 I welcome to the 6th meeting in 2017 of the Finance and Constitution Committee. As usual, I can ask members to switch off their mobile phones, at least put them in a mode that would not interfere with proceedings, please. The first item on our agenda is to take evidence on the budget bill at stage 2, and it is intended to allow the committee the opportunity to put questions on the bill to the cabinet secretary and his officials. I welcome to the meeting Derek Mackay, the Cabinet Secretary for Finance and Constitution. Mr Mackay is joined by Graham Owenson, the head of local government finance, Jonathan Sewell, who is the head of income tax and fiscal adjustment unit and Gordon Wales, who is the director of financial management. I welcome all our witnesses to the meeting and I invite the cabinet secretary if he wishes to make an opening statement. Thank you, convener, and can I take the opportunity to recognise the work of the Finance Committee during this year's budget process, as reflected in the quality and scope of your report on the 2017-18 draft budget. As I informed Parliament last week, I will respond in full in advance of the stage 3 debate. There are a number of amendments to consider following the spending changes that I have announced in stage 1 of the bill. As members of the committee are aware, there are a number of differences in the presentation of budget information between draft budget and budget bill. In order to assist the committee, I will explain the main differences with reference to table 1.2 on page 3 of the supporting document. Column H in table 1.2 sets out the draft budget spending plans, as it is required to be restated for budget bill purposes, and columns B to G provide details of the adjustments, including the necessary statutory adjustments to meet the requirements of parliamentary process. There is already one substantive change to that spending plans outlined in the draft budget that I would wish to take this opportunity to highlight. To ensure that budgets align with the latest available information, there is an increase of £1.115 billion to the annually managed expenditure, which is aimed at budget provision for teachers and NHS pension schemes. That reflects HM Treasury updates to the discount rate applied for post-employment benefits announced in December 2016. That is a non-cash adjustment that relates to estimates of future liabilities. The other adjustments that are set out are the exclusion of £164.8 million, non-departmental public body, NDPB and non-cash costs, which do not require parliamentary approval, and they are mainly in relation to depreciation and impairments in our NDPB community. The exclusion of judicial salaries and Scottish Water loan repayments to the national loans fund and public works loan board, which again do not require parliamentary approval. The inclusion of police loan charges to be approved as part of the budget bill. Those are technical accounting adjustments of £111.7 million, reflecting differences in the way that HM Treasury budgets for those items are required to account for them under international financial reporting standards-based accounting rules that apply in respect of the Government financial reporting manual. There are also adjustments to portfolio budgets to reflect the requirement that a number of direct funding and external bodies require separate parliamentary approval for. Those include national records of Scotland, Forestry Commission Food Standards Scotland, Scottish Courts and Tribunials Service, the Office of Scottish Charity Regulator, Scottish Housing Regulator, Revenue Scotland and the Teachers and NHS Pension Schemes. Finally, the restatement of specific grants included in overall 1617 local authority settlement, which remain under the control of the appropriate Cabinet Secretary with Policy Responsibility. Full details of all grants treating that were included in the summary table on page 44. I would again make clear that those are essentially the technical adjustments and do not change in any way the budget that has so far been scrutinised by this and other committees and approved in principle by Parliament. I would also remind members that, for the purposes of budget bill, only spending which scores as capital in the Scottish Government's or direct funded bodies annual accounts is shown as capital. That means that capital grants are shown as operating expenditure and supporting document. The full capital picture is shown in table 1.3 on page 4. Moving out to the proposed amendments to the budget bill, those give effect to the changes of spending plans that I announced to Parliament at stage 1 debate last week and will be formally moved in due course. The amendments allocate an additional £160 million to local government, £25 million for police reform and £35 million for Scottish Enterprise. Details of the allocations of the £160 million at local authority level have been provided separately and it would be up to councils to decide how best to deploy this additional funding. Those commitments will be funded through the use of the budget exchange mechanism, updated projections of the Scottish Government's contribution required to bring the non-domestic rate pool into balance and a reduction in the anticipated cost of borrowing repayments next year. I hope that members of the committee have found this information helpful. I thank the cabinet secretary for his opening statement. The government has claimed that an additional funding package of £220 million has been made available in 2017-18. Can I ask you a very simple question of where that money is coming from? I think that it might be helpful if I give you more of the detail on that, then I would be happy to take further questions. I can give you figures as well around this, but I would caveat that by saying that the figures will be quite fluid until we get to the end of the financial year and into the next financial year. I suppose that that becomes clearer as I describe how we arrive at those figures. Moving from draft budget to where we are now, we have had further time to look at forecasts, demand-led budgets, actual expenditure and potential carry-forward. We have carried over from one year into another year, which is that the budget exchange mechanism that all members will be familiar with. We are also forecasting around non-domestic rates and how we adjust that issue, as well as a change around borrowing that I have touched upon. Of course, we have changed our tax position and that in itself will generate a sum of money. To give you the figures again with that caveat that, as we reach the end of the financial year, some of those figures within that £220 million figure may change in terms of the profiling within that, but I will give you a figure for each. In budget exchange, that is a carry-forward from one year into the next, which could be demand-led budgets or underspends as you understand them. There is a figure of £47.5 million in resource scale, so that is Ardell. In capital, £42.5 million and in financial transactions, £35 million. In terms of the borrowing issue, there is a figure of £6 million. Of course, officials can assist with some of the technical detail around this if it is required. On the non-domestic rates pool issue, we can have a figure of £60 million. In addition to all of that, the sum that we believe that the position on higher rate threshold on cash freeze should generate around £29 million. In resource scale, that is a total of £142.5 million. In capital, £42.5 million. In financial transactions, it is £35 million, which takes you to the figure of £220 million. To be clear, the fluidity of that may change. The £220 million will not change, but the profile within that will be subject to what is required and what is appropriate at the time. Some of that will feature in budget reports later in the financial year. I can go into further detail if it is required, convener, but that is where that resource comes from. I suppose that I put it another way. There is always budget exchange. It will carry over from one year to the next and underspend. You carry it into the next year, because we cannot overspend. We can only underspend or get it bang on, but to achieve an absolutely bang on target would be next to impossible for any organisation of that scale. However, putting it into context, that level of carryover, budget exchange, is quite normal from one year to the next. Maybe in the past, finance ministers may have been able to allocate that to specific purposes in year or over the course of the year. Last year, we allocated some of that figure to the fiscal stimulus for £100 million. What I am proposing to do at the start of this financial year is to allocate those budget exchange numbers to the purpose of responding to the requests in Parliament and the clear budget negotiation process that was undertaken. I think that you are right, cabinet secretary. Members all want to get underneath some of that information a bit more. Can I look at a bit more detail in regard to the non-domestic rates pool, which you tell us will produce £60 million for expenditure in other areas? I hope that you will agree with me that, rightly, there would be an almighty outcry from the business community if they thought that this money was coming from business rates. I am therefore looking for an assurance that none of the money from the NDR pool will come from business rates and there will be no impact on Scottish businesses as a result. There is no impact on businesses or business rates as a consequence of the budget decisions that we have taken. The reason for that is that non-domestic rates in the rates pool is incredibly complex. Essentially, there is a multi-year budgeting nature of that because of how it is distributed, how it is calculated, how it is forecast, all the moving parts within it. It is true to say that every local authority area keeps every penny of non-domestic rates, but, as I said, there is a multi-year process in that. There is what is known as the pool, the contributions and then the distributable amount. What we are able to do is assess the forecasts around that and profile the amount for distribution, but absolutely that is what we have done. We have looked at the profiling, the considerations of the pool, the nature of the operating account and, certainly, no decision in relation to £160 million will impact on what we have already proposed on business rates. The poundage will still be reduced and small business bonus is still being enhanced. We are still taking thousands of businesses out of the large business supplement. Every council area still keeps every penny that it raises, but we have changed the forecasting within that. Again, I can go into further detail about the basic essence of your question is correct that there is no impact on businesses paying rates as a consequence of my decision on how to deploy those resources. I know that Liam had a question in this area as well. Liam, do you want to ask us a question? Good morning. It actually does follow on nicely from that. If I am hearing you right, cabinet secretary, there is an extra £60 million that you have not realised you had from around business rates. As you know, because I know that you have been up, up in the north-east there are intolerable hikes happening on business rates to local businesses. There will be big cuts in their resources. Businesses are threatening that they may have to shut the doors. The question is, why would not you use the extra business rates money to ameliorate the significant problems that are being faced by businesses in the north-east and elsewhere? Mr Kerr has a very good question. I am well aware of the issues in the north-east, particularly Aberdeen City and Shire. That is why I went there, short notice and a timely request to go. What was described by the media as a fiery meeting actually was not. It was a very positive and constructive meeting by all attendees. The reason for that is that when we can go over the facts on business rates, there are also further actions that can be taken. The committee is a useful place to understand and discuss that. Some people do not think that business rates stay in a local area. I have heard that charge in Aberdeen and Aberdeenshire, so that is not true. The resources do stay in a local area. When I was able to express how half of all properties in Scotland will pay no businesses whatsoever, instantly half of all hotels—I do believe that there is an issue around hospitality—were there further exploration, but half of all hotels pay no business rates whatsoever. In expanding the small business bonus, there would be many beneficiaries in that part of the country, as well as across the country. In raising the thresholds for the large business supplement, £51,000, that is lifting thousands of businesses out of the large business supplement, and taking the poundage and the large business supplement, it is still lower than the £50 and has matched the poundage south of the border. I suppose that what I am trying to express is that that is a good, nationally determined package of reliefs, as well as expanding reliefs for rural as well. In addition to all of that, there is the Ken Barkley review to look at all the individual issues around business rates. That does report later in the summer. I want to look at the methodology around how some individual sector rates have been arrived at. Maybe it has been the case for decades that the formula is the formula, but I am very interested in hearing the panel's thinking about that. The conversation that I had in the north-east was a very constructive one, because what I said is that I was more than happy to work with the local authorities on further support. It may be more appropriate to have local schemes that reflect local circumstances, which I will come back to. The reason that a national transitional relief scheme is probably, I do not believe, appropriate is that the nature of the revaluation that Mr Kerr will understand as independent of government is delivered by assessors accountable to the courts and local authorities. However, the reason is that there is a shift in some people's rateable values. Incidentally, two thirds of people will be paying the same or less business rates than they were before. Those whose rates or bills are going up will absolutely want to understand that and express their view to government. Those who are now facing no-bills or smaller bills may not quite as