 Felly, wrth gwrs yn rhoi i sut gan gweithio, yn 2014, y Ffinanz Cymru ym Nghymru Ysgrifennu a Llywodraeth Llywodraeth ym MhŸbelydol Cymru, nid oes entelai i wneud ddawr i'wch gechan능u cychwyn i'r eich dod o'r dweud? Yn y gallwn gweithiau ym mhôr, mae'n digwyddau, wrth gwrs, ym colleaguesau ym mhôr i ddweud. Efo'r cyflwyno ar gyrthio dda i, flwyr Flaen llawer o fyny, and employment and sustainable growth, when the nominees for appointment to the Scottish Fiscal Commission. The cabinet secretary is accompanied by Alison Cumming, head of tax policy at the Scottish Government. I would like to welcome both to the meeting this morning. I am pleased to discuss my nominations for appointment to the Scottish Fiscal Commission with the committee this morning. Scrutiny review and discussion of the nominations is is an important process in establishing the commission's credibility and independence. I believe that it is very much in line with what the committee envisaged when they included the suggestion in the report in February. It is also in line with what I envisaged in accepting that proposal. I believe that there is widespread consensus across the Parliament that the creation of the Scottish Fiscal Commission is an important and welcome addition to Scotland's fiscal framework. The commission will play a key role in scrutinising and reporting on tax forecasts prepared by the Scottish Government. I am strongly of the view that the commission can only fulfil this role effectively if it is both independent of the Scottish Government and seen and understood to be so. Given that view, I take the independence of the prospective members of the commission very seriously. As I confirmed in my letter of 6 June, I gave full consideration to the potential for conflicts of interest to arise or be reasonably perceived to arise between the membership of the commission and other roles and offices held by the nominees. This includes membership of the Council of Economic Advisers, which the committee made a specific reference to in its letter to me of 4 June. I would like to take this opportunity to set out why I am satisfied that no conflicts of interest exist between membership of the Scottish Fiscal Commission and membership of the Council of Economic Advisers. My first point relates to the status of the Council of Economic Advisers, which is an independent group that provides advice to the First Minister on the Scottish economy. The political and professional independence of individual members of the Council of Economic Advisers is protected and fully respected. Susan Rice and Professor Hughes Hallott have each provided assurance on this point in the course of both their written evidence to the committee and during their pre-appointment hearings. Susan Rice demonstrated to the committee that the CEA put appropriate procedures in place to protect her independence. She and the Bank of England were satisfied with the procedures to address any actual or perceived conflict of interest between her membership of the Council of Economic Advisers and her role on the court of the Bank of England. My second point relates to the roles of the Council of Economic Advisers and the Scottish Fiscal Commission. I strongly believe that those do not conflict. The Council of Economic Advisers and the Scottish Fiscal Commission have two entirely different roles and remits. The commission will be engaged in the technical scrutiny of revenue forecasts, which will draw on the member's understanding of economic and financial data trends and assumptions. The work of the CEA focuses on recovering jobs, internationalisation and economic levers. The CEA will have no role in the forecasting process, which will be undertaken exclusively by the Scottish Government and will be scrutinised exclusively by the Scottish Fiscal Commission. There is no intention that the commission will review work undertaken by the CEA or vice versa. To further assure the independence of commission members, I have proposed that the chair and members should be subject to a code of conduct based on the model code of conduct for members of devolved public bodies that was approved by Parliament in December 2013. The code deals with all aspects of conduct, including the registration and declaration of interests. That should provide the committee with further assurance that the chair and members will be held to the highest standards of conduct. I would of course be very happy to share this material with the committee for its consideration. Finally, convener, I would like to record my view that I have nominated three highly respected, skilled and authoritative individuals to serve on the commission. I believe that Susan Rice and Professors Leith and Hughes Hallott would bring a strong set of skills and experience to bear on the work of the commission. I think that the committee has direct evidence of the calibre of the nominees from their written evidence and the hearings on 28 May at 4 June. I am pleased to have the opportunity to discuss my nominations with the committee this morning and to answer any questions that the committee may have. Thank you very much for that, cabinet secretary. I will start by asking a couple of questions and I will open the session out to colleagues around the table. In response to questions, Professor Hughes Hallott said that it is difficult to imagine how somebody who is independent would have a conflict of interest because they would not then be independent. The council is not behold to anyone nor do I imagine the commission would be any way I would not want to be. It also talks about the two organisations being sequential and their roles being complementary. Is that how you see it, cabinet secretary? I see the roles of the council of economic advisers and the fiscal commission being entirely distinct and separate. When I came to the committee on previous occasions when we were prior to the publication of the committee's report on the subject and indeed after the publication of the committee's report on the subject, I established what I hope was a very clear line of argument that the Scottish Fiscal Commission would be looking, essentially, at the forecasting of taxes that were being devolved as a consequence of the Scotland Act 2012. I suppose that a part of debate is part of the committee's evidence-gathering on this whole process as to whether the Scottish Fiscal Commission should have a wider remit than that. I quite acknowledge that there were different voices outside of Parliament, indeed some within the committee, that thought the Fiscal Commission should have a broader remit than undertaking the scrutiny of the forecasting of new taxes. That was not my view. I did not set the Scottish Fiscal Commission up to rival or compete with any other sources of economic discussion or deliberation. I set up the Scottish Fiscal Commission, and I quote from the official report of 8 January. If we give the commission too broader remit beyond the forecasting of the taxes that have been devolved as a consequence of the Scotland Act 2012, we will create the opportunity for intrusion into the responsibilities of other bodies. My view has been absolutely crystal clear that the role of the Fiscal Commission is to scrutinise the forecast that I bring forward as part of the budget process, and that is the extent of their responsibility and the council of economic advisers will have no involvement in that process. Professor Hughes-Hallerton said that he did not foresee that there would be a conflict of interest, but if there was, he would say that that would lead to a parting of the ways. The code of conduct, is that something that you would agree with? What is clear from the different experiences and responsibilities that have been undertaken by all three applicants or nominees for the Scottish Fiscal Commission, is that all of them have undertaken a range of projects, developments, initiatives, roles and responsibilities for a variety of different organisations, some of them at the same time. The three very distinguished individuals that I have nominated to serve on the Fiscal Commission are, by the fact that they have been able to undertake all of those roles in the past, have demonstrated an ability to properly handle any issues that might arise or be perceived to arise in relation to potential conflict of interest. I think that, bluntly convened, you do not end up with a CV, like the CVs of the three individuals that are before the committee today, without being able to properly manage the independence and integrity that those individuals bring to the work that they undertake. That is exactly what I would expect of them in relation to their participation in the Scottish Fiscal Commission. Professor Hughes-Hallot talked about being approached by representatives of all four main UK or Scottish parties in terms of providing impartial advice. I think that all witnesses talked about the issues of integrity and independence of mind and ability to act and give advice in that manner. One of the things that came up from colleagues on the committee is the issue of perception because two of the three members would be members of the two different bodies of council of economic advisers and the commission. How do you deal with the issue of perception because I think that that is very much at the heart of the deliberations this morning? I think that the issue of perception is dealt with by the fact that I have made absolutely clear that the roles and responsibilities of the Scottish Fiscal Commission and the council of economic advisers are entirely separate, so there will be no discussion at the council of economic advisers that will encroach on the remit and the responsibility of the members of the Scottish Fiscal Commission, which will be to scrutinise the forecast that I put forward in relation to the devolved taxes and in relation to non-domestic rates income as part of the remit that I have set out for the commission. It is a technical evaluation of the estimates that I have put forward for the commission to consider and to what I would hope to endorse, but clearly if they did not endorse them then I would have to reconsider the forecast that I had made. I am going to open out the session to colleagues around the table and the first person to ask the questions will be Jamie to be followed by Michael. Thank you, convener and cabinet secretary. There are written responses to the questions that the committee sent to Susan Rice said that she was asked to join the council of economic advisers in 2011 and agreed to do that only if my political independence would be protected at all times. This restriction was accepted willingly, she would say. Andrew Hughes-Hallot says, I am a member of the Scottish Government's council of economic advisers and the condition that my independence would be protected. Do you think that we should take that in good faith and acceptable act independent as members of the Scottish Fiscal Commission as well? I think that these are fair and representative statements by Susan Rice and Andrew Hughes-Hallot. The council of economic advisers has been established to provide advice to the First Minister on the Scottish economy. The members participate in that willingly and voluntarily. They do so with the very clear proviso that their independence is utterly protected and respected. In all of my observation of the council of economic advisers, that has been the approach that has been taken. That leads me neatly on to the next point, because in response to Mr Brown, Professor Hughes-Hallot said, and the convener has highlighted that as well, he said, the council is not holding to anybody, nor do I imagine that the commission would be anywhere I would not want to be. Is that your understanding of how the council of economic advisers works, how you envisage the Scottish Fiscal Commission working? Of course. The Fiscal Commission has been established with, in terms of looking at the factors that weighed in my mind in making the recommendations to the committee, I wanted to have a group of individuals who would have very strong technical expertise to be able to effectively challenge the work that is done within Government to establish these forecasts of new taxes. I did not want to establish a general commentary body. I wanted to establish a body of people who would have the correct perspective to be able to challenge what the Government was setting forward and to be able to give reassurance to Parliament if they were endorsing the estimates that I had made that were made on a sound basis and justifiable basis, and if they were not to be able to marshal to Parliament the reasons why my estimates and forecasts were not sufficient. The three nominees were designed to reflect that essential requirement in what Parliament would expect of a Scottish Fiscal Commission. I have said to the committee already that I have set out initial thinking on the resources that would be available to the Fiscal Commission. I have established it away from Government, established under the auspices of the University of Glasgow to put distance between the Government and the Fiscal Commission. I have put in the caveat that, if the committee has gone over the ground with the nominees as well, if the figure of £20,000 worth of resources that I have put in place is not sufficient then that will be revisited and I clearly must have an open mind on that question and we will obviously advise the committee if I came to the necessity to change that number. In all of those respects, the commission is being set up to exercise that independent judgment, independent in itself and independent from any other work that any other individuals may be associated with. If I look at the respective CVs of the candidates involved in their biographies, Professor Leith has actually been one of the principal individuals explaining and arguing the rationale for setting up independent fiscal bodies in his academic life. That approach is reflected also in the biography of Professor Hughes Hallard, who has had and his work is extensive around the world about the role of Fiscal Commissions and how they must be robust and challenging to Government. Susan Rice is an individual who has served in a whole variety of private and public sector roles and most recently in the court of the Bank of England able to exercise that degree of independent judgment and challenge. Those are individuals in whom I think we should have a great deal of confidence that they are able to exercise that distinctive judgment that Parliament expects of them in relation to the Fiscal Commission. You have talked about the different roles of the Council of Economic Advisers and the Fiscal Commission and in your letter to the convener you set out that the Council of Economic Advisers will not have a role in the forecasting process furthermore nor will it or the Commission take a view on setting rates for the devolved taxes. Can you set out how this in particular protects the independence of both bodies and stops a conflict of interest arising? It works on the basis, convener, that I will take a decision of us exploring these questions just now in relation to the 2015-16 budget of the rates and bans that will be applied. That will be my judgment. I will not be taking any input from the Council of Economic Advisers in that process or from the Fiscal Commission. That will be my judgment and the Finance Minister. I have got to exercise these judgments. Parliament expects that of me. They will be signed off by the Cabinet as part of the budget process and we will make estimates of what we think will be generated as a consequence of these tax rates and tax bans. Those estimates will be submitted to the Scottish Fiscal Commission with due time and opportunity for the Scottish Fiscal Commission in its own time and responsibilities to scrutinise those estimates that I have proposed and to tell me that I have made a reasonable set of assumptions or that I have to go back and think again, but adequate time will be given to the Fiscal Commission to enable it to come to either conclusion. Just finally, convener, I mean, you have proposed and you have talked about this in your opening statement. The Cabinet Secretary has said that you have proposed that those members appointed to the commission should operate under a subject to a code of conduct. Can you just tell us a little bit more about this and again how it will deal with issues of conflict of interest in particular? The code of conduct is the model code of conduct for members of devolved public bodies. It was approved by Parliament in December 2013. It essentially provides guidance for individuals who are members of devolved public bodies around their general conduct, their registration of interests, their declaration of interests, and the things that they have to watch out for in relation to perceptions of influence from external factors about lobbying and access to members of public bodies. It goes through all of those questions. Of course, it is obviously subject to parliamentary scrutiny, which certainly gives me confidence that it has been applied to a very robust standard of scrutiny. I would essentially see that being the code that would be used to regulate any issues in connection with the membership of the Scottish Fiscal Commission by its members. If you listen, Hans is trans-bazin. Crucially, the code itself is subject to parliamentary scrutiny. Parliament has approved it very recently, so I can only believe that Parliament considers that to be the appropriate code to be in place at the present time. It provides further guidance and reassurance to Parliament that the highest standards are being applied in the constitution of the Scottish Fiscal Commission. Michael The Befall by Gavin Thank you, convener. To brief breakfast my question by accepting absolutely the credentials of the three nominees that you've put forward, they're estimable figures in the fields in which they operate, and we should have the utmost confidence in their ability to do that job, but would you agree that that's not really the question that we're here to consider? The problem is that, in all the evidence that we took, and we took extensive evidence as a committee looking into the establishment of a Fiscal Commission, the matter of independence of that body seemed to be a given that the individuals concerned were independent of Government, and that we could rely on that fact, and that's really the crux of the problem. You gave the example of Lady Rice being on the court of the Bank of England and also on your Council of Economic Advisers, but do you not concede that there are two entirely separate entities over which there are different auspices and the appointments are different? And what we really have here is a concern that the Council of Economic Advisers and the Independent Fiscal Commission are both appointed by the Scottish Government, and that's where the perception of a potential problem comes. The first thing I'd like to say is