 Good morning, and welcome to the 8th meeting in 2016 of the Finance and Constitution Committee. We've received apologies both from our Vice-Commander Alec Johnson and also from Neil Bibby. I just remind members to switch off their mobile phones or at least put them in a mode that don't interfere with the proceedings. The first item on our agenda this morning is to decide whether to take item 7 in private. Members agreed. The second item on our agenda is to continue to take evidence as part of our inquiry into the first year's operation of the land and buildings transaction tax. This will be the final session of our current inquiry and we are joined this morning for it by the Cabinet Secretary for Finance and Constitution Derek Mackay, who is accompanied by Aidan Griswyd, the head of fiscal responsibility division of the Scottish Government. Members will have received copies of the letter from Mr Mackay, but before we go into any questions, I wonder if the Cabinet Secretary would like to make a short opening statement. Thank you and good morning, convener. As I said in my letter of 26 August, very much welcome your inquiry and the participation of all stakeholders at the earlier committee sessions. It is important to hear all aspects of the evidence around the first year of LBTT. We cover first-year policy priorities in setting residential LBTT rates and bans. We set progressive residential LBTT rates and bans to prioritise support for first-time buyers and those buying houses at the lower end of the market by redistributing the tax burden towards higher-value homes. At the lower end of the residential market, taxpayers in Scotland do not pay LBTT until the value of the property that is purchased is above £145,000 as opposed to £125,000 for UK SDLT. That progressive measure took nearly 9,700 extra house buyers out of tax altogether in 2015-16. A further 31,700 house buyers in Scotland paid less tax on their house purchases between £145,000 and £330,000 than they would have under SDLT. As a submission points out, those benefits have been achieved by us meeting the residential LBTT forecast, allowing for stalling effects and exceeding the non-residential forecast. Our analysis has found no evidence of a long-term suppression of housing transactions at the upper end of the Scottish housing market following the introduction of LBTT in April 2015. Turning now to revenues and formed Parliament the provisional out-turn statement in June that devolved taxes generated £572 million in revenue in 2015-16 against our original forecast of £498 million allowing me to take the responsible step of placing £74 million in the Scottish cash reserve. The overall surplus indicated a surplus of £44 million from LBTT with a shortfall of £27 million on residential properties offset by a £71 million surplus on non-residential properties. However, it is important to note that the shortfall on the residential properties includes transitional for stalling effects. When the Deputy First Minister wrote to the previous Finance Committee with a detailed analysis of proposed residential LBTT rates in January of 2015, he noted that the residential LBTT forecast for 2015-16 of £235 million did not take account of stalling effects. A £27 million shortfall against the original forecast therefore includes the one-off loss of revenue arising from the transition from SDLT to LBTT, which saw the purchase of a significant number of high-value properties brought forward into the 2014-15 financial year. As I stated in my letter to the committee, the Scottish Government remains committed to undertaking a review of the operation of LBTT rates and bans now that we have a full year of out-turn data. That inquiry is providing very useful evidence that shall consider as part of that review. In addition, I have convened two round-table events to take place on 10 November, but I will discuss and challenge the evidence of any impact on LBTT on residential and non-residential property markets with a range of stakeholders as well as gather evidence and other factors that may be impacting the performance on the markets. Not least of those factors is likely to be local oil-related economic difficulties in Aberdeen City and Shire. Registers of Scotland get data yesterday pointed to residential transactions falling sharply over the year, yet they were rising modestly in the rest of Scotland, where local housing markets are not as exposed to those north-east difficulties. Finally, I will announce my intentions for regard to residential and non-residential LBTT rates and bans as part of the forthcoming Scottish budget. I look forward to answering the committee's questions. Thank you, cabinet secretary. In your opening statement, you always mentioned your own issues around forced stalling. I am aware that our predecessor committee recommended that the government should undertake analysis of the initial behavioural responses to LBTT once they had available to them a full year of out-turn data, particularly on whether or not there were any long-term behavioural aspects regarding the new tax at the higher end of the market. You mentioned that you had undertaken some analysis that it was considered that these might be temporary phenomena. If I have that right in terms of the way you described it at the beginning, would you like to extrapolate a bit more on that issue? Because it is something that the committee has taken a considerable amount of interest on whether or not there were temporary behavioural changes or longer-term changes that we are dealing with. I think that I have covered some of the forecasting issues and the range of forecasts. With any forecast, you will not get it exactly right. I am a good forecaster that can, but there is obviously a range of forecasts. There was inevitably going to be some cultural behaviour, people bringing forward sales to avoid a higher level of tax, and I think that there was evidence of that and that has impacted over the year. We cannot say what the long-term trajectory will be because we are just beyond the one year of course and a further couple of five quarters data, but from the statistics that I have seen around the share and the composition of value of properties, the patterns seems to be more of a consistency. One of the issues that has been raised, particularly by a Murdo Fraser in the past, was around those properties at the higher end. I have taken a very specific look at that and ensured that the higher value properties, there is not a distortion of the market and people are not forever putting off sales and transactions. It does appear on the data that we have that the broad composition is the same in terms of share of transactions. There are separate issues around revenue and impacts and the housing market may be around house prices and value, but in terms of share of transactions, that cultural behaviour that we saw in the early days seems to have levelled off, but