 Welcome to the 32nd meeting in 2015 of the Finance Committee of the Scottish Parliament. Can I please remind everyone present to turn off any mobile phones, tablets or other electronic devices? We have received apologies this morning from Jackie Baillie and MSP. Our first item of business today is to decide well to consider our work programme and a draft stage 1 report on the Scottish Fiscal Commission Bill in private at our next meeting. Are members agreed? Members have indicated their agreement. Our second item of business is to take evidence on the Scottish Parliamentary Corporate Bodies Budget proposal for 2016-17. We are joined for the session by Liam McArthur MSP, who is supported by parliamentary officials Paul Gries and Derek Rowell. I welcome our witnesses to the meeting and I invite Mr McArthur to make a short opening statement. Very much, convener. Good morning, colleagues. Thank you for the opportunity to present the details of our budget submission for 2016-17. This covers the first year of the new session of Parliament and the SPCB considers that it reflects a realistic position for the challenges we are likely to face. Over the current parliamentary session, the SPCB has successfully delivered a programme of savings that has achieved 10 per cent real-terms budget reductions from the 2010-11 baseline to 2015-16. During this period, staffing in the parliamentary service is also reduced by over 10 per cent. At the same time, we have consistently delivered against our strategic plan and supported demanding programmes of parliamentary business. The next session will bring new challenges. In order to meet those, we have set out a total budget submission for 2016-17, which is contained in the letter from the Presiding Officer. The headline figures include an increase of £6.8 million from the 2015-16 budget. The additional cost pressures are largely attributable to the need to address one-off election costs in 2016-17 and to provide the resources for handling the new powers, which the Parliament will begin to exercise in the new session. The latter category includes an increase in the staff support provision that is available to MSPs approved by the Parliament on 10 November. If you exclude MSPs and office holder costs and the SPCB's central contingency, the remaining parliamentary services directly controllable budget shows a modest £318,000, or 0.7 per cent increase, on the comparable 2015-16 budget. In relation to pay, our budget submission is based on a continuation of the prudent pay restraint that we have shown previously. We have not yet commenced negotiations with the trade unions for 2016-17 pay for SPCB staff, but for budgetary purposes, we have assumed a modest increase in line with other public sector pay increases. 2016-17 salary costs include the impact of a 2 per cent increase in employers' national insurance contribution rates relating to the state's second pension. For the parliamentary service, that adds approximately £460,000 to the annual pay bill. As reported to the Finance and Constitution Committee last year, the Scottish parliamentary salary scheme has been amended to replace the previous link to MP salaries with a direct link to public sector pay rises in Scotland using the annual survey of hours and earnings published by ONS. That resulted in an increase of 0.7 per cent in April 2015 and, using the same index again, an increase of 2.7 per cent will be applied in April 2016. In terms of project expenditure, as 2016-17 is an election year, I am sure that colleagues will not need any reminding of that, the budget is strongly focused on projects to set up the required facilities for members at the start of the new parliamentary session. Examples of the types of projects or programmes planned for 2016-17 are IT equipment for newly elected members and updating of IT systems, office equipment and associated changes following on from the election. Work on the service year project at this early stage continues to run to schedule and within budget, with the majority of costs expected to fall within the current financial year. Turning to the office holders, as members are aware, the SPCB is charged with the oversight of those bodies and the Finance Committee is always keen, taking a keen interest in this area of the budget. The proposed 2016-17 budget for office holders amounts to £8.4 million, representing a modest increase of £75,000 or not 0.9 per cent on the approved 2015-16 budget. We have increased the central contingency for office holders by £50,000 to £350,000. That is to allow flexibility should it be required for additional staff for the Scottish Information Commissioner and the Scottish Public Services Ombudsman, who have both requested additional staff to meet increased workloads. That is still to be considered by the SPCB. The contingency funding also meets requests for additional pressures such as legal costs. We welcome the involvement of other committees in scrutinising aspects of the various office holders, which are not within our remit. I can offer the example of the education committee that I am a member of, which has been looking at the work and the performance of the Children and Young People's Commissioner over the course of the last year. In relation to the contingency, the SPCB is proposing a level of £4 million, an increase of £3 million from the 2015-16 level of £1 million, within its bid. That is to cover the one-off costs associated with the 2016 election and the actual costs of resettlement in MSP staff redundancies at the May 2011 election, which amounted to just over £3 million. It also includes a prudent contingency for emergency and emerging cost pressures from the additional powers that the Scottish Parliament will assume during the course of the next session. We believe that the use of contingency to budget for those cost pressures is a realistic and prudent approach, but I would remind the committee, and perhaps by way of some reassurance, point to the fact that the SPCB is a good track record in handing back resources when we are in a position to do so. Looking ahead, the future challenges as set out in our submission, the SPCB is submitting its budget to the Finance Committee in advance of publication of the draft Scottish budget on 16 December. That will tell us more about the future year's budget pressures, and the SPCB will respond accordingly. In our 2017-18 budget submission in a year's time, we will ensure that costs continue to be kept under control and that we take into account impacts from, for example, the Scottish budget spending review and the additional powers accruing to the Parliament. In conclusion, convener, I would like to place on record the corporate body's appreciation of the work done by Paul Grayson, chief executive, Derek Rowland and the other members of the team in preparing the SPCB's 2016-17 budget submission. That concludes my opening remarks, but I look forward to answering any questions that the committee has. Thank you very much for that opening statement, which was, of course, very helpful. As you'll be aware, I'll start with some opening questions and I'll open out the session to colleagues around the table. In your opening statement, you obviously touched quite a lot on the contingency, the increase from £1 million to £4 million. You talked about how the increase is to cover for the one-off costs associated with the 2016 election and the prudent contingency for emergencies and, of course, emerging cost pressures from additional powers. The Scottish Parliament will assume during the course of the next session. I'm just wondering if the record, if you can perhaps talk us through a wee bit, the split between the emergency and the additional cost pressures. Well, I think in terms of the additional powers, we are budgeting for something around half a million pounds. That is largely taken up with additional costs anticipated in terms of committee time, chamber time. I think there's always an expectation that there will be additional pressure on the research resource as a result of members wanting more information in the areas of the new powers that we will be assuming. There's obviously also been factored into next year's budget the increased staff allowance for MSPs and, in part, that's a recognition of the increasing pressure that will come on MSPs as a result of the additional powers. That's factored in as well. As I said, in terms of the overall contingency, I suppose that the bulk of that is taken up with £3 million anticipated costs from resettlement, staff redundancies and all the rest of it. While it's impossible to second guess what is going to happen next May, on the basis of the number of members that we've already indicated that they're standing down and using the experience of May 2011, we think that the allowance that we've set aside for that in the contingency is a reasonable and prudent amount. Is there anything else that you would add to that? You obviously touched on the members' expenses scheme. The allowance is going forward from 6 May 2016, which will upgrade staff cost provision from £62,300 to £85,000. I'm just wondering how that compares to Wales and Westminster. I think that the feeling was that we were out of line in terms of staff provision. We've taken the decision as a Parliament to separate the link between Westminster and Scottish Parliament for MSPs pay. It's been the case that there's been a growing apart over the period in terms of the way in which allowances are structured here and the way that they're structured in Westminster and the Welsh Assembly. While we used that to inform some of the discussion that we were having around what we should be doing in upgrading staff allowances, we were conscious of the fact that what we needed to do was make a solid case for what it is that we felt MSPs required. There was obviously taking into account the commitment across the Parliament to being a living wage employer, but also recognising that with the additional powers that the Parliament was taking on, reflecting that in increased staffing requirements, we felt that the equivalent of three full-time staff was a reasonable request to make backed by the Parliament last month. As I said, we can provide the committee with the figures for Westminster and the Welsh Assembly, but we would always enter a bit of a cautionary warning because of the way in which our allowances and what not are structured. Direct comparisons can be a little difficult. We may do better in some areas than our counterparts in Wales and less well in others. Ultimately, we need to have a set-up in place that we feel meets the needs of MSPs in terms of discharging their duties as parliamentarians but also as constituency in regionally representatives. Obviously, I understand that both Wales and Westminster members' allowance scheme will still be higher. In deciding on that figure, did you take into account obviously potential for security? I know that some of my colleagues in particular do not like to have one member of staff on their own in a constituency office. Clearly, if you only have two members of staff, that means that when they are sickness and holiday, you do not really have any cover. Was that something when you looked to see if you could fund three members of staff that were taking into account? The calculation was made on the basis of three full-time equivalents. I think that each member obviously has to take decisions around the staffing complement and indeed where that is based. Across the 129 members, I suspect that you will have, if not 129, varieties of staff structures. You will have a wide variety of staff structures. It was something that we were conscious of, but ultimately it will be for members to decide how many they employ, where they employ them and how they manage holiday periods and other periods, in a sense, if there is a concern around having a single member of staff, whether there are ways of relocating temporarily another member of staff from their Holyrood office for a period to help to cover that. It is something that we need to bear in mind. It is not necessarily something that I think the corporate body can second guess. The revenue projects budget shows a decrease of 23.1 per cent from £3.93 million. However, the indicative forecast for 2016-17 sees the figure fall from £3.9 million back down to £2.2 million. I am just wondering why the decrease was to £3 million and not the £2.2 million forecast in the 2015-16 budget. Obviously, there is always an element of the closer you get to the point where the budget is going to be spent, the clearer line of sight you have on what the actual need is going to be. There is probably an element of that in it. Having assessed the projects that are taking forward under that budget and providing new IT facilities, facilities management equipment for new and returning members, it was felt that the opportunity to get that sorted out was better done over the course of the first year of the Parliament. That is what we have factored in under the budget. That comes in at £3 million, as opposed to £2.2 million. Do you have anything more specific on that? I think that that covers it really. The project budget is split over a revenue and capital. Part of the thinking was that giving new equipment but not upgrading the software at the same time is just an inefficient way of handling it, so it is geared towards providing that all in one go at the one time. We have talked about rates over the years. I think that the SPCB has been very successful in reducing the rates burden on the Parliament. I am just wondering what further scope there is to see the rates bill reduced, because it is still at £3.9 million, about half the total property costs. You are right, convener. We have had a bit of a success in the past in getting those figures down, but we would not necessarily want to factor that in as a gift that keeps on giving. Paul is probably closer to the negotiations that take place on that. You are right, yes. We had one particularly successful where we pushed back. We think that there is potential in the current round, but at the more marginal level convener, we might just get a smaller reduction. Those negotiations are currently in place, and it may be when we are presenting our budget for next year that we are able to confirm how they have gone. It will not be of the order of magnitude that we got reduced last time, but we do think that there is a midst of a current negotiation with them, and we think that that might realise some modest savings. It is something that we look at every year, because it is usually such a big chunk of expenditure. I think that it will be next year before that. If there is news earlier than that, I would be happy to write to the committee with confirmation of that. Can you confirm what the reduction was in rates last time? It was very significant. It was a long process, but with a good outcome at the end. You talked about the directly controllable costs of parliamentary services budgeted at £47.3 million. The increase of £3.3 million or £3.318 million, I believe, is more or less taken up by