in public but subsequently found out all about John Swinney’s secret paper that set out only for his Cabinet colleagues, not for the rest of the people of Scotland, the realities of the fiscal challenge that an independent Scotland would face in future years. Indeed, it required use of the Freedom of Information Act to reveal advice from Scottish Government officials to their Ministers-advice that agrees with our own analysis that to run an oil fund would require substantial cuts to public spending in Scotland or rises in taxation. It surprises me that they put out their paper without explaining exactly what this cost would be to the people of Scotland. The United Kingdom Government will shortly be setting out detailed analysis of the costs of pensions in Scotland in the future.

It seems to me that the Scottish Government will say anything if they think it assists in selling their cause of independence to the people of Scotland. I remind you that is why it is all the more important that we in the United Kingdom Government continue to set out facts and information in which people can place their trust.

Q3667Chair: Thank you for that statement. You have just reminded me of the existence of secret papers from the Scottish Government. I am just checking with the Clerk whether or not we have had copies of those. If we have, it would be appropriate to put them on the Committee’s website to make sure that they are publicly available. If we have not had them, we will ask the Scottish Government or yourselves for a copy thereof. Thanks very much for drawing that to our attention. Could you clarify first of all-[Interruption.] Sorry, I ought to find out who the other person with you is.

Danny Alexander: My name is Danny Alexander, Chief Secretary to the Treasury and former Secretary of State for Scotland. Alistair has now been Secretary of State for almost as long as I was, so it is great to be here with him today. I join Alistair in paying tribute to the work that Michael Moore did as Secretary of State for Scotland; he did so much to prepare us for the historic year ahead of us with the referendum.

The paper is a very significant one because the central argument it makes is an extremely positive one. It is about the strength of Scotland within the United Kingdom, and demonstrates in black and white that Scotland is a highly successful small country because it is part of the United Kingdom. It shows that Scotland’s economic output per head is 98% of the UK average; we are the third richest part of the UK after London and the south-east of England, but this strength is in part because of the strengths we get from being part of the United Kingdom. It analyses Scotland’s economic performance against other comparator countries in Europe. The Scottish Government set out its own set of seven comparator countries. The paper shows that, for example, as part of the UK, Scotland has a higher level of economic output per head than Denmark, Finland and Portugal; an employment rate of 71.1%, which is higher than Finland, Ireland, Portugal and Luxembourg, on 2012 figures; and the third highest growth rate since 1990, behind only Ireland and Luxembourg; and that the recession following the financial crisis was less severe in Scotland than in all the Scottish Government’s comparator countries.

The paper analyses the economic strengths of that integration with the UK-of being part of a completely integrated domestic market. It points out that we benefit from risks shared across the UK; resources being transferred to where they are most needed; and no borders to inhibit trade or the movement of capital or labour. Looking back over the last 50 years, it shows that output per head in Scotland has been slightly stronger, at 2% per year over that 50-year period, than in the UK as a whole, at 1.9%. It also looks beneath that at the performance of cities, which may be of interest to colleagues on the Committee, particularly you, Mr Chairman, because one of the arguments the nationalists make is that the UK economic model is all based on London. It shows, for example, that Edinburgh is a highly successful city with 95% of the economic output of London; and that Glasgow has achieved a higher growth rate and economic output per head than London since 1995. Overall, the argument in the paper is that Scotland is a highly successful small country within the United Kingdom and that independence would shatter one of the foundations of that success.

Q3668Chair: Maybe at this point I ought also to add the Committee’s appreciation of the work done by Michael Moore. At a previous meeting we agreed, if I remember correctly, that he was not the worst of the Ministers we have had in front of us. I think that was agreed by three votes to two, with four abstentions and one truant. We also appreciated the work Michael did. Can I ask how this report follows on from the fourth paper in the series, about business and the microeconomic framework?

Danny Alexander: It follows on very naturally. That paper was very much looking at the issues from the perspective of the individual business-from a microeconomic perspective. This steps back and looks at some of the same features we talked about in that paper but from a macroeconomic perspective, so it looks at trade and economic performance across the economy as a whole rather than at the firm level.

I gave some of the facts in my opening statement, but in the microeconomic paper we looked at what would be the disruptions to an individual firm of having a border within the United Kingdom. One of the things we have done in this paper is to take some of the existing detailed academic analysis of the so-called border effects. We might come to this later in the questioning, but it is an important point of the paper, and gives a detailed macroeconomic analysis of precisely what the impacts would be on the Scottish economy as a whole simply from the fact of having a new border introduced within these islands.

Q3669Pamela Nash: Gentlemen, you have both spoken already this morning about the integrated economy, and that is very much the theme of the paper. Could you explain that a little more and how it affects ordinary working people in Scotland?

Mr Carmichael: There are any number of different ways in which economies integrate. The paper before us today has a very specific focus. It is looking at the degree of trade and the flow of capital and labour within the United Kingdom, particularly Scotland. The truth of the matter is that when you look at the facts, there is a very high flow of trade, labour and capital between Scotland and the rest of the United Kingdom. About two thirds of all Scottish exports go to the rest of the United Kingdom, which is in the region of four times what we export to the rest of the European Union.

There is also a particular benefit in the facility for people to move freely in the course of their business life throughout the United Kingdom, and to operate within the markets with which they are trading, because they are integrated; they are part of that. About 33,000 people of working age moved from the rest of the United Kingdom to Scotland, and 35,000 moved in the opposite direction. As an integrated state there are real opportunities for us as businesses.

Danny Alexander: To go to your point about working people, all of that has a direct effect on jobs and employment in Scotland, because you are looking at stronger economic performance and more opportunities for Scottish firms. I know that the Committee looked previously at the paper we did on financial services, which was one of the earlier parts of the programme. In terms of the free movement of capital within an integrated state with a single regulatory system, we have a very strong financial services sector in Scotland; it employs a very large number of people-over 100,000 people. To give you some examples, within the United Kingdom 84% of mortgages, 91% of pensions and 89% of ISAs provided by firms based in Scotland are to nonScottish customers, mainly people elsewhere in the UK. A single regulatory jurisdiction enables those jobs to be located in Scotland in a way that would be much harder, as the financial services paper pointed out, if you had separate, differing regulatory systems.

Q3670Pamela Nash: I am glad you are on to that, Chief Secretary, because while we as politicians can see the bigger picture and that this is better for Scotland, my constituents would say, "I don’t export whisky and I don’t want to move to Manchester or London, so where is the benefit for me?" Can I ask it in a different way? If Scotland did leave the UK, how would this damage the prospects for people in Scotland?

