 Welcome to the 26th meeting in 2015 of the Finance and Committee of the Scottish Parliament. Can I please remind everyone present to turn off any mobile phones, tablets or other electronic devices? Firstly, we need to decide where to take items 4, 5, 6 and 7 in private. Are members agreed? Members have indicated their agreement. Our second item of business is to take evidence from Scottish Government officials on the Scottish Fiscal Commission Bill, where we are joined today by Alison Cumming, Sean Neill and John St-Claire. I welcome our witnesses this morning and invite Mr Neill to make a short opening statement. Thank you for the opportunity to make a short opening statement on the Scottish Fiscal Commission Bill. The bill is a combination of around two years of work, including inquiries conducted by the committee and a Government consultation. The bill gives the Scottish Fiscal Commission a basis and statute which safeguards its structural and operational independence. It also formalises the commission's role in scrutinising the operation of Scotland's devolved fiscal framework. The Scottish Government has always intended that the commission should have a legislative underpinning and is committed to bringing forward legislative proposals in the 14-15 programme for government. As the committee is aware, we published a consultation on the draft bill in March 2015. We have worked carefully over the summer to refine our legislative proposals, reflecting on responses to our consultation, the evidence gathered by this committee and international best practice, including the work of the OECD and the IMF. The bill introduced to Parliament reflects a number of policy changes, which we consider further strengthening the independence of the commission, which I am sure we will discuss later today. The most significant of this is the removal of the requirement for the commission to prepare other reports on fiscal matters that the Scottish ministers may from time to time require. That is a part that would appear at odds with our policy intention to create a commission that is structurally, operationally and visibly independent of government. The bill allows the commission to prepare such reports on other fiscal matters, as it considers appropriate. Importantly, the remit of the commission that is set out in the bill is designed to reflect and be proportionate to the fiscal powers devolved to the Scottish Parliament under the Scotland Act 2012. The commission's core function is to report to the Parliament and the public on tax estimates prepared by Scottish ministers, which underpin the Scottish draft budget. As such, the work of the commission is central to the integrity of the Scottish budget process. The bill is also designed to provide flexibility and amend the commission's future remit to reflect any expansion in fiscal powers of the Scottish Parliament, including those contained within the Scottish Bill, the Scotland Bill currently working through Westminster. We need to future-proof the bill to ensure that the functions of the commission adequately address any new settlement without recourse for primary legislation. The financial memorandum accompanying the bill demonstrates that the Scottish Government is committed to providing the commission with sufficient and appropriate resources to discharge its function and is to provide effective and robust security of the fiscal estimates underpinning the Scottish budget. The Government has found the work that the committee has undertaken on the creation of the Scottish Fiscal Commission to date very helpful in informing the development of our legislative proposals, and we look forward to considering and reflecting the further evidence that the committee will gather at stage 1 of the bill process in discussing our legislative proposals with you this morning. Thank you very much for that brief introduction. I'll go straight to questions followed by myself and then all the other members of the committee to come in. Obviously, there's been quite an issue in terms of forecasting, and you'll read obviously a report on the fiscal framework and, in particular, recommendations, paragraphs 131 through 133. 131, of course, says that the committee is unaware of any other example of a fiscal council relying solely on official government forecasts. Again, the committee notes a strong level of support among witnesses for the SFC carrying out its own forecasts. Given that, I'm just wondering why the Scottish Government is insisting on being somewhat different from other areas where there are, indeed, other bodies able to comment on fiscal forecasts whether those are not produced independently. The Scottish Government position is that we do consider that what we're doing is consistent with other international best practice across the world. The OECD and the IMF both recognise that the specific rules and functions of a fiscal commission should be tailored to the local, political and institutional fiscal environments. A couple of points that the Deputy First Minister has made clear to Parliament on several occasions that, in his view, responsibility for preparing tax forecasts that appear in the Scottish budget is the primary responsibility of Scottish ministers, who should be directly accountable to the Parliament for those forecasts. We believe that our approach maximises the transparency of the process for forecasting. It ensures that there's a full account of the Government's forecasting methodology and the assumptions underpinning those forecasts in the public domain. Importantly, out there is the result of independent scrutiny undertaken by the commission, and that would include its assessment of the forecasts. We would clearly set out the impact of any specific recommendations that the commission had made during the scrutiny process. We've looked very carefully at the OECD evidence that is also reflected in the SPICE briefing on the bill. It is clear that there is a very small number of fiscal councils in operation across the world that produce the official forecasts for Governments, of which the UK Office for Budget Responsibility is one. In the majority of cases, the official forecasts are prepared by a ministry of finance or equivalent. What we have sought to do through the bill is to make it very clear that the process for how the commission determines how it assesses the reasonableness of forecasts is a matter over which the Government has no power of direction or no involvement whatsoever. That is also clear in the framework document for the non-statutory commission. Crucially, we haven't shut down in any way the commission's ability to produce its own alternative forecasts of the tax revenues and other factors that are within its remit and the draft budget. We think that the commission has empowered both in terms of its legislative powers and also within the resources that we would propose to allocate to it, as set out in the financial memorandum. We think that there is scope there for the commission, if it so chooses, to prepare alternative forecasts. Importantly, that is a matter for the commission to determine. Obviously, we have all got the same spice table that talks about the number of Governments that produce their own forecasts. However, the point that Spice also made is that it is common in independent fiscal institutions for there to be other economic and fiscal forecasts to draw on both Irish and Swedish fiscal bodies of access to alternative forecasts and do not rely solely on Government forecasts. That is really the issue here. You have just said that the SFC can produce its own forecasts, but is that realistic, given the fact that they also seem to be involved in producing the Government's own forecasts? What level of input does the commission currently have in terms of helping to produce the Government's forecasts? The Government has so responsibility for producing forecasts. The role of the commission is to challenge and scrutinise those forecasts. In terms of how the process works, at present, Scottish Government economists prepare forecasts and forecasting methodology papers, which are presented to the commission for discussion and are then the subject of scrutiny, very robust scrutiny and review by commission members who will ask economists to justify the basis for the judgments that have been made and for the specific techniques that they have applied in arriving at those forecasts. What we are working towards with the commission at the moment is looking at ways that we can maximise the transparency of that scrutiny process. Obviously, it is difficult to do that while the scrutiny process is on-going, but we would anticipate that when the Scottish draft budget is published for 16-17 and the commission's report is published alongside that, we would see clearly what the impact of the commission's scrutiny has been on the forecasts that have been prepared by the Government and that it would be very transparent as to what interactions have taken place and the nature of the interactions between the Government and the commission. I am sure that colleagues want to explore this further. The bill has introduced a commission to publish its report on the assessment of the reasonableness of the forecast of the devolved taxes on the same day that the draft budget is published. Why is that? It seems to me surely that one would expect the commission to have some kind of time after the report is published to look at it rather than by effectively phoning you up while you are all scurrying around trying to get the dot the i's and cross the t's on the draft budget. It seems to me that a recipe for not the most efficient or effective way of producing the report, if it has to come out on the same day. What is the thinking behind that? The scrutiny that the commission provides on the fiscal forecasts and estimates prepared by the Government is really central to the integrity of the Scottish budget process. The Deputy First Minister has made clear on several occasions that he would not want to bring forward forecasts to underpin a Scottish budget that was not assessed as reasonable by the independent commission. We see that the main area value that the commission can add is in having scrutinised and undertaken that scrutiny prior to publication of the budget so that, when the budget comes forward, it is underpinned by forecasts that are as robust and reasonable as they possibly can be. It is similar, and there are parallels with public audit and other processes. In order to facilitate that, there is a requirement in the bill, which I suspect we might want to explore further. This morning, the commission requires to send a copy of its report to the Scottish ministers in advance of laying it before Parliament, which again is consistent with the process for audit Scotland reports. That provides the opportunity for the Government to have access and to understand the nature of the commission's findings, but, importantly, it gives time for ministers, if they so choose, to revise their forecasts in line with the commission's findings. It is 2013 that the European Union has been putting pressure on eurozone countries, as we have heard in a private session from Ian Lena, who has done an excellent piece of research into this area. He has been putting pressure on countries to look at macroeconomic forecasts, as well. In terms of the further development, is there a proposal to amend the bill to look at the sustainability of Scotland's macroeconomy finances as we progress, given that kind of EU background? One of the key policy themes running through our policy proposals has been to recognise that the functions of the fiscal commission should be proportionate to the fiscal powers of the Parliament. We have sought to design a remit for the commission, which reflects the current devolved competence of the Scottish Parliament. In terms of fiscal sustainability, the Deputy First Minister has suggested to the committee on previous occasions that there is a role for Parliament in holding the Government to account on the sustainability of its spending decisions. We will look closely at ways in which we can expand the remit of the commission to reflect further fiscal powers coming in a future or current Scotland bill. In terms of ensuring access to the information, the bill provides considerable discretion to Scottish ministers to decide what can be reasonably provided within reasonable time limits. Should the bill not be more unequivocal in this area? That might be an area where John St. Clair might wish to expand on what I said just now. In section 7, we have put forward a robust right of access to information for the commission, and it is a right of access for the commission rather than a right to request information. What we would be looking to do is to underpin the statutory provisions with a more detailed memorandum of understanding that would explain how those things would work in practice. However, we consider that we have brought forward a robust right of access there, but we are very open to suggestions as to how we could further strengthen that. John St. Clair Yes, as Alison St. Clair said, there is a statutory right to the information, and then there is this very powerful right to require information. We do not mention legal powers in the bill, but these could be invoked, if necessary, by declarator or some sort of other action in the court of session, if there was a circumstance in which somebody refused to hand over information or to give explanation. However, because it is dealing with Government departments, it is almost inconceivable that one bit of administration litigates against another. One does not put that in statute. Although there are legal backup powers, they will not be invoked. What usually happens is that there is some sort of MOU as well between departments or some sort of political settlement, because it would be a sign of a sort of crisis if one bit of the administration is not able to get information that it is entitled to out of another bit of the administration. We think this is robust. As to reasonability, that is very common, so that you could not ask for almost any information, but you cannot ask for we need every single taxpayers report by tomorrow afternoon. That is the sort of thing that that is trying to stop. The powers of revenue Scotland are framed in very similar terms, and it runs throughout most of the tax legislation. It has got to be tempered to a certain extent so that you do not overload departments with requests. We know from the bill how much additional funding is going to be provided to the Scottish Fiscal Commission, but how much internal resources is being allocated within the Scottish Government in order to help to prepare and enhance the quality of forecasts? As Alison mentioned, there has been input from across a number of analytical services and departments across the Government. In my division, Alison and Alison's team work very closely with the commission. Across key areas such as environmental communities and the office of the chief economic adviser have