 Welcome to the first meeting of the Public Audit and Post Legislative Scrutiny Committee in 2018. Can I ask everyone in the public gallery to please switch off their electronic devices or switch them to silence so that they do not affect the committee's work? I welcome Iain Gray to the committee or should I say welcome back? As he previously convened Iain is the new Labour Party member replacing Monica Lennon. I am sure that members would like to join me in thanking Monica for her contribution to the work of the committee and also my special thanks go to Jackie Baillie for her role as acting convener while I was on maternity time. I move to item 1, declaration of interest. Can I ask Iain Gray to please make a declaration of interest? Decision on taking business in private. Do we agree to take items 5, 6 and 7 in private this morning? Item 3, the 2016-17 audit of the Scottish Government's non-domestic rating account. We will now take evidence on the 2016-17 audit of the account. I welcome Caroline Gardner, Auditor General for Scotland, Stephen Boyle, Assistant Director and Michael Olliffant, Senior Audit Manager at Audit Scotland. I now invite Caroline Gardner to make an opening statement. Thank you convener. Welcome back and happy new year to all members of the committee. Convener, my report today is on the 2016-17 audit of the Scottish Government's non-domestic rating account under section 22 of the Public Finance and Accountability Act. Stephen Boyle is the appointed auditor responsible for the audit, and his independent opinion on the account is unqualified. That means that he is satisfied that the account properly presents the receipts and payments for the year, ended 31 March 2017, and the balance is held at that date. The purpose of my report is to support Parliament's scrutiny and understanding of non-domestic rates at a time when Scotland's public finances are becoming increasingly complex with the arrival of new financial powers. In particular, I want to draw the committee's attention to issues highlighted by the audit relating, first of all, to the financial position and, secondly, the transparency of the account. The first point to make is that the operation of the non-domestic rating account is complex. In simple terms, the accounts prepared annually to show the amount of non-domestic rates collected by councils and pulled by the Scottish Government and the amounts distributed back to councils by the Government as part of the annual local government financial settlement. The balance on the account will always be in surplus or deficit at the end of the year due to forecasting and timing differences. At the end of 2016-17, the account showed a deficit balance of £297 million, meaning that in recent years the Government has paid out more to councils in non-domestic rates than councils have collected. This is the third consecutive year that the account has had a deficit balance. In February last year, the Government signalled its intention to bring the account back into balance over a number of years, but my report highlights that there is not yet a formal plan in place to do so. The second area to emphasise concerns the transparency of non-domestic rates, which form a significant component of the Government's annual budget and of its funding to local government. I have recommended that the Government should increase the consistency and transparency of financial information on non-domestic rates as part of its commitment to longer-term financial planning. That includes publishing details of how the amount distributed to councils each year is calculated and how it expects the non-domestic rating account balance to change over time. That will help Parliament to better understand how non-domestic rates contribute to the wider Scottish budget and its long-term sustainability, as well as the impact on local government. The establishment of the Scottish Fiscal Commission provides an opportunity to increase transparency in this area. Convener, we are happy to answer the committee's questions. Thank you very much. I turn to Colin Beattie for the first question. Thank you, convener. Auditor General, given that the audit of this account is unqualified, could you explain why it is section 22? Absolutely. As the committee knows, section 22 reports is the route that I have for bringing matters to the attention of this committee and to Parliament that arise from the audit of the various accounts that I am responsible for auditing each year. They are sometimes used when there is a qualification on the accounts, but more often they are brought because there is an issue of public interest or of strategic importance that I think merits the committee's attention. In this case, as I said in my opening remarks, both the fact that we have had a deficit balance now approaching £300 million over the past three years and the fact that the transparency of non-domestic rates can be improved in a context where the Scottish Government's budget is becoming more complex with new financial powers, I decided that it was appropriate to report on them for the first time in my term of office. Has the Government accepted your recommendations? The Government has made a general commitment to increasing the overall transparency of its financial reporting and budget information. It has also accepted the recommendations of the budget process review group that was published last June. That fits very neatly within that. There clearly are some choices about the way in which that is done, but the principle has been accepted. Given that the main issue here really is this deficit and how it is going to be dealt with, you said that it is part of its timing. How much of that deficit relates to actual timing? I will ask Stephen to give you some information on that in a moment, but it might be worth initially referring the committee to Exhibit 2 of my report, which is on page 8, which shows both the surplus and deficit in each of the last six years and the way in which that is combined to a cumulative surplus and deficit. That shows that, over the past three years, we have had a deficit balance building up and we have had deficits in each of the last four years, so that is not just a year-on-year movement. Much of it relates to timing and you can see that there are fluctuations from one year to the next. Perhaps, as well as Exhibit 2 to the report, Exhibit 1 sets out the movement between 2016 and 2017. The report is complex. It is subject to the post-year adjustments and the effect of any resultant allowances or disallowances from the previous year. Nonetheless, whilst there is a timing element that contributes to the scale of the £297 million deficit, it is not the only factor. We see that there are other elements and the main one of that is the resultant policy and the choice that the Government makes about the scale of the distributable amount, in addition to the fact that, as Mr Beattie rightly said, there are timing differences. That equates to the fact that the account itself is never likely to be exactly in balance in any one year. Is there any way to factor out those timing differences so that you get a real figure? We think that that is unlikely, given the scale of the account. That £2.8 billion or so is going through the account, but any appeals process will likely straddle any one financial year. It is a reasonable position to say that timing differences will just be an inherent factor in the preparation and management of this account. Given the timing factors and so on, the deficit, as it is at the moment, is reasonable or could be anticipated as being about that level? I say that it fluctuates quite a bit year by year, but nevertheless. I think that, as we say in the report, we would expect that there would be fluctuations from one year to the next. We also note in the report that the 1617 was the fourth year in a row that had a deficit in the account, and that had been growing. On that basis, we thought that that was an important factor to capture in the annual audit report and the auditor general's report on the section 22. Simplistically, the councils do a projection of what money they are going to receive from this. Based on that, the Government decides what they are going to pay the councils. Presumably, there must be some negotiation in terms of this deficit. Are these negotiations with individual councils, or are they with COSLA? The distribution amount that the Scottish Government will set is part of the Scottish budget, so it is part of the overall local government funding settlement. Where there are fluctuations that may occur during the year, the Scottish Government will adjust the general revenue grant component of that. The overall funding element of the local Government's funding settlement is guaranteed for that year, so it will be part of the negotiations of the overall funding settlement for that year, as opposed to the individual element. Will that be a negotiation with COSLA? Just by the normal process of the negotiations around the draft budget. We do not know how that has broken down in terms of who received what. Can I just take us back a step from there? The overall distributable amount that the Scottish Government puts into the budget is a policy decision