vocal. However, what I have tried to do is look at the data that I have. If we were to do a national transitional relief scheme that exists again south of the border, it is automatic because of the legislation. The biggest winners from that so-called would be the national utility companies at the expense of many, many smaller businesses, anything smaller. Many, many would be paying more and have their rates held artificially high to compensate large utility firms. I do not feel that that is the right balance. On local support, I have been engaging with a number of councils on this on local support. Through the community empowerment act, there is the ability, the enabling legislation for a local authority to create any local rates relief scheme that they see fit. Perthincon Ross Council has used it for retail, but any local authority could say that they might have a sector, tourism or oil and gas issues in the north-east, that they might want geographic or sectoral support. They are enabled to do that. It could be state aid compliant. I would argue with an extra £160 million resources that local authorities were most certainly not expecting. They have some headroom and flexibility to be able to deliver a local scheme if they think that that is appropriate. That is local community empowerment. What I am trying to describe is between that range of actions. I think that we have taken the right decisions around business rates. However, I will continue to engage with business, because I am very mindful that some may have explored through the assessors their rateable values, and maybe others are not fully aware of what it means for them yet. I would not want them to miss out on the opportunity for the appeals process. That is incredibly complex, which brings me back to the issue of the non-domestic rates pool that all go to local authorities. Government makes a determination of what can be distributed from that, and because there is a multi-year element of it, it is not bang on in one year what is raised and what is spent, what is distributed, but over a number of years we have it in balance. I have been able to take decisions about what keeps it in balance over a number of years, although looking at further forecasts on appeals and income will be subject to change as businesses work their way through the system. I am quite sure that, because utility firms are probably at the higher end of increases, it would be fair to say that they will probably appeal that, and they will probably have an outcome on the final position. That is a fair degree of detail, but I am happy to bring in Graeme Olson, if you require more on that. Can I just re-ask the question? I hear everything you say, cabinet secretary, but the question that I asked was whether you consider applying the £60 million extra to ameliorate the eye-watering increases that an awful lot of businesses, particularly in the hospitality sector, in the north-east, are facing. I tried to give you quite a detailed explanation of how the rate system works, how the contributions work, how the national release works and how the local release works. I think that our value of release now is in the region of around £600 million, so I think that putting that into context is a fair balance. There are some elements that are automatic, some that are not. I think that the £160 million, giving it to local authorities, where they have the discretion how to use it, is the right balance, and I think that the right approaches around the supports nationally and what can be done locally is the right balance. Some of that might be quite specific. If you want me to just make bland political points, I can, but I hope that I have been able to describe detailed knowledge of sectors and geography, because there are many people who will be looking at the rates bill, who will be paying less. There will be many parts of the country who will be having smaller bills as a consequence, so a blunt instrument, some people have asked for postponing and implementation of their evaluation, transitional relief, but I have tried to describe how each of those determinations would be unhelpful for those who will have smaller bills and will be paying less as a consequence of the national decisions in their local evaluations. Bluntly, I think that the allocation of resources is the right balance, but I am not closed minded on what to do next to support businesses on business rates, but I am doing it in detail, looking at all the evidence. I do not think that a further allocation of £60 million to business rates relief nationally necessarily is the right thing to do when I am looking at the issues sector. I thought that was what you were asking, Mr Kerr. No, and I am not making a bland political point. What I am simply saying is that if I am a business facing a 250 per cent rise in my business rates, which many of these businesses are, then I look at this and say, well, the government is taking a significant extra amount of money in business rates, or there appears to be a pot that you did not plan for, which you appear to have made a spending decision on. You could have made a decision to help my business, my 250 per cent. You could have done something, but you have chosen not to. Did you consider making that choice, or have you not considered making that choice? No, I think that I have tried to explain the details and the complexity for how the non-domestic rates pool works. Mr Kerr, I am happy for officials to assist. I think that you have misunderstood how those resources can be released and how the forecasts are used. This is about the multi-year nature of budgeting within non-domestic rates and ensuring that, essentially, the pool is in balance. It is absolutely not the case to answer your question or the convener's question that I am asking businesses to pay more. Absolutely not the case as a consequence of these spending decisions or the allocation of non-domestic rates. Ivan, on the issues around budget exchange, we need to explore it as well, Ivan. The area that I was wanting to ask about was the budget exchange mechanism, and did you detail three numbers there? I have got this right to £125 million, is that right? You had a £47.5 for resource, a £42.5 for capital, a £35 million for financial transactions. Those three figures are correct. That is £125 million. If I have got that right, that is the buffer of the slack that you need to be able to manage the process through the year to make sure that you do not run out of cash on items where you have got demand-led or other spending that needs to be made. Sounds like a big number, but in the context of a £38 billion budget, it is actually a little bit 0.3 per cent. I suppose that the question is, am I understanding of that correct? Secondly, it is understanding that you do not lose any of that money by not spending it. The agreement with the Treasury is that it just moves into the next year, and that is what is allowing you to release it up. You would have a problem if you had not allowed for that money because you do not know where it is going to be at the start of the year, but as you go through the year, it becomes more apparent. Is that the understanding of how that thing works? That is a very fair summary, yes. Of course, I could just repeat all that, but if you want concise answers, convener, I am happy to say that that is a fair summary. That is clear. I just need to get that clear. That is fine. That is all I need to know. Okay. Murdo, do you want some more clarity on budget exchange? Yes, and also on the broader issue of the numbers that you set out at the start, finance secretary, because when you presented your draft budget to Parliament about six or seven weeks ago, you at that time said—I might be paraphrasing—that this was a budget which was a very fair and balanced one and you accounted for every penny and you challenged the opposition parties if we wanted to propose any increases in spending in any area, we would have to find what other parts of the budget we would cut to balance. Of course, it now turns out that is not really the case, is it? It turns out that you had down the back of the sofa the best part of £200 million you were not telling us about. How could it have been fair to Parliament and its committees, which were trying to scrutinise your draft budget and trying to carry out detailed and proper parliamentary scrutiny of that, when you had all those money squirreled away that you were not telling us about? Well, Mr Fraser, I was trying to make you work for your money to see if you could find any more resources that I was not able to allocate and what policy— Government, final secretary— And it's unlikely to change for a while, I think, Mr Fraser. I know that Mr Fraser loves to debate. Maybe that will come back in stage three. I actually think that it's a fair question. Some of this, as I say, about the updated forecasts around non-domestic rates and decisions that we're taking around the NDR pool. Of course, one is a policy change around tax, a policy change that amounts to an additional approximately £29 million, moving the higher rate threshold from an inflation increase to a cash freeze, so that generates additional resource, and that's a policy change. Officials have advised on the position of changing an element of borrowing, which releases £6 million. Budget exchange is a political decision. I think that it's fair to say that the opposition will now be very wise to budget exchange operation in future years, but I've taken a deliberate decision to say what would normally happen in budget exchanges that would carry on into the next year and over the course of the year be allocated as the Government and Parliament sees fit. I'm determining at the start of the financial year that this is an appropriate policy decision to make. Yes, partly as a consequence of the negotiations, and in all negotiations with all parties that will remain confidential with me. Other opposition spokespeople have chosen to put their requests in the public domain, but, of course, I had to work hard to try to identify resources to meet the consensus in Parliament that I wanted to deliver, and that did mean policy decisions. It did mean making an early decision around how we allocate budget exchange and ensure that officials turned over every possible stone to find extra resources to be able to allocate as part of the budget's position. As I said, I can give further information on non-domestic rates pool element, but that is still fluid in that there will be issues within that and there is a balance that we are addressing. However, taking all of it together, it is the case that I didn't have resources waiting to be allocated. It was decisions that were able to be taken over the course of the past few weeks since the publication of the draft budget. It would also be fair to say that my room for manoeuvre for future years is now somewhat limited. I think that we probably all understand that last point to the finance secretary, but you said that you had to work very hard to find these additional resources. I suppose that the obvious question is why didn't you work that hard back in December before you published your draft budget so that Parliament and this committee could have had a much fuller picture of the resources at your hand as opposed to you publishing this draft budget, which now seems to be a partial picture? Then money was found subsequently. When exactly did it become apparent to you that you had this extra money that you did not know about before? It is not an accurate characterisation to say that there was extra money for allocation. Those are political decisions around the profiling of non-domestic rates and our understanding of some of the assessments that are going on at the moment. Assessors will still be looking at evidence at the moment. They will still be engaging with sectors and they will still be considering appeals that may come forward. Our forecasts on non-domestic rates will continue to change until the end of the process. In fact, they will continue to work their way through as appeals are delivered. It is a moving situation. There are many moving parts to a multi-billion-pound budget. Again, some of it was policy choices around the decision to move on our position on tax and to be able to identify further ways to allocate underspend and budget exchange. Mr Fraser will be well aware that many of the budget lines are demand-led. We will only have clarity as we get to the end of the financial year on what will be spent and what will be available for allocation. That changes day to day, week to week. As we get to the end of the financial year, we have more information to what is a substantial amount of money, especially the £160 million to local government, but in the end a very small part of the total resource that the Government has at its disposal. You mentioned your income tax changes. If I recall correctly, your original position of income tax in relation to not meeting the proposals from the UK Government to increase the high-rate threshold, which will give you an additional £79 million. Your further changes that you announced last week will bring you £29 million. On top of that, that makes £108 million according to my calculations. Can you confirm that that £108 million is less than the money that you have now been able to find? To meet all your spending requirements in your original draft budget, there was no need at all to create an income tax differential between Scotland and the rest of the UK. It is an extra £107 million, £108 million that helps to balance the overall budget, so that contributes to the overall spending plans of the Government. To meet your original spending plans? To deliver the spending plans that I have outlined to Parliament, we require to make that tax contribution for the policy reasons that we have set out to Parliament. We will go into transparent areas a bit earlier than expected. I am with to change slightly the process that was going to go through, because James, you were interested in transparency issues as well, so I might as well get all these issues out of the way now. What do you think it says for the transparency of the budget, cabinet secretary, when effectively you have been sitting on a slush fund, which you had at the time of the publication of the draft budget seven weeks ago, and you hold that back in order for your negotiations? Therefore, I have not been completely open with Parliament at the time of