 Fy holygu yn y gwaith y 3rdiw ddechreuwch i ddiffrwysig cyffordd gyfer yllais y Llachönau D orbital. Fy holygu yn gwneud yn y cyffordd cyffordd gyffordd galoedd gyda gwiseg ond ein gafodau ar y cyfle bachol gyda prosiedigon, ym 1 o'r agendaeth yn hithau'r cyffordd cyffordd, bwyd wedi ddechrau cwmwysigol 3 i 4. Fy holygu ym 1 o'r parsley, rym ni uchydig yn gyf lostiau ddechrau'r gwell, a hynny'n ddau i ddau unig ar gyfer y cwmysgol a'r gael. First of all, David Wilson, the commissioner, Mary Spowage, deputy chief executive, John Ireland, the chief executive, and David Stone, head of economy and income tax forecasting. Welcome to all four of you this morning, and thank you for coming in. We have a statement first of all from David Wilson, so I'll hand over to you at this point. Thank you, convener, and good morning everyone. We're very grateful for the opportunity to come in and give evidence this morning. As you'll know, we published our first report as a statutory organisation on December 14th, alongside the Scottish budget. That report includes a number of forecasts, particularly on the economy, which will be of particular interest to you this morning, but also our forecasts of the likely income from the devolved taxes and expenditure on the demand-led expenditure on social security in Scotland. Our focus will mainly be on the economy this morning. Our report included a set of forecasts for GDP, for onshore GDP, for five years going forward. Our understanding is that this is probably the first time that any organisation has made forecasts over that time period, and we hope that it will be of relevance and use to your enquiry on the performance of the Scottish economy. The report provides a range of detail. There's a lot of numbers in it. We're very conscious of that, and we're delighted to explain any aspects of the detail that's included in the report. We're also happy to provide any additional, if you want them, detail on the additional numbers and breakdowns that we have. The report included the most important aspects, and we also published a set of spreadsheets and additional detail on our website on the 14th alongside our report. One of the main conclusions that we have come to in our overall assessment of the Scottish economy is a forecast of what we've described as subdued economic growth over the next five years. There's a number of factors that underpin that, but perhaps just to draw out a couple of the key points from that. The first is that we've taken a balanced approach, trying to take into account the long-run performance of the Scottish economy, both before the financial crash and in the period thereafter. I'm particularly taking into account the most recent information over the last two to three years and trying to draw a set of assessment or detailed bits of thinking around how the economy might roll out over the next five years or so. Just to pick up a couple of key points in that, overall, since the financial crash I think that everyone will be aware that growth has been very weak by international and historic standards, but that has been the case both at the UK level and internationally. What we've tried to assess is how that might continue or how quickly we may get back to the levels of historic economic growth that we saw prior to the financial crash. Our overall assessment is that it will take some time to return to those historic levels. Perhaps the key message of the report is managing our expectations about how quickly we may return to those levels of historic economic growth, which is a feature both at the Scottish level and at the UK level. Secondly, we tried to draw out a number of particular factors that have impacted and affected Scottish economic activity over the past five years or so. Particularly, we identified some particular factors in the early part of this decade, particularly in construction and in oil and gas activity that had the impact of how we put it as boing up economic growth. There are a number of particular strengths in that period that have actually come through in the overall data and overall assessment, but at least some of them, particularly mentioned in construction and oil and gas, have weakened and moderated in the most recent path. Our assessment in going forward is that those two key factors and a number of other factors that we may get into are unlikely to provide the boost to economic activity that they did in the early part of this decade. That is perhaps a key second factor alongside the overall weakening of international economic growth that led to our conclusions going forward. Perhaps the key thing to emphasise is the importance of underlying productivity to the overall performance of the economy. Productivity is absolutely key to our forecasts and we can unpack and give you slightly more detail on that. Two other things that we want to mention in the opening comments that we can get into in a bit more detail are firstly population projections, which are a key part of the size of GDP going forward and what it means for GDP per head in Scotland, which is a key factor of driving incomes and what it might mean in terms of the labour market's work going forward. Population projections are a key additional factor that we would be happy to answer questions on. Secondly, the potential impact of the change in the relationship with the EU for the UK as a whole and for Scotland in particular, which is an issue that we have taken a broad-based judgment on as part of our forecasts and they are factored into our assessment. Perhaps the final thing to mention is that, as one forecaster put it, over the past seven or eight years, in terms of productivity, the productivity has surprised forecasters to the downside. In other words, many people have had disappointed expectations around the possible growth in productivity, but employment has surprised on the upside. In other words, there have been very high levels of employment activity and historic low levels of unemployment. One of the factors that we have taken into account is that those are two sides of perhaps the same coin. This is the current set of features of both the Scottish economy and the UK economy. They are a key aspect of our forecast going forward. Although much of the emphasis and comment on our forecast has been around the subdued nature of our productivity and growth projections, it is worth emphasising that that is going alongside historically high levels of employment and low levels of unemployment, which we expect to continue in the period going forward. That is an overview of some introductory remarks, and we are delighted to take questions and give you further details. Thank you very much. We will start with some questions from Gillian Martin. Your forecaster has a quite weak picture of productivity. I just want to pick up on your last point there to get some clarification. You said that employment is up and we know that, but productivity is down. You make the correlation between productivity and household incomes and earning. Does that tend to mean that jobs are not paying as well as they did? That is a fair summary. We have seen very high levels of employment and low levels of unemployment, but relatively flat real wages over the most recent period. Again, one of the issues that we forecast is assessment for real wages. Over the long term, you would expect there to be a fairly close link between the growth of productivity and the growth of particularly nominal wages and income, which is the key driver of the pounds that people have in their pocket. That is what you would expect. However, how that works out on a month-by-month and a year-by-year basis is one of the parts of the complex picture that we are facing at the moment. Many people have described the situation that they were in as one in which we have a low productivity but high employment scenario, equilibrium, however you want to describe it, and again that is the feature that we are in. One of the things that we have taken particular care in looking at is that, if you imagine a situation in which our productivity performance going forward markedly improves, for example, if we are in a situation in which productivity growth greatly exceeds what we are expecting, that might have an impact on or might be part of potentially less people in employment and vice versa. So, productivity and levels of employment are very closely interacted with each other. So, policy decisions around fair work are probably going to make quite a big difference to that. I want to ask you about some other part. If you took into account other policy decisions that have been made when you were making your assessment, for example, increased childcare, digital access, particularly in rural areas, where obviously productivity is lower as a result of not having digital access and things like improved transport infrastructure, so the fair work agenda and all those things, are they taken into account as you make your projections? Yes and no, to some extent. I think that you are absolutely right. All of the examples that you gave, perhaps particularly the fair work agenda, are critical to measures that the Government can take to support individual businesses, improve their productivity and, ideally, in a fair work situation, both increase