for the Scottish Government, then subject to the normal budget process. That is not the subject for negotiation either with COSLA or with individual councils. The overall local government settlement clearly is an element of negotiation and during the budget process, the forecast estimate of the distributable amount may also be subject to change. Members may recall that, during last year's budget negotiation process, the Scottish Government revisited its assumptions about non-domestic rate receipts and increased the distributable amount by £60 million for the 2017-18 year, which had the effect of delaying the point at which the account was likely to come back into balance again. That is an appropriate approach to take, but it is not something that is transparent to Parliament all more widely because of the way that the information is broken down between different budget documents and different financial reporting documents. In terms of transparency, that is one of the reasons for this report. At £60 million, presumably that was based on projections as to how much non-domestic rates were going to be received. One of the underlying reasons for this report is that it is not clear what the basis for the estimates of the distributable amount is. Stephen, I think that I would like to add to that. I will say very briefly that the additional £60 million that we touched on in the report was subject to further provisional collectible amounts that were provided by local authorities, so there is an element of connection there. The only way that the account can be put back into balance is by reducing the allocation to councils for non-domestic rates. Is that the only mechanism? By reducing the amount of non-domestic rates collected either because of increases in the tax base or increases in the tax poundage and because of the way in which the Scottish budget is becoming more complex with more moving parts, my view is that there is room for more transparency about the Government's assumptions for that in each individual budget year but also over time as part of the Government's commitment to longer-term financial planning. Iain Gray I think that you have partially answered that, but I wonder, Auditor General, if you say a little more about why you decided to wait till now to report on the deficit, because obviously if we look at the table on page 8, the biggest deficit was in 2014-15 and there was a similarly very significant one in the following year. I just wonder why you waited till now. As Stephen has said, we would expect there always to be either a surplus or a deficit on the account in any one year. You can see that across the second line-up in Exhibit 2 and in more detail in the appendix to the report. That is partly timing differences, partly forecasting differences. The fact that there is a deficit balance in itself is not a matter of concern to me. The bigger concern is the extent to which the deficit is continuing to grow at the moment and the fact, as I said, that it is quite hard for that to be transparent to Parliament within the budget process at a time when there are other elements of uncertainty and volatility because of the devolution of income tax and other new taxation powers. The thing about the budget process is that it happens annually. If I understand your answer to Mr Beattie in the previous question, we are saying that as part of the budget process the Government can vary its estimate, in essence, borrowing from local government's future budgets in order to balance this year's budget. Is that not something that should be reported on an annual basis so that we understand exactly how the budget has been arrived at? The recommendations are not fair to me in describing what you just said. They can change the estimate in order to… That is one of the possibilities. The challenge at the moment is that it is not clear what is driving changes in the Government's assumptions about the amounts that will be raised and its decisions about the amount that will be distributed to local government in each budget process. Over time, in the account, what has actually happened becomes clear, but there is a risk, as we see now, that that has led to the accumulation of a deficit balance that is increasingly significant. The recommendations that I am making here about publishing the underlying assumptions and publishing a longer-term look ahead of what will happen in each year and the cumulative balance would be the answer to the question that you are asking rather than the individual decisions that are being made on an annual basis. Good morning. Can you help me out with something? Is this an actual financial deficit in the sense of is there a minus figure in a bank account somewhere, a crewing interest that is presumably coming from a different budget to service? The non-domestic rating account does not reflect a fund, it reflects an account that aims to show the amounts that are collected by Government and the amounts that are paid out by Government over time. Stephen can talk you through in more detail the detail of that. The non-domestic rating account, I suppose that I will take a step back if I may slightly, the requirement to prepare the non-domestic rating account dates back to the local Government financial act of 1992, and its purpose is to demonstrate that the amounts, the non-domestic rate amounts that are being collected have been paid out. In terms of the account itself, it is referred to as an extract account of the Scottish consolidated fund, and the flow of funds, ultimately through the consolidated fund, are part of the overall arrangements. As the Auditor General says, there is no deficit sitting on a fund per se. The non-domestic rating account is really just to illustrate that non-domestic rates that have been collected have been distributed. As we touched on earlier answers, that will not always balance to zero and there have been fluctuations over many years, both in surplus and in deficit. That makes sense up to a point. A cash sum is being paid out before receipts have come in, hence why there is a minus figure. Where does that money come from then? I will add to that. The distributed amount that is set, as we have noticed in previous years, that has resulted in this deficit arising, has been effectively paying more to councils than what has been received. That money, as a distributed amount, is set as part of the overall Scottish budget. That is where the money comes from, from the Scottish consolidated fund. The money, as it is coming back in, does not quite match the distributed amount in terms of lower than expected collections. That is managed by the Scottish Government across its overall budget, in terms of being able to balance it out. To follow up on something that Mr Beattie asked, the Government has an intention to get rid of the deficit balance over time. What is the practical impact of that on local authority funding and its ability to deliver services? You are right that it has signalled its intention to bring the account back into balance. Ultimately, that would be a policy decision as to the overall funding that is allocated to local government in general. In respect of the non-domestic rating account, if that follows through and it returns to balance, what you will see over time is that the distributed amount will be lower than the collectible amount that is recorded for the purposes of that account. As we touch on in some of the key messages of the report, we see the relativity of non-domestic rates compared with the overall funding arrangements for local government, which capture the revenue support grant and other elements of it. We know that the non-domestic rate accounts for 29 per cent of the total allocation to local government from the Scottish Government. If I may just be clear, because we are using a lot of terms that people will find challenging, I find challenging, is it fair to say that in order to get rid of the balance deficit, there may be a cut in the amount that is distributed to local authorities going forward? Ultimately, that depends and it is not necessarily connected to the reduction in the deficit in the non-domestic rating account. It remains a policy decision for the Scottish Government as to how much it chooses to allocate to local authorities. What it has signalled, though, is intention is to bring this account back into balance and in doing so, if the distributed amount as it relates to this account will be lower, nonetheless it may choose to offset that reduction through other funding mechanisms. You make an important point in there, Mr Boyle. The Scottish Government has chosen this is a choice to bring this account back into balance. I will say this as a statement, but take it as a question, if you would. There is presumably no legal or formal accounting requirement for them to bring it into balance. This is a choice that is being made. If I am right on that, presumably there is nothing to stop the Scottish Government running a deficit or a surplus in the future. That is correct. The legislation that sets up the account does not require it to operate in surplus or deficit. The only obligation on the account is that it is prepared and demonstrates that the amounts that have been collected have