the draft budget. Well, Mr Kelly, I think that that is just an accurate, fair or reasonable characterisation of the budget process, a process that your party had also engaged in. I think that it is very constructive of government to listen to the parties in Parliament and do everything it possibly can to make decisions to try and find consensus to get a budget through. I do not think that it is unreasonable to make decisions to enable us to do that, and I totally refute any suggestion that I was sitting on any sort of fund ready to go. It was political decisions that ensured that I could arrive at a proposition to be able to allocate £160 million extra resources and ring funds to local government. I would have thought that Mr Kelly would have welcomed what seems quite bitter about. I am not bitter about anything, Mr Mackay. You say that the process is reasonable. If you take the budget exchange mechanism as an example, £125 million has essentially been built up from previous years. You know that money is there, but you did not share that information with Parliament at the time of the draft budget in December. You held it back for the negotiations. Is that not the case? No, it is not the case, Mr Kelly. You are displaying an astonishing lack of awareness of the budget exchange mechanism and the budget processes of the Parliament, which I am very surprised at with the man of your years in the Scottish Parliament. It is a relatively new finance secretary, of course, but it is the case that there is a budget exchange from one year into the next. Budget exchange is not carried from year to year. It is essentially one year into the next. I recall the times when, of course, the Labour executive handed money back to the UK Government and did not know how to spend it. It was almost lost to Scotland if it had not been for the Deputy First Minister, ensuring that Scotland got that money back. The difference between this Government and some previous executives is that we ensure that the money is spent prudently and wisely in where there is budget exchange. It has been a fraction of the overall budget of the Scottish Government and it has been carried into the next year. Mr Kelly asked me at why I did not explain that at draft budget stage until the end of the financial year. Of course, there are accountancy adjustments beyond that, but there will be underspends in individual budget lines all the way through and up to the end of the financial year. Gordon Wales monitors that on behalf of the Government. That figure will change day to day because of the hundreds of budget lines that we have. The end position will only be known at the point that we close the accounts, but we have been able to allocate that as part of the budget process and the fashion that I have described. I hope that that reassures Mr Kelly that I have been prudent and constructive in my approach and transparent as to how I have funded the extra commitments as a consequence of the deliberations at stage 1 of the budget, which privately your party had engaged in. One final question, convener. You mentioned local government funding and, as it stands, there are still £170 million of cuts to local council funding. You have heard over the last week councils that should start warnings about the level of cuts that they face—£50 million in Glasgow, for example. Is it not the case that, in terms of the taxation change that you have made, you have simply tinkered at the edges? As a result of that, it will be local government workers and local council services that are going to have to pay the price because you have not been bold enough in taxation. I totally disagree with that characterisation. Local services will benefit not to the tune of £240 million, which was the figure that I explained in the publication of the draft budget. Local services will now have the spending potential of over £400 million for local services in the way that I have described previously. However, even if no council was to raise council tax in Scotland, take that £70 million figure out of the equation, which is still an increase of £330 million at local level. Let's see what councils do with their council tax. Of course, they are beginning to set their council taxes now, and it is absolutely at their discretion, up to 3 per cent, what they want to raise their council tax by. I appreciate the support of the Labour party and Mr Kelly in increasing the multipliers for those in higher value houses to ensure that we have been able to make council tax a bit fairer, raise more revenue in that wealth support, local services in every part of the country. I said before that I felt that the local government settlement was strong and fair. I think that it is even stronger and fairer than it was before, and I can see Mr Harvey smiling at that prospect as well. I think that they welcomed £160 million unring fence resources, £130 million resource revenue and £30 million capital that they can use as they see fit. I would make one suggestion that goes back to Mr Kerr's point on business rates. I do not want the business rates issue to come as a surprise. I think that councils should consider whether a local rates relief scheme, in addition to what has happened nationally, should be considered knowing that there is more financial headroom and the enabling power so to do. I am happy for Government officials to work with local authorities to share information around rateable values, sectors and locality as well. Mr Kelly will also be well aware of the difference between what officials present as options during budget setting time. Many of us were members of local authorities, myself included. The what officials put up as budget options and what actually happens is two different things. Many of the stories about what might happen in local services may not come to pass, especially as local authorities have more resources than they were planning for and what I felt was already a fair settlement to local government. I have repeatedly rebutted the figure from the Labour Party and the figure that has been misleading in the past. When I look at the increases in local authority by local authority, I think that they are in a good strong position to ensure that there are quality services going forward and that they can take a balanced approach on taxation as well, convener. Questions in this area, cabinet secretary. If you want to ask questions, Patrick Harvie and Neil Bibby. Thank you. Good morning, cabinet secretary. I was smiling when you said that the budget had gone from strong and fair to stronger and fairer. I think that my characterisation would be that it has moved from a very severe cut to local government to something that is just about good enough. The transparency question, though, is one that comes back year after year, session after session. It has been part of the tension between Parliament and government whether there has been minority, majority or coalition administrations in Scotland. Whether that shows itself in the way of difficulty comparing one budget with another because headings have changed or the structure of the way that the figures are presented has changed, or indeed this new example of the perceived lack of transparency around the budget exchange and the flexibility that that gives to government. There is a budget review going on at the moment trying to improve how we manage the process. Do you have any views to offer about how we ensure additional transparency and a more calm and measured approach to working towards budget, particularly in the context of minority government? I would make the case that there is an additional case for transparency in the context of minority government if we want to avoid last-minute dramas and brinkmanship in the future. Well, convener, there would be no one keener than me in the Scottish Parliament to find a calmer and more constructive and helpful way forward to the budget negotiation process than we currently have. I say of Mr Harvey's comment as well about, in his view, the budget to local government is just about good enough. I have to say, coming from the west of Scotland as he does, that's about as good as a compliment you get in political life from a member of the opposition. I will reflect on the comment around transparency and how we do the business of negotiations. It is, of course, a matter for Parliament as well. At this stage, I don't know another way to do it other than listen to Parliament, engage publicly and privately. If there is an issue of transparency, I have to work in the confidential realms of what parties bring to me and then what I can explore and share if parties put in the public domain what their requests are. I can then fairly respond whilst I respect those private discussions. Ultimately, whatever is decided goes into the public domain by way of tax and spend, and that's clearly transparent in what I'm doing through these stage 2 amendments. I think that we could all reflect in view of the budget review group on many issues that the review group will have to consider on timetabling, transparency, process, new powers, engagement with, the chancellor's timetable of the budgets this year, and we'll have two budgets, not one, and then we'll flip to an autumn budget rather than an autumn statement. Considering all of that, I'm minded to consider how we could do budget negotiations differently. I think that political parties will need space to have negotiations with government, but if there's another way to do it, I'm interested in exploring that. I'm not close minded. On wider transparency, there's been some criticism of transparency of budget process and documents. I think that that's partly a reflection of just how complex the multi-billion pound budget is in the many moving parts within it, but I know that we have tried to engage as best we can with people who are interested in stakeholders and opinion-formers in the budget process and in the detail that we've put out there, but I know that I measure a recommendation from your report, convener, as a committee and worthy of further reflection. Other committees, for example local government committee, would like a bit more clarity and information in the same place around local government finance than is currently the case. Of course, some of that is because of decisions that are taken in other portfolios or later in the year, as well as just where information actually features. I think that the point is valid and I think that all members would agree that it's worth a look. The clarity on the local government settlement in particular has been subject to some contested interpretations of the figures, if we can put it that way. Some people are comparing the budget with the out-turn spending in local government, which I think might be unfair to the government. However, the Government also chooses to roll in additional spending, which I think might be unfair from the local council's perspective. I wonder if you've seen the new spice figures that show that even discounting the health and social care money that is contested should be seen as local government or health budget, and even discounting any potential increase from the 3 per cent flexibility that councils have on the council tax, which is their decision, not this Parliament or this Government's decision. Even discounting those, it now appears that we're moving from a 1.9 per cent real terms cut to local government to a 0.7 per cent real terms increase. Do you recognise those figures as a reasonable estimate somewhere between the overly generous and the overly critical interpretations that have been put on for political purposes? I never doubt the work of spice, of course. I haven't seen that paper, I haven't seen those figures. I think that I've expressed my position clearly on the overall settlements of local government. Mr Havie makes a comment as the integrated joint boards are the partnership bodies, are they local government or are they health? They're actually both. That is the point of integration. It's bringing that together and it's absolutely local services. I can't give a judgment on the spice briefing that I haven't yet seen, but I have always expressed my view that the £240 million figure for local services is going to £401 million. However, even if you take off the figure on integration and extra resource on council tax, that sounds like a credible figure in the terms of the question and the way that you have asked it. However, I would also remind the committee that there are many other funding streams that won't feature in those figures that go to support local authority priorities, for example, city deal funding and other funding streams that contribute to local services. I was just briefly going to ask finally about the amendment process, the fact that this was a new revelation to me as a new member of the finance committee. This is the first time that there have been stage 2 amendments to the budget. Do you have anything to say about why that is the case, why it is that the stage 2 amendment process hasn't been used in the past by the Government, why it's particularly being used this year as opposed to other means of making budget changes and whether you anticipate that being a feature of budgets going forward, now that we're a more complex budgetary system with the new powers in particular? I think that it's fair to say that the Government can make budget revisions through the course of the year and they can either come in spring budget revision or autumn budget revision. Obviously budget lines can change through the course of the year but the determining part, the transparency part, the authority given can come in those events through Parliament. What I judge to be the right thing to do is in view of frankly the political deal that has been done to find consensus on the budget, I think is the right thing to do to show upfront and clearly how those negotiations have led to a change in the budget position and bring them to Parliament. I could have made these changes later in the year through other perfectly legitimate budgeting devices but I think that there's a good strong position around transparency and intent by putting it in stage 2 amendments because I know before the budget process has concluded what it is that we're trying to achieve, how we wish to achieve it and therefore Parliament can take a view on it now and that is largely as a consequence of the engagement with the Greens. Thank you, I think that that sets a helpful