productivity and maintain and potentially increase levels of employment. That is an agenda that might address the underlying weaker than expected productivity levels in the economy. Yes, those are all crucial factors in impacting on the performance of the economy. A slight yes and no answer is that the way that we develop our forecasts is not almost a policy-by-policy assessment of the impact of the fair work agenda or transport policies or enterprise policies and then trying to develop a set of impacts of each of those policies to lead to a set of forecasts for the economy. That is not how we do things and I think that that would be exceptionally difficult to do. We do not make individual assessments or evaluate policies like fair work in detail and feed that through to our projections. What we instead do is to develop a set of and we have a number of modelling capabilities that we use to make judgments about overall productivity, population and the other key drivers of the economy. That gives us our overall assessment. In that sense, I would not say where. There is a direct link that you could unpack in our numbers that shows the impact of fair work or the impact of the other policies. I have just got one other question around household incomes and household earnings. I have got it here that real household incomes will not recover to the 2007 levels until 2022. I get what you were saying around oil and gas and that is in particular interest in my area, being Aberdeenshire. That is certainly the case that people have lost a lot of work and earnings are going down. How do you assess what household incomes are going to be based on the data that you have now? I will perhaps ask one of my colleagues to give you a more detailed assessment of it. Again, it is part of our overall model of the Scottish economy that builds up assessments based on productivity, population and everything else, which gives us a set of detailed estimates of both nominal and real wages going forward, which is the key driver of household incomes. Again, it is all part of a consistent story around the future of the economy. Perhaps I could ask David to give you a bit more detail about precisely how we do that. For household incomes historically, we look at national accounts data, that is where we get most of our information on historic incomes from. For the forecast, wages broadly grow in line with productivity, so the real wage will increase as productivity increases, but because we have very muted growth in productivity, we get very limited growth in real wages. When you combine that with higher levels of inflation, that brings down real wages to some extent, and because we have slower employment growth over the next few years than we had historically, that slows down growth in real household income. Because we have a growing total population as well, that reduces real disposable household income per capita over the next few years. However, it does not take into account things like increased childcare, which means that there are two people working and that they will be able to work in a household with the result of that policy in the future. It does not take into account any of that. No, our work cannot take into account individual policies like that. I know that it is worth adding that all the policies around childcare, for example, which have been going on in the past, will be influencing the data that we look at. It is not that we are completely ignoring the impact of those policies. The historical impact is there in the historical data, and we project forward. Thank you. I know Gordon MacDonald. We have obviously talked quite a lot about productivity, but I want to expand on that. My understanding is that most productivity gains come from the private sector of the economy. What tools are available to Governments to influence productivity? There is a slight risk in giving you a detailed answer to that if we are going beyond our particular remit. Our remit is clearly to produce the forecast of the economy rather than to assess policy options. I am trying to understand why your levels of productivity growth for Scotland are lower than the UK as a whole. I am thinking about the things that influence productivity, such as inward migration of skilled labour, raising the national minimum wage, tax breaks on new technology and so on. You have started a very good list in terms of the interventions that Governments can make, and in Scotland they have been making both in the recent past and over a long period. Perhaps to pick up a couple of headline messages on that, the key thing that is underpinning the future development of productivity and, in turn, economic growth overall is the technological progress, the extent to which the economy, and perhaps particular sections of it, can produce more outputs with less inputs or the same inputs. What is underpinning the productivity performance of the UK and the Scottish economy is that technological progress through innovation appears to be weakening or not, as it has not been achieving the levels of productivity improvement that we have been seeing in the past. Perhaps the key explanation of that is that it appears to be getting altogether more difficult to produce the innovations and the project of enhancement in the economy than perhaps it was in certain periods in history. People have drawn attention to things like Moore's law in computing, with the ever-expanding increase in computing power. That increase in computing power has been getting a more slow increase over time, and it has been getting more expensive to deliver over time. That is perhaps an important factor in its own right, but a wider metaphor for the challenges that we face. Innovation is getting more difficult, and that appears to be flowing through to the more challenging economic performance. Clearly one of the key things that Governments can do to support is to work ever harder still to support innovation activity, whether it is in the private sector or in the university sector and other areas that can support R&D. More interventions to support innovation R&D are absolutely critical in this, as are measures to ensure that the innovations that are already out there are being in the language that there is a diffusion into the wider economy. In other words, businesses are actually taking advantage of what the best of businesses out there are already doing, which again is an important factor in this. The set of activities that the enterprise bodies are very active in, that the funding council is supporting in universities and others. Perhaps an additional element to draw out, and again it is a particular feature of the moment, is that the key driver of technological improvements and progress and productivity will not happen unless there are high levels of investment in the economy, both in terms of investment by businesses in their own businesses and investment by Government and collectively in investment in overall infrastructure and skills to make sure that we have the capability as an economy to support individual businesses going forward. A particular challenging feature of the economy and people at the UK level have drawn this out quite sharply, is that in international terms, relatively low investment in overall skills and overall public investment in infrastructure, and again that is an area that the Government of both UK and the Scottish level are taking actions to enhance. There are perhaps the key areas to draw out, but there is a whole range of different matters that we have touched on in fair work and others that are going forward, but investment and technology are perhaps the key things to draw out. I do not know if any of my colleagues want to add any particular to that. Just perhaps the comparison with the UK that you mentioned, as David said, our approach to modelling the economy is very much looking at recent, and by recent we mean the last five to ten years of data in drawing out the trends and seeing how that can inform us about our projections going forward. Historically, Scottish productivity growth has been slower than the UK's, and in the last few years that trend has continued. Towards the end of the forecast, the rise in the low whilst we are not quite at the same level of the UK by the end, we are catching up a little bit in our forecast, and we are not too far apart by the end of our forecast in terms of productivity growth. Obviously, the difference was only a point at the end of your forecast. Given that we have always had this discrepancy between Scotland and UK productivity growth, how much of that is down to the fact that many of the policy levers that are available to government are not available to Scotland? The economy, as the UK as a whole, is not even. Different parts of the UK have different key industries, if you like. How much of an influence is that on Scotland's productivity growth? That is a very difficult question to answer at a high level. There are probably a number of factors that you would want to look at in terms of different structures of the Scottish economy, different overall demographics and structure. The Scottish economy differs from the UK economy, which, at particular periods of time, has led to some weakness in the Scottish economy. I have