that I welcome what Mr McMahon said at the start of his question, because I think that's a helpful contribution to this discussion, because I think it puts beyond peradventure that the individuals are of significant strength and capability, and I think that it's important in the process, because those individuals have, but they're not quite volunteered for parliamentary scrutiny, but certainly I've invited them to go through parliamentary scrutiny, and I think that's a particularly welcome, willing contribution they've been prepared to make, so I welcome what Mr McMahon has said at the outset of his question. In relation to the second part of his question, I think that through all of my evidence to the committee, I have made clear the importance that I attach to the independence of the Scottish Fiscal Commission, so I've gone to significant lengths to establish that into its whole founding ethos, where it will be located, how it will be supported, and the distance from government. I've also said that the members of the Scottish Fiscal Commission will only ever be appointed for one term, so they'll never have to come back to me for re-appointment, never, because they are there so that nobody's worried about, well, what if I say this this year, I might not get re-appointed? They won't have to come back to me for re-appointment ever. It's one of the founding parts of what I've put into the organisation of the Fiscal Commission. I think that it's entirely correct as a step. The other point that I would make is that the role of the Fiscal Commission is completely different and separate from the role of the council of economic advisers. The council of economic advisers will have absolutely nothing to do with the scrutiny of the forecast tax receipts on land and buildings, transaction tax, landfill tax or non-demacic rates income. If the committee requires further reassurance on this point, I shall make it absolutely crystal clear that the council of economic advisers cannot consider any issues in relation to that, if that helps the committee in making that distinction. Mr McMahon and I had an exchange in our discussion on 8 January, where Mr McMahon was essentially inviting me to confirm that the Fiscal Commission would have a very tight remit focused entirely on the forecasts. I was able to confirm that in the exchanges that Mr McMahon and I had back on 8 January. I stand by that because there is a distinct task being undertaken here. The individuals have got to apply themselves to that irrespective of other perspectives and interests they may have. My point, which I made earlier to the convener, is that the individuals have biographies—Mr McMahon has essentially accepted that point by his first generous remark—that the individuals have biographies that have been built up by protecting their independence, being able to work for different bodies, different institutions but utterly protecting their independence. There is absolutely nothing that those arrangements that I wish to put in place will do to jeopardise that. I thank the cabinet secretary for his answer. I do recall the discussion that we had in January. I am also very much aware that all of that was done in the context. It never occurred to me, certainly, that we would be talking about the same people sitting on two different bodies appointed by the Scottish Government. It just never occurred or would have raised that question at the time. Really, the point for me is that when Lady Rice was asked a question about potential conflicts of interest and perceptions of conflicts of interest, as Professor Hughes Hallott did, and yourself, indeed, the cabinet secretary, when you wrote to us again this morning, you have talked about dealing with the issues that should arise, but surely the point is that there should be no potential conflict of interest. If we can foresee a potential conflict of interest, then that perception is already there, and surely that is the crux of the problem at the outset. I do not see how a conflict of interest can arise. I do not see how a conflict of interest can arise, because, first of all, I have nominated three individuals of significant independent credentials, and Mr McMahon has accepted that point in his remarks this morning. Secondly, I have indicated that the role of the Scottish Fiscal Commission is completely separate from the Council of Economic Advisers, and I will not tolerate any fusion of their remits. Thirdly, the members of the Scottish Fiscal Commission are appointed for one term and one term only. They will be beholding to me for—once Parliament approves their nominations, they are not beholding to me in any respect. They are free to say what they like about my forecast. They will never have to come back to me for reappointment, because I think that that interrupts or undermines their independence. In those three examples, I would say to Mr McMahon and the committee that I do not see any potential for a conflict of interest to arise, but I accept the caveat that if a perceived conflict of interest was to arise, we would remedy that, but I do not foresee how that could emerge, because I certainly will make it absolutely clear that the Council of Economic Advisers has no involvement in the forecasting or scrutiny of what has no involvement in the forecasting, because that is my business as the finance minister, and it will have no involvement in the scrutiny of those forecasts, because that is the exclusive preserve of the Fiscal Commission. One of the other points that I would just highlight from my earlier evidence to the committee and I have referred to this point already is that I wanted to avoid—by giving the Fiscal Commission a very clear and focused remit, I wanted to avoid the opportunity for intrusion into the responsibilities of other bodies. It is a significant point that reassures the committee that the Fiscal Commission will not have its responsibilities or its territory intruded upon by anybody, and equally it will not do likewise to any other body. Does the cabinet secretary not concede that having two distinct and separate remits is not the same as having two distinct and separate people on either of the bodies? That is where the perception becomes the problem, but the only way that you can absolutely guarantee that there is no potential conflict of interest is to have different people on the two different bodies. I do not accept that point, because, as I have said to the committee already, if I look at the biographies of the individuals that I have nominated, they are all individuals who have managed to work for a variety of different bodies. The convener made the point that Professor Hughes Hallock, for example, has advised all four main political parties in the United Kingdom. He must be able to provide advice in a fashion that commands confidence amongst the various political parties. As I have said already, Susan Rice has successfully managed any circumstance in which there may have been a perceived conflict of interest between the different roles that she has taken forward as part of a very wide and varied career. I think that individuals of this calibre are perfectly capable of managing any potential issues that could lead to the perception of a conflict of interest. I will also start by saying that I agree entirely with the cabinet secretary when he talked about the high calibre and the skill levels of all three of his nominations here. I agree with that 100 per cent. The issue for me is about the perception of a conflict of interest. The cabinet secretary said clearly that he does not think that he is conflict exists. I think that he sounded a little less clear on the question of perception. Is it you of you that there is no perception of a conflict of interest between a body advising Government on economic levers and, at the same time, scrutinising Government on the use and the forecasts of those economic levers? I see no ground for a perception of a conflict of interest in that respect because those are two entirely different things. The Fiscal Commission will not be providing me with advice on how I might exercise the fiscal levers. It will be providing Parliament with an assurance that the estimates that I have made on the calculation of tax receipts from land and buildings, transaction tax, landfill tax and non-domestic rates income will be soundly based. That is a technical process, looking at economic modelling and the modelling of tax take and the assumptions that we use in that process. It is not in any way shape or form related to policy development or the manner in which economic levers have been exercised. Do you think that the Council of Economic Advisers at no time have given you advice or suggestions on how tax levers might or might not be used? That is not what I said. What I am saying is that the Fiscal Commission has a very specific remit to consider technically the tax forecast that I am making in relation to those relevant taxes. That is the function of the Scottish Fiscal Commission and at no stage will the Council of Economic Advisers under any circumstance be involved in any way in that process. But have the Council of Economic Advisers or could they potentially give you advice on the use of taxes? I cannot recall any incident where the Council of Economic Advisers has given the Government any advice on the exercise of tax powers. I cannot recall today in response to that question, but I cannot recall it at this stage. I want to explore what the Council of Economic Advisers do, because while the commission may well be set up as an independent body, if there are individuals simultaneously serving on both, to me there is at least a question of a perception of a conflict. How regular are the engagements between the Council of Economic Advisers and the chief economist's office outside of formal meetings? There will be discussions from time to time between the chief economic advisor and members of the Council of Economic Advisers in between meetings of the council, and the council generally meets a couple of times a year. Sorry, the minutes of the meetings are put online, but when you say that there will be meetings from time to time outside of formal meetings, do you have a rough idea of the regularity? They will happen from time to time. There is not a set programme if there are issues that the Council of Economic Advisers is working on, and they will take forward that discussion with the office of the chief economic advisor or any other officials within Government. What the council does, for example—let's take an example on Childcare, for example, where the council was involved in those issues—the council would also interact with officials of the Government who are nothing to do with the chief economic advisor's function, but will be policy specialists in that area. When you discussed the draft budget at the Council of Economic Advisers, how in depth was that discussion? That would be at the level of me setting out that the Government's priorities would be around focusing on capital investment, maximising capital investment to support economic recovery. It would be on the reform of public services and the focus on the person-centred approach that the Government is taking forward. It would be focused on our actions to fulfil our commitments in relation to climate change or equalities issues or questions of that type. The business rates feature at all in that discussion from any member? No. I want to look now at the OECD rules, because we have obviously, as a committee, signed up to all 22 of those OECD rules. Rule 2.1 talks about avoiding even the perception of any independence of partisanship. Still you view there could be no perception whatsoever of a conflict between the two roles being held at the same time? I do not accept that. Finally, another issue that has dropped up relates to the perception of the conflict or the lack of independence. Some comments have been made about the OBR by people trying to suggest that there is a lack of independence from Government from there, as I suspect happens in other countries. You said quite specifically when you gave evidence to this committee in January. The OBR is an example of the more limited number of cases in which an independent fiscal commission constructs the forecast itself. However, given that that arrangement operates on the basis of succornment from the Treasury to the OBR, there is a justifiable degree of skepticism about how far from Government the office is. Do you not think that you have effectively challenged the independence of another fiscal body by that statement? No, I have not. I think the issue about the OBR is that essentially it is staffed by secondees from the Treasury. The Scottish Fiscal Commission will not be staffed by secondees from the Scottish Government. I have set it up away from Government. I have set it up in the University of Glasgow. I have set it up to say we will send you the forecast that we make. The forecast will be made by my finance officials. They will be worked on by my finance officials. They will be worked on by the Office of the Chief Economic Advisers. Ultimately, I will make a judgment based on those forecasts and then we will send them to the Scottish Fiscal Commission, which will be independent and removed from Government. The Fiscal Commission is empowered by individuals who will never have to come to me for reappointment. They are not civil servants, they will have to come back and work for me later on. They will not have to do that. They will never have to come back to me for reappointment. They are getting their single term to exercise this independent function. You have stated publicly scepticism about the independence of one fiscal body, where members of that body are not simultaneously providing advice to Government through another body. Can you at least understand why there are some questions being raised by this committee and others outside there in the commentary about why there is a perception of a conflict when members—not staff—of the body will be serving on both? I understand because I am here. I am here to respond to the questions of the committee, so of course I understand it. I do not accept it because of all the issues that I have gone through already this morning. The commission has been set up with single-term appointments, so nobody will have to come back to me for reappointment and re-nomination. There are no people who can say what they like about my fiscal forecast. They will never have to come back and ask for a reappointment from me. Secondly, the fiscal commission will be not staffed by Government. It will not be a single second from the Government in the fiscal commission. It is away in the University of Glasgow. Thirdly, if I look through the evidence and I look through it all again in preparation for today of the line of argument that I have taken throughout this process, it has been that the Scottish Fiscal Commission should have a tight remit to judge on the fiscal forecast that I make. Not to go having a remit creep into other areas of policy and activity, I specifically ruled that out consistently during the inquiry that the committee has undertaken. For all those reasons, there is sufficient reassurance that no potential conflict of interest arises. You said just now that you did not see how a conflict of interest could arise, but clearly Lady Susan Wright had given a great deal of thought to that and therefore could envisage the possibility. I think that the implication of what she said was at that point that she would choose. I think that she implied that she would pick the fiscal commission as well. Given that, do you think that you are right to be so absolutely sure that it is not possible that conflict of interest could arise? I think that I am correct. In a sense, though, you want to reinforce your position by, I think that you suggested, you would make it explicitly clear to the council of economic advisers that they should have no role in forecasting, but I do not know how wide that exclusion will become. Surely it is very restrictive for such a body not to be allowed to consider matters of fiscal policy, which are so crucial to economic and financial policies. You said that you thought that they had not given advice on taxes, but surely they could potentially. They might think that that was very relevant to their roles, so you are almost being put in a position where you have to constrain their remit in order to protect your statement about a hard separation between the two roles. Can I quote from the official report of the session on 8 January? Again, this is territory that Mr Chisholm and I were exchanging on at column 3518, in which I said that Mr Chisholm was raising with me the issue about a clear demarcation between Audit Scotland and the Scottish Fiscal Commission. In my answer, I said, I am simply saying that uppermost in my mind will be the need to avoid creating the conditions in which the body can move into territory that is properly the responsibility of organisations that we all accept have been properly constituted. What I am trying to do there is to say that I am anxious to avoid a circumstance where the Scottish Fiscal Commission's responsibilities extend into other bodies unequally, and that the Council of Economic Advisers does not creep into other areas of responsibility of other bodies. I am trying to set out there as clearly as I possibly can do that I do not want to see bodies intruding on the responsibilities of others. I will make it absolutely expressly clear that I make it expressly clear to the committee that that cannot be the case. There could be some blurring at the edges, but if the Council of Economic Advisers wanted to talk about fiscal policy and what the consequences of certain taxation decisions might be. My point is about the remit of the Scottish Fiscal Commission. The remit of the Scottish Fiscal Commission is to forecast the taxes that have been devolved to Scotland as a consequence of the Scotland Act 2012 and as a consequence of decisions that I have taken on non-domestic rates income. That is the remit of the Scottish Fiscal Commission. No more. I think that my fundamental puzzlement about this issue is that there are many eminent economists in Scotland, an eminent professor sitting behind you now, and you could have chosen any one of a large number of figures. I am genuinely baffled why you would have picked two of the three who are already fulfilling a particular role when there are a large number of others who would have not, who would have equally been accepted because of their competence, but would not have stirred up this controversy. No doubt you will be able to push this through with your majority, but you know a lot of people outside are already questioning it. It does not get the Fiscal Commission off to the best possible start. I am genuinely puzzled why you would seek to move into that controversial territory when you could have picked. We have had several before our committee in