all allocated a significant amount of resources to support the work in assessing the reasonableness of our forecasts. Just one other topic that I am going to allow colleagues in, which is in terms of the way that the CDA is developing a number of minimum requirements. Are principles deemed suitable for taking forward such commissions, regardless of local circumstances? Have all those principles been met? We consider that they have been yes to the extent that it is possible for the Government to do that. There are a number of principles that relate to the commission's activities and the way that the commission conducts itself. However, we have set out our assessment within the policy memorandum of how we believe that our legislative proposals deliver against the OECD principles. One of the policy changes that we introduced following the consultation on the draft bill, which we held this spring and summer, was to bring forward the statutory requirement for independent evaluation of the commission's performance every five years. That was driven in part by the responses to the consultation, but also by reflecting further on how we could ensure that the bill reflected the OECD principles, one of which is to ensure that such a body's work is subject to external scrutiny. I was only going to mention that that sits alongside the annual report that the commission has to prepare, which sets out how it is getting on with its work. It is just to say that it sits alongside the annual report requirement that sets out in the bill. A number of colleagues now want to come in with questions. The first one will be Gavin to be followed by Jackie. Let's go to section 4 of the bill then. The convener asked you a bit about ministers getting copies of reports prior to the reports going to Parliament. The policy reason for why ministers would get them before Parliament? It's really about ensuring that the process of scrutiny is supporting the integrity of the Scottish budget process so that there's an opportunity for ministers to ensure that the forecasts that they bring forward to Parliament in the draft budget have been independently assessed as reasonable. We consider that there's a public interest in ensuring that the forecasts that underpin the Scottish budget are independently assessed as robust. We do recognise that there's a need for such arrangements to be as transparent as possible. We have been discussing with the commission the possibility of developing a protocol similar to the protocols that exist between the Scottish Government and Audit Scotland that are published as annexes to the Scottish Public Finance manual that would provide Parliament and the public with some information on how the relationship was to be managed and how information was to be exchanged in that way, including draft reports and final reports. In terms of timing, although there might not be exact details in there, what sort of timing are you envisaging that the Scottish Government would get a report before Parliament? It's really a matter for agreement with the commission. It isn't something that we would seek to dictate or specify to the commission. If we took Audit Scotland as an example, the Scottish Government receives a clearance draft to check for factual accuracy and has three weeks to provide comments on the factual accuracy of that report. Thereafter, the protocol requires that Scottish Government is provided with an embargoed copy of the final report three days prior to publication, which would be to support handling. I suggest that there would probably be a benchmark that we would use as perhaps an opening basis for discussion with the commission, but it would be very much based on timescales that the commission was comfortable with. There is no fixed answer yet, but your understanding is that we could have a scenario where the Scottish Fiscal Commission is sending a report, a clearance draft to the Government three weeks before Parliament sees it, and then they get an embargoed copy three days before Parliament sees it? Potentially. That's how it works for Audit Scotland. It may depend on the budget process. It can be quite a time-pressured process, so it's not to say that three weeks would be the appropriate period for this, but that's what we would take as a reference point for the discussions with the commission. It's probably important to be absolutely clear whenever we talk about clearance. It would be clear for things like factual accuracy, as opposed to clearance of the report produced by the Fiscal Commission, as its own report is done independently of Government, and we shouldn't, in any way, seek to influence what's in that report, as such. That's not a question that you can answer, but would you envisage areas where there were disputes or discussions over the clearance draft being made public at some point later? If there were any disputes to be had, it would be over factual accuracy. Our experience with the commission is that the commission would want to be assured that whatever they were putting in the public domain was factually accurate. We are very mindful of the exchanges that have been in Westminster in recent months over the exchanges between Treasury and the OBR on draft reports. So far, as was possible and practical, we would seek to be transparent about any changes that may have been made, but, as Sean was saying, the only changes that we would envisage would be where we were perhaps clarifying the understanding of the forecasting processes and methodologies that the Scottish Government had put in place, that there are very robust measures in the bill and in the framework document for the non-statutory commission, which makes it clear that the Government would not be seeking to influence the commission's judgments in any way or the commission's presentation of their findings. I will move on to a different issue. I think that I am referring to section 2 of the bill, but let me just make sure that I am referring to it. Section 2 talks about the functions of the commission. Section 2, subsection 1A, the commission looks at forecasts of the sheets for devolved taxes, so that is fairly straightforward. Section B, I have to say that I struggle with, instead of looking at the forecasts for non-domestic rates, we look at the assumptions made by the Scottish ministers in relation to the determinants described in subsection 2 being the economic determinants on which the Scottish ministers forecast of receipts from non-domestic rates are based. I look to what the OBR did and the OBR produced the forecast for non-domestic rates. Why would we not just have a fiscal commission who can look at the forecasts for domestic rates and take a view on the overall forecast as opposed to the more convoluted approach? The approach that is set out in the bill for non-domestic rates is consistent with the role that the non-statutory commission has in relation to the economic determinants of non-domestic rate forecasts, which are defined as the buoyancy assumption and the inflation rate assumption. A decision was taken in designing the remit of the non-statutory commission that there are elements of the non-domestic rate forecasts that are driven by commercial assumptions on issues such as bad debts and appeal losses, which are based on experience and assessments made by the Scottish Government and local authorities. Those areas of judgment may not be so suitable or suited to the expertise of the Scottish Fiscal Commission, which should be more focused on economic forecasting assumptions. You are right to say that it mirrors exactly the non-statute functions. I accept that, but I didn't really understand or accept at the time why the non-statute functions are that way. If the OBR is bigger, but if other fiscal commissions or the OBR can forecast how much we are going to collect in business rates, I am still confused as to why a Scottish Fiscal Commission could not equally assess the overall likely forecast, as opposed to just looking at the buoyancy factors. Can you explain why it simply could not forecast business rates? It was around the area of the commercial assumptions and whether those would be areas that the commission would be able to reach a judgment on in the same way that they were on the economic factors driving the forecast, based on the fact that those tend to be judgmental based assumptions and based on experience and some commercially sensitive data. It is certainly an issue that the Deputy First Minister's position was clear at the time that those were the areas of non-domestic rates that he considered suitable for the commission to review, but it is certainly something that we will reflect on further. That is fair enough. Of course, there are commercial judgments, but if we are asking them to look at stamp duty land tax, which is the successor to SDLT, that is volatile and requires commercial assumptions too. I am still at a loss as to why, but you have said that you will reflect on it. I suppose that the same question then for me goes when I look at what the OBR does, it forecasts council tax as well. I am just wondering why we are not asking them to look at the forecast for council tax, which will have a big impact on public spending in Scotland. In designing the scope of the fiscal commission, we have focused very much on forecasts that underpin the Scottish budget. The Scottish budget is not underpinned by council tax forecasts, there matters for local authorities. We have not provided for a function in the bill in relation to council tax. That mirrors the non-stratutory position. I did accept that one at the time, but I wonder whether, going forward, it does not affect the Scottish budget exactly, but it affects the economic position and the spending power of councils in Scotland as a whole. Has the Government reached a fixed view on that, or is that something that it may be prepared to reflect on? It does come back to the fundamental question as to if the commission's primary role is in relation to the Scottish budget or into wider public finance issues. I can move on to the last issue for me, which is usually the one that takes up the most time, but the convener has clearly covered that in a bit of detail. The Scottish Government position is, I think that you said it again today, what we are doing is consistent with international best practice. You are right to say that not every fiscal commission does the official forecast, and I think that there are three who do the official forecast, so I accept that entirely from the OBR as one. Where I am struggling though is here. When I look at all the other fiscal commissions that I have been able to look at and I have looked at it through independent experts, through SPICE and anyone else I can find, every other one that I have been able to see either prepares alternative forecasts or has access to independent alternative forecasts, whether they are IMF, OECD, EU or another body such as in Sweden. What I have not been able to find, and I ask this question quite genuinely, I have been able to find any fiscal commission who looks only at Government forecasts and that is the only option that they have for making decisions. Has the Scottish Government done research here? Given that you have said that it is consistent with international best practice, what are the countries where the fiscal commissions only look at the Government forecasts? There are two main areas of points that I would like to make here. The first is in relation to the fact that the consideration about the role of the commission being proportionate to the fiscal powers of the Parliament. The way that we are establishing here a fiscal commission for a sub-sovereign Parliament, which perhaps changes the nature of the forecasts and assumptions that the commission is looking at compared to the sovereign commissions that exist across the world. To my knowledge, I do not think that what they would be looking at in terms of alternative forecasts and sovereign commissions is forecasts of things such as GDP assumptions and so forth, or fiscal aggregates, not necessarily looking at alternative forecasts for individual taxes, which tend to be treated in a slightly different way. To that extent, we have sought within the bill to empower the commission to determine how it assesses the reasonableness of forecasts. Within that, it is open to the commission to determine that the best way to do that is to prepare alternative forecasts, either itself or by commissioning those from external parties. We have included provision in the financial memorandum for external research costs. We have also underpinned that, as we discussed by a right of access, a right to receive data from the Scottish Government and from Revenue Scotland and other associated public bodies that would hold relevant data. It is difficult for the Government to comment too much on what the commission should do in this area, because clearly it is a matter for the commission, but what we have sought to do is, through the legislation, to enable the commission to do that and not to restrict the commission's ability to do that in any way. You might not have a live example of a country that I have fair enough, but I ask if the bill team are the international examples where the only look at the Government forecast. I am genuinely interested to see that, because I have not found any, and I have looked quite hard. I take your point about sub-national legislatures. It is slightly different, but, at the end of the day, if we get it wrong or if we suffer from optimism bias, we are left with the same problems. We suddenly have a shortfall, so it is not quite as big a degree as it was, if we feel national, but it will grow year on year and it could become a pretty big problem for us. I simply leave that for right now. On the last point, you made about how you do not want to be too prescriptive on how they do their job. I have to say that I was quite heartened by what you said. I have scribbled it down, so I might not quote you exactly, but you have said that we have not shut down the fiscal commission's ability to prepare alternative forecasts. I hope that that is correct, but it seems slightly odds with at least the tone of the previous evidence that I have heard from the Government. I cannot quote exactly, but the impression to me was given that, if they were doing alternative forecasts, that would be unnecessary duplication, and it certainly seemed to me that the Government view at that time was that, A, they did not want to put it in the bill, and B, they actually wanted to discourage it because they felt that it would be duplication. Is the Government view different now? Saying that we have not shut the door is slightly different to saying that we actually think that it would be quite a good idea and that we would not actually be against it? Again, maybe you cannot go too far on that, but is there a Government view that alternative forecasting would actually be a positive thing, or are you simply saying that we would not legally block it? I think that it is important just to be clear