touched on the particular feature over the past 10, 20 or 30 years. It has been the overall positive impact of the oil and gas sector that has had a considerable impact on the productivity performance of the Scottish economy, and that has been one of the many positive factors. However, if you look at the overall UK structure of the economy, perhaps particularly with the financial sector in London and the South East and the innovation performance in London and the South East, that is a set of factors that are less in prominence in Scotland. The principal explanation for differences between Scotland and the UK economic performance is what our modelling work seeks to assess, rather than looking at, in any great detail, at a micro level about the impact of particular policies. As you touched on, the performance of different parts of the UK economy is very different. It is quite difficult to look at the UK and aggregate, because London and the South East are so different from many other parts of the economy in England for the north-east and north-west. The experience that those parts of the country are having is very different to the London and the South East and the east of England, which tend to be more high-productivity areas of the UK. I was just going to move on to GDP per capita. Your GDP per capita figures are much more pessimistic than for the UK as a whole. I was wondering how much of that percentage increase was based on the fact that Scotland is already starting from quite a high base. In comparison with the Eurostat data that was released in 2017, you are looking at Wales and Northern Ireland as a per capita GDP of around about €22,000, and Scotland, including offshore, is sitting about €32,000. How much of that has an influence on your percentage growth? Perhaps I will look to my colleagues to give you a more specific answer about the GDP per capita figures, but one of the particular features of the performance of the Scottish economy in the relatively recent past has been that there is a convergence of GDP per capita between Scotland and the rest of the UK. One of the key things that we hope we try to do in our reports and one of the things that we all have to be very careful about is being very precise about what we are comparing things against. In terms of GDP per capita, there has been a degree of convergence for the rest of the UK, such that, at the points of my GDP per capita in Scotland, has been fairly well at the same level as for the UK as a whole. At least part of that has been the interplay between GDP growth, but particularly our relatively weaker population growth in Scotland. Because there has been lower population growth, that has meant that GDP per capita has been relatively stronger. One of the factors that I touched on earlier is trying to make an assessment of what that might mean going forward. One of the concerns that we have is that if there is a weakening of population growth in Scotland, that, on the face of it, might lead to improvements in GDP per capita in the sense that there are less people but we managed to produce the same goods or grow. In terms of the overall development of the economy as a whole and the richness of the labour market, that might lead to downsides. How the population of Scotland goes forward with a particular factor of the change in the relationship with the EU will be a key factor underpinning both our GDP forecasts and how that plays out in terms of GDP per capita. In terms of headlines, Scotland is more in or around the same level as the UK as a whole, and Scotland has consistently had higher GDP per capita levels than, as you mentioned, Wales and Northern Ireland, which again underpins Mary's point about the richness and diversity within the UK in terms of overall economic performance. To add to figures 3 in our summary, it shows the GDP growth and the GDP per person per capita growth over the forecast horizon. You can see that there is quite a difference between the GDP growth overall, but they are much closer together for GDP per capita growth, which really just underlines the demographic challenges that we have for total GDP in Scotland. By the end of the forecast horizon, they are broadly similar in terms of GDP per capita, but the population differences are really significant in terms of GDP overall. My final point is that, in relation to GDP growth per capita, you said that the relationship with the EU might influence how that figure moves. Can you explain what you have built into your forecast in terms of Brexit, in terms of access to European labour, skilled labour and so on? What we have done is underpin our forecasts in terms of overall GDP, but crucially for our fiscal forecasts as well. We have to make an assessment of what we think will be the Scottish population over the next five years. In order to do that, we take the projections that are produced by the national statistics and the national records for Scotland. There is a set of projections that are produced, and it is very important to emphasise that those are projections as opposed to forecasts. There is a lot of jargon in this world, but I think that what the ONS is seeking to emphasise is that they extrapolate some known and existing trends going forward. They do not produce a statistical model that somehow takes fully into account what might happen, whether it is with a change relationship with Europe or with any other factor. What they produce is a set of projections and a number of variants of those projections. We made the judgments that we could have done or we could have done produce our own forecasts. We were very clear that we wanted to use one of the variants prepared by the ONS, but we had to make the judgment which of those variants. Back in the late last year, they produced a set of forecasts that took into account a set of possible impacts of the changes in the UK's relationship with Europe. We decided that the most likely projection would be the one that reduced the in and out migration to the European Union from the UK over the period going forward to around half the levels that it has been. That led to a set of numbers that we included in all our forecasts. That is what is called the EU 50 per cent forecast, as opposed to what we might have used, which is the principle projection going forward. A key thing to emphasise, and I said that to the Finance and Constitution Committee as well, in terms of the five-year period going forward, the impact of a changed projection in terms of interaction with the EU in terms of our forecasts makes a very small change to our GDP and GDP per capita. It is a very small impact in the short term, but cumulatively, over the longer term, and particularly if the forecasts are more pessimistic than we have assumed, the population becomes a crucially important point. Simultaneously, in terms of our forecasts, they are a relatively minor factor, but, in terms of the big picture going forward, it is a very important factor over the longer term, depending on how that plays out. Thank you, convener. One of the central observations made by the SFC in your forecast is that the economy is operating at or above capacity. I would like to explore the basis for this observation. You may have covered some of the underlying factors already, but could you explain the observation that the economy is operating at or above capacity? Obviously, what we have seen over the past two or three years is practically zero or very low growth in the economy. I will make brief comments. I will pass to one of my colleagues to give you a more detailed assessment. Perhaps the key thing that we wanted to emphasise is that in terms of people's general expectations about the economy in a period after the financial crash and the recession at the early part of this decade, people look at growth numbers of the order of 0.4 per cent a year and immediately think that there must be spare capacity in the economy, there must be measures that we can take to boost demand, which would lead to higher growth in the short term, and that is the solution. I think that the overall assessment that we have come to, and it is the assessment that the Bank of England has certainly been looking at in some detail in the past, is that the scope to instantaneously boost the economy without leading to a boost economy through utilising spare capacity is relatively limited at the moment. One of the key driving pieces of evidence of that is the experience in the labour market. It would be a brave judgment to think that we have historically very high levels of employment and historically very low levels of unemployment, yet it also concludes that there is significant spare capacity in the economy. We do not make that assessment. Broadly speaking, we feel that the Scottish economy is broadly working at its current capacity. We produce fairly fine, detailed estimates of whether we are slightly above capacity or slightly below capacity, but the overall message is that we are probably at capacity with some variation. That tells us a lot about our overall assessment of the productive potential of the economy, which is what we model over the longer term, which fundamentally is driven by productivity. Our expectations of how fast the economy will grow in the next couple of years