that is only on the data that we have so far. As to your longer-term question, we will only know that when we have more data. Hi there. I have been asking a number of people about the additional dwelling supplement. I know that it was introduced very quickly in response to a policy change from the UK Government. Do you have any reflections on how that went? I suppose that the principle around it was to make sure that Scotland was not simply subject to more people investing for simply buy-to-let. We did not want to distort the housing market in Scotland, particularly at the lower end as well. That is why we took the same action to follow on from what the UK Government has done and I suppose that that degree of harmony has spanned out to be the right decision. I think that because it was introduced so rapidly, there are probably refinements that need to be made going forward. One of the policy objectives was to target the buy-to-let market. I represent an area in the Highlands and Islands where there is a high level of second home ownership. While that is important for the tourist economy, it is a challenge for some communities to absorb when more than half of the housing stock is owned by people who do not live there. I wonder what your thoughts are on refining that tax going forward. I know that you will not be able to announce it today, but have you got thoughts about what you will consider in terms of refinements going forward? I do not have any immediate proposals to announce today at the committee, but I am certainly in listening mode on this if you think that there are suggestions for improvement. When any legislation or regulations are produced, there are sometimes unintended consequences, and there may be individual constituency cases that have been raised with me that would lead me to look again to make sure that if there are any refinements that are required, we will do that in a very methodical way. Absolutely, there is a focus. In terms of the policy, the broad approach, I think that it has been the right thing to do, considering how we followed on from UK Government and reflected on the air proposition around us. Separately to LBTT, of course, there are policies on council tax that parliamentary committees have considered around second homes discounts, for example. There are other levers that can be used to address the issues that the member rightly raises, but in terms of the specifics of LBTT and ADS, I want to look again and make sure that it is refined and there are no unintended consequences arising from the legislation or how we have deployed that tax policy. Good morning. A lot of the discussion around the impact of LBTT on the housing market has been around the issue that you mentioned about forestalling and the impact on sales at the upper end of the market. I am interested in the impact on the housing market in general. I tested one of our earlier witnesses on the claim that LBTT has undoubtedly been of benefit to first-time buyers, for example. Regardless of the few hundred pounds that a first-time buyer might save, the impact on them is more likely in the long term to be as a result of any changes in house prices. Has the Government done any work, or do you believe that there is any evidence to show what effect that change is going to have on property values and on housing costs for the majority rather than for the tiny number of people who live in the very high-value properties? Mr Hardwick is correct to point out some of the benefits for first-time buyers and questioning them rather than pointing them out. I took the inference as quite a positive one. I do forgive me, but I will make that point anyway. I think that the policy has been good for first-time buyers and those at the end of the market. In terms of how the policy has shaped or influenced house values, it is very hard to determine that. Any economist would look at it and say, I cannot take the issue in isolation because there are so many other factors now that impact on house values and prices from income, general economic performance, geographic issues and so on. It is very difficult for me to be able to say what impact the tax regime has had on house prices and house values. I am sure that a good condensant solicitor or surveyor or valuer would say, however, that when you are close to the margins of a tax layer, maybe that does influence a final price. Potentially they might argue that point, but I do not personally think that it has shaped house values. I think that there are many factors that play in that. You are actually suggesting that the tax regime is not going to have an effect on property values? I am saying that it is one of many considerations and one of the reasons that you could draw that conclusion is that if you look at the state-of-the-house market across Scotland, something totally different is happening in Aberdeen and Aberdeenshire to the rest of the country. That is why I make that point. There are so many different factors that play. I am sure that it is one factor but not the only factor. I think that that was the point that I was trying to fairly make. You are sure that it is one factor. Can I ask what analysis was done on how that factor would impact on property values when you were setting the rates? It would not have been me at the time, but I would imagine that it would have been fairly successful. I would ask maybe Aiden Griswyd to cover that point. The myth is correct in terms of just multiple range of factors impacting on the housing market and house prices. This is something that we are developing, our methodology and forecasts as we go forward. The information that comes forward in terms of the impact of the regime but also just wider effects that we have talked about and just refining our capability to model house prices is not just because there are wider policy reasons but also in terms of forecasting future revenues and that will obviously be an important factor of the Scottish Fiscal Commission's work. In terms of the specifics around the extent to which it impacts on house values, I am not aware of any effect that was countered into that and part of that would be because we did not actually have the previous announcement in terms of those sorts of changes to model, but it would certainly be something that if there wasn't a... it would be the sort of thing that would be looked at closely alongside all various other factors to make sure that any future forecasts of any changes of the like could be fully considered if there was indeed a relevant and significant, if you like, co-efficient that was derived in terms of the impact on house prices. Will be looked at by the Government with something published as a result. Going forward, the Scottish Fiscal Commission publishes forecasts of future revenues from this and therefore produced as part of that will develop models that are capable of doing that, but we also develop our own modelling