 Welcome to the second economy jobs and fair work committee meeting of 2018. May I remind everyone to turn off any electrical devices that may interfere with the sound system? First of all, may I ask our new member, Kezia Dugdale, to make any declaration of interest that she may have? Thanks, convener, if I can just declare that I'm a member of community trade union and a member of engender. Thank you. The next decision is item 2 on the agenda, which is a decision to take items 5, 6 and 7 in private. Is the committee agreed to that? Yes. Thank you. I would now welcome Keith Brown, Cabinet Secretary for Economy, Jobs and Fair Work, along with those from his team who are with us. Lorraine King, who is head of consumer competition, the Regulation Unit, Denise Swanson, who is head of access to justice unit, Greg Walker, who is a solicitor with the Scottish Government legal directorate, and John Sinclair, the senior principal legal officer in the Scottish Government. The cabinet secretary is here to speak to us about a legislative consent motion on the financial guidance and claims bill, which is a UK Parliament piece of legislation, so I'll invite Mr Brown to make an opening statement on that. Thank you, convener, and thanks for the opportunity to speak in support of this LCM. The Financial Guidance and Claims Bill makes provision for, first of all, establishing a new financial guidance body, including provision about cold calling and a debt with spite scheme, as well as the funding of debt advice in Scotland, Wales and Northern Ireland, and the regulation of claims management services. The bill's overarching focus is on ensuring members of the public are able to access free and impartial money guidance, pensions guidance and debt advice. It also has access to justice purpose, ensuring that they are able to access high-quality claims handling services by strengthening the regulation of claims management companies. To enable that, the bill provides in two areas, first of all, the creation of a single financial guidance body and provision for the funding of debt advice in the devolved administrations, and the transfer of claims management regulation from the Claims Management Regulation Unit in the Ministry of Justice to the Financial Conduct Authority. The bill also makes provision for two connected purposes, the creation of a debt-respect scheme, also known as a breathing space scheme, by secondary regulations and the introduction of a ban on cold calling by secondary regulations. The single financial guidance body, or SFGB, will replace three publicly funded services that are currently provided by the Money Advice Service, PensionWise and the Pensions Advisory Service. It will be responsible for delivering debt advice in England and money guidance and pensions guidance across the UK. The provision of debt advice has already been devolved, and the bill devolves the levy funding associated with this debt advice provision. These monies are gathered from an existing levy on the financial services sector under the Financial Services and Markets Act 2000. However, under the terms of the new funding formula for devolved levy funding for debt advice provision in Scotland, the Scottish Government has negotiated an improved allocation that will ensure that Scotland's share takes account of, first of all, the adult population share that we have and also the levels of indebtedness in Scotland. Accordingly, without this LCM, the provision for levy funding for this advice provision would not be devolved to Scotland, meaning that existing less favourable financing arrangements would continue to apply. As outlined in the LCM, other provisions under part 1 of the bill will have a bearing on Scotland, for example the statutory objective on the SFGB to work closely with the Scottish Government on the provision of information, guidance and advice and a requirement on the SFGB to work with the Scottish Government in coordinating the development of a national strategy to improve the financial capability of Scottish citizens and their ability to manage debt and the provision of financial education to children and young people. Beyond the specific core functions of the SFGB, the Scottish Government has also obtained agreement on certain wider principles that shall apply in respect of the new body, namely that it must take greater account of differences in the money and debt advice landscape in Scotland to ensure that available resources are pooled effectively, delivering a more holistic and joined-up advice landscape and also establishing a committee with membership drawn from representatives from each of the devolved administrations, thereby embedding the Scottish Government and SFGB governance arrangements, providing it with influence and ensuring that collaborative working is achieved in practice across money and pensions guidance, and also be capable of channeling funding in a way that best ensures effective oversight and co-ordination, or delivering debt advice in light of the devolution of levy funding. Part 2 extends the regulation of claims management companies by the Financial Conduct Authority to Scotland in a development sought by the Scottish Government and welcomed by the Justice Committee in its stage 1 report on the civil litigation expenses and group proceedings of Scotland Bill. I hope that the committee supports our view that a legislative consent motion is necessary and happy to try to answer any questions, convener. I start with a question about timings. The first point is about the bill that was introduced at Westminster in 22 June 2017. In normal circumstances, an LCM would be lodged no later than two weeks after introduction of a bill, but in this case it was lodged much later, that is on 13 December 2017. First of all, could you perhaps explain how that came about? The second question is, when do you envisage the bill coming into force in Scotland? Is everything set up and being prepared so that it can take effect and be effective for those who need debt advice and so forth, and claims management companies here? On the first point, convener, I wrote to you on this matter. The delay that has happened has been down to the fact that I mentioned in an opening statement the discussions around the levy funding. It is probably true to say that having come to this afresh I was not willing to accept the current level of funding that applies in relation to Scotland, so that initiated a series of discussions with not just ourselves in the UK Government but the other devolved administrations. It is also true from the UK Government's point of view that those discussions and other ones associated with the bill were multilateral discussions involving different administrations and different interest groups, and that has taken longer than we expected. It is mainly down to the fact that the discussions that we have had in relation to the levy funding. As a result of that, I think that we will increase our levy funding from around £2.2 million to a bit more than that, to over £4.7 million, and that has been the basis of the discussions. In relation to when it will become enacted, again that lies with Westminster, but I understand that it intends to bring it back to its next stage after the February recess, but perhaps the officials would give some more clarity on both that and the process after it. We are looking at the second reading being in the House of Commons around 22 January. Royal Ascent will be some time after February recess. We do not know that. The report on third reading will be post 20 February, and it will go through its House of Lords readings and then on to Royal Ascent. We do not have the final timings of that, but we know that we are expecting the second reading in the committee stage later on this month. We are taking this forward and, of course, it builds on the current provision that is there, but it is also true to say that, as you will know, convener, we are bringing forward legislation to establish a consumer body. The consultation for that will happen over the next few weeks and months, and that will be something that is further evolved during that process. The way in which it was dealt with up until now is through grant-giving to different bodies through the Scottish Legal Advice Bureau, so that infrastructure is already there, but it will be developed over time. Thank you. Now some committee members have questions. Colin Beattie, did you want to come in? Cabinet Secretary, just one or two questions about the funding provision. Just to be clear, does the new formula directly replace the existing funding or is it additional funding in itself? It is the same process by which it is raised through a levy, but it completely replaces the existing funding. Do we know what the formula is for raising this levy from the financial services? It is easy to say that it is a levy on financial services, but what is the basis? Is it a turnover tax? Is it a transaction tax? Is it a fixed sum, according to whatever type of company it is? I might be like the officials answer that, but the formula in terms of how it is dispersed is, first of all, it is on a population basis to take the population of England and extrapolate that to the devolved administrations. Secondly, crucially, from their point of view, they also take account of the levels of indebtedness in the devolved administrations. On how it is levied on the financial sector, I do not know if the officials want to answer it. The levy is set out in the Financial Services Act 2010, and I believe that it is based on turnover of companies in the Financial Services Act, but I would have to check and write back to you later today if that was something that you wanted more on. I am just interested in the way that it is often phrased here, which says that it is a direct levy on financial institutions in Scotland. Clearly, it is not. It is actually across the UK, and we have received just a proportion of that. Is that correct? Yes. It is levied on all UK financial services companies, and it is collected by the Financial Conduct Authority and then goes to the Treasury after that. Will that be a better system than the existing one? I think of a couple of no-reasons why it will be better, but I think that it will give, and that is entirely down to the additional funding, which will be virtually doubled. However, it is probably best viewed through the fact that, as I said, we have these new consumer protection powers in terms of guidance and so on, and I think that it helps us with that mix of new powers to make sure that we have as rational a debt advice and consumer advice landscape as possible. There are currently, I understand, something like 400 different advice bodies in Scotland, not all to do with finance, obviously, but I think that this additional resource will help us to make sure that we can dovetail as best we can and work as advice Scotland does, for example, but other bodies as well. I think that it is an improved basis on which to go forward. Obviously, the increase from about £2.2 million to £4.7 million, that is a tremendous plus point, and it will enable better service. Is there going to be any sort of traditional, sorry, transitional arrangements as you move from one service to the other? How is that going to work? No, by and large. Obviously, we are involved in discussions with, for example, Citizens Advice Scotland, both in terms of this and in terms of potential changes in terms of the new legislation that we are bringing forward for our consumer protection bodies. What are the day-to-day services that will be relatively unchanged? I do not know if the officials want to add anything to that. We have been in discussion with MAS. At the moment, we have a partnership agreement that the MAS puts money into a grant funding port that the Scottish Government also contributes to, and that grant funding programme is operated by the Scottish League-laid board on behalf of both MAS and the Scottish Government. We have been having discussions with Money Advice Service over the course of the final part of last year, and those are continuing on how we manage that transition from the MAS direct funding into the Scottish Government and the Scottish Government having that funding directly into its budget. Those discussions are continuing. Given that that appears to be a turnover tax, does that mean that there is potential for the amount raised to go up or down? If so, how will that impact us? How will that impact us would be if the quantum that is taken in is increased, then the same formula that I mentioned before, would apply. For Scotland and the devolved administrations, it would be that share according to adult population and indebtedness that would apply to whatever the quantum is, so that is how it would be if it is flexed if it changes either up or down. Will the Scottish Government have any discussions on going with the Treasury in order to manage how this levy is being allocated? Yes, we will do that directly, as is necessary, and I imagine that through the representative on the committee that I mentioned of the single financial body, we are able to have those channels of communication with the UK Government. Thanks, convener. I have some specific questions about the provision of debt advice services that I think that we will all get to a bit further down the line, but just on the overall principle of the UK act applying in Scotland, are you in any way worried about the potential inflexibility of that? When I was reading through the papers, the thing that struck me in particular might be around claim management companies. If there was a very specific problem in Scotland around claim management companies, we would not have the flexibility to address. For example, if a company like Provident, which is very prominent in Scotland and Northern Ireland but less so in England, perhaps missold a