Mr Carmichael: You have touched on one of the challenges of this paper. It is something on which I will be focusing, and I hope that the Committee might also have a contribution to make. How do you make this real to people in their everyday lives? You are right. The challenge always with macroeconomics is that you are talking of big figures and big pictures, but, bluntly put, being part of the United Kingdom means that you have access to jobs and job security that is greater than it would be if you were not part of the United Kingdom. You have to put it as starkly as that. The question then for people is: why would you want to give that up?

Q3671Chair: Can I follow up a point you made, Danny? You mentioned the percentages of ISAs and so on that were being operated by private firms in Scotland for customers in the rest of the UK. Private firms will presumably take their own decisions. Just outside my constituency is the National Savings Bank, which is obviously a Government-owned enterprise. Approximately 95% of its business is with customers in England and Wales. It would obviously be a decision for a future UK Government about whether that would remain in a foreign country-Scotland-or be relocated to where there is surplus capacity at the existing National Savings facilities in Durham and Blackpool. Has there been any discussion about possible relocation and any debate about how these questions might be tackled?

Danny Alexander: No, there has not. As we have always said, we are not engaged in pre-negotiation; we are engaged in trying to make sure that Scotland stays as a full member of the United Kingdom, so that is not an issue that has been subject to detailed discussion or negotiation. The point about regulatory jurisdictions would apply to those financial products as much as to any others, but I am not in a position to go further than that today. I will happily go away and have a think about that particular issue.

Chair: It would be very helpful if you could write back to us in due course about the process that might be involved in considering where the National Savings Bank jobs presently situated to the south of Glasgow are to be relocated in future.

Q3672Simon Reevell: Following from something you said a moment ago about the advantages for Scotland being within the United Kingdom in terms of economic integration, if there was an independent Scotland that either gained or regained EU membership-we do not need to have that debate at the moment-do you see a conflict between some of the advantages currently enjoyed by Scotland within the UK and some of the single market requirements that would be imposed alongside EU membership?

Danny Alexander: There is a very big difference between the two things. It would be false economically to argue that somehow within a European Union of different sovereign countries you can regain the benefits you have lost from breaking up an integrated sovereign state. They are totally different things. In the EU you have a single market that is negotiated between different countries. To give one example, I mentioned financial services earlier: the EU single market in financial services is nowhere near as complete as the single integrated market that we have within one United Kingdom. The analysis that we did in the paper of the so-called border effect suggests that, if Scotland were an independent country and part of the EU, there would still be a significant cost in terms of lost trade and integration with the rest of the UK. Some of the studies-there is now a very rich literature about the border effect-have looked at countries within the EU and how much they trade with one another within the EU single market, as against how much different regions or provinces of those countries trade with one another, and all of that evidence suggests there would still be a considerable loss, even if Scotland benefited from the single market.

On the border effect, the academic literature has developed quite substantially over time. There is a very detailed body of analysis.

Chair: We are going to come to the border effect later. We have a specific section on that.

Danny Alexander: Fine, I will hold my fire.

Q3673Simon Reevell: To be clear, what you are saying is that there is potentially a conflict between a separate Scotland’s EU obligations and the advantages it has in terms of trade and economics currently as part of the United Kingdom.

Danny Alexander: Not necessarily a conflict, but whatever gains you get from being part of an EU single market do not outweigh the very considerable losses you incur from breaking up the United Kingdom.

Q3674Simon Reevell: That does sound a bit like a conflict.

Danny Alexander: I suppose we can describe the same set of facts in different ways. The single market has common rules for all EU member states. In the eventuality that Scotland became an EU member state-we have previously discussed that and the difficulties associated with it, and no doubt we will have an opportunity to do so again-those rules would apply to all the countries of the EU, but they do not substitute for the losses you suffer from breaking up and losing the benefits of being part of one integrated state.

Mr Carmichael: Before coming to this job, my experience as a member of the Cabinet Sub-Committee on European Affairs was that Germany, in seeking to shape the development and progress of the single market, very much came to the United Kingdom as a country with which it saw it had a common interest. It saw that there was an opportunity to shape the single market, and indeed the future of the European Union, by working between two big countries within the European Union. It is significant that they came to the United Kingdom and not to any of the other smaller countries in northern Europe with which they might also have found a common cause.

Q3675Mr Reid: The analysis paper considers fiscal integration as well as economic integration. Could you explain to the Committee what you understand by fiscal integration and how that is connected with economic integration?

Danny Alexander: Simply put, within the United Kingdom fiscal risks are shared and pooled, and that helps to smooth volatility that otherwise would be experienced in a smaller country. For example, within the UK, Scotland is able to exchange highly volatile revenue streams. One of the things we draw attention to in the paper is the significant volatility that has existed in oil revenues over time with a very stable level of public spending. North Sea oil revenues have fluctuated from less than £3 billion to almost £13 billion in the period since devolution, while Scotland’s spending has remained relatively stable and has consistently been 10% above the UK average. That is the benefit of being in a highly fiscally integrated United Kingdom.

Q3676Mr Reid: The Government are currently moving to a system where the Scottish Parliament will become much more dependent on Scottish tax receipts. What implications does that have for the integrated fiscal system we have at the moment?

Danny Alexander: You are right that there will be significant tax devolution. From April 2016 onwards, every citizen in Scotland will pay a Scottish rate of income tax to the Scottish Government alongside the UK income tax they pay. That is a very significant change that perhaps has not been talked about enough. The arrangements-we have debated them in this Committee before-are structured in such a way as to try to smooth any volatility that emerges, and ensure that there are proper levers of fiscal accountability to the Scottish people but also proper incentives through that system for the Scottish Government to benefit when, through their action, they grow the Scottish economy.

Q3677Mr Reid: If Scotland became separate and the benefits of fiscal integration were lost, what implications would that have for economic integration?

Danny Alexander: It is a good question. It has very significant implications. For a start, you would have much greater volatility of revenues. It would mean that Scotland would constantly be faced with the challenge of how to respond to that. Does it cut public spending in a very short, sharp way? Does it have to increase other taxes to fill gaps, for example, assuming you had a population share of oil revenues? You could have gaps of multiple billion pounds opening up from year to year. There has been quite a lot of independent analysis of this. It is likely that an independent Scotland would face considerably higher borrowing costs, so the actual cost to an independent Scotland of dealing with that volatility would in itself be considerably higher. All those things have a knock-on effect on the overall stability of the economy. The stability of the economy and fiscal position is, as we can see looking across the UK, one of the critical factors in enabling businesses to have the confidence to invest and grow.