in terms of just being able to understand the policy impacts of different decisions and therefore we need to retain that capability within the Scottish Government too. It was my understanding, convener, that we'd heard from the commission that they were likely to conduct that kind of work on revenues, but not on the impact on the housing market. So I'm just wondering whether the Government itself will be undertaking that kind of analysis to test whether my gut feeling that people's benefit or deficit as a result of those changes is very likely to be far greater than the £100 that they're saving through the tax change itself. We need to understand that if we want to know whether this has ultimately been of global benefit to people who are either buying and selling or perhaps not able to get onto the housing market at all. It's a helpful point. I suppose I was trying to answer the point with what we know already, just why I answered a range of factors. I'm happy to engage far with the committee and the stakeholders at the round table event and hear from those working in the sector to get their intelligence of what further impacts it may be having on values and I'm happy to look at that. Okay, thank you. Adam? Thank you, convener. I wanted to ask a couple of questions about the institutional structure of devolved taxation so far. We all know that LBTT was one of the taxes in the vanguard of fiscal devolution and that much more fiscal devolution is coming during the early part of the lifetime of this Parliament. Are you satisfied, cabinet secretary, that we've got the institutional structure right in terms, for example, of the relationship between your office and Revenue Scotland and in terms also of the relationship between Revenue Scotland and HMRC? Or are there lessons that need to be learned, corrections that need to be made as we engage in further fiscal devolution in the coming months and years? I think that that's a very helpful question. I think that LBTT is a good working example of where the infrastructure in place has been effective and efficient and I would refer back to the Adam Smith principles of taxation, which we've deployed in their efficiency, convenience, proportionality and certainty and reliability on all those maxims that we've been able to deliver and in practice. I'm sure you've heard, in fact, I've seen the evidence that you've heard from Revenue Scotland that they are a slick, efficient operation of some of it because it's around digital first, a good approach and good working arrangements with HMRC as well. That's a good example of a devolved power taxation being delivered in an efficient and effective way. If I go into other areas where there's a transition of power, there's much more work to be done on other areas but I think that this has been a success story. Thank you. Second question. I don't know if you had a chance to look at the evidence that we received near the beginning of our inquiry but I was very struck by what the Law Society said about how the structure of LBTT was similar to the structure of so many taxes at a UK level which is that we tax by statute and untax by extra statutory concession. The idea is that tax legislation is as complete as it possibly can be but there are always gaps and those gaps are filled not by amendment, formal amendment to the law but by discretion exercised by the tax authority in this instance Revenue Scotland and they expressed I think it would be right to say that it was concerned, certainly not alarmed but concerned that here was an opportunity in a sense perhaps with regard to the devolution of tax that had been missed. This is a problem at UK level tax by statute and untax by concession and it's a problem that seems to have been imported into the devolved framework. Is that an issue that has come across your desk or do you have any reflections upon it? No, I think that's a helpful reflection. It actually relates back to Marie Todd's question around the original purpose, the delivery and then further refinement so it's entirely that point that sometimes we have to work back on some of the specific cases that we may have seen. I think generally that the points well made. I did see the law society's evidence I thought it was quite measured and the true spirit of any solicitor given as a range of opinion and challenging both statutory and delivery contributions. I think it's a helpful and fair point but again I think how this tax has been deployed, has been effective and efficient and in fairness both UK Government and Scottish Government have reflected on each other's decisions to get what's optimal for the UK for the UK Government's point of view and in Scotland the Scottish Government where we've been able to respond to what the other is doing and I would argue that I know that inheriting is stamped due to moving it on to LBTT, we've been able to deliver principles that we're very much in keeping with the Government's agenda. Thank you. Thank you cabinet secretary. Good morning cabinet secretary. I wonder if I can just go back to the point that the community raised in his question to you earlier around the issue of the potential for behavioural change caused by tax rates particularly on larger properties and I'm gratified you've been following my lines of questioning to the evidence to those giving evidence with detail. I think it's fair to say to put this in context. We're not talking about multimillion pound houses we're talking about houses probably in the bracket £400,000 up to maybe £700,000 or £800,000 where we have a lot of evidence as a committee from those working in the sector that they feel there has been a suppression of transactions. You've been very clear in your letter to the committee and indeed you said just a few moments ago that the Scottish Government had found no evidence of suppression of transactions. There's no evidence on 5 October from the Scottish Fiscal Commission on this issue. Professor Campbell Leith told us and I'll just quote directly from the official report and he's referring to the Scottish Government's own data collection. He said that the Scottish Government found that over a two-year period there was a substantial growth in many of the price bands except for the £325,000 to £750,000 band in which there was growth of only 1 per cent. As far as the Fiscal Commission is concerned, they're not as bullish as you are or you appear to be in relation to this issue. Why do you think the Fiscal Commission has got this wrong? I'm nothing if not diligent. I've checked what the Fiscal Commission has actually said. What they said and this goes back to another statement around how revenue has been subdued at the end of the market. They didn't say transactions because I've looked at the number of transactions. Mr Fraser would be right if the number of transactions at the upper end had nose dived and then that argument would have been valid that Murdo Fraser has