been distributed. On the point that you make about whether it is an issue in itself that is in deficit, there is nothing to prevent any Government or the Scottish Government operating the account in deficit. Bill Bowman. To follow-up on what Liam Kerr said, when cash goes out, there is more than cash coming in, then somebody has to fund it somewhere. There is a funding requirement in that. We can talk about funds and parts of funds in just an account, but there is a deficit of cash going out. As we can see it going in and out, the Scottish Consolidated Fund, in terms of the transactional things, which I think your question relates to, the local authorities and as they are paying money in during the year as rates are collected, and they receive money through the distributable amount from the Scottish Government and general revenue funding, the amounts are all netted off, so transactions are due to net payments between Governments and councils. The Scottish Government is out-of-pocket until this is resolved? There will be a deficit that will be recovered from future years. Is there out-of-pocket or there is a deficit layer of cash? It is required to be recovered from future years. The term signalling is very good when it means nothing really, does it, I think? There is no legal obligation on anybody to do anything if they have just signalled that they are going to do something. You say that it is always in deficit or surplus and you could understand that in small amounts, but when it builds up, is this a hole in the account? Does this affect how much the Cabinet Secretary for Finance has got to distribute this year? Is he taking this into account when he is deciding how much he has available to give to local authorities or he needs to raise in tax? It affects the overall amount available to the Scottish Government budget in the year to come. Depending on the policy decisions that the Government makes about the amount that it intends to distribute to local Government as part of the settlement, it affects the amount available to local Government. At both levels, it is not possible clearly to keep on distributing more in non-domestic rates than is collected. As you say, that has happened. If local authorities had paid this, Derek Mackay would have 300 million more to distribute this year or in his budget. It is not so much that if local government had paid it, it is that if the Scottish Government had paid out less in the distributable amount in each of the last four years. Whichever way, if this was in surplus, his budget this year would be 300 million more available. I think that Liam Kerr asked about accounting for this. You gave a clean audit opinion, so that means that you have no doubt that this is recoverable. It is a receivable, you have no doubt. They have only just signalled that they are going to get it, but you are happy that they are going to collect this. One of the things that we are required to do as auditors every year is to consider the going concern principle and that there is a deficit on this account. It is for management to decide whether any organisation can continue on any respect. Our obligations as auditors require us to take a judgment on that, so we consult auditing standards and the Government's financial reporting manual, which sets out the criteria where that would be in doubt. As we consider that and concluded our audit opinion, we were satisfied that there was nothing further and there was no need to make any reference to that in the audit opinion. Nonetheless, we still think that it is an important matter that ought to be brought to your attention. That is why we captured in the annual audit report and through this section 22 report. We note ultimately the fact that the difference between it being an account that is required to demonstrate the amounts that are collected and receivable, it being an extract account and the presence of the consolidated fund that allows us to take sufficient assurance that it is not one that requires to evolve into a concern of our going concern for the purpose of this account. It is interesting that you require to bring it to us in a special report, but you would not mention it in your own report, but that is your judgment. The other thing that we take from this is that the Government can decide either to collect it or to write it off at some point in the future. I am not sure that I would say that it could write it off. It could certainly decide to collect, but for as long as there is a deficit, there is a difference. It could adjust the amounts that it would distribute. The deficit will either have to remain or will be recovered, depending on the extent of the distributable amount or the amounts that local authorities decide to collect. There is no provision to write off any deficit balance on the account. I do not see a particularly big issue here with this. This is just financial transactions that are affected mainly by timing changes. One year, the local authorities will be the beneficiary in the next year with the Scottish Government. Up until the point where the account is completely balanced, there are no winners. There will be winners and losers during that process, but at the end of the process, when it is in balance, there are no winners and losers because the money that is sent to the Scottish Government is fully returned to local authorities. That is how I see it, convener. What I wanted to ask is how the reconciliation process works. Does the Scottish Government return back to local authorities the amounts that they perhaps overpaid pair authority, or is it just a compounded amount that is distributed back to the councils? So could there be authorities who ultimately lose out in this process, or do they get back what they overpaid perhaps during the process? I will pick up your first point and then ask Stephen and Michael to follow it with the second. I agree with you entirely that there was not an issue here if what we were seeing was a surplus in one year and a deficit with another. As table 2 shows, what we have seen in recent years is deficits one year after another and a quite rapidly increasing deficit up until the end of 2016-17, which leaves £300 million that will need to be recovered at some point through the account within the context of the overall Scottish Government budget, which is why I decided to bring this report to the committee. Stephen and Michael, who wants to pick up the reconciliation process? I will pick up that. The question outlines the timing differences. So when at the start of the year, when the council estimates what they think will get in, they then will pay that amount during the course of the year to the Scottish Government. Obviously, it is only until the end of the year that you know how far that has been out. Two scenarios will take place of where the reconciliations are required. If a council has received more than they expected, they will pay that additional amount into the NDR pool or the NDR account. If a council has received less than they expected, the Scottish Government, as you asked, will reimburse that. The key point is where there are fluctuations that the Scottish Government alters the level of the general revenue grant so that each individual council will get what it intends to get as part of the local government financial settlement, so that it smooths out any fluctuations to councils. That is what I meant. At the end of the process, when it is in balance, there are no winners and losers. That is the way it should ultimately turn out, I would imagine. When it is in balance, that is the case. The process of getting it back to balance means that the £300 million is not available for spending, if you like, in the way that it would be had it remain closer to balance over the past three years. Auditor General, the Scottish Government has said that they intend to bring the account into balance by 2020. What is your view on how achievable that is? It is difficult to answer that question in the absence of the other information that I have recommended should be available. Towards the end of my report, I set out a range of things in paragraph 28 that would improve the information and allow us, and more importantly, Parliament, to understand the underlying assumptions and the ways in which that would affect the budget as a whole and local government. Until we have that information, it is difficult to see what the impact is of bringing it back into balance. That is why I think that signalling the intention is not sufficient—what we need is a plan and the underlying information that makes it testable by Parliament as part of the budget process. Do you think that the plan needs to incorporate that? The information that you are looking for, will that improve the unpredictability of the account as it stands? As we have said in answer to previous questions, there will always be some differences due straightforwardly to timing and some differences because a forecast is only ever a forecast and will never be right, but it should be possible for those forecasts to be better understood, better tested and therefore, over time, clearer. It would also allow Parliament to understand the policy decisions that are being made and proposed by the Government