precedent. Neil Bibby and Willie Coffey. As you know, Cabinet Secretary, the Scottish Government normally reports underspends in June but you've decided to pre-announce £125 million of underspending and allocate that before the close of the financial year. You said that the projected underspends changed from week to week, day to day. Can you tell us what currently the projected underspender is for 2016-17? I can ask Gordon Wales, who leads our financial management, to cover that. It might be impossible to give an exact figure but Mr Wales can give you a flavour of that. The figures that the Cabinet Secretary has described are the numbers that we expect to have as underspend to carry forward to next year, so those represent the current expected outcome. What was the underspend carried forward last year? 75 million resource, 40 million capital and 40 million financial transactions. So you're projecting less of an underspend this year than last year? That's the current state of play. We still have a good number of weeks to go before the end of the financial year. There are a large number of demand-led budgets so that situation could change. On what budgets or projects in 2016 is the greatest underspend at the moment, where's this £125 million that's coming from? What department budgets are the most underspent at the moment to what extent? We could give you a flavour of that and give you some examples. It's important to remember that we're talking about the budget exchange number here, which the cabinet secretary quoted as 47.5 for resource, so it's not the full 125. Also important to remember that what we're dealing with here are many, many hundreds of individual budget lines that cumulatively come together in an overall out-turn forecast. So what we're not talking about here are a small number of budgets that all provide the budget exchange. What we're talking about is a very large number, so examples that I could quote you, which range from reasonably large amounts of money to small amounts of money. So within the sums that have been set aside to PHMRC to support income tax provisions for the collection of income tax this year, the assessment of the costs for this year is around £4.5 million less than the budget was set at the start of the year. That goes right down to organisations like Scottish National Heritage who are reporting something like £100,000 of an underspend in their overall resource grant. Okay, so what's the biggest section of the underspend out of that? What's the biggest departmental underspend currently? So there's a variety of different underspends across lots of different areas. Yeah, so the biggest one, the biggest area of underspend currently projected. I think what Mr Bibby's almost trying to find is that a big project that's not been delivered is a consequence of those decisions. No, I'm just asking what you're underspending in the money. You're carrying £125 million. So what is the biggest area of departmental underspend? It's just a simple question. So when you refer to departments? You've got a list of... You've allocated spending per department. You're projecting an underspend of £125 million. Where is the largest underspend? That's obviously coming from some departments. What departments is that coming from? We'll find that out in Newton when you tell us, but can you not just tell us today where the projected underspend is coming from? You surely know the answer to that. I think that what we've tried to describe, convener, is that there are hundreds of budget lines. If you want a portfolio breakdown, what I'm happy to do, convener, is to write to the committee within 48 hours with the portfolio breakdown of underspends. What you'll see is that there are hundreds of budget lines and it's funds within each of those budget lines, as Mr Wales has described, that adds up to that total figure. I'm happy to share that figure with the committee and you'll see where those come from. They come out through the due process of Parliament and we'll happily express that. I think that it would also be helpful to give you further examples of what those kind of underspends look like, so I'm happy to share that information on Mr Bibby's very considerate figure. That would be very helpful and very welcome. Thank you. Can I just ask you to follow up? You're talking about political choices, political decisions. Did the extra money for Scottish Enterprise and the police budget result as... Was that a condition that the Greens placed on support for the budget? No, it wasn't. It's related to Neil Bibby's previous question. Cabinet Secretary, you've been accused of sticking money in the sofa and hiding money here, there and everywhere, but isn't the reality that any member, any opposition member, could ask these questions at any time and get a flavour for the ebb and flow of how these particular departmental budgets actually work? In a sense, should they know really be doing their homework in the course of a year and asking those questions, rather than accusing you of hiding that information from them? I would like to be fair to opposition members that I think it's perfectly legitimate to ask where the underspends are in government at any point in time, but I would caveat any answer by saying and that's likely to change. That's the nature of in-year budgeting and in-year adjustments. Of course, figures will change as some expenditure goes up and some expenditure is not fully met. The same goes for income as well now. We're not just a spending Parliament, we're a tax-raising Parliament, so there are issues that I'm frequently asked around our tax position and how our currently devolved tax powers are doing. I think that it's legitimate to ask, but I also think that it's fair for members to reflect on how that changes week to week, month to month, and the scale of our financial operation and the number of transactions that we undertake is huge. Of course, that will continue to multiply when we have further powers coming our way on social security payments as well as our increased tax powers. However, some of the colourful language is unhelpful in what's a perfectly ordinary budgeting and policy-making process. Will it be helpful to members, perhaps in the future, in the points that have been made? Is it possible to think about some kind of monthly gathering together of the movements within these budgets? Are you just about to do for the committee in this? I'm sorry to say that some members of the opposition have a strong track record on misrepresenting the budget exchange and the underspend issues. I'm sorry to say, so I'm not sure that that information would be of assistance. I've got portfolio questions this afternoon, Mr Coffey. If I'm asked any question on underspend, any member of Parliament is entitled to ask them general questions or portfolio questions. I shouldn't say First Minister questions, because I don't think that the First Minister would thank me for that, but there are many parliamentary opportunities written questions to publicly ask the Government for its current position on budgeting and finance, and I'm more than happy to engage in that process. I don't think that it would be a helpful exercise to produce further reports on the day-to-day budget position of the Government. Marie Tolleyd, you're the last person in this section before we get into the formal bit of stage 2. Thank you, convener. I have a fairly simple question. Six million was found from a reduction of borrowing costs, and I would like to confirm that the reduction in the Scottish Government costs is not a reduction in capital investments. That's correct, and I'll give you the detail of how that transaction changes, but it absolutely doesn't, in any way, diminish our capital investment plan. That is tied into the reclassification of a number of NPD projects, where the Government is using the borrowing capacity that it has in order to offset the effects of those coming on to the Government's balance sheet. The capital borrowing powers that the Government has have been exercised in order to cover those, but it doesn't need to borrow money as a consequence. Therefore, we had planned prudently that we may have to borrow, and there are interest costs associated with borrowing from the national loans fund for that purpose. We no longer need to do that, so there is a saving on those interest costs for next year, which, as the cabinet secretary has explained, is £6 million. We now turn to the formal proceedings at stage 2 of the budget bill. At this stage, I remind the cabinet secretary's officials that they are not permitted to speak on the record during this item. Everyone should have with them a copy of the bill that is introduced, the martial list of amendments that was published on Monday and the groupings of amendments that set out the amendments in the order in which they will be debated. The question is that section 1 be agreed. Are we all agreed? That is agreed. I call amendment 1 in the name of the cabinet secretary. Group with amendments 2, 3, 4, 5 and 6. Cabinet secretary, remove amendment 1 and speak to all amendments in the group. Thank you, convener. Schedule 1, amendments 1 to 5 relate to the authorisation to use resources, providing the schedule of the bill and adjusting individual portfolio allocations within the budget to reflect the spending announcements made at stage 1 of the budget Scotland bill. Amendment 1 removes £6 million of borrowing costs from the financing constitution portfolio. Amendment 2 allocates an additional £25 million for police reform to the justice portfolio. Amendment 3 allocates an additional £160 million for local government to the community, social security and equality portfolio. Amendment 4 allocates an additional £35 million for Scottish Enterprise to the economy, jobs and fair work portfolio. Amendment 5 increases the total allocation for the Scottish administration by the net uplift of £214 million. Amendment 6 increases the overall cash authorisation by the Scottish administration under section 4, subsection 2 of the bill, by £214 million, in line with the additional spending announced at stage 1. The net increase is the £220 million of additional spending, less than £6 million of funding previously set aside for borrowing costs that has been reallocated from the financing constitution brief as a contribution to the funding of those commitments. Amendment 1. The member wants to contribute at this stage. No member has been asked to contribute. I guess that he won't want to wind up, cabinet secretary. The question, therefore, is that amendment 1 be agreed, or we all agreed? Amendment 2, in the name of the cabinet secretary, already debated with amendment 1, cabinet secretary, to formally move. The question is that amendment 2 be agreed or we all agreed. Amendment 3, in the name of the cabinet secretary, already debated with amendment 1, cabinet secretary, to move formally. Amendment 3, be agreed or we all agreed. we are all agreed. Members smoke a Is that section 2, section 3 and section 3 will be agreed or will be agreed. It is being debated with the amendment, to move it formally. y cyfleu cyfreid y maes mewn swediadon rhain. two consideration of the bill. Members will note that the bill will now be placed in the reprinted as amended. I thank the witnesses and the Cabinet Secretary and his team in suspending the meeting to allow a changeover of witnesses. The next item on our agenda is to take evidence on the Air Departure Tax Scotland Bill at stage 1. I warmly welcome to the meeting first of all Stephen Lecky, who is the chair of the Scottish Tourism Alliance. Gareth Williams, who is the head of policy at the Scottish Chambers of Development and Industry, and Gary Clark, who is the head of policy and research in the Scottish Chambers of Commerce. Members will have received the written submissions from all three witnesses, so I will go straight to the question. I have a very general question on my own just to begin this, because all three submissions speak of the potential economic benefits to Scotland should the Air Departure Tax be reduced. I would like to explain how those anticipated benefits have been quantified and what assessments have been made of them in the context of the impact of other external factors, such as the current weakness of sterling. It is a very general opening question, so I do not want to take that one on to begin with. From a chamber's point of view, we have always been supporters or have long certainly been supporters of devolution and reduction of the air passenger duty and now, as it is, to become the air departure tax in Scotland. Our support for that dates back to and beyond the Smith commission in 2014. Throughout that time, we have encouraged both the UK Government and the Scottish Government to take a stand on air passenger duty and aviation taxes in general. The reason for that is that the UK has historically been one of the highest taxed countries in the world when it comes to air travel. We believe that it is a tax on connectivity and we do not believe that one should tax as a nation those activities that it seeks to promote. We have called for a fairer, lower tax on air travel. There have been a number of studies undertaken over the years. I can think of a couple by York Aviation. There was one by PWC at a UK level a few years ago, all of which suggested that there would be a net economic benefit to reducing or eliminating air passenger duty. Those are certainly reports that we have seen as being consistent over that period of time and we have no reason to doubt those. I would say that we do not have any evidential way of contributing to the veracity of those reports other than that they have been published, consistent and come from a number of sources over the years. We would all welcome any additional scrutiny of Government plans as the legislation goes forward for reductions in air passenger or air departure tax in Scotland. Certainly, any economic impact assessment would presumably contain some analysis of the expected effects of the tax and of its reduction. We would agree with much of what Gary has just said. The other evidence that we would point to is the experience of other countries that have had similar taxes and the effects that those taxes have had on their connectivity, on the behaviour of people flying from those countries and on their tourism industries. We would then compare that with what has happened once those taxes have been reduced or taken