Mr Carmichael: There is a lesson to be learned from the European experience. If we take fiscal integration and economic integration as a given, as you try to construct that within the European Union, it has brought a degree of political integration. Independence is a process by which political integration is dismantled. You have to wonder what would be the consequences for economic and fiscal integration if you started to dismantle political integration.

Q3678Mr Reid: As you know, if the Scottish Government are successful in their referendum and Scotland becomes a separate country, they want to negotiate a currency union with the remainder of the United Kingdom. Do you think it is possible to have a shared currency while losing the benefits of fiscal integration and having all the volatility that you referred to in answer to the previous question?

Danny Alexander: The two are very closely linked. I have said before that currency union is unlikely to be in the interests of either an independent Scotland or the rest of the United Kingdom. Therefore, it is highly unlikely that it could be made to work. The fiscal issues are a big part of that. We see in the eurozone those countries having to have much tighter control of one another’s fiscal policies within a common currency. That is one of the issues that over time has undermined stability in the eurozone. If the argument for a common currency means an independent Scotland sacrificing a large chunk of the fiscal levers it might have to manage its economy, you have to ask the question: from the point of view of those arguing for independence, why do they think that will be in their interests? I note that quite a few of the people who advocate independence have been saying recently that they do not want a currency union. The other day Angus Robertson explicitly implied that they would use the pound even if they could not have a currency union, so if it is not the eurozone for the United Kingdom, it is Montenegro for Scotland. It seems like an odd choice to me, but that is what he said: they would seek to have the pound in circulation in Scotland even if there was not a currency union. If you remember the analysis we made in the currency paper, so-called "sterlingisation" carries very severe economic risks as well.

Q3679Mr Reid: Can you give us an example of the fiscal levers that would not be available to an independent Scotland if it was using the pound either in a currency union or without any agreement?

Danny Alexander: Using it without any agreement does not involve a sacrifice of fiscal levers in terms of taxation, spending and borrowing, but it includes many other substantial risks, for example not having a lender of last resort in your economy, which we discussed at a previous Committee hearing. We see in the eurozone that their currency union debates are about progressively having more and more central surveillance and approval of budgetary policies, constraints on borrowing levels and so on. Those are the sorts of things that are being looked at in the eurozone. I am not going to speculate on what might happen in those circumstances, because I think it is unlikely to be in the interests of either an independent Scotland or the rest of the UK to have a currency union. Therefore, it is highly unlikely that it would be made to work under those circumstances.

Q3680Chair: Can I clarify two things arising from that? You said that Angus Robertson had "explicitly implied". I am not quite sure how those two words work together. Can you clarify whether or not he said that Scotland would follow the Montenegrin route by using sterling without agreement? Zimbabwe and Panama do that with the dollar, do they not?

Danny Alexander: I am not totally familiar with the Zimbabwean currency model, but in Montenegro the euro circulates as the currency even though that country is not part of the EU.

Chair: I am sure your staff will be able to bring you up to speed on Zimbabwe.

Danny Alexander: I am sure they will. On 18 October he gave an interview to the BBC in which he said, "Firstly, it is not something that one cannot like and say no. People can use whatever currency they want. Point one." Then he was asked, "You would be using sterling anyway. That’s one of Danny’s points." I assume the Danny referred to by the interviewer is me. "Yes, that is an alternative," he said. The transcript is publicly available, and I will happily furnish it to the Committee.

Chair: I had missed that. That is interesting and helpful.

Q3681Simon Reevell: The Scottish Government have claimed that membership of the United Kingdom holds Scotland back economically. Do you regard that as a surprising assertion?

Mr Carmichael: Surprising, no. It is part of their overall strategy that, in order to persuade people in Scotland that they should remove themselves from the family of the United Kingdom, they have to generate a sense of grievance. They do this every day in a multitude of different ways. The message from the paper today is pretty clear. Growth rates in both Scotland and the rest of the United Kingdom are pretty similar. Danny gave you the figures earlier. The economic growth per person in the Scottish onshore economy has averaged slightly above the UK onshore economy over the last 50 years. That is 2% in Scotland compared with 1.9% for the UK as a whole. It is fair to say that, as Danny told you earlier, our performance as part of the UK is comparable with, and in some cases better than, other small independent countries: austria, Denmark, Finland, Ireland, Luxembourg, Portugal and Sweden.

Q3682Simon Reevell: Just dealing with the point about the UK, when I asked whether you found it surprising, I should have put that into context. I meant do you find it surprising bearing in mind the evidence?

Mr Carmichael: No, I am afraid there is very little in this debate that I find surprising any more; it is consistent with their approach to other matters. I come back to my opening statement. It is about getting the facts out and destroying that impression people might have from a sense of grievance that is constantly being nurtured. The facts show quite clearly that we are at least as well off-if not occasionally slightly better off-as the United Kingdom as a whole.

Danny Alexander: The evidence is very clear and it is set out in detail in this paper. Scotland is a highly successful small country within the UK, because we are within the UK. You can analyse that by comparing Scotland with countries of a similar population and size. The Scottish Government have laid out their comparator countries; I have given the comparisons. You can also look at Scotland as compared with other parts of the United Kingdom.

Q3683Simon Reevell: You said earlier that it was the third richest part of the United Kingdom. What criteria are you using?

Mr Carmichael: I take you to the Office for National Statistics figures, which are in the paper. Their GVA release shows that Scotland has the third highest output per head of all the UK’s countries and regions. Danny gave us the figures earlier on. For example, Edinburgh’s economic output is 165% of the UK average. Scotland and its constituent parts do well, and it is not an accident. We are now seeing that Scotland does well as part of the United Kingdom because we have put a structure of government in place with the creation of the Scottish Parliament in Edinburgh while remaining part of the umbrella of the United Kingdom, which serves Scotland exceptionally well. It allows us to have a Government in Edinburgh, which can look entirely at the Scottish picture for areas where there is a distinctively different Scottish picture. It is not an accident that Scotland does well.

Q3684Simon Reevell: When you talk about "third richest", you are referring to an average figure for the whole of Scotland in relation to output.

Mr Carmichael: Yes.

Simon Reevell: I do not criticise that.

