 Ita Husiwch. Welcome to the 23rd meeting in 2018 of the Financial and Constitution Committee. The first item on our agenda is to warmly welcome Tom Arthur to the committee and invite Tom to declare any relevant interests. Thank you, convener, and good morning. It's a pleasure to be joining this committee. I can confirm that I have no relevant interest to declare, and I would like us to take gyda i gilyddwch i ddysgu 40 oedoligio i gyd. The next item on our agenda is to decide whether to take item 5 in private today and consideration of a draft report on the UK trade bill LCM in private at future meeting. Are members agreed? Yes. Members are agreed. Our next piece of business is to report back from the committee's fact finding Brunswys last week, ond we explored how common frameworks will operate in other countries and how it relates to trade negotiations in particular. We will shortly publish a note from the clerks summarising our discussions, whether that was with the NGOs or with the organisations that we met or the representatives of Germany, Switzerland, Norway and Canada. will also be published. For the moment, I would like to give my own quick feedback on the visit to Brussels. I thought that it was very successful, but I think that it is highly educational for me and the other members to reflect on their own findings. First of all, as I said, I thank you for those who commented yesterday in the chamber as part of the Government's debate on future trade negotiations on some of the reflections already. I do not want to repeat some of that, but I suppose that some of it will be necessary. I think that the key thing that came from through for me in terms of a common theme across all the countries was the whole issue of the early engagement process that they are involved in, but it is not only early and deep engagement between the state and the sub-state. It is also the involvement of their parliaments, stakeholders, NGOs, etc., in the way they went about their business, I thought, internally in their own countries, so it is something that we could learn from. It was not just engagement at the beginning, it was a continual engagement on the process on the way through, helping to build a level of trust and understanding of the various positions taken from the sub-states. At the end of the day, I think that provided a framework that ensured that there was more co-ownership of the final position taken by the state, more collective understanding of why they reached that position and therefore got to agreement and therefore strengthened their own position and negotiations because they knew everybody would be buying them and the rest of their country was well in tune with what the front position of the nation-state was in those circumstances. It was also clear that clear formal structures were very helpful in making sure that the process of discussion did actually happen. Obviously, there would be lots of other quite or non-formal discussions on going as well, but there was a formal process that helped and everyone understood clearly the remit and role of the various bodies. For some of my own reflection from that, I think that we have tended in Scotland because of where we have come from. Our default position has been how can we improve the dispute mechanisms rather than being about how can we ensure that we can come to consensus and agreement in front loading the process to get to that end. I thought that that was quite a useful learning position for me. It is certainly clear to me that that in-depth process from the beginning meant that there was less use of dispute mechanisms, less use of costly court proceedings, because that general agreement had been reached in something that Willie reflected yesterday in the chamber that the Swiss were quite surprised when they talked about disputes because of the way in nature that they involved their cantons in the discussion. I think that that was very useful. What do we need to learn from that? I think that it is pretty obvious that the need for that meaningful engagement of devolved institutions, civic society, NGOs and other organisations in the development of the common frameworks and how we go about it is part of our job as a committee. It has got some relationship, not just common frameworks, related to how trade arrangements will work in the future. That early and on-going discussion process to find a better agreement led to less disputes. It was an important lesson for us while there are two structures, but I think that the biggest and most important one is how we build that trust and confidence for the future, certainly the things that I learned from that visit. I think that I was very struck by the early and on-going investment in negotiation and discussions on how that led to outcomes that were better for the nation state as a whole if you want to put it that way. I was also struck that each country and every case study that we looked at while they all had different histories, different structures, different cultures. We cannot necessarily do some sort of easy shift and lift. We cannot cherry-pick, but there are opportunities to look at those experiences further and adapt them to our own. It gave some cause for hope that, if other countries are able to get better at that local, regional and national dialogue and seek agreement early, surely we can find new ways to work together with our various partners, particularly in relation to trade. One thing that struck me was that it was difficult to find any direct parallels to the common frameworks that we were talking about in the UK. That is not to say that there was not a lot that we could learn from the people that we met, but other countries do not have that exact arrangement that we are likely to enter. I think that the point that Angus just made and you made yourself about upfront discussions being more important than complex dispute resolution is a very fair one. The other issue that came up with the discussions that we had with the EFTA surveillance agency is whether there is a need for a watchdog over the common frameworks to ensure that the rights of citizens and entities such as businesses are properly safeguarded and that is something that we need to consider further. Given that I was only able to take part in day 1 of the visit, I will be interested in speaking more to colleagues about what you gathered on day 2. In relation to the point that Murdo Fraser raised, the need for some degree of monitoring and accountability arrangements is one of the things that may test the asymmetric nature of devolved or decentralised power in the UK to what level of government or to which levels of government would such structures be accountable or to which would they report. I think that the very clear description that you gave of the open participative communicative process that works well elsewhere, I think that the most stark thing is quite how far we seem to be from that. If that is what we are looking to get to, we are not starting as we mean to go on. What we have at the moment is a pretty behind closed doors discussion between two Governments, which is not taking place in that open participative spirit. I think that perhaps both Governments need to be challenged more strongly on that in the immediate time before we start implementing common frameworks. James? That is right, James, in here, Willie. I was reflecting on some of that, but the number why I was over there was to tackle the issues of dispute resolution and to explore how we can get some agreement and consensus, because clearly the issues around the common frameworks are difficult and challenging. As others have said across a range of examples, Germany, Switzerland and Canada, we saw that if there were clear rules and mechanisms in place and there were on-going discussions then they were able to, in many cases, get that agreement without going to court. I suppose that is a challenge, Patrick Shrieff. We are not at that kind of stage just now, but what the visit has shown is, as Angiol has said, that there are ways of doing it and there is a way forward. I think that the challenge is to try and move on to one of those models. He is a changing culture, essentially, from all the parties involved. Just by the nature of politics, I suppose, we have all been too confrontational about it. It was interesting hearing some of the participants in the sessions. They very much came—even when they disagreed—from an approach of, we have got to get an agreement at the end of the day. Willie, and then Neil. Thanks, Bruce. Even the colleagues are saying that I really agree with them. I was genuinely surprised at how co-operative our colleagues in the European countries, particularly in Germany and in Switzerland, were about those kinds of matters. We have put an awful lot of effort into the upfront and advanced engagement and so on and so forth, whether at government level or even civic society level. If we are taking this forward, I hope that we can reach out on behalf perhaps of Wales and Northern Ireland to the UK Government to say, would you agree to engage with us on those kinds of issues to see if we can make genuine improvements and progress in that area? I think that we will all genuinely win at the end of that process. I agree with your summary, convener. I made a contribution in the debate yesterday, which touched on a number of those issues. I would agree particularly with Patrick Harvie's point about the transparency of intergovernmental relations. I repeat that. James's point about formal structures, new ways of working, but that needs to be underpinned by a spirit of co-operation and goodwill from all involved. I think that that would go a very long way to resolve a lot of the issues that we face. I echo everybody's comments. I would like to thank the committee clerks for their diligence in organising the meetings event. The whole trip was seamless. I note that the meetings, the organisations, the NGOs that were there, it was apparent to me that everybody had a continual professional engagement and a willingness to listen and try and support the ass that we had with common frameworks when that's the language that they aren't often using. There was one particular point that when we met the director general of the agricultural division, when she mentioned that the revision or the evolution of the common agricultural policy that we will be exiting was to focus on a more nationalistic or independent country approach because the recognition was that each country might have a different need when it comes to applying certain principles of the CAP or the agricultural approach. That, I found, was quite interesting when we visited the EU commission for agriculture. Thank you, colleagues, for that feedback. The notes that have been provided by the clerks will eventually become a public document. Listen, where we've ahead of schedule, I know that not all witnesses are here at this stage, would the committee agree with me that in that case we should just take item 5 now in private and then we can get that business discharged and we'll come back to the round table discussion. We're agreed to take item 5 in private now. Hello again, colleagues. Our next piece of business today is to take evidence in a round table