that what we are saying is that we have left the option open to the Scottish Fiscal Commission to determine itself how it comes to its assessment of reasonableness. What we also did when we were looking at the financial memorandum was that we had an engagement in a dialogue about the resources that they felt in the non-statutory commission needed to discharge those sets of functions, and that has reflected both within the financial memorandum and the resources that are set aside, both, as Alison said, for the staffing and also potential further research. What we are very clearly saying here is that we want to leave it up to the commission to determine how it assesses reasonableness and what we are trying to do is enable that by giving them the resources and also the legislative cover, if they think that that is the right way to do it in section 2.5. It is not now, or certainly no longer, the official Government view that alternative forecasts would be duplication. There have been considerations and issues around if the Fiscal Commission were preparing official forecasts that the Government would also need to produce its own forecasting models to support on-going policy development and financial planning. It would be clear that, if the Fiscal Commission is preparing alternative forecasts, there is potentially a duplication of effort there, but, as Sean says, it is a matter for the commission to determine. Okay, thank you. I'll leave it. I think there's another point, just a practical point, that if the commission, we're leaving it to the commission to decide about whether there are forecasts, but if the commission is actually saying that the Government's forecasts are unreasonable, one would expect that they would identify what they thought was the reasonable way of doing it, and it would then be up to either them or outsiders to work the projections from the reasonable basis, so it may already be implicit in if there was a criticism of reasonability. Okay, I'm grateful to you, thank you. Thank you very much. Next question, we were from John to a four-way mark. Oh, sorry, Jackie, if it had been already. Are you suggesting Gavin has been going on for too long? Certainly not. Jackie, to be followed by John, apologies for that. I will be much briefer than I intended because a lot of the ground has been covered, but let me come back to testing the point of independence, because I think that that is critical in people's acceptability of the commission when it appears. The relationship with Audit Scotland is an interesting one, and the parallel you chose to draw there, because I remember, in the not-too-dim and distant past, a degree of controversy over the sharing of an Audit Scotland report with the Government, and the changes made being considered, and I point to those critical of it at the time, has been not factual but presentational. Surely it is in the Government's interests to have the fiscal commission acting truly independently to avoid any perception that there is this kind of collusion behind the scenes. Therefore, do you think that the Audit Scotland model is appropriate? Secondly, let me just say that I would absolutely agree in terms of same-day reporting if it was the OBR, because the OBR did the official forecasting for the UK Government. That is not something that you are asking the Fiscal Commission to do, and therefore I think that a separation in time might not be a bad thing, because if we are being honest about it, the capacity in Scotland, even in Government, to do that kind of forecasting is limited, and we will need to increase that capacity for Scotland as a whole. Therefore, I cannot imagine a situation where you are waiting for the Fiscal Commission to tell you that it is okay, because you are the ones with most of the capacity to do this kind of thing. I wonder whether you would comment on both of those. In terms of Audit Scotland, the example of the protocol was really more in terms of the process that there is a published protocol, just showing that that does specify things like time limits. I am not saying that that would be replicated in its entirety for the Fiscal Commission. There are clearly other considerations. The Scottish Government has been very robust in its position that we will not seek to influence the judgments that the commission takes on our forecasts, but it is important for the commission's own credibility that there is that opportunity to comment on factual accuracy. I do not think that that is in dispute with everyone, so what we would be seeking to do is to ensure that the protocol was very clear and continue the theme that is in the framework document for the Non-Stratutory Commission, that within any clearance draft for want of a better term that was submitted to the Scottish Government, it would only be matters of factual accuracy that the Government was offering any views to the commission on. We would not be seeking to offer any views on the commission's findings or, indeed, how they presented those findings. The history tells us that that is not necessarily the case in all of the Government's dealings with people that they have understandings with. Therefore, I wonder again to guard against any suggestion that the Fiscal Commission is tied up with the Government, that if there is this process of advance notification to allow for factual accuracies, that you will, as a matter of course, publish any amendments made? That is certainly something that we will take back and discuss with the commission. We are very much open to any ways in which we can maximise the transparency of the relationship and the interactions between the Scottish Fiscal Commission and the Scottish Government. I cannot comment on any previous Audit Scotland reports. Coming on to your second set of points about the desirability of the Scottish Government having access to a report in advance and the reports being published at the same time, effectively, when the Deputy First Minister, the Finance Secretary of the day, stands up to deliver the draft budget, comes down to the point about the value that the Fiscal Commission adds to the integrity of the Scottish budget process. We would suggest that it may not be in the public interest for a Government to bring forward a budget underpinned by tax forecasts that determine the overall amount of spending power that is available to that Government, which the independent experts subsequently would say that those forecasts are unreasonable. The public interest would be in maintaining the integrity of the draft budget process that the draft budget that is brought to Parliament comes with that assessment having already taken place so that there is not then a subsequent need to revise other parts of the budget to reflect changes in the forecasts after the draft budget has been published. The budget by its very nature gets revised as it makes its way through Parliament, so surely this is not a difficult thing for the Government to do? It may not be practically difficult, but it comes down to the integrity of the Scottish draft budget that is maximised by the assessment that it has taken place prior to publication, and then there is complete transparency over that assessment. Equally, you would expect me to say from the perspective of the Finance Committee, Lentymor, robust scrutiny. I deal with flexibility and forecast. You have dealt with a lot of it with Gavin Brown, but if you are prepared to be that flexible, you point to section 25. I confess that I do not have the wording in front of me, but does that explicitly give the power to the fiscal commission to produce or to, if it chooses to do so, do some forecasting themselves? Section 25 provides that reports that are prepared by the commission may include other such information relating to the assessments being made as the commission considers appropriate. That power would enable the commission to publish alternative forecasts. Section 6 is the key section in making clear that it is for the commission and not a subjective Government direction as to how the commission undertakes its assessment of reasonableness. It is implicit in there that the commission can determine how it undertakes that assessment. If it chooses to do so, it will matter with the commission to determine whether it prepares alternative forecasts or assumptions as part of that. In discussing with our legal counsel, we do not see that there would be legal requirements, as we understand it, to specifically provide for a function to allow the commission to prepare alternative forecasts, but that is something that we can look at. Certainly, the explanatory notes to the bill make clear that it is open to the commission to consider the effect of alternative forecasting assumptions or methodologies on revenue forecasts. Our legal advice would be that the bill leaves it wide open for the commission to make explicit alternative forecasts or alternatively it can just identify where reasonableness is not. There hasn't been reasonable of this. Provide what it thinks is reasonable and then have others make the projections. Arm equally given that you are open to it, the Government appears open to it to actually put it on the face of the bill. That's something that we can reflect on. Finally, convener, I promise again that I'm sticking with the independence of the Fiscal Commission. You take quite sweeping powers in section 26 for ministers to be able to change the functions by regulation. You'll naturally expect me to prefer primary legislation to regulation because there's a greater degree of scrutiny. Is that something that you would shift on because I think the importance of this body demands primary legislation? Secondly, Scottish Government is quite heavily involved in the appointment of members to the Fiscal Commission. Scotland is a small place. We tend to all know each other. Again, in wanting to ensure the independence of the body, what other options did you consider because we've been presented with alternative suggestions that don't involve the Scottish Government but are very robust? I'll just, on section 26, might ask John to come in afterwards just to explain that the legal position on section 26, but certainly it would be our intention that that is more a contingency or emergency provision and something that would be routinely used, but John will be able to comment on that in greater detail. And certainly, just as an example, section 5 provides the power for Scottish ministers to bring forward regulations to confer additional functions to modify or remove functions. What we've sought to do is entrench some of the core functions of the commission in primary legislation so that they can't be amended or removed using those regulation making powers. We do very much see that there are areas where we need to provide flexibility, but in terms of the core functions and operation of the Fiscal Commission, that would be seen primarily as a matter for primary legislation. In terms of the appointment process, we have looked at examples of how that works for ministerial appointments. The key element for us is that ministerial appointments are all regulated by the commissioner for ethical standards in public life in Scotland and that the appointment process would be subject to the code of practice for ministerial appointments to public bodies in Scotland, which would provide safeguards as to the fair and open competition and to the process and ensuring that appointments are made on merit. Then, thereafter, we have the veto effectively for Parliament to scrutinise those appointments, the nominations that are brought forward for appointments, as the finance committee and the Parliament did for the appointments to the non-statutory commission. Tiny question, convener. Did you consider alternative options? This is the policy position that the Government has arrived at. I know that the Delegated Powers Committee has looked at this being a member of it as well. It is one of the things with having the powers as they are and giving ministers powers that, as devolution progresses, you would not need to have primary legislation every time a new tax or a new power came. Is that a broad lead of thinking? Recognising that we are going through a process at present, we are considering devolution of further fiscal powers to the Scottish Parliament. What we wanted to do was ensure that there was reasonable flexibility within the bill for Parliament to modify the functions in future to reflect any expansion in fiscal powers without having recourse to primary legislation. I think that some of that is set out in the way that some of it is drafted, so we talk about devolved taxes in its broadest sense instead of naming the two devolved taxes, so it would cover all devolved taxes. Wherever possible, we have tried to future proof it, but we also recognise that devolution of further powers is currently in transition. Yes, because it strikes me that we have devolved taxes like LBTT, but we have also got assignment of taxes in the case of VAT, so there might even be more options in the future. You are fairly comfortable with what we have got here, so we would cover all of those options. We would cover the full devolution of tax powers in relation to, for example, the powers for replacements for stamp duty land tax and UK landfill tax, so air passenger duty and aggregate slivvy would be automatically covered within the existing powers and the way that we have defined devolved taxes. For assigned revenues for VAT, for example, that would be an area that we would need to be considered depending on how that power is framed and how the fiscal framework operates is probably in terms of who produces the forecast, but if Scottish ministers were producing VAT forecasts to support assignment of VAT, you could envisage an additional function being conferred on the commission to review the reasonableness of those forecasts. In the public consultation that went out, there was also a list of potential other functions that could be covered by the fiscal commission, and that was set out in reference to further devolution. Obviously, we have spent a lot of time on who makes forecasts and all that kind of stuff, so I do not want to repeat all that, but if the Scottish Fiscal Commission was to be really setting up a complete forecasting model of its own, have we any ideas what that would cost? We do not have specific estimates of that. It would depend on how the commission wishes to go about that. In drawing up the estimates in the financial memorandum, they were produced in consultation with members of the non-statutory commission, and they are intended to cover, in terms of the total resource envelope, the resource that the commission feels would be required to exercise its scrutiny as set out in the bill. At the moment, we have got £850,000 per year going forward. I mean, if they were to be doing substantial forecasting, would we be talking double that or triple that? I would see that if we look at the categories of staffing costs, there may be a requirement to increase the staffing allocation for strategic