 Gwyl yn chi rydw i gynllu dod a chyfnodd y 17 me slamais a phras yng Nghymru Ffarnaswn i Ffrond i Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl Ingel i'r hollfawr yn cael ei gynlluniaeth, oherwydd roedd eich Orderaeth holleg am ffran yng Nghymru Ffrond i Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl yn Gwyl. The second item on agenda is the evidence from the Cabinet Secretary for Finance and Constitution on the Scotland Act 2012 and 2016 implementation reports. Both the UK and Scottish Governments are required to publish these reports on an annual basis and it is expected that we will discuss them with the UK Treasury ministers later in the year. Cabinet Secretary is accompanied today with two Scottish Government officials, Andrew Chapman, the fiscal responsibility division, and Gerald Byrn from the constitutional policy team. I warmly welcome our witnesses to the meeting this morning. Cabinet Secretary, do you wish to make an opening statement? A very brief opening statement, if I may convener, because I do welcome this opportunity to discuss the latest implementation reports for the 2012 and 2016 acts. The focus of these reports are the financial aspects of the bills, but it is worth noting that nearly every power in the 2016 act has now been legally commenced. Progress is now being made in using these powers to deliver better outcomes for the people of Scotland. Some require considerable policy development work naturally. Some require extensive stakeholder consultation. Some require further primary legislation, so in different parts of the package of powers are there at different stages of delivery. Implementation of the most substantial and complex elements for the 2016 powers, tax and social security, are now well in train. Changes in income tax rates and bans were approved by the Scottish Parliament in spring. My ministerial colleague Jeane Freeman leads on the new social security arrangements. We are committed to effective working with the UK Government to ensure the responsible and seamless implementation of the 2016 act powers. The upcoming meeting of the Joint Exchequer Committee this summer will be the next opportunity to review progress with the Treasury. Parliamentary scrutiny has already been proving crucial, and I fully recognise and welcome the important role that Parliament and committees play. I look forward to the conclusions of the budget process review group in supporting Parliament and its role in scrutinising the Scottish budget, and most notably the first medium-term financial strategy that will be published shortly. I am happy to take questions from the committee. Thank you, cabinet secretary. I am sure that, like members of the committee, you will be concerned in terms of identification of taxpayers that the HMRC is able to properly identify who is a Scottish taxpayer. I am aware of at least two MSPs who have received correspondence from HMRC informing them that they had not lived the majority of the tax year in Scotland. Apparently, that is because their address was being noted as being Great Britain instead of Scotland. If two MSPs have identified that to me, I suspect that there will be a significant number of people in that area in Scotland. Unless they go back and challenge it, will that be changed? I am more than slightly concerned about it. How confident are you, cabinet secretary, about HMRC's ability to identify properly Scottish taxpayers on that basis? What impact might that have on your Scottish budget if that was proved to be a more significant problem than just two of our MSP colleagues? I think that that is quite unfortunate if that is the case with two members of the Scottish Parliament. Of course, not knowing all the details, I could not comment on the specifics, neither did I give tax advice to colleagues. However, it is a serious issue that HMRC is expected to provide robust systems to identify Scottish rate taxpayers. I expect them to do that. We have a service-level agreement, but it is their responsibility. What will be helpful is that they are accountable to you, as the committee and to the Parliament and to me as the finance secretary. They are expected to properly identify taxpayers in Scotland. Of course, the example that you give of MSPs, it would strike me that all will be resident in Scotland and all should be paying. I would imagine Scottish rate of tax, so I would expect all MSPs to be paying. Further probing of those cases would be helpful, but HMRC has given my several servants the reassurance that they have programmes in place to properly identify everyone that should be paying tax for our purposes. What will help, though, is that there is a project board that works through us holding HMRC to account for its work streams in that regard, and we will probe that further. However, there will be more data, more than we have had before because of the implementation of the income tax powers in 2016-17. There will be more data this summer, which will give us far more definitive data to fully probe that compared with some of the nature of forecasts that we have had in the past. I would be slightly more concerned than I was before I entered the committee by the examples that you gave me, but I have been reassured by HMRC that they are doing everything possible to identify tax powers that are appropriate in Scotland. However, we will certainly pick up and, convener, I urge you to do the same in holding HMRC to account as I will. Obviously, I will not disclose their names unless they give me permission to do so. How often are you getting that sort of update information from the HMRC on that sort of administrative and collection of the tax issues? Regularly, I can ask Andrew to cover the technical interactions with HMRC, but I have to say that it has not been flagged up to me that there is any systemic concern about large swathes of people not covered by the Scottish rate of income tax in Scotland that should be paying in Scotland. Some of it, of course, is going to be down to the individual circumstances of taxpayers, where there might be dubiety about how much of the time has spent in Scotland or elsewhere or other personal finance matters. Largely speaking, I have been given enough to reassure me that the figures were robust. There are examples, as you have just given, convener, that require further probing that needs to be done. We have a whole assurance programme to give us the confidence that the figures are correct, but the more definitive data we get, the better. I recall last year's question. It was from Mr Coffey about the difference in numbers between our report in the UK Government report on income tax. It certainly has not happened this year, so I think that there is closer alignment, as you would expect as we roll out those new powers. Convener, I did not fully answer your other point, which was if the numbers, if HMRC was missing a lot of people, it would, of course, have a negative impact, notwithstanding the complexities of the fiscal framework and the relative nature of it all, but we want to ensure that every taxpayer that should be paying tax in Scotland is paying tax in Scotland so that it comes to us for investment in public services. I have no reason to believe that it is a substantial problem, but it is all the more reason to probe it based on any cases that can be raised where someone has not been identified. Andrew Cymru might be speaking about the more regular contact that we have with HMRC. Just