format. This is the first year of the new budget process, which emphasises the year-round approach that we're now taking to budgeting, as far as the Scottish Parliament and its committees are concerned. Today's round table to kick this process off will be the second of five evidence-taking sessions that we'll hold on the draft budget for 2019-20. Today, we'll be taking evidence in that discussion from a number of people. First of all, let me say that Peter Rickey, who is the director of investment for the Scottish Future Trust, gives his apologies. He's another event that other things have come up in his diary. He's had to attend. It's a shame that Peter can't be here. I enjoyed his contributions at other events that have been at. However, we've still got some good folk around about us. We've got Carlin Gardner, who's Auditor General for Scotland, Helen Martin, the Assistant General Secretary of the STUC, Mary Tunby, the Assistant Director of Policy C by Scotland, Jim Cuthbert, an independent researcher, Jenny Stewart, partner of the Head of Infrastructure and Cuthbert at KPMG, and Elaine Lorimer, last but not least, as the chief executive of Revenue Scotland. I warmly welcome all of our witnesses to the table this morning and this round-table discussion. Please feel free to contribute at any stage, because it's genuinely a free-flowing discussion. Members have had a couple of briefing papers from some of the members around the table and some excellent material that is provided by our SPICE colleagues and our adviser, David Essler, to help us to understand the context of why we're having that discussion today. I'm going to ask a different member of the Scottish Parliament to lead off discussions in three separate areas, operation of the fiscal framework, relative economic growth and structure of the Scottish economy and demographic change, and then, after that, MSPs and other contributors, please feel free to chip in. I kicked that process off this morning on the operation of the fiscal framework. Thanks very much, convener, and good morning to everybody. One of the principles that was agreed in the fiscal framework was to review its effectiveness around about 2021. Do you think that in that review, bearing in mind the kind of variances that we've seen in forecasting from both the OBR and the SFC, we need to look a wee bit closer in that review of the impact of forecast error that it could have in the Scottish budget and what kind of ideas could you suggest or offer that might assist that process to smooth out the potential impact that risk might have in the overall budget? It's a good starter for Ten, because we've obviously, David Essler, on page 9 of his report, which he's provided and everyone's got a copy of, described quite well, I think, some of those challenges around the different mechanisms, processes, approaches used by the Scottish Fiscal Commission and the OBR and the potential for variant. Forecasts from that and obviously the potential impact that that has on the Scottish budget without either Government making any change to policy. I wouldn't like to kick that off that discussion. Jim? I gave a paper, which has been circulated. Thank you for that, which is very much on this topic. I think that I'd like to say something. I think that the point that I was making in my paper was that the way the fiscal framework has been set up, and we've clearly set up under political constraints and under considerable time constraints, in a sense maximises the forecast error around this important thing of the effect of the fiscal settlement. That should really be looked at at two levels. One level is within the existing fiscal framework. I think that there's a number of things that should be done. There should be a mechanism that throws up potential anomalies, and I took one particular set of figures, which will now be outdated, and showed how, within that set of figures, there's quite a strong potential anomaly, which is that the SSC is forecasting per capita NSND receipts in Scotland to grow at a faster rate than the corresponding receipts in the forecast by OBR and the rest of the UK, even though the forecast of GDP per capita GDP in Scotland is growing at a slower rate and also average earnings going at a slower rate in Scotland than the rest of the UK. There's a strong potential anomaly there, which isn't explained just by the Scottish Government's policy changes on tax. I don't know whether that anomaly indicates something worrisome or not, but the important point is that it needs to be understood before the Scottish Government can take a view as to whether the potential benefit is getting a £500 million per annum from the operation of the fiscal settlement tax changes is likely to be real or not. So there needs to be, to my mind, a mechanism that identifies anomalies like that and then digs into the figures and says that this is occurring because of the following factors and maybe even takes a view that says that this looks reasonable or not, as the case may be. So that's one thing that needs to be done. I don't know what that mechanism would be. I don't know whether it's up to the SSC and the OBR to get together and do that sort of work. I don't know if it's up to the Scottish Government or I don't know if it's up to academics like the Fraser Ballantyr to do it, but there should be somebody in my view who is detailed to do that kind of work. Secondly, we are dealing with an entity, the effect of fiscal settlement, which is the difference of two large forecast numbers. What one needs to do in that circumstance is to maximise the correlation between the different forecasts. It was interesting that, when the committee asked the SSC precisely the right question as to why a similar anomaly is occurring in previous figures, SSC came back with to my mind completely the wrong answer. They said that part of it is due to tax changes, but the rest of it is due to differences in economic factors and modelling, et cetera. It's precisely those things that we should be worried about and seeking to remove from the system by maximising the common ground between OBR and SSC. So OBR and SSC should be working together to see to what extent they can take common ground of factors like that and to identify the areas that they can take common ground on why. That would contribute again to the understanding of anomalies. You need a mechanism that does those two things. You also need a mechanism that removes commonality. What I mean by that is a bit complicated, but it may be that the change in forecast NSND receipts in Scotland by the SSC depends, let's say, on their assumption about UK GDP. It may be that the OBR's assumption, which leads to the BGA forecast, the change in BBGA, depends upon forecast UK GDP, but it may be that the difference between the two does not depend on, is not sensitive to UK GDP. In which case, they should be using the same assumption of UK GDP in making their forecast and remove from the forecast error the difference between the OBR and SSC assumption on UK GDP. I was only giving that as a potential example, but commonalities need to be identified by someone in the modelling process and steps taken to take them out. You need a mechanism that should be able to do all those three things. In the longer term, when we come to review the fiscal settlement, we need to think very hard of issues like this. In the run-up to the determination of the current fiscal settlement, insofar as I had an input that was limited, I was arguing that the system that we were setting up did not make sense and I was arguing for a different one where, in fact, the block grant adjustment was increased by a constant percentage each year, subject to some review. I think that a mechanism like that could well reduce the possible forecast error. It might not, if it all depends on the correlation that, again, that might need to be looked at, but we need to be taking in this sort of effect when we are redesigning the whole fiscal settlement in the forthcoming review. In response to your question, Willie Coffey, on the one hand, it is too soon to say that we know what is happening with the devolved taxes, but they are very small in the overall impact on the Scottish Government's budget. We have only now got control over income tax and we will not start making adjustments until 2020-21. We will not know the out turn until 12 months from now. At the same time, I think that we are all getting a much better sense of how complex this really is. I agree with lots of the things Jim is saying about the not just the importance of the forecast but our understanding of the interaction between them and what happens if they are diverging those moving in the same direction that has very different effects on the smoothness of our budget over time. However, we are also getting a stronger sense about where the risk lies in terms of economic performance, of policy risk and of the budget management risk that the Government needs to do. Within Audit Scotland, the really important thing is how complex that is, how complex the interactions are and getting a feel for how much the variations that might come out of the other end of that can be managed within the provisions of the fiscal framework. We have had a look at what the implications would be if the latest out turn forecasts for income tax are correct from both the Fiscal Commission and the OBR. It looks as though the fiscal framework provisions would be enough for that, but if that difference continues over two or three or four years, you start to run up against the limits of the fiscal framework very quickly. We know that there are long-term commitments in the budget for the first time around things like capital borrowing that needs to be played into that. There is nowhere a clear picture of what that looks like in financial reporting terms that would let this committee and the Parliament more widely understand it. The forecasting approach is important, but my view is that we are really just getting a sense of how important all of these elements are and how they interact with each other. Just ask you to build on that, Carline. Obviously, the risk area here in terms of drawdown or using the reserve money, if we cannot get some correlation between or closer correlation between the OBR and the Scottish Fiscal Commission, what do you think needs to happen to the mechanism that enables that turbulent process to be dealt with in the cash reserves? Within the fiscal framework, as it currently stands, as you say, we have the Scotland reserve, we have the revenue borrowing powers, which are quite limited even in the event of a Scotland-specific shop that is only, I think, £600 million a year, and we have the option perhaps the requirement of reducing spending, which is not palatable to be done in that sort of emergency way as opposed to a planned redistribution of what you're spending and investing on. At the moment, as I say, I think it's genuinely too soon to get a sense of how quickly we might come up against the limits of that because we don't know what the outcome will be on the biggest tax that's been devolved so far on income tax won't until this time next year. We're not close to having devolved VAT, which will be the second biggest element, but