the last two months who I could think of would be eminently suitable for this role. Perhaps I can just mention one Jeremy Pete, for example. I just wonder why you then moved into controversial territory and picked two that were already serving rather than casting the net wider. It certainly was not my plan to move into controversial territory. I have taken careful course throughout the whole of this inquiry to act in a fashion that could build as much consensus and agreement around the establishment of the Scottish Fiscal Commission. If I look back at the evidence that I shared with the committee and that we discussed and the approach to handling all those issues, I do not think that anybody could look at that evidence or the response to the French Committee report in any way to say that the Government was doing anything other than working in the spirit of the French Committee's approach to establishing the Scottish Fiscal Commission as an entirely independent body of government. My judgment about the individuals to be nominated has been driven by trying to ensure that we had, well, I'll go through the individual candidates and inform my judgment about them. Firstly, on Susan Rice, I made a judgment that Susan Rice was an individual of significant distinction in the business community in Scotland who had exercised a number of independent and challenging roles, and particularly her experience on the Court of the Bank of England was, up on most of my mind, having a very strong element of independent thinking being required in the process. Professor Campbell Leith was nominated because Professor Leith has been one of the key academics who have considered and explained and set out the basis upon which independent Fiscal Commissions can operate. Professor Hughes Hallott has equally been one of the other key academics who has been involved in the design of independent Fiscal Commissions across the globe, literally across the globe. I judged that if we had that experience available to us and willing to participate, that was a reasonable conclusion to arrive at. Of course, there are many other eminent academics or commentators that could have been put on to an independent Fiscal Commission, of course there are, but I made the judgments for entirely those reasons of ensuring that the Fiscal Commission was established on an independent footing with people of significant records who could contribute to that process. I just say finally that, of course, there are other nominees that I could have brought forward, but when you explore all this territory, trying to get some individuals who could have absolutely no connection to absolutely anything that's gone on that couldn't be put into the slot of saying, well, maybe they might be in certain circumstances conflicted, I think that's impossible to rule out in relation to a whole range of other nominees. There's only two bodies really, one at the present, the Council of Economic Advisers, and there shouldn't be a second one that has this direct link to Government economic and financial policy. Given the controversy, which you obviously think is unjustified, I mean what would be the problem about asking members to choose? I think the implication of what Lady Susan Roy said was I think that she's so committed to this role in the Fiscal Commission that she would choose that. I don't know what Andrew Hughes Hallock would choose, but I don't really see why that would be such a big problem because you would certainly have other people to fill whichever vacancy arose. Again, I suppose part of the controversy has been haseurism because I suppose certain people feel that perhaps the Government does have its favourite economists and there can be a too cosy relationship that develops with one or two individuals and it's actually better to spread that as far as possible because we know from our own evidence of the last two months that there's a range of views and it's better to in fact let that range of views be reflected in the different bodies. Let me just do that in two ways. The first is that the Fiscal Commission will have a very tight remit, which is about challenging the forecast that I make for tax take from the various taxes. It's a very tight and focused remit. It's not ranging across a whole range of other questions, as I said already. The second point in relation to the Government having its favourite economists, I only need to recall First Minister's question time a week past Thursday, where the contribution of Professor Hughes Hallock was being used by the leader of the Conservative Party to suggest that he was somewhat at odds with the Government. I'm afraid I can't see how we can have it both ways. I think that you will remember what answer the First Minister gave to that, but I don't really want to pursue that particular line of questioning. However, do you not think that it would be better in terms of independence to have a Fiscal Commission that was independent, not just of the Government, but of the Council of Economic Advisers? I think that I've put forward three eminent candidates who have built their reputations on being independent figures in this respect. You were touching on, in that last exchange, about the kind of people we're wanting. I've just jotted down some of the things that have been said about the people we're looking for, which I don't think anyone's disputing. We've had independent credentials, significant records, highly respected, skilled, authoritative, expertise, perspective. The bar's quite high. Can you give us an idea of how big a pool that you think we're drawing on? Presumably it's not thousands of people. Another one I thought of was they'd have to know Scottish economy quite well, so that restricts it further. How big a pool are we talking about? I think that there's a reasonably comprehensive pool of individuals. It's not in the thousands. No, it's not in the thousands. I'd say it's probably in the dozens, yes, but you've also got to think about what these other people are doing. Some of them are literally, you know, wouldn't be able, because of other projects they're involved in, to be able to give the time commitment to be involved in a whole variety of other considerations as to whether individuals would be prepared to do so. The pool is certainly a substantial pool. To be in that pool, and I'm assuming it's dozens or scores or something along those lines, I mean, these people could not have empty lives outside of their current role, could they? I mean, and have zero history. I mean, presumably all of these people have complex histories and have presently a wide range of roles. Essentially that's one of my core points, convener, that individuals do not amass the biographies and the CVs of the character that the three nominees before the committee have amassed if they've not done lots of things for lots of people and lots of bodies over time. But the crucial point in all of this is that people do that whilst preserving their independence, and that's what's at the heart of the nominations that I've made. I mean, clearly the committee has concentrated on the council of economic advisers as a possible conflict of interest. But, you know, those other words have jumped out at me from CVs, one being Kalman commission. Now, I mean, immediately that sets orange and red lights and all sorts of things flashing for me as a potential conflict. It makes me think, is that person too close to the Labour Party or what does it mean? And I mean, to say somebody has had links with four of the parties, well, I mean I'm not to know which ones it might be stronger with, the Conservatives might be stronger with, Labour might be stronger with anybody. So it seems to me we're not looking at some kind of blank sheet of paper here, but it is very much about how we manage it. I mean, it's been suggested already, Michael McMahon talked about no potential conflict of interest and Gavin Brown talked about no perception, but especially perception is very subjective, isn't it? I mean, presumably anybody could perceive anything about anybody, almost, if you take it to that kind of extreme conclusion. That's undeadly possible. But I think what I come back to is the answer. I think I gave to Malcolm Chisholm a bit why I had arrived at the choice of these three particular individuals. Susan Rice, because of her significant business leadership capability, and particularly her role in the court of the Bank of England, Andrew Hughes Hallot and Campbell Leith, because of their technical expertise and the fact that they have been so instrumental in the design of fiscal commissions across the globe. These are important contributions that I want to make sure are available to Scotland as we embark on an entirely new area of activity within the management of our public finances. In the Bank of England, I'm sure, is up for criticism, but it's also quite respected. In some ways, I was surprised that they allowed Susan Rice to be involved in the Bank of England, but she actually said that they were quite positive about that, to being involved in the Council of Economic Advisers, as long as there were proper safeguards in place. She gave that as an example that could be replicated, so is it your contention that that can be replicated because almost inevitably, somewhere along the line, somebody has a conflict of interest? I think that what I've said to the committee today is that I said in my letter to the committee was the point about the code of conduct. I've also made clear to the committee that I see the very clear and firm distinction between the remits of the Council of Economic Advisers and the Fiscal Commission providing all of the distinctiveness to ensure that there is no conflict of interest. However, I return to my fundamental point. Those individuals have worked for a whole variety of different organisations, different projects, different perspectives, different political parties, et cetera, et cetera, and they've protected their independence throughout. That's the nature and the calibre and the strength of the candidates that we have in front of us. Thank you very much. That has exhausted the questions from the committee. I'd like to thank the Cabinet Secretary and the colleagues for the contributions. I want to suspend for a minute in order to allow a changeover of officials. Business is to take evidence from the Cabinet Secretary on the draft public appointments and public bodies, et cetera, Scotland Act 2003, the treatment of revenue Scotland as specified authority order 2014. Mr Swinney is joined for the site and by Colin Miller and Greg Walker of the Scottish Government, both of whom we're familiar to as members of the committee. Before we come to the motion, seeking our approval at agenda item 4, we will have an evidence session in the order. I therefore like to invite the Cabinet Secretary to make an opening statement explaining the instrument and remind him not to move the motion at this point. The purpose of this order is to facilitate the appointment of the chair and members of Revenue Scotland in good time for the new body to take up its full powers before the devolved tax is coming to being on 1 April 2015. It does so by providing that these appointments can be regulated by the commissioner for ethical standards in public life. The illegal mechanism for achieving this is an order under section 33 of the public appointments and public bodies, et cetera, Scotland Act 2003, which is what I have laid before Parliament. The effect of this order, if approved, would be to allow Revenue Scotland to be treated for the purposes of any public appointment as if it was already a specified authority for the purposes of the 2003 act. That in turn means that the appointments in question would fall within the jurisdiction of the commissioner for ethical standards in public life. In this case, the relevant appointments would be the chair and members of Revenue Scotland. Convener, this is a well-established and, I hope, entirely uncontroversial way of facilitating the making and regulation of appointments to a new public body. I would leave my comments at that stage. Thank you very much, cabinet secretary. I have got no questions. Any members of committee have any questions? Committee members also have no questions. We therefore move to item four on our agenda, which is to move to the debate on the motion. I invite the cabinet secretary formally to move motion S4M-10325. The question is that motion S4M-10325 be agreed to. I will agree. Members have indicated their agreement. The committee will now publish a short report to the Parliament setting out a decision on the order. I thank the cabinet secretary and suspend the meeting to allow change of witnesses. We will reconvene it after five or six minutes to allow members to have a natural break. Our next item of business today is to continue our consideration of Scotland's public finances post-2014. Our evidence today will focus on pensions, although not exclusively if colleagues want to bring in other issues. I welcome to the meeting Professor David Bell, University of Stirling. Of course, it is no stranger to this committee. I welcome to the committee the committee's consultant and Chris Currie pensions policy institute. Members have copies of written submissions from each of the witnesses, so we will go straight to questions. For those who are not familiar with the committee, I will ask some opening questions, and then colleagues around the table will be able to ask questions also. I might ask a question directly to one individual, but other members on the panel feel free to comment on those points, but you do not have to if you feel that you do not wish to. Who will we kick off with? Professor Bell said that he is a battle-scarred veteran of this committee. Let us look at paragraph 12 of your submission. The Scottish Government opposed the increase in contribution rates, but was threatened with a loss of grant if it failed to implement them? Or, if you can expand on that a wee bit, and the impact on the Scottish Government of currently being unable to make changes for Scottish circumstances? The outcome of the realisation that a lot of public sector pension schemes in the UK were in considerable deficit and that one way of correcting that deficit would be to increase contributions from employers and employees. I think that it is particularly the increased contributions from employees that you are referring to. Effectively, the Treasury insisted that the Scottish Government apply the same kinds of adjustment to employee contributions as were happening in the rest of the UK. In a sense, that was the UK Government insisting that the Scottish Government follow its preferred method of partially writing the deficits that the public sector schemes were currently in. Clearly, that limits the course of action of the Scottish Government. I have not got at my fingertips the sums that were involved. Going forward, and just taking this whole idea forward a bit, public sector pensions are going to be—I think that Scotland has liabilities at the minute of around £85 billion in public sector pension schemes. If you are shrinking the public sector, what that means is that, for pay-as-you-go schemes, those people who are currently employed are paying for those who are retired. If the number who are currently employed is declining, then it becomes more and more difficult. In other words, the size of the contribution has to increase and increase and increase in order to meet the pension payments that are guaranteed. That is not a specifically Scottish point, but it is a consequence of where the UK and Scotland have got to in relation to having at one period of time a quite large public sector and moving to a situation where the public sector is somewhat smaller in the sense that a smaller number of current public sector employees are contributing towards a relatively larger number of public sector retirees. I think that the sum from memory is about £108 million a year. I just want to find any other panel members of any comments I want to make on that at all. Okay, fine. I'll move to another point, but this one is from Anne Flynn's paper. You say in your paper that I quote, I believe that there will need to be changes for pensions in independent Scotland, the opportunities for Scotland to build on the current framework to develop social, inclusive and progressive approach to pension provision. In fact, independent Scotland will facilitate the fixing of some of the issues in the current system, and you want to say that it opens up the opportunity to fix some of the problems that you live with today. My key focus is on workplace pensions, and I lived and breathed the auto enrolment legislation for the past 10 years, since it was first mooted as working for large providers and helping to influence policy, etc. In the past year, what I've done is worked actually at the coalface with some significant UK employers seeing that auto enrolment process being put in place in my independent consultancy basis. What I've picked up in that year working so closely with employers and providers is the complexity of things like the auto enrolment regulations and what it's doing to mid-size to large employers already and will do to micro employers, especially in Scotland, where a lot of the commercial interests lie at the moment, where smaller employers of 20 and less will be faced with quite complex rules to deal with and distract them from their businesses' purposes. I honestly feel that there's an opportunity, whether it's an independent Scotland or it's a remaining part of the UK, that there's reform needed on the auto enrolment regulations as they stand. They have been over complicated. For the right reasons, I believe, in the first place, having watched the regulations developed as I say over the past decade. We now have real learning on our hands that we need to apply, as I say, whether it's within the UK, the Westminster Government or an independent Scotland. I also feel that we have already got more UK-wide pension reform being mooted in the terms of collective defined contribution pensions. That will have a significant impact across the UK, whether Scotland is still part of the UK at that point or not. That needs to be considered because it is an interesting concept that is already starting to lose favour in the continent where it has been followed for a number of years because of its lack of fairness to members. Professor Dave Bell's point about the working population shrinking in the UK and Scotland and the retired population growing and how you fund that population in terms of whether it's private pension provision, public pension provision or through the state is the big challenge for any country in the western world at the moment. That's where we need to start looking at and seeing how we do this differently. How would we do those things differently, assuming that the Westminster and Scotland have different views on how we take this matter forward? There are