and analytical support to the commission. The commission may wish to make use of the provision that we have suggested for research of around £100,000, but it is difficult without being able to specify exactly what the commission might want to do here. It is difficult to put a precise figure on it, but it would very much be a matter for the commission. Clearly, if the commission felt that they were not adequately resourced within that resource envelope, then that is something that the Government would take very seriously and discuss further with the commission. I do not want to press you unreasonably, because I am asking for something that you are not planning to do. Is there any idea, for example, when the Government, how many staff are involved in forecasting, or is it not that clear-cut because staff are doing umpteen different jobs? I think that that is a very good assessment of forecasting. There would be a very limited number of people who exclusively do forecasting in the Government. They undertake a number of different roles, including forecasting, so it would be quite difficult to say exactly how much of their job was spent doing exclusively forecasting, as opposed to undertaking other analysis. It would be useful if we had some ideas on what extra costs might be involved. It is clearly a key issue, and for me, one of the answers to it is the cost. It helps to make her decision—I realise that Bill's got its decision already or its proposal—but if it was possible at some stage in the future to get any kind of figure on that, I think that that would be helpful, thank you. The relationship between Audit Scotland and Government—I think that auditors in general and their clients—is relevant. In one sense, I see the fiscal commission as auditing the forecasts that the Government has made. Is it your understanding that auditors of any organisation would be in it throughout the year, assessing what is going on? They do not just turn up on 31 March or whatever—or is that not a fair comparison? I am an accountant by profession, and I have experience of the auditory and auditory side of the public audit relationship. That would be very much my experience. There is engagement and a review of systems and controls, for example, of underpinning the financial management and financial reporting arrangements throughout the year. The audit parallelism is very familiar to me, and it offers a very helpful comparison with how the fiscal commission might conduct its work. There needs to be an opportunity for that kind of challenge and scrutiny to take place. What might look behind the scenes, but for the product of that to be made as transparent as possible thereafter? One of the specific parallels that I would draw is that in terms of auditing of the financial accounts, clearly the Government or the audited body puts forward its draft and audited accounts for review by the auditor. The auditor undertakes its work, and at the end of that process there is a report prepared by the auditor, which clearly sets out the adjusted audit differences that have impacted on how the accounts presented for audit might have changed before the final signed-off versions for audit. We would also draw any unadjusted material audit differences that have been identified during the process, so that there is transparency over what the areas that the auditor, the external scrutineer, has looked at and put in the public domain thereafter. So you would argue that it is possible for an auditor, or like an auditor of the fiscal commission, to engage throughout the year on a regular basis, but maintain their independence? Yes. When we talked about the right of access, Mr Sinclair mentioned the possibility of our memorandum of understanding. Is that something that needs to be referred to in the bill, or do we not need that in the bill? My memorandum of understanding is informal. It is not legally binding, but it is usually just expressing on paper an ongoing relationship between two bits of the administration. I have never seen it referred to in legislation. I think that we had broadly been comfortable with the idea of people just doing one fixed term, although I still have the members of the commission that is the wonder if we do have actually that many skilled people in Scotland. I suppose we could use people from outside. As I understand it, from one of the reports that we saw in Ireland, they have a maximum of two terms of duty or spells on the commission. Is that something that the Government is really committed to, the one term, or do you think that two terms might work? The Deputy First Minister has been quite clear in his position. I think that it might even have been from the January 2014 evidence, but I am bringing forward the proposals for the non-statutory commission. The Scottish Government would see it as one of the key safeguards that we can put in place to support the institutional independence of the commission, to ensure that there is no perception in their reporting that they are having any regard to their personal prospects of reappointment and how they are reporting their findings or how the conclusions that they reach. It is something that we see as strengthening the independence of the commission. Audit Scotland said that, if the commission was funded through the Parliament's budget, rather than the Government's budget, that would be an improvement. Do you have any thoughts on that? It is certainly something that we are open to considering. The Government has made repeated assurances to Parliament that we would ensure that the fiscal commission is adequately resourced to fulfil its functions. Obviously, it would be subject to scrutiny in the normal way through the draft budget process in terms of our spending proposals. We have also made some reference in the policy memorandum. We have spoken to the commission about ways of administrative arrangements that we might be able to put in place, which would provide longer-term certainty to the commission over its resource allocation. Thank you, convener. I just have a couple of questions because some of the ones that I was going to raise have already been asked. I do not mean to dwell on the forecasting issue, but one of the points that has been raised with the committee in relation to the forecasting is that, were the fiscal commission to produce its own forecasts, it could give rise to a conflict of interest, that being that it would perhaps err in favour of its own forecast and the outcomes of that, as opposed to the forecasting that the Government had produced. It is maybe a question more for the commissioners, but is that a conflict of interest that the Government is recognising when it leaves the door open for the commission to produce its own forecasts? Probably a question for the commission to answer, but one point that I would make is that the bill sets out a core function of the commission as assessing the reasonableness of forecasts put forward by the Scottish ministers, and the commission will be under a statutory duty to prepare such reports, assessing the reasonableness of the Government's forecasts. One more question, because I think that the deputy convener has covered the other points that I was going to make. It comes into the issue around term periods. I note that leaving aside the fixed term element, I note first of all that the approval of appointments is by Parliament, but the length of office or the length of term is determined by ministers, and there is no defined term within the legislation. Is there a reason why that has been left open-ended rather than there being a defined term limit in the legislation? My understanding is that it is consistent with practice in Scottish legislation that we tend not to specify term lengths for such appointments on the face of the bill and tend to reference the code of practice for ministerial appointments to public bodies, which sets out maximums in an administrative way. It is certainly something that we would be willing to reflect on in reflecting on the findings at stage 1. Perhaps it could give the impression that there could be a very long term limit given to an appointee. While Parliament is approving the appointment, Parliament does not have the official role in terms of the term of office that that appointee would have. It might just be a means by which that circle could be squared, but I will leave it for further reflection. Thank you, Richard. That is a very brief question about the point of clarity in the forecasting issue and resource analysis. I welcome what is being said today in terms of leaving the door open to potential for the commission to undertake forecasting, not least as part of its job in assessing the reasonableness of the Government's own forecast. It is also welcome—as I said to John Mason—that he is willing to look into further information about what resource impact that might have in terms of the commission. Clearly, you have been discussing what resource they need now when it is first set up. Has that included any discussion about whether the current resource allocation would allow any of that to take place, any commission of independent forecasting, or is there an expectation that that would require some significant extra resource? We have not specifically addressed the alternative forecasting point in our interactions with the commission on the financial memorandum. We have been speaking more generally about the overall resource envelope and whether the commission would consider that that would provide them with sufficient and adequate resource to discharge their statutory functions. That is helpful. I think that further information, as John Mason requested, would be very helpful to the committee. Thank you very much. That is concluded questions from the committee, but not necessarily myself to the committee members. The last question that I was going to ask is virtually the exact same question for Richard, and I will follow on to that. Why is the budget for the Scottish Fiscal Commission substantially higher than that for the Irish Fiscal Council, given the mandate for the latter, much wider? I think that there are two main areas where there is some difference. One is in relation to the remuneration of members of the commission. The second is in relation to what we are trying very hard to avoid in bringing forward the proposed financial memorandum, which is to constrain in any way the decisions that the commission might take about how it wants to organise itself as it moves to a statutory body. Those will all be questions that are considered as part of a transition programme. For example, we have provided for accommodation costs based on commercial rates to provide flexibility should the commission make a decision that it wants to locate itself in such premises. It is not to say that the commission might not take decisions that might end up costing slightly less than those that we have provided for in the financial memorandum. Sticking with the Irish model, I wonder if you looked at it in terms of the fact that it produces its report a month after the Irish draft budget. Did you look at that? Is that something that you feel is disadvantageous? I think that it comes back to this point around the Scottish Government's view of how the commission can maximise the integrity of the Scottish draft budget process and the fact that the Deputy First Minister has been very clear that he would not want to take a budget to Parliament that was underpinned by forecasts that were not considered reasonable by the Fiscal Commission. So you think that the Irish have got it wrong in terms of how they do it? I would not say that they have got it wrong. I say that we have taken forward suggestions that we think suit the Scottish Parliament's arrangements. One final question before we wind up. I asked you, Alison, about the principles for effective independent fiscal institutions, which I said that we are in a spice report, which we all have. One of those is in the issue of a clear mandate. I quote, as the OECD state that the mandate for IFI should be clearly defined in higher-level legislation or clearly stated in the primary law, but it goes on to say that the principle is met by the SFC bill's proposal of the Scottish Fiscal Commission in year 1, but it may not be met if the SFC's remit has expanded via regulations subject to affirmative procedure in the future. I am just wondering if you can comment on the one that is the case. On a general point on the OECD principles, while we consider that we have brought forward a bill that delivers on all those principles, we are very interested in hearing any suggestions through stage 1 of the bill processes to ways in which that could be strengthened, and we are certainly open to looking and reflecting on those. The powers in section 5 come down to the unique situation that we are in in Scotland with the process of devolving further fiscal powers. What we have sought to do is to get a balance between that flexibility for Parliament to tailor and amend the functions of the Fiscal Commission to reflect an expansion of those powers without recourse to primary legislation, but what we have sought to do is to entrench the core functions, entrench the requirement for the commission to prepare a report assessing the reasonableness of the Scottish Government's assessment although the specific factors in A to D could be subject to review and entrenching the power of the Fiscal Commission to prepare reports on such other fiscal factors, as it considers appropriate, so that they would require primary legislation to remove those. We have sought, as far as we can, to strike a balance between providing as much certainty over the functions of the commission as we possibly can in primary legislation, but we still need to leave that flexibility to take account of the devolution that is on-going and which may come in the future. I did set out my final question, but I was only kidding on. It is on the independence of the Fiscal Commission—this is the last question, really—it is on institutional capture. Basically, the SFC currently is a staff member seconded from the Scottish Government. Issues have been raised, not least by ICAS, about the closeness of the Scottish Government to the Scottish Fiscal Commission. If we are looking at a body that is not only independent but has to be seen to be independent, surely it does not really help if you have Scottish Government officials being effectively seconded to the organisation that they are providing the scrutiny of the Scottish Government. We should be absolutely clear that this was only an interim arrangement. This is not an established arrangement that will continue on. The member of staff, obviously, has very clearly set out in the letter and does not have anything to do with the forecasting. It was more around thinking about transition to move from a statutory body, so that is the key area that the staff is working in, and ensuring that the systems are in place to align with the requirements that are outlined in the framework agreement. It is a process and