Mr Carmichael: I think most people would say that is reasonable. Once you start using terms like "richest", which are not by any shape or means a term of art, you are widening the debate.

Simon Reevell: That was why I had to ask.

Danny Alexander: There are two ways to look at this. How does Scotland compare with the average of the UK? Scotland’s output is 98% of the UK average. Where does Scotland stand in the pecking order of all the different nations and regions within the United Kingdom? We are third from the top of that list.

Q3685Simon Reevell: One of the Scottish Government’s stated aspirations is to increase growth to the UK average. My understanding of your position is that in fact that has already happened and that aspiration is not only modest but irrelevant.

Mr Carmichael: I could not really improve on that as a description. The Fiscal Commission Working Group use data that show the Scottish economy grew by 2.3% between 1977 and 2007, compared with 2.8% for the UK, but the Treasury find that growth per head was 2% and 1.9% in the last 50 years.

Danny Alexander: The difference between the two sets of figures is in the words "per head". Around the world, countries are assessed on the question of GDP per head. The population of England has grown faster than the population of Scotland. The Fiscal Commission’s numbers ignored the per capita part of the equation, whereas if you look at it on a per head basis over a long period of time-50 years is as far as the statistics go back in this area-as opposed to taking a particular selection of years, the figure is 2% for Scotland and 1.9% for the rest of the UK. What it shows is that Scotland is very similar to the performance of the UK as a whole.

Q3686Simon Reevell: On the little bit of material we have been looking at over the last few minutes, we seem to have a situation where claims and aspirations put forward by the Scottish Government are difficult to reconcile with the objective empirical evidence.

Mr Carmichael: Yes. This comes back to the point I made in the opening statement, which is that people will engage in this debate if they feel there is information they can rely on. The significance of this paper is that we put our analysis out there; as my mathematics teacher used to tell me, we show our working. The contrast with the Scottish National party is that they do not show their working, so when other people come along and try to make sense of their conclusions, that is where the difficulties arise for them.

Danny Alexander: You can get the right facts out of the Scottish Government but they tend to be accessible only by using the Freedom of Information Act.

Q3687Simon Reevell: You and I would probably agree that in a debate on something as important as next year’s referendum, transparency and honesty are fairly essential ingredients.

Mr Carmichael: It is a matter of enormous regret to me that time and again the Scottish Government keeps getting caught out in this. I think the people of Scotland deserve something better.

Q3688Simon Reevell: It is probably quite good that they get caught out. What is a shame is that they get themselves in a position to be caught out in the first place.

Mr Carmichael: Indeed, that is a shame, but they can only answer for their actions, not mine. There is an emerging theme here. We saw it recently with their paper on the creation of an oil fund. Freedom of information disclosure showed that they were being told one thing in private by their own officials and saying something quite different to the people of Scotland. We saw it on the question of EU membership and their legal advice. There were great assertions that of course it would not be a problem, and it turned out that no legal advice had been sought. We have seen it in other areas as well. The whole paper John Swinney prepared for his Cabinet colleagues, to which I referred, was probably one of the most egregious examples. The debate we have in Scotland for the next 11 months will be a once-in-a-lifetime debate. If we are to take it seriously, we have to approach it with total candour. That is why the way we have approached it-my predecessor, the Chancellor, the Chief Secretary and myself-and will continue to approach it, is to say, "Here is the information. Now, Scotland, make your decision."

Q3689Chair: Before we come to the border effect and Sir James, can I go back to the question about your statistics and showing your working? Has anybody come forward with any convincing rebuttal of the facts and evidence that you have produced so far? I presume that your conclusions have been rejected, but has anybody re-marked your sums and found any errors?

Mr Carmichael: No.

Q3690Chair: Presumably, the Scottish Government had the opportunity to comment on and observe your workings on this paper. Have they given any response that would indicate they have any belief that the sums and workings are wrong?

Danny Alexander: There has been a public response, which we have all seen, but there has been no detailed questioning of the methodology used or the statistics provided, by anybody.

Mr Carmichael: The people of Scotland can see the two contrasting approaches. They can see on the one hand that the United Kingdom has put out a substantial piece of work, which is well reasoned and well substantiated; on the other hand you get dismissive press comment. They can draw their own conclusions.

Danny Alexander: With all the economic analysis papers, we have also taken time to discuss and peer-review the methodology used and the approach we are taking with academic experts in the sector before we publish the paper. We have taken it upon ourselves to do a lot of work to make sure that what we are putting into the public domain is reliable and accurate, and is not making outlandish claims but giving a realistic assessment of the facts.

Q3691Chair: I understand that, but, as you would anticipate, you have been met not only with generalised abuse, but also no doubt with the accusation that your experts are trying to do Scotland down, and all the rest of it. Have you explicitly asked the Scottish Government whether or not they have any observations to make about the veracity of your arithmetic, and whether or not there are any factual errors that they can identify in your workings?

Mr Carmichael: I am into week three of this job, so I cannot comment on everything that has been done hitherto, but I have been around this debate since I first became politically active at 14, so that is 34 years ago. I am fairly confident that if there were holes to be blown in these papers, they would have been by now, but they have not been.

Q3692Chair: That is taking rather a lot for granted. It might be appropriate next time you meet the Scottish Government to seek to clarify with them whether or not they have identified any factual errors.

Mr Carmichael: If it puts your mind at rest, Mr Chairman, I will happily pay for the stamp to send them a copy of the papers myself.

Chair: Very droll.

Danny Alexander: There is regular exchange and dialogue between Treasury officials and Scottish Government officials on a whole range of subjects about how policies operate within the UK at the moment. None of those channels has been used to come back and say, "Your assessment of the heteroscedasticity of the residuals in these equations is wrong," for example.

Chair: I did not understand the meaning of that phrase. I am not familiar with Serbo-Croat or whatever language it was in. However, I just wanted to be absolutely clear that they have not come back and identified any factual or material errors in the workings of the arithmetic, or anything else.

Q3693Sir James Paice: I want to come back to the border effect issue, which the Chief Secretary raised earlier. Can you clarify for us precisely what you mean by the border effect and why, if it exists-or would exist-it has not been a spur to other small countries who have a border with a larger country to merge with them?