the increased contingency that we have already discussed. That £318,000 represents only 0.7 per cent. How have you been able to keep those figures to such a low level of increase? What measures have you put in place to ensure that that has kept you so tight? I think that we were very conscious that, although over recent years I have been able to come to the committee and talk about the way in which, on the back of a third of going review, we have been able to bring down costs and, in fact, actually front load some of that reduction, I think that inevitably looking ahead as a result of of an election year and increases in the powers that the Parliament is taking on, that budget was going to go up, but I think that all that did was probably underscore the need where possible to take an even more rigorous look at areas of spend that we could either manage down or at least keep consistently flat. We have looked at some of the project spend as Derek indicated earlier. At the start of a parliamentary session, there is certainly expenditure in terms of IT and facilities management, which would make sense to delay. It would disrupt the workings of individual MSPs in the Parliament and probably would end up costing more. There are a couple of areas where we have been able to delay expenditure. I think that the phone system within Parliament is due for a review at some point, but that is not necessarily as time critical. I think that there was a feeling that that could be delayed. Some of the IT roll-out, not for members but for parliamentary staff, I think that we have been able to push back a bit without causing huge disruption. Obviously, you have staff who are currently on the system, unlike new returning members who are in need of that IT and are more pressing. Therefore, we felt as if we could probably delay that without causing too much disruption to the workings of Parliament. Across the board—Derek may be able to point to other examples, we have been very conscious that, while sticking very much to our view that budgets are tight and we need to be playing our part in that, that nobody would thank us, neither members nor those who are accessing the public or witnesses before this committee or whatever, will thank us for making cuts in expenditure that result in this Parliament not functioning as it should. As I said in my opening remarks, I think that we believe that what we have been able to do is set a budget for 2016 that accommodates those changes of additional pressures, but without running the risk of causing that sort of disruption. I will get one final question and I will open it out to colleagues around the table. It is just on the utilities. I know that they have increased by 2.8 per cent. There are a number of issues with regard to how we can actually get those payments reduced. You know that this has been a wee hobby horse, I mean really, about how we can try and overcome some of the technical hurdles to try and get reductions on the basis of the want of a better world bulk buying, so to speak. I am just wondering where we are on that kind of process. I will bring Pauline in a minute just in terms of the detail. Generally speaking, one of the areas where the corporate body has been particularly encouraged by the progress that has been made is in relation to our environmental audit, whether in terms of waste reduction or the progress in meeting the reduction in the gas, electricity costs and what not. I think that we have a reasonable story to tell and that we are not necessarily helped by the increased costs of energy, which goes some way to neutralising the benefit that we see of that. However, I think that in those areas that the Scottish Parliament has performed fairly well over the last three or four years and we are on target in terms of meeting the targets that we have set ourselves for 2020. In terms of the bulk purchasing, as you suggest, I mean— Sorry, economies of scale would have been a better phrase. Economies of scale, indeed. I appreciate some of the ideas that we have been able to reflect on and one or two we have been able to take advantage of as a result of conversations that we have had with you, convener, so I think that we want to put on record our thanks to you for that. There is a review on the way in terms of exploring better use of direct debits. My understanding is that that is likely to report back to the corporate body maybe early in the new year, so we will be able to maybe offer some further thoughts on that. I would be happy for us to write to you and to the committee on those, but I do not know if there is anything else from your perspective. No, no, it really is that report. Again, that is an issue that you raised with me, convener, and we have been looking at it actively. The technical challenge is how you can set direct debits up against the Parliament's own account, and that is a tricky area. Derek Rowland and his team have been looking at that. Again, as Liam said, I would be very happy to write to you in the new year once we have reported back to the corporate body. I would be appreciated. Thank you for that. The first colleague to ask questions will be Deputy Convener, to be followed by Jeane. Thanks, convener. I accept the point that there are extra costs in the election year, and not least because some offices will close and other offices will reopen. Do you make efforts or is there pressure on to recycle equipment and not just renew everything just because there are new MSPs? I would expect every effort to be made in that regard, but I can envisage certain problems arising in recycling certain types of equipment to what extent they are entirely recyclable. I would question that. In my office, most of the computers are five years old, so maybe it is time to replace them. However, we had one that was replaced quite recently because it got wet, so it could be reused either in my office or somebody else's office. I think that that is a reasonable supposition. Similarly, given the context that we are operating in, one would expect that to happen. The expectation of new and returning members about what it is that they want will not necessarily fit exactly with the profile of equipment and the like of those from the previous session. In fact, individual members' requirements evolve and change over time. It may well be that even returning members take the opportunity to say, I want to configure this slightly differently from the selection. That is a sensible breakpoint. I do not know if Paul has any comments on the recyclability. As a proposition, I cannot respond to a question that suggests that a record in our environmental reporting is moving in the right direction. In relation to the level of spend, we are ignoring it entirely. We are better able to reuse furniture wherever we can. IT is tricky and we tend to recycle that and we have a contract for that. The other problem that we face across elections is a simple one of timing. Outgoing members would typically take two or three months to wind up their affairs, but the new members, of course, want to get started straight away. There is just a simple timing problem, so working within all those constraints, yes, of course, we try to either reuse, which I say often furniture is better able for that. Realistically with IT equipment, we tend to use our recycling contract so it gets some further use elsewhere and then we would tend to supply new equipment to returning members. One of the reasons that you gave for increasing costs is that the Parliament is getting more powers and that has been mentioned a few times. I just wonder if you could explain how that happens. We, as a finance committee, will continue meeting presumably three or four hours every Wednesday morning, so there is no extra cost even though we have more powers. It just means that we will spend a bit more time looking at income tax and a bit less time looking at land and buildings transaction tax. Why are there extra costs because we are taking on more powers? I think that there are probably a couple of points to make there. It may well be that for the finance committee there is an ability to accommodate the work that you need to carry out within the time frames of weekly meetings of three hours. I think that what we have seen over recent times are committees meeting more often and for longer. To some extent, that may be a reflection of when you get to this stage in a Parliament and the legislation needs to be pushed through and inquiries need to be completed before the end of the session. That is inevitable. However, the work that we have done and to some extent this work is done on the basis of the best estimates that we can make, there is a feeling that there will be additional time pressure for committees and there may be even additional time pressure for sittings in the Parliament. Those are the ones that bring the significant additional costs. As I mentioned earlier, there is also an expectation that there may be additional pressure brought to bear in relation to SPICE and the research facilities in the Parliament. We have estimated that at around £500 million. I think that looking beyond 2016-17, it is not difficult to imagine that those cost pressures are going to increase. We will clearly have a better sense of how the committees are going to operate and how chamber business is going to be affected by those new powers. We think that the £500 million that we have budgeted for next year is a reasonable estimation of the additional time pressures on committees and on chamber business, as well as the research function that I referred to. I do not suppose that anything else that you would say. No, I think that you have covered the bear. We have done a pretty rigorous process across the organisation trying to establish this. The reason we have left it in contingencies is that it is not clear. There is even some timing uncertainty, but I think that the points that Liam makes are that there is a likelihood that there will just be more parliamentary time and that pushes cost up in a couple of specialist areas. We have hitherto not needed a lot of specialisms around tax and social security, so there is a modest amount for that as well. I think that we will have to take stock with members. I guess that when we are appearing next year, we would be in a much stronger position. At that point, I would hope to be able to provide firmer plans as opposed to putting something in contingency. I will just underline a point that Liam made earlier. If it turns out that we do not need that, it sits in contingency. It will not be used unless it is necessary and it would be returned. We feel on balance that it is the prudent approach. I understand the argument that if we need more skills to cover a wider range of things, that is an argument for extra costs. I would not like to see the principle established that every time we get an extra power, we add on to the costs. In practice, some of that might be extra time that committees might meet in the afternoons in the future. Some of it will just be that we spend less time on other things, so there would be a cost saving elsewhere. The committee will take its own decision in that respect. There is obviously on-going work about the structure of the committees and whether they remain appropriate for the work that we need to carry out. As Paul says, he may be here in 12 months and whether or not I am sitting next to him remains to be seen. In 12 months' time, we will have a clearer picture of what that structural change is likely to involve and therefore a clearer idea of the kind of cost pressures that are going to be contingent on it. That has also been used as the argument for increasing the members' staff and office costs quite dramatically by a third. Most of the MSPs surely work full-time at the moment, so giving the Parliament extra powers does not mean that the MSPs are going to do more work, they are just going to do work differently. Why do they really need such a big increase in staff costs? I would not like it to be assumed that the increase is simply a reflection of the increasing powers that are coming to the Parliament. Some of it is to do with decisions that the Parliament has taken around being a living wage employer, making absolutely sure that that is reflected in budgets that have not dramatically changed over a period. I think that reflecting the feedback that we were getting from members for some time now, that what they were trying to do was pull together a staffing compliment that allowed them to respond to the kind of contact from constituents coming through in a multitude of different fashions, whether it is through social media or an increase in email input, whatever it may be. The workload pressures on MSPs that we have been aware of for some time are not necessarily being adequately reflected in the staffing provision. Some of that is about playing catch-up with what has probably been a demand for some time. The workload on the NHS and the workload on the colleges is also increasing, but we do not increase their budgets by a third. Are we not saying that it is one rule for the MSPs and one rule for everybody else? The corporate body is conscious of the fact that we are responsible for ensuring that MSPs have the resources that they need in order to do the job that they are elected to perform. Since society has the resources that they need? With respect, each individual MSP is an individual employer and will have to take a decision as to whether or not they feel that they need to use all of the resources that are available to them. In a sense, it is a ceiling on the resource and it is not a floor. MSPs, as now, are not required to spend up to their budget limits. If an MSP feels that they can do the job that they need to do with fewer staff, they are quite at liberty to do that. As a corporate body, we need to be conscious of that. For some time now, MSPs have been telling us that arrangements in place for staffing lines do not reflect the demand on them, whether in a constituency context or parliamentary context. What we sought to do, in which Parliament is obviously voting through the proposals that we have agreed to last month, is that those allowances better reflect that demand. Is there evidence of MSPs' viring? There is a certain amount of allowance to buy our money from office costs into salaries. Is that something that you have used as evidence to show that we are actually needing more money for staff? How much is that? What kind of percentage? I am not sure whether we have that. I will ask Derek Mabee to respond to that in detail. The example that you give of people having to vire into staff costs in order to cover the staffing that they feel they need in order to carry out their job is part of the evidence for suggesting that something needs to be done to look at the overall staffing allowance. If it were one-offs to cover particular bits of work that needs to be done in a given year, that would be one thing, but when you are seeing it consistently over a number of years and in a number of offices, it tends to suggest that there is a wider