it does feel as though you can do some scenarios which show you're coming up against that relatively quickly over three or four years, no further than that ahead. So, I think, as one of the elements of the fiscal framework that it's worth marking to review, as well as the forecast approach, there is whether those limits and flexibilities within the fiscal framework are sufficient for the taxes that have been devolved and the likely variation in them. So, obviously, forecast error, we all know that the forecast will be wrong. We all recognise that it's never going to be exactly the same number, so it's really about the span of that difference. The medium-term financial strategy, which is great that we've now got one, gives some sort of sense of the scale of how that might impact overall. One of the things that I wanted to stress was that the medium-term financial strategy assumes that the fiscal framework will be pretty much the same post 2021. That suggests that, if you're looking at the numbers for 2022-23, that's potentially quite a big assumption that you're exploring in your evidence. One of the points that I wanted to pick up in terms of the sensitivities in an area that you'd want to look at is that you've had evidence from the Scottish Fiscal Commission, but their latest outturn report in September showed quite clearly the differences that forecasting different groups of taxpayers make. The fact that there was a £500 million difference because there were 2,000 fewer top-rate tax payers and some additional, it's far fewer, 45p tax payers. That shows the real sensitivity around not just the overall forecast, but how the forecasts are divided at particularly on income across the different bands. By moving to a more banded structure, then, as you move forward to 2021 and the new bands come in, then forecast error in inverted commas, or the difference of forecasts for bands, will also need to be looked at quite carefully, as Caroline says, it's early days in terms of numbers, but that would be an area that I would think you would want to look at because the numbers are quite stark. The other obviously key variable is the overall growth in the economy, and there's a much wider debate on that, which I think will come up into your second topic. I just want to pick up on Jenny Stewart's point where she was talking about new tax bands, different proportionary citizens and different tax bands and that in the context of whether or not there's flexibility in the fiscal framework. I'm aware that the Welsh experience is different. There are block grant adjustments calculated in accordance with each band of income tax. I just wondered what would be the pros and cons of that approach and whether or not that would work in a Scottish context. My immediate reaction to that is that, by looking at the Welsh system, you then open up the whole debate of the Barnett formula. From a Welsh perspective, they have long argued that there should be a needs-based system rather than the Barnett formula. By starting, you start to open up that debate. On the different tax bandings, I think that the critical point will be about getting the data from HMRC and really, as we build up more knowledge over time, understanding the drivers for where people are sitting in different tax bands because it will make quite a difference overall. You can see from the numbers how sensitive that is and by adding in the different tax bands. You'll get a sense of that going forward. Can you outline in your view what the drivers are in terms of where people are sitting in the tax bands? That's obviously a wider debate around the economy. Clearly, you've got what's happening overall on wages overall and how many are sitting outside the tax system because the bands don't kick in until quite late. What's happening overall on wages versus inflation? The drivers around—again, we're probably coming on to the second area around productivity because if we can improve productivity, that should drive up wages, which should then drive up the number of people in the higher tax bands. Therefore, the drivers are much more the overall economic drivers. Can I ask Elaine, on the basis of some of the information that HMRC might have, are there any lessons that we can yet learn from the outturned figures for the fully devolved taxes for 2017-18 in relation to the forecast, particularly with regard to the robustness of the data? Are there any lessons in there for us yet that you could draw out for us? Obviously, Revenue Scotland's role in this debate is about the data and the quality of the data because SSC and OBR are both dependent on the data that we provide for our fully devolved taxes. What I would say from our perspective, the wholly devolved taxes are, of course, as Carline has said, small taxes in the wider scheme of things. They are wholly devolved to Scotland. Therefore, the way in which they have been set up, the way in which our systems and processes have been set up, are all set up around timeliness of data, transparency of data. When we set up our processes internally within Revenue Scotland, we are thinking all the time about what the data requirement that Government and SSC are going to have as we receive tax returns and manage tax returns. For us, in terms of timeliness, you might say that it is easier for us to produce more timely data because our taxes are small and because our systems and processes have been set up deliberately to produce information in a timely way. A lot of our systems are automated and we have lots of quality checks through our data. We are able to publish our LBT data on a monthly basis and our SLFT data on a quarterly basis, so the SSC and OBR are both getting information and Government are getting information, which is robust and timely. Whether that can be extrapolated out to the information that the HMRC provides, that is a question for them rather than me. What I would say is that the taxes that they are, of course, managing are more complex. There is a lag in terms of income tax, as Carline has pointed out, in terms of the data coming through. That is because of the way in which income tax operates and the timeliness of returns for people in relation to their income tax. You are not necessarily comparing like with like, but there is definitely something about when taxes are being created, thinking very thoughtfully about what is the information that is going to be needed here to enable accurate forecasting and also monitoring the performance of the tax, because also what the stats provide is a over time really good trend analysis, really good insight into how the tax is actually performing. I just wonder why you are on that lag issue between the income tax forecasts and the reconciliation and recognising the scale of the challenge of getting the information out quickly. Do you think that there is any scope in there at all for that lag time to be reduced? Because if we are waiting that length of time, then we could end up with a big surprise in both ways. Again, I think that that really is a question for the HMRC. I do not know enough about their systems and their processes or indeed the tax itself. Jim and then James. And Constitution Committee protocol here, but on the question of Wales, I really would like to hear from David Iser, because he will know more than any hear about that. David, what are your thoughts about the Welsh adjustment process? Yes, David can chip in. It is a free-flown discussion. David, on you go. Thanks very much, Jim. Interestingly, I am going to Cardiff tomorrow to talk to the Wales Finance Committee about the learning from the Scottish experience and the implications for scrutiny of income tax revenues, which, of course, will become operational in Wales next year, 2019-20. Again, I think that it goes back to the point that it is really too early to say how important it will be for Wales and how important it might be for Scotland to have a block grant adjustment for each of the different bands of income tax. Whether that becomes an important factor in influencing the size of the Scottish budget will really depend on where the growth in income tax revenues in future years comes and how tax policy at UK level and Scottish level changes. It is not a given that this will disadvantage Scotland by having one block grant adjustment for the whole of income tax, but it is a possibility that that could be the case. How would such a system operate, given the Scottish ability to change tax bans? That is an issue, because the block grant adjustment is a calculation based on this counterfactual of what would have been raised in Scotland had income tax not been devolved in the first place. I do not think that having a different tax system in Scotland is an issue, but what is an issue is whether the distribution of income tax payers in Scotland relative to our UK is such that the way that the block grant adjustment is calculated implies that Scottish revenues would have grown more quickly than they would have done given the distribution of tax payers. I ask Caroline just on the issue of speeding up the reconciliation process. Do you have any ideas on alternative data sets that might be available to feed into the reconciliation process, to improve it and potentially speed it up? I am not sure that there is much I can add to what Elaine said. The problem is that we do it well already for the devolved taxes and their swalls. The total impact on the budget is not significant. For income tax, I think that for people who process all of their income through payers you earn, there probably is room to speed it up. I know less about HMRC than Elaine does, but it seems to me that we know that the way employers are having to submit real-time data should be possible to bring through more quickly than it currently does. Most of the income tax collected from higher rate and additional rate tax payers is not known and often is not paid until well after the end of the fiscal year. It is that which is the most variable bit in relative terms for Scotland anyway. We know that one of the reasons, or we suspect that one of the reasons why the figures that we have just had for the first time on Scottish taxpayers is lower than was expected from the survey of personal incomes is because we have fewer of those people than we thought based on a statistical calculation. There is a suspicion also that the state of the oil and gas industry in the north-east is playing into that, bringing down the relative numbers. I think that it is hard to see how we can bring that through significantly earlier in ways that would let us bring it right to the front end of the process so that you have got more certain numbers going into the budget rather than reconciling two, two and a half, three years afterwards as we currently have to. I think that it is well worth exploring that. It might be one of the things that Parliament wants to do, Government wants to do as part of reviewing the fiscal framework, but my sense is that there is not much that we can do about the areas where it would be most important, where there is most variability and most impact on the budget. That is before we get to VAT and all the uncertainties that there are about that, with the data not being available and no agreed methodology yet