 Good morning and welcome to the 22nd meeting of the Finance and Public Administration Committee in 2022. As you may note, I am Daniel Johnson, the vice convener of the committee sitting in the chat, as the convener has unfortunately lost his voice this morning. I would ask my fellow committee members not to smirk or smile at that fact. Indeed, I have asked the clerks to investigate whether there has been any foul play, not that I am looking at John Mason in particular. We are very pleased to have with us this morning the Scottish Fiscal Commission. Did our first item on the agenda is an evidence session looking at the four new reports that they published last week. Members will have received copies of the forecast evaluation report, the approach to fiscal sustainability consultation paper, trends in Scotland's population and effects on the economy and income tax, and the SFZ's fourth statement of data needs. Without further ado, I welcome to the meeting Professor Graham Roy, who is appearing before us not for the first time in person, but certainly for the first time as chair of the Scottish Fiscal Commission. We also have Professor David Oaf, who is a commissioner, and Claire Maud Murdoch, who is head of social security and public funding. I believe that John Ireland is unable to make it. He is also unwell. I intend to allow up to 90 minutes for this session before we open. I will invite Professor Graham Roy to make a short opening statement for opening up to questions from the committee. Professor Roy. Last week, as you said, we published four reports, two in our regular cycle and the others as a start of our work on fiscal sustainability. We wanted to give you a couple of highlights from our forecast evaluation report and the statement of data needs. As you know, income tax data released 16 months after the end of the financial year. That means that we can now evaluate our forecast for 2020-21. Scottish income tax revenues were 417 million lower than forecast when the budget was set in February 2020. You will recall that that was before Covid was declared a global pandemic. Crucially, although Scottish revenues were lower than forecast, revenues in the rest of the UK were lower too, the net effect will be a positive reconciliation of £50 million. That is the first positive income tax reconciliation so far. You will note that that is more positive than a negative £221 million reconciliation that we forecast in May. That is mainly due to equivalent UK tax revenues being lower than the OBR's March forecast. For the devolved taxes, revenues from land and building transactions tax were £221 million higher in 2021-22 than we forecast, largely because house prices grew faster than expected, as did crucially the share of residential properties in the top tax bans. Devolved social security payments in 2021-22 were £136 million or 4% higher than when the budget was set. Importantly, that evaluation does not cover the new disability payments. Adult disability payment launched nationwide only last week, and we do not have the data yet needed to evaluate our child disability payment forecast. Our statement of data needs highlights the need for significant improvements in data produced by Social Security Scotland. That is essential for forecasting of spending and any evaluation of the effectiveness of social security programmes. I should stress that current data limitations may result in larger forecast errors in the future with implications for Scottish Government's social security budget. There is good news, though. We have agreed a memorandum of understanding with HM Treasury, ensuring that we have access to information if the UK Government makes changes which affect devolved taxes on social security. On fiscal sustainability, we published a consultation paper last week, setting out how we plan to approach that task. We propose a measure of fiscal sustainability that will look at the projected gap or surplus between spending and funding. To start, we published projections of the Scottish population and illustrated its effects on economic growth. Given trends, births, deaths and migration, Scotland's populations yn trac to fall in the decades to come. In a scenario that we set out last week, we estimate that there will be nearly 900,000 fewer people living in Scotland in 50 years' time. With the Office for Budget Responsibility projecting the UK's population to fall by only 2 per cent over the next 50 years, Scotland's relative position of a 16 per cent fall is clearly more challenging. Crucially, the number of 16 to 64-year-olds will fall, so there are likely to be fewer people working. Indeed, for every 10 people between 16 and 64, there are currently three older people, but by 2072, that has increased to six older people. A smaller population and fewer people working will affect the economy, leading to slower economic growth and the slow implications for future Scottish budgets, which we will explore more fully when we publish in March. What the aim of the fiscal sustainability report is designed to do is to help politicians of all colours by looking at key structural challenges that we think will shape the health of the public finances in the long run. We hope that they help to pinpoint the ways in which the long-time finances may not be viable and motivate change. Ultimately, we hope that our work can assist to planning needed to protect sustainability of the public services that we all reply on. With that advice, I will hand back to you for questions. Thank you very much, Professor Roy. Before opening up to questions from my fellow committee members, I would just like to ask two or three opening questions. In broad terms, those reports essentially, to my mind, look at how effectively your forecasting has been to date, but then also look forward to how that could be done for the longer term. Given that we know that social security in terms of your previous reports would suggest that it is a potential leading to quite significant gap in funding, around £700 million, as I recall, could you elaborate a little bit further about the data requirements and the issues that you pointed out both in the report and in your opening remarks? There are a couple of things. It is important to distinguish between our forecasts that we do for the budget, which is the medium term for the next five years and the longer term projections, which are much more about looking at, from a higher level, the aggregate trends that we are going to face in our economy. For that, it is much more higher-level data that we draw on, so we are looking at demographics, we are looking at levels of economic growth and so on. Where I think that the data needs are really important around the social security is about that immediate forecast for the next five years in terms of the medium term. What we need for that is really good data to look at how trends in the economy, or how trends in take-up, or how trends in eligibility, etc., will feed through to our immediate forecasts. At the current moment, we do not have the data that we need to be able to do that. Actually, there is some aggregate data on overall levels of number of people claiming benefits and overall value. What we do not have is robust data on average payment of individuals, by gender and things like that, which have been available in the past through DWP when they do it for their benefits. We do not have that data yet for Scotland, so that means that our ability to forecast becomes much more challenging for the next five years or so, and that makes it more difficult to provide accurate forecasts. Very obviously, you need that sort of disaggregated data in terms of average payment type and who is claiming what and when. That is a crude summary of what you are after. You have said that you have had that in the past. Can you explain what is preventing you from getting that data for Social Security Scotland? Is it systems? Is it organisational issues or is it some other reason? I think that we engage Social Security Scotland regularly to make our data requests. The key thing for me is getting access to that data as soon as possible. Ultimately, the provision of that data is an issue for Social Security Scotland and the Scottish Government, so I cannot really comment too much on that. The point that I want to stress is just the importance of getting that data and crucially getting that data now, because it is not just about having the decomposition of the data to let us project forward, but we need to have the time trends that go backwards as well, because that is ultimately crucial to having accurate forecasts, so we cannot have any breaks in the data because that makes forecasting more difficult. The other point that I would make is that it is an important challenge for us in terms of our ability to forecast the accuracy of the data. It is also a really important challenge to evaluate policies as well, because you need to look at what is the impact of new policies to encourage take-up, or what is the impact of a new approach to social security. You cannot really know whether those policies are having an impact unless you know what the data is telling you, so it is an important