 Good morning and welcome to the 21st meeting in 2023 of the Finance and Public Administration Committee. I hope that everyone has a good summer recess. We have received apologies this morning from Michelle Thomson. Before we start, I want to thank those who participated actively in a pre-budget scrutiny event last week in Llargs and indeed the following day that we had in West Kilbride. I know members who are lively and interested in discussions with local people, organisations of businesses about their priorities for the Scottish budget, which will help us with a pre-budget scrutiny. We will publish a summary note of discussions on our website in due course. I also wish to record a thanks to Douglas Lumson for all his hard work in supporting the committee's scrutiny, and I am pleased to welcome Jamie Halcro Johnston as a new member of the committee. We are also joined today by Gordon MacDonald, who is attending the meeting, a substitute member in Michelle's absence. I invite Jamie Halcro Johnston and Gordon to declare any relevant interests. Thank you very much, convener. My only interest that I think might be of relevance is that I am a partner in a farming business and I have a number of shares in nitrogen and in standard life. Thank you, Gordon. Thanks, convener. I have got no relevant interest to declare. Okay, thank you very much. The next item on our agenda is an evidence session with the Scottish Fiscal Commission on the Forecast Evaluation Report and Paper on Productivity and Fiscal Sustainability, both published on 29 August. I would like to welcome to the meeting Professor Graham Roy, chair, Professor Francis Breeden, commissioner and Claire Murdoch, head of fiscal sustainability and public funding at the Scottish Fiscal Commission. I intend to allow it up to 75 minutes for this session. Before we open up to questions from the committee, I invite Professor Roy to make a short opening statement. Good morning, and thank you for inviting us to give evidence on our latest forecast evaluation report and our paper on productivity and fiscal sustainability. Forecast evaluation is an important part of how we work as an organisation and our forecaster on the essential part of the budget and by evaluating those forecasts we aim to improve transparency and confidence in that process. I would like to start by talking about income tax, for which we now have outturned data for 2021-22. Looking at our budget setting forecast for that year made in January 2021, we see a significant underestimate of the outturned data by around 12 per cent or £1.5 billion. Importantly, for the Scottish budget, there was a similar scale and direction of error in the BGA based on forecasts by the Office for Budget Responsibility. What caused this underestimate? It is partly a good news story. The early 2021 lockdown was not as severe or as long as many feared, and the economy and labour market recovered more rapidly than many people had anticipated. Because of the rapid global recovery in 2021, inflation also started to rise, pushing up nominal incomes. Another factor that we have seen is strong growth in tax revenues in the top end of the income distribution in Scotland, particularly among those paying tax via self-assessment. As the financial year 2021-22 progressed, we published updated estimates of Scottish income tax revenues in that year. For that, rather than relying on revising our economy forecasts, we used data called real-time information, or RTI, on PAYE collections from HMRC, to incrementally update our forecasts. By December 2022, our estimates for that year were based upon complete RTI tax data. RTI data helped to inform our upward revision of estimates of Scottish income tax as the year progressed and as the economy opened back up. However, you will call that when we met in June, we were discussing a potential reconciliation of £712 million based upon a comparison of the latest estimates in those of the OBR. We now have a near final reconciliation figure for 2021-22 of £390 million based on out-turn data. The difference between the two elements is explained by two factors. First, the out-turn data was stronger than suggested by the RTI data, and second, there were highly unexpected Scottish income tax revenues at the top end of the income distribution, particularly through self-assessment. We continue to see RTI as a helpful tool for monitoring income tax revenues in the year, and it is something that we continue to look at to see what options are to improve accuracy and to communicate the range of uncertainties that we face. I now turn briefly to some of our other forecasts. Land and building transaction tax revenues of £848 million was £99 million higher than forecast for 2022-2023, an error of 13 per cent. Residential properties saw faster pricing growth, and there were more high-value transactions in forecast. Spending and devolso security in 2022-2023 was £4.2 billion, £127 million or 3 per cent higher than forecast. This was a result of higher spending on disability payments and post-budget policy announcements by the Scottish Government. We might come on to this in discussion, but a higher part of that spending on disability payments appears to be UK-wide trends. The Scottish and UK Governments recently published a joint communique following the fiscal framework review. Both Governments support this committee's recommendation. We publish frequent, full and supplementary fiscal sustainability reports, and I am pleased to say that we will now be developing that work over the coming months. Finally, last week, we published a paper exploring how changes to productivity growth would affect projections made in our fiscal sustainability report. We concluded that even though higher productivity growth leads to faster economic growth, higher wage growth and likely better public services for people of Scotland, on its own it does not necessarily translate into a more sustainable fiscal position. Improvements in fiscal sustainability are likely to require changes not just in the economy but in public spending and tax policy, too. Thank you very much for that, Professor Roy. Obviously, I will kick off the questions and then we will open up to members on the committee. I will start with the issue that you just touched on. I will not quote the full paragraph of what you have said, but what you have said here is that, while higher productivity growth has a clear positive effect on the economy, the net effects on the public finances are complicated, and to improve fiscal sustainability will require changes in public spending or tax policy. Professor Bowie has talked about this last week at a wayday, but I would be quite interested if you could explain the reasoning for the fact that increased productivity might not actually reduce sustainability gap, because I think that it is quite crucial to deliberations as we move forward. I think that it is important to get it on the record, so that is the first thing to explain the reasoning. The second is the kind of changes that would be required to close that gap, even in a situation in which we have increasing productivity. I will kick off and then my colleagues will probably want to come in. The first important point to make is that faster productivity growth improves the economy of Scotland overall and therefore leads to potential better public services. However, when we think about it from a fiscal context, in a public finance context, there are certain different factors that are going on here. Faster productivity growth leads to higher wages, which therefore leads to higher revenues, and that is a positive effect on the public finances. On the other hand, faster productivity growth leads to a higher and a faster growing and bigger economy. What you then assume about what happens to public services in that context is crucial. The assumption that we make, which is the same as the OBR, is that public services maintain the same share of the economy as the economy continues to grow. As the economy gets bigger, the relative share of public services increases in line with that. There are good reasons for that. If you think about wages, for example, if wages in the economy are growing at 3, 4 or 5 per cent, you would expect public service wages to be growing at the same rate to keep pace without having a gap between the two. What happens is that you have two effects going on here. You have faster revenue growth and faster spending growth. In a devolved context, in a Scottish context, you have the proportion of revenues from income tax, non-domestic rates and council tax, which are a smaller proportion in the overall spending envelope. You have two elements growing here. You have one element, which is the larger public spending element, growing by the faster growth and productivity, and you get revenues growing at the same rate, but one is smaller than the other. That is why the gap opens up and productivity does not necessarily lead to an improvement in the fiscal position. What is crucial is what you do about the benefits of faster productivity. Do you choose to increase spending by the same amount or do you cruise to increase it by less? That is ultimately a policy choice. That comes back to our conclusion, which is that you would need to make a conscious decision to change the relative share of public spending in the economy or make a decision on taxation or on how much growth you are translating through to the public finances over time. You are absolutely right. It is, of course, a policy choice. I am not asking you to make those policy choices because, of course, you would demurr it if I did. However, it is quite interesting that you have touched on the situation of the current devolution arrangements and you have said that we either would have to change public spending and tax policies. What would we have to change to bring the finances into long-term sustainability? That comes back to what we said in our fiscal sustainability report. Ultimately, fiscal sustainability, in this context that we have looked at so far, is saying that, essentially, the amount of spending that you have is running ahead of the funding that will likely be available driven by the pressures on demographics and rising costs in key services. Ultimately, it is going to be a combination of everything. It is going to be a combination of improvements in the economy leading to better quality of public services, which might mean that you can make some savings in public services over time. Secondly, it is about choices about what to prioritise in some areas over the other. That does not necessarily mean that cutting expenditures are trying to reduce service, but it could mean, for example, as we have spoken about before, shift to prevention, to try and reduce the long-term spend per head on healthcare over someone's lifetime. Or ultimately, it is going to have a conversation about what you do around taxation. Where might you potentially look to increase the amount that you are raising in the economy in order to spend on public services? One point that I would say that, again, is really important in all of this, is that, as we have said before, the challenges that we are talking about here are not unique to Scotland. Some of the things that that comes through is how that interacts with the fiscal framework and the decisions at the UK level. If the UK had faster productivity, then we would get more money coming through the block grant. If Scotland was to have faster productivity and the UK was to have faster productivity, we would get more funding coming through as a result of that. At the same time, there would be pressures at a UK level in order to keep public spending rising in the same shares of the economy. There are lots of different moving parts. Ultimately, what we conclude is that it cannot just be seen as being purely an economy solution or purely a public spending solution or purely a tax solution. It has got to be a combination of all three elements. Obviously, if the economy improves, one would expect that there would be fewer people dependent on public services. If people's health improves, that would also have the same impact. Exactly. What we are talking about here is purely from a public finance perspective and numerical basis. Clearly, if we have faster productivity and we are investing that in public services, public services will be better. That will lead to higher quality public services and improved outcomes. What we are saying is that, if we do that, that means that spending will increase. Therefore, it does not automatically mean that we are going to reduce the fiscal sustainability. I do not want to create the impression that faster productivity is not a good thing for public services, but, unless you take a conscious decision not to pass the benefits of that on to public services, you are not going to close the fiscal sustainability gap. That is pretty clear. Colleagues can ask further questions on that, if they so wish. I will move on into more detail on the forecast evaluation report. On page 19, you said that the top-rate taxpayers have increased in number from 14,700 to 18,000. In page 46, you said that tax revenues from top-rate taxpayers have recently fallen in the past two years. Why is that, if there is a significant increase in them, why the revenues have fallen, given the fact that we are in an inflationary position? On page 46, I think that one general point that I would like to make first of all is that one of the things that we surprised on the upside with the forecast is the growth in top-rate taxpayers in Scotland. At the really high end of the tax distribution, that was higher than was essentially being reported through the PUA, what we thought we would get. That offsets a fall that we have seen in previous years, so the growth rate on that has been less over the preceding years. What we have is just for the one year, for 2021-22, that there is an increased back. I think that we have spoken in the past about 13,000, 14,000 higher-rate taxpayers in Scotland, and now it is up to 18,000. There is a chart on page 47 where we see in the two preceding years the top rate of tax people falling and an increase this year. We have an increase this year, but it comes in the back of relatively weaker growth in the preceding couple of years. Right. The revenue from that group is not decreasing then. The reason I was asking the question is that there seemed to be a contradiction between what was being said on page in 1946, where one talks about... On page 46, we are saying that the tax revenues paid by the top band fell have fallen in two years, not in the last year. The tax revenues paid by the top band fell from the previous year in 1920 and 2021, but the year that we are now evaluating, which is 21-22, the revenues paid by the top band increased significantly. I touch on this because there are 0.7 per cent of taxpayers, about 1.6 of income tax comes from them. Throughout the document, you made a point of talking about the volatility of that specific group. I think that there is an issue there that we have to keep an eye on. I think that another point from your report, which again comes through quite strongly on a number of occasions, is self-assessment. If we look at the graph on page 21, it is quite astonishing when we look at the jump in the out-term figures for self-assessment, you know which far exceed any others. I am just wondering if, for the record, you can explain that a little bit. Before we get going on to that, if I could come back to the general point that you made first of all about the importance of the higher rate and the top rate taxpayers, the nature of the income tax system is absolutely crucial for the revenues that are raised because of the progressivity of the tax system. Small changes in the top rate, the number of people in that top rate or small changes in their earnings, have significant impacts on tax revenues. That is why that forecast in there, we do our best to estimate the number of taxpayers and the changes in there, but very small percentage variations potentially lead to significant swings in income tax. To give you that, there is a figure there, I think, on page 46. We talk about the top rate of taxpayers. The 18,000 top rate of taxpayers equivalent to about £2.5 billion in there, so you change the small numbers of percentage and you can get large swings there. That gets on to the point about self-assessment, because all top rate taxpayers will be earning above £100,000 and people with complex tax affairs pay through the self-assessment system. Even at a UK level, it is the most volatile element of the tax system. It is a bit that is subject to the greatest change because it reflects a whole manner of different factors between adjustments for previous years, sources of