and over the five-year period has been reduced well below everyone's collective expectations from the historical levels prior to the crash. That has brought down the path of economic activity going forward, and we feel that we are broadly on that path at the moment. I do not know if David perhaps wants to say a bit more about how we make those assessments of capacity. A few points. We have a small but positive output gap in our forecasts. The OBR has a small but negative output gap for the UK, but we are very close. We are both saying that the economies of Scotland in the UK are close to capacity. We have come to that conclusion based on a number of factors. We have a model that looks at trends over the last few years, so things like the very low unemployment rates in Scotland—that is unprecedentedly low—and very high participation levels and slow growth in productivity. From looking at those trends, we thought that we were close to capacity, but we look at other sources of information as well, so we look at the information that businesses are giving us—the surveys of firms, things like hotels and how many spare rooms they have. Do businesses feel like they could increase production tomorrow if they had to? How much are they investing? Those surveys paint a very similar picture. You have seen the capacity in the Scottish economy being used up over the last couple of years. You have seen not much spare capacity in the economy to allow for that to happen. Thank you if I could add one more question. Since the 1960s long-term growth rate in the Scottish economy has been 2.5 per cent, if we are at capacity at around 0.5 per cent, what has happened to the economy structurally to reduce the inherent capacity of the economy? To some extent. Without that, I do not seek to be flippant anyway. That is the billion-dollar question that is at the moment in trying to understand the productive potential of not just the Scottish economy but the UK and the world economies. It has been christened by the productivity puzzle. Many great minds are seeking to answer that question. I am giving you a slightly unclear answer, but we do not have the answer to that question. However, what is clear is that this is not just a Scottish challenge or problem that we face. It is a key factor of both the UK and international levels. It goes back to some of the points that I was making earlier on. Some people have christened what they have called secular stagnation, whereby the ability of the economy to produce the levels of economic growth of 2 per cent is something that is no longer within the capability of the capacity of the economy to do. A big element of that is managing our expectations of how that might go forward. Is there a simple explanation of that? Almost certainly not, but the closest and probably best explanation is the sense that it is becoming ever more difficult and ever more expensive to produce the economic innovations that lead to technological progress, which in turn lead to economic growth. That appears over the past 10 to 15 years to have become the story. There are a number of people who have been christened digital optimists who very much look at the change in the nature of the digital economy at the moment and see that this is a bit of a temporary period that, looking 5, 10, 15 or 20 years ahead, we may well get back to higher levels of growth. There is very much a camp that sees very significant growth in the future, and I am not in any sense discounting that, but over the five-year period that we are looking at, we would expect the situation that we are facing at the moment relatively subdued growth to continue. We had last week the most recent GDP numbers for the third quarter last year. Was there anything in those numbers or the commentary, the underlying analysis, that would change your outlook? I think that the overall numbers were broadly in line with what we were expecting. I think that I would not say that we took any satisfaction from the fact that they were broadly in line with the expectation because they were on the subdued side. In terms of the detail playing out of the economy, there was nothing in those statistics that led us to any fundamental rethink. In fact, they were very close. Particularly in terms of the fine-death numbers, they were extremely close to the quarterly forecast that we had in our assessment. I don't know if Mary or David want to add a comment on that. Obviously, one-quarters data, the data can be quite volatile and you can see different movements in different sectors. You see the sort of continuing decline in the construction industry. Production was actually quite strong but buoyed up by one particular sector, and services growth was quite sluggish. We wouldn't want to put too much weight on each quarter. Those data will bubble about a little bit and we wouldn't change our long-term outlook based on one-quarter, although it did happen this time that it was very close to what we forecast. Thank you very much, convener. You have published central forecasts for various metrics in the economy, for example, with variance, for example, trend unemployment, a low variant of 4 per cent and a high of 5. You have explained how you chose the migration one and you have explained what the other high and low ones are. For example, you said that high average hours scenario assumes convergence of Scottish average hours and UK average hours over the forecast horizons. Can you say a little bit more about the basis on which you chose those low and high ones? They make sense, but you could have suggested that it might be above the UK, the high one. What was the thinking that laid behind the low and high variants? I will ask David to give you a more detailed answer to that. However, just by way of introduction, the key point is that we were keen to include those as illustrations so that people could get a sense of what the sensitivities might be to different judgments. I wouldn't say that. I don't think that David will say that there is any particular rocket science or in-depth thinking in terms of the choice of the low variants. They are designed to be illustrative, but perhaps David wants to give you a bit more assessment. There are certainly no strict criteria for choosing those variants. We are just trying to give our users a sense of what the range of uncertainty might be. In a couple of cases, there were some fairly obvious choices to make. On migration, we have the different population variants, so we looked at what the impact of using different population variants could have been. On average, hours worked. There has been a divergence of Scotland in the UK in hours worked recently, so, on the one hand, we looked at what if Scottish hours met the UK to get the opposite of that, we looked at what would happen if it went in the other direction. However, overall, we were just trying to give the picture that it is really productivity that is the biggest sensitivity in our forecast. Selecting high and low variants for that, we used the growth in productivity that we have seen over the last five or six years for the low variants. We compared that to the growth in productivity that we saw prior to 2008, which was much higher. However, it is hard to get those sensitivities and variants so that they are directly comparable in a meaningful way. We just tried to choose numbers that would be helpful. You say that it is illustrative, but you have just said that you want to show what the range of uncertainty might be. A range of uncertainty might be anything. That is uncertain. It is clearly simply illustrative to help the reader, to help the policymaker, to help the Government to see that, if, for example, we converge with UK trends on a particular metric, that this would be the outcome. It is very important that our users understand how uncertain those forecasts can be. At the moment, we cannot say how accurate our forecasts are going to be because we do not have a forecasting history to look back on and say that we were this right or this wrong last year. Over time, we will evaluate our forecasts and it will allow us to build up that picture. I suppose that, in the meantime, we can present those illustrative sensitivities and we can also look at the forecasting error of other organisations as a comparator. On that question about forecasting error, margin of error and statistics, you would usually have a confidence interval or anything, but, of course, that is based on measurable data. As you just said, you are forecasting and you do not have historic data or at least you do not have good historic data to measure it against. Can you give us a qualitive sense of the Scottish Fiscal Commission's report in the first year of the next Parliament, for example? How much more confident will you be able to be about your forecasts? That is a good one. The conventional way of doing this is that, if you look at things like the Bank of England quarterly forecasts, they have these fan diagrams. Those fan diagrams typically show that, as a forecast horizon increases, the confidence interval increases. That is a very important fact when you are thinking ahead to the beginning of the next Parliament. However, the issue that we have, as David has said, is that we do not have historical forecast