issue for us, but it is also a broader issue that is important for scrutiny. Can I just clarify a little further? Do you believe that data is being captured and therefore it is just a question of accessing it, or is it an issue with the new agency not capturing the same level and detail of data that you previously have expected from UK social security? I do not know whether Clare wants to come in on that. I think that the key for me is ultimately asking for that data and getting that data, but Clare, do you want to say anything about engagement that you have had? So, in our statement of data needs, we have almost split the recommendations into two groups. One is about data dissemination, as in Social Security Scotland will hold that data in some form, but we have not been able to make it available to us or other users. The other one is about data collection. For most of the data, it is about either holding it or how the clients are transferring from DWP to Social Security Scotland. It is not quite clear whether we will still be able to get the same data. If you think that it is most important for the disability payments, most of those clients are on the DWP system at the moment and will move over to Social Security Scotland. At the moment, from DWP, we can access fantastically rich data in terms of number of clients, age of those clients, gender, health condition, award level, payment amount, and we can use that to do our analysis. It is not clear when they move to Social Security Scotland quite how that data will be captured. Then we have all the new clients applying to Social Security Scotland and that data they should hold but have not been able to extract or make available to us. There is a dissemination issue. There is also a data collection issue around sex and gender. At the moment, it is not consistently collected. DWP has it on the application form and we use that information because the gender of people is correlated with how many applicants we have or which conditions they have. It is particularly important for child disability payment and it is not clear that Social Security Scotland is collecting that in a consistent way. We have two sets of recommendations around dissemination and collection. We have a number of other recommendations to ensure that Social Security Scotland is sufficiently resourced to ensure that we can get the data that we and other users need. We also recommend that they set up a user group because we are not the only users of Social Security Scotland data and they should be speaking to other users but not in that group. Finally, we would like Social Security Scotland to develop a tool so that we can access the data in the same way that we currently can from DWP, which has proved very useful to us. An important feature for children is that we know that some types of disability are more prevalent among boys than among girls. That is why it is really important to have the breakdown by gender. At the moment, Social Security Scotland is proposing to collect that gender information through the equality impact assessment rather than through the application form itself. That poses two problems. One is that it can be quite difficult to link the impact assessment to the actual application. Secondly, there is an option on the impact assessment to say that we prefer not to give the information. We may miss that rather important information. It is because we do our forecasts from a very detailed broken down level that, if we cannot match the data that we get when it turns to that easily, we will first find it hard to understand whatever we are making in our forecast. We cannot correct our forecasting methodology but we cannot rebase our statistics on the more detailed breakdown and use that as a basis for future forecasts. It really raises the prospect of significant errors in our future forecasts. If we think that we are forecasting disability payments of around £3.25 billion, even small errors, we might have huge consequences. I will ask any further questions on that. However, having access to data that is rich, disaggregated and also has continuity from legacy social security payments is of critical importance. I am sure that the committee will want to take up in the future and may well be a member of other questions from other committee members on that particular point. I just want to ask two final questions. First of all, just in terms of framing this session, clearly the last 18 to 24 months have been highly unusual, if I can put it like that, and have stress tested your methodology to the greatest extent possible. Indeed, I note from your report a commentary about the accuracy of employment data compared to OBR with your use of RTI, rather than LFS. In broad terms, what lessons have been learned by the unpredictable nature of the last period and how that is going to inform your approach, both in terms of normal times, if such a thing exists, and in the context of future shocks? A couple of immediate reflections on that. The last 18 months have been very unusual, but we are living in a longer period of uncertainty. We have spoken before about even the changes of the last decades in terms of what has been happening to the Scottish economy, and it is likely that that period is going to continue. Forecasting is going to remain really challenging for the foreseeable future. A few things I would say about that. If you look at the forecast evaluation, it sets out clearly where the errors—you can call them that—have arisen, and where the changes may suggest the numbers moving around. The first thing I would say is that, if you think about the way the fiscal framework works, the common shocks across the UK, you see that working through in terms of the reconciliations. Our forecasts that we are talking about for income tax were made before Covid hit, and we see that our forecasts are being out by more than £400 million, but the same forecasts were out from the OBR as well, because they were also under forecasting. Under the framework, it means that the framework works because both the block grant adjustment and the taxis are operating. That is the first reflection that I make on the broader comment about the operation of the fiscal framework. In the specifics of the forecasting, to be a David, I might want to come in on this as well, but just in terms of understanding about the data that we are using to forecast employment, for example, and the difference between using the RTI data in the LFS and the potential for that to have slightly different variations between what you are using on that. The RTI data is a much better source for Scotland because it is a much richer data set and has much more information. However, how that translates to what the OBR might be using with the LFS is potentially something that we would want to look at going forward. There have been changes to the methodology about how the economy is forecast and how that feeds through to the various tax forecasts over the past few years. Using a much more bottom-up and much more informed model by the years of experience that the fiscal mission is now getting in terms of being able to forecast the economy and taxation. Refining the models has become more sophisticated, but more attuned to what is happening with the Scottish data and what is potentially happening in the differences in the forecasts from the past. There have been some model improvements as well as a better understanding of the data on that. On social security, we have touched a bit on the challenges, particularly around the data. One point that I would make about that is coming back to the conversation that we have just had. A lot of the benefits that social security payments that we have been forecasting so far have been arguably easier to forecast because they are based upon entitlement to other benefits. There is a much greater understanding of who is eligible. The challenge is that, when you are moving to the disability payments, they are less connected to other benefits, so the potential spread of error in that becomes bigger. That is why the accuracy of the data is really important there. I think that David Clare wants to come in. There are significant improvements in the data over the past five years or so that can be used to inform the modelling. I think that the models are becoming more sophisticated and we are able to understand what is driving those errors. I think that the big thing is the play around the data and the social security, and that is going to be an important thing over the next few years. One thing that we have learned over the past few years of analysing our forecast of income tax is that there is a big difference between what is driving average earnings in the rest of the UK and average earnings in Scotland. That is largely down to what is happening in the financial sector in the south of England. We have seen three levels of bonuses that are not materialising in Scotland. A question that we have to face is that, in our future forecasts, do we build into our forecasts, the fact that we are systematically underperforming relative to the rest of the UK in terms of our earnings and build that much more into our understanding