incomes, classifications and so on. It is the hardest bit to forecast at a UK level, but a Scottish level is even harder because of the data that we have on that. The first bit is that we do not get any self-assessment data until the January after the end of the tax year, so we can look at things like PAYE and track that through the year, but you will not have any idea about self-assessment until the end of the January following year. What HMRC says is that many people pay the self-assessment returns in the January, so you have really got to wait until the end to get to that. The second point is that the quality of the data and information that we have about Scottish self-assessment is really quite weak. It is probably the biggest gap that we have in the income tax system. We do not have, for example, original self-assessment data across the UK. That reflects some of the complexities about tax individuals. PAYE is quite obvious because you have your employer, your employee and it is quite a simple mechanical transaction. Self-assessment is much more difficult to pin down. Self-assessment has always been the bit that is the greatest unknown in our forecast. When you have years, as you mentioned on page 21, where you have 20 per cent growth in self-assessment, that is very difficult for us to forecast, and that is why the margin of error becomes much greater overall. In the annex, in page 26, you have said that the variation in tax revenue generated by the highest earners is likely to continue to be so significant and certain to in forecast error with very limited data available on that group. You have said that the future HMRC's MTD project may improve the situation. To continue to approve a forecast, we will focus on better understanding what determines changes in tax revenues of the highest earners. That goes back to page 3, where you mentioned points for improvement in the annex. I take it that is one of the areas. What specifically are you going to be able to do given the kind of positive data to try to improve forecasting for this volatile data? I would not underestimate that it is difficult. We are speaking to HMRC about what more information we can get around self-assessment, but also in the PAYE data and how that relates through. I would caution that the nature of self-assessment means that it is quite difficult to get the data on a Scottish context. Even then, small variations in what we can get will lead to big swings in it. The third bit is that we can be as transparent as possible and be really quite clear about the range of uncertainty and the range of availability that could exist with those forecasts. We have now got some data points about just showing how volatile self-assessment could be. We have now got a number of years of that data, so we can then factor that into our forecast and say that the potential for variability in here is quite good. To give an example of the potential variability, when we were looking at the PAYE real-time information, administrative data being tracked by HMRC to show PAYE income in Scotland was picking up around about 12 per cent growth in incomes. Self-assessment is 20 per cent growth, so it is very difficult for us to think whether it could be 20 per cent or 2 per cent next year. That is the volatility that we need to get a better handle on, not just in terms of doing our best to estimate it but in doing our best to communicate that it is quite volatile. That has implications for how the Government plans its budget and the potential scale of the reconciliations that come out from the forecast being different from outturn. I think that it is worth adding that this big self-assessment has happened, and even in retrospect, we do not really understand why it has happened. We can sort of at the edges improve our forecast of this area, but I think that this is going to be an area that will always, as Graham says, we really just have to manage the volatility that this is a very difficult area of tax to get a handle on. Indeed, the OBR, with a longer history of doing it with more data, finds it extremely challenging, too. I think that we have to live with this double problem with the self-assessment, which is that it is very volatile, and it is pretty much the last bit of data that we get. It is always going to have the potential to surprise us right at the end of the process. Just one more question for me, and then we will put up two colleagues around the table next with regard to your annex B, paragraph 8 and 9. You say that Scotland's lagging earnings growth in 2016-17 has been exacerbated by much stronger earnings growth than financial services sector in London and the south-east. You go on to talk about Scottish employment being linked to the North Sea, has fallen low in the average participation rate in Scotland. Those jobs were generally high-paying, which has likely contributed to the divergence in average earnings between Scotland and the UK. What kind of pace are we talking about? What is the decline in overall earnings that is coming from that sector relative to the rest of Scotland? Obviously, that is quite fundamental for the green transition process that we are trying to undergo at this time. We can get to the updated numbers. We had a box in the last December's forecast, where we had a bit of analysis about trends in employment and income in the north-east, and you see that diverging. We can send an update on that to the committee. What that shows is far less employment growth than in the rest of the country and far slower earnings growth than in the rest of the country. Again, that comes back to the point about why that is important for the forecasts is because of the progressive nature of income tax, people with high earnings, and that tends to be an oil and gas for reasons around it's a difficult place to work, it's high profits, there's risks to it, then it leads to high incomes. If that doesn't grow or you lose jobs there, then that has a disproportionate impact on the tax revenues, and that's one of the factors that we see about opening up the gap between Scotland and the rest of the UK. Key is then, from a policy perspective, to think about how you transition those high-paying jobs that we know will disappear in the next few decades as oil and gas transitions into other high-paying jobs in other sectors, including in renewables, but in broader sectors of the economy in order to offset those differences in earnings, because the fiscal framework what matters is that relative growth in earnings. I should say that despite the coming out of the pandemic and the Ukraine war and the cost of living crisis and the inflation, to have a GDP forecast of 0.2 per cent is quite remarkable. I know that there's been one or two areas in that where it's been quite high, but I still think that it's a pretty excellent job that the Scottish Fiscal Commission has done. I'm now going to open up to colleagues in the first to ask questions will be Ross to follow by Liz. Thanks, convener. Just as a point of clarification in the first instance on the self-assessment data for Scotland, you mentioned that there's not enough data. Is that unique to the Scottish self-assessment data or is it a UK-wide issue and it just matters more to us because of scale and also how our public finances work? There's a couple of things. So self-assessment is always difficult to forecast even at a UK level, so it's a bit that the OBR would tell you that it's one of the most difficult elements for them to forecast. It doesn't matter as much to them because it's one element of income tax amongst a whole multitude of other taxes. For the Scottish Fiscal Framework, it's a key element of the one big tax that we have. If they were having forecast errors of 15, 20 per cent in self-assessment, it would just get washed up with everything else in it, whereas it matters here in the context for Scotland more. Then there's an extra element, which is that at a UK level identifying the location of self-assessment taxpayers is just that much more difficult to pin it down than it is under the PEY system, where you've got an employer and an employee residence. It's very simple. The self-assessment is just much more difficult to do and we don't get it until late. It's the combination of all those factors that make it difficult to forecast on self-assessment. One more thing is just to add to that. We're forecasting based on when the tax is due, so when people earn that self-assessment income. At the UK level, they're slightly more worried about when the cash is coming in. That difference also means that they're getting real-time information on how much self-assessment is being paid in that financial year. That's ultimately what the UK Government cares about in terms of managing their budget, managing their borrowing, whereas the way that the Scottish Government has to manage its budget, we're concerned a lot more about when the tax was liable, not when it was actually paid to HMRC. You mentioned that you've been speaking to the Treasury about this, and we can ask the Minister this, or any of the Ministers this when they come to give evidence, but are you aware of Scottish Government has engaged with Treasury on these points as well? I wouldn't know that. From our perspective, we do it from a purely technical point of view, so we're dealing it with the analysts and officials to try and get their insights, because they've been doing this for much longer, so trying to get their insights about what's the quality of the information, what's the quality of the data. Our forecast in May was surprising the downside, so the outturned data was higher, but so was the OBR, so the OBR forecast for Scottish Inca that was the same thing, so this is something that we're all trying to wrestle with to get a better understanding about the drivers of the flows. Let's say that the self-assessment data itself, I don't think it's going to change that. I think that the sort of data we're looking for is other indicators that will give us a clue as to what the self-assessment data will be, and that's the sort of thing where more data is coming, because the RTI is expanding in the range of stuff that we're getting from it. Secondly, and I think that we struggle across all our forecasts, and this is true in the forecast evaluation, we still have a very short history of data to work with, so when you're trying to do statistical analysis to find out what the issues are, five observations are simply not enough to give you a lot of that, so just a passage of time will help to improve the way we do this. On a somewhat similar point about the challenges of the short period in which we're doing this, I'm going to ask the same question that I ask every year at this point around the work that you do looking back at the behaviour change estimations related specifically to changes to income tax. We started making significant variations from 2018 onwards, given that we're now getting somewhat further away from that point, and recognising that it's very hard to disaggregate that from all the other changes that may result in a change in the revenue that's eventually raised. Do you have any further observations about whether your estimations around behaviour change related to income tax rises have borne out or not? One thing that we are talking about and looking to do is, we've now got more data points, is that can we actually start to look at some of the data that's being collected to try and see if we can see patterns of behaviours and change there? It still is quite early and you'll probably be fed up with me answering that question of you all the time, but we will start to get information where we can see potentially changes in things like categories within the PY system, like earnings, resonance, et cetera, but it will be very subtle. That's the point. One of the things that we've talked about is behavioural change. A lot of the time people think that behavioural change is being quite the obvious behavioural change that, if you put up tax, then you leave or you cut tax, you come in. Actually, the behavioural change that we're talking about is really subtle, so it's about people changing their earnings, people changing how much hours they work at the margin, or changing their classification between non-savings and non-dividend income, and dividend income is very marginal, so it means that it will need longer data to wait and see what happens in all of that. That's all from me for now. Professor Rourke, can I just come back to an answer that you gave to the convener in the first instance about this very important issue about the increase in public spending and tax revenues. You set out the fact that increasing productivity is all very good, but there are issues about the rate of change in the public spending commitment, as well as the rate of change in tax, because that's what's going to be crucial. Can I just relate that to a comment that David Bell said, and I quote, Nevertheless, given the potential consequences of widening fiscal gap on the ability to provide public services, it is important that as full and understanding of the causes of change in demand for public services and changes in tax revenues can be available to the Scottish Government. How easy is it to get the necessary data to understand what is causing the changes in demand for public services, because that's obviously critical to policy decision making? Did we clear what we do in our report is that we essentially take the existing demand for public services and the existing usage of public services and then push it forward with the changes in population? We don't make a judgment in our report about changes in drivers of demand within all of that. We just say that this is essentially your entitlement and this is how much we spend in healthcare at this moment in time, age the population, what's the additional increases in public expenditure. We don't make a judgment call about demand for that, but the point and the quote that you mentioned from Professor Bell starts to get to the heart of what you then potentially do about that, because you can continue to have the same amount of public expenditure, but you're shifting the balance within that, so you're changing the drivers of the demand in there. Examples would be around that we have a high amount of healthcare expenditure and that we just push that forward. A lot of that healthcare expenditure at the moment is on corrective surgeries or on addressing ill health. If you can then change that to be more about preventative and reducing those demands over time, then that will change how much money you would then put into the healthcare budget over the longer term. That's the sort of area where you can then make choices about how much you spend, but then how do you change what you choose to spend that money on? That could either come through discretionary choices to shift balances of expenditure or by changing the demand that you're having on those services, which is the point that David Bell is making. I'm just interested in this because, as you rightly said just now, this is all about getting to the heart of what makes policy making. I fully understand the Scottish Fiscal Commission's role in this that you're very much involved in the sort of statistical analysis of a quantitative basis projecting demographic trends and how that population is changing. What actually matters to policy makers is whether there are trends within those demographic changes that are leading to changes in demand, and actually that's the crucial thing for the Scottish Government. Is it possible from the work that you do over a period of years to isolate some trends of that change in demand, or is that something that you wouldn't do in the Fiscal Commission? We've done it to an extent in the sense that in individual portfolio components we change the demand. For example, in our projections, we reduce expenditure on education as a share because we've got fewer young people and we increase it on health because we've got more older people, so we've done that. The question is, can we then perhaps go a level below that and say, within the components that we are making, an assumption that the average spend on health increases as we get older, can we potentially look at, within that, other different elements that you could use to see if you have higher proportions of degenerative diseases or if you can change the margin and potentially that's an area that you could look at? One of the areas that we've spoken about in the fiscal sustainability consultation that we did was one of the areas that we could look at is health inequalities, for example, and what might be driving that, leading to higher demands over time. If you were to change that, what would the effects be? Drilling into that, those elements