a lot of challenges around that. If Westminster decided to go down the collective defined contribution path and Scotland decided not to do that, I do believe that the first thing that we can start with is reviewing the autronoment legislation and simplifying it from a Scottish perspective. Some of the rules, regulations and record keeping are so onerous that I can't see how small businesses are going to manage it in the future. If we have an equivalent to the pension regulator who will start to police firms on this basis and potentially find them, I think that a lot of firms will not comply. I think that the larger firms have had the infrastructure to be able to do it. That would be the first thing that I would certainly recommend as a review of some of the record keeping rules and the regulations in terms of who you have to auto-enroll or treat differently. There are something like 38 different classifications that your workers could fall into. From that perspective, it's just too complex. It needs to be simplified and made easier for employers. For employees, it's been very successful. Some of the companies that I have worked with have had good take-up rates. Very few people opting out. People are more than happy to start paying convention contributions if you get the engagement right, so it is working on a level, but we do need to help employers to manage the whole issue. If Scotland did vote yes and did take control of pensions, how would Scotland gain through the changes that you are suggesting? Scotland could quickly develop a framework that is simplified for employers and make it easier for them to engage in that pension regulation. There could be opportunities to incentivise employers. I know that Ross Altman published a paper this week about things that she had recommended in the workplace. I am an advocate of some of the things that she said. You could increase the tax release for employers on providing pension education or savings education in the workplace from £150 a year per employee upwards. There are different levels of incentivisation that Scotland could introduce for employers to better engage in this whole process and help Scottish citizens to prepare for their retirement. How would that help not just employers but the workers? One of the big things in my experience and all the research that I have done with different organisations is that the receiving end of pensions that people in the workplace on the factory floor or on the shop floor really do not understand it. It has been shrouded in some kind of language that nobody really could break through. If you break that down into much simpler language and really help people to understand what it means for them, it makes a huge difference. That is the kind of things that I have seen happening in the past two years, where the actual level of engagement from the employer to the individual employees has been much better and much greater. Thinking about the employee rather than in what they want and aspire for rather than you have to contribute to pension and it is coming out of your pay packet, which is the very much. Before the stance was always very prescriptive based on what the legislation said. Now I am starting to see a shift towards that more engaging approach and encouraging people to take personal responsibility for their futures. Just a general observation, as I think that the discussion that Anne has just been leading about, both collective defined contribution and automatic enrollment, highlights the fact that pensions policy never really stands still. It is really important to think about that in the context of the UK or an independent Scotland or even internationally. As an example in automatic enrollment, we know that there is already a review of the policy planned in the UK in 2017 to see how things are happening, things are working, opposition parties are already putting forward proposals to simplify the existing UK system. I think that the Labour party has suggested that they would automatically enroll a much larger group of people by reducing the initial threshold of earnings that people need to come into in order to be automatically enrolled. On the collective defined contribution side, I think that Anne made a very pertinent point that in Holland, where they have had collective defined contribution schemes for quite a while, they seem to be moving away from that as a model of collective provision at the same time as the UK is considering introducing it, but I would also say that there is a very wide range of collective defined contribution type schemes. For example, there are also schemes in New Brunswick in Canada, which work in a slightly different way from the way that the Dutch schemes work. Although you can borrow from international examples, it can be very helpful to build a very specific type of the collective DC scheme or any other scheme that best meets the features that you are looking for. Just a couple of general points. One is that auto enrollment is one of the great success stories for behavioural economics, which we study particularly at Stirling University. In general, one would hope that it will, in the future, given the high level of take-up, reduce issues of pension and poverty in the future. The other thing, just picking up what Anne said, financial literacy is an important topic and not given sufficient attention in our education system. That is why a large number of employees find it difficult to understand, even without the complexity of the regulations as they currently stand, exactly what they might be getting out for what they put in relation to pension contributions. I want to turn to Chris Currie's paper. In paragraph 30, I quote, the principle informing future changes to the SPA is that on average, an individual should spend up to a third of their adult life in retirement. For this purpose, adult life is defined as starting at age 20. In terms of state pensionable age, in the graph that you have following, you said that at age 67, if we have a situation whereby the year in which the SPA would increase if the principle set out in the PENSEC 2014 would be applied, that would be 2019 for England, but it would be 2033 for Scotland. The principle that we outlined in the paper is the principle that is now in the 2014 Pensions Act, which sets out the framework of which future state pension ages in the UK might increase. As you read out from the paper there, the principle is that people should spend up to a third of their adult life in retirement and no more than a third, which means that if you look at it, you can use life expectancy projections to try and calculate when, given the definitions in the act, people will, on average, in the UK start to meet that one third level. Those are the figures that we have put in the table there. I think that what this also highlights, though, is that there are various differences in life expectancy across a number of different dimensions—the ones that we have highlighted in the paper here, obviously regional dimensions. In most of the papers that I have seen, which talk about the issue of state pensions in Scotland, the demographic situation in Scotland with, increasingly, a large proportion of the population at older ages, but those people at older ages with shorter life expectancies than in the rest of the population, which means that, as you can see from the chart that we have in the evidence, people in Scotland, taken as a Scottish population as a whole and not as part of the UK, would reach that one third tipping point much later than they would do in the rest of the UK. That happens on a consistent basis, not just by the time you reach age 67, but by the time at state pensions we go up to 68 and 69. It is roughly 11 to 12 years behind the rest of the UK throughout the period that we have looked at there. That is not necessarily the only thing that ought to be taken into account in considering state pension age and in the Pensions Act. There are other criteria that will be used such as labour market impacts of healthy life expectancy. It is not going to be very precise. That is what the formula says. That is what is going to be implemented. There will be a review at regular periods, which we will try to take into account other factors as well. What the chart highlights is that, if that particular policy was used in an independent Scotland, it had the same basis. On that basis, the tipping point for state pension age is increasing much later in Scotland than in the rest of the UK. What you are saying is that, if it was an independent Scotland, it should wait 12 years later than England in terms of implementing that all else being equal. I would say that that is what that part of the equation would suggest. However, there are other factors that would need to be taken into account in determining exactly when state pension age should increase as there are the other external factors around the Pensions Act. I think that one of the issues, as well as part of that, would be affordability and how much it would cost to pay pensions earlier in Scotland compared to the rest of the UK. Even just considering that, within Scotland, there are other impacts. There is an increase in benefit expenditure. Professor Bell has highlighted in work that he has done. There are changes in income tax receipts as a result of people having different spending patterns. The UK Government has estimated that there is quite a big difference in economic growth because of the labour market impacts of people being able to take a pension earlier and therefore being less likely to continue in the workplace. I think that you would need to consider all those different factors before deciding exactly what the state pension age increase should be and when. I am tempted just to ask you what you think it should be. I wish that I was qualified to answer that question. I think that what is really important is to consider why state pension age is increasing and what you would like to achieve with an increased state pension age. It is a balancing act as part of that. The underlying demographics in Scotland, in the UK and the world as a whole, suggest that state pension ages will need to increase over time. The question then is how quickly should they increase. I think that that is a subjective decision. In the same way as a lot of pensions decisions are subjective, there is always trade-offs involved between how much you pay to people, how early you pay them and then how much it costs and what the contribution from the working age population is in order to fund that. I think that for Scotland you would need to look at those aspects separately in order to come to a conclusion. Okay, thank you. That was a very political answer, so I was very impressed with that. Professor Bell, you are desperate to come in. I know that you have just been jumping about there like Henan Hawthgirddon for the last two minutes. I am going to come to you on that particular issue. You do go on in the paragraph 16 to touch on that. You say that on average, state pension costs around 68 per cent less per pension on Scotland due to lower life expectancy. To be fair, you also want to say that payments for incapacity benefit, severe disability allowance and disability allowance are well above Scotland's population share. Indeed, you have a helpful graph on the other side that looks at Scotland's share of state benefits in Great Britain in 2012-13 across a whole post. For example, incapacity benefit is higher, but discretionary housing payments, housing benefit, council tax benefits, for example, is lower. Overall, do you accept that social protection in 2012-13 was less a proportion of GDP in Scotland than it was in the UK as a whole? If you take a geographic share of North Sea oil as your metric for the denominator, the difference between spending per head on DWP benefits in Scotland and that in the rest of the UK, which has been narrowing quite significantly over the past 15 years or so—15 years ago, the spending per head in Scotland was quite markedly higher. However, the difference has been narrowing, so if you take that as the denominator, the geographic share of North Sea oil, I think that it is correct that welfare benefits would be a lower proportion of GDP. Do not ask me what the exact difference is, but I think that that is correct. In paragraph 16, you talked about the discussion of the relative cost of the state pension, and you said that a lot of this is tend to focus on the accuracy of the migration assumptions that are underpinned by the population projections. You know that the IFS has, for example, talked about a 4.4 per cent increase in the Scottish population through migration over the next 50 years, but is it not the case in the last 10 years that there has been a 4.4 per cent increase in Scotland's population through and with migration? I listened with interest to the discussion of the cabinet secretary as I was sat behind him earlier on about forecasting. I spent some time in an institute that was spent at its time assessing different bodies' forecasts of the economic future, and in the course of that, it became extremely sceptical about the especially long-term forecasts in relation to the economy. Migration is particularly difficult to forecast. It is the case that Scotland has had a very significant net inward migration in the last decade. That was preceded by decades of low to high levels of net immigration, rather than immigration. The net immigration of the last decade was driven primarily by the A8 migrants who came to Scotland, and a much closer balance between migration from the rest of the UK into Scotland and with migration out of Scotland into the rest of the UK. Yes, it is true that the last decade has been particularly favourable in respect of increased immigration to Scotland. I would hesitate partly for the reasons that I gave earlier to project that into the future, also because nothing on the horizon seems to me to have the same effect on immigration as the A8 immigration did in the noughties. Of course, in the UK, there is considerable uncertainty as to where immigration policy is going to go over the next decade anyway. I should accept that the A8 geist in the UK is to reduce immigration, but clearly Scotland, if it had powers of independence, might take a different viewpoint with that and not perhaps have a different impact in Scotland relative to the rest of the UK? There are complications here. Clearly Scotland could set out a more liberal immigration policy—no question about that—if it was independent. Could it have a more liberal immigration policy within the existing UK? It is possible. We have had future talent in the past. Quebec runs a somewhat different immigration policy to the rest of Canada. Another complication is that we would want to be part of a common travel area with the rest of the UK in the way that Ireland is part of a common travel area with the UK at the minute. We would have to take cognisance, I think, of whether the immigration policy that the rest of the UK was following was, in some way, compromised if people migrated into Scotland and then moved on to England and Wales. That might be feasible within a common travel area. There is a question about whether there would be negotiation around Scotland's independence to set its own immigration policy if it also wanted to be part of the common travel area. Slightly at a tangent, but on the basis that there is an immigration Scotland has increased, which has strengthened the Scottish economy and allowed it to grow, is the impact that it has on pensions, too. That is another issue that is starting to emerge quite strongly for a lot of employers. They have migrant workers who may stay here, the rest of the lives may move on, and they will have a UK pension pot. What do they do with beyond if they leave the UK shores and head off somewhere else? There is a need for almost pan-European pension reform to help all of this, because it is becoming more and more complex for people as they become much more mobile. Again, in independent Scotland, it is something that they could look at and consider in terms of how they treat those people. I thank you for that. We have developed a bit of a self-denying ordinance on the committee, because we have had sessions such as this that have lasted more than three hours. I do not want you to put that through that, so I shall not ask any further questions to this point, but I shall open out the session to colleagues around the table, and the first one to ask questions will be Jamie. Thank you, convener. I want to return to your paper, Mr Currie, and the exchange you just had with the convener about the impact of state pension age increasing and the fact that Scottish pensioners on average are not going to benefit as much. I thought that you made an interesting point that, consistently, we are 11 or 12 years behind in catching up with the average. I thought that was the essence of what you said. However, note on chart 1 to make the point further, essentially, under the formula positive. Essentially, each time Scotland catches up, the UK as a whole is virtually ready to move on to the next step and increase the state pension age further, so we are always going to be 11 or 12 years behind if we stay in the UK context under current policies. Is that not the case? I think that that is right if the current projections of life expectancy within Scotland and the rest of the UK are correct. I think that I would echo what Professor Bell was saying earlier about long-term projections, not just in migration but on life expectancy as well. There is not a great track record of being accurate with life expectancy projections in the UK or anywhere else in the world for that matter. However, you are right if we take the current projections as being the best estimate that we have of where things are likely to go, then, yes, this is a continual problem that is happening as part of that. However, part of it, I think that there is a number of different things that it is probably worth bringing out. One is that the average in particular areas on regions such as Scotland, the rest of the UK, England are quite big areas. Actually, there is quite a lot of variation even within those areas. I think that there is other evidence that we put in the paper that suggests that where there is lowest life expectancy in Scotland, in Glasgow City for life expectancy at age 65, is just under 15 years. Actually, in Manchester, life expectancy is just under 16 years, so there is not a massive difference there. Whereas in the Orkney Islands, which is the best performing place in Scotland, if you think of it in performance terms, it is just under 20 years. In Harrow, in England, it is just over 20 years. There is a wide variation within regions as well as there being differences across regions. It is not to say that differences across regions are not important. They obviously are. However, I also think that there is a particular issue around