 Good morning, and welcome to the 28th meeting in 2017 of the Finance and Constitution Committee. The usual story plays as far as your mobile phones are concerned. The first item on agenda today is to take evidence on the Scottish Government's legislative consent memorandum in respect of the EU withdrawal bill, which is currently being considered by the UK Parliament. We are joined for this item by Michael Russell, the Minister for UK Negotiations on Scotland's Place in Europe, and Mr Russell is today accompanied by Scottish Government officials Ian Davidson and Luke McRatney. The minister gave evidence on the 20th of September, and since then, we have taken evidence from a range of witnesses, including lawyers, academics and UK ministers and other stakeholders. I do not think that the minister wants today to make an opening statement, so we will just get straight down to questions. Ash Denham Thank you, convener. Good morning. Obviously, we know that the Scottish Government and the Welsh Government put forward joint amendments to the UK Government with regard to the EU withdrawal bill. Can you give us an idea of what progress has been made regarding the amendments in particular? The amendments are due for debate. The issue of devolution in the withdrawal bill is due for debate next week, Monday, in the House of Commons. Clearly, we will have to see how that goes. I think that I should make it clear that we cannot agree, and I know that the Welsh Government's position is the same, because I had a meeting with my Welsh counterpart, Mark Drakeford, in Dublin on Friday morning. We cannot agree to move forward on this unless the bill is amended. I think that I will talk later on about the progress that we are making in terms of the frameworks and the formal discussions, but a sine qua non of this is for the bill to be amended, and for clause 11 particularly to be either removed or changed by amendment. Without that, we cannot complete the progress and we cannot bring a legislative consent motion. That is where things are. We will know next week. There are, of course, other opportunities for amendment. The proceedings of the House of Commons are compared to the proceedings of our own parallel, the little arcane. There are other ways to do this, and perhaps the amendment will come into later stage, but Monday is quite crucial. We need to have an assurance in the UK Government—clear, categorical assurance in the UK Government—that change will come. The Secretary of State for Scotland, David Mundell, was in front of the committee as you will probably be aware a couple of weeks ago. He said that there was very detailed, on-going discussions taking place between officials to look particularly at the amendments. I'm just wondering if you're able to confirm any details that that is on-going or comment on it at all. Discussion has taken place. There has been a detailed and I think positive discussion, but the ball is very much in the UK Government's court. They know the position that the two Administrations have taken. They know the changes that we require to see. Of course, if there are other changes that they want to bring that are consistent with those objectives, then of course we will discuss those. I'm endeavouring to keep the political parties informed by means of discussions with individuals, including Mr Tomkins has been at some of those discussions. We are involving all the parties in those discussions, but we've never made any secret of the fact that there have to be changes. Obviously, there's been progress made on the common frameworks. Do you think that the fact that progress has been made there is kind of overshaddering the fact that maybe no progress has been made on the bill? Well, they are operating on two different timetables. I mean, they're co-joined, but they are two different timetables. Of course, the opportunity for change comes at the amending stages of the bill. We are getting close to the first such opportunity. I'm absolutely happy to accept the assurances that I have from a range of people that that work is on-going, but we have to see some fruits of it. Damian Greene is in Scotland tomorrow and we'll be meeting with the Deputy First Minister and myself, and this will be a point that we will make very clearly to him. Okay. I just wonder if you could give us your view on how likely you think the success and amendments that will be debated in House of Commons will be on Monday. If that's not successful, what the Scottish Government strategy is there after? I think that we're all keen to find a solution here. I think that there's a general view as well that, obviously, clause 11 has to be amended in some way if not disappeared entirely. Therefore, any information that you could give us that we could help with that, I think, would be useful. I think that this is a matter for the UK Government now. We've made our position entirely clear. If the UK Government has alternative amendments that they think would serve the same purpose, we are absolutely open to those discussions. I can't speak for the Welsh Government when I think that I'm confident that they would be in the same position on that, but they have to decide what they're going to do now. If on Monday these amendments are not accepted, that would be the first, I suppose, as a series of branch diagrams here. If the amendments were accepted, that concludes the matter. We move on and that's done. If the amendments are not accepted and are put to a vote and succeed, that's it done. If the amendments are put to a vote and fail and are defeated by the UK Government, then we need to know what the UK Government intends to do next. Is that a conclusion of the matter? Are they going to proceed with the bill unchanged? Are they going to bring forward further amendments? Have they a view on what those amendments should be? We are almost, as is ever in the Brexit issue, a step at a time. It is testing the ground and seeing what's next, but I would hope, because I'm always an optimist, that they would see the sense of these amendments and accept them. Do I expect that to happen? Well, I'd like it to happen. I want to try and focus on solutions to what I'm going to call the clause 11 problem. I think everybody around the committee table fully understands the Scottish Government's position and, as you know, we've taken evidence from UK ministers in two different departments to try to understand the UK Government's position, too. Rather than going over that ground, I'd like to just try to appear a little bit more, one might even say, to a deep dive into what the solutions are. Can I take it that you agree, and the Scottish Government agrees, that there is likely to be a solution in and around common frameworks? Yes. I'm only hesitating, because there cannot be a solution if clause 11 remains unchanged. Frameworks in and of themselves are not going to produce a solution. They are necessary part of the solution, but they're not sufficient to produce the solution. That's helpful. Do you think that clause 11 will need to be amended to reflect the existence of such frameworks? That would be a possibility, but the main objection to clause 11 is, of course, that it changes the devolved settlement, or at least our objection to it, is that it changes the devolved settlement. We do not accept that change. If the Secretary of State for Scotland is to be believed, and I'm sure he is to be believed, that this should be done by agreement, not by imposition, then clause 11 still has an element of imposition in it, so that would have to be changed. The Secretary of State's position, he's made this very clear, both in the House of Commons committees and here, is that all 111 of the powers identified in that Cabinet Office list will be exercised after exit day, either by this Parliament or subject to a common framework to which the Scottish Government is a party. I'm speculating, but if clause 11 were to be amended to reflect that position, would that satisfy you? I don't want to be difficult with you, but I would want to see the wording on that. That would be a step forward from where we are now. We have one means of amending this, which essentially expunges the issue of clause 11. If there is another solution to it, which accepts that any changes take place by consent, then I think that that would be something which we would be willing to discuss, and I think remain willing to discuss, and that always have been willing to discuss. On the detail of this, Professor Rawlings in our last evidence session suggested this, that in place of clause 11 there might be included a power, and I'm quoting from his evidence, to add, remove or modify reservations in the devolved settlements to reflect frameworks. That would presumably be done by a section 30 procedure that would require consent, not just to the Scottish ministers, but of the Scottish Parliament. Is that the sort of thing that you would be prepared to look at? Again, I can see the way in which that might operate successfully and would meet our objections in terms of imposition, and I think that that's the key issue. This has to be negotiated and agreed, it cannot be imposed. If any amendment or set of amendments were to come forward, that removed the imposition and made sure that this was done and could only be done by agreement, then I think that we would be more than willing to discuss those amendments. Of course, I can't make a hard-fossed acceptance, but I think that there is an opening there, although I would counter that by saying that our amendments would be preferred and that we prefer the route that we are taking on this. Yeah, I understand that. That's very helpful. Final question from me. I have to say I'm still not entirely satisfied in my own mind that I know what a common framework will look like when I see one. I haven't seen one. Can you help the committee understand your thinking on how they will be constructed and how they will be policed and enforced in the event that there is a breach or looks to one party like a breach of a common framework somewhere down the line in the future? Well, that's precisely the work that's under way. I think, first of all, there isn't one standard common framework. There will be a degree of different arrangements, some of which will replicate what we already have in some areas, which is the ability to work together. A slightly unusual one, which I dredged from my memory the other day for my time as environment minister, is the solution that was found to the Solway and Esk issue, where there are two different administrations, of course, that are administering rivers that cross the border. Now, I'm not saying that this is a template, but it's simply one way in which a contentious and difficult situation was solved at the time of devolution. There will be different types of arrangements that will come to that, but the work of the deep dive, and Ian Davidson has just surfaced after more of deep diving, has been to identify, first of all, the proof of concept. Could it be done on looking at the specific details of one or two areas and then saying, could we devise a system of governance around that, which accepted—this is the word that would also need to be fleshed out—the co-decision making that we would have to be involved in, that there was a confidence that we could reach decisions in a way that would be binding on all of us? That work is also, I think, moderately successful. Now, having gone from principles to proof of concept to governance and dispute resolution, what we need to do is to take those three to two more stages. One is political agreement on the subjects that are covered out of the list of 111, and finally, their conversion into legislation should that be required, either through the macro clause 11 solving the clause 11 problem or the micro, in a sense, embedding, for example, in the agriculture bill. I would have thought out of those five pieces of progress that we need. We're probably reasonably well done on three of them. The other two require the action. Damian Green is here tomorrow, so maybe we'll make some progress on that, and then they need to be converted into action. I'm moderately confident that this is going the right direction, but unless we resolve the clause 11 issue, then it's either all agreed or nothing's agreed. I understand that, but just on the final point there in your fifth finger, the legislative issues, you are content in principle—of course, you won't see the detail, but you are content in principle that a number of these common frameworks might need to be reflected in legislation. I've always said that there will be a need to reflect someone or more of the common frameworks in legislation. Agriculture's the obvious one, because there's an agriculture bill and we'll see how it happens. It wouldn't be automatic. I mean, I can imagine them operating without that, but there is a potential for that happening. Thank you. Let me just pick up some of the nuances of the discussion that you just had with Adam there, because in relation to the evidence from Rick Rawlings, I think that your answer was quite interesting. Obviously, all of the Scottish Government's position rightly is centred around consent and agreement. When the Scottish Government consents in the greed of things, you can then move forward and understand that. Professor Rawlings talked about other circumstances in which you could count alterations to schedule FIDE, which expand the scope of reserve competence. That's what Adam was referring to in his question. Does that mean that the reality behind the scenes in the new young services is where it's important? It actually means that, while the UK Government might be able to legislate in areas that are devolved, if we agreed those, rather than it being a situation in which things are reserved? Well, I can conceive of that happening, but let's be straightforward about the principle of devolution. I'm not willing to undermine the principle of devolution. That lies there as the core principle, which is reserved and devolved, the clarity between those. Those are different set of circumstances that we're in. They're unexpected, they're an unwelcome set of circumstances in which we're in. It is incumbent upon us to negotiate and to discuss, but we're not going to undermine the devolution settlement. We're not going to accept anything that creates circumstances in which either we are unclear about what is reserved or devolved, or we're in a situation in which new reservations are imposed upon us. That's clear. The rest of it is for negotiation, of course, because we're trying to find a legislative solution to a complex problem. I just wanted to make sure that that news is drawn out, Patrick. Thanks very much. Good morning. Just to expose a bit further, the question to me that still seems unanswered is whether there is a belief that either the UK Government asserts or that the Scottish Government implacably rejects that a common framework requires a single decision making level. The example that was used in one of the evidence sessions from some of our witnesses was on marine planning, where there are a mixture of reserved but many devolved areas, where there was a process of consultation at both legislative levels, stakeholder engagement, parliamentary scrutiny and separate legislation in the two legislatures. Does that arrive at something that deserves to be called a common framework, given that if there was divergence in the future, that would be permissible? It would not be something that Adam Tomkins called a breach. It might