are one thing that you could do. I'm asking the question because, obviously, during the last session we had a number of witnesses with people who are in the public sector and we've been, as a committee, asking what can we do to progress public sector reform. The answer to that actually depends on some of the stuff that you're saying just now because it is the future demand for some of the public services that is absolutely critical for the Scottish Government to make sensible policy announcements as to where that demand is going to increase and when it's going to fall. I'm just anxious to know if we think that we have the right data to be able to get to that set of information so that the Scottish Government and the committee are able to make sensible policy suggestions. It's something that we can definitely have a look at and see what we would do around our projections around individual components of that. The key point that I think I would make is that what our analysis shows essentially is that if you're trying to make adjustment on the spending side, you essentially need to reduce spending per head over the life cycle of someone demanding healthcare services. If you don't do that, then if we all just demand at the same level, then if you become older, that will increase expenditure. How can you shift into things like prevention and the like, which gets into some challenges about how you do, how you prioritise all of that? It's one area that we could potentially look at around doing a deeper dive into something like healthcare and looking at the different components of within that health budget and about what might happen if you project forward in particular elements within there. Again, we'd want to be quite careful. We're not making choices about health policy, et cetera, but can you decompose the elements of health into some that are particularly tied to demographics or particularly tied to any of those? I absolutely understand the point that you're making. It's not your job to suggest the policies. It's just to be effective on policy making, you need the right data. If you go back to your sustainability report that you've projected over 50 years, the increase in health spending, in social care spending and in social security spending are all big asks. It's helpful to understand just exactly what the demand is composed of and whether there are other areas of public sector spending where there might be a little bit more scope for efficiencies. That's a dilemma that faces this committee. When we're thinking about doing our update, potentially write a bit more about what are the individual components underneath those portfolios. In some areas, like education, it's relatively simple. It's high schools, universities, colleges, primary schools, nursery, so it's quite obvious to split it. Healthcare gets a wee bit more tricky because it doesn't naturally go into those sets of boxes, but we can look at within health, for example, or the different elements that you can do. Is there data there that could help you to get an idea about different pressures that might come through demographics in age over time and write that up and share that? My final question is just on that point about preventative spending. I find that incredibly difficult to measure because it's almost unknown, but it matters in terms of the amount of money that you, as an opportunity cost, matter, but it matters in terms of how much money can you save by preventative spending. I wonder if you have any guidance as to what methodology we should be using to look at preventative spending, because it's going to matter for policy. There's perhaps less you could do within the context of our working fiscal sustainability because the aggregates that we use are so high. For example, a key thing to reducing health demand over the next 10 to 15, 20 years could be housing or education or employability. It would be much more difficult to pin that through, but that gets on to the point about where the evidence base has to get better, which is knowing that if we invest in a particular area, what are the long-term outcomes that are coming over time? We should do better at that. We should track more about the valuation of programmes. We have had expansions in childcare, changes in employability policies, changes in different elements of healthcare and education. The key question is whether those are preventative policies or whether they are designed to link long-term outcomes. What is the evidence that they have had the impact? Once you have that evidence, you can then update our projections and things like that to see how you might tackle those over time, and that's the sort of thing that we'll cover in our health inequalities work. That was the case. In front of this work on preventative measures and the cost of benefits of them, there are very good micro-studies—not by us, but by others—to evaluate individual measures and what the impacts of those individual measures are. I think that that's a good source. We don't use that as a reference as we don't get into that level of detail, but that's certainly a very good source, if you're thinking about particular areas. Thank you, John, to follow by Michael. Thank you very much, convener. Going back to some of the predictions that were made in forecasts both by ourselves and OBR, I accept that the Ukraine war was probably not predictable, although some experts in that field might say that it was. Inflation, neither ourselves nor the OBR nor society at large saw the levels of inflation coming along that were. In retrospect, should we have been able to predict that inflation was coming? The projection was always that inflation would increase post-pandemic, and the significant increase of expansionary monetary policy at the time was designed to stop a slowdown in the economy. It was always designed to happen and to increase inflation. The real surprise—or the bit that economists and we and everyone didn't fully anticipate—was that the immediate post-pandemic was the dislocated start-up that happened across the global economy. It certainly meant that supply chains were gummed up right across the global economy, and that led to a significant spike in manufacturing prices, particularly because of what was happening in China. If you look at the forecast, the track record of the forecast, there was a forecast for an increase in inflation, but it started to add on to that as global supply chains became more obvious that they were going to be as a break. On top of that, you then had Ukraine and the spike in energy prices, and that led to the significant increase that we have seen. There is still a debate about how quickly that is coming down, and one thing that I would caution is that every time you see a monthly data on inflation—and Francis knows this much better than I do—you want to come in. Everyone jumps on whether it is below expectations or whether it is at a faster fall. We know that it is coming down. The question is how sticky will it be and that it gets into questions about wages, etc. Inflation is always going to increase, but I do not think that anyone expected it to increase as much as it did. As a forecast of a very long Korean forecast, the conditions that we had prior to the Ukraine war—if that happened in my early part of my career, in terms of trade shock, we would have been forecasting very high inflation, but what we have seen since the era of low inflation is that inflation has been incredibly anchored by all sorts of shocks for so many years that we all got used to the idea that you could almost shock anything and inflation will stay anchored. I think that was the mistake that we all made. Maybe the old hands-like mission of coming earlier, not that I thought that this could happen. It is just that this is what we are used to in the 70s and 80s and we have not been used to for a very long time. I remember 15 per cent inflation and we just lived with that and people have not been used to that. Going forward, do we just have to accept that the same is likely to happen in the future, that we might see a bit of inflation coming, but it is quite hard to predict how much? The idea of that incredibly anchored inflation is now gone now because it has been lost. We are going to be not back in the 70s, but we are in a period where we will not be in a situation where the economy can be shocked in any direction that inflation stays at roughly 2 per cent. We are in a world where we will have to be used to know that we are on to literature. I accept that the impact is much less, but the comment that has been made is that house prices were unpredictable and had risen more than anticipated. Is that purely the inflation factor? A combination of that, I think that the higher prices and higher value transactions were the two drivers on the upside. We had fewer overall transactions than we were expecting, so we had fewer turnover of houses, but the houses that were being turned over were higher valued and increased in price. That is quite volatile, so we have underestimated it in the past and overestimated it as well. We are going to better handle the genuine volatility that exists at the moment. On landfill tax, the comments made that incineration capacity was limited and uncertain. I do not know if that was machinery breaking down or what it was, but I assume that that meant that more had to be put into landfill that should have been incinerated. We make assumptions about what can be incinerated. There was less forecast and what would be incinerated had actually happened. We talk about it in the report and various aspects about that in terms of capacity and new things coming on stream and false incineration, etc. The bigger one is social security. We now understand that the Scottish Government is generally nicer than the UK Government, so it is more generous handing out social security. Is that built into the system now? It seems to have been that you have slightly underestimated how much was going to be paid out each year. There are a couple of things going on. We are forecasting 2022-23 when adult disability payments were really big when it was only coming on, so it is less about what the Scottish Government has been doing of the new system relative to what has gone before. Our error on social security is really essentially driven by two elements. One is a smaller element that is around a third of a change in policy by the Government since we made our forecast. That was the bringing forward of the Scottish child payment and introducing it earlier than we had anticipated. The main reason for the forecast error is growth in adult disability payment, but we think that that is not due to the Scottish Government's change in policy or interpretation of the two Governments and more to do with trends and disability payments across the UK. You have probably heard that there is a lot of discussion going on at the moment about the increase in applications to disability benefits across the UK. It rises in an activity from people in ill health, perhaps as a hangover from Covid, perhaps as broader concerning trends around things at mental health. Across the UK, we are seeing an inflow of people on disability payments that are much higher than happened pre-Covid. That comes through our number in Scotland. The error that we have is mirroring the error that we see at the UK level. That is probably more of the reason for a differentiation at this stage between Scotland and the rest of the UK. Moving back to income tax, to carry on some of the points that have been raised already, the point that the higher earners—now, I get the point that self-assessment, if people presumably are self-employed, they may not even know what their earnings are going to be for a year, let alone anyone else. However, there would also be higher earners, like the chief executive of a council or something like that, who presumably are in the self-assessment category, and they would be quite predictable. Are they just swamped by the ones that are unpredictable? Yes. Some people who do self-assessment pay through PYE, so you can get returns on that, but then you have potential other people who are much more volatile, more complex tax affairs. Self-assessment does not just cover high earners, it covers people with complex tax affairs. That is the bit that is much more volatile as a result of that. There is also a bit where we talk about in the report about the difference between the RTI PYE data that we can track and then the outturned data on PYE, and you see differences in that. People may be changing tax code at the end of the year, being identified as a Scottish taxpayer relative to a UK taxpayer. That just means that the data that is collected on PYE through the year is different from the PYD data that is outturned at the end of it. It is just people with complex tax affairs, which means that those numbers move around a lot. That is a bit disappointing, because I had the impression previously when you have been at committee that the RTI information was really going to be the big answer and was really going to give you a lot more clarity, so is that disappointed? I think that it is surprising just how different it was this time around. The first thing that I should say is that it is still a really helpful indicator, because it means that we were uplifting our forecast all the way through. If we can essentially say that we know from administrative data what has been collected by PYE through the year, and we can see that for Scotland, that is still really useful. The bit that we do not know at the end is how that is then adjusted once people report and all the changes happen to people's tax code and various adjustments, etc. It might just be because it is the end of Covid and it has just been a really volatile tax year and there have been lots of things going on, that gap, that error between the PYE out-turn data and the PYE RTI data is bigger than we would be hoping it would have been. It needs to be the other surprises that Scotland was stronger than the rest of the UK. We had the working assumption that self-assessment would be roughly the same across the UK, and that divergence between the two parts is also a bit of a surprise in here. The self-assessment money in Scotland is more volatile in the UK or we are not sure about that? I think that the potential for it to be more volatile is higher in Scotland because of the numbers, particularly because if you are talking about the people at the really high end because you have a small number, so percentage variations are likely to be higher as we see on top rate tax payers just because there is a smaller number and it is a smaller sample size, so it is likely to be higher in terms of variability. I think that we have too little data to say anything very much more than that. I think that it is... Yes, so there is that. Thanks, Clive. There is an interesting chart on page 50 which shows the self-assessment revenue growth between Scotland and the UK, and you see a number for Scotland as just more volatile than the UK. That is it. I will keep that warning that with that many observations, I would be nervous of making a very strong statement about volatility. That does not necessarily reflect that the economy or anything like that is much more to do with just individuals. As I said, you have 18,000 tax payers in Scotland paying the top rate on the latest information, and that amounts to about £2.5 billion. You have a few hundred of those moving around, and that number becomes that much bigger, and it is just a scale effect. Again, it comes back to the scale effect, but it is also because, under the nature of the devolution settlement, we have this one tax, which is the most important. In the UK, this would be matched by errors on VAT or errors on co-operation tax offsetting at all, but it becomes so much more important in our context. I think that the final thing that I wanted to touch on was just that the total number of taxpayers had increased, if I understood that correctly, I think that it was 5.1 per cent. Then, perhaps linked to that, the immigration was higher than expected, and I think that that was from the rest of the world, rather than the EU. We revised up our migration forecasts last time, in part through the international element of it. The growth in taxpayers, again, can be things like people moving into the system, so it might not have to be more people in Scotland, but clearly that higher number of people in Scotland led to growth in taxpayers, but it can also mean people moving into tax bans. Things like freezing the personal allowance and not increasing the personal allowance by inflation mean that, as people with earnings go up, more people will move into the tax system. Again, we talked about—there is an