product, would we have the flexibility in Scotland to respond to that under the current arrangements? We would, although we have had a very different landscape in Scotland up to this point in terms of claims management companies, which again the officials will be better versed in this than I am. Largerly they have been taken forward through legal companies, so Digby Brown and people like that are the ones that have taken it forward. That has meant that there have been different requirements, probably lesser requirements in terms of the monitoring of their behaviour. That is now changing, so we have now moved to a situation where claims management companies in Scotland are more like those that are operating elsewhere in the UK. I do not think that that should be a problem for that reason, but I do not know if the officials want to come in on that point at all. The FCA already has a UK-wide remit, so it is very familiar with the Scottish landscape. It has already been in contact with the Scottish Government. We have had discussions with them on how they might properly address the Scottish context in the new regulatory power that it will have. I am meeting with them again later this week, so they are keen to make sure that the Scottish landscape is very well accommodated in the way in which it is going to regulate claims management companies in Scotland. There will also be subordinate legislation required to implement the main provisions in the bill. We are working closely with HM Treasury on the development of that subordinate legislation. A lot of the detail of how that might be delivered and how that needs to be delivered for the Scottish context will be dealt with by then. That is an on-going process that we are already drilling into at the moment. I take you on to the issue of over indebtedness, which you have mentioned a couple of times. I think that that is really interesting because the amount of debt that you are in does not necessarily correlate with the amount of help that you need proportionately. If I think of somebody using a part-time job and a low wage that has one payday loan that is causing them no end of trouble, they might need serious long-term debt advice, which is much greater than the sum of the debt that they owe. Is that built into the formula, or is the way that it works based purely on the amount of money that people owe? Does that make sense? It is a good question whether the level of indebtedness relates to the number of people, but officials can tell me further why, rather than the actual quantum of what the debt is. The point that you make about how it is very different for different individuals, that should be reflected in what we do. It is not necessarily an issue for the UK Government or the FCE. It is how we configure the debt advice that we are able to provide in Scotland. There are different agencies, but that question of whether it is the number of people, it just says the level of indebtedness in the documents that I have seen, you will be interested in getting an answer to that. The level of indebtedness comes from a formula that money advice service currently collect data on, and it was based on a range of criteria, including deprivation indexes, level of debt, income and a whole range of factors that come together to come up with indebtedness ratio, so it is not just the quantum of debt that an individual has. Would you be confident that, if the prominence of debt in Scotland is low-level, but very hard for people on low incomes, that that is incorporated into the amount that money will receive in Scotland? Yes, we believe that it is. My final question, convener, would be about the sense that the cabinet secretary mentioned the amount of money that we will get from this level. You said what we have previously received. Can you give debt advice services the assurance that they will see double the money in return? We will know. We have a proposal to bring forward a consumer protection body, so it will depend on how that progresses. However, having more resource for that, we do not intend to shovel off to some other function. That is the purpose that we want to put it to, but that is exactly how it will be dispersed and remains to be seen. If I can just make one other point, because you asked about our ability to influence this, and the response was that we will continue to have discussions with the financial conduct authority. I think that it is just worth pointing out, and for the benefit of the committee as well, convener, that for the first time—and we made representations on this from last year when I came into post—the financial conduct authority has now a full-time person in Scotland. It is also true to say that the competition and markets authority, the CMA, not to be confused with another body, the country music awards, is also just about to—again, we made representations on this—about to very substantially increase its presence in Scotland—I think about 35 potential positions here in Scotland. We are very keen that, whether it is the FCA or other regulatory bodies that we have that presence in Scotland, that means that it will get a better fit in terms not just of an improved financial situation that we have for that advice, but of the point that you first made about how reflective what we do in Scotland is in the practices that we are able to get the UK Government and its agencies to follow as well. I think that there is a promising picture on the regulatory front. Gillian Martin Yes, largely what I wanted to ask when covered by Colin Beattie, but off the back of your statement, you mentioned issues around cold calling. I am wondering what we can—I have obviously the details yet to come in all of that, and I appreciate that. Given that quite a lot of the regulation around telecoms and cold calling is reserved, what can we do differently here? Gillian Martin We cannot legislate or bring in regulations in relation to that, but what that new body will be able to do, and it is specifically laid out in the regulations that will follow, is to take action on that, so that it could ban cold calling or particular types of cold calling. I have written on a number of occasions to the UK Government asking them to do that, to take a much tougher line on Euston's calls in particular. We, through the processes that I mentioned, and not least through this committee that I mentioned, have a direct line to continue to seek the support of the UK Government in taking stronger action in terms of cold calling. Cold calling and pensions is one particular bane, but there are others as you know. That just gives us an increase, if you like, ability to put pressure on the UK Government to take action in that area, because you are right, it is a huge area for people. Gillian Martin Are there any other committee members? Andy Wightman The review of regulation of legal services is due to report later this year, and I am just wondering if it reports or comes forward with any ideas about how to regulate claims management companies. In a sense, one will already have ceded authority to the UK Parliament to legislate on that, but are you comfortable that there will be sufficient flexibility to incorporate any of its recommendations in, for example, secondary legislation that might be necessary? It was two things that we have discussed with legal colleagues, both within the Government and officials, and we have listened to what the justice committees had to say in the issues as well. We want to stay in touch and go with the grain of what is being said. To quote somebody else, devolution is a process, not an event. The possibility for future change is always there, and the case has to be made if we want to see that change reflected. Of course, we are open to that if that is how the situation develops. In a sense, the position that we will be in is that you have maximum flexibility, and you have a UK regime in place, but you can amend that if you see fit in future. I would concede the point that, in relation to that, it is an extremely, if not complex, certainly interrelated set of powers that are going on here. There are some that are quite clearly reserved in relation to pensions and some that are debt advice, which is devolved. It is quite complex, and I would not pretend that the two Governments are completely of the same view as to what will be devolved and what is reserved. That discussion has been going on up until now, and I am sure that it will continue. If it seems to be the thing to do, and if, as you say, depending on other developments, if it seems to be the case that we think it is best to move forward in that way, then we will do that. We have signalled that already to the UK Government. Are there any other questions from committee members? If not, I thank the cabinet secretary and his team for coming in today. Thank you very much. I will suspend the session for a few minutes just to allow our next set of panel of witnesses to take their places. Good morning to our panel of witnesses. We are now returning to our inquiry on Scotland's economic performance. John McLaren is from Scottish Trends. Next is Ryan McQuig, who is the policy and public affairs manager for Oxfam Scotland. Welcome to both of you. And then we have Michael Jacobs, who is director of the Institute for Public Policy Research, Commission on Economic Justice and, finally, but not least, Craig Diel, who is the head of research at Common Wheel. Welcome to the two of you as well. If I might start just with asking a couple of general questions, first of all, I should say that don't feel you have to answer every question, some may wish to come in on different aspects of different questions, and we don't want this to be too formal in the sense of everyone wanting or thinking they have to come in and put their penny in on every question and every answer. Perhaps first generally of each of you. However, first of all, how do you think the Scottish economy has performed since 2007? Are there particular areas in which it has done well and others where it hasn't done well? Perhaps we could have your general comments on that, just to start off. I don't know who wishes to take the question first. John McLeon. I'm happy to go first. I think it's very difficult to say how well the economy has performed in the last decade because there's been such an exceptional decade, in particular obviously the financial crisis, which starts at the beginning of the decade and moves us into a completely new era of economics, if you like, with productivity exceptionally low. On top of that, you had the EU crisis, the Euro crisis and, for Scotland in particular, you've had the impact of, first of all, a very high oil price and then a very low oil price. Obviously, in comparison to historic, it's done very badly in GDP terms, although the labour market is doing quite well, which is again a change from what's gone on in the past. Looking at it in comparison to the UK, it's been fairly similar overall, but they've taken different paths to get to where they are. I think that the most worrying thing is what's been happening in the last two to three years, where Scotland has barely grown. It's only grown about one or two quarters of the last 10 or 12. That's partly to do with the North Sea, but it might go wider than that. I think that's a particular worry in terms of going forward as to where the growth is going to come from. In terms of areas that have done well and badly, it's difficult to tell. The standard of the statistics for Scotland is such that it makes it very difficult to really look at the sectors and say that's done well and that's done badly. I think that there was a paper by Spice that said that one of the best areas for employment growth was communications, information communications and tele-transport, but using a different measure, employment has fallen in that area. Even in that one measure, it's all come in one year. There's something like a 20 per cent increase, and also in the arts, apparently, there was a 20 per cent increase in employment. These are clearly not realistic figures, but they are the official figures. Equally, in something like hotels and restaurants, there apparently has been no increase in output in the last 10 years in Scotland, whereas in the UK it's grown quite considerably. Again, I don't believe those figures, but those are the only figures that we've got. Because of the poverty of analysis of the Scottish economy, it's difficult to say who's done well and who's done badly. Why don't you believe those figures? A 20 per cent increase in the arts employment in one year? Why would that happen? A 20 per cent increase in telecoms and transport? Nothing happened for nine years, and then there's a 20 per cent increase. I don't understand why that would be the case. It's also not borne out by what's happening in the output that has barely changed in that year. I think that it's a problem with the statistics. Sometimes, at the UK level, we have to go to the ONS to discuss it with them. Sometimes, like the hotels and restaurants figures, it's probably more to do with an understanding of the Scottish statisticians. Who would like to comment next? Just to echo some of John Stott's thoughts, it can be difficult to see what's going on. We'll probably talk about that through the session. We might need to think about what we mean by what an economy is doing well, by which I mean how are we measuring the economy and are our measures appropriate? The financial crash particularly marked a massive change in the global economy and how we look at economies. Our measures that were developed before then might need to examine them to see if they're still appropriate. As John Stott said, we might be starting to see some anomalies in the statistics that are coming from this. Perhaps we could just bring Gordon MacDonald in at this point into the discussion, and then Michael