 Felly, rwy'n meddwl am y cywbeth wrth teulu i gyfnodau cyhoedd drain a'r eistedd i'r mynd, ddim yn ddim yn mwy i fynd i fynd i'w cychydigelwyd, yn wneud mwy i fynd â'r cymdeithasau neu yn ddim yn ei fod yn g segur ac yn gweithio'r galiad y cyfnodau cywydoedd. Mae'n fwy i gняillio i'w gweith Genedlaethau allan yn ddafodol, ei gyrdd yma o'r tyffydd bŵan a'r euch mwy o'r cychydigelwyd pan fyddai ddawodau. We have apologies this morning from Dennis Robertson, who has to be elsewhere. We are joined by Stuart Maxwell, who is a substitute on the committee. As this is Mr Maxwell's first attendance at this committee, I have to ask you, Mr Maxwell, if you have any interests relevant to the work of the committee, that you wish to declare. I need to declare, convener, but I would point members and others to my register of interests. We have three items on the agenda this morning relating to our inquiry on Scotland's economic future post-2014. This is the last date that we will be taking evidence on the inquiry. I would like to welcome our first panel and welcome back to the committee the right honourable Danny Alexander, MP, chief secretary to the Treasury, who is joined by the right honourable Alistair Carmichael, MP who is the secretary of state for Scotland. I think that it is the first time that you have been to this committee. You are joined this morning by Stephen Farrington, who is the deputy director of the economic group at HM Treasury. Last time you were tipped to be the next permanent secretary of the Treasury. You can update us how your career path is getting on. Chris Flatt, deputy director of the constitution and communications at the Scotland office. Welcome to you all. We have about 90 minutes or so for this session. I remind members if they would to keep their questions short and to the point, and if we can have responses that are as short and focused as possible to allow us to get through the topics in the time available, that would be very helpful. I am not sure if members want to direct their questions to a particular individual, but it may be that you can just agree between yourselves who is going to answer any questions that are asked. I may just start off and ask, I don't know, maybe yourself, Mr Alexander and Mr Carmichael if you want to come in, but if you could just set out for us why you think the Scottish economy would benefit from a no vote in the referendum in September and maybe try and answer that if you can in maybe two to three minutes. Thank you very much. Thank you Mr Chairman for inviting me back. It feels like only days since I was here for the opening session of this inquiry and it's a very good opportunity to hear the arguments and have the debate. I'm here obviously both as chief secretary to the Treasury but also as a member of Parliament for Inverness, Nairn, Bailnack and Stras Bay and therefore as someone who has a number of direct interests in the matters under discussion today. I think that I'll make just two or three points in answering your opening question. Firstly, Scotland's economic performance is very strong as part of the United Kingdom. I think that working together within the UK creates economic opportunities, more jobs in Scotland, in a whole range of sectors but particularly energy, financial services, defence and others. I think that some of the evidence that we've produced as part of the Scotland analysis programme shows from a macroeconomic perspective the damaging effect that erecting an international border has on trade flows and therefore on job creation. Just a couple of weeks ago, I published the most recent paper, Scotland analysis, fiscal policy and sustainability, which I'm sure your committee's had a chance to look at, which looks in the round all of the fiscal issues that would affect an independent Scotland. It looks at the starting point in terms of the much larger budget deficit that Scotland would expect to have in 2016-17 compared to the rest of the UK. It looks at the rapid decline in oil revenues, the extra costs of an ageing population, the higher bond yields that could expect to be paid according to a lot of independent evidence under independence and brings all that together to make clear that there is a UK dividend to every single scott of around £1,400 every year in terms of lower taxes and sustained public spending as part of the United Kingdom. I think that the thing that's been striking to me over the past few weeks is the degree to which each of those building blocks is supported by independent evidence. For example, on the point about the starting deficit and the divergence between oil revenues and demographic costs, the Institute for Physical Studies just recently published its own report, which is very much bearing out the analysis in our paper. On oil revenues, we see from the OBR's forecasts decline. It's quite interesting that the Scottish Government, on the same day that I published this paper, brought out a new oil and gas forecast, which is just as hyper over optimistic as its previous forecasts and leaves a massive hole in the financial case for independence. We've also heard other independent commentators on the financial sector and other places supporting the argument that a currency union simply is not going to happen or would not work. I think that there may be many other arguments around whether or not Scotland should become independent. From the point of view of the economic argument, which is a subject of this committee, I think that all the independent evidence that has emerged in recent weeks supports the idea that Scotland is economically stronger and more successful and has the best of both worlds, if you like, as part of the United Kingdom. Mr Michael, do you want to add anything at this stage? Just very briefly, Mr Chairman, because I think that the Chief Secretary has given you a fairly concise and very clear summary of the case from which I would not depart in any way shape or form, but I think that it might just benefit the committee to pause for a moment and to reflect about the state of Scotland's economy today as part of the United Kingdom. Some six minutes ago, the latest employment figures have been released and they show that employment in Scotland increased by 16,000 over the last quarter, unemployment in Scotland fell by 7,000 over the quarter, and the number of people seeking jobs is claiming jobseekers allowance fell by 2,300 over the month of May. The unemployment rate in Scotland has now fallen to 6.6%, which is the same as for the UK as a whole. Those people returning to work find that they have also been helped by increases to the personal allowance by this Government, which have taken 242,000 Scots out of paying income tax altogether. One million Scottish pensioners have benefited from having their pensions protected by the Government's triple lock on the state pension. The GDP has now risen for seven consecutive quarters. Although, in the last quarter of 2013, the growth of GDP in Scotland was only 0.2% compared to 0.7% for the rest of the UK, I think that it is worth pausing to reflect on why that should be. There is a fairly broad consensus that, in fact, it was as a result of the temporary closure of the Grain Smith plant last October. I would just suggest to the committee that that is a reminder of why it is better to be part of a larger economy where we spread the risks and share the rewards, and also remind the committee that, in fact, in tackling that real threat to the Scottish economy, I was delighted and indeed privileged to work very closely with John Swinney, and I think the fact that Scotland's two Governments worked together in that way was ultimately to the benefit of Scotland. I am not going to pretend that everything in the garden is rosy. We have had to take some tough decisions and we are not clear of the woods yet, but there is room for optimism, particularly in relation to the Scottish economy. The critical point in relation to the inquiry that the committee is conducting that needs to be emphasised is that what has been achieved has happened precisely because Scotland is part of the United Kingdom, rather than despite it. Okay, thank you very much for those opening statements. It is just a small process point. I am technically not the chairman of the committee, I am the convener. Not that I am precious about it in any way, but we will get complaints. I might just follow up Mr Alexander's point that you touched on in your opening statement about oil and gas, because this is something that has been a lot of substantial interest to the committee. In fact, we did a session in Aberdeen University with the oil and gas sector and we heard about the importance of oil and gas to the Scottish economy, and how significant that has been. We have also heard a lot about the impact oil and gas has in relation to the public finances in Scotland and the contribution that the tax revenue pays in relation to our fiscal position. You said that the Scottish Government has published updated figures as to its projections as to oil and gas revenues, but what is the UK Government's analysis of the future prospects for the oil and gas sector? I think that the first point that you made is a very important one, which is that the oil and gas sector is hugely important to the Scottish economy and to the UK economy. There is no doubt that in recent years we have seen the tax revenues from the oil and gas sector decline, and that is expected to continue. I think that we have a shared interest in maximising the economic recovery from the North Sea, making sure that we can eak out every last drop of oil and gas from the UK continental shelf. That is why we have taken decisions like for the first time in this coalition government, being clear with oil companies about decommissioning relief on North Sea equipment, on field allowances for new fields and so on. All those things are, as they were, sacrificing tax revenue in order to maximise economic activity in the North Sea. I suspect that that is a trend that we will need to continue because we have a wider economic interest in making sure that it lasts as long as possible. That brings me to two points about how that sits within the context of the debate about independence. On the Scottish Government's forecasts and the figures that they publish for how they see the public finances in an independent Scotland, rely on North Sea revenues being consistently more than double the forecasts made by the independent office for budget responsibility. That is despite the independent office for budget responsibility's forecasts since 2010, having overestimated UK oil revenues by 20 per cent on average. It was interesting that, when the Scottish Government published their new oil and gas bulletin on the same day that I launched our paper on fiscal policy, it excluded any reference to what had actually happened in 2012-13 and 2013-14. In previous forecasts, free of bulletins looked back at what had actually happened. It did not reveal how over-optimistic their previous forecasts had been compared to actual taxis received. The most cautious Scottish Government forecasts from March 2013 were actually around £5 billion too high for those two years. What that means is that any of the Scottish Government's projections for independence are wrong because they are based on massively over-optimistic projections. They are over-optimistic by comparison forecasts, which themselves have been shown to be on the optimistic side. That means that you just have this widening chasm between the revenues on the one side and the costs on the other, which is one of the fundamental building blocks of the argument that says that there is a substantial UK dividend because, of course, those fluctuations in oil revenues are absorbed in the pooling and sharing of resources that we have in a wider United Kingdom. Of course, because you then have that much more worrying and difficult fiscal position under independence, any promises that the SNP seeks to make to the oil and gas sector about stability of future revenues have to be taken with a pinch of salt. Of course, if Scotland were to be independent, a Scottish Government would have to be faced with under those circumstances pretty serious decisions on either substantially cutting public expenditure or putting up taxis. Therefore, promises not to put up taxis would have to be taken with a big pinch of salt. I have a couple of members who will come in with supplementaries just before we get to that, just to follow up on the point that you have just made. I mean, I am sure that you are familiar with the argument that the SNP would put forward and say that there has been a substantial investment in the North Sea over the last couple of years, and that will all reap benefits in the future, but you would think that that is already reflected in the projections that have been produced. I very much welcome the investment that we have seen. That investment is largely off the back of decisions that the UK Government has made. The coalition Government has made in the last two or three years, particularly on decommissioning relief, particularly major investments off the back of new field allowances that we have announced. Obviously, we had the very important review by Surin Wood putting in place a new regulatory regime for the UK continental shelf, all of those things giving a sense of stability and certainty. What I would say is that, if you like, the North Sea