The Smith Commission was convened in September 2014 and charged with reaching a cross-party agreement on the devolution of further powers to the Scottish Parliament. The Smith Commission published its report on 27 November 2014.
Paragraph 94 of the The Smith Commission report recommended that 'The devolution of further responsibility for taxation and public spending, including elements of the welfare system, should be accompanied by an updated fiscal framework for Scotland, consistent with the overall UK fiscal framework.'
Paragraph 95 set out that the fiscal framework should 'encompass a number of elements including the funding of the Scottish budget, planning, management and scrutiny of public revenues and spending, the manner in which the block grant is adjusted to accommodate further devolution, the operation of borrowing powers and cash reserve, fiscal rules, and independent fiscal institutions.'
Scottish and UK Government Ministers met as the Joint Exchequer Committee (JEC) to negotiate the detail of the fiscal framework from July 2015 to 23 February 2016 when the Fiscal Framework between the two governments was agreed.
This annex forms part of the fiscal framework agreement between the UK government and the Scottish Government. It describes how the key elements of the framework will be implemented and will operate. This ensures that the effective operation of the fiscal framework should not require ongoing negotiation.