be unfortunate or unhelpful, but it would be divergence, which is legitimate within the current... I absolutely concur with your view that this is not and should not be seen as a means of imposing uniformity on the agreed devolved settlement. That is not what it is about. It is about dealing with the interfaces that have been created as a result of the Brexit process, which have not occurred before and which require a resolution. In the example that you gave, the established example that you gave, only those areas where there is presently EU competence being exercised and there is a dispute of some sort about where that competence should lie after Brexit should it take place, would the question arise of whether there should be a framework? If the existing operation works and works well, as Marine planning is a very good example of that, there is an entirely clear set of arrangements for marine planning. There are a range of organisations involved and there are established ways of dealing with any dispute or conflict that arises. I do not think that that would, for a moment, suggest to me that there should be a framework in there. Sir Mandel is still saying to you what he said to us, which is that he wants to have a process of agreeing where there would be common frameworks, but that does not necessarily mean agreement about the contents of common frameworks, then we have a problem. Yes, let us start with a list of 111 points. If something is not on the list of 111 points, it is by definition out of scope and consideration. It is not there. If we were to start to see things added to the list of 111, this whole thing is doomed, that we cannot make any progress at all. We start with a list of 111. Moreover, we pair that list back. That has been something that has been much under discussion. We do not accept that anything should be on that list to be blunt. They should all be coming back here. In the process of this negotiation and discussion, if items were to fall off that list because there is no interest in them, I think that the example that was used by Adam Tomkins in his article was the aircraft noise, if I remember correctly. I am a keen student of what Mr Tomkins writes. The aircraft noise issue is exactly the point there. There is no reason why that should be included in any of those frameworks because it is perfectly possible to exercise it under existing legislation and powers. We just have to say that that power, the competence coming back goes directly to Scotland. We take those out of the list. We are left with a range of issues that will require further resolution. Our initial approach to that is that they all come here. The UK Government's initial approach to that is that they all are reserved. Somewhere in the middle there in shared frameworks operating under co-decision making, there may be a solution. We recognised that last year in the Scotland's Place in Europe paper. We have not changed our position on that. Just to take you back to the principles of the common frameworks and the statement of principles agreed by the JMC. I will not read them out in full, but they enable the function of the internal market, compliance of international obligations, new trade agreements, management of common resources, et cetera. Can you just talk a bit more about how these principles were arrived at and were they co-produced by the UK Government and yourselves or were they just presented to you? No, we were presented with an initial list and our position was that we found that initial list unacceptable. It did not recognise the principles of devolution essentially. That was a classic process of negotiation. Officials undertook to some fairly heavy duty negotiations over a period of time to come to a set of principles that we could agree and those are the principles that are now in front of you as part of the process. What we then did quite interestingly is that when we agreed these at the last JMC on the 16th of October, my own view was that they should then be published and they were appended to the Communicator by agreement of the meeting so that they were clear. Similarly, we will try to keep doing that as we go forward. The next JMC is on the 12th of December. Again, I would want to make sure that we are being entirely clear about what we are doing. We have this established. These are the principles that we are working on. We then need to make sure that we are illustrating the proof of concept that has taken place. I hope that by then we might be able to illustrate the governance issues. We will build this up. This is partly confidence building to generally between the partners who are negotiating and also in the public so that people understand that there are some firm clear foundations being put down here. Thank you. Would you go as far to say that the JMC is being much more constructive than previously? It depends on what you measure it from. The baseline is quite low. I think that we worked very hard to try to get the JMC up and running last year. It was disappointing when it stopped meeting. The UK Government broke the agreement that we had to meet monthly and broke the agreement to be the means by which we would try to seek agreement on the article 50 letter. I have at this committee before paid tribute to Damian Green and his effort to get it going again. One of the things that has changed is the membership. The JMC was a very unwieldy instrument. I am never tired of telling the story of the JMC Europe. I attended in 2009, in which I think there were 21 UK ministers, myself and Rodri Morgan. It was not exactly balanced. On this occasion there was the Secretary of State, the First Secretary, the Secretary of State for Exiting the EU and the Three Territorial Secretaries of State. That was it. Plus on the other side of the table, myself and Mark Drakeford. That was a better dynamic. I have to say that Damian Green chaired it in a way that created a better dynamic. That allowed us to make help, at least was one of the factors that allowed us to make this progress. We are committed to that process, so are the Welsh. The UK Government committed the process good. I am sorry that Northern Ireland is not there. I think that is a major loss to the process. I was in Northern Ireland on Friday and Saturday last week. It does seem to me that there is a need for participation. I had a meeting late on Friday afternoon with across community organisations and businesses and a very strong view that they should be there and their voice should be heard. However, we will endeavour to continue to build confidence in that process. I just want to follow up on the issues about the common frameworks. It is something that Patrick Harvey touched on. When the Secretary of State was here, he talked about—this is in relation to the LCM. He talked about, in his view, if we got to the stage where we agreed what the process for agreeing was, that was sufficient progress rather than agreeing to agree. I think on your five steps. I think that that gets us to probably step three and a half, but I am not exactly sure. I just wanted your reflection on if you agree with that perception of how we reach agreement, or if you disagree. The word sufficient progress has another and separate meaning in the lexicon of Brexit, so I will be careful about how they are used. This is not a circumstance in which this process simply moves forward because we have sufficient progress. These are a set of discussions in which we need to get to a conclusion, because there is an end point. There is an end point, both in objective and in time. The end point in objective is to get the bill passed in a way that can be given legislative consent so that we can move on from where we are. The objective in time is to do that before the bill is actually through. We have got to achieve that. I would not accept that we are simply talking about talks or seeking to find ways to agree about agreements. We have got an objective to meet here. It is a question of how we get to that objective. We have done it methodically, and that is the right way to do it. We have done it by agreeing principles and by doing it in terms of proof of concept. We suggested that we looked at a number of areas to see if we could work out how frameworks would work. We are now looking at it in terms of governance and dispute resolution. We then need to see it within the wider context of how we relate to each other through the bill and the changes to the bill. Finally, that has to be expressed in legislation. I am just keen that we keep moving along that path. Tomorrow is a meeting with the First Secretary, and then the next GMC will be further aspects of that. We will reflect upon the experience that Ian and his colleagues have had of the deep dive process, and I hope that we will be able to cement something in. However, it is step by step towards an agreement. That is what our objective is. We could be in a situation in which we have agreed what common frameworks look like, and we have agreed the process for guarantee. However, we have not nailed down what the detail of the specifics is, but that would be sufficient. If we have confidence that we can see how they work, and that is proof of concept plus governance and dispute resolution, that would be fine. However, nothing is agreed until all is agreed on. The key that turns us lock is quite complex because it has got to have trust and belief that these will work, but it has got to have physical change to the bill. Those things have to both happen. If, at the end of this process, those things have not happened, then there will not be an agreement. That means that there will be no legislative consent motion, and it may mean that we bring forward a continuity bill. We have options within that, but we are committed to this process. That is exactly the final point. If there is a failure to agree, where does that leave us? We have made clear in the wash and made clear that the less desirable option, but it still exists as a continuity bill. It is legislation here. That will be hard work. There are difficulties in it, but it has to be. However, we can resolve this as long as there is an understanding that the bill has to change and as long as we continue to make progress on the discussions that we are having. The official discussions have been positive, and the progress is being made in them. That is a good thing, because there were periods during this year when the official discussion was producing nothing of any description. That is good. I will tease that out a bit more. At the end of the day, there will be a final piece of the jigsaw that has to fit in place before agreement can be reached. Everyone has to be agreed before we can get agreement. I guess that final piece of the jigsaw will be that conflict resolution issue. Although the Secretary of State said that he thought agreement should be reached by consent and what the process was about, that is different to the actual content that Patrick Bell picked up earlier. That final piece of the jigsaw needs to be in place, not just to give the Scottish Government some assurance, but to committee some assurance that that issue is resolved. Where are we getting to with that conflict resolution issue? My view is that you build your way towards that by building confidence and trust in the process. As we discuss these things, we are doing it on the basis that we trust each other that will get an outcome that is acceptable. That process is on-going. There have been discussions this week on dispute resolution and governance. We will reflect upon the outcomes of those over the next few days. Certainly, in our discussions with Damian Green tomorrow, I would be happy to have a further conversation with you when we know where those are. I suppose the next key date is the GMC on the 12th, at which I think we would seek to make some progress on these. If we can come out on the 12th with some agreement on what the next steps are, I would be happy to report that to you. We are not there yet, so I am not going to make over-claim about what the situation is, but you are right to say that is a key element. Just as getting the principles was a key element, just as proof of concept was a key element, those are all things that fit in step by step. That will be the last piece of jigsaw that will probably fit into place. The last piece of the jigsaw will be converting all that into legislation, into an amendment to the bill that is acceptable to all of us. This is all without prejudice to the outcome of negotiations. We are doing our best, and we are also very happy to talk about it. We do not believe that it should be a secret, but equally, I cannot say at the precise moment at which that will happen. Let me just go a bit further than that, if you do not mind. I guess the question that I really want to ask—I am not sure that I should ask it so directly—is that, if at the end of this process there is no resolution to finding out about how we sort out the fine words of these frameworks, and there is no resolution to the conflict resolution. Does that mean that you cannot recommend an LCM to the committee? I think that it is important that this committee needs to know that, just clearly for the record, because we will have to take a view on ourselves about how important that last piece of the jigsaw is. We will not recommend an LCM unless we are convinced, firstly, that we have frameworks and a structure will work and that, secondly, the amendments to the bill will meet our objectives. That takes me to Neil. We have heard evidence that, despite assurances to the country, the Scottish Government routinely relies upon UK subordinate legislation and the transposition of EU obligations without this Parliament being kept informally alone, as for its consent. If the UK Government was to concede that the consent of Scottish ministers was to be sought before UK ministers made any amendments to the Scotland Act or other legislation within devolved competence, what assurance can you and the Scottish Government give the committee that will inform the Parliament before it consents to such amendments and consider seeking parliamentary approval? I gave that assurance at the last meeting, Mr Bibby. I am happy to give it again now. That is what we will do. Not only did I give the assurance the last time, but I also said that we wanted to set up a mechanism to make sure that we did not exercise our own powers until we had consulted. I believe that that discussion is on-going with the Parliament. I am very keen that it reaches a conclusion, but I have no wish to take on powers that are allocated to us and simply to exercise them in the way that I believe that they should not be exercised at Westminster. There are amendments to the withdrawal bill that will give effect to changes at the UK level on that. We will, at the very minimum, mirror those, but I intend to go further to make sure that there is an agreement between the Parliament and the Government about how we do that. Minister, could I ask about clause 7? In particular, it protects the Northern Ireland Act, but there is no such protection for the Scotland and Wales acts. Has there been any progress in your discussions about that, or is it in the basket of asks and amendments that you can look forward to? It is in the basket of asks and amendments. There are particularly difficulties in terms of Northern Ireland, as we know, and we should always be conscious of the fact that we are not drawing an exact parallel with Northern Ireland and we do not draw an exact parallel with