for allocating it. Do any other members want to talk about the fiscal framework issues at this stage? Can I ask a general question in that case, just to give some help to the committee and where in the direction we go? In terms of that issue that we started with, the OBR and the Scottish Fiscal Commission producing different forecasts, is there a general agreement that we need to ensure that there is a greater discussion between both of these bodies, at least a greater understanding of each other's methodology and perhaps more co-ordination, so that we have avoided some of the surprising forecast differences? Is everybody in general agreement with that? If you are not, tell me so that we can. But if it is a general agreement, that is something that we need to do. I am not seeing somebody saying no. I would be surprised if there was not general agreement about it. I think that it is important that that does not compromise the independence of either body, given their accountabilities to their parliaments. I also picked up the focus in the committee's deliberations recently about the fiscal commission's access to some UK data, like DWP data. It seems to me that that is another part of the same mix that is well worth getting resolved sooner rather than later. We are going to leave that to our social equipment, whatever the committee's name is, and its remit, rather than the finance committee. It is a good point to raise, because it was something that surprised us when it came up in evidence. With that, Murdoch, I will move on to the area of relevant economic growth and structure of the Scottish economy. Thank you, convener. Jenny, in the previous session, I strayed into the territory a little bit, but I wanted to frame the discussion around the impact of the fiscal framework. We know that the relative growth of the UK economy or, more specifically, the relative growth of Scottish tax take relative to UK tax take will impact on the amount of money that is available to the Scottish budget, which we are going to be scrutinising in some weeks or months' time. I am interested in getting some views on what impact this is likely to have on the budget, given what we know about movements between Scottish growth and UK growth. Without getting into a discussion around the constitutional arrangements, in terms of the levers that are available to the Scottish Government that might influence the rate of economic or wage growth in Scotland, how the Scottish Government might use those to try to ensure that we are maximising the benefit to the Scottish budget and, therefore, the Scottish public finances. Thank you very much, convener. I thought that, as a representative of the business community in Scotland, it is obviously clear that, with the fiscal framework being what it is today, growing the economy is increasingly critical to Scottish public finances. We would obviously argue that the private sector growth is and will remain the key to unlocking economic growth, straying into the demographics, but with the demographic challenges that Scotland has, businesses growing and continuing to create jobs will be necessary to help to secure sustainable public finances for the long term, as well as widening of the tax base. You talked about levers that the Scottish Government has. Someone mentioned productivity earlier. Obviously, improving Scotland's overall productivity performance will be quite critical if we are growing the economy and raising living standards. While we may have caught up with the rest of the UK when it comes to those, when it comes to productivity, we are still lagging behind international competitors. The way that we see it is very much a shared challenge between business and government, and there is no silver bullet for it. However, I think that there are some levers there to be used. Areas such as exports, investment, infrastructure and skills are all areas where changes can be made, which are within the gift of the Scottish Government, which can help us to push some of those productivity performances forward, as well as growing the economy. We are at an interesting time in terms of our economy here in Scotland. While I have sympathy for what Mary has said about the need to grow the economy, I think that we also need to focus on wage growth in particular within that. From the last discussion, we heard quite a lot about the fact that we have a low wage base here in Scotland, and that one of the things that we could focus on quite usefully is moving people up through the income tax bans and into better quality and higher pay jobs, which is not simply about growing the economy, but about improving the quality of work that is on offer and improving the skills levels that are associated around that work. We are also at an interesting time given that our labour market is very tight. We are running at very low levels of unemployment, but we are still facing some quite interesting demographic challenges, so we have an ageing workforce where we will potentially have our access to immigration changing in the next period with differences in the limitation of freedom of movement. The fact that some of our EU nationals unfortunately feel somewhat unwelcome in the country because of some of the debates around the EU and our potentially going to leave Scotland as a result creates a real challenge about how we supply that labour into certain key sectors of the economy. We need to think about again how it is that we ensure that those jobs are filled, we ensure that those jobs are good quality and that they are attractive jobs. Those are difficult questions for us at the same time of considering some of those issues. The question around productivity is also potentially quite interesting because we are about to see high levels of automation potentially within the economy, which could improve productivity rates on paper but does not necessarily increase income tax take, given that it might replace jobs. Again, there are changes in how we potentially have to look at the economy and think about the economy. For us, I think that the main thing is how it is that we ensure quality work and how it is that we ensure high wages within that. I just wanted to pick up on some of the STUC's earlier comments on tax policy. I think that there was a paper from last year that was advocating a broader tax base, particularly at the local level. At the moment, local government is a fairly sizeable chunk of the Scottish budget overall. It has already been commented that the fully devolved taxes are a relatively small proportion of that budget. What potential role is there for a broader tax base at local level, not only to decouple the reliance of local government on a block grant but also to raise revenue in a way that is totally separate from the fiscal framework and would potentially reduce the vulnerability of revenues that are dependent on economic growth alone? I absolutely agree that that is a really key issue and one that the STUC is doing quite a bit of work on. We had our paper last year, as you mentioned, but we have also commissioned the IPPR or working with the IPPR to produce a more detailed report about what would be an offer in terms of local taxation in order to do exactly the things that you just described. We think that it is really important that we maximise all the tools available to local councils to raise their own revenue. There would be quite significant tools in that area. We also need to think about local authorities being empowered to grow their own economy and to do what is right for their own local area. We have been discussing for quite a while the need to focus on the foundational economy and the real economy, as some people might call it, and to think about how it is that we ensure that money stays in a local area rather than drifts off into big multinational companies that potentially take it somewhere else. There have been some quite good results from Preston, for example, in using procurement in a very localised way that maintains the money in the area and supports local economies in that respect. For Scotland, given the rural dimensions and some of the challenges that we have, that approach could pay quite large dividends in terms of providing quality jobs and providing quality public services in local areas. I would be interested if anybody else has a view on the role of broadening the tax base as a way of increasing revenues as opposed to changing the level of economic activity. If I can just reinforce the points on the growth in the economy and the importance of growing the overall economy and productivity and picking up on the points that the CBI made, we have also done a lot of research on regional productivity and growth across the regions. Again, we are really focusing particularly on management and leadership skills, and that is a job for business to do around exports and innovation, but lifelong learning, we are seeing, is much more important. Scotland is great, we have fantastic universities, we have fantastic graduates, but it really is about how we scale up the workforce overall if we are going to be able to take advantage of the higher-paid jobs that, hopefully, we are creating. I just wanted to make that point on that. When you unpack that, you then get down to what happens in a place, and so it picks up on Patrick's point. If you are then looking about how we grow a city region economy, for example, what practically do we need to do to drive that economic growth? Having vibrant city regions focused on growing their economy for the benefit of all their citizens is very important, and we are seeing that across the UK, but obviously here in Scotland. There are mechanisms available in the Glasgow region city deal, where they are on the hook for economic growth in order to unlock the funds that will come through the city deal. There is a lot of work being done on land value capture, which I appreciate is a very sensitive topic, but there is a lot of work going on in that particularly. In London, we did some work with TFL on that, and others are looking at it. Again, that is a potential source that we will need very detailed consideration, and it is sensitive, but it is a new area that people are looking at. I thought coming on that in terms of growing the local economy, as well as looking at the Scottish economy in a macro level. Nearly 80 per cent of employment in Scotland is in the private sector. Obviously, it is important to support and grow that business base, be it small, medium or large. It is interesting in terms of using procurement as a way of getting people attracted to a locality. It is something that I will look into more because it sounds very interesting. In terms of local employment and finding ways of encouraging job creation in different places in Scotland, the infrastructure point comes in there quite significantly in terms of digital infrastructure. It picks up the point in terms of technology changing. That is one area where we are only seeing the beginning of a changing world of work. In order to support that, there are key components of having digital infrastructure that can support that, as well as the skills element that has already been mentioned. When you think about the fact that 80 per cent of the workforce today is