 Good morning and welcome to the 17th meeting in 2023 of the Finance and Public Administration Committee. Agenda item 1 is the economic and fiscal forecasts for May 2023 and the medium-term financial strategy. The first item in our agenda is to take evidence from the Scottish Fiscal Commission on its forecasts and on the MTFS. I welcome to the meeting Professor Graham Roy, who is the chair, Professor Francis Breeden, one commissioner and John Ireland, the chief executive of the Scottish Fiscal Commission. Before we move to questions, I am going to ask Professor Roy if he would like to make an opening statement. Good morning committee and thanks once again for the opportunity to come along and speak with you this morning. I want to give you a few reflections on our report and some key insights that we take from the latest economic outlook. On a positive note, we are now forecasting that the economy will avoid a shallow technical recession that we predicted back in December, but the overall environment remains one of slow and fragile growth. Inflation has started to fall from its peak of around 11 per cent and should still fall sharply this summer. However, inflation will continue to exceed the growth in nominal household disposable incomes, meaning that living standards are once again likely to fall in 2023-2024. Turning to our fiscal forecasts, the updates that we made in May are largely incremental. Forecast revenue from Scottish income tax has been revised up because of higher employment and nominal earnings. By 2027-2028, the forecast revenue increases by £209 million. However, the offsetting adjustment to the block grant also rises, following similar revisions by the OBR to the income tax forecast for the rest of the UK. The end result is a small upwards movement in the net funding available to the Scottish Government. We continue to advise caution over the high outlook for the income tax net position from experience. We can see that revisions to the outlook are quite common. The underlying Scottish and UK income tax forecasts are very large in terms of the overall magnitude, so the net tax position is driven by very small differences between the two. As in December 2022, a divergence in earnings growth between our and OBR's forecasts continues to main driver the strong positive estimated income tax net position for Scotland, particularly toward the end of the forecast horizon. Crucially, we advise that if the Scottish and UK earnings growth turn out to be closer in the coming years, then that net tax position is likely to be material lower than we currently estimated. As we have highlighted in recent forecasts, we still expect a large and negative income tax reconciliation for the budget year 2021-22. Comparing our and OBR's latest forecasts indicates a reconciliation of minus £712 million. Now, some uncertainty remains over the exact value and final outturn data will be available in July 2023. On social security, we have also revised up our forecasts, mainly because of demand for disability benefits being higher than expected. We also estimate that by 2027-2028 total spending on social security payments will be £1.3 billion, more than the funding received from the UK Government through the associated block grant adjustments. It is important to know that one of the main drivers for this is the Scottish child payment forecast spending of £436 million in 2027-2028. In December, I did caution that pressures on rising costs would mean that the funding position for individual government portfolios would be challenging and that assessment remains unchanged despite our marginally more optimistic forecasts. One crucial point that we can touch on in the questions is the impact of inflation on the Government's borrowing powers. The borrowing limits set under the fiscal framework are fixed in cash terms and have not changed since 2016. We estimate that the financial power of borrowing has been eroded by almost 20 per cent from the effects of inflation over that time. Finally, I draw your attention to the consultation paper on baselines that we published alongside our forecasts. That might appear to be a dry technical issue, but it is important about the assumptions that we make about Scottish Government policy over the five years of our forecasts in the absence of a steer clear from Government. I will speak to a number of organisations over the summer to discuss those points. We welcome your views, too. I think that we all have a number of questions, so we will start with myself. I think that we have about 13 minutes for committee members. You mentioned the fact that your forecasts and the OBRs are somewhat different from each other. You also said that there is more uncertainty than usual at this particular time, so why is there more uncertainty at this time and why is there a difference between the divergence, especially in earnings growth, between yourselves and the OBR? A couple of things. Clearly, we have mentioned several times that all the times that I have come to this committee are just the challenges that exist in the global economy just now. We are coming in the back of a pandemic, the cost of living crisis and the exact time path for the economy remains uncertain. There are some risks on the upside, so we have seen, for example, an early lifting of Covid restrictions in China, which has helped to expand the global economy, but clearly we have effects of inflation still continuing to lag around, which are acting on the downside. We have to make judgment calls about that, but clearly the world is uncertain at the moment until the true effects of that feeding through to the overall budget. That is the point about uncertainty on earnings growth and employment growth. They are the key drivers of what the outlook will be for income tax in Scotland and the UK. As you know, under the fiscal framework, what really matters for the net tax position is the relative performance and the relative difference between the outlook for Scottish income tax and the growth in the rest of the UK income tax. That means that what really matters is the outlook for employment growth and the outlook for earnings growth in Scotland and the UK. Over the past few years, we have seen a divergence between Scotland and the rest of the UK on earnings and on participation. Our judgment is that that gap will close over the immediate term horizon and we will go into some of the details about why we think that that is the case. Even then, there is a judgment call that we make about earnings and judgment call that the OBR makes about earnings more broadly. It happens to be the case that we are probably slightly more optimistic about earnings growth than the OBR are. That gets back to the point about an important issue for the divergence. We are forecasting around about 2.6 per cent growth in earnings over the outlook of our forecast. The OBR is forecasting nominal earnings growth of just 2 per cent. That is very low by historical standards. If the OBR revises that up to be more in line with ours and we revise it down because we are too optimistic, that means that the dynamics and drivers of income tax will converge much more. That is why the net tax position could decline towards the end. Traditionally, we have found it hard to match the south-east of England and London and their earnings have tended to be higher. It is surprising to me that we have got this the other way round in a sense this time. The story is similar to what we went through in the last report. There are a couple of pro-Scottish factors going on at the moment, which is what is going on in the North Sea. What we have seen for quite a long time now is that the North Sea has been a drag because it has been a high-earning sector that has been gradually diminishing. What we are expecting and what the data has been to show is that the North Sea is not positive, but it is no longer a drag. It is keeping up. That effect is slightly reduced. The other thing that is positive for Scotland is that rising interest rates tend to have a small effect in Scotland because the average Scottish person is less indebted than the average person in England. That is the second factor. The third factor is that we saw a very strong finance sector in London last year, which is a bonus-related effect that is beginning to unwind already. The finance sector is not performing the finance sector in Scotland by as much as it did last year. You are right. All those factors together will not make Scotland's earning growth match that in London and the south-east, but what it will do is make it match that in England as a whole. That is what we are basing in the forecast. We will slightly go above England as a whole. The big figure that you mentioned, which has obviously been in the media and so on, is the negative income tax reconciliation of something like £712 million. First of all, how certain are we about that? I seem to remember in the past that even late on, the forecasts with the actual outturn were quite different from each other. Is there a possibility that we will just have to wait? Is it July? I think that we are getting the final figures that they could be very different from £712 million. You will know in July the exact number that comes through. I think that this time it is different. Clearly, the forecast will be an estimate and we will get the exact number and we can have the outturn data and compare them there. However, if we recall the reason for this £700 million difference, it was back during the Covid times and at the time of the different forecasts. If you recall when the OBR assessment was made, which formed a BGA, that was done at quite a different point in the pandemic. It was at the time of where the Omicron variant was spreading around and the outlook for the economy across the UK was much more pessimistic. By the time the Fiscal Commission and the Scottish Budget in their forecast later in the budget process, earlier in the year, the outlook was much more positive. It is a difference in timing and the difference of the assessments of the outlook. If you recall back then, the point was made to look actually at the timing issue here. That is likely to mean that the BGA number will be revised significantly and that will be a key driver of the reconciliation. In the past, the forecast has changed because the outturn data has differed and that is just the nature of forecasting. That is more a fundamental question about when the judgments were made around the BGA and the tax position. That is why the number is so big and large this time. In that context, will it be £700 million, £60 million or £600 million? We will know in July, but the key point is that we can be pretty confident that that will be a very large negative reconciliation because of the nature of the issue that is driving it. I want to add a point that we have made a few times which is that even though it can get revised, it can get revised to be an even bigger number. At this point, we do not know which way the revision will go. It could be an even bigger reconciliation if it is slightly smaller. It is equal for ability as far as we are concerned. Therefore, the situation where you should ignore it, just because the final number might be slightly different, because as Graham says, it is giving you a very strong steer that there is a big negative number coming. Even though the final number might be a bit different from the number that it could be bigger than it is in practice. Mr Ireland, if you want to come in at any point, just jump in. Your own forecast in December compared to now is that tax receipts were £384 million less than you are now forecasting. Can you explain why that was and why it has changed so much since December? In terms of the uplift in the forecast, there are several things. We have data, so what happens is that we get new data all the time coming through and we have new data on earnings across the UK. What we see is that earnings, data and income receipts that we are tracking are higher across the UK and that is an uplift relative to where it was. We also get things like public sector pay awards feeding through, which again are higher than forecast in December. We have seen a much greater resilience in earnings as across the economy as a whole, which have all led to an uplift in our forecast for tax revenues. The judgment that we make about the slightly more optimistic outlook in the near term for the economy has again helped to boost the revenues. We have not changed our assessment of the economic outlook by the end of the forecast period. Rather than entering a technical shallow recession, the outlook will be relatively flat, but it will have the same outcome at the end of the five-year forecast period. I should say that 300 million sounds a lot, but when we are dealing in the magnitudes of revenues that we are talking about of thousands of millions, 300 million is a relatively small change in the forecast overall. The problem is that our borrowing limits are only 300 million, so we will raise that with the Deputy First Minister next week. You mentioned data in there. How are you finding it now for getting the data you need on the time that you need it? I know that, in the past, that was a problem. We continue to work really closely with the key agencies that provide the data to us. I think that we have mentioned last summer who provided our statement of data needs, that we have made good progress with the Government, particularly on economy data and on tax data. You would not be surprised to say that we could always do with some more data and we would always like some more information. Some of the challenges that we have are the limitations of the devolved context and the relatively small size of the Scottish economy in that perspective as well. The big progress that we have made in its still early days is around social security. That was our big concern back in the summer. We have been working really closely with Social Security Scotland to get the information for them to collect the data in a way that is helpful. We also have a really constructive relationship where we can essentially get their intelligence about what they are picking up as they are rolling out those benefits and new payments. I still have more work to do there but I think that we are relatively comfortable with where we are in terms of accessing the data. The final question for myself. You say that in future years you do not currently anticipate any negative reconciliations or forecast errors after 2024-25. Can you say why or do you think that that is the case? It comes back to Francis' point about what is the balance of it. There will be reconciliations. I can guarantee you that. At this moment in time, we do not see that there is a necessary case that is definitely going to be a positive or negative reconciliation in that way. As I said, that brings us back to the £700 million figure. That was quite a different reason than just forecast error. That was the timing of when the forecasts were made and cautioned very much at the time, saying that the difference particularly in the BGA that was embedded into the budget was a significant underestimate of the actual reality. That is why we are pretty confident that the negative reconciliation that is coming will be large. In some ways, that was a one-off because of Covid and it was also turbulent? I think that the reason for that was quite different. There is an interesting question about that can happen again. It comes back to the overall question about how the fiscal framework operates. Having negative or positive reconciliations driven by