Northern Ireland. Clearly, protection for the Northern Ireland Act and no protection of the Scotland and Wales acts is not equitable treatment, and there are issues that need to be addressed in that. It should not be taken that we approve of all the parts of the withdrawal bill that we have not sought to amend. That would be a misreading of our position. We have been very careful about saying what we want to amend, because the process of amendment is for Westminster MPs to undertake, and they are the people who will discuss, for example, the European Charter, which is a Westminster issue. I would want to see it maintained. I am sorry that the vote did not follow through on that. The areas that we have focused on are the ones that we believe produce a threat to the devolved settlement, and therefore we want to change them. However, the other areas that we look to Westminster MPs to amend and to object to, and our own SNP MPs have done that, Labour MPs are doing it, Liberal MPs are doing it, and some Tories are doing it from time to time. So, there is a fairly widespread opposition to some parts of the bill. In terms of the soul convention, the Secretary of State, when he came to see us, said that he was quite happy to talk about extending that to cover secondary legislation. He said that his own record is saying that. How should that commitment be put in place if that is a genuine offer to do with it? I think that that exists in Wales, does it not, because of the legislative processes in Wales? We would be very happy to enter into constructive discussions with the Secretary of State at any stage about changes to that process. That would involve the Parliament very heavily, rather than the Government. Of course, we should have those conversations. You mentioned that you were in Ireland over the weekend. I know that the border in Ireland continues to be a huge sticking point. For me, my area, Cairnryan, is the third-largest fair report. Is there any progress in the border? If there is, how would it help or hinder us in Scotland? We have to be careful in discussing this issue. Clearly, again, we do not draw exact parallels of any description. I was in Dublin on Friday morning to speak at an event in the very beautiful Royal Irish Academy in Dawson Street. I had a series of meetings, including with the British Irish Chamber of Commerce, which, if you have not seen it, published an excellent report on Monday about trade and the way in which they needed to secure customs union in order to continue with the work that they do, which is very important, the trade between the UK and Ireland. After speaking at the event in Dublin, I was driven to Belfast because I was meeting cross-community leaders. I was presenting an award and speaking at a big cross-community awards ceremony to have the Ashing Awards. On Saturday morning, I was given a tour of the Peace Walls by Professor Heenan, who is an expert on community issues. I was very struck by the sensitivity of this issue and how important it is. I was also struck—I was in Brussels last week, too—how the dialogue in Brussels about the issue of sufficient progress had changed utterly in two or three weeks since I was last there. I moved on from finance and the issues of citizens' rights to a focus that was almost entirely upon the border issue and how that would be resolved. Now, this will be up to negotiators and others, but it is a very difficult conundrum. It is obviously utterly unacceptable to Ireland and to many people in the north that there should be any impediment on that border. If you drive that border, you know precisely what that is. The border has 257 crossing points. Actually, only 20 of them were opened before the single market, so this has transformed what is taking place. There is a wonderful statistic—I cannot remember exactly about the fact that there are far, far fewer—well in the teens of crossing points on European frontiers from the Arctic Circle to the Urals, but there is all this number in Ireland. It would absolutely change things and vary damagingly where there to be impediments and crossings. They need to resolve this, but they resolve this in the context of the political agreement with the DUP and you heard what happened at the DUP conference this week. Now, it is up to them to resolve it. All I can say—and I did this in an interview in Ireland on Friday morning—there are issues that arise in a border down the Irish Sea. They would have to be coked with, but there are issues that arise for Scottish ports, for Audroson, for Stranraer, for Cain Rhine. They are physical issues, of course, because of the capability of those ports. If you have to introduce customs checks or whatever in those ports, that creates a big difficulty. I have met with the British Ports Association Chamber of Shipping talking about physical infrastructure ports. That would take some time to deal with. There are also security implications that should have to be dealt with as well. Clearly, there is an unacceptable of that in parts of Northern Ireland that would be problematic. The solution to this lies in what the Scottish Government's position is now and has been for the last year, which is that we should not be leaving EU, but we should definitely not be leaving the single market and the customs union. This is crazy because it will create all these difficulties. There are no advantages in leaving those. The boasted advantages, if I may use that Bernsian phrase of Brexit in these regard, are absolutely untested. When you look at them closely, they fall to pieces. In terms of the customs union, where are these free trade agreements that have to be held with lots of other people that are going to compensate us for the front page story today in terms of the Fraser-Vallander report, for the loss of the jobs and trading income that will come from that? We really need to be very clear that the best solution for this is undoubtedly continuation of the customs union and the single market, certainly the customs union. In those circumstances, if that is to take place, it should also take place for the rest of the UK. It should certainly take place for Scotland because that avoids those issues. It also allows the trading relationships to continue. It is not simple that the Scottish Government is saying this. This is being said widely. I go back to the British Irish Chamber of Commerce. This is the position of business and industry who are saying that if you impose these new barriers because you remove yourself from the customs union, you do nobody any favours of any description. The French ambassador to the US, rather memorably about a month ago, pointed out that it is not in the interests of free trade to remove yourself from the largest free trade bloc on the planet and 53 free trade agreements, which is precisely what is happening. That needs to be reconsidered. Patrick, the minister introduced the Fraser-Vallander Institute. Do you want to ask him questions about sectoral impact? That is probably as good a place to come in and I will come to James. I did want to ask about when is an impact assessment, not an impact assessment. You wrote to the UK Government yesterday after having been given what I think you described as material that is shallow and contains no policy options, still less assessment of impacts. Am I right in thinking that you have agreed to accept that information from the UK Government on the basis of secrecy and that you will not be sharing it with this committee? You are right to accept that the material was given to us on the understanding that we would not publish it. I think that in those circumstances certainly we are not going to publish it. However, we have urged the UK Government to publish it, it belongs to them, and we have supported the DEXU committee's position that it should be published. We have to be very careful about what any Government does when it is given material by another Government justice material we would give in governmental terms. I am not going to publish it, but I am urging the UK Government to publish it and I am urging them to publish the material that clearly is not in this. These are in the form of standard templates that have been filled in more or less, and it is pretty thin. Some of it, I have to say, I do recognise from papers that may have come to JMC when it was meeting, so I think that some of it is rehash of other material. I do not think that any of us should be particularly surprised that you are unimpressed by the quantity and quality of what is there, given that the UK Government has variously described these impact assessments as both existing, non-existing, sketchy and in excruciating detail. They cannot be all these things simultaneously. However, I am slightly disturbed by the implication of your decision to accept this information on the basis that you will withhold it from parliamentary scrutiny and from public scrutiny. Surely you agree with the basic principle that if the Westminster parliamentary scrutiny has access to that information, so should the Holyrood parliamentary scrutiny. Surely you would not provide information to the UK Government on the basis that it would keep it secret. Why agree to the same thing in the internet? Let us just be clear about this. I might well provide a letter or information to the UK Government on the basis of confidentiality. That would be a reasonable thing to do. This month in the chamber, you said to me that the Scottish Government believes in the need for transparency on the basis of secrecy. I indicated that I would provide a letter or information to the UK Government in negotiations that was confidential. It may not be confidential forever, but that would be the basis of an exchange of letters. I have exchanged letters to members of this committee on a confidential basis, and I am sure that I will do so again. However, it is clear that if this material is provided, for example, publicly to every MP, I would regard ourselves as no longer bound by any condition, and therefore I think every MSP should have it too. We are not at that stage yet. I do not think that we will be far away from this material being in the public domain, and I will be very comfortable about that. However, I have to be very careful that I am not simply receiving material or information and automatically publishing it. My inclination is to make everything that I possibly can public. However, on this occasion, this material has been provided to us, and it was provided to the DEXU committee in a confidential way. I think that it should be public. I think that it will become public, but I cannot make an ex-cathedra decision on that. The parallel to that is what happens in FOI. In FOI, if you seek a document, then the person that you should seek that information from is the person from whom the document originates. We have done that before as a Scottish Government, and I think that we have to be mindful of that. I would just express surprise that you have agreed to accept information on the basis that you will withhold it, as you take up the list of the Parliament, but we are getting miles away from the Bill now. Can I just make it clear to you that I have not agreed to accept it? It was provided to us. I would not want to think that I was being misrepresented in this matter. Patrick, I think that you are far enough, James. Thanks, convener. I am just interested in this Northern Ireland aspect minister. You said earlier that in terms of discussions with evolved administrations, and I totally agree with you that it is really regrettable that there is no elected representation in relation to Northern Ireland. Clearly from your trip at the weekend, you have had extensive discussions and meetings across there. I just wondered if you have picked up any sense that there is any chance of that impasse being broken in terms of seeking to ensure that there is an election and then an elected, are there any sense that there is going to be elected officials involved in this? Clearly at this time, it is a really crucial time for Northern Ireland in terms of Brexit, that elected officials are empty from the table. That is deeply regretted. This is a matter for the Northern Irish parties. I would not want to interfere in any way, but I do not get any sense that change is imminent in that regard. I think that that is problematic. It is axiomatic. We are at a crucial stage. We are always at a crucial stage in this issue, but there is a lack of representation. The GMC, the presence of an official, no matter how senior, is not the same as having the political parties represented. Of course, at the start of this process, Northern Ireland chose in its membership of GMC that it should be the first minister and the deputy first minister. Arlie and Foster and Martin McGinnis were the original representatives of the GMC. That showed the seriousness of which this was taken. The fact that the issue in Northern Ireland has been a difficult issue, because Northern Ireland voted to remain, but its principal political party voted to leave. Squaring that circle is something that Martin McGinnis was very focused on. I think that that process has not moved on in any way, and it is to be regretted. We keep our dialogue going. I have always tried to meet all the political parties. I was not able to see the DUP this weekend as they were in conference, but I would hope to see them at some stage. We try and keep a dialogue open so that conversations can take place. For example, the issue of the withdrawal bill is one that needs some focus in Northern Ireland, because it affects the assembly just as much as it affects the rest of us, but it has not had that focus. I think that a number of the parties regret that and have had conversations with myself and with Mark Drakeford about that issue. Because we had a bit of time, I gave a bit of latitude there, and we have obviously covered the areas that go beyond our primary purpose today. I think that that is all the questions related to the legislative consent motion and the issue about the withdrawal bill completed. Thank you, Minister, for coming in front of us today. I suspend this meeting to allow a change over witnesses. The second agenda today is to discuss the impact of Brexit on the Scottish budget. We are joined for that item by Dr Jim Campbell, the reader in Scotland's economy research centre at the Glasgow Caledonia University, Jonathan Hall, director of policy and member services at NFU Scotland, and Naomi Clayton, policy research manager at the City Centre for Cities. I thank the witnesses very much for coming along today. They have written submissions, and Adam Tomkins would like to ask the first question. Thank you, convener. Good morning, everyone. I want to ask a question that is really about cities, so I may be directed at Naomi in a first instance, but by all means other witnesses chip in. I am an MSP for the Glasgow region, so I have a particular interest in the impact of Brexit on the Glasgow economy. A paper on that was published in October 2016 by the Glasgow City Council, the Glasgow Economic Leadership Board and the Glasgow Chamber of Commerce. The then leader of Glasgow City Council, Councillor Frank McEviti, said on the publication of that document the following. Brexit will confront Glasgow with major economic challenges, but that can be overcome, he said, if special action is taken by the Scottish United Kingdom Governments. If that happens, the problems associated with Brexit can become an opportunity for economic growth. My question is what are the opportunities