due to Sylvia working age in 2030, there is clearly much that needs to be done when it comes to supporting in-work training and upskilling on the job. The discussion about localisation of the tax base. Clearly, in some respects, income tax is not a good tax for basing our funding of the Scottish Government on where we can income tax lower than the population share of receipts. The point that was made by Helen about the potential effect of automation income tax is an important one. Broadening the tax base is to be encouraged, but there are a couple of issues that one would need to look at. A feature of the fiscal settlement that has greatly worried me is the potential for negative feedback effects. If we respond to a shortage of resources in Scotland by raising tax rates, we might potentially make the matter worse and get into a down-run cycle. The Scottish Government would need to be keeping a close eye on that. If it was localising tax decisions, it would need to have some form of central control that, if necessary, could put the brakes on increasing local tax rates to stop the negative feedback effects. The other problem with localising tax decisions is the one of inconsistent assumptions. This is a big danger about tax incremental financing that each local authority assumes that it is going to do it and increases revenue base and makes assumptions accordingly. When you look at the overall assumption, the national aggregate of their collective assumptions might be clearly unfeasible. Again, you have to have a strong centre that is able to keep an eye on that and making sure that spending plans and tax plans made locally are, in some sense, nationally consistent. Those are things that you need to look at if you are going down the road of broadening the tax base on a local level, but, in principle, we need to broaden the tax base. I need to be careful in response to Patrick Harvie's question, because, clearly, policy questions are outside my remit, but it is safe to say that the package of tax measures that we have in Scotland was not designed for its coherence and that there are things in there that perhaps do not join together in some bits missing. We all understand the reasons for that. I think that, while we are looking at that package of tax measures, it is inevitable that we have to look at the taxes that are not within the fiscal framework themselves, so local taxation, the theoretical freedom to introduce new taxes and to be planning for what might look like a more coherent set of measures that would work together as a sustainable longer-term approach to the public finances. The other point that I wanted to make was picking up the comment from the CBI about infrastructure, because it seems to me that that is absolutely right. We often think about that in terms of big bricks-and-mortotype investment. I think that we need to be moving away from that. We published a report recently on broadband and the challenges of getting broadband coverage—superfiles broadband—right across Scotland in the areas where, potentially, it could make the most difference to economic activity. Lots of investment from Government, but some real challenges in how you do it. Thinking beyond that, if you look at, for example, the percentage of registrations of new vehicles that are electric, I think that in Norway it is around 40 per cent, for the UK it is around 3 per cent and I suspect that it is quite a lot lower than that in Scotland because of our geography and the availability of charging points. I have got a concern that the attention that is placed on the infrastructure investment budget as part of the overall budget is quite fragmented. We tend to look at it through funding streams, through capital borrowing, through capital del, through the PPP-PFI stream of investment, rather than standing back and saying, what is the pipeline of potential investment? How are we making choices about that across different types of infrastructure across different parts of Scotland? I think that something that Parliament might want to be thinking about as part of the new budget process. Inevitably, there are choices involved in that and political considerations, but having that big picture over a longer period of time would help to make longer-term choices that are more sustainable. Just a small play to not focus too much on simply digital infrastructure and forget the bricks and mortar infrastructure, which I think in Scotland needs a lot of attention. We have an ageing for our fleet. We have a lot of problems with our car and activity in relation to rail and road, particularly to the north of Scotland. It is important that those things are considered in the round, because we will never really get the economic growth, particularly in the north, that we need without that infrastructure development. I will come back to you. Do you have time on this bit, Tom? Thank you, convener. I am picking up on that point that Caroline made. She characterised the package of taxes in Scotland within the fiscal framework as lacking coherence. Clearly, there is an absence of some taxes in there or still reserved to Westminster. Murdo kicked off this conversation by asking about the levers that the Scottish Government has, which influence the Scottish economy. I would like to hear views on what levers are exercised by the UK Government that determine economic growth and wage growth in Scotland. If somebody would like to pick that up, I will come back to you. I have Jenny Ann, Mary, who both want to contribute. I want to pick up some of the MSP's comments just to make sure that we are getting everything out, Alex. Thank you, convener. It was really on the back of what Caroline was saying, but Helen, particularly in talking about the bricks and mortar, was around the construction sector and a note my register of interests in that sector. One of the biggest errors that we have been hearing about in previous sessions was that forecasting was the construction sector. I think that that influences a lot of decisions made about improving productivity in that sector. I wonder if the panel had any comments about improving some of the data forecasting so that some of those decisions can be improved. Angela, then I will come back to you. I was interested to hear more about place-based approaches. I am familiar a little bit with the Preston experience and how it increased the proportion of its local government budget and how that is invested locally. I wondered if we could take that step further, whether the Preston experience or other experiences demonstrated how particular place-based approaches could increase the income tax. In Helen's point about the importance of infrastructure, housing is an important local and national investment. Is there any up-to-date work being done that demonstrates the very clear economic impact in investment in housing? There are quite a few themes coming through here, folks. I am not expecting Jenny and Mary to pick up on all the things that have just been mentioned, but if you can pick up on the ones that you wish to, Jenny and then Mary. I can pick up on the numbers and the construction sector point. We looked back at the economic growth figures and suddenly improved for quarter one 2018. That was great. Growth went from 0.2 to 0.4. That is great. You just have to be aware and focus on what is the actual position as opposed to the growth rate. If your economy is 100 and it was previously 99, then you have grown by 1 per cent. If you look back at your figures and think that it used to be 95, then suddenly you have had a massive growth rate, but the actual position has not changed any. I think that keeping an eye on not just the growth rate but what is happening underlying in the economy is pretty important. On the infrastructure point, I absolutely agree with Caroline on having that overview of the whole of infrastructure and being able to make trade-offs. I always added the Howard review in 2020 and in 2020. Those are always ultimately political choices, but there are now much better economic modelling tools available that allow you to measure the trade-offs and the impacts of different types of infrastructure. In some ways, because I know that Glasgow City region is in that deal best, that is quite a good example, but things have moved on even since then around how you can assess those different impacts. We would want to see further developed to allow you to have the information needed to make those trade-offs. Ultimately, if you are from a place-based approach, ultimately it boils down to you want to attract more people and you want them to be paid more so they are paying more income tax. How do you attract more people? How do you make a particular, whether it is Scotland or a city region or whatever, more attractive? There is a lot of work done around, obviously, infrastructure about constantly renewing infrastructure. We did work across a whole range of global cities, so it is not just resting on your laurels and saying, right, we have fixed that, it is all fine, everybody will want to come here. So there is about renewal of infrastructure. Housing is absolutely critical and we all see the population trends and how those are going. If you can do quite a bit about place, if you can get decent housing and therefore companies are looking to say, well, actually, this is an attractive place, we will come and invest here. There are huge amounts you can do it and so doing that particularly at a local level and having city regions because I agree with Jim, if you are just looking at one small tiff or whatever, you are not getting the whole picture, then you can really start to attract people. We are seeing a lot of that good work. We look at our young people in the firm, if you said 15 years ago that they all want to live in Finiston or whatever, it is all completely changed now. There is a lot that can be done, but housing is critical and just while we are on the economy health as well, we are focusing quite a lot of effort on health as part of that place-based approach to improving local economies. Sorry, I have picked up on everything. No one has picked up on that yet. At Tom's point, we are very focused on what happens as far as the Scottish Government leavers are concerned, but working in the UK government with its leavers is due to help us as well. It is a dramatic point. Molly? That was a point that I thought initially I would just pick up on in terms of if you see Scotland along with the northeast of England are the two areas of the UK that are projected to see a reduction in total available workforce by 2025. That then means that we need a UK immigration policy that is fit for purpose post Brexit. That is one area that needs to be addressed at a UK Government level. From the businesses that we have spoken to so far, I am verting into the demographic question of it, but if you permit me. The businesses that we have spoken to so far have said in terms of devolving immigration powers that now is not the right time, rather focus on getting the UK immigration system right in response to Brexit. Obviously, if it becomes a very restrictive system, then flexibilities for Scotland would need to be addressed in some shape or form. Obviously, this is still a moving feast, but I just wanted