made and that's why I looked into it so closely. What I've found is that the number of transactions has largely been sustained as a share of total transactions in Scotland but values have been more subdued. I would relate that back to generally house prices and house values in Scotland. Within that, there's a geographic issue in the north-east Aberdeen city and Shire and we know what's happening in the economy. I think that's what's impacted on some of the values and therefore some of the outturned figures. It's important to make this point very clearly. I'm not bullish I'm just leaning on the facts that I'd like to share with you. Broadly speaking, using the range that Mr Fraser's touched upon, anything from £325,000 up to £750,000 in terms of market activity from 2014 before LBTT share of total transactions across four quarters was 6% of transactions, 7% of transactions, 8% of transactions and 8% of transactions that's over each quarter then go to 2015 and it's 10%, 7%, 8% and 8% on introduction of LBTT which suggests not a dip in the number of transactions that I say again but values may be in a different place. If we go into 2016 it's not quite as high but it's 7% and 7% in the quarter two figures it's totally aligned 7% over that quarter so that's for those figures I could do the same exercise on levels above £750,000 and it's the same kind of pattern I think Mr Fraser's right to put a focus on this because of how we've deployed the tax policy, we made it clear that we were focusing on that tax relief at the lower end of the market to stimulate the account, to stimulate purchases, to support first-time buyers while we're doing that but I'm also very mindful at the impact on the top end and keeping a very close eye on that and that's why I say that the SFC is not wrong but the languages of use was around revenue not necessarily transactions Your former First Minister and your former boss Alex Salmond was a great advocate of the Laffer Curve Theory of Economics Do you share his enthusiasm for Arthur Laffer's I say my very comprehensive briefing I don't have the detail on such an economic modelling I've spent enough time with economists since my appointment, I thought I knew it all but Mr Fraser I think you're going to have to educate me maybe you could give me a synopsis now I will very briefly if I may the Laffer Curve I thought it was well understood even by those with a limited grasp of economic theory but essentially the Laffer Curve theory says that if you raise taxes above a certain level because that then suppresses activity your tax take therefore falls therefore there's an optimum level of taxation in which you maximise tax revenue and tax rates either below that level or above that level actually generate a lower income I was just interested whether there's a matter of principle you accepted that principle that if you set tax rates too high because that suppresses activity that would result yes of course I accept principle so you agree with Arthur Laffer now you've given me the understanding of it I'm not going to sign up to it but I accept the principle if you tax too much you might inhibit activity of course but we've not done that of course we've delivered an optimal tax system that supported the economy raised revenue above the figure that we had anticipated we've deployed sound financial management for a rainy day which we may well be embarking on okay well thank you that of course is precisely the issue that the committee is currently considering whether the tax rates have been set at an optimum rate thank you that's probably a good time to bring a knife and a key actually time just a couple of observations on that and a thank you for coming along and giving the evidence and reflecting on the points that Murdo made certainly the analysis that we've done in the line of question we've had supports what the data you've given us in terms of the number of transactions in that middle band if you like usually the top end it's the top 6 or 7% of all transactions but that 325 750 does hold up very well there was some evidence that if you hadn't done this it might have increased more significantly but that's very much a counterfactual which there's no real evidence for certainly in terms of the evidence that's got the hypothesis that has damaged activity in that part of the market absolutely is not supported by the data we've seen and just reflecting on the comments you made about the the regional impact we thankfully got some data in the last week or so and we analysed that it shows if you go back two or three years an Aberdeenshire was sitting about 13.5% of Scottish transactions and that dropped to about 8.5% in the most recent data so that shows a significant reduction relative to the rest of the country in terms of activity in that part of the market which might answer some of the concerns that Alec Johnson might have had earlier my question really is we're still in early days as indicated we're a year and a half into this at what point do you think we'd been a position to be able to say we've seen enough data now to be able to say we fully understand the impact of this so that any future changes around those bands and rates potentially going forward? If I can connect Mr McKee's point to my ddo phraser's point just to say that we're all economists now certainly at what point will we have enough data to be able to understand the past, present and future well it's easier to understand the past understand what's going on in the present but always difficult to predict the future and even the latest information wider economy, for example the resolution foundations report into the choices that the chancellor will have in terms of the Brexit decision tells us it is very hard to forecast the future but we'll do our best to produce a range and we will adapt the policy and the tax position on a year by year basis as we would do through the budget process, engaging, listening consulting as best we can and the same goes for income tax but taking the right decisions but not to encourage bad cultural behaviours and tax avoidance and so on and continue to apply the four maxims of Adam Smith on how we deliver Scottish tax policy does that assist? James wanted to cover areas of the future and you mentioned the future budget James You said in your opening statement in terms of the 17 aged 18 budget you would announce new rates and bans and obviously I don't expect you to comment on that this morning but in terms of the the out turn information that we have currently in relation to 1516 again as you said it was forecast at 381 and it came in at 425 million 44 million more in relation to your desired out sorry did I say sorry I apologise 44 million higher in relation to the 17 18 budget what are your objectives in terms of out turns is it within that range it would be within the range obviously the SFC will produce their forecast as well so I think again there will