is shifting from being a tax asset as a tax asset is declining because the policies that we have to put in place to ensure—I think that the whole committee, I hope, would want to see—that we maximise the North Sea's role as an economic asset means that, in and of itself, we simply cannot expect to get tax revenues anything like we have seen in the past or indeed anything like the Scottish Government's forecasts simply because, with tax revenues at those levels and tax rates at the levels that obviously lie behind those forecasts, we simply would not get the investment that we need to have. Field allowances are a very substantial tax break, effectively, to enable and to incentivise new investments to take place. I am delighted that some multi-billion-pound fields have been opened up off the back of those allowances. Likewise, decommissioning relief, if you think about the cost of—the multi-billion-pound cost of decommissioning relief, when spread across a much smaller population in Scotland, becomes much harder to bear under independence than it would with the deep pockets and shared resources of the United Kingdom. Mike McKenzie has a supplementary question. Thank you, convener. I am glad that Mr Alexander has brought up the OBR projections. I wonder whether you agree with me that OBR has not really done all that well in a number of projections that they have made, but I wonder if you could explain to me why OBR predicts that all prices are flatlined from 2016-17 at about $99 a barrel when DEX—the Government agency's own figures—suggest that all prices are going to continue upwards. They are talking about around about $132 a barrel at that point and continuing to rise. How can there be such a disparity between DEX, the Government's own agency and OBR? Then, in terms of production, OBR again takes the most pessimistic outlook of production. UK oil and gas suggest a 14 per cent increase between now and that time scale, and yet OBR again suggests that production is going to remain low. Taxing the imagination to suggest that, as OBR does, we are not only seeing record investment now, but that is going to continue over the next several years. All those investors who are making those crucial investment decisions are doing so on the basis that production is going to decline, prices are going to flatline. Surely that is stretching credibility to make that suggestion. I think that we have just heard the first of many new tax proposals from the SNP under independence attacks on the imagination. The questions are serious ones. The first thing I would say is that the Office for Budget Responsibility was created precisely to have an independent objective forecaster that is independent of government, not influenced by government, that looks at all of the evidence from around the world and forms its own best judgment about the forecast that it puts forward. While economic forecasting is a forecast and therefore things change, what you have actually seen with the OBR's forecast of oil revenues over the past two or three years is that even their forecast has been significantly higher than the actual amount of revenue received from the North Sea. I urge the committee to bear that in mind. If you want to get into the reasons for the OBR's forecast, you need to ask them, they are independent of government, so they would need to explain to you for themselves precisely how they have built up their forecasts. The whole point is to have an economic forecasting agency that, under the previous regime, politicians were often able to fix the forecast to suit their objectives. We have an objective independent forecaster, which recent evidence has shown that even those forecasts have been higher than the amount of revenue extracted. That is why I think that it is highly irresponsible for the Scottish Government to treat the OBR's forecast as the lower bound and to take a much higher and more optimistic forecast. In terms of your questions about investment, I have warmly welcomed the investment. I have been taking within the Government decisions precisely aimed at increasing investment in the North Sea, but as I explained, many of those investments are off the back of additional tax allowances. Those tax allowances in and off themselves mean that we do not get as much revenue from those investments as we might have done for investments of a similar financial scale decades ago. That is because the places that oil companies are now exploring and innovating are the most difficult, you know, west of Shetland. It is much more costly to invest in than some of the earlier places. The ultra-high pressure, high temperature investments that are now coming forward thanks to the new cluster of field allowance that we announced in the budget, again, those are very inaccessible, technically difficult reserves to get to. Again, it is only because of tax allowances and the very nature of a tax allowance means that you are getting less tax than you would be if that allowance did not exist. However, I think that that is the right fiscal decision to take a hit on the tax side in order to enable the investment to go forward. Just if I may follow on the question, good morning by the way, the OBR forecast. You said that the OBR are independent of government, of course they are not because, as Alison Darling said, all that long ago they were a wing of the Tory party. In fact, the first chairman was an adviser to Mrs Thatcher, Sir Alan Budd. The OBR itself, in talking about its processes, says that we consider our methodologies work in progress. So they are not fully reputable forecasts, are they? One of the other things in terms of their forecasting is that their oil for price forecast moves in line with the average of the futures curve in the last one over the 10 working days to 27 February 2014. Now, the OBR buys their forecasts from Bloomberg. Who has looked at the forecasts in the futures in the last month? Well, can I say firstly that the attack on the OBR is characteristic of an approach to this debate by SNP politicians who seek to besmirch the reputation of those people, of those people who speak on this side of the debate. I have seen the front page of the Daily Telegraph this morning with the most despicable attack on an individual, and I hope very much that there will be an explanation forthcoming for that behaviour from the Scottish Government. So I think rather than trying to besmirch the independent office of budget responsibility, which is completely independent of government, which is not a party political organisation in any way, shape or form, I think that does lower the tone of the debate when I say so, Mr Brodie, and I'm sorry to have to say that to a former party colleague. You alluded to that before, Mr Alexander. Can I just put that to rest? Some people choose to leave their party because of their principles. Some choose to leave their principles because of the party. Well, your reasons are your own. I was trying to make a friendly point rather than an unfriendly one. The OBR forecasts are based on the assessment of the Budget Responsibility Committee, which is combined of three economists of outstanding independent reputation. They look at all the evidence that comes in based on the technical assessment of their own analysts and come up with a forecast. If you want to question the basis of the OBR's forecasts, I suggest that you put those questions to the Office for Budget Responsibility. You're seeing it! All right. Hold on, Mr Brodie. I think I've probably finished. Okay, thank you. Well, very briefly, Mr Maxwell, yes. Thank you, convener. Very briefly. You keep saying that we should ask the OBR, but you rely on the OBR figures all the time. You have spent the morning already talking about the OBR constantly. Could you give us an OBR forecast that actually proved to be correct? Well, I would say that the OBR forecasts have been—I mean, the OBR has actually published very detailed assessments of its own about precisely looking at where the forecasts have been changed. I think that if you look at the OBR's forecasts for employment, for example, those forecasts have been pretty much bang on. Sorry. We're talking about oil and gas. You asked me for any OBR forecasts that have been accurate. You were talking about the questions about oil and gas, Mr Alexander. Name an oil and gas forecast by the OBR that's been correct. As I said, in recent years, the forecasts of the Office for Budget Responsibility have been about 20 per cent above the actual amount of revenues that have been received. Then the answer is none, isn't it? I think that that should lead anybody who is looking objectively at the economic case for independence to pour serious doubt on the fiscal projections put forward by the Scottish Government, because the Scottish Government figures aren't saying, let's look at the OBR forecasts. They've been 20 per cent over-optimistic. Let's take a cautious projection so that we can offer a secure forecast. They're saying, let's look at the OBR forecasts, which have proved to be a wee bit higher than the actual amount of revenue received. Let's think of a number and double them, and then say, that's what will happen in independent Scotland. It's total pie in the sky. It is occasionally the business of government, the job of government, to prove a forecaster's wrong. We get forecasts, and if the forecast highlights a problem, then the Government should be taking action in order to improve or deliver a better outcome than that, which is forecast. To try to undermine the credibility of a forecaster merely by pointing to a different outcome, I think that rather misrepresents and misunderstands the whole purpose of forecasting. Mr Alexander, in the event of a no vote, is the Barnett formula set in stone? As I've said before, the Barnett formula is something that has not been questioned or challenged by this Government. As far as I'm aware, there are commitments to the Barnett formula from all political parties. I think that the main changes that are being proposed are in respect of further devolution of tax-raising powers, something that I strongly support. Obviously, every time you devolve a tax-raising power, as I think is happening in the finance committee—I think that my colleague David Gawke is in the finance committee in almost in parallel with this session talking about precisely this question—you have to have ways of adjusting the block grant. Clearly, that's a consequence of further devolution of tax-raising powers, but we were clear in the coalition agreement that there are no changes forecast, no changes happening, and I'm not aware of anyone who is proposing in the next Parliament or beyond to get rid of the Barnett formula except those who argue for independence. Of course, if Scotland became independent, the Barnett formula— The current coalition agreement rules it out, but the current coalition agreement states that we recognise the concerns expressed by the Holtham commission on the system of devolution funding. However, at this time, the priority must be to reduce the deficit, and therefore any change to the system must await the stabilisation of the public finances. That's hardly ruling it out for all time to come. The issues raised by the Holtham commission, as the committee will know, the Holtham commission was established by the Welsh Assembly Government to look at financing issues in Wales. There are two sets of concerns that they have raised. It's not so much the Holtham commission here as the coalition paper there says that you view it positively. It's rather important to explain the context, because the Holtham commission is looking specifically at Wales. There is a concern being expressed in Wales about convergence of funding levels per head between Wales and England. It's something that had been occurring up to 2009 and hasn't been occurring for a while. It may very well be that the concerns of the Holtham commission about convergence are something that could be looked at, but that's in the context of— The Barnett formula is something that could be looked at in terms of the most recommendations. The idea of looking at the convergence in the context of the tax powers that are proposed for devolution to the Welsh Assembly Government. That isn't about changing the Barnett formula in any way. It is about looking at the overall financial position, including tax devolution of the Welsh Assembly Government. As you know, the recent SILK commission recommended devolution of income tax powers to Wales and borrowing powers to Wales. The income tax is subject to a referendum in Wales. Clearly, if there were a referendum in Wales and they voted for devolution of income tax powers, then that would need to be taken into account. It's important when decisions are taken that there's clarity about the consequences, whether that's the referendum in independence or the referendum in Wales. The passage of the Scotland Act 2012, where the command paper for the Scotland Act 2012 set out one system of adjusting the block grant. I believe that your colleague is at the finance committee outlining that a different system is now proposed by the UK Government, which would include a change to the formula for generating Barnett consequentials. Is that the case? Is that something that has been agreed with the Scottish Government, or is that something where there is no agreement? It is not right to say that a particular method of adjusting the block