of how we do those forecasts in the future and, in some sense, correct for that, because it is the difference between what is happening in the rest of the UK and what is happening in Scotland in terms of earnings and hence income tax that drives some of the registrations. Because we have learned about that, we can now start to think about how to be systematically correct for that in future forecasts. Professor, if you touch on a really important facet that has been of real interest to the committee when we have looked at the reports of the last year, as a brief follow-up and I am mindful of the time colleagues, to what extent will the long-term fiscal sustainability report seek to not just include that in its forecast but also seek to understand and explain some of those long-term trends? It is one thing to observe them and forecast them correctly, but, as policy makers, we want to understand why that is happening so that we can make policy decisions to address them. What extent will it seek to explain exactly those sorts of differences that you have just outlined? I will pick up on some of those factors. One thing that we have been observing in Scotland is that participation has been falling relative to the rest of the UK, and that is partly driven by those long-term demographic factors. To the extent that you have more and more elderly people in the population, that is going to have a big impact on participation in the economy. Our long-term projections will pick up on some of the drivers that are driving some of the differences between Scotland and the rest of the UK, but we may not be able to pick up on all the factors that are driving that in the long term, but that was just actually one of the motivations for doing fiscal sustainability reports. When we do our five-year forecasts, there are lots of moving parts in those forecasts and lots of things are changing around. It is quite hard to see what these long-term drivers are that are behind some of this. The aim of our fiscal sustainability report is to say that if we can take one or two of those long-term drivers, and demographics are certainly an important part of those long-term drivers, and push those forward, maybe hold the other things constant, then we can start to see the long-term impact of that on the sustainability of tax and spending programmes. At this point, I would like to hand over to my colleagues to ask questions. I will hand over to Liz, followed by John. Professor Roy, I was interested in what you were saying about this issue with regard to social security data. Are there any other aspects of the data collection that are causing you any problems? You said that data has improved in a lot of areas. Is there any other aspect of the data that you need besides the social security problem, or is it just that social security? The first thing to note is that we have made a number of statements of data needs over the years, and there has been welcome improvement in the quality of the data information provided by the Scottish Government, by HMRC. That has been very welcome and it has helped to improve the accuracy of the forecasts. We can always do with better data, particularly around the employment data and the improvements to RTI and access to data over years that we can start to look at the impacts of policy changes. In the statement data needs, we set out some other areas of data requests on the economy and on tax and some improvements that we would like to see in terms of the way that the Government uses productivity data, because that is ultimately crucial for our GDP forecast. The social security data is the most pressing one at this particular point in time. For two reasons, one is the lack of clarity and the lack of information in order to be able to do projections. Secondly, the scale of those social security payments is very large. As David said, small errors on a very large number can lead to quite significant numbers moving around. Just in relation to what Mr Murdoch was saying, there are some issues about the consistency of the data within that social security problem. Can that be fixed quite quickly? Were you surprised about the extent of the problem that DWP has had historically better data and social security Scotland, albeit a new body? Does that not have that? Can that be solved so that there is consistent data? As you rightly say, Professor Roy, it is absolutely essential that we get this fixed given the scale of what we are talking about. I think that most things are solvable if they are prioritised. Social security Scotland would need sufficient staff to have this as a priority. At the moment, they are delivering payments to clients, and that is arguably the most important thing. However, how you collect the data on that and how you disseminate it has important consequences for our role and for the Government's budget. It is not insolvable at all, but what is important is that they backdate it to when the payments started being administered. Are there really two issues? You have some concerns about the resources that are required to go into solving that problem, but is there a specific issue as well about whether we need to do more to align the data that DWP has had and what Social Security Scotland has? Is there a methodological alignment that needs to take place as well as solving the resource problem? Ultimately, that comes from administrative data. It should be similar and consistent in order to administer the payments. They need the same information on how much they are paying them and why they are paying it and what their reward amounts are. They should be holding all that information, which is ultimately what we can currently get from DWP. Apart from the issue around sex and gender, which we have spoken about, the rest of it is more about the dissemination of that information rather than the collection, is our understanding. Professor Roy, can I just ask one more question, if that is all right? That big up perception is that there is not a lot of resources in the sense that there is not enough money in Social Security Scotland. They are just struggling to recruit the suitable qualified staff to help them to marshal the data and put it into the form that we need. It is a lack of resources but more on the supply side rather than on the funding side. Social Security Scotland has the funds to solve the problem. That is a particular worry. Professor Roy, just in relation to the recent problems in the census and the collection of data, which, as well as all the other aspects of collecting relevant data for economic forecasting, to what extent of the problems in the census, given the lower rate of response, affected the work that you are doing for forecasting? The census is ultimately crucial for our large part of the data that we use on population. Obviously, once we see the census data and, crucially, from our perspective, we have any information on the levels of confidence interview around the data, that is going to be really important. I probably cannot say too much on that until we actually see and hear from NRS in terms of potential confidence intervals, particularly around people who might be in receipt of benefits and things like that. That will be important. It is something that the census is crucial to what we do, so having a dialogue with NRS will be really important for us. John Finnie, we will go to Ross Ross. Thank you very much, convener. You are convening the meeting, but there is a debate over that. I will not make any jokes, if I can. To start off again with the data needs, because that interested me quite a lot, in your report, towards the end, pages 28 and 29, there is an annex. This is about previous requests. Some of them say in progress, and some of them say no progress. I am intrigued by those titles, which could mean quite a lot of things. If it says in progress, are you broadly happy that things are moving ahead, albeit slowly? I take the point that a statutory right to access of information from UK Government departments might end up being part of the fiscal framework. In that case, there is a timetable for that. Some of the no-progress ones, such as VAT, so maybe that is not urgent, but are you broadly happy with that? There are a couple of things to note in there. In progress can mean that we might be engaging with them on the data. No progress might be that we do not have any information, but that is not to say that the work is not being undertaken. Broadly speaking, we are making good progress on a lot of the data aspects. I come back to the point about the social security that is the key bit. Some of the things might be that, again, what that does not do, and it is something that we can potentially reflect on and do, is about the scale of those things. Those are what we have asked for. That is how it is progressing. Some things will be really important, some things will be less important and some things will refine our estimates. In general, you can see that there is quite a lot of progress across the board. I think that this memorandum of understanding that we have signed has been really important, because when we talk about data, there are different types of data. There