whether we look at state pension age as trying to treat the symptoms or trying to treat the cause. Actually, there is a real underlying issue in there being variations across regions in any case. To my mind, there is a potentially bigger policy issue, which is what can be done to try and reduce the inequality in life expectancies across these different places. It could be down to health, it could be down to lifestyle and behaviour, in particular over recent years. Smoking has been highlighted as a very important cause of differences in life expectancy. There is also treatment through health and those kinds of things. Although there are implications of having a fixed state pension age at any point for regions where life expectancy is lower and changes in life expectancy therefore have a bigger proportionate impact on those areas with lower life expectancy, I think that it is an important feature of any policy discussion going forward would be to try and think about how you could narrow those inequalities. Therefore, the state pension age changes would be closer together if you have used the same basis and would have less impact on certain parts of the UK or Scotland. I absolutely accept the point that you make in terms of regional variation. Obviously, we are looking at Scotland's finances post 2014, so you will understand what we are looking at Scotland's whole. I would also accept absolutely the point that you have fundamentally hoped that we can improve health and people will live longer in Scotland. Just to emphasise the point under chart 1 on your paper, the new state pension age would rise to 67 across the UK in 2021. Scotland would only reach that average level in 2033 and it would be 2033. The UK would be seeking to increase it to 68, we would not reach 68 until 2045 and then just next year in 2046 the UK would be looking to increase it to 69, so at least on the trends that are identified you could argue that scotch pensioners are getting a bit of a rough deal. Show that you have very clearly stated that if life expectancy stays the same as the projections then Scotland would always be having a lower life expectancy and therefore having a lower expectation of time receiving the state pension than the other parts of the UK if the UK raised it purely along along the lines is set out in the table. I think as I mentioned in the discussion with the convener earlier there are other factors rather than just the formula which will be used to actually set state pension age in the UK and perhaps regional variations might be one of the factors which is taken into account but that will depend on who is appointed by the government to try to take the review at the time and also what the Government considers the outcome of that review. I just add that it also came to the conclusion that on average the state pension costs per person are cheaper in Scotland for the reasons about life expectancy that Chris has just been discussing. Chris also in an earlier answer mentioned a very important issue and that is healthy life expectancy which is how long people can expect to live in good health rather than how long they can expect to live and where Scotland also is somewhat behind the rest of the UK is that the gap between healthy life expectancy and life expectancy is bigger in Scotland than it is in the rest of the UK and that is primarily reflected in figure 3 in my paper which shows on average more is being spent on incapacity benefit on severe disabled allowance and so on and so on and surely what we really want for Scotland is to increase life expectancy but particularly to increase healthy life expectancy so that more of the third of the life that people may be retired in is spent in good health and that could have a beneficial effect on Scotland's finances because it would reduce the relative spending on the benefits that are associated with disability and ill health. Professor Billand is indeed the pension policy institute part of our 37 to make the point there that on average individuals in Scotland and indeed Wales and Northern Ireland who retire at state pension age spend a great proportion of their talent in ill health and individuals in English so they make that point as well. Can I turn to the issue of population? It trends as well because Professor Bill you talked about this in your paper and you've touched on it with the conveners well in your paper you do say that any predictions about population trends you make the point of course that this is a key part of the debate about state pensions and the ratios involved but you do make the point in your paper that any predictions must be subject to large margins of error and indeed in the your paper Mr Curry you operate on the through most of the paper you operate on the assumption of the ons low migration scenario don't necessarily criticize for that because I know that the OBR and the UK government have chosen to do so as well but I do understand that estimate is way below actual migration trends in recent years but I thought your paper was quite interesting at paragraph 84 where you do say that if you take the mid migration scenario you see expenditure for working age people by the mid 2050s is more or less the same as the UK but under the high migration scenario pensions become more affordable in scotland of course we're in the position where I don't know maybe you wouldn't accept but I would imagine most people would accept that the Scottish government's ability to influence these matters is somewhat limited at this moment time would you accept that I mean I think I think it's really important that whenever we do any of these estimates we try and highlight the sensitivities that are involved in doing them and I think that we identified and other people have identified that the migration assumption is quite an important one in trying to think about what the population and demographics might look like in future in particular for Scotland it's not the only key factor I mean since Scotland also has a kind of lower fertility rate than other parts of the UK which has an impact on the starting population that you have now where you have fewer individuals in Scotland or a smaller proportion of the population in Scotland aged under 44 on a greater proportion aged over 44 still has an impact for a large number of years going through the particular paragraph on the chart that we show to there is along the lines of the Department for Work and Pensions in the UK we've looked at spending on pensioner benefits per working age person in Scotland as a way to try and look at the affordability so trying to to recognise the fact that pensioner benefits will be funded by the working age population I think a better measure if we had it would be to look at the working population rather than the working age because there are all sorts of interactions as as Professor Bell has mentioned about levels of disability different employment rates over time but also people working beyond state pension age who could also make contributions to the economy as part of that but we have to work with what we have and so we did decide to look at that looking at at how that would vary under different migration assumptions now I'm saying we are not in a position to be able to to project which of the particular sets is the most likely outcome and as you say we've used as our as our main projection throughout the analysis we've shown here the low migration assumption which is that used by the office of budget responsibility in the UK which is the rationale that we've used for doing that but if you do use alternative projections and I think the mid scenario put forward by the office of national cystics whereas I think has an increase in the working age population of 3% by 2030 compared to the low scenario and 10% by 2050 you do get by the end of the projection period much closer to levels of aggregate spending and spending per per individual in the working age population in Scotland as you do in the UK and if you go further and use the high migration assumption which is a 6% increase in the working age population above the low scenario by 2030 and a 20% higher working age so it's a very significant increase in the population of the working age population by 2050 you do start to see even then expenditure per working age individual being lower in Scotland than it is in the rest of the UK because of that particular growth in the working age population and that's from about 2040 onwards but that does imply quite rapid growth in the working age population which isn't apparent from the fertility figures that would have to come through migration and I think has been discussed there's a wider range of issues around immigration and the ability for both the any government to influence migration but also the impact of migration on other other parts of the economy. I suppose that that's very helpful that's the bit I'm probably more interested in though because I mean I absolutely accept the point no projections are very difficult and I think that was the fundamental that was the top line of your answer and that I take that on board I suppose the and you know I'm aware I've not direct a question at Anne Flynn yet but you know her paper was talking about the opportunities with independence and one of the opportunities of independence to be and maybe she'll have a perspective on this be that we can perhaps greater influence migration trends and policy I mean certainly I thought it interesting Professor Bell was talking about the potential for there being a degree of difference in terms of migration policy within the confounds of the UK but that's entirely beholden on the how willing the UK government is to be in that regard it's not in the hands of the Scottish government with independence the context would be different to at least attempt to achieve to try and achieve I suppose the appointment would you all accept that as I said in the as part of the long answer I gave to the to the previous part of the question at the pensions policy institute we we focused on the pensions issues and not on the on the migration issue so I don't feel against who's been qualified to be able to say whether that's something that the scotland an independent Scotland would be able to achieve or should be be looking to achieve because I think there are there are much wider implications but if you could achieve it then it would have potentially positive implications for the affordability of pension expenditure. Professor Bell, you used the identity of the high offices. Yeah I mean in particular since overseas students are more important to Scotland than they are to the UK's of all I think you know it would certainly be in the interest of Scottish universities and indeed the Scottish economy because a certain proportion will always find Scotland so attractive that they want to stay if it were easier to attract students to Scottish institutions and over the last couple of years we have we have suffered somewhat as a result of current policies. Yeah I do I think I think your point you're quite right that in an independent Scotland we should be looking to shape the migration policy that we need to you know make it make an impact on the economy but particularly I mean I just believe that the more the more we can increase the working population the more that we see revenues increase etc and costs can be reduced on benefits and it also with the impact of auto-enrolment and people saving for pension on a private basis the reliance on state pension changes a little bit in terms of you know they may and incentivising people maybe to delay their state pension as well which is an option for healthy people that may be still working there are various aspects that we could be looked at there and what one last area if I may convener again it's in your paper mr currie I may say that it was a very helpful paper that you've provided at paragraph 18 you say that under the Scottish government's proposal learning room with career breaks age 44 in 2014 and reaching state pension age at 67 in 2037 whose automatic role in workplace pension a minimum contribution level pensioners and work could have an income from state and private pensions 14 pounds a week higher under the Scottish government proposals than in the current UK system which I make out to be 728 pounds per annum we should say that of course that's in 2014 eight earnings terms and also paragraph 20 you say under the the Scottish government proposals that the medium earning man could be entitled to same credit less than five years after reaching state pension age this would increase his state and private pensioning further under the Scottish government proposals compared to the current UK system I wonder what you've factored in there is it both the single tier pensions starting at 106 pounds I think I noticed in your paper you've started at 159 pounds for 2014 prices and does it also include the triple lock operating it does what that what that includes is as you say that 160 pounds starting point for the single tier pension it is 160 pounds in 2016 what we've done in the paper is converted all the figures back to today's earnings terms which is why it looks slightly lower although it is actually 20 wait so if you roll that forward to 2016 it would be 160 pounds which we've assumed is just over a pound a week higher than would be used in the UK although that is obviously subject to what's determined by the UK government in the run-up to to April 2016 there's nothing on the face of the pensions act which sets exactly what the level will be we've assumed that it would be triple locked under both of those particular scenarios on the basis that there is a commitment from the Scottish government to do that for at least the first five years and although there's no commitment from the UK government as of yet some of the political parties are starting to get there and the impact assessment using the pensions act also used that as an assumption so that's why we've used that there what we've also included and this is this is probably one of the potential differences within that is the retention of savings credit beyond 2016 for individuals reaching state pension age after 2016 which is another Scottish government proposal which was put forward last year the issue of savings credit is a very interesting one and I think there are two impacts as part of that I think as we've highlighted here and we've felt it was important to highlight savings credit being in place does mean that people reaching state pension age would have higher pensioner benefits and that's driving some of the figures we've seen elsewhere in terms of pensioner benefit per individual of working age part of that is because people reaching state pension age in Scotland would be retiring under a more generous system and would so have higher incomes in retirement all other things being equal and that is particularly important as we as we saw for lower earners where the savings credit entitlement if they only have acts only have entitlement to a single tier pension and very small amounts of other pension then savings credit can be a very important kind of top up to their income above and beyond the single tier pension level if that's retained in the future the individuals we're looking at here will be reaching state pension age in the mid 2030s I think 2037 or so but interesting I think the median earning man illustrates the other side of savings credit which is that yes after a period of around five years or so they would become entitled to savings credit and that would provide a further boost in their income so I think under just the single tier proposals put forward by the Scottish Government there's a difference around a pound a week for that individual but it goes up to around two to three pounds a week because of savings credit once savings credit kicks in and that undoubtedly gives them a boost to their income the only difficulty with with savings credit is the impact of means testing on private pension saving now that is something which has been debated very heavily in the UK context over the previous 10 years especially with the introduction of automatic enrolment and a concern that people historically have found any reason not to save which is what automatic enrolment has been introduced but one reason if you look at it in economic terms there are probably two different impacts an income effect and a substitution effect so the higher income people get from the state the less likely they are to save on top of that but secondly the lower the additional benefit of saving the lower the lower amounts people save as part of doing that and this kind of works in both of those areas and it means that if you look at the median earner for example if he didn't save if he opted out of automatic enrolment he wouldn't lose all of the value of his pension saving because he would receive 15 pounds a week of pension credit instead so almost half of what he gains from saving he could actually get from not saving so it reduces the incentive for him to save in doing that now it's very difficult to to say in aggregate terms what impact that would have on levels of saving and in fact you could argue that given that automatic enrolment levels have opt out at the moment are very very low in a UK context less than 10% across all the individuals who have been automatically enrolled since October 2012 it might only have a relatively small effect but the way in which individuals make saving decisions and especially as other research we've done has highlighted that actually just saving the minimum amount through automatic enrolment is still not enough people will need to find somewhere putting more intervention saving that could be more difficult in a situation where savings credit exists and therefore reduces the extra value of saving so there's a definite bonus in terms of giving a more generous income on retirement or enduring retirement for people who go on to savings credit later in their life but there's a potential impact on the level of saving that people make let's just quickly clarify you included some of the Scottish Government commitments also in upgrading pensions for the rest of the UK in this comparison is that what you said there so so in both scenarios we've assumed the triple lock for single-tier pension isn't an equivalent commitment so actually the differential could be even greater where you say it's 14 pounds a week higher and the Scottish Government proposals it could actually be more if in the UK that the earnings link as is the minimum required by legislation was used instead of a triple lock then yes there will be a bigger difference between the two. I suppose on a fairly narrow issue a question for Ann Flynn you say in your paper Scotland doesn't need an equivalent to nest and obviously the white paper talks about I think it's called zest which I don't think they understood why nest was branded the way it was but that's another issue. Let's imagine