errors. We cannot produce those fan diagrams. That means that it hampers us answering the question that you are answering. We do not know what our forecasting track record is going to be like, given the methods that we employ. Therefore, it is pretty hard to say what those fan charts look like. The only thing that we can say with any real confidence is that, as the forecast horizon increases, the level of uncertainty will increase as well. By the start of the next Parliament, you would expect those forecast bans. Can you repeat that? One rises and another rises? Sorry. As the forecast horizon increases, as we go further out, we know that the uncertainty attached with the forecast will also increase, because potential error builds upon potential error. You remember the fan diagrams that you see in the Bank of England and things that go like that. That is the thing that we can say with great certainty. What we cannot do is that we cannot at this stage give you a sense of how wide those fans are going to be. Perhaps I can just emphasise a point in this. As John Smith said, it is clear right in terms of the uncertainty that is widening. However, two things that I think we are taking actions on to mitigate this to an extent are that we will see to be as transparent as we can be through publishing what we will call our forecast evaluation report. We will produce a report on a regular basis evaluating our own performance in forecasting. That will all be part of ever improving our modelling capability and evaluating how we are performing as a forecasting organisation. Part of that will be building up the capability to do as Bank of England and other organisations to look back at their own forecast and performance to evaluate their future forecasts. We will be doing all of that, but by definition we are a new organisation. Those were our first forecasts. Perhaps the other point to emphasise is the status and use of our forecasts. The clear and most important purpose of our forecasts is to feed into the Scottish budget on an annual basis. The budgeting process may evolve over time and you may well see multi-year budgeting and others. However, our forecasts and we will undertake two forecasting exercises over the year. We will be learning and the budget can adapt to learning. Next year, we will have a new set of forecasts and a new budget, and we will take into account all of the information going forward. We hope that our near-term forecasts are as fair and balanced as they can be, taking into account all of the information and being transparent in the decision-making as they can. In terms of the longer-term forecasts, in as far as they are crucially important for decision-making and for overall assessment of fiscal and financial matters, they will adapt and improve over time. In figure 1.1, we have given an example of an OBR, a GDP growth forecast fan diagram, which gives an idea of the level of uncertainty that has come through their historical forecasting errors. It gives a very wide fan by the end of the period. It gives you an idea of the uncertainty that we are talking about over a five-year period. Given Scotland's smaller economy and all those other things, we expect that the forecast errors may be larger for Scotland. That is a reasonable thing to expect. That gives you a feel for the uncertainty that we are talking about when you go five years out. John Mason Thank you, convener. The Scottish Physical Commission gave us evidence during our previous study, which was on economic data. It highlighted that there were a few areas that there seemed to be that they did not have a lot of information or that it was difficult to get. I think that earnings was one of those and Scottish specific prices was one of those. I am just wondering how that has impacted on your forecasts. Have you been able to work your way around that? Or are there other caveats, because you just could not get some of that information? I think that perhaps the headline response to that, and then perhaps I have something to marry to follow up with, is that the issue about earnings remains the core area that if we are going to find answers to the questions of the interaction between productivity and employment and how the economy at present is performing. The performance of the labour market is absolutely critical to that. Any improved information that we have about the particular features and experience of the labour market, more current than they are at the moment, will be of huge value to not just us but to a range of Government organisations in understanding what is going on at the moment. The earnings issue remains critical. We have sought to address the particular challenges that we have faced in terms of the earnings statistics. That is perhaps of particular relevance to our fiscal forecasts and particularly our income tax forecasts. I am happy to go into the detail of that, if necessary, but I think that our ask, if that is the best way to describe it in terms of improved information and data on price deflators and employment and wage information, remains absolutely critical. We can do the best that we can do, and I remember saying that to you at the previous time. We make the best assessment we can, but every improvement would be of huge value to us. We have used the most up-to-date data available in Scottish earnings and wages. How up-to-date is it? The latest annual survey of hours in earnings would have been published for March, April 2017, and that is an annual survey. The Scottish National Account statisticians take account of all that data and produce a compensation of employees series that we use. They project that forward from the latest data to the latest quarter that they are publishing for using UK movements. We are using that information as well, although it is not Scottish specific. As I think that we said in our submission and discussed when we were here before about economic data, we are exploring the possibilities of using more regular UK-wide surveys—average weekly earnings, for example—and getting Scottish cuts of that information, perhaps looking into boosting, if necessary, would be invaluable for us to understand the more recent movements in wages, like we get for things like economic output. Other things that we had to work around were the expenditure components that are published in the national accounts, which are very important for us to use in our economic models. We have to deflate those and put them into real terms ourselves because they are not published that way by the Scottish Government at the moment. That was another thing that we mentioned in our response to your previous inquiry. The national account statisticians are obviously the experts in that data and how to do it. If they published it on that basis, that would mean that it was available for everybody to use in whichever way they wished and that we had it on a consistent basis. That would make things easier for us and make it more accessible to other people. Those are examples of things that we have worked around, but it would be better if there was more information available. One other point on wages specifically. The information that we have is probably fine at the aggregate level. If we are looking at trends over several years, the data that we have is okay. What we are missing is the granularity and the detail to see what is happening in wages from quarter to quarter, by age and gender, by different income groups. That is the sort of information that we are missing, so we cannot explain in detail why what has been happening to wages has happened. We can only look at it at the most aggregated levels. We have a micro-simulation model in order to do our income tax forecast in particular. It is really critical that we get that richness of data to be able to project forward. I am interested in your use of the word critical. How much of a difference would it make if we could improve it? Are we talking about a marginal effect, or is it major, or is there any other word that you would use in that scale? That is quite difficult to say. That might be one of the things that we can evaluate more in the future. How we have performed for years when we do not have the full survey of personal incomes information compared to when we get that and how we have performed in terms of forecasting. When we get out-turn data for income tax and how close we have got to projections of years that are past using data that are a few years out of date, that will start to give us a feel for how much improvement we can make when the data is better, but we are forecasting into the future. Inevitably, as you build up a record, things are going to improve anyway, but you are also still looking for improved data coming out of Scottish Government and HMRC, or is it meant to with the on-earnings? The on-earnings and the on-s, for some of their UK-wide surveys, are definitely potential on-earnings. Obviously, on the other side of our house, on social security, we are having to work with DWP to get good information. I want to summarise and particularly point out that we are satisfied that the capability of the information that we have enables us to give robust forecasts, but it is almost a pursuit of continuous improvement and trying to identify where the areas