interesting table on page 19 of the report—the growth in number of taxpayers. Interestingly, what you see is people moving into higher rates of tax bans, which is quite interesting. That is potentially the effects of fiscal drag. It is potentially the effects of where earnings growth is concentrated in the labour market. I am picking that up and understanding that is going to be really important for our updated forecasts. Is that something of a trend that we are seeing in higher earners? Earnings growth contributing to higher income taxes? I suppose that I would have expected that people moving up as the limits were frozen. I was a bit more surprised that the actual total number had increased, but that is fair enough. Okay, thank you. Just a wee quick off the top of my head calculation tells me that if there are 18,000 of those top rate taxpayers are paying an average of just under 140,000 a year each, so it is indeed a very interesting section of the tax-paying public. Michael? Thank you, convener. I am going to stay with that area for a couple of minutes if that is okay. I am obviously in an area of very significant political debate and you understand why we are particularly interested. Given the level of volatility, which is partly tied to how few of those people there are in small variations, how much confidence should we, as a Parliament, in this committee, be setting by your own work and predictions? Does that come with a strong health warning when the Government makes predictions around the contribution to the deficit of the higher rate of tax? As we get more data points, we can offer much more clarity around the potential of availability and change, and uncertainty that exists here. The nature of what we do, we have to give you a central forecast. I think that we can do more to say that around that central forecast, this is the potential variability that you could see in here. We have a really good data point where the RTI data and all the information that we had suggested a reconciliation of about 700 million. It has turned out about 400 million. If I come next year and say that reconciliation is 200 million positive, then I will be able to say to you, but remember when we were here last year that this was the potential variability that we saw in all that. That really matters for our top-rate taxpayer as well. Again, it is one data point. We do not know whether this is a really good year for Scotland. Is this a bounce back? Is this something due to Covid or is this part of a trend that we are seeing over time? Being clear with you about the potential changes that could happen with that and how you then interpret that will be really important. The Fraser Rallander Institute has told the committee that it could be up to a decade in terms of providing sound modelling around behaviour effects. Does that sound like a realistic prospect? You should talk about more data points as a good thing. Exactly. We will be able to start seeing more over the next few years. HMRC has been working on pulling together data sets that can then be used, not just by us but by academics, to actually look at those effects and see whether changes are going there. What you need, of course, is that combination of data points to make sure that you are not dealing with individual years but also change. You actually want Governments to change policy because then you can see behaviours moving after that. In many ways, Governments announcing things and doing things from a statistical point of view is actually really quite good and then you can see whether that happens over time. Professor Brayden, will you want to come in there? No, I was just having fun about the fact that we would like you to roll a dice and set some policies so that we can see what happens. Although we have errors around our forecast, the errors are on both sides. I think that if we say that there is a really big number in our forecast, we make mistakes and ignore it. That is the wrong way to interpret it. You have to say that there is a big number that could be even bigger in practice or could be smaller than we do not know, so we just have to try and work with that number. Not saying that number is not worth anything because it has an error around it. It just strikes me that we could find ourselves five years down the line with such significant externalities in terms of the behaviour of such a small group of people that the data points that we are talking about to date might be moved. It could be. There are various techniques that you can do to reflect on that, so you can try and match different taxpayers across the UK and control for different effects and see things. There has been stuff done on LBTT, for example, looking at changes in tax policy and looking at people shifting forward, so you can see behavioural effects through there. Clearly, the UK has got decades of income tax data, so there are lots of detailed studies about how people are shifting and changing behaviours up or down, and we just need that data set. On your points around adult disability payments, you talked about the increasing level of applications. Is that matched by an increasing level of awards? Is there a differential between awards between the UK and Scotland? We are seeing this across the UK, an inflow of applications and an inflow of people claiming in the UK context personal independent payments or PIP payments and then adult disability payments in Scotland. We are seeing increasing applications, but I would caution that that is not yet—we are not yet—got definitive evidence that there is a disconnect between Scotland and the UK. We think that that will happen because of the nature of the policies, but at this age, all we are seeing is an inflow, and we need to wait for more data points. There are more applications, but are there a higher proportion of awards? Are more being approved? We do not have that information yet. Social Security Scotland has said that there is processing delays with the applications, so we do not yet have information of whether the large number of applications that we expected to see on adult disability payment and have seen are translating into a different success rate in terms of whether people receive the award and what the payment amount is. A lot of the spending that we are classifying as adult disability payment is still on the personal independence payment, because people have not moved over to the Scottish system yet. Across the UK, we have seen that increase. Most of the forecast error where we are seeing higher disability spending at the moment is that UK-wide trend, but we are not seeing evidence that there are no additional costs in Scotland. We just as we would expect, and it just takes a bit longer for us to get the actual data. It would just be useful if you could do more of that analysis if perhaps we could apply a time series to it as well. If there is a spike in awards versus applications against a particular time frame, some anecdotal feedback that I have been having is that part of the issue about delays in awards may be driving increase in awards, so it would be useful for the committee and the rest to try to understand that effect, given how significant this kind of area is in terms of spend. In our forecasts, what we do is we will be clear about what we are forecasting in terms of spend, what average payment applications, caseload, et cetera, and what we can do is then have a discussion about what we are seeing from that. One of the things that you will remember last year when we came to committee, we spoke about data needs, et cetera, and one of the things that we were really keen on is having much greater dialogue with Social Security Scotland about exactly these qualitative indicators, so to get a sense from them about how is caseload going, what is happening, what are their trends, what are their expectations, that we can then use judgments about that, and we are more than happy to set that out in our forecast in December. And they are very open to those conversations, aren't they? Yes, yes, that's been really helpful. And my last point that can be done, if I can, on modelling around productivity and child care, so we have invested as a country a significant amount in recent years in the uplift in 1140 hours, what could you tell us about the relationship between productivity and the economy and that investment that we've made as taxpayers? So there are good theoretical arguments that suggest that investing in child care leads to improvements in productivity, so in terms of access to labour market, in terms of better skilling, in terms of jobs, et cetera. I've not seen any evaluation done about whether it's had the intended effects in a significant way, what's been the indications in a dead weight, so that's not anything that I've seen that has then been able to inform our forecasts about saying, if you do this policy, this is the impact that you see in terms of productivity. So I don't see anything specific in a Scottish context that informs that. It means a very significant area of public investment. Who would you expect to be doing that analysis? Because surely that's one of the intended outcomes from the Government's investment, taxpayers' investment in that area. We should be seeing those numbers. Yes, but it comes back to an evaluation of policy. It comes back to when you're doing significant investments, you'd expect to see the evaluation of policy. And if we can see evaluations by government or commissioning academics doing it, then we can then use that to inform our assessments of what we think might happen to productivity or what might happen to changes in policy over time. I've not seen anything that we can then use, what we have used in our forecasts in the past. The broad indicator is that we have very little productivity growth in the economy in recent years, so is that not correct? Yes. That's part of a much bigger conversation about what's been happening to productivity in the UK context and issues around measurement, management, changes in sectors, etc. But the key way that you would expect changing childcare to come through is, one is in terms of labour market participation, but crucially, secondly, through what's happening to productivity. So in theory, it is an area where you could expect to see positive economic improvements from, but we've not seen anything that is an explicit evaluation that we can then say that you've invested X and, therefore, outcome wise happened. Okay. That's clear. Yeah. I think that there's about 12,000 more people employed in the sector, but, as you say, the productivity outcome is not something that we looked at when we were doing kind of post legislative scrutiny on this very bill just a year or so ago. Okay. Jamie, to be followed by Gordon. Thanks very much. Good morning. Just a couple of the points that have already been made, I just wanted to kind of follow slightly up on, in fact, on that point in productivity. If there is high UK productivity but low Scottish productivity, what's the impact of that going forward? In terms of our fiscal sustainability, because I have to think off the top of my head. So in that instance, what you would get would be faster growth in the block grant, so spending could go up in the UK level and that would feed through to a positive position in terms of the Scottish, in terms of the Scottish component of spending, but you would get essentially a faster growing block grant adjustment relative to tax revenues and that would lead to a squeeze in there. What the net effect of that would be, whether that would still be a positive? I think that it would still be a positive. Yeah. So I think that faster growth in the UK is positive for Scottish finances, plus a positive growth in the UK. I was just also interested in what we were talking about there. Michael Marra was asking about the highest top at the top earn and tax and we've got 18,000 use. You said that we don't have the data yet from a Scottish context but we also have the UK historical data. Just wondering what estimates you can make on, or what analysis is coming down on the tax mobility of those individuals, admittedly in a kind of international context, but that would be probably even more beneficial in terms of, you know, within a UK context. In our forecast, we do things called taxiasticities, which is how potentially people respond to changes in tax. We look at things called average effective tax rates and marginal effective tax rates. The marginal rate is really looking at how people change their behaviour, as it would suggest at the margin. So if you choose to work more hours or change to shift into different types of income, the average one is about where people make much bigger strategic decisions about whether to work or not work or whether to relocate and move. So we build in assumptions based on international evidence and based upon UK evidence about what those effects would be. That means that every time we make a forecast, we have a gross estimate and then we have a net estimate, which is the effective one that accounts for those factors in there. We don't yet—and as comes back to the discussion that we've just been having—we don't have a specific Scottish elasticity that captures people's behaviours yet because we just don't have that data and we don't have the time series to see whether or not that would be there. So we use other people's evidence about what's happened elsewhere to help inform what we have in a Scottish context. But looking at that kind of data from, say, either UK data or perhaps other countries, depending on how you do it, there must be almost an additional flexibility within a UK market, so is that what you would expect to see? I think that we've looked at the international evidence, we've very much focused on countries with similar situations, so like West Bay, there are different contexts across different regions. There was a period in the United States where there was a single millionaires tax, where very high income people in some states paid a tax, and other states didn't. Those very specific examples are the ones that we've drawn on because, as you say, the tax situation is different when there's internal migration rather than external migration. That's what's informed the numbers that we currently use, but as Graham says, what we'd ideally like to do is do something specific on Scotland to find out the answer for Scotland. I'm afraid that it's too early to say at the moment for that. We did certainly very much on our agenda to do a Scottish-specific study of those effects, but the international evidence is relatively similar across all those countries. There is an effect, but it isn't a very powerful effect. There could be various reasons why people choose to locate attacks. I think people are surprisingly, because the US one is possibly the most surprising one, people are surprisingly stuck to whatever state they were brought up or they've chosen to live in, even if the US is a very mobile economy, and yet even there you find that the tax difference didn't generate a very big amount of movement. I just wondered a couple of other things very briefly. One, we've talked about fiscal sustainability looking for the next 50 years. I was wondering how that can be broken down to a regional basis. Obviously, I represent the Highlands and Islands, healthcare and other services in Highlands and Islands are very difficult to deliver, more expensive to deliver. One would expect the fiscal sustainability of those services to be under even more pressure. I'm wondering how much the data can forecast, can reflect that. That was a really good question. We did a bit in the fiscal sustainability report, we looked at population projections across the regions of Scotland. We looked at local authorities and you see huge variations between particularly the rural areas, population declines, places like Inverclyde, old industrial parts and then the east of the country increasing expenditure. We don't go into the detail about what that means at a local level for fiscal sustainability, because we look at the national level. However, the point that you're raising is that there's a really interesting subtlety in all of this about how do you manage this at a more local basis? On the one hand, you look at places such as Edinburgh, Midlothian and Eastlothian, where rapid growth. There's pressures there on spending as the growth really increases in people there. In rural areas, you've got the potential increases in cost of delivering the same quality of service to fewer people. That becomes potentially really expensive as well. There are really interesting subtleties about going a level below about what the fiscal sustainability questions could be at a regional level. In there, what a national level could it actually