there's a yes vote and Scotland becomes independent you view is that we shouldn't set up zest just to call that what would you propose in that scenario? I just think in the past two years and watching what's happened in the with auto enrolment and for nest in particular nest has been reasonably successful and I think they've gone over a million members now just recently but what we've also seen is other more of the less established providers master trust providers as they're known stepping up to the mark and taking a lot of the population that nest was originally designed to do so what I believe is that rather than creating a Scottish version of nest whatever it be called you could actually negotiate a Scottish auto enrolment scheme design with one of these other providers that would offer a savings vehicle for people that aren't auto enrolled into private workplace pension schemes where employers just feel that's the only option that they want so what I'm trying to make was I don't think you have the infrastructure cost of setting up zest you could actually do it deliver that same solution in a different way so thank you the other thing in your paper you talk but you talk briefly about the cross border issue for for private pensions and obviously with your with the work that you do you must see some of the the issues that could come from that what are the I mean how on earth do you view these issues and how would you solve them should they arise solutions an interesting one but what I've certainly come across in the past couple of years particularly in the defined contribution pension arena is that UK employers who have operations throughout the UK and also in era for example and how they then have to make provisions so if the UK employees can all be put into a registered UK pension scheme whether era employees are put into a pension scheme registered there and they're quite distinct bodies so my concern is that we could an independent Scotland could really disturb some UK employers with Scottish operations who are used to having one arrangement they've got all their administration set up and all the rest of it and suddenly they're faced with actually she's a different set of rules that I need to adhere to and contribute to you know a Scottish registered pension scheme so my simple solution whether it's possible or not and I'm sure legal people would tell me whether it is or not that to work with pension providers administrators to create some form of creating sections that could accommodate Scottish operations of UK companies and as I say I don't fully understand the legal implications of that but it's just to try and minimise the impact on as I say UK employers that currently have operations in Scotland not having to force them to change into a whole different regime there's also the the issue if the basic rate of tax changes in Scotland and that's the the principle of pension saving at the moment in the UK as you get basic rate relief and your personal contributions that that could have a severe impact as well my own experience of working with providers I know that they have a few of them have thought about this and have already parameterised their systems so that if they have a different tax rate in Scotland and one in England they can still run pension schemes on the same basis but applying the right tax reliefs so it does become quite complex but I think it's one that just needs to be carefully thought through the impacts and what the possible solutions could be and I think there are solutions as I say whether they could be validated on a legal basis the other big issue is salary sacrifice which is a very common form used by employers to make pension contributions that they agree with their employees to do it on that basis because it saves the employer national insurance contributions whether that's something people would want going forward but it also helps the individuals to to make pension contributions on a more efficient basis salary sacrifice is currently written in primary legislation in the UK so how would we then move that into an independent Scotland to make sure it could continue to work here grateful thank you right moving on to professor bell professor bill on your in your paper paragraph 17 just an issue that I guess has cropped up in discussion or debate occasionally the paragraph 17 you talk about the age dependency ratio being the ratio between those over the age of 65 compared to those of the age of 16 through to 64 the Scottish government in much of their work whether it is their pensions paper or indeed the white paper they compare the ratio of those of working age against those over 65 and those under the age I can't remember if it's 16 or 18 but but those under a certain age and by by comparing those ratios instead the position as between Scotland and the rest of the key the UK looks more similar compared to the graph that you've shown figure four can you just explain the difference between those two and why if we're being sort of objective about it which which ratio is more commonly used more useful to work out the viability of pensions and so on okay so um effectively you're trying to calibrate the extent to which those who are dependent in some measure on state support the number of those relate to the number of those who are providing taxes contributions that will that will support these people so clearly it is true that those aged 16 and under sorry under 16 receive a significant amount of state support primarily the education budget now we've already discussed that the fertility rate in the rest of the UK is higher than it is in scotland so scotland has a relatively smaller share of that age group 0 to 15 than does the rest of the UK going for those aged 65 and over scotland will have a relatively larger proportion if we're thinking about pensions and support for older people in relation to the working age group then probably the graph that I've shown is more relevant having said that it's a pretty rough and ready measure in that it doesn't really take it it kind of assumes that people might retire at 65 well in the certainly in the 1990s and the following decades many many people retired before 65 what you've what you've seen actually happening since the beginning of the recession is that the number of older workers has increased quite dramatically whereas the number of young people getting jobs has has suffered somewhat so we've had high levels of youth unemployment but at the same time large numbers of older people many of them self-employed in the workplace so and this has happened in the UK's of all it's also it's also happened in scotland so if you're trying to get a kind of idea of how the costs of dealing with the older population in relation to the capacity of the economy to generate taxes then I think this would be the more appropriate measure but it isn't a perfect measure that's helpful one other thing from your paper paragraph 10 you say to establish efficient bond trading the Scottish Government would have to set up a bond market this would be the major priority immediately after independence just I think you're one of the one of the first people I think to make that point to the committee unless I've missed it and are you aware of work being done on that because when I think through the documents I've read in the white paper and so on I'm not aware of a huge amount of work on that issue I'm just wondering if there is work that you'd available a way of I don't know of any at the minute but I presume that what would have to be done in the period before the final agreement was well it wouldn't there's no presumption about it it would have to happen because depending on what arrangement there is for scotland to take over a share of the debt whatever that share might be and even if it didn't there would be a need to borrow almost immediately and that can't happen without there being unless you do some deal with with with another sovereign that has a large wealth fund or something that there would have to be a market in Scottish debt that that would have to happen straight away and the last issue if I may then just Chris Curry's paper paragraph nine I think it is of that paper you make the point in relation to pensions you're saying it doesn't mean it would be unaffordable rather the Scottish government would need to raise revenue reduce spend in other areas or have higher government debt levels I mean that's an argument obviously we've heard before just a your way of any work or has your institute done any work to try and quantify what sort of sums looking at the pension commitments or possibilities are is there work done out there that can try and put some numbers on the the point that you make at paragraph nine I mean it's not something that we've done at the pensions policy institute and interestingly I mean the issues around that paragraph I think we're actually kind of came out in the previous question that you asked professor bail about kind of how you define a dependency ratio because one of the issues that you have in in Scotland is a smaller proportion of the population who are of school age and so potentially that might mean lower levels of relative expenditure on there which may mean you can afford to spend more on the older generation so that's kind of some of the trade-offs that are involved in determining whether a particular level of spending is affordable or not it's not something that we've done any particular work on given that we focus purely on that on the pension side I don't think we'd be able to look at the the kind of more economy wide implications but in terms of of the gap I mean as we show in the paper there is an increasing diversion in expenditure per head of the working age population on pension benefits between UK and Scotland mainly driven by the old age dependency ratio but also partly driven by some of the different policy decisions that the Scottish Government has proposed to put forward and I think that by the time we get into the kind of 2050s or so kind of the difference is around 150 pounds per person of working age per year of which about two thirds is due purely to ageing. Governor it's a welcome to fall by makele. I'm just starting with some of what Governor Brown was asking recently I mean in a kind of way you don't go into this Professor Bell in great detail but of course it relates to other discussions we've had with earlier panels when you talk about pension companies buying bonds and obviously that would be the interest rate charged would be very relevant to that and then you say you know if there was a higher interest rate you know that could be impacted by leaving the currency union it's just a throw away a remark you make but I suppose I'm just interested in what the effect of different interest rate and currency arrangements could have on the resources of pension companies. Yeah I mean this is a very complicated area it is not clear yet how a Scottish bond market would develop and if there was no currency union then there would have to be there would there would clearly be a bond market dealing in some different currency if there's a currency union then I guess you don't have any currency risk so that would actually well there's what's called the redenomination risk that is there is a line in the white paper that the Scottish Government kind of reserves the right to go its own way in relation to currency post independence but obviously the wish is to continue to form a currency union. If you are buying bonds then you might try to price in premium based on how realistic or unrealistic you think that that that particular statement might be. Then effectively well you as I said earlier in the paper there are a set of pension funds out there already that will be expecting to pay Scottish pension members of schemes in the future and implicitly given what I say effectively that pension wealth per person probably isn't much different in Scotland from the rest of the UK the value of those commitments is very very substantial worth much more than North Sea well worth about the same sorry about the same as North Sea oil is in the future so there is the question of how these commitments to Scottish pension scheme members in funds that are held by both Scottish and UK companies present would be paid out to those pension members in the case of their not being a currency union that just would seem to me to be an extremely difficult problem it might be that people would want to retain a sterling a sterling relationship so they just get paid in pounds and then convert convert afterwards lots of that would be much simplified if there was a currency union and I guess the question then would be well would Scottish pension companies dealing with Scottish pensioners want to buy Scottish bonds or UK bonds which are both priced and sterling and then the question is which of these would be the more attractive and it's an interesting question as to which that might be whether you have to offer premium or whether the markets take the view that Scottish bonds are more trustworthy than those of the rest of the UK that was all very interested but perhaps I better move on something a bit more straightforward but perhaps not I mean I'm interested in this most public service pensions are payers you go I take it this is the case apart from the local government when correct me if I'm wrong so what I mean what are the implications of that for the payment of pensions post independence of such a thing where to happen well the so the obligations don't change you know independence doesn't have that effect so the public sector not net debt which is what discussions about how the overall Scottish debt might be allocated doesn't include public sector pension obligations they are included in the even more isoteric whole of government accounts and I think the amount to around 85 billion so these have to these you know are commitments that one would assume are cast iron commitments and and have to be met in the future that the question is whether the capacity of the Scottish economy within the UK economy is better able to meet these commitments compared with a Scottish economy on its own and I mean I think this comes back to a point that I was making that I have made in the paper which is relevant for a number of these discussions and that is that if you're looking at the extent to which pension commitments welfare commitments and so on are a or cause problems for the economy depends really on how much these commitments are in relation to GDP so is it you know do the amount of 20% of GDP because that will tell you something about the kind of level of taxes that you're going to have to levy and or the amount of other public spending other than these commitments that you are able to make and what is critical therefore is not only the population projections a high migration low migration whatever what is absolutely critical is the GDP projections and the institute for fiscal studies and the treasury are basically making an assumption that productivity growth in the Scottish economy will continue into the future at 2.2% and if you vary that just a little downwards it's a disaster upwards it becomes relatively easy to meet the commitments to the kinds of things that we're we're discussing today so you know that the discussion in my mind seems to have focused an awful lot on on the demographic issues rather than a discussion of well will scotland's economic prospects in terms of growth be better with independence or without independence i'm not offering a view about that i'm just saying that i feel the the argument has has kind of skated over that issue which is vitally important i mean i suppose i'm partly interested in in the i suppose there seem in contradiction between pay as you go and national insurance because anflun's paper implies that there's some national insurance fund that pays for pensions but in fact that's that's a fiction is it no is it no a pay as you go pension the state pension so can i just what i was meaning by that was that the state the level of state pension that's paid to you is based on your national insurance record as opposed to national insurance fund so what it wasn't saying it was funded it was more saying that your national insurance contribution history drives the amount of pension you get paid but you also say the UK government would make i don't know what you mean by make this available you mean the information available well i think i think that there is a for me that the entitlement state pension doesn't change if somebody's paid their national insurance contributions whether it's part of the UK or but then moving into an independent scotland that that commitment remains but it's how it's it's under the government's in scotland has to deliver that yes i have to deliver on that sorry yeah so well good we're all agreed on that so um i suppose just finally going back to well not almost finally i mean it's been well discussed already but but i think i mean it sounds as if there is some an agreement on this idea of looking at pension expenditure per working age individual because it seems to me that at the end of the day um chris curry and professor bell both presented the same view on that i don't know if you have a view on that but i mean and then we're reduced to which is why we've had a long discussion about demographics because the only way that you can shift that ratio um presumably is by increasing the the working age population i mean it's it's it's it's a kind of general agreement that that is the best way in which to look at the affordability of the state pension yeah i definitely agree with that i think increasing the the working population and you know the next stage on from that is getting more and more of the younger working population to contribute to private pension which auto enrolments encouraging so in a sense a discussion about pensions very easily morphs into a discussion about immigration as we've already seen absolutely yeah yeah so i suppose the only i suppose to me it seems that certain people probably including the scotland government are actually placing too much face on immigration because there does seem to me to be a contradiction between a significantly different immigration policy and the wish to remain part of the the common travel area i mean i don't think the republic of ireland for example has a significantly different immigration policy from the rest of the uk otherwise no doubt there wouldn't be a common travel area but i don't know it probably takes you out of strictly pension territory but that's where the argument this morning seems to have proceeded i mean you know immigration to a large extent is not is not controlled net immigration is really not controllable you cannot stop people leaving if they want to leave but actually there was high levels of immigration into ireland in the 90s and early 2000s and that was mainly driven by high economic growth so you know if you have this economic growth in