are numbers, but there is also information about possible policy changes in the future. What the memorandum of understanding will do is make sure that, if there is thinking going on inside the UK Government, that could have implications for Scottish taxes on spending, we will get access to that earlier thinking, which we are not doing up until now. That is a very definite step forward. As I understand it, you are not planning to produce another report like this for two years. Given that you seem to think that some of this is quite urgent, can we at least have an update before two years, or why two years? I think that the reason why we did not update it for two years is largely because I did not think that there was probably not too much to update. Particularly in the social security stuff, that is something that we would be keen to keep updating on. Given the importance of that for the committee's work as well, we can take that as an action to provide an update. Whether we do a full statement of data needs, we can then look at it. However, I am more than happy to commit that we will update on progress. That is great. I think that the committee will be interested in pursuing that within two years. Moving on into social security, again, I was interested in some of the comments in your report in paragraph 2.7. However, the new systems used by social security Scotland are currently not designed in a way that meets our priorities and other users' data needs. There has also been the suggestion that there is a lack of resources, but if they have not been designed in the right way, that suggests that that is not a lack of resources, that is a lack of foresight or whatever or consultation earlier on. Is it resources or is it? A couple of things. I will come back to Clare's point about the way that data is collected, but also the way that it is disseminated. The dissemination of the data, the systems that are there to disseminate the data, is absolutely crucial. The example is that, if you go to DWP at the moment, there is a really accessible statistical tool that gives it the information that we need to bottom up estimates of eligibility to criteria. That does not exist, so that is a key part of the system that does not exist that lets us go in and do those calculations. That is the key bit for me in the system that does not yet exist, and it is really important that it is produced and is therefore accessible to people. There are also the steps behind that in Social Security Scotland. In DWP, you have the administrative system, and the data is taken from that and put in a statistical form, which the statisticians can then use to put into this tool, which we then use externally. Our understanding is that Social Security Scotland statisticians are not getting all the data, it is not that they are getting the data and they are not sharing it, they are not able to get the data from the systems, but it does not mean that it is not held in some form. Would you say that these are just teething problems? It is still, relatively speaking, a new BOD ADWP has been going a long time. Is it just teething problems or is there something more fundamental? I cannot comment on the specifics of the operations on that. The only point that I would come back to is two things. Whether it is teething issues or something more substantial, the importance of getting the data, but crucially the importance of getting the data that then, like the consistency of our time, is crucial to look at the forecast and then also be in terms of how you evaluate the policies. Some of the specifics, and terminal illness gets mentioned as a specific, that they did not have the numbers of people who were getting a payment because of terminal illness, and I would have thought that that was quite essential. Again, on that one, is that because they just do not have the information or they just have not worked it through the system yet? I mean, they should ultimately have that information, because if you have a terminal illness, you qualify under special rules for these payments, so they will be making the payments on that basis, so they should have, but I think, again, it's how the information will be held somewhere in the system, but not extractable in the form that we need, because at the moment from DWP we can tell whether somebody was a new client on to PIP, whether they're under special rules for terminal illness or whether they were reassessed from disability living allowance before, so there's different categories of people and the trends that we see in those different groups are very different because they're naturally different types of clients, so it's all these different subgroups, which is what makes the disability payments a lot more complicated for Social Security Scotland to administer as well, so the scale of this is very different to what they were doing for the other payments, but it also means it's a lot more difficult for us to evaluate our forecasts and then ultimately try and provide the best forecast that we can for the Scottish budget. Okay. I mean, the question of sex and gender has been mentioned already and that's obviously quite a hot political issue. Now, am I understanding it correctly that for older people it doesn't really matter some adults, it doesn't matter quite so much, although I'd have thought that with men dying generally sooner than women, that would be a factor because if women are going to claim benefits for longer, there would be a greater cost to that, but there seems to be more from what Professor Ulf said amongst children that there's more specific conditions that boys have than girls don't have and vice versa, so is it mainly children that you're focusing on for the needs for this data? My answer to that is that we don't know because there may be conditions that emerge in the future that do turn out to depend on gender in the elderly population, and if we don't have the data, we can't even do the analysis to understand whether that is the case. So it would be better if we had the data, even though it doesn't look like an issue at the moment, it could become an issue, so it would be better if we had the data to understand whether it's an issue and then to use that for future forecasting. Maybe you can't answer this, but have you any idea if this is a political decision because we're not wanting to emphasise sex so much nowadays or if they just hadn't thought about differentiating collecting the data? Because of the application form, they want to capture the information that they need to process a claim, so they don't need to know somebody's gender in order to process a claim, so that's why they are not collecting it on the core application form. Okay, thanks. I mean, you also talk, I think it's page 14, about you'd like to have more early engagement, I think, with, as they presumably look at their processes, I'm just looking for the right chap, oh yes, 249. We would like early engagement, Scottish Government, on data requirements for these payments, so is that something that's progressing as well, is that something that's improving? Claire, do you want to do the one closest to the engagement? I suppose we have had regular conversations with the Scottish Government about our data needs over the last, I suppose, four years, but what we can see now is with the data that they're collecting on the disability payments, whether there are real issues here for us, so we want to continue those conversations, particularly where they're in the process of designing the new system, so to make sure that the systems for the payments, which haven't yet launched, can be designed in a way that makes it easier for Social Security Scotland to get us the data that we need. Okay, thank you, and I think finally in this bit, I noticed in 2.55 the accounting treatment of PIP was mentioned, well, as an accountant that kind of jumped out at me. I was puzzled as to what the importance of the accounting treatment was, or how there was an issue there? We are, I'm just trying to find... It's 2.55, the third last line, and if you want to come back to me on that, I'm happy enough. Yes, I think that the broader issue that we're picking up there is the difference between the financial data that we're ultimately collecting at the end and the statistical information that we have to make the forecasts. Historically, there has always been a gap between that accounting information, the financial data and the statistical data that we use. I think that what was interesting this time was that that gap was bigger than it has been in the past, and I think that that's something that we need to understand and reflect on for the next round of forecasts, whether that gap is going to close. That's the broader issue that is being picked up there. The issue rises where somebody makes a claim, and there may be some issues around that claim. The claim is actually delayed and being made before it's finally signed off. That means that the person making the claim will be entitled to some back payments. When the claim does come through, there are these additional back payments coming through. When we just get the numbers of people who are claiming and getting