to reiterate what the cabinet secretary has already said, we have a joint project board with HMRC that meets on a costly basis. Part of the work of that board is to ensure that there are rigorous data checks in place with regards to the identification and ongoing maintenance of the system to identify Scottish income tax payers. Of course, we are in regular, almost daily contact with HMRC in order to ensure that the work that we need them to do is carried out on an effective and efficient basis. Again, as the cabinet secretary alluded to, we will get the HMRC trust statement this summer, which will, for the first time, provide an out-term figure for 16-17 Scottish rate of income tax receipts. As part of that report, we will get, for the first time, a definitive published figure as to how many Scottish income tax payers there are. Of course, at the minute, our current estimate, as included in the report in chapter 2, is around £2.6 million. James has a question in a similar area. It goes without saying that it is important that we have everybody who is a Scottish taxpayer recorded in the system in paying tax. Just to give a practical example, if halfway through the year someone who lives and works in Newcastle decides to change their employment and move to Glasgow, working for a Glasgow-based firm and staying in Glasgow, how confident are you that HMRC has processes in place to track changes like that and ensure that people will then pay their tax in Scotland and into the Scottish pool? I think that we are fairly confident that if someone transfers in that kind of scenario that that would be picked up in real time. It depends how someone has been paid as well, whether it is PAYE or whether they are doing their own returns. We will affect the timescales potentially. If there is a change, someone's finances aren't just locked in for the start of the year, the whole financial year, but should change as circumstances change and the processes and work streams that we have require HMRC to do that work. I am confident that that is all taken into account. That is a fairly simple example, but has that been identified in the HMRC work streams? At the end of the day, it is a matter for HMRC to ensure that the person in question pays the correct rate of income tax, whether that be the Scottish rate of income tax or the UK Government's rate of income tax. The committee members will be aware that there is a long lag between the end of the tax year and the publication of out-turn data. Part of the reason for that is that the Scottish income tax is calculated on a liability basis. The issues to which the member refers to are issues that need to be picked up in calculating the out-turn figure and are addressed as part of that process. That is why it takes a lot longer than, for example, the other devolved taxes such as OETT and landfill tax. Is HMRC expected to proactively identify taxpayers paying to, whether as appropriate, Scottish rate of tax or not? Yes, it is expected to be proactive in pursuing that, even when there is a change of circumstances as you have described. Just to give us a bit of assurance, can you maybe just write to the committee with the details as to how HMRC would do it? I want to make this clear that I am not HMRC. What you want reassurance is that the Scottish Government seeks to reassurance from HMRC, so we will absolutely do that. However, there is a point here about committee holding HMRC to account as well as for our function. I accept that. My concern is that I have raised a fairly simple example. Although both you and Mr Chapman have said that you are confident that it will be picked up, I did not really get any detail as to how it was going to be picked up, so I would like some. I am making the point that I am not HMRC and how it conducts its operational duty is partly for them to explain and for us to show that we are assured by that. I understand that, cabinet secretary, but I think that James has raised a reasonable point. He is in it an expectation that the Government will also be doing its job to make robustly with HMRC to ensure that HMRC is going through a proper process to get the outcomes that we expect. There is nothing to stop us as a committee writing to HMRC, and I sense from where James is going, we will do that anyway, but I think that he raises a reasonable point for the Government to address. I just absolutely accept that and I will write to the committee on more of the information and assurance that we have from HMRC. I think that I said at the outset, but I just want to make the point that we do not have operational control, but absolutely accountability point is well made. James, do you want to ask a question about borrowing? Please feel free to do that now. Okay, right. Thanks a lot, convener. In terms of capital borrowing, it is covered in paragraphs 82 to 83 of your report. The note relates that the interest rate in relation to 2018 is 2 per cent, but I do not see anything in relation to the rate for 2017, in relation to the drawdown on the £450 million that is borrowing, so I wonder if that was something that either had available or could provide to the committee. What page was that again, on your papers? The Paragraph 82 of the Scottish Government report, if they are picking up on the borrow in the Scotland reserve, is 82 and 83 or not? Essentially, it is a question around the borrowing rate. I am saying that in paragraph 83 it is specific that the borrowing rate for 2018-19 is 2 per cent. The previous paragraph discusses the borrowing for 2017, £450 million, which is the same, but it does not describe what the rate is. It was 1.9 per cent. Okay, and just in terms of the repayment cycle, for 2017 it has been repaid over 25 years and for 2018-19 it has been repaid over 10 years. Is there any particular reason for that difference? Generally speaking, there is a spirit of the agreement and the fiscal framework, but there are two reasons that 25 years suited this instance. First of all, the nature of borrowing is to fund the whole capital programme. You are a contribute to the whole capital programme rather than specific projects, but the nature of projects in the capital programme is things like the forced replacement crossing, trunk roads and other things. Other substantial pieces of infrastructure, which their life cycle is 25 years or more, so that cycle of borrowing fits with both the life cycle of the projects that will be part of the capital programme, and interest rates at the moment are low enough that it is in our interest to borrow over the longer period and lock those things in. Are you saying that in terms of 2018-19 the nature of the projects is different, which drives you towards a 10-year cycle? Generally speaking, we are trying to fit within the spirit of the fiscal framework. We were able to agree the 25-year period with Treasury. We make the decisions on borrowing more at the end of the financial year generally and how we draw that resource down and set out the agreements, but we will try and get as much as we can flexibility from Treasury. Andrew can say some more, but that was the essence for the 10-year, 25-year, life cycle nature of the projects plus the low interest rates. If we can try and lock in low interest rates, clearly that is in the Government's interest to try to maximise our spending and have as low interest on it as possible. Andrew, can you add to that one year to the next? Yes, it is precisely that Cabinet Secretary. For 