for economic growth for Scotland's cities, including Glasgow, that Brexit represents, and how can we ensure that we take those opportunities? The work that we have done looking at the potential impacts of Brexit in terms of the change in the UK's trading relationships finds that every part of the UK and every city is likely to be impacted whether we exit the UK under a hard or soft Brexit scenario. We definitely need to be looking at ways to mitigate the impacts of Brexit by firstly ensuring that we secure the best trade deal for the UK with the EU to ensure that our cities and businesses within them are able to continue to trade with their main trading partner. We also need to look at ways to support businesses through ensuring that they are able to access the skills that they need. Obviously, there is a key role there for the cities and city regions to really try to understand the role that and the skills needs of businesses and ensure that education and training providers are responding to those. I think that mitigating against some of the impacts in terms of the impacts on migration through education and training providers is absolutely vital and continuing to ensure on a city level that businesses are absolutely able to thrive through investment in infrastructure and skills as well. I think that there are still opportunities in terms of how we ensure businesses are able to trade not just with the EU but around the world but there are key ways in which our cities can help support businesses to do that. Is it your sense that either the Scottish or the United Kingdom Governments are doing enough to help cities in Scotland and in the rest of the UK to, as you put it, mitigate the effects or impacts of Brexit? Councillor Macavity said that that is what he was calling for. He was calling for assistance from both levels of government in Scotland here and at the UK level to assist Scottish cities to do exactly what you are saying, which is to boost infrastructure investment and to invest in schools training. Obviously, we have had the two city region deals for Glasgow and Edinburgh and they represent fairly significant funding agreements with those city regions. What they do not represent is any kind of real devolution of powers and responsibilities or fiscal autonomy. Going forward, it is important that the UK and Scottish Governments work with our city authorities and city regions to look at what powers and responsibilities they need to be able to respond to the unique challenges in there. What is your view on the powers that cities in Scotland need that they do not currently have to mitigate the effects of Brexit? I am glad that you mentioned the Glasgow and Edinburgh city deals. The interesting thing about those two city deals is that one is pre-Brexit Glasgow and one is post-Brexit at Edinburgh. Are new generation city deals or the most recent city deals reflecting adequately in your judgment the fact that we are going to leave the European Union? I think there is always an argument for more investment in things like skills and education. I think there is also an argument for looking at ways in which the Scottish cities can gain more fiscal autonomy and the ability, for instance, to gain from land value uplift in their cities. For instance, any uplift in land values that comes about from planning permissions, housing developments, if they are able to retain and capture more of that value, that would enable them to further invest in infrastructure and initiatives that help to support better economic and social outcomes in those cities. Neil Findlay, you have a wider issue around Glasgow. Do you want to deal with that just now? Yes. I am an MSP for the West Scotland region, which borders Glasgow and a number of local authorities around Glasgow. I noticed from your report that you talked about non-urban areas, not being as badly affected as urban areas in terms of the Brexit impact. However, there are a number of local authorities that are not in cities but are in densely urban areas as well. It appears from your map that local authorities such as Remfisher, Inverclyde and East Remfisher will be as badly affected by a hard or soft Brexit as Glasgow. Do you want to ask what the impact on employment and living standards will be on areas around Glasgow? I will be right to say that the same policy solution that you are talking about in terms of making a difference in Glasgow would also affect the neighbouring local authorities. Do you like to see Remfisher's, East Remfisher's and Inverclyde's? Yes. Well, those areas obviously form important parts of the wider city region. Whilst we find that the cities and primary urban areas within Scotland are likely to be hit hardest, everywhere, every local authority is predicted to see a loss in economic output as a result of Brexit relative to if we had stayed in the EU. That means that we may well see a loss of jobs and wages continuing to stagnate. That will obviously impact on living standards. The impacts are not just confined to cities, but we need to look at ways in which we can support those cities to continue to drive economic growth through the various policy initiatives that I referred to. We also need to look at ways in which the Scottish Government and cities can continue to support inclusive growth and that people in the wider areas around our main economic growth poles are able to access the employment opportunities in those areas. Before we move on to other questions, I will bring you in this area. It is not prohibit that either of the other two witnesses contribute at this stage, because I noticed that Dr Jim Campbell, for instance, in his own paper, talked about areas in which the Scottish Government needs to concentrate on some of its activity and spending. For instance, on the second page, under bullet point 3, as far as Scottish small to medium-sized enterprises are concerned, the Scottish Government should be looking at ways in which the spending can contribute to faster growth in the short-term or in the medium-term. That would obviously be the same truth that exists for cities. Therefore, we might like to expand on how you envidges. That might help activity in the cities, because at the moment a lot of the concentration is going directly to Naomi, and I want the rest of you, frankly, to take up some of the burden here. I think that the point that I was trying to make there was that we do not really know what Brexit will look like, whether it is a hard Brexit, soft Brexit or something in between, but clearly trading relations between ourselves and the EU will be different from what they are just now. There will be barriers, and there is no doubt about that. That is much more of an issue for small and medium-sized firms to deal with. That is what I was trying to get at. The Scottish Government needs to provide support for companies who are already exporting to mainland Europe so that they can continue to do so after Brexit. Have you any views on what that support might look like? It would help us in terms of formulating our response to— At a very practical level, it is about filling in the forms, because, personally, we will have border controls. Goods will be checked as they enter and leave the country after Brexit. Johnathan, before we move on to others, do you want to just— I would like to make a comment. First of all, I think that there is a striking parallel between the question that Mr Tomkins posed and Naomi's response in terms of the major economic challenges from Brexit. Again, there are also significant opportunities and potential for economic growth, and that applies equally to cities and rural areas, particularly rural areas that are driven by an agricultural industry that then underpins the food and drink sector, which is so vitally important to the wider Scottish economy. I think that there are huge parallels there. I was really struck by Naomi's comments about trade and labour and migration issues being very much to the four of their thinking, because they are very much to the four of our thinking. The added dimension, of course, from an agricultural and rural development point of view, is the role that current European support plays, and I am sure that we will come on to that. From our perspective, I do not see a real difference in how it is intrigued by the common non-urban areas. Does that mean rural? I am not sure. I know all these definitions and they are very academic, but they are also very interesting. There is a danger that we have fallen in the trap of looking at issues that are particularly for cities and SMEs in a more industrial base, and then looking separately at agricultural and rural issues as well. I think that we need to bring those things together a bit. Make sure that you get a chance to see your particular bits about your area, because a number of us around the table here represent rural constituencies in the widest sense of the word. Thanks, convener, and thanks, panel, for coming along to talk to us this morning. I just wanted to lift up to an overview, and it has really fallen up from the question that Adam Tomkins has asked about opportunities. I think that the answer was very illuminating, as Mr Hall said that Naomi gave. From where I am sitting and looking at the papers that you have submitted and all the data that is in there, we see a GVA impact that ranges from bad in the case of soft Brexit to very bad in the case of hard Brexit. We see a public sector finance impact. We see an EU funding impact. There are a whole bunch of negative impacts there. All the narrative is round about how we mitigate, not how we maximise. The way that I am looking at it is that there is no upside, and it is described as the first time in history that two sides have sat down to do a trade deal that is going to make both of them worse off. So I do not know if you want to comment on it. Do you see any silver linings, or based on all the economic analysis, that there is everything ranging from worse to a lot worse? Yes, I think you are right. The economy would be better if we did not leave. There is pretty much a consensus around that amongst most economists. The disagreement was how worse off it would be, whether it would be really badly worse off or not significantly worse off. That is off for debate, and it is forecast, so we all know that they need to be taken with a pinch of salt. If you are looking for any sort of silver lining in it, I think that there is maybe one area that should be around public procurement, because at the moment that is heavily regulated by European directives. So when the Scottish Government wants to give out the contract for the island ferries, they have to go through a whole procedure which involves inviting tenders from throughout Europe, but we will only get one tender which is from CalMac. So there is not a lot of time and money spent on something which is not really perhaps necessary. So I think that that might be something which the government takes more into control. They can use public procurement perhaps to support some of the problems which would result from Brexit, as a mitigating thing. I think that to me would be one upside from it. And support that in the sense that public procurement has a huge impact on sourcing of food and food products. It is something that we have pushed hard on for a number of years, and there would be an opportunity here to really look at that and look at how local authorities, schools, hospitals, prison service and all the rest of it are enabled to source local food, which would obviously be a boost to local producers from Scotland, rather than all being on price and contracts and all the rest of it. So that would be an opportunity. But equally, I think that there is a bit of a silver lining. There are huge challenges, don't get me wrong, and we are very concerned about those, as I am sure will come on to, but some of the silver lining in terms of how the CAP, the Common Agricultural Policy, has operated within Scotland. How in many ways, whilst it might have provided a degree of security and certainty for the last 43 years, it hasn't necessarily done Scottish agriculture and rural areas any great favours either, if we are being brutally honest. So there is a clear opportunity right now to recast how we support rural areas and support agricultural businesses to deliver more of what we actually want in terms of quality food production, protection of the environment, sustaining rural communities and so on. So I think that there is an opportunity here. That will revolve around funding, which I am sure will come on to, but equally then about how the Scottish Government delivers on that. I was wanting to ask a specific question today, so we will get there. I am just being impatient. No, no, no. We are all impatient in this Brexit world, I can assure you. I think it's also a chance to look at the funds that replace European structural funds, which obviously provide important funds to different parts of the country. I think there's a chance to look at how we improve the way that any kind of replacement funds are managed and distributed in a way that reduces bureaucracy for local partners and improves outcomes as well. I would maybe make on the procurement side of things. Surely that's fine until the point where we're going to a free trade deal with another country, because the first thing they are going to say is that if you want to trade with us, we're going to have to have some rules round about access to markets, which means that we're back to square one again. It's all in the detail, really, which we don't know. Back on the spot. As the MSP for Aberdeenshire West, it remises me not to ask you about your findings of Aberdeen, not being such an outlier, and really around three reasons. Probably in the north-east we consider ourselves linked economically less to the EU and even the UK. Economic performance, but more to the oil sector. Secondly, when you mentioned the city deals that Scotland had, you missed out mentioning the Aberdeen one. Thirdly, in your summary of findings, you mentioned that those cities most negatively affected tend to be more productive and highly skilled workforces, which means that they find it easier to adapt in the longer term. Just with those three reasons, maybe you would like to talk about how accurate you think your methodology is regarding Aberdeen? Well, I think it very much represents a first look at the potential local impacts in terms of a change in the UK's international trade relationships. There are a number of caveats. The first being that we are looking just at the impacts of trade. We're not factoring in the impacts in terms of changes to migration, the impact on foreign direct investment, and once you start to add in those factors, we find that at the national level the impacts are likely to, in some cases, triple. That would be the first thing. The other point is that this is a static analysis. We haven't, at the moment, been able to model how different areas are likely to respond to the shocks, the economic shocks that Brexit is likely to bring. We know, for instance, from the experience with the 2008 financial crisis, parts of the country that had higher wages, that were more productive and had a more highly skilled workforce, we found that actually over the slightly longer term they were better placed to adapt and recovered much more strongly coming out of the recession. In some ways we would expect that to happen again and for cities like Aberdeen and Edinburgh, because they have very highly skilled