entitled to certain awards, we just forecast the number of people and the amount of award they get. We're not picking up all these back payments. That's where the discrepancy between the fiscal and the statistical data is coming in. That problem seems to be somewhat greater for disability benefits. For obvious reasons, of people with disability issues, it may take longer to fully assess their claim and validate their claim. There's more likely to be back payments involved in that, so that error might be somewhat higher. That's helpful, I think that I understand that. I can just touch on one area in the population report. That was around earnings, because you make the point that this is chapter 419. We've seen Scottish average earnings grow more slowly than the UK over the last five years, but your assumption is going forward that they'll grow broadly in line with the UK. I just wondered why that change and is that overoptimistic going forward? One of the things that we're trying to do in the fiscal sustainability report is to separate out the different factors in there. What we're doing here is looking at population projections, and that's essentially the core bit that we're pushing forward. We're just saying that if we take our stock of population at the moment and make some reasonable assumptions about migration, what might be the impact on the economy, and then, ultimately, what might be the impact on the public finances. We're looking at one thing in isolation. You then write those in other things that we need to look at, things like potential earnings. We spoke a bit about that in terms of participation rates, about the strengths of some sectors in Scotland relative to the rest of the UK, whether it be in energy, whether it be in financial services, and how might that impact on long-term projections. What we do here in the population paper is just essentially make the easiest assumption, which is that we assume productivity the same as the UK, earnings the same as you do, everything else is the same, but we're just changing one element of that. That will be our approach more broadly for a lot of this fiscal sustainability work, is not to try and throw everything in the mix and come up with a number that generates headlines good or bad. Here is an issue that is our ageing population and our demographic change. That is how it could impact upon the economy and, therefore, the public finances. Here is another issue, whether that be economic performance, whether that be climate change, whatever the consultation that people would like us to look at, and then trace through the impact of that on the long-term public finances as well to help people to understand what the key issues are, rather than ultimately what one particular number is. I will move to Ross before the by-michelle. In the first instance, I would like to briefly pick up on the explanation that Cora gave around why certain points of data are not collected in the social security application process, because it is not necessary to process the claim. Can we act on that question with Senua? I accept that you are not social security Scotland, so if you don't know the answer to this, that's fine, but I presume that the reason that they are not collecting as part of the application process, what would otherwise be very useful but the demographic data, is because the more fields that you add to the form, the more people drop out of the application process. Is that the case? That might be the more you do with the form, which might be a particular issue. There will be particular reasons about what you are trying to do with the form and what you need to process the application. The implication then is that, by not doing that, that has consequences for your ability to evaluate and forecast. It is not really a question that we can answer. It is probably a question that Social Security Scotland can answer, but the outcome is that it makes it more challenging in those areas to forecast. Perhaps it is worth the committee getting in touch with Social Security Scotland about. My main line of questions is about your consultation process. I am quite interested in how you will be going about that with the fiscal sustainability review. You mentioned a couple of the examples of the priority areas and key factors that you mentioned are climate and health inequalities. Those are issues that have pretty robust third sector organisations in those spaces. Are those the kind of organisations that have engaged with fiscal commission consultation processes in the past? Do you have an established relationship with those kind of groups or is that a new approach to try and get a wider level of engagement? It is a really good question. I have a couple of comments that I would make. One of the reasons that we focus on demographics is because it is probably the area where the most is known from an economic perspective about how it might impact on the economy and the public finances. It is also the area where we probably have the greatest understanding as commissioners and as a team within the commission and the strong links for the stakeholders. If you take something like climate change that our understanding about how climate change will impact on the public finances over the long run is still in development, and nobody published their first report last year. That was really the first attempt that they have had at trying to look at those things. For us, there is quite an important learning curve about understanding how issues such as climate will impact on the economy and the public finances. A key part of that is the stakeholders to work with on that. This will be new for us in that space. Thinking about who are the key stakeholders in third sector organisations, whether that be in experts in climate, whether that be in academics or whether that be in other organisations—the Committee on Climate Change, Scottish Government officials who work in climate change—to understand their work and the impact of the climate and how that might feed through to the economy and public finances. That is a big area for us, and part of that is about the stakeholder network that we engage with. What is the engagement process with stakeholders going to look like? I think that that leads to a wider area of discussion that the committee has had in the past around public understanding of our public finance landscape and stakeholder understanding of it, and the extent to which it is important for certain stakeholders to have a greater level of understanding of devolved public finances than is currently the case. I am probably going to get around from all my friends in the climate movement for saying that of all the relatively well-funded third sector organisations in that space, I do not think that there are many people who have a real depth of understanding of our public finances, because that is not historically where those organisations and those campaign groups are focused, but their input into that process is probably quite important. Whether it is them or the alliance of healthcare organisations, where it is maybe a little bit different but probably in roughly the same place, is part of that process going to be you assisting and enabling them to give useful feedback? Do you want to go first, David? I will come in on that. If I can elaborate on this a bit, if we can think of things like demographics, there are well-established organisations that are producing all the data on future demographic trends. If we think of something like climate change, what we would need is organisations that can tell us the same kind of level of confidence that we have around demographic data, what the likely evolution is of climate change and its impact on Scotland. You are looking at issues like what is the impact going to be on flooding, what is the impact going to be on fires, what is the impact going to be on coastal erosion. Those are things that matter for forecasting the resources that are available to the Scottish economy, but there are other big issues there about if we want to adapt to climate change, how far is that going to be done by individuals spending money on it, how far will it be done through the state, supporting individuals to do that, and there we would need some understanding of what likely programmes are going to be for policy in the future in those areas. There is quite a lot that we need to understand, so our intention is to try to build relationships with organisations that can help us to understand those dimensions. We will try to translate some of that into the implications for funding in Scotland, but even that core level of competence around what the likely evolution of climate change, particularly within Scotland, is something that we will need to build that relationship with other groups outside the SFC? I am interested in what that will look like, so I presume that a punter can go on to the SFC website, fill in a consultation form and answer the questions there, but if you are trying to get that greater level of depth and particularly from the key groups that you are engaging with for the first time, is this workshop, seminars, one-on-one meetings, what does that look