a transition area. It is nothing whatsoever to do with any of the forecasting, and it is only an interim arrangement. This is not going to be a long, established arrangement. It will come to an end, and it will be up to the commission to determine the staffing and skills and resources that it needs in the envelope that is provided in the financial memorandum. If there are any further points that you want to make before we wind up the session, we will thank you very much for your time and for answering our questions this morning. Thank you. I will recall a recess to allow members a natural break and a change of witnesses until 11.15. My business is to take evidence on the Scottish rate of income tax from HMRC officials who were joined today once again by Edward Troupe and Sarah Walker. I would like to welcome our witnesses to the meeting, and I thank Mr Troupe to make a short opening statement. Edward? Thank you very much, convener. It is very good to be here again, and I am very happy to be able to update the committee on the work on the Scottish rate. The good news is, as you will have seen from the memorandum that we have submitted, that we are on track to implement the Scottish rate on time and within and indeed a little bit below the original budget. You know that the main activity now is, at the moment, communications and identification of Scottish taxpayers and making sure that employers have a good level of awareness of their obligations and what the Scottish rate will involve. We have had good communications with employers, with payroll software companies, with pension providers and with professional bodies. We have already put out the specifications and guidance for software developers and put a lot of information about the Scottish rate online. This week, we have published on gov.uk, the UK Government website guidance for Scottish taxpayers. We are going to write later in the year. We have not quite fixed the date, but probably in December to all the taxpayers who we believe are Scottish residents based on their postcode, and that is about slightly over £2.5 million. That will give those individuals an opportunity to correct their address details, if, for instance, they have recently moved from Scotland and or elsewhere or they have recently moved to Scotland and become aware of the need to identify themselves. We will continue to do a series of checks of the addresses that we hold on our own systems against a range of databases to give us a higher level of confidence as possible that we have correctly identified those people who are likely to be Scottish taxpayers. Internally, our first IT release, which is linked to the identification of Scottish taxpayers on our system, has gone smoothly and we have no reported problems with that. The next round of IT internally, implementing the PAYE changes on our systems, is on schedule. As I said at the beginning, the estimate for the costs of implementation remains set up costs of £30 to £35 million against an original estimate of £40 to £45 million. That is the progress on Scottish rate. Of course, we are very conscious that the Smith commission proposals are coming down the track with the Scotland bill and we are staying engaged with that. We expect to be able to implement the changes that are proposed on the timetable, anticipated timetable for Smith. Thank you very much for that opening statement. As you know from previous visits to the committee, I will start with a few opening questions and then we will allow colleagues from around the table some of them to get their names down to get in nice and early. First, you have talked about, in your opening statement, section 4 of annex A that HMRC has been carrying out a comprehensive programme of communications activities such as publishing written material on gov.uk, featuring dated articles about the SRIT implications, and you touched on that in your opening statement. How many folk actually look at gov.uk? Is that something that is looked at by many taxpayers? It is heavily used. I do not have any figures for overall gov.uk usage. It is obviously there not so much as an active communication but as a resource for individuals who become aware of a particular issue or have questions about a particular issue and want more information. It is not the primary source of telling people about their obligations proactively, but it is the source as awareness of the Scottish rate becomes more widespread where people can go. We believe that it is a natural place that people now go and most of the search engines on topics related to Government business will take you as the top hit to gov.uk. It is there as a very important core source of information. In paragraph 8, you talked about around 85 per cent of cases of HMRC held an address for a tax book that could be matched against an address held elsewhere. You go on to detail how you could identify Scottish taxpayers. You said about 98 per cent of the taxpayers for HMRC hold Scottish addresses are correctly identified as likely to be Scottish taxpayers. In paragraph 9, you go on to talk about your plans, as you again touched on, to write to those for whom you hold a Scottish address in December. I am just wondering what has been done to raise awareness in the rest of the United Kingdom because, quite clearly, there may be an issue of people who have addresses on both sides of the border and those who may have an address on the other side of the border. Is there any work being done to try and remain customers of the importance of notifying HMRC when they move house south of the border? For example, if someone is going to move from England to Scotland or Wales or whatever, is there anything being done on that scope? There is no obligation to notify HMRC of your address or of your change of address, as I discussed with the committee last time. I was here. We are relying on other data sources and our own data sources when individuals become resident. Typically, of course, with an employee, the employer and the payroll system and hence the PAYE records will record a change of address, as indeed happens now if someone moves into the UK from elsewhere. There is no obligation for them to tell us their address in the UK, but a payroll system will pick up the fact that they have a UK address and they will become part of PAYE. The same system will apply here. We are not, in a sense, on a value-for-money basis, proposing to do a marketing campaign in the rest of the UK to tell people that, if they are moving to Scotland, they will need to do that. I think that we have to make something like 2.3 per cent of the Scottish population turns over in any year that I have moved in and out of Scotland to the UK or elsewhere, which is a relatively small number against the totality of the Scottish population. Sarah Rennart, who is here, who is responsible for the operational work, may have something else to say about the UK addresses. Because the Scottish rate depends on where your main residence is, the important thing is to pick up people who move into Scotland and become Scottish residents. We are looking later this year to do some targeted publicity around things like the Zoopla website, which are where people who are moving house generally tend to be looking at. There will be other specific targeted bits of advertising that will try to pick up those types of people. We are actively trying to, as well as using the sources of information that Edward is talking about, contact his state agents so that they can remind people and solicitors when they move into Scotland to remind people of the need to make sure that we know their change of residence. As far as the rest of the UK is concerned, we do need to contact and inform employers across the whole of the UK, because an employer anywhere in the UK may encounter somebody with a Scottish tax code if they have just recently moved out of Scotland. Communications with employers and payroll operators are on a UK-wide basis, but the communications with taxpayers themselves will be focused on people in Scotland. Thank you very much. I was not thinking of contacting every person in the UK and letting them know. It is just that, if people are getting their tax returns, a sentence could say, if you are moving to Scotland, please blah blah blah, but I am pleased that you are doing some proactive work in terms of state agents, etc., as you have said. Would that be a helpful suggestion if you are getting a new tax system, if you are moving to Scotland, please notify us? First, of course, remember that the majority of people do not fill in tax returns because their tax affairs are dealt with under PAYE. The self-assessment return will have a box on are you a Scottish taxpayer? In a sense, there is that implicit reminder. If you are about to go to Scotland or you have moved to Scotland, you will be, in a sense, prompted because you will see a question about being a Scottish taxpayer. That will then lead you, if you are doing it online or through the guidance, to the questions of, can I answer yes, should I answer yes or no to that question? I think that there will be sufficient prompts within the SA return for people who fill it in properly, which most people do, to capture those people. The initial challenge is just making sure that the starting database is as accurate as possible. In paragraph 12, you said that HMRC has also worked with the Scottish Government on the possibility of being able to access address information from NHS Scotland records. Given what you have said already and the other source of information, what will that actually add? Well, the background to this is that we have our own database records, which indicate individuals' addresses, but we cannot be certain of those records. You quoted the figure that we now have 98 per cent confidence. As with any large datasets, the best way of improving them is to compare them to other datasets, so we have been using other commercially available datasets, electoral register from the published register information on postcode's address information from the royal mail. That has helped us to improve and is helping us to improve the accuracy of our dataset. If we were to have access to the NHS Scotland dataset, that would be yet another dataset against which we could check our own records and would no doubt improve the accuracy even further. However, it is not an essential part of our checking. Since none of the individual datasets are essential, they all contribute to just a greater level of accuracy and confidence in the addresses and names that we have. Can I build on the police's approach? As I said, with very large datasets like this, two and a half million people, we are never going to be 100 per cent accurate. That is just the reality apart from what I have said. People come and go, and there are taxpayers who, one way or another, have managed to stay off our radar. It is a matter of always looking for additional ways to improve the accuracy of our knowledge and information about the taxpayer population. In paragraph 17, you have said that if the Scottish rates diverge from the rates that apply elsewhere in the UK, there will be an incentive for taxpayers to claim that they will live on one side of the border. What kind of differential do you think that that would start to have an impact? I think that human nature is such that any amount of tax saving creates the inclination of individuals to ask themselves the question, if there is some way that I could not pay that. That is the nature of tax raising. Our experience is that the higher the differential rate and the ease with which it is possible to make the changes to exploit that differential will contribute to the number of people who change. There have been deliberate changes of rate, such as when we cut the duty on unleaded fuel to try and encourage people to change. It was very easy to change. We picked up a different nozzle at the pump and people didn't avoid tax. They saved tax by making a choice. However, if you have to move your family lock, stock and barrel from Scotland to England or vice versa, that is a slightly more life-changing event. It will take quite a strong differential to encourage people to move entirely for tax reasons. However, if you are buying a house near the border, it may be that it is one of the factors that, along with the stamp duty rates and everything else, will determine which side of the border you want to live. You have no xy graph at which it becomes where the majority of people would change their behaviour one week. We have just been to the Basque country and it is quite interesting the information that we have with the finance minister. They say that, as far as they are concerned, there doesn't need to be any impact at all on the differential and taxation from that part of Spain to the rest of Iberia, even though there is quite significant tax differential. Do you know what I am saying? You raise tax to a level and it falls such that it becomes detrimental to the overall tax take in the economy? I think that our experience has been with the wider tax system that those individuals who do change their behaviour for tax tend to be those who have got most to gain and they are obviously the better off. It is the levels of tax that are applying to the wealthy, which are most likely to result in a behaviour effect. Just as a factual matter, they often have more than one home anyway. It is a lot easier to say that I am going to spend seven months in my London home and five months in my Edinburgh home rather than vice versa than for someone who has one home and all their friends and connections somewhere in Glasgow. It would be slightly more disruptive to have to move south of the border. If I had to conjecture, I would say that for the overwhelming majority of the population, the differential of tax rates, which is likely to come about, is, as the past experience appears to have been, to have almost negligible effect. However, to the extent that there are significant differentials for the better off, that is where we would expect to see and we would probably be looking to ask compliance questions about what we expect to see the greater behaviour. Thank you very much for that. Just one final question before I open up to the committee, because I know that everyone is going to ask if they want to ask about this, so I thought I would be again. First, it is a traffic light system. I look at them all to ask that. I wonder whether you can talk us through some of the issues here, particularly in terms of the amber and reds. The red amber green traffic light system is a well-used tool in risk management, but in simplifying things in order to present as it were hotspots, it risks over simplifying and risk management is an extremely complex business. It is complex because, before you even start, you need to think of all risks in two dimensions. What is the likely impact of the risk arising? HMRC systems fail completely. Massive impact. What is the probability of that arising? Well, actually very low. What is the probability of us not having 100 