potentially be even more costly because of the pressures on delivering the same level of service in areas where populations are growing, but equally in areas where population is declining? While you don't look at the data that's there to be able to make those projections, because obviously if you live in a rural area or an island, community like I do, there's already concern about how services delivered, how expensive they can be. I won't go on to ferries or other things, but there are lots of issues there in terms of spend that are going to need to be made over the future. The concern is that pressure is only going to grow, so how does Government prioritise or at least ensure that that's spending is there? I'd hope that the principles that we've taken in the fiscal sustainability report would give people who are interested in that local context the same ideas, similar ideas, to do what we've done, where you're looking at cost of delivering and being really transparent about that, being really transparent about population and then pushing them forward. These are not forecasts and not seeing exactly what's going to happen, it's just raising if you do arithmetic about what happens with cost of delivery and population demographics, these are the pressures that you will face. Last question very, very quickly, it was on house prices, obviously there was an underestimate on the revenue from that, from land building, buildings transaction tax. Given there seems to be some areas of slowdown and prices taking longer, would you anticipate there might be an overestimate for next year? We lowered our forecast, so we thought that LBTT would be under more pressure next year because of falling prices and fewer transactions because of rising interest rates and the economy, etc. This is about how our forecast was doing. We have been more cautious, when we made our forecast in December last year, we were more cautious about the growth for this year because we think that the slowing rates of the economy will have an impact on that. We won't know until next year before we see whether that is going to have an impact. Again, we can make judgment and you can make intuitive things that you think that interest rates have gone up, the economy is slower, house prices will potentially fall and revenues might be under pressure. However, if you have a small number of high-value transactions in some key areas or house prices are resilient to changes interest rates, then it could surprise on the upside, and that is just the nature of forecasting. Thank you very much, convener. It has been an interesting discussion, and I have got three very quick questions just to round things off a wee bit. You have quite rightly said that forecasts play a central role in setting the budget, but you have highlighted forecasting errors in income tax of 12 per cent, land and buildings transaction tax of 13 per cent. What impact did that have overall on the Scottish Government's budget that is available to them? In broad terms, one thing to be aware of is that, remember, you have got to also think about how the BGAs are changing as well. That is why the income tax forecast of 12 per cent is couched by the fact that the Government has also got the BGAs changed. What really matters there is the reconciliation, and ultimately the reconciliation of being £390 million. That is essentially the consequence of those forecast errors on income tax, so that gives you the scale of the size of it, which, again, comes back to the discussions that we have had before about the fiscal framework and the ability to manage that risk in future years. You estimated that it was what, £745 million would be the reconciliation. That is where it gets quite complex. If you remember, back when we did this in January 2021, we were forecasting the nature of it. We were forecasting higher revenues than the rest of the UK, but we were cautioning to say, hold on a minute, that is a timing issue. The UK BGA is going to be revised up. What we were then doing is updating that over time, and we knew that there was going to be a big reconciliation. We did not know how big it was. I cannot remember what we were saying at the start, but we are talking about £300 million and £400 million. As we were getting this RTI data in, we were saying that it looks potentially even more significant, and that is when we pushed it up to £700 million. It has come in at £400 million, and that ultimately is the forecast error between ourselves and the BGA. The difference between the higher and lower forecast element could have been resource that would have been available to the Scottish Government. The £390 million reconciliation there is money that the Government has had and have spent, but now what they are having to do is manage that back. The timing differences. Exactly. That is the fiscal framework. It is not money that they have lost, it is money that they just have to manage how they then deal with that forecast error. They have to manage a lower amount than they previously estimated. The £390 million is going to come out of the budget next year, and that ultimately is what they have to potentially remove. In terms of their modelling going forward, has the forecast errors that you had led to any changes in that model so that you can reduce the level of forecast errors? A couple of things. I would not say that we are going to change much on our forecast, so the budget that we push out, that is the one that really matters, that is the £390 million, and that is our judgments on the economy, our judgments on employment, earnings etc. They were pretty solid and pretty accurate. The bit that we have been discussing about today is how we update that information as we go to give the committee and government a potential real-time indication about how accurate those forecasts are going to be. That is a discussion that we have had about the RTI data, which is essentially tracking administratively PEYE data for Scotland, so it should be really good. What we see this year is that instead of predicting 14 per cent growth, it was only predicting 12 per cent growth, and that is where the error has been in that. My final point, and I accept that you might not have seen those figures, but we are talking about the volatility of the self-assessment taxpayers. What impact do you think the acceleration in the move to the cashless society has had? There was a report last year that said that 23 million people in the UK no longer used cash, and within a decade, that number would be closer to 6 per cent. That is an interesting question. It is probably not one that I have thought too much about in the sense that a self-assessment and PEYE is much more about the earnings that you take, your track record in terms of the income that you have received. If you are moving to less of a cashless society, there is more of a tracking, which means that there is potentially more reporting going into it. That is interesting, whether that means that there will be more official stuff coming through PEYE and self-assessment because there will be less in some particular activities. That is an interesting question. Thank you very much, Gordon. That has concluded questions from the committee. I will just get one further question, which is just really about David Bell's paper. It was because John touched on it that I thought that I should do so likewise. One of the things that we discussed in our exchange was the issue of potential spending changes and tax changes that would be necessary—not the specifics but the fact that it might be necessary. What Professor Bell talks about is loss of version. That is something that I have raised before in this committee. That is the issue whereby people, if they give them additional funding for whatever, they can shrug their shoulders and say thanks, but if they take something away, they are extremely hostile to that and it causes much more of a political backlash than the gain that they would get from doing something of the same financial some. What kind of implications do you think that that actually has in terms of going forward in terms of the long-term fiscal sustainability, the ability of Governments to actually take decisions that may require to be taken in terms of their ability to take them? It is going back to productivity paper. We have done this in the paper, but clearly at a time when incomes are rising, changing tax policy is easier because it tends to be fewer total losers. There are net losers, but there is a case that you can make changes more with less resistance and a period like the one we are basically going through where incomes have risen very little, then tax policy becomes very sensitive because you are imposing genuine losses on people rather than just taking away some of their gains. Your question gives the heart of the question. We have been debating in Scotland 10 years since Christy, which is that we know that we need to move into prevention and that we need to shift expenditure into areas that will reduce demand and improve outcomes over the long run and improve people's wellbeing. How do you do that when budgets are under pressure? That means that you are going to have to take money from one area to another and that is the bit that is really difficult for any Government to do. However, I guess that our fiscal sustainability stuff hopefully is trying to say that we need to do this because if you do not do this, then it becomes unsustainable and you cannot afford to keep spending in those key areas without discussions about the economy, about taxation and about what areas of service you prioritise. I wanted to end on that because fiscal sustainability is going to be the key issue in terms of our budget scrutiny this year. Thank you very much for your evidence today, Professor Roya, Professor Breedon and also to Claire Murdoch. It was very much appreciated, as always. It has been a reasonably long session this morning so far, so we will call a break until 11 o'clock to give our witnesses also a chance to leave and members to have an actual break. The next item on our agenda is to take evidence on the land and buildings transaction tax green free ports relief Scotland order 2023 SSI 2023 draft. I welcome to the meeting David Melush, director of the Scottish Property Federation, Derek Thomson, Scottish Secretary at Unite the Union and Liz Cairns researcher at Unite the Union. Welcome to the meeting and I intend to alert up to an hour for this session. If witnesses want to be brought into the discussion at any point, please indicate to Clark's and I can then call you. In terms of Unite, I will direct my questions to Derek, but if he prefers Liz Cairns' questions then I am quite happy with that, so we will just suck it and see so to speak. We have your submissions and I want to thank you both for your submissions, so we will discuss straight into questions. The first one is to David Bass, who is in terms of the responses to the questions that we asked. He talked about the five-year timespan being simply too short for the nature of long-term investment for the two green ports in Cromartey and Leith. He also said that green free ports will not be fully operationally 2024 or even 2025, and therefore suggests that the qualifying period should be extended at least seven years. Can you tell us what the benefits would be of that, both to your own industry and indeed the wider Scottish economy? How much investment and employment do you expect to commit to those two green ports? Thank you, convener. Thank you very much for the opportunity to give evidence as well to the committee. We think that these are a very positive initiative, the green free ports. In terms of the timespan going directly to the question that you asked, the nature of our business tends to be very long-term investment. It can be several years to be frank before some investors or even in a situation where they can do the statutory pre-application planning and so forth for major developments and then you, albeit that the wolf is intended to be a smoother planning process as part and parcel of the free ports. It nonetheless takes some time to get the capital expenditure together, to get the teams together, to get the potential attractive businesses into the location as well. Our fear has been that, while we think that they are really positive as schemes, the five years may simply be there and gone before the relief could kick in. Our fear on that, the so-what aspect of that, is whether that might put off investors looking at potentially lengthy process from coming at all. We just think that some flexibility on timescales would give them the best chance of the maximum success to bring the jobs, the added value to the economy and the spur to sustainable growth that is envisaged in the plans. In terms of what is realistic, we are well aware that I think that fourth have suggested something like six billion supercharging the economy or more in added value. I think that it is 50,000 jobs, the brochure said. Those developments do take time, so I think that that is feasible. It has been well worked through business plans over the period of time, but I do think that a bit more time to pull together all of that investment would help both free ports to be the successes that they could be. Derek, in your own submission, you talked about some 75,000 jobs. Those numbers seem quite fantastical to me, to be honest. What are your concerns about displacement? Previously, when previous Governments have introduced enterprise zones, there have been concerns that it has simply moved one job from one part of the country to another. Obviously, that is particularly acute in the areas that border such zones, including, in this case, green free ports. Thank you very much and thank you for the opportunity to contribute. Our estimates are 50, at least, and 25 at Cymru. That is where we get those estimate figures from. In terms of displacement, the idea of creating those 75,000 jobs is welcome. That is a great step forward in terms of what it can bring into the economy, but our fear is that business will just run to those cheaper rates in those cheaper areas and start moving people in and moving the work in. You start taking in some of the areas that are surrounding those two key areas—a lot of deprivation, a lot of poverty, a lot of people relying on jobs within them. If we start moving cheaper jobs and cheaper labour in there, our fear is that people will be displaced, there will be poorer jobs and poorer communities and poorer areas, and big business will, in our view, rush to try and claim that tax relief at the expense of some of the workers. Some of the areas—although that is not really the committee for it—we are looking at a serious skills and job shot when just transition comes in, because we are not at a position yet under just transition to actually determine what a green job is. If we start moving jobs out of different areas into those free ports or green ports, as we like to call them in Scotland, then our fear is that the displacement will take place and it will lead to further poverty if we do not get proper jobs reinvested in different parts of the community. Although we welcome the idea that the free ports are green ports here, we have got real concerns about how that displaces current jobs and displaces people. Actually, our fear will leave communities devastated if we do not get this absolutely right in terms of how the other communities are supported through that period. You have said that, in your statement, we cannot accept an economic situation that allows for private sector employers and free port areas to increase profits as a lot of government subsidies will have vital local public services at our communities, and those in greatest need depend on our law to other on the vine. However, where is the evidence that is going to happen? Because the whole point about this is to actually create economic growth, which will increase tax revenues, which will allow further revenues overall for the government to invest in services. Will it create more revenue if the jobs are properly paid and there are proper terms of conditions? That is why one of our reasons for wanting to be here is to discuss the issue of collective bargaining. Our fear is that companies will rush in and be given the tax relief that is here in the papers, but also through that they will drive down wages, because that is what big business does on numerous occasions. If we do not get that balance right between having proper wages in those areas, then the tax relief is going to count for nothing because you have no tax relief coming in via a big business and you have little more coming in through jobs created because you will not have a proper pay system that generates tax and income. To us, we put