when budget statements are made does not pose these challenges to it. I do not think that anyone would say that that is a good situation to be in to where you are having to make financial decisions based upon timings of announcements. However, we will always have reconciliations. That is the nature of the framework. Reconciliations could be large because, coming back to that point, you are dealing with thousands of millions of income tax revenues that are moving around. Reconciliations and changes in the forecast of hundreds of millions of pounds are entirely possible, which comes back to your point about flexibilities in the fiscal framework to manage that. It is worth adding that although the 700 is a bit of a one-off because of the situation surrounding that, we are in a situation in which the reconciliation is the difference between two very large numbers. Both the numbers are getting bigger very quickly because of inflation. We anticipate that, in future, reconciliations will tend to be bigger than they have been. Although the 700 was due to special circumstances, we are saying that a 700 of plus or minus is not something to be surprised of in the future. I want to go back to the earnings growth. The OBR figures are 2.0 and your figures are 2.6 for Scotland. You hinted that there might be some factors behind that that you can expand on. Can you do that, Professor Roy? A couple of things. I mentioned page 54 in our report, which talks about that. There is an interesting chart at the bottom that shows the relative comparison of Scottish earnings versus UK earnings and the long run average there. What we have seen over the last five years or so is a gap widening between Scottish earnings and UK earnings. We think that part of that is the situation in the north-east and the high-value jobs in there. That has been acting to pull down Scottish earnings relative to the UK. Our assessment is that that is not in the short term. We do not see that continuing. The data that we track shows that Aberdeen is at least not diverging. The north-east is not diverging in the same way as it has done from the rest of Scotland. That means that that divergence is not going to continue. We think that there will be a relative catch-up to some extent in the short term. There are longer-term questions about the outlook that is important. In France, we have seen high growth in financial services in London, which again changes the average and then drags the UK away from Scotland. That is some issues where we think that, at least in the divergence, it is perhaps not going to continue in the same detriment to Scotland over the next two to three years. There is a broader question about what is the judgment as economists looking across the economy that what we think might happen to earnings? Our judgment is that we think that earnings will grow in Scotland around about 2.6 per cent. There will be R making a completely independent, different assessment. I think that it is going to be lower than that. Who is right will have to wait and see. However, if we become more like us or we become more like them, the net income tax position will not be as strong, because what we are doing is assuming higher earnings growth in the rest of the UK and that will boost our revenues. I guess that there is not so much divergence, but we are predicting that we are coming closer again. 2.6 per cent probably does not sound too much of a big number, but what would that do if they did come together of OBR revise their figures back up to 2.6 growth? What would that do to our tax income going forward to the BGRs? The earnings piece is crucial to the income tax element. John, we have a rule of thumb number that we talk about. I am not going to say it, because I will probably have to write to correct it, but we can give you the number there. A 1 per cent swing in earnings is a magnitude of hundreds of millions of pounds. We will get the exact number for you, but it is really crucial to that relative differential in earnings. That is where you see that, if you look at what has been happening to the net tax position, shifting from negative to positive, is driven partly by policy, but crucially by what is happening to the earnings outlook. How much caution should the Scottish Government use on the figures just now? When they look at the OBR figures, the average growth in earnings over the last 11 years has been 2.7 per cent and now they have switched it down to 2 per cent. How much caution should the Scottish Government give to the figure? We explicitly say in the report that, particularly towards the end of the forecast period, caution should be used in that. I think that we would hope that Scottish earnings growth without performing the rest of the UK will come through to tax revenues, but, as I said, one of the crucial differences is our judgment relative to the OBRs, which is more optimistic for the outlook for earnings than theirs. If that does not turn out to be true, so that we converge, then that net tax position will ease back down. That is the caution that we would advise. When is the next... My also, when does the OBR publish the next estimates? So they will be in the autumn to support the UK budget and we will be doing the same around our, so it is definitely something to watch. When we come back to when you will see that movement in the net tax position, that will be when we will know more. I can just give you that sensitivity that we sort of ran some estimates, as Graham is saying. We estimated that a 0.1 per cent is extra growth in Scottish average nominal earnings relative to the rest of the UK, at least a 25 million increase in the net position, and that is on page 61 of the report. Okay. So a 1 per cent would be 250 million points, axillary 100 million points, so it is a significant number and it builds over time. Yeah, but for the last five years, we have been lagging behind earnings for the rest of the UK. Yeah, and you see that again in the net income tax position chart, where Government are trying to seek to raise revenues through changes in the tax, or freezing the tax bans and increasing tax rates relative to the rest of the UK, but the actual amount of tax take coming in hasn't been keeping up with what you might have expected to raise, and the reason is because earnings haven't been as growing as quickly as the rest of the UK, and some issues around participation, and that means that the net tax position is perhaps not as good as you'd hoped it would be because tax base isn't as growing as quickly as you'd like. Moving on to the next question, if I may. In terms of, say, the estimates that you've been making of the Government spending, what assumptions have you made around the public sector workforce? Have you seen that number falling or staying constant? In terms of our forecasts, what we tend to do in terms of the spending outlook is that we look at the overall funding envelope, and what we look at is things like the block grant outlook for tax revenues, etc. We don't really get into the details in terms of the specifics of the policy choices, which include outlook for things like employment and choices within that, so we're looking at the overall funding envelope, and that's driving that. When we have in December our forecasts for public sector employment and pay, can you remember that, John? You're not back to December, but each forecast, because we need to think about public sector employment and public sector earnings, we have a mechanical rule that operates. That rule basically shows that in the May forecast, we're expecting the public sector workforce to fall by about 1%. That involves both the UK Government's employment in Scotland and the Scottish Government's employment in the wider Scottish public sector, including local authorities, with local authorities being a very big driver. I suppose that the contrast really is in terms of what the Government has put into its MTFS, where they have a couple of scenarios that have got positive growth for public sector employment. Just to stress again that ours just works off in a very mechanical way of public expenditure, sort of the likely pay pressures that the Government talks about, and that just gives us a number for public sector employment. So looking forward, you don't have any estimates on the size of the public sector? We basically say that it's falling very gently by, I think, about 1% over the next year, and that sort of trend continues, which is in contrast. 1% per year, that's what I was trying to say, right? Yeah, yeah, yeah, yeah. An annual before that. I think that it is worth, if there's a John's point, which is it is very sort of mechanical, just runs off the funding envelope, you know, we're not forecasting it in a sort of, you know, in anger, we're doing it, it's just something that falls out from the process sort of thing. Okay. Last question was around social security, spend. We've seen that go from, I think, about £3.6 billion in 2021-22. It's going to be rising to, well, it's going to be doubling by 27-28. So behind that, I guess there's two things. Inflation is obviously pushing the welfare bill up, but also I guess there is new welfare commitments that's not matched, doesn't come through in the block grant adjustment. So how much is it on each of those? And, you know, if we never had these new commitments, what would the social security bill be going forward? So there's probably three big drivers going on to that. So first of all is inflation, and with most of the key benefits uprated by CPI key points, then a lot of the big increase we're seeing in social security is coming through inflation. And we made that point in December, and that's one of the big drivers to it. The second is the increasing evidence across the UK about demand for key social security payments, particularly around disability payments and adult disability payments. You might come on to that post Covid and some of the evidence that is being picked up around effects of long Covid and waiting times, et cetera, and that's driving it. Now, of course, in the Scottish context, both of these at the margin are lead to higher spending but also higher funding. So that's not a risk in that sense to the Scottish budget because it comes through the block grant adjustment. Where the difference comes through is where either the Scottish Government is introducing new social security payments or where they're changing the benefit system that's being allocated with least a higher spending relative to the BGAs, and Paget 82 of our report, figure 5.6, talks about those differences there. And we think that that difference between the amount of funding flowing through for social security payments and actually what the Government are committing to spend is £1.3 billion by the end of the forecast period, and that's money that has to be found either from taxation or from other sources in the budget. Can I return to workforce, if that's okay? The resource spending review said that the Government was going to seek to return the size of the public sector workforce to pre-Covid levels. What you're saying is that you've not baked in any of those figures in terms of policy intent into your forecasts. Is that correct? Yes, we haven't put anything specific this time into changes in employment forecasts. It's purely mechanical in that context. It would be a major impact on the public finances if we were to take that trajectory that was the previous statement. I suppose we had the permanent secretary in front of us a few weeks ago who stated that they were working on the assumption or he was operating on the assumption that that was the direction of travel, but that the Government had made no new Government under the new First Minister and made no specific statement. If there was a specific statement, would you be modelling that into your figures? We model specific policies on Government employment and pay when we have the evidence to do it. I think that, again, coming back to the answer to Douglas, I think that I've got to remember what part of the fiscal process we do. For example, we would mod—the way that it would come through to us would be potentially changing our employment forecasts. If we think that the Government is changing employment levels, changing income tax forecasts, that's the way it would come through. We would then think about how that might impact on funding, but when it comes to the spending bit, what we are essentially doing is looking at what's the overall envelope that the Government will have, what they then choose to do that with allocating it either to public sector wages or employment or spending on day-to-day services. That's not an area that we would typically go into because we were just looking at the overall totality of the budget. In short, we would factor in. If the Government came with an explicit policy of doing something, we would take it as a policy that would enter our modelling process. That's useful. The Government also, in the medium-term financial strategy, is seeking to establish an external tax stakeholder group. What do you think the job of that body is? What does it have to do? It's interesting. Question makes trace out our remit because, obviously, we won't comment on policy, per se, and it's up to the Government to come forward with that. Some general reflections on tax and the debate here. The most important thing to look at is our long-term work that we've done on the outlook for the budget. We were here a couple of months ago talking about that. For me, that's really important work to look at. What are the long-term structural challenges coming down the line for our public services in terms of the rising costs in health, the demand and demographics? There's a really important debate not just in Scotland but more broadly across the UK and internationally about what does the public finance system look like for public services that are going to be much higher demand and are going to cost a lot more in the future. That's where you start to get into some really interesting debates about tax. One thing that I'm really interested to see from that group is the long-term evidence about the future of tax in the context of the changing nature of our public services. Are you doing much work on that in terms of, for instance, modelling on behavioural effects at longer term, given where we are with the tax situation and the divergence from the UK? Our remit is quite explicit that what we can do is model the specific policy choices of the Government, so hypotheticals, we wouldn't be able to do that. That would have to be done somewhere outside of the Fiscal Commission. We do work all the time on things like tax modelling and behavioural forecasts, etc, to inform the process. I would hope that our work might inform the thinking that might go on in a body like that, but if they come out with ideas and suggestions, etc, that wouldn't be for us to do, and that's just the nature of our framework that we are putting under. Of course, but you are doing that. Are you doing any of that pre-emptive work then? No, exactly. I think that there's been a big part of our research agenda since we've begun, really, to say, because clearly the tax situation is, well, not unique, but it's unusual in the sense that obviously the border between England and Scotland is extremely variable, and therefore that has implications for behavioural impacts of tax. That's something we've done quite a lot of work on. We had an international conference because, as I said, it's not even though it's unusual for the UK. It's very common across the world. There are also countries