to pick up on that point. Then there was a point about housing. Before we got to Brexit, those indicators were still emerging for the Scottish economy and for the northeast. I do not want to forget about what is going on in the real world where we are just now, but are there any other specific policy levers that should be being pulled by the UK Government or the Scottish Government in relation to that demographic change that we should have been doing anyway before we got to the situation that we are currently facing around migration? There may be things that we should be employing in any case. That is a theme that has come through a number of discussions, so I will just unpick that a bit more of the CBI. I have got any particular levers that we should be pulling. I think that it is still taking it back to the skills point. After the financial crisis rightly so, we focused on supporting young people and the skills that are needed to enter the workplace. That is still important, but I think that there needs to be more of a focus on our current workforce that will be working, as I said before, for some time. A clear policy lever is getting a skills policy that is fit to address those challenges, which includes what has been mentioned before in terms of lifelong learning and in-work training. I will just say on housing that it is a crucial part of that macroeconomic picture. Again, the key lever is that the Scottish Government has areas around planning policy and skills, because I think that the construction industry as a whole sees a number of different challenges when it comes to both attracting people into the industry but also training them in the various different skills that are required within it. Adding on to that planning policy needs to be set in a way that encourages them to build more homes. I wanted to pick up Tom Arthur's question about the interaction between Scottish levers and UK Government levers. It seems that a useful link back to the previous agenda item that the committee was considering about the framework for that relationship. One of the things that we have not talked about today is that the UK Government's decisions about the mix of tax and spending measures that it wants to take can be budget-neutral at the UK level but affect Scotland's fiscal position. For example, if they shifted from income tax to corporation tax within the overall mix, that would have an impact on income tax take here because of the way in which the block grant adjustment works, but it would not have Barnett consequentials that would push the block grant element back up again and vice versa. It seems to me that that is a very good example of why we need to have much better dialogue between the two Governments and the two Parliaments about what the overall direction is so that we can be at least understanding the consequences of some of that and then thinking through the way that it might work in practice, reflecting again that this is a political world that you are all operating in, but doing what we can to minimise the scope for tit for tat or for defensive decisions being taken in advance of a conversation about what the overall good might be. Again, I think that it brings me back to this point that we are still finding our way through how this framework will actually work in practice in ways that we do not fully understand the consequences of. There is a risk of quite serious consequences of decisions being taken in a less than fully informed way at this stage. It's quite helpful because tomorrow we've got the chief secretary of the treasury coming to speak to us, so that's a useful thing for who we can be picking up. Can we have a minute, Jim? Jenny? Just to follow up on that particular point and reinvote what Caroline was saying, so one of the particular areas might be high net worth individuals who own their own businesses, for example, going back to that small number at the top. There is obviously a common view that if income tax goes up at the top level, then potentially those people convert to taking dividends from their company, which would impact from Scottish taxgate, but would increase tax at the UK level. However, there's also the possibility that those business owners decide to leave their cash in the business and both the UK and the Scottish Government end up with a reduced tax taker result, so it's just some of those interesting implications that we need to tease out. On the point around UK and Scottish Government policy leavers, I agree with what Caroline said. One specific point around obviously there's a lot of effort on the industrial strategy at the moment at UK level and within the firm I've got a UK role as well and I sit in our group on response to the industrial strategy in Brexit. However, on the industrial strategy, there's a lot going on there. The Scottish Government has its own policies. There are different levels of support available either through Scottish Enterprise or indeed through the industrial strategy. I think that both Governments are talking, but I think that if you're an individual business owner, you don't really care whether the funding is coming from the UK Government or a Scottish Government-funded programme, but you want to be able to access that easily. So I think that there is potentially more that both sides could do to have a co-ordinated approach so that each are aware of the other programmes. One specific example, speaking of business in my constituency, they pay or pay the real living wage. They give incredibly flexible with their employees, but they are struggling to maintain that position because other companies and competitors don't because they simply meet what the UK requirement is. For example, there's a relationship between employment law and the salaries that ultimately employees in Scotland have. I think that that also relates to the question of productivity. There is an argument being made by the IPPR and others that businesses currently are not incentivised to adopt innovations because of existing national living wage and indeed minimum wage levels. I think that when we have these deliberations and debates around productivity and comparing Scotland to the rest of the UK, actually it can be a something of a false debate if we have a situation where ultimately the levers that can be used to determine productivity rest with Westminster. I care passionate about it and have paid since we were involved right from the outset and keen to see it adopted as far as possible. There's quite a good body of evidence that says paying the real living wage as opposed to the sick one. It actually does drive up, but you can do that and drive productivity improvements at the same time. There's quite a lot of research done on that, so that's something that would be worth publicising more widely. I just wanted to make a couple of points. I want an infrastructure. I mean, I can't agree more that infrastructure is vitally important, but I think that an issue that should particularly concern this committee is at what price. I think that there are significant worries about the funding mechanisms for infrastructure. I have a particular being in the bonnet about revenue asset based pricing, which is a particularly invidious variant of current cross pricing, which I think leads us to pay over the odds for things like improvement, particularly in rail. The committee should be interested in that and should be making sure that we are not paying over the odds for infrastructure. There's also an issue about the cost of, for example, hub finance, and Peter Rickey and I have an on-going debate on that, as the committee is not here today. I think that, potentially, some of the statements that have been made about the cost of SFT finance underestimate the true cost of the finance. I think that there's something there that's important. One other aside, Mardor, asked what lever should we be pulling. One potential lever that we've got, which we may not have made optimal use of, is water charges. I mean, it worries me that the Wartonshire commission for Scotland interpret the remit very narrowly and do not take account of a potential effect in economic development. They're waiting for the Scottish Government to give them a steer on that, and I'm not sure that the Scottish Government has given them a steer. I think that there's an area that needs to be explored. We're at a particular juncture just now where, effectively, we're hardly borrowing from water at present at all. Do we want to continue to warranty to take account of low interest rates? There was worrying stuff in some of the consultor documents produced by the Wartonshire commission about the next review of charges, which says that we should be paying now to pay for future replacement. That's not a road that we want to go down, I don't think. I think that we should be making sure that we're getting the cheapest possible water subject with prudence, and that could potentially have a major effect on economic development. While we're going into this conversation, it strikes me that we've not really dealt with some of the smaller taxes for what we've got in the description. LBTT is one of them, because if we get a property boom south of the border, for whatever reason prices will also increase, which is not impossible. It's happened many times in the south-east in particular. That might have a distorting effect on how we deal with the mechanism around LBTT between what happens in the rest of the UK and Scotland. It made me think about, in those circumstances, how volatile that might be, even though it's a smaller tax on issues around LBTT. Have you got any views on that from Inland Revenue Scotland? From Revenue Scotland, I'm certainly not from Inland Revenue, yes, thank you. We've only got three years' worth of data, so it's still probably too early to draw those sorts of comparisons, but what is evident from the data that we've got is that there is reaction in the market to changes in tax. For example, if you look at our LBTT residential stats, you'll see that when ADS was introduced, there was forestalling before that. You saw there was a spike in property purchases. I understand the question that you're asking in terms of the possible block grant adjustment consequentials of a boom south south of the border and that not reflecting north of the border. That is something that, obviously, Scottish Government officials would need to be keeping an eye on, but those things take time to follow through in the system. The other area that's worth mentioning is that everybody always focuses on residential LBTT. There's non-residential LBTT, too. From the short information that we've got for the first three years, it's the more volatile of the taxes. It's also the one that, because it relates to commercial property and leases, is a good one to look at in terms of what's happening in the economy. What you can see from our non-residential LBTT is that, whether there's a spike and there, it can be because of one significant transaction that's happened in Scotland. In terms of volatility and impact, it's the non-residential LBTT that's worth keeping an eye on. We'll need to move on to the areas, because timeskills. For James, we've already started to stray and fortunate into the territory