away. We could point to Ireland, Netherlands, Germany as examples of those. Just to underline that the tax that we currently have is uncompetitive in international terms and we cannot see the sense in that given our geographic position, given the needs of the economy for internationalisation and therefore taking into account the international experience and the reports that Gary has pointed to. We support both the bill and the reduction in APD. Thank you, convener. Just to add to that a real-life example, the Republic of Ireland, this is in the report, abolished its air travel tax in 2014, resulting in a 7% growth in passenger numbers. Rhyonair, for example, has 21 new routes, so it makes a direct difference and this industry can move quickly if air departure tax is abolished. We might use some questions around the assessments and the quality of the assessments that are already made. Yes, just first off, and I might come back in later, but on that exact point, because Mr Clark referenced that as well. In your written submission, Mr Clark, you have said that there is a 7% growth in passengers with 21 new routes. What is the evidence around that? Does that evidence show a concrete correlation between removing the tax and the positive outcomes? We have not done any specific analysis of that, but in addition to the new routes, which were established following the elimination of the tax in the Republic of Ireland, there was also increased capacity announced on services, and there was increased frequency of services. There seems to be a cause and effect there. We have not done any analysis of that. Is that not a little concerning? One would assume a correlation, but ought that not to be the next stage to show an actual cause and effect? Remove tax, increase passenger routes, increase numbers of flights? I think that the reaction from the aviation industry was pretty much instantaneous to the changes in tax that were made, so I think that you can draw quite a strong correlation from that. We have also had strong commitments from some of Scotland's largest airlines as to how they would respond to reduction in tax in Scotland, and those are on the record publicly. We could expect those airlines to be held to that. Before I come back to that, was the Irish experience particularly limited to the international peace, or was that a 7 per cent growth in 21 new routes across the board, so national as well as international in response to the change? I do not know the specific routes. My understanding was international and domestic, and not just limited doubling as well. It was spread across a range of Irish airports, and all parts of Ireland benefited from the connectivity. I wonder if that is the data that would be productive going forward. At the moment, or it seems at some point, we will be asked to make a decision based on what seems to be cause and effect, but perhaps it is not. Just to come back to one final thing in this bit, convener, Mr Williams talked about you have commitments over here, and I think that that is an interesting question. Have Ryanair said, for example, abolish passenger duty or cut it by 50 per cent, and we will do this, whatever it might be? Do you have that in writing? Is that an absolute guarantee in your mind that where the change should be made, that would happen? I think that the commitments have been made to Scottish Government verbally and in writing. Certainly, we have had those commitments reiterated to us, for example, from EasyJet directly. In the Scottish Tourism Alliance's evidence, they have had a similar commitment from EasyJet, and from what I have heard, Ryanair are equally committed to the increasing capacity. Do those commitments apply to a 50 per cent reduction or 100 per cent reduction? Are there any caveats on those commitments? I would need to go back and look at exactly what I was saying. The blanket commitment is too broad a brush, and they would want to know the proposals on the international market, the domestic market and the European market, and what that might mean and whether it is 50 or 100 per cent, and what timescale it might take place over and when that might be announced. It is not as simple as asking, looking and getting writing for those guys, a commitment that they are going to create in your roots. My feeling is that we know that they would. It is how much would they and when would they, and that would depend on when this is passed, when they are told and what the implications and implications might be for those three different sectors. How do you supplementary in that area, Patrick? I want to get into the economic impact analysis generally, but the points about Ireland that I was particularly keen to follow up on. Can you unpack for me how it is exactly that you have subtracted the background level of aviation growth from what happened in Ireland in order to identify the impact of tax changes? I am not sure that we have undertaken those calculations. We would certainly welcome any analysis of the impact in other nations of any reduction in air taxation. You do not know what the impact of tax changes was. I am certainly not aware of any study that measured one against the other, but, after the tax cut was undertaken, there was a measurable response. Hang on. You are saying that there was a measurable response. That suggests that you are saying that you do know what the impact of the tax changes was as opposed to the normal background growth in aviation that we have been seeing here as well. Let me clarify that. There was a response. The response is something that can be measured, but it is not necessarily—I would not say that you can attribute all of that to— It is not necessarily a response to tax change. No, I would not say that you can attribute all of it to the cut and tax. What does it say that Ireland is considering reintroducing aviation taxation? I have got an article here from the Irish Times recently where it says that the finance minister Michael Noonan is raising the prospect of reintroducing the tax, claiming that the aviation industry is undertaxed. He says that retaining it and restoring it will be a useful tool for raising revenue and paying for externalities associated with air tax, such as emissions and noise pollution, etc. I am not aware of that comment, but I am going back to the response point. If you look at the Netherlands, for example, there was a Government study that estimated that tax had cost the Dutch economy 1.3 billion euros. Given that it is produced by the Government, we can assume that it is strongly evidence-based. That led to the abolition of that particular tax. I am not aware that the Dutch are planning to reintroduce it. We are now not relying on the Irish example that was cited earlier. We are relying on a range of different examples, including Ireland and the Netherlands and Germany. I am just asking what does it say about the proposition that abolishing taxes has been an overwhelmingly positive thing from their experience. What does it say that they are considering reversing that now? I think that it is also important to recognise that the previous tax rate in Ireland was somewhere in the region of three euros across the board, rather than the well over £100 for some categories of travel from the UK. That would need to be factored into any calculations. It remains the case that the finance minister certainly does as a useful tool for raising revenue and paying for externalities. That is something that we would be unable to do if we pursued the advice that he is giving us. The proposal is for a 50 per cent cut over the lifetime of this Parliament. We would certainly want to see that reduction of 50 per cent as quickly as possible. I think that, as Gary has articulated, the Irish rates would be still less than that, even if they were to be reintroduced. Are we able to get into the wider economic impact now? I will come back to that, because I did promise Ash Denham because she was not in the last section of questioning to start that area of questioning up. Ash Denham, across to you. I am an Edinburgh MSP, so I am Edinburgh airports, the Scotland's largest airport, and I am interested in getting more visitors into Edinburgh to visit attractions, stay in hotels and eat in restaurants, and wider into Scotland as well. Obviously, you will know that we took evidence on that last week. It seems to be coming across quite strongly that Scotland and maybe Edinburgh airport in particular are competing against other cities. Copenhagen was mentioned a lot for new routes. If we can get new routes into Scotland, we are attracting an increase in passengers and visitors. If we are looking at the economic impact of those, do we have any analysis on what type of visitors we might be expecting and which type of visitors might be key drivers in that economic impact? If it is European visitors, we do not have a breakdown of specifically European, international or domestic, other than anecdotal chat about who we know arrives at airport. For example, we know that the ease with which Europeans want to come and visit Scotland, we also know that they recognise that Scotland is an expensive place to come, like for lack, and whilst the value of the euro and all that, the air passenger, air departure and tax would help that. VAT also would help that, where the second highest in Europe, the example of Ireland again, and reduced from 13 per cent to 9 per cent, would make a difference to the Irish tourism operators. We have spoken to them about it. On the international front, Scotland again, with the more international visitors business tourism, to the EICC, the SCCC, the hydro arena, and three of the biggest events that are managed in Scotland, would make a big difference from international perspective. However, we should not discount the massive market from London to Edinburgh and Scotland, which pour money into our economy up here. The ease with which you can get to London, but you cannot get to Bristol, for example, other than it is easiest by air, and if the air tax is reduced locally, domestically, that will help to persuade business folk from Bristol, for example, up to Edinburgh and Scotland. In addition to the tourism impact, the statistics show that the largest percentage of long-haul traffic coming through Edinburgh on businesses is education. That is researchers, staff, students, people going to conferences, people coming back from conferences. If we want to develop a knowledge economy, there is a strong correlation between connectivity and the knowledge economy globally. We are competing with other countries and other airports for that kind of business, so we should not disadvantage ourselves with some of the highest tax rates. I agree with that. We have certainly seen a very healthy growth in Glasgow and Edinburgh airports in recent years, so we have obviously been able to do that with current circumstances, but both Glasgow and Edinburgh airports have said to us that they would potentially have grown services even more had we had a lower taxation burden on air travel. They would certainly underline the capacity to win new routes and to get more people coming into Scotland and spending money here, and to ensure that, as we look to increase our international trade, we are able to access more destinations across the globe in order to sell our goods and services on a wider scale. In a changing world environment, that is more important now than ever. So, when any of your organisations are able to take a view on which category of traveller might impact the motion, would it be long-haul, would it be European, would it be business travellers, would you be able to take a view on that or not? Hit is European, and that is the biggest immediate economic impact. Long-haul is a longer haul. Time is a Chinese market coming our way in time. Are we ready for the Chinese market right now? No, we are not, but that will take time and domestic market will, as I said, London is not just about London, it is about Bristol and other periphery airports. So Europe is the biggest, quickest hit. I agree with that point, and there are still gaps in connectivity between Scotland and Europe, considering Brexit and so on. We want to maintain those links and take advantage of opportunities. Long-haul priorities are obviously around China and West Coast US, in particular linked to the tech sector. Could we develop links, for example, to South America in due course as well? As Gary has said, domestic routes remain important, traffic has declined 25 per cent at Aberdeen over the past couple of years, and it does not have those long-haul routes. If we want to maintain connectivity for the north-east, particularly taking into account the oil and gas services supply chain and the international exports that it generates for the economy, we need to ensure that there is no further loss of services. I agree with that point. There are broad opportunities in expanding Scotland's connectivity, and long-haul is important. It was mentioned earlier that some of the airlines, Ryanair and EasyJet, for example, have suggested that they might be able to offer additional services. Were there to be a cut in aviation taxes, they principally serve European destinations and domestic services. If we were to take advantage of that particular opportunity, we would need a cut that was fairly broad in its scope. Adam Tomkins is a supplementary in this area. I just wanted to ask a supplementary on the back of one of your answers to Ash Denham's question about Edinburgh Airport. You said, Gareth, that education is the biggest single reason for long-haul travel via Edinburgh Airport, and that is in your written submission too. I understand the link between aviation taxation, innovation, internationalisation and connectivity, but in your written evidence you go further and you say that there is also a link between aviation taxation and productivity. You cite the OECD's work on the future of productivity, highlighting the importance of participation in and integration into something called global value chains. You cite education and Edinburgh Airport as an example of that. I wonder if you could help me to understand a little bit more how you understand the relationship specifically between aviation taxation and productivity. Obviously, innovation and internationalisation are key drivers of productivity, so those are both inputs into national productivity. Global value chains increasingly, and businesses are disaggregated around