workforces, they have very productive economies, in some ways that makes them better placed to adapt to the changes going forward. I suppose a particular challenge for Aberdeen is the dependency on oil and gas and the potential impacts of Brexit on that sector. I was going to pick up on something that Neil McLean just raised and possibly draw a connection or ask if there is a connection with something in Jim Campbell's paper. Page 12 of the Centre for Cities report talks about this argument. Even though the immediate negative impacts are predicted to be smaller in poorer regions, households in those areas start off poorer and may experience considerably more difficulty in adapting to those negative changes. In Jim Campbell's paper you talk about the role of the care sector, social care, childcare and the evidence that we have heard from others that there is a multiplier effect, that there is an additional economic benefit from investing in that social infrastructure. Would it be fair to say that it is likely to be in those poorer areas where dependence on the care sector is perhaps higher, that those multiplier effects will be stronger and that investment in social infrastructure could be one of the things that mitigates or might have some potential to mitigate that effect that the Centre for Cities paper was talking about of poorer regions or households that start off poorer being less able to adapt? I think that this represents a long-term challenge in the UK in terms of the levels of disparity between parts of the country and the fact that our research finds that, as I've said, everywhere is likely to be impacted by Brexit and whilst the initial shocks may be smaller in less affluent parts of the country, we also know that unemployment rates tend to be much higher, that wages tend to be much lower, so that those initial shocks might actually have longer term impacts for those economies and that they're less likely to be able to adapt in the same way some of the stronger performing parts of the country will be. I think absolutely investing in social infrastructure in terms of investing in education, investing in ways to improve school performance, investing in things like retraining schemes and the other ways of supporting individuals in those communities to access employment opportunities and to progress is an absolutely fundamental, fundamentally important part of helping those places adapt to the changes that are likely to be bought by Brexit. I would say that if what you're looking to do is to generate employment, then investing in the social economy will give you more employment than say investing in construction and all that evidence would tell you that. The one caveat to that of course is that employment in the care sector is low paid, both in childcare and in social care in general, so I think that there also needs to be a move that professionalises the care sector and where that's through education and co-vocation etc, but that the wages need to come up because it's a very important thing childcare and also social care and our market economy doesn't value it as much as we should. The estimate needs to be in raising quality not just at the scale. All the studies about the social and economic benefits of childcare are on a caveat that it's quality childcare and it's not just sticking a kid in front of a video and for a couple of hours and that's something that has to be stimulating and educational as well. I'll stick to that as well. I'm an Edinburgh MSP so I'm going to ask a question about Edinburgh. So Naomi, in your written submission you said that cities with large shares of employment in private sector knowledge intensive services were likely to be particularly impacted by Brexit and obviously that would describe Edinburgh because Edinburgh's got a large financial services sector. So I guess if we're looking at impacts that potentially would reduce employment so I think you said that in your submission. So it's the first for the first time Scotland's going to be taking over you know income tax and obviously if there's reduction in employment and particularly in well-paid jobs of which there are quite a lot in Edinburgh that would then in turn affect the Scottish tax take which would affect public services going forward. I mean is that what the Scottish government should be preparing for and are you able to to put any numbers on that or what scale of the impact would be? I would come back to the points that were made earlier about the caveats that we highlighted in the paper in terms of this really does represent a first look at the potential impacts of Brexit under different scenarios and it is based on very kind of detailed models of trade flows and impacts on different sectors and of course we do find that the financial and business services are likely to be particularly hard hit under that hard Brexit scenario because of particularly the increase in non-tariff barriers and the impact that that will have on on those sectors. So if those impacts do play out in terms of loss of employment and earnings that will of course then impact on tax take and I suppose it's particularly significant given that levels of tax take on a per capita basis are are amongst the highest in in Edinburgh and Aberdeen so that might well have an impact on the Scottish finances overall but at this point because there are so so many uncertainties in terms of the kind of nature of the deal that will be agreed with the EU and the kind of what the kind of the reality will be post-Brexit and in terms of the elements that we haven't been able to model as yet in terms of how places are likely to adapt it's difficult to to put any firm numbers on the kind of overall economic impacts and therefore impacts on tax take. One additional point I think you're right that the the biggest impact is going to be over time you know if you look at our impact of membership of the EU the biggest impact wasn't when we joined it's as businesses changed the way in which they behaved because of the change in their environment they had access to to a much bigger market and encouraged investment etc etc so you would expect that if we leave that's another massive change to the business environment so businesses will react and the financial sector they might react by leaving you know because they don't have the same access to to the European market that they currently have. Morda, thank you. I've got a couple of quick questions on cities and I want to get on to agriculture of that's okay. Maybe Naomi Clayton just looking at your report I was just curious as to why you only have four Scottish cities in the in the analysis there actually are seven as I'm sure you know. Yes so we we look at the 63 largest urban areas at Centre for Cities so that includes the four largest urban areas within Scotland which is why we just look at four. It's like to Inverness, Stirling or Perth that they're not included. No but we do we have produced figures for every local authority throughout the UK which includes those Scottish authorities. Okay and my second point is and as a follow-up to the questions Alexander Burnett was asking about Aberdeen because I was quite surprised to see Aberdeen as top of the table as the one city most likely to be impacted when I think most people's understanding of the Aberdeen economy is because of the connection to oil and gas the the connection is more with dollar economies and all producing countries across the world and that impacts much more on Aberdeen's economic performance than does the Eurozone where comparatively speaking trade is much less and yet you've Aberdeen is most impacted and I'm wondering is this just because you've looked at this question of shares of employment in private sector knowledge intensive services as a generality rather than sort of dug below that headline to try and look at local economies. So what we've done in terms of the methodology is that we've taken the national model that looks at essentially all of the kind of the imports and exports for all of the different industries within in the UK and then we've applied that model down using employment shares for local authorities and cities. So Aberdeen stands out as the city where the initial impacts of Brexit are likely to be largest partly because of the oil and gas industry and because of employment in the business services that support that industry too and this model predicts that oil and gas and business service sectors are likely to be hardest hit which is why Aberdeen stands out as being one of the hardest hit areas. Okay thank you I think I take from that Lou is a generalist model you've applied rather than look specifically at the makeup in individual cities. We've looked at the makeup of individual cities in terms of their employment profile. Right okay okay thank you. Maybe I could move on to Jonathan Hall and get on to agriculture because I was very interested in what you had to say about common agricultural policy and its impact on Scotland and in particular what you had to say about the opportunity that presents itself to devise a system of agricultural support for Scotland going forward that is more tailored to the needs of Scottish agriculture rather than being handed down from from Brussels. As it currently stands we are due to leave the EU in 16 months from now. What is your sense of the work that's being done in government currently to devise that new system of agricultural support that will need to be in place when we leave the EU? I'll have to choose my words very carefully. Sluggish might be appropriate. If we're honest though if we look at 2019 as being where you see the point of departure I think we would say that actually the point of departure needs to be further ahead than that say 2021. We will need some sort of transition. The day of departure we really do need to continue to operate under what would look taste and smell very much like the CAP today. We cannot afford to go off any sort of cliff edge people talk about cliff edges all the time here but Scottish agriculture and the food and drinks industry are underpins if we went over that cliff edge in March 2019 then I think we really are in a difficult position. Why? Because there are still some hugely outstanding questions revolving around what sort of operating environment we will find ourselves in in terms of trade deals with Europe, with non-European countries and so on and how long they will take to emerge and be solidify if you like could be anybody's guess. So we will continue to need I think in the short to medium term the CAP as we like it, load it or whatever. Having said that we must then take the opportunity to work through the period from now to 2019 and any transition period to work very very hard with the UK Government and with the Scottish Government to secure the right framework for an agricultural policy across the United Kingdom which will cover the regulatory elements of that because there are clearly is a need to maintain a something of a level playing field within the UK if we're going to have intra UK trade and movement of animals pesticide use environmental standards and so on but thereafter it's about devolving the ability to deliver a new system of support that is tailored for Scottish circumstances to the Scottish Government. Now I think there's one or two clear important landmarks or milestones on the very near horizon. There will be a white paper on agriculture from the UK Government emerging in the very near future and there will be an agriculture bill sometime in the spring at a UK level. Now our main focus right now as we talked to DEFRA down south is to ensure that there are the tools in the toolbox within that. There is the scope within that to enable Scottish agriculture to put in place the measures that will be required to support agriculture and rural development in Scotland. Just as we have today under the common agricultural policy we have four devolved applications of that for very different delivery mechanisms. We need to ensure that that continues in the future and really we also then therefore need the funding to to underpin that as well. Any significant reduction in funding I think would be catastrophic as well as being able to do the right thing for Scotland. You need the funding to then deliver that. Okay thank you so if I can summarise what I think you said to me that there will be you're expecting a transition period so you know come 2019 we will have a new system there we'll we'll mirror the CAP support whether we're in that or not for a period of perhaps what two years maybe something like that. I'm sorry I'm putting words in your mouth I'm just I'm just I'm just surmising but thereafter we'll need to move to a new system. There'll be some degree of common framework with the UK but most of this is actually devolved to Scottish Government and what I'm trying to get at is are you able to tell us what work is the Scottish Government currently doing that you're aware of to create this new system of agricultural support that we need to have in place in which your members want to see? Again I don't think there's anything really concrete being constructed either Westminster or within Scottish Government on what this might or might not look like. There's a lot of rhetoric around this in terms of where we might want to get to but in terms of putting in the steps that will take us there I think we're still lacking. We have set out our position very clearly that we want to move away ultimately from essentially an area based system in Scotland whereby the occupation of land is is pretty much all you need to do to unlock a support payment more to being an activity based approach whereby actions are what are supported whether that's action to enhance environmental qualities or indeed invest in agricultural businesses that can focus on new market opportunities so that's where we want to be but we are pushing both Scottish Government and the UK Government hard to say well how this might be the vision that everybody keeps talking about but how are we actually going to get there? Right okay but at the moment not much is happening but your your members NFUS you have got your own ideas that you're bringing forward at the moment and I think there's an increasing sense of frustration across the industry whilst Scottish Government have recently produced a report from its so-called agricultural champions and we've been quick to highlight what we like and I think there's a lot of common overlap there so there's lots of thought and ideas to the sort of where we want to get to but we still really need to work very hard at the mechanics of moving away from the common agricultural policy and how we then deliver what we're all aspiring to achieve now that is where it gets really really difficult because you've got to then take into account things like well the fact that you still want to trade with Europe and so on and obviously the requirements of other other legislative issues and so on so it becomes a very very tricky road to walk but we need to start making some steps in that direction pretty quickly. Okay then what comes first? The agricultural bill and the framework for a policy? It's a very good question. Of course it is. Because we need to get some priorities here about what has to be tackled first. For me that the agriculture bill setting out the broad framework should come first but within that bill there has to be the scope that would then enable Scotland to do what is right for Scotland. Now that I think is the danger at the moment if it's too