Jacobs. Thanks, convener, and I apologise for being late earlier. I got held up on traffic. Just to set the scene before we get into some nitty gritty, in a remit, the inquiry is to compare the divergence between Scotland and the UK as a whole with other regions' nations in the UK. Can you just tell us in terms of GDP? John Stott, you spoke about it earlier on. In terms of GDP, how Scotland performs in relation to the other regions of the UK? My understanding is that the ONS splits the UK into 12 regions and has a lot of comparison numbers. How does Scotland perform in relation to the rest by GDP per capita? GDP per capita should be fairly straightforward. That's a difficult question to answer because of what you're looking at. Are you looking at just onshore? Are you looking at including offshore? Are you looking at real terms? Are you looking at cash terms? At the UK or regional level, then there's very little data available for that. It's all in cash terms, and it's not really analysed to see if you look at it and try and work it out. There's quite a lot of things that don't seem to add up, so the robustness of the data I would put a question mark against, even much more so than Scotland's data, which is far superior to any other region. Even Wales and Northern Ireland don't really have very good GDP data, and certainly not sectorally broken down and not in the same that we've got national accounts now that look at it in terms of expenditure and income as well. It's very difficult to say. On the labour market side, looking at it from that side, instead Scotland continues to do relatively well, not as well as the south east and the south in general, but better than most other areas. Although it's come down a little bit over the last 10 years, 10 years ago it was doing particularly well above the UK and now it's slightly below the UK average, but it's still in international terms and even in UK terms doing relatively well. In terms of the EuroStat data released on 30 March 2017, taking onshore and offshore, it would suggest that there's only two areas of the UK that have better GDP per capita than Scotland, and that is London and the south east of England. Does that come as a surprise? Not if you include the North Sea, no. There's two ways of looking at it. If you include the North Sea, Scotland's done very badly over the last decade because both the price is now very low and the production has been falling. If you look at it in level terms, it's still relatively good because you're adding that on, but most of the income, most of the GDP related to the North Sea ultimately ends up abroad because it's almost all foreign-owned things. We don't have a measure of GNI that should take that into account, gross national income, but if we did, it would be a more accurate reflection of where Scotland is. I think that it would still be London, south east, Scotland, maybe third or fourth, so it would still be relatively high. Excluding North Sea oil that out of Scotland would be in fourth position, east of England would be the other area that would come in. I noticeably that Wales and Northern Ireland are the two constituent countries that are doing very poorly. In terms of the EU 28, how would Scotland perform, being at any table, your nearest number? I haven't had a look at that. I can't remember off the top of my head. I imagine that within certain areas Aberdeen will be doing particularly well and Edinburgh will be doing well. Others will be doing pretty badly, but I don't have enough knowledge in that area to say relatively. Again, according to the Eurostat data that was released in March of last year, Scotland would be ninth out of the Euro 28 countries in terms of GDP per capita. Does that come as a surprise? Is that including or excluding North Sea? It's including North Sea, but excluding North Sea it would drop another two positions to 11th. At ninth, it's above Finland, France, Italy, Malta, Spain, et cetera. The Scottish Government has published data like this for a while and I think that including the North Sea Scotland was something like fourth. Now it's maybe ninth or tenth and that's the North Sea impact, so you've really got to take that out to get a better impression. The classic country that is distorted in this way is Luxembourg. Ireland has had to recently change its GDP because of the international flows in it. Scotland is in a difficult position to get a good idea of what its relative standing is because it's not just North Sea, but there's quite a lot of ownership in areas such as whisky, financial services, energy sector, and so on. The quicker we can get an idea of the international flows to get to gross national income, the quicker we'll have a better idea of what Scotland's truer international standing is. I'm not an expert on the Scottish economy, so I think that one of the things that it's worth saying in this context is that the UK economy as a whole has been and is performing pretty disastrously, of which the Scottish economy is, as you pointed out, better than average. However, the average is very distorted because the UK economy is overwhelmingly dominated by London and the South East. As the economic geographer, Philip McCann, has pointed out, there has been a kind of decoupling of the London and the South East economy from the rest of the UK for 30 years, but exacerbated over the last 10. Of the rest of the UK, Scotland, as you say, is actually doing better than most of the English regions of Wales and Northern Ireland, but the gap between London and the South East and the rest of the economy is very great. The reason I say that we've been doing badly as a whole is because of the performance of GDP per capita, but most of the earnings, and the extraordinary thing that's happened in the UK economy over the last 10 years is the decoupling of GDP growth and earnings. We used to have a fairly reliable relationship between national income and average earnings, when national income rose, average earnings rose, and there have been changes in the degree of inequality, but by and large, that relationship held pretty much throughout economic history. Over the last 10 years, those two things have been decoupled. We've had GDP growth, even per capita, but we haven't had earnings growth, and earnings have been stagnant now since 2007. This is something very fundamental, and I think that we all really need to be aware of how fundamental it is. We assume that what we want is a growing economy. Those of us who spend a little bit of time thinking about it assume that the reason that we want a growing economy is because that means that we have growing incomes, but we don't anymore. That calls into question the nature and content of our economic growth and its relationship to earnings. I think that this is a bit of a crisis for policy makers throughout the UK, and it's not confined to the UK. That's the other thing to say, which is that most developed countries have been going through a similar kind of problem since the financial crisis, and in some cases, particularly the United States, since long before. The benefits of growth are not flowing to the majority of households. The US is the most stark example of this, where almost the entire benefits of growth over the last 30 years have flown to the top, have gone to the top 10 per cent, and quite a very high proportion to the top 1 per cent. It's something that all developed economies have experienced, even those that have much lower levels of inequality. Obviously, the committee wants to look at the performance of the Scottish economy, but it is part of a wider UK economy, and that is part of a wider global western capitalist economy that has not been performing well in very fundamental respects. Gordon MacDonald, every follow-up, and then Cassie. Just on that point, you raised, Michael, how would you rectify that situation? So, do you want to take the rest of the session to answer that question? I mean, I have a whole series of things, which I think—I don't know whether that should be the subject of further questioning after you've done some ground-laying, but that is exactly what I've come to talk about, so—but I think probably we should have some more general comments first, and then let's go through some of the things. Perhaps you have two best points on this stage. I don't think that I'm getting tired at the moment. Right, Cassie Dugdale. I've got a question that I'd like to hear from all of our guests on, but before I do that, if I can just pick up a point from John's opening remarks, he discussed a poverty of analysis around Scotland's economy. What do you mean by that? What's missing and what would you do about it? When the Scottish statistics are released for GDP or for the labour market, there's no analysis of why something has changed. Occasionally, if something like Lungannock closes down, there'll be a footnote saying that this figure is low because of that, but by and large, there's no real analysis of these things changed and we're a bit concerned. We don't really know why this. If you ring them up, as I do, they often have quite a lot of information about why a particular sector is done particularly badly, but for some reason, and I know that there's a debate within the department, that is not put out into the public to a large degree. That's the first element of it. The second element is that there is very little research done in Scottish universities on the Scottish economy because it is seen as a regional economy and the way that academia works, it doesn't have the same kudos as comparing across different countries. When I was in the Scottish Civil Service a few years ago, I tried to do a piece of work. I tried to organise a piece of work to look at the main sectors of Scotland by experts in Scottish academia in about 10 different sectors. I think that I got one application on whisky. Now, it may be slightly different. This was 20 years ago, it may be slightly different now, but it's not that different. Unlike Ireland, which is smaller but has a more detailed understanding of its own economy, it makes it more difficult to know what to do about it and what the underlying problems are. That's also made more difficult by the fact that there aren't many economic think tanks in Scotland who have beefed up their analysis with the exception now of Fraser Valder. However, if you compare that to London or even to Ireland or most other countries, there isn't much real analysis of the Scottish economy done by halfway houses between politics and academia. That's helpful. Thank you. I have a more generic question for the panel. There is obviously a debate around the degree to which public policy influences Scotland's economy and Scotland's economic growth. I'd be interested to hear from our guests one policy from either the Scottish or the UK Government that's had a direct impact on Scotland's economic performance, and you can determine whether that's been a positive or a negative one and share it with us. I'll start. There was an interesting piece of research done by somebody I used to work with, Richard Harris, who used to be in CPPR. We are looking at productivity in Scotland. Traditionally, there are two areas where the Government tries to spur things on. There is more inward investment and more entrepreneurship to get more companies started. His research found that in Scotland, inward investing companies and new start-ups contributed negatively towards productivity. That's contrary to most international findings and contrary to the findings that he got from the UK as a whole. Now, as with all research, probably more research needs to be done to understand it better, but there's clearly a fundamental issue there. In the inward investment, it could be related to the fact that the silicon-glen impact that ultimately was negative, but it's pretty spiriting if the evidence is that if we have more start-ups and more international investment, it will worsen our productivity. That can't be good in the long run. An area like that, which is what you would want the policy to be, seems to be having a negative impact in Scotland, so we need to understand that better. I'm not sure that it's such a policy area, but I think that when we talked about what we measure is what a country values, I think that the national performance framework was a step in stone or going a step in the right direction to that path about what really matters to Scotland. For Oxfam, back in 2012, we did a consultation with 3,000 people in Scotland and said, what matters to you to lead a good life? People didn't say that the number one priority was economic growth. They didn't say that they wanted fast cars, they didn't say that they wanted big TVs. They said more social foundation levels. They talked about affordable and safe housing, good physical and mental health, living in a neighbourhood that is safe to go outside, and then it was having work, but having satisfied work, whether that was paid or on paid and then having good family relations. The national performance framework has gone the right step, but it still has economic growth or has growth at the heart of it. If Scotland really values what the people of Scotland want, it needs to invest more on that measurement level and do policies that rectify that. As we have said about GDP— We are going to come on to some questions around inclusive growth, but if I could just push a little bit further on an interventionist policy that has come from either the Scottish or the UK Government, it is either a positive or a negative effect. I am sure that Oxfam would have a view on that. I think that the fair work aspect of it and fair work convention where it has gone out and gone to people and said what matters for work and how they can try and do businesses, I know that the business pledge was not overly critical of it, but we are saying that it is again a good step. I do not