a sense you create opportunities for people to come to an economy that that's attractive to join so these things are not themselves even unrelated you know you can't just have a very liberal immigration policy and necessarily expect people to roll up unless there are the economic opportunities for them to to engage in work you could have differential migration from the european union or from the rest of the uk in the event of independence i mean driven just by differences in economic growth that i think that's possible sorry Chris can i do you want to comment on any of the things i've said sorry i i've been agreeing with you which is why i didn't do it well that's always good to hear it just just a final thought about the pension expenditure per working age individual that we've been looking at and we've agreed as at the moment is the best measure we think we have of looking at affordability and differences there are two ways to change it one we've just been talking about is increasing the working age population the other is changing the the level themselves of pensioner benefits or how much you pay pensioners and the relative generosity of the system but increasing the the relative size of the working age population there's two ways of doing that one is migration which we've been talking on the other one is the state pension age if you increase the state pension age you increase the working age population reduce the pensioner population so it's worth bearing in mind there are a range of different things which could be done to change that particular measure i suppose there is one final question um are there any issues about cross border pension schemes apart from the one that anflin raised in her paper and in her comment the only one to which i have no solution whatsoever is is how overseas pensions are dealt with so the dwp provides retirement pensions to um large numbers i've forgotten about a million possibly um UK pensioners who live abroad how many of these are scots and how many of them generated national insurance eligibility while in working in scotland i think might be a test too far for the national insurance record so i have no idea how that would be solved okay okay thank you gavins retent thank you michael to before by john i wanted to move on to the area of the pension protection fund i'm not sure who would be best answer i'll leave it up to yourselves i'm understanding is at the present time there are around 16 000 people in scotland who are receiving their pensions that they previously were entitled to through the pension protection fund um the highest profile case that i can think of is the water for crystal um situation that's the young fund nodding so obviously um it's something that you're aware of um in that situation my understanding is that the employees in ireland are still fighting to get their pension fund recovered but in the UK where there were employees of that company they're being paid out of this pension protection fund who would pay for a similar situation with that in an independent scotland i think it's it's it's another one of these quite complex situations but you know to date UK companies have been paying levies to the pension protection fund to fund that fund to help schemes that have gone into difficulty and pay the pensions so that's covered UK citizens so in an independent scotland the question is whether we would have a Scottish pension protection fund and collect levies from Scottish companies but there's still the argument as i mentioned earlier you've got an awful lot of UK companies that operate in the scotland so how do we then treat them in terms of protect pension protection fund do they contribute to the main UK pension protection fund and there's an allowance made for the fact that they have Scottish employees who are citizens of Scotland and need to be looked after in that sense but it is a very complex area and i think you're right that that example of what would crystal with the Irish employees they're still trying to or pensioners are still trying to get their benefits i'm acting for somebody at the moment who was a member of a Scottish DB pension scheme and they have you know in their mid 80s are being told they're having £13,000 clawed back because the scheme's gone to pension protection fund so it's certainly not an ideal organisation as it stands i would argue but yes i do agree it's it's there's a complexity here that i'm not sure we've got the right we know the solution yet my follow-up question to that then would be so what sort of level does the business tax levy come in at in relation to this what type of companies pay this what obligation do they have to pay it and is there anything in that the Scottish Government's white paper that deals with this how they would resolve those types issues i don't recall seeing detail in the Scottish white paper but yes currently i mean Scottish companies will pay a levy towards the pension protection fund through their registration with the pension's regulator i can't remember the exact levels of levy i don't know if nope it's per is it per member i think there's a there's a per capita per member kind of levy that they pay every year and that then is held by the ppf and if they they run into difficulties they then assess to see whether they can be taken into the ppf and the pension's subsequently paid did you give us a sort of ballpark figure as to how much the the pension protection fund is paying out to those 16 000 scots at the present time i'm afraid i don't know that so i'd certainly find out for you could you do it and inform us that would be helpful thank you for that michael deputy convener thanks convener covered quite a lot of ground already um just on a factual issue miss flinn on the front page of your paper you say i would argue that the existing legislation could be replicated to redefine the classifications for scotland i mean my right in thinking that if if we did get independence all existing uk legislation would still apply to the independent scotland and we don't need we wouldn't need to replicate anything in the sense of actually re-enacting legislation but it would just be if we wanted to change something we'd need to do that again i remember being a bit bold in my paper there but i i do believe having spoken to some people on the legal side that some of the primary legislation written in the UK would have to be re-enacted in scotland that is my understanding that may have changed at the point of writing that that was my understanding so for example the one i used earlier was salary sacrifice that that would have to be re-enacted in for an independent scotland i'm interested in that i don't know if the other witnesses of any view on that you don't have a view on it no it's something that you know i took part in a debate a week while ago and that was the lawyers in the debate were all advocating that that would have to be the case but as i say i don't know okay let me look at that again because i mean i think under other countries i've left the UK and have a kept the same most of the same legislation fair enough i think you just replicate it re-enact it but replicate it yeah okay well i'll leave that one just now that's fair enough um the whole this whole concept of you spend one third of your life in retirement after your age 20 so i gather if i'm correct that then if you were expected to live 60 years you'd basically 40 years working in 20 years retired where does that one third come from i can try and answer answer that one uh it's it's really based on observation of what's been happening uh in the UK over a number of years where what we found is state pension age hasn't been increasing but life expectancy has been increasing uh and whereas uh if you take it right back to the early parts of the 20th century actually living to receive a state pension was somewhat unusual uh because the state pension age was set higher than life expectancy uh we've we've obviously seen it becoming more more frequent that people are spending more and more uh or longer and longer uh relative of their their adult life uh actually in retirement as opposed to the amount of time working now uh we have done work on this in the past i'm afraid i can't remember the precise figures but actually having a third of working age is is kind of roughly where we've we've got to in terms of kind of the the situation at the moment with the state pension age changes going through at the moment in the UK uh and so the idea being really is to try and keep it at that particular level and make sure that any future uh increases in life expectancy are shared out in that particular way so if any extra year two thirds of the year would go on to the amount of time you spend working and one third of the of that extra year goes in terms of spending it in retirement uh i don't think there's any real uh detailed research behind it as to that being the ideal split between the amount of time you spend working the amount of time you spend retirement in retirement i think it's probably a function of a number of different features such as that's not far off where we are at the moment or at least have been in the in the relative past uh there are also obviously affordability issues in there that kind of the ratio between those two has a very big impact on how much you spend on pension benefits and how much you collect in national insurance and taxation is it a rough and ready figure that's kind of appeared or was there some detailed mathematical model behind it i don't think there's a detailed mathematical mathematical model i think it's just based on experience that's roughly where we are it's not therefore the UK or scotland could kind of vary it a bit 1% 2% whatever yeah completely uh that they used they don't always use the same type of ratios in other countries uh the one that springs to mind uh i think it's Denmark where they've actually set a fixed number of years in retirement as the basis for changing their state pensionary so as a consequence their state pensionary is increasing much more much more rapidly uh than it would do here i think on the basis that people should expect to spend about 14 years at the end of their life in retirement so there are different ways of looking at it so if you loved 100 you worked for your 86 kind of thing well if the average was up to 100 then their state pensionary would be 86 uh but it's expected to reach the mid 70s i think by the middle of this century okay i mean that does kind of lead me on to my next point because you know we have such a range of jobs and it's one thing for us to sit around the table and talk to each other but i mean for nurses for teachers for firemen where it's a very physical job i mean is it fair to have this a kind of across the board a theory or policy or age or whatever or should we be varying it more that's a very big philosophical question in a way but also a very important practical question uh and i think it relates partly to the conversation or the discussion we have with the convener right at the start of the session uh about that there being a fixed pension age and that obviously having different implications depending on your own particular characteristics uh your own expectation of life rather than basing it on the average because i think as you quite rightly point out there are lots of variations around the average in fact there are probably very few people who actually end up having exactly the average life expected and most people are a bubble below that uh i think one of the the rationale in having a fixed pension age is is the the simplicity of people then understanding when they're likely to to be stopping well not necessarily stopping working but able to to receive a state pension and i think it also goes back to what the rationale is for having a state pension in its kind of starkest terms the state pension is there really as an insurance against living to old age and not being able to provide for yourself uh now there have been other definitions in the past and in particular i think uh when the state pension was introduced in its current form with national insurance so the national insurance is is kind of trying to highlight the insurance element of it but has also kind of felt to be a right that i'm paying in my national insurance contributions as part of that and so i get a return on those contributions that i've paid in so i think you've highlighted a very important fact that any fixed state pension age gives different outcomes to different people uh i think the difficulty is in finding an alternative to that which would be simple enough to allow people to to have some certainty as to when they might be reaching their state pension age and be able to to claim a state pension and how they could then use that in planning their other affairs in in in levels of saving they might need to to have or how long they may or may not be able to work for i don't know miss flinn from a kind of practical point of view if you've got a view on that i mean is it just that it would really got to have a uniform system uh from a practical point of view even if you know a nurse having to lift people till she's 70 is actually in practice quite difficult yeah i think it is a significant issue for employers whether local authority or private companies they have people that are involved in physical work and the fact that we have the age discrimination legislation as well so you you can't actually make four somebody to retire either but they could be not not not good enough health to continue working but they can't get their state pension is an issue so i i actually agree with you that it would be good if we could have some variation depending on the actual occupation um and allowing you know flexibility in terms of state pension again the complexity of that and what it would cost when administrating it is the issue that we'd have to look at but i do i do advocate that i think there are people that have to finish their working lives earlier um and should be entitled to some some form of state pension at an earlier age i mean again some of the kind of bigger picture i mean we're looking very much at really what's happening now and what might happen in the future but if we look at the past as well i mean when i was growing up a lot of people worked for a company or a business and there was a pretty good or i my impression is there was a pretty good company pension scheme usually defined a benefits and my father worked his whole life for Scottish power and my mother seems to do okay of the benefit kind of thing of the pension um i mean was that a good was that a bad model that we've happily moved away from and should never think of going back to or was that a good model that actually the UK system has deteriorated from and we should try and improve either the UK or the Scottish system i mean i think it's it's it's certainly a different model and there are there are certain things which which i think we have to to bear in mind firstly although they have in the past been very good to find benefit pension schemes outside of the public sector they've never covered the majority of people in work uh even at their peak it was really probably just about 50 of the working population that were covered but that's certainly on a UK context i don't know that the Scotland specific figures in all of that but you're right where people were covered they were covered very well with which looking back now appear to be relatively generous pension schemes having said that they changed significantly during the 1970s with a number of uh regulations coming in over time to increase the security and add to the value of those benefits so for example allowing for pensions not to be eroded by inflation allowing for the provision of spouses benefits as part of that equal treatment regulations coming in as well during the 1980s which means that actually there never was a particular point in time when the system was stable enough it was always continually changing and over the past 20 30 years or so has improved the security and increased the value of the benefits in offer through those particular types of pension schemes in a lot of people now who 30 years ago would have been had a pretty good pension have now got a poorer pension in practice it means that people who had a pension 30 years ago have still got a good pension because the legislation has protected that it means that far fewer people now are being offered those types of pensions because as well as the protection increasing the cost of providing those pensions to an employer has increased as well and again I think it's it's more than doubled over that particular period in time at least again in the overall UK context and that's driven employer behaviour they have found that they are no longer able to afford to make those contributions the kind of increasing global competition has meant that there's been a real issue on labour force costs not just wages but also the additional benefits which are being paid and so it's been a transformation over a period of time and it really started probably I think as the pensions commission pointed out 15 20 years ago that kind of employers started to move away from this type of provision and to take on a provision which for them holds less risk and is potentially less expensive but shifts the risk and the cost on to the individual and that's really where we are at the moment in a UK context and also in an international context in terms of much more of the responsibility for private pensions being placed on the individual even if the employer makes a contribution they're no longer responsible for example for the investment performance they're no longer taking on the the risk of these individuals living for for a long time that's now being passed to the individual who has to deal with it so to me like the individuals getting a poorer deal now than they used to be I mean I accept not every individual but certainly some individual sorry I can see exactly where you're coming from I mean I go back long enough in this industry that I started off in what was known as final salary pensions where people actually got pension based on the salary they were earning in the last year and then saw repeated changes to legislation as Chris mentioned which layered on complexity and cost to these pensions and as a result a lot of employers stepped back from them but equally a lot of employers enjoyed what they called contribution holidays in the 1990s under advice from actuaries and you could look at that and pinpoint that as a significant turning point in the the provision of that type of benefit as well but the over complexity of legislation and regulation definitely I would say was the death knell for defined benefit pensions I think the thing that concerns me in the example I mentioned earlier is that even those that were in a good pension scheme 30 years ago if that pension scheme is now in within the PPF those people that are pensioners