2017-18, we decided to borrow for 25 years based on two considerations. The first being that the assets in the capital programme matched that term length and that there are assets in the capital programme that have lengths of lives of 25 years and more. That is the first consideration. The second consideration was precisely that the Cabinet Secretary alluded to that historically interest rates are still quite low. 1.9% is a good rate historically speaking, so we decided to borrow over the 25 years at this time to lock in that low interest rate. When it comes to 2018-19, yes, we included in the draft budget that the assumption would be repayment over 10 years. That is because there is this principle in the fiscal framework that the term length would usually be for 10 years. However, when the lives of the assets justify the term length being shorter or longer, we can make the case to Treasury to borrow over a longer or shorter period of time. As the Cabinet Secretary alluded to, later on in the financial year, we will take a decision on what borrowing we would like to draw down from Treasury and we will take into account the same considerations that we did last time, i.e. value for money and what assets we would like to borrow against as part of our capital programme. When will you publish a list of assets that you are looking to match the borrowing against? In fairness, that is largely covered in the already published infrastructure investment plan that I am happy to provide to the committee, as well as the context of the budget itself. There is a pipeline of projects in the infrastructure investment plan, so it is a contribution to that programme. Just one final question, convener. Previously, there was an issue around changing EU accounting rules, which meant that capital projects had to be included on the balance sheet, or certain capital projects had to be included in the balance sheet in full. That restricted the borrowing powers. Is that issue still a live issue in relation to the borrowing that we have just been discussing? It is still a live issue, but it is still complex, so there are a couple of different strands to it. Yes, those accounting rules still apply. The way that we structure the NPD pipeline in terms of how the projects are delivered, in terms of stand-alone projects and hub projects, have different classifications and definitions, therefore they can have different treatment. However, in terms of the borrowing capacity, we did come to an arrangement with treasury in earlier years as to how that would apply, so it was a notional capital figure rather than actual resources drawn down or interests tied up. It is still a live issue, and we have found a way to deliver NPD projects, I think, as I have described to the committee in the past, as to how they are constructed, but it is still a live issue. Any matter that is historic is accounted for in the Government's accounts, but the fundamental issue about compliance with classification from NPD programme is still an issue, as was explained to the committee before. Yes, obviously the accounting convention is still in place. If I am picking you up right, I think what you are saying is that you have found a way of reclassifying the projects so that it does not fall full of that accounting convention. Therefore, you are not liable to include the full amount on the balance sheet. Appropriately, all legitimately and appropriately, hub projects are treated differently from some of the larger stand-alone projects, and it is all down to those matters of classification. However, we do not face any of the current issues that we did previously when we had a resolution with treasury, so we have found a way forward, essentially. Thank you. I just want to ask one follow-up, if I may, on the use of the Scottish Government's credit card for funding infrastructure. You have maxed out the credit card. You have taken all 450 million that you are entitled to, and you have taken it all in the first year of the availability of this power. Have you done that in order to finance the construction of new infrastructure, or to fund the maintenance of existing infrastructure, or both? All of the borrowing and all of the capital investment that Seidel and everything else is going into the capital plan. The capital plan, as I have described, is an infrastructure investment plan that will cover everything from the new projects such as the Queensferry crossing, new NHS facilities, the roads programme, for example, and estate enhancement. It will be a mixture of new build projects, new facilities and maintaining that which we already have. That is the essence of any capital plan, if it is not. The borrowing capacity within that has funded, yes, to the tune of £450 million towards that overall capital plan. Can you give us any transparency about the relationship between how much of that money is being used to build new infrastructure and how much of that money is being used to fund the maintenance of existing infrastructure? I cannot disaggregate the £450 million from the overall capital budget, because it is all contributing to the capital budget. It would be a totally academic exercise for me to say the £450 million borrowing powers capacity, which I think is widely regarded as a good thing that we are investing in infrastructure, the economy and NHS facilities and transport infrastructure, all the things that members ask us to do. It would be an academic exercise for me to just draw out the £450 million figure and say that that funds just those projects when the nature of the budgeting arrangements is that between CDEL, borrowing and other financial tools that invest in the overall capital programme. I do not separate it out. I do not think that it is an academic exercise. I do not think that academic should be used in that pejorative sense anyway, of course. I hold them in the highest regard, Professor. I do not think that it is an academic exercise, cabinet secretary, for the reason that it seems to me that there is a difference, a material difference and an important difference between Scotland investing in new infrastructure that we need to grow the economy and Scotland using its new borrowing powers or Scottish Government using its new borrowing powers to maintain existing infrastructure. One is investment, which is properly understood. The other is using capital investment funds, using capital borrowing to maintain existing roads, existing hospitals, whatever it is that you are doing with this money. We do not know what you are doing with this money because you are not telling us. It seems to me that, for those reasons, there is nothing like an academic exercise. It is really quite important for us as a finance committee to understand, at some level of detail and specificity, what you, as cabinet secretary for finance, are doing with the full 100 per cent availability of the borrowing that you have taken out in the first year of the availability of these powers. Can you answer that question? Tell us what the overall scale of the infrastructure programme amounts to at the same time. It gives us a perspective of where the £150 million lies. Some of that is expressed in the overall budget that we have debated. I would not accept the characterisation at all from Mr Tomkins or the suggestion that I was suggesting that I was not treating academics with respect. I was simply making the point that it would be an academic exercise. It would be an assignment for a strange purpose for me to just say that this bit of the capital budget borrowing powers is paying for those particular projects. When I have described at all of the capital investment, input is contributing to all of the capital projects, rather than assigning one funding stream necessarily with one particular project. That is appropriate. Revenue financed capital projects, as I have described through the NPD pipeline. It is also not the case that I have not explained to Parliament. It is expressed in the budget, it is expressed in the infrastructure investment plan and it is expressed in Government outturn reports and the Government's accounts as to how we use resources. All of that is absolutely transparent and up-front. The distinction between new build and maintenance is a false one, because clearly we have to maintain what we have. Whether that is infrastructure in the state, transport, housing or whatever it happens to be, maintenance is singularly important because it is also good for the economy as well, not just the new projects, but the new projects as they are required are a success story, whether it is substantial for road crossing, hospital investment and then the projects that we have committed to in the budget. In the 18-19 budget there is substantial investment earmarked for housing on a multi-year basis, a transition to a low-carbon economy, energy efficiency and in due course we will commit in terms of the digital enhancement to the tune of £600 million for the procurement of digital connectivity on transport programmes and the enhancement of the estate. All of that has been expressed and debated by Parliament. It is important in the economic cycle and, with the economic challenges that we face, we invest in the economy through that infrastructure spend, including the transition to a low-carbon economy. I think that investment is necessary and is to be encouraged. Indeed, all members of the chamber, including those in the opposition, normally demand more from our capital spend, not less. Really make that distinction between new build and maintaining what we have, because both are absolutely crucial in delivering the new infrastructure that the country requires and will prepare us for an even stronger future such as digital and maintaining what we have. Recognising that we have substantial legacy issues in terms of the condition of the estate and other issues that have to be addressed in terms of adaptation. In terms of the overall figure on infrastructure spend, committee will be aware that it is substantial. It is between £3 billion and £4 billion in terms of the capital programme and the interventions that we make. £450 million is significant as part of that. With the low interest rates, that has allowed us to do more in the economy and to deliver the commitments of the Government through the budget process and of Parliament as well. We are delivering it in a prudent and a balanced way, but one that is trying to stimulate the economy. On that, I thought that we would all agreed. Alexander Stewart, I think that we are moving in a slightly different direction now into ADT issues. Thank you, convener. Good morning, cabinet secretary. I am moving to departure tax. In paragraph 21 of the Scottish Government report, it mentions the deferral of ADT until issues can be resolved, but the report does not say what progress has been made in resolving those issues nor whether an estimated date for ADT is available. It is a very good question, because it is still a live issue. The report was accurate at the point that it was published. I still engage with Treasury ministers. No resolution has yet been found. Principally, of course, this is about the Highlands and Islands exemption issue, whereas if we implement the tax right now without a resolution to that, first of all, we have defective devolution. I do not believe that the no detriment principle would apply, because it will be detrimental to the country. However, for Highlands and Islands, it would have to pay that tax. Air passenger duty is UK equivalent for the first time. Hyal, the airport's organisation for that part of the country, says that that would be calamitous for that part of the country, as well as unhelpful in terms of administration, but there is no resolution to the Highlands and Islands exemption issue. The reason we cannot proceed is in our view that that devolution is defective until that issue is resolved. Only the UK Government can resolve that, because it is the member state, because it is fundamentally a stated compliance issue. The Scottish Parliament cannot act in a fashion contrary to EU law. It raises the question mark over the compliance of the UK Government, but it is ultimately the member state. Therefore, I have worked with Treasury. I think that I am on to my third or fourth minister equivalent in UK Government dealing with that issue. In fairness, I think that they want to try to find a resolution to that issue, but it is largely their responsibility to resolve it so that we can have the successful transfer of the power to Scotland so that we can enact the policies that the Parliament sees fit in that regard. It is a live issue. Clearly, Revenue Scotland would be collecting the tax. Clearly, the sector wants certainty and a forward look, so I am making further efforts to get a resolution with Treasury, but I intend to update the committee within the next few weeks if I have not established any further progress. Would you expect a resolution straight after the Brexit date? That is also a good question. If Mr Burnett can explain to anyone in the United Kingdom what the arrangements are going to look like post Brexit in the spring of 2019, then he is in a better position than most of the UK Government. Never mind anyone else. We cannot say at this point that we do not know what state aid compliance is going to look like. We do not know what the open skies agreement might look like if we are not part of any European agreement. We want as much certainty as possible. The committee is well versed on the Scottish Government's position in relation to the EU, but it is not as simple to say if we leave the European Union in the spring of 2019, this resolves the problem, because there will still have to be some form of compliance in trade agreements and aviation agreements. Therefore, Brexit is not the answer to this one, but clarity from the UK Government very well could be. Thank you. I know how our colleagues want to come in on the subject. Has it been covered or do you want to still come and ask? Some of the ground that I want to cover has been addressed already, so I will just ask you in point 22 of your report on the same subject. It says here that Revenue Scotland has conducted a programme closed-down exercise and communicated a high-level start-up plan to the Government. I am interested in that start-up plan. Is that publicly available? Specifically, in relation to air departure tax, when it became clear that there was a problem, there was no point in proceeding to prepare to collect the tax naturally. In terms of that, I will ask Revenue Scotland to provide the committee with more information. It would clearly want as much warning as possible when the power can be switched on, but it is hard for me to give that clarity right now, as it stands, because we do not have the resolution with the UK Government. However, in fairness, the sector will want certainty. Revenue Scotland needs proper notice to be able to enact it, and I can get further information to the committee from Revenue Scotland on what their processes look like. However, it is my intention to return to the committee by way of information if I do not have any more progress from the UK Government imminently. Patrick, you had some supplementary in this area, so I will ask your other questions. Okay, thank you very much. Good morning. Just on ADT, it is nearly four years—it is getting on for four years since it was agreed that this should be devolved. It is, I think, over two years since the legislation was passed and the snagging issues still are not resolved. Is it fair to assume that it is not going to be resolved this year? In all honesty, I cannot answer the question because the resolution is not in my hands. What I have committed to do is to engage with treasury as constructively as I can, successive treasury ministers. I have set out the position of the Scottish Government, what our expectations are. The further action that I am taking is to establish a working group with key interests in Scotland to look further at the issue to see if there are any other resolutions in a Scottish context that can be delivered without compromising the devolution of powers. We will be doing further work on it, but I will require the UK Government to resolve that defective devolution before I could honestly answer the question about when it will be resolved. Would it be reasonable to suggest that the Government could use that quite extended delay that there is in implementing the devolution of this power to develop a policy that is based on an evidence base that does not fall over like the last one did? Mr Harvey will be well aware. He made a number of requests to Government around independent assessments that I accepted and were published. It shows the environmental impact and the economic impact. It was independent of those with an interest in the tax rate for the purpose of Government and parliamentary scrutiny. That was helpful. We have provided far more substantial information. I make the point that, of course, there is the matter of how the Government chooses to use the power if we had it. I should say that the Government still supports the principle of air departure tax reduction. I accept that it would require environmental mitigation, but we still believe that it would be good for the economy. However, I will not compromise the nature of the devolution agreement and take the devolution powers in a defective state, introduce the tax the first time on the Highlands of Islands, which would be a calamitous decision for that part of the economy that is dependent on aviation transport and other forms of transport clearly and compromise the finances of that tax in trying to deliver a resolution to it. I am working as constructively as I can with the sector, with communities that are affected and with UK Government, but that is a problem of UK Government's making, and I require them to provide a resolution to it. I want to ask two questions about uncertainty in general, moving away from ADT specifically and looking at the wider picture. One example of the uncertainty that exists is about the potential for behavioural change in response to income tax policy. We have heard that the range of predictions or views about that range from the apocalyptic to simply ignoring the challenge and pretending that it is not going to be an issue at all. Is the Government itself collecting any data or undertaking any work to gauge the extent or nature of behavioural change, or is it entirely leaving that to the commission? Of course, that is fundamental. First of all, we do work, we do modelling, we do analysis of our own, the chief economic adviser, you would expect to do that in kind of work. We also take advice from the council of economic advisers as well. The issue of the Scottish fiscal commission, of course, is that essentially by law, by statute, we are guided by their numbers, the draw-down that I can have from treasier is dependent on their numbers, so I am bound to use their numbers. However, there is a challenge with constructive challenge and challenge meetings on methodology, on understanding, on the figures that have been used so that both civil servants and economists can fully understand it, and SFC is independent. However, there is that nature of challenge, so we can be as well informed as possible as to what we think about their forecasts. The position that we took on income tax, based on their work, because the draw-down is based on their forecasts and their figures, we clearly look very closely at that. However, on that issue, the forecasting issue is, of course, incredibly complex and difficult, but when we become an outturn, it will tell us much, much more on what we need to know on the actuality of that. In that regard, I think that we can do more probing of both HMRC and SFC, who will do the forecasting, but HMRC in terms of what the actual outturn was, and that will be able to tell us much more on what actually happened in behavioural change as opposed to what people think might happen. Sure. That is what I am getting towards. There is a commitment that you have made in the chamber and elsewhere on several occasions now to return to multi-year budgeting, spending reviews that take a longer-term look ahead. The reconciliation between the income tax forecasts and the impact that that will have on the Scottish budget for future years is one area of uncertainty. There are a range of other uncertainties that are unavoidable. I am not criticising the fact that those uncertainties exist, but, to what extent is there a challenge, and how are you addressing that challenge, in returning to multi-year budgeting, which many people have made the case for for a long time, when those new forms of uncertainty exist about the resources that will be available to the Scottish Government? I am delighted that Mr Harvie is not criticising in either, should he, or other members who were on the Smith commission in giving me the fiscal framework in which I operate, which is incredibly complex. I pleasure and enjoy as finance secretary, but incredibly complex, as we all understand. The question is a very fair one. I agree with the desire to have multi-year funding in as much as we can. We have been able to do it on things such as early learning and childcare, housing investment and other capital projects. Why? Because it makes more sense to give multi-year certainty in that regard. That is capital, and that is partly because the UK Government's spending review has given us a longer site of the capital period resource. We are going into last year's resource from UK Government figures. It has committed to a multi-year spending review. We should know the conclusions of that although they will set out the UK budget later in the year. In spring of next year, they should set out the spending review. I will set out much more of this scenarios and the planning, as the committee has asked me to do in the medium-term financial strategy by the end of May. That will set out a lot of that information. In principle, I understand and agree with the desire to have multi-year settlements published, notwithstanding the complexity and the variabilities and the determinants that are subject to such change, including forecasts and other matters within the fiscal framework, the economy generally, Brexit uncertainty and caveatting it with all that. In principle, I would like us to be able to return to multi-year settlements going forward. Of course, the not insignificant matter of parliamentary arithmetic means that I still have to come to Parliament every year to secure consensus to pass a budget every year, so there is that determining into the mix. I will be able to see much more in the medium-term financial strategy to be published on 31 May. I want to ask you something in your paper about the question of the Scotland-specific economic shock, which has a very specific definition, as you will know. This is where Scottish onshore GDP is below 1 per cent in absolute terms on a rolling four-quarter basis and Scottish GDP is 1 per cent below UKGDP growth over the same period. In terms of the fiscal framework, it has particular consequences and triggers what is known as a Scotland-specific economic shock, which then unlocks additional borrowing powers for the Scottish Government. As far as I can determine from what is in the paper, the earliest trigger point for this has not yet been passed, but if we look at the previous data for 2017, if we take the four quarters 2017 going on the Scottish Government's published data, Scottish GDP grew at 0.7535 per cent and the UK figure for the equivalent period was 1.748 per cent, which means that there is a gap of more than 1 per cent and Scottish GDP was for those quarters, four quarters below 1 per cent in absolute terms. Looking at the four quarters 2017, it appears that that would have generated a Scotland-specific economic shock. Am I right in that analysis? There is a paper next to our report covering this precise question, Mr Fraser. As you will be aware, the borrowing powers were updated as part of the Scotland Act 2016, including the resource borrowing powers. Those new powers commenced on 1 April 2017, so at the minute we do not have four rolling quarters of out-turn data from April 2017 onwards, so we cannot access the additional flexibilities associated with the Scotland-specific economic shock borrowing powers. That would be the first thing, I would say. The second thing would be that paragraph 66 of the fiscal framework provides that we would be able to borrow in the event of a shortfall in tax receipts at current. We don't really have a shortfall to borrow against, so at present we cannot use those powers, because we are not in a defined Scotland-specific economic shock, as defined in the annex of the paper. However, that is something that we will be monitoring closely going forward. Thank you for that explanation. It confirms what I was driving at, which is that technically the provisions do not apply as yet, but looking at the historic data, if we went back to the four quarters of 2017, we would have met the criteria had they applied at that point? Am I correct in saying that? Yes, and there are other points as well over the past 20 years in which that has been the case. That went into formulating the provisions that we have in the fiscal framework to account for the situations in which the Scottish Government needs to manage increasing volatility with respect to tax receipts not being forecast as we expected. Okay, thank you. I think that there is really a question for the cabinet secretary that we were discussing with Mr Tomkins a few moments ago the question of economic challenges. Clearly, it is an economic challenge for the Scottish economy if we are facing something that is defined as a Scotland-specific economic shock. What does that say about your Government's stewardship of the Scottish economy that that is what we might be facing? I would pose the question what does it say about both Government's role in the economy of Scotland. I do not see how the UK Government gets to walk away from any responsibility in Scotland's economy when the UK Government is mishandling the Brexit negotiations, is in control of migration policy, that is a key drive on terms of population and productivity, sets the block grant to Scotland and even our tax powers, where we do have some fiscal freedom, is all relative to what the UK Government chooses to do. In addition to that, the UK Government of course manages macroeconomic policy and does have a role to play and has played that role in part in industrial and economic interventions in Scotland, so I have touched on some of the negatives, but clearly it is for both Governments to focus on economic success in Scotland, not helped by some of those factors, but the Scottish Government set out a range of economic strategies. I would challenge the members to name which strategies we should no longer have, but they reflect the nature of Scotland's economy and the interventions that we know we need to make. Some of what I was touching upon earlier in relation to Mr Tompkins' question about capital investment is that we have to prepare Scotland's economy for the future, so yes, that is transport investment, that is digital investment, clearly it is housing investment, it is transition to a low-carbon economy and a high-tech economy as well. Some of the elements of the Scottish Government's budget to improve our economic position is about research and development, attracting more foreign direct investment, to upskill more of the workforce, to invest in innovation, to expand on exports, to expand on intelligent industrialisation, such as the new manufacturing institute for Scotland, to incentivise new business and property growth through the business rate system, non-domestic rates, growth accelerator policies. I could go on, but I can see Murdo Fraser does not want to hear me give a list of our economic policies and interventions, but it is clearly expressed that we recognise as a challenge in Scotland's economy is for both Governments to take this seriously. UK Government in terms of their responsibilities and we will do everything we can in terms of our responsibilities, which incidentally also means a responsible and ballot tax regime that supports the economy, which is a key power that has come from the Scotland Act. Some of the structural divergence that there has been is down to issues such as the oil and gas downturn, clearly offshore, with onshore impact, and there are signs of recovery there. All the more reason to allow our economy to diversify and to have the kind of impacts that we know will give us economic success and not least, population growth. The Government does not control in Scotland population growth and migration, but clearly the actions of the UK Government are making that much harder in that context. Yes, even though Brexit may well be happening to the whole of the UK, it is having a disproportionate effect in Scotland and that is a serious threat to this country's economy and we can see it being evidenced right now in that divergence in economic performance. In the face of that, austerity, Brexit mishandling and inadequate measures in terms of the challenges that Scotland faces from the UK Government, the Scottish Government is doing all that we can to grow our economy and put us on a stronger financial footing. I hope that that answers the question. That is a very lengthy answer, cabinet secretary, completely absolving yourself of any responsibility for the performance of the Scottish economy. What undermines your argument totally is that the fact that this is defined specifically as a Scotland-specific economic shock. If this was down to Brexit, we see the impact applying across the whole United Kingdom, the fact that this is Scotland-specific suggests that there are problems being made at home here in Scotland, which is the responsibility of your Government. Isn't it time you started taking responsibility rather than passing the buck? The Government is making the necessary financial interventions that are required to help to grow our economy in Scotland, an attractive place to live, work and invest. In the face of Tory cuts, we have been investing more in resource, turning austerity into real-terms growth of Scotland's budgets through the responsible use of our tax powers. The biggest increase in any portfolio in the Scottish Government in budget year 1819 was the economy portfolio, with an increase of some 64 per cent, with substantial funding in higher and further education, innovation, business support and a range of schemes to support the entrepreneurial culture. On the Scottish divergence, I think that I was trying to characterise that some of that, and this is evidenced by the work that Fraser of Allander Institute and others have done, that shows that some of the most successful economies in the world are those that have had population growth. The Scottish Government does not control the necessary levers to affect positively that population growth. Our analysis on the threat and the impact of Brexit is disproportionately affecting Scotland, and UK Government leaked reports have since vindicated what we were saying on the impact and the threat of Brexit. I would argue that both Governments have responsibility here, and we are doing everything that we can to grow the economy in the face of Tory austerity, mishandling of the Brexit position and misunderstanding the true economic nature of Scotland, and they should, as we do, accept their responsibility in doing more for the Scottish economy. I would say one final point—just one final point. It is important, convener, because it is characterisation that compares Scotland with London and the South East is not a fair one. When you look at all the data that exists, Scotland is performing relatively well compared to the other nations and regions of the United Kingdom, and, on that basis, we know that Scotland has strong economic foundations, but it is a UK Government that needs to take some responsibility for their current handling of our economic position. I want to talk about VAT and to clarify my understanding of what is going to happen when the devolution of the VAT assignment takes place. There will be a forecast of what we think VAT receipts in Scotland are going to be, but, after the fact, there will not be an out turn number as such. There will be a calculation that will be an estimate based on survey data of what we think VAT receipts in Scotland might have been or were, but it will not have any hard reported out turn data. What we will be doing then, through the reconciliation process, is comparing what we forecast with the estimate of what we think it was. Is that correct? That is a very fair characterisation. It is a forecast that is leading to survey data. I want to be open with the committee on that regard. I am not yet satisfied that we have the VAT proposition in the shape that we want it to be. It has not been agreed yet, and I think that we have more work to do for us to be totally satisfied that the methodology and the timescale are right for us. I just want to be open with the committee on that. There are principles that I accept that it would be difficult and unwelcome for the business community to have a separate tax collection administrative system for VAT in Scotland, so that was the other extreme. If we are basing it on surveys, we want surveys to be as robust as possible and what is proposed as far more robust and what has existed before, but there is the complexity forecast. However, I want to make sure that we get the methodology right because it is only assignment and it is not a new power. The VAT issue is just assignment, so I want to make sure that it is absolutely right for Scotland before we sign up to it or that it becomes a self-defeating exercise. That is interesting to hear. I suppose that there are two directions that I was going to go then. The first is to explore a bit more about why it would be difficult to collect real data. At the end of the day, HMRCA is collecting fact returns from companies. Those companies are either in Scotland or in the rest of the UK. Those companies know their input and output, VAT, whether it is coming from consumers or businesses in Scotland or in the UK. If you have a VAT return at the moment, you have to identify separately how much of your revenue and spend is EU or not. I wonder how much you had explored what that system would look like. Why would you collect real Scottish VAT data from businesses? The reality is that cross-border businesses that are selling to consumers or businesses across the UK are big enough and well-organised enough to know that data anyway because their business model relies on them understanding very well what they are selling to and how much they are selling it for. I am happy to say that, on advice, it would not be welcomed by businesses in terms of administration. I totally get the point about, for some it is quite simple already, just pay the VAT and it would be for the administrator in terms of UK Government agencies to set that out. However, there would be a lot of grey areas where companies in Scotland or the operators in Scotland would not necessarily be sure as to where to allocate that amount. Gels, of course, are only an estimate and an asignation. I think that that is partly why I am saying that I am not totally satisfied yet on this issue, because I am a bit nervous about, depending on forecasts, the survey data and reconciling that, but what I have seen so far suggests that separating it out for Scottish businesses adds a complexity and a cost that would be unwelcome. I am happy to come back to the committee with more information on that, but this is also a live issue. There are timescales set out in terms of when methodology should be produced and when it should be implemented, reflecting that one year was a transitional year with no budget impact leading to a year with impact, but I want to be absolutely sure that we have the foundations, the benchmarks and the methodology right so that it is as accurate as possible to reflect what is really happening in the Scottish economy in terms of VAT assignment. It is frustrating, though, that it is only assignment rather than a power to be able to vary the rate in the way that the Parliament would want us to do for particular functions. I understand. I suppose that at least one at a second part you have partly answered that already. At least you should have an open mind on that, which is, for the final language, if we are going to be dancing around about two made-up numbers, what is the value in the proposition if we are going to be comparing an estimate with an estimate or a forecast with an estimate and trying to reconciling that space, is there a cleaner way to do that? Does it involve going down that kind of pretendy process? That is the joy of doing the Scottish budget at the moment on income tax, which is a substantial figure. You get to a point in reality on what tax was paid ultimately out and that is absolutely correct, which we never quite get to with the current proposition in VAT. Let me be clear, though, that I am not proposing in my exploration of the issue a new complexity, a new cost and a new burden for business. What I want to be reassured about is that we can make the figures as accurate as possible so that it truly reflects, as best we can, what VAT has been accrued in Scotland and therefore what should appropriately become into Scotland, the Scottish budget in that regard. I do think that we need some more work on that before we sign up to it. Okay, thank you. Just take that a wee bit further, because you are obviously sending a bit of a warning that this is not where the Scottish Government wanted yet in terms of the information that will be available through the survey process. My understanding is that the fiscal framework agreement was that that would be implemented in the assignment that we have been putting in 2020, but there would be a transition period. Has that transition period been agreed? Obviously, if we have not got this right, that transition period might have to last a bit longer than was originally expected to do some testing on those numbers to make sure that we have some robust figures before we implement anything that might potentially be difficult. Convenience, that is a fair characterisation. What I am doing as finance secretary is making sure that the methodology, the numbers and the estimates are as accurate as possible. Because this is as a nation, it is really important that we get this right. We cannot exercise the power, so we are just signing up to an as a nation for a figure to come to the Scottish budget, so I want to make sure that that figure is right and accurate for Scotland. The timescales that you have outlined are correct, that agree the methodology, have that transitional year, assess the data and then implementation, i.e. impact on Scotland's budget. I want to probe that further. I have a meeting with the Joint Exchequer Committee in the summer, but I am not signing up to that until I am satisfied that it is right for Scotland. I think that the survey data is far better than what existed before. It will have more information, it covers more households and is the right range of products. I am not challenging the essence of the methodology, but I just want to be assured that it is robust enough to accurately reflect what is being spent and therefore accrued in VAT in Scotland. There is agreement coming from Scotland Act, fiscal framework, subsequent engagement that I have had with Treasury on a range of financial matters. Clearly, we can revisit the technical agreements if we have good reason to do so. I think that if there is any question about the methodology, estimates or reconciliation, it is right to get the agreement correct in the outset rather than further down the line on the issue. That is why I am treading carefully on this one. What you are saying is that if there is no agreement, the transitional period could be extended to make sure that all that data in its robustness can be shown to be robust. If I am not convinced that it would be a reasonable proposition to ask that the transitional period be extended to get more data to get it right, as opposed to implement something that we were not satisfied with, I assume that the committee would understand that approach if that is what transpires. Obviously, we have had a separate briefing from your officials on the VAT issue and they were going to come back to us. Obviously, we have the Treasury coming to the committee sometime in the autumn of September. I think that we would like an update from the Government before we get there to enable us to be in a position to properly have that evidence session constructed around the Treasury when they arrive. Willie Coffey. Thank you very much, cabinet secretary. I wanted to ask about the audit and accountability framework, the draft of which we saw and considered at this committee. You can see how important a robust framework will be to allow us to scrutinise HMRC, particularly in relation to the issue that was raised earlier about identifying Scottish taxpayers. I was just going to ask where we are with that. I note that, in both papers, it says that it will be agreed between ministers, Scottish and UK ministers, to ask for an assurance that the committee wishes that that process be as simplified as possible to be taken on board. It has not been agreed by ministers. It has not been agreed for the simple reason that there is an issue with another committee in Parliament. I think that the Audit Committee wants greater access. As you have expressed, I do not like the process of having to go through the Scottish Government to hold other UK agencies to account. You want the direct accountability. I agree with that proposition. Therefore, I have not signed up to the current framework in that regard. That is not just my view. I think that the Public Audit Committee in the Scottish Parliament has made that point. I think that they had a hearing in February and came to that conclusion. Therefore, I am trying to help parliamentary committees and get more out of transparency in Audit and Accountability direct from the agencies that are delivering Scotland Act of Implementation powers, I suppose. I am supporting committees and not signing up to the agreement until that is resolved. If that is resolved, I will sign up to the agreement. Neil Hamilton I just want to ask you about the transfer of the British Transport Police. The annual report from the Secretary of State for Scotland notes the Scottish Government of the Leader, the transfer of the British Transport Police to Police Scotland from 1 April 2019, but I did not see any mention of that in your report. You will be aware of the Justice Committee of the recently identified additional significant costs in relation to the merger and the transfer of staff. Given that it is not in your report, it would be helpful if you use the finance secretary to tell us to what extent the Scottish Government believes that there are problems, including financial, with the transfer of the British Transport Police. I think that it is fair to say this. My report covers that. That is right. The financial provisions coming from the act, largely and of course between the Justice Secretary and the Minister for Transport, work on that issue. It is my understanding that the Joint Programme Board, overseeing the integration, agreed to review the timetable on advice from Police Scotland, BTP and therapy that operational aspects of integration should not be ready for April 2019, so it will not have a financial impact that I can quantify until that review has been complete and taken into account what Parliament has said about the issue and all the engagement with stakeholders. I will be in a stronger position once we have that plan going forward. Clearly, the Government has reviewed its position in terms of integration in light of views that are expressed. Are financial issues being considered as part of the review and the financial implications of the transfer? They would. I say that because of that review, I have not expressed it in the implementation report, because it talks about the legal commencement and then the financial consequences where that applies, but it has not applied yet. It would be helpful to get more detail on that when it is… We will be shaped by what the plan is, which is subject to consultation at the moment. I thank the witnesses for being here this morning. I will now close this public part of the meeting and we will take the next item in private. I thank you again to our witnesses for their contribution.