narrow and I'll be slightly cheeky here if the view of the world is everything looks like Cambridgeer then it's not going to do us any great favours. We need the scope within that to enable the Scottish Government to put in place measures which will work for Scottish agriculture and everything that it underpins. Well it's sluggish the description you used in terms of what's the policy development. It's a bit difficult for a Government to be involved in developing policy till it actually knows where the starting point is. I would agree, I would agree. I think there are definitely things that we can start to think about we can start to plan for but it is difficult if you don't know the parameters in which you have to work it is difficult but nevertheless I think the focus has to be on defer at the moment to ensure that the parameters are set in such a way that Scotland can be accommodated within that UK approach and that then the delivery of that is absolutely within the gift of Scottish Government. Yeah and obviously you can have a great policy but unless you've got money to support it it's going to be even more challenging and in paragraph seven of your paper you said post 2022 because you had some assurances to 19 the amount of money the UK decides to spend on farming and farming related matters will have major consequences for Scotland. The NFUS is clear that agriculture must continue to receive the same quantum of funding as it currently does under cap post 2022. The budget must be ring-fenced to agriculture and rural support. What assurance have you had from the UK Government? We've had only the assurance of the Tory party manifesto of May and June of this year. We have sought further assurances to what that commitment to future funding of farm support to 2022 or the lifetime of the Parliament actually means. We have written to Mr Gove as I believe Scottish Government have as well and we haven't received a reply yet and that we've written some months ago now. So we do need clarification on what that commitment actually means. I'll go further in our submission and say we need at least the same quantum of money as we receive now under the CAP. Given the fact that Scotland already has a budget disadvantage in terms of the amount of money coming to Scotland via the CAP compared to arguably the rest of the UK under the member state and yet Scotland's reliance on that funding is critical. I think the more important point to really note is how effective that money is once it comes to Scotland in the sense that once it's channeled into Scottish agriculture into farms and crofts that that then generates and drives a rural economy to an extent that is very difficult to quantify but our calculations would suggest that for every pound that Scottish agriculture receives via the CAP Scottish agriculture is then spending about £5.30 and that is supporting a whole host of allied industries and so on and it's also then enabling the primary product that's going into the fastest growing part of the economy namely food and drink. Sorry, forgive me just one final question in this area because the purpose of this is Brexit and the budget effectively is what we're trying to get to and you mentioned in paragraph 10 of your paper about the potential different funding streams that might be used to support agriculture in Scotland in the future and if it was to go via the funding in the future was to go through the Barnett formula you lay out some concerns would you like to tell us about these concerns? Yeah but well very simply under the under the current CAP arrangements Scotland receives about 16.3% of the UK's allocation and that's based on historic production across the United Kingdom. If we were to move to a simple Barnettised approach then potentially instead of 16.3% of any budget that Treasury might find in the future you're looking at eight or nine percent of a budget that the Treasury might find that would immediately put us in a difficult position so even if the budget was maintained in total so that Treasury committed to the same funding as the CAP if Scotland were only to receive eight or nine percent of that rather than 16 percent well that's effectively a 50 percent reduction that would be extraordinarily challenging for Scottish agriculture as a whole but particularly I think for areas and regions which are more reliant on support i.e. our uplands and our more disadvantaged areas which are heavily reliant on basically sheep and cattle and those businesses are the most reliant on support payments through the CAP. So the socioeconomic consequences of knocking that out of the system could be unquantifiable but nevertheless extremely damaging. Yeah, you mentioned the different areas about less favoured areas. 85% of our land in Scotland is less favoured areas. I'm just reading here there's 52,000 farm holdings in Scotland. I mean this is it's massive what we're talking about if we've got 520 million pounds currently and that might reduce to 253 million pounds so and Scott Walker expressed desperate need for progress so rather than it being sluggish he says we need to make progress right so 485 days to go so you know I'm really concerned and I'm not sure how to I guess how do we then express these concerns to the rural farming businesses and then convey that to the UK Government? Well obviously that's partly our job partly your job it's everybody's job in a way to actually highlight just how important it is that we get this right. Places like Dumfries and Galloway your constitution your area highly rely on it on a productive agricultural industry in so many ways but if you as you rightly say if you strip out that funding and the damage could be untold and I think we've all got to make that case Scotland is fundamentally different from the rest of the United Kingdom when it comes to its agricultural profile you've highlighted the fact that we're 85% less favoured area in Scotland well it's the mirror image in England it's 15% is less favoured area in England and we will always be at the margin in many ways in terms of agricultural production and financial viability and therefore that support remains critical but it's not about just underpinning farmers and crofters it is about underpinning everything that farmers and crofters then deliver and I think that's the key message that we've got to get through to treasury in particular that actually investing in agriculture in rural areas is is money well spent in the public interest because it is about a return on those pounds for what agriculture then does. Can I just clarify something you said in response to a question from Bruce Crawford about money you talked about ring fencing the agricultural support can you elaborate on what you mean by that do you mean ring fencing it within the devolution settlement? Ideally that's what exactly what we would like because right now right now under the CAP the CAP money is allocated to the United Kingdom by Europe the UK government can't touch that the Scottish government can't touch that it has to be channeled into agricultural support payments if it's a pillar one payment if it's a pillar two payment that funding is from Europe is then co-financed by the Scottish government so effectively it has to be if it's coming into Scotland it has to be channeled in that into in agriculture or wider rural development measures and we would want to see some sort of ring fence put around a budget which continues to protect that rather than eroding it from within so there might be a notional nominal allocation for rural development spend or whatever it might be but by the time it percolates down to to to actual spend on the ground then it could go in any direction Dr Campbell you mentioned in your paper the issues around CAP but you and rightly tie it to the EU structural funds you then go on to talk about on the last page of your document however one of the most important impacts that EU structural funds has been the promotion of gender mainstreaming and then you look at the issue of leadership within the EU and the dangers that might come from that for the record would you like to expand on that please for us yeah I mean I think one of the things which European regional policy tried to do was to support other actions and one action was about equal opportunities but at a gender mainstreaming so if you received ERDF funding or European social funding you had to show how the project was going to contribute to to gender mainstreaming was going to contribute to equal opportunities now a lot of the time some of that was kind of like a tick box exercise you know you say yeah of course it is and you went on but there is some evidence as yes that it might have had an impact on the type of economic development policies which have been pursued in scotland and you know without that requirement you know you know when people you know invest in projects we assume that you know that the economic activity is going to be equally shared you know between men and women but that's not necessarily going to be the case so you need to actually think about what is what's the gender impact of this spend and I think I'm not saying it's that happens all the time but it did get projects and funders to think about the gender consequences of economic policy which hadn't really done before so what procedural and legal framework do you think we need to put in place to help achieve that I think I thought a continuation I think one of the problems with with gender mainstreaming is is sort of like in the name the requirement really happened during the 2000 to 2006 period of European regional funding thereafter they kind of assumed that gender mainstreaming was happening so that you know projects would automatically think about the gender consequences I'm not sure that that carried on so there may well be an opportunity now for for economic development policies that that's put in place we mentioned earlier about public procurement you know you could also use that in public procurement policies to say well what are the gender impact of of the spend okay beautiful willy you want to touch on something to do with technology I think hi thanks very much Bruce I hope to just get abroad in the discussion to talk about digital and technology issues Jim you mentioned in your paper that there are potential impacts on research and technological development and the only you touched on the issue that Ash raised about the knowledge economy and knowledge based services particularly in the cities what kind of impact do you think that could have on the Scottish economy if there's a serious impact on free movement of people with those particular skills working in the UK and indeed in Scotland I think that quite a serious impact particularly in the university sector I mean a lot of one of the areas where I think the UK has done really well is in the various research and development frameworks from Europe we're currently horizon 2020 so university is getting funding and working with with colleagues in other European countries I know my own institution has actually received a number of research contracts in that way and that avenue is now going to be cut off whether it's then replaced by a kind of a Scottish version or a UK version we don't know because you know the CEP is going to be a problem there the structural funds so there's going to be lots of competition for for what will become very limited resources given the you know the sort of latest economic forecast about about where the economy is going and also I think that you mentioned about the digital economy as well I think there's a lot of interest in developments taking place at European level in terms of regulation to try and open up the digital market you know at the moment there's a lot of businesses will use what's called geo blocking you know if you're trying to book you know a hotel or an airline ticket in another EU country you know the price will be different depending from where you're booking you know that that service from there's currently I think discussion about actually removing geo blocking so that you know the prices need to be the same irrespective of where you're buying the service so you get a single market if you like and buying things online which we don't really have and I think you know that you know British consumers British businesses I think would would lose out as a result of that once we leave it's a really interesting point that me in the one hand we're coming out of the single market but on the other hand we're staying in the digital one you know to take the advantage of the geo because you know it's like being in and out at the same time you know but we can't turn back the technology and say well it's you know let's not invent the internet you know your point about knowledge services particularly city skills and so on but what's the likely impact if we lose under freedom of movement if we lose lots of those skills in scotland well I think the kind of migration element is a very important consideration and of course we don't know what migration policy is going to look like post-brexit as yet but we do know through as a result of the impact on of policy change and the economic impact that the flow of migrants into the UK is likely to reduce so of course there will be implications in that in terms of businesses access to the specialist skills that they require so I think it's an absolutely fundamental fundamentally important consideration particularly at a time when you know a lot of investment is also going into supporting the digital and tech sectors in the UK and in in Scotland and thinking about how we maximise the impacts of that investment by supporting the kind of wider economic and social infrastructure is really important and migration and the ability of businesses to kind of continue to attract and retain international talent is an important part of of that and we're already starting to see some of the the impacts in terms of migration playing out so there's been a significant reduction over the last year in the number of national insurance registrations from EU citizens in the in the UK it's very difficult to attribute that specifically to the referendum and and brexit because there are a number of factors that play into it but it does mark a trend change rather than just normal fluctuations see your soft Brexit model in your paper does that assume that freedom of movement has gone and is that accountable for the biggest impact on those negative figures under the soft Brexit model? So we're looking primarily at the trade impacts so under soft Brexit it'd be a scenario where the UK joins a free trade area so we're looking at the impacts in terms of obviously kind of tariff and non-tariff barriers rather than freedom of movement within that so if the freedom of movement does go under a soft Brexit that would make even your soft Brexit forecast even worse I presume but if you start to factor in migration into the model Johnathan I'm not sure if you want to touch on the card that we didn't get much chance to talk about migration issues for the agricultural industry so I'll come at your minute James a bit but now we're on that subject we better just take the chance if you want to say anything very quickly just to echo what others have said that you know it's clearly that the movement of people migration issues are hugely important to the agricultural industry but also downstream as well in terms of our food processing sector we're very concerned about seasonal workers permanent workers on farm off farm