issue to be addressed. As I say, it might be useful to build the case. I do not know if Derek has the figures to hand. We can certainly provide the more detailed ones if needs be done. I do not know the figures to hand, but certainly just over half of MSPs vired from office cost provision to staff cost provision in the last two years. The amounts vary from small amounts up to about £8,000 to £9,000. A lot of members have taken advantage of that viring to supplement the staff cost provision. I just wanted to ask on the net revenue and capital budget, the contingency. We have talked about it already, but it is explained in one-off costs of election year. I think that I am right in saying that the same costs being carried forward this year would not have increased a bit five years later. In terms of the costs arising from an election, some costs may have gone up, some may have reduced. As I say, we have taken a look at what we know at this stage and can sensibly predict. I think that the increase of £3 million is sufficient to cover it. We are aware of a number of members who have already indicated that they are stepping down. That gives them a better visibility of the likely change that is going to happen next year. However, a lot of it is unpredictable, until it is fairly close to the election day. Then, what individual members will need to come in is going to change. I think that what we have tried to do is a fair bit of fundamental thinking about the sorts of support that we can put in for new members. There has been quite a bit of discussion with individual members over the past couple of years, trying to gauge what did work and what did not work in terms of the induction and the support that was available. I think that we are in a better place. Some of it is going to involve dealing with MSPs in groups, as well as in an individual sense. That may allow us to do things a bit more efficiently than perhaps was the case back in 2011. As I said, you are right, I think that setting costs will have gone up since last time round, but hopefully, by working a bit smarter and a bit more efficiently and on the basis of the feedback that we have had, we may be able to do something more cost-effectively than we have in the past. No, I think that is absolutely right. It is obviously a very difficult number to calculate and very sensitive. We think that it is a prudent assumption. We have an emergency contingency that would be drawn upon if, for example, we have underestimated it. As we do anyway, we would have to manage our funds in year to cope with that. Again, if we have overestimated it, money would be returned to the consolidated fund. We think that it is a pretty sensible central estimate. Last year, you talked about renewing all the lights in the chamber as being an energy saving. Did that happen? Can you tell? I have not noticed. I think that that was one of the areas in which we are conscious that it needs to be done. The technical solution to that is not simple or straightforward, and it is going to require more work before Pauline's officials will be in a position to bring forward proposals for us as a corporate body to consider. Again, that is another area in which, in terms of looking at 2016-17 spend, we have been able to push back a bit in order to allow us to accommodate the additional costs that we cannot avoid next year. We are conscious that it needs to be done and that the work on that is on-going, but we are not at the stage where we are even looking at fund proposals at this stage. Finally, a question about the shop has become a tradition for me. I know that the turnover improved a great deal when we moved the shop site. I notice that we are expecting to take less this year than last year. In my own mind, I am thinking of the exhibition of Scotland, where I think of the sales of the books of the great tapestry of Scotland, but I wondered whether it was actually £30,000 worth of thereabouts. Why would you—or what is making the difference? I will ask Pauline to step in a minute. First of all, again, I would like to put on record the gratitude to the corporate body for the work done by the staff in the shop. As you say, it has been quite a turnaround. They were not helped, I do not think, by the location that they were in before. The layout and location now work a lot better and allow them to do a lot more things. That has reflected in some of the success that we have seen over the past few years in the shop turning a profit. A lot of the food fall will be driven by other things that are happening in the Parliament. It is not a shop that will benefit from people just coming down to the Parliament shop, so things like the tapestry exhibition, the warhol exhibition, the photography exhibition, all of those will generate food fall and generate first-time and potentially even returning business. However, there is likely to be a bit of a fluctuation in that year on year. We need to help staff to do what they need to do to smooth that out, but I do not know if there is any. No, I agree with all of that. For me, the most encouraging statistic from the shop is the spend per customer, which has gone up very significantly. As Liam said, food fall, to some extent, for the shop is just what it is. Where we have exhibitions—great tapestries, as you rightly say—was the runaway success in terms of the volume of people and the merchandising, particularly the book, but we have a Bellini exhibition coming in the new year. We have got better—there has been a tremendously successful product line around women's suffrage when they mark the anniversary of that. We have got better at trying to get merchandise to match what is going on in the Parliament, but, to some extent, food fall is what it is and the shop makes the best of it. To me, a key measure that they can control and look to promote is spend per customer, and that has gone up very significantly. That is extremely encouraging. It is always going to be at the margin, but it is always, to my mind, well worth pursuing. I would expect that trend to continue, as you have seen in coming years. The thing that stands out so is the fact that the highest turnover was a very small profit, and yet, with a reduction of 30,000 profit in this present year, we are expecting to make six times the profit. Is that something that has been a cause for concern, or is there something that you have identified in there that was being done wrongly? If you dig down into the figures, we have reduced the running costs of the shop a lot. It is like any commercial enterprise. The turnover is obviously critical, but your margins are very important on the products that you sell and the cost of running the shop. We have improved the margins and reduced running costs. The one caveat that I would say is that it is not a purely commercial venture. I regard it as part of the service to the public, and we will always sell products there that you would expect to find in a Parliament that you might not expect to find in a purely commercial venture. I am mindful that it ought to wash its face and make a small contribution, which it does. I am also mindful of the fact that it is part of the service that we offer people visiting the Parliament, and I think that it is striking that balance as important. I think that that is a very pattern of point in relation to the products that the shop will stock. You will be aware, Jeane, that there are a number of producers of any number of different products in Scotland who would love to have the opportunity to showcase in the shop, I know, in my own neck of the woods in terms of the shield of fleet. They swear by the benefit that they have derived from being stocked in the shop, not necessarily in terms of the volume that they sell, but in the fact that they are in the shop, and it has the kudos that that brings. At the same time, we have school groups that are in and out of here on a regular basis who are not going to be spending huge sums of money, but who want a memento of the time in the Parliament. That range in terms of what we are providing is always going to present a challenge, but, as Paul said, over the years, we have just got smarter about the things that work and strike in that balance. You will stock more of what sells and less of what does not sell, but you are right that some of the things that you might not make much margin on, but at the same time, it is important that we have those mementos available for people. I welcome the increase in staff budget, particularly in an area where area of Scotland, where it is often very difficult to recruit or retain on the money that is available. I think that it will allow for a more realistic wage structuring if nothing else within offices. I want to ask about the second element of what we voted on when we voted on that. I will declare my interest at the outset that I am one of those MSPs who is affected by the decision to remove the ability to rent from political parties. I want to say that, just in case the Daily Mail is listening, I am actually not opposed to that, but there are obviously costs associated with that. For example, having looked already as a kind of rough guide at the market in my area, I can find the very cheapest, the 33 per cent increase in terms of rent in order to obtain a space. Has there been any examination done of what is being paid by those MSPs who are currently in the position of renting office space via political parties, and how that compares to market price more generally within the areas that they represent in order to get an idea of what uplifts might be required? We were very conscious of the fact that, in terms of those arrangements, there are a few numbers, but probably have arisen for a variety of different reasons. I do not think that in any of them there was any question that they were being operated appropriately and represented value for money. The decision was taken more in response to what was seen as something that could be misrepresented, misconstrued and therefore was a potential risk to reputation. There is certainly a recognition that those arrangements may very well have delivered in order to provide a space for office at rates that are difficult, if not impossible, to secure through other means. That may push up office costs for some members. I would hope and expect that to be bearable within the cost structure and the alliances that are available. However, if there are particular problems that individual members have, the corporate body has always been sympathetic to looking at individual cases and providing what support we can. I suspect that the problem that you have identified in the north-east is a specific problem to the north-east, but there will be other areas where there may be issues around the availability of suitable property. As I said, the offer remains there to provide assistance where we can, but the rationale for taking the decision is one that is justified. Obviously, the other consideration there is around the capital costs of refurbation and so on in relation to new offices. Obviously, there are going to be those that are required for new members coming in. Obviously, on the proviso that those returning members who are affected by the SBCB decision come back and are in the position of relocating office, they will also incur capital costs depending on the condition of new office, et cetera. Has that been factored into the contingencies that you have put in place in relation to post-election costs, or is that something that is going to have to be looked at as and when it arises? Again, I think that that is a very fair point. The corporate body did not take the decision. I suppose that the Parliament took the decision when it voted last month. However, the rationale for having it at the point of election is a natural break point. In terms of the cost overall that we have put into the contingency, that will be factored in along with all the other evidence that we have of the likely changes that are going to arise post-may, whether it is in terms of individual members indicating that they are stepping down through to anything else, where it is quite clear at this stage that those additional costs per se are going to arise. That provides us a better line of sight on the cost. Therefore, we will be factored in with a degree more certainty than some of the other elements of them. On the pay costs, I will not go into the debate around MSP increase, because you have given the reasoning behind that. However, on the basis of that, how do you feel that that is going to affect the negotiation that takes place with Parliament staff? If Parliament staff are looking at MSPs receiving a 2.7 per cent increase, SPCB will have to bear that in mind when it comes to looking at what offer is made to Parliament staff. I will ask Paul to speak specifically to the negotiations, which, as I said in the opening remarks, are barely under way at this stage. I think that some of the portrayal of the increase in MSP pay through this linkage with Ash has slightly glossed over the fact that the figure in 2014 was 0.6 per cent. If you look over the period of five years, the effect is a 1.1 per cent increase over that period. It does seem to fluctuate in that in 2012 it was not 0.1 per cent in 2013-2.6 per cent, 2014-0.6 per cent and then 2.7 per cent next year. There seem to be fluctuations in it, but the effect over a period is for the rise to pretty much reflect what has happened across the piece in the public sector. I think that it was right to make that break with the linkage with Westminster, as I said earlier, in response to the convener. I think that the way in which pay and allowances and pensions have operated in the Scottish Parliament has been diverging anyway, and that was a sensible recognition of the fact. I think that pegging it to Ash is a respected measure. As I said over the period, I think that it is provided an outcome that is pretty much consistent with public sector pay. I ask Paul to deal with the specific issue of the upcoming negotiations with SPCB staff. I understand that I would not want to say too much, given that they have not even begun yet. I am very clear that the comparator is other public sector in Scotland and not with members. You look at the whole terms and conditions, and parliamentary staff are in a completely different category to members. I would resist very strongly any notion that we track MSP pay. For me, the comparator is other public sector employees in Scotland. That is very much my starting point for those negotiations. As I said, that is a starting point, and we always negotiate, and hitherto we have always had a successful negotiation with the trade unions, and I would expect that to be again. For me, the comparator is other public sector employees in Scotland, and that has historically what we have done. I would not expect to be any different in the next session. Thank you very much. That is the completed question from the committee. The Scottish Parliament first established the idea that MSPs and MPs would have the same salary, and then the Government decided that MSPs would have 