think that it is compelling businesses enough, and more could be done on that aspect. Talking about fair work and decent work as a pair compared to the UK, where it is just jobs, jobs, jobs is going to get people out of poverty, as we have seen in work poverty levels, that is not the case. Those two measures about the national performance framework and about fair work and going out to businesses and the business pledge is a step in the right direction, but a lot more needs to be done. It has not had an effect yet because it has only just been announced, but we were very excited to see the announcement of the Scottish National Investment Bank and to see that starting to get some planning and funding behind it. That has a potential to have a major positive effect on the Scottish economy, reforming the way that we fund housing, fund energy and other projects. We are looking at the past 10 years rather than the future. I support the Scottish Investment Bank, too, but we are trying to do an analysis of the past 10 years, so if there is something else that you had, I will let others speak to that. There has been austerity for the past eight years. That has affected the whole of the UK economy, including the Scottish economy, more than any other simple thing. The economy's earnings depend on demand, and we have had a massive withdrawal of demand over the past eight years. That demand has not just been lost in the public sector. What happened after the financial crisis was that the private sector retrenched. It had huge debts of its own. The crisis was a crisis of private sector debt, not public sector debt. The private sector saved and has been saving ever since. UK companies are net savers in the economy. What companies are meant to be for is taking other people's savings and borrowing and investing and then growing. British companies, including Scottish ones, have been net savers in the economy, which means that they have been withdrawing demand at the same time until, very recently, overseas demand was very weak. If overseas demand is weak, private sector investment is weak and you have net saving. The public sector also withdraws its demand by cutting public spending. Mathematically, because all saving and borrowing in an economy has to balance—all savers are matched by borrowers—you are left with household debt. If you look at the sources of growth over the past seven years, household debt has now risen again as people borrow to getting close to the levels that it was in 2007-08. The Bank of England has already warned about unsustainable levels of debt. That was not a context in which the UK Government could afford to withdraw demand because the rest of the economy—the private sector, the overseas sector—was not spending in the British economy. We have been left with household debt, so we have had not enough demand in the economy. This was a time when the UK Government could have borrowed very cheaply with absolutely record low interest rates. Ultimately, the main reason why the UK's recovery from the recession of 2009-08 has been the slowest of all European countries—in fact, almost all developed countries—and why we have only recently, in the last two years, got back to per capita household income, as it was before 2008. That really is the overwhelming policy context for Scotland as for the rest of the UK. Can I follow up on that? How would that contrast with other European Union country economies, for example Germany, where they have surpluses and yet introduced what they would have called austerity measures or some would have called austerity measures? Are those the same issues that we have in the UK that you have touched on, such as rising household debt, do not exist? The same measures were introduced, which you seem to be suggesting have caused certain things in the UK, but the same measures in other countries did not result in broad terms in that. I am not sure that I follow how you say that the one follows from the other when it did not in other countries. Germany is a very instructive example. The structure of the German economy is different from the UK structure, so German firms have been investing, and the overseas balance for Germany is much more favourable, which allows them to have had a much lower level of austerity, so the degree of withdrawal of demand by the public sector in Germany was much less. The conditions in the rest of the economy has allowed them to have a mild package of austerity measures over the past seven years, with much less impact on the German economy, which is much stronger. I am not saying that in every economy at all times austerity, reduction and public spending are bad, but in the British economy, at a time when British companies were not investing, when our overseas balance was so poor and when we could not afford household debt to be rising, it was the wrong policy, and that is the context. You absolutely have to look at different economies, and different economies have behaved differently at different times. If you look at the US economy, you have had a stimulus package that was kept, which was maintained for much longer, so the American economy did not go through the depth of austerity that we did, and it came out of its recession much earlier than we did. You really need to look at the speed with which economies came out of that recession, the depth that they got into, but then the speed that they came out of it, and their overall balance of each of the four sectors of the economy to see the way in which Britain has been an outlier. That is where our very low growth rates come from, in my view. I am just wondering about forward planning. Is it also reflective of how countries plan going forward, whether there is proper long-term planning—for example, the German approach thing—would be to have very long-term planning in their approach to such matters? I would absolutely say so, but it is many things. Germany has a much more resilient business sector with banks that are much more involved with their companies. They take a longer-term view of investment, so German banks tend to be much more tolerant than British banks. They tend to be much more invested than British banks are in German companies. German companies do not lay off workers as easily. They tend to retain workers. They have trade unions who organise collective bargaining, which moderates wage growth. The interesting thing about Germany is that it is strong trade unions but not very strong wage growth. The trade unions help to moderate wage growth in return for relatively stable employment in companies. The German economy is really structured very differently. I hope that we will get on to the issue of employment, because I think that that is an employment regulation and bargaining power. I think that that is very important. It is a particularly important part of the German story. I would like to continue the discussion on policy, but I will bring it back to Scotland. As you will know, the Scottish Government's economic strategy is centered around the four eyes investment, internationalisation, innovation and inclusive growth. I would like to get views from each of our members on how the economy has performed against or in those four areas over the past 10 years. Perhaps I could start with Professor McLaren, because your index, the index that you publish of social and economic wellbeing, covers a number of those areas. I think that that shows over the last decade that Scotland has slipped from 16th place in OECD to 20th. Perhaps you could give us some views and some idea of the trends behind that move downwards in the index of social and economic wellbeing. Yes. Some of Scotland's slip is due to the fact that the index that looks at GDP includes the North Sea for Scotland in cash jams, so that takes in the fall in the North Sea. In a sense, it is the reverse to the point that I was making earlier on to Gordon MacDonald, that that is not a real loss to Scotland because it is largely going overseas. It exaggerates the drop in Scotland's position a little bit. On the other hand, the previous position, the earlier position of being high, was also flattering Scotland because the GDP level was artificially high because most of it is ending up overseas. However, the other aspect was the decline in education standards as measured by PISA, which Scotland is one of the worst performers. The only country that performed worse than Scotland over that period was Finland, but Finland was first when it started. It is now not first, but it is still pretty high, where Scotland is mediocre and it is falling down. Other countries that did particularly well were in the Eastern Europe, Estonia and places like that. However, where it is still relatively lowest position is in its health factor, i.e. its life expectancy, which has always been low and has not caught up. You would expect over time if you were particularly low that you would take examples from other places and you should be able to catch up over time, but that has not been the case with Scotland. There has been a slowing down of life expectancy increase in a number of countries, but it is particularly worrying when your life expectancy is always fairly low. The fourth factor is participation, which I have used the employment rate for, which is not perfect, but it gives you some indication of where by Scotland has done reasonably well, but within that you would have to look at what sort of jobs are being created. It is a way of widening it out from just GDP, because GDP is the most difficult one to measure, because, as I have said before, for Ireland, Luxembourg and various other countries and for Scotland, there can be hiccups in the data, which means that you have to adjust for it. It gives you a wider perspective. The two worries for Scotland are the decline in education, which obviously affects the skill levels of your future workforce, and the continued low levels of health, which can affect participation as well as productivity. Just to talk about the inclusive growth element of it, we did a recent report on the poverty and inequality commission. In that report, just to say why it is needed, we said that, at the minute, levels of inequality in Scotland are record high in the last scene since the early 90s. If you look at the wealthiest 10 per cent of Scots, it is over 9.4 times the combined wealth as the bottom 40 per cent in Scotland. I think that inclusive growth has not transpired in Scotland, and that goes back to what we value. Do we measure GDP and is it trickled down in economics when we know that it is more of a sticky trickle that sticks to the top? I think that, because of growth, we need to do a lot more. Would the other members want to join us? On the appropriateness of inclusive growth, because, as I have said, we are not seeing a growing economy at the moment and where growth is occurring is decoupling from the lives of most folk in the country. I think that when we talk about inclusive growth, it is probably quite natural for politicians to focus on the growth part. It is a bit easier to measure and it gives a good headline. However, we can easily get ourselves into the position where we get growth in the economy and it all goes to the top a couple of per cent. That is not very inclusive. If the economy then shrinks, if there is another recession, that could tend to hit the bottom 20 per cent more than it hits the top. It is even less inclusive and you could get these cycles of economy that rapidly ratchet up inequality. I think that we have been seeing that over the past decade. With that particular measure, maybe we need to start thinking more about the inclusiveness than the growth. Can I follow up on one of the other eyes? Innovation, which is read together with productivity across the UK and across the world, is a focus point. However, for the past seven quarters, productivity in Scotland has declined over the past seven quarters. I wonder if any of the members have a view on why productivity in Scotland is falling. Productivity is stored in the whole of the UK, including in Scotland. It is interesting that you raise innovation and productivity together. There is a bit of a myth about the relationship between innovation and productivity, which has been perpetuated by the Government's industrial strategy, both its green paper and its white paper, which focus quite correctly on the productivity problem, and focus almost the policy attention on our frontier innovation firms, which do not have a productivity problem. If you look at the firms that are at the leading edge of innovation in aerospace, in fintech, in pharma, in motor manufacturing, they have very high productivity and it has been growing about 6 per cent per year. The productivity problem lies in the rest of the economy. What we have in the IPPR, the Commission on Economic Justice, is called the everyday economy, where the vast majority of people work in retail, wholesale, in hospitality, in food and drink and light manufacturing. That is where our productivity problem lies. The problem for them is not that they need to be at the frontier of technological innovation. Those companies do not do what they do. They need to adopt innovation, so they need to be at the end of innovation that is the diffusion of innovation throughout the economy. That is very different from what the high-tech sectors do. Most of the high-tech sectors are not about defusing innovation in the rest of the economy. I think that innovation is really important, because innovation keeps you at the frontier of technology, which is obviously very important. It also keeps you at the frontier of exports, which is critical. It is the innovating firms that tend to be the exporters. However, if we want to do with productivity—and we do want to do with productivity because productivity is one of the sources of low and stagnant wages—we need to look at the