like? I think that it is a mixture of both. Once we start the climate change work, a key aspect of that will be how we develop a stakeholder plan. Exactly for the reasons that you mentioned, one is about how we communicate that this is important for informed discussion around climate change, understanding the implications for the public finances, good and bad, but then also for us is just needing information and needing that engagement. How can they input into us? We have great links on the public finances and the economy side. That is what we do. Next week, I will be talking to Solace about the public finances. We have a regular period of engagement there. We do not have that in the same sense in the climate change. That is going to have to be a key task for us to go out and see who the key networks are, work with the Government and other organisations in getting those networks, but then thinking about what is the best way to engage through workshops, seminars, through speaking at events and so on. That is all going to be really important to us. Quite a lot of your written submission and what you have mentioned at the start graham is about improvements in data and process that should improve the accuracy of forecasts. On the flip side of that, given that inflation might top 20 per cent and we are entering an indeterminate period of profound economic instability, should we expect greater accuracy in forecasting in the immediate future, or is that going to pay off in five, ten years time once we are on the other side of this instability? I would separate two things out. One is that the better information and the more accurate data that we can get, the better the forecasts will be, all else, remaining equal. That will be something that will make the short-term forecasts better and also in the long term. You then get to what the situation was at the moment and the uncertainty. As I mentioned in the last 18 months, it has been quite eventful in the economy. It is clear that the next few years will be eventful as well. That just means that that noise in the system is going to be that much larger, so the accuracy of the forecasts and the process for forecasting is going to be that much more difficult. You only have to look at the variations in forecast inflation over the past six months to see the huge change that has happened in the relatively short period of time. The more data and the better information that we can get, the better the more accurate the forecast will be, but that is not to say that that is the only thing that matters. The broader economic climate is crucial. If you can bear with me, I want to return back to the statement of data needs and, specifically, the child disability payment. You correctly note in your submission that, although sex and gender are sometimes used interchangeably, they actually have different data needs. You also notice, and it has been referenced today, that long-term trends in child disability have a higher prevalence for certain conditions for males. Given that you explained that small errors over time have quite big impacts, is there not a case if you had your preference for sex and gender to be collected, specifically for child disability payment and for where appropriate in other cases? The general point is that the greater the breakdown that we have, the more accurate the forecast will be. The quality of that information is going to be absolutely crucial for the forecasts that we have. The more information, the better on that. I do not know whether you want to come in on the specifics of the split. In general, I think that more data is definitely always better. In this case, we do not believe that it would make a significant difference to our forecasting capacity. What is important is that it is collected in the most appropriate way. We are not responsible for that data collection, so we will leave it to Social Security Scotland to decide whether they should ask the question in relation to sex or gender. We note that chief statisticians have recent guidance on that. From our purposes, what is important is that the data in that form is collected, and that would be a real increase in the information that we can use in relation to population protections. However, it is up to Social Security Scotland to ask which questions they ask and how they ask. I am referencing your data needs, not Social Security Scotland. Given that you point out that there is a prevalence for certain conditions in males, surely the only way that you can get to data accuracy is to collect or request sex and gender, and, particularly taking in to Professor Ove's point, that there may well be conditions of which we are not yet aware that only occur in males when we look at their sex and mutical characteristics as compared to their gender. We can all foresee a time where gender is much more fluid. I am asking that from your specific data needs rather than any other. As Mr Mason said, it is a hot political topic. If you had your choice of data needs and given what you say about separating them out, would you prefer to have sex and gender where it is specifically relevant to higher prevalence for certain conditions? Just to be insized, Clare said that it does not really matter in the context of the forecast. As long as we have the information in some form, that is the most important piece in terms of overall accuracy of the forecast. I am quite relaxed about what social security Scotland would give us as long as it gives us a breakdown that then lets us do the forecasts. I want to ask about the equality form. I am very interested in data and accuracy as well. It seems to me that it is almost building in room for error and is obviously in an efficient way of a two-step process in the child disability that you are then having to join data fields. Is that your view as well? Is that why you are stating that, ideally, from your data collection needs, you would be looking to have it all in one form? The main thing with equality monitoring form is the response rate and how accurate that is. I think that that is where, if it is more administrative, so it is more just collected as in the process of the system, then it is going to be more accurate. We know that on where, if it is a voluntary form, the response rate will be much lower and therefore much greater error is potentially there. Building it into the actual administrative data then just makes it mean that it is going to be much more accurate. That is the key concern about the form, is the fact that you would like to get a lower response rate. Does having other people filling in the form pose any further risks to data? The challenge that we have got at the moment is the way that the child disability application form is set up. It is asked for the characteristics of the person completing the application form, which is most likely to be a parent or guardian rather than the child. That is quite a fundamental thing where, for our purposes, the characteristics of the parent are not likely to have a bearing on the application, whereas the characteristics of the child will do. That is a very fundamental thing. Beyond that, I would say that these are important issues, but the dissemination issues that we have and the availability of the much more administrative data on the number of awards and how much people are receiving are much more important than the data collection issue that we have. If the decision is made by Social Security Scotland not to collect that information, we can still produce our forecasts. It may just have implications for the accuracy of those forecasts, but the scale of the impact of that issue is not as significant as the issue that we have around understanding the overall client base, why people are receiving an award, how much they are receiving and the average payment. Those are really fundamental issues. That is an issue that, although important, is not as fundamental to our forecasting ability. I also want to talk to you briefly about the work that you are doing in terms of your fiscal sustainability consultation paper. I can see that you are already making strenuous efforts to get contribution to it. I saw your piece on LinkedIn, Professor Roy and so on. The question is that, given that you set it out, it is a very odd setup. You comment that Scotland does not have any debt. You are trying to model something that is quite odd to external people from the outside looking in within the UK. I have two questions. You mentioned that there are a number of risks that the data that is contained will be taken by either side of a polarised debate and used to attempt to prove various things that are not true at all. We have already seen that. We have seen that for GERS, for example, that it is largely discredited by serious economists such as Professor David Simpson. However, what risks do you see and do you think that all you are doing by attempting to do this laudable, although it is, is simply embedding those risks? In other words, a million-dollar question is about how on earth can you project fiscal sustainability on the basis that we have of fiscal transfers in Scotland? What we are doing is looking at the fiscal sustainability