87.5 per cent, but with this new arrangement with decoupling, is it not about 81 per cent now, whereas it was 87.5 per cent last year of an MP salary? There is a relative reduction in terms of MSP to MP. I will trust your maths, convener, but that has been the direction of travel anyway. A couple of things that I want to touch on in terms of the increase that has been joined by Mark, which I talked about earlier on in staff budgets. It is not the case that one of the reasons why the staff has been up is because MSPs are no longer competitive and able to attract the best staff because they get twice as much and they are often of the same political party. I have just met an impoach staff from a lot of MSPs. I have to say this, as it has not happened in my case. I know other colleagues who have, because they can do more or less the exact same job with a significant pay rise just by switching to the MSPs' office often in the same building or a few miles up the road. Is that not one of the issues I would frankly put to the place? There are downsides to landslides, convener. I would gently observe. Not if you are one of the staff. In all of this, we need to be aware of and informed by the systems that are in place in Westminster and the National Assembly in Wales and, indeed, in Northern Ireland, because it is relevant, but ultimately what we need to do is take decisions on the basis of what we feel that MSPs and their staff require. I am not sure necessarily that we would have found it particularly comfortable pegging ourselves to a Westminster system that has come in for criticism, even notwithstanding the fact that Ipsa is entirely independent of MPs. Nevertheless, there has been quite a bit of criticism about some of the decisions that have been taken by Ipsa over which MPs do not have any control. We need to be aware of what is happening in other parliaments, but ultimately we need to take responsibility for what we think is a fair budget and a set of allowances for the work that we carry out. We will continue to have discussion with members about how the new system operates and whether it will require further tweaking in the future. I think that, again, not just the corporate body but the corporate bodies since the establishment of the Parliament have shown a willingness to learn what works, what does not work and what needs to be changed. I am happy to do that. I think that the entire Parliament has supported the change, frankly, the decoupling. There is nothing worse than people voting on their own salaries. I think that the proportion between MPs and MSPs is, on personal point of view, seems entirely fair. We have not touched on the flexibility that is needed in the system, and that is the difficulty that the SPCB has. If we look at people in the committee, we will have three list members and three constituency members. Mark and I have been list and constituency members, so you are constituency member yourself, William. The difference in workload in my experience is colossal, because, although the same parliamentary constituency work for constituency members is infinitely higher, I notice that the staff budgets are the same for list and constituency members. There are also issues about geography. For example, in the Daily Mail, as Mark has quoted, the five most expensive MSPs, you are always going to be on that list because you have got to fly for the Orkney every week. There are constituency members that ask to run an office up there and an office down here, with staff up there and staff down here. Lothian MSPs can spend this building with no constituency office, using the phones at zero cost to their expenses, no heating, no lighting costs etc, very little travel costs etc, and they do not have to have the issues that Abaddonian colleagues have of having to rent very expensive properties relative to perhaps in the East End of Glasgow, where I would imagine that John's Rental costs are probably not anything like his high. So how does the SPCB manage to deal with all that kind of melange and try to ensure a fair balance as we go forward? Because what you want to do is enable all members to have the ability to do their jobs in terms of being able to hire an office and have staff and be able to put yourself to travel to the Parliament every week where necessary, but at the same time not have inflated budgets, shall we say, for members who don't have the same kind of pressures that you would have or other people who have got in? I think that it's an entirely fair point. I think that we are conscious that what we need to do is ensure that there is as much flexibility as we can ante whether we can provide, whether that's through an ability to via, whether it's recognising that certain budgets for some members will be under more pressure than they are for others. I know in my own instance, which I think that, as you fairly say, there are a few league tables where I don't come out fairly close to the top when it comes to it. It's a reflection of geography, not just that the flying back and forth is to travel around within the constituency as well, which could be more costly and problematic. I've had to look at the way in which I organise my flights in order to try and keep those costs as low as I can, but I'm not going to be thanked by my constituents for making myself less accessible to them or, indeed, less effective in representing them here. I think that all members are in that position. I think that, as I said to John earlier on, we set allowances at a level where we think that that's a reasonable amount as a maximum, but that many members, most members, will not necessarily spend out of that allowance. Some will fall very well short of it, but will have a much higher spend in other areas. Travel allowances are obviously not capped, but they're on the basis of receipts and a demonstration that they fall within parliamentary purposes. I think that that is right. All members are saying that mailage is capped after taking those mailages. Mailage is capped, but I think that all of those things, MSPs, all work in different ways. I represent a constituency that is far away from Edinburgh and is quite difficult to get around, but Jeane representing the Highlands and Islands is probably doing an awful lot more travelling than I am. The number of constituents in my constituency is less than elsewhere. There are things that work in your favour, in some respects, and things that work against you. The way in which MSPs are working—you'll know this better than most—is not simply a reflection of constituency and regional. It's a reflection of the fact that constituents' expectations about how they engage with you is changing. That brings with it probably additional pressures and additional costs, but sometimes it allows you to work more efficiently and smarter as well. As a corporate body and the corporate body that takes over after the next election will need to be alive to the fact that, at the moment, we think that we have in place a system that supports members and supports the work of the Parliament, but that will change over time and we need to be ready and constantly willing to look at the things that are felt not to be fit for purpose any longer. Any further points before we wind up this session? Thank you to colleagues for their questions and to our witnesses for their answers. I'm going to call a recess until 10.40 to allow members to have a natural week. Businesses to continue a security of the Scottish rate of income taxes session focus on the views of representatives of the business community. I therefore like to welcome to the committee this morning Reign Newton-Smith of CBI Scotland, David Watt of the Institute of Director of Scotland, David Lonsdale of the Scottish Retail Consortium and Susan Love of the Federation of Small Businesses. Thank you very much for all coming along this morning. It's appreciated, I think. When we're looking at something as important as this, the views of the business community are important. We've got all your reports here, so I'm not going to ask for brief statements. We'll go straight to questions. Any way things work on the Finance Committee is that I start with some opening questions and then we open out the session to colleagues around the table. Richard has already indicated that he wants to come in, so he's going to be first in once I have. Who to start with, I suppose? Let's see, any meaning, any more. I think that it is a wee bit here. You've talked about most small businesses being unaware of the change in the report that was written on 31 August by Andy Willough. I wonder if he can give me a view as to whether that is still the case. The FSB has not expressed a view on the best tax rate for small businesses, but is likely to consult with its members on the matter nearer the budget. I wonder if that has taken place and what the views of FSB members are on SRIT. Thank you. Since we made the submission at the end of August, we've done a little bit of extra work with our members to see where they are at on both of those questions. The first thing in relation to awareness—I think that it's clear from most of the submissions that awareness among businesses and taxpayers is pretty low about the onset of the Scottish rate of income tax—we did some polling of our members at the end of October, which is before any of the letters or publicity has started. That indicated that less than a third of our members were aware of Scottish rate of income tax. 59 per cent were unaware of Scottish rate of income tax, while 28 per cent were aware of Scottish rate of income tax. Clearly, majority are not aware of the change that is coming, but that was taken before the letter started to come out to taxpayers, bearing in mind that a lot of our members will be self-assessed, so we're going to get one of those letters and before any of the publicity. I expect that that will change near the time, but we had always anticipated that there would be a relatively high level of lack of awareness from small businesses. In relation to the rate of the tax, we haven't taken a formal view as to what the rate should be—that's not something that we generally do—but we have just done a temperature check of our members to see what they think about the change at the moment. We anticipate that we may well do some additional modelling once the tax is in. We haven't done that yet to assess what the impact would be on small businesses. When we did a quick and dirty poll of our members in the early summer, presenting them with options around what would be their preference on maintaining the same tax rate with the rest of the UK, increasing tax to increase investment or decreasing tax to encourage entrepreneurship, perhaps surprisingly the vast majority indicated that they would like to see the rates stay the same. Two thirds said that they wanted to keep the tax rate the same at least for this year. They wanted to keep the tax rate the same. As many said that they would like a tax rate increased, I said that they would like it decreased. I think that you might find that you don't get one homogenous view from businesses. Small business owners will take a range of different views as to what they think should happen with tax, but certainly at the moment the clear preference is to keep the rate the same. That's great. Thank you for that clarity. In Reign, you were also very clear in two points. The first, which I asked on saying that employers would like to have a greater level of communication at an earlier stage through his awareness, which echoes what Susan has said. You also said that our members believe that it should be maintained at 10 per cent, so you are in agreement with the FSP and the STC on that matter. Can you talk us a bit through the thinking of the CBI on that issue? I think that, to be honest, the main reason that we recommend in maintaining the current rate is partly because the Scotland bill is going through Parliament and it's, I think, similar to what Susan was saying, that we think it would make sense to maintain the current rate, particularly if there are potentially more changes coming down the track and more devolution of fiscal powers. To our mind, what's most important is that the Scottish Government sets out a business tax roadmap so that businesses are clear as to how the new powers will be used and there's a clear direction. Our members tell us that in order to create jobs and to invest, they need to have certainty over the long term, so it doesn't seem as if now is the right moment to change the overall rate. I think that I would echo some of what Susan says, that we don't normally express a view on what the overall level of a personal income tax rate should be. I think that what we're most interested in is having the stability, uncertainty and having a long-term plan. Do you want to add in your paper that frequent changes to the rate add complexity and uncertainty for businesses? I don't know that the Scottish Government or anyone else has proposed frequent changes to the rate, but that's obviously something that you're not in favour of. David Watt is opposed to David Lawnstale. We got a lot of Davids at this committee. You have to say to the panel of all Davids last week. You have said in terms of the Institute of Directors that there ought to be a greater incentive for migration to Scotland if SRIT were set below 10 per cent. Are you basically saying, David, that you would like to see a reduction below 10 per cent initially, or is this something that you would like to see Scotland move towards? How do you feel about this? I don't think that we're taking a view on what level it's set at. We're just pointing out some of the potential consequences of tax. One of the reasons that people set up businesses is the whole business taxes map, if you like, and the individual taxes map. If Scotland became a very low tax economy, people would be tempted to move to it from all over the world, including possibly other parts of the UK. That's also true in terms of the opposite potentially happening if the tax levels were set higher. It's really just pointing out the implication rather than the level as well. Obviously, if you reduce the level of Scottish income tax by a penny, it costs, obviously, £700 million—someway between £280 million and £400 million—to the Scottish economy. What's the elasticity, in other words? Is the Institute of Directors getting any information to say that, if there's a 1 per cent reduction, we'd have x number of additional people coming to Scotland, therefore the impact in tax would be neutral or slightly positive? Is there any—I understand the research, but I think that total evidence that we've had is that, for a 1 or 2 per cent up or a 1 or 2 per cent down, doesn't only make much odds—no, it's going to move house because of a 1 per cent tax difference. It might, if it's 10 per cent, 5 per cent, particularly for higher taxpayers. Most people don't have the option to move if you're a teacher or a bricklayer or a bus driver. You're not going to move where your tax goes up or down because you've not really got that option, I