that income tax differences across regions, and we have a body of work to look more and more in the Scottish case, but as a research economist, you'd say that Scotland is still very hidden, as is often the case with the economics. It's still too early to say. The policy diverges between Scotland and England is still quite new, and therefore I think that the international evidence will continue to be a really important guide to the Scottish experience. We'll do more and more work on the particular experience of Scotland, but, as I said, the moment of international evidence is very helpful because there are countries that have a long standing period of different tax rates between regions. What does that evidence tell you? Roughly, there is an impact, but it isn't enormous in the sense that you're still in a situation where if you raise particularly higher rates, if you raise taxes, you still get revenue. It isn't the case that the variable impacts offset that, and that's one extreme example of that is in the United States, where some states have a millionaire's tax, and there was very strong view that that millionaire's tax would just result in millionaires migrating from one state to another, but what the evidence shows is that actually most of the millionaire's state put, and therefore it did actually generate overall revenue in the United States, and so they say that's right up at the millionaire's end, so you can see that even there is a positive impact from those things, but because what it does mean is you don't raise very much revenue from raising higher rates, but you still raise some. How urgent is the work of the tax group, given the situation that we're facing and what's outlined in your forecasts? We had it in the conversation about the long-term financial outlook. My personal view is that I think it is really urgent that we have the conversation about the long-term future trajectory of the public finances in Scotland. This is not a unique challenge to Scotland, it's common across high-income economies, but those pressures are here and now, and you see that through demand and public services, and they're only going to accelerate over the years to come, so having a conversation about tax, having a conversation about public services and reform and how we grow our economy are really crucial, because big, fundamental, structural decisions are going to have to be made about how we can continue to protect public services over the long term that we all value, so I think it is urgent. I would caution against quick solutions and here is a simple thing that if you do this one thing it's going to be easy, I think it's going to have to be a long process, but I don't think it should be—you can make decisions now and you can start putting in place the work that you need to do in order to change that. Thank you, good morning. I've got two areas of questioning. The first is about the frustration that I think we all feel when it comes to the different timings of the forecasts that underpin whether it's a medium-term financial strategy or any other set of forecasts, and how the OBR and the SFC forecasts relate to the different timings of the budget cycle, and that obviously has an impact on the projections that can be made given the data of that time. Do you think that there is scope to try to bring the timing of those forecasts slightly closer together so that it makes it easier? I'm sure that they will be on the SFC who would welcome that as well. I think that, in terms of a principal point of view, it does make sense to have the forecasts from a purely technical point of view as being as close as possible, so we end up in situations like we had back in the Covid period where you've got a very fast-moving economic environment, which then means that any delay between that means that the economic environment that you're looking at looks quite different there. In principle, yes, I do appreciate that our forecasting is one part of a big budget process that takes place in Scotland and the UK, and both parliaments need to proper time to scrutinise and do that. It's for us that it's really important that they're together, but it does avoid things like the reconciliations that we've got just now, where a large part of that is simply through the timing of the publications, and that can't be a good outcome. There might be ways that you can get around that, so things like back then the Government offered a different BGA or a revised BGA at that point, so could you potentially do something different, even if you've got a delay there, whether there's a material difference in circumstances? Could you think about changing the nature of the framework to be more flexible, so you've got a more accurate assessment from both? Those are certain things that I think are definitely worth discussing as part of the review. Just in the discussions about the forthcoming new fiscal framework to replace the 2016 one, are you aware of any discussions about the forecasting element? We're not part of those discussions, so I wouldn't know that. We've been quite clear on the record about that. That's one of the things that we think should be looked at and could be looked at, but I wouldn't know where the review was on that. Okay, that's helpful. Secondly, there's obviously a very big question to be asked about the medium term and the longer term planning ahead for the economy. You cited this in the response to Michael Marrage just now. The gap between Scottish Government projected expenditure and the tax take is obviously a very serious issue, and that brings our attention as a committee to two things. What scope is there for serious public sector reform that could help address that problem? Secondly, how can we increase the tax take? I just ask about the first of these, namely public sector reform. Do you have any suggestions to make about the most likely areas of public sector reform that could help? Given that, in health, in social security and in social care, there is almost certainly no scope for any reduction in spending, those are going to increase substantially. Your own estimates have already shown that. What scope is there for public sector reform that could really help that side of the equation? Unfortunately, I think that getting into specifics about what Government could do probably strays out our remit in terms of suggesting policies in that. The general point that you make, if I can make some comments, I think is really important, and I think that that gets back to our long-term fiscal sustainability work, where we were projecting that health will start to take and get up to the point where it takes over half the entire budget and coming through demographics, rising costs in there. That is clearly one part of the budget that has to be looked at about how can you continue to deliver the high-quality healthcare in a situation where the costs of delivery and demand for that are going to get up. From a purely economics point of view, the key thing is how can you essentially reduce lifetime expenditure per head on issues such as health? That is not to say to cut people's expenditure on health, but it is about getting into things such as prevention and tackling inequality, growing the economy, so that the demand that people are using in the health service is able to be reduced so that you are not doing so much corrective activity that you have done there. That is not just unique to Scotland, that is what lots of countries are looking at. Obviously, what can you do to become more efficient at delivery? I heard a fascinating talk yesterday from Gita Gopinath, who is the number two in IMF talking about AI, artificial intelligence, and how you can use artificial intelligence in terms of detecting cancers in people and detecting illnesses about using that to deliver certain types of treatments. How can you use new technologies to deliver public services again so that you can reduce the cost on delivering those services in there? In many ways, that gets back to Christy, and it gets back to the stuff that the committee has discussed repeatedly about the need for reforms there. You are not changing the quality, but you are reducing the cost that is having to be paid in order to deliver that quality service, and that is the areas that I think need to focus on. I am quite right that you cannot make a comment on projected policies that the Scottish Government should employ. I am just interested in whether, as you bring together the analysis that you do and the data that you are using, you are aware of other countries and other attempts to reform public services in a way that you have just said about increasing efficiency or making use of technology or whatever. You have given us three or four examples in that answer. Are there other areas that you think that we should be looking at without projecting into Scottish Government policy? Yes. I will come back to our long-term report. The areas that we talk about are saying that there are a number of different things that are driving what the outlook for the public finances. One is obviously on the spending side. What can you do to maintain the quality, but adjust the spending profile? Secondly, what can you do in the economy? What can you do to raise the tax take in Scotland, again, crucially, in this framework relative to the UK? What can we do to outperform the UK to bring the revenues in there? And then, what can you do around migration? What can you do about attracting more people to come to Scotland? Either that being taking a bigger share of international migration coming into the UK or attracting our UK people to Scotland and, again, crucially, to create high-value jobs that pay the tax revenues, because the nature, again, of this framework means that it is income tax revenues, particularly among the higher earners, that really matters. That is a different area that I think is worth looking at. My second aspect of this is about tax revenues, just as you have said. Obviously, there are ways in which you can increase tax revenues by changing tax rates and thresholds, etc. However, there is a question about the change to tax structures. There is a debate going on down south. Just now about whether inheritance tax should be replaced, etc. We had lots of debates up here about whether council tax should change, etc. Again, going back to the analysis that you are aware of in other countries that have changed their tax structures, do you feel that that is a debate that is urgent here in terms of trying to address some of the concerns that we have about a weakening tax return? A couple of facts on why we would get Francis' thoughts as well. The first point to make is a really important debate globally about the future of tax and the nature of the tax system and what we tax. Increasingly, if you are moving to a world where there is an increasing value of capital in the economy or an increasing value of companies making profits through automation, through AI and less worker input, then how are you taxing that so that, essentially, if you are squeezing the amount of labour in the economy, how are you taxing capital efficiently in order to pay for the public services? I think that that is a really important global tax debate that is going on. That is clearly getting into things like wealth taxes, corporate taxes and all those sorts of things. In Scotland, we have a relatively narrow tax base in terms of its income tax and property taxes. That is essentially it. You do not have that broader spectrum in there. Any conversation that is happening about those broader taxes has an impact on what you might want to do in the future around devolution of taxes. In terms of the Scottish context, the nature of income tax means that what is so important is the growth in high earnings and what you do around that. That is where you broaden out. It is less about the volume of high-tax payers that you have, which really matters. Again, that is not a political comment, it is just an arithmetic comment about the way income tax works. The broader point is that the more you can grow that, that is crucial to creating the underlying revenues that will grow income tax, so the base is absolutely crucial and fundamental in there. Again, the Government does some really helpful ready reckoners around income tax, so increasing the higher-rate £1.88 million. Again, we are talking about the numbers there, we are talking about earnings, point 1 change in earnings, £25 million. You can see that very small changes in the performance of your economy can have a really quite significant impact on your overall earnings base, and that is why broadening out that tax base is really important. Just to finish off on that point, when you had your breakfast in the Parliament some weeks ago, we focused on the high potential growth areas of financial services, of renewables, of digital industries and technology. Are there other areas of the workforce where you think we have more chance of widening that tax base and better higher-paid jobs? The nature of the economy is that sectors are naturally going to be more productive than others, and therefore sectors that are naturally high earning relative to others. From an economic policy point of view, you can do one of two things. One is that you can try and grow these high performing sectors in your economy relative to elsewhere, and that is why things like financial services, energy, renewables etc. are all really important, because they are naturally high productive sectors that will then generate the broad tax base that you want. That is not to say that you should also think about what we can do to boost productivity in the other sectors in the economy, such as hospitality, care, public services etc. If you can make them more productive, they will improve their earnings as well. It is riding the two horses there. One is about attracting and growing the high productive sectors, and the other part is how you can actually make other sectors in the economy more productive. Good morning. That leads quite neatly on to the area. I wanted to ask about capital expenditure. We know that the block grant funding from the UK Government is the largest component of the Scottish Government's capital funding. Your projection suggests that it is good to be cut in nominal terms by 14 per cent between 2023-24 to 2028-2029. My question is how will this cut, in your view, affect the productive capacity of the Scottish economy in what ways? On page 18 of the report, we talked about the outlook for capital spending. It is a 14 per cent cut in real terms, and you are right that the block grant is driving that. On forecasts for what we think about what is happening in the economy, broadly speaking, the way that we capture changes in capital spending in the economic outlook is largely just that arithmetic exercise. It is just a change in spend, so we do not capture in our short term, in our medium term—sorry—in our five-year forecast, we do not capture the change in productive capacity from that. We do not alter it. It is just money-in, money-out and reduction in that. You are right that the broader question is what is the long-term benefits of the capital expenditure that you are coming from that. We have not made an assessment of that, not in this report, because I said that it is simply an accounting exercise that we have in terms of the money coming in and out. Clearly, cuts to capital expenditure have an impact on the long-term productivity. If we can explore that a bit more, perhaps then, if you could, all of you, as top-notch economists, just help. Perhaps for the record, how productive