Danny Alexander: The border effect refers to the impact that a border has on trade and labour migration, and the divergence between different countries of regulatory and tax systems, which makes it harder to trade. By the way, it is an effect that occurs even where there are no physical borders or passport controls and there are trade agreements and structures, such as the European single market. It is an effect that has been widely studied in the economics profession. There is now a whole series of academic papers; they are referred to in the annexes to the document. They have looked around the world. I think the first study looked at trade between different provinces in Canada versus the trade those provinces had with the United States. A whole range of other places have been studied and different evidence sets assumed. I think it is now a well understood economic fact that a border effect exists. To try to claim that the border effect is a myth and does not exist is the economic equivalent of climate change denial.

A whole bunch of work has been done to look at the scale of the border effect under different sets of circumstances, and that is what we tried to model in this paper. There are lots of reasons why, let’s say, France and Germany would not want to be part of the same country. We are dealing with a different question; we have an integrated state and are trying to understand what would be the impact of breaking it up.

Q3694Sir James Paice: That brings me to another question, which in some ways you have answered. Are we talking about something that is transitional, as a consequence of the break-up, or would it be permanent?

Mr Carmichael: Nothing is immutable, but you take as your starting point that there will be a disruption.

Sir James Paice: Of course.

Mr Carmichael: The question then is: what is the direction of travel? If what you are dealing with is an exercise in political disintegration, you have to assume that the gaps you produce at the point of disruption will increase as the countries diverge-that is to say, the border effect becomes greater. Otherwise, what is the point of being an independent country?

Danny Alexander: A border effect is a permanent feature of the relationships between independent sovereign states. That is what all the evidence shows.

Q3695Sir James Paice: You contest that the border effect is not simply a reflection of-

Danny Alexander: Your question implied that it was something that might occur at the beginning and then disappear over time.

Sir James Paice: Yes.

Danny Alexander: You could argue that the reverse is true. Once you have a separation into two independent countries, over time it is likely that their tax and regulatory regimes will diverge. Divergent regimes add to the costs for business, as you know from your own experience. All of those things are features that disrupt trade. There is quite an interesting chart in the paper-I can’t find it now-which looks at what happened to the share of trade in the Czech Republic and Slovakia from the time they separated, and then over time. It shows a steady fall. There were lots of other things going on in that part of the world at that time, but it is not an instant thing; it starts from day one but its effects mount up over time rather than dissipate.

Q3696Sir James Paice: In your paper you estimate that this could cost a typical Scottish household £2,000 per annum. How authoritative is that figure? Can you explain to us how you arrived at it?

Danny Alexander: I will explain how we arrived at it and then Alistair will say something. There is now rich academic literature on the subject, where a number of different experts have created models. We took some of those models and applied data about the United Kingdom. We presented the results in the paper; they are at the lower end of the estimated effect. There is a lot of uncertainty here, so we thought it right to present conservative estimates so that we are not overstating the case. Even then, over a 30-year period, a 4% of GDP effect is pretty substantial and, depending on the course taken, it could end up being a great deal worse than that.

Mr Carmichael: I do not think there is an awful lot to add to that.

Q3697Chair: Can we come back to one particular element of the border effect, which is whether or not it is affected or impacted upon by the nature of the division? If the nature of the division is harmonious, you would imagine that the effect is likely to be less. If on the other hand it is discordant, say as a result of the expulsion of Trident and disputes in a whole number of areas, would it be greater, or does the evidence indicate that the effect is the same irrespective?

Mr Carmichael: The point is about divergence of the two economies. If the scenarios you outlined were to come to pass, there would be an accelerated and accentuated pattern of divergence, and that would have an economic impact. That is the whole point.

Q3698Chair: Not necessarily. The decisions being taken to diverge the economies are not quite the same as people deciding that maybe they do not want to buy something from the Czech Republic or Slovakia. I am not clear about whether or not an element of the border effect is conscious consumer choice-deciding not to buy, say, American, but to buy Canadian, or vice versa-or whether it is simply a question of the economies diverging and the hidden hand of the market.

Danny Alexander: The economic models do not include a factor about the nature of the split. What they show is that a border having a negative effect on the economies is just a fact. It is an economic fact about the world. How quickly that arrives and its precise magnitude depends on a whole range of different factors, which these quite highly stylised models look at. We have deliberately chosen in what we published here the low end of the range of estimates, in order not to over-claim. Some of the factors you are referring to might be things that could make matters worse, but the point for the people of Scotland is that, no matter how harmonious a break-up was, there is still a real economic impact on Scotland simply as a result of having a border.

Q3699Chair: If there is disagreement, things could only get worse.

Danny Alexander: The best way for things to get better is for Scotland to stay within the United Kingdom.

Q3700Sir James Paice: To go back to a point that was touched on earlier, presumably the question of whether or not Scotland was a member of the EU, and therefore of the single market, is a matter of the degree of the impact of the border rather than its fact altogether. Have I got that right?

Danny Alexander: There is a lot of evidence that shows that being part of the European single market is good for trade and good for jobs, and that British membership of the European Union helps to support jobs, growth and trade in the United Kingdom. That is true of every member of the European Union, but those factors already exist for Scotland as part of the United Kingdom. Scotland is part of the United Kingdom, which is part of the European single market. We have all those gains already. What we are talking about is introducing a new border, which, as we can see from the academic evidence, would bring a significant economic cost in its wake.

Q3701Sir James Paice: But my point is that, if one or both of the two resulting countries, the UK and Scotland, were outside the single market, the effect of the border would be enhanced rather than reduced.

Danny Alexander: If you were seeking to create an independent Scotland-a eurosceptic haven from the world that was not part of the European Union or anything else-that would be-

Q3702Sir James Paice: Or that they were not even admitted to the European Union.

Danny Alexander: That would be even worse.

Q3703Sir James Paice: That is my point. Therefore, the £2,000 per family that we discussed a few minutes ago is based on the presumption that both states remain-or become-members of the EU.

Danny Alexander: Yes, it is.

Q3704Sir James Paice: Can I turn to the impact of all this, were it to happen, on the rest of the UK, and the particular point about the border effect? What would be the border effect on the economy of the remainder-the new UK?

Danny Alexander: There is an estimate of this in the paper as well, but I cannot immediately find it. Because of the scale it is considerably smaller; it is more of the order of £100 per household as opposed to £2,000 per household, but there is also an effect. Because Scotland is a relatively smaller share of the trade of the rest of the UK the numbers are smaller, but there is a negative effect on everybody. This is not something that is neutral for the rest of the UK and bad for Scotland; creating an international border has a cost for everybody.