per cent names accurate on a register? Actually, it is pretty high because we almost certainly will not have 100 per cent. What is the impact? Actually, it is relatively low. Before you even start, we need to look at risks against those two axes. Then we have the element of time because these are tools that should be used practically to help inform where we put our attention to keep the project on track. Last time, I was here, the red-rated risk was about the identification of Scottish taxpayers, which we have just discussed, not because we thought that it was not going to happen, but because it was a relatively high-impact part of the project. At that point, we had not taken the steps that we have since taken to ensure that we had a high level of confidence about identification. It was right that it was red last time. I am pleased that it is not red this time. The one that we have read at the moment, in part because we have very little control over it, is the notification letter that we will send to taxpayers or who we think are taxpayers in December, as I have said. What you will see about that is that we are concerned that we have not got certainty on when we are going to send that. In part, that is because we are not yet clear of the timing of the Scottish budget. When the Scottish budget is and the timing of the letter relative to the Scottish budget, it does impact on its content. As you can see, we are forecasting that that risk will come down because we are expecting that you will announce the date of your budget. If you have any news on that, I would be delighted to hear it. Once we know the date of your budget, we will be able to determine when we can send the letter and, obviously, with the knowledge of the date of the budget, whether we will be able to say what rate has been fixed for the Scottish rate. That is the risk that we are concerned about at the moment, but while we have very little control over when you set the date of your budget and hence the timing of the letters, we are confident that we will be able to deliver on that. Perhaps I should pause there, because there are quite a lot of ambas, and we might want to pick up some of the amber risks at the same time. When 10 of those other indicators are as colleagues might wish to do so, but just on that last one in terms of the budget understanding, it will obviously spend review. There is only 25th of them, as you will know, and I think that our budget is later to come out of the first week of January. I do not know if you are still intending to send the letter in December, some of it might get lost in the Christmas rush of mail. People might not notice them as much, I do not know if they will or not, but I certainly think that the first week of January is most likely for our budget. I will leave it at that to our other colleagues to ask their questions, and the first person to ask a question will be John, followed by Jackie. That has been our son, Parker, three of your report that you were saying that employers would already be familiar with the Scottish variable rate. I think that we have had some evidence to say that employers are not very familiar with that and just assumed that there would be no changes, and are maybe assuming again that there would be no changes. Is that a consideration? Are employers really as aware? I will let Sarah add more details, but first of all I would just pick up that Pagrothwy does not say that employers were familiar with the Scottish variable rate, but because the Scottish variable rate was on the statute book, the functionality needed for it is built into most payroll systems. What we have found and we have held a recent conference for payroll providers is that there is a very high level of awareness of the forthcoming Scottish rate. The combination of their being functionality in payroll systems and the Scottish variable rate, which effectively transposes into the Scottish rate, and what appears to be a good level of awareness amongst payroll operators and software providers gives us a level of confidence. Sarah, do you want to say anything more about our engagement with the payroll providers and software people? Yes. I think that the vast majority of employers will use some sort of proprietary accounting system that runs their payroll, like SAGE or something like that. Those systems will have had the functionality for Scottish variable rate built in that will allow them to distinguish a code with an S on it, which is going to be a Scottish code, and will allow them to, when they get one of those codes, to operate a different tax calculation, and that is basically all we are asking people to do now. As Edward said, at the recent conference of payroll operators that we held a session on the Scottish rate, the person doing it asked for a show of hands around the room of people who were aware that it was coming and practically everybody put their hand up, so I think we are confident that the payroll industry is ready for this, but part of the new information we've put on to the internet this week is quite a bit of guidance for employers as to how it works. A lot of this is, I think, reassurance to them that we're not asking them to do anything complicated. We're not asking them to form a judgment based on their employees address, whether they're a Scottish taxpayer or not. It's something that they're very well used to. They receive a particular sort of tax code to us. They feed that into their payroll system and the right result ensues, and I think that's the reassurance that we're giving to employers. Thank you. In paragraph 5, you talk about guidance for customers, and elsewhere you talk about taxpayers. Is customers different? No, customers are taxpayers and our taxpayers are our customers. I do prefer taxpayers myself, so that's okay. We talked about how much you've got 98 per cent certainty and 85 per cent of cases that HMRC held and addressed for a taxpayer. You've also touched on the fact that the higher-risk people are probably the people who are better off and might have more than one property. Are you particularly targeting them to pin down where they're resident? I'm not aware that we are particularly targeting them at the moment. The high rate, obviously, of people will tend to fill in self-assessment returns, in fact they almost universally will. We are likely to have more information than for what I might call an average PAYE payer where our only contact is likely to be through his or her employer. Sarah, do you understand anything about the higher rate? We have a high net worth unit that looks after some of the very high wealthy taxpayers. They are very much involved in this. They will have a sort of customer-relationship-manager relationship with their taxpayers, so they should know quite a lot about them and should know where their up-to-date address is. They are looking at whether there is more will to be doing around picking up risks in relation to those people, particularly if there is a different rate, as Edward spoke about earlier. Generally, and again, with the self-assessment taxpayers, who, again, at the higher-income people tend to be in self-assessment, they will be asked directly after the end of the year to say whether they lived in Scotland for most of the year or not, so there is a positive return required from those people. How much is the trust required in this? In paragraph 9, it says that it is important to confirm which of those addresses is held as the main place of residence. In paragraph 13, it talks about taxpayers already able to amend their address using gov.uk. That suggests that it is quite easy to change your address. It is quite easy to change your address and it is quite easy to fill in a tax return and put false figures on it. Generally, this is not a good thing to do because our compliance work is quite effective, because we do resource to risk. We are not that worried about people putting false information on because, particularly for the better off, they are aware of the consequences. I think that the concern here is just making sure that we have got within our net everybody who ought to be there and that it is more likely to be lack of awareness which trips people up than deliberate misstatement of their position. I mean, there will be people, I am sure, who have homes in London and Edinburgh. In fact, I was talking to somebody who is a director of a Scottish company and she lives in London, she is Scottish. She was rather upset to hear that she only spent a month or two up here and she is not going to be a Scottish taxpayer because she quite wanted to be. I do not know whether that is because she thought there was going to be a cut in the rate. So, there clearly are people in that category, but there will be people, A, who fill in self-recessing returns and have to answer an actual question, are you a Scottish taxpayer taking these factors into account? They are likely to be the better off who generally are more compliant. It seems that we are saying that we do expect to repeat the sort of comparisons of our address database with external datasets in the future. If somebody is giving us a misleading or wrong address for us, we will be able to check whether that matches the addresses that they have given to other people and whether they are registered to vote and those sorts of things. Paragraph 11 talks about the scan has produced a list of individuals for whom HMRC holds an address elsewhere in the UK. Can you give us any idea how long that list is? How many people are on it? It is roughly 20,000. Okay, so it is a fair number of people. Well, that is a fair number of people, but that is less than 0.1 per cent of the total number on the list. It is 0.1 per cent. I am trying to do my arithmetic in my head. I think that it is 1 per cent. My final point in paragraph 20 talks about the running costs are estimated to be 2.5 million if SRIT is at 10 per cent, but it would be 5.5 to 6 million if it is not 10 per cent. I was quite stunned that that is two or three times more even if we only changed the rate by 1 per cent. Well, and Sarah can give you even more details, but what I have described, or Sarah and I have described, which is the identification of the taxpayers, keeping the taxpayer base up to date, making sure that employers are operating the payroll, is in a sense that the baseline and the steady state. Until such point, as the Scottish rate changes from 10 per cent, nothing more is needed because there will be no difference in the payments or collections, the codes effectively will be exactly the same for Scottish and non-Scotish taxpayers, and everything will continue smoothly. As soon as the rate changes, at that point, different codes have to apply for Scottish and non-Scotish taxpayers, which itself is a coding exercise. Then there will be differential payments made, which we will need to ensure that we apply compliance to so that the correct amount is collected in the different cases. There will be queries and contact issues from taxpayers whose tax bill changes and who get on the phone to HMRC to ask what is going on or who creates issues for employers who have to contact us. As soon as the rate changes in either direction, there will be an increase in actual activity within the system and consequential activity of contact with us, all of which will take a level of activity that is relatively low and steady up to quite a significantly different level. I do not know if you want to amplify on the actual things, which will be different if we have great changes. I think that Edward Scott has covered the main things. The market research that we have done recently on attitudes to the Scottish rate makes it clear that people are much more likely to phone us up or raise queries over their income tax if the rate is different than if the rate is the same where it makes no difference to the amount of tax they are paying. The UK raised its rate by 1 per cent from 20 to 21. That would go through very smoothly, because it would just be slotting a different figure into people payroll providers. Is it because we are doing it through the code rather than through the rate that creates more of a problem? No, I do not think so. That will create questions as well. If the UK rate changed, there would be a similar sort of extra administrative cost, because we would have to change people's PAYE codes. People are more likely to phone us up and ask what is going on. I think that this sort of cost would certainly be similar if there was a UK-wide change in the basic rate. Sorry, if somebody's code would not change if it changed the tax rate, would it? It can do, because some items are coded out, if you like. Not everybody's code does, but some people say that there is an adjustment to your tax code to recover a precise amount of tax. That has to be different depending on the marginal rate that is assumed. Typically that would be benefits in kind, which we were notified at the end of the year, which would give rise to a tax charge to the previous year, which we then need to recover through the tax coding for the following year. That tax coding has to be adjusted to reflect what the rate is at which we would then be collecting that amount of benefit in kind charge, which is obviously the rate for the second or third year. That is where the actual coding change would depend on the status of the taxpayer if there was a different rate in Scotland. The PAYE system is very effective at avoiding having to issue self-assessment returns to 30 million people, but it means that it is quite complicated internally precisely because it achieves the right amount through the coding system. Okay, thank you. Jackie to be followed by Jean. Can I return to—because I love colours on a chart that's just wonderfully simple—can I return to the highest risk identified? The convener was right that you're unlikely to be issuing a letter in December, but I fear that you won't be issuing the letter until you have certainty over the Scottish rate of tax. That's not going to be February until the budget actually passes. That being the case, do you think that there is a significant risk of pressure on your service in terms of a huge number of inquiries in a very short period of time? You're talking February to implementation, and I absolutely agree with the point that Mrs Walker made. Employers are very well aware of this. Your communications in terms of payroll have been very good, but they are champing at the bit to tell their employees, and they don't know what to tell them. I don't know if there's a stage before that that you could use these people to put out key messages about what the Scottish rate of income tax is all about, and you then follow up in February with the letter explaining that and the rate. First of all, can I just pick up one thing there? We are not necessarily going to leave the letters until after the Scottish budget. We want to know when the Scottish budget is going to be. It may well be that we feel the right thing to do is to issue the letters in December, saying that this is what is