capacity can be affected by low levels of capital expenditure. I am thinking things around—you have talked about AI, R&D productivity, its economic growth, sustainable wellbeing or otherwise. Can you just give a flavour of the real impact of whatever figure, whether it is a 14 per cent cut that we know in real terms or otherwise? I think that that would be useful for the record. How can capital expenditure impact on the economy? Essentially, it means that you can produce more output for the same amount of effort, broadly speaking. Transport infrastructure gets you to be quicker and you can do more for the same amount of effort that is going in there. Particularly, things around transport infrastructure have a direct impact on productivity. Education infrastructure is much longer-term and has real benefits over the medium term. If you can improve the quality of schooling and physical infrastructure around that, the benefits of that will be marginal but will build up over time. Some parts of capital expenditure might have less of an impact that the Government might do on productivity. If it is a particular Government building or a prisoner or something like that, we would not capture that in terms of productivity. It is crucially about how you can change the productive capacity largely by improving the way that the economy operates. Historically, that is where one of the things that the UK is lagged behind as a whole—key comparisons. That is one of the potentially long-term explanations for the productivity puzzle in the UK relative to other countries. You have already prompted my next question. Do you have any off the top of your head? I appreciate comparative figures of how the UK, perhaps in the last 10 years, has capital investment compared with other states. Is there anything that we have looked at, Francis? Do you think from comparison? There is obviously a big difficulty in the private sector and public sector investment here. It also varies because there are countries that are much bigger public sectors and need to start with. That is me just saying, really, no. I do not have to answer that question. Is somebody going to look at the committee on? It is one of a number of factors that people have speculated about. Why the UK productivity is potentially lagged behind is a bit of capital investment, particularly in connectivity and digital infrastructure. Again, you can compare digital infrastructure in the UK versus the best Scandinavian countries, and you can see the difference. You have all the other explanations such as management practice and the like that potentially explain the productivity piece. Capital investment is crucial in a long run. Following on from that, you indicate that the Scottish Government may receive further funding from other sources than the block grant. What are they and what do you see as the key risks for them not materialising? In other words, I am trying to flesh out how the extent to which they can be relied on relative to the block grant, which we know has got this significant cut. We talk about page 34. We talk about the different elements of the Outlook for Capital funding. The Government, as you mentioned, gets the key chunk from the block grant. That is the most important element. It can borrow as well. We talk a bit in there about the constraints on borrowing and potentially hitting the limit. There is an important point about the erosion effect of inflation and eroding, the amount of money that the Government can borrow, and the fact that they have been fixed in cash terms since 2016 and that they have had high inflation, and the amount that the Government can essentially add in to that is constrained. In the other funding, we talk about things such as city deals. Potentially future city deals might come down the line, which might lead to additional capital funding that would be outside the block grant. That is a potential source of funding. Of course, that depends on policy choices at the UK. What the Government might do with the Scotland reserve as well, so money that they are putting in there and moving from one year to the next, that is where potentially they can try to offset some of the potential outlook of the negative outlook in the block grant. Your potential is correct that the block grant dominates that, so that is where the money comes from. Therefore, any cut in that block grant has potentially a significant impact. Last week's question is to finish off. It strikes me that, because of the limitations instilled by a fixed budget, the narrative is continually about revenue spent—for very good reason, of course, it needs to be scrutinised and monitored—without the same, necessarily, awareness in the kind of body politic, if you like, of the implications of capital expenditure and investment terms. Is that something that, again, as economists, you see happening almost as an inevitable consequence? I can see your north end— I think that it is. It is a very common issue internationally. When budgets are tight, capital spending looks like a very easy cut, because it doesn't create as much immediate pain as cuts in other areas, but, of course, as your questions are implying, it doesn't create immediate pain, but it has those long-run consequences that you have to pick up later on. That is, sadly, a common feature that that is what Governments tend to do in those social centres where money is tight. Capital seems like a good place to start. Is it even more prevalent in Scotland because the tendency is to focus on revenue because of the fixed budget? Possibly. I think that the fact that you are raising capital is a really important point. We need to think about what we do about the capital budget and the allocations there. Is it Scotland? I remember back to 10 years ago when there was a big debate about capital investment, and it was all part of the Government acceleration programme post the financial crisis. There was a big debate and discussions around the value of capital investment and trying to accelerate that and shovel ready projects and things. I think that there has been an understanding about the value of capital. I know that the Government is doing the infrastructure investment plan and setting out how it expects the capital budget to feed through to those outcomes. You are right. I think that this comes back to the conversation with Ms Smith about the long-term and what we are doing to prepare for those long-term challenges. You are right. Productivity is one element and that is where the capital budget is really crucial, but what are you investing in the public services through your capital budget to help you to take advantage of the investments that you make now for offsetting some of the long-term challenges that are caught down the line. The more you want from us in capital and the understanding of that, the better. I am happy to help you. It is a particular question about the issue of Scotland. Your previous question shows that it is not that much, because the block grant is so dominant in what the capital spending envelope is. Scotland is spending up to its envelope in capital and it is the block grant that is driving it. Thank you very much, chair. Good morning. I want to say that my questions might be a bit naive and not all over the place. I am a new member of the committee, but I was just interested in the point about inflation leading to slightly lower expectations for inflation and interest rates in the near term. Just from what I observe, where core inflation has increased to 6.8 per cent and most commentators think that we are going to get at least one, probably two more interest rate increases, the effect that is already having on the housing market and the mortgage rates. How confident or do you have a timescale for when you expect to see that reduction in inflation? I think what we were told last year was going to be the middle of this year when we see that reduction, but that has not happened. I will go first and then, Francis. The big story in town is what is happening to inflation and the effects of that. The first thing is that inflation will come down quickly over the next few months simply because of the way that it is calculated. It has looked at it from one point in the year to the previous point last year. Because we had the spike, it will naturally come down. The key point that you are making, which is crucial, is how quickly will it come down, but crucially how embedded any expectations about inflation will be over the next year or so. That is where the potential concern that is being raised among people is that it will come down quickly, but will it level off and be at a higher rate? If that happens, then the Bank of England will have to be more aggressive at trying to increase interest rates in order to bring inflation down. That is where it gets challenging for the economy. They face a really difficult trade-off between slowing the economy to try and combat inflation, but then not trying to tip the economy into a downturn. We just need to wait and see what we get at right over the next few months. It has been a really odd combination in the sense that the original culprit behind this inflation energy, in a sense, has come down way faster than we were originally predicting. We would have thought that we would see this inflation falling more, but what we have seen is that the burst of energy prices that we got last year is still working its way through every single other price. Food prices are everything, even though the actual energy price itself has fallen. One of the many reasons why we think that the fall is happening is because, for example, we are getting the price gap revised in July and there will be a big fall in energy bills, a fall in energy bills in July and another one potentially in October. We know those negatives are coming, but your question implies that the core has been surprisingly resilient. Given that, we would have thought that the core inflation would have come down faster than it has. I cannot say that I have seen any evidence of own bills for our reduction in energy costs so far, to be honest, but I suppose that that is the important point. It is what people are having to spend that is going to have an impact on inflation. I am just taking two or three things together. Michelle Thomson is questioning about capital, a 14 per cent reduction over the next few years. It says somewhere in your report that living standards are taking one of the biggest hits and a project to take one of the biggest hits that we have ever seen. On the revenue side, it is a pretty small increase over the next few years. You have been asking a number of questions about comparative in relation to taxes. That could be described, and I am not asking you to do it, as a kind of austerity period going forward. Is there any comparison that has been done in relation to following the kind of austerity policies that are already given at national debts balloon to £2.5 trillion? Are those austerity policies working for the ends that are set out, or are other countries following a different path that is more productive? Is there any comparative studies that have been done on that? It is not something that we have looked at to compare in that context to what everybody else is doing. I think that the general comment that I would make is that we spoke about this back in December. The real challenge of inflation is the hidden effect that it has on living standards and the spending power of government. That is why, even though we have really fast earnings growth in cash terms, that that is being offset by the really high inflation that we have there. That is why we think that living standards will fall this year on the back of falling last year. That then is feeding through to government. Even though government is spending more money and increasing government expenditure, quite substantially that is being offset by the high effects of inflation. That is why tackling inflation is so important in getting it back down to a more comparable level. You are not essentially in this continent cycle of erosion of the actual spending power. In the Scottish context, what does that mean in terms of eroding the things such as borrowing powers, the effectiveness of the borrowing powers? If it all works out correctly and we get inflation back down and we can start to get back on to a more normal path where more standard earnings growth can actually lead to improvements in living standards because it is growing ahead of inflation, we still expect that that will happen, so we still think that disposable incomes will start to increase next year. It will take a while to come back to where they were pre-energy crisis levels and the same for government expenditure as well. Government expenditure will start to rise again in real terms, but clearly government, within that overall envelope, has got really big pressures around rising pay costs and cost of delivery of services as well. On the earnings, we had a discussion earlier on about comparative rates in Scotland projected with the rest of the UK. It would be useful to know what if there is any comparison with Scotland with the rest of the UK excluding London. There was no mention at all that I was kind of surprised that maybe I am just getting this wrong of comparatively positive performance in Scotland in terms of employment itself, whether it is employment or unemployment, or even now, for the first time, economic and activity, all of which have been well ahead of the UK for a number of months. That would surely have an impact on that part of your calculations, in fact. A couple of things. You are right. Comparatively in Scotland and the UK, one of the slightly unfortunate things in the nature of the fiscal framework means that the focus is always on Scotland versus the rest of the UK. When you start to unpick that and take out London and the South East, you get quite different stories about how Scotland is doing from an economic perspective compared to other parts of the UK. We know from all the data that Scotland outside London and the South East typically comes in next in terms of rankings on most economic indicators. That being said, the nature of the fiscal framework means that what matters and what we are signed up to is that relative performance is Scotland and the rest of the UK, including London and the South East. That is why we focus on that so much. That is why matters for earnings. On the point about the labour market and employment levels and the connectivity rates, one of the things that we have seen in recent years—this is over the longer term, so this is just the most recent stuff—is that there has been a decline in participation between Scotland and the UK. Some of that is demographics, but we have quite a big discussion in the report this time where we look at changes in activity and the differences in data that we are getting in terms of levels of activity between Scotland and the UK. One of the things that we are not sure of yet—we just need some more data to see a bit more—is that, while both Scotland and the UK have got declining participation because of age, Scotland has not kept up with the UK in terms of participation amongst the key age bands, particularly in the middle of the demographics. We do not really know why that is the case. It might be a data issue, it might be issues tied to the north-east, etc, and the loss of jobs there since 2014. That is something that we want to keep an eye on, the differences in participation in the midpoint in the air. We have quite a bit of discussion in the air and we talk about some of the data