 Good morning, and welcome to the ninth meeting in 2019 of the Finance and Constitution Committee. As usual, we are mobile phones. Can you please put them in order so that there is no fear of proceedings? Our only agenda item today is to take evidence in a round table format on earnings in Scotland. For this particular evidence session, we will take evidence from Anne Ritchie Allen, who is the Executive Director of Close the Gap, John Gala, who is the Scottish organiser of Unison, Torsten Bell, from the Director of the Resolution Foundation, Professor David Bell, Professor of Economics at University of Stirling, Helen Martin, Assistant General Secretary of the STUC, Hazel Brown, who is the leader of exceptional service quality cornerstone, and Russell Gunson, who is the director of the IPPR in Scotland. I warmly welcome all of our witnesses to the meeting this morning. Thank you for coming along and helping with our proceedings. The round table format for those who have been involved before will know that it is intended to create as much a free-flow discussion as we can possibly achieve. If you want to contribute at any stage, please let myself know or catch the eye of the clerks and we will make sure that you get in at any time. The discussion is going to be based loosely around four themes. An individual MSP will kick off one of the theme areas just to get us going. Feel free to contribute at any stage to make contributions if you feel that you want to do it at that particular time. I will ask James Kelly to begin the session on how public sector pay compares with the private sector. I am the first to recognise that it is all cut across from one area to another. That is inevitable. Thank you for coming along this morning and providing us with your expertise and experience. The first area that we are interested in exploring is the difference in pay in the public and private sector. One of the trends that has been identified is that the public sector is at a higher premium than the private sector. That is more so in the case in Scotland. Initially, what we are interested in exploring is the differences between the public sector and the private sector in terms of what drives wage levels. Who would like to kick off the first set of thoughts on that? I see lots of people looking at me and being quite, but John Gullar and then we will come to Hazel. I suppose that an opening salvo for me would be not to take from that that the workers in the public sector are doing well in terms of the wages. Obviously, real-terms earnings at the moment are around about 2008 level. In terms of cost of living negotiations up until last year when the Scottish Government lifted the 1 per cent, wages have been pretty flatline in terms of that. Some sectors have feared better than others. There are sectors in Scotland still labouring under the 1 per cent ceiling from UK departments of civil servants, which is obviously not unison's concern. The third sector in terms of social care is struggling in terms of wages. From a public sector point of view, let's not say that all in the garden is rosy. 2018 was an okay year. I wouldn't put it any more than okay. Obviously, it did not address catching up. Also, the public sector is obviously not a homogenous unit. I think that it's a good idea to pay for similar jobs wildly between local authority areas, universities and colleges. I don't assume either that a worker doing the same job across different parts of Scotland will be on the same wages. I also said that I sit on the board of CCPS, which is a coalition of care and support providers Scotland. I'm coming from a cornerstone perspective but also as a board member for a cornerstone. When you talk about earnings, for us as an employer, it's about terms and conditions that we cannot compete with the public and private at all. We haven't got a chance in terms of being able to offer similar pensions and sickness. There was a bit of research done about 15 years ago when local authority started outsourcing social care. At that point in time, as a social care provider's third sector, we were able to offer similar terms and conditions. However, that has just been eroded and eroded over the last 15 years, so we can't compete. If we're in a particular area in North Lanarkshire, council advertises post for care as we have a glut of our people going because we just can't offer the same. Even though we're trying as a provider to offer better early rates and above the Scottish living wage, it's a whole package that we can't compete with. Mdell Sleitre. The differences in average pay reflect differences in the kinds of work that are done in the public and private sectors. Typically, the work in the public sector is more skilled, although there is a spread right across the distribution. The movement of the gap between the public and private sector has been of interest. The private sector suffered more at the start of the recession and, subsequently, pay restraint in the public sector has narrowed that gap back again. Earnings, as Hazel says, is only part of the story, and the whole package on terms and conditions matters. Pensions tend to be better provided than the private sector is. In the round, it is the case that, typically, public sector packages are better, but that neglects the fact that there are people in the public sector who aren't that well paid, who do struggle. In straight comparisons, you will find that the gap between rich and poor in terms of the private sector is bigger than the gap between the rich and poor in the public sector. That is the big picture difference across the UK. If you look at the premium, it looks bigger in Scotland than the public sector. That is partly driven on the margins by slightly better pay growth in Scotland in the past few years, but largely it is driven by the lower private sector pay in Scotland. The premium doesn't reflect higher public sector pay. It is about what is going on in the private sector broadly. The public sector is a slightly bigger part of the Scottish economy overall, and that was very important. The big picture on pay in Scotland, which you may come on to, is the reasonably fast catch-up and overtaking on some measures during the 2000s. A part of that is having a larger public sector, seeing larger pay rises in the run-up to the financial crisis, especially the last few years into the financial crisis. While we are all focused on the relative gap, what is driving that in different time periods is pretty important, rather than just how big the premium looks like in raw terms. I would like to add to that that there is an issue of high levels of low pay in the private sector in Scotland. We have some industries where collective bargaining coverage is very low. For example, in hospitality and agriculture, in some parts of construction, particularly where you get into the tier 2, tier 3 workers within the construction industry, there are people who see their pay being pushed on consistently over years and therefore suffer from quite low wages and insecure work. That is partly to do with collective bargaining coverage and the lack of the ability of unions to bargain for those workers for various different reasons in different sectors. It is important to recognise the fact that we have had quite a large living wage campaign in Scotland. That has been very successful in terms of how many companies have signed up to be living wage accredited. We have probably got the highest in the UK in terms of that, yet it does not move the measure on how many workers are suffering from pay that is below the living wage, which sits static around 20 per cent. Some of our focus going forward needs to be on how we make sure that we raise pay in real terms for the lowest paid. We try to improve collective bargaining coverage and improve the security of that work in the private sector in particular. I comment on the gender dimensions of pay practice. Generally, we can say that public sector employers are more likely to have done an equal pay review, which women are more likely to benefit from. In the private sector, we see widespread pay practice that is premised on discretionary pay, which evidence shows that women are more likely to be disbenefit from that. There is potential for discrimination in relation to pay, but that sustains women's lower pay and follows up on Helen's point about the living wage that two-thirds of the workers earning below the living wage are women. There is another clear gender dimension there as well. About 20 per cent of employees in Scotland are within the public sector, so that is a big chunk of those in employment. We need to look at the levels of pay within the public sector directly, but we are also quite interested in what we can do in the public sector that can then spill over into the private sector. As an example, whether that be competing in the local regional labour markets or whether that be through procurement and through that more soft power that the public sector is likely to have over some of those that are paid at low levels in the private sector. For us, there is an absolute direct policy interest in what pay looks like in the public sector, but equally what can we do to influence the private sector through setting pay in the public sector is a real interest to us. On the living wage that Helen raised, we have a better take-up in Scotland—yes, I heard that—but is that most of the public sector driven, or is that, as Russell was hinting at, are people from the private sector, then, for what of a better word, co-tailing on what the public sector is doing, or is it the other way around? I think that there are over a thousand living wage credit employers in Scotland now. They come from a variety of sectors, but what we have tended to see is that it tends to be people who do not have high numbers of low-paid workers within their workforce. You are not seeing the high levels of retail employers, for example, signing up to be living wage credited. In that respect, it is making a difference around the margins, but the overall picture of workers in Scotland is that it sticks around 20 per cent. It is a puzzle that we are seeing this high level of accreditation, but we are not necessarily seeing the impact that we would like to see. We set the living wage rate in Scotland that is slightly higher, but when it comes to the labour market as a whole, it is not a thing. If we are not talking, it is not enough people. It is a really important campaign. We support it. Remember as we sign up, but there are not enough people affected by the living wage rates for it to be what matters for your labour market as a whole yet as much as you might want that to be the case. A good campaigning—the public sector led in Scotland, like it is across some other parts of the UK, but principally in Scotland it is particularly the public sector led. In terms of the number of workers affected by it, it is important for those people—that is why I put a lot of time in calculating it right—but it does not change your average earnings rates. It is too small. That takes us back to Russell's point, in trying to use the public sector as an exemplar effectively. It has not been as successful in that area as we might have expected. Wales and Northern Ireland, who also have a higher proportion of employees' public sector employed, have far higher numbers of employees paid under the living wage. There is something different happening in Scotland compared to Northern Ireland and Wales. Scotland is at around 19 per cent. Wales is 26 per cent paid beneath the living wage, and Northern Ireland is up closer to 30 per cent. Quite significant differences show that there must be something other than dominance by the public sector in terms of our pay structure. It is important that public bodies get living