Q3705Sir James Paice: That is a very important point to bring out. Can I raise an issue which is linked to these two points? It comes back to the question of membership of the EU. Have you tried, or do you intend at any stage, to estimate the flow of money to and from the EU from a separate Scotland? In other words, would Scotland become a net recipient? If so, how much might that replace any economic disadvantage with border separation or other matters?

Danny Alexander: There will be a paper on European issues. As to how far we are able to analyse that particular question, I do not know the answer right now, but as and when we publish it, I am sure some of us will come back and talk about those subjects in much more detail.

Q3706Chair: Can I clarify the cost to each Scottish household of £2,000 a year? What are you assuming to be the size of an average Scottish household?

Danny Alexander: I am not sure of the answer to that question. What we have done is simply to take the GDP effect and divide it by the number of households in Scotland, in the same way as you would calculate any other household average.

Q3707Chair: There have been foul suggestions that people in Scotland can be bought by £500 a head one way or the other. Therefore, if this is a £2,000 deficit per household, to raise it potentially to a £500 a head surplus, you have to know how that £2,000 is allocated, in order to identify whether or not the £500 surplus can be achieved.

Danny Alexander: I am afraid we have not worked out how much of it will be paid by the Davidson household or others.

Chair: That is an obvious cause for concern at the moment. We are three adults at the moment. I am, however, seeking to expel one of them. If I thought that maybe he would have to bear a share of this money, it would be a countervailing argument, which is why you can see that I have a personal interest. In case you wonder, my son is aware that we are trying to get him out, so don’t worry about that.

Q3708Mike Crockart: We have already touched on the subject of an oil fund, but I want to deal with it a bit more fully. Earlier this month, the Fiscal Commission Working Group came out with a paper on stabilisation and savings funds for Scotland. What is your response to that paper?

Danny Alexander: As we have seen from some of the private work that has been published by the Fiscal Commission, the truth about any of these oil fund ideas is that they would have to be paid for by substantial extra cuts in public spending in Scotland, substantial tax rises or substantial extra borrowing at higher costs in an independent Scotland. I do not think any of these proposals bear the political weight put on them by the Scottish Government.

Mr Carmichael: In a bygone age, we always used to talk about borrowing to invest. It seems to me that we are talking here about borrowing to save, and you end up paying more on the cost of borrowing than you generate by either of the funds that they propose to set up. As you said yourself, Mike, there is a divergence between the advice they have been given privately and what they have said publicly. Quite significantly, that divergence has not yet been explained.

Danny Alexander: To give one example of that, the official advice released under freedom of information stated: "Funding an oil fund through the government deficit"-which is what is being proposed; in other words, having a larger deficit-"would therefore not necessarily provide a long term revenue stream to fund public services." They also looked at the returns on the Norwegian oil fund and the yield on Government bonds over the same period of time. It says: "This implies that if the Scottish Government was able to borrow at the same rate as the UK Government"-one could question that assumption-"and adopted a similar investment strategy as the Norwegian oil fund, the returns on its investment may not cover the interest payments on its borrowing." In other words, there could even be a net drain on resources.

Q3709Mike Crockart: The key recommendation is that the oil fund would be a good way to deal with the volatility in oil and gas revenues. I presume you agree with that key recommendation. It is just the mechanism to put money into that oil fund that is the difficulty.

Danny Alexander: I think the best way to deal with fiscal volatility in Scotland is to remain part of the United Kingdom.

Mr Carmichael: It highlights the danger of over-reliance on a single highly volatile commodity. When I was first elected here, I remember being told as part of the allparty group on the offshore oil and gas industry that oil at $11 a barrel was artificially low, and it would probably rise and settle at $17 or $18 a barrel. We were told, "Don’t think you will ever again see oil at $30 a barrel," which turned out to be prophetic but not for the reasons the forecasters thought would be the case. As part of a larger economy, you are able to absorb these shocks and changes. The whole point of an oil fund is to compensate for over-reliance on one sector.

Q3710Mike Crockart: You talked about the revenues being highly volatile. It is worth getting on the record the figures helpfully given to us by the Treasury, so thank you for those. Looking at the recent history, it is not as if there has been a smoothing of that volatility. In the last few years, we have seen £12 billion in 2008-09, down to £6 billion in 200910. That is a significant level of volatility. Do you agree that for an oil fund to work, setting it up from where we are now, we have to be in a position where there was a significant number of years of surplus to get it up and running, because we are starting from a position of deficit? Has the Treasury done any work on how many years it would take to get to a point where an oil fund would meet either of the aims of the recommendations in the report?

Danny Alexander: Managing volatility would have to be done under those circumstances. There are a couple of key facts to understand. You are exactly right to say that trying to build it up while running a deficit means you have to run an even larger deficit. The estimates we have in the paper are that spending would have to fall by 19% from current levels, or onshore tax rises would have to go up by 27% by 2016-17, for Scotland to run an oil fund from a balanced budget. If you are running an oil fund from a deficit, and you potentially have to borrow on top of that, and if you are a new country recently floated on the world’s financial markets, from whom you need to borrow large sums of money, trying to convince them that you are credible, and you are paying-one suspects-increased costs for that position, you have a serious set of fiscal challenges that would, to put it mildly, hit you from day one of those calculations.

In the paper we found that, if an independent Scotland set up a Norwegian-style oil fund, after 20 years of contributions it would be less than a tenth of the current size of the Norwegian fund. Those contributions would be paid for with massive spending cuts or tax rises, so there ain’t no easy way to do this.

Q3711Mike Crockart: How does that square with the SNP’s view of oil revenues being a bonus, which in my understanding of language implies that it is an extra you can squirrel away for a rainy day?

Mr Carmichael: I guess they are hostages to their own rhetoric. This is historic policy for the nationalists, and it has never been properly substantiated. It would be politically much more difficult for them to walk away from it, so I think that in terms of policy they are stuck with it. Their own analysis shows that, when you do the serious work in government, the figures just do not stack up.

Danny Alexander: Our oil industry is an enormous asset to the United Kingdom. It is a valuable resource; it is one where there is considerable employment, particularly in Scotland, but also in other parts of the UK. By being part of the United Kingdom, the much broader tax base and deeper pockets of the United Kingdom enable that volatility to be smoothed over a much wider range of other economic activities. In the meantime, Scotland sees public spending that is consistently about 10% higher than the rest of the UK. That is an advantage to Scotland. If what you are trying to do is to balance having this fantastic asset as a country with smoothing the volatility and making sure that spending is apportioned in a reasonable way, the current arrangements are fair ones.