would imagine, unless it's really substantial in any other direction. So, what kind of changes are we actually talking about, do you believe, or that would make a significant difference, either way? No, convener. I think that your analysis is accurate. I mean, obviously, quite a number of people can't, and especially at lower end, their jobs are not moveable. In fact, as we're pointing out with the fourth bridge, sometimes they're not gettable too, so there's some issues. For many people, that's not realistic, and no, to be fair, we don't have any specific evidence at a certain figure, then, you would really start to see a movement. Although, I mean, it's obvious that there has been evidence from previous changes in the UK Government between the 45 and 50p tax rate that actually, by reducing the tax level, they increased the income, and indeed it is more of a temptation that at the higher end, more mobile people can move to other countries, other tax jurisdictions, as they do. In certain cases, what the actual figure for that is, I don't know, I think, in that case, for example, people seem to indicate that they thought that once tax got to 50% of their income, then that was a significant level. They weren't really prepared to accept, while for some reason they would accept 45%. So it's very difficult to know exactly why that is, but it just seems to be almost a mental barrier. There's also the fact that tax levels in this country haven't changed substantially, and I think that if they were to change substantially, then people would take a different view, both of Scotland and the UK. Income tax is, as I always think, quite a sensitive tax. It's a very personal thing, and there's not necessarily massive amounts of logic to the way people behave, as I say. I've just given an example of that with 50 to 45. Yeah, right. Might be a psychological issue there, but, you know, David Launstale, I mean, in terms of the Scottish retail consortium, you're basically saying we would caution against any moves that would lead to those working in Scotland having to pay higher taxes than elsewhere in the UK. You say that if Parliament was determined to vary tax rates and we prefer it to fall rather than rise. In terms of the year that we're actually talking about, are you to share the kind of broad consensus, so to speak, on the panel that it should remain the same, at least for the initial year? Are you then looking, as an organisation, to see taxes gradually fall? What's the kind of, if she gives a wee bit more information on the view of the Scottish Retail Consortium in that regard? Yeah, thanks, convener, and thanks for the opportunity to be here with you today. We don't make, as you've rightly alluded to, we don't make a firm recommendation in our paper. Contrary to the committee advisers' summation, if you like, of our submission, we've not been a sort of advocate, if you like, of lower taxes. Other than in due course once the lockstep ends, then I think there is some, it's worthwhile considering the impact of the tax burden on lower earners. So for us, I think we are very conscious of other factors that the finance secretary will have to take into account when he sets the new Scottish rate of income tax in due course. For example, a lot of focus at the moment is on replacing or reforming council tax. We are quite a lot, for example, about interest rates moving up in due course, possibly towards the summer of next year. Also, at the same time, each of us as individuals is expected to pay more pension contributions through auto-enrollment and things like that, so there's a graduated step change. So there are various other factors, I think, that need to be taken into account before one decides to flex up or down the new Scottish rate of income tax. You're obviously concerned about, is there a reduction or increase in spend in the Scottish economy? Obviously, it would depend. I mean, if taxes were raised, for example, if that money was redistributed, whether it would go and if it to poorer people, we're more likely to spend on retail goods rather than the other way in which you could suggest that if taxes fall to a higher earners, we're more likely to spend it on fawn hollies, cars, et cetera. I mean, where do you see the retail industry actually gaining or losing in terms of this whole tax issue? And I'll be asking you, incidentally, a wee bit more about other tax issues, but specifically about the Scottish rate of income tax. I think that there are two elements to this, two sides of the balance sheet. So there's the sort of post-tax income, but also, at the same time, the cost of living increase as well. So just to say that by either increasing or reducing the tax rate, then this is going to happen. Something specific is going to happen is quite difficult to model or to forecast, because there are varieties that have alluded to other things that are happening out there that will affect consumer spending going forward. For us, it's very simple. We want a sustainable growing economy. Don't we all? I mean, how we achieve that, really, is always a 64,000-dollar question. Is rain alluded to? We don't want great swings, booms and busts or whatever the language is. So we want a sustainable growing economy. That's primarily the best-of-optim scenario for the retail industry, with people, hopefully, a growing population and growing incomes. There are a variety of factors that we need to be taken into account by Mr Sweeney. Obviously, what we've said is that we don't add, if you like, to the burden by taking money out of the pot that people have, but at the same time we've not made specific recommendations about lowering the tax burden. Just sticking with yourself, David, you said that ideally you want to see a clear vision and sense of the medium to long-term direction articulated in the upcoming Scottish budget. I'm just wondering what you really want to see in terms of that. How do you see that clear vision? What is your clear vision in terms of what Mr Sweeney should be doing a week today when he announces his budget? It's pretty much a line with what Rain was suggesting in terms of the complexities for businesses as employers. I don't think that we've said what suggested what the UK Government has implemented, which has changed the law to say that there will be no tax rises, income tax rises or VAT rises going forward. However, some sense of the Scottish Government's approach and sense of direction as to what their objectives with the new tax par is would be sense. I'm right in saying that Mr Sweeney has articulated something similar when he was setting the new land and buildings transaction tax and the landfill tax last year when those were first introduced. I think that, in a sense, the finance minister has got form in setting out his sense of direction and it's really that sort of piece that we're looking at. In terms of what the panel is looking for, is for Mr Sweeney to effectively say that this is philosophically what the Scottish Government believes. This is how we feel and the direction in which we should move and this is what we're doing to try and get to that kind of goal with that book, an accurate summation basically. It is but taking into account as well the sort of holistic piece that I mentioned earlier on about the various other factors that needs to be taken into account. Because you've said that the SRC believes policy makers can enhance Scotland's prospects further by using the new devolved tax and fiscal powers including SRIT to positively support the economy and consumer spending. You've basically said that you're understandably concerned that the introduction of SRIT does not impose additional costs on business unless these costs are purely incidental or material. That's at the beginning of your report. What costs do you worry are going to be imposed because I mean are you talking about the actual administration of this tax itself specifically? Because I know you query some of the figures later on in your report about what the HMRC has basically said it would cost from their perspective. Yes, convener, it's really about that. It's actually about the potential for an additional cost to employers and probably initially, when it's largely about a different tax code, that would be a mechanical entry, but whether to be a different rate of tax in the future it could become a bit more complicated in terms of collection and that would be a concern for the cost for businesses because bluntly, in David's just enumerated a number of costs that we all face at the moment, we don't want to impose any other unnecessary costs and that's certainly an issue as well in terms of the collection. Again, for some smaller companies there might not be that many, it might not be an issue, there might be so few people if any, but then for some of the larger companies it could be quite complicated. I think that there's also the potential, still it's interesting. I haven't had feedback on this just yet but I think that Susan made an interesting point first of all about self-assessment, which is significant for our members as well, and how that's going to pan out, but we've all been receiving our letters telling us we're going to have an S in front of our code for future, which is fairly straightforward if we're employed singily for one organisation, but many people are not like that and I think it could be quite complicated. Added to that, no doubt there will be some people who will appeal the decisions to whether a Scottish rate taxpayer or not. That may not happen in large numbers at the moment if the level is seen as the same, but where the rate charged of the tax change, then there may well be quite a number of people who rush to say, no, I actually live in London, I don't live in Edinburgh, such a thing, there are people who travel up and down weekly, so there might be a bit more challenging the longer term. I think in the short term it probably won't be a big issue, but that's the point we're making. We've got to be watching how if levels were to change then it may become quite complex both for HMRC and for employers. Okay, now Rain, in your letter 30th of July, the CBI responses to the Scottish rate of income tax technical guidance on Scottish taxpayer status. You asked a number of questions under section 2 of that. I'm just wondering what response you've basically had. Is the CBI quite satisfied with that? Are there still issues outstanding that are giving you concerns? So I think we still see this as an outstanding issue. I think one of the issues is there hasn't been enough guidance on complex cases and it alludes to some of the points that David was making as whether an individual counts as a Scottish residence for tax purposes. For most cases that's straightforward but there are more unusual cases where people are working in different places and resident in multiple jurisdictions or maybe getting income from different sources where it's more complicated. I think at this stage there hasn't really been sufficient guidance and I think one of the other issues we have in terms of overall communication is I think there's more that could be done to make it clear that individuals are responsible for determining their own residency and that they need to report that to HMRC. We also think that Revenue Scotland could do more to direct people towards HMRC even by having links on their website. In terms of smaller businesses it may make sense for HMRC to be contacting some of the businesses individually to let them know that those changes are coming. I think that businesses have a role to play as well in communicating with their employees about some of those changes. Is HMRC in discussion with the CBI in terms of a timescale to resolve those issues prior to the first of April next year? Not that I'm aware of directly but that's something that I can check with my team that discussed with them on a more regular basis and get back to you. Okay now Susan, I'm just going to ask your question then I'll open up the session to colleagues round the table. You've said in your report that in January 2015 the FSB hosted a round table discussion for the main Scottish business organisations in HMRC to discuss communications with the business community. How are things progressing in terms of the FSB since that happened almost a year ago? We've had updates from HMRC. We've been invited to participate in conference calls. I was on a conference call with HMRC for employers last Monday. Certainly the points that we've raised with HMRC over the last couple of years have broadly all been taken on board by them. We have started communicating by raising awareness with our members about the change and what they need to do. I suppose the particular point that we had made to HMRC was about having the right information available to employers before the letter started arriving for taxpayers. Information did go out in the employer bulletin from HMRC in October. Information is available on DirectGov for employers to look at. It's arguable that HMRC could have done more to raise awareness with employers in advance of this. However, on the flip side, other than responding to questions from employees, employers shouldn't be having to change a great deal. We don't want to alarm them by suggesting that they're going to have to change something or do something imminently when they're not. At the moment, we're relatively satisfied with what's happened. However, there may be additional questions that start to arise from employees as a result of the communication that's going out. At that point, we may hear more from small businesses that they don't feel that the information is adequate is available at the moment and that additional work will be required. I'm going to open out the session, first person. As we know, to ask questions, we'll be rich if we fall by join. I think that there are a few questions that should still remain to be asked, so I will take opportunity. Can I just ask Susan to investigate further the points that you discussed with the convener? You said that most of your membership responded to consultation. At this point, they wanted to know that they didn't want the variation in SRIT from the UK rate. Did you get a sense from the responses of whether that's because they don't want a variation because of the potential impact that might have on business, or was it because they broadly felt that the income tax burden overall was correct at this point? The way that we asked the question was in relation to maintaining a single tax rate across the UK, so that was the premise on which we asked them to keep it the same, and that was the option that they went for. Of course, it's difficult to interpret the exact motivations behind answering a simple survey, but my instinct would be that, at the moment, a lot of small businesses are quite cautious about change, they're not sure about change, and their reaction is to keep it as steady as she goes at the moment, I would say. Would your instinct be that that attitude may change once SRIT becomes established, or do you think that there's going to be a continuing concern