about the amount that it intends to distribute to local government as part of the local government settlement. As we touched on earlier, during last year's budget process, the Government's estimate of the distributable amount was increased by £60 million. That was based on information available to them, but not available to Parliament about where the differences were arising. We do not yet know what the outcome was, but in a budget that has more moving parts, more volatility and more uncertainty, it is important that there is more clarity about the way in which this particular strand of revenue is being managed over the long term, in line with the Government's wider commitment to more transparency and longer term financial planning. That is useful. Just for the committee's information, are there any other areas of policy where there is a similar lack of information or transparency that you could draw parallels with? I think that it would be difficult to talk about individual streams, but the committee will be aware that the overall thrust of the budget process review group report was to try and present, rather than individual streams of revenue and expenditure, the overall picture and the way in which those strands interact with each other. It is difficult to overstate how much more complex the Scottish Government's budget is now than it was even a couple of years ago. That will increase further up to 2020 at least, and having that big picture is increasingly important. Thank you very much. I am now going to suspend for a couple of minutes to change witnesses. Thank you for your evidence. We will now take evidence on the administration of the Scottish Rate of Income Tax 2016-17 under item 4 on the agenda. I welcome to the committee Caroline Gardner, Auditor General for Scotland and Mark Taylor, Assistant Director of Audit Scotland. I also welcome to the committee this morning Sir Amius Morse, Comptroller and Auditor General and John Thorpe, Executive Leader of the National Audit Office. Can I please invite opening statements from Caroline Gardner, followed by Sir Amius? Thank you, convener. I'll keep it brief. Convener, income tax, as we've been discussing, is a major part of the package of new financial powers being implemented as a result of the 2012 and 2016 Scotland Acts. Taken together, those powers are substantially changing Scotland's public finances. The reports before the committee today relate to the Scottish Rate of Income Tax in 2016-17 following its introduction in April 2016. In considering those reports, it's important to bear in mind the respective responsibilities of those involved. First, for income tax, HMRC administers and collects Scottish income tax as part of the UK's overall income tax system and is responsible for developing and maintaining the systems needed to implement the decisions taken by the Scottish Parliament on rates and bans. The Scottish Government funds that by reimbursing the cost of administering and collecting Scottish income tax. The Scottish Government also seeks assurances that the system collects the correct amount of tax and that it is brought to account. Second, for auditing, the National Audit Office audits HMRC's accounts and the Comptroller and Auditor General is responsible for reporting to the Scottish Parliament on HMRC's administration of the Scottish Income Tax. I provide the committee with additional assurance on the NAO's audit work in line with a recommendation from the committee in 2014. This is the third year of this arrangement. In summary, my report confirms that I am satisfied that the NAO's audit approach was sufficient and robust and covered the key audit risks. I am also satisfied that the findings and conclusions in the CNAG's report are reasonably based. The Scottish Parliament now has the power to set the income tax rates and bans for non-savings, non-dividend income for Scottish taxpayers. That means that the Scottish rate of income tax arrangements were in place only for a single year. Nonetheless, the underlying administration arrangements that operated in 2016-17, particularly the accurate identification of Scottish taxpayers, remain fundamental to the effective operation of the new, wider Scottish income tax powers. I will now hand over to the CNAG for introducing his report. Thank you very much, convener, for inviting me. We are delighted to be here. The Auditor General for Scotland has set out HMRC's responsibilities for their collection and administration and has spoken about our respective responsibilities. I won't repeat those. It is probably worth just saying that I am in, first of all, my role is really just the same as hers in relation to the UK Parliament. We are required under the Act to report on the adequacy of HMRC's rules and procedures that they put in place in consequence of the Scottish rate provisions for the purpose of ensuring that the proper assessment and collection of income tax charged at rates determined under the provisions is in place. Whether those rules and procedures are being complied with, we obliged to comment on that. The correctness of the sum that is brought to account by HMRC, which relates to income tax, which is attributable to Scottish rate resolution and the accuracy and fairness of the amounts that are reimbursed to HMRC as administrative expenses, is incurred as a result of the charging of the Scottish rate of income tax. This report is for the 2016-17 year, so there's probably quite a lot more to come next year, it's fair to say, and it's on the first year of HMRC's administration of the Scottish rate, which went live, as you know, in April 2016. The key findings are set out in paragraphs 9-19 on the report and my conclusion on page 10 of the report. In previous years, we've highlighted the importance of HMRC keeping its information on Scottish taxpayer population up to date, and HMRC has now taken steps to improve the validation of who are Scottish and should be Scottish taxpayers. However, it's still the case that the identification of the tax base is fundamental to the effective operation of Scottish income tax, and is an area which will continue to examine and push on in future years. While things have improved, we're not saying that we've reached a destination yet, and I'm quite sure that you'll want to ask questions or have a discussion about change of address and so forth. On the correctness of the sun's board to account, the committee will appreciate that the final act on 1670 will not be reported until HMRC presents its annual report and accounts in July 2018. I will be reporting to you in greater detail in my next report once I've had the opportunity to examine the sun's board to account. Just finally, I wanted to thank the Auditor General and Audit Scotland. We've worked very well together, as we always do, but I'm very grateful for all the co-operation and close working as we've been doing our work. Thank you both. That's very helpful. I'm going to turn to Alex Neil for the first question. I'll get to two questions. Obviously, this is the first year of operation, and we have recently had the Scottish budget where the finance secretary has put forward to Parliament proposals for an increase in the number of bans for income tax. That would result in a number of people in the lower income groups having their tax bill reduced, but it will result in a number of people in higher income groups having their tax bill, income tax bill increased. Under the current arrangements, what scope is there for people, particularly in the higher income groups, to dodge the higher rates of income tax in Scotland? I'm not being evasive in saying that I also think that you can have a very useful discussion about that with HMRC, if you are the ones who are on point for it. Clearly, the more difference there is between rates of tax in Scotland and in England, the more potential inducement there is to avoid. I will go back to what I said before. It's really crucial to identify Scottish taxpayers. We think that the systems environment—I'm going to ask my colleague John Thorpe to say more about this, because he certainly knows more about it than I do. The systems environment and the arrangements in HMRC should be perfectly adequate to compute different rates of tax accurately if they have the right data about who the taxpayers are. As you know, there is a continuing question about change of address. I think that the view is that it creates pressure on the system. There is nothing axiomatic to say that that pressure is—can't be managed. To develop on that, the current system—the NPS system was introduced in HMRC in 2010, which consolidated tax records around individuals, which is a big step forward. Each year, it's normal for HMRC to make amendments to the code and the system in order to deal with tax events, budget events, and that's quite normal. Those implementation of those changes goes through quite significant testing, both prior to implementation and post-implementation. That's a key focus for our audit. With the implementation of the Scottish rate that we will use, we are extending our testing to include people with the relevant Scottish flag, just to make sure that the requisite testing is done in that area as well. Subject to correct