the world. There is a strong need for connectivity between the different parts of that value chain. The figures that came out last week showed the strength of professional services, for example, within Scotland as an international export. That forms part of the value chain for many international businesses. That is what I had in mind, in particular, in relation to productivity. I will try to do a no-ask-denomast-specific question about Edinburgh Airport. Willie has got specific interests in Ayrshire, and I will widen the issue out to wider issues. Willie Goffey. Thank you very much. Good morning to you. I was interested in the comments that were made by Patrick on Michael Noonan, the Irish finance minister. It was him who abolished the levy three years ago, so I would be really interested if he was changing his mind on that. I frankly do not think that he will. Last week, some of the colleagues that came to give evidence to us told us clearly that there is evidence from Ireland that the regional airports, for example, benefitted from the abolition of the tax. That is where my interest lies from Ayrshire and Prestwick Airport. In particular, we heard from Mr Hinkles that traffic levels at Dublin grew by 40 per cent, but there was clear additional benefits to regional airports like Cork. Do you have a sense of how the regional airports in Scotland might or will benefit from the tax being reduced by 50 per cent and ultimately and hopefully abolished altogether in Scotland? Part of the tourism strategy 2020 led and developed by the industry, 28,000 businesses across Scotland, something like 10 per cent of the economy, a huge growth ability in this sector. Part of the review, the mid-term review, the strategy was defined in 2012 and in 2014. We had a mid-term review, part of it. A new word that came out from the original 2020-12 production was that of connectivity and transport, the ease with which we can pour visitors and customers into Scotland, not just in the principal airports, but in Hans Allen's north and south length and breadth of Scotland. Your point is well made. This is fundamental to the success of all the attached industries to these local airports around the bird. We know how keen the sky is to have some sort of airport reinstated of their own. We know how well the airports work around elsewhere. This is about, as I said before, Scotland being seen to be expensive to get to and expensive to get around. If we can reduce the departure tax, that will make a difference to those and therefore spend elsewhere. I think that it is important to stress that original airports are very sensitive to price changes and anything that would affect the viability of services there. We did see, for example, in the early part of the previous decade, quite a bit of expansion in regional airports as a result of the Air Route Development Fund. At that time, Prestig was a significant beneficiary there, as was done at the airport. It is important to recognise that there is a sensitivity around the cost of travel that regional airports may be able to benefit from. How do we get a handle on the likely impact in terms of figures? Do we just wait until it happens and then look and see what happens? Is there any way that we can look at the Irish experience and see if that we can extrapolate and assume that the beneficial effects for regional airports in particular in Ireland would be reflected here? Should we be doing that work now and who should be doing it? We said last year in our response to the consultation that we would welcome some analysis, building on what has been produced by your aviation PwC and by Edinburgh Airport. If that was felt to be necessary across the Parliament to understand the issues that are present and the potential benefits, the Scottish Government should lead that and commission it as soon as possible. I think that that is still the position for us. You have an issue specifically around Aberdeen. Is that right, just before I go to the wider issues? There are other people who want to raise the wider issues. It is about Aberdeen, when you go. You just brought in Aberdeen and Mr Williams talked in your written submission about Aberdeen and the economic slowdown. You have all referenced how passenger numbers have dropped. I am just looking. I have a JC Deco report here that says that passengers flying through Aberdeen airport are affluent, 40 per cent work in the oil and gas industry, and 53 per cent travel on business. From that, the question that I have is, would a cut to the duty of, say, 50 per cent, so let's call it £7, give or take, is that actually going to impact on Aberdeen airport, at least in relation to dementia? Can you just let everyone else know what JC Deco is because I'm certainly unaware of what that organization is? It's a report that profiles the various airports, as I understand it, and these chaps will probably tell you better than I do. I think that the airport itself has been clear that there are a number of routes present that are vulnerable to being removed because of the slowdown in traffic, and that the proposed reduction would be one way of taking action to try to prevent that happening. Does it follow? I can accept the argument about the international, but does it follow that a £7 reduction in duty for passengers who apparently will be expensing it predominantly? Is that going to drive passenger numbers back up? I take into account what you are saying about the profile of passengers, but clearly that doesn't apply to everyone. I forget what figures you used there, but when we take into account the market as a whole, there will be some and a significant number for whom that doesn't apply. It's also the signal that it sends to the aviation industry about Scotland being a good place to come to base aircraft, to fly services from, and that is a positive signal that will influence those marginal decisions. The bigger word that I would like to use is that of stimulation. This is about persuading and indicating to the airlines who can pour a whole lot more new routes into Scotland. It's not just about the £7 per passenger going to Aberdeen and if they're expensing it and how relevant that is. If you're a family of four or six travelling to Scotland or a business and paying for these fares to Scotland to get people in here for a conference, then it's about the use of the word stimulation to persuade the airlines to apply more routes and provide more routes to pour more visitors into Scotland. We've got a weed out now to the wider economic area. Ivan and then Mordor. Thanks, convener. Thanks, panel, for coming along this morning. There are a couple of things that I just wanted to touch on. The first one, just so that I'm correct, the analysis that we've got here is the airport analysis that's attached to the papers, is that correct? The numbers at the back, that's the airport. I just want to ask if you're familiar with that, if you've looked at that and some of the key data in there. Specifically, they're putting numbers out about the economic impact of an extra million passengers, I'm assuming that's on GDP growth and the number of jobs created per million passengers. Are those numbers that you are familiar with an economic development point of view, do they look right to you? Have you done analysis on those kind of numbers? Those are certainly numbers that the Henry airport has produced. I think that it's an update on the work that was carried out by York Aviation. I think that they've done two or three reports over a number of years on the impacts of APD cuts in Scotland. There was a wider PwC study at UK level, I think, about 2015 or thereabouts, which indicated a long-term gain, so that it's jackered over an elimination of APD in the UK. We would certainly say that there's been a consistent pattern of evidence in terms of the economic impact. Do you have to go with where they've got those numbers from? If I had to ask you where those numbers come from, could you tell me? Well, I didn't undertake the report. But you've not looked into how they did the calculations? I've not looked at the methodology, I've looked at the contents of the reports. Right, because you're just taking the headline and saying, yeah, okay. Fair to say that the figures have been verified by bigger economics, and so it has been independently— Have you not done any number crunching on yourselves to say, this looks right or wrong or ballpark or whatever? Well, from our perspective, it would accord with other reports, it would accord with international experience. We are not resourced to be able to undertake that kind of work ourselves, but we've consistently asked others, such as the Scottish Government, to look at it. Okay, on another angle, it's kind of a free hat. You guys come in here and we're saying, do you want a tax cut, and you're saying, yes, please, just to make the question a wee bit harder. Assuming that we're going for a 50 per cent reduction, and assuming the objective, which is the stated objective, is to generate economic activity and understanding that there's a lot of segments in that market, be it inbound tourism, outbound tourism, business, long-haul, domestic, short-haul, European, whatever. If you had that money to spend, would you go for a across-the-board 50 per cent reduction, or would you target a 100 per cent reduction in certain areas and no change in other areas, or a mixture of the combination of that in order to generate the most increase in economic activity? Where would you target the 50 per cent if you had that to spend? From the point of view of members in our network, we've consistently said that the point of our reduction in APD would be to send a clear signal about Scotland being open for business, about increasing Scotland's connectivity and improving our number of air services with the rest of the world. We want that to be implemented in as simple a way as possible, and we want that to have the maximum impact. We have said in our submission that a straight 50 per cent cut across the board would probably be the best way of doing that. That said, we are mindful of some of the issues that have been raised in terms of, for example, cross-border connectivity between Glasgow and Edinburgh and London. That's certainly a valid concern, but that's less of a concern for Aberdeen Airport, for example. I make it as simple as possible and send a very clear and strong message about Scotland's direction of travel. It's clear that outbound tourism is potentially a negative impact in the economy because you're encouraging people to go and spend their tourist money elsewhere rather than in Scotland. That's at one end of the scale and then there could be other areas at the end of the scale. What you're basically saying is the most important thing to you, is to send a clear signal rather than to understand the specific economic impact of cutting the tax for different categories of travellers. I'm not saying that we shouldn't try to understand the economics, but I think that we should be. As the bill goes forward and as measures are introduced to undertake the commitment that the Government has made, that needs to be backed by evidence. We would be as keen to see that as we would be in any other tax change that the Government chooses to implement. On other members of the panel, do you have any views on where you would like the benefit to fall? Our interest is in connectivity and that requires a mix of outbound and inbound. That's what airlines will look at. It's hard to separate those out. Any work in that area would have to take into account how difficult it would be to administer those kinds of differentiations, particularly if the objective is to abolish the tax eventually. As to our own priorities, we see that simplicity is very important. Clearly, as I said previously, internationalisation of the economy is one of our very highest priorities, so routes to Europe and beyond would be our top priorities. However, we wouldn't want to ignore the fact that domestic connectivity is still important, and it's not all about connectivity with London. There are lots of other important routes, and we have to bear in mind the particular issues for the north of Scotland. To stimulate the response that we think we will get from the airlines who pour visitors into Scotland, it would have to be across all three, for sure, and that would make the biggest impact. It's sending a real message out that we want Scotland to increase its visitor numbers. It's then for the industry to figure out a way in which to look after them, so we may talk about the expense that it costs to go to Europe, for example, in Britain at the moment, at the value of the euro, so it's more expensive. That's good for us in Scotland, and the way to maximise, to capitalise on that, is to react right now with the air-departure tax. Thank you, convener. Good morning, gentlemen. I have two issues that I want to raise. The first follows on very neatly from Ivan McKee's questions. It's about this balance between inbound and outbound journeys. One of the arguments that we hear from people who are against reducing APD is that, if you make flights out of Scotland easier, all you do is encourage more Scots to go overseas on holiday, rather than take holidays at home. Do you have any sense of what is the balance in terms of inward versus outbound travel? How do you think that cutting APD encourages more net holidays within Scotland? We would obviously point to the opportunity that exists in terms of the buildings of people out there that could potentially come to Scotland compared to the size of the Scottish market. Obviously, we have a strong presence of people from all parts of the world in Scotland at present. I'm sure that Stephen can talk more about particular opportunities. From our perspective, we look at the number of international students. We look at countries such as New Zealand that are specifically targeting opportunities around tourism that come from the presence of international students within their country as one of their highest priorities. We look at it as something that, intrinsically, you have the opportunity to bring in many more people than could potentially go out on outbound flights. Before Stephen comes in, I'm not the expert on tourism, but I suppose to widen that out slightly. I understand where you are coming from in terms of the net balance of tourists coming in and out of the country and what impact reduction in the other parts of the tax