the cap before the horse here a little bit in terms of saying that we are going to create all these wonderful jobs. We do not have an infrastructure yet for it in place. We are talking about the five to seven years investment programme that you are talking about. In our view, the people that are going to come into this are going to be a big business, who are going to exploit the workers and exploit the system that you are putting in place. We urge a bit of caution on that. I think that the evidence is that if you put more jobs, displace people out of current jobs and move those jobs into those areas, poverty will start increasing in the areas that the jobs are moving from because business will move to the cheapest area that it can get. That is a reality of the situation. Business might move, but we have less than 4 per cent unemployment in Scotland, so why would workers move to an area if their wages were going to be lower? We do not just get a job somewhere else. There are surely 75,000 people who are only going to move to get lower wages into those zones. That is not really credible, is it, that people are going to move to accept lower wages in an economy where there is actually chronic labour and skills shortages already? Sorry, are you saying that people will not move into those jobs? Well, from existing jobs, because actually you are talking about displacement. Are people going to be displaced? They are not going to be displaced on the basis of lower wages and low, poorer working conditions, are they, surely? I am pretty sure of a big business if they can get an idea of moving their business to one of those green ports that they will move at. That is a reality of the situation. I think that somewhere like Cromarty in particular, where you have got a vast community spread over a wide range of areas, you have got the situation where those jobs are going to be offered, and the national insurance relief starts up to 25,000. Those sorts of jobs in an area like Cromarty would be very attractive jobs to go into. However, in that community, we did a freedom of information to ask about the level of loss to the public purse of the introduction of the lower or no national insurance for the 25k jobs. The HMRC, which we did the freedom of information to, advised us that, for every job, there is a £2,400 loss up to the 25k. If we are talking about 75,000 jobs potentially, 25,000 in Cromarty and 50,000 into Forth, that is £180 million just for the tax year 2020, the most recent tax year. That assumes 100 per cent displacement. I mean, I thought the whole point of those green ports is to create new and additional jobs. Displacement can happen by an employer without an individual having any responsibility for it. If an employer decides that they want to move for that reason, they might close that factory down and just make people redundant, move into the new green port and start new jobs, because it has to be new jobs that benefit from the tax relief. It might make people redundant in communities and the employer goes, but the people might stay. Some might go, some might be willing to go, but others might not be willing to go or unable to go. I put a lot of those questions to the minister when he gives evidence, of course, to see what he has to say about it. David, what kind of jobs do you envisage going to those three ports and what kind of businesses? I think that the intention is very much that it will be the new style economy, so green manufacturing and support for maintenance in those things. I think that it is generally accepted that as an area where we hope to do better as a country in Scotland as a whole. There has been one or two false starts. I think that there would be less displacement than feared by colleagues, but I am also aware that I think that there have been commitments by the people behind the three ports to real living wage, for example. I hope that they would alleviate some of the concerns expressed. Although it is not my area of expertise, on NICS, I think that Cromity has proposed reinvesting the equivalent of NICS in reskilling in order to try and avoid an unbalance with businesses around the area. My feeling is that these concerns have been very aware by the proponents of the two successful bids, to be fair, by the Government and by the associated local authorities that have been behind the bid brochures and so on and how the scheme has been developed. I think that the emphasis is on encouraging things that might not otherwise have happened, in that sense it would on balance be new jobs, whether it would be 100 per cent new jobs, possibly not, but I do not think that it would be 100 per cent displacement and I do think that the overwhelming balance would be to the benefit of more jobs and more investment in these new technologies and manufacturing opportunities. I do not think that for a minute it will be 100 per cent displacement, but I do not think that it will be zero displacement either. It is bound to be somewhere between the two, and I think that that is a concern. Is there any evidence on what the level of displacement is likely to happen, or could happen best in worse scenarios? I think that you raised a couple of points there, I think that it is important when you talk about the jobs that will go into these green areas, you talk about green jobs or green manufacturing and so that brings me back to this displacement by companies of what Liz has alluded to, where the business moves but we are not the people, so you know you are talking about green manufacturing and green jobs, you know nobody can tell us what a green job is yet actually, is a green job going to be somebody on a delivery bike, is that on an electronic bike, is that going to be classed as a green job? There is no guaranteeing green jobs when it comes to green manufacturing, so if you take the oil and gas industry, for instance, on the upstream, downstream, back down to Grangemouth, it is a whole list of jobs within there that are potentially going to change over under just transition to potentially green jobs, but that has not been defined yet, so if you are saying that green jobs could be moved into Leith or could be moved into Cromwell Firth, it is displacing potential jobs in the oil and gas industry because if the green manufacturing is going to be done for there, also the issue of manufacturing needs to be raised because the Scottish Government is not investing in manufacturing, we want manufacturing done in this country, if we are going to build new technologies and new green energy and new construction things then it should be built and manufactured in Scotland and that is perhaps where those jobs can go into in some of these areas, but there needs to be a wider thought on how the economy is going to be going to look here, you can't just say we'll put green jobs in over here without thinking where the green jobs are going to go because the investment from oil and gas companies at this point in time is to do their new green energy work onshore in this country, so there's going to be building works going to be done, there's going to be, you take the offshore wind farms or that kind of manufacturing, why is that not getting done in Scotland, why can that not be built and the technology is not be built in some of those areas, so those are questions that we keep asking because there is no agenda to just transition yet and this in our view green ports is part of the just transition agenda because you're moving jobs into these areas claiming them to potentially be green or newer jobs but they've got to replace existing jobs if they're new jobs because the technologies aren't there to get the things done and also the issue around oil and gas and just transition I think is so bigger than what people think it is, it's not just oil and gas, there's going to be massive areas of just transition and across the energy networks, across local authorities, across all rafts of areas where jobs are going to be under threat and new training is needed, so perhaps we need to have another go at thinking about how these areas are going to be utilised by the Scottish Government and utilised by the economy but the other area that I just, just while you're talking about that, is the first road into these areas, into these two places is going to be construction because construction is going to be the area, they're going to grow the construction, the buildings are going to need to be built, the foundations are going to need to be put in and what we don't want to see and this is a real danger with construction is that if you do not get the procurement process is right and you do not get the investment right then what happens is you have self-employed and bogus self-employed companies and making fortunes out of these areas and people not paying tax because that's exactly what happens under bogus self-employed so the tax gains that you think are going to be getting from us, we just don't see as being reasonable at this point in time, I don't think it's been critical and fair as a canny, I don't think it's been well thought through in terms of how the bigger picture looks in terms of the wider front in the first quarter. I mean I think there's anyone who's looked at the last issue of private eye, I'll see some of the comments and I'll have what I've done over the last few weeks about some of the alleged shenanigans going on in Teeside where of course there's a free port being developed there, I mean I think one of the issues about displacement is if there wasn't one in Leith perhaps it'd be displacement to actually Teeside and I think that's an issue which was which was perhaps one of the reasons why Leith was considered as a location but back to yourself David in terms of one of the things that you've raised concerned about is forward funding arrangements so on if you can elaborate a wee bit on that. I think it's closely tied to the point made earlier about the long-term nature of investment in the developers they tend to be facilitated as a capital, they go and attract the investment from around the world so sometimes beyond Scotland often beyond Scotland and they're competing for that capital so yes if we didn't have green free ports then I think we would be disadvantaged compared to the free ports not just in Teeside but elsewhere in England but the developers will often be attracting that forward funding so in other words the effectively passporting that investment into the ground as it were and nonetheless in the immediate period they are taking on the development risk making sure that the structure goes up, it's intended, it's got the tenants and so forth that will come in and be the actual businesses that in the long term will provide the employment and the tax revenues in the locations but typically and much more nowadays typically rather than just getting old-fashioned lending from a bank it will be with an institutional funder or a range of institutional funders who could be located anywhere and to get the capital expenditure they need or be able to depend on in the lifetime of the project that will require to turn for forward funding. Our concern in the arrangements we're expressed was whether the relief would go to the developer who's initiating all the upfront capital expenditure and works or whether it was the long-term owner and I think that question we've put to the government they decided not to amend the regulations as the committee will be aware so it remains a concern of ours. I understand anecdotally it wasn't picked up in England either when they did the similar regulations but nonetheless it does remain a concern of ours based on what developers assigned to us in Scotland. Okay, thanks very much. I'm going up to college round table. Just one final question, it's to yourself, Derek and Liz. You've said in the response to question three that Unite would argue that there's a deliberate lack of clarity on whether trade unions will be able to access and organise workers operating within their zones into bargain with employers over pay terms and conditions so who do you think is responsible for that lack of clarity? Can I come in here? One of the things about the differences between the three ports in England and the green port in Scotland was the ability to have an effective voice that was specifically mentioned with regards to and trade union engagement. However, one of the things that was raised within that was signing up to the business pledge and we know that the business pledge has failed. The business pledge has basically got 0.4 per cent registered businesses signed up to it the last time I looked. I think it was something like 700 businesses have signed up to the pledge. The voluntary arrangement for people for businesses being fair to workers is not something that's going to happen in these sites. It doesn't happen generally but it's less likely to happen in these sites. When you're relaxing and deregulating and giving incentives to organisations, the last thing they'll be doing is dishing any of that. Employees are unlikely to benefit from any of that. As I mentioned earlier, there's a £25,000 cap that we also feel will be used as a comparator perhaps beyond the region. It's to suppress wages generally. There may come up with other creative ways of paying beyond £25,000, which doesn't go through the normal routes for some workers to attract them, but we think that the £25,000 will definitely suppress wages not only within the green-free port area but externally. Colleagues, I'll press some of these issues further as we progress. I don't want to hug the whole session. The first colleague to ask questions will be Ross to be followed by John. Thanks, convener. I'll go back to the community's original line of question around displacement and that request for evidence. The theory behind free ports has been tested in the UK before. We've had free ports in the 80s. It was one of thatcher's signature economic policies. There have been studies on displacement as a result of those free ports. The study that I'm looking at here is regarded as the major one in this area, but I've certainly seen higher figures. The study by Larkin and Wilcox, which was 2011, said that it was 41 per cent displacement. 41 per cent of the jobs that were created in the UK's free ports of the 80s were not new jobs. They were jobs that were displaced from elsewhere. From your perspective, you acknowledged that it's not going to be 100 per cent new jobs. There's going to be some level of displacement. Would 41 per cent displacement be allowable? Would that be satisfactory? Or do you think that that's too high a rate of displacement if we see that happen again this time around? We're in a very different economic environment. The labour market is a lot tighter than it was in the 80s. We're very deep industrial recessions and so on. I wouldn't anticipate a 41 per cent displacement. Displacement could be in many ways. Could people be going to better jobs in a better location? There are all those other factors that could be argued, might be positives. Given that we're really focused on trying to create new jobs here, I think that, broadly speaking, there would be some disappointment with that level. One of the growing areas of inequality in Scotland is economic inequality between east and west. Given the location of the free ports, there's already been a lot of concern expressed by particularly local authorities in the west of Scotland who are already dealing with significant challenges of deprivation and depopulation to take Inverclyde or Gell and Bute's examples, who are concerned that, as a result of the free ports, the economic displacement expected through them will result in further depopulation and a lack of investment in the economy of the west of Scotland, which has already seen far lower growth and income, for example, than in the east coast. Would that be of concern at all to the Property Federation if we saw that further displacement from west to east aggravating those existing inequalities? We're a Scotland-wide organisation, so we're there to encourage investment across the country. I'm aware of this, and I'm also aware that Cromity and Edinburgh get picked for the green free ports, and then Glasgow and Aberdeen get the innovation zones around the universe, so there was, obviously, Dundee weren't happy at all because they're on the east coast, and they didn't get either. We're aware of those considerations. I'd like to think, because we're boosting new jobs, that it is looking to boost the economy overall. I think in the west, I mean, the area around Glasgow has a hugely diversified economy, and I think as a lot of investment is already attracting right now from our industry that I can perceive, so I would, and particularly based on the strength of its universities, there