be issues around turbulence in the economy and we don't know what it will mean for house values but we would want to sustain the income and if there is an impact in the next financial year then we will have the Scottish cash reserve to draw down from if we don't meet and income as part of that budget and of course we will revise the figures and the SFC will revise the figures and that will be part of the publication of the budget to process and the methodology okay thank you well like you've got a supplementary in this area have you well no it was more really a full up supplementary team or dole phrasers question on the impact and difficulties because it's still in residential area then I'm going to come to Ash Denham residential area because we're not touched on that yet so yes on you go on okay thanks good morning cabinet secretary and in your opening remarks you reminded us of some of the impacts that the LBTT tax has had I think he said that 90% of people actually pay less or nothing at all now as a result of the measure that you've introduced so is the impacts that you were expecting pretty much as expected when you were doing your forecasting for this tax notwithstanding the difficult nature of making any forecasts at all really is it performing pretty much as you expected and secondly some people who gave evidence previously indicated to us about the pressures in the north-east area but they also indicated some pressures in the Edinburgh area and the high value market so what I'd like to ask is how do we square that with the data that we have in front of us that shows that the highest value range over £750,000 that's actually performing much better than the range just previously referred to that by Murdo Fraser so difficulty in understanding how the highest value properties in Scotland can be performing much better than a range beneath that there will always be differential impacts in different parts of the country because of the economy and more localised issues but the headline for LBTT I think it's been delivered effectively responsibly we've inherited the powers and through a good sound policy approach and very efficient management and you've heard from Revenue Scotland I think everyone appreciates that they've got a very slick operation and very efficient operation and I remember the debates around this tax policy and how it should be implemented and who should operate it and what should be done and how best to do I think that the creation of Revenue Scotland has been vindicated and there was a suggestion that maybe HMRC or someone else could do it and this was the most efficient way to do it and that's turned out to be true in terms of the overall headline for Scotland I have highlighted that it's had higher than expected revenue performance in its first year paying less tax than under SDLT and it includes those who pay no tax at all under LBTT so I'm sure that that's welcome and as I've heard and I've listened very carefully to some of the commentary and the anecdotes around the upper end of the market and I've explained the evidence to Jess there's not the issue that's been suggested I've also seen alternative suggestions and I think it's maybe helpful to make committee aware of this Scottish Property Federation homes for Scotland suggested changing the bands and the thresholds I think that it's reasonable that people put forward alternative suggestions as to how they think things could work differently now a very preliminary modelling of what that would mean their specific suggestions about raising thresholds tells me and they say it's preliminary but figures if it was to go to their model would lead to a for the Scottish Property Federation modelling an estimated loss of 32 million pounds and for the homes for Scotland modelling an estimated loss of 34 million pounds now unless you take that elsewhere on the tax system then that means cut somewhere else so that's why I think that our balance is the right one but I have looked at the suggestions from elsewhere to say if we're to model that what would it mean and I'm happy to engage with those stakeholders at the round table that I've described so hopefully that covers the benefits and looking at the alternative models because I think that the Government would be wrong just to rule out other people's suggested changes but when we study them we see that it carries significant risk and a potential loss of income entering what may well be a more difficult economic period just a brief follow-up cabinet secretary thanks very much for that you've said yourself and we think there's pretty clear reasons why it's having such an impact at the high end of the market in the Aberdeen area but what do you think might be causing that impact in the Edinburgh area if the evidence that we were giving previously is to be believed that there's a stagnation perhaps in that higher end in the market in the Edinburgh area? Sure, the economy secretary Keith Brown could go into far more detail of what he thinks about but both Aberdeen, Aberdeenshire and Edinburgh have for some time been quite buoyant in terms of growth in terms of oil and gas obviously that's impacted in the northeast we're doing everything we can to support the economy they're taking a range of actions but that's inevitable from the economic consequences of that Edinburgh has sustained high and increasing house prices for some time and maybe that was unsustainable We've done a lot on the residential taxation issues but we haven't really touched on for the record purposes in particular on non-residential stuff so I'm glad that Ash Denham's got a question in that area Thank you, convener so obviously in the non-residential side we've seen higher than expected revenues and also there was a driver for the policy decision to set the rates slightly lower than the rest of the UK to make Scotland a more attractive location for business so I'm wondering in any of the data that you've seen do you think there's any evidence of businesses choosing to locate here It's hard to see whether that specific tax policy has been the critical factor in a company locating in Scotland but generally our decisions on non-residential LBTT have been well received and again the pattern shows a satisfactory number of transactions and when it came to income Ash Denham's correct to say that the out turn was much higher than forecast by some £71 million so forecast was £146, out turn was £217 and that assisted with the overall positive variance so obviously this tax base is quite volatile and a small number of really high value transactions such as for instance maybe a shopping centre makes it really difficult in particular to forecast precisely for this tax so it was mentioned in the paper that there's a development on the forecasting and also on the methodology for future forecasting could you comment on that a bit further Just in terms of the methodology I think we caveat it to say