happening. There will be a Scottish budget, and that may set a different rate, and we are writing to you because we think that you are a Scottish taxpayer. If you are a Scottish taxpayer, the letter is going to go out of its way to say that you don't need to do anything, please don't ring us up, but if you think for any reason that you're not a Scottish taxpayer because despite the fact of us writing to your Scottish address, this isn't your main residence, either it's been forwarded to you because you've just moved, or actually this is a holiday home and you just happen to use the address for convenience purposes or whatever it is, we could still and we may well send those letters in December. Our feeling is that if the Scottish budget were in December, and you're more or less telling me that it's not going to be in December, then there would be a greater level of awareness and sending those letters around the same time might have a higher level of impact than if the budget was not there. Equally, as you rightly point out, if we leave this until February, then it is very close to the implementation date. It also runs into, for us, the self-assessment peak, which is 31 December and 31 January, and could create significant pressures on our call centres. We are hoping now that the Parliament has been reconvened that we will get certainty over the date soon, and we will then quite quickly make a decision about sending the letters. I would say that my expectation remains that we will send them out in early December, but we have not yet finally agreed that. I think that it's helpful. We are a bit in the dark as well as to exactly when it will be. The budget process will start, we reckon, in early December, but it won't finish and you won't have a rate absolutely confirmed until February, so you could still exercise your judgment of maximising impact on that basis. Can I ask you about advertising? We know about the Scottish rate of income tax, but when I ask people in my own community, they haven't got a clue what I'm talking about. On that basis, what's your approach more widely than simply a letter? How much money are you spending on it and where are you spending it? Right. I'll let Sarah fill in some of the details again, but I would make the overarching point that our responsibility is to make sure that the tax is administered effectively. Obviously, we are happy to support any wider messaging about the tax, but it is not our role to raise awareness per se. What we need to do is to make sure that we have the correct, the most accurate set of information possible in order to administer the tax properly, which means that, in terms of both value for money and direct effectiveness, HMRC and hence you paying for some billboard campaign up and down the length of Scotland is not probably the right thing to do, because we already believe that we're at about 98 per cent accuracy and therefore writing to those people who we think are Scottish taxpayers using other soft means by which I mean promoted articles, conferences, going through the professional community, going through the estate agent community, going through some of the more interesting professions in terms of mobility, like the offshore workers, like the fishing industry, like students, is going to be more effective to us for us than going out with a wide advertising campaign. At some stage, we will want to do some wider campaigns once we have sent the letters and done what we can through soft communications and I'll sort of let Sarah fill in the details so that we have them of what we propose to do with the wider campaigns. In terms of the costs that we've allowed for it, in the original budget that we shared with the Scottish Government, we had provisionally allowed for quite a substantial advertising campaign because we thought we might need that if we didn't have confidence in our address data. We now do have better confidence in that and we think that a widespread advertising campaign wouldn't represent value for money, that's not because of any constraints on the budget because it's the Scottish Government's budget, it is simply because we have to take responsibility for what represents good value for money. We would expect there to be a lot of interest in the Scottish media and in the press particularly around the time of the Scottish budget as to what the Scottish rate is and what the arguments are around, how it should be set. We would expect to try and build on that to use press interest and to offer information to personal finance pages in newspapers, that kind of thing, to explain how it works. We will be offering material for employers to put in their newsletters. We will be using all sorts of, what we're non-paid for, if you like, communication channels to put out that information. We will then, as Edward said, look at targeted paid for advertising later as and when we think it's necessary in order to make sure that we've reached any particular audiences that we think might have been missed. Again, it is the letter itself, which is our main means of communication. I had heard, I confess, that there were constraints in the budget and what I'm hearing from you now is that there is no intention to advertise unless you need to do so because you think you're covered. If I'm sitting at home watching the TV, there's going to be no television adverts, nothing on the radio, nothing of that nature to inform the wider public about this. At the moment, we don't plan to do that. I think that there was a meeting with some colleagues who asked where we got the message back that we had said that there were constraints on our budget and that is absolutely not right. Whatever we did, we wanted to be driven by value for money, again driven by the likely effectiveness of the actions that we take. At the moment, television advertising or billboards do not look like good value for money in chasing down what we think is going to be a very small proportion of the population who we haven't got accurate details for. Can I just press you on the point of how much are you originally planned to spend and how much are you actually spending now? We quoted originally £4.2 million, but that was not all paid for advertising. That was the overall campaign, including the costs of sending letters. I don't think that we have revised that. In a sense, we haven't ourselves got a revised budget and we have not shared one with you or the Scottish Government, but I think that we hope that it is going to be significantly less than that. Clearly, our written communications and our letters come with quite a significant cost to themselves. Do we have a breakdown on where we are on the full point? We don't have a specific figure for paid for advertising because we are still trying to work out the best targeting for that advertising. Could you supply the committee with the revised figure? We can tell you where we expect to be at the moment, but the timing of your budget has an impact because we think that the impact of the letters will be affected by the time of your budget. That is not to say that if you have a January budget, it will not be as effective because that may be a second bite at the cherry. If we sent the letters in December without indication of the rate and the publicity around your budget, that would be the opportunity to have a push through the professional and other trade journals and through the non-paid for wider media through newspaper articles. At that point, we will be able to judge how well we are doing and hence what we would want to spend further paid for advertising on. We can give you a range of where roughly we think we might be, but I am not sure how helpful that will be. We have shared with the Scottish Government an outline of the principles of the campaign of communications that you may have seen. It would be very helpful if the committee could see that. Any information that you can provide on finance because clearly value for money is something that concerns us too. My final question, convener. I may not understand this table very well, but IT projects are notoriously difficult to implement. I share pleasure at what you are telling us about the initial implementation, but also slight concern at the bottom of page 7. You talk about project not managing its relationship and dependency with a digital programme. What is that risk and what have you put in place to mitigate it? I am just trying to track through to what you are looking at. Sorry. I have got a solid table. The last item in your risk register. We have a major programme at the moment of implementing digital services, both for personal taxpayers and for business taxpayers. That is a big preoccupation for the department. We need to make sure that what we are doing for the Scottish rate, which is a slightly more niche project, is fitting in with that overall plan and also making the best use of the new digital services that we are putting in place. For instance, we are putting in place personal tax accounts for taxpayers where they will be able to, in a secure environment, log on to their own records and update their own records online. Clearly, that will be a really useful thing for us to use to help people to update their addresses but also to see how much of their taxes are being paid to the Scottish Government and how much is for other UK services. We want to make use of these digital services. We need to make sure that we are well plugged into the work that is going on elsewhere in the department to produce those new services for people. How confident are you that we will not be disadvantaged from accessing those new services? No, it is going really well and that is reflected in the fact that the risk is coming down. Obviously, there are always risks in any large system, but I think that this is an opportunity and positive. If personal tax accounts run and we are paying for those, it is not your cost, it is a real opportunity to actually allow the Scottish tax payers to access more. You can change your address online at the moment, but you cannot see your personal tax affairs. You have not got a personal digital account, and when we get those operating, I think that it will really help the operation of the Scottish rate. I want to follow on on the theme of communication, possibly with businesses rather than individual taxpayers. Certainly, for the moment, it is not the talk of the steamy in any of the areas that I represent. I hear what you say that you believe that there is really good understanding with the payroll managers, the SAGE programmes and others that do all that, but I am concerned that, if we look at a lot of the people who are responsible for PAYE systems in Scotland generally, and certainly in the Highlands and Islands, they are very small employers with three or four people. They are people who, quite likely, are still doing a manual wage system that SAGE will not be known to them. I wonder what kind of communication we can expect through perhaps some of the business organisations. We know that the Federation of Small Businesses, for example, has a large membership across Scotland and other similar trade organisations. Is it better that they deliver the message, or are they going to, in newsletters and other ways, or will there be a series of workshops with them in order to spread the word? Excuse me. If there is no change to the Scottish rate in the first year, we have longer to continue to engage with those employers because they need to do nothing different. Their tables will change because they will change with personal allowances this year. In a sense, it will not be a huge issue for them. If there is a change in the Scottish rate and if the budget, whenever it is, sets a rate different from 10p, we can anticipate that there will be a huge amount of interest from individuals, from employers, because they will read that the tax rate has changed and they will want to know what has happened, which is why there are costs for us because they will ring us up. At that point, I think that all employers will become extremely aware of the need to have done something. We obviously have to plan for both scenarios there, but we are planning for the change of rate scenario. Because we have engaged well with the payroll software providers, I think that we can be confident that the main point at which those employers who do use software will go to, if there is a change in rate, well taken care of. They will be reassured by SAGE or whoever it is that, yes, this is taken account of in your software and it will all be fine. For those who are still using PAYE manually and I do not have figures for that, they will get communications from us because, if they are doing it manually, they will be in communication with us, and we will make sure that they will get communications, which will effectively update their tables to reflect where they are. I suspect, and this may be wrong, that if you are a small employer in the Highlands and Islands who is doing PAYE manually, there is not really any question about the resonance of your employees. I imagine that they will all be Scottish resident employees relatively local, so you will not have the complexity of having to run for different employees with different codes, because I would assume that those sort of manual employers are likely manual payroll operators that are likely to have all Scottish employers, and they will have a single set of tables for those employees. All employers across the whole of the UK have to potentially be able to operate an S Scottish code from this April. We communicate with all employers through something called the employers bulletin, which goes out regularly. That has had articles in it about the Scottish rate and being ready for it. We are speaking to people at the Federation of Small Businesses. We are also talking to the accountancy profession, and I think that a lot of small businesses will consult their accountant about their PAYE system and how to operate PAYE. We are doing everything we can, and, as I say, we have put more material onto the gov.uk website, which is specifically targeted at employers, so that they can use that for reference. We are trying to use all the communication channels that we have to make sure that all employers are ready for this. Maybe I am missing something, but I can understand if the budget rate changes, that a lot of people will be interested in that, particularly if they are going to pay a higher tax. However, the Scottish rate of income tax is just that. It is a separate tax already, whether it is 10 pence or 11 pence or 13 pence. There are two things, and there is the system itself that allows for that. I cannot quite see, other than an emotional interest in how much tax we pay, what the massive difference is in terms of the practical collection of that tax between 10 pence and 11 pence. Again, I would relate back to John Mason, who raised the final point on page 6 of the dramatic increase in collecting that, because surely the Scottish rate of income tax has to be identified in your offices. That is exactly the