wage accreditation, because part of the terms of that is that if they have outsourced contracts, those contracted-out services need to apply that living wage rate not necessarily immediately. Sometimes there is a time lag of a couple of years, but it does mean that those companies, if a public body is living wage accredited, must apply the living wage at some agreed time. That is important, because to achieve that otherwise, particularly when some of those companies do not recognise trade unions and there is no collective bargaining mechanism, it would be very difficult and probably involve industrial action to achieve £9 an hour with some of those companies. It is important that public bodies, as many public bodies as possible—obviously, we would prefer living outsourced at all, but where they do, it does introduce a discussion about wage rates in that privatised provider. I was interested in one of the comments that Russell Gunstan made about not just the comparison but the influence that could exist between public pay and the wider economy. If the kind of sectors that Helen Martin was talking about, such as retail and construction, are the ones that we are most concerned about, those might be sectors where there is less of an influence between what the public sector offers in terms of pay and remuneration. Are there ways of maximising that influence, maximising that leadership role and what are those ways? To think about public sector pay in its own right, the finance secretary just a few months ago said when he announced the public sector pay policy for the current financial year, he said that it continues the journey of restoration of public sector pay. That was a description of a pay settlement that almost reached inflation at the low end and did not reach inflation for other people. Is there a journey toward restoration of the value of public sector pay? Is that journey happening? Do people have any indication that they expect it to happen or to continue? I will also pick up on Russell's point and say something that Hazel was going to say. The care sector, which is probably the fastest growing sector in the economy, is in a complete bind because on the one hand you have the living wage pushing up on costs and on the other you have local government contract for what they are prepared to pay. We are prepared to pay per week for someone in a care home or receiving care. As a result of that, we are not seeing any expansion of the sector because it is fundamentally unprofitable. Even though we have a very challenging demography over the next couple of decades, we are not seeing the growth in care provision largely because of this squeeze. The care sector is being affected by it. David, you probably just said most of what I was going to say, but it is about the squeeze. Obviously, the application of Scottish living wage in the social care sector, one of the lowest paid sectors, is great and we welcome that. We have a struggle, particularly when you are an organisation like ourselves across Scotland, of how you implement it because all the local authorities are calculating it differently and how they do it. I guess the concern is that, for the last few years, there has been a particular amount of ring-fenced money that has come to the sector to support the Scottish living wage, but increasingly it looks like in the future that our commissioning partners will just expect us to meet that as a business as usual thing, which is just yet another squeeze that the sector just cannot cope with. I think that we cannot talk about care without talking about women as well, given the fact that they comprise the majority of the workforce and also thinking about the early years workforce as well. The reason that care work is so low paid is because of the economic undervaluation of the work itself, which is inherently gendered. What the literature says is that it is quite difficult to challenge that, but one way of looking at which others have spoken about is using state wage setting powers. One aspect where that has been done in a piecemeal fashion has been the Scottish Government's commitment to pay early years childcare workers who are delivering the funded entitlement, the living wage. That, in itself, creates some challenges because it is only for the funded entitlement, so it does not address the wider problem. I think that what we need to see if we are going to tackle that undervaluation of that type of work, which is done by women, is a much more strategic investment approach to identify care as a growth sector and add it on and include it in the Scottish Government's economic strategy. I've got a few, John. I'll come back to you, Russell. On Patrick's two broad questions, on the first one, is there a journey to catch up? There's a long way to go if we're even on that journey. Across the whole economy, real wages are still lower than they were pre-crash. We've never seen anything like this in modern history, so this is 10 years and counting if not a little longer than that now. You would have to see a long catch-up with above-inflation pay increases across both public and private sectors. The UK, as I say, is in unprecedented times, but Scotland, in recent past and in the short term, looks to be the projections that will underperform against even the UK's very poor wage growth over the coming years. We really need to get inclusive growth going. We really need to get the economy going so that we can get those pay rise across public and private sectors that are above inflation to catch up. On the other point around how can we maximise the influence of the public sector over those more distant sectors from public spending? Care and childcare are absolutely good examples of where there's a much closer relationship, where you would hope there was therefore much more that the public sector could do directly to boost pay. Let's not forget that it's not just the pay floor. Living wage is very important, but career progression and job quality are as much, if not more, important than that. When it comes to retail and the big low pay or lower pay sectors in Scotland, you're probably looking at things beyond pay in the public sector. How can you increase collective bargaining? How can you take a social partnership approach across the economy? How can you drive productivity increases in those sectors rather than just the growth sectors in Scotland? Most of all, how can you then get those productivity increases into the pay packets of workers at the low end so that we can deliver on all the good words around inclusive growth with reality in terms of pay rises at the low end that outstrip not just inflation but also outstrip pay rises at the higher end? On low paid workers, the big picture of what's going on at the moment is a very fast rise in the national living wage, the minimum wage for over 25 workers. That is the single largest thing happening to our pay distribution, the hourly pay distribution right now. Across the UK is a whole very big deal. It's a slightly smaller deal in Scotland than it is in most of the UK. That's for good reasons, which is the pay growth in the 2000s in Scotland was broad based for the whole bottom half of the income distribution. Scotland has a less unequal pay distribution because it doesn't have as much of the very top. It has about the same as the rest of the UK, minus London and the south-east. If you treat that as a freak show, it looks broadly like the rest, but the bottom is better. Because your bottom in Scotland is nearer the typical, the national living wage has a smaller bite as in it lifts the bottom but less people are on the bottom in Scotland. That's good news in some ways because it reflects a better pay distribution in the first place, but it's bad news because lower paid workers are getting less of an increase in Scotland than they are in some other parts of the UK. In that way, Scotland looks a bit more like London, where London, the national living wage, has less bite because of less workers on the legal minimum. It's obviously paying housing costs galore, so it doesn't really do them any good anyway. I guess I wanted to talk to Patrick's initial question about how it is that we can push out to industries like construction. We have done quite a bit of thinking on this because we were very pleased to see collective bargaining coverage being included as an indicator within the effect of voice element of the national performance framework. We have done quite a lot of discussions with civil servants now about how it is that you might move that collective bargaining coverage indicator. Some of the sectors that we are thinking about are things like construction, hospitality, both social care and childcare, for example, as well. Each of those sectors works differently because they are in different starting points. For something like construction, there are elements of that workforce that are quite well organised. There are elements of national agreements already in existence where terms and conditions have already been bargained, but the issue is that they are not always enforced and not all workers get access to those sorts of terms and conditions. That's about making sure that all workers have access to a union, that the union gets opportunity to organise on sites, gets access to the sites. It's a construction sector that is quite scarred by blacklisting and ruthless behaviour by employers. That's about trying to use the weight of public sector commissioning to ensure that those things can't happen. We might have done a construction sector charter that we are asking to be incorporated into public sector contracts. We're also now looking at whether or not we can put in place helpline and compliance measures where workers can get in touch and report if there's any poor practice. It's also about trying to ensure that workers understand the collective agreements that are in place and that those collective agreements are being honoured right through the supply chain of the public sector contracts. It might be okay with the initial company, but as you go down through the supply chain, things get worse and worse and worse. The use of umbrella companies sort of increases that kind of pressure on pay in terms and conditions. We think here that the focus on collective bargaining is really important because it is, as Russell says, more than simply pay. It's about terms and conditions, it's about job security, it's about how well workers feel that their job is benefiting them in the round. For hospitality, it's a different picture again because that is a sector where really there is no union penetration at all. There's quite high levels of insecure work, high levels of zero hours contracts. The competitiveness in the sector is quite large, so we're looking for champions to start trying to increase the collective bargaining penetration within that sector. It's quite a different picture. We hope that the public sector is a commissioner and the sort of user of services in terms of like using hotels or using, could drive some of that forward. But I think that that's a more challenging sector because there's less penetration there. For social care and for early years, however, I think that there is a clear role for the public sector. We would like to see sectoral bargaining really within that sector because right now it is the case that there's, as Professor Bell outlined, a real tension between commission and rates and the terms and conditions that workers receive. If we're honest with ourselves, the public sector drives the insecurity as the fair work convention exposed within their social care report not a few weeks ago. Professor Bell talked about those services as being fundamentally unprofitable. To me, I think that that's the wrong way to look at it. They are public services. They