that can incrementally further improve what we are doing. It is just drawing a contrast. On very few of any of our areas, we say that we just do not have the data and that we cannot produce something that we would have confidence in, but perhaps in all of the areas that we forecast, there is always something that can give us more information, a more intuitive and more up-to-date feel of where we are. I think that what we emphasised to you as part of that particular inquiry is that those two areas are particularly contemporary information about wages and incomes, so that we can interpret what is going on in terms of our tax and fiscal forecasts. It is certainly the area that would give me ever-increasing confidence in our forecasts. I would like to still explore productivity here—that is one particular facet. We have already talked about the fact that weak output growth, combined with the strong labour market, equals weak productivity growth. You forecast productivity in the next five years to be consistently lower than the OBR has for the United Kingdom as a whole. Maybe you can explain a little bit more detail about what leads you to that conclusion and why is Scotland different? Perhaps the headlines, and perhaps I look to David in terms of the detailed modelling assessment on this, is that the Scottish economy, for many structural reasons, is different from the overall UK economy. The overall long-term experience has been that the long-term productivity performance has been that bit lower than the UK as a whole. At different points of time, there has been a process of catch-up, and there have been particular times where productivity has been better than that. I think that most of the modelling assessments and most of the forecasting assessments for the Scottish economy are that there has been a long-term gap in terms of productivity performance between Scotland and the rest of the UK, and our broad judgment is that that will continue. What we have been at pains to emphasise in terms of our overall growth forecasts is that, in terms of the headline growth forecast, it looks very significantly lower than the UK, but there are a number of range of factors that underpin that and wider demographics and other factors take into account. However, the gap between our productivity growth assumption and, for example, the OBR's productivity growth assumption is much smaller and much more in line with perhaps the overall historical performance. In the way that we have developed that overall assessment, what we do not do as a modelling approach is to take the OBR's assessment or a range of other UK-wide models and assumptions and then say that we will notch off point one or point two from their assessment here or add point one or point two there. That is not the approach that we have taken. What we have sought to do is make our own assessment of the overall Scottish performance, and that has led to our forecasts. In terms of the number of your question, it reflects historical and structural factors underpin the Scottish economy, but the productivity differential between Scotland and the UK is but one aspect. There are a number of other differential aspects that are perhaps crucially important in going forward. David, can you give us a bit more of assessment and comparison with the OBR? It is important to point out that we did not know whether the OBR was going to be with their productivity forecasts until quite late in the process of forming our own forecasts. They were only published a few weeks ahead of us. We had largely closed down our forecasting process by then. Our productivity forecasts did not change much after that point. As David said, we did not form our forecast based on looking at the OBR's forecasts with the UK. It was our own assessment of Scottish-specific factors, trends in Scotland, and what we have seen is slow and possibly slowing growth in productivity since around 2004, as we say in our reports. We then looked at particular factors over the last four or five years to try to break down and get a better understanding of that growth and productivity. As we say in our reports, factors such as the oil and gas industry were supporting growth and productivity from 2010 to 2014, we had a declining savings ratio in Scotland, again supporting consumption, which in turn would support productivity growth. Once we strip out those factors, in addition, we see even more subdued growth and productivity. That was our starting point. We had productivity growth over the last year, I think, of 0.2 per cent or something, which is below what is in our forecast period. That is our starting point. We were just thinking about how that might grow over the next five years. I would not quite say that it is a coincidence, but I think that we are very close to where the OBR got to with the UK as well. We do not form our forecast by comparing ourselves to them. Just to ask a daft lady question, this morning we have been talking a lot about historic data, trends and all the rest of it. How do you determine how far to go back to determining those historic trends and historic data? The economies of Scotland and England are changing all the time. When does it become irrelevant to do that comparison? I think that, as everybody always says, the so-called dumb laddie questions are always the best questions, and that is absolutely crucial crux issue in this. There is an easy answer to that. We use the data that we can rely on, which only goes back to a limited number of years. Many of us would greatly want to have, or it would be a fascinating intellectual exercise to have really good GDP assessments and national accounts going back over 10, 15 or 20 or 30 years. We do not have that. We have robust quality information, and I should say at the risk of pointing up previous roles, but Mary had a huge amount to do when she ran the national accounts process in the Scottish Government. We use particularly the national accounts and the GDP assessments going back in as far as they are robust to do so. However, using that judgment, I think that what we have been describing this morning is using the evidence that we have, what we have had to make judgments about is which bits of that historical information are more relevant to thinking about the period going forward. How much do you look to the last year as driving the next few years? How much is it getting back to the experience pre-2008? It is based on your best information and statistics of historical performance. Part of the judgment about forecasting is which bits of history are most relevant to taking a view forward, but an essential underpinning part of that is to know and understand what has happened historically, and that is only over a relatively limited period. How far back is that limited time? The detailed national accounts are available back to 1998, but some of the other sources of information—some of the earnings sources—go back to the early 2000s. That is the time period that we have for most of the information that we are dealing with. It is more limited for things such as the survey of personal incomes, which does not go back too far. Before David Cymru, a good illustration of the differences in trends is from figure 2 in our report on the productivity growth, which shows the differences between the pre-2008 trend and the post-2008 trend on productivity and where our forecast is in between those two lines. It shows a big judgment to take which of those average growth trends you feel is sensible to be closer to. It is a big part of the judgment of forecasting, but one of the classic breaks, obviously, in the last 20 years has been that 2008 financial crisis, where something seems to have changed in the Scottish economy. Sorry, David. In figure 2.1 of the report, it is somewhat arbitrary, but we break down the recent performance of the Scottish economy into three periods of time. We have the pre-2008 period, which we call the long-run stable trend. We have the national accounts data back to 1998, but there is some of the information available much earlier than that. You can go back to the 60s and you do see quite smooth growth at around 2 per cent. That is the long-run trend point of the economy historically. You then got the financial crisis year, so 2008 to 2010. That is when the economy was contracting. The starting point for our forecast is the period from 2010 onwards. That is what we say is the recent history of the economy that we are looking at over which period of time growth has averaged just 1.2 per cent. That is the period of time that we spend most of our work scrutinising and trying to understand and break down that six or seven-year period that we feel is the most indicative of what is going to happen over the next few years. Do you work to any particular margin of error, or do you acknowledge any margin of error? As we were saying earlier, because we do not have a forecasting record, it is difficult for us to say what our historic forecasting errors have been and therefore how we should look at those in the context of our previous forecasting errors. I think that it is important where we can to do, as we were talking about before, sensitivity analysis. Anyone who is reading a report has a real understanding of the key assumptions