grant was set out in the command paper. It is probably best if my colleague David Gawr answers those questions at the finance committee, given that that hearing is on those subjects. I do have a quote from the command paper, which sets out exactly what the formula was. There is an ongoing discussion between the UK Government and the Scottish Government about what is the fairest way of adjusting the block grant in respect of the devolution of different income tax powers. That's on the basis that you want to have a system of block grant adjustment that does not cause, in and of itself, an unfair gain or loss either to Scotland or to the rest of the United Kingdom. The whole purpose is to make sure that, with income tax devolution in particular, but also in other areas, income tax devolution is the subject of the under discussion here. The fundamental issue here is that in 2012 legislative consent was granted by the Scottish Parliament to this command paper's formula, whereas now we are in a position where there has been a departure from that agreement. Constitutionally, there is nothing to stop the UK Government going ahead with the approach that they propose, because you remain the sovereign body. There has been no departure from any agreement. There is a discussion going on about how, technically, you go about ensuring that the system for the block grant adjustment is one that is carried out in a fair way that has no gain or loss to either government as a consequence of the nature of the adjustment. There will be no need for subsequent adjustments to the block grant to compensate for changes to those taxes after their devolution. That was the 2012 command paper. The current report is proposing on-going adjustments to the Barnett formula as a result of those taxes. It strikes me as very hard to reconcile those two positions. I do not have the command paper in front of me, but I think that what is being offered is a misleading interpretation of what was said at the time. I am sure that my colleague David Gork will be answering those questions in detail at the other committee. Leaving the intricacies of the 2012 act, you said that no party is proposing to make any changes. The Campbell commission again says that the UK should move to an independent transparent needs-based formula to serve all parts of the UK well. Recommendation 131 says that the Liberal Democrats have long believed that the Barnett formula should be replaced by a genuine needs-based assessment. The 2010 Liberal Democrat manifesto, which I believe you were the chair of the group that wrote, expressed a desire to move away from the Barnett formula. How can you square those two statements? I would say that having spent a bit of time in the Treasury operating the Barnett formula looking at it, I would say that an adjustment that offers gains or losses to Scotland or to the rest of the UK is something that simply is not practical or on the table. We made clear in the coalition agreement our view of that. The discussion at the moment is one about devolution of tax powers. As I say, having seen the Barnett formula in operation and been responsible for it, I think that it serves the interests of Scotland and the rest of the UK well. What is more, of course, as the Campbell commission says, if you have substantial further devolution of tax-raising powers, which is what I would like to see and what my party would like to see, then you have to make adjustments, significant adjustments in order to account for the revenue that is being raised directly rather than being allocated through a block grant. That process of adjustment in respect of revenue-raising powers would need to take place. My first question is to Mr Alexander to reflect in your discussion with Mr Mackenzie on the oil and gas issues. As a member for the north-east, you can mention that I am particularly concerned about employment in the oil and gas industry in the longer term. To understand your position, because the north-east is a mature basin and the production costs are rising, your view is that whatever government or whatever context will need to decrease its tax take to ensure that the industry has a longer term future. We are looking more at preserving employment rather than maintaining tax revenues in the longer term. I think that that is exactly right. It is precisely what is happening at the moment. In order to maximise the economic return from the UK continental shelf, we have made a number of decisions that are about, through decommissioning relief, handing back tax revenue to the industry to help meet the cost of decommissioning through field allowances, sacrificing tax revenue in order to enable investments to go forward. Those are precisely the sorts of trade-offs that a responsible government should be making, precisely as you say, to maintain jobs, employment and investment in the north-east of Scotland and, indeed, in other parts of Scotland that benefit from that industry. My next question is on the issue of forecasts that have also been discussed. I do not think that I have ever seen any forecast on oil and gas prices in revenue, which has been correct by anybody, but on the broader issue of forecasts there is a lot that has been made. I want to get your view on the forecast made by the Scottish Government in its outlook for Scotland's public finances and the opportunities of independence document, which was released at the same time a couple of weeks ago. That is making substantial assumptions in terms of economic growth and growth and productivity as well. Now, how robust do you feel that the Scottish Government's forecast will be for the economy post-deparation? I do not think that they are robust at all. If you bear in mind that understanding those issues, some of the consequences of independence, particularly in terms of the border effect where you create a new border, that results in a very substantial diminution of trade. If you think of the disruption that would be caused by a different currency system, all those things would undermine trade and investment and growth. It tends to be, not exclusively, the traded sectors that are the more productive ones, so you take a hit to productivity there. The Scottish Government's forecasts were based on pretty heroic assumptions about growth and productivity, way above and beyond anything that has been achieved in similar regimes. I think that in order to make their sums add up, there would need to see growth consistently—one percentage point—above the UK every year for about 40 years, which is, I think, totally unrealistic. In any set of circumstances where you are putting forward costings, you are trying to make a reasoned economic case. It is preferable to be cautious in your assumptions. If you are surprised on the upside, that is obviously welcome. I think that coming up with the most optimistic set of numbers you can possibly imagine off the back of a fag packet and then saying that that is your central assumption for economic projections seems to me to be rather misleading. I have just finished the last question by asking both of you. It is a whole range of assumptions out there. The Scottish National Party attacked the OBR assessments, but we have also not had only the UK Government's assessments. We have had assessments from the IFS about their common challenges in a separate school. What is your view of the overall range of assessments out there for the Scottish economy if Scotland must become independent after September? Can we maybe just take a slightly different tack on that, Mr Convener? I am prompted by the fact that I know that Richard Baker represents the northeast of Scotland. He will know, as probably most of you do, that I was in practice as a solicitor in Aberdeen and Aberdeenshire before I was elected and I was back recently talking to people who had previously been clients. One of them was a fairly significant commercial property developer in the northeast of Scotland. This is not about how Governments see forecasts. This is about how fund managers see them. This particular commercial property developer was telling me that he is now finding it very, very difficult to get financing for commercial property development in the northeast of Scotland, one of the best-performing parts of the Scottish economy, because of concern about the possibility of a yes vote in September. What is happening according to him is that you know how commercial property development works, the developer develops the property, they then sell it on and that's where the fund managers come in. You have to have some certainty, you're going to have that on sale if you're going to get the finance for the development in the first place. They were telling me that that level of uncertainty is now making it very, very difficult for them to get access to finance. I'm quite happy to do what I can to beat the drum for commercial property developers in the northeast of Scotland or any other part and I'll work with people in this committee or I'll work with people in the Scottish Government if that is necessary. In terms of forecasts and who will look at forecasts and what the meaning of them is, I thought that was a very illuminating illustration. I'm just emphasising here the offer of co-operation with the Scottish Government, who I know are going to be concerned about this, and any member of the Scottish Parliament is an absolutely bona fidea. Can I just add at just two very brief points, convener? Firstly, just one other feature of the Scottish Government's forecasts, which may be of interest to the committee. All those heroic assumptions about faster growth and rising productivity and so on, it's interesting to note that in order to make their numbers add up, they assume that none of the benefit of that feeds through to higher public spending. In other words, they make assumptions about the share of the economy that is spent by the state falling very dramatically in Scotland over the period of their fiscal forecast. It sort of backfills a black hole, if you like. That may be something that you want to look at further. The second thing that I'd say is that you can also look at what independent organisations have said about those forecasts. The Economist magazine looked at our report and others and said, Mr Alexander's figure is the higher of the two, but also the more credible. The Independent Institute for Fiscal Studies said that public finances challenges facing an independent Scotland would appear to face more substantial challenges in the UK. That largely reflects the weaker initial position of Scotland's public finances and the likely long-run decline in revenues from oil and gas production, which would have a more significant effect on Scotland's fiscal position than that of the UK as a whole. That means that Scotland would likely need to implement further tax increases and or spending cuts after 2016-17 to achieve a sustainable fiscal position above and beyond those that are required by the UK. In your opening statements, you spoke about employment figures and how they were improving, but it remains the case that the third of the 13 million families in the UK in poverty are part of a working family. That is not having the impact that it should, because of low wages, part-time employment increases and the fact that headline employment figures are not telling us the whole story. I would be interested to learn what the UK Government intends to do about that under the current situation. Mr Kerr-Michael, you spoke about sharing the rewards and spreading the risks, but is it not the case that Scotland will be sharing increased energy prices as a result of the UK Government's determination to invest in Hinkley Point? Experts in energy here in Scotland have pointed out that energy bills in Scotland and in independent Scotland would decrease. Will we pay more for the next 30 years? I would be grateful for your comments on those questions. First of all, on the question of poverty and poverty in families and child poverty, you are absolutely right that there is an enormous job of work to be done there, but let us not ignore the fact that that work is being done and that we are seeing remarkable progress. The number of children living in poverty is on a downward curve. We still have a 2020 target, which is very challenging—I have no doubt about that. I think that it is incumbent on us all to keep the Government's feet to the fire in relation to that. In terms of low wages, while you are seeing, as I mentioned in my opening comments, the personal tax allowance rising now to £10,500 next year, I would hope that in the next parliament, because that has been a direction of travel that has been pretty universally welcomed and has been very successful in helping people on low incomes in particular, we would be able to go beyond that. Certainly, I think that my party at the next election will be wanting to promote that as a tool for taking us to a point where anybody on the minimum wage would be able to have a full-time job and not be paying income tax. Obviously, the manifesto is still to be written, but that is very much a direction of travel that we would like to see us going in. The minimum wage is being increased to £6.50, something which again helps those who are on low incomes. On the question of energy prices, the overall energy policy here is significant, because I think I hope we have a shared commitment to increasing the amount of our energy