are doing a key role within the public sector. If we are going to commission them like this to the private sector, then we need to be doing so in such a way that you're not simply driving efficiency off the back of low-paid work and particularly low-paid female workers, as Anna rightly pointed out. For childcare workers—sorry, this is my last point—for childcare workers, I think that simply focusing on the living wage isn't really enough. These are very high-skilled jobs. I think that valuing the labour is very important, but it's also recognising the fact that you can have childcare workers, some of whom work in the public sector and some of whom work in the private sector, but they do practically the same job. However, there is a £13,000 pay gap between the public sector worker and the private sector worker. Again, that drives issues within the sector. It drives a de-skilling of the private sector roles into the public sector, particularly as the expansion happens. Having a good look at this, focusing more on sectoral bargaining rather than simply the living wage and trying to get terms and conditions that don't drive some of those pressures in the sector and don't drive poverty wages for female workers is something that we really need to focus on. John, I'll come to Torsten, but I'll need to move on after that. For a good opening, that's been very useful. Helens covered a few points. Here to sectoral bargaining for early years in adult social care. The progress on the living wage is welcome, but it does mask a job, which is where the living wage has been accepted as a rate for the job, but it's not necessarily the right rate for the job. No disrespect to shop workers, but if it's stacking shelves as a living wage rate, then delivering the not-to-five curriculum in an early year setting is not. Delivering adult social care into vulnerable elderly people in the community is not the appropriate rate, so it does mask a can of worms, and we shouldn't just assume because a living wage is applicable that that's a good thing. To answer Patrick's question directly, there is no real journey of restoration, nor is there going to be the opportunity to negotiate pay in Scotland in the public sector for a couple of years because local governments have signed up a three-year deal healthy. The college sector has signed up a three-year deal, so the next time we'll be putting in claims that might have an element of restoration will be 2020. Just as an example, an early years worker who was on 2228 in 2014 in the local authority sector, if they had had RPI increases would be on 21929 and they're sitting on 219292, so 500, 600 points behind. A registered nurse on a middle-ranking grade should be on 2635A with cost RPI increases and is on 24.5, so there's a significant and real theft is a strong word, but theft of wages from public sector workers over the last few years that few people have expectations of getting back. I've just suffered the pain of that, suffered the impact of that on their personal budgets, and resent that to be honest because their job hasn't got any easier. I was just going to make one point, given where our conversation has gone, which is, if we're talking about what does the public sector do to raise wages, we're talking here about lots of micro-direct interventions that the state can do to where it either procures a service or its leadership role. Those are all really important, but the biggest thing clearly driving slow wage growth right now is weak productivity growth. That's the thing. It's not changes in union bargaining power. They've carried on falling at roughly the same rate they were falling before the crisis, maybe slightly slower. The levels are a bit higher in Scotland overall, but the big picture which is falling trade union density is the same, but that isn't what's driving weak wage growth. It's not increasing monopsony power of big employers. It is that we are not seeing productivity growth right now. In terms of what's doing it right now, obviously what did it during the financial crisis was a big financial crisis, and then higher unemployment in the phase afterwards. The problem now is lack of growth. If you want to boost wages across the economy, you need productivity growth and you need faster growth. Although Scotland's growth in the last 18 months or two years is back in line with UK averages broadly, that is because the UK average has declined again. You may have noticed over the last two years, so now everybody is doing a bit rubbish. That is the most important thing. I do think that gets lost in a lot of these discussions because we focus on what can we do for 10 people here, 10 people there rightly because policy feels easier there. That will not solve the problem. The reason why wages are below where they were 10 years ago, the reason why wages look like they're going to be growing slower than they have ever done over the next five years is because of weak productivity growth, first, last and always. I think that we've been on that ground quite a few times in this committee and I don't think that we've found the answers to some of that yet, but perhaps we'll get some enlightenment in this today. That actually is a very helpful sequencing into Angela Constance's area, which she's going to start off on next and how Pay in Scotland compares with the rest of the UK and obviously the implications that that has for our budget and the fiscal framework. Thank you very much. That was a very useful opening of the issues. While I often get quite frustrated at what can appear like our obsessions between comparing Scotland with the rest of the UK at the expense, sometimes I'm missing the wider point or the bigger picture, whether that's at an EU or an international level. Nonetheless, for this committee, in the context of the fiscal framework and therefore Scotland's budget, how revenues per capita grow in Scotland in comparison to the rest of the UK are fundamentally important and there's an obvious relationship between earnings growth and revenues growth. What I'm specifically interested in is the fact that the convergence between earnings compared in Scotland to the UK between 2013-16 appears to have stalled, plateaued, but more recently 2017-18 figures show that average wages in Scotland grew less quickly than the UK. I would be interested to know people's views on why that is. What are the consequences of that? Is it a coincidence that this occurs around the same time as Brexit uncertainty and what can and should the Scottish Government do to assist? That is a crucial point, as you have outlined, in that earnings growth, given how dominant income tax is to now the Scottish Parliament's budget, will be right at the heart of any differential between what we would have had under pre-devaluation and what we will have now. It's already kicking in. We've seen a differential that's negative to Scotland over the last couple of years, as you say, and projected to see that for the next couple of years, that will probably hit revenue in Scotland by hundreds of millions of pounds each year already. That matters. Some of the pay rises that we talked about in the public sector will only be affordable if we can find ways to boost tax revenue. The most sustainable way of doing that is through pay rises in Scotland and productivity increases underpinning it. What's been happening in Scotland—Torston, in essence, didn't quite say productivity, productivity, productivity, but productivity is a crucial point. We all talk about it at the economy level. It is quite well established that there's a link between productivity growth and pay at the sector level and certainly at the farm level that gets blurrier as to how that interacts. We've been doing some work with the Scottish Policy Foundation looking at pay and productivity and inclusive growth. One of the key conclusions—it's a forthcoming report, but one of the key conclusions from that—is that we need in Scotland to focus our productivity policy as much on the everyday parts of the economy if we want to deliver inclusive growth as we do on the growth sectors that the Scottish Government has picked out. One way of reducing low-pay is to move people from low-paying sectors into higher-paying sectors, but a much more likely way to do that, given the size and scale of employment in some lower-pay sectors in Scotland, is to boost pay in lower-pay sectors. What can we do to boost productivity in retail? What can we do to do likewise in tourism, in hospitality, in care? The answers to that are probably likely to be sector by sector, and they're very likely to be involving employers, employees and government together in making those decisions. For us, the why is productivity—it's not just that. There's an oil crash. There are other things that may have happened that are specific to Scotland. Brexit is probably less likely, given that it's impacted across the UK at the same time, although you can see differential impacts. Further away from London, for example, the bigger the impacts may well be from Brexit. Overall, cutting through everything else, it's about trying to boost productivity, particularly in those low-pay sectors. The last point is that automation is both a threat and an opportunity when it comes to this. Automation around technological change, industrial revolution, 2.0, whatever you want to call it. There's a gendered aspect in that many of the jobs that are likely to be under threat of change from automation are currently taken by women and in lower-paid sectors. The opportunity comes in embracing automation in a way that drives up job quality. I don't think that we're quite on that yet in Scotland, and I think that we could do more to look ahead to what automation could bring and to begin sector by sector to understand how we can take the benefits of that in a way that drives the social outcomes that we wish to see. Just before we move on, I'd like to borrow down a bit into some of that. Absolutely fascinating, Russell, everything that you say here, but I don't understand what the words mean. That's a big problem. In particular, I don't understand what boosting productivity in the care sector through increased automation means. Let's just take the care sector, given that there's a lot of expertise in that sector around the table today, as a case study. I know the report that you're talking about is forthcoming, so we don't have it yet. What does it mean to say, let's boost productivity in the care sector? You've picked probably the trickiest one in terms of sector, so I will come back to care, and that may have been deliberate on your part, but around retail, I will come back to care, I promise, but around retail you can see how productivity boosts over the long term can absolutely lead to pay increases if you put in place the interventions to ensure that the gains from a productivity boost for an individual farm or for a sector go into the pay packets of the lower paid. I hope that those words make sense. Productivity, of course, is around getting higher efficiency for the humans, the workers but also the capital that you've got. Automation in retail, as you can see, could be a threat, because it could displace lots of low paid workers. Equally, there's an opportunity there to try and drive up the quality of workers that remain in the retail sector after automation has happened. Care is much more tricky to measure in terms of productivity, so traditional methods would miss a whole heap of very important things in care. If you would do just a normal productivity measure, it would be an input. A number of hours being put in, or the number of workers, and an output in that sense probably the number of people seen. A productivity increase on paper could be awful for the patients or the clients that you're seeing. You need