Q3712Chair: You seem to be almost suggesting that on the one hand oil is an enormous resource for the United Kingdom, yet it seems to be almost detrimental to the Scottish economy. On the figures you gave earlier about percentage growth and the percentage prosperity of Scotland, by and large Scotland is pretty much at the same level as the rest of the UK-better than some bits and so on. Surely, in these circumstances oil can be only an unalloyed bonus. It might not necessarily allow the establishment of an enormous fund, but surely it can only be a bonus to a Scottish economy that is roughly parallel with that of the rest of the United Kingdom at the moment.

Mr Carmichael: You have to be careful to draw the distinction between oil and gas as a whole, which is an enormously important part of Scotland’s economy. It is a tremendous contributor. Indeed, to go back to the discussion of the border effect, anyone who has ever taken an East Coast Main Line train on a Sunday or Monday night will know that there is an enormous cross-border effect for that particular industry. There is enormous cross-border traffic. The difficulties we are talking about are to do with setting up an oil fund, especially in a time of deficit.

Danny Alexander: I would add a further point that we have talked about in previous hearings. I agree with everything Alistair just said, but looking over the long term, as you have to if you are trying to embark on the creation of a new nation state, basing your economic and fiscal modelling on what is both a highly volatile but also, over time, declining resource, when you are also facing building fiscal challenges in the future, particularly from the demographic pressures that exist in Scotland-as we have discussed before, the demographic pressures and ageing population in Scotland are happening faster in Scotland than in the rest of the UK-what you see is a kind of fiscal rack pulling the tax revenues you are basing your projections on over a period of decades. They are declining, as the OBR forecast showed, and the demographic pressures are rising. You would therefore face the need to have to run an incredibly tight fiscal policy for a very long period of time in order to do that. If you are seeking to pay for an oil fund on top of that, you would have to have further spending cuts or tax rises to pay for it. It strikes me that whoever was in my position, were Scotland ever to become independent, would face a very long period of having to make some pretty painful choices.

Q3713Chair: To come back to the question of whether or not the deficit for Scotland, as I understand it, is pretty much equivalent to that of the UK as a whole, with some degree of variation, and if we leave aside for a moment the question of differential population growth, the balance seems to be that, on the one hand, Scotland has a volatile income from oil, but on the other hand it is receiving a disproportionate subsidy from the rest of the UK in terms of the Barnett formula. Is that an accurate position?

Danny Alexander: It is not language that I would use. The Barnett formula works well in terms of allocating funds across the United Kingdom. As Alan Reid observed earlier, there are changes to that fiscal settlement-quite significant changes-with the devolution of certain tax revenues. I regard that as a strengthening of Scotland’s place financially within the United Kingdom. But it is certainly true that if you take the total amount of public spending in Scotland, even when you add in a population share of oil revenues-I am not saying that is their policy, but it is what the SNP have argued for-you still end up in a position where for every £100 raised and spent in the UK since devolution, if you include a geographical share of North Sea oil and gas receipts, Scotland has raised £111 and spent £112, so there is still a gap even when you take all of that into account. The idea that this will enable things to be paid for way beyond what is paid for at the moment simply is not true.

Q3714Chair: I understand that you have to go off to another commitment. As we always say at the end of these hearings, are there any answers that you prepared for questions we have not asked? Most of what you wanted to get off your chest you did at the beginning in your introductory statement, but are there any other points you want to make?

Danny Alexander: No; I would just emphasise to the Committee that the opening point was a really important one, which is Scotland’s economic performance within the United Kingdom. We are a successful small country within the United Kingdom, and the analysis in the paper shows that independence would jeopardise one of the foundations of that success. There is a very positive argument about how successful Scotland is economically within the United Kingdom compared with other places around the world. That is the point I hope the Committee will very much take on board.

Q3715Chair: Thank you very much. We’ll say goodbye to you, and I congratulate Stephen Farrington on not putting a foot wrong. Perhaps Alistair would like to stay for a moment.

Alistair, could I just follow up the question of INEOS? I understand there is to be a briefing later on this afternoon. We have been asked whether or not we would be willing to look at the INEOS question as a Select Committee. Our view was that we were not convinced that there was any value we could add to the process at the moment. Is there anything that you want to add about your own activities in relation to this?

Mr Carmichael: I was a member of this Committee in 2008 when they last carried out an investigation of it; it was a good piece of work, which might now bear revisiting by all of us. I do not know, Chairman, how you do your business, but we had a practice at the time of taking single-issue sessions rather than doing a full-blown investigation. It might well be that if you are not minded to do an investigation, there would still be some profit from a single-issue session. I leave that entirely to yourselves, but given my own background on the Committee I thought I would share it with you.

In terms of the position today, I am very disappointed that the chemical plant is to be put into liquidation. We have been told for weeks that this is a business that has a future. If it has a future and INEOS are not to be part of that future, it is now incumbent on all of us to see if we can find anybody else to take it on.

I have already spoken to Vince Cable at the Department for Business, Innovation and Skills, in particular to engage his support with UKTI, which is the UK Government’s main arm for generating investment from overseas. It is very early days on that. Throughout the course of the last couple of weeks I have been in regular contact with Michael Connarty; I have spoken to union representatives and to members of the management at INEOS. In the course of any industrial dispute, there is a limit to what Government Ministers can and should appropriately do, but we have certainly kept well across what was happening. Along with the Scottish Government, we have looked at possible different scenarios in terms of contingency.

I come back to the point made by the Secretary of State for Energy and Climate Change in his statement in the Chamber, from which I came to this Committee. The best interests of everybody are still served by management and unions going to the table and talking. Whatever other avenues we now have to explore, because we know what INEOS’s statement of intent is, my preference would still be that everybody gets back to the table and talks.

Q3716Chair: One of the other points I wanted to pick up with you relates to HS2. I do not know whether or not you have seen the dialogue that we had with Vince Cable when he was last here in relation to HS2.

Mr Carmichael: I have not.

Chair: Perhaps you could have a look at that. He seemed very much to be saying that in the event of separation, the benefits to Scotland would not be taken into account in drawing up the financial modelling for the viability of HS2. In particular, he thought it was then much less likely that HS2 would proceed beyond Manchester. If you have not had the opportunity to look at it, perhaps you could do so and come back to us.

Mr Carmichael: I can certainly see the logic of that reasoning. Without seeing the modelling and its underlying assumptions in terms of a bald political statement, I would hesitate to comment.