that comes from renewable resources. Candidly, though, I think we all know that that is going to require a fair level of public subsidy for quite some time to come, and as part of that public subsidy, the subsidy is spread out over the market of the whole of the United Kingdom. That is 63 million people compared to the 5 million people that we have in Scotland, and when we launched our own energy paper, we did outline the full range of different possibilities for extra costs to energy bill payers in Scotland if you were to maintain similar levels of subsidy for renewables. From memory, it went from about £30 to £180 a year. Is it not the case that we are seeing tax breaks for those who would like to invest in hydraulic fracturing and other unconventional gas extraction? Because we are being hamstrung, we cannot invest in renewables in the way that we would want, and here is an industry in which Scotland has massive, massive potential. We are seeing far too many young people who are facing the option of low paid employment, and we are being held back by the UK Government's insistence in investing in outdated, outmoded technologies of the past. On the issue of poverty and your wish to improve the situation for the many, why, then, if things are so good, have Oxfam produced their breadline kids report this week? Why are we seeing increased numbers of people relying on food banks and other meals services? I am just not convinced that the changes that you are promoting are actually happening on the ground. They certainly are not happening in my region. I can only point you in the direction of the figures that show that we are still on a downward curve in terms of the number of children living in relative poverty. That is the progress that we have made to date. I have told you already that there is an enormous amount still to be done in this regard. I am not going to hide from the fact that there is an enormous challenge here, but we know that the best way of getting people out of poverty is to get them into work. In order to get children in particular out of poverty, there is a real role for getting parents into work. In that respect, the extra help that comes from the UK Government for childcare is very significant. As part of the change to universal credit, something in the region of 80 per cent of childcare costs will be made for people in universal credit. I will add a couple of brief points to what Alasdor has said. First, in terms of the framework for investment in renewable energy, it is precisely because of the decisions that the UK Government has taken in respect of the energy bill, the strike prices and so on, that we are seeing now substantial offshore wind investments in Scotland coming forward. I celebrate that. I am sure that every member of this committee does too. It will create jobs particularly in the Highlands and Islands, but I am sure that in other parts of Scotland as well, that is happening with a system that incentivises investment in renewable energy, paying considerably more per unit of electricity than would be paid for nuclear power or other forms of investment. Those costs are spread across 30 million UK households, as opposed to a significantly fewer number of households in Scotland if those costs had to be purely met by an independent Government. That is why our analysis paper on energy gave a spread of between £38 and £189 in terms of the increase in energy bills under independence. I completely endorse everything that Alasdor said on child poverty. I just add that if you go back to the fiscal arithmetic is also important here, because we have demonstrated through the paper and through the discussion that we just had about oil revenues, that independent Scotland would be in a position of having to make either significant reductions in public expenditure or to raise taxes significantly simply to keep expenditure as it is at the moment. In that case, the levers to tackle what we all agree is a huge, huge social challenge that would be much less available under independence than they are with the UK dividend that we have at the moment. The Joseph Rowntree Foundation, for example, is reporting on the fact that we are going to lose all the increases. We have moved some children out of poverty, but they are certainly very concerned that the progress that we have made under devolution is being undermined by the welfare reforms that the UK Government has put in place, welfare reforms that impact significantly on women and children. You spoke about spreading the costs with regard to energy prices, but I would like to, if I may convene, move on to the issues of pensions. That is your last question. That is another area in which we are constantly hearing how pensions are safer as part of the larger UK. However, the fact is that pensions across the UK are a big issue. Whether or not Scotland is independent or whether we are part of the UK, we need a culture change, the same culture change that we need in banking and other issues. ICAS has reported a significant underfunding issue across the UK. Is it better that we grasp the problem now whether Scotland is independent or whether we remain part of the UK and start funding our pensions properly and fully? Previous UK Government took a significant windfall out of pensions. Indeed, I was highly critical of them at the time and would remain so today. I am prepared to defend a lot of things, but the actions of previous Labour Governments, I am afraid, stretches my... Yes, there are others who might have greater enthusiasm for that than me. Look on the question of welfare reform in child poverty. Nobody has a monopoly of wisdom or solutions here. These are complex and wide-ranging problems. On the point of welfare reform, though, let's not forget that universal credit, it's estimated, is going to take something in the region of 300,000 children out of child poverty. On... This is what I mean about nobody having the monopoly on wisdom. Look what the UK Government is doing in England with relation to the pupil premium. I think this is obviously an area which is devolved to the control of the Scottish Parliament and rightly so, but there are some really interesting, quite exciting and innovative bits of work being done there in relation to the pupil premium, targeting money at children who are in greatest need and making a real difference to the lives of these children already. It's not just a question about child poverty because poor children, we know, tend to grow up to be poor adults and the way to get to break that cycle is to improve their educational achievement. That's something that's happening already in relation to the pupil premium. You won't see the full benefit of that. You'll not see the full impact of that. Certainly not in this Parliament, perhaps not even by the end of the next one, but by the end of that one. But it's absolutely necessary that you do that sort of long-term planning and long-term thinking. I go back again to my own previous experience as a solicitor working in the criminal courts. Picking up clients for 16, 17 years of age and who frankly had been beat before they got to primary school at the age of five. You know, these are difficult, very complex problems, but targeted intervention on these children at the earliest possible stage is what's going to turn their lives around. That's the sort of action which we're taking, which I will be more than happy to open the doors to share experience with any member of this Parliament or this committee who chooses to. On the question of pensions, you're right to be critical of some of the decisions that have been taken in the past and we are having to struggle with the consequences of these decisions these days. I would merely point you in the direction of the changing demographic that highlights the scale of the challenge that would face Scotland. At the moment, the figures are that we have a slightly higher percentage of people receiving pensions as opposed to the working age proportion in part of the population. That is something which is projected to grow as we go ahead in the decades to come. Now, earlier warnings about projections being pertinent here, that would be a challenge that an independent Scotland would have to meet and it is a challenge that I would argue is best met across the whole of the United Kingdom. I'm conscious we're more than halfway through our time and there's still quite a number of members to ask questions so can I ask for shorter questions and shorter answers would be very helpful. Joan McAlpine, who I think is struggling to be heard, perhaps unusually, does not sound unkind, but I hope you'll try your best. I hope you'll bear with me, convener. My question is for Mr Alexander. Mr Alexander, two weeks ago you brought out a briefing paper on the start-up costs of an independent Scotland which he described as a comprehensive analysis. However, the professor at the LSE, whose figures that analysis was based on, Professor Dunleavy, said that figures were bizarrely inaccurate and seriously misleading, so perhaps it could you explain to the committee why you published figures that were inaccurate and misleading? I hope that the voice gets better and the sound system means that you can be heard perfectly clearly by everybody here. The figures that I published, which are the ones in this report that I mentioned earlier, are derived from work by Professor Young, who estimated that the set-up costs of a new state would likely be around 1% of GDP, £1.5 billion is 1% of GDP. You can look at other figures that might help to illuminate the detail of this. For example, the Institute of Chartered Accountants of Scotland recently published its assessment that, to set up a new tax system in an independent Scotland on its own, it thought cost £750 million. Mr Swinney, in his secret memo to his cabinet colleagues, estimated the cost of a tax system in an independent Scotland was between £575 million and £625 million. In our own Scotland analysis paper on welfare issues, there was an estimate there just of the cost of setting up the IT system for establishing a new benefit and pension system in an independent Scotland of around £400 million. Just those two things together take you to nearly £1.2 billion, and that does not include all the other things that you would need to set up under independence. You quoted Professor Young. Professor Young said that the £1.5 billion estimate was not his but was rather extrapolated from the top of range estimates produced from an entirely separate work on Quebec. You are standing by figures that Professor Young has already distanced himself from. He came up with the range of estimates of the cost as a share of GDP. We took the range of estimates and applied them to the actual GDP, so that bit of maths was done based on his analysis but as part of our analytical work. The simplest way to resolve this problem would be for the Scottish Government, who I understand has been doing a considerable amount of work on this question, to come forward and publish their own detailed analysis. I think that we saw the other day that there was a vast number of civil servants now being deployed somewhat presumptuously in working out how to get a new state going in the event of a yes vote, but I would really say that if you look at the ICAS assessment for the tax system, if you look at the DWP's own assessment for the cost of the IT system alone for a new benefit system, that already takes you to £1.15 billion. The £1.5 billion would assume that everything else costs £350 million less than the cost of this building. Given that Mr Swinney was asked 13 times what his assessment of the cost was and refused to answer, I really think that the onus is on the Scottish Government to be straight with people in Scotland about what the actual cost they think is setting up a new state work. Could you please answer my original question about Professor Dunleavy? Why did you use information that he's described as inaccurate and misleading? You didn't answer that question. Well, I did answer it. I explained that in the paper that I published, the estimates were that we used the £1.5 billion figure that we have. No, you'd better oppress release using Professor Dunleavy's figures, but the chief secretary to the treasuries and the cosmic person has said that the treasuries misbriefed on that paper. Well, he's not the chief secretary to the treasuries. He's not yet. He's the permanent secretary to the treasuries. He may have higher aspirations. Yeah, my apologies. He doesn't want to be the chief secretary, I wonder. The substantive point is that he said that the treasuries had misbriefed. Why did you misbrief? Well, as I say, the figures on our paper are based on the estimates of Professor Young. Professor Dunleavy's estimates were used to illustrate what the costs were in a UK context of establishing new departments. I think it's quite interesting as well, convener, to observe that of the £1400 UK dividend, the money that each and every one of us in Scotland has as a consequence of being part of the United Kingdom, of the £1,400, only £4 derived from the setup costs. Now, it's the only part of this analysis that's come under attack, so I'm happy to agree with SNP members that the number is at least £1,396. I think that there is some reason to believe that the £1.5 billion is accurate or maybe even is an underestimate, given the ICAS and the DWP estimates. However, as I say, I