that there are issues as you've described around the predictability and how month to month or quarter to quarter it's very difficult to assess so if you take an annual view it gives you a better picture of what's happening but you're right it's not like house transactions that may be more consistent when it comes to these high value property transactions they're pretty significant and sometimes very specific reasons why it's being sold and that's beyond just six levers I suppose what I'm asking is would you expect as the tax kind of beds in for the out turn and the forecast to be closer together? Not necessarily because of the point that I've just made that it will continue to be volatile just because of the nature of commercial transactions it's not often planned there are many influencers on why property changes hands so it's fair to say it will probably continue to be volatile so I'd want the out turn to be as close to forecast as possible unless it's a positive out turn much higher than forecast but hopefully our forecasting is accurate and sustainable and of course the Scottish Fiscal Commission will oversee One of the challenges that the committee has been facing certainly a challenge that I've faced over the recent weeks is the publication of the data on housing market in Scotland and the figures produced by Revenue Scotland and Register Scotland to publish different sets of data at different times and then it's retrospectively updated and corrected meaning at times that certainly have been across purposes with witnesses in terms of the data that's been in front of us and I just wondered if there's any way that the Government could reflect on that to make in future the analysis much easier for not just this committee but stakeholders from outside when they're looking at what Register Scotland and Revenue Scotland produce to make that analysis easier for people in terms of how the information's produced is it something you might want to take on that would help everybody I think in that regard If you allow me, convener, to reflect on that point and I'll see what I can do about better alignment of data and statistics I wouldn't want to set any hairs running though to say if the publication of month to month statistics folks say oh you're not meeting your forecast every month or you are you're getting too much whatever because as we've described month to month doesn't tell you the full picture quarterly is better annual is reality but if you allow me to reflect on that point some of the release of data is out with our direct control but let's see if we can try and harmonise some of it I also recognise that the Register Scotland and Revenue Scotland have different needs in their own right in terms of information to produce but I think it would help for transparency and we could do something around that I can thank both of the witnesses very much for coming along and giving us evidence on this session this morning we now move to the next item and the third item on today's agenda is to consider a Scottish statutory instrument relating to appointments to the Scottish Fiscal Commission before we come to the motion seeking our approval at agenda item 4 we have an evidence session on the order we are joined for this session by the same witnesses who just gave us evidence on LBTT so what further I do I could invite the cabinet secretary to make an opening statement in this regard Thank you convener, to see the day job keeps me quite busy the purpose of this order is to enable Scottish ministers to bring appointments to the Scottish Fiscal Commission which does not yet exist in law within the remit of the commissioner for ethical standards in public life in Scotland and therefore enable the commissioner to regulate the appointments the role of the commissioner will help to ensure that the appointments process is fair and open and that the successful applicants are appointed on merit Questions from any of the committee in this regard I therefore invite the cabinet secretary so I am trying to move to item agenda 4 which is considering the recent motion on the order I invite the cabinet secretary to move motion S5M-01595 that the finance and constitution committee remends that the public appointments and public bodies etc of Scotland act 2003 treatment of the Scottish Fiscal Commission as specified authority order 2016 will be approved I move Do any members have any questions at this stage and I put the question the question is that motion S5M-01595 be agreed to are we all agreed we're agreed the committee will now publish a short report to the parliament setting out a decision on this order I suspend this particular part of the meeting to allow a changeover of witnesses thank you we're now back in session the next item on our agenda is to consider the Scottish statutory instrument which provides for the 2016-17 autumn budget revision before we come to the motion seeking approval at agenda item 6 we have an evidence session on the order we are joined for this session by the cabinet secretary for finance and constitution Darren Mackay and supporting official Scott Mackay and Ian Story of the Scottish Government and I invite the cabinet secretary to make an opening statement the autumn budget revision provides the first of two opportunities to firmly amend the Scottish budget and team in order to assist the committee with their scrutiny I've provided a brief guide to the autumn budget revision prepared by my officials that guide sets out the background to and details of the main changes proposed and I hope that committee members have found this guide helpful table 1.8 and page 9 of the supporting document shows the approved budgets in the budget bill as realigned to reflect a new portfolio structure announced by the First Minister on 18 May 2016 this year's autumn budget revision deals with four different types of amendments to the budget firstly a few funding changes secondly a couple of technical adjustments that will have no impact on spending power thirdly a whitehall transfer and finally some budget neutral transfers of resources between portfolio budgets the net impact of all of these changes is an increase in the approved budget of £259.4 million table 1.1 in page 4 of the supporting document shows the approved budgets following the changes sought in the autumn budget revision the first set of changes comprise mainly of deployments of available resources sourced from the Barnett consequentials budget exchange and tax receipts to various portfolios to meet ministerial priorities and manage outstanding pressures in total these changes increased the budget by £151.8 million the second set of changes comprise a couple of technical adjustments to the budget the technical adjustments are non-cash neutral as they cannot be redeployed to support discretionary spend elsewhere and have a net positive impact of £107 million on the total overall aggregate position it is