over variation because of the impact on business, or would it be difficult to assess? It's very difficult to tell what may happen. As I mentioned, we may do some specific modelling once SRIT is in. We may do some specific modelling about what the impact might be on small businesses, but it's difficult to tell at the moment. Thank you. David Lonsdale, you raised the issue of being able to forecast ahead for businesses what future SRIT levels would be, and you talked about the philosophical direction with the convener about how the Government might indicate its approach on that. In fact, would it be helpful to have more than a philosophical approach on government, for example, over a spending review period, to say that we anticipate SRIT to be at these levels over the term of that spending review, or over the term of a Parliament? Do you think that that would be desirable or achievable, in fact? I think that that would be helpful. As I understand it, the spending review at UK levels is over a three-year period, so whether that gives the finance secretary a four-year period, I'm being corrected by the convener, so whether that gives the finance secretary the latitude to do that, I'm not sure, hopefully it does, so yes. In terms of, if I may just sort of answer a question that Susan was asked, in terms of our members and their response, their view is pretty simple. If you like, substantial tax reform should be on other issues, and I won't bore the committee with non-domestic rates, but business rates is obviously up there. It's somewhere where our members think should be substantial reform, and we're obviously conscious that many of the parties around the table and the Government have some commitments in terms of council tax and air passenger duty, so that hasn't really been—if you're going to put a list of the top tax issues in front of members and say which are the ones that you want serious action on and change and reform, that wasn't at the top of the list. In future, is that notwithstanding that business organisations like the retail consortium will have more to say on the Scottish rate of income tax rather than always be a reluctance to comment on that, do you think, compared to other taxes that are under the Scottish Government control? I'm sure that we will have more to say in due course. Once the tax rate is announced and it captures the public attention a little bit more, I suspect that it will probably be in receipt of a lot more views from members as well as others around the table and indeed themselves as MSPs with your constituents. I think that the issue, frankly, is yet to capture the public attention and that's because we don't have real clarity over the tax rate and something for people to get their teeth into. I think that it's encouraging response. One of the concerns that I certainly had over the course of evidence is that we're going to have these new tax powers, but in fact we're going to get very little evidence at any point or encouragement from people involved in the economy and stakeholder groups that it should be changed or it should be varied or a real fear about doing that. Is that something that people think will change over the future once it's been introduced? Clearly, you do, David, but you're confident of it. Sorry, David. I think that echo points have been made already and David made very well the point that I learned about the bundle of taxes that an individual is facing and cost rises in their life in pensions, for example, and that's true of businesses as well. Bluntly, to some extent, income tax is an individual tax. Obviously, it has an impact, for example, from my perspective on bright entrepreneurial people and leaders and where they decide to live or set up business. If it's a substantial change and that was a disincentive to somebody doing that in Scotland, then obviously we'd be fairly strongly against it. Equally, you could argue, and that's the point that we're making in the paper, if you were to be able to substantially lower it and attract people into this country and we do need to be very active in, for example, a post study, a visa space and an immigration space, we would be very positive about people coming into Scotland. If there was a way of doing that through tax, that would be brilliant, but it's probably at this point in time unrealistic, the chamber made the point about how expensive it is relative to speaking to lower that rate. Overall, it's absolutely important that the committee, the Parliament and the finance secretary understand that business costs make a massive difference to where businesses locate and the effect on the economy. If they're higher-level costs, then we're less inclined to do business in Scotland, bottom line. I actually don't know if income tax is at the top of that list, to be honest with you. But what you're saying is a factor. It is a factor, in terms of the impact on business. It's part of an overall package, absolutely. That helped, at least, once my final question, which is to Rain Newton Smith. I think I've heard you rightly in your response to convener. You indicated that personal taxation and income tax would normally be something that CBI would focus on on business taxation more generally, understandably, but given that this will be the major power over taxation that the Scottish Government has, and it does impact on business, it does impact on the economy, as the evidence that we've heard from others on the panel just now, in the submissions. I mean, would you think that in the future CBI might wish to comment on issues regarding the Scottish rate of income tax and the effect it might broadly have on the Scottish economy? I think, first and foremost, our businesses are more concerned around the overall rate of corporation tax and in particular business rates, I would say. The second is what some of the other panel members have said, but the overall burden of business rates, both in the rest of the UK and in Scotland, has increased significantly since 2007. I think that that is causing some real issues for businesses, particularly high street retailers. That comes across from a lot of our consultation with our members. I think that in terms of the overall direction of personal tax, I think that it only becomes an issue where it starts to affect international competitiveness or the ability to attract people with the right set of skills into businesses. We know that having the right skill set is a big issue both for businesses in Scotland and in the rest of the UK. A survey of some of our members suggested that over 60 per cent they can't find the right people with high skills to expand their businesses in Scotland, but I think that in a way it depends whether the tax rate becomes so different to the rest of the UK or becomes internationally not competitive, it might get to a tipping point where it I suppose moves up the radar in terms of businesses' concerns. From where we are starting now, we are much more concerned about some of the other areas of taxation and see personal income tax as more one for the Government to decide. I thank you very much for that. I thank you, convener. I suppose that we are building on some of the points that have been raised already. Mr Lansdale, looking at your submission in paragraph 4 you talk about the retail industry takes a great interest in personal taxation issues for several reasons and then you list three bullet points that are broadly customers discretionary spending and disposable incomes. Retail industry employees impact and potential knock-on implications for other taxes affecting households and businesses. I was interested that you did not mention anything about what the money might be spent on, for example a better educated workforce. I wondered if that was a factor or if you feel perhaps that your workforce at the moment is overeducated so that we could afford to cut back a bit on education or anything like that. Sounds like an invitation to go somewhere, Mr Mason, that I probably do not want to go. I think that what we have indicated later on in the submission is that if the Government were minded to vary the tax upwards, we have clearly articulated some of the areas that we think that money could and ought to be spent on in terms of enhancing the productive capacity of the economies. We have talked there about skills development, transport and digital infrastructure, for example. Would it make a difference if we were going to raise income tax by two pence and we said that that will be ring fenced for education, for example? In a few years time you would get a better educated workforce. Would that affect your view of the Scottish rate of income tax or would it not affect it? That is clearly hypothesising it tax rises for a particular purpose. That might make it more sellable. Obviously, we have not consulted members in terms of what is an option and what is their feedback on all that. We are very much in favour of having a good high-quality supply of staff, one of the changes that is affecting the industry at the moment. Obviously, there have been a number of announcements, for example this year, to do with the national living wage, the apprenticeship levy, the industry is going through a degree of turmoil and change at the moment. Most retailers are trying to get their heads round the changes. Most indicate to me that what they will end up with at the end of the day is fewer staff, but better qualified, better paid staff going forward. We are always in the market for more educated, better quality people, to deal with some of the changes in terms of the digital economy and retailers changing profoundly in terms of how people shop as well. Black Friday was emblematic of that. Last year, Black Friday, we saw on the TV queues of people outside shops looking together a good deal this year. They were not queues because people were buying online, so the industry is changing greatly. Obviously, we want people with those types of skills involved. Ms Neeson-Smith, you mentioned skills in your previous answer. I wonder if you feel would we be better if we could raise tax and apothecate it safe for education? Would that be something that you would be more favourable towards? What we have said is that we would like to see a vision on an overall road map for business taxation and a vision on how revenues will be spent. In our business manifesto, we set out some areas where we see spending that helps to drive the productivity of the economy in Scotland more generally. The ones that we highlighted were particularly around infrastructure. Taking things like the city rail link to Glasgow, we named specific infrastructure projects. Setting out a long-term vision on that would be helpful. We also mentioned digital connectivity as part of that. On skills in particular, with the curriculum for excellence, there is an opportunity to have more of a focus on vocational training. That comes up a lot with our members. We need to make sure that people have the right vocational skills. With the apprenticeship levy, it is very early days. It is not quite clear how that will work in practice to ensure that we have the right quality of apprenticeships. Clearly, that is one way where there is a real role to build the right skills that we need to create jobs over the long term. Am I right in thinking that businesses are happier if they might be willing to pay a bit more money if they know where the money is going? I am thinking of the bid scheme that has been accepted in some areas where people clearly see that a bit of extra money would be going in their area on infrastructure. Is that a model that businesses are happier with? If you can show that the spending will be well spent on infrastructure projects, that can help to also garner some of the public support for that. I cannot speak to individual schemes. I do not know whether whether to who I have not asked the whole idea of a hypothetical ring fencing. If tax was raised for that, would that be something that your members would be happier about? To be honest, I think that we are a bit cynical about that. There is not a good UK Government anywhere level, perhaps in Scotland. We could look at ways of doing it, but a hypothetical generally has only worked while the Government is in power. If a finance minister has regime changes or party changes that tend to disappear into other things, I have that concern, even with the apprenticeship that the UK Government is putting in, on how that is going to pan out. It is not as simple as that, because we would then have a debate. For example, it might be that if you wanted to promote business, the improved infrastructure would be the best place to hypothecate to rather than increasing skills, which already have a pretty strong agenda in doing. We could have an interesting debate on how you would spend that extra money. It tends to go into a big pot and be spent. There is probably a difference between businesses understanding the importance of investment and spending, which might necessitate a tax rise and welcoming that tax rise and advocating for it. When we asked our members, they recognised the benefit that a tax increase could bring in additional spending, but that probably would not get the same result if I asked them to model whether they would prefer an increase. I agree with David that generally, hypothecation is not how it tends to work in practice in terms of large pot of tax, such as income tax and Government. More generally, we have often commented on that it is not so much the broad area of spending that would matter to small businesses as how the money was spent. If you are a small business, for example, the proposition to spend more for a business improvement district is much more real to you. It is more immediate. You can sense the impact on your business. A broad area such as skills, although small businesses would recognise the wider benefits of the economy of a better skilled educated workforce, the extent to which how that money was spent actually supported small businesses and their skills needs could vary dramatically. How the money was spent, what type of schemes it was spent and how that served the needs of small business employers would be big question marks over the effectiveness of hypothecation. Going back, Mr Lunsdale, to your submission, and you mentioned it again in one of your previous answers, business rates and other forms of taxation are a challenge for you and some of your members. The other suggestion that we have been given by previous witnesses is, fine, let's leave the expenditure side the same, but switch around how we raise the money with the taxes. For example, one option would be to cut business rates and raise income tax. Is that something that your members would be happy with? I think that what we said in our submission, and I am conscious of it, is that we are alive to a number of ideas that are kicking around at the moment that are going to affect consumers in the near term. We are on the cusp, as I understand it, of hearing the recommendations from the commission on local tax reform. Most of the political parties are