find it extraordinary that the Scottish Government is trying to sell the people of Scotland the idea of creating a new state, but is not willing to name the price until after the vote has taken place. If I could go back, I would ask you one more time if you could explain why the treasury misbriefed and why you published misleading and accurate account of Professor Dunleavy's research. As I say, what we've published is what's in this document, which is drawn on the work of Professor Young. Professor Dunleavy's figures were used to illustrate the costs historically by the department. I think that the substantive issue is what are the setup costs for a new state. As far as I'm concerned, the £1.5 billion is a reasonable estimate. It is frankly extraordinary that the Scottish Government has not yet been able to come up with any figures. Mr Sweeney's memo to his Cabinet colleagues, I think, was written two years ago. In that memo, it said that such a work was taking place. I saw the evidence that the Deputy First Minister had given to the Foreign Affairs Committee in which she made clear in her evidence that substantial work on those costs was going on and would be published. I think that the idea that this information is going to be concealed from the people of Scotland until after the referendum seems to me to precisely illustrate to the people of this country why the economic case for independence is not to be believed. In fact, the undertaking given by the Deputy First Minister to the Foreign Affairs Committee was not just to publish that work, but she said, and I have a transcript of the record here, we are doing a substantial piece of work in some of this just now. I'm not going to get into all the detail of this today because this is work we will publish in due course, in the lead-up to and in the white paper, but suffice to say it covers not just running costs but it covers the issues around set-up. On that timetable, the information would appear to be a little overdue. Good morning again. I think that we've just had a very selective rewriting of recent history. I've got three very brief questions for Mr Carmichael and to avoid any intendu obfuscatio, a yes or no answer would be helpful. First Minister, when did I stop beating my wife? I'll leave personal matters to you, Mr Carmichael. You campaign claimed that people in Scotland would be £1,400 better off if they vote no. You then employed engine partners of the UK, run by a better-to-gathered director, being £30,000, to produce a patronising message using lego figures depicting Scots as people who spend all their time eating hot dogs, fishing chips, pies, etc. Did you agree with that campaign? I don't believe that engine did produce the BuzzFeed graphic if that's what you're talking about. Do you agree with that campaign? I think you will find the dip. No, I'm sorry, my understanding was it was produced by people in Cabinet Office, but I might be wrong about that. I can see the possibility. Sorry, did I agree with the lego campaign? It means I've already been on the record of saying the lego campaign of the lego BuzzFeed, whatever it's called, I'm afraid I'm not quite up to speed with all the technological innovations, but it was intended as a humorous means of getting across a serious message, which was, as the chief secretary has already outlined, that, as part of the United Kingdom, every person in Scotland is £1,400 better off. I don't think it was just the most successful exercise in humour, but it's been withdrawn. I must remember until my grandchildren were next time to play with lego and ask them what serious message they're giving me. The UK Government spent £46,500 on attitudes in Scotland towards independence, which one presumes includes the economics of independence. Firstly, where is that taxpayer-funded report? Then secondly, via research that we have now obtained from the House of Commons Library, we've discovered that since June 2013, the Government of which you're a part has spent £140,000 on this research. That, including the £30,000 I just mentioned, is now £170,000. Will you publish the polls that have been a consequence of that research? Yes or no? I'm sorry, I don't recognise your £140,000 figure, but you've obviously got a figure from the House of Commons Library that I've not had been privy to, so I'm sorry, I can't comment on that. The polling work to which you refer is routinely undertaken by Government. It is not something which we have sought to publish in any way. You know the rules as well as I do. It was the brilliant publication of polling information. If you publish any of it, you publish all of it. We've published none of it. We will continue to do so. That was work that was undertaken to inform Government policy. £270,000 of taxpayers' money spent on unpublished polling. Do you not think that you have a responsibility to the taxpayer, and I ask you again, will you publish the polls that have been a consequence of £140,000, which are contained in documents in the House of Commons Library? Will you publish the polls? You're asking me to comment on figures that I've not seen so, and I'm not going to comment on figures that I haven't seen. I've told you already the position on the polling. Let's move away with lots of numbers today. Let's talk about democracy as a Democrat. On the basis that including the MPs and the Lords, people in Scotland like just 4.1% of the UK Parliament. Let me just share something with you as a Democrat. I don't like the word devolution, as we now know it has been called. That implies power rests Westminster from which centre some powers may be devolved. I'd rather begin by assuming that powers should rest with the people entrusted to their representatives to discharge the essential tasks of Government. Now that we accept, and once we accept that Scotland is a nation, then we must accord it a Parliament which has all the normal powers of Government. Do you agree with that? I share your lack of enthusiasm for the term devolution. The term that my party has always preferred is home rule. I think we'd always see devolution as being a step along the road towards home rule within a federal United Kingdom. People like to stick labels on you in this debate and you get labelled as a unionist. I've always seen myself as being a federalist, as doubtless you did yourself at one point. The point though about sovereignty is a very interesting one because that was the basis on which the constitutional convention proceeded throughout the 1990s. It was that sovereignty in Scotland is vested in the people, not the sort of classic dicey definition that Parliament is as a body sovereign. I would still hold to that view of sovereignty today, and that is why it is perfectly proper and legitimate that we should have within Scotland a referendum on where we see our best constitutional future. As a Scott, I will exercise my sovereignty to say that I would wish us to remain part of the United Kingdom. You see that statement I read in the last part once we accept that Scotland is a nation, then we must accord it a Parliament which has all the normal powers of Government. It was written in a document called A Personal Manifesto by the father of modern liberalism, your predecessor in Auckland, Shetland, Joe Griment. I would have thought that given the great work that he did, particularly in the part in which you currently represent, that you might have agreed with that statement. You are not suggesting, surely, Mr Brody, that Joe Griment was ever in favour of independence. I am quoting his statement from his personal manifesto. You are not telling me. You are not suggesting surely. I am quoting from his personal manifesto. I do not know if it was yourself or maybe it was yourself that said that you just heard a rewriting of history if you are trying to claim Joe Griment as somebody who is in favour of independence. In terms of rewriting history, I bow at the feet of the master. That is perfectly acceptable, but I suggest that you go and buy a personal manifesto. Add two very brief points. The fundamental difference between liberalism and nationalism is that liberalism seeks to break down barriers between people and nationalism seeks to build up a new barrier in this case. I think that the exchange we have heard illustrates that perfectly. Secondly, if you are going to quote statistics, Scotland has 10% of members of the House of Commons just under. The logic of your argument was suggested because Scotland only has 0.8% of the members of the European Parliament, that somehow we should withdraw from the European Union. I personally believe very strongly that we are, as Scots, stronger and more powerful and more effective and more prosperous, not just as part of the United Kingdom but also as part of the European Union. The whole purpose is to share sovereignty for the wider benefit and to use that to our advantages as the people of Scotland. I am happy for you to bow at the feet of the master also. Margaret McGeagall In your introductory remarks, very honourable Alasdair Carmichael, you mentioned the triple lock pensions. We hear from the SNP that they probably won't increase their retirement age. How feasible is that? What are the implications of that for an independent Scotland and, indeed, because of the ageing population which you touched on earlier? Alasdair Carmichael There is what accountants and actuaries call the dependency ratio, which is the ratio of people who are in employment to those who are of retirement age. I think at one point, in fact, the Scottish Government tried to pretend that that was a better position in Scotland than it is in the rest of the United Kingdom, but in order to do so they included children in the calculation. I don't think that most people would see children as being of working age. The benefit of the triple lock is that it guarantees the state pension to go up by the rate of inflation, by average earnings, or 2.5%. That has delivered the single largest increase in the state pension ever in the course of this Parliament. That is a very tangible benefit that has come to older people in Scotland as a result of the coalition policies. It was a very deliberate and not an easy decision that we had to take because, of course, money spent in the state pension is money that is not available for people in the rest of the welfare system. The specific facts are that not increasing the state pension to 67 would cost around £6 billion in Scotland between 2026, 2027 and 2035, 2036, and an extra pension cost and would result in about £9 billion of lost GDP in that same period. As well as the broader points Alasher rightly makes about the demographic challenges being more challenging in Scotland than the rest of the UK, there is a precise financial loss that would have to be found within the public finances of an independent Scotland where that policy to be followed through. What are the likely ways of funding that in an independent Scotland? The lesson that we've surely learned in the last 10 years is that you can only spend the money once. Are we facing then, if we become an independent Scotland, increases in taxation? We are facing some very, very difficult choices. Danny has already explained at some length the fiscal position that we would be facing Scotland from the year 2016-17 onwards. The truth of the matter is that as part of the United Kingdom we still face challenges. I'm part of a campaign that's called Better Together, it's not called Perfect Together. There are always going to be challenges, but I would argue and I hope you might agree that in fact these challenges are base made as part of a United Kingdom albeit one which includes within it a strong Scottish Parliament for which more powers should be coming. In an independent Scotland I'd be likely to see a greater increase. Again, as part of the analysis paper, we set out the scale of the UK dividend. This is purely illustrative. If you're going to balance the books in an independent Scotland, in other words to maintain levels of public spending, then rather than have cuts, then all onshore tax revenues would need to be increased by 13% from the start of independence. For illustrative purposes, this would be equivalent to a basic rate of income tax of 28%, a 26% rate of VAT and increasing the main duties on alcohol, tobacco, fuel and vehicles, et cetera, by almost 40%. Those are the sorts of things that you would have to do in order to fill the gap in the finances and by definition part of the UK dividend is that we can have public expenditure and the services that we rely on and money to support those public services without having to make those sorts of decisions. Disappointed at the double speak that we heard earlier on this morning about the Barnett formula, you seem to be wavering all of the place. I'm interested to hear that you you still accept responsibility for the outrageous exaggeration of two weeks ago on the start-up cost for independence and of course you sold out on tuition fees. Why should anybody in Scotland believe anything that Liberal Democrats have to say on any of those matters? Because we have delivered for Scotland a growing economy, cleared up much of the mess that was left to us by the previous Government, we've seen Alasdor highlighted them at the start of his presentation. Further substantial increases in employment in Scotland and across the whole of the UK showing the plan for the economy that wouldn't be happening