identification, as the CNAG said, we would expect the systems and processes to be able to accommodate that change. You think that the systems are already robust enough to identify anyone who is trying to dodge tax between Scotland and the rest of the UK? We think that that's something that the department needs to keep looking at, because those behavioural changes and as the tax system evolves— I understand that it's something that you need to keep under review, because those guys have all their accountants working on it on a constant basis. However, as things stand at the moment for this year, are the systems sufficiently robust? For this year, the systems were quite well aligned. Changes come through in 1718 and greater changes will come through in 1819. That changes the environment, that changes the risk profile. We would expect, as HMRC does, to reassess that risk as part of its normal business. That will be something that we will be looking at to see how it has done that and what it has concluded. You will be keeping it under constant review as well? That's a normal part of our audit for any tax, whether it's in Scotland or in the UK. If there is evidence of people deliberately trying to dodge tax and using the differential between Scotland and the rest of the UK, presumably, if you gather that evidence, you will suggest and discuss with the HMRC rectifying measures. I think that it's just worth getting—let me just make a sort of—I hope—clarifying comment about this. Will you be clear what we're talking about dodging tax? If we're talking about tax evasion in people deliberately concealing the fact that they're Scottish residents, that's one question. The system won't necessarily prevent that if somebody is actually telling lies or deliberately concealing what they're doing. What we're simply saying to you is that the majority of people don't do that. We think that the system is getting better at and is now achieving improved reliability, not perfect, but improved reliability on identifying people who are actually resident in Scotland. That's a different matter from are they evading tax acts to say doing things that are illegal, telling lies or otherwise, or is there avoidance, which you're referring to as well, which is trying to legally arrange things to put themselves out with the scope of Scottish tax. The systems have got nothing to say about that, frankly. Just for a second to be clear, there are quite a lot of threats that could occur in other ways that will not be dealt with by the administration of the Scottish rate of income tax. It's quite interesting that you say that the system, in terms of avoidance, has nothing to say about that? No, but it doesn't. If somebody comes up with a tax wheeze, if you'll forgive me for saying so, that says, well, I used to have a company that's all I used to be resident in Scotland, but now I've got some way of establishing a legal argument that's credible that says that I'm actually resident in England, wouldn't astonish me if there's a big differential tax rates, and they're successful in that argument, then they're resident in England, so the Scottish rate of the systems will crunch that out. I'm sorry I've just been clear that the question is what is the legal, what is the agreed status, but I'm simply, when you find yourself with a significant differential, people will naturally give thought to, well, if I'm working in London, I've got a home in Scotland, is there a way I can present myself as resident in London, that sort of stuff might occur if the differential is great enough, the systems won't automatically address that, is that I'm just making it clear that that's not their job. Can I just add to that very briefly, Mr Neil? It's also worth noting that what's devolved to Scotland from 2017-18 is non-savings, non-dividend income, so if people are able to properly reallocate their income from earned income to one of those categories to savings dividends, then there's another movement there, and I think that falls very much into the category that my colleagues are describing to you. Let me give you a very practical example. Supposing I'm earning £150,000, £160,000 a year, yeah, well, you have no chance at this job, I can tell you, and I am claiming that I am now living in England and therefore pay the lower rate of income tax, I don't pay the new 46p rate in Scotland, I'm paying the 45p rate that is still the case in England, but simultaneously my kids are getting free tuition or I'm getting free prescription charges in Scotland, would your systems pick up that contradiction? Well, what they might, I mean, they're not my systems, all right, I'm the auditor, I'm just going to stick to be, I'll stick to doing audits if that's all right. Are you satisfied? Let me honestly, to inform the committee as best I can, I think it would be very relevant for HMRC to look at any sudden transfers of status or any data, and they are good at looking at data normally, they're getting pretty good at data in HMRC, in data comparison, so I would hope they'd approach any oddities like that, if you can predict a lightly threat to tax income, I would expect HMRC to take an intelligent approach to that, and I think it'd be a great thing to talk to them about how they'd go about that. Yeah, okay, and you think that the systems are robust enough to pick up, flag up where that might be happening? So, well, if we talk about systems, there are maybe two aspects to this. We're talking about the systems that we've been talking about are basically tax processing, where the automated processing systems, which most of us, well, all of us come into contact with, there is a layer on top of that, which I think we've been getting into is the compliance process, and where HMRC have a choice about where they develop their resources to examine and crack down these types of risks, and the latter point that the CNAG commented on about the use of data, that is where HMRC can use its data to pinpoint those types of risks and has a choice about, or has a decision to make about where it devotes its resources. But is things, Stan, you're satisfied as the national audit office that the current systems that HMRC has are, at the moment, sufficiently robust? Yes, for the, in the automated processing, yes, as long as we get the taxpayer address correct, as materially correct, and they've learnt a lot, I think the department has learnt a lot in the last 18 months as it's gone through data-matching processes to clean and validate that database. I think its experience has been that, well, I know that perhaps some of the validation they've been seeking to validate against datasets which are inferior to its own, in fact, and that slowed down required manual intervention, but that knowledge, they now have that knowledge, and I think that how that system now works going forward will be very important, how we maintain this position and improve it. My final question is on a slightly different matter. In evidence yesterday to the finance committee in the Scottish Parliament, it became obvious that already there are issues emerging about the interaction between our powers over income tax and the UK's residual powers over income tax. Obviously, we are only responsible for rates and bans. The UK Treasury is responsible for policy on allowance age reliefs, as the Auditor General said, on taxes or income tax on dividends and savings. The two examples that come up yesterday were, as a result of the decisions and the proposals that were put forward by our finance secretary, that there is a big issue now around the marriage allowance in Scotland and whether people in Scotland will now effectively be able to get the marriage allowance and at what point in the system and so on. Secondly, about the degree of progression in the system because of, again, the interaction between allowances and our new bans means that about middle income around I think it's 45 to 50 grand you're paying more income tax percentage wise than what you are if you're slightly above that. I may have the figure slightly out but the principle is everything's progressive except for this narrow group of people but it's quite a significant group of people. Now obviously the sequence has to be the UK budget comes before the Scottish budget because clearly our budget can't be set until we know what's in the UK budget under current arrangements but it seems to me that there is a process issue. I know you're not responsible for policy but there's a process issue that needs to be looked at in terms of the interaction now and the unintended consequences that have clearly arisen already between the division of powers on income tax. Is that something both audit offices, the Scottish one and the national one will look at? I think the answer to that is no if you'll pardon me for saying so. I think that's a matter to be addressed with HMRC. I don't think it's a matter within my confidence. I don't mean that I wouldn't try to help whatever to inform any conclusions that were being reached but it's just not my job to lead that debate. I'm not unsympathetic to what you're talking about it's just not my business really. Is that your position as well, auditor general? I think it's something we can't look at because those sorts