to tailor how you measure productivity sector by sector. For care, you absolutely need to look at the quality of care. You need to look at the experience that patients are experiencing but also the experience for workers too. In there, you can get a much more tailored measure of productivity for that sector. Automation, I'm not sure in broad terms, across the economy it has a role. For care, it depends where technology takes us but it's probably less around automation. Automation and investing in new robots and machines are more quite traditional ways of boosting productivity, so secure contracts that allow businesses to invest in the workers as opposed to very insecure contracts that potentially are self-harming for business in many ways. I hope that, to some extent, answers. While we're on care, I'm sure that you'll get the opportunity to come in there and I'll come to Torsten and I know what David wants to come in as well. Interesting the productivity around care is almost entirely measured on exactly what you said. Hours of care delivered to how many people. That's not any measure of any quality at all. People are struggling with this for quite a few years about how you measure the outcomes and audit on that, which would give more freedom within the sector to deliver care differently in different hourly rates than we currently have. That's something at Cornerstone that we're trying to influence but our commissioning partners are still very stuck on what that hour of care looks like. I think that when you said automation, we're not going to have robot care assistance or anything, but it is round about technology and where technology might replace the human intervention in monitoring people. That will be quite radical over the next few years how it will change, but people still need humans to look after them. People will no longer get care 24 hours a day, it gets less and less, so it'll be how else can you monitor and support people when there's not an actual person in the room to deliver that support. Torsten. On social care, I agree with everything that you just said. Although there are some robots in social care, there's a robot called PARO, which is a robot seal used in Japan. I use care in the loosiest possible terms. You can cuddle it. I think it does something. Anyway, there are robots in the care sector. We've had some of them over for events. Japan really doesn't want migration, so they've got some robots doing bits of their care work instead. You can if you want to. You may well choose not to. On retail productivity, since you've asked about it, retail productivity is growing really fast because it's a shrinking sector. Do you want productivity growth? One way to get it is to shrink your sector really fast relative to the population. I think retail has probably had the single fastest major sector of productivity growth since the financial crisis. Everyone says, oh, the problem is we're not the low-paying sectors that aren't the same productivity growth and the high-tech financial services that want the same productivity growth. That is true long-term, is not at all true recently. The financial services sector is zero productivity growth, pharmaceuticals zero. The last few years are all about the big firms being rubbish. Some of the smaller sectors have actually been doing better and retail is the best example. I'm slightly worried about missing your core question, which is what does the shape, volume and nature of earnings growth do to the public finances and what does it mean for Scond? I've got a really unhelpful answer. There's a real lesson from income tax figures last year at a UK level, which will be important for Scotland. How do you get higher income tax revenues freeways, apart from putting out taxes, which will leave politicians to take decisions on? One, more employment. Scotland had a pretty good year on employment last year, still below in relative terms where it was pre-crisis, where it was well ahead of the UK average. Secondly, earnings growth, just in general, having a bit more of it, and the last few years have been very bad. My view is the reason they're being bad right now is because of the weak economic growth in 2015 and 2016, which was a sweet spot for the UK as a whole but not for Scotland. Now we're just saying, as I said, rubbish for everyone, but then the third, which is really important and understated in our income tax system, is more unequal pay. If you want to hire income tax revenues, then get pay growth for the top and because of the increasingly progressive nature in brackets of our income tax system, not of our tax system, everyone says, oh, the rich pay all the tax nowadays. That is not true. What they mean is the rich pay all the income tax nowadays and the reason they pay all the income tax is because they've got all the money. If you look at what is happening to income tax revenues at the moment, the reason they are overachieving all of our expectations is because earnings growth in the last 18 months to two years has flipped from being progressive and it's still progressive on an hourly basis to being regressive on a weekly basis. Insofar as we're then into data problems for looking at Scotland itself just because we don't have as much data, it's jumpy and looking at smaller supports, but it doesn't look like Scotland is having as unequal pay growth as the UK as a whole in the last few years. It's not just that you will have weaker income tax revenues because earnings growth has been slightly lower, it is that if you continue to have better earnings growth because it's fairer, you will also have weaker income tax revenues. I've never heard that discussed at all, but that is probably more important right now than the other stuff. I think that Torsten has pretty much covered what I was going to say, but going back to the care sector, there are some experiments with technology and technology will be playing an important role. It's also important to remember that this may intersect with the Scottish Government prevention agenda. In a sense, picking up on Torsten's point about having less of something, if we're monitoring people with technology, not necessarily intrusive technology, but for example preventing falls, which is particularly important for frail elderly women, you then end up in a situation where they need less care over their lifetime, the share of care over their lifetime that matters, which releases resources to be used in other ways, so you wouldn't need so many carers if you managed to get this prevention technology working effectively. There are ways that technology can indirectly affect productivity without necessarily needing robots looking after people. The point about the income distribution is exactly right. It seems to me that, like it or not, we have a very unequal income distribution and the people at the top tend to pay a lot of the income tax. We are nevertheless less unequal than the rest of the UK is. Looking at the difference in average earnings between Scotland and the rest of the UK doesn't really give you a great indication of how income tax revenues are concerned because people at the average aren't going to pay that much income tax. It's the high earners who will contribute a lot of the overall revenue. I think it's true what you're saying. It's certainly true that you're saying about high earners paying high levels of income tax. I don't think that that is a reason to prioritise income inequality as a key policy outcome. Instead, I would much rather go back to looking at how it is that you move people up the pay spectrum and how it is that low paid workers become middle paid workers, become high paid workers, rather than simply thinking of it very straightforwardly as how do we recoup the highest level of tax by increasing the highest earners. A short term way of boosting productivity would be to cut workers and carry on producing the same amount, but that would be a short term road to probably long term ruin. A much more sustainable way of increasing productivity would be investing in the things that help your workers to be more productive, whether that's management, whether that's skills, whether that's new technologies that help them to do so. The other point is that productivity growth may not find its way into pay growth at all, so you need to potentially intervene to make sure that happens. Retail has grown in productivity, but that has not led to increases for those at the low end necessarily. So what can we do there? It's not just getting the productivity growth, it's making sure that that finds its way into pay growth. The second point around, so it's absolutely true, again short term, long term, absolutely true that in the short term you could bring in large amounts of income tax revenue by boosting high pay, but we also know and it's underpinning the whole inclusive growth agenda that a fairer economy is a stronger economy. So yes, in the short term you might be able to sustain increasing tax revenues that way, but in the long term you're going to undermine the strength of your economy. So in that long term it's much more sustainable to be trying to boost lower paid, medium paid workers and boosting career progression through doing so because you're much more likely to get a more sustainable growth even if that sacrifices to some extent tax revenue increases in the short term. Can somebody help me with a quandary here, because I've heard others talking about how automation can help improve productivity, effectively that means less labour. Maybe the labour is doing something different, but if effectively automation becomes more of a, we see that as a measure to increase productivity, potentially it means less people in the economy paying tax, does it not though? Is there not a quandary there? If there isn't, sort me out please. There's an economist or two around the table, I'll give it a go then, I think that David can correct me, but in essence it's a short term, long term again. So if you can find productivity increases over the long term they should recycle back into employment growth because your economy can grow and if you get it right into pay growth in the short term you may see an impact on employment levels. Unless again you can manage that well through intervention, so for example a skills system that can broker opportunities between those contracting sectors and those expanding sectors in a way that we don't necessarily do just now, but in the long run productivity increases if managed well including through automation should lead to pay increases, employment growth, economic growth. The lessons from history suggest that the previous ways of automation have not damaged employment levels in the UK and there's a strong debate around what the effect of the latest, the fourth industrial revolution is going to have. There are some who are quite optimistic that other jobs will be found and these are the jobs that will emphasise soft skills that can't be replicated easily. Others argue that what we're going to see is a globalisation of services. So we've seen a globalisation of manufacturing in the last 30 years or so and there is argument that we're going to see many of our services now being up to international competition. I don't know where that's going, I don't think anybody really knows how that's going to develop, but I do think that we haven't discussed it enough. Those developments are really close to happening now in certain parts of the world and Scotland hasn't really been talking about it. Angela Constance is out of that. In terms of your initial start and question, you want to come back to that. Oh, I think that there's something to know of that for everyone. There's no other questions you want to know of that, that's what I'm really mean. Is there any other contribution in that