that we are making, and what really matters and what the forecast is really sensitive to, whether it is population or productivity or anything else. That is what we can do in order to inform people who are reading our report about where the real uncertainties lie and what are the key assumptions to get as close as you can to what actually ends up happening. As we build up a forecasting record, we will be able to do more of that in terms of our historic errors. I have a brief point on that. Inevitably, we would not expect and I encourage you not to expect that they will play out precisely or exactly. That is a very uncertain business that we are involved in. What we really want to emphasise is that, if the economy plays out in a very different way than we were expecting, we want to seek to evaluate and understand where that difference comes from and what implication it would have for the statistics. That is why the sensitivity analysis that we have produced is so important. In some sense, as I mentioned in one of the questions earlier, if the productivity performance is much better than we expect, that might lead to a reaction somewhere else in the system, which might lead to lower employment. If migration is lower than we expect, that will have an impact somewhere else. Perhaps a key purpose of those forecasting models is—or a second purpose. The first is the fiscal framework needs to have a set of estimates that need to be used by the respective Governments in terms of the fiscal process. However, a second and very important purpose is to understand systematically how the economy might differ from what we are expecting and to ensure that we understand how it might differ. That is what we have come through. I hope that the report adds to the consideration of where the various impacts might change over time. However, we should expect a margin of error, because that is the stuff of economic forecasting. We have heard from witnesses about the rise in job insecurity in the labour market and the squeeze on earnings in Scotland and the UK. Can you set out a bit more about how you think conditions will look like in the labour market over the next five years? Underpinning our forecasts that we touched on earlier is that our central expectation is that productivity will remain relatively subdued, but employment and unemployment will remain at not only at record levels, but we are expecting further increases in employment and reductions in unemployment. In terms of what that will feel like on the ground or in terms of the labour market processes, I think that it tells a story of a continuation of the sort of trends that we have been seeing in the recent past, many of which you have drawn attention to. The flexible labour market that we have seen across the UK and in Scotland is the key feature going forward. The issues about precarious employment, the trends between part-time and full-time, wider issues around the gig economy, we have not dwelled on that in any great detail in the report or drawn out the implications of that, but implicitly underpinning our forecasts is the sort of trends that we would expect to continue. That is part of the answer to that question. A second point, which is perhaps crucial in this, probably goes beyond getting to the point of into our five-year horizon. A key issue that we would expect to be evaluating and looking at over the months and years ahead is the consequences of any changes in the labour market as a result of the change in our relationship with the EU. If there is lower in migration and perhaps changing out migration from Scotland, that might lead to further pressures and changes in the labour market. Many people are speculating on what potential impact that would be. We have yet to do full assessments of all of that, but if there is a situation where you have high levels of employment, low levels of unemployment and reduced migration, that is an added and reinforced dynamic in the labour market, which I think will be a key feature of our assessments in the future. Do you consider that changes in the labour market are subduing economic growth, this change in the pattern of employment? You answered a phrase that I used earlier. In Scotland and the UK, we appear to be recovering from the recession post financial crash and have found ourselves in what has been described as a low productivity growth, high employment scenario or equilibrium. That is where we appear to be and, at its heart, that is what our forecasts use to expect that to continue. Hampering economic growth depends on how you define those terms. The fact that we have record levels of employment in many ways is a very positive thing, but that has had its consequences for productivity. If I can slightly refrain your question, do you have the flexibility of the labour market across the UK and, in Scotland particular, interacted with our productivity performance since the recession to lead us where we are? Undoubtedly, yes. The labour market has been an absolutely crucial factor in that. Going forward, there is the potential at least that a different scenario is around the availability of workers' proposed Brexit. Some people are saying that that might lead to potential limited availability of labour, which might lead to increased wages, which might lead to increased investment to improve our capital performance. Some people are saying that that might be a positive, others are saying that it might lead to skills shortages and real constraints on economic activity. I am sure that we will come back to those questions, but, at the moment, underpinning our assessment is simply a continuation of the labour market dynamics that we have been seeing in the past few years. Over the next few years, you are not expecting an actual change to the composition of the labour market, more of the same. In terms of the workings of the labour market around part-time, full-time and gig economy, I expect that to continue. We will move on to a question from Kizia Dugdale. You take you back to the issue of Brexit, please. Your evidence suggests that the process of negotiating Brexit and the final settlement will have a negative impact on Scotland's economy. You heard a little bit from Gordon MacDonald about the factors around migration that he built into that. What other headline assumptions have you made with regard to the final settlement on Brexit? The headline response to that is that we have very much made a very broad brush assessment of the potential effects of any changes on our forecasts. To be clear, what we have not done is assessed what might happen in the economy in the absence of any change and made an assessment of what will happen if there is a change. That is not the way that we and the budget responsibility have approached the forecasts. What we have done is tried to factor into our overall assessment of growth over the next five years a broad brush set of assumptions, as we have called them, which would include the short-term impact of uncertainty and the process of changes that might happen, but also include a broad assessment of what that might mean over the longer term, although realistically, with the transition period that is being talked about at the moment, any impact of active working outwith the EU would be very much to the end of our forecasts. Broad brush assessment is broadly in line with what the OBR has done for the UK as a whole and deliberately designed to cover a range of different scenarios and outcomes of the negotiation process. As you know, there is not a firm picture of precisely what is the end point for us to evaluate and factor into the forecasts. What we have done would cover a range of different outcomes of the process that is going on at the moment. Can I ask you more specifically about the single market, for example? What assumptions have you made about us being a member of or as close to a full member of the single market as possible? The broad brush assumption is, again, similar to what the OBR has done. As far as we can, we have assumed what the UK Government has said that its policy approach would be going forward, particularly taking into account the speeches that the Prime Minister has made, in terms of her Lancaster House speech and the following speech. That set out the broad direction that the UK Government is following, and that is the background for our assessment. As I have said, you have acknowledged the precise detail of how that plays out. We have deliberately designed a range of broad brush assessments to cover a range of different outcomes within the broad direction of what the UK Government is seeking to negotiate at present. Just for the sake of the record, that therefore assumes that the United Kingdom is leaving the single market in the context of your projections? That is the UK Government policy at the moment. That is what we have taken as the core driver of the policy approach that is impacting on the UK and the Scottish economy. However, to emphasise what we have not done is a detailed assessment of the impact on trade, the impact of both the short and the medium-term periods, as I know some other organisations have done. That is not the purpose of our exercise. We have taken into account a broad brush set of assumptions that impact alongside