rest of the economy, which is where the majority of people work, and certainly where people with stagnant earnings work. That is where we have to look at the labour market. That bears on a key question in Scotland, but also in the rest of the UK, which is the structure of our labour market. Our labour market has become so flexible, in which it is literally now possible to employ people by the hour or by the peace rate, which is how a lot of gig economy is organised. Companies have very little incentive now to invest in the technologies, in the equipment, in the machinery, in the capital or, indeed, in the training of their own workforce, which is where productivity comes from. In both physical and human capital, investment is where productivity improvements come from. However, if you can increase output by a little bit, simply by employing a worker for an extra hour, we have no responsibilities to them, so no other cost. That is what you will do, and that is what we have seen. We have seen a huge growth of a very flexible, casualised labour force, and that has helped to repress productivity, because productivity is about investment. It seems to me that we have now reached the point where the great advantages that we wanted of a flexible labour market, which has more jobs, is now working against the kind of economy that we need. Those of us who were around with mass unemployment should never want to go back to mass unemployment. Getting more people into work at record-high employment levels is a good question—no question about that. However, we have record-high employment and record-high insecurity of employment, and that insecurity of employment helps low productivity, as I said, but it also makes people not spend, because they are insecure and they do not know where the next pay packet is coming from, they have no savings and so on. We need to look at the structure of the labour market to get to the productivity problem. First of all, the Scottish pattern of productivity has been very different from the UK pattern in recent years. Scotland's productivity has improved substantially up to about the last seven quarters, when it has declined quite sharply, but it has been doing particularly well at catching up with the UK average. Neither of those trends is particularly well understood. I would not put an awful lot of faith into the productivity figures. Again, there has been very little interpretation of it, but it is not necessarily a good thing that when productivity is rising, because it could be for factors that are not really improving productivity innovative in the long run, but again it is something that needs to be looked at in more detail than the figures that are out there. Nick Crafts did some work back in 2013 for the David Hume Institute, and one of his worries was the lack of diffusion and the low share of innovation active businesses in Scotland, even relative to the UK, where it is not seen as particularly good in the first place. That is an area—again, it is a difficult one to do, and Richard Harris might have looked at it in some of his work. Given that there is precious little work in this area for Scotland, we might as well use what has been done. Thanks very much. I might just finish up with a question on the labour market, because I think that Michael Jacobs mentioned a number of interesting points. Previous economies saw a jobless recovery because of automation, whereas we are almost seeing the opposite here. We are seeing high levels of employment, but that is not feeding through to economic growth because other of the new jobs are being created at a low value, and they do not have the same multiplier impact on the economy. We all want to see higher value jobs being created, and we operate in a global economy now. Is there a country out there that has a policy framework where this is creating higher productivity, higher value jobs? I will come on to Japan later, if we need to. Japan is a very interesting case. Germany has a very different kind of labour market. Sweden is also rather similar. The structure of the labour market has two features, which we have moved away from in the UK in those two countries and some of the other Scandinavian countries. The first is quite a lot of labour market regulation. It is largely about requiring employers to have minimum standards for wages, but particularly for how they pay things such as overtime, benefits and so on, combined with relatively high levels of trade unionism and trade union density, not throughout the German economy, but in parts of it, certainly higher in Sweden, which gives workers a bargaining power within the labour market. One of the things that has happened in a more fragmented labour market is that individual workers find it very difficult to bargain their wages up because they are not doing it collectively, they are not even doing it now as part of a common workforce, they are not part of the common workforce, they are self-employed. That bargaining power is inevitably a way of keeping wages down, coupled with a lack of regulation in the UK system, which means that you can have more or less any structure of wage rates of overtime and of hours and so on. Both of those two economies, which have maintained relatively high employment, have higher employment. Part of the flexibility has been higher rates of employment and has been those two different features. I think that we need a rebalancing on our labour market. We need to move back to some more regulations, so there are basic things that you have to do as employer with stronger trade union densities to help to bargain wages upwards. The historical shift, which is true in the UK and elsewhere, is that the labour share of national income has been in decline, a very significant decline, so that is of total national income, more has been going into profits and the owners of capital have received more of it and less has been going into wages and salaries. That is partly because workers cannot bargain their share of it upwards, so I think that this is an important part of what we need to think about now. To come back on that point, I would not necessarily say low-value, but it is low-pay jobs. Oxfam did a consultation with 1,500 people who were in low-paid work, and we called it decent work. Decent work is also one of the SDGs, which is goal 8. It is incumbent on all countries to provide and help to create decent jobs. That is key. It is going back to the in-work poverty. 64 per cent of children live in a household where someone works, and that is up to 70 per cent for working-age adults. It is what Scotland can do to help those people on low-paid. Sweden takes another avenue where, if you have social value, it pays better wages, especially for people such as childcare workers. That is something that the Scottish Government and workers' companies can do. There are organisations such as BeCooperations and such, and there is more co-ops. We have done a lot of work with low-paid workers who have said that it is that sort of gig economy in which they turn up for work and do not know that they might be sent away against it or that they are not needed today. They are in and out of employment, back in and out, and they keep going back. There is no safety net, so I think that that is something that is incumbent on the Scottish Government and employers and society as a whole, especially when we are signed up to SDGs who are meant to provide decent work for all. It is something that we need to look at in more detail. It is interesting when you raised the idea of low multiplier jobs, because our economy is going into a bit of a shift. We have got some demographic changes happening, which means that one of the growth areas in job-wise is in personal care. Personal care is one of those sectors that maybe measures like productivity may not be appropriate. Increasing productivity, if it is done badly in personal care, could mean seeing more clients in a single shift, which means cutting visit times from half an hour to 15 minutes to 10 minutes increases productivity, but it might not give you a better service. That is another example of what you are measuring where. I will come on now to a question from Julian Martin. Tom Arthur has a brief follow-up to what was being discussed. I would like to look at the future. There is one thing that I would like to put out and ask for your opinion on. I had a lot of discussions around inclusive growth, but I have also had a lot of discussions already about what poverty can do to the success of a country and what impact it can have. I would like to know your views on the idea of a universal basic income and how that might have an impact on stimulating an economy, improving the wellbeing and welfare happiness of a country and some of the things that Michael Jackson has been talking about—a different measure of a country's success economically. I might have to plead the fifth on that. Oxfam, where all of our analysis is about evidence-based, is still at an early stage for that. We have not taken an overview on that, but something that we have called for is the Poverty and Inequality Commission, and it is tasked with looking at how that will be operated in Scotland. We are all for pilot areas and seeing what evidence comes from that. If the evidence leads that this is a good way of reducing poverty and inequality, we would be supporting that. However, it is a hold-and-answer at the minute to see what type of pilot operation is going to happen in Scotland, and then we will take our view on that. I will have to plead the fifth a bit. The universal basic income is a policy that Commonweal actively advocates. We recently published a paper on reforming social security, and that played a key part. From the evidence that we have seen, we see a lot of potential for it to greatly reduce poverty and reduce people falling through the cracks in means-tested systems, and avoid losing out on claims that they will do because they do not know how to apply or avoid being sanctioned for things that they are claiming through various reasons. Universal basic income is a broad area. There are very many different models of how much you give as a basic income, so it is difficult to say in general what the actual impact would be. You also want to couple it with other policies such as better social housing, so that the basic income does not get eaten up by private rent or other factors. We are very much in favour of it. We are very excited to see the pilot schemes go ahead and get the data from them. We are interested to keep following it. Do you have a view on how it might stimulate an economy? There has been quite a lot of... Obviously, Finland has been trialling it, and what they have found from some of the people who have been involved in that is that they have erened money on top of it. It has allowed them to not be kept from the labour market because they are worried about losing any kind of benefits. There are a couple of strands to how it can improve the economy. On one, the marginal propensity to spend is that people who do not have a lot of money, if you give them a lot of extra, tend to spend it rather than saving it, so that tends to stimulate demand in the economy. The other strand is that people who have enough money to meet their basic needs live happier, healthier lives. They are not such a cost on the healthcare system, for instance. They can be more productive in their work, and that can boost the supply side of the economy as well. It is really interesting that there are some experiments in basic income, because we have been talking for 25 or 30 years about it in theory, and it is much better to have some evidence. It will be interesting to see what the pilots prove. The first thing to say is that it really depends on how much money people are getting. If you want to take people out of poverty on an income basis, they need more money. A universal basic income, which provided an inadequate sum of money, does not do the fundamental thing that you want to do with regard to poverty. Obviously, the more money that is provided, the bigger the whole system has to be, because there is going to be much more money going through the public sector and then back out again to individuals, and it has to be taxed and spent. It seems to me that, in a way, the balance of the argument here is what is the impact on work incentives and the marginal rate of taxation for people who would otherwise be on benefits. The real problem that we have in any welfare system is that the marginal tax rate for people on benefit is ridiculously high, of a rate that none of us would accept without our taxes. People have withdrawal rates for benefits of 70, 80 or 90 per cent, and that is what a basic income in principle does away with, because everybody will get the money and you can earn it. That is a huge advantage. I do that without having yet got the evidence. My assumption is that that much improves the situation for people who would otherwise be on a means to test the benefit or would benefit. They are more likely to work and to find security of income and so on. The other side of the equation is, in order to do that, you are giving everybody an income, which means that you have an enormous flow of cash through the Government coffers, which has to be taxed at a much higher rate than we are most of us used to. A vast majority is not changing the income circumstances for the people who are being taxed and given the income. There is an enormous administrative burden, which is itself costly, because obviously all of that system has cost, in order to improve life, as I think that it is very likely to do for the people at the bottom who would otherwise be on means to test benefits. That is quite a difficult policy choice to make, which is why the experiments and the pilots that are now going on will furnish much more evidence about that, including