are other forms of investment that will come to the Glasgow area, so something to keep an eye on. Surely those other forms of investment are inevitably going to be drawn east and north now. We've already said that there are strengths to the greater Glasgow economy, of course there are, but we can see in both deep population and in relative growth in incomes and earnings that there is a clear shift from west to east. Do the free ports not just exacerbate that, and that's to the disadvantage of your members in the west? You're talking about a long-term trend there, but I think there are other initiatives that will balance out. Glasgow is still the greatest centre of population in the country, as we speak now, with around £2 million around the area. As I said, I think with some of the other initiatives that are at play, including boosting to manufacturing amids and so on, as well as the growth intent that the city is trying to push in terms of the city centre and turn about, I think long term there will be opportunities on both west and east, but they may be different. I mean this is going to be very business specific, is it not, in terms of where you go into the free ports? I think it's difficult to draw broad generalisms, and I think that the trend that you talked about has been one that's been apparent for factors for some time. I don't necessarily think that this will noticeably exacerbate it, is the only answer that I can give at this stage. It's a little bit crystal ball-gazing, turning to a degree, but I think that the balance of other initiatives and investments in those areas to the west and further up to the north and northeast will help to balance that out. I get why you're saying that, but given the evidence that we've got from the last time that the UK tried free ports and the massive level of displacement there and the fact that we've already got this gap between east and west, I think it's reasonable to see this as one of the risks that, at the very least, needs mitigated. I'm interested in one particular area of your written submission, where you talk up the fact that investments in the free port zones well meet strict environmental and social criteria, and therefore there'll be that wider environmental and social benefit, not just economic benefit. My understanding is kind of related to what Liz was touching on a moment ago. Although the tax incentives are very clear and laid out through this statutory instrument, a lot of the environmental and social criteria ultimately depend on voluntary agreements, is there not a significant risk here that organisations will invest, might even fulfil those environmental and social criteria for at least the first few years, but there's no way to guarantee that they will for the long term. There's no clear enforcement mechanism here to make sure that those criteria are actually met in the long term. The proposals were accepted on the basis that they would maintain their commitments, is my understanding, and that was a bit behind our written submission. The governance arrangements in place in both are not just private sets, so there's public and private involved in those both. Accountability, I think, has been built in from the outset, and I don't know the details of the 80s arrangements. I'm sorry, I don't know if that was always the case then, but it does feel like a very different circumstance, both economically and governance-wise, I would argue, so I think that that would be our reply to that at this stage. Thanks. Just final question for Derek and Liz, time convener. Going back to one of the questions that the convener asked you, your submission mentions a deliberate lack of clarity around particularly union access to workers in the freeport zones. The word deliberate really charges that. I wonder if you could say a little bit more about why you think that that is deliberate rather than just an oversight, something that neither Government has prioritised. Do you think that there's a deliberate attempt to leave the fair work stuff pretty vague while pressing ahead with the tax breaks, and what makes you think that? I think that history makes us think that when we're talking about these levels of investments, for us, there needs to be the sustainability built in for the on-going, new jobs have been built, there's protection built in for workers, that has to be something that should be outlaid from the very start. Any process, any bidding, any procurement policy that goes out, there should be something built in that's protection for workers. We don't see that happening in any way that we're performing. I mean, what do you expect everybody to hear in yourself? Our history tells us, when new business like this starts and the investment of this starts, that generally the worker is the person who's left behind the most. When you're particularly given tax relief, that's into big zones where people are coming in, our experience tells us that the person who's going to pay the most, and that's predominantly going to be the worker because there'll be no health and safety rights. That's why some of the things that we're asking for is just to have those things built in, the fair work stuff. I'll give you an example, I mean, one of our deputy regional secretary met with Edinburgh council to discuss the issue of reports and got very little from them on anything. No consultation had to be probing questions. We haven't asked for information, it's not forthcoming. I think that's one of our big issues with this, is that how are we supposed to be, you know, supportive of some initiative lesson, which we are generally in terms of the jobs, but without the workers' protection and workers' rights built in and health and safety built in and procurement policies built in, it's going to allow us to make sure that it's properly funded, people are getting proper wages and it's not getting done on the cheap, then we want something more concrete in any bits and proposals going forward for that. Lizzie, you want to add to any of that? Yeah, I was just going to add something to say that basically in the absence of any devolved employment law, the only thing that we can ask for this committee and to be heard is on procurement. The sort of money that we're talking about here in procurement is a way for the Scottish Government to definitely lay down the rules. We should have been at the table, we feel we're behind the curve here because we've been put behind the curve, we're not being listened to when we get opportunities, that's why we've come to this. We're not tax experts, you can tell. That conversation earlier on was just over my head in terms of Professor Roy et cetera, in terms of how the fiscal situation is, but we were given an opportunity here to put our position with regards to the lack of consultation with trade unions generally. The lack of engagement with this on trade unions, we're not at the table. It's unfortunate that the STUC can't be here today as well. They would be able to reiterate a lot of what we're saying, not just from our union but from other unions that have good concerns and other affiliates of the STUC. We don't have employment law devolved at this point. Procurement is an opportunity. This is public money that's going into these three ports, green ports, and we should have a bigger say on it. If effective voice really means something, and if fair work really does mean something to the Scottish Government, they have to bring us on board and they have to listen to what we've got to say. Our members are concerned. We're here to represent them. Over 140,000 workers want their voices heard. They need to know their concerns about those things. It can be put into a paper, but we need to be at the table. We need to be looking at ways that evaluation and monitoring is important. We need to be looking at when are the decisions made, who made those decisions, who made the decision not to include trade unions, rather than who made it to include, which we want to happen. John Dey, you've covered quite a lot of ground already. The five years seem to me quite short, and even seven years seem to me quite short, because I've got Clyde Gateway in my constituency and they look at a 10-year timescale often for getting a development filled up and so on. What are the risks around that A that nobody is interested to start with because it's too short a timescale, or is there a danger that people walk away after the five years? The upfront danger is that the one that you've identified is alluded to area that people look at and think that if we've only got a few years to get everything in place, then it might just simply be too short. We have members with examples of single buildings that can take eight or nine years because of the complications involved in that. I suppose that seven years discussed with members we realised that it couldn't be open-ended, because at some stage the Government will want the new economic transactions to start delivering the full revenues that are anticipated in time. I think it's the fear that it's just too short a timescale for major investment to fully deliver on its potential, is our concern there. You think seven would make a difference? We do think seven would make a difference. I would accept longer would probably be more artificial, given the sort of, well given that as I expected you can see individual projects taking eight or nine years, but I think we were trying to strike a balance at seven years. We thought that people felt would just add that little bit more time for investors to make progress, but at the same time not have something that the Government might see as too open-ended. Okay, thanks. I'll ask you the other one now, I'll come back to the night folk. The Scottish Fiscal Commission has said that the impact will be less than £5 million in lost LBTT, so it's not commenting, because that's a relatively small amount by the whole Scottish tax take. Having said that, £5 million, that LBTT that's lost, is fairly definite, whereas any money coming in is fairly uncertain. Does it not concern you that if we go ahead with this scheme that public services are going to have to face a cut to match it? No, one do recognise the Fiscal Commission's expertise in this, but this is about trying to create things, making things happen that are currently not happening. That's probably where we come from, so I think in the longer term, even when buildings are built they will change over, there'll be new tents coming in and there's tax paid at that point and so on, and new buildings will be replaced and created on sites once they've got critical mass and success of investment as well, which might be beyond, let's just say we get the seven years that we're asking for, so I think in the long run, no, I think there will be more LBTT in the long run, because at the moment I think the intention is that it's getting new investment into places that's not currently happening. Okay, thanks. Mr Thomson, just the same two points to yourself, really. Are you concerned about the timescales or is that not really a fact? For us at this stage, probably the longer the better at this stage in terms of where we are in terms of getting things right for us, I think, is where we want to be, but also what I alluded to earlier on. I do think that the Scottish Government is going to need to have a look in more detail at this. I know your question, the Minister on it later on, but the implications of what's been discussed here are worrying us even more, I think, when we seem to be talking about new jobs, but nobody can tell us what that new job looks like. I think that you only have to have a serious think about how, and I'm sure we'll be back in front of someday at some point on just transition, about how the effects of the movement of work under just transition is going to impact on other jobs, but the new jobs stuff, so I think for us, we want to try and get involved in the talks as much more than this in it, and obviously that longer period is not a concern for us. In terms of the cuts to public services, I think you mentioned in the tax revenue coming down, I think that that is going to be a massive concern, as we've spoken about displacing, and there is an issue on-going just now around the amount of tax that is coming into country due to the stagnation of wages, and I think that that has to be recognised in terms of where the money is coming from for investment, so I think that in terms of public services, we obviously represent public sector workers as well, and our fear is that more money being taken out of that and pushed into different areas is going to be of a concern for us, but again, I'll take it back to an issue. If we're creating good jobs and new jobs have to be well-paid jobs, well-paid jobs bring more taxation in the country to generate wealth in the local economies that they're built in, but we can't do that to the expense of those areas that are going to have displacement in it, and if as much as Ross says, then I think we're going to have some real concerns going forward in some of those areas. I want to focus on the application process that's gone through our MDAs, and I hear evidence so far. I think that a globally acknowledged problem about special economic zones, special export zones, and the impact on workers' terms and conditions in their rights in those areas. Unite, first of all, how important is it to have a transparent process, both of application and evaluation, for those kinds of schemes? For us to reassure our members and to reassure ourselves, and also for the Scottish Government to reassure itself that things are happening, we want to see a clear process of how the tender and started, who's invested in it, what their investment history is like, what is their portfolio like across the rest of the economy, what's their history like in terms of jobs, pay and condition for the workers, do they have any, you know, it's almost like asking for true diligence to be done on investors to make sure that when they come in and they're investing in the Scottish economy, that they're also not just investing in the Scottish economy, they're investing in the Scottish people and investing in the Scottish economy and the Scottish workforce, and that's really important for us. In terms of valuations, so, you know, I think there's two things to this. It's evaluation of how the economy is progressing through obviously the LBBT that we're talking about here, but for us, the evaluation is, is it bringing what it's required to bring into the economy, and I think that's one of the critical questions that we need to ask ourselves here. If we're talking about green ports for an investment in new jobs, particularly green jobs in the interest of new technology, you need to have a fair analysis of what those jobs are actually coming into do. I mean, I made, you know, a slight joke earlier on talking about green jobs, and as a green job, Sunday flying about on an electric scooter delivering food for delivery. But at this point in time, we don't know what a green job looks like, and there is no definition out there for us to actually compare what those jobs are going to be. So we don't want new jobs just thrown in to three ports in green zones just for the sake of them being a new job. A new job has to be valuable, has to contribute to the economy, and hopefully if it's proper green new jobs, it's contributing to the just transition and the future that's contributing when it comes to the economic and environmental needs. I mean, this is about spending public money, in the sense that that's what we're involving here. I mean, do you have confidence in the process of the evaluation of those bids? Liz? Not really, no. I don't think enough's been done in terms of, like, being transparent about how the bids have been delivered and who's involved in the bids. I mean, we're doing our own mapping within Unite and trying to find out who's actually in those areas already, existing companies, and perhaps looking like who's going to be attracted to this. So I just feel as if there's more work could have been done to make it much more transparent in terms of involving trade unions as well as to use it in order to alleviate any concerns that we would have. Instead, we have to come to you in front of you to express our concerns because we don't feel as if we've been involved in the process. Thank you. David, I think that the essence of your submission is about concerns about whether those plans can be delivered, the timeframe. How robust does the evaluation have to be of the kind of applications that are put in in order to make sure that we can deliver it? Do you think that we need a robust process that can evaluate the plans that are put forward? Yes, it needs to be robust, I agree. I do think that part of