and the skilled and the competent without these folk coming to Scotland to underpin agricultural production and the processing thereof you know we really are in a bad place so we think there are some low hanging fruit for the for the UK government on this in terms of certainly seasonal workers that we could reinvigorate or reignite the what was the seasonal agricultural workers scheme that did exist a few years ago when Bulgarian Romania were not full member states we could certainly reinstigate that because we're already starting to see impacts in some sectors particularly veg producers soft root producers up and down the east coast of Scotland already struggling to to access labour both in the season just gone but for next year as well some of that's down to exchange rates and the value of actually coming here to work on a seasonal basis but we also know that that there is less inclination simply because of the the sort of messages that the EU referendum outcome has delivered to some people just follow that through a bit if you don't make a I don't I genuinely don't know the NFUS position on it as far as the customs union is concerned and these given the issues around trade for export of quality Scots beef and lamb etc and freedom of movement of people could you describe what sort of if we're going to Brexit what sort of Brexit then if you would like to see in that regard well I think we're probably slightly over being over ambitious but we would still argue for access to the single market and with the retention of the customs union to provide that level of protection you're obviously right in terms of identifying particularly our red meat our sheep meat and our beef products would be massively exposed if we're not covered by the customs union and that they are the sectors that are extremely vulnerable for from any sort of new trade outcome and yet they're also the same sectors that are massively important to Scotland and they are the sectors that are still heavily reliant on agricultural support so in many senses you know that that does expose Scotland in ways that maybe the rest of the United Kingdom isn't because we have a far greater interest in those particular products and how important they are to our agricultural economy James convener I just wanted to ask Dr Campbell about a point in his paper you addressed the issue of inflation post-Brexit and I'm just interested in terms of the Scottish budget coming up coming up what you see as a particular pressure points because of the recent inflation changes and what options are open to the Scottish Government in terms of addressing the pressure points in relation to inflation yeah I mean I think the the rising inflation which from the forecast that the budget last week is not going to get below 2% for the next few years so it's kind of going to be potentially above and it could it could potentially go higher depending on what happens during the Brexit negotiations so if it looks like it's going to be be a hard Brexit and we don't get continued membership of the single market of customs and then depending I think it's going to depreciate further which will cause you know more inflationary pressure and basically what it means is you know for the Scottish Government what what their budget can actually buy them is is a lot less so they're going to have to make a number of tough decisions especially given the pressure which are now on wages in the public sector as well you know the wages have been flat well in real terms declining really over the last 10 years there's a lot of pressure now to increase wages in the public sector but your ability to do that is going to be constrained because it means you've got to cut services you know so moving into sort of 2021-22 well can you actually afford to continue to to subsidise to see agriculture in the way we have in the past given the pressures which which are on your budgets you know so they look in terms of of our economy both at UK level and the Scottish level is not is not particularly good to put it mainly and do you think then given those pressures that the Government have got to have a serious look at what taxation options that they've got in order to try and alleviate these pressures yeah so I think I mean part of the problem I suppose for for the Scottish Government is that they don't actually have access to all of the fiscal tools that the UK Government has so they really only got in terms of revenue raising significant revenue raising money income tax so but I think they are actually looking at you know whether or not income tax rates in Scotland should should increase and you know the bottom line is if you want to continue to provide the level of services then it's probably going to be the case that income taxes won't need to rise whether you do that for for higher earners or you do it across the board I think it's then becomes a a political decision okay I missed out anybody who wanted to ask a question in this session I haven't done so thank you very much to my witnesses for coming along today I'm very grateful we're now going to need to move suspend again for another couple of minutes just tell you we've changed over the witnesses but it just will be a couple of minutes thank you the third item on our agenda today is to discuss the administration and collection of Scottish income tax from itchmore sea and we're joined for the item today by Jim Harrah who's the director general of customer strategy and tax design and Sarah Walker who's the deputy director for devolution and to begin the question sessions today Alexander Burnett please thank you convener good morning and thank you for joining us if I could get straight into the costs of running our new tax system in a parliamentary response to a colleague of mine Bill Bowman last week the finance secretary said that the system would cost about one and a half million a year to run if bans and rates were kept consistent with the rest of the UK but he said admitted that increasing the rates would cost the public purse more saying a more significant divergence between the rates and bans that apply in Scotland when compared to the rest of the UK may lead to an increase in costs of up to five million could you maybe comment on on on his comment his answer his parliamentary response and and give any more information as to is there any differing in costs between any of the proposals being put forward by the Scottish government at the moment yes are the estimates of the costs if I can explain so first of all while rates and thresholds haven't diverged very much we expect very low levels of contact from Scottish taxpayers about Scottish income tax issues in particular and about their their Scottish taxpayer status but if there is more divergence then first of all you could expect more contact with people from people with queries but also we would have to look at what compliance work we would have to do to manage the risks that arise from divergence and that's where the five million pound estimate comes from but they are just estimates and it would depend on the level and nature of the divergence what kind of compliance plans we would put in place and what kind of costs we would formally estimate at the time and so do you have different estimates for the different proposals being put forward we we've we have been looking at the proposals in the discussion paper that's been published and working out what you know what our responses to those might be we haven't come to any conclusions on those yet or shared any conclusions but obviously the greater the divergence between Scottish rates and thresholds and UK rates and thresholds the more likely we are to see behavioural effects some of which would be non-compliant and therefore we would need a compliance response to that thank you very much Patrick efficiency well yes good morning it's really following on from the same issue and the obviously none of us would expect you to offer a policy view about what is the preferable position in terms of tax policy in in Scotland but we would all be interested I'm sure in what the practical implications are for you of the various options that have been suggested in the Scottish government's paper whether there is a variance between them in terms of the efficiency of tax collection under those scenarios and also just to pick up on this phrase you've used about divergence so far of course it's only the UK government which has created any divergence by by changing the threshold for the higher rate south of the border that's where the the only divergence has originated from so in what sense to do we have this this notion that it would be Scottish changes that create divergence we simply have two different jurisdictions which are responsible for tax policies in two different areas yes i didn't intend to imply that it's just decisions of the Scottish Parliament it's just different decisions will result in divergence and those will then give rise to different different behavioural effects some of which will be perfectly compliant and won't involve us in any extra costs in monitoring compliance but some of which might might not be I mean as far as the different options in the discussion paper are concerned we can deliver any of them in administrative terms and stand ready to do so you're right that different options have got different administrative implications and therefore different cost implications in particular if new bands are added at the bottom for example if the basic rate band was was split then we would have to think through some policy and administrative changes to cope with that because various reliefs are given at source at the basic rate and you know some things that currently happen automatically might actually require some intervention to make them to make them work in the future similarly if there are lots of bands then there is greater scope for people's tax affairs in year for example in Peugeot not to be quite right and so when we do our reconciliation at the end of the year you're likely to get a higher number of underpayments and overpayments than you would if there's just a few rate bands but they're all capable of being administered and I'm just wondering as well whether at an organisational level you've looked at other countries which have different income tax regimes across different parts of single states I mean other European countries there are a number of areas where people would pay a different rate of income tax in different sub-state jurisdictions is that something you've examined? Yes we do look regularly at the position in other countries other countries a lot of other countries are different in the sense that they expect everybody to submit a tax return every year and we don't we have a POIE system which is fairly sophisticated and tries to get their affairs of most people right at the end of the year without them having to complete a tax return so that is a difference between in administrative terms from the way that other countries work but certainly we've looked at in terms of the behaviour of taxpayers in reaction to different tax rates in different parts of a country or even between different countries obviously we do study that and we learn from that and we take our and make our plans in the light of that experience. Okay I'm just wondering if there's any further evidence that you could perhaps give us in writing afterwards that demonstrates what you've learned about those comparisons with other jurisdictions? I'm not sure that there's anything specific in writing but we can have a look and see if there is. It would be helpful I mean that the debate over potential behavioural effects is one that rattles back and forth every once in a while most of the evidence that I can find is pretty thin about the extent of those kind of behavioural effects but if there is more out there it would be useful to to see. I would expect that the Scottish Fiscal Commission would have to make some judgments and assumptions about what those behavioural effects would be. I understand that. It's interesting curious if we know how much it's costing the Scottish Government to do some of these changes. When the UK Government changed the higher rate tax thresholds from £43,000 to £45,000, how much did that cost? I don't have a figure for that. I mean we do cost all the policy changes that Treasury asked us to make. We have within our baseline a certain amount of funding that we're expected to use for regular changes like upgrading and things like that but specific policy changes, as part of our advice to ministers ahead of a budget, it includes what money we will need to implement those measures and whether we can or cannot implement them within our existing baseline funding. It would be helpful for us to get an understanding of what that was because if we've got to make a judgment in the future about whether the Scottish Government and the Scottish Parliament is getting the best value from Netsham RC, it would be therefore, to see the whole picture, I think, would be helpful to us. If you could write this with that further information, that would be too, if it's available. That's exactly what the YNC wants available and whatever it is. Thank you. Patrick, you concluded that. Willie, Scrutiny. Thanks very much. Good morning again to you. I've had a look over the service level agreement that I've seen on several occasions now but I wanted to ask about the role for Scrutiny here. I don't see any direct mention of opportunities to scrutinise the process for members of the committees of the Scottish Parliament. Do you see that as something that needs to be further developed in the agreement that has been reached between HMRC and the Scottish Government in this area? We are, I think, one of the papers that we sent into the committee for this hearing is a first annual report on performance against the service level agreement. It's fairly limited at this stage because we've only had one year of operation. We haven't had a full cycle of the income tax but that is something that we would expect to produce once a year, sent to the committee, obviously, and that would be an opportunity for Scrutiny. Do you have a formal role to appear in front of, say, the Public Accounts Committee at Westminster on matters relating to tax, for example, but there's no equivalent requirement or expectation that you would appear in front of the Public Accounts Committee, for example, in the Scottish Parliament? I have appeared before with the Public Accounts Committee. It's by invitation, isn't it? There's no formal part of the Scrutiny process for that to take place, so I understand that. I am formally HMRC's accounting officer for Scottish income tax and therefore account to the Scottish Parliament for that in the same way as my chief executive would account to the Public Accounts Committee in Westminster for the UK income tax. I'm looking at the paper in paragraphs 37, 38, 39, 40. It's about review, monitoring and reporting but it's all about exchanges between directors and accountable officers. There's really no mention of the elected members of the Parliament and what their formal role in the process might be. I'd just ask again, is that something that you would welcome, the opportunity to come to this committee or the Public Accounts Committee to give more evidence as this process develops? Yes. Obviously, the document is a service level agreement between HMRC and the Scottish Government and sets out what it is that we have agreed with the Scottish Government that they can expect from