in the air, which basically concludes that we are not sure yet. Can you ask if you have any data on FDI compared to the rest of the UK, excluding London, which is Scotland's relative performance? I have not been involved in those discussions previously, but the discussion that we have had around the reconciliation of £700 million, just to try and get my head around it, is what you said earlier on. It is down to a timing in forecasting situations. It is not due to, as best I can tell, any decision of the Scottish Government or any financial act of the Scottish Government. Obviously, that will follow on from the forecasting, but initially it is a forecasting situation. Just to say that the idea of any consistency in when you can do your forecast seems undermined by budgets changing every year, or not taking place, we do not expect. It is not like it used to be in the 80s and 90s, and even in the zeros where you knew when the budget of the autumn statement was going to happen, it is all over the place for the last few years. However, it would be interesting to know if that adjustment is £700 million to what extent the Scottish Government is responsible for that. On FDI, you mean foreign direct investment. We track things such as data on foreign direct investment and investment levels on that. Broadly speaking, there are two sources. The Government published data on business investment and so on. We track that, which was done quite well over the last year in Scotland. We track that, and that gives us a broad sense about how the economy is doing. There are also more unofficial estimates that we get, so EYs, attractiveness survey, etc. That gives us an idea about, again, how Scotland is comparing relative to the rest of the UK. That all goes into the mix when we make an adjustment, where we make our assumptions about the forecast and go in there. For example, if we saw lots of data showing significant investment in Scotland and high earnings growth and lots of jobs being created, that would be something that would be factored into our forecast. There are probably the two main sources that we would use, and that is something that enters into it. On reconciliation, there are a couple of things to mention. This is reconciliation for 2021-22. Our latest estimate is that we think that the net tax position for that year will be negative. The block grant adjustment will run ahead of where the income tax receipts were. The reason for the big reconciliation is down to differences in forecasts. That is not about how the economy has performed at the time. It is just about what the assessment was made back in December 2020 for the OBR, or November 2020 for the OBR, and then the Scottish Fiscal Commission in January 2021, or early in the spring. If you remember back to that point during Covid, the Christmas period was when the new variant was coming out. There were real concerns about the look for the economy, and it was really quite uncertain and negative. Jump forward to when the Fiscal Commission was making its forecasts in the early spring, when the vaccines had come out, there was at least a time pass getting through this, so overall it was much more positive. It is that difference between it. We have a table on page 11 that looks at that. When the BGA was set in the budget setting process, it was saying that the block grant adjustment would be £11.8 billion. The latest forecast is that it is £13.6 billion, whereas when the Fiscal Commission was making its forecast on income tax, it was £12.2 billion, and now the latest position is £13.4 billion. The income tax has gone up by a billion, but the block grant adjustment has gone up by £1.8 billion. It is the difference between the two that leads to the reconciliation. In terms of economic performance, both have gone up, but it is because of the timing of the BGA that it was in a much more pessimistic bid. It has gone up by even more, and that leads to the reconciliation. Obviously, the timing of the two forecasts was a factor in that case. I do not think that we should think of that scale of reconciliation as being something that is a one-off that we will not see again. That is something that we should consider as the sort of scale that we would expect to see. Although there were some other special circumstances, I think that the number to squaring budgets means that that is the ballpark that we should be thinking of. A couple of questions about the calculations around social security spend in figure 5.3, which is on page 81 of your paper. I appreciate just a little bit more information. Just on the Scottish child payment in particular, part of the theory of that is give families more income, create the stability for the situation for them to then find themselves in a better financial situation when they do not require the child payment. The calculations that you have here show that they dip over the next couple of years, but that then is going down somewhat over the last couple in the cycle. Can you explain a little bit about that tailing off in the decrease? You are talking about 5.3. That is largely due to changes that we have made in our assumptions around take-up and the difference between eligibility and caseload. We were essentially assuming a higher take-up early on relative to the end of the forecast period. The data that we have showed that take-up is ever so slightly less just now than it potentially could have been, but we think that it will essentially accelerate and catch back up. That is why the gap is bigger just now, but it will ease off toward the end. We also think that the actual number of eligible children is less than we were expecting back in December, so in turn that reduces how much we think will be spent. How much of that is the reduction in number of eligible children? How much of that is reduction in overall population versus the relative socioeconomic situation of the children? Over the five-year period for this paper, we are looking at something like a drop in 25,000 children in the primary school role. One thing to say is that we are still seeing the data coming through and making judgments on the back of it. One of the key dominant features for eligibility is the change in projection for a child population. It is less than what we were thinking at Laws when we were first making those forecasts. On the child disability payment, we would have expected a significant initial spike as we transitioned to that, away from quite a relatively hostile DWP system towards a deliberately more generous social security Scotland system, but the projections for the child disability payment in the same table continue to rise quite significantly. I understand why that is the case for adult disability payment, where our adult population is becoming more ill as a result of a number of factors. Is that the same driver behind child disability payment or is it something else? We have seen higher inflows into child disability payment than the previous benefits there. Part of that is us projecting higher demand coming through into the future. Some of that is linked to the economic situation and some of that is just linked to the higher demand that we are seeing in terms of children coming forward for being eligible for those benefits. There is about one third of the increases that are down to UK-wide trends and the other two thirds to the launch of the new payment. On a different note away from that table, Francis, you mentioned towards the start of the session about the north-east over the next couple of years no longer being quite as much of a drag on the Scotland-wide income growth figures. That committee took some evidence. I think that it was late last year on regional differences in income growth and the really stark difference was east-west. That is reflected in population figures as well, although local authorities across the east coast are projected to grow whereas our Gell and Bute are required to get the most significant decrease. How much of that regional data are you able to draw out for the purposes of this projection? We are looking, so this is one of the useful things you get from this RTI data. We can get regional data and regional incomes. I think that we are very focused on Aberdeen in that area because what we have seen historically is that is the outlier. Scotland as a whole tends to be rather similar to the rest of the UK whereas Aberdeen in that area is a variation. That is one thing that we have seen. It is important in understanding what is the key part of our forecast, why Scottish earnings diverge. Already what is interesting in the data that we have seen is that the Aberdeen area, which is for a long period now has had slow earnings growth in the rest of Scotland on the latest data, is up with the average of Scotland. That is in line with our story that that area will no longer be a drag although, as Graham rightly pointed out, how long that continues is really hard to judge at this point because we still think that the North Sea is obviously a mature and declining sector and therefore that long run trend is there but we are just seeing a period now where there is a bit of a mini renaissance in that area because of what has been going on in energy prices and the rest. Is the west potentially going to become that drag? Are we going to continue to see the gap continue to grow between earnings in east and west? We saw some concerns around that coming out. I have heard them locally. Off the back of the Freeport announcement, there is going to be one in the north, one in the east but not in the west where we are already seeing—not that I am in favour of Freeport, so I stressed that—not just a fallen population in the west coast but a fallen average income growth compared to the rest of the country. That has been a long-term trend in Scotland for the last 20 or 30 years, particularly the shift east and the growth of earnings in the east. Part of that is the sectoral mix, particularly financial services and energy over in the east, which has grown there. What matters now is what happens going forward because that is all baked into the baseline. The fact that earnings in the west, for example, are slightly lower than in the east is made from the initial adjustment. What matters is what kicks on from there. That is where that relative performance is really important. As you were asking your question, I have a really good chart that basically answers your question. It is probably not great for the public record just to show it, but we can write and show you that. I will show you the difference between the UK and Scotland and the gap that has emerged, but just a crucial bit of Aberdeen in the north-east in there, and that helps to explain quite a significant chunk of it there. What matters is going forward from that? As I brought up, the free ports occurred to me. Have you projected anything on the basis of the expected economic impact of the free ports? I realised very early in that process. No, I think that we would need clear policy about what that would be. The question for us is whether we would have a material macroeconomic impact over the course of the five-year funding horizon that we look for. We would need to make a judgment call about whether that would be the case and not what displacement and dead weight would be associated with it. Final point, on the availability of data. That might be string outside your ream at somewhat, but I have been interested in your thoughts on it. Obviously, you have access to significant amounts of public data that is not otherwise in the public domain, but folk at things like some of the independent tax proposals that have been put together, the paper that the STC commissioned, for example. There is quite a significant difference between the additional revenue that they are saying would come from some of their tax proposals versus what is in the ready reckoners. I would be interested in your thoughts on whether there is enough information in the public domain to aid a healthy public debate, because it creates a bit of tension, obviously, where the STC says that putting 2p on the top rate will raise an additional £200 million, and the ready reckoners say that it will be essentially net neutral. A couple of things. Again, you would expect to see the more information that is out there, the better and the more accessible. There are actually really good tax models out there, so the Scottish Parliament has access to things that can do calculations around this, so I think that on the basic tax policy choices that there is capability for people to do that and set it out. That is the first point. The second point comes down to what might be the behavioural changes that go into that. We have quite rigorous and quite open and transparent marginal tax and behaviours that will come into all of that, and they have material impacts on the end outcomes. I guess the question is, are there other people with other numbers out there? Are they doing that? Are they talking about the static effects? Are they talking about dynamic effects? Typically, that is where the big differences are. Even if you get all the data, you ideally want—the other one—a relatively long run of it to do any kind of analysis. I think that a lot of those questions for Scotland are still relatively open, because we have a rather short run of data to look at. As I said before, in terms of the behavioural impacts, the Scottish data is really—we are obviously going to do as much as we can with it, but that is why we have historically lent more on the international evidence, where the data is probably the same as Scottish data. It is just a longer run, and it can be analysed in more detail than we can currently do with Scottish data. We do not use that much private data. One of our general principles, as we prefer to use publicly available data, is that it increases transparency, and there is not a lot of private data floating around in that area, so it is mainly public. Thank you very much. I congratulate both the committee and the witnesses for keeping us to time, and we have done quite well. Is there anything else you wanted to say that we have not touched on? No, just thank you once again for coming along and speaking, and I am happy to pick up on the long-term work, capital work and so on in future conversations. If I can thank you all for taking part and for your clear answers, thank you very much. We will now have a break and we will start again at 11 o'clock. We welcome back to the second half of our session this morning. We now continue our evidence taking on the Scottish Government's public service reform programme, and today we are hearing from Claire Burden, the chief executive of NHS Ayrshire and Arran, so welcome to the committee. We were meant to be hearing also from Argyll and Bute's integration joint board, but they are unfortunately not being able to attend today, so my apologies that you are there in the spotlight, but I am sure that we will get on okay. Welcome to the meeting. We have got about an hour, but we do not have to take all of that time, if we will see how we get on. I think that my first question for you would be, we are looking at public service reform, and initially we thought that the Government was going to really have a very clear path for this, and more recently it has been more of a question of will each organisation be looking at reform itself. Do you think that that does work, or do we need a stronger steer from the Government about the kind of reform that they are looking for and where we should be going, or are you comfortable that, for your organisation and similar