are actually having money clawed back from them which is quite concerning too so you know it is it's there is a switch to defined contribution provision which the onus sits on the individual and yes I agree passing that risk on to the individual is quite significant and that's where I advocate the whole engagement education piece is so important that people make the right choices and actually end up in the right place and at the moment I would say our industry isn't very good at that helping them I mean is it too simplistic to say that if people are in some kind of pooled like what used to be a company scheme or a local authority scheme where it's pooled and the risk is pooled that's generally going to be better for the individual than if they just have their individual pot we've moved to a very individualistic system haven't we yeah I mean it is a very individual system at the moment although you if you lift the lid on it a lot of people invest in the same fund so there is a level of pooling to some extent already what I think the latest reform proposals are is to make that a more overt pooling of risk which does make it safer but you also then can you run the risk of the with profits sort of phenomenon where you've got people that are benefiting and being cross subsidised by others within that pool so it has downsides as well okay professible you make the point about you know what's funded and what's unfunded and if I'm reading your paper correctly the scotish local government is considerably better funded I mean you're showing 25 billion is it of assets I think and 78 billion in the UK so that's we've got about a third of all the local government assets which is quite a tenor back to actually see that I mean does it actually well is that the case maybe and I mean it does it matter whether we're doing funded schemes or a unfunded schemes going forward I mean the UK obviously has this mixture do we just live with that or should we be changing that not an easy thing to change because to go to a funded scheme from an unfunded schemes really really difficult the question is I mean who is who's bearing the costs of this so with the pay as you go type arrangement it's got current employees and employers are paying the pensions of those who are currently receiving pensions whereas with the funded schemes these pensioners have made contributions in the past which when invested have generated a fund that broadly perhaps with some support from the taxpayer effectively repays their contributions so I mean in general funded schemes are to be recommended but of course you know what is the you've got to think about what are the returns on the invested funds we've lived through a period where where for example interest rates have been very low so funds invested haven't in cash or near cash have not done that well so it's a bit of it is a bit of a trade-off but certainly the UK turns out to be one of the countries that has done most towards funding early on in my paper I say that the UK has the largest second largest pension asset set of pension asset funds in the world following only the US so there is a considerable level of saving that's effectively what it is by the UK population and Scottish population obviously in pension funds which will generate future income in the case of the Scottish local authority pension funds were better funded as a percentage of the liabilities than the English ones where I don't know if you can confirm if that's still the case or I'm not sure what the current position is and the final area I wanted to touch on was the whole thing about you know equality rich and poor and so on I mean I think again your paper professor Bell says that 55 percent of people in Scotland are saving adequately which sounds like good news I'm a bit worried about the 45 percent that aren't saving adequately I mean where is UK current pension policy going is it is it helping the people at the bottom or is it are we actually moving towards the people who have both finances income and financial education to do better for themselves while the people at the bottom get left behind I'm sure my colleagues will have views on that I mean the utter enrolment is a major innovation it seems to me and bringing people into the pensions the ambit of having an investment in a pension than was previously the case so that helps the relatively poorly paid to some extent it does seem to me and going back to previous questions that the at the bottom of the income distribution where people through globalization through technical change for whatever reason are not earning very high levels of salary so it reflects the level of inequality that exists within Scotland and within the UK as a whole that that group are unlikely to be able to save sufficiently to be able to have an adequate type pension post retirement and that they therefore will be dependent on state pension and other and other benefits and it shouldn't forget actually that in terms of benefits the past 10 15 years has seen the kind of balance of DWP spending move more and more towards pensioner benefits and away from working age benefits so it tends to be working age benefits that are really being squeezed whereas things like pensions so for example working age benefits fall within the benefits cap which the Chancellor has recently talked about whereas benefits for older people have tended to increase and things like the triple lock which some view as unaffordable will protect those relatively poor pensioners who maybe haven't had the opportunity to to save during their working lives at least post retirement yeah I understand you saying there's been a bit bit of a move towards pensioners as a whole so I don't the other two witnesses could comment on that I mean do you see present pension policy in the UK would mean a widening gap between those that have and those that don't for me what I've observed in the past year two years is there's a specific group and I'm one of them and there's not many of us in the room but women in particular within the auto enrolment regulations it's quite interesting because it's mainly women that are part-time workers they're on lower salaries and they quite often fall below the earnings benchmark for auto enrolment so then they're not they're not participating in that saving so and you know there are employers obliged to offer them to join if they want to but without that element of compulsion and being brought in and this sort of just happening to them so I genuinely have a concern that we're going to see a growing problem with women who work part-time take career breaks etc still having big gaps in pension provision I'm not exactly sure of the the solution but I definitely think employers should be asked to consider if somebody's falling below a certain earnings level the employer should be asked to consider actually contributing on their behalf to at least get them started in the savings pattern but you know that that's that's an issue that's close to my heart at the moment having witnessed a number of large employers auto enrolling their staff and seeing the majority of exclusions being women just to put it in context I think that pensioner poverty in the UK as a whole has dropped significantly in the past 15 years or so initially mainly as a consequence of the pension credit and helping people who hadn't done very well from either the state pension system or the private pension system in the UK pension credit was very good at bringing them up to at least the kind of level of pensioner poverty which is very close incidentally to the current guarantee credit level so I think also the single-tier pension being introduced and having that set above the guarantee credit level is also likely to maintain that kind of poverty prevention part of the UK pension system and I think if you look at who really loses out most from the introduction of a single-tier pension it would be people who are relatively consistent high owners through their working life who would have built up very high second-tier pensions so I think you can see the the the thrust of policy at least in state pension terms is to focus resources among people who among the lower earners I think to make sure they stay out of poverty and really to give everybody a flat base now from that you can see that if what you're trying to achieve is everybody having a relatively good standard living in retirement related to the standard living they had while they were working you actually get the lower earners much closer to that through this single-tier state pension policy than through the continuation of the previous policy I think it's right there there are that I think both as Ann and David have alluded to there are gaps in that and I think interesting it's probably not the very low earners who are likely to find it hardest to get a decent income in retirement it's probably people just above that work that we've done suggests they need to save more than the minimum eight percent of banned earnings contributions in order to have an adequate retirement income and interesting the higher your earnings are the higher the contribution is you need to make in order to do that because the flat rate pension doesn't reward those higher earners anymore in the same way that the the previous system did but actually the higher earners probably more likely to be able to afford that it's probably people kind of not on low earnings but on high earnings in the middle who will probably struggle to be able to make the additional contributions they need won't be able to build up other forms of saving that they can rely on in retirement and so may have to find other ways and may potentially it could be households where there's a couple where one person is automatic enrolled if one partner is working part-time it isn't automatic enrolled and that ends up in potentially reducing the amount they have saved so I would say it is focused on keeping low earners out of poverty but there may be more to be done for people just above that level in order to make sure they can have a decent retirement income okay thanks so much thank you two quick questions really one is the relationship between national insurance contribution and pensions being paid out I mean is there in fact no relationship there at all I mean we talk about people being able to contribute some people of course contribute more to NIC than the maximum limit in order to achieve their pension because they work longer but other people are invited sometimes to pay they're behind by £3.50 or something but in fact is that all a bit of a myth there's no fun there you know that there are issues around eligibility but I mean what we've now got and the IFS has criticised this is an income tax and all but name for national insurance and politicians that are unwilling really to raise the headline rate of income tax but are willing to make adjustments to national insurance and whereas you might attempt to simplify the way that income tax has been or is being set by say making the personal allowance £10,000 which is part of UK government policy the national insurance system for the on the individual side indeed for the employer side is is very complicated and you would hope actually that someone whether it's an independent Scotland or or the UK government might find a way of of trying to stop this charade that that this is in some sense a contribution towards your national insurance but rather that this is part of your overall income tax liability and that would be something that small employers would welcome enormously if it would make their life much easier than dealing with two different deductions of tax I think that's true I mean I think politicians underestimate how concerned smaller employers are about all of these issues including the both national insurance and income tax and can I ask you about any observations on companies that register overseas and therefore are ineligible to pay national insurance contributions and who employ people in this country I'm not quite sure what category of company you're thinking about but I mean there have been some well publicised examples in recent months where issues around eligibility for kind of local taxation has come up and it seems to me that the only way to solve that has to be cross-national there has to be an agreement that tax havens or jurisdictions in which which are being used effectively to create what might seem to most people fictional transactions are outlawed in some way or another but I'm not a tax expert so I can't tell you how that might happen no sorry and um I guess finally it's just it it it does seem that um in an independent Scotland there might be um difficult as it may be but there it seems to me that there's a real opportunity to redesign the tax system to first of all perhaps counter some of these defects that exist and to to make it much simpler in spite of the complications that are that are referred to in various papers about extracting responsibilities and the current practices from the UK system but the system isn't working particularly well would you agree that there's that there's an opportunity that exists as well as the complications that clearly are there inherent in that clearly there are difficulties around the structure of taxation at the moment and I would recommend people to read the Merleys report which is a bit technical but the produced by the institute for fiscal studies which looks at the UK tax system and points out some of the difficulties things like the taxation of property which is rather strange and also the way in which it sets up incentives for for individuals and companies to take actions which are maybe about taxation rather than the economic benefit of the country the only thing I well so that in principle is available the only thing I would say is that clearly it couldn't happen in the short term and that it would inevitably there would be transitional costs to move from a system that we currently have to one which is radically radically different and you have to bear in mind too that a redesigned system also has to pay attention to not only the kind of incentives that are set up within the Scottish economy but also any incentives that might affect for example migration between Scotland and the rest of the UK if it looked like taxes were advantageously designed in Scotland you might get large numbers of people coming to Scotland which might or might not be a good thing or the flow could be the other way so what I guess I'm saying is that yes in principle a redesigned tax system might be a good idea there would undoubtedly be transitional costs and you would finally have to pay attention to the kind of tax regime that was in operation in your close neighbors okay thank you that has concluded questions from the curriculum a couple of short questions for Professor Bell specifically and it's just that in your paper funding pensions in Scotland would independence matter published in February 2014 he pointed out of course as we've already discussed that the UK government has no plans to vary pensions by country you know the state pension age but you said in that that this was actually unfair to Scotland so do you think actually that we should have the ability to settle in state pension age in Scotland so this I mean goes back to a question I think that was asked of Chris I mean so in an ideal well I don't know whether it would be an ideal world but what you'd like to do is you might like to do is to design pensions so that in effect everyone got an individual assessment of their life expectancy and paid contributions accordingly so that would have to take in a huge amount of issues now I've asked you a pretty straightforward question I was hoping for a pretty straightforward answer well I mean so you could vary it by location so but then would there be a question of should actually the state pension age be different within Scotland because as Chris said I suspect that given current statistics it should be much greater in Orkney than it is in Glasgow there are other factors that determine life expectancy ethnicity is a factor that does tend to be reflected in differences in mortality rates you could certainly you can make this case but it doesn't seem to me to be an overwhelming case because there are ways in which you could equally argue that that you could vary the state retirement age other than simply by territory within the UK so that's my ducking and diving Did you say it was actuarial and unfair to Scotland? Well in a sense it is because what an actuary would do is to is to look at everyone's individual circumstances and design a pension that was appropriate for that person if there were a smoker then maybe a more generous pension would be available than if there were a non-smoker and so on so the statement was correct the question is you know would that be a desirable policy overall or is it simpler to have people just know that in relation to my working life this is is is where when I can expect to get to receive a state pension okay just one final point basically I mean you've done a lot of work on demographic challenges and we've talked about demography quite a lot here obviously and Scotland doesn't really have a lot of the tools in order to address those issues you know whether it's immigration, fiscal incentives etc I mean if Scotland can't tackle these issues directly can you see the ageing population situation relative to the rest of the UK getting worse in Scotland? The currently the demographic projections taken at face value would suggest that Scotland would have a relatively more well would be devoting a higher proportion of its GDP to the support of older people that essentially is the institute for fiscal studies case there's a raft of assumptions that many of which we've discussed many of which are contestable around that so at face value it's two one of the things that I wonder and I've mentioned before is that if you look at Europe in terms of the challenges faced by an ageing population that yeah the UK is actually in the most favourable position in in Europe along with Ireland Germany Italy Greece are going to face much much greater challenges and so the long run projections say for the German economy are actually fairly poor on the basis that by 2040 I think it is there will be for every working pension there will be half a pensioner in Scotland you know in terms of European Union countries if you look at the other European Union countries we'd be in the the better half rather than the bottom half in terms of graphic projections okay we'll leave it at that okay well thank you very much actually I'd like to thank our witnesses for the evidence that they've given today it was very helpful I'd also like to thank colleagues for their questions we decided earlier on that we take the next two items in private therefore I'd like to close the public session and have a couple of minutes of a break in order to allow the official report and the witnesses to leave