area? If not, we'll move on to the next area, which is changes in the labour market and impacts on earnings and Patrick, although we've covered some of that already. Several people have touched on some aspects of that, particularly things like automation and casualisation, which will affect the labour market. There's also a contrast between some of the stats that get trumpeted around highest ever employment, lowest ever unemployment, compared with people's lived reality around low-pay, precarious work insecure or temperamental variable income. Other changes that are coming in as well, some of the written submissions that we've had talk about the changing balance between full and part-time work and whether there's a change in the gendered pattern of that, as well as that we have to acknowledge the possibility, at least perhaps the strong possibility, that freedom of movement will be choked off and that that will impact on the labour market as well. Of those changes and others in the labour market, what are the most significant that are already impacting on earnings and how do people around the table see that going forward? What are the things that we need to be looking to in terms of changes in the labour market that we might anticipate? That's a great question. My way of history, first of all, the big picture of Scottish pay, before we get on to what's happening right now, is of continued growth in the 2000s while everybody else slowed. Scotland's pay catch-up is a function of the back half of the 2000s. The UK's whole growth, pay growth, starts slowing in around 2003 and no one really notices. Scotland bucks that trend. Scotland's labour market has a really strong phase through 2005, 2006, 2007 and goes into the crisis with higher employment and typical pay having more or less caught up with the UK average. It then has a slightly less extreme pay squeeze, a slightly worse employment effect during the crisis, but a slightly shallower pay squeeze, particularly for the private sector. You have a general, again, a further narrowing of the gaps that Scotland does well during a bad phase for everybody. As we've then discussed, we've had a worse phase more recently on the aggregate level. The question is, what is going on in different phases to give you the things? How do we square this circle, which is the number show you record employment but people are pissed off? The less polite version of what you're saying, which is why do we keep hearing about insecure work, low pay, but everyone is saying that everything is going really well on the aggregate data? I think that the answer is more nuanced than both sides say. People should be really careful in saying that all this extra employment is all bad, low quality jobs. I don't think that the data stacks that up and I also think that it's really patronising to people doing those jobs. If you look at who has benefited most from the fact that employment has increased significantly more than any of us thought was possible, it has disproportionately gone to lower income households, which is not always true. In the late 90s, the increase in employment went to second earners in higher income households. That has not happened this time, so it's a progressive employment growth. It's gone to women, the disabled, low qualified, particularly in Scotland where you have a too higher level of disabled employment. You want that to be happening, so be careful about saying that's all bad. Then the issue is have some of the people that have come into the labour market, are they doing lower paid jobs? The ones that were previously out of the labour market. The answer is yes. Does that mean that the jobs in the economy are on average worse than they were before? No. The reason is because other people that are in the labour market are moving up the occupational distribution at the same time. It is not true when everyone says that there are loads more low-paid jobs than there were before. That is not true. When people say that the labour market is being hollowed out, there are only bad jobs at the bottom, good jobs at the top and there are no jobs left in the middle, for the population as a whole, that is not true in Scotland or in the UK. That is not true. At the bottom there is growth in social and caring jobs driving some growth but most of the other occupations are shrinking. At the top in general you have more public sector workers, more qualified professionals growing reasonably fast but it is just different people moving through it. Do not think about it in static terms. Then where is the bad news? Why is everyone pissed off? The fundamental reason is because earnings have been really bad in a way that none of us thought was possible for most of the income distribution in the UK since 2003 and in Scotland since the financial crisis and they have stayed low, they fell and they have stayed low and we are failing to get them going again and the reason we are not getting them going again now is productivity. In 2016 it was due to higher inflation driven by the exchange rate going through the floor and a similar thing happening in the middle of the financial crisis. Why is Britain's pay squeeze so much worse than everybody else's around the world because of inflation being slightly higher? Why was inflation slightly higher because of sterling going through the floor? It is ridiculous looking back on it. Nobody in 2009 noticed the fact that we were seeing a bigger sterling depreciation than we saw in 1992 when it was all we talked about forever. That drove an inflation spike, pushed down real wages and we have never recovered from that. The reason we are not now recovering, even though we have now got back to full issue employment, is because of things. Where are the other things to be pissed off about? Higher insecure work than we had pre-crisis slightly, although Scotland is not as bad as other parts of the UK. People in shorter hours than they would like, although be careful because actually Scotland saw a slightly faster fall in hours worked as the financial crisis hit. I do not know exactly why that is, but it is slightly faster fall. The end has broadly mirrored the rest of the UK, which is basically just flat. Hours stop, but remember that the history is hours worked falling. As countries become richer, we reduce the hours we work. That is true in Scotland and the UK for the whole of the 20th century. Since the financial crisis, people have stopped reducing their hours worked. Why are they doing that? They are trying to protect their incomes by wanting to work more hours than they would otherwise have wanted to work. That is a very good thing. The fact that we have messed up productivity and they can protect themselves from that by not seeing their incomes fall by as much by working slightly more hours is a good thing, but it is driving summer. It is then leading to more people wanting more hours than they can get in the current economy. I appreciate that you have to paint a mixed picture, but I would just pick up on that last point. It may be arguable that there are some benefits to the economy from that change, but it is surely not a good thing for those individuals if they are having to work more hours just in order to not even stay still. What is the counterfactual? Would we all like to have to work less hours? It turns out that the history tells us that the human answer to that is yes. As we get more productive, we would like to work marginally shorter hours. They are not quite as much as Cain's thought, but a bit. That is not the counterfactual. If hourly pay growth slows, is it a good thing that a flexible labour market allows us some scope to change that preference to protect our incomes? People are better off than they would otherwise be if they had to do so. It does not allow all people that scope. The fact that we still have high levels of end-work poverty at the same time as high levels of employment suggests that the argument that work is the root out of poverty is a broken argument. That was helpful in giving us that picture. I will get some other people in. John? Work is a euphemism for people working at strange parts of the day where, historically, you might have gotten hand-stowly rates. Evenings, weekends and Sundays for basic minimum hourly rates, which, historically, evening and very calm is good, public sector jobs, was not the case. There is not a single local authority in Scotland where you get double time for working overtime on a Sunday, for example. Even in mainstream employers, conditions of service beyond the hourly rate have deteriorated rapidly in the last 10 years or so. There are more families in work where 7 out of 10 children who live in poverty, at least one parent, is working. People are working flexibly in more hours because they are desperate to balance their domestic incomes. Employers in various sectors will take advantage of that. There is a sleepover issue that you have probably covered before in the social care sector, which does not even meet, in certain places, minimum wage, let alone living wage. Part-time work is not being done because it is quality work that people are choosing from. For lifestyle reasons, it is really for economic reasons. Moving up through quality jobs, up-skilling education and training, moving into higher levels of jobs, up through the nursing sector, up through the social work profession, out of menial jobs and minimal jobs, relies on staff training. It relies on employers skilling up the staff. It relies on the college sector delivering part-time and block release courses. The first budgets that went in the austerity period have been the training budgets. There are very few employers investing in their staff, although, at the same time, they are saying for demographic reasons that we need to grow our own, etc. I am a lead for the further education sector, and we are pursuing a dialogue about introducing training schemes at a national level. In the college sector, I had some discussions with Angela in the past, but even the sector that delivers skills and education is not very good at skilling up its own staff. If you want to go from being a janitor to an ICT technician, then it is very, very difficult. David, and then Helen. It has a little bit of nuance to what has already been said. The idea of people wanting to work more hours than they are currently being offered is the notion of underemployment. I have written quite a lot about that with my colleague Danny Blangeflower. It is certainly the case that, although unemployment is at a pretty historic low, lower than it has been since the 1970s, there still is more underemployment than there was prior to the recession. We have also done some work on the wellbeing of people in different employment states. It is certainly the case that the underemployed, their level of wellbeing is less than those who are fully employed, but their level of wellbeing is better than those who are unemployed. There is a kind of trade-off here what is the more desirable situation. On John's point, with a different colleague, I have been tracing the decline in paid overtime working since the beginning of this century, and it is certainly the case that the use of paid overtime has declined pretty sharply. Of course, that interacts with the minimum wage too, so people may be offered the minimum wage, but the counterbalance to that is that they are offered a lower premium or less overtime hours. That is one of the big changes that people are being asked to do, what you might consider non-standard hours, but for no more than the basic rate. One of the things that is striking when you talk directly to workers and when you look at what workers are raising as a concern across different workplaces and in different sectors is how much mental health, stress and job intensity are