that you were going to be asking questions on. Forgive me, because we've covered a few demographic chains already, but I'm sure we can still get a bit more out of that. As you say, we've covered some of this in the previous section, but in terms of the demographics, the overall population in Scotland is now at 5.424 million, which has been increasing, which is good. As we touched on in the previous session, there are issues around migration and immigration, and the other major issue is the growing elderly population. Over the last 25 years, those in the 65 to 74 age group was growing by 27 per cent, and those over 75 are growing by 31 per cent. What that means is that you've got people moving from working and paying taxes into the pensioner bloc of the community. What challenges and risks does that present for the Scottish budget? There's a hero question, but when you're thinking about that, what specific things can we do in Scotland to address some of those issues? Are there any particular policy levers that we could pull that would help? Jenny, good on you, thank you. Let's pick up some points on that. Our population is 5.4 million. We've got a workforce of about 2.6 million-ish. One of the positive sides of that is that we're seeing more and more people in older age groups still working. When we look at the tight labour market, there's potentially some untapped potential there. Obviously, some people are continuing to work because they have to, but many more because they want to and they want to stay engaged. I absolutely recognise the challenges for the NHS at the older age group. That 65 to 74-year-old age group are much healthier than they were in previous times, and I hope that that continues. There are definitely challenges. There are potentially some opportunities to be looked at around that. Fundamentally, we want more people in Scotland. A particular policy lever is the post-study work visa, which used to be in place. It's something that would be particularly helpful if we could have reintroduced or some version of that. There are some pilots going on at the moment, but more of that. Given the impact of Brexit, as we've seen the latest net migration figures, and we know that far fewer EU nationals are already not coming to the UK, the interesting piece about the latest Scottish data was that we were attracting more people from elsewhere in the UK to Scotland. In terms of future policy development, and going back to the place-based discussion that we had earlier, we are really focusing on how we can attract more people from the rest of the UK into Scotland, I think, is something worth considering. I thought that the splice paper on demographic change was really excellent and helpful. In some ways, there is not much to add to the issues that it sets out. I had a couple of thoughts responding to Neil Bibby's question. The first is that that paper understandably focuses on the revenue side of the equation. Lots of our work in Audit Scotland is about the spending side, and I think that you've got the risk of a double whammy there as you hinted. On that, the fiscal outlook document that I agree with Jenny is a great step forward, and it's good to have it. If I had a criticism, I think that it's stronger on the revenue forecasts than it is on the expenditure forecasts and what it's likely to drive them, and we can do more to look at what the likely impact is of the demographic change that we know is happening over the next 30 years. I think that our work has shown that the policy response to that is the right one—integration of health and social care, moving lots of the care that people need out of hospitals, where it costs more and it's not as good for individuals, and delivering it much more close to their homes has to be right. The pace of change is still way too slow for the pace of demographic change that we're seeing around that, and I think that that's a really good example of where a place-based response can not just help older people themselves but also have real benefits for the local community more widely. I'm really interested in quite small third sector initiatives like Food Train in Dumfries where it first started, where you've got people in a local community helping older people who are just about managing at home doing their food shopping for them, so they're a small intervention, but it means that people in the community get to know the older person, can spot when they're starting to struggle, can talk to the GP practice and get a bit more help in, and you get benefits for the volunteers who are often older people themselves, who get a boost from helping their older neighbours or younger people with learning disabilities or mental health problems, who are just again building their ability to feel useful and to hold down a responsible role. I think that those sorts of place-based responses can be really powerful, and there's room for much more of them and for them to be part of the whole approach to community empowerment. One other dimension just very briefly to mention, which I think is again going back to the potential interaction between the UK and Scottish Government responses, and that's around pension taxation changes. We're seeing for reasons that I fully understand a reduction in the amount of tax relief that higher rate taxpayers can receive on their pensions in terms of both annual and lifetime allowances. There's increasing evidence that that's having some unintended consequences for people like doctors who, in their 50s, are coming up against their caps and are making decisions about whether to continue working or not. That's not great for public services, but it's also likely to put further pressure on the number of higher rate taxpayers we have in Scotland and, therefore, the consequences of the fiscal framework as it currently stands. I don't think that we understand that one enough yet, but we can see it coming through. That's a good example. Helen, and then Emma. Yes, I think that I agree with quite a lot of the points made about the role of older workers in the workforce. I think that there has been some really good work already done by some employers about supporting workers to stay on at work, and I think that taking a fair work approach to that is a useful way to think about it. Far better for me to advocate a work-to-you-drop society. It's certainly not that, but what I do think is that a lot of workers get a lot out of being able to stay on in the workforce, being able to keep their skills in work, and if that's something that we can do that supports the employer and supports the worker in a really positive way, then that would be really good for the economy, I think. In terms of immigration, Brexit, I think, presents a really significant challenge, and it's clear from what the UK Government has said so far that they're not necessarily going to maintain low-skilled immigration routes into the UK. They had talked a wee bit about perhaps agriculture, there being a specific visa for agriculture, but beyond that, there may not be that many routes that replace the EU national routes. I think that just glancing at the figures around payment for UK workers versus non-EU workers versus EU workers, you can see that EU workers, despite being very well qualified workers, are often holding quite low-paid jobs. The median hourly pay for an EU worker is £8.60, whereas for a UK worker it was £11.20 and for a non-EU worker it was £13.20. You can see that the non-EU workers are coming in on high-skilled visas, taking up high rates of pay jobs, and that's reflected in the pay packet that those workers are taking home. EU workers are often doing different roles in the economy, and we'll need to think about how those roles are filled in the future if that immigration route is not there. One of the things that I think is very clear that we'll need to think about is the treatment of workers in those sectors. The STC did some work in the sky this summer about the treatment of hospitality workers. I find that workers were having to pay £50 a week for access to accommodation. The amount of two staff bunks that were shared between workers and between shifts was in very, very poor terms and conditions. I think that those issues around access to housing in particular rural areas of Scotland affect how much the tourism industry will be able to grow in the context in which it will have to start providing proper accommodation for workers. I think that there's a whole myriad of issues in there about how it is that we protect workers' rights going forward. There are some questions about the UK's response to Brexit and how some of those things may be eroded in future trade deals as well that we are certainly quite concerned about. I've got a couple of people who I want to contribute. Jim and Emma just strike me in particular in the tourism situation where the cross-party group in tourism last week was the whole issue of immigration and how people are treated in the industry was to the fore. If one of the biggest pools out there, those over 65, why the tourism industry is not tapping into that group who will be staying in the sky and providing them with opportunities and encouraging them to go in, I think that some will probably need to think about it. I want to come back to you, Mary, on that question before we leave it about what is industry doing to encourage older people to stay on, if they want to. I could think that that's one of the areas that we need to look at for the economy. Jim, sorry. I thought that the spice paper and demography was excellent and great for thought, but it strikes me that some of the problems are longer terms. That should be built into the review of the fiscal framework. It's almost dangerous to come up with ideas off the top of one's head, but one possibility would be that instead of the index per capita method of indexation, the index per working age capita might address some of those problems. The second thing is that in that review, we should not shy away from bringing assessment of needs in at some stage. I mean, it was interesting the extent to which the existing fiscal framework really weakened the basis of the UK monetary union. A proper monetary union takes account of need in assessing fiscal flows, and in some way, when we're doing a review, I think that we should be bringing assessment of need into the mix as well. Emma, and then Angela. Thank you, convener. It's been really interesting to hear everybody's contributions this morning actually. I am interested in some of the issues around recruitment and recruitment of health staff, GPs, radiologists. The area of south of Scotland is also an area of low economy and high tourism, and of course agriculture is a big issue. The NFU president actually argued that rural workforce is actually a skilled workforce, so that's something that I think we need to consider. I support an immigration policy that works for particular recruitment issues in Scotland. As we move forward with investment in infrastructure, whether it's physical or digital or whatever, is there a natural flow of people that will be recruited or move to an area, especially if the house prices are less such as in Dumfries and Galloway? Is it not just a natural progression, or do the Governments really