Q3717Chair: It seems to me that the questions of communications, travel and so on are an important area to be explored, including the future of HS2, unless a separate Scottish Government wanted to pay for it, from Edinburgh and Glasgow to Manchester. Maybe that is one of the issues that will be addressed by the paper that is coming out on 26 November. It is obviously something that we would want to have raised before that in order to clarify the position.

Mr Carmichael: On matters like that, if it is of assistance, I am quite happy to enter into correspondence with members of the Committee, or, if at any point you want to have an informal discussion at Dover House, my door is always open.

Q3718Chair: There is another issue that it is appropriate to raise with you as the new man with his feet under the table: the future of shipbuilding in Scotland. As you will be aware-

Mr Carmichael: It has been a staple of the Committee over the years.

Q3719Chair: I am glad to see that you recognise its importance, not only to my constituency but to others in Scotland. Of course, we have already produced a paper indicating that in our view separation would shut the shipyards, but clearly that is not the only difficulty. There is the question of when the Royal Navy’s next order might be announced and whether or not infill work will be found to keep the yards going until such time as that order is placed. I presume you are not on top of that at the moment and that Mr Flatt has not quite had time to bring you up to speed with that particular item. Perhaps you would look at that as well, because obviously it is an enormously significant issue.

Mr Carmichael: It is early days. There is a combination of different challenges in taking on a job like this. I am keen to get around to as wide a range of different communities in Scotland as possible, but at the same time I still have to stay in the office and do my homework, and it sounds as if you have just added to that. I will expect something to come winging into my box in the next day or two, so I am very grateful to you for that.

Chris Flatt: We are in regular contact with Ministry of Defence officials on these issues, so we can bring the Secretary of State up to speed.

Chair: He has not had a briefing from you yet.

Chris Flatt: Not yet.

Q3720Simon Reevell: Obviously, it is a significant event when there is a change of personnel at the level at which you have arrived, and it is relatively close to one of the most significant events, if not the most significant event, in Scotland for a very long time. What do you feel you are expected to bring to the process between now and then that, for whatever reason, it was not thought would be brought prior to your appointment?

Mr Carmichael: If you will forgive me, I am not going to answer that question directly, not least because the gentlemen to my right have spent three weeks asking it. I have always declined to answer it because it invites comparison.

Q3721Chair: For Hansard, we ought to indicate that by "the gentlemen to my right" you mean the hyenas of the capitalist press who are sitting on the bench of the accused.

Mr Carmichael: I actually meant our esteemed colleagues from the Westminster press lobby, whose contribution to explaining the work of Parliament has always been valued enormously highly by me in my time as a Member of Parliament.

Chair: Indeed; and some people will believe that.

Mr Carmichael: I think it is now clear that there has been a phase in the discussion of Scotland’s national life which has been a debate about a debate. The debate about the debate has now, please God, got to be over, and we have to get on and have the debate. As somebody who passionately believes that Scotland’s best interests are in remaining part of the United Kingdom, we have to campaign and explain to people why Scotland’s best interests lie in remaining part of the Union. That is going to be the focus of my work for the next 11 months. It is not my job alone. There is the Better Together campaign, which is headed up by Alistair Darling, and is the main focus of the campaign to keep Scotland as part of the United Kingdom, but as the UK Government we have a substantial role, just one part of which we have discussed today. There will be other parts coming out in the future; there are other analysis papers still to be had.

To come back to the point I made earlier in answer to Pamela about the difficulty of taking something that is chunky and substantial like this and explaining it in terms that are real to the lives of the people of Scotland, that is what my job is going to be.

Q3722Simon Reevell: I appreciate that you might be a little shy, modest or whatever.

Mr Carmichael: I have to say they are not accusations I often meet.

Q3723Simon Reevell: I speak as I find. There was talk at the time of jobs being allocated on a sort of "You have a go", "Your turn", or "You try it" basis. I assume you are saying that your appointment does not fall into that category, and there was a real purpose to your being appointed, but that you would rather not share it.

Mr Carmichael: If I could put it like this, I have heard that talk before, but having been the Government’s Deputy Chief Whip since 2010, and Chief Whip of my own party, I do not recognise that description as a means by which people are put into Government jobs.

Q3724Simon Reevell: So it is fair to say that as far as you are concerned, without identifying it, for the reasons you have said, there is a purpose to your appointment.

Mr Carmichael: Of course there is a purpose to my appointment.

Q3725Simon Reevell: But you won’t tell us what it is. I am happy to take at face value that there is one.

Mr Carmichael: Both the Deputy Prime Minister and the Prime Minister when I was put in this job were at pains to emphasise to me that they saw it as a job of exceptional importance for the duration of the independence referendum. I do not believe that they would have put me into this job if they had any concerns about my ability to do it. It is just too important to let any other consideration enter into it.

Q3726Simon Reevell: Is the Deputy Prime Minister based at Dover House at the moment?

Mr Carmichael: He is at the moment, yes.

Q3727Simon Reevell: But that is no reflection on-

Mr Carmichael: It is while refurbishment work is being done at 70 Whitehall. It allows me the opportunity of regular, easy access.

Q3728Simon Reevell: It is just that there is a nice office there; it wasn’t to keep an eye on the Department, or anything like that.

Mr Carmichael: I do not think he was there to keep an eye on me, or indeed my predecessor.

Q3729Chair: I would assume that as a former Chief Whip, you were there to keep an eye on him, as a man who not only knows where the bodies are buried, but has buried a few. I presume you were there to observe the leader.

Mr Carmichael: That is a dreadful distortion of the truth. As well you know, the Whips are kindly counsellors for their parliamentary colleagues.

Q3730Chair: Enough of fantasy.

As we often do with people who are here speaking to a report, could we just clarify whether or not anything has come out subsequent to the publication of the report that you regard as a plausible rebuttal? Have any observations been made that you think have some merit and where maybe you should have given a little more strength to a particular issue? If you knew then what you know now, would any amendments have been made to the report?

Mr Carmichael: No. I applaud your determination and your striving for objectivity, and the canvass of the widest possible range of options and opinions, but I am aware of nothing that would meet the description you have just outlined.

Q3731Chair: As we said to your colleague, are there any answers you had prepared or any additional points you want to make before we close?

Mr Carmichael: No. In all seriousness, it has been an exceptionally useful session. There has been a thorough explanation of some of the issues that are going to be of exceptionally high importance to Scotland over the next 12 months. I very much look forward to its being the first of many.

Chair: Thank you very much for coming along.

Prepared 28th October 2013