organisations, you can drive forward reform yourselves? I think that there is a mixture to be had here with regard to NHS Sran Arran with the unique nature of our population. There are things that I can do within the health and social care arena that perhaps would not be transferable to other parts of Scotland. In that way, I think that in order to meet the needs of our local people, there are certain things, particularly operational delivery, that it is helpful to have that local flavour and responsibility and accountability for designing services that meet the needs of local people. I think that the opportunities within digital reform perhaps are where we start touching on the scale of national policy, making it more accessible and making it more equitable. As a smaller territorial board, our finances are for the 385,000 people within our territory, and that limits our capital capability. We know that to get the greatest reform, we need to ensure that those digital infrastructures and our infrastructure as a whole are as robust as possible. That will need some wider national steer. Subsidy leveraged somehow so that there is equity across all 14 territorial boards. We had evidence last week about on the IT side that, and it was not just health, it was like all sorts of public bodies were fishing in the same pool for IT experts, and there seems to be a shortage. Has that been your experience? Absolutely. We have quite a low baseline currently in NHS Asher and Arran, and we are putting foundations in. We are not seeking whistles and bells, we are wanting an infrastructure that means that we can cope with a power surge, cope with the westerlies when we get cut off and are resilient. If we were to do that to the best of technology, we would go to the cloud and seek those larger enterprise opportunities. It would be more cost effective to have local servers, but it is not as resilient. Doing the right thing requires digital expertise and maintenance of a system for a wider population, and trying to do that for 385,000 people is just not the same. You have mentioned a couple of times the number of people you have. If we had had Argyll and Bute, I think that their number was 85,000, which is even a smaller organisation. However, the police made the point last week that they are an example of a major reform in recent years that they went from eight police authorities down to just the one. If we were to see that kind of change in the health sector or anything like that, that could not be done internally, could it? That would have to be driven by central government. Absolutely. However, there are regional and national networks over and above our territorial boards. The west of Scotland works as a region, and there will be opportunities to optimise what is available. However, through the 14 territorial boards, our response to digital will be meeting our local needs and working from our local infrastructure. Glasgow's current position is very different from mine, so I would take disproportionate investment to catch up. It would be as if I were slowing them down in order for us to catch up. The important bit is scale, and we started with regards to where we were going to get the greatest reform within digital—that is that one area—where national and regional, getting us all into the same ballpark, will make a significant difference in public reform. If we get our digital network right, our ambition is that our health and social care partners are aligned to our single-patient record. They will have access to the same information—the digital platforms—to get them future proof. One of the things that we as politicians get from the public is the term postcode lottery, which I personally detest, which means local decision making. However, there is a balance between trying to get a kind of—so that when someone turns up with a broken leg, they get the same treatment in Ayrshire or the Highlands or Glasgow or anywhere else. However, on the other hand, you are dealing with a particular situation where you have two islands and Highlands and Glasgow and Edinburgh are completely different as well. How do we get that balance? The police model has been to go to a much more centralised model in some ways. Does health need to go to a more centralised model? In our subspecialities, I think that there is a need for regional and national models. They are already in place with vascular cardiac services, so you go to a specialist centre. I think that there are other areas where Scotland could consider working at a regional and national level and building on the the jubilee ambitions. I think that it is a definite walk before we can run in that our workforce is territorial at the moment. My workforce for Ayr is absolutely dedicated to Ayr hospital. Recruiting to Ayr hospital is no mean feat. With Crosthouse being that is closer to Glasgow, it is 13 miles. You would not have believed that it was so different to recruit to those two hospitals, but the fact remains that it is. That comes back to where we started, in providing local services. When you break your leg, you need an emergency service that is going to fix your leg. That feels reasonable to have that within a 40-50 mile radius in order that you can get to hospital within the golden hour or wherever that is. The subspecialty is where we get into the replicating what is happening in vascular and cardiology in that, if it means that you travel a little further, but you get to see the specialist who can fit you in a shorter period of time just because it is the nature of specialists, there have to be benefits in outcomes with that. And our medical colleagues are there in the best place to determine what those zones might be. Okay, and my next question, my final one, was probably going to be aimed more at the HSCP, but I'll try it with you anyway. I mean, your area I think covers, is it three council areas, local authority areas? And I just wondered, is that a problem or does it not matter or is it a strength? Because we know that some other health boards, I think five for any example, it pretty well matches the local authority area, but is that an issue for you? Without doubt, it would be easier to have one partner. By the realms of, there are four of us and we're each trying to deliver to our local populations. The needs of north, east and south are different and for such a small area it's extraordinary how different. So, in that way, I think working through our east councils, our councils know their populations well. They've each developed services around the needs of their local people and the diversity that's offered within those three boards and I've been very fortunate. I've inherited health and social care partners who are committed to working together, the caring for Ayrshire strategy isn't new, but I've been here for 18 months and when the fire service, police service along with your councils talk to the caring for Ayrshire strategy, I've clearly inherited something that means something to Ayrshire and that's currently sufficient to bind us together. We have our bumpy sections because we're all wanting to provide the best that we can in the here and now. The nature of emergency and emergency care and this post-pandemic era means that we're not quite as focused on prevention as we would like to to be. In an ideal world, we will put so much more into primary and community care because it's the right thing to do but, at the moment, the hospitals are spinning like tops and they become their focal points. That opens up a huge area and the committee spent a lot of time on that but I'll restrain myself on that and hand over to Michael Marra. You spoke a little bit about IT programmes and I noticed in the submission that you made that there was a quote in there, the work that you were doing starts us on the journey of delivering the Scottish Government's 2015 cloud first strategy. Is that correct? Is that the strategy that you're working to publish in 2015 and you're starting to deliver it now? It's since been revised. My understanding is that the IT strategy is in the 2022 but the commitments to move to a unified platform and an enterprise model for Scotland, that's what we're aligned to in order that any of any of the local platforms that we've put in place and the interfaces are compliant with cloud. I suppose reading the submission, I wondered about the scale of the change that's required. I mean, we've talked in this inquiry so far about shift of preventative spend, demographic challenges. Do you think that the programme that you're undertaking is commensurate to the scale of the challenges that you're seeing as a leader in your field around demographics, technology, new forms of healthcare? Is the change that you represent here up to that task? I still think that it's conservative, but I think that it's affordable. If we were to look to the private sector, you would be looking at 3 per cent of budgets dedicated to IT and we are less than 1 per cent. That's what I treated over three years. The reform that we've put in place enables us to work with NHS Scotland with some parity, with our digital capability. It sorts out our infrastructure in order that it is now, it will be compatible with NHS Scotland requirements, but it's also getting our health and social care partners with primary care unified. So 10 million sounds a lot when I'm sitting with a year-end 25 million whole. However, it's 3 million, 5 million, 4 million in order to get us where we need to be. Interoperability is where we're going to get our greatest rapport. If I broaden that out beyond the digital infrastructure to the way that health services are delivered across the whole board, where services are situated, the way you're reforming or looking at the future of your geography and your people, do you have a change programme that addresses that broader set of issues? The software that comes with the upgrades just puts us in a completely different place. Our two acute hospitals, we don't have a bed board. We still manually go round with bed managers finding where people are. We're running three operating systems to run an acute hospital to manage risk, improve safety and reduce avoidable weights throughout the hospital. That one piece of kit that enables people to know where patients are at any one time will change the landscape for emergency medicine and into the body of the hospital at the moment. My emergency department system isn't attached to the main hospital, it's a standalone system. The broader issue of a rapidly ageing population and how you deal with that, you think that it's a technological approach that you're advocating. Is that what you're saying, to trying to change services rather than talking about where we might address primary care, how you might piece this together? I'm trying to think of it in a slightly bigger, broader driving forces, but you seem to be quite focused on that technology aspect. The plan for this year is threefold. We've got to address our bed-based care. Bed-based care being the most expensive component in delivery of care, and we talk about bed-based care as if it's just in the hospital. That's not the case. We've got beds all over the system, doing all sorts of things and not necessarily where we want them to go. The second is financial recovery and sustainability, so we have some very high spend. The third is digital, and the digital impacts the other two. If we have remote technology, we have mobile technology, but we're only at the tip of the iceberg about what we're capable of doing. If I can equip a clinician at the patient bedside, wherever that is, in their home, in the community or in the hospital, if they can all see exactly the same thing, then we will make better decisions on their behalf. It's people's independence in keeping them in their own home. If I can equip decision makers with that information, they're more likely to be able to keep them at home. On your workforce planning, you said in the submission that you have full-time staff currently contracted around 9,400. Is that correct? Yes. It waxes and wanes by about 400 from that, but that's— There's been a little bit of dubiety, I think, in some of the evidence that we've had so far, as to what the Government's absolute position is on this, in terms of managing the workforce. The resource spending review, which came out a while back, under the previous finance secretary, committed the Government to reducing headcount to pre-pandemic levels. You seem to be indicating here that your intent is to remove non-FT permanent staff through trying to manage down your bank nurses and other contractors. Is that—Am I right? There's a characterisation. That's what we're here for. In the first instance, until we can get into reform and dramatically change the way a hospital works, our ability to take our headcount down, demonstrably and sustainably, is limited. Our vacancy rates are such that we're robbing a blind space, whereas there is a reality with that agency and bank spend, and the way we choose to work with independent partners. You think that your ability to meet any broader intent in that regard is limited by, when you say, until we get into reform. Is that a more led process, a more indication perhaps in the direction that the convener is talking about? Is it something with more intent from Government? Is that what you're getting into, it means? This is our ability as a health and social care system to generally get into the— primary care are desperate to do more, and they can talk to me or any of us this afternoon should we be able to move money around with a little bit more fluidity. They would be able to offer more support for patients at home in the community, get into that prevention arena, which will reduce demand on the acute setting. At the moment, I don't have sufficient headroom in able to create that reform. It feels a year to 18 months of basics getting our house in order, getting our workforce, having a really dedicated core workforce as a rural territory. That's not unusual, but I need more in terms of core to get things to optimal levels of cover and running on minimum. We've got to focus on that recruitment that will bring down our costs. You have consistent budget deficits over the past six years, perhaps longer. Prior to the pandemic, what would a headroom that allowed you to invest in that form of shift look like? Is it the elimination of the deficit? Is it a surplus? Or is it a reduced deficit? Have you had any guidance in that regard? It's a reduced deficit. I don't have an end point at which time we can turn this round. I can't underestimate how important it is for us to wrestle with the bed-based care and what those models look like. I'm in a system that is heavily dependent on bed-based care and unscheduled bed-based care being in an acute setting. It doesn't have to be that and others have been successful. I think that there are considerable margins for change in NHS Asher and Arran, but at the moment it doesn't feel as if it's possible. We've all been in a position where people are generally over-faced by what they see. I think that that's what I'm working with at the moment. You said something very interesting earlier about the territorial approach of some in the workforce. I think that that would be true of patients and families who get very attached to their local hospital medical service. We've seen what can happen when anybody has any hint of either closing a hospital or shutting down parts of it yet. You're quite correct in what you're saying that, for the benefit of medical services in the future, that's exactly what has to happen to make it