of interactions and the anomalies and perhaps unintended consequences that you've hinted at are a direct result of the settlement that came out of the Smith commission, the Scotland Act 2016 and the fiscal framework. Now they're very clearly policy matters which are outside my remit. I think they are very important as you say. They will affect both the timing of the budget and the way it's passed but also its impact on real people as tax payers, citizens and service users. I suspect that as we start to see the new powers being used, as we see the full devolution of the VAT provision with the assignment of revenues, and we start to look at the interaction with the welfare system, there may be a need for the two parliaments to step back and look again at the way they work in practice. Convener, maybe the committee should flag up this issue to the finance committee as something that they might want to address. That's certainly something that we can look at, Alex. Are you finished with your questions? Thank you. Colin Beattie. I have to say that looking at this report, there are quite a few questions here and quite a few concerns about the accuracy of the Scottish tax base. I'm looking here, I'll just take a few here to jump out. Paragraph 1.9 highlights an issue that we've already spoken about where savings and dividends are affected by UK tax laws, whereas the tax thresholds are under the Scottish Government. The Charter Institute of Taxation and Association of Taxation Technicians tell us that that increases the risk of errors in self-assessment income tax. Obviously, the changes that are taking place now, as a result—assuming that the Scottish budget goes through as it is—are going to significantly increase those risks. What steps can be taken to mitigate that? Well, I'm sorry, but I'm going to sound a bit like a crack record here, and I'm terribly sorry. I like to be forthcoming with committees, and I'm being as much so as I can here, but honestly, while noting that this is true, I think that it's a matter for HMRC to talk to you about how they propose to mitigate it. I don't think that it's something that I can—what we're talking about is how effectively are they administering it. We think that this is an issue going forward, but I think that the question for them is how are they expecting to mitigate it. Then, from the audit angle, would you continue monitoring this as an issue? We absolutely will. We try to put in our report everything that we think might be relevant to your consideration, even if it's not actually our job to say to pass on it, we'll try to put it there and we'll monitor it and keep you informed of it. Just moving on to paragraph 1.11 in connection with tax codes, I was concerned here that says that HMRC and the Scottish Government have not agreed any minimum period between the finalisation of the Scottish budget and the start of the tax year. Isn't this another risk? It is an issue. We believe that it is an issue. It can give rise to some confusion, and I think that in this instance there were some taxpayers who received two coding notices in a short period of time, which I think from the taxpayer's perspective is not helpful. I know that HMRC is looking at this. We will continue to look at this aspect of the administration just to see the implementation of the measures and the incorporation of the measures into the tax system. I do know that HMRC has looked at this issue partly because the Scottish Government has asked them to look at that. It is something that we will keep under review. Just moving on to the small print in a footnote here, resulting from paragraph 2.13, we are talking about an increase in income tax of £127 million and a deduction of £20 million in respect of a block grant adjustment. What is that? Probably more appropriate. I do not know whether this is one for all the Scotland towns. Essentially, what we are trying to do here is to illustrate the fiscal impact of the changes that will be implemented in the current year. We have yet to audit that out turn. That is our responsibility. What the paragraph is seeking to do is to illustrate the estimation of the budget impact of the tax changes. That is fine, but my concern is that what is the £20 million block grant adjustment? Is that a result of the increase in tax? Is that some sort of cloback? I think that we can write to you on the specifics of this, but just to give you a feel for what is going on here. The net calculation of the £107 million adjustment included a forecast assessment of what the difference in the higher-rate threshold would make to tax collection. At the same time, there was a revisiting of the underlying assessment of what the forecast position was in relation to tax as a whole. Those two adjustments were put through at the same time, and that is where the £107 million came from. We can write to you with some of the details of that. Did the Scottish Government budget to get £127 million and it actually only got £107 million? No, the Scottish Government budgeted to get £107 million, and the way in which that operates during that financial year is the amount that is confirmed within the budget. Looking at paragraph 3.25, we are talking about risk models. That is an essential part of the risk assessments that they take. They have adapted the standard risk model to cover Scottish-specific tax risks. Given the changes that are taking place within the Scottish tax system, will they have to revisit that again? Maybe they will, but I apologise for saying this to you, but I think that you should ask HMRC about that, because you want to nail them down as to what exactly they are going to do here. We are not saying this as a criticism, we are simply saying that they have a list of things that they specifically model, and then they have a list where they apply a general model, and at the moment they are applying a general model. You want to move them over into specifically modelling risk for SRIT, which I think is good from your point of view, but you need to have that conversation and move them over the edge. You need to make quite sure what you are going to get against what it might also cost you, and that is a point that they are charging you for this, so I would get notes a bit from them at the same time, if I may. I assume perhaps that we can have HMRC in to pick up some of these points. I have already noted communication with HMRC, yes. Excellent. Ian Gray Alex Coffin, mate. Okay, Liam Kerr. Thank you, convener. To pick up on something that Alex Neil has said about the residents, it is something that I have been interested in for a while, that a Scottish taxpayer is someone who has their main place of residence in Scotland, and that is quite a tight definition, or it is not an extensive definition. A place of residence is somewhere where one resides for 183 days at least, I understand. One resides there, at least according to tax records, if one self-reports as residing there. It seems rather straightforward to me, particularly for the higher earner, to undertake tax planning in a different way. Am I reading that correctly? Shall I have a little go? A million years ago, I was a tax partner, so you were getting extremely out-of-date comments in. I am sorry, but I will still have a go at this. The question of where somebody's main residence is in tax law is a matter of fact, and what that means is that they cannot just say that is my main residence for this purpose, it has to actually be that. So, if it turned out that, and there are a number of indicators of that being the residence, and they are the permanence of the establishment, so if you had somebody who was at a house or set up in Scotland, and they were also working in London and staying in a flat somewhere, and they suddenly decided to say that was a main residence, then HMRC has grounds to examine whether that is genuine or not. There is quite a lot of tax law on that, which mostly built up over the question of people establishing whether they were resident or not in the UK for tax purposes. So, it is not just up to them, they can do whatever they like, it is not like that. There is a body of tax law to test that. It would not be without the realms of possibility for me to base myself in Newcastle for 183 days as a question of fact, and yet carry out my work on a day-to-day basis just over the border in Scotland, but be an English taxpayer. That would be possible, wouldn't it? If you want to take an extremely example, if you had no other residence than one located in England, then the only way in which that could be addressed would be as a question of whether it was deliberate avoidance of some kind. This is really questions for HMRC, not for me, but I am trying to give you an indicator there. People try and adopt a residency for purposes, and you can show that it is a sham, but if it is genuinely so much so that you are prepared to go and live in another country permanently, then I guess you are going to be able to establish residency in that country. You cannot really stop people doing that. I say that is probably what I can say on it. Moving on to the costs of administering the system, looking at the report, there was an administrative cost of which I understand that gets backcharged to