all the other tailwinds, headwinds and factors that are affecting the economy and into our overall assessment. In your earlier remarks, you said that the impact of Brexit would be minimal in the short term, because you are projecting five years ahead. It is not as significant as you might commonly expect it to be. Why is that? Is that because the current rates of growth are so subdued that any further instability is not really going to have a dramatic effect? What can you tell us about what will happen five years hence? Is that when you would expect quite a steep rise or indeed fall in economic activity? I think that I was just trying to emphasise that if the timetable for leaving the EU was to be spring 2019 plus a two-year transition period, it would be into 2021. The period that the current timetable set out by the UK Government for the UK to be in the post-transition new arrangements would be effectively the final year of our forecast, so it would be some time to get there. Over the future months and years, we will be fine-tuning in developing that forecast, but at the moment we have not done an assessment of what the potential implications would be for our growth forecasts of the new arrangements post a transition period, simply because we do not know or we do not have the details of what they are. It would be unreasonable to expect us to do an assessment of them. Are you in any sense drawn to reconsidering your forecast in light of perhaps staying in the single market? Would that change things markedly? Our role is to assess what the economic picture would be based on current Scottish Government policy. We have interpreted our broad assessment as to include current UK Government policy, so we are doing the assessment based on the stated policies of both Governments. It is not our role to do any assessment based on what the Government may or may not do in the future or the impact of the range of policy options that the Government has in the future, so at the moment we are simply assessing in the broad terms that have described the current trajectory of UK Government policy. That is a no. It is what I said. I wonder whether I could ask just a number of very quick questions, convener. I understand that you have used a supply-led model of forecasting rather than a demand one for those of us that aren't economists. Could you explain why and would it have made a difference to your ultimate forecast? I will perhaps leave our head of economic forecasting to give your answer to that. We consider both the supply and the demand side of the economy. We do not exclusively look at one or the other. For near-term economic performance, we place more emphasis on the demand side of the economy, so how much money are people spending today? We have some short-term models that look at the available data, what is coming through in the surveys, things like business expectations, and we use that to drive our forecast over the next few quarters in the first couple of years. Over the longer term, we need something to anchor our forecast on what the economy is going to look like in five years' time. To make that assessment, you have to start thinking about things like population and demographics and longer-term trends in the labour markets and then ultimately longer-term trends in productivity. For that five or six-year outlook, we place more emphasis on the supply side of the economy, but what our models do is bring the supply and demand side together to form a complete picture of the economy over that five-year period, so we do not exclusively look at one or the other. That is helpful to know. Can I ask you about the impact of the offshore economy on the onshore economy? I understand that you have clearly separated the two, and that is rightly so, but when you think about the north-east, the impact of the offshore economy is evident for all to see. Given that there is a slight upturn in the price of a barrel of oil, which I hope is sustainable in the long term, I am keen to know that that positive impact is captured in your modelling as well. I will briefly and again pass it to David. I think that the higher oil price that we have been seeing in the last few months is clearly a positive factor in terms of overall activity. I think that all the committee will recognise our focus on onshore GDP, as you have described, rather than on the offshore activity, but there is a very strong interaction. We have based our assessment on a close reading and analysis of the current and future activities in the North Sea. We recognise the industry views that the likes of oil and gas in the UK have said, but it is a very broad brush assumption in terms of forecast. I would not be saying that the more recent upturn in oil prices over the last few weeks would lead us to any re-think of the detail that I was saying. In as far as the oil prices are higher, there have also been some positive announcements in terms of overall exploration and production. I think that that is a further indication that the oil and gas sector has moved from an exceptional buoyant period up to around 2014 and the price fall at the start of 2015, perhaps a period of sharp retrenchment that you would expect. It is now getting back to making the significant positive contribution to the economy going forward, but not at a level that we saw in the early parts of this decade. Yes, good news would not expect it to fundamentally change our overall assessment. Can I move on to productivity very quickly? We have always been told that, in recent months, productivity is increasing rapidly, but I understand from your paper that it has largely unchanged since 2015. Let me pose a question in relation to unemployment, because there are studies from, I believe, Sheffield University that talk about the underlying level of unemployment being much greater than the official statistics, almost double in some cases. Did you assess that data, because to me that is potentially where there is productive potential? I think that, in headline, what we have mainly assessed is the balance between overall productivity and employment. That is why we were so keen to do the sensitivity analysis. There is potentially scope in the economy for those who are already in work to work more in terms of increased hours' work. There is a potential for boosting the productive capacity of the economy by reducing economic inactivity and bringing that back into the economy. There are areas where there could be an increase in capacity. I share the view that that is a potential sensitivity that might lead to, by definition, an increase in employment and it might boost GDP, but I think that what I was trying to get at earlier is that there is a balancing act here. If there are more people in work, more people working longer hours, that might lead to weaker growth in productivity and vice versa, and that is the balancing act that we need to go forward. It links back to John Mason's question earlier about wages and employment activity, better understanding of where we can potentially bring more people back into the labour market, particularly where the labour market is at high levels of employment. It is an area that potentially can boost economic activity but can also impact on wider social objectives, reduced poverty and others, and that is certainly an area that could be looked at further. You seem to suggest that, because you believe that we are operating above capacity, that there is an inherent structural problem in our economy. It is not just a temporary weakness, we can apply a little policy to it and massage away. There is something more fundamental going on that suggests that there is a problem. It is something more fundamental and that is back to the productivity levels and the overall performance of the economy. Thank you very much. All right. Are there any further questions from committee members? Certainly, Jamie Halcro. A quick question. Sorry, just on the back of what you have been talking about with Jackie Bailey and also your predictions for what you call subdued growth could have gone forward. Are there any particular individual sectors that you are forecasting or able to identify as perhaps more likely to suffer from subdued growth or lack of growth? I think that the areas that perhaps we have touched on in the sense that they are contributing less than previously to the overall performance of the economy that we have mentioned, such as well-in-gas construction and other areas. For the economy to show or for the performance of the economy to be, in one sense, better than we are forecasting, we would certainly look to the manufacturing sector to be further boosting its productivity. We would expect, for example, oil and gas, which has been a key driver. The areas of the economy that have shown strong productivity performance are perhaps those ones, but to lead to strong improvements in productivity, we would expect that to see that across the economy as a whole in productivity in services, in government activities, in health service and others, will be a key factor in contributing to the overall performance of the economy. No further questions in that case. I thank all of you for coming in today. Thank you very much. I will now suspend the session and move into private session.