need to find what programmes and processes that they can do to bring migrants, immigrants and UK migrants here too? I'm going to come back to Jenny and Mary, who can reflect on some of the questions that are being raised as we go along, because I know that they'd raised them. I'm going to get a number of MSPs in now, though. Angela and then Willie, so that we can get some other thoughts into the process. Given that we're heading for a divergence in the dependency ratio, not that I like that label, and that we know that migration has a strong and lasting impact on population growth that helps to alleviate the transition to anigin population, although it doesn't entirely overcome, I would be grateful if our guests could really help us to still what can the Scottish Government do to mitigate what is and isn't the case for a policy divergence on things such as migration. How could the UK and the Scottish Government be working better on that and picking up on Jim Cuthbert's point is that what other ideas are there for the fiscal framework to take into account the overall age profile and the impacts from having a relatively higher age and population compared to the UK, given that some of that, particularly in terms of immigration and migration, is not within our gift or control? Willie. I think that it's kind of related to that, but it's really about the digital economy and the focus of it that has been mentioned by a few people around the table today. As we know, and I don't really drop into the politics of this, but we're going to be walking away from the digital single market, which is worth about €400 billion a year and supports hundreds of thousands of jobs. If Scotland's facing this demographic time bomb, why on earth are we doing to ourselves something like that that will further reduce the skill base, particularly the IT skill base, which is already in short supply in Scotland at the moment? The members are asking you politically loaded questions. Is there anything that we can do to try to reverse that or influence some kind of change to draw in the kind of skills and talents that we really need to move forward? There's been a lot of points made, a lot of issues raised, and I can't expect everybody to cover everything. I appreciate that, but Jenny, would you like to begin a sort of response? Caroline mentioned earlier the changes, the interplay between pensions and other things, and people at the higher end bumping up against their cap. One of the interesting things about that is that, if they don't retire and continue to work and are not then putting more into their pension, that means they're paying more income tax, so that's a potentially positive benefit for the public finances in that sense, so again, that would be a good look at that. On the spend side, we have talked a lot about the tax side, but on the spend side, there's just a lot more that we could do to understand that better, so just going back to the infrastructure point, yes, infrastructure is good, but one piece of infrastructure can be a lot better than others. By way of example, when we were doing the Manchester City deal, there were two tram schemes, exactly the same cost, £800 million each, but in terms of economic benefit, it was a factor of 10 to 1. It's really important to get that analysis of what's the benefit, what's the opportunity cost, so more rigour around that. On the migration side, I've already said something along the post-study work visa side of things, which would be helpful at the UK level. We as a company and many other businesses, as I'm sure the CBI know well, are struggling with the tier 2, so we can't get people in because of the tier 2 caps. We're having people not being able to join us because of that, so it is constraining. The dependency ratio is really interesting, and if I were a policy maker, I would be getting some work done on whether the dependency ratio is exactly right for now because the workforce has changed so much. We've talked about older workers being in the workforce, and we use a standard measure of the dependency ratio to then calculate potential costs and potential benefits. Again, if I had some space time, I think that that would be something that it would be worth looking at as to whether that's the right basis going forward. Just one final point about flexibility and policy choices. If, as we are seeing, there's a lot of money, potentially we could be £500 million adrift or £250 million adrift, it's really important to understand flexible policy choices where you can turn the tap on and off. Obviously, it's hugely complex and hugely difficult for public services, but I really understand what flexibility exists within the system to do that. For example, in the early years, there's obviously a big commitment to provide for that, but is that something where you can flex if money is tight? I'm not necessarily advocating one way or the other, but as an illustration of the point, having that flexibility in policy is pretty important. We've talked about data. Obviously, you're having to use standard data sets in order to set the budget, but we're getting lots of real-time data through that lets us know whether things are on track. Going back to what Elaine was saying earlier about commercial property and residential, we know that Scotland in the last six months has had way more commercial property investment highest for quite some years. We know that the south and the south east is struggling, so if anything, the balance is going the other way. We've done some forecasts for future house prices, and we're showing that house prices in Scotland are going to continue to grow at higher rates for the next five years, whereas London will drop and the other regions will go up a bit, but not nearly as much as they have been going up. By getting that real-time data that's coming through, it won't particularly help you in your budget setting, because you need that historic data. However, it's certainly there and available for policy makers to know whether you're on track and where the potential gaps may or may not be. I can pick up on the point in terms of helping all the workers, if that's helpful. In terms of helping all the people to stay on in work, there's obviously an important role there for employers in terms of offering flexible working opportunities and working around different needs as they arise. I'd like to point out that Age Scotland is doing some interesting work around this in terms of having a different approach to retirement and encouraging all the workers to also consider staying on a reduced scaling back their work patterns and staying on as a mentor type role as one way of approaching retirement. Again, the in-work training element is important in this in terms of supporting all the workers as work or business operations technology is changing. We have a flexible workforce development fund that is a mechanism that could potentially help some of that if it lived up to the name around flexibility. There was a conversation about how to attract people, I guess, from the rest of the UK or from the outside. We would obviously say that that would be best done through opportunities, through jobs, through investment. I think the STUC point about infrastructure in terms of connectivity, roads, rail and so forth shouldn't be ignored as well. So, yes, digital infrastructure is very important, but getting people to jobs is another part of it that is essential to make Scotland an attractive place to live and work. Touching on the point around immigration and how to work better together, obviously that's something for both the UK Government and the Scottish Government to do in unison. It's not one side or the other. If I can just flag in terms of, CBI has recently published a report called Open and Controlled with some recommendations about a new approach to immigration post Brexit. Some of the things that we touched on there is putting immigration on the table in future trade talks and ensuring EU workers are not subject to burdens of non-EU visa rules, as well as scrapping blunt targets on immigration. Some of the suggestions that we would put forward in terms of making the UK immigration system more responsive to the needs of the economy. It struck me through this discussion that it's a commonality of approach that everyone's got. Whatever sector people are coming from, they're saying the same things, but are we going to be heard? I agree with a lot of what Miles just said. Removing the cap on migration that is very much politically driven would be a good start. Having a much more humane and responsive immigration system would be important, too. When it comes to attracting people to Scotland, when you're thinking about just even the wider UK workforce, one of the things that we should underestimate is the quality of our public services and some of the approaches that have been taken here in Scotland in terms of maintaining free access to education, including higher education, the approach to expanding childcare and the quality of life that we have here through that kind of investment in public services is really important and is another selling point for Scotland. When it comes to economic development in local areas, however, I think that we need to remember the interconnectivity of different issues and the fact that we can't simply look at it very bluntly in terms of, well, this is how much we're investing in business relief or this is how much we're investing in one sort of project or whatever. We need to think about how all the different budget lines work together. If bus routes are being eroded, if there isn't access to housing, it's going to be very difficult for companies to grow because they simply are not able to access the workforce. We have quite a large domestic workforce that can be tapped into and work is changing, so there will be a lot of sectors that are maybe under pressure, for example retail, where workers are facing redundancies and are facing a lot of issues. It's how we then support those workers into different opportunities and into different parts of the economy. That comes very much to what Mari has been talking about in terms of lifelong learning and access to opportunities for all workers. It's a very sad situation that so many workers in the economy don't get any access to training at all and you're much less likely to have that support if you're a low-skill worker. That's something that we should be thinking about as well as how we support low-skill workers in that respect. Folks, we've covered a heck of a ground today in sometimes complex areas and difficult challenges, obviously, but your input has been very valuable in helping us to focus down on the things that are really going to matter in terms of the report that we will eventually produce as part of our budget considerations. I think that we could have spent a fair little longer time doing that. I was quite surprised when I looked up in the salt that we'd come to an hour and a half to the end of it. I thank you for your invaluable contribution from all around the table. I hope that you'll see it eventually that some of the discussions that we'll have will be reflected in the report. I thank you very much and I now close this meeting on the finance committee.