without Liberal Democrats in Government is working for Scotland. We've delivered substantial cuts in income tax, we've over-delivered actually on our promise of an income tax personal allowance increasing to £10,000. That's a tax cut worth £700 for every single scot. We've delivered on our promises, I mentioned earlier in relation to investment in North Sea oil and gas. We've delivered on our promises as I said earlier in respect of the previous question in terms of investment in renewable energy, the framework that my colleague Ed Davie has put in place. We've delivered on our promises of a triple lock for pensions delivered by Liberal Democrat Pensions Minister Steve Webb. We've delivered on our promises in terms of the Kalman commission, in terms of further devolution, we've passed that legislation, income tax devolution and other things are coming. We will all be paying a Scottish rate of income tax from 2016 onwards, I'd like to see that go further. Of course, as the minority party in a coalition government, we cannot deliver 100% of your manifesto, but I think delivering about 70% as one study showed is a good record and certainly one that I am very proud of. In respect of the arguments that we're making here, for example, in this document, I read out, I'm happy to read them into the record again, but I won't, Mr Convener, for reasons of time, the huge variety of independent economic assessments that back up our claim. I think one of the most interesting features of the debate on the economics of independence over the past few weeks is that we have not found a single economic commentator who's coming out and backing the argument that Scotland would be substantially better off under independence. There may be many other reasons to argue for independence, but the economic case is not one that stacks up at all. That's an interesting exchange. This is not an inquiry into the credibility, or otherwise, of the Liberal Democrat Party. So perhaps, Mr McKinsey. I was asked the question, so I felt I had to answer it, convener. No, I appreciate that. I mean, maybe one day we'll have an inquiry on that subject. Today is not that day. Today we're looking at Scotland's economic future. So perhaps, Mr McKinsey, you could ask a question relevant to that. Thank you, but I'm sure he'll agree with me, convener, that credibility is everything in these arguments. I'm mindful of the recent result of the European elections and confident that an awful lot of people share my views rather than the gentleman in front of the committee. So, Mr Alexander, when you last were here in front of the committee only minutes ago, according to your recollection, you offered to write to the committee and share the UK Government analysis of and downside costs of not continuing in our currency union with Scotland. And you did indeed write to the committee, but you didn't provide any of that information that I asked for. Can I take from that that no such analysis has been done? I thought I had provided all of the figures that you had asked for. I thought that, in paragraph 7 of my letter, I answered precisely the question that I've been asked at the committee. But if the committee, through the clerk, feels that my reply was inadequate, then I'd happily examine it if there are further issues that the committee would like me to write on. I felt quite just about that by offering the figures about the transaction costs, which is the precise thing that you'd asked me about, that I was fulfilling my commitment. I'm sorry if you feel that I haven't, and I'm glad to look at the letter again. Just remind me of what were those transaction costs for the UK businesses or remaining UK businesses exporting into Scotland after independence if we don't share the currency union? What were those costs? I'm just looking at my letter here, convener. I'm actually not the convener, but surely you have those figures at your fingertips? I don't have those facts at my fingertips. The transaction costs £500 million for Scottish firms and £600 million for UK firms. Then you disagree with Professor Muscatelli, who said that those costs could be £2.5 billion. I think that, in coming up with those figures, we used the same methodology that the Scottish Government had used. I haven't read Professor Muscatelli's evidence, but if those are the figures that he gave, they're clearly different to the ones that we have had to offer. I think the more substantive point, though, is that in considering a currency union, as the committee will know, you need to consider issues much wider than transaction costs. If transaction costs were the only thing that mattered, it would be more in the interests of the rest of the United Kingdom to enter into a currency union with the eurozone, accommodating 40% of trade as opposed to Scotland, which would be 10% of the rest of the UK trade. It would even be more in the interests of the rest of the UK purely on the basis of transaction costs to enter into a currency union with the United States of America, 20% of the UK trade as opposed to Scotland at 10%. The problems with a currency union go way, way beyond transaction costs and indeed the costs of a currency union in terms of lack of economic flexibility for an independent Scotland, where the paths of economies would diverge substantially and the substantially increased risk for the rest of the UK. Forgive me, Mr Alexander. Those are the substantive issues. We're a wee bit shorter time and you're going beyond the scope of my question. Can you tell me what that analysis suggests about the cost to the UK and the difficulty that the remaining UK would have in terms of its balance of trade deficit? I think that the balance of trade deficit argument is a bit of a red herring, actually. There's no particular evidence that the currency argument has much of an impact one way or another on the balance of trade. The issue is the issue facing the rest of the United Kingdom as is borne out by the analysis from a whole variety of independent sources in recent weeks. Is that of taking substantial risks with the UK economy? We've seen the way that those risks get transmitted between countries in the eurozone. Can we just confine ourselves to the balance of trade question? I'm really shocked and surprised to hear you suggest that that's not important. Isn't it the case that the UK balance of trade deficit would double without the benefit of Scotland's exports? No, I don't think it is. But I don't have that information immediately to hand. I'm disappointed that the chief secretary... Maybe Ms Haparrington could, in the closing minutes, play a starting role. Perhaps I could add that there was analysis by the credivating agency Fitch which estimated that the effective independence on the UK's balance of payments would be marginal. That's consistent with the analysis that was produced by Professor Brian Ashcroft several months ago. It's also worth saying that Fitch, as part of that analysis, then went on to state that if the UK were to join a currency union, that would be negative for the UK's credit rating. So can you give me just the value of Scotland's exports in terms of the significant impact that they do have on the UK balance of trade deficit? Surely have those facts at your fingertips? I don't have those figures to hand but as I say my view and obviously the view of Fitch as well is that it is a negligible argument. So you don't agree with me that this matter is really quite important and important for the UK Government to consider as well as the Scottish Government? No, I don't agree. It's not important, thank you. I don't agree with you. I mean, I'm sure there are things we do agree about but we haven't identified any today. Okay, okay, okay. Okay, last place, Stuart Maximill. Thank you, convener. We've on to the question that I was going to ask. I want to just clear up something about the Barnett formula. Two weeks ago, Mr Alexander, you said in response to a question to Brian Taylor of the BBC, I'm not aware of anyone who is proposing to get rid of the Barnett formula. You repeated that statement this morning in response to questions from Markle Beaugie. Yet the Campbell commission, your own parties, look at the future of constitution said that the Liberal Democrats have long believed that the Barnett formula should be replaced. How can you reconcile those two statements? I think I did very clearly in response to Mr Beaugie's questions earlier. I don't have anything particular to add to the answer that I gave then. No, no, you've said— It's the same question, so I've— No, no, but you didn't answer the question. I did. You said that no party is proposing to scrap the Barnett formula. Your own party is proposing to scrap the Barnett formula? The point that I made in response to the earlier question is that as you go about the process of devolving further tax powers, we're having this debate at the moment, Mr Beaugie referred to it, in the context of the Kalman commission proposals in the Scotland Act 2011 or 2012, that you have to make adjustments to the block grant and adjustments to the way that works in order to account for the revenues, but also make clear that, as the coalition agreement says, there's no change to the Barnett formula on the horizon. As the minister who's been responsible for public expenditure for the last four years on operating the Barnett formula, in my view, subject to the adjustments that need to be made when tax powers are devolved, it works well. Your position now is that you support adjustments to the Barnett formula in line with any changes that would take place. The Liberal Democrats position that is outlined by the Campbell commission is that the Barnett formula should be replaced, should be scrapped, not adjusted, but should be scrapped. So you reject the Campbell commission and the Liberal Democrat position on this? As I say, I mean, I can repeat the same answer again several times, if you like, convener. Well, I'd rather just answer the question. I think I've given the answer to the question several times. I'm just trying to get an answer, convener, to the direct question, which is whether Mr Alexander agrees with the Liberal Democrat position as outlining the Campbell commission about replacing the Barnett formula. Is he now saying that you're not replacing it, you're going to adjust it? As I say, the context is about substantial further devolution of tax powers, which I strongly support. That requires precisely the process that we're going through at the moment in the context of the Scotland Act 2012, which is to make adjustments in the light of devolution. The position that is set out in the coalition agreement on that is abundantly clear. Okay, so effectively the Campbell commission recommendations are dead, you don't agree with them? They're quite the reverse. The recommendations of the Campbell commission in terms of substantial further powers on income tax, in terms of devolution of things like inheritance tax, capital gains tax and so on. On the Barnett formula, Mr Alexander? It is, I think, far from being dead. Those proposals are not just alive, but very much part of the debate now, because we've seen from both Conservative and Labour parties also detailed proposals for further devolution. The one thing that people can be certain of is that, if Scotland remains part of the United Kingdom, there is very substantial further tax powers coming to this Parliament, quite rightly so too, and that just reinforces the argument that, as part of the United Kingdom, we have the best of both worlds. I'll move on, convener. It's clear that, Mr Alexander, there's not support his own Campbell commission report and recommendation on the Barnett formula. You said on 30 May, Mr Alexander, that flights from Inverness are APD-free. The HMRC website states—I want to quote it exactly— that passengers carried on flights from other areas of the UK to airports in this region, meaning Inverness, are chargeable passengers and subject to APD at the appropriate rate. Which of those is correct? The thing that Mr Maxwell shall have in mind is the difference between the meaning of the words from and to. All flights departing from airports in the Highlands and Islands are APD-free. Flights that do not depart from airports in the Highlands and Islands are subject to air passenger duty. You have said this several times. Do you not accept that, effectively, you are misleading people in an attempt to try and pretend that there is no APD in and out of the Highlands? By continually—I mean, your latest one was a tweet about Inverness being APD-free, and yet we all know that, effectively, if you want to encourage trade into an area, if you want to encourage visitors, for example, for tourists from the south of England to come to your area in Invernessshire, then clearly they have to pay APD. All flights that depart from airports in the Highlands and Islands are APD-free? All flights into the Highlands and Islands you have to pay APD. That's right. If you are, for example, flying from Inverness to London, you pay no APD on the flight from Inverness and you pay APD on the flight to Inverness, my understanding is that the unfunded proposal in the white paper—one of many unfunded proposals on the white paper—another black hole in the finance of independence suggests having APD, so even on that basis you pay half the APD on a return journey to Inverness than you do to other—when you're flying outside the