represented on there, so it is a reasonable assumption that what comes out of the commission is probably going to see the light of day in terms of either replacement or reform council tax. I am none the wiser as to the total tax take, which will result from that. At the moment, I think that council tax generates £1.9 billion thereabouts. Will the new reform council tax replace council tax and take less money, if you like, out of household expenditure? Will it take more? One of the arguments that has been put forward is that the commission may give councils other powers, whether they are bed taxis, tourism levies or whatever. I think that there are a number of taxis and ideas out there, so there is a deposit return scheme that is talking about charging consumers more for cans and drinks and containers and things like that. Some people have advocated a sugar tax as well, so there seems to be a number of ideas for new taxis and replacement taxis bubbling up. I think that Professor David Bell said that he might be slightly cautious about moving income tax at the moment, given some of the other factors that are out there. I think that that was in your submission that you quoted Professor Bell, who said that there is a strong case for moving cautiously when considering changes to the higher rates of income tax in Scotland. I just wondered what you felt, or either of you, as cautiously meant. I mean, would 2 per cent be cautious up or down? One of the issues, for example, and I have spoken with David Bell, apart from the Ready's report as well, is that nobody even knows, if I am honest about it, that I have at least had three separate estimates of how many people pay the 45 per rate of tax in Scotland. David Glenn from PWC will tell you that it is 12,000 people, HMRC is 15,000 to 16,000, and I have heard politicians saying that it is 19,000. Even if you take some of those figures, they are not absolutely clear. Even if those individuals were taxed a good deal more, what would the actual increased revenue be? If any, in fact, as I mentioned earlier, taking the UK example, you would raise less revenue. As we mentioned earlier, those people are more mobile, so that is again another issue. The implications of tax rises are quite complicated, I think, as the point that David Bell is making as well. Particularly for that group, who we quoted and he illustrated before, that group of high-rate taxpayers contributes a significant amount of money into the Scottish income tax take. We need to be very cautious about the potential to frighten them away. Or does cautious mean that we just do a little, but be careful about it? I think that cautious means understanding that implications of government, sadly, in a whole variety of ways, has quite often introduced legislation that has unintended consequences. That is why he says to move cautiously. He is not saying, do not do it and absolutely you have the power to do it. The Parliament has the power to decide, but you need to be aware of the implications. In my view, for example, again I have talked to another accountant from a worldwide tax manager who has advised both in this building and in Westminster that tax levels get to a certain point and said earlier on where you access a law of diminishing returns. Yet sometimes politicians ignore that, and we have two parties in this Parliament who believe in a 50p tax rate, despite the fact that all the evidence is not just in the UK that it will produce less tax, but it seems to be by half to have a 50p tax rate. It does not actually bear out, it does not bring in more money. Whatever the increase is, it potentially would bear out. You are right, I suppose that you could argue that if you would have talked about one or two pence, it might not make a massive difference, it went beyond that, it might be more. Nobody definitively knows, to be honest with you, at this point in time. I suppose that there are two opposite dangers. One is that you rush into things without thinking, and the other is that you just never move for fear of... Absolutely, to your point, minister. On that point, Ms Newton-Smith, in your submission, you say that we would advise allowing more time to focus on the implementation of SRIT and the additional income tax powers that are likely to be devolved and so on. Are you saying don't move at all, but then I am not sure what implementation means if implementation is other than raising or lowering the tax? I think that our view is given where we are now, it would make sense to maintain at its current rate, particularly since it is likely that, next year or the year after, there will be more discretion over the full range of rates and also the bands. Adding another element of a change at this stage does not seem on the view of our members to make sense. The other thing is just in terms of the time to implementation. I know from talking to some of my members just over the past couple of days that they have only just received their letters in terms of, are they a Scottish resident and that S code this week. We know that some of the smaller businesses in particular just don't know enough that this is coming down, that this might be implemented within this budget. In HMRC, one in 85 residents were unaware of any potential change to the tax. The other opportunity in the Scotland Bill is to have more time to inform businesses and individuals that there is a potential change in the tax rate and to have more of the guidance in place to make more of a smooth transition, so having more time from that point of view also speaks to it. People would realise that something was happening? Possibly. Speaking as an individual, people don't always pay that much attention to the individual fluctuations. I don't know whether that would be enough. I think that it's much better to do it properly to have the right opportunities for HMRC to really contact businesses, to contact individuals and to give individuals themselves a fuller opportunity. It just feels like there's been a bit of a missed opportunity in terms of how well this has been communicated up by now, so I think there's an opportunity to improve that going forward. I think the other thing that a lot of people here have spoken to is I think businesses at the moment are dealing with a lot of other changes at the moment in terms of the apprenticeship levy coming in set at 0.5 per cent, and the levy board will help to determine how some of that money can be spent both in Scotland and the rest of the UK, but there's clearly a lot of uncertainty around that. We've also seen the introduction of the living wage, which is a huge change for a lot of businesses to take forward. From that point of view, having a bit more stability at this stage could be helpful. We only have a matter of months in which to get this absolutely right, so we'll hear about a potential rate next week, and then in April everything goes live. If we focus on HMRC just for a moment, because what was interesting was the range of views on HMRC amongst the four of you. If I paraphrase slightly, the SRC seemed to think that they were okay, the FSB seemed to think that they were good, the CBI had concerns, and IOD thought that they were woeful or woefully inadequate. I was surprised that there were very different experiences, obviously. If HMRC were sitting here today, and I suspect that they'll either be watching or certainly looking at the transcript, what are the handful of things that they have to focus on now in order to get not just past marks from all of you but 100 per cent pretty much perfect results come April? Are there any kind of big measures or practical things that they ought to be doing right now in order to make sure that we do get this right come April? I'd be interested just in a brief view from each of you. I find it deeply troubling to be defending HMRC, for it's not usually the FSB's position. I think that we just had to be fair that, in the number of discussions and dialogue that we had had with HMRC to date, all our questions had been answered and all of the suggestions that were made were taken on board. Despite some bad headlines, the National Audit Office report on what had happened so far from HMRC was relatively good in terms of the preparation. From our point of view, in terms of what needs to happen now, there's a couple of things that I suppose would be on our worry list that probably need picked up. The first thing is that there are a couple of outstanding technical details that have been raised with employers, which I don't quite think have been answered yet. Those are things like the guidance is very clear that employers negotiate with HMRC regarding Scottish taxpayer status, but under the RTI system employers have to make the change in address that an employee tells them about. My understanding is that that has not quite been worked out how the dialogue between employee and HMRC and the dialogue between employer and employee works across those two systems. There are some little glitchy things like that that still need to be sorted out from a technical point of view, and the advice given to employers. Possibly there could be clearer information for employers on the website at the moment. One of the questions that has come up in the last few days is the lack of a phone line possibly for employers. If there are questions arising from employees, at the moment there is only a website and the contact centres, and we all know about the difficulties that employers would face trying to get through to a HMRC contact centre. Sorting out the glitch is improving the information on the website and possibly having a phone line that employers could contact might be some useful steps. On the phone line, I suppose that they will argue that there is lots of stuff on the website, but you are right that there will be things that are not answered there. Your view is certainly at least in the short to medium term a dedicated employer phone line that might only last six months until we are up and running. It is a suggestion. At the moment, they have said that all of their contact centres are fully briefed and we will have the right answers to the questions from employers. We are obviously just aware that there has been concern from small businesses about the ability to get through to HMRC, so it is just a suggestion. I do not think that we have too much more to add. I started in this job at the beginning of last year and I have been raising with members in my introductory meetings with them since I started the issue that is coming down the track, the issue of the devolved income tax. We have to bear in mind that Kalman was what, six or seven years ago, we have had the Scotland Act 2012. For those of us who are trying to keep abreast of public policy, we know that it has been coming. I have been flagging up. It was in our budget submission to John Swinney in summer of last year. Our members have been reasonably up to speed, if you like, in the fact that it is happening and coming down the track. There is nothing specific that you would be asking HMRC if they were here today? Nothing over and above, I think, what to do with Susan's. I think that, more generally, we always try to make the case that HMRC needs the resources to do their job properly. Some of the things that we would like to see more from the HMRC is more guidance on the interaction between the Scottish rate pairs with other elements of the tax system, particularly double taxation agreements. I think that there could be more guidance on that. As I mentioned earlier, when inquiries get directed to Revenue Scotland, that gets redirected to HMRC, so there are simple things like putting a link on Revenue Scotland website. I think that it is making it clear that it is up to individuals to ensure that their correspondence address is up to date and accurate and also for the HMRC to look at their own records on individuals. I think that those were some things that we highlighted in our submission that could be done. Okay, that is helpful. I am just sticking with you for a second. You had a pretty helpful list under point 2 of your submission, just a list of potential complex or more complex situations. Have all of those been submitted to HMRC and they are actively answering those questions? We have shared with some of those areas of questions where it would be helpful to have more examples and more guidance. I think that that is something that HMRC could do and make more public as well. I find that list hugely helpful. You will never get an exhaustive list, but is it exhaustive as far as you are concerned, or do you have a bigger list somewhere that you are also working on? I do not think that we have a bigger list under a table somewhere. I think that those were having read the guidance. Those were what our tax experts had highlighted as some areas in consultation with our members where it was not clear what the ultimate decision would be, and so having more guidance on some of those complex cases would be helpful. Portrait HMRC is woeful, but certainly not personally. There have been positive engagements that I have had with them over quite a long period from day one almost when this concept came along and how we are going to define a Scottish taxpayer and be involved in some of those debates. I think that we have highlighted some of the issues. As you said, there has been a list in the CBI submission as well about some of its practical difficulties. The point is that, bluntly, the lessers who arrive through our doorsteps are still arriving, I think, to some people this month. We start in April, so there is not a lot of time, as I said earlier, on the complicated cases. We will have a lot of complicated cases, people who are non-exec directors in London and live in Scotland. Various others have time allocations, so there will be some fairly complicated issues. I think that that is the concern that individuals like that would not be ready if there was a different rate of income tax levied in April. I am not totally sure that all of those would be covered or sorted out by then as well. I was going to say that I have a personal, and it is probably more a personal thing than anything else, but there seems to be a belief within Government and HMRC that you put something in a website that is solved. Most of my members do not spend their time surfing the web, to be quite frank, because they just do not do that. If they find time to do it and they have to do it, they will do it. Again, when you are a big organisation, you have an HMR department, you have a finance department, and that is what they do. They look at those things, they will go and find out the information. Lots of others struggle to do that on a regular basis anyway, and there may be as timely as even the issue does well. Another point that we mentioned is the potential cost to employers of actually doing that if there are substantial changes in the income tax rate. That is when the cost would actually start to—the complications might increase. I think that those areas have probably been mentioned already. For example, I am personally not all that clear about