us in terms of service levels and did exchange and they will be holding us to account for that. I'm quite happy to be scrutinised by the committee of the Parliament about how we are performing against that agreement. That's not a problem. As Sarah has said, we will produce an annual report that summarises that. The main questions that I want to focus on is about data availability but I might want to come back and do a wee bit more digging on the cost of changes to the tax bands later on. Clearly, there is a complex situation here in terms of the tax structure that we have now vis-à-vis the Scottish Government's policies and the outturn from that relative to what is happening in the rest of the UK and what that means in the fiscal framework. Clearly, at one level, we will get complete outturn data at some point several months after the final deadline in January for self-assessments being submitted. We need to sub-number crunch and then we get something back, which means for 2017-18, we're probably up at the end of 2019 before we get the full picture of real through 2019. What I'm keen to understand is what data can we see or are we seeing at a Government level at the moment on the monthly performance of the tax? Clearly, at that stage, you only know what's happening with pay-as-earn but, to be fair, that's going to be the biggest part of what the tax take is. You're really looking obviously for variations between what you thought was going to happen and what is happening on a seasonal adjusted basis, etc. Where are we in terms of getting that data at the moment? Is that getting delivered month by month to the Scottish Government? Yes, we are working with the Scottish Government. We've done quite a lot of work between statisticians to make sure that we understand that data. We now have an arrangement with the Scottish Government to give them that monthly data in respect to Scottish taxpayers. As you say, it's of limited value because it's only a partial picture and it may have some lags in terms of the identification of the Scottish taxpayers, but it is a good way—the best way we have—of establishing any trends and, as you say, any divergence from it from forecast. Those figures are being looked at by both us and the Scottish Government each month as they come through. We do hope to publish that series in the future, but I think that we want to get a bit of experience of the figures and make sure that we understand them before we make them a public document. That's great to hear that. I suppose that the next question following up on the scrutiny aspect is at what point does the committee get to look at those figures, but I understand what you're saying. You need to establish some confidence in the process, but that might be something that we will follow up as a committee, probably directly with the Scottish Government, to see what we can get access to in an on-going basis. I certainly think that, over time, as you get a data series that it will be more valuable, so we will do the final reconciliation about 15 months after the end of the tax year. As time goes on, we will be able to identify much more closely where the correlations do and do not exist between that monthly data that you get and that final picture. I would expect that, initially, there will be some concerns about how you can really tell what it is that it is telling you because of the limitations in it. As you said, some examples include self-assessment data, which accounts for about 14 per cent of Scottish income tax. Also, it is at a point in time, so someone can appear to be a Scottish taxpayer, or not a Scottish taxpayer, at a point in time in the tax year, but it is a test for the tax year as a whole, so you only know after the end of it. Also, in our Peugeot earn codes, our adjustments for certain reserved matters would not flow through to Scottish income tax. It will take us a bit of time to gain confidence in what data it does and does not tell you in what level of confidence you can take in it. However, I think that that will grow over time. Another thing that I said was to do a bit more digging on the potential costs of policy changes that the Scottish Government may implement. I understand that you are not going to sit here and give us a number, but I suppose that we cannot understand what kind of magnitude might we be talking about. Or, if you cannot give us that, what point would you be able to tell us that? Because clearly, if we are going to make a tax change and the Scottish Government is going to raise 100 million, but you are going to charge them 20 million for implementing it, then clearly that is important. If it is only going to cost you a million to implement it, then that is a different kind of decision. Is there any sense on the magnitude of that? There are areas in which we probably could give a reasonable amount of certainty around the IT changes because, as the convener said, we make IT changes for the UK Government as well, and we should be able to get some sort of confidence around costings there. What are less known, really, is how customers are going to respond to changes, so how many of them are going to ring us or write to us asking queries or asking for explanations for what is happening to them. It is fair to say that, to date, we have probably overestimated the costs of administering Scottish income tax and that we have not seen the levels of contact that we had on a contingency basis planned for. That is the area where it would be much more estimation and could turn out to be quite significantly wrong over time. So the reality is that, even at the point where we make the policy decisions, we may not even know the answer to that question? It will always be an estimate at that point. Thank you, convener. I want to ask about the issue of Scottish taxpayer identification, which I think we have looked at in this committee before. You have given us quite a lot of information around the work that you are doing in this area. What would the United States make is the margin of error that we are currently working towards in terms of being able to accurately assess people with an S code? We feel that we have a very high level of confidence that we have identified Scottish taxpayers on our systems. Having put that flag on our systems for people with Scottish addresses, we have done work then to corroborate the accuracy of our address database against a number of other data sets. We have been able to have a very high level of corroboration. We have corroborated about 98% to 99% of those addresses. That does not mean that the other 1% to 2% are wrong. It just means that they are not corroborated. In a number of instances, we have found that the address data that we hold is actually more up-to-date than a lot of the data sets that we compare it with. That means that it is a never-ending job. We have got to improve that all the time. We have got to maintain it because people are moving addresses all the time. We have got that level of corroboration. The other work that we are doing is comparing the flags on our systems with payrolls. For example, the Scottish Government is among the large employers to make sure and, against a set of number of scenarios, to try to identify whether they are people for whom we do not hold a Scottish address, but they are living in Scotland. Again, we find very low levels of non-corroboration there. What we are going through at the moment is working with employers to make sure that the flags on our system have fed through to S codes that they are operating in their payroll. There are some payroll software that do not pick up all of that, and that would not impact on the fiscal level on the Scottish Government, because we would nevertheless calculate the correct amount of tax because we have got the flag on our system. It could mean that those taxpayers have an underpayment or an overpayment at the end of the year. As Sarah said, the aim of Peugeot is to get people's tax affairs right as the year goes on. We are doing those checks now during the course of this year as part of our employer compliance checks to make sure that everyone's payroll is working as it should. However, our estimate of 2.6 million Scottish tax payers is staying firm. I see from your paper that you have a wealthy taxpayer unit that sounds like a happy place to be working. Clearly, you are putting extra attention on that. Have you had any cases of individuals disputing whether they have an S code? We have not had a single dispute so far from a taxpayer who argues that they are not a Scottish taxpayer when we have said that they are. I am aware of one case of someone who expressed disappointment that they had not been flagged as a Scottish taxpayer, but unfortunately for you, when we looked into it, they weren't a Scottish taxpayer. I am interested in this idea. I suppose that it is based around possible future divergence and behaviour change. I understand that there is no legal obligation for people to make you aware of their correct address. Let us just say that somebody told you that they had moved away from Scotland. How are you going to ensure that that is genuine? What sort of checks will you carry out to ensure that is correct? We do these matching exercises. The macro level, we will take our whole database of Scottish addresses, compare it with the addresses that other people hold, so retailers, electoral roll, that kind of thing. If that comes up with a discrepancy, then we will contact the taxpayer to try and follow that up and make sure that we know where they really live. For the people at the high end of the spectrum, the high earners, we have a much more personal relationship with them. We have already started reviewing the people that we think might have more than one residence, for instance, or more than one home. We are thinking about how we would tackle those sorts of cases. We have two levels of things. One for the mass market, if you like, and one for the high earners. At the moment where there is a very low level of risk that people will gain the system, that gives us an opportunity of establishing a baseline. We are doing a lot of work to make sure that we understand that baseline so that we can monitor trends in the future against it, as rules change. I suppose that I am sort of envisaging a potential scenario into the sort of medium term, where you identify someone who should have been flagged up as a Scottish taxpayer, but it is not. If you felt that somehow they had given you the wrong information, maybe on purpose, if you like, would you be looking into the idea of penalties to dissuade that sort of behaviour? Absolutely. While you are correct that there is no legal obligation on anyone to tell us a change of address, if someone does tell us their address and claim they live there and that is untrue, then that is tax evasion and existing powers, both to go back into earlier years to recover the tax and interest, but also to penalise them apply to that. Check, the two approaches that Sarah Walker was talking about there, about the high end and what you described as the mass market, what is the cut-off point? Is that the additional rate you are talking about or is there a different cut-off point between those two approaches? They are the people, the sort of personal relationship with the people who are looked after by our high net worth unit. I am afraid that I do not know them. We have actually got two levels of people, so we have got Affluent, who I think is the over the £150,000 level, and they get an extra bit of attention, but then the high net worth, I cannot remember the exact figures, but it is really very wealthy. People are not necessarily based on their income and can be based on their capital wealth. They have a compliance manager appointed to them, who is expected to get to know their affairs individually and keep track of what they are doing and what their attitudes to tax compliance are and what advisers they engage and manage them on a case-by-case basis, but I do not have the exact criteria for that with me. That is fine. It helps to give a picture. Thank you. I was interested to note from the National Audit Office report that came out this week. It said two things. In paragraph 16, it said that the biggest challenge facing HMRC is maintaining the accurate address records of Scottish taxpayers. It then went on to say that neither taxpayer nor employer are legally required to tell HMRC of changes of address. That might not have been necessary previously because we were in terms of the tax process because we were all and effectively under the same jurisdiction. The Scottish Government has no powers in the devolved sense to deal with that issue. Is that something that the HMRC is considering, whether there should be a legislative requirement to tell about tax changes? If not, why not? I think that it is something that we would keep under review. First of all, there are a couple of areas where there are obligations. Employers are obliged to give us addresses for new employees. In addition, people in self-assessment are required to confirm their address, which is populated on their return. You are right that until now we have not had to place a legal obligation on people that has not been necessary. I think that the level of corroboration to date in our address data suggests that we do not have a problem because obviously any legal obligation and the penalties and everything that flow with it would have to be proportionate to some problem. We are in a new situation where you live within the UK, Scotland, England, Wales and Northern Ireland will be relevant to the level of tax that you have to pay. It is something that I think we would keep under review. At the moment, I think that we feel that we have got good processes for keeping track of where people are. Based on the same point, but just also to expand that, because clearly the individuals that we will be talking about in large part will be working through an accountant or an agent or somebody that will be submitting on their behalf. What kind of dialogue or guidelines have been issued there or conversations have been had with agents? Quite extensive, particularly on the need to keep us up to date with where people live. Quite apart from the engagement that we have day to day with agents, we issue about six bulletins a year to them. In those bulletins, we remind them that it is important that they keep us up to date with where their clients are living. As I said, the most wealthy of them, you would expect are compliance managers to be having one-to-one dialogue with the agents very frequently. In our early work, we did identify, because obviously with the high net worth individuals, it is likely that they have more than one home very often. They can have several addresses that they can use. In our early work to establish the identity of Scottish taxpayers, we did identify 2,000 cases where people had a correspondence address, but another address that they said was their main home, which was outside Scotland. We looked into all those cases and we found that they were all fine and that they addressed that the people had identified as their main home was indeed their main home. We do monitor that. Thank you very much, Jim and Sarah, for coming along today. It is very helpful in the beginning of the process of scrutinising the budget and, eventually, the Scottish budget will be published on the 40th of December, if I am correct. Thank you very much for coming along. That was a final item on the agenda, so I will close this meeting.