Highlands and Islands, of course, if you're flying from Inverness to Stornoway and back again, you pay no APD at all on that leg, or indeed from Orkney and Shetland to Inverness, you pay no APD on either leg. I'd also add, Mr Fraser—sorry, convener—that we've also set out a significant investment in the regional air connectivity fund, and I was delighted at the end of last week to be able to support the first public service obligation under that fund, which is to support the route between Dundee and London Standset, which is a vital economic connection, and again shows the UK Government stepping in to support our important transport links. I just wish that the Scottish Government would do the same with regard to the A9. Effectively, of course, tourists coming to the Highlands of Scotland do pay air passenger duty. The industry itself, whether it be the head of British Airways or Ryanair or Flyby or many others, including airport managers, have said that APD is extremely damaging to the aviation industry. Do you agree with that? Well, I'd say that if the Scottish National Party was truly concerned about the flow of people in and out of the Highlands and Islands— No, I'm asking about what your view is. You're asking about tourists coming into the Highlands of Scotland? No, I'm asking about your view, whether you— I'm just about to explain it, if I may commune. My view is that if you were really concerned about that issue, you would not be imposing average speed cameras on the A9, which is disruptive to the economy. It is opposed by business organisations in the Highlands. It won't make the route safer, and it just goes to show once again that the current Scottish Government is less interested in the economy of the Highlands and Islands than any Government that we've seen for quite some time. I do have one more question, but it's clear that Mr Alexander has struggles to understand that average speed cameras don't affect flights. However, the Strathclyde Commission and the Cabinet Commission both stated that APD should be devolved. They go on to say that there is no need—I'll quote the Strathclyde Commission here—that there is no need for fresh legislation. In that case, why will you not promise now, today, to act and devolve APD now, since no fresh legislation required before the referendum? That's something that was considered in response to the Cowman Commission, which clearly needs to be considered, in response to the various proposals that are on the table. Clearly, that can only be taken forward in the event that Scotland, as I very much hope, will vote to remain part of the United Kingdom. I don't know. Your own commissions have said that you don't require any legislation, and you all say that you will devolve APD. Why not just go ahead and do it now? Well, the Strathclyde Commission is not my own commission. That's a Conservative practice commission. And the Campbell Commission supports the devolution of APD. That is your own commission. Yes, it is. So why don't you do it now? And as I say, that's something that would need to be considered to be taken forward under any further devolution. Okay, I think you asked your question, Mr Maxwell. Thank you. Okay, we are out of time, I'm afraid. It's been a lengthy session and we've covered a lot of ground. I'm grateful to you all for coming along and answering our questions. We will now suspend until 11.20. Thank you. Right, if we can reconvene. Panel 2 this morning on our inquiry into Scotland's economic future post 2014. I'm delighted to welcome Nicola Sturgeon, Deputy First Minister and Cabinet Secretary for Infrastructure, Investment and Cities, John Swinney, Cabinet Secretary for Finance, Employment and Sustainable Growth and Dr Gary Gillespie, Chief Economist, Office of the Chief Economic Advisor at the Scottish Government. Welcome to you all. We have about 90 minutes this morning, which I hope will be enough time to cover the topics of interest to the committee, but I remind members that they would to keep their questions short and to the point, and we could have responses short and to the point as possible that would be very helpful in terms of getting through the topics in the time available to us. I wonder if I could just start off by asking yourself, Deputy First Minister, if you could set out for us maybe in two or three minutes why you think Scotland's economy would benefit from a yes vote in the referendum in September. Thank you, convener. I'm very happy to do that. Before I do so, can I thank the committee for giving John Swinney and I the opportunity to come back here today to give evidence at the end of your inquiry just as we gave evidence at the start of the inquiry. I think that all of us have enjoyed following the evidence during the course of the inquiry, and we'll look forward very much to your report. My strong belief and strong position is that a yes vote leading to Scotland becoming an independent country will be good for Scotland and in particular will be good for our economy. It will give Scotland control over the decision making levers that determine the success and prosperity of any economy. It will enable us to design an economic policy that is right for our needs and circumstances. The starting point for us in this debate—I hope the starting point for everybody in this debate, regardless of what side anyone is on—is that Scotland is a rich country, an extremely wealthy country, blessed with extraordinary resources, both human resources and natural resources. An independent Scotland would per head of population be the 14th richest country in the OECD, generating wealth per head of population higher than Japan, than France, than the UK itself, indeed than the vast majority of independent countries. We've got a strong and diverse economy. As Standard & Poor's said recently, even excluding North Sea oil and gas revenues, an independent Scotland would qualify for their highest economic assessment. The projections that we published two weeks ago on Scotland's public finances show that, ffiscally, we would begin life as an independent Scotland in, at worst, roughly the same, at best, a slightly better position than the UK. We can be independent because we have that enormous starting point as an independent country. The real arguments for independence, though, are what enables us to do. It's about the control over policy levers that I spoke about, allowing us to design an economic policy that addresses our challenges. An independent Scotland, like all countries, will face challenges. It's important to address those challenges and to maximise the opportunity. So control over economic policy, control over levers such as immigration policy, giving ourselves control of both sides of our balance sheet, spending and revenues to allow us to, for example, transform childcare, will allow us to grow our economy more sustainably, to grow our working-age population, to increase the participation in the labour market. In the paper that we published just two weeks ago, I think it was, we set out some of the opportunities for the Scottish economy over the medium to long-term. If, by using those levers to best advantage, we are able to achieve those aims. So independence is all about opportunity. It's about putting yourself in the driving seat of the decisions that shape any country, and I believe that it would be incredibly good for Scotland and good for the Scottish economy. Thank you very much. You raised a number of subjects there. I'm sure that we want to explore in the questioning this morning. Mr Swinney, do you want to add anything? Can I move on to a topic that you mentioned, Deputy First Minister, on which you came up this morning? I don't know if you saw the earlier evidence session we had with the Chief Secretary of the Treasury, but one of the issues that he raised was in relation to Scotland's public finances and the outlook, and you mentioned the paper that was published last week, specifically on this question of the North Sea oil tax receipts. It says in your paper that you project that these will be under your preferred scenario, scenario 4. In 2016-17, it would be £6.9 billion. In 2017-18, £7.3 billion. In 2018-19, £6 billion. That's all on page 26 of the analysis. Last week, Professor Andrew Hughes Hallott, who will be known to you as a member of the Scottish Government's Council of Economic Advisers and also a member of the fiscal commission, and I understand that he may have been the author of the fiscal commission report, Professor Hughes Hallott appeared at the finance committee and told the finance committee that the revenues from oil for those years would be between £4.5 and £5.5 billion. It's substantially below the figures quoted in your own document. Who is right here? I've looked, as you've expected me to do, at the evidence of Andrew Hughes Hallott and indeed all of the evidence that's been submitted both in written form and orally to the committee. It's also important to point out that Andrew Hughes Hallott said in his written evidence that I make no attempt to provide forecasts of North Sea oil and gas revenues. Before the committee itself, he said, the particular number comes from the change, not the levels. It's not a forecast, it's a reason why it might change. He talked about a central projection with one or two each side. I think it's important to take the comments of Andrew Hughes Hallott in that wider context. In terms of the projections that the Scottish Government has set out and the projections are there for scrutiny by this committee and by any member of the Scottish population, those projections are based on some key forecast assumptions and it's those assumptions that lead us to scenario 4. Firstly, the oil price remains constant at $110 in cash terms and it's important to point out that that projection in terms of the price of oil would constitute by 2018-19 actually a 10% reduction in the price of a barrel of oil by about 10%. Prices are currently at $110, that's been the average oil price between March 2012 and March this year. The reason I say it's a sensible and cautious estimate is because I can point to a deck estimate that projects at $128 a barrel in 2018, so we're taking a cautious estimate there on price. It's also a projection that's based on an assumption that says production and investment will be in line with industry expectations. We are being responsible, we're being cautious but we're also perhaps sometimes unlike our opponents in the other side of this debate being sensible about the massive contribution that North Sea oil and gas makes and setting out a clear objective to steward that resource properly. I read Professor Hughes Hallott's evidence to the finance committee and I have a copy of the transcript here from the evidence that he gave. He was asked specifically by my colleague Gavin Brown if he was being reasonable in his estimation and he agreed with that. He said yes, it is reasonable to come forward with these figures and he said, if I was lucky to be running the budget I would have that perhaps as a central cost in one or two on each side. It sounds like you're disagreeing quite substantially with those figures and those figures are £4.3 billion over three years lower than the figures you're basing your estimates on. If you look at the factors of difference between the estimates that the Scottish Government has put out and some of the other forecasts, we are essentially basing our arguments on very clearly quantifiable factors and we've set out all of those factors. The Deputy First Minister has already talked about the price difference. The assumptions that we make are that price would be at $110 in nominal terms, which is the average of where it has been between March 2012 and March 2014. I'm just wondering where your figures come from. The Deputy First Minister has explained that. What I'm trying to get at is that Professor Hughes Hallott, whom you can really put a lot of store by, has presumably done his own work and comes to a completely different set of figures. There's obviously a range of different estimates about oil and gas revenues and oil and gas price forecasts. For example, the Deputy First Minister has made the point about the comparison of price forecasts between ourselves at $110 in nominal terms, OBR at $99, the Department for Energy and Climate Change $130 a barrel and OECD estimates that would go even further than that. Of course, there's a range of different estimates. There's not going to be a standard assessment. We have to make a balanced judgment about these factors. If we then look at production, we've been persuaded by the industry analysis that assumes, for example, a 14 per cent increase in production between 2013 and 2018. Why are we persuaded by that? We are persuaded by that because the self-same industry is currently making about £14 billion worth of investment in the North Sea oil and gas infrastructure. It's a reasonable assumption to make that if companies are making an investment, if they are investing very significant sums of private capital in the development of the North Sea oil and gas opportunities, there is likely to be returns that arise as a consequence of all of that. I'm simply trying to map out to the committee the fact that the conclusions that we've arrived at, which are the ones that we're here to talk through and other issues, are based on very clearly evidenced material from wider industry. To final points, I would make very