of the Scottish budget under the current constitutional settlement. That is really important because it means that it is of relevance and importance to everybody in the Parliament about what are the factors that will drive that relative performance. It is very much about the current constitutional settlement, what are the key factors there? That is not to say that the factors that we are talking about will then play into broader debates about constitutional reform, etc. I am very relaxed about that because the issues that we are highlighting here are crucially important to the long-term projections and sustainability options for Scotland in the future. We know that Scotland's population structure has been shaped over the past 100 years, and that will shape the Scotland's economy over the long run irrespective of the constitutional settlement. There is then a debate to be had that people will have about what they might do about that. Again, our analysis is there, hopefully, by providing accurate information and discussions around population projections to help to improve the quality of that debate. The point about the public sustainability in the current constitutional settlement is really important because what it does is it lets us turn around and say what are the things that might be driving the relative difference in Scotland compared to the UK as a whole. You then get the factors of what is driving the sustainability of the UK as a whole and how might that feed through to Scotland? If we have an ageing population across the UK, that will have implications for the Barnett block grant and overall tax revenues. If climate change will have an impact on the UK and Scotland, those are things that will be shared across the UK. What is then really important under the current settlement is how Scotland might do relative on those issues compared to the UK as a whole. Finally, the most important bit for me is that, irrespective of the overall funding envelope, what the work that we will be doing is showing about where the spending pressures are within whatever that spending envelope looks like. An ageing population means that, even for a fixed amount of budget, you are going to have increasing pressures on the health budget because of that ageing population. What we are trying to do deliberately is to set out what the particular issues are, rather than to come to some particular number about whether the economy is sustainable or not. That is quite a deliberate effort. I mentioned that in my answer to John Mason about thinking about what are the key issues, so focusing on population and then thinking about how that might impact on the sustainability of the Scottish public finances. That is the approach that we will take on this, and that is the approach that we will take on everything else. You are certainly right that, because of Scotland's fiscal settlement, we do not have a measure like debt to GDP ratio that other fiscal issues can use. In some ways, we are using the most fundamental measure, the gap between funding and spending, because that is what ultimately drives the debt to GDP ratio anyway. We would argue that, in some ways, by picking up that funding gap, we are isolating the important measure of loans around fiscal sustainability. The debt to GDP ratio is essentially a corollary of that, rather than a more fundamental measure. I understand that my last short question is given the nature of the principle of fiscal transfers. Have you looked at equivalent reports in other countries that may not have an entirely similar fiscal transfer basis in a way of other countries, but in general terms, how they attempt to model the scenario? We cover that in the report, looking at what other countries do around fiscal sustainability reports. The point that you make is correct, in that when you look at other countries, independent nation states, who are issuing debt, that is typically the approach that people will use to look at the debt. What we are doing in Scotland is relatively unique in that context, in the sense that we are looking at the system within a model in which you have pulling of large amounts of tax revenues across the UK and then a block grant still making up a significant amount of money to the Scottish budget. That is relatively unique in that context for doing a fiscal sustainability report. I come back to the point that I still think that it is really important to do this, because what it does is that it starts to frame the conversation about whatever, irrespective of whatever constitutional settlement that you think of in the future, or irrespective of what might be happening in other factors in the economy, etc. You have got these big structural drivers changing your economy over the long term. The sooner we can have a debate and a discussion about what we do about those issues, the more sustainable you will make your public finances in the long run, and crucially, the better you will be able to deliver public services. I was going to go back to the 16 per cent fall in population and compare that to the rest of the UK of just a 2 per cent fall that you mentioned, Professor Roy. You mentioned how you have done analysis of how it could impact the economy, but I guess that is done based on the powers that we have at present. As a committee, we are looking at additional tax raise and powers, additional devolved finances that Ross mentioned. Has there been any analysis done that could inform us as a committee when we are looking at additional powers what that change in demographics would mean to us and our economy going forward? We have mentioned in the past things like air passenger duty, fuel duty, vat, pensions potentially at one time could be devolved. I would imagine there would be a huge impact to the Scottish economy when we look at our change in demographics, where we have a much less working population and a greater number of elderly. Is there any data that we can see around that when we are making those decisions? The general point that I would make is that what we are trying to do is to analytically show the scale of the challenge and the relative performance between Scotland and the UK. What we are not doing is saying that this will happen. We are saying that if we take our population just now and look at recent trends in migration but Scotland's track record over a long period of time about migration and have a discussion about how you attract people to Scotland and make some broad assumptions about how you think the economy will perform, then you can show the relative scale of the challenge that is coming down the line. By doing that, what we then hope to do is to do exactly what you are alluding to, is to say that if we face this relative challenge, what do we do to potentially address that? Some of that will be discussion about prioritisation of public services over the long run, but some of that will then be about how we change the nature of the structure of our economy. How do we cope with a smaller population? How do we cope with an age, a slightly older population? How do we potentially attract more people to come to Scotland? How do we grow our economy more quickly? How do we improve productivity? All those things will start to improve the economic outlook. That is what the purpose of the fiscal sustainability report is designed to do, is to set out, if you take one issue such as population, the impacts that it will have through into the economy. That is not to say that it will happen, because the ball then gets placed back in policy makers' court to say, how do we do that? How do we attract more migrants to Scotland? How do we think about the rest of the UK migrants coming to Scotland? How do we boost our productivity? How do we grow our tax base? Those are all the things that ultimately are able to be much more informed by having a projection set out like that. I guess that another question was that there is a huge difference between population going forward to Scotland and the rest of the UK. Historically, has there always been a big difference or is this something new that we are seeing coming through in the last few years? There is a long history about Scotland's population and the demographics of that. You have a period, pretty much through the 20th century, when, for a large period of time, the natural growth in Scotland's population was offset by outmigration. We were a nation of exporting people for a large period of time. If you look at it for the most of the second half of the 20th century, Scotland's population did not increase. That is in stark contrast to most European countries who are seeing positive growth in their population. Scotland has a long history of challenges in that in population. More recently, it has been more positive. If you look over the past 20 years or so, particularly the session of the EU countries, the Eastern European countries, international migration increased, as did the UK migration as well, and the effects combined with a smaller birth rate helped to boost Scotland's population. One of the big things that is important for us to have a conversation about as a country is about the future demographic projections that we have