its public acceptability, because there are a lot of people who will be deeply affected in income terms, in their tax and their basic income, but for whom it is not really aimed. Ultimately, their situation is not designed to change and will not change very much. I think that it will be very interesting to see the evidence, but those seem to me to be the arguments on either side. I do not know an awful lot of it in this area, but a couple of things that come to mind is that I know that Harry Burns, who is in the council of economic advisers and used to be a chief medical officer, is pushing this on health and equality grounds, more than economic grounds. The examples that he is giving that he thinks are very convincing come from the USA, I think from the 70s, maybe the 80s, I think Reagan stopped them, so I think it was the 70s. That is a long time ago and far, far away in terms of geography, but it would be interesting to compare the results from that to what is happening in Finland, because they are very different societies, at very different levels of inequality, so you would not have thought that the same policy would have the same impacts in those two different countries, but it would be interesting to see how much commonality there is. If they are different and you are moving more to a Finland or Scandinavian type style, then you probably would need to move away from a more liberal market economy to a more co-ordinated economy and higher taxes, otherwise you would be competing perhaps with education spend and health spend. It is certainly an area that is worth exploring, but it is quite tentative in this area and the Scottish Government is doing the right thing by doing pilot studies, because it may be that there are quite a lot of social norms within a country that affect how well it works. A couple of other policy areas, based on improving productivity in the future, are about getting 100 per cent broadband across Scotland, which will hopefully encourage parity of access to digital platforms in rural areas, for example. The other one is the increase in childcare hours, which will allow families to access a labour market in a way that is not going to completely sting them in their waste packets that used to happen to me when I had two children paying for two children in childcare and basically running to stand still. How do you see them impacting potentially on the future in terms of the productivity of Scotland's population? Well, in the 21st century, access to the internet at a reasonable rate is verging on being a basic human right, so it is pretty essential that we get this rolled out as quickly as we can. I have heard from a lot of people in rural areas, from a rural area myself, where businesses have said that they could invest and expand more if they could get more better access to better internet, similarly on childcare. Although, to tie back into your universal basic income from some of the pilot studies that we have seen in that, one of the areas where you saw people dropping out of the labour market because of universal basic income were parents who wanted to spend more time with their children, which is maybe not a bad thing in itself. So, you have maybe two policies there that I am not going to say that they are going to compete with each other, but they might provide for people who have different desires out of their life, maybe both positive depending on who you are. Any other thoughts on that? One final question. I do not know much about broadband, but in terms of childcare, I think that that is an important area, but I would say that it is more important to look at it in terms of early years investment in childcare. Childcare is kind of like passive because it is parent centric about allowing the parent, whereas early years investment I would see is more active of developing the child and giving benefits to the parents as well, and that means further down the line reducing inequality and improving skills. I think that it is making sure that it is high quality childcare verging into early years investment that is most important in that area. I absolutely agree on that about early years, but childcare is vital for gender parity in the labour market. Most young children are looked after otherwise by women, and it is very difficult to get gender parity in the labour market unless you have high-quality childcare. If you look at the correlation between those two things across countries, it is very clear. Scandinavian countries have very strong childcare policies, the lowest gender pay gaps, and particularly importantly, because we are now discovering that we have a proper equal pay problem with people not being paid for exactly the same work, but the basis of much of the gender pay gap is career progression, and it is in the early childhood who dears when women fall behind because many of them cannot get adequate childcare and so they can drop out of the labour market and then come back in at a lower level. For gender parity, which is then part of productivity since we should be using all of our workforce's needs, childcare is critical. You have anticipated my next question. Where do you see the gaps in the Scottish economy? I mean, people are our greatest resource. Forget everything else that's our people. Where do you see in the future our opportunity to provide parity with the people who are maybe not getting access to the labour market? They are not as productive. What do you think is going to be the key to that? Is it as simple as childcare? Is there more that can be done? The issue of vocational training and skills training is going to become increasingly important. There have been important developments in Scotland in this, but some of the work that IPPR has done on future skills, we are moving into a time of changing structure of jobs. The real risk as jobs become automated is that middle jobs get squeezed. People at the higher levels will find themselves as complements to the machines that work around them. Because they have more bargaining power, they are more scarce, they will be able to keep their wages and salaries up, people will be displaced particularly in the middle. As we have seen over the last 20 years, if you have a middle-ranking job that does not exist anymore, you move down into lower skilled jobs. We have now got lots and lots of people who are working beneath their skill and education levels. Cross-country comparisons suggest that we have more of those people in the UK than any other country in Europe. Keeping people particularly in middle-skill levels trained to do the new work that is coming is going to be really important. The skills system has not really worked anywhere, but we are going to need more and more re-emphasis to make sure that people can access the skills that keep their wages up in the new economy that is emerging. Tom Arthur had a follow-up on something. He might move on to another area that can be headlined with inclusive growth, although we have gotten dipped into that as it were anyway. John Mason will follow up after Tom Arthur. As I said, there was a supplementary to the last point that Mr Jacobs made. I spoke earlier about productivity having stalled in the UK, but the problem is really lying in the everyday economy and that the structure of that characterised by low wages and low regulation and ultimately the gig economy disincentivises investment in human capital and innovation. Your last point is that you spoke about the historical trend of the hollowing out of middle-income and middle-skill jobs. To what degree are those low-skill jobs exposed to future developments in automation, robotics and artificial intelligence? I am thinking of the self-employed delivery driver or the Uber driver, for example. What level of exposure exists and are we our forecasters of a cliff edge and catastrophic level of unemployment of a unnecessarily apocalyptic? Will we muddle on or will humans go the way of the horses? Let me just take that first and then I am sure that colleagues will want to come in. The IPPR has just published, in fact, to report on automation. We have done some analysis of the differential impact on different sectors and on different parts of the UK according to how those sectors are mapped geographically. There is a differential impact on areas in which there are more low-skill jobs and are more vulnerable. Scotland has an interestingly mixed economy because Scotland has a lot of high-skill jobs as well, which are by and large less vulnerable. Nobody is invulnerable. It really needs to be looked at by sector. We need to be very careful, however, and we have tried to be cautious in the way that we describe it. The pattern of automation—we have had automation for 200 years, and automation is not a new thing—is not by and large that whole jobs get eliminated. Jobs get changed. A famous survey of American jobs has only one job that has been eliminated in the US as a result of automation, which is people who lift bell boys or people who are standing lifts and so on, although some of those have come back in particular places. Jobs change mostly alongside new technologies, as we are all aware. We all use technologies, including things that we do like we do our own typing. Formally, a lot of people would not have done that. That has effectively been a kind of automation, but there have been lots more jobs. We are not looking at mass unemployment because the impact of automation on the particular sector has to be placed alongside the impact of the higher productivity and higher demand on the rest of the economy. We have seen that in different sectors. Let me give you the simplest to illustrate. Agriculture has seen enormous automation over the past 100 years, and almost nobody works in agriculture now compared to how many people worked in agriculture 100 years ago. That is mass unemployment in the agricultural sector, but no country with a very large agricultural sector, including Scotland, has seen mass unemployment in general because the demand went elsewhere. If you look at other sectors that have had major technological change like healthcare, yes, some people have been displaced, but their demand for healthcare has been massively increased, which means that, overall, many more people are employed. In the meantime, where else have jobs been created? They have been created in the automation sectors in IT and computing and so on. For every job that has been lost as a result of us now doing our own typing, many, many more have been created in the new jobs, the new sectors in ICT and so on. Overall impact is quite likely to be neutral or positive, depending on how the monies are circulated. From our point of view, it is not mass unemployment that we should be worrying about. We should be worrying about the distributional implications, because that is really where the effects will occur. The risk that lower-skilled workers will be more easily displaced for two reasons. One is that their jobs are cheaper, so it is easier and more cost-effective to automate those, and because they have less bargaining power to keep their wages up. It is the distributional effects that we need most to worry about with regard to automation, which means that we need to manage that process. Skill levels will be critical to that as I said in my previous answer. We absolutely need to be on top of that. The other thing to say is that this will happen relatively slowly. Technically speaking, lots of jobs are automatable tomorrow. It will happen slowly because every job that is automated is a decision on the cost of capital versus the cost of labour, on policy and profitability and so on. The fact that something is technically automatable does not mean that we are about to see it automated. It is interesting that you brought up the horses. The invention of the automobile was fairly terrible for the horse wrangler industry. It is great for car mechanics. We could see the nature of working work change, but, as Michael said, it is how we respond to the distribution of productivity. Bill Gates has been famously suggesting the idea of attacks on the robots. Maybe a bit less tongue-in-cheek, maybe we need to refigure our taxes on output and productivity, regardless of how it comes about, whether it is human labour or robot labour, and then feeding that into a redistribution mechanism like a universal basic income. Maybe that increases the bargaining power of low-paid workers or just simply frees up people to do jobs that are, I do not want to say, low value, but low feedback, like more of these care jobs, more of these personal jobs, more art and culture jobs. We could end up with a very different society, but I am not entirely sure that it is going to be this mass unemployment singularity moment. It strikes me because people talk about a fourth industrial revolution and this seems to be something qualitatively different about this, and perhaps previous, be that in the 18th or 19th century, fundamentally about machines with the capacity to think, potentially by the end of this century machines that are conscious, that can learn quicker than a human being can process information. If you apply that to big data and big data analytics, it is transformative in a way, perhaps it is difficult to imagine. I appreciate those other people actually saying the inventions which have been most transformative are things as simple as a washing machine and a dishwasher. I am still trying to weigh up because I have even exposed this as a reassuring account, such as given this morning, but equally credible sources suggesting that it could be far worse than we'd imagined. However, the panel would agree, however this progresses over the course of this century, it will require a fundamental restructuring of the economy in our idea of what an economy and a social security in a welfare state is. Is that fair to say? Yes, I agree