consistently raised as an issue across sectors and workplaces. It seems that the demand from union reps for mental health first aid courses, the demand for suicide prevention is very high. From the point of view of someone who spends a lot of time trying to service the needs of workers across the economy, that is something that we are having to look at more and more, and it is something that occupational health systems are having to look at more and more. It is an element of this that can get lost because it does not show up in pay figures, it does not necessarily show up very easily in questions about how people find work, but it is a scarring feature of the workplace across Scotland. When you are thinking about productivity and how we raise productivity, the fact that we have a workforce that is overstretched, that feels that they are not being supported by their employer, that they are not necessarily being offered training, that they feel all the time that they are running on empty, how are you supposed to see productivity gains? Job design should be about supporting the workforce in a real way, and when you are having that level of stress and mental health crisis, it is simply untenable. I think just to go back to the point again, that because women make up the majority of low-paid workers, that again their experiences of insecure temporary and zero-hour contracts are greater, so disproportionately they are more likely to be on these type of contracts. I think that we cannot look at that without considering part-time work, such as Patrick's question, which framed that as well. So women make up the majority of part-time workers, but part-time work is predominantly found in low-paid jobs and sectors. I think that that goes back to the point that there is a cultural presumption very often across many organisations and sectors that part-time working is not suitable for higher-paid jobs, so that in itself sustains women's concentration in lower-paid work. So there is the problem, as David said, about under-employment, but also that many women are working below their skill level in jobs that are just essentially in the wrong jobs and so they could be working at a much higher level. I think that Helen and both John had mentioned the problem with training and the lack of training, and certainly we found that in our own work that women tell us that they have challenges in accessing work training which prevents them from progressing into higher-paid work, but also that women are less likely to be able to access training as a whole in low-paid part-time working, or that women are the group of workers that are least likely to access training in the labour market. I was going back to the point that John made, and it is about trying to influence the different sectors in low-pay. One of the things that happened recently is about sleepovers. It is now a Scottish Government policy. Sleepover hours are being paid at the same rate as daytime hours again. Why would you disagree with that? The reality is, for organisations like us, where the majority of the work that we do is commissioned by local authorities and partnerships, is that they do not have resources to pay for people to be asleep at night for the same rate as they are during the day. On one hand, the Scottish living wage ring fence is fantastic, so our front-line staff get a boost in pay. On the other hand, all the local authorities are now taking away all the sleepovers at night, so where our staff used to top up their income by doing three or four sleepovers a month, that has been taken away. Scottish living wages lift their salary, so they end up in the same position. If it is not thought through properly, if there is not enough consultation with the sector about potential implications, that is exactly what will happen. It is very well-meaning, so it has an opposite effect. To step back, you would usually expect when employment rates are at record levels to put pressure on increasing wages. All economic theories, certainly past experience, would suggest that that would happen, but it is not happening now. We have touched on productivity quite well, and that will be one aspect holding back that usual relationship from happening. There may be other ones, and some of the obvious ones are around potentially unseen slack in the economy, if you like. Whilst it looks like employment is very high, there are people who are either underemployed, insecure work, or, indeed, some of the economically inactive people that are neither counted as employed or unemployed, are beginning to come back into the labour market, keeping wages down. Out of those, self-employment is one to touch on. We currently have close to record levels of self-employment in the economy. Data on earnings for self-employed is very difficult, but from what you can see, across the UK at least, there has been a huge reduction in profits, as it were, wages for self-employed since the crash across the UK, about 25 per cent. So either the people that were already in self-employment have seen a reduction, or the new entrance into self-employment are at a very low level, and within that we are seeing increasing proportion of self-employed that are women. You can see that part of the picture here may be that we are counting people as employed and that they are in low quality. To take, by all means, Thorston's point from earlier, there are pockets of low quality insecure work out there. Another one would be around young people, so we've done some work earlier this year. Looking at, from the skill system point of view, the number of young people coming out of the skill system into positive destinations that may be no such thing from our point of view. So we've got 90 odd per cent positive destinations, but one in seven young people in Scotland just over that were employed in insecure work. We may be missing a damage, so at the last recession it was unemployment and the scarring effect that that had on young people and beyond. At this recession and recovery that was still in, we may be missing that insecure work could be having a scarring effect on future careers and on productivity and on pay and on the future strength of the economy too. I want to add to what's been discussed around self-employment and around insecure work for young people. Thank you, Thorston. Just to pick up directly on that point, I should be really careful about saying that a tight labour market is not feeding through to pay growth. That is not true. That's not what the econometric evidence shows. It does feed through to it. It just can't get to going very fast because there's not a lot of productivity growth to feed through to pay growth. It won't lead to pay growth. That's not what the evidence shows. It shows that we haven't got any productivity growth so you're not getting it happening. It's really important because otherwise you end up saying things like there's no point getting the productivity growth in the first place because it won't feed through. So be careful on what the evidence shows on that. I was going to join up Patrick's initial question. I agree with what Anna was saying, which is on why are we talking about lots of these low paid and part time and short hours jobs in a way we should have been but weren't in the 2000s and the answer is now because lots more men are doing them. Everyone suddenly decides we should talk about it all the time. The big picture of low paid, low qualified work is that women still do a hugely disproportionate volume of it. But the increase is all men and the decrease is women. The levels are high for women but the change is for men going into those roles and for women coming out of them as you get a general occupation upgrading for women over time. I think that probably is a large part of why we started talking about it for the reasons you raise about structural people's attitudes to work and other things. But it is important that that is driving quite a lot of the wider changes you're then seeing in the aggregate wage data. So what is pushing up on earnings inequality is one of the things at the moment is not that the highest paid in Scotland are getting particularly high wage rise. It's not that we're getting particularly high wage rises. It's that lower paid men are seeing hours reductions relative to where they were 10, 15 years ago and higher paid men are not. So you're getting an inequality of hours increasing whereas traditionally lower paid working class men did the longest hours in the economy because they supported a family by doing 50 hours they were being paid overtime for doing it. That was the kind of structure of the economy. It's not that we're getting a lot of work from that and have been for some time. It's those people that are really angry. So you do folks groups or qualitative work who is most not happy with the world of work as it exists even though women are doing most of the low paid local low valued work wrongly, the men that didn't see their parents do it their dad do it and didn't expect it to happen. It is very large. That being done by men I think is about 45% since the turn of the century. So these are big changes, they're big social changes they're not just about the economy and how we wrestle with that. It's hard because it's a good thing. You want a better gender sharing of low paid work we like less low paid work overall but if we're measuring it relative to the medium that it's not going down it's just like a kind of average thing to some degree then you want it to be gender shared but your contract to that is causing a lot of discontent specifically we've probably come onto the gender pay gap but that leaves then that process needs to continue but that issue which feeds into our point which is where do we see ongoing large gender pay gaps coming in which is basically now when you have kids because of the forcing into part time and then the staying put in part time because of the lack of flexibility for higher paid roles that is the dominant factor that we have no adequate policy response for as yet but ours just a general thing paying more attention on ours works who is working what ours to understand what is happening to your country is a really thing worth doing everyone only looks at the income levels because everyone thinks everyone in this world gets a salary so they don't think about ours worked in the same way but ours worked are crucial to understanding how income distributions change over time David sorry and then we'll come to Emma and then we'll move on to the final area just a Russell's point about self employment is an important one it's important for Scotland's tax revenues too because we're now up to around 14 per cent of the workforce are self employed and the growth in that has largely been amongst self employed who don't employ anybody else so they're working on their own account and they're typically earning very little so the spread of the income distribution of the self employed is wider than the spread of the income distribution of the employed there are some who do very well but also many who do pretty badly of course they have no form of representation because they're working on their own behalf and some of the work we've been doing recently without coming to any conclusion at all is to try to understand why self employment has been growing so much faster in the UK whereas in the states it's falling so two countries that apparently have very high employment very low unemployment but completely different trends in self employment what is it about the UK that makes self employment seem like an attractive option just one unrelated point but it's come up quite often it relates to training and some of the discussion in the UK around lack of productivity growth has been about management quality management quality compared