Scotland of £6.3 million last year. The report is fairly clear that that cost is a function of differing tax rates in the sense that the more different the tax rates between the jurisdictions, the more the administrative cost that will be backcharged to the Scottish taxpayer. We are going to have a greater number of tax bans in Scotland, and that is a fairly recent announcement. What is the impact on £6.3 million or, indeed, any other administrative charge of having more tax bans? Is it possible to say that five tax bans equals this administrative charge? How much is that going to cost us? At this stage, since the proposed budget changes were announced, we post-dated the report, so we have not had a conversation with HMRC to really understand what that impact is or how far they have gotten in making that assessment. I suppose that that is a question to be put to them. We will audit it and ensure that the governance and the capturing of those costs are accurate and properly reported. There are two cost drivers here. We talked earlier about the automated processing of returns. The system is geared up to handle that. Whether you process a return against an algorithm that is looking at five tax bans against three tax bans, I would imagine that it is not really that different because, effectively, it is the same operations. However, as we talked about divergence, whether that is from a Scottish decision or a UK decision, it promotes the risk of non-compliance or behaviours that might lead to people electing to move from Scotland to England or likewise. That compliance activity is an additional cost to that. If the HMRC decided to ramp that up because the risk profile had changed, that would be a cost driver. I think that the seniority alluded to that in an earlier response. Is it the case then that, if I am hearing you right, Mr Thorpe, on the one hand there is a set-up cost, and once the system is up and running, it should be fairly self-generating without too much admin cost. On the other hand, depending on the activity decisions taken by HMRC, that may have a cost to the Scottish budget, but, since that is around enforcement and decisions taken at the time, that is a different matter. I think that that is exactly right. That is what we have tried to capture in Figure 15, where we have tried to show the cost of implementation over time against running costs and shows that implementation costs are now dropping because the system has been put in place, taxpayer identification, and the initial exercises have been conducted. Based on what we knew at the time and HMRC's estimates—for example, in 2018-19, they predicted the overall cost to go down to just under £2 million, with the balance of that shifting into running costs rather than implementation. If there are significant changes, that estimate, that projection could change. If I can just clarify for the public, Mr Kerr, according to my flowchart, you are an MSP, and therefore a Scottish taxpayer definitely has MPs and MEPs, so you cannot relocate to Newcastle, but I think that anyone else might intend to do so. I appreciate the response that Mr Thorpe gave to Liam Kerr in explaining the potential additional cost. It is more about monitoring and tracking behavioural change rather than changes in the rates and the bans, but I wanted you to clarify if that is what you meant. The software procurement aspect of this has probably been the most costly. You mentioned in your paper that it is about three quarters of the costs that are IT-related. How flexible is that system? Have you had a chance to look at it? If there are any more changes in bans and rates and so on, have they got a flexible system that can cope with anything like that in the future? That would be a good conversation to have with HMRC as well. However, my understanding is that there is great capacity to incorporate further bans within the NPS system as it was implemented in 2010. If HMRC wanted to ask you for more money for implementing above what is planned, they would need to show you that there was an actual differential cost that was and that we cannot think of anything like that, but it is not impossible that it could come up with something that genuinely was another additional cost. It is just that we do not think that it is particularly likely that it is coming out of the systems that it has got, because they are quite robust and flexible. It is not impossible that it will say, well, look, you have told them that, but we have got to do this over here, which we did not have to do before. We really do not see what that is likely to be, but it is not impossible. In terms of the NEO having an oversight of whether a system is capable of delivering what the originator says is capable of delivering, we seem to have spent a huge amount of time at this committee over the past few years looking at IT procurement issues. In order, Scotland has been very much involved in looking at that. Do you have a similar kind of role in the rest of IT? We do look at the fitness for purpose of IT systems. We are fortunate to spend a lot of time looking at IT. What we are telling you is that we do not take away from the assurance that we are giving you. We think that the system should be able to deal with more than different rate bands, that is what we are saying. It should be, or is it? As far as we can see, it is. That is correct. At the point where HMRC did not identify 420,000 Scottish taxpayers, were you involved in that process at that part of the process? We were reviewing the process as auditors, and we saw that as a key control point on the system implementation was to get Scottish tax base right and properly identified. Although I was not directly involved in the earlier reports, it took some time. It was an iterative process, and there was some learning through that time. I think that HMRC is trying to validate that tax base did a number of things, and I think that HMRC learned through that process as well. Whose data is correct? Who has the most accurate information? Was that an IT issue, the failure to identify 400,000 people? Was that an IT issue or was it? Insofar as they were using IT processes to support that, so you are taking a database from the post office or whatever and running that against your own tax records and then looking at differences. The issue that they are learning from HMRC was that they were presented with differences and they did not know whose records were right, so that required investigation, so there was an element of manual examination. Were you involved in that scrutiny at that time? Yes, we had access to all of that process. So who was it that identified the missing 400,000? Was it you guys or was it HMRC? We became aware that there was an issue. It was not the audit that said, you have got this wrong. We became aware and I think that we were even talking to colleagues in Audit Scotland about that issue at the time as well. On the memorandum of understanding between the National Audit Office in Audit Scotland, is that now in place? I suppose that you both satisfied that arrangements are in place to manage that process going forward. How does that extend to any potential dispute or conflict resolution? What is the process there? As Amos has indicated, the memorandum of understanding has been in place for three years now. It works very well from both our points of view. Working relationships are good. My team and the CNAG's teams work closely together. It is helped by the fact that our audit approach is similar. We use the same electronic working papers package. All of that helps. I think in terms of our ability to give you assurance at this stage what you need is in place. As I said to the committee before, as the remainder of the Scotland Act powers come into effect with the devolution of all non-savings, non-dividend income tax, VAT, new welfare powers, I think it will be worth reviewing that. I know that the two Governments are doing that at the moment, but we are very satisfied with the way they are working just now. Were you being published? I think we attached it to the papers to the committee last year or the year before that, but we can certainly let you have it again. It is on our website. It is in the public domain. You asked a question about dispute resolution. Quite clearly, if we came before you and we were not agreeing, we would all look a bit ridiculous. Therefore, there is a very strong inducement on us. Since all of Scotland has got to give you a report on whether we have done the audit properly and if there is any risk of them saying they do not think we have, that would be very unsatisfactory. We are in extreme strong inducement to reach agreement on everything. I do not recollect if we have got a dispute resolution clause, but the dynamics of the situation we are doing or working on such that that would be inconceivable that we go forward in those circumstances. We just would not allow that to continue. There actually is a clause in the MOU and it says that we have to sort it out. You have our assurance that we would do that. Thank you very much for your evidence today and thank you. Oh, sorry, Colin. I think that Bill hasn't... Bill, do you have a final question? Okay, Bill. Thank you. Just to say for