and what we might do about that if we get an ageing population. There is relatively limited what you can do around things like birth rate, but there will be things that you can do to encourage natural growth in the population as much as possible. There are then questions about thinking about if you get an ageing workforce, about how you might try and encourage people to participate in the labour market for longer as a result, as they are getting older, but then also how do you make Scotland attractive as a place to come in and live and work here? The demographics bit has been around for a long time and that is going to be something that is going to be crucial going forward. You mentioned when people retire. Is there a big difference between Scotland and the rest of the UK around that? The difference is in participation rate. As you get older, participation rate tends to fall and we see slightly bigger fall-off in participation rates in Scotland as people get older relative to the rest of the UK. Whether that will hold going forward is again one of the big unknowns, but from a policy perspective it is what do you do to try and encourage more older workers to remain in the labour force for longer? I guess that is what Government need to come forward with those policies to try and encourage that to happen to increase the participation rate going forward. Again, what I would argue about the value of those reports is that when there are lots of real short-term pressures on policy making and thinking about what we do for the next year, 18 months, about how we support our economy, that is quite rightly where the vast majority of the focus is, but thinking about how over the long term we boost things like participation, about how we change our skills system to encourage older workers to remain in the labour force, and how we have more flexible working practices that let people work longer as they move through the age profile. Those are all the things that might not have an impact in the next year or 18 months, but that is the sort of thing that will have an impact over the decades to come. Thank you Douglas for not asking the follow-up question about what things you can do to boost the birth rate. We have a few minutes left. I just want to ask two follow-up questions. First of all, in terms of fiscal sustainability, the key variable that you are looking at is population change. One of the things that I am looking at in your consultation paper is that the change in the population from an upright pyramid to an inverted one is not smooth. For example, looking at that data, there is a sort of a glut of 30 rolls. To what extent does that complicate forward projections? You are trying to do as consistent and isolated a forecast as possible, but how feasible is that, given that it is not a linear change that we are seeing in the population? Demographics are very complex, because it depends both on the total population and the distribution of the population as to how that is going to move forward. Demographers will tell you that some of these effects play out over 50-100 years when you are trying to look at the long-term effects of this. That precise distribution really does matter quite a lot in terms of trying to think forward as to what is going to happen to the population. We are trying to take that at one level further by trying to translate that into what is going to happen to participation in the labour force. You are going to translate that effect on the population into a participation effect in the labour market. Then there is all the other effects on the economy, like productivity, unemployment, etc. You have to factor in as well. We are trying to strip some of those factors and focus very much on the demographics that are driving that. We use the language quite carefully. Those are projections rather than a forecast, and they are very much about taking aggregate high-level numbers and pushing them forward. You are right that there will be bumps in how the economy will evolve over time, but what we are trying to say is that if we have been averaging international migration into Scotland of 20,000 over the past X number of years, if that was to fall off post-Brexit or wherever of different changes in migration policy, it might be higher than that in one given year. It might be much lower than that. It might be negative, but if it is smaller than that, then that is the effect that it might have on Scotland's economy. Or if our population age profile continues to increase, if we do not change participation rates as we get older, then that is the effect that it will have on the economy. Individuals within those years might work a bit longer, they might work a bit less, depending on what happens on savings and pensions, but the overall trend over 50 years is the key thing that we are trying to highlight and to showcase. Just finally, in your forecast that you produced in December, I was really struck by the regional breakdowns that you produced. I recognise that they were extrapolated from ONS data, but particularly around growth in employment earnings and total tax take. I think that it showed Scotland's relative position not just to our UK, and indeed I think that the relative position with the other devolved nations is important, but actually to other regions of England such as the north-east, north-west and south-west. That is not something that you have replicated, although I am told that I could replicate it if I went to ONS. I have tried, but it was a bit beyond my data analytical skills. To what extent, in terms of your presentation, will that regional breakdown form part of it, but also in terms of your on-going analysis, both in terms of your forecast and in the longer-term work? It strikes me that that compares not just with our UK, but with other perhaps comparable parts of England is a useful comparison as we grapple with the issues of demography, productivity and growth in the economy. I would say two things. Our main forecast is on the aggregate Scottish figure in public finances. That is what we do in terms of our medium-term forecasts. However, I think that understanding about what might be driving those numbers on a regional or sector basis is really important. David mentioned the point about London and financial services. If you have a very good year in the financial services and large bonuses and they score in the city of London, that will have an impact on the Scottish budget in relative terms because that growth in UK earnings is in the block grant adjustment, but it is not going to show up into the Scottish figure. That is important. The other one is adding to your thing regional variations within Scotland. Again, what we covered in the December report was the variations across Scotland, in particular what has been happening in the north-east of the country over the past few years in terms of earnings and employment, given the changes in oil and gas. Understanding both variations within the UK and how that might have an impact, but crucially, the variations within Scotland is something that feeds through to the long-term projections. We know that oil and gas in the energy sector has been a really valuable source of Scotland's economy over the past 50 years and has contributed to Scotland doing relatively well across the UK as a whole. We know that we are going to have to transition away from that over the next 50 years. How do we do that? Not just from an environmental point of view, but from the projections that we are having in the economy and the public finances, that will have implications to create high-value jobs, high earnings, which in turn will feed through to the tax revenues. Thinking about how what might be happening in the regional structure and the sectoral structure of our economy will be crucial on that in terms of those projections. Unpicking all those different elements and how they will feed through to the long-term projections will be something that is really important. What we have done so far is to do a very aggregate population. However, as you are loading to, you start to unpick some of those variations in terms of economic performance, then that will too have an impact on the long-term performance. What is the interest to answer that, I think? We tend to use the regional storage to understand what is going on in the data, rather than the basis of our modelling. As Graeme said, our modelling is done at the aggregate level, but sometimes we want to understand better why it is coming out that way. That is the reason that we have started digging down much more into the regional data and presenting that in our reports to provide some context and understanding of why we are seeing some of those trends in the aggregate data. Indeed, that is something that I find quite illuminating in new December reports. With that, I would like to close our questions. I would like to thank Professor Graham Roy, Claire Murdoch and Professor David Oalf for their ever-enlightening contributions. That concludes the public part of today's meeting. The next item on our agenda, which will be discussed in private, is consideration of our work programme. We now move into private session.