more efficient. What do you think we have to do to bring the public with us in the nature of that reform, because I personally think that that's going to be a very difficult challenge? Do you have any suggestions about what we do to take the public with us? It's going to be the medical voice that makes sense of it. I think that the needs of a local hospital, the definition of a district general hospital is that it's there when you need it and it's there 24-7. The maintenance of life in that period and thinking what pre-hospital care is and those acute things are, that's core to the NHS and being clear with people, so air is a perfect example in that you move anything and people are really worried you're going to shut it. I can't possibly support health provision in NHS Etter and Arran without both hospitals, so I need to find a way to keep them both. However, should I be unfortunate enough to have a brain hemorrhage, we need to get you to a neurological centre because that's where your outcomes are going to be different just by the nature of specialist care. I think that if people can hear from the medics how we can effectively move patients around Scotland to ensure that they get speedy access to the right surgeon and that system is designed to say yes, it becomes a different offer. What you're effectively saying is that the better decisions and the ones that will be probably more accepted by the public are made by the clinicians, by the medical people themselves rather than people who are in the administration. One of the things that interests me about comments on the Covid era is that because it was so very serious for everybody, the decision making in hospitals was actually pretty effective because it was made by the clinicians who decided how they had to run the wards. I think that's quite an interesting lesson about the future because if we are going to change the whole setup of the health service, I think that the clinicians, the medics are incredibly important in this. I'd just be interested in your views about how easy it is in modern health services to ensure that it is the medical people rather than the administrators who take the decisions. So we've just embarked on a change programme called Clinically-Labeled, Managillian-enabled and it's a little bumpy because it's not an insignificant change for both schools. So putting medics in a position that we've got some really un-difficult decisions to make, I've got some amazing services at Ayr and there are, I have difficulty recruiting into critical care and so we're putting all sorts of contingencies in but the debate is with the clinical team. I can't magic up staff but I can build contingencies whilst we seek new staff with the clinical teams. I think that there's also something for management with regards to I can make your life as a clinician as easy as humanly possible by enabling the things that you don't do as a manager, you can bash out business cases, you can come and make cases to in a political space, we can support them through that space, they don't have to be good at everything but they're steering what is medically right will get us the best outcomes for Scotland, it feels the most appropriate and safe place to be. So it's your recommendation, the actual structure of oversight of the health service needs to change a bit to facilitate that. Does that include, I mean we were due to hear from other witnesses as well, does that include the IGB structure, would you recommend any changes on that front? So I think we've got some, we've had some changes in clinical leadership within there as well and of course I'm only sitting here for NHS Asher and Aaron and our primary care clinicians and our medical sponsors within those arenas are strong and vibrant and so I think it mirrors but clinically led the NHS says it on the tin in that we need the steer and guidance modern medicine and what that means and wanting care closer to home. I'm going to be asking something very different of our clinical leaders in that these helicopter roles saying come and be my medical director and look after 385,000 people and it's not necessary their first language but these people do this. I think that it offers a huge opportunity to genuinely think about healthcare provision in a different way and as a manager logic person that only goes so far you need somebody to help us steer where outcomes are generally going to be different. Thank you very much. We had some interesting evidence last week from somebody who attended from Police Scotland who made clear that the creation of the body simply wouldn't have occurred had it not been mandated by government. I wanted to ask you some kind of perception questions in terms of your world so in Scotland with what 5.5 million we've got 14 territorial boards and five national boards and with duplication of HR directors, IT directors, finance directors. Is the scale of this and that current organisational structure something that you and your equivalents have had discussions about attempting to change? I mean I know the BNA for example have released a report but is that something that you've looked at and even suggested some change with your face-off equivalents across other boards? No, I haven't discussed that as a tack. I think personally there are things I cannot do because of I lack the scale and I'm a proportional slice of 14 and that makes that limit reform and I think this comes back to our original questions that providing a national health service for 5 million people over this footprint is a health economics challenge and so working with our clinicians there is a piece of work to be had through health economics about what needs to be done at scale and I don't think there's an easy question there maybe that's not where we're why it's not we've not gone there but in the 18 months I've been in Scotland for sure whenever we've said something it has been done four or five years ago so I should imagine that if you are talking to a CEO with more experience under their belt of Scotland this piece of work and health economics will have been done at some stage and possibly the complexity of the social care agenda with the health agenda and the way Scotland has tackled the integration through IJBs as a vehicle was an option under that initial appraisal. Following on from that in your opinion does the fact that individual staff are employed by their local board with potentially different terms and conditions does that inhibit flexibility of moving staff around because they're employed by different boards or not the same ease of transition is that something that you experience trying to attract people into your area? It's banding that's extraordinary so across the 14 territorial rail boards we can have the same job banded at a different rate so we have had a great challenge in employing digital practitioners particularly network practitioners and estates head of estates we're a band lower in NHSS or in Aaron than Glasgow and being a stone throw away from one another trying to encourage people to come to a territory to do exactly the same job at a different band so I'm not sure that the terms that I haven't come across that terms and conditions are are wildly different those are pretty much transferable but banding is a national challenge and given the autonomy of all the different boards the center for sustainable delivery was designed to stop the NHS boards working as autonomous units is it your experience that it does stop us working autonomously or no I haven't that's not been my my experience it's been a I think at this moment in time when we're we're doing this post Covid recovery and you give yourself a quick pinch in that nobody's done this in you know there's no senior leadership team who have led a recovery from a pandemic and so we pretty much are learning on our feet because the there are specialties that were did something completely different to their day job for for three years and now we're asking them to go back and there are other people who whose jobs ticked and when you think that that sounds probably simple but actually merging these two groups of people back together having had two very different experiences and and some administrative workforce that actually have been able to work work well remotely but we need to get people working alongside each other that's the the challenge of of the of the moment so I think for the centre of sustainable services it our our discussion has been very much how do we how do we get people back together hence our clinically led reform trying to just provide a nuclear as a purpose to bring people back together Covid was a single disease management moment in time where we're all focused on one thing we had to keep the front door running because people still had coronary's heart attacks and everything else but it was about wrestling this this one disease we're now back to the plurality that is providing health and social care and we're we we can't respond in the way because that we did for three years because of the plurality because we need the specialist in the room to help us make decisions and I think the the centre of sustainability has been working with us how do we help create that congruence of purpose again and I mean obviously I went through your submission and you've mentioned deficit reduction and efficiency and delivery and distributed working those questions asked you earlier variously about staff and corrective made banding number of territorial boards centre for sustainable delivery are they precisely the sort of changes you would expect to see mandated by central government in line with the comment we had at the start of this inquiry about police Scotland it wouldn't have happened had it not been mandated those things I asked you questions about earlier are they the sort of things you would expect to see mandated and therefore your primary focus is on those areas you've set out and both in your evidence here today and in your submission so it for in terms of the delivery plan there's quite clear steer in in the guidance given I suppose they I'm not sure how much more mandated it it could be our elective recovery the the what could look like there's there's very clear steer the surf you know if you were going to change something at significant scale when it was set out the context with the 14 territorial boards and five national boards kind of restructuring that and I mentioned about the centre for sustainable delivery that kind of that kind of scale of change an organisational structure is that something you'd expect to see mandated from the the government rather than being fed upwards from yourself or people you face off with than other boards sorry I'm trying to I'm trying to pitch the from that mandated lens there are from a territorial perspective the flexibility that we have at the at the moment is is welcome and giving us sufficient to to design things locally I think if there were if there were more of a mandated steer it would be around the the performance outcomes and our concerns from a sea so you talked to me about you know what the sea is discussing our concerns are our ability to maintain the service that we that we have with the future that we've got so in terms of mandated bits I'm working with the public I suppose it's the helping the the managing expectations and how do we have these discussions is in the arena of of men mandated we're in a different position we're not we're not the same service that we were three years ago we're very different and we are learning at pace about how to get ourselves back so in data in the outcomes arena more mandate is an opportunity okay thanks Michelle Keith Brown next thanks very much you'll be aware that there's both in scotland and the UK covered inquiries which will be looking at various things including the shortcomings of mainly politicians and others but just from hearing you speak it's worth just saying that it's absolutely fantastic achievement to get through Covid keeping the services running at the same time hopefully in due course people will recognise the scale of that achievement I wonder though going back to Michael Marra's points on the bit about supplementary staffing approaches and you've said you intend to reduce by half this year I know only two and a half months or three months into it but have you got any idea of how things are going so far they're going well actually we a considerable amount of work has gone into the last year to understand our dependence on agency and bank staff a lot of work was done to encourage staff to consider their core hours in contracts so as we approached the celebration period in a new year we gave open anybody on on reduced contracts would they would they take on even for short-term additional hours we had people who very kindly did that we've extended our our bank and in the last four weeks our agency askers is 20 plus percent lower so a very positive start you'll you'll be aware as a committee that we were challenged to reduce our agency spend and a break glass ceiling a cap on outer framework agency staff was put in place we're literally seven days into into that I think people were expecting a bit of a mushroom from the NHS and that hasn't happened I think there are areas across Scotland I've had to have a break glass for a a subspecialist to get cover but I'm pleased to share share that we haven't had to break glass in there next in the last seven seven days but as you say it's a really early phase in there in the year and if there is ever a steady state in the NHS it is this 16 week period between the summer and spring but we have reduced our our bed base by 60 beds we've reduced our delayed discharges not to where we want to be but it's it's at least 50 lower than it was at the beginning of the the year so those important metrics that make a difference to core services have have started to embed. Thanks for that. On the issues about staffing which you've mentioned and perhaps the additional problems that are for significantly rural health boards a long long time ago I was in the military and if you trained to do something specifically that was quite expensive they would keep you in the military they also told you where you were going to serve I just wondered whether in the NHS whether it's GPs or other services if some more we're talking about local and national controller or thing if there's some more control over that so you've graduated from medical school and for at least a period afterwards you're obliged to go perhaps with our shortages of GPs or whatever else you would you see a role for that or would that just not fit within the health service company? I'm not sure that it would encourage us to do to in that retention piece if people were directed to where they needed to be I think that there are I'd like to think that keeping people in the in the country is an incentive in that our medics work hard our medics and nurses all our professionals our health professionals if you've gone through that that training and supportive training if there were a way of retaining them in in Scotland with with good job opportunities giving them access to technologies and so forth new practice research I think that that would be more of an incentive for our workforce to stay with us than mandating where they needed to to work so just thinking our medical director three years ago introduced a new medical workforce where clinical fellows were injected at pace and they went from 20 clinical fellows we have 120 now and so incentivising colleagues to work in teams that are of a decent size which means that you've got