to our competitor countries that's something that we need to give some attention to I think as well in Scotland but I mean one of the ways that we see that is lack of training for employees Emma I'm about to move on Thank you very much and thanks everybody for your input so far Torsten you mentioned about the depreciation of the pound so there was one statistic I read it's been 18% reduced since the June 23 EU referendum but I'm interested in the care sector as well as the agricultural sector and Helen you mentioned that as well we are seeing people not coming from the EU because the pound isn't as valuable as it was so especially in the dairy sector so I'm interested if there is evidence of people not coming to work in care or in the dairy sector milking cows 48% of Scotland's dairy farms are in the south west so is there evidence emerging that agricultural workers are not coming here and that they're going to France and Germany where it's euro for euro but better pay Torsten then I'll come to talk about that I don't think I can give you a definitive answer to that because the data doesn't let us employers saying it's a disaster I can't hire anyone at the moment and saying now what can we see in the migration data so we have definitely seen a change in behaviour since the referendum we've seen decreases in people coming here from the accession countries and we've seen increases in people leaving from older bits of western Europe the original EU-15 in terms of what is driving it though I think it's more complicated so the pound is definitely part of it if people are coming for a temporary to do a job for a year it's definitely less worth doing that I wouldn't underestimate though wages in Poland have been growing very fast over the last five years and that is a big part of what is going on and the worst of the euro crisis is over so the alternative labour markets out there have changed very fundamentally plus we've kind of sent a message out that we were less keen than we were so it's not massively surprising that on a human level people take different lifestyle decisions and you all know people that have made versions of those decisions but is there very good evidence that distinguishes between those different effects and says this much is because of a stronger economy and bits of Europe this much is because of the depreciation and this much is because of attitudinal issues no and I would warn slightly again saying it's all depreciation because the depreciation in 2009 is bigger than the depreciation post Brexit but after that we saw a surge in migration from the EU and we are now saying the opposite so I think it's definitely part of it and particularly for people who are short term migrants they've got to be where they're clearly coming to send the money back rather than making a bigger choice about their life but I don't think we could say it's the whole part and I'd also just as a general word of warning which is because this whole debate because basically the migration debate is now seemed totally through the lens of Brexit so if you're pro-Brexit then you're like migrants will cause you all the problems beforehand and then if you're anti-Brexit you're saying like any fall in migration is a complete disaster and the economy goes off a cliff immediately both those positions are totally not backed up by the economic evidence they're both politicised positions they may hold them for other reasons you want migration for what it does to your society more open feel, you want the opposite it doesn't employers will always say to you I can't get the stuff I need the first thing I always say to them is have you increased your wages? have you tried this bold thing offering a pay rise to see if anyone comes to work for you and the answer is always employers are not independent people to tell you what they have to have in terms of migration policies all I'm saying these people have a slight vested interest in the situation but the numbers are down I have no idea what the balance between the three is for us as an organisation we haven't noticed any difference but that's a type of organisation we provide a lot of support in the community in people's own homes and I don't have access to the data but I suspect we went and talked to Scottish Care who represent a lot of the care home providers I suspect they would have seen a change in EU nationals but I don't have that data but they would be the people who could tell you that Bill because Torsten has kind of anticipated me a little bit I mean I think the question is more about what happens next and we would argue very strongly that this is an opportunity to start looking at these little words sectors that have relied too heavily on migrant labour and looking at job quality and job design and pay and we would put it back to the employer quite strongly as Torsten just did and say this is you know if you can't attract skilled workers then you have to ask yourself a serious question about why that is and we simply don't accept an answer that says that the only way you can run a business is to run it on very low wages and migration OK, I'm going to move on to our last theme on distribution of earnings and implications for revenue and Adam Tompkins is going to help facilitate the beginning of that. We've covered some of this ground already but I want to focus particularly on the distribution of earnings in Scotland and the implications for revenues that accrue to the Scottish Government which means principally income tax rather than national insurance. I want to focus mainly on employment rather than on self-employment just because of the current distribution of devolved taxation and I want to look at both ends of this high paid and low paid perhaps we can start with the low paid and as this committee reported and its most recent report on the Scottish Government's budget in a country of what about 5.4 million people in Scotland who don't pay any income tax at all? Is that desirable and is it sustainable and if it is neither desirable nor sustainable what should be done about it? We have quite a strange structure because you can't really think of income tax separate from national insurance. National insurance kicks in earlier than income tax does which is about 10 points something thousand now. It seems to me that there has always been an argument although civil servants suggest it's a very difficult thing to carry out for amalgamating national insurance and income tax and of course that has now rendered more difficult by the devolution settlement. You end up with a kind of profile of national insurance and income tax rates when you combine them which looks quite strange it certainly doesn't look smooth and in fact the changes to the allowances the high rate allowance or the lack of change to the high rate allowance in fact has produced an unusual spike in income tax stroke national insurance recently so it seems to me there's an argument that by not combining those two taxes you end up in a situation of great difficulty which will I think cause tensions as far as the devolution settlement is concerned whether one can go to Scotland having the power over national insurance would remain to be decided by politicians but certainly compared with other countries we do have a very high personal allowance that is not something that the Scottish Government has any control does it hugely affect work incentives I don't think we really know the answer to that at the moment but it's certainly worth further consideration but it has to be done in conjunction with national insurance because I don't think at the end of the day in terms of their pay pack it may make the distinction that is not very clear to them Russell I think the desirable question comes down to what you're attempting to achieve so if we're attempting to reduce child poverty down to the levels that we've all pledged to do by 2030 for example increasing tax that the bottom end may well be counter to that and is it desirable at the same time as a universal credit taper will be impacting a great deal of people down at that lower end to tax on top of that taper so it can reach 75p in the pound and if we think 46p in the pound is causing problems for our incentives at the top end then surely 75p in the pound is doing so at the bottom end so desirability comes down to a judgment call as to what you're hoping to achieve I would argue and again the personal allowance it's a function in essence of a UK wide decision to remove many many people out of income tax as a way to well supposedly is that if that's not too judgmental a word to supposedly be progressive when the natural fact it will benefit nobody underneath the personal allowance as it stands there's a big big costly I think 110 120 billion pounds a year across the UK spend most of which doesn't go to the very very poorest at least so that desirability question comes down to where you stand and what you're trying to achieve the sustainability question I think is an interesting one across the whole of the economy across the whole of the tax system and I think Torsten referred to this earlier we don't particularly have a progressive tax system progressive in the vertical commas as in technical terms income tax system and that therefore in Scotland is leading to a big dependence which we'll no doubt come on to on to a higher rate and additional rate earners a very small number of them so one solution to that we'll get on to the higher end but one solution to that at the low end is to focus very much on people that are in work on minimum wage and pushing them much closer to median wage and that would have some implications for your skill system for example focusing on those in work and those that are low paid and secure work that would have implications for your productivity and your economic strategy which we touched on so focusing on those parts of the economy that are minimum wage and trying to get people up in terms of their pay from there so your sustainability question I think is a bit more cut and dried and some of the responses to that at the low end at least are about boosting pay which in turn will deliver that inclusive growth that we all suggest we wish to see there is still a lot of in-work poverty we are still working with the child poverty action group producing reports like this about fair work in decent childhood so short anecdote of a recent development doesn't answer your question but none of the local authorities have consolidated a living wage into their own pay structure so £9 an hour isn't the substantive least you can earn within a local authority so there are a lot of local authority workers who received the recent pay deal 3.5% not an astronomical amount of money but where universal credits in place when they got their back pay to the first of April 18 they lost their benefits they were then put into a reassessment which meant that their actual household income reduced despite the 3.5% increase because DWP counted the back pay as the earnings in that one month so in terms of the balance between tax and benefits and salary something's going wrong here because at that level a pay rise is punishing you in terms of your household income Constituents contact me specifically about that Anna Just to follow on from John's point as Unison represents the public sector presumably you're talking about the majority of women workers within that group as well because it's really hard to overstate the impact of social security and so-called welfare reform so one of the reasons why women are so overrepresented among the lower paid jobs is because of that greater reliance on social security both because they're in low paid jobs but also because they shoulder the burden of unpaid care both for adults and for children and so it's really critical to take a