with that completely. I think that you can use it as an opportunity to freeze up people not having to do the type of work that does not get well paid or means that they have to do multiple jobs, freeze them up to do a more social good aspect of it to the betterment of the country. That is incumbent on the Government to anticipate how it will recalibrate the economy to make sure that it frees up people and does not put people on the scrap heap but that it frees them up for an improvement of the country for what we are measuring differently. That is an opportunity instead of a risk. I have a final question. What should the Government be doing now? It was an argument perhaps that some of the mass unemployment that we saw in the 1980s was avoidable if reforms had been staggered from the 70s on. We are staying in the UK rather than having this big bang moment. What action should the Government be taking now? You talked about this century, so that is another 82 years. I am not making predictions over 82 years. I am sure that over this century we shall have to reconfigure our economy and our welfare state completely. However, in the field of policy making where we are thinking about if we are lucky the long term is 10 to 15 years and for many of us the long term is much shorter than that, I do not think that we are going to see a complete transformation in that way. We need to really try to understand what the technologies do. Machine learning is, as you say, in many ways a qualitatively new form of automation where computers, by and large, learn from the data that they are handling, will make a big difference in data analytic jobs. We know that radiographers are under threat. A machine can now read an X-ray or an MRI scan much, much more accurately than a human radiographer can. That is changing the nature of radiography because now the machine input comes and the radiographer is turned into more of an analyst of what then what to do. However, those are still computers. They are not robots, so robots have only just learned to catch a ball. The physical dexterity of robots is still really, really small, so they can spray paint cars, but there are most human actions that robots cannot do. Machine learning makes data analysis so lawyers and financial auditors are under threat from those things because a lot of that is data analysis and big data analysis is much better done. There are definitely jobs that are under threat, but look at how many more human needs we have that need to be met and for which we do not have any conception yet of how a machine could do what a human being could do. Anything to do with planning, with decision making, with emotional intelligence, with caring, with creativity, we simply do not have machines that can do anything like that. This is not going to be a very rapid thing. I do not know what will happen in mid-century or later, but we should not be thinking that the next 10 years we are suddenly seeing machines that are going to take over all the jobs. Of course, they are also very expensive, so this is an economic decision about who invests in these things. These things do not just happen, but companies need to invest in these machines and so on. At the moment, there is relatively little application. In answer to your question about what Governments should do, the first thing is that we probably need more robots, not fewer. Britain is not suffering from a surface of robots that are putting people out of work. We have, if anything, under investment in the most advanced technologies. I would like to see an industrial strategy to its credit. The UK Government is beginning to put together technologies that try to get the diffusion of new technologies out much more widely. I am much more concerned about the diffusion of technologies that are actually technically 10 years old than I am about something brand new, which is not going to diffuse very quickly, because we need higher productivity in the everyday economy. I would like to see a much greater focus on skills training and making sure that we have workers who are skilled right correctly. I would also like to see a much better debate about the ethics of all of this. I think that some ethical issues arise. We have called for an authority for the ethical use of robotics and artificial intelligence in the same way that we created an authority for human fertilisation embryology 10 years ago. I think that there are a number of things that Government should be doing before it starts panicking. You are surely not suggesting that lawyers are not creative and have no emotions. Would you be a lawyer, chair? We will leave that as a rhetorical question if I might turn to John Mason now to move on to slightly different subjects. One of our main themes, I think that the reason we have you folk here as a panel, is to look at the area of inclusive growth. That term has been used already. I would like to find out what it means. The Scottish Government defines inclusive growth as, quote, growth that combines increased prosperity with greater equality, creates opportunities for all and distributes the benefits of increased prosperity fairly. My first question is, is that a fair definition? Could you improve on it? What's good in that? What's bad in that? So could you repeat it again? Seriously, yes? Growth that combines increased prosperity with greater equality creates opportunities for all and distributes the benefits of increased prosperity fairly. There are four bits to it. There are four bits, but the second, third and fourth seem remarkably similar. You could interpret them in different ways, but I think that's part of the problem in this area. The very fact that I genuinely wanted you to repeat it because I couldn't remember, but you could change that. You could put in more about intergenerational, gender equality, about geographical equality, about racial equality, about the environment, about stocks rather than flows, which is why I don't think that inclusive growth just falls back to growth, so it falls back to GDP. That's in most countries what still happens. There can be a bit more of a push for greater equality in looking at different measures, but most countries are still politically fairly obsessed with GDP. So you don't like inclusive growth, have you got another term that we could use that's better? I would just say that inclusive growth is fine, but I would define it in a different way, and that's the way that you want to define it, as a Scottish Parliament, as a Scottish Government, as a Swedish Government or whatever. So is it more about the environment? Is it more about equality, gender equality, racial equality in general? As long as you keep it fairly vague like it is at the minute, it means that people don't really know what you're focusing on and to avoid putting in policies that definitively say, okay, there will be less pay inequality between gender pay inequality, because that is a clear area where we're going to have more inclusive, or the fact that the unemployment rate in the western isles should be no different than it is in Edinburgh. That is one of our key things for equality. I think that the French train system was built on something like—there had to be a train that could get you from wherever you live to a major city or Paris or something within an hour. It's not that, but it's something like it. That is a policy that has led to greater equality in terms of transport connections. I don't think that there's a willingness and a desire for all those things to happen, but there isn't really a focus on any particular aspect of them, which means that we still fall back on to GDP. Up to 2007, there was this big push towards green growth and Cameron going to the Arctic and stuff like that. As soon as the financial crisis happened, in a lot of countries that just fell away. It's just given me growth. I mean, I don't care, just give me growth. We're still kind of— I want to bring the others in as well, I think that we are a wee bit pushed for time. Do the others agree with that? To a certain degree, my colleague, Dr Catherine Trebek, says, where are we going to stop? It's like inclusive growth, equitable growth, soon it will be not fat growth or I can't believe it's not growth growth. For us, for Oxfam, again when we talked about the human kind index, we would probably call it a building a more human economy. We have talked about before about the donut, about how we've got planetary boundaries, creates an outer layer and then the inner layer is about the social foundations and the safe space in between is where our economy should be and it highlights all the different mechanisms to look at that. So, I think that we would call it a human economy to make sure that it's prosperity and success. How is it measured by people that live here? That's quite more of a succinct answer. We've got an Oxfam view, is it possible for everybody to agree on this or is it just such a vague term that we're all going to have different views? To boil it down to its absolute minimalist definition, what you're talking about is how does the change in economy change inequality, changing the size of the economy change inequality, but as John says, what does inequality mean? What does growth mean? Are you chasing only growth or are you accepting that it could be possible that a technical recession was due to a massive amount of wealth redistribution? You've decreased inequality at the cost of the size of your economy, or maybe you've brought in a bunch of imports that have boosted your size of your economy, but you've hollowed out your manufacturing base because of the substitution effects. So, to give a very broad term here, when you get into the detail of it, it can be very difficult to measure because you do need to start defining— I mean, you're depressing me here. This is quite pessimistic. Let me—I don't know whether I'm going to depress you less. I think it's a useful term, and I think inevitably we need a term that people can then grasp, and it takes a while until a term becomes commonly used. This is now the term that the OECD is using, which means that it has an international currency. I personally rather like it, but I think that it's really important that we understand why it's different from what we might have had in the past. It seems to me that the critical difference that is meant by the term inclusive growth is that the distributional outcomes are embedded in the production system and are not the consequence of post-hoc redistribution. That seems to me to be the really important distinction. If you like, there are three ways of considering the distributional outcomes from an economy. There is trickle-down, which assumes that the more growth you get—in fact, the more growth that accrues to the people at the top—you will get some trickle-down and people at the bottom will get it, so that's one conceptual framework. Another one is redistribution, which is that we will allow the economy to grow and we will recognise that it will be unequal, but we will then redistribute through the tax and welfare system in order to make sure that people at the bottom get some of the fruits. Inclusive growth is a third model, which says that we want the productive system to distribute fairly and more equally to the people in the middle and the bottom half of the income distribution in the economy, not as a post-hoc redistribution or as a hope for trickle-down, which, as we know, hasn't happened. How would you do that? That seems to me to be why it's useful to have a distinctive term, because I think that this is a different thing from both the trickle-down and the redistributive models. Jacob Hacker, the American political economist, called this pre-distribution. I don't know whether that's the same basic idea, which is that you need to have that distribution embedded in earnings. Does that mean that the wages, therefore, have to be closer together? Because, then, if wages are close together, you don't need to— Yes. You need to have a much lower differential between higher wages, higher salaries, executive earnings, middle salaries and the bottom. You need to do that through a combination of partly taxation policies but also labour market policies and the bargaining powers, as I've said before, of people at lower incomes and of the ways in which wages are structured. So, it seems to me that that is a different model than that one other thing, which is that's the flow of income, then there's a stock of wealth, which is the ownership in the economy needs to be more fairly distributed. What we have as a result of this declining labour share and increasing capital share is a widening wealth inequality, and wealth inequality is much worse than income inequality. It's 10 times the level of income inequality is wealth inequality, and most assets are now owned by a relatively small proportion of the population. We need to distribute the assets better. So, there's a wealth component to an inclusive growth model as well, which is, I think, partly about ownership of housing and land and partly about ownership of shares and companies. We would like to see a much wider distribution of share ownership and of land and housing ownership in order to get the stocks of the economy more fairly shared as well as the flow of income. Okay. Well, thanks very much. I'd love to ask more about that. Thank you. I think that we're running out of time, so I'd like to come on to questions from Colin Beattie and then to a question from Jamie Halcro Johnston. Thank you, Peter. We've had evidence previously that Scottish labour market has changed substantially over the last 10 years. Broadly, have these changes been positive? Probably not. As with the UK, there's been an increase in self-employment and an increase in part-time employment. Interestingly, going back to the point that Tom Arthur made before, there was a paper out