opportunity to to be the medic nurse practitioner that you train to to be I think that's that's the most attractive way of keeping keeping people just to recognize the pressures you're talking about at Aleve also in an area which has got three local authorities has only one general hospital as of around 15 years ago although probably not as big a land area as the airships I just wondered in areas where you said previously that you thought I don't want to put words in your mouth but essentially a more national role might be beneficial and I know that's a difficult question to ask but to what extent do you think health boards as currently constructed help or hinder towards doing that where it might be more appropriate and beneficial for the service I think it would be fair to say we're parochial it's by the by the nature of we're trying to make sustainable our own territorial boards we're we're we're softly competing with people for for staff kits so I think that the the way we're the way we're set up we're we're each out for survival of our own so I don't think I don't think it's the easiest thing to to do however as a as a group of CEs the the most important thing is sustainability for NHS Scotland and we have significant conurbations with major hospitals and we have district general hospitals that have managed to to get exceptional specialty in so I'd do a quick shout out for our urology service and our orthopedic service I'm going to miss somebody and that's going to be bad but there are services within rural boards that have managed to collect exceptional people that have created special teams around them and I think that if there were opportunities to to expand on that and offer regional and national services I believe that every territorial board would have would have an exceptional person and I suppose that would be my only only other share we talk regularly about what can we replicate what is the good practice that we can replicate and there's a lot of effort that goes into that but there are services and opportunities that emerge because you have somebody exceptional leading them and I suppose perhaps that's the that's the mushroom we should be looking for and that when we land up with these exceptional people that attract exceptional people and create something different rather than just trying to replicate it how do we grow it in that place for the benefit of more people thank you and thank you to all your staff as well for the work over recent years that's very kind thank you okay thanks Keith Rossker thanks community apologies if I missed this in your answer to Michael Marr's questions about around digital enhancement but are you able to quantify the financial savings from some of those upgrades so for example that the bed management patient tracking system that you were talking about do you know how much not that it's all about the money obviously but do you know how much money you would expect to save from that kind of upgrade the return on investment piece with digital um no i don't have it i don't have it in a in a trajectory but i will get it in a trajectory within the within the year so what i've what i have struggled with is being able to translate the so i mentioned the independent sector with three percent of budgets going to it would be normal ours is less than 1% you would expect that digital reform could return anything up to 11% in terms of internal efficiency but i need to find something that meets all the requirements of finance in order to get that into my cost avoidance i can share with you that a ward round in our current combined assessment unit takes three hours because they have to go through the red file the yellow file and three digital digital systems and look up labs and get into the pack system so it takes four hours that should be a board and ward round that clinicians can get round a board and doing less than an hour so if i could save that amount of time for a clinical team just by board rounding um then then that is that is genuinely um time put back in in with patients so i won't it's not in in the in the budget because there isn't a a piece of reform that i can lift and shift with any validity into a finance spreadsheet but i have challenged the system we've got to do that because we need to we need to be able to demonstrate um 10 million pounds against our our budget over three years isn't isn't significant but it's significant when i'm not doing other things so i've got a critical care unit that's that needs work i've got a day case unit that needs expanding we are sacrificing things to get the digital digital systems right in order that we can make change um so i i need to demonstrate for people what that is giving back to the system thanks very much and your um as we mentioned already the the board's been running a deficit for i think since 2017 but there was quite a lot of progress made in closing that deficit between 2017 and the start of the pandemic when everything kind of went out the window in that regard somewhat would you be able to tell us a bit about how you managed that year on year reduction in the deficit over that i think it was the three year period before the pandemic financial years so that was pre me um my my my predecessor there was um when when this was in 2017 where the deficit went to um 20 million and they brought in a financial um director a service improvement director who systematically worked with operations to reduce reduce the bed base and reducing the bed base within the acute sector year on year um resulted in a baseline improvement across a wide spectrum of measures obviously it's not just the the workforce the bed space but all the other logistics that go alongside those reductions and over a 24 month period the bed base reductions were um i think that the deficit got down to 14 million um just before the the pandemic but it was a systematic process of reducing beds in the acute sector thanks and just finally your paper mentions uh there's been opportunities for collaboration particularly with local authorities when it comes to property your your estates i wonder again if you could give us any examples on where that collaboration has worked well to increase efficiency so possibly the two areas delayed delayed discharges and that the the shared working space both within within the hospital and within the community hospitals so rehabilitation our stroke pathways were put into a community hospital and so just sharing sharing that that facility in order to to reposition um rehabilitation services we had the cancer unit that was moved to the kyle so our cancer units were in the acute in the acute setting and we took them into took the uh long um critical patients into a community setting and developed a unit within within the community um that was a height of the pandemic thing that people were quite worried about um and now where the the patients prefer that to the community the acute setting not least that if you're poorly with cancer if you can pick up to a community unit and walk in as opposed to pitching up at the front door of an emergency department having to walk past everybody when you're feeling a little grim um that was that was significant um i suppose the other the other piece is the distributed working piece where we've um shared office space and we you can book desks anywhere in the in the system um with the zero desk policy is still new and once going back it's a little bit bumpy um as we navigate our way through that but it does mean that we can um look to centralise where we where we need um accommodation and and not. Thanks George. That's all from me, convener. Thanks, Ross. And hi Claire. Um I'll just ask about shared services obviously we've got multiple health boards we've got 32 local authorities, iJBs as well which will mean each one of those with our own finance director, HI, HR director and IT director. Do you think there's any scope within the public sector landscape just now to try and reduce some of those roles and trying to consolidate into more of a shared service model? Yes. And Elizabeth it's not it's not simple is it is it in that these are these are well-established structures now. My understanding for NHS Ayrshire and Arran is that there there was a piece of work in 2016-17 where they were close to unifying into a single iJB so northeastern south collaborating and over over a period of months it was all but there and the infamous Covid came along and oh here we are. I think the backdrop of the care service, national care service, is a bit of a distraction in that. We are in the process of renewing our partnership agreements going back to those it's the five-year review of those partnership agreements and at the moment that is still within those three councils and there has been no discussion to go back to what was achieved in 2017 and I haven't heard that there's an appetite for it. So do you think organisations can do that change voluntarily or is it back to the point that Michelle made? It has to be mandated from the centre before you get real reform among some of these organisations. I think that that would take a mandated change. I think that the structures are in and it would be quite difficult. That would be along with myself thinking that actually a west of Scotland board and taking out a health board would be the right thing to do and I've got 13 other colleagues who might completely disagree with me that a health board with a population of a million would have a slightly different landscape to navigate than four or five of us covering the same landscape. You mentioned prevention earlier and it seems to suggest that you would like to do more on that but you don't have the resource whether that's people or cash basically to make that switch. How do you break that cycle? We hear from Government ministers as well that prevention and early interventions are key and that's how we'll get savings later on but I don't see a firm change on to the prevention model instead. I need to reduce the spend in the acute sector in order that we can be investing in the community. There's still a lot of work that is referred to the secondary and tertiary services for advice and we're following traditional models, the outpatients and you're added to the list and you get there and I have teams of people desperately trying to work through those and when you talk to primary care and community what they want is a discussion or a test or access to something. If it were that simple of course we'd have done it. The transformation wheel that we have at the moment is that we understand that we're cash strapped which means that we have got to get to the stage where we can lead through our clinicians so primary care have said that they want to do more in the prevention arena and I'm very fortunate I have very strong positive primary care both in and out of ours and they will help us scope what they need in order to do more. There are already programmes in diabetes and respiratory that are run perfectly well with a community led bias and we need to lean on those again and it's safety and opportunities and also working with our medical colleagues who have chosen secondary and tertiary care that this isn't taking activity away from them. This is wanting to give them more time for the people who generally need to get in their arena and that will be made so much more possible if we have the voice of the clinicians in the middle of it in that we are short of medics we're short of nurses so there is plenty of work for everybody. I've got a five-year order book for acute this isn't please don't worry about your jobs what I'm desperate to do is get you in get the right patient in front of you in order that you can be the best person you can be. Absolutely and you mentioned earlier 60 beds being removed and you're looking to reduce the supplemental staff and support by half so that's my calculations 475 fte equivalents. How do you do that without impact and patient care especially when we're looking at things like waiting times increasing? I don't think it's quite that many staff but it's just because of the average salaries but at the moment when the roll forward was created we had 185,085 additional beds in the acute system and that cost us 13.5 million last year just for additionality so that's and that additionality has made everything else slower so our average length of stay is longer in Esher than the many other parts of Scotland because we're spread too thinly if we can reduce our average length of stay to the average for Scotland I have no additional beds we immediately have 13.5 million pounds against our deficit if we were to get to the upper quartile then I have two empty wards two empty wards that's three million to be able to what can we do differently and or flex for winter when you're looking down the system at the moment and if I'm very careful we have these discussions because for people who are living in the Malay that is Covid recovery when we've got suboptimal staff and not enough people to go around you sound like a lunatic because of course we've got ambulances queuing outside so the currency is beds the currency is not beds the currency is workforce and decision makers and that generally makes us efficient so I appreciate the numbers feel really high and talking to averages doesn't ring with confidence but there is at the at the heart of running a hospital is is a ward a ward round and a ward needs teams and our I think we would be hard pressed to find a fully resourced team in any part of my service so you mentioned the length of stay which is obviously quite key you want to get people in and out as quickly as possible why is it so high in your board just now and how are you going to change that so it's high one because of the additional beds and my core work stock you've seen that the workforce has gone up but they're not they're not all on the on the wards so I'm running with minimum staffing levels and minimum staffing levels means that I'm not making optimal decisions every day for every patient because there are 185 people in the wrong place at its peak we had 200 delayed discharges so circa 15 to 20 percent of the bed base were people waiting to go to go home these are all things that you can go at the average weight for a patient in my three health and social care partners varies from three days to two weeks in terms of response and it's and it's it's not it's nobody's fault the operating models are a different south relied on had a model with that was heavily dependent on the private sector the private sector is withdrawn from from home care and particularly rural home care that's a very difficult thing to pull off in a in a private enterprise so I think the there is absolutely scope within what we've got to do more and different but I have I have 10 000 people to convince that it's within their gift and when you're working at 110 percent it's quite difficult to to sound sensible but that's the job good thank you that's coming in right well thanks committee and thanks very much miss burden you've been very I think frank and open and I think it's been beneficial that maybe you've not been in your job for such a long time and you've given us a kind of fresh approach and been prepared to be honest with us so very grateful for your input this morning was there anything else you wanted to say that we haven't touched on no thank you very much okay right well thank you and we'll now that concludes the public part of today's meeting the next item our agenda which will be discussed in private is consideration of our work programme so we now move into a private session