information, Seramius and I started our accounting training here in Edinburgh some 40 years ago in the same firm, but our careers have since then diverged when we both ended up somewhere different positions. I can't help but notice that we both look extremely youthful. I was just going to ask a question. Oh, you are! I thought you just wanted to make that point. That's not all he wanted to say. Okay, Bill Bowman. Sorry, did we say that there's something like 2.4 million Scottish taxpayers? Do you actually have to pay tax to be a Scottish taxpayer? Not necessarily, because what we're talking about is potential, not absolute. So if you had a year where you had a lot of tax losses and you weren't paying tax, I mean, you don't need me to tell you this, I'm sure, but if you had a year where you had, let's suppose I'm self-employed and I have a year where I've got a lot of tax losses and I have no tax to pay, I wouldn't stop being a Scottish taxpayer. So if you were perhaps someone on the state pension, which was covered by your allowances, you would be a Scottish taxpayer, but you would have no... That's right. Do we know how many people are on that sort of level of not really paying cash tax, shall we say? I don't know, but we can find out, and we have that information. It's not... I don't have it ready to hand, but we can answer it. I'd find that interesting. Thank you. Colin Beattie. Just three quick ones, convener. On paragraph 17 of the summary, I'm quite concerned here that HMRC doesn't know how many of the cross-border moves are being captured each year. Surely that's fairly vital. Now, the effort that they make checking this against other databases to compensate for that, there must be a considerable cost to that. Yes. I mean, this is... We're flagging this up to you because at the moment the law doesn't require people to report to HMRC when they change address, and it would make... And that probably doesn't matter that much to, you know, in the pre-devolution environment, but it is something which would make quite a big difference in the context of the Scottish rate of income tax. So even though it's not, you know, it's not within the law at the moment, and so all HMRC can do in it, as far as we can see, they're doing a lot to try and say, well, from all the points of evidence we have, we're doing our best to identify Scottish tax, but we're communicating with them to remind people who might be taught that Scottish tax has potentially... If we have any indicators to try and encourage them to remind them of their duty to register and all of that, they're doing all of that, but it doesn't change the fact that if you are not obliged to record where you live, it's a bit of a gap in the system, and therefore it is something which I think over time would be very helpful to Scotland to have in place. But that's way beyond my remit to say that, and I'm just saying it, but we put it in there because we actually think it's relevant to understanding the situation. I mean, could I just add to that? Sorry, I'll be, pardon. So there may be compensations in that sort of... Within the pay-as-you-earn system where employers ultimately capture this information as well, that there may be, over time, ability to catch up, but in other areas, perhaps, if people are in self-assessment, that may be... The mitigations maybe take longer to kick in. Turning to paragraph 2.12, sampling data. This all seems fairly uncertain, and even this estimate of 2.5 per cent above or below estimate of revenue, that's quite a lot of money. The basic point that we're trying to draw a potential to here is that a number of forecasts and estimates have had to be made off the personal tax model that HMRC uses. We have suggested that as more information becomes available, and as we've gone through the identification exercise, we've got better information within the pay-as-you-earn system through the flagging, it's an invitation to look at, are there better and more resilient data sources to support that forecasting exercise? I think we're getting into the issues of fiscal issues in Scotland, which is a matter for other people, not for the NEO, but these forecasts are important because they support quite significant decisions. So I think it's a case of having got better information on the pay-as-you-earn system will that support a better forecasting approach? Other changes that might possibly be coming as a result of the coming budget, is that going to make it more complex or change the way that they do sampling and the estimates that we're talking about here? We haven't spoken specifically about the coming budget changes with HMRC and how they will play into this. My first point is that we just think that as the data improves, there's an opportunity to look at how forecasting can be improved by using drawing on this new information. Do you think it's an area for the committee, if I can suggest, to keep on pushing forward on? There are a lot of developments in information technology these days and big data and all that sort of stuff, which might actually help you get a much clearer view of a lot of these things in the not too distant future. So I would keep talking to them and asking them about where we're going on all this. A model isn't perfect as a method of predicting. We're not suggesting. It's not evil that they're not. It's just inherent in modelling that a model is not 100% accurate predictors. This is quite an accurate model at the moment. Lastly, I'm looking at paragraph 3.41 in connection with pension providers. I know that this has been discussed before. I find it astonishing that it says in 3.44 that there's no definitive list of pension providers. Shouldn't pension funds and so on are regulated? Shouldn't you just go to the regulates and ask them for a list? I can't really answer that. That's a good question, but it was a case of what we're drawing attention to here. For the tax system to work effectively for people, there's got to be good co-ordination between HMRC and pension providers. A number of steps that we're trying to draw out in the report have been taken to try to improve that and prove it from a digital perspective. Our finding was that when we were inquiring to say who is that population, we didn't get a clear answer and maybe this is something that we need to come back to. There must be a huge number of pensioners receiving pensions from English-based companies and so on. We don't have that figure. It says here that pension providers don't know part of their members of Scottish taxpayers. This is a continuing area for examination for us. We think that this is quite important and that it will be something that we continue to pursue. Is it a real problem or is it just an apparent problem? I think that that's difficult for me to answer. The pension provider issue is probably a more of a peripheral one in terms of the fiscal impact, if I'm honest, but it does impact on individuals. How relief at source works and is implemented could bear on the individual system. I find quite a lot of unhappy individuals not getting pension tax relief at the point that they're receiving their pension, but we don't think it's necessarily a matter which is going to repeat what John Mason is saying. It's not necessarily a matter that's going to hurt the Scottish Exchequer at all, but it is a matter where you might get a lot of noisy complaints from people who are not getting the right level of tax relief initially. Presumably, a lot of the pensions are not going to push people into particularly specific different tax bans and so on, because pensions by the very nature tend to be a bit lower for a lot of people, but if you're working for BT or whatever, you're going to get a pension paid presumably out of London. Are we saying that they can't identify necessarily whether the people getting paid the pension should be Scottish taxpayers or not? That's what I'm reading from this. Am I misinterpreting? We don't know the answer to that. I mean, I'm not being simplistic, but we are not, so this is a matter for HMLC to answer, and we're not clear that they can really answer that question yet. Just a wee point of clarification, if I may convene. I think the issue relates to the pension contribution tax relief when people are making contributions into their pension funds rather than receiving pension payments back later. As the CNAHG has said, there is a risk that at the time they're making their contributions they're not receiving the full relief that will be sorted out later, but it's not affecting pension payments made to people once they retire. We can identify the residents and the people that are being paid pensions. That is not at issue. I think that we need to discuss communicating with HMLC on some of the issues that have come up today. I thank you very much indeed for your evidence and for making the journey to our committee this morning. We've already agreed to take the work programme discussion today in private. Can I also have members' agreement to take our work programme discussion next week in private? That will mean that next week's meeting of the Public Audit Committee will be entirely private session. I now close the meeting to the public and move the committee into private session.