last week by the resolution foundation talking about hauling out of jobs, and it's saying that it's not really been hauling out of mid-level jobs, it's been a reduction in mail-hours moving from full-time to reduced-hours or part-time, and that's usually involuntary, so that's probably not a good thing. Having said that, given the condition of the world economy, it's worse than it was, but it's better than you would have expected in 2009 when such a severe recession was going on. The degree to which the labour market has been elastic and has moved around has improved the number of jobs versus what would have happened in the past, but whether that's where you want to stay with less job security and perhaps lower income, it's difficult to say. Just to come on to something that you said there, you talked about the reduction in mail-hours. Has that been balanced at all by an increase in female working hours? I haven't looked at that for a while, but my recollection is that it has. I think that the overall number of hours worked in Scotland has increased. If you look at GDP per capita, it's not done that well. If you look at household income, it's done better because more people are working, so the employment rate's gone up, so more elderly people are working and more women are working. There's been a shift in the pattern that has led to the average household income. The degree to which that's been voluntary or involuntary—some of it's voluntary and some of it's involuntary—is where the economy will allow you to go with that, is difficult to guess. I don't think that it's been positive in the aspect of the old adage that you can work your way out of poverty when we've seen the high levels of in-work poverty. The increase in inequality between shareholder value to what workers were paid in the 1970s before it exploded was quite a level trade between workers' pay and those at the top, and then late 1970s it just exploded and still continues to do that. That goes down to the social value that we place on the jobs that are low-paid at the minute. There are issues about participating in budgeting, I think, and help with that. When we talked about the human economy and pre-distribution, I think that that was what the Christie commission was talking about as well. Like 40 per cent of local government spend went to rectify the problems of economic growth, so I think that there's a lot more that we can do, but I think that we recognise that, as I said before, about national performance framework and that we're all signed up to the SDGs, which have been ghosted growth in that, and it does have about creating decent jobs. I think that we, as a society and a global community, do recognise that we have to go on a different path because what's happened before has not benefited the whole of community. Overall, I don't think that it's been positive, but I think that we're seeing changes where we can make a positive change. Hello. Come on to Jamie Halcro Johnston now for a slightly different area, if I may. Thank you very much, convener. We've touched very briefly on some of the differences between the different parts of Scotland and how their economies perform. I was just wondering if you could tell us what regions of Scotland have been performing better or less well and how we, looking to the future, try to tackle those regional differences in terms of business activity, labour market, participation and growth? Aberdeen area has traditionally performed well. It's obviously going through a downturn now, but it's that and central Edinburgh have always been the areas that are wealthiest and doing reasonably well in terms of other factors. It's more difficult that, if you look at the employment figures or the GDB figures, there's been quite a variation across different parts of Scotland. Again, I haven't got it completely to hand, but I think that some of the more rural areas have suffered a bit in terms of changing employment in the past 10 years, but you'd have to drill down a bit to see because some of those areas are reasonably low populations to understand better why that's happened, whether it's a generic thing or whether it's a local thing in terms of an industry that's declined. In general, there hasn't been an obvious shift in the geographic position in Scotland. There's not been anywhere that's done particularly badly or stands out as being particularly well. Like John Havill, we've only got partial data on this and a few anecdotes, for example, of areas in the Highlands where there's been a community buy-out, and that has led to a boost to the economy in that particular area, but it's difficult to generalise that further. I think that we hit a point where the economic data for regions of the UK can be spotty in places. Within those regions, i.e. Scotland, it can be even harder to drill into. It can be difficult to measure. Do you think that the overall Scottish economy could benefit from more of a focus on perhaps regional growth? For Oxfam, I don't think that it's necessarily regional. It's about that community growth and letting people decide for themselves what's best for them. It would be anecdotal evidence about things like beef community development trust. The council took the decision to close their football pitches. They did an analysis with the help of Oxfam that said that they were spending £40,000 on pitches outside their local area and decided that this was crazy. Can we come together and work with the council to get the pitches again? They took it over and had knock-on benefits for the community, but they then decided to have washing machines to do kits and stuff like that instead of going to individual houses and stuff when that creates another economy about combat and climate change. Communities, if you give them the chance, they have the answer, so maybe not as a whole regional, but there's a lot more that we can do regionally in regions with communities themselves. We just need to ask them. One of the bittersweet moments for our humankind index when we asked people, one person came up to us and said, thank you for asking our views. We had people saying, how do you reach these hard to reach people? For Oxfam, there's no one that's hard to reach, so it's just easy to ignore. That's what a lot of the more of the government and politicians that are seems to be that sort of disconnect between people and politicians. Maybe that's why you've seen the rise of Trump and France, so there was a close-run thing and German politics as well. Again, there's a need to be, again, more human in the economy, more connected with people to say, you know what makes for a better economy for yourselves. I think that the difficulty would say, would you prefer more regional growth? With two things. One is versus what versus greater emphasis on agglomeration, where some economists would say there's more prospect of a faster growing economy with larger agglomeration, so they've got that, but that's probably more of a societal preference. The big one is, how would you do it? There just aren't that many ways you can improve transport and stuff like that, but you can do those things that government does, but in terms of building up businesses, the track record in clusters and regional industrial policy isn't good. It's haphazard and there are successes, but it's difficult to say that is what you do when you get a success. I think that the successes are fairly random. I just want to go back to a point that Michael Jacobs made at the very beginning. We've talked about GDP growth having been decoupled from earnings growth. My first question is, what's happened to that economic dividend? Where's it gone if it's not gone to earnings? The second is that some of that GDP growth has been due almost entirely to the growth and personal debt. Household consumption rather built on personal debt, much of that personal debt over the last decade, has been utilising housing costs. Should government, as a matter of policy, be seeking to reduce the housing costs for the population? The decoupling is between GDP and average earnings, so some of that has gone into higher earnings. We know that there's been quite an increase in higher earnings. Some of it's gone into profits, so it's not gone to labour at all. It's part of the shift away from labour towards capital and part of it's gone overseas. We've had GDP growth, but it's gone to owners of GDP who are not British. There's a whole variety of different destinations, as it were, for the portion of growth that's not gone into average earnings. In terms of housing costs, I think that this is a huge issue now. Average housing costs have now gone into a multiple of income, of average income, which makes housing unaffordable for many people, particularly in urban areas and particularly in the London and the South East, where it's become crazily acute, to a point where people in their 30s who, only 10 years ago, would have expected to be able to earn enough to afford a deposit and a mortgage can't do so and really have no prospect of doing so and are now waiting to own a home when their parents die, which, of course, may be in their 50s or 60s. In London and the South East, that's become a kind of new norm for people whose incomes and whose class positions meant that they would have expected to have been in a completely different situation only 10 years ago. A lot of people, obviously, have never expected it if they were on very low incomes to have owned a home. I do think that this has become critical. It's a very difficult issue to deal with. It is too glib to say that we need to build more homes, because however many homes we build, and, of course, we should be building more homes, the impact of that on average house prices is still relatively small. House prices are determined by supply and demand for the whole housing stock, not just for the new housing stock, but we need to deal with it. It seems to me to be an area of policy that much more thinking needs to go into. We will be trying to do some ourselves, but the disparity between income and housing costs is absolutely acute. It's not just the upfront cost of housing and the rents that's becoming a problem, it's the running costs of the house, heating and electricity costs, which are getting particularly acute. Fuel poverty is getting particularly acute. When we're talking about building more houses, we need to make sure that they meet the absolute highest possible energy standards, not just affordable to buy but affordable to live in. Common will is going to be doing more work in coming months on that, so hopefully we can come back and talk about that at a later date. Those of you wanting a political cover for it, I want to keep talking about the human kind index, but the top two in joint equal place was people wanting an affordable, decent and safe home, and then a good physical and mental health. That shows you that NHS was always up at the top, but now for the people that we've spoke to, housing is equally as important now, so I think that that shows you the value that people put on decent quality housing, and they looked to their Government as well to help. I think that the housing stock will solve things quickly, but a consistently higher rate of house building will eventually get you to a good position. You might have to do temporary things in between, but you have to be careful. If you're looking at reducing the public rental costs, then that could look like a good thing to do, but it can have knock-on effects in terms of being less available, putting more on the private market because they're making less of it, and also being of a lower standard because if they're making less money off it, then they're not updating them and repairing them as consistently as they used to. You want the market to work as much as it can, but it's not working particularly well at the minute, so then it's how to get over that. One of the things that's been disturbing that isn't addressed very much is the second and third ownership by people who would normally have one house, and that would be it, but increasingly, as wealth diverges, people use that extra wealth to buy a second house, originally for their children being at universities or something like that, but increasingly—that makes the market—it brings more people into the market and squeezes more people out, so possibly higher taxation on second and third houses and things like that. Again, you'd have to be careful on how you did it, not to make too many disadvantage side effects, but possibly that's an area that could be looked at. Getting back to your earlier point about the definition of inclusive growth, given that I think the Resolution Foundation produced a report a couple of months ago showing that for every successive generation since the 30s, the proportion of their income or spending on housing has been rising, and it's now very significant for the so-called millennials. Is that something that we should hardwire in, as Michael Jacobs was suggesting, to our policy and economic—on inclusive growth—a metric around housing costs and a target for housing costs? I think that there are certain basic things. Education is free, health service is free, food prices are—their market but their electricity prices are managed to some extent, and clearly housing is another basic need, but it's much more free to the market as to what to do on it, so it would seem to be an area that Government should get more involved in. Clearly it's much bigger problem in London in the south-east than it is, say, in the north-east of England, Scotland somewhere in between. Because it's such a basic need, there does seem to be more of a role than is currently actively taken up by various Governments. That brings us to the close of this evidence session. Thank you very much to our witnesses for coming in. I'll now suspend the meeting and we'll move into private session.