point. If it is not changed from 10 pence, then the amounts of tax collected will be entirely unchanged, because the basic rate of 20 pence of UK tax will be replaced by 10 pence of UK tax and 10 pence of Scottish tax, but the actual amount of 20 pence in aggregate will remain exactly the same. The employees will have exactly the same deduction or all other things being equal, and the same amount of tax will be paid, and the employers will effectively do the same thing. The work that has to be done is done by us, because we will have returns, which include Scottish taxpayers designated by the S code, and we will, through our systems, have to aggregate out how much Scottish tax rate has actually been collected. As it happens for the first two years, because of the transitional arrangements, even that does not impact on the amount of money that gets adjusted through the block grant and paid across, but we will nevertheless be doing those calculations, but that will all be work that we do on the basis of the S codes. For the employer, if the rate does not change from 10 pence, really nothing changes at all in terms of what they have to do, beyond making sure that they have the designation of S or not S on their systems. If it changes, then they will be collecting a different amount, because instead of the 20th, if the rate goes to 11 or goes down to 9, they will be collecting 21 or 19, and that will actually be a change in the amount of tax that they collect and a change in the amount of deduction that the employee sees. We will still have to do the same work behind the scenes, and it is that change, the change from 10 pence rather than the introduction to the 10 pence, which is going to cause, I will not say challenges, but it is going to cause interest and activity and questions from the employees and from the businesses. I am not sure that I still understand the difference. I am imagining a tax collection in the revenue and bags of money being delivered to Scotland, if you like. Does it be practical? Does it have a cartoon sketch? Whether it is 10 pence or 11 pence does not seem to make a difference. I still cannot differentiate the costs that you are relating to the collection of that or the differential from the employer's point of view. If there is an electronic wages system that is set up to collect a rate of an S tax and an E tax, for want of a better expression, then, regardless, presumably that system will work in exactly the same way. It will do. If we come away from the manual operators back to the electronic, which is the bulk of them, the majority of the additional cost is going to be about the fact that people will see their tax bills changing and that they will be interested in that and will want to know why it has happened and they will have questions. To be honest, it may not always be operated completely correctly in every case either because people have been mis-designated Scottish taxpayers because they have moved house or whatever and that is going to create activity. That is where the additional work and the additional burden arises. In the example where it does not change, it does not matter to us because we need to know whether someone is correctly or incorrectly designated a Scottish taxpayer because the tax burden remains exactly the same on them. We would have the detail of that difference when the time came. The increase in the cost—presumably we are paying for that. We will continue to provide a breakdown of costs. Where that money was being spent. Thank you, Mark. Thank you, convener, just a couple of questions. The first one just follows on on the differential that was touched on by the deputy convener and by Gina Huckabee. I am just wondering, in terms of those additional costs and where those additional costs are materialised, are those costs that are simply just going to be absorbed within HMRC or that, presuming that there is not, because I have not seen it mentioned anywhere in the paper, it is not going to be through some form of recharge system or anything like that. If SRIT were set at a level other than 10 per cent, you have spoken of the costs going from £2 million to £2.5 million up to £5 million to £6 million, are those costs simply going to be absorbed within HMRC? No, those are the costs that are recharged to you. Those are the costs that are recharged to you. We do absorb all the fixed costs that are running of HMRC, the costs that are recharged under the agreement for costs are costs that are specifically identifiable and identified, and they are audited and recharged to you. So those additional costs remain the same irrespective of the rate above 10 per cent that is applied. There is not a kind of sliding scale on that. Those are estimates. I mean, it may not be exactly that amount, but no, the additional cost arises from the change and whether it is 12, 15, 9 or 6 will not make a material difference to what the additional costs are. They will be what they are. There is not a quote, and it is not tax-linked. It is our estimate of the additional activity, specifically attributed to servicing Scottish taxpayers and Scottish employers as a result of the Scottish rate change. Just to turn to the risk register. I seem to recall, and forgive me, because it was a while back that you were last before us, but I seem to recall the last time you came before us with the risk register. I had questioned where those numbers sat in terms of the probability and impact, and I think that I had asked for those figures or those details to be given to the committee. I wonder whether that is again something that you might be willing to do. I think that one of the reasons is that to look at it in this format, there are things that are showing up as amber and red, which obviously set alarm bells ringing, but when you look at the probability or the impact, you realise that, certainly in terms of the impact, if it is a low impact, it becomes less of a concern for people when they look at those figures. I wonder whether that is something that you would be able to provide. I am sorry if we fail to follow up on something that I said I would do last time, and I will make sure that we do— I could be recalling incorrectly, but I do seem to remember having asked. The colour, the red amber green, which relates to the numbers, is based on a grid that effectively has probability and impact. To be honest, there is a standard convention for which of the top-right corners of that grid you mark red, which ones are amber and which ones are green. We can certainly share that grid with you, so you can see against each of the numbers how the colouring relates to the probability and impact score that it has. However, as I said at the outset of the comments on risk, giving one of three colours to something as complex as this risks over simplifying the position quite dramatically. I appreciate that. I also look back on the annex B, which gives the last year's report for some of the matrix. I note that there has not been a whole lot of change. Some of them have changed marginally. The obvious one is the one that has gone from red to amber, but that is only because of a score difference of one. However, I note that there has not been much change over that period. Yet, on your forecast, most of those are forecast to drop quite substantially or materially in terms of the risk that is applied. I wonder if there has not been any change over that period of time. What leads you to assume that those forecasts are going to materialise? I can probably add details, but I have a list of the risks that have changed or moved since last time. I have one, two, three, four or five risks that are not on the list that were on there before. In other words, the confidence that we had last time that the risks were coming down and that the risk would be resolved has been met. We have taken five risks off the risk register. I think that there are probably one or two new ones and Sarah may be able to call that out to me. That is dynamic in the sense that we have been moving broadly, or bit more broadly, quite firmly in the direction of improving the management of the risks and landing of the project. Some of it may just relate to the stage that the project is at. We are now moving into the point at which some of these risks are likely to either crystallise or not. What has happened over the recent months will be us improving our preparedness for implementation, but perhaps not being able to form a view as to how likely some of these risks are to improve. We are now moving into the implementation phase and that will start to change pretty quickly, I think. Yes, there are some risks that have changed from the old one to the new one. There are some new risks that have arisen, for instance, the one about the timing of the Scottish budget that has come in, so it is definitely a dynamic document. If I could just pick one, for example, the third one, there is a risk that the project does not keep abreast of wider transformational change, which could result in the solution not sitting within the HMRC operating model circa 2016. If I look back to the 2014 figures that you gave us, it was showing up as a risk of 13 on the amber scale. It is now showing up as 14 on the amber scale, which I appreciate is probably a marginal change, but I do not know whether that relates to an increased probability or an increased impact. Yet, the forecast is that that is going to be AOK, it is going to be green by the end of this process. I am just wondering what leads you to that conclusion when there does appear to have been movement but appears to have been an increase on the risk rather than a decrease? The increase in the risk part is around the fact that we have a spending review and that our own finances and the operating model for HMRC, in a sense, is always up for review at spending review. I think that there has been increased uncertainty over the course of the last six or seven months about our operating model and about the structure of the department going forward. I remain confident that the spending review will come out in a way that gives us a sustainable and stable transformation model, which will bring that risk down. However, until the spending review is out there, until we have settled our own internal budgets for our transformation and plans for the next five years or at least the next three years, I cannot be certain of that. It remains here. It has been a bit more worrying over the course of the year because of the uncertainty around the spending review, but I remain confident that it will come down on the right trajectory. That just teases out some of the difficulties and subtleties within the risks. In a sense, I think that it is good to have the challenge on it, but what is important to me as the accountable officer within the department is that the risk register is maintained and that I feel that each of the risks are being actively managed. Obviously, if we have red ones, I worry about them, but my concern is more to know that there is someone in Sarah's team or in the delivery team who is on top of the individual risks and driving them down, which I am satisfied they are. I appreciate that. From my perspective, getting that further and that sort of deeper information would allow me to see the probability versus impact. The only other question that I had was around the control effectiveness. I note that I assume that the very low on the timing of the letter is because of the fact that it is determined by the timing of the Scottish Government budget, which is not something that you have control over. Is that based on the fact that there are factors out with your control but that some are within your control? Yes, so I am just looking at the ones that are moderate. Yes, absolutely. Okay, no problems. Okay, thank you Richard. Obviously, in terms of ensuring that there is a smooth transition with SRIT, it is important that there is the right exchange of data and ease of exchange of data between yourselves and the Scottish Government at an official level in particular. How are you ensuring that that takes place? I often know that you are meeting what discussion channels do you have. Are you satisfied that you have all the data you need and the willingness to co-operate? Is that reciprocated? Are you confident that that is being reciprocated? We have a very good relationship with Revenue Scotland and the Scottish Government, and I am going to see them this afternoon, as I generally do when I come up here. However, I am not sure that in terms of running the SRIT, which is a devolved tax but which is administered by HMRC, we are dependent on the Scottish Government for a huge amount of data exchange, but Sarah May corrects me. No, it is not an NHS record that she mentioned. Things like the timescale of the other budget, there may be issues too that they wish to do. We have covered both of those, and they are slightly different. The NHS data, obviously in that respect, the Scottish Government, like any other data set holder, we go around and say, can we have a look at your data, it will help us, and we have not used that in that case. I do not think that that is a reflection of not good relations. Obviously, the time of the budget is the time of the budget. However, in terms of working closely and sharing our proposals for publicity around this, we do that all the time. Obviously, we have been closely in touch with them on the devolution of the other two taxes, which you have already taken control of. In terms of regular contact, the Scottish Government is represented in a formal sense on our programme and project boards, which meet monthly. I will speak to Sean Neill, who was in here previously this morning. I will speak to him at least fortnightly. We have a formal catch-up fortnightly and more frequently than that. We have a very open dialogue. I am very happy with the co-operation and the help that we are getting from the Scottish Government. For instance, around communications, it is important for us to be co-ordinating the messages that we are giving about the Scottish rate with any other sort of publicity or communication that the Scottish Government is carrying out. There is a chance that the people who have questions about the Scottish rate will phone up Revenue Scotland rather than us, because they might think that Revenue Scotland is operating Scottish income tax. Therefore, we will be working closely with them to make sure that they have the right information and that they can pass the inquiries on to the right place in HMLC. That appears to have concluded questions from the committee and myself. Are there any further points that you wish to make? No. I just look forward to hearing when the time of your budget is going to be. We all want to hear that. Thank you very much for answering your question so comprehensively today. At the start of the meeting, the committee agreed to take the next four items in private. I therefore would like to call to make recess to allow the public and a official report and our witnesses to depart as we go into private session.