might have on that. It is equally important that we are getting business people, SMEs, out of the country as well in order to forge the alliances and trading in markets that we are targeting across the globe. It is difficult to put a boundary between a tourist leaving the country to spend money abroad or a business person leaving the country to generate more wealth for our country. We would certainly encourage further growth in connectivity by reducing ADTs as a means to do that. For us, it is much about business people going out there and forging those alliances as it is about tourists. I think that the airlines are going to chase some routes that they believe to be profitable. That actually works in our favour. They put more visitors into Scotland, and it is up to us in tourism to figure out a way to best look after those visitors and to maximise the revenue growth from them. It's as simple as that. My second question to Mr Lucky. First of all, I want to put this as a debate in a slightly wider context, if I can. I think that we know some of the pressures on tourism at the moment. I don't know if you were here earlier when we had the finance sector, but one of the issues that came up was the question of the rates revaluation, which is affecting the tourist and hospitality sector quite severely at the moment. I suppose that my question is if this policy proceeds in terms of reducing air departure tax, what impact would that have in balancing out some of these other concerns that there are in the industry in terms of the cost pressures that are coming through? Thank you, Mr Fraser. The convener has warned me before we started this that this was about air departure tax and not about air departure tax. Air departure tax is a very feared question that word was asked. So, if you don't mind then, convener, the industry, I don't think, has ever faced such an extreme challenge as it faces today with the rising significant rise in business rates, the rise in energy costs, food and drink costs. Some tourism businesses are telling me they're having a 20 per cent uplift in costs for food and drink alone, the impact of the living wage, the impact of the apprenticeship levy. This industry has never faced such tough times in terms of costs. Revenue growth is our big challenge. The tourism strategy 2020 reckoned in 2012 to put £1 billion of revenue on to tourism in Scotland. This time last year, we were targeting £300 million short of that. The chief executive of Edinburgh airport indicated that if the air departure tax were reduced by 50 per cent, it would soak that up by 2020 if that decision was made back then a year ago. Where I'm going with this is the massive uplift in costs for this industry may mean that some businesses in tourism will close and they just can't afford to keep their doors open. It's as blunt and simple as that. Part of the potential rescue package might be that if we pour more visitors into Scotland, we can increase our yield and our revenue, and that might be enough to save and rescue some businesses. I hope that that's not going away from the point, convener. Thank you very much. Is it a supplementary to that specific? Not to that specific, on the economic impact. I really need to bring Marie in to create a fair balance here, because she didn't get a lot of contribution in the last debate either. Marie? Thank you, convener. She's around the Highlands and Islands and also bringing in rail issues into that as well. I represent the Highlands and Islands, which is an area with pretty poor connectivity, and connectivity is the key to life in the Highlands and Islands. We have a lack of alternatives to flights for people living on islands, basically. Some of the mainland airports as well, WIC, we've talked last week about it being the alternative to flying between Edinburgh and WIC, is an eight-hour train journey, which is not an attractive prospect for any business person or any tourist. I just wanted to ask a little bit about that. The Highlands and Islands economy is undoubtedly tourism contributes a huge amount to our economy, proportionally more so than the rest of the country, and we have a very vibrant sector. It also sustains some fairly fragile parts of Scotland, so I just wondered if you could give me some thoughts around how this tax might make a difference to that tax reduction. I'm supposed to kick off there. Obviously, APD is a tax which isn't currently levied on departures from the Highlands and Islands, as you're well aware, but it is charged on people coming from other airports to the Highlands and Islands. Certainly, any moves to reduce the cost burden of travelling to the Highlands and Islands has got to be a positive. We've seen, for example, over the past few months that some of the costs being reduced in terms of Heathrow Airport and the reintroduction of the Inverness to Heathrow service, which is from colleagues at Inverness Chamber to tell me that it's a very well-used service, one of the most popular services there, and it's been at a cost reduction, which has helped to bring that about. If we can reduce the costs of connectivity within the UK and within accessing the Highlands and Islands, then that's got to be positive. I absolutely agree that aviation connectivity is essential for the Highlands and Islands. It's very important to the life sciences sector, for example, in addition to tourism, food and drink and lots of other sectors. As a minimum, we want to see the current position for the Highlands and Islands preserved within ADT. We are conscious that there are some concerns about the relative position between the Highlands and Islands and the rest of Scotland changing and whether that might make it more attractive for people from the Highlands to fly from other airports in Scotland, and that is an issue that we think has to be considered. I saw the evidence that Loganair gave last week and some of their thoughts around how services could be further improved. I hadn't had an opportunity to discuss that with them, but I thought that there were some interesting points made. Two aspects to your very well-made point. The Highlands and the Islands. The Highlands, we run three hotels on the west coast, Glencobe, Bellhavish and West Townway. There's huge latent demand, unprecedented demand, around that area for hotel accommodation groups and tours, leisure operators, couples and families, but it's easy to get to. It's a nice drive to drive to Glencobe from Edinburgh or Glasgow. You wouldn't say the same if you were to be asked to drive to Shetland, Orkney or Stornoway. You couldn't do it if you took the ferry and it would take you a day to get there to Shetland. Therefore, the only option is to fly there, as I was privileged to do last year. What a wonderful experience it is to fly to these areas. We're very conscious in the tourism alliance of the Highlands and the Islands. Those are way out further and beyond and their impact on the economy. It is very much part of Scotland and we're proud to say that Skye is a much easier place to get to, the Skye bridge. You can drive to Skye. We'd like to be able to fly to Skye as well. I wonder if I could ask you about particularly the number that you quote at the end of your report, where you say that the UK is currently ranked 140 out of 141 in the world for holiday cost. Obviously, coming from representing an area where tourism is such an important part of the economy, that statistic concerns me. I wonder if you could give me a little bit more of the detail on how that was arrived at, who is number 141. Is it taking into account other aspects than taxation? Is it taking into account currency exchange and things? VAT is the biggest indicator of that particular bit of research. The country that sits last place, I have looked it up, but I'm sorry, I can't remember whether it's a country that we might all recognise or one that we might not ordinarily recognise daily use. I'll come back at the end to wider economic questions and Scottish budget issues. Maria introduced rail, so it's a good chance to get Neil into talking about rail, because you had issues around that. You have a question on that, and I'll come back in on the budget a bit later. We've heard that passenger numbers are increasing. Last week, we discussed how rail travel is often already more expensive between Edinburgh and London, Glasgow and London than air travel is, and we know that train travel is less damaging to the environment than air travel, so should we not be representing the airlines or the airports here, but should we not be making rail travel in the UK more affordable in terms of our domestic travel policies? Rail travel in advance online is amazingly cheap. If you phone today for a ticket to get the train from Edinburgh to London for tomorrow, it will be expensive, but online in advance it's about educating the folk who wish to use that form of transport. I said an example last week of booking in a couple of weeks' time, and it was far more expensive to travel by rail than it was to travel by airport. I don't think that it's just about educating people. I appreciate that there are deals from time to time, but it's consistently more expensive. Do you think that rail travel is affordable? Absolutely. If you take some specific examples, anything with a time and a space in this industry should be yield managed, so you maximise your yield by charging the most for the demands at its greatest. If, in this particular moment, when you picked your sample size to choose a flight to London, it may have been that it was a high demand and therefore a high price, but it may have been that the rail option was cheaper. Any other comments on that? I think that there is an issue of overcomparability. I know that, as a result of the lack of competition, for example, between Glasgow Airport and Heathrow Airport, if you are booking at the last minute, sometimes it's very difficult to get a seat or it's fairly expensive in terms of demand, but we recognise that there is a potential issue over APD in terms of an impact on competition and model competition between rail and air for cross-border travel. I think that that is something that needs to be looked at. It's obviously less of an issue for the Invernesses and the Fort Williams and the Aberdeens than it is for Glasgow and Edinburgh, and equally it's maybe less of an issue for services, as Stephen has mentioned, to the likes of Bristol and other regional airports than it is to London. I think that there is an issue there, because clearly when the east coast franchise was awarded, it's probably not something that was a material consideration at that time, what effect reduction in APD in domestic services might bring in. For us, it's about connectivity. We want good rail links. We want good rail links. There's competition on city centre to city centre, but if you're flying from Scotland via Heathrow internationally, rail isn't an option or a particularly attractive option for that. There are lots of issues to unpack around domestic connectivity, but it's one that we would certainly agree needs to be thought about further as part of that general mix of improvements that we would like to see. Clearly there have been journey time reductions on rail, which has made it more attractive, but if rail is really going to become dominant from central Scotland to London, we need to push those journey times down further in addition to looking at price issues and so on. James, and we'll try to get the economic impact on budget things all wrapped into one bit, so James, you kick off. Okay, thanks a lot, convener. Looking at the financial memorandum for this bill, the impact of a 50 per cent cut could see reductions of up to £200 million in the Scottish budget. Do you think that that's a fair sacrifice that should have to be made to introduce what the change has been proposed in this bill? We think that government taxation policy in general should be aimed at growing the Scottish economy. If we're serious about funding public services in the long term, then we ought to be pursuing tax policies that are going to grow our economy and ensure a better return for the taxpayer at the end of the day. I mentioned earlier the PWUC report, and it suggested that at the UK level, and it was looking at the UK only at that time, but at the UK level, the elimination of APD could ultimately result in a net benefit to the exchequer as a result of impacts on other elements of tax. I think that any decisions on tax need to be taken in the context of the priority of growing the Scottish economy. We would have a similar perspective on that. Obviously, we've had a couple of years with quite weak growth in the Scottish economy. If we're going to, particularly with the new fiscal framework, afford the public services that we all want to see in years to come, we have to have higher rates of growth and internationalisation of the economy is absolutely key to that. The export stats that were out recently showed some reasonable progress, but they also showed that the value of exports from SMEs has declined in contrast to medium and smaller, in larger-sized businesses. I think that there is evidence that fewer SMEs have been engaged in exporting recently. We have to make it attractive to SMEs to go out and start to explore markets and make connections if we're going to have the diverse, resilient economy that will generate wealth for the country. I will add to that very briefly, because Gareth has mentioned the export figures. One of the stories that those export figures tell is that the most significant growth over the past 15 years in terms of Scottish exports has been to markets outside of the UK and outside of the EU, which have grown by about 83 per cent. Enabling connectivity to those markets will help that opportunity to grow even further. This is about the stimulation factor about persuading airlines and visitors, business tourism, education for coming here for the big and small events, not just in the main airports, but to the regional airports and persuading them that Scotland is a great place to come and visit, and it costs just a bit less. The ostensible figure of £200 million drop in tax income will be largely offset, as I understand it from all those papers and other stuff that's been written before. It will be more than compensated for over the next few years. There remains a real question as to whether the Scottish budget will, in fact, be compensated to the tuna of £200 million. Ultimately, what