necessary to reflect these adjustments to ensure the budget is consistent with the accounting requirements and with the final outturn that will be reported in our annual accounts the Scottish budget aligns with the accounting requirements under the government financial reporting manual accordingly budget provision is included in the Scottish budget for the financial year to reflect the recognition of relevant transport assets within revenue finance infrastructure schemes in accordance with accounting requirements the adjustment to budget at this autumn budget revision is £157 million the other technical adjustment is to reduce the student loans wrapped charged by £58 million in line with forecast requirements following a change to the UK discount rate with regard to whitehall transfers from HM treasury there is a net positive impact on the budget of £0.6 million in relation to the proceeds of the tampon tax which is used to fund women's charities the final part of the budget revision concerns the transfer of funds within and between portfolios to better align the budgets with profiled spend in line with past years there are a number of internal portfolio transfers which have no effect on portfolio totals but ensure that internal budget lines are monitored and managed effectively the main transfers between portfolios are noted in the SBR supporting document and the guide to the SBR sorry, that should be ABR not SBR as we move towards the financial year end we will continue in line with our normal practice to monitor forecast outturn against budget furthermore, wherever possible we will seek to utilise any emerging under spends to ensure that we make optimal use of the resources available in 2016-17 and to proactively manage the flexibility provided under the budget exchange mechanism agreed between HM Treasury and the devolved administrations thank you, convener thank you, the stuff was helpful but there's beg some questions the material that was provided by the Government I've certainly got a couple myself I know other members who want to come in my particular first question relates to the Annex B which is the inter-portfolio transfers of over £5 million in particular the transfer to education and skills portfolio for nursing and midwifery education from the health and wellbeing and sport portfolio of £54 million my understanding is from this is just from the discussions that this has been something that's happened for a considerable amount of time but for the life of me I don't understand why so if you could explain that to me and persuade me it's the right thing we're doing how we're accounting for that spend and why it's being transferred in that way, that would be very helpful okay, convener, I appreciate the point I suppose it's really as simple as this that there's relevant spend that's controlled by one minister or portfolio and this can be in relation to health they have the budget because they're making the policy decision but it's actually spent elsewhere so how health and education relate to each other so the decision maker is there and he'll spend as elsewhere and that's the reason for the cross-portfolio transfer that's my words, if you want an official interpretation of that I can supplement my answer with that, Scott Mr McHaz is absolutely right the policy decisions and the outcome of those policy decisions are felt in the budget within the health portfolio and the actual delivery is funded through the funding council but they don't take the policy decisions so it's right that at the start of the year the budget is reflected in the area where the responsibility for the policy lies I put this in my terms, if that's okay does this really mean, in effect that the health and wellbeing in sport and see a need for greater level of skills for nursing and midwifery and effectively the commissioning agent from the education and lifelong learning organisation to make this happen is that the simple way to put it okay, that's fine thanks for helping us out, convener that's okay on block grant adjustment issues I wonder if you could update the committee on the block grant adjustment devolved taxes for 2016-17 they don't appear to be included in the autumn budget revision can you tell us when that final figure will be agreed for 2016-17 for instance, we'll look come in the spring budget review which is obviously due in February is it from 2015-16 sorry, can we just the block grant adjustment in respect of the devolved taxes for 2016-17 we've agreed a block grant adjustment for the year as set out in the draft budget document that will not be revisited the block grant adjustment will not be revisited until the out-turn data is available for for the Scottish Taxes which will be after the year end so there is a correction mechanism embedded within the fiscal framework but once we've agreed at the start of the year the block grant adjustment that's not revisited then until that out-turn there's no in-year adjustment in that case so there's not an adjustment in year to the block grant adjustment there may be revisions to the forecast as part of as part of the work through the year as data becomes available okay, I think we might come back to that not in terms of this exercise today but I think I'd look at certainly in a bit more clarity what that means in terms of funding changes which you noted were £151.8 million and it's split out over the budget exchange mechanism Barnett consequentials and tax receipts Can you detail how that's broken down? Some of this information would have been released before in terms of budget exchange and income I reported this to the chamber so I can happily re-provide all that information so what we covered before which we've touched upon earlier this was higher than forecast income through devolved taxes as we've described through LBTT and landfill tax in terms of carry forward the 0.4% of the total budget that was carried for available for spend and anything else through Barnett consequentials I can give you further information on if you'd like in writing on the above forecast income from devolved taxes that figure was £74 million which we put into the Scottish cash reserve so if you want a further breakdown I can certainly provide that but it is as I outlined to the chamber previously If you could break down how the £151.8 million breaks over those three areas that would be helpful because you'd have the information right at this minute Just in terms then of the tax receipts you mentioned LBTT and you spoke earlier about how that money was transferred into a cash reserve and not used in terms of day-to-day funding How does that work? Interpreting this note is if the tax receipts as part of this £151 million have been used as part of the revision for day-to-day funding whereas previously you spoke about it being held in a cash reserve separately It will rest in the cash reserve and can be drawn down in the next financial year if the