the disputes procedure. Absolutely it is down to the individual, but I would imagine that HMRC at some point will come back to some individuals and say, we actually do not agree that you live in Comarnock, you actually live in London and things like that, so how that works out will come out a wee bit in the testing as well, in the practicalities. Last question, then. David, just sticking with you again, it is paragraph 2 of your submission. You say, we are sceptical, however, that additional implementational issues will not emerge over the next four months, which necessitate further implementational changes. Is that just a general scepticism thinking that things always go wrong and we should be ready for them? Is there anything specific that you just think is going to go wrong and would like to flag up publicly, or is it more of a general? I think that it is a general comment, but it is related to the point that I made about quite a number of our members who are quite complicated people. They are either self-employed, working in a variety of businesses that could be a non-XD director for a company and be employed by another company, so that it then becomes slightly more complicated. Also, the residence is more likely to be slightly more flexible than some other sort of thing. As a company or as the convener mentioned earlier on, a bus driver or a nurse is going to be location-based. Many of my members are not location based. In a sense, I guess that most of your members will see themselves as unpaid tax collector. That is usually a phrase that is used by many small businesses, and I probably should declare an interest to have a member of the Federation of Small Businesses. Beyond that, the burden of being the tax collector will not be affected one way or another, in a sense, by the rate of income tax, which is one of the questions about the Scottish rate of income tax. Whether it is to go up by £2 or £3, as far as the employer is concerned, it is the structure of identifying any members of staff who are not. Even that will not be down to them. Since the Scotland act was passed, our focus was on how the tax was implemented, and trying to minimise the impact that it would have on small businesses as employers, which ultimately resulted in the arrangement whereby the work is essentially between HMRC and the employee. That is where the main negotiation lies, rather than it being up to the employee to determine residency and notify HMRC. From our perspective, that was helpful because it minimised the additional burden of the tax change on small businesses as employers. Generally, it is the structure rather than change to rate, which creates the issue for employers. It is possible that rate changes will result in some additional work for employers. If there are more questions from employees, that might be something that has not anticipated that it might be extra work, but, by and large, it is the structure rather than the rate that creates the issue for employers. However, we have minimised that as much as we can in the approach that is being taken with the Scottish rate. Again, it depends on the level of the employer. Where it is all automated and an S code goes in, and the computer is programmed to do it for X thousand people at standard life, it is probably fairly straightforward, and your point is valid. There is not a lot, of course, but we are doing it in an Excel spreadsheet manually, as many businesses still do. It is always a danger of forgetting that. I quote regularly when a member runs an engineering business in Fife, and he employs 100 people. In his view, he employs 10 people who do nothing but cost them money. One of them is collecting taxes and doing returns for government, another one is doing health and safety and so on and forth. There are some issues. We have always got to remember that all of those things potentially are in cost to employers, and anything that makes it even slightly more complicated, bluntly, is not going to be welcome. Your point is possibly valid. Until the rate changes, it might not be seen as more complicated, it might just litterally be that S in front of your code. However, if the rate changes, then you are then manually entering it for another 100 employees. If there are any problems and any complications that are mentioned within individuals, then if they start appealing, it can become a little bit more cumbersome, no question about that. I think that, leading on from that then, given that really it confuses the issue if we start to talk about other taxes, does it not? If we talk about rates, for example, in the same debate as the Scottish rate of income tax, because really they have got nothing to do, the message that seems to me about the Scottish rate of income tax is directly between the Scottish Government and the Scottish people, the workforce. They are the people who are both affected. One would potentially have more income and the other would pay slightly more tax. Would you agree that it is that relationship and that communication that will at the end of the day be more important? Yes, to a certain extent, the main communication issue is for taxpayers to understand the difference, but it has come up earlier that the extent to which taxpayers notice or care will depend on whether the rate changes and even then they might not care which Government has put up or put down their tax. There is still a job to communicate with employers regarding the change in case there are subsequent problems that arise between now in April or after April. We think that, broadly, we have done what can be done, but there are, as I mentioned, those little glitches that may create additional problems. There needs to be some communication with employers so that they are aware of what is going on. The Scottish Government has declared a minimum living wage, which it is encouraging all the employers in Scotland to pay its staff, which is not the so-called living wage or the minimum wage that has been set in Westminster. If you were, as an employer, do you think that the right time to increase the rate of tax would be when you are trying to make sure that everybody at least employed in Scotland is earning a wage that they can live on? All I would say, rather than commenting on the correlation between the national living wage, the living wage and rises to income tax, is that those increases and discussion about wage levels are a serious pre-occupying factor for employers at the moment in Scotland. That might make them slightly less receptive to discussion about the Scottish rate of income tax, because, as you will know from speaking to businesses in your local area, the concern for those affected, the concern about managing the increase of the national living wage and pension auto-enrolment are, I would say, the dominant concern of a lot of businesses at the moment. That is where their headers are, that is what they are concerned about, and they are probably less concerned about Scottish rate of income tax at the moment. I think that that is all that I had to ask. Thank you, convener. I just have one question, and that relates to payroll and discussions or concerns or anything that has been raised in that respect. For example, from the CBISRC perspective, I suspect that you will have a number of businesses that you represent, whose payroll function is perhaps not located in Scotland. At that payroll function that is located outside of Scotland, they are having to administer both the Scottish rate and the UK rate. Have you heard anything back from your members in relation to concerns or otherwise? They have about the administrative impact of that, where it exists of operating those two rates through the same payroll function. From an FSB perspective, I am aware that a lot of small businesses outsource their payroll to individual companies who offer only payroll function. Often, many of those companies are in a similar position in that they are offering that function across the whole of the UK, rather than purely on a Scottish basis. I am thinking specifically in an FSB context. Have any of your members who employ such a function had any indication or otherwise that they may face additional cost burdens as a result? Although there may not be an upfront cost burden, that is not to say, for example, that organisations or businesses will not attempt to put the rate that they are charging to Scottish companies up on the basis that they would have to administer any future SRIT changes. I am just interested in that area. I do not know if, perhaps, Rain, you want to start from the CBI perspective. I think that you are right. Obviously, companies have to make sure that their payroll systems are prepared for and can administer a sort of S code. That is true for businesses located in Scotland and the rest of the UK. To my mind, my members have expressed more concerns about making sure that they have the right guidance from HMRC on some of the more complicated cases, as I have suggested. Some of my other concerns are about the lack of public awareness. It is also being clear that it is the individual's responsibility to determine their tax status. Those are some of the issues that our members have mentioned more. I want to pick up on that. I have no automatic example, but I suspect that there is a number that exists where the payroll function is located south of the border. Are you aware of HMRC doing work in those circumstances? Obviously, there has been an effort to make sure that we, as Scottish taxpayers, know what our rate is going to be. I suspect that businesses located in Scotland will have had communication to that effect. However, if there are payroll functions being administered outside of Scotland, what efforts or otherwise are you aware of by HMRC to ensure that they know what is happening? What we have picked up is that there has not been enough communication around it and enough awareness on that particular issue. We are obviously not representing the payroll sector per se, but from the various meetings that I have been at, certainly over the past 18 months, my understanding is that there has been quite significant engagement with payroll software providers in particular. Certainly, in the latest update, I read that HMRC felt that that angle had been pretty well covered and that all the software products that businesses use, regardless of where they are based, were up to speed with the change and were capable of dealing with the change. Certainly, that had not been on our list of concerns specifically about payroll software. Just picking up on the other point that I raised with you, Susan, about those companies that offer payroll functions for small businesses, has there been any indication at all that those companies are passing on on additional cost burdens as a result of SRIT or anything along those lines? Not at the moment. I have not heard anything. About half of our members have PAY done externally and the rest do it internally, either using software or using the tables and doing it manually. We have not heard anything yet to suggest that that is happening, but obviously it would be something that we would keep a close eye on. David, from your perspective… For ourself, we have members who have your headquarters in Scotland and others who have their headquarters elsewhere, if you like, in the UK. In our submission, we point to some disquiet, I think that is how I phrase it, about the lateness of the technical advice. You have put your finger on it. The disquiet, if you like, came from those out with Scotland in HR and finance teams. The other thing that we need to bear in mind, of course, is that it is not just Scotland setting a Scottish rate of income tax and Westminster, but Wales is going to get control of income tax as well. I think that there was an announcement in the autumn statement about that it is no longer going to be subject to a referendum in Wales. If you are a payroll manager or HR director, it is quite an increasingly complex picture at the moment about income tax, but also about apprenticeship levy, as others have mentioned, because each part of the UK constituent part of the UK is going to have looks like its own approach to apprenticeship levy. Obviously, there is a whole range of other issues. To the fore, we have talked about national living wage and pension employer pension and contributions and stuff, so it is quite a noisy period if you are in a company that has a pan GB or a pan UK operation at the moment. The very nature of the retail sector is such that you can quickly come up in quite a scalable business because of the nature of the industry that you may have—10 shops, you may have 100 shops or whatever. I am conscious that I have not brought you and David Walker. I do not know whether the IOD has a view in relation to this from your member's perspective. I do not think that there is anything to add in a very brief conversation with colleagues down south. I think that there was a bit more concern, as Ryan said, just that probably people at age-hard departments in England, headquarters in England or the rest of the UK were probably less informed than people in Scotland to bonus with that, and that is a small issue. Again, to be fair, they tend to be larger employers, so they are probably more able to cope with it relatively easily in terms of, as Susan said, software, but also personnel. However, I think that there is a middle space of businesses, and we have got lots of them in Scotland too. I think that, as an illustrator of the engineering company, it might have a few challenges if it gets more complicated, as David said. It is part of an overall complication that businesses are facing to be fair. We have to be realistic that everything is not going to go perfectly in April. There are going to be some procedures and processes that have been agreed between employers and HMRC, which are not going to turn out to be the right way to go about things. For example, one of the issues at the moment is coding notices for new starts in businesses. At the moment, the advice for employers is that you always start them on a, if they do not have a P45 and they do not have an S code, you start them on the UK code until HMRC inform you that the employee has an S code. Once the rate is in, most employers will want to automatically code with an S code, because they will know that the person lives in Scotland, but that is not the advice, so they will have to change the code once they are notified by HMRC. Those little process issues are things that, once it is in and the system is operating, we may all decide that there is a better way of doing this. We need to change how we are doing that. We just have to be realistic that there are going to be problems that arise after April, but that is just a natural part of the process. Thank you very much for that. That has concluded questions from the committee. Do you have witnesses of any further points that you want to make before you wind up? Thank you very much. That is concluded this week's meeting, so thank you for your contributions. Thank you to Alison for clerking the meeting.