gendered approach to even thinking about income tax and considering women's position in the labour market My view is that it is not desirable to have as higher personal allowance as we have our reason for that is that it has been very expensive to achieve very expensive £10 billion and that has disproportionately benefited higher earners particularly the most recent in the personal allowance there are also other arguments for that position which the Resolution Foundation wouldn't take institutionally but what you believe about a stakeholder society how you want that to feel all I would say is that over time income tax historically pre-war wasn't paid by a majority of the population instead inheritance tax was we've now hilariously gone to the opposite extremes and then started coming back to the way on income tax so societies take different decisions at different times and we should be really clear that we are taxing the income of people even if they're not paying income tax but I would say for Scottish politicians I do think it is the fact that you have ended up with a tax base overall is it desirable to have an income tax base that is potentially not certainly but potentially more volatile that is undesirable from a fiscal perspective although you could compensate for it or tax system but taken in isolation I think that is undesirable it doesn't mean it will always be more volatile you could imagine a system that low earners happen to have very volatile earnings but that's less likely to happen as I think that is undesirable and if your tax base is then disproportionately made up of that bit of the tax system then clearly you've ended up with as a by-product of the personal health policy a more volatile system for the tax base that supports all else equal and undesirable what you do about it is hard because you are I support others have said about bringing people up nearer the median for earnings and stuff you are not going to get very much income I don't want to be too blunt about it but you're not going to get much income tax revenue from it people are large amounts of the population I'll give you an example 40% possibly of the household income distribution is not really paying much income tax at all could be even up to half now instead all these cuts to income tax have been no use to them at all what they're being hammered by is big cuts to benefits that are happening right now which is why child poverty will be rising over the next few years where women in particular women will be losing from the work incentive effects of universal credit but that isn't the big thing that is driving down incomes at the bottom third of the distribution is the benefit freeze support for large families it's not universal credit that's the problem it's other cuts to the social security system that are doing the work on reducing those incomes and there's nothing you can do on the tax system to compensate for that these effects are so large some families at the bottom will be losing over the next once these welfare cuts are rolled out fully if I ignore housing costs disposable income after you paid your rent 15% of their disposable income from these cuts these are massive so tax tweaks are neither here nor there for most of those families there is some work incentive effects but I wouldn't want to go the other way so some countries are, some people argue for no personal allowance they take the extreme version of mark in which it's being regressive increasing it as far as they say let's just not have a personal allowance let's scrap it and have a universal basic income without having no personal allowance because for people's incentives to enter work if you do not want to be overlaying income tax kicking in as soon as you enter work for marginal workers you will have a big work incentive effect that I would be nervous about so I think it's too high now but I wouldn't want zero that's fascinating, thank you very much I mean obviously we are focused on revenues but I think that the issues that you raised Tawson about stakeholder society they are really important to us as well and that strikes me that we hear quite a lot about inclusive growth we don't hear so much about inclusive taxation and I wonder if that's something that we should think about can we just turn the telescope around and think about the top end of the labour market we've heard a lot this morning and in your written evidence as well there was a lot about wage stagnation and how there has not been very significant wage increases over the course of the last 10 years or more in any part of the UK including in Scotland but if we look forward and so much of what this committee does is analysing forecasts given to us by the Scottish Fiscal Commission and others and it's very important to the way in which the fiscal framework operates that we understand where taxation is likely to go and the forecasts are notwithstanding the wage stagnation that we've seen over the last 10 years that the number of additional rate taxpayers in Scotland and the number of higher rate taxpayers in Scotland, both of those numbers are forecast to grow very quickly over the course of the next five years so the forecast number of additional rate taxpayers again I'm only talking about income tax more than 30 per cent increase between now and 2023 and forecast number of higher rate taxpayers nearly a 25 per cent increase between now and 2023 notwithstanding the fact that we've seen no real wage rises over the course of the last decade so two questions about this what's driving these forecasts and in your experience and in your judgment and yes they are just forecasts but in your experience and in your judgment how reliable are they likely to be The reason they are happening arathmetically in those forecasts is because of the freezing of the because we don't uprate the thresholds particularly for the 100 that's what's driving your additional rate the 150k is set as it were and doesn't rise with inflation and so even if earnings overall are only growing by 1 per cent above inflation if you're not even uprating the threshold by inflation then clearly you bring more people into the net and that is what has driven the increases in why they're more hot so that's not additional rate and those increased percentages are on like you know 10 people going up to 13 so there aren't lots and lots of people in the bucket so it's a big percentage number the absolute numbers are not that large but they're big matters for tax policy clearly because they pay a lot of tax on the higher rate group which is a much larger percentage of the population so the increase there is being driven by a policy pre 2015 which is when the personal allowance rises happened the high rate threshold was actually sometimes cut intentionally to avoid the personal allowance benefitting feeding through to high rate taxpayers so that was then stopped in around 2015 we just got on with in fact we actually moved to increasing the high rate threshold that is now not true in Scotland but it's true in the UK so you basically you've got a choice which is if you want revenue to come in and you don't want to change your tax rates then fiscal drag either in the economist sense which is earnings being faster than inflation or in the kind of brutal politics sense which is absolute terms freeze your thresholds and then allow even inflation plus earnings growth on top of that to drag more people in to high rate so over time you've got straight choices about where you want the revenue to come from if you don't want to go it's in some ways from an economist perspective we don't want lots of very high marginal tax rates as any of itself but there are very real trade-offs about where the revenue comes from if it doesn't come from those sources so I'm nervous when people say we can't possibly any particular given rate because people's sensitivity to tax rates is very different for different kinds of people so like single parents and second earners in couples their behaviour is very sensitive to tax rates and I'll be very careful about how universal credit interacts with tax rates at the bottom for those people high paid men are high paid men are insensitive to the tax rates in their decisions and will basically do what they're going to do anyway more or less so where you care about depends on who you're who you care about To back to our synapse the freezing across the UK of the additional rate even though that's devolved thresholds will drag more in the Scottish government's policy of freezing or at least under inflation increases in the higher rate will also be a big factor in broadening the tax base up at the higher end so there's two reasons we supported that freezing of the higher rate tax thresholds in Scotland for this year and for future years one was around increasing tax revenue to hopefully back to the very start of this session be able to invest further into public services and into anti poverty measures too but the other was yes of course to broaden the tax base to a number of people up at that end too I think the implications for that though so whilst we talked earlier around how of course a pound for pound increase in pay for someone on a higher earnings versus a lower earnings will bring more tax revenue at the higher end that's not to say that pay rises for those at the low end will not be meaningful in terms of the tax revenue they bring in so roughly if we could get above forecast pay growth for under median wages of 1% that would be equivalent to freezing the higher rate tax threshold for the next year or two so this matters and whilst on the one hand of course the higher earners are where we can quite quickly get tax revenue in provided they are sustained in the country down at the low end we can still make significant increases in revenue arguably in a more sustainable way than tax rises David Just a couple of things the drag point is well made if we hold the thresholds constant clearly earnings growth is going to take quite a few more people into the higher tax bands again I would say it's important for the Scottish Government to think through the interaction of national insurance and income tax because you've got this strange 52% rate being paid by people on kind of upper but not really high high income so it's important to think that through on your original question Adam I'm struggling to think of what businesses are out there that are going to generate these extra high earners going forward it's not going to be in the public sector that we're going to have a lot of extra additional rate payers I mean I'm assuming that these would be sort of entrepreneurs coming forward with new fast growing businesses and I've got to say I don't see a lot of evidence admittedly it's hearsay but I don't see the evidence of that coming forward at the moment I think a number of us are skeptical about these forecasts especially when at the same time the SFC are forecasting that earnings growth in Scotland will be lower than it is in the rest of the UK and the employment rate in Scotland will be lower than it is in the rest of the UK again these are all just forecasts but matching up these various forecasts with each other has proved a bit of a challenge when we were looking at the budget earlier on in the year thank you very much that has been a quite fascinating informative session being great contributions all around the room help us when we come to meet with the cabinet secretary in the 8th of May to give us a good grounding of the things we need to be asking the Scottish Government a lot of this is about with the powers of the Scottish Government is the UK Government involved in this as well maybe that's something we need to think about for the future but thank you very much and I'll now close this meeting at the finance committee