revenues from those same devolved taxes remain in the cash reserve So as part of this £151 million there are tax receipts and are you saying that they've gone to the cash reserve? I'll clarify the exact line because I'll separate issue around the additional dwelling supplement but what I've said would happen with the cash reserve is exactly what's happened but Scott Mackay can pick up your specific point In terms of supporting the additional funding there were some tax receipts forecast for additional dwelling supplement that weren't applied at budget bills stage so that's part of what's been brought in to support the additional funding allocation allocations that have been made in the autumn budget revision not the surplus tax receipts from last year which, as Mr Mackay indicated have gone into the reserve Sorry, I might be not getting this right You've got a table of £151 million of funding changes and that's detailed over a number of lines As part of your explanation for the funding changes you're saying that that includes tax receipts so where are the tax receipts are they in this table or are they in the cash reserve? There's two different elements to the tax receipts there's the surplus tax receipts over and above what was originally forecast in 1516 which have been put in the cash reserve in terms of sources of funds that have been applied to the £151 million there were some forecast tax receipts in respect of the additional dwelling supplement which were set out in the draft budget but were not applied as we moved through the budget bill and that's part of what has supported the additional funding so that's part of the overall forecast receipts for 2015-16 rather than the surplus tax receipts from the 2017-17 If these were set out in the draft budget how come they're being produced as an addition at this time? Are you saying they were included in a note to the draft budget but they weren't applied as part of the funding that the legislation hadn't passed at that point so there was an indication that that was obviously going to come forward and there was an estimate of the additional revenues that were expected to be generated but reflecting the fact that the legislation hadn't come forward to introduce that they weren't applied at that point so that wasn't included in the draft budget overall total at that time Aha Yeah ADS came after the budget ADS came after the budget bill hence the revision now Right, okay, it might be helpful just when you provide clarification in terms of the breakdown the funding changes in relation to the tax receipts you also provide just an explanation of that even just for my benefit No, I think it's a helpful point I think we all recognise now that it's a bit more complex and some of it has changed over the year so the information that's already been explained to Parliament but how it all interrelates is a very fair point so we'll have a summary of all of that together if that's of assistance Murdo and then Ivan Thank you, convener I'm trying to understand what's been happening with the Strategic Forum I remember from my days convening the Economy, Energy and Tourism Committee we took quite a bit of interest in this body which, if I recall, was set up to try and deliver efficiency savings across a range of public sector bodies According to Annex A the Strategic Forum appears to have had an increase in spending of £11.7 million There's also been according to Annex B a transfer within portfolios of £5.4 million from culture, tourism and external affairs to economy, jobs and fair work I'm not quite sure I understand what's going on here Can you explain it perhaps, cabinet secretary? What's right to say there's the Strategic Forum savings were all public sector organisations are expected to be more efficient and certainly to cooperate and to collaborate on that to achieve savings and that's certainly been going on but in terms of the exact budget line transfers, I'll ask Scott Mackay to come on with the detail The transfer from culture represents the contribution from Visit Scotland to the Strategic Forum savings There is an inbuilt target in setting the budget to embed the challenge the efficiency challenge and the contribution flows from each of the individual organisations over the course of the year in order to support the generality of funding across different portfolios If I could follow up, how does that relate to what looks like an additional spend of £11.7 million The additional spend of £11.7 million? Annex A shows Strategic Forum additional spend £7.7 million If you want me to come back and write Mr Fraser and give you the detail on this if you want to follow up then that would be fine Perhaps Cabinet Secretary if you stuck to the day job we had more time to look at these issues If you want to ask questions that's absolutely fine if you want the detail then we can give you that line by line Thank you I had a small question on the numbers and the budget bill and then maybe explore something else It's on the baby box just for my clarification so these are the numbers for 1617 but the baby box obviously starts a pilot in the new year but it's only going out to 1 or 2 per cent of the country and then it'll be the summer before there's a full roll-out to understand it so why would that spend be in this year or should it not be in next year? I think we've described how we'll be rolling out the baby box from pilot to implementation so that means some spend in current year then further spend in future years Yeah, but it wouldn't be 6 million it would be a smaller number I would imagine It's simply based on the forecasting If it doesn't happen then clearly that just rolls into the next year I think we've begun to outline how we will implement the policy Okay The other thing I was going to ask about and I don't know if this is the right place to ask it was running about the details about the performance framework It's probably not involved in this particular discussion Okay, no problem Okay, any other questions? Okay, in that case we move to gender item 6 which is consideration of the motion on the order I invite the cabinet secretary to move motion S5M-01839 that the Finance and Constitution Committee recommends that the Budget Scotland Act 2016 amendment regulations 2016 be approved I move Thank you Do members have any further comments? There have been no further comments I put the question in motion The question is that motion S5M-01839 be agreed to Are we all agreed? We are agreed The committee will now publish a short report to the Parliament setting out our decision on the order I thank you for attending cabinet secretary together with your witnesses As agreed at the start of the meeting we will take the next item of business in private and at its next meeting the committee will take evidence on the public finances and economic performance as we start our pre-budget scrutiny I now close the public part of this meeting