the reason we raised concerns about the timescale delivery of when release will kick in was obviously the partnerships that were being put together whilst they were already strong, part of the bidding process. Obviously, they have been in process of appointing chief executives and manage directors in order to actually drive forward those plans. I think that the people on the ground are quite strong partners with both the local authorities, investors and businesses involved in those areas, as well as I think that the Governments have been involved as well. I think that there is quite a strong organisational process that should lead to robust scrutiny in the council as you go through. You are talking about giving release. We have talked about the issues there. I would expect that the committee and others will be keeping a close focus on progress. Do you think that it would be acceptable to have a process that was—there was no published criteria—that there was no advertised application route and that those decisions were taken by enclosed doors? Would that be acceptable to your organisation? In terms of appointing the successful bidders, or as we go forward to appoint the successful bidders? Appointing the successful bidders, I suppose that the issue was that this was always going to be a by-government decision, wasn't it, UK and Scottish Governments? Inevitably, there were going to be some sensitivities around that. I would say anecdotally, having talked to some of the UK officials behind the UK Governments' free ports prospectuses back in the day, they were very impressed with the prospectus put together by the Scottish Government in the end and thought that it had picked up on some lessons. I think that it had picked up on some of the lessons from history that we have talked about already. I think that that process was good. There was a process and a prospectus. In the absence of a process and a prospectus, would it be acceptable to spend public money without any process or prospectus? No, I think that it's about giving a fair chance to bidders around the country, so I think that that was helpful. The same question to you. Would that be an acceptable situation if we were spending public money without an application process? No, it has to be fair and transparent. Thank you very much. The list to be followed by Jamie. Thank you. Mr Thomson, you've been pretty excoriating in your criticisms of the situation as we face it. You quote in section 4 of your submission to us that we find this attempt to lure businesses onto the sites on the back of the taxpayer-funded tax rates abhorrent. That's pretty strong language. Do you actually believe in the concept of the green port, or do you think that the aims and objectives could be achieved by another means? We are not opposed to free ports and green ports at this stage, but that's dependent on what comes out of discussions like today. For instance, if we're having these discussions right this way up and down the length and breadth of the UK in different areas, we're obviously dealing with the Scottish side of it. For us, the investment of up to 75,000 jobs in Scotland is obviously welcome, and what that brings to it in terms of new skills and different things, and obviously the taxation issues, and just for building local economies, is going to be critical. However, the idea that we're just bringing them in and giving them tax relief at no or that they can't, they just get that and don't give anything back is something that we can't agree with. That's where we come to the issue of proper pay, proper terms and conditions, proper health and safety legislation, a proper procurement process that's open, fair and transparent, and there's not just thrown money. I mean, I'm sure you've been in many committees where you've heard the horror stories of public procurement and funding and where that money goes. You know, you just need to look at some of the stuff that goes on in the health service under the health and social care partnerships where it can cost £150 to change a light bulb across different areas. So all those issues we don't want to see happening again and we want to make sure that the trade union and effective voice that was referred to is there and it's there at the beginning, but I do have a fear personally that this could end up just being us handing over money and tax relief to big business, and when we start moving them into these areas that become almost deregulated and unregulated in a way, it just opens up for us a potential kind of worms. We want those assurances going forward that there is proper health and safety in those areas, that the procurement, the construction work from the very start is open and honest and it's built and it's done it through proper employment laws and employment legislation. Liz has referred to employment law in Scotland, hopefully that is something that our union is pushing very hard on in terms of trying to make that happen and hopefully that would give us more protections, but given money over for nothing back is what we find at the bottom. Okay thank you. Okay thank you, Jamie. Thanks very much, Grafina, good morning. Just I supported the Cromarty Firth bid, it's not a declaration of interest sort of thing but I think it's important to say that it's important and Ross talked about the kind of east-west divide but there's also the north-south divide and you know there's undoubtedly an important need to invest in remote rural areas particularly across the Highlands and Islands so I welcome it. I did want to ask, if I could first come to Derek and Liz, just in terms of that engagement, you talked about not being engaged through the process and not being engaged, you're not sure what green jobs are, I don't think you're the only one sort of finding themselves in that position but I'm just wondering what kind of engagement you've looked to do or you have been doing with the two successful bids with Cromarty Firth, Global, Inverness Port and also with obviously the consortium led by Fourth Ports. I haven't been in, I mean the one that's been most recently raised is with Edinburgh City Council in terms of, so we're now in the process of trying to engage on those areas but as we said what happened to Edinburgh was very null and void and I think there's a lack of understanding it there in terms of something about what has to happen in terms of engagement, you know what I mean, in terms of negotiation and stuff and that's why we will keep reiterating that we want to be in at the beginning on these areas so that we can discuss the workers issues as it's coming in and although we might not be at the stage of boots on the ground but it is important to set a standard and stuff like that, Liz, have you got anything on that? No, I was just going to say that we have obviously got a number of members at the Fourth Ports and we've got a very organised workforce there who are pushing this but they're pushing that at a different level from where the decisions are being made about the bids coming in etc so while it might be at a low level we're having discussions with our members in places like the Fourth Ports, it's not at the place where the decisions are being made about who's investing, who's getting, whose bids have been accepted, I mean I think that that was what we wanted to be in from the beginning and we want to make our voice heard when we're talking about which companies we've had situations particularly in construction where a number of very large organisations have been involved in blacklisting they're going to be in there getting public money again when you know that they've had to pay money back to workers that have actually been blacklisted so we need to just be more mindful and we have these answers, we have some of the answers that I think that require to be heard and yet we're not being asked and I think that's frustrating for us but you're saying about wanting to be there from the beginning of the process and be part of that kind of decision making but do you not see value um I mean this is kind of devil's advocate question really but do you not see value in that engagement even now with the two winning bids the two consortiums and you know least of getting that information to them making sure they're aware of it or absolutely have you tried to do that or no I haven't on my capacity you know but I think that if their opportunities are there to do that we would absolutely take up that opportunity as I say we're trying to do our own mapping because we can't get what we we can't get information that we need to know and that's from our conveners at these sites and where can if they can't get them where can we go to so you know maybe um you know the that's something that we can take that up with I mean I I understand the point you're making on not being listened to but you know it's it doesn't have you doesn't have it at this stage even though I understand the arguments you've made before that you've asked either and maybe that's to that's an area to I mean to start but it does sound as if you know you were coming here to say we're not being listened to but we've actually made no attempt to try and get heard but but we're getting heard at a level we we're not or rather we're not being heard at the level we need to be heard at and we are we are contacting people and saying to them we need to be heard we need can we come you know get a meeting and these sorts of things but we need to pursue that because you know the time is moving on and these things these bids are being accepted and funding has been you know given to to organisations already and so but it would just be interesting as well to be updated on on how that engagement goes I think as well from one point of view we'll pursue that thank you thanks so much and David if I can just kind of ask you I mean one of the one of the issues that we all know I mean we you know as I say from my point of view I was very pleased that the bid in Cromity Firth and the Cromity bid was successful but we also recognise that there's a huge amount of other investment infrastructure etc needed transport infrastructure and the highlands is not particularly good there's a there'll be a need for housing if people do if these jobs do create and all people do move to the area so I'm just wondering how important that you feel that could be uh very important and you do a short answer I mean and you know clearly the the Highland Council are very closely involved in the bid and involved in that and uh uh you know I think have a track record as I was saying taking forward a lot of initiatives so you know I think that should give us some encouragement uh as uh in the process so uh but it will be important to build uh the infrastructure that people will need to to make these areas a success I agree entirely and you think at the moment um I mean given these the bids that were only recently being successful there's obviously lots of work still to do that governments and I mean UK government Scottish government local government are working together enough on delivering that peripheral infrastructure as well I mean peripheral perhaps but key as well uh I mean there's long-term plans for and development plans and so forth that the Highland are already actively progressing um so uh I do think and obviously there's a related um city regional deal uh processors as well um and I mean I would say for us it's very noticeable that D-LUC for example are very much more on the ground and active around the country than perhaps there were a few years ago okay thank you okay thank you very much that's concluded questions from the committee I just wonder if our witnesses would be happy or if you to ask any further points or make any further points to the committee on something that hasn't been covered so if you feel that we haven't asked anything that you maybe think you would like to mention now is your chance trying to try and reiterate just just a couple points out that maybe I skipped over but that is you know we'd be hoping for direct employment those areas contracts in those areas that have worked you know I think that that's really important for us ensuring that community and local areas are developed alongside of you talked about the house and if people need to move if jobs are displaced how does that affect that local community but one of the key things for us is ensuring that the products or the manufacturing stuff the concrete the steel whatever is done within those free ports it's all manufactured within Scotland and that money and that those areas are built in Scotland so that it becomes a proper economy and it's not just you know selling things off or like what's happening with the wind turbines where we're importing it all from from another country when we could be building them here I just think there's there's a real I just get a feeling on some issues like this that we are you know we're running before we're walking and a lot of stuff there's a massive change coming under you know the just transition what the impact that's going to be environmentally but also productivity manufacturing the things that need to be done and he has an opportunity in our view to get something right at the beginning under free ports to get the right legislation in to make sure the manufacturers done within this country to make sure the jobs are kept here make sure that everything's done reasonably and above board and given a proper boost to the economy not just you know shoehorn shoehorn and things in just because we want to try and create you know a bit of a boost in the economy there's a longer term thought process for for unite when it comes to this and we hope that you take into account the considerations of the wider economy issues that are going to come alongside free ports which in your view is the the just transition agenda which will have a massive impact on free ports but it's going to have the biggest impact on your economy and in any generation in in the past and I hope that our points have been taken on board and thanks very much for your time. I just want to mention skills training and apprenticeships in these communities as well I think it's important to put in place proper facilities in order to create the next generation we're talking about not having the jobs the green jobs what are the green jobs now there were green jobs in mackahanesh which have gone and that was you know that was devastating for that community which we can't have jobs that were there that are now lost we need to make sure there's a future for our young people by making sure that there's skills and training put into the green ports and also robust apprenticeships where there's real training given on renewables in order that we do have a future and it's not going to be something which you know if it's not successful in five years and the people move which we've seen in in other areas that within Scotland when you know organisations come in to a place extract every part of public funding they can get and then leave we can't have that happening we need to leave a legacy we need to make sure that these if they are anything they are they are offering a future especially you know given you know an area like the Cromarty Firth and the Highlands and Islands of Scotland where there's real opportunities there to to get jobs for young people that are sustainable that will stop a movement out of those communities to maybe the central belt but yeah it was just ensuring there's a proper skills training and apprenticeship agenda within the green ports okay thank you and david at just one point on the going back to displacement question i whilst we firmly believe as we said earlier that this we want to see additionality new businesses and in the long term new revenues and so on coming from green free ports not all displacement is necessarily bad if we've got 50 odd thousand jobs in the northeast that you know fossil fuel related and possibly you know facing decline or loss if free ports help to save some of them retain them then i think that element of retention even if it is displacement i'd like to think would be seen positively because it's returning those jobs in scotland rather than losing them elsewhere okay well thank you very much for those final points which are much appreciated and thank you very much for taking the time to give evidence to the committee today we'll continue taking evidence on the draft order next week when we will hear from the minister for public finance planning and community wealth and then take a decision on whether or not to prove the order that concludes the public part of today's meeting the next item on agenda which we'll discuss in private is consideration of our work programme we're now moving to private session so i'll call at five minute break