the Scottish Parliament Finance Committee and MSPs in general will have to decide going forward is how best to allocate the moneys in the budget in terms of supporting transport. I was interested in Mr Lecky's comment that he thought that rail travel was amazingly cheap. In line with that, would he think that it would be fair, for example, if you're an 18-year-old student and you turn 19, the rail fare doubles for the cost of a monthly ticket from £30 to £60 travelling for a monthly ticket from Canvasline to Glasgow Central. That's a distance of four miles. Do you think that that's right? Would it also be right to see a couple on a joint income of £60,000 enjoying reductions in their airfares while people struggle with their daily journeys on train? I don't work in the net sector. The question that I thought I was asked was the comparison between the cost of air travel to London versus the cost of rail travel to London. It wasn't comparing Canvasline to Glasgow. In terms of moving forward, if we're talking about a 50 per cent reduction in air tax, do you think that it's right that people at the top end of the income bracket are a couple on a joint income of £60,000 enjoying reductions in their air travel, whereas someone, for example, on the living wage, has not seen any reduction in their train travel? It feels like an awfully leading question and a closed question are not comfortable answering a deal, and that's why I'm here today. What are the issues that we're going to have to decide in terms of the implications of the bill? I'm a little bit sorry that there wasn't much appetite to explore that issue. I hope that the witnesses would agree that if we're going to approve a course of action, we should have a good degree of confidence in the economic impact of it as well as the social and environmental impact compared with other courses of action that we might choose to pursue with the same resource. I think that the comparison is a fair one. I wonder if any of the witnesses can help me with some of the confusion that there seems to be around the economic impact. We heard earlier from previous sessions from Edinburgh Airport about the work that they were citing. There seems to be some variance between their position and, for example, the Scottish Tourism Alliance figures. Edinburgh Airport claimed at the top end that the job creation figures by 2021 would be 9,484 whereas STA claimed 10,609. What Edinburgh Airport claimed on employment tax, which I assume that it means income tax, would be at most £2.3 million by 2021. STA said £12.7 million. Edinburgh Airport said that the benefits saving from social security benefits would be 52.2 million, whereas STA said that it would be 106.1 million. Why is there such confusion around the figures? To all these, Patrick, to understand exactly that the difference seems to be so little, it's splitting hairs. The second one and the third one might be to do with the comparison between the overnight stays and the day vistas, for example. I don't know whether that's looking at both ease and understanding where they came from. The second one on employment tax, your own figure of £12.7 million, I'm assuming that you do know where that came from. Would you have any greater confidence than Edinburgh Airport did about that figure being based on up-to-date information around, for example, changes in taxation? As the personal allowance has increased since 2013, when their figures were based on, that clearly is going to reduce the income tax paid by any additional employment that's generated. Are your figures up-to-date? As far as I'm concerned, they're up-to-date, yes. The income tax that will be generated, given current personal allowance limits that have just been changed? I can't answer that question. Right, so you don't know if they're up-to-date? No. I can't answer the question that you're asking. Okay. How about the analysis that you've given on savings to the social security system? You've chosen to use a website called entitle2.co.uk to calculate the benefit saving per job created and you've given us a figure of £10,000. Is that per year or during the lifetime of the employment? Can you direct me to which page? It's at the end of your written submission. The first bullet point on the final text page says, in our analysis, this would result in a net benefit to the public person. The page after that includes the figures that you've given us towards the bottom right-hand corner of that. It uses the benefit saving per job created, £10,000, and it cites entitle2.co.uk. Patrick, I'm really sorry. I can't answer that. It feels like you're trying to trip me up here, so I need to go in. No, I'm just trying to understand the information that you've given to us. I'm very happy to go in. Do you know, for example, whether it includes devolved benefits such as council tax benefit or only reserved ones? Before we go any further, Patrick, it's obviously Stevens. The numbers are there, they were submitted by the STA. These are fair questions, but obviously Stevens is not in a situation to answer these today, so I think it would be fair for him to reflect on these and ask the STA to write to us as a committee with a response. I think that it would be helpful to understand why they've chosen to use the figures that they've given, rather than, for example, HMRC, Department of Work and Pensions, Office of National Statistics information, which would be more accurate. Is there anyone of any of the witnesses who are able to tell us what percentage of the fiscal benefit you're talking about, additional tax being paid or savings through the social security system, what proportion of that would come to the Scottish Government as opposed to the UK Government? Obviously, it's the Scottish Government that's going to take the hit from reduced revenue from the aviation tax. I can't tell you the percentages there. We look at the benefits for the economy as a whole and we look at the benefits for public finances as a whole and that includes Scotland and the UK. No. Perhaps we could compare with the situation in countries that are reintroducing or introducing aviation taxes such as Sweden and Norway, which have both concluded that there will be a net benefit to the public pass from the introduction of that tax. From an assessment of the German Parliament recently, which concluded that there was a net gain of 800 million euros from their aviation tax, that's looking both at the revenues and at the economic impact. Are you genuinely aware of those studies? Not specifically. I mean, it does seem to me that we're not in a position of having any certainty about the economic impact, job creation, fiscal impact on the public pass or indeed on to what extent tax changes have generated changes in aviation levels in other countries. Don't you think that we should be in a position to have confident answers to those kind of questions before we approve a course of action? I think that any kind of economic analysis of those issues would be hugely helpful. I don't think we're necessarily the organisations who would undertake that analysis, but it would be hugely helpful. It is still fair to point out that, as we mentioned in our submission, even with the 50 per cent discount, we'd still have the fourth-highest level of domestic and short-haul air taxes in Europe and the second-highest in long-haul, and the top is England and Wales. Growing despite it? The more it grows, the more connected we will be. Patrick, I understand why you're asking these questions and these are on the record now, but, in terms of the in-depth analysis that is required, on a number of occasions we've heard from witnesses today that they think that that's a job for somebody else to be doing, specifically the Scottish Government. I've been asking about the information that's in the written submissions from the witnesses. I've got a question about the environmental impact as well, if it's appropriate to move on to that now. It's better to move on to it now or it won't be covered at all. The environmental impact is another area where I've not been convinced that either Government or anybody else is giving us a clear indication of what the consequence of their policy is going to be. The Scottish Government doesn't appear to have a decision yet about whether it supports stabilising aviation industry emissions or reducing them over time, as the global figure is from the aviation industry. Do any of you have a view on how important reduction in aviation emissions is as a factor in Parliament's decision about this bill? Do you think that that's a question for you or for other organisations? The bill and the rates are addressed separately. We would support the bill in relation to enabling the tax to be introduced within Scotland. As to the rates, we've commented on the economic aspects of those. Transport Scotland and others have done some work on environmental issues if there's a feeling that those have to be looked at again. We would be perfectly content for that to happen. The chamber's commerce submission talks about the efficiency of modern aircraft rapidly improving and that that should be seen as an opportunity to reduce emissions. Is that a statement that you're confident about? What we looked at in that regard was work that the Committee for Climate Change had undertaken that suggested that during a period of passenger growth within UK aviation emissions had fallen marginally over that period. The international civil aviation organisation takes the view that the industry is some 12 years behind its own targets for reducing emissions through efficiency. If we were to conclude that that was a more reliable assessment of the state of play, don't you think that we would be well advised to call a pause on a policy that might lead to significant increases in aviation based on projected increased passenger numbers? Or certainly ourselves, I don't think that we were in a position to choose one set of analysis I'm not asking you to, but if we were to conclude that the ICAO was correct, wouldn't it be appropriate to pause the policy and to figure out how we can actually get a reduction in aviation emissions rather than just seeing an increase? I think that the UK Government itself has been clear that this isn't or that it doesn't regard it as an environmental tax. Certainly there's evidence that the way that it has been applied leads to behaviours that actually increase emissions, people flying less directly to avoid paying APD, so it has an impact in a negative sense on emissions. I think that there has been strong progress and strong commitments as well from the aviation sector about how it will reduce emissions going forward. Taking into account the fact that the Parliament will be looking at rates on a regular basis, I'm sure, and has some statutory commitments to meet on climate change, there seems to be plenty of opportunity to monitor progress. The comment that it's an ineffective tax if seen as an environmental tax is probably a fair judgment, but you seem to be suggesting that the way it operates increases emissions. That's very much at odds with the Scottish Government's analysis that shows that the impact of its policy will be to increase emissions. I didn't say that. I look at it from a totality basis, but the point that I was making was that it can, in particular, have a negative impact because it encourages people to fly less directly, go via Dublin, go via Amsterdam instead of that. It's important to consider the Scottish Government's view that its proposal will increase emissions. Do you think that that's just something that we should live with? I've got no reason to doubt it. I note that it's a very modest increase. As I've suggested in our submission, there are other ways in which reductions in emissions associated with aviation, such as public transport links to airports and so on, could be achieved. Because I've been listening to what's going on, I've not had a chance to see if MDA also wants a final question. Is this the last question, then, unless there's a supplementary question? No, we've heard this week from Kenny McCaskill, former Edinburgh MSP, former minister. He said that it's hard to see a credible argument for this other than enriching airlines and airport operators. I think that he's got a fair point, particularly when passenger numbers are increasing, but just to follow up the point that James Kelly was talking about, about budget priorities. We know that if there's a 50 per cent cutting APD, then it would be £120 million, at least, lost to the Government revenues. Do your organisations have a view as to what should be cut? The Cabinet Secretary often asks Opposition parties for views on what should be cut. When we are proposing particular policies, I'm sure that we'll ask him the same question in relation to this, but I just want to know and understand what you're saying about how that should be cut and the economic growth reasons that you're saying, but obviously there will be decisions that have to be made about £120 million worth of cuts. Is that to come from the NHS? Is that to come from education? Where should that cut come from? I don't understand why you asked the question, but I don't think that it's a fair question to ask. I think it is, actually. I don't think it is, so in that regard, because they're not here to make a judgment across the whole portfolio. It's a fair question to ask a Government minister, Neil. Surely we'll ask organisations where money should be saved and spent. I think that's a legitimate question, but if you don't think so, then it's fine. If any of you feel that that's a legitimate question and you want to give an answer, then please feel free to do so. I understand the fiscal position for the Parliament. The question I would respectfully suggest needs to be asked is around five years, ten years hence. Going back to the point that was made earlier about people on the living wage and so on, we have to ask ourselves how we're going to get a stronger Scottish economy, how we're going to generate more wealth, which can be shared fairly. That means that we have to have stronger international links, we have to grow our tourism sector, we have to increase our exports. I understand the short-term challenges, but, as with everything, I think that we have to take a long-term perspective on those issues. I thank the witnesses for coming along today and giving us evidence. I now close this session with the Vance Committee.