briefly. One is just a contextual point of observation. Andrew Hughes-Hallot's written evidence was, of course, prepared before the Scottish Government published its most recent oil and gas analytical bulletin. I know that we've all read the full evidence. Andrew Hughes-Hallot also estimates that Scotland would have a budgetary surplus of about 0.7 per cent of GDP in 2016-17. That's a more optimistic projection of our opening budgetary position than the Scottish Government makes. I'd be interested to know whether the convener or the witnesses that you've just heard from would agree with that projection of Andrew Hughes-Hallot. Different projections can be made. Andrew Hughes-Hallot is somebody who commands rightly enormous respect. The projections that we've made in the bulletin that I've spoken about in our fiscal projections are ones that we think are robust, that are cautious and provide a good foundation for the planning for an independent Scotland that we would do. It seems to me that this is quite a fundamental question, because your proposition for independence is based on there being a sound set of public finances. Professor Hughes-Hallot, who clearly is a well-respected adviser to the Government, holds two important jobs. He's currently in line, as I understand, to be appointed to another important job, comes out and directly contradicts and has a much more pessimistic outlook on all revenues than you do. You must think that he's wrong. The question is, if he's wrong about this, what else is he wrong about? He wrote your fiscal commission paper. If he gets this so fundamentally wrong, he undermines your case. How can we trust what's in his fiscal commission paper? I've just pointed to another aspect of his evidence, where he's been more optimistic than the Scottish Government in terms of our current budget and surplus. Well, I'm simply saying that projections can be made. I've got the utmost respect for Andrew Hughes-Hallot. What I'm saying is that we've set out very robust projections. We think those are projections that withstand scrutiny, and that's why we're here to subject them to scrutiny. I've already talked through, as has John, the assumptions that they are based on. Again, I would point to the fact that the written evidence that we're talking about here actually predates the most recent oil and gas. Have you asked Professor Hughes-Hallot to review his evidence to the finance committee? Andrew Hughes-Hallot is somebody that I'm sure will review whatever of his own projections he feels that he wants to do. He's somebody that I think has, on many occasions, come before parliamentary committees and put his views forward and being questioned on those views. We continue, as you've pointed out, to take advice from him and from a range of experts. We then put forward the projections that we think are solid and robust, and that's what we've done in this case. Okay, he's currently got two appointments. He's on the Council of Economic Advisers. He's also on the Fiscal Commission. There's currently a proposal to point it to another job on the Scottish Fiscal Commission, which is to advise government via independent budget advisor to government. Do you still have confidence in them in terms of that new appointment that he's going to get on top of all the others? Unreservedly so, convener. I think Andrew Hughes-Hallot has an incredible volume of experience on all of these issues, an international academic track record which speaks for itself of very complex and comprehensive character, and the core purpose of the Scottish Fiscal Commission to which I am proposing to point three members is to provide an independent source of expertise to challenge the assumptions that I make about the likely tax take that is coming forward. I think, convener, that I don't wish in any way to be indelicate or impolite, but your line of questioning to us this morning so far has essentially been on the premise of Professor Hughes-Hallot taking a different view on some of these questions to the Government. I would have thought that that was the strongest argument for him to be a member of the Fiscal Commission to guarantee and to exemplify his independence, and I think that that's a pretty strong perspective to have on this question. Let's just kind of cut away a lot of this, and I think what John said is absolutely 100% correct there, but, if I follow your logic here, presumably we have to go to the conclusion of that. Andrew Hughes-Hallot has projected lower oil revenues, but, as he said in his evidence, the purpose of him doing this was not to provide forecasts about the issues that must go into the calculation of public finances and whether they would be in surplus or deficit. So he's projected oil revenues that are lower, but has reached a conclusion that says the budget to Scotland would be in budget surplus and projecting a more optimistic view in that respect than the Scottish Government. So you can't take the projection around oil revenues in isolation, you've got to actually follow what he has said to its conclusion, and its conclusion is, if I take your views about we have to take everything like that as a gospel, then he gets to a conclusion, which is that Scotland is in an even stronger position than the one that the Scottish Government has projected us to be in. But I'm interested, Mr Swinney, that you said you had unreserved confidence in Mr Hughes-Hallot, but, presumably, you don't have unreserved confidence in his figures and his projections, because you fundamentally disagree with that. Well, I think that the Deputy First Minister has made the point that Professor Hughes-Hallot estimates that Scotland would have a budgetary surplus of around 0.7% of GDP in 2016-17. Now that is a more optimistic view than the one that I took in that look for public finances. Now, I'm simply saying that there is going to be debate about all of these questions about oil and gas revenues. There'll be debate about the fiscal forecast that I make about the taxes that will be arising in Scotland. But the crucial point, convener, is that we must be able to demonstrate the basis upon which we have come to the conclusions that we have done so. And, as I was going through with you a moment ago, the substance of the difference in position that we take that substantiate our projections on oil and gas revenues are about taking a view on price, a view on production and a view on investment. And those are assumptions which are clearly able to be tested, and I'm sure we'll test them this morning. But they're judgments that we make about the most likely scenario. Of course, in other circumstances judgments have been made about these factors. In the 2009 UK budget, for example, the Chancellor of Alistair Darling forecast that North Sea Revenue would be £6.6 billion, and it turned out to be £11.3 billion. So, I simply share that data with the committee to make the point that there will be all sorts of different assumptions that will be made and conclusions generated by economic performance. Fundamentally, we come back to the core point, which is that Scotland is a very wealthy country. It's an acknowledged point right across the political spectrum that Scotland has the resources and the wealth and the public finances to be independent. The question is what would be the advantages of doing that, and that's what we're here to talk about. I understand your case as predicated on us having a healthier state of public finances if we were independent than we currently are, and you fairly drew attention to the fact that there is a debate around this. I think that that's probably an understatement. We've already heard this morning from the chief secretary to the treasurer that he fundamentally takes a different view as the UK Government does on these figures. We've also heard that Andrew Hughes Hallot, your own adviser, takes a fundamentally different view to these figures than you do yourself. In terms of that debate, you have a proposition that you're taking to defend a lot of the people taking a different view. In relation to that, I'm not surprised that the United Kingdom Government has got a slightly more pessimistic view. As does Professor Hughes Hallot. Actually, he doesn't. Professor Hughes Hallot actually has a more optimistic view of the public finances in 2016-17 than the material that I've put in the public domain. I don't understand the relevance of that point, convener, because Professor Hughes Hallot is setting out a scenario that is more optimistic about the public finances than the one that I've set out. You can't pick and choose. None of us can. Here's what Andrew Hughes Hallot says on page 4 of his written evidence. By all measures, the Scottish fiscal position will be stronger than the UK. If he reaches that conclusion on the basis of oil revenues that are lower than the oil revenues being projected by the Scottish Government, I can't see how that can be anything other than a positive conclusion for the Scottish Government. Okay. I've got two members who want to come in with supplementaries on this point. First I want to check, Rudy. Thank you. Good morning. Just on that point, I asked the question this morning about the OBR, and it's forecasting, as Alison Darling once famously said, it was a wing of the Tory party, confirmed by the First Chairman being an advisor to Mrs Thatcher. In the OBR, in the EFO, the fiscal outlook, it says that our oil price forecast moves in line with the average of the futures curve over the 10 working days to February 27, 2014, for the next two years, i.e. through 2016. It's held flat at that level for the remainder of the forecast period. Movements in oil prices and the sterling dollar exchange rate means that the sterling price of oil is slightly higher than we assumed in an earlier forecast. Isn't it the case that, from the OBR's point of view, the forecasts that we receive and they say in their own paper in March 2014 that they consider their methodologies of assessing tax and revenues is work in progress, and that the key element in all of this, in the purpose of my question, is in the macroeconomic forecast, including oil revenues, they say that, due to the confidentiality of the measures that we were unable to do before the last budget, we were unable to involve the Scottish Government in this stage of the process. How much conversation have the OBR had or what approaches have they made to the Scottish Government to share information? At ministerial level, I don't think I can recall any contact with the OBR, but Chief Economist would be the best place to give us a view at official level. Yes, I don't think there's been any ministerial contact. I periodically meet with the OBR when they're here, giving evidence to committees. I meet with the chairman and we'll talk about different things, but it's on an ad hoc basis. We've got methodologies of work in progress from the OBR. We've got Professor or Dr Richard Dyke saying three years ago that there were 100 years of oil left in Scottish waters. We've got Professor Alec Kemp saying that their estimates are wrong by five to six billion barrels of oil. Why are we giving any—no, not us—why is any of us giving to people who have ungroven methodologies whose numbers clearly are up and down? I just don't understand. I think that what I'd say, convener, is that there are three factors that essentially influence the calculation of nauseol and gas revenues. One will be an assessment of price and the OBR has an assessment of $99 in 2016-17 and then remaining flat. We take a view based on the fact that the average price between March 2012 and 2014 was $110. That $110 is a more reliable and cautious assumption, but it does also include essentially a reduction in the cash value because you were retaining that in nominal terms. Secondly, a different production assessment. As I said to convener a moment ago, it's unimaginable that the industry will be making the scale of investment that it is making without having confidence in the estimates that the industry makes of the likely proceeds of that with a 14 per cent increase in production over the period to 2018. Thirdly, about the scale and the range of investment, we think that the investment levels are likely to return to long-term trend levels. The issue about that is that that removes the ability to offset as much investment against tax, which is one of the reasons why revenues are deflated at present because of the scale of capital investment that is under way. There is a clear set of reasons why the estimates are different, but it is up to the OBR to defend its own estimates. As I have said to Parliament on occasions before, the OBR made estimates of likely levels of economic growth in the country that we have not seen and the reason why economic performance, which is encouraging in the present environment and nobody is more pleased about the economic uptake upturn than myself. The reason why it looks more buoyant is because the performance in 2012 and 2013 was significantly diminished on what the OBR suggested that it would and should have been. Mr Swinney talks about production costs. Surely the fact is that North Sea is a mature basin, so it will cost more to recover the oil there. You will have greater investment, but much-increasing production costs. Indeed, production has decreased recently, so is not the impact of that? In the longer term, there will continue to be a reduced tax take to enable production to go ