 Washerdwornol, ieg i ddraenno'n iech report haeddei chocolates, neu ond pob ddaenwch g talks gweld eich ddwyl iaith sy'n ei jdwyl Nicola pump. Yn hyffordd y teielen cynes centres hyn eraill ei dda, mae rhai'r ysgrif提 flyniadau rymlug maes 71. Dwibod yn enwediguno cyfrifion yultidon maes y ffordd. Colin Burloedd, pandeig fyTH cooper Llyr gwasanas gydawn Across ym Mawr Niveall,편 iawn Makdo FFB andws. Rhyoc這樣子 peffrwyddiant yn esgedig awr adultsn am y plesê. Rydym ni'n siŵr iONE Ready? Rwy'n ei bwysig i'w qeiniadau gweld o'r Cymru. Rwy'n ei ddigon i'w ddigon i'w ddullustu i'r llwyddon yn rhoi, ond rydym ni'n angenersoniaethach ddigoniaeth, ond rydym ni'n angenersoniaeth, oherwydd rydym ni'n angenersoniaeth. Pryddoch chi ddweud o gweld y cwyswmp? Gwad o'r cwyswmp ei ei homesu iaith i ddweud i'r gallech chi adael eu cwestiynau i'r cwestiynau gyda'i cwestiynau. Sunwchwch yn fawr i ddiweddol, mae'n rhan o'r ystafell eich ei wneud o gynnwys i'r ddweud ddim yn i fyw i'w chwarae. Felly, iawn y rhaid i'n gweithio'r cyffredin neu'r wych iawn? Rwy'n llawer i'n gorfodd CBI i gyflogu'r cair ystod – wedi'u cyflogu'n cynghwyr i'r ffair yn jodgfodd a wedi'u edrych yn ei chyflogu'r cyffredin, mae'n gweithio'r cyffredin wedi'u cair ystod Ieis wnaeth i gyda'r cywbr ar gyfer myfyrdd iamiannol i gyfwladol i gydych Hijor acrhau ar y core. Rydw i ddim ddechrau, fod gyda nhw am ddullol, a rywfodd i gyfawr hyn sy'n ei ddim yn teimlo, fydden gweithio i gyfwladol i gyfwladol i gyfwladol i gyfwladol i gyfwladol i gyfwladol. One of the things that CBI members were very keen to emphasising all the conversations that we've had with them about further devolution is the potential for power, that are already develop to be used in a better and more durソgdymaf. They pointed to certain powers around infrastructure, esseschle transpor, planning skills and those kind of fundamental powers that can help to ameliate the business environment, that can help businesses to grow, can to help create a highly skilled workforce, and can help to create a strong infrastructure gan gwybod, amddain i Sgotland yn i'r paru sydd amddain a hynny i'r ffrosbonnig? Mae gynnal i ymwoes tu sy'n gweithio gyd yn dweud, fyddech chi'n mynd yn ddefnyddio'r gan y cyflenni ymwynghau ac mae'n ddiwedd i'r wneud ymwynghau cyflenni ymwynghau. Mae'n dweud gyda gwybod, byddai'n gweithfa mwyaf aethafolatau, wedi cyfle erbyn i gwybod yr oedd eich cyflenni yn ddefnyddio'r gweithiaeth, Garwp hyn am yr eff agreemente워 powers ciw oherwydd Ieithraddや ryw peacedraff ac ei berlo sy'r peir tudau i gylluninyaid. Rwy'n de Almol iphone edrych yn ferty-yearion, a dwi'n deall i weld yr effミ乜 f활wys o'i ffordd iawn. endedwc e span am jei cychwyn wices Basdd." Mae dinha Training Aielejon. GallEDraith er mwyn o'r probdd jabeneddythau i. Rwy'n deksha—eaf, i ddim yn rquestion chi swyddi cwmy ddechrau i Hiphlyg. Ac mae'n gweithio gondol, mae hwn yn iawn i gweithio gydig i gwybrwmau a gennymau bod yn gweithio amddangos iawn. Mae'n gweithio gwneud sut wefyd wedi'i gwblwch ar dyfodig, i ffasgofod, maen nhw, sy'n gweithio dweud i gydig i gynnodydd i gydig i gydig iawn, ond mae'n gweithio ar diremddenve acts, ac mae'r ddych yn ei fod angen i dŷch gan gynno hwn ychydig. Prwy fyddon ni'n gweithio i gydig i eich ei gweithio? Agen writer immediately on the infrastructure piece, one of the things that is particularly interested us is the potential for Scotland to gain more boring powers, and certainly looking at some of the developments in London around the crossrail bond and how successful that's been that potential impact of so called tonguetree bonds that is already in the table but not necessarily already in play. that that could be a really strong power. It really could be a good way of seeking to, as I say, ameliorate the business environment by seeking to strengthen Scotland's infrastructure and indeed is as yet untested, so that's one particular area that we feel, that actually could be hugely beneficial. That didn't bother me. I was going to ask you about because it's touched on, certainly, Gary's paper touched on it but I didn't say anything about borrowing actual in-year paper unless I missed it. Rydw i'n ddarch chi, ond rydw i'n ddifFE IEI wedi wedi ei gweithio i ddoch gyda bêl, oherwydd mae'n ddweud â mynd i gwedyddol. Rydw i'n ddweud â mynd i ddechrau Gwdeithas? Rydw i'n ddweud â mynd i ddechrau Gwdeithas. Rydw i'n ddweud â mynd i gweithio i ddyddurrachu'r ddweud i gweithio i ddweud a chi ddechrau? Rydw i'n ddweud â mynd i ddweud â mynd i gweithio i ddweud. Why is the Chamber of Commerce neutral on the issue of borrowing? It is an area that we believe that the focus of borrowing has to be on capital spend. That is an area where we do think that there is certainly scope for development and scope for further devolution, but I think that on balance there is a neutral view across the network in terms of borrowing per se, but I think that specified borrowing with the specific purpose of increasing capital investment, particularly infrastructure investment across Scotland, we are supportive of and have been supportive of for some time. Yes, I mean, the Scottish Futures Trust talks about prudential borrowing and for example allowing borrowing where obviously there has to be an ability to pay it back, it has to be sensible, etc. That is why I am surprised that the Chamber of Commerce was not secure on that. I thought that some of your members would have been able to take advantage if there was additional capital spending, for example. I think that looking at the recommendations of Smith and a lot of what we have put together in terms of recommendations on borrowing were before that. I think that what Smith has come up with in terms of specifying the purpose of borrowing within agreed limits and focusing that on capital spend is certainly something that we are supportive of. Borrowing? Borrowing is not something that we make reference to in our Smith commission a submission, simply because it is not something that has come to us from the members. What is in our Smith commission a submission is based on the survey that we carried out earlier in the year, particularly done just around not so much the macroeconomic issues in the fiscal framework but around about the practicalities. That is really where I think we can add some value to the process, and that is where we have been very clear that we are going to focus our attentions on. You said in your paper that you mirror a lot of what the CBI has said in one respect and that you say the focus of any new devolution settlement to be firmly on driving economic growth. Again, I am sure that everyone would be supportive of that, but what specifically do you think levers could be further devolved to enhance that? What we looked at was roughly the tax take round about taxes that are analogous to economic performance. We said that there was probably quite a strong argument for devolution round about income tax because that was directly linked to the health of the economy. We also made the point in this statement about some sort of allocation of VAT receipts in Scotland. Again, that is a pretty good yardstick of economic activity. By doing that, the hope is that that will hardwire economic considerations into decisions that the Scottish Parliament takes, which we think is good for business and the economy. What we were quite keen to try and avoid was arguing for the devolution of certain powers because we happened to approve of how the current Scottish Government would use it or indeed the reverse argument for things to be deserved because we disapprove of how the current Scottish Government was using it. We can construct an argument to say that making the Scottish Parliament more responsible for raising more of the money that it spends is in itself a good thing for business because it means that those economic considerations are far more to the fore than they would be perhaps under the current settlement. I am sure that Colleys will want to explore those things further. Your passenger duty, Gary, is quite keen on it. The Scottish James of Commerce has long taken the view that your passenger duty is a tax that impacts negatively upon Scotland's connectivity. The devolution of the APD would not be associated with the administrative of economic inefficiencies. You can talk about being devolved to Northern Assembly and the power to set such rates. It has to be said, though, that the CBI takes a different view. First of all, Gary, can you expand on why you believe it should be devolved, and then I will ask Nicola her view? The Scottish Chambers of Commerce has long taken the views, as you have already expressed in the comment from the submission there, that we have always taken the view that air passenger duty is damaging in terms of its effect on connectivity, particularly connectivity from Scotland. To some extent, you can appreciate air passenger duty as perhaps a tax that is used to mitigate excessive demand on capacity at airports in the south-east of England, but when you are looking at the capacity at Scottish airports and the ability of Scottish airports to compete for services worldwide, then air passenger duty is a negative drag on those airports and thus on our connectivity. For us, air passenger duty seems like a tax that would be relatively straightforward to devolve on a regional basis. It has already been done to some extent in Northern Ireland, and we would certainly recommend that it be devolved to the Scottish Parliament. The reason for that is that it is a tax that impacts very directly on other areas of already devolved responsibility, such as tourism and enterprise. Being able to use that tool to directly impact on areas that are already part of the devolved framework would make sense to us, and we would argue that the tax is devolved as quickly as possible and that the tax is radically reduced to reduce that burden and open up connectivity in Scotland, or even better, to eliminate the tax entirely, as many of our European competitor donations have already done. Obviously, the CBI would like there to be no air passenger duty, but in terms of devolution, you have said that if it was to be devolved to Scotland, that would have a direct impact on other regions of the UK and create competitiveness issues in the English regions. Can you explain why you think that it would not be in Scotland's interest to have powers over this? Sure. The CBI, as you can well imagine, has some very strong and differing member views on that if we look at a UK-wide perspective. Certainly, some of our Scottish members would be very keen to see air passenger duty devolved. A lot of the Scottish airports would obviously benefit from such an action. However, taking a UK-wide perspective and remembering the passage in Smith's report around no detriment to the rest of the UK, we believe that actually devolving air passenger duty in Scotland and not taking action elsewhere in the UK would create a detrimental impact and potentially create some kind of inefficient bidding war between airports across the border. You only have to look at what has actually happened in Ireland, where the action on long haul APD has been taken in Northern Ireland because of the impact across land border of having those different regimes. We would not want to see that replicated between Scotland and the English border, or indeed between Wales and the English border. We do believe that APD is a distorted tax. We believe that it is uncompetitive, and we believe that UK reform is necessary for similar reasons to the ones that Gary outlined, the impact on tourism. When we should be prioritising our export activity, we do not believe that having APD as it currently stands is a very competitive tax, but we believe that because of those distorted implications of devolving it in one area, and not in others, action should be taken at a UK-wide basis. You do not believe that Scotland should have any competitive advantage. Obviously, if we do not have APD tax revenue, one can argue that we would have to make changes in other areas of our budget, etc. Surely, it is about a question of judgment in that. I remember that, 20 to 30 years ago, you could fly from Glasgow to Porto, you could fly to Kefalonia, you could fly to Banjol and Gambia, you could fly to all sorts of North American airports. You cannot go to any of these places anyway. You have to take a train, a bus or a car down to Manchester if you want to go to half of these places. How is that advantage in Scotland, given the fact that Glasgow still employs airports and employs 4,300 people? How many would it employ or how many would Edinburgh employ, apart from the business and tourist advantages if we had control of that? Is the south-east of England not getting enough of a competitive advantage? I think that you have to remember that APD is only one of the levers that affects that competitive advantage because the Scottish Government already has control over many other areas that would help to impact demand on aviation, infrastructure planning, demand in the surrounding area of an airport, ability to get to an airport very easily. All those things have an impact on creating the demand on the ground, which then makes some of those routes viable. APD is one lever, of course, but it's not the only lever. Improve the roads to Glasgow airport. That would reduce the number of people who haven't gone to Manchester to fly a national long-haul with it. It's thinking about the way that airlines determine whether or not routes are viable. Capacity and demand on the ground is one of those reasons, so if you think about why regional airports can't support some long-haul routes, it's because the demand isn't there, the capacity on the ground is not there. So improving surface access to airports can help to stimulate that demand and can help to make some of those routes more viable. I'm not suggesting it's the be all and end all in the same way that APD is not the be all and end all. It's marginal to me. I thought that the CBI was in favour of competitiveness and competition. Yeah, UK-wide, which is why we believe that APD should be reformed on a UK-wide basis to make the UK more competitive. I've been at Scotland within that mark. Touching on the APD angle here, did the CBI receive any input at all? I don't have a list of members of the CBI in front of me, and I know that it has changed recently. Are any of the airports members of the CBI, and did they have input into this? From my meetings with my local airport, they are very keen to see APD devolved and devolved early. Sure. As I've already said, some of our Scottish members would be very keen to see APD devolved in the Scottish airports are some who, of course, would be very keen. We also have many other airports throughout the rest of the UK who would not be keen for APD to be devolved for the reasons that I've already outlined. We try to take a UK-wide perspective for that reason. I note the point that you make about improving the infrastructure round about airports. That's happening in many of the locations. When an airline is looking at developing a route, it looks at its outgoing income, and APD is forming a large part of that. Indeed, I am aware from discussions that I have had with a number of airlines and airports that there are some routes that are currently sitting on the shelf and cannot be progressed because they are economically unviable as a consequence of APD. I would be interested, because this is not just about the airports themselves. Particularly in Aberdeen, which I represent, the airport is a vital business hub, particularly for the oil and gas sector, in order to gain access to, for example, London and other key markets. I would be interested to know what evidence you have taken in terms of what the impact of APD is having on development of routes, particularly routes from Scottish airports, and not just tourist routes but key business routes and key business destinations. That's an appropriate point to open it up for Gary to have some input as well. I was just going to agree completely that the impact of APD is palpable on some of those new routes, but again, this is not just a Scottish issue. This is something that is happening across the UK, which is why we take that UK-wide perspective, but I don't disagree at all. It's not something that we make reference to in Ersmith's commission submission, and that's simply because it's not an issue in which we've been involved in any great detail over the years. It won't surprise you to learn that, if we ask our members what their transport priorities are, it's fixed local roads, and that's where most of our attention has been. That said, what's proposed in Ersmith seems sensible to us, and I think that we're quite relaxed about it. Gary, in the Scottish Chamber of Commerce, 68 per cent of businesses respond to the Scottish Parliament to have more powers than one of the powers that you've mentioned specifically is control of certain aspects of immigration. For example, the devolution of rules for student visas in order to take full advantage of the interests in Scotland's world-class university shown by talented, high-potential individuals from across the world. I wonder if you can just tell us a bit more about your views on that particular issue and how you think that could work and what the economic impact could be. We certainly think that Scotland needs to take absolute full advantage of all of the assets and advantages that we have as a nation. One of those assets and advantages is our world-class education system. It reaches out across the globe. It attracts the finest minds from countries far and wide, and we certainly believe that we need to take the fullest possible advantage of that. Certainly, recent restrictions in visa entry into the UK for study purposes and remaining in the UK following completion of a course of education have been restricted. That has been very noticeable, not just by the universities but also by telling to some of the airports who have noticed a significant drop in terms of long-haul passengers coming in from nations such as China in recent years. We believe that we need to take full advantage of those universities and colleges who are attracting the finest minds. We need to get more young people from across the world into those universities, and we need to take full advantage of them while they are there and after they are there. In other words, although it is great news for the universities if they are able to attract international students in terms of raising income and revenue from that source, we believe that we also need to ensure that as many as possible of those students have full opportunity to participate in the Scottish business environment after graduation. If they go about their business in any part of the world, they take something of Scotland with them and build up a network of connectivity with Scotland, and Scotland builds up a network of connectivity with them, which will stand Scotland in Goodstead for many, many years to come. We look at the product of Scottish colleges and universities. We see it in terms of leadership of countries and businesses all over the world, and we need to make the fullest possible advantage of that. By giving Scotland some leeway in terms of allowing us to take that advantage, we believe that it would be to Scotland's long-term benefit. Can you give any idea what the benefit to Scotland would be of that policy in terms of the impact on spending in Scotland and employment impacts? We have not taken a fixed view of what the immediate benefit would be. Clearly, there would be benefit directly to the universities in terms of spending within those universities and purchasing education in those universities, but we are also looking at the longer-term, perhaps more intangible benefits of networks being built up with key individuals who are emerging across the globe. Firmiliarity, all that, and, of course, the money that students who come here spend in the shops and businesses of your members call in. Is that something that the federation of small businesses would support? I think that it seems perfectly logical if we are going to all that effort to attract the brightest young people to the country. If they are looking for somewhere to settle down, start a family, buy a house and start contributing seriously to the economy, then it would be brilliant if it was here. That has got to be good news for the economy, and small businesses have fallen part of that. That is in our members' interests. What is the CVI view, Nicola? To be honest, it is not something that members have raised with us at all. Have you ever been seated in your port? That is what I was wondering, actually. No, it is not something that members have flagged as being something that they would like to see pursued in this devolution process. It is something that I am very happy to go away and ask about and come back to the committee, but, as I say, there has been no appetite for it from our members. Okay, well thank you for that. I am going to stick with you, Nicola, just now. This is going to be the last question, because I want to allow colleagues around the table to come in and cover other areas, and perhaps even revisit some of the ones that we have already discussed. On the national minimum wage, you say that CBI is not in favour of the devolution of the national minimum wage, and you talk about businesses for the politicisation of the process that would inevitably follow the creation of competing minimum wages with employers and employees losing out depending on the political weather. Prior to that, that was on paragraph 14 of your submission, paragraph 11. You said that there was possibly a race to the bottom. Why a race to the bottom, why not a race to the top? Well, what we received in terms of feedback from our members was obviously very strong support for the minimum wage, very strong support for the evidence-based way in which the low pay commission goes about setting it, and indeed very strong support for what Lord Smith reported back on in terms of his proposal to keep the minimum wage reserved. We see pay in the UK and in the Scottish private sectors as following fairly similar structures, and they enjoy similar percentiles. We do not believe that the pay structures in Scotland and the pay structures in the rest of the UK necessitate a different minimum wage. We believe that the evidence-based approach that the low pay commission takes would result in as similar results for Scotland as in the rest of the UK, and we do not see any particular need for Scotland, therefore, to seek to devolve the minimum wage. We believe that the evidence-based approach that the low pay commission takes is something that is suitable for the UK as a whole, and indeed for Scotland. On that kind of theme, would you also be against the London waiting allowance? Again, it is not something that we have asked our members specifically, but I am very happy to come back to you. It just seems to me that if you want a level playing field for the minimum wage, we should also have a level playing field for all wages? Well, the point is that the pay structure in Scotland and the pay structure in the UK as a whole are relatively similar. London is, as you all know, quite a different planet. Yes. Indeed, so if Scotland decided that it would believe that the national minimum wage should be higher, that was a consensus. Scotland, you do not think that we should have the ability to change that? Again, that would be a political rather than an economic decision. But you do not think that we should have the ability to change it as a point I am making? Well, I believe that the reason that the national minimum wage has worked so well is because of the evidence-based approach that has been taken, the way that the low pay commission has studied trends, changes in the economy, looked at future trends and made a recommendation based on that, which has enabled businesses to absorb any rises in the national minimum wage and jobs not to be lost as a result. How has it worked well if more than half people living in poverty are having to get taxpayer subsidies because the minimum wage is slow? If it is not a living wage and it has to be subsidised by the taxpayer, clearly it is set too low, is it not? Well, I think that we are perhaps going slightly off the issue here. As I say, the test for whether or not the minimum wage is working is whether or not the private sector can absorb that rise. I would suggest that, since the national minimum wage has been implemented, the private sector has been able to absorb that. We have not seen job losses, we have seen economic growth and I think that a lot of businesses would point to it as being a success. The Government, when the minimum wage was being introduced, we were talking about hundreds of thousands of people losing their jobs from a minimum wage committee and it did not actually happen. Do you think that there is a role for Scotland to set at a minimum wage or, regardless of what that wage is, do you think that it should continue? Does the FSB think that it should continue to be set at UK level? I think that, first and foremost, we would like the low pay commission to continue, or something analogous to it, because it has had that responsibility of setting the minimum wage at the absolute highest level that it possibly can without damaging jobs. I think that that has been good, and that is something that we would want to safeguard. Whether or not you could then transplant that into a Scottish context is a matter for debate, but when Mr Mason made the point about there being a London living wage, which is different from elsewhere in England, why would you have one that is just covered in Scotland as a whole? If you are going to concede that principle, would it be more reflective of living standards to have a different regional minimum wages? I imagine that the cost of living in your constituency in Mr MacDonald's is quite different. I think that, again, we are not wedded ideologically to keeping it on a UK-wide accept London basis, but I am not sure if there is a case for just doing it Scotland as a Scotland, or if you are going to take that step, would it be more reflective to do it regionally? It is absolutely something that we could investigate and debate and see what the actual practicalities round about that would be and what the effect on real wage levels would be in the end. Gary, a number of your members are being accredited with paying a living wage. Is this something that we should have powers over in Scotland in view of the chamber of commerce? The view that our members have taken in terms of employment regulations as a whole is that they should remain reserved simply because they are large and complex enough without creating potentially two sets of them and adding to complexity. In terms of the living wage situation it is something that we are having a conversation with our membership at the moment regarding that, and it is an area that we have not yet taken a view on but we will likely do so in the next few months. I am now going to open out the session to colleagues around the table. First person to ask a question will be Jeane to be followed by Mark. Good morning. I am going to continue in the same theme, largely because I think that if I reading the paper from the CBI, Nicola, there is an impression that there is a kind of stable economy that we would be foolish where we devote for independence to break away from. My question is that, in page 4, we have referred to paragraph 11, the UK labour market works, but it is not working for a lot of people. As more and more businesses make the transition to paying the living wage in Scotland, why do you make no mention of this and what is your position? I know that you have partially answered that already. Just a comment on paragraph 14, where you say that the CBI supports the continuation of UK national minimum wage and, in fact, really supported it, but we must acknowledge that, in fact, business organisations fought pretty hard not to have a minimum wage when it was proposed by the Labour party at the time. Minimum wage has been static for a long time and the stable economy that you talk about is not a stable workforce. If we look at some of the facts, the fact is that wages have grown in the financial sector at 19 per cent in the last year, and living standards have dropped by 44 per cent. It is quite shocking. How does the CBI really support that? Sure. I absolutely agree that living standards concerns our members greatly. It is something that the CBI has done a lot of work on and spoken quite extensively about at our annual conference last November. It was essentially the theme. Our flagship report was around better off Britain and what could be done to ensure that living standards are increased. We have had quite a jobs-rich recovery, but we have not seen wages following suit. One of the things that our businesses were very keen to pursue, for example, is a cut to employee nicks' contributions as a means to help boost living standards. We have done a lot of work around the education system, around flexible childcare and, indeed, very supportive of a lot of the conversations that have been happening within the Scottish Government around universal childcare—very supportive of that. Certainly, regarding the living wage, our message has always been that where employers can afford to pay it, they will pay it. It is certainly not the CBI's place to dictate in any way which employers should choose to pay that, which is why we do not make reference directly to it in our submission. We do not necessarily think that it is something that should be mandated. We believe that where employers can afford to pay it, they will pay it. By the same token, do you have any comment to make on your members who make on zero-hours contracts or short-time temporary contracts? Are there things that make our workforce unstable and living almost impossible for a number of people? Sure. In terms of things like zero-hours contracts, again, these are legal employment contracts. I know that it is something that the Department for Business has looked at very carefully. Certainly, where there are any abuses taking place, the CBI has been very clear that the letter of the law must be followed. Where abuses are taking place, maximum penalties should be applied. There is no excuse for any abuses, but certainly zero-hours contracts are part of the current employment landscape. They are not used widely, but where they are used, sometimes it is to the benefit of the employer, sometimes to the benefit of the employee, but again, if they are being used in the wrong way, then that should not be tolerated. You do not think that the evidence is there to show that they are being used in the wrong way? I think that we are still some way from seeing a strong evidence base for any kind of change around zero-hours contracts, as I say, where they are being abused, then that should not be tolerated. Going back to an earlier statement about competitiveness and unfair competitiveness or disadvantage to any other part of the United Kingdom that independence would have brought, by the same token had we, because I understand that a majority of people putting in responses to the Smith's commission did want to have the power of adjusting the minimum wage in Scotland. You do not think that that then in turn might have actually set a competitive advantage to which the other part of the United Kingdom could have been challenged in a good way, for all the right reasons. Sorry, a competitive advantage in terms of a higher or a lower minimum wage? To be able to adjust the minimum wage, to have the power over control of the minimum wage, in Scotland is something that I understand, an enormous number of the respondents to the Smith's commission actually asked for. I know that it is not being recommended, but to go back to some of your earlier statements about the differences and why they should all remain the same in order that this stability, which I think would be questioned by a lot of people that we have stability, do you not see that having the power here could actually influence other parts of the United Kingdom? So, again, I come back to my earliest point about how a minimum wage works. It works because it is evidence-based. If you look at the jobs market in Scotland and the jobs market in the rest of the UK and pay differentials, there is not really that much difference. From an evidence perspective, even if the minimum wage were to be devolved, you probably would not end up with a different rate purely based on the evidence. If there were a political decision to be made to increase the minimum wage, for example, then that would be different. You may actually have the impact of that may result in Scotland being more uncompestive because it has been taken on a political rather than an economic basis and it would make it harder for the private sector to absorb that rise. And yet what we do know is that the Scottish Government is encouraging everybody to pay a living wage, which is a considerable increase on the minimum wage at the moment. And yet the CBI sees no place for that in its paper to recognise that the Chamber of Commerce are consulting with members. I'm sure the FSB members will be very interested in that too. And if we generally increase that, we increase the wellbeing of everybody in the country. As I say, where employers can afford to pay the living wage, then they will. It's not for the CBI to mandate it in any way. It's not for us to say that the living wage should be paid to all because a lot of employers perhaps can't afford that. Thank you. I would be interested to hear from FSB and Chamber of Commerce too on some of these points. For example, the Chamber of Commerce is asking members about the living wage. Do you have the low pay units' evidence based on the improvement when people are actually paid the living wage now of stability and lack of staff turnover and so on? The evidence is growing and mounting that there has to be an increase. Well, certainly that's one side of the argument and we'll be taking that fully on board. Obviously, the other side of the argument is that there are businesses in our membership who would tell us that if their staff costs rise, then they would have to adjust staff levels. That may not be clearly of benefit to employees if staff levels were reduced as a result of an enforced increase in staff costs. We'll be looking at both sides of the argument in terms of the living wage. Obviously, it is a very important issue for us because it's something that is probably fairly central to the Scottish Government's business pledge. We'll be responding to that in due course as well. In terms of some of the wider issues, some of our most recent surveys of our membership have identified rising wage levels and a number of employers increasing wages and some of them are substantial by a substantial amount in recent months. That's to be welcomed that those employers in some cases are able to afford it when they weren't before and in other cases are having to pay more in order to attract the staff that they need in order to undertake their work. That's positive, and alongside the evidence that we're also picking up on an increase in business investment and staff training, I think that those are some positive signs for the economy at the beginning of this year, but it remains to be seen how successful that will continue throughout the course of this year. However, there are some positive signs in terms of wage growth that we're picking up from our members as the economy picks up. Would you agree that many businesses said that they couldn't afford to pay the minimum wage when it was introduced but somehow managed? If something as fundamental as setting the minimum wage across the board actually helps all businesses because everybody has to pay it, it's not a question of whether one business can afford to pay it or not. It's about businesses not wanting people to live in poverty. Clearly, it's not an issue. If it's applied across the board, then it applies equally, but equally it may impact on some businesses more than others in terms of having an associated increase in staff costs and it may impact on employment. That's a matter that it still will generalise on, but the circumstance of individual business will dictate the response to that. Just a last part on the unemployment, but the low wage is affecting employment. We say that we've reduced unemployment, which is true, but would you agree that we've got perhaps quantity not quality? I think that there is still a case in terms of the relatively slow growth in wages and the negative impact that that is having compared to the historic levels of inflation. Up until now, a lot of the increase in economic growth in the UK and in Scotland has been down to consumer demand. Where consumer demand is driving economic growth at a time when real wages are falling, then clearly that's not a sustainable situation in the medium to long term. That's why I've pointed out that some of the evidence that we are now picking up is that there have been pretty healthy levels of wage growth over the past three months in some sectors in particular, notably the construction sector, but also right across all of the sectors that we monitor, which includes manufacturing, retail, tourism, as well as construction and financial and business services. We're picking up a pretty healthy level of wage growth, but I think that that is absolutely essential if we are to maintain a balanced economic recovery. It's a further fiscal devolution as a focus, not just on general economic issues. Indeed, but I think that it's key to it, obviously. Colin, on the Federation of Small Businesses in your submission to us, you say that you're certain that the Scottish Parliament is set to become a more powerful actor in our economy. We know from the unbalanced nature of the UK economy that growth has become decoupled from rising living standards, but, as I've shown in earlier questions, economic growth does not necessarily lead to increased living standards. What particular power would you see coming to the Scottish Parliament that would make us become a more powerful actor in our economy? If you, for example, are responsible for a large number of income tax receipts and your ability to spend on whatever Governments and power on their particular priorities is linked directly to the health of the economy, that has to be good news for the quality of decision making, because it means that you're thinking more about the practical impact, the effect on the businesses that make up that economy, because if you don't do that, you're not going to have the money to spend. I accept that quite how that mechanism is brought into effect, how we do that, how we make sure that we prioritise economic growth in Scotland without damaging the relationship with the rest of the UK, or, for example, we make sure that if you take decisions that damage the economy, then that has an impact on the amount that you have to spend, and to make sure that you get rewarded for those positive pro-business decisions, how you put that into legislation or practice is going to be a big issue. I think that that's where a lot of the debate is going to be between now and this coming into effect. I'm not going to pretend that there's an easy way to do it, but if we can do it, I believe that's a significant prize, and it will certainly enhance the decision-making process that takes place both year and indeed throughout Scotland. On that point, do you think that we talked too much maybe about creating any disadvantage where I suspect that a lot of businesses who did support independence in Scotland saw that they were already disadvantaged and were seeking for a level playing field, and that the opportunity to have more powers through the Smith commission would mean that we could actually make change and that the argument is too much in those papers about maintaining, keeping everything the same? I think that we have to acknowledge the fact that when we asked the members, we did the biggest differ survey of small business opinion on this, and when we asked them about their hopes, aspirations and all the rest of it, one of the things that came back was to say that we could have a fiscal system, a regulatory regime that was specifically targeted towards the needs of Scottish businesses, but that was outweighed by those who said that our biggest fear is having two different systems or multiple systems of regulation, employment, law taxation etc. That came through very strongly. That single UK market is something that our businesses really strongly were keen to preserve because they were worried about extra bureaucracy etc. I think that while acknowledging that people aren't daft in the spotted opportunities, that was on balance, outweighed by those who had spotted difficulties over already expressing concerns. I'm always intrigued by the implication that increased bureaucracy or introduction of new regimes for which businesses would have to make any adaptation, because huge numbers of businesses in Scotland are already located in more than one place. There are businesses who have ventures, either joint or their own ventures in other countries, and many of them are looking to expand internationally. Presumably, if the argument against devolution of certain fiscal measures was that it would create or the perception was that it would create a bureaucracy which businesses would have to adapt to, that same argument would say that no business should ever seek to expand itself internationally. Would that not bring true? No doubt, if you look at the feedback that we got from members, those who were already doing business internationally say that this is the sort of stuff that we deal with. Those who were doing business very locally said, how is this really going to affect me? The big group where there was concern was those who trade within the UK. It was for them that they thought there was going to be a lot of other customers across the UK. When we asked just about where the markets were, the biggest group was those who did have suppliers and customers across the UK. For them, this was going to be something new. The example that we used at the time was, I'm based in Glasgow, I'm down-seeing customers in Manchester. I'm driving back up the M6, stopping the Southway services to fill the car up. What did I do with the vacancy? It was those sorts of practical questions that people think about. For that type of business, they were the ones who tended to raise those questions the most. Interested in perhaps the CBI in the chamber's view? I know a number of small businesses who have international links, but perhaps the CBI in the chamber has companies who are doing business in multiple jurisdictions across the world. I think that the majority of our members don't trade internationally. That notion about different rules and regulations in international markets is one of the key issues that prevents them from trading internationally in their own perception. That is something that we need to try and overcome, because that is something that prevents businesses from becoming more and more internationalised. That is something that we are speaking to one of the other committees in this Parliament about. From the point of view of our members, the possibility of being subject to different threats and different regulations and sets of regulations is something that they are naturally apprehensive about and would present a real cost to those businesses. I agree with everything that Gary and Colin have said. I think that it is very easy to take each one of the powers and look at it in more detail and think that there are certain things that businesses could do to make the administration of this more easy. It is when you start to think about the cumulative impact of all the changes that businesses, especially on the smaller and medium-sized, start to get, their cages start to get a little bit rattled and they think, what does it actually mean to set up a new payroll system as a result of changes to income tax? What happens on the VAT side of things that I am a significant collector? What do I do with the receipts? It is that cumulative impact of all those changes that sets businesses thinking about just what devolution actually means in terms of cost and administration. It is not each one individually, it is the cumulative impact. Jeane Freeman touched on the areas around employment regulation and minimum wage. I am curious about the response that came from the CBI on potentially putting businesses at competitive disadvantage. Are you suggesting that we have had a discussion about whether devolution of certain taxes would allow businesses perhaps to have a more competitive framework? The response was that infrastructure around Scotland would be more advantageous. We now seem to be on the position that paying people a living wage might put businesses at a competitive disadvantage. I wonder if you would care to outline which CBI members exactly cannot afford to pay a living wage, given that there are many CBI members who have chief executive officers on six-figure salaries plus bonuses. As I have already said, it is not for the CBI to mandate, it is not for the Scottish Government or the UK Government to mandate a living wage. We have a process for setting a minimum wage, which is based on evidence of economic trends and is therefore an affordable and sustainable way of setting a minimum wage. Where companies can afford to pay the living wage, they do. It varies by sector. Hugely, Gary has already alluded to the fact that in some sectors, those marginal increases can mean the difference between taking on more people and laying people off. It is as simple as that. In some sectors, it is a lot easier to absorb those kind of rises. In others, it is not. That is just the way it is. I am afraid that a huge increase in the minimum wage or the mandatory introduction of a living wage would have the impact of potential job losses in some sectors. I am not saying that it is across the board, but there are some sectors that are more sensitive to those kind of wage differentials. What is your view on income tax devolution and the tax devolution proposals that the Smith commissioner has come forward with? I think that we have gathered that CBI does not favour air passenger duty being devolved. What is your view on devolution of powers over income tax that is proposed within Smith? On income tax, CBI members were a lot more relaxed, I have to say, about the prospect that they can see the driver for devolution of income tax in terms of narrowing that fiscal gap and increasing accountability, as has already been mentioned by the panel. There are just some very technical questions that remain unanswered about how this could work in practice. Certainly, it is hoped that the draft legislation that is produced tomorrow will start to answer some of those questions, but I am not sure that that will be the case. Issues such as how income tax would then work in conjunction with national insurance contributions, for example. What would it mean in terms of PAYE systems? Would it mean companies working across the border would have to set up separate payroll schemes? What would it mean in terms of enforcement? Who would have jurisdiction over what? HMRC? What role would they continue to play? There are quite technical questions about how that could work in practice, but there is very little negativity about the idea in itself. From the chambers and the FSB in terms of income tax proposals, what is the view there? We took a broadly neutral view on the devolution of further powers on income tax, largely because we already have a notional power over income tax and further powers are being devolved. We will come into force next year in terms of the additional powers in the Scotland Act 2012. We do not yet know the full implications of that. Many businesses are prepared for it, some are probably still unprepared for that. Most members are fairly relaxed about the prospect of the changes that are coming in anyway next year. On what Smith has proposed, it goes beyond that clearly, but it does not necessarily complicate the issue too much more. As Nicolaus has already said, it increases the revenues that are available to the Scottish Government, which gives it more freedom in order to perhaps look at tax revenues more widely and revenues that are already and have been devolved for some time, such as business rates. Importantly, because income tax is now going to be one of the areas where the Scottish Government could derive a significant benefit in terms of overall revenue growth in Scotland, it needs more widely to the Scottish Government and Scottish Parliament to look at policies on such issues as procurement. Clearly, if a greater percentage of the procurement budget of public bodies across Scotland was spent domestically here in Scotland with Scottish businesses and more SMEs were involved in that, we could potentially increase revenues through income tax as a result, and I think that that would be a good thing. What was just about to point out that you said that it gives the opportunity for increased revenues the only way you can increase revenues—well, there are two ways. One, you put income taxes up. The second is that you create more jobs within the economy, and I think that you have given the answer to that. Procurement is something that has looked at very closely, and I appreciate it. I have not quite got to Colin's response yet, but perhaps this can build into it as well. Do you see job-creating powers within the basket of powers that are coming to Scotland? Do you identify as those are powers that will help the Scottish Parliament to create jobs within the Scottish economy? Businesses create jobs within the Scottish economy. Anything that helps businesses to do that is welcome. As I said before, in the principle of income tax, yes, we broadly support that. I think that it makes sense, particularly when the Scottish Parliament already has the responsibility for non-domestic rates, which are, of course, counter-acyclical with all the advantages and disadvantages at that entail. Having a tax take that is more closely tied to the health of the economy has to balance that out nicely, and we think that it is a positive move. I will not surprise you to learn that our chief focus, however, is on the practicalities, particularly for small employers. As we have made clear on our Smith commission and, as I have said repeatedly, we applaud the way that the Scottish Government, BIS, HMRC and the Treasury have taken forward the implementation of the 2012 act. That has been a model of how those things should be done. Even before Smith reported, we were saying, if that is what you are going to recommend, we would strongly advise the continuation of that process. I think that, in terms of not giving a separate tax returns to do, we are doing a lot of it through HMRC accredited software, putting the responsibility on to HMRC for determining who a Scottish taxpayer is and the liability—it is not your liability as an employer if you have an employee who is pretending to live in one jurisdiction and, in fact, is an ordinary resident in another. The practicality is exactly of how we take that forward. That will be the focus of the debate in-between now and its implementation. The 2012 act will probably prove that. That is compared to what Smith has proposed on quite a modest change, and it has taken us a long time to get here. We are going to have another big job to do to communicate those changes exactly what they mean to small employers. The fact that that is happening is useful, because it means that it will be perhaps a less of a big step to implement those changes as well. However, I am not pretending for a second that it is going to be easy. I think that one would anticipate that the behind-the-scenes administrative change is required to move from the Scottish rate of income tax to whatever comes from the Smith commission would be done in that same spirit. If I can maybe just ask one final question cleaner, because I know that you want to move on. We have talked about what is there from Smith. There are some things that have been identified from CBI that we would prefer or not. Is there anything that is not there that you think should be there or that your members would indicate should be there within the Smith proposals at present? Maybe we could start with the comment. I think that our view is that the politicians have come together. The commission itself has gathered evidence from across the country. The politicians have come together, they have done a deal and our job now has to be focusing on implementing it and making it work. What is in it, what is not in it, is not taking a massive interest. I think that our focus has got to be on how we implement this, in particular how we implement it, so it is not to the administrative and competitive disadvantage of particularly small employers in Scotland. I agree with a lot of that. The only area in which we would have liked to have seen something stronger was on the issue that we mentioned earlier about immigration. It is contained within the Smith commission and it is certainly an area that we will be working with the UK Government very strongly to ensure that it takes that forward. Although it was mentioned within the Smith commission, it is certainly not a proposal for devolution and it is something that we need to take forward with the UK Government. I think that I agree with everything that Colin has said. From the CBI perspective. Certainly the view from our members is that what is on the table is quite an ambitious agenda. There are things that perhaps we might not want to see. The focus now has to be on implementation and getting back to business as normal. The focus has to be giving business a little bit more certainty about the view going forward. It is not the time to be thinking of new proposals to add to the basket. Given that one of the proposals that has been floated before the Smith process was devolving corporation tax with a view to cutting it, it is perhaps a surprisingly lukewarm response in the submissions that we have had from the panel with the CBI clearly not supporting that and the chamber is being neutral on it. Colin, you have not mentioned that specifically in the FSB submission, but is that not one of the areas where, at least for a sizable number of your members, the issue is multiple systems? Does that lie behind the scepticism of that proposal? The first thing to remember is that most of our members are not incorporated, so do not pay corporation tax anyway. For us, the much bigger issue is about personal taxation and income tax. That is where our focus in the process was. There was not a great survey of the members on that. That general point that has been put across that cutting corporation tax would stimulate the Scottish economy, particularly given a competitive edge in the UK. That was not something that came out from your members as a general point about the economy, whether they were co-operated or not. No, the point was trying to differentiate between whether or not you would devolve something to Scotland and what you would do with it once it was devolved. We were very clear that we were going to leave that stuff at the door because we may have a Government of a particular political complex at the moment. That may change. We were trying to look for things for where could you say that taking a particular decision at a particular level would, in itself, be good for the Scottish economy, which is why we ended up saying things that are directly analogous to the health of the economy and economic growth was probably where the Smith commission should concentrate its efforts. Those comments lead me on to my second question, which is about the more general issue about at which level a decision should be taken more broadly. Obviously, the Smith process in terms of fiscal devolution is focused principally on the dialogue between Westminster and Holyrood. That is understandable, but there is another important decision making as well, which is at a more local level, a local authority level, or empowering other local agencies too. Have we had enough discussion about what further powers could be devolved from this place, even at a more local level, in terms of the important decisions that can be made at that more local level in terms of stimulating growth and business activity? The chambers would have any thoughts on that general debate? I think that I am certainly looking back and touching on your first point as well about corporation tax. That is certainly an issue that we came back to a number of times from, I remember putting a report into this committee back in about 2011, prior to the 2012 act that was going through its initial stages, and returning to that with our members during the cost of the referendum issue. For our members, corporation tax was usually about the number three or four issue when it came to taxation. It was consistently outweighed by business rights and by income tax. Those are more important areas that they had identified for their business, and business rights usually come out with our members as the number one issue. It is an area that clearly has a local implication in terms of the way that rateable values are assessed and are charged. For us, there is perhaps something in the debate about business rights that we could look at more local solutions. Clearly, the Scottish Government has been attempting to do that over the past few years with the local business rights incentivisation scheme, which is now in its second incarnation. We are certainly hoping for more from that, because clearly anything that we can do to stimulate local economies across Scotland, potentially utilising attacks that are rated by our members as the number one concern, might be an area for further local decision making. Do you have any further thoughts on that? Obviously, in terms of the brisk scheme, we have not actually seen that implemented operationally yet. In terms of the general debate around local decision making, is there more for us to say? If you look at everything from planning, licensing, local roads, etc, local authorities are one of our members of biggest regulators and actors on their business. It is probably a debate that we should have had for the past 15 years about the place of local government in Scotland and the fact that they are incredibly important to local economic development. A number of people today have made the point about, is it true that a rising tide lifts all boats and why do some people get left behind and what is the issue there and why has that not happened over the last 40 years? We have to look closely at local economies and how they work and how they do not work in some cases. Local authorities are going to have a real role to play there. They are now in charge. They take the lead on local economic development, but they have many other calls on their budgets and time. It is the same sort of question that you can ask about what happens at a Scotland-wide level. How do you incentivise that local authority to take decisions that are in its long-term economic interest when there are so many other competing pressures? Is it an argument—in Briss, for all its challenges around that—and the legitimate questions around business rates and how they work, there has to be a way of saying that if you take sensible long-term decisions that are in the interests of local people, local jobs, local businesses and so on, then you will be rewarded for that. I am looking forward to some of the debates that we will have around Smith and the implementation of it. I think that it is section 95 of the report, but it talks about how you do that adjustment to the block grant correctly. A lot of the things that we learn from that about additionality and baselining and all the rest of it will go completely out with my sphere of expertise, such as I have one. I think that that will be very useful and we will learn a lot from that so that we can then take those lessons and use them elsewhere, particularly in the local government. I have spoken to businesses in December and January, so post-Smith reporting, the main message that I am getting from them is that decisions have been made, Smith has reported, stopped talking about what should or shouldn't be devolved and started getting on with implementing the decisions that have been taken. Is that roughly what your members are saying to you? As I said before, the politicians have come together. They have got this deal. It looks broadly sensible. The challenge now is to get on and implement it and focus on that. If you ask our members what the priorities are for the year ahead, yes, confidence is taking a dip, yes, there are worries about consumer confidence, but longer term, more of our members are talking about capital investment and making investments, etc. We are looking forward to maybe a difficult start to the year, but quite a strong 2015. I think that that bluntly is where our members' attention is at the moment. With that in mind, I am going through your submissions, the phrase balanced against administrative burdens comes up. Make sure that you do not adversely affect business in what you do. We know what Smith says, we know what is coming. In terms of the implementation of it, what are members saying to you about things that we really need to think about avoid or traps to be wary of, without getting overly technical ? Obviously, there are some obstacles there and there are challenges that we will face and we have heard some from this committee. Are there specific ones that you think ought to be highlighted that we start thinking about now? In addition to what I said before about the income tax and how we do that and extend the 2012 principles, one of the interesting points to look at is VAT and the assignation of the 10 points of VAT. It is a question that we have asked of the Treasury about whether or not it is VAT on a production or consumption. Is it the sales that I make here to people throughout the UK or is it the stuff that people here buy? Where is that sale made? What we have been assured is that they are going to have some form of estimate of exactly what the Scottish VAT takes and to intake it from there. Again, the details are how that is going to work out. I imagine we will be subject to some pretty detailed negotiations, but we have been very clear that we do not want to be filling in a second VAT return. We do not want to be playing a private detective running about the country trying to find out where customers are ordinarily resident. We saw some of the difficulties that we had with some of the EU roles that came in the first of January about if you are doing online sales and finding out where your customers are within the EU. All of those sorts of things, that is a practical example that we need to avoid. I am very pleased to say that when we made representations to the Treasury on this, they have assured us that that is absolutely not the intention that this is going to be avoided. However, as things move forward, that is the sort of thing that we are going to be keeping an eye on. If we can stick with you just for a minute, you have made your VAT point and the primary concern is about production or consumption and avoiding a second return. In regard to other tax, do you mean income tax or APD or anything else? Are there any specific ones that you think ought to be highlighted at this stage? In terms of income tax, my strong view would be to take the model that we have spent the last couple of years developing with the 2012 act and what the work that we have done under that and then extend that, particularly the user experience. That is a horrible phrase, but how it looks from the small employers, we have to enshrine and keep those principles that we are not responsible for finding out who is and who is not reading the legislation and finding out under the ordinary residence test who is or who is not a Scottish taxpayer. That has got to be done by HMRC. Again, keep that, I do not see why we would not. Ensure that the systems are collected by HMRC, we are not doing a Scottish separate tax return. Again, that is going to be done under the 2012 act. I do not see any reason why we could not. It is those sorts of things that we are looking at. One of the CBI could have just a similar question, but what are your members saying to you about that they know what is coming? Are there any specifics that they are concerned about or things that they see of obstacles that we need to think about? Certainly some of the implementation issues on VAT and income tax columns have already gone through. Other than that, on the APD side, certainly this issue of compensation for English airports or reimbursement that the Scottish Government might incur to the UK Government for switching off APD, which Smith alludes to. I think that a lot of our members would be very interested to understand just how that might work, but certainly the issues that Colin has raised on VAT and income tax are the biggies. I think that Colin has summed it up very well. Certainly we spent a long time with larger UK Government people in the week of the 2012 act looking at the implications there for income tax and how payroll software, et cetera, would handle the changes. There has been a process where a lot of payroll software has been set up back from 1999 and the Scottish variable rate is taking on the 2012 act. We just need to make sure that businesses are well prepared and well set up to deal with all of the new changes when they come in over the next few years, starting next year. Importantly, for us, we are obviously a Scottish business organisation. Most of our members are based in Scotland, but thinking as well about businesses based in other parts of the UK who will have employees who will be subject to this tax and ensuring that their awareness levels are as high as they possibly can be in this. We have had some conversations with members about that. They are based in other parts of the UK and have Scottish taxpayers on their payroll and ensuring that they are able to smoothly integrate that into their systems. John Finch-Geffrey, I thank you very much, convener. On co-operation tax, I was interested in the CBI's comments on that. On the one hand, you suggested that you might have a level playing field and things to be as simple as possible, but you also said that the UK, having the lowest headline co-operation tax in the G20, has sent a positive message abroad that the UK is open for business. How do you see that? A simple system would be one level of co-operation tax for the whole of the EU, for example, but you seem to be quite like it if there is one regime that has a lower rate than another? I think that the important thing is that we make the UK as competitive as possible and certainly having the lowest headline CT rate in the G20 helps to do that. On simplicity, it is not a feasible assertion to suggest that we should have a single rate across the whole EU. We are certainly talking about the UK and the powers that the UK Government and the Scottish Government might have, so I suggest that that is probably an issue for another day. The strong message from our members is that they value having a single tax CT regime within the UK. It is helpful from an inward investment point of view. The simplicity of having a single regime combined with having a very low headline rate is something that is very attractive. Certainly thinking about our smaller and medium-sized businesses, they were very keen not to suddenly go from a UK-only firm to an international firm overnight. If you start to implement different CT regimes within the UK, you would then be forcing those companies if they are working across borders within the UK to ultimately change their internal practices to mirror something like an international regime. They felt that that was overly bureaucratic and a huge administrative ask. I take the point that we are not concentrating on the EU, but I am interested in the logic. You put a lot of emphasis on being evidence-based, but it would seem to me that the same evidence that said that it is simpler for a company to have one rate of co-operation tax within the UK would have said that it is simpler to have it throughout the EU. Have you done research with your members on that? I think that the key thing is that we are talking about UK firms being competitive vis-à-vis other European firms as well. Having a low headline rate in the UK is something that makes UK firms very competitive and something that makes the UK very attractive for inward investment from the EU as well. A Scottish company says that they would like to be more competitive because they had a lower rate of co-operation tax. How does the CBI handle that? The CBI seeks views from across its whole membership, as I mentioned earlier, on APD. There are always going to be issues where some of our members have different views from the majority, but certainly in terms of co-operation tax, the majority of our members value having a single headline rate. Certainly, the issue in Northern Ireland has brought this to the fore, where there are certain companies in Northern Ireland, CBI members who have actively lobbied for the devolution of co-operation tax in Northern Ireland because of the specific geographical challenges they face vis-à-vis the Republic. That is something where the view on the ground, the view of some Northern Ireland businesses, has stood in contrast to perhaps UK firms as a whole. The report is headed up to CBI Scotland. Is it the view of CBI just in Scotland, or is it the view of the CBI in the UK? This was a submission that was pulled together, taking into account views from CBI Scotland, but certainly CBI UK members share that view. Are there any issues where the CBI in Scotland and the CBI in the UK disagree? I have to say hand on heart that no, there aren't. I might as well read CBI UK at the top of this paper. That is your choice, but it was pulled together, taking into account views from our CBI Scottish members. I have to say that I find that very surprising that the CBI members in Scotland never take a different view from the UK, but there we go. Never. Let me just clarify. In terms of the proposals that are on the table, in terms of what we are talking about, in terms of a Smith agenda, the views of our CBI Scotland members were aligned with that at CBI UK. On the whole question of business taxation, the Chamber of Commerce does quite a lot on business rates. I wonder if it is your feeling that the reason there has been a concentration of business rates is because the Scottish Parliament does not have control of any other business taxes, especially corporation tax. So, would it take the pressure off business rates if we had a basket of taxes, including corporation tax, to play around with? I certainly think that having additional revenue other than business rates may make it easier for the Scottish Government to be more flexible in terms of the operation of business rates in Scotland. As far as our members are concerned, I am not even sure if all of them recognise that it is a devolved tax, so I am not sure that it is just because it is the only tax in the box, as far as the Scottish Government is concerned, is why they are raising it. I do not think that at all because we have raised it in the context of the referendum debate over the past two years and asked businesses what is your number one issue in the referendum debate. Consistently, in terms of taxation, it has been business rates. Whether there is a recognition that it currently sits with the Scottish Government or otherwise, I think that it is fair to say that it is the number one issue for our members in terms of what they feed back to us. Corporation tax is further down the line. We have taken a neutral stance on it because we recognise that a number of our members are attracted by having the prospect of a lower rate of corporation tax in Scotland. Equally, though, it is a tax that does not affect all of our members by any manner of means, business rates are far more applicable to more of our members. In terms of the operation of corporation tax, we have had a number of representations along the lines that Nicolaus suggested about the bureaucracy that is involved in apportionment of profits throughout the UK, which currently does not need to happen. Therefore, there was a bureaucratic argument against the evolution of corporation tax. Would your members prefer something like corporation tax that is based on the profits that they make, rather than something like rates that is based on the property that they hold? In any holistic system of taxation, you are going to be tackling different aspects. You are going to be tackling property because it is an easily targetable tax and it is an easily collected tax. You are also going to be looking at things such as profitability. For personal taxation and business taxation, any basket of taxes will target different areas of operation and resource. The complication that we have is that, with the devolved settlement, we have clearly got property tax sitting in one place and profit tax sitting somewhere else. However, looking at what Smith has proposed, from our member's point of view, we are certainly looking at the revenue side and thinking that that may allow the Scottish Government to do more with business rates than it has been able to thus far. Clearly, looking at the prospect of reduced corporation tax on one hand and looking at the actuality of a 28 per cent increase in business rates since the last revaluation in 2010, there needs to be something of a rebalancing of business rates. Mr Bowden, is that less of an issue for you because you said that quite a lot of your members are only paying income tax, so the corporation tax would not have such a big impact? Yes, that is correct. The majority of our members are not incorporated, so therefore it is not an issue. The reason why we focus on income tax as well and things that VAT use, just as I said again, is about those taxes, which are a good yardstick for the health of the economy. While we do not set ourselves up as amateur economists, there is an argument that corporation tax take is not quite as directly tied to the health of the economy or, rather, your indigenous business base as perhaps things such as VAT and press-linkum tax. Would you, members, prefer to be taxed on the profits or the properties or to accept it both, as Mr Clark said? I think that they accept the reality of the tax system. When you are thinking about corporation tax vis-a-vis business rates, you also have to think about the mobility of that tax base. Obviously, with business rates, the tax base is not quite as mobile. When you are talking about devolution, you have to think about what you are actually seeking to achieve, what you are actually seeking to do if you are hoping to drive inward investment or not. Businesses, to be honest, will pay the tax that they are required to pay. On the specific point about business taxation in general, you are absolutely right that we need a system of business taxation that reflects how we do business now in 2015. There are issues. You would not want to exclude property from it because of the issues about mobility. At the same time, how do you make sure that it reflects one's turnover, profitability, ability to pay and all the rest of it? Should those proposals come to fruition and you have both sides of the house, if you like? You have that stable, counter-cyclical property-based tax base along with the side that is directly linked to the health of the economy. Having both of them under the one roof might make it easier to have that debate about how we move forward and reform what I think everyone has agreed is a system that might be the least worst option at the moment, but probably does not reflect the economy and the way we do business today. Mr Baker asked you before, and you commented about the whole local further devolution down the way. Would you be relaxed if there were 32 different business rates throughout Scotland if we, say, stopped planning appeals and all the planning decisions were made entirely at local level and all the licensing was decided at local level? Would that be a direction that you would be comfortable to go in? That is exactly the sort of stuff that we would be looking at in a lot of detail in the next year, 18 months. We do not have a position on those specific points, but the sort of thing that you are talking about is that you are responsible for this level of... You are involved in every economic development, so therefore you have to be taking these decisions in a way that generates the economic growth and you will see the benefits of that, or indeed you will see the detriment if you take the wrong decisions as a principle that we are attracted to, and I think that there is an awful lot that we can begin to explore there about exactly what you want to do with the obvious caveat that we do not need to see 32 different sets of rules about essentially the same thing. We have obviously the work that has been done here on better regulation and how we harmonise that. The better regulation act was a significant and unheralded piece of legislation that was passed here. With that obvious caveat, yes, I think that that is something that if we are going to look at how we regenerate these economies, no matter what we have done, whether it is chasing foreign direct investment or whatever for the last 30-40 years, has not really worked. We have spent quite a lot of time, and I do not want to spend much more on it, on the minimum wage in that area. Is it the case that you are all speaking as employers or organisations? I totally accept that, although I accept that small business may not have any employees. Do you only look at a question like that from the point of view of, can the business afford this, or do you also look at the point of view of, can the person afford to live on this wage? Particularly for small businesses, our health is intrinsically linked to the health of the local economy. At the end of the day, we have to keep the lights on or roof over our head and make sure that the numbers add up. It is interesting in the earlier discussion about wage rates and what is happening with something that we take seriously. When you look at other input costs in businesses at the moment, they are on their way down for global prices and all the rest of the issues that we know a lot about. One of the key drivers of increasing costs at the moment is in staff costs. Staff costs are increasing even if headcount necessarily is not, which suggests to us that we are doing our best to pass on savings whenever we possibly can. I would again reiterate the fact that we applaud the work of the Low Pay Commission. I think that it has been a success. It is taking politics completely out of the process. Whether or not we want something that should be devolved to Scotland or regionally or whatever is something that you can certainly argue. You mean that it is taking the politicians out of the process, do you? Rather than, for example, the Chancellor of the Exchequer or the Scottish Finance Secretary standing up and saying, I am going to bump up the minimum wage to this level, it is evidence-based. Here are some employers and here are some sectors. When you say that it is evidence-based, is it evidence-based on what people can live on or just evidence-based on what businesses can afford to pay? It is statutory duty to set the wage at the highest possible level without affecting job numbers. It does not take account of whether people could live on it or not? No. However, the obvious thing to do if you produce the cost of employment is to increase that number. If you look at the direction of travel with things such as the £2,000 employers allowance in national insurance reductions and stuff like that, that seems to be the road that we are going down. That is one that we are obviously very comfortable with because the more savings we get, the more affordable it is to employ people at the higher that number can be. Mr Clark, do you have a view on that? Are you speaking for the employers and not taking account of what the employers think? Clearly, we are a membership organisation and we speak principally on behalf of our members. There is a wider issue in terms of some of the issues that we touched upon earlier. Clearly, where you have an economy that has been driven principally by consumer demand over the past couple of years, the economic health of those consumers is important to businesses as well. Where the economy is driven by consumer demand, as I mentioned earlier, and you have real wages falling, that creates a tension that could make the economic recovery unsustainable. It is one of the reasons why I am very pleased that our recent surveys have shown that businesses are increasing investment. We have noticed that a dip in productivity and a dip in productivity have been due to businesses investing in training of their staff in many cases. That is very healthy, because that training will make staff more productive and more productive staff and will be able to generate more revenue for that business. Ultimately, we will hopefully see their wage levels increase. We have detected some pretty broadly-based increases in wages over the past quarter. That is very positive for our economy and for our society. Finally, Ms Walker, when you have used terms like affordable, like economic before this morning, do you always use those words from an employer's point of view? Certainly, to Gary, the CBI is an employer's organisation. We are a membership organisation and it is our job to represent our member's interests but, equally, they do not sit in isolation. The LOPAY commission does take an evidence-based approach. It certainly considers issues such as inflation trends and thinking about whether employees can live on the minimum wage that is suggested. Do they take that into account? They do, yes. However, from our member's perspective, it is about what employers can afford but it is about what employees can live on as well in the sense that members have been very supportive, for example, of changes over recent years to, for example, the increase in personal allowance. They have been keen to call for reductions in employee NICS contributions to ensure that employees are taking home more of that pay. They are also keen to focus, as Gary alluded to, on creating good, sustainable career paths so that people move off the minimum wage, investing in training, investing in and upskilling their workforce so that people are not likely to spend their whole working lives on the minimum wage but see a career path within those companies. I think that we have covered the various fiscal powers pretty comprehensively and you all seem broadly supportive of Smith, so I have really just got a question about what other changes you think need to take place for the successful implementation of Smith. The chambers of commerce make the interesting suggestion that the committees have got to improve their performance and perhaps he would like to comment on how that would help the implementation of Smith or perhaps he wouldn't, but I suppose that the other issue that I have in mind is the whole role of the fiscal commission and whether you think that needs to be developed as we have more fiscal powers within the Parliament. I suppose that kicking off on that one. I think that, certainly, the processes that Smith has outlined in terms of the necessary engagement that will need to take place between Scottish Government and UK Government to work out all those principles that we have considered earlier in terms of what the knock-on effect of increasing spending here or reducing spending here will have on the overall UK economy and what will flow back to the Scottish Government as a result of that. I think that that process is going to need a huge amount of co-operation and understanding between the Scottish and UK Governments, because if that doesn't take place and if the relations between the two Governments are not as effective as they might be, then it's potentially a recipe for disaster and conflict, but I think that where the two Governments are working together and are working hand in hand to ensure that we know as far as possible what the outcomes of any changes to legislation in Scotland will be, then I think that it's potentially got a lot of benefit to be had in terms of how we can make changes in Scotland that will increase the ability of our businesses to compete and increase the overall economic strength of our economy. In terms of the committee system in the Scottish Parliament, I think that it does need to step up to its game, because I think that there will be a lot more detailed scrutiny that will need to take place of any measures, because I think that the considerations will be far wider than they have been in the past 15, 16 years. I agree with what Gary says absolutely right. There's some of this that's going to be in the face of the bill, there's some that we can do on a subordinate legislation, there's awful lot of it that's going to rely on proper co-operation and communication and agreements between whether that's a memorandum or understanding or however you want to do it between hollaredd and Whitehall. Because, again, underline what Gary said, we can't have a situation where we get to every autumn statement that is a row about what the tax take might have been or might not have been and how much the block grant should be reduced etc etc. We need to know how that's done and we need to get that agreed so that we can plan what money you have to spend and how that should be spent, but also so that we have a better idea of what tax rates are going to be and any other obligations that are going to be placed on us. I absolutely agree with that. Clare view from Sievemeier members that they want to see or they want to avoid a duplication of approach and coherent policy making. I agree with everything that Gary and Colin have said. The two particular relationships that have interested our members the most is the relationship between the Scottish Fiscal Commission and the OBR, for example, in terms of on-going work on fiscal consolidation, but also between Revenue Scotland and the HMRC and just ensuring that our tax making or tax implementation powers are joined up. That's exhausted questions from the committee. Just before we conclude, do you have any further points that any of our witnesses would like to make to the committee? I would like to thank you very much for answering all our questions and from colleagues for putting those questions. I am now going to call a recess until 11.20 to allow a change over our witnesses and to give members a natural break. We convene this session and we will continue our consideration of further fiscal devolution by taking evidence from Edward Trout and Sarah Walker of our Mancies Revenue and Customs. Members of copies of a briefing note and a progress update provided by HMRC. Before we go to questions, I would like to welcome our guests to the committee and invite one of them to make a short opening statement. Thank you and good morning, convener. It's very good to be here again. Since I've been here, since I was here last, quite a lot of activity has been going on and you've got the report from us. As ever, we're very focused on delivering the provisions of the Scotland Act 2012, for which we're responsible, particularly the Scottish rate of income tax and relationships with our colleagues in Scottish Government, Revenue Scotland, remain very good and we're very happy with the progress that is being made on that. Obviously, we're concerned about that because we want a good delivery of the project itself, but also depending on what happens with the proposals in the Smith commission, we may find ourselves involved in further implementation and therefore getting this right is setting the scene and is indeed going to teach us lessons, which hopefully we will come to use in future years as and when Smith proposals become law. Thank you very much and you may have noticed that there have been a few changes to the committee since your last year. You know the drill, so I'll ask some opening questions and then, of course, we'll go round the table. The first thing that I want to talk to you about is basically thinking about your report way back in May of last year, stated that to you, we will not have a quote from our IT suppliers from the IT changes until later this year, so we have specified as close as we can the non-IT elements, but the submission doesn't actually make any reference to the quote from IT suppliers that was expected later this year, the most recent submission, just wondering where we are with that. You're referring to our IT supplier and the work that we need to do to prepare for it. I think I will probably hand over and I hope I will spend not too much of the hearing handing over to Sarah, who you've seen before, but is responsible for the practicalities of the programme, is a lot closer to the facts of this than I am, so Sarah, can you answer that one? Yes, indeed. We have been talking with our IT supplier. We have clear estimates for parts of the work that we will publish updated estimates of the overall cost in the next annual report, which we will be producing before the general election, so it will be a little bit earlier this year. The IT delivery is split between changes to our mainframe systems for PAYE and self-assessment, also changes to our digital systems, which will allow taxpayers to access the details of their tax affairs online, and also a separate element, which is about making sure that we make the right changes to the systems that we have dealing with returns from the pension schemes for relief-and-source pension contributions. It's quite a complex area of different parts of IT implementation, not all of which are part of the main IT supply arrangements. We're still confident that it's within that range of £10 million to £15 million, and we will give a new estimate in the next annual report. That was almost preempted by my next question, because the report said it would be higher than a previous £10 million estimate, although below £15 million. I was just going to ask you if you'd any indicative information on how close to £10 million it might be, as opposed to £15 million? I think that I'd prefer not to give a figure at this stage, but there will be a figure in the next annual report. It could really went from 10.1 to 14.9, then, really, potentially. Let's talk about the accuracy of the address data. In May, HMRC said that we're still working on it, and the written submission says that HMRC has continued to develop the approach to identifying Scottish taxpayers. That will be finalised over the next few months. In December, there was a press report that stated that HMRC risk register in October, which has been released on the freedom of information, has issued a red alert warning when it comes to identifying Scottish taxpayers. The HM Revenue and Customs Tables reveal that identifying taxpayers has been moved from an amber warning in January to a red alert over the summer, where it remains. Of course, we have this table, the amber and red list. As I recall, Gavin asked a number of questions on what that meant specifically, but certainly in terms of this issue, there are concerns. I'm just wondering if you can tell us where we are with that. You used the word red alert. I think that I'd slightly pushed back on the use of the word alert. We're using a well-developed and familiar risk management framework where looking at particular issues by reference to the magnitude of their potential impact on the programme and the probability of them happening, we assign them a red amber or green level, which helps us, as it does with any programme manager, to focus on resources and activities. The fact that something is green clearly doesn't mean that when we're not looking at it, it just means that it doesn't need the immediate attention of something that is red. Picking up that point about the rating for particular items being a combination of impact and probability, you could have something that was a relatively low impact on the project, but was moderately likely to happen, which could end up with amber or possibly even green. What we have here on the issue of identification of the Scottish taxpayer population is something that, if we don't do it right, if we don't get a high level of accuracy of identification, it would have a significant impact on the whole project. It's a high impact element. Actually, we don't think that the probability is particularly high, but looking at the probability and the impact together, it does take it into an overall risk measurement of 18, which is in the red zone in making it a red risk. That's the background, and I would distinguish between the rating given to individual risks within this and our view of the programme as a whole. The programme as a whole we do regard as very much on track, and we are confident that the SRIT will be delivered on schedule in April 2016. Having one or more red items within a risk register is entirely normal, and, in a sense, reassuring, because it shows that we are focusing continuously on those areas where we need to put resources. As far as the specific risk is concerned, I give evidence to the Treasury Committee of the UK Parliament on this before Christmas. We do not have the power to compel people to give us their names and to notify us of changes of address, so we cannot be completely confident that our register of names and addresses is 100 per cent accurate. We cannot be confident that our programme of communication and publicity over the course of this year will tease out all those individuals whose addresses have changed. It is those risks that are reflected in this. We have been looking at the potential use of third-party data to calibrate against our data in order to identify individuals where there is a mismatch between our record of their addresses and other data sources in order to improve the accuracy of the overall database. That, effectively, is the mitigating action for this risk. Since this risk register was prepared, we have made progress. I think that Sarah May once said a little bit about where we have got to, because it literally is in the last couple of days in progress on working on electoral registers as a third-party source of data. Do you want to say just roughly what we have got to reassure the committee? Yes, of course. We have all along recognised the need to supplement the address data that we have with external sources, if we possibly could, as Edward said. We have decided in the last few days to use the electoral register as a reference point and do a major exercise to scan our existing address database for the whole of the UK against addresses of people who appear on the electoral register in Scotland. That will give us a good estimate of the accuracy of our addresses and also give us a potential list of people who do live in Scotland but do not have a Scottish address on our system. That is going to give us an additional level of assurance. That is on top of the basic proposal, which is that we will write to all the people who we currently think are living in Scotland and we will conduct quite an extensive publicity campaign in Scotland to make sure that people realise that if they do not get a letter from us and that they do live in Scotland that they ought to be making sure that we have their up-to-date address. Okay, thank you for that now. Just sticking with this amber-green thing, just a wee second, and I've heard all that Mr Troup said on that. You know the last time you were here, you said amber-green is about as good as we can get. In effect, it says that the project is going well and I understand what you've said about focus. The forecast is that six of the 13 will still be on amber and one would have thought that forecast would be for all 13 to be on green. I think that I'd go back and make the point that the fact that there are some ambers within this, and again I think that the risk register wouldn't be doing its job if everything was on green, because in any project involving systems, people, stakeholders, communication and obviously a lot of taxpayers, there are always going to be issues. That the overall project I am confident will be delivered and this is not in any way saying it's not, but I'm trying to pick out one of the amber ones by way of example and the risk I'll pick the wrong one, but I'm just looking down the list. Let's take the second one, the first amber one on the list. There's a risk that the project team has insufficient controls to manage costs which may result in final costs exceeding budget tolerances. Now I would be very unhappy if we came back at some point and effectively had exceeded a budget tolerance and that's something which we are seeking to manage, but I think that you can see from that that is not prejudicing the project as a whole. I'm confident that we will manage that down. I'm confident that we will get there, but if we ended up with that one still at amber at the end, it wouldn't in any way say that we were not delivering on this project and getting it right. It would say that on one element of it, managing our costs within our tolerances, we had not got to where we wanted to. Now, as I said, I'm confident that we will, but I just picked that example on Paul Booker because it shows that I don't think I can sit here and say that by the time we get to March 31st all of these ambas will be green. It would be an unusual project that it will, but we are working hard to get them all as green as possible. On that forecast point, just so I can get a better understanding, what does the word forecast mean in terms of time? Is this forecast for the next monthly report or the next quarterly report? I'm assuming that it's not a forecast for April 2016, so is there a kind of timeframe? Well, each of the risks has a timeframe relevant to the particular risk so that the issue of identification effectively remains a risk down to the point in which we have identified taxpayers, but I would hope that we will manage it to green well before that. Some of them are shorter-term risks because they are ones that relate to elements of the programme, which are on a shorter timescale, or the actual risk itself, that there isn't a recruitment risk here, that we haven't recruited the right people, might be a matter of days or even weeks. In a sense, it is not a forecast over a period. It is a statement in relation to each of the risks, each of the issues that we have identified as being relevant to the programme and which we need to make sure that they are delivered accurately and well in order to get to the overall delivery of the Scottish rate. I'm going to open up the session now to colleagues on the table. The first person to ask questions will be Mark. Thank you. To stick on the issue to begin with, we have had a discussion recently about risk registers and identification of risk. You have pointed out that there is a combination of probability and impact, and often it is the impact that tends to be the higher score on our risk register. You would hope that impact is the thing that would be the higher score on the risk register. Presumably, when you are looking at the forecasts here, presumably what you are looking at is managing down probability, but impact, I would imagine, is going to remain fairly static on most of those. If something is a high impact risk now, it will remain a high impact risk, but the probability is the element that you are looking to manage. Would that be a fair assessment? That's right. I think that if you read this risk register closely against the previous one, I think that there are one or two risks that we have taken off. Effectively, we have exercised the controls that we needed to eliminate it as a risk. However, in a sense, they remain there in the background, but they are not at a sufficient level that they need any degree of active control, which is what is needed once something makes it to the risk register. However, the impact of all sorts of factors remains whatever it is, so long as the issue is there. That is not just a commentary on that, but many of the risk registers that I have seen over time have the same issue, which is that there is not that disaggregation between probability and impact. If somebody is looking at this and looking at a risk score of 18, I would assume that that is something that has a high risk of happening. It may be that the high risk is the impact if it does happen, rather than the likelihood of it happening. There may be not the information contained within that register if it is being released as it has been as an FOI response to make clear the distinction. That is entirely right. I am not sure if you were implying that you wanted a greater degree of disaggregation in what we release. I come here to be as helpful as I can to the committee. There is obviously a point that we cannot expose every day-to-day working of how the teams work and what is going on. It will get in the way of effective working. However, if there are specific issues where you feel that more information is needed, then I am happy to look at the scope for sharing those. You will appreciate that, just as a general matter, we share our high-level risks where we can and there are not sensitivities, but we do not expose all of the day-to-day details of everything that goes on in the department. I appreciate that. I would not seek to speak for the committee, but from looking at it, from the perspective of just looking at the scoring, I think that understanding where those are in terms of the probability versus impact, I think, would be very helpful, because looking at a red score at the moment, my interest would be, is that a red score because it is likely to happen, rather than it is a red score, because if it did happen, there would be a significant impact. Perhaps an explanatory note might be a means to go forward, but I will leave that. It is maybe something that the committee can discuss. I am happy to say on that specific one, and it is red, and you rightly drawn attention to it, that that is a high impact and a medium probability at the moment. Our view is that that is going to come down over the next month or two, because the work that Sarah has talked about is already giving us comfort that we are going to manage down the probability of there being a significant misalignment on our Scottish taxpayer register to a low level. I am happy to give a further note, but I am happy to tell you that. I suspect that a note would not say much more than what I have just said. Obviously, the work that is on-going just now is in relation to the 2012 legislation and the powers that will come from that. We are obviously in a situation where—and we do not know what the final legislation will look like. I think that we are going to get the draft clauses. They are going to be published this week, so that will start to— That is yesterday to the slack committee. It will be tomorrow. Yes. There will be some indication of what is likely to come. Given the timescale that has been involved in the implementation of the 2012 legislation, what do you see going forward when the further taxation powers—whatever those powers are—come forward? Do you think that it is going to be roughly similar timescale that we are going to be looking at, or does that give you a much stronger platform to build on to implement those, and they could potentially be done within a much shorter timescale? I am obviously not going to speculate too much about what is going to happen legislatively. There is a degree of hypothetical question in that, which is what would happen, what would we do if the Smith provisions were legislated and broadly the form agreed. Clearly, what we have done on the Scottish rate is going to be a firm platform for the further Smith proposals on income tax, because, as we have just been discussing, as you have seen, a large part of that is setting up the identification of Scottish taxpayers and setting up our system so that they recognise Scottish taxpayers and setting up the payroll capability to allow for a differential rate for Scottish taxpayers and English taxpayers. The implementation of changes within Smith that make further changes to rates and bans will definitely be easier and hence more able to be introduced more quickly than the careful lead in time that we have had with these provisions. I would not want to say how quickly, as always, the constraining factors tend to be around systems. The self-assessment returns, and I know that that sounds slightly mad, but the fact is that we have more or less finalised the self-assessment returns for the year 15-16 with the IT supplies, which implies that SA changes take 15 months or more to bring in and that in itself is a constraint on change. That is not to say that some changes cannot be introduced more quickly and it is not to say that there cannot be some messy ways of working around our constraints. I think that, in a sense, by the time we get to the point of legislating Smith, we will have a clearer sense of what other actions are required. The Chancellor made it clear yesterday that sorting out the fiscal position and the block grant adjustment would be a major factor. I hope that HMRC systems constraints and our requirements will not get in the way of the delivery to the political timetable, but I agree with the proposition that it will be easier to do. It will be able to do this more quickly than we have with these provisions. You spoke about where the systems are being placed and where I was going to go with my final question. Are you confident enough that the systems that you are implementing now, both in terms of the IT and how you monitor and ensure the accuracy of the data that you have, will be in a position to adapt to any new taxation framework that is put in place as a result of Smith? I realise that it is asking you to pin a tail on a donkey, because we do not know where we are going to be in terms of exactly what the legislation says, but are you confident that there is flexibility there? If you are having this expenditure on new IT systems and other things like that, are we in a position where that is going to be adaptable, or are we in a position where, in a couple of years' time, you will be unplugging it all and putting something new in? I hope not. It is not for me to ask questions, but I would ask you and your political colleagues in Westminster, are you confident that the provisions are going to be implemented as they are in the legislation? There is always the uncertainty of what happens when legislators get to grips with the details of legislation. In terms of what is in Smith, particularly in relation to income tax, in the bounds of what might reasonably be done with that in terms of changing rates within the basic and higher rate, not creating 25 different tax bans, I think that I would be confident that our systems will cope, could and can cope with that, and we can implement without having to, as you say, tear up or unplug all of our existing systems and starting again. Thank you. John, to be followed by Malcolm. Thanks, convener. The tables that we have are taken from your overall risk register. Am I right in saying that not all the risks are on these tables? No, as when we disclosed the previous version, we did make some small amount of redactions in relation to risks that relate to commercial and third-party arrangements within the terms of the FOI exclusions, which allow us to do so where disclosure of the risks would prejudice our ability to deal with those third parties. I would rather not go into details of that, but I reassure the committee that, first of all, I would repeat what I said before, that I am quite confident that overall this project will be delivered. Without going into the small number of risks that have been redacted, I do not think that you would find anything there that would cause you concern. In picking up Mr McDonald's point, my recollection is that those risks are ones that are not high-impact risks, but are ones where we are concerned about probability at the moment. Is that right? Perhaps I should hold on that and put a slight caveat over whether I have got that right in the record. Can you tell us anything about the system? Is there a committee within HMRC that looks at the full risk register? As you know, there is an extensive governance process over the whole implementation of that. We have our internal programme board, which Sarah Smith sits on, for us with representatives of the Treasury. We also have a board above that with representatives of Revenue Scotland, the Treasury and ourselves, and above that, the Ministerial Committee. Within that structure, the risk registers are looked at and our internal boards with the Treasury go through the risk registers in detail and would flag up to the board working with Revenue Scotland any material issues that are going to get in the way of implementation. I am not sure whether that is entirely your area, but correct me if I am a string of limits. The whole timing of tax coming in—obviously, traditional stamp duty land tax—does not all come in in the year of the tax. It comes in presumably gradually over the months that follow, as with all taxes. Is that something that you are involved in or measuring? I think that I may be able to help you. I am not quite sure what the question is. Stamp duty land tax is a more real-time tax than, for instance, self-assessment. I have strayed myself and got myself confused here. I am meaning that it is still with income tax specifically. It comes in gradually over time. Is that something that you measure as to how much comes in a particular year or how much comes in another year? We have our colleagues in the knowledge, analysis and intelligence directorate at CAI, who effectively monitor flows. Obviously, we monitor revenue flows for a whole variety of reasons. First and foremost, we monitor them because our colleagues in Hermosity's Treasury are quite keen to know how much cash comes in. We report monthly—in fact, December's figures are going to be published tomorrow—but we monitor that for our own internal purposes, for management purposes, because a lot of our activity is devoted to compliance work. That is to say to achieving tax payments that would not have taken place without our intervention. Understanding what taxes are coming in through our compliance intervention work is very important to measuring our own performance. Obviously, we measure it because it gives us useful data about what is going on with the economy and what is going on with the tax system and gives us broader management information. Yes, we do measure that. We forecast it. The published forecasts are signed off by the Office of Budget Responsibility, but most of the legwork on forecasting and analysis is done internally within HMRC. You said that you could not compel taxpayers to tell you of the change of address. Is that the only issue? Do you know the addresses of everyone who pays tax, but you do not know when they change that address? Or do you not actually know the address of everyone who pays tax? Let Sarah speak to the details. I certainly would not say that we know everybody's name and address. There are people, obviously, who deliberately choose to be outside the tax system. There are people who, for whatever reason, have just failed to update their information, and there are people who change addresses for reasons that have nothing to do with tax and do not want anybody to know—either some marital dispute, creditors or whatever. At any point in time, we absolutely are not at the position that we are 100 per cent sure that we have everybody's names and addresses accurately. We are not 100 per cent sure that we know who everybody is. There are what we refer to as ghosts within the hidden economy individuals who effectively just stay off the radar. There are people who we do know about whose affairs are chaotic either accidentally or deliberately. That is just the inevitability of dealing with tens of millions of individuals. Sarah May wants to say something about what we do know and how we verify it. We have an address with a proper postcode for, I think, over 98 per cent of taxpayers. What we do not know is whether that is an up-to-date address. Those are the addresses that we use for correspondence. If we need to send somebody a tax code notice or something like that, we have an address that we send that to. There will be examples, for instance, where people have left home but still have things sent to their parents address and they go and pick it up whenever they go home. There will be all sorts of perfectly good reasons why they have not bothered to give us their current address because they can still get post from us. This will be the first time when your tax status has actually depended on where you live. It makes it more important for us to be clear that the person is actually living at the address that we have on our system. We will need to know the date when they move because Scottish taxpayer status depends on where you have lived for the majority of the year. The date within the year when you change address will often be relevant to Scottish taxpayer status. That is helpful. The second thing that I really wanted to ask was about the prediction of income tax receipts. My understanding is that you have quite an important role in relation to that with the OBR. Could you say something about that? Yes. As I said, our knowledge analysis and intelligence unit do the work. They collect the data and have access to all HMRC data. From that, they will both measure what is happening and will make forecasts of what is going to happen. Since 2010, when the Office of Budget Responsibility was created, the formal forecasts of revenues and public finances and the economy have moved from the Treasury to the OBR. At the two forecasts of the year, one in the autumn statement and one at the budget, the OBR will engage very closely with our colleagues in order to put together, in fact, our OBR forecasts that are based in terms of the underlying data, almost entirely on material that we provide to them. The OBR has been praised for its independence in the sense that the process from our perspective feels very much the same as when it was the Treasury who was doing the forecasting when we would have the same conversation with colleagues in the Treasury before those events and the Treasury would then forecast. In both cases, then and now, it is we, HMRC, who provide the underlying data and the first cut of the forecasts for discussion. Would there be a problem with your point of view if you were doing that work with the Scottish Body of the Physical Commission developing its role in relation to income tax? I mean, we currently do forecast the shares of revenue, the various revenues for Scotland and we have in the last year published a breakdown of both pass receipts and forecasts on a basis for all four devolved administrations and areas of the UK. I'm not quite sure what your question is in terms of would we be prepared to discuss forecasts with the Scottish Fiscal Commission, which I think the answer would be yes. Would we be willing to do forecasts for the Scottish Fiscal Commission? It's a slightly different question, which I wouldn't want to say no, but I don't think we would have any obligation to provide forecasts for them at the moment. You already do forecasts for the different parts of the United Kingdom. Is that what you said? Yes, we do. Is that something that comes out via the OBR, or do you do those on? The OBR forecasts Scottish devolved taxes based on our work. And just to follow on from Markham's question, do you also do forecasting for stamp duty land tax? Yes, absolutely. I mean, we forecast all revenues. Okay, thank you very much for that. That appears to have concluded the questions from members of the committee. Is there any follow-up point that you want to meet before we wait on that? No, I don't think so. I'm very glad to be here and to be able to report positively. I understand the concerns about the risk register, and I do want to reassure the committee not just that I'm happy to sort of talk to you about these points, but that we do have a good dialogue with Revenue Scotland on an on-going basis about the progress so that the implementation, both this year of the two taxes and next year, obviously the introduction of SRIT, will be as smooth as possible for the taxpayers, because it's keeping the taxpayers happy, which actually makes sure that the tax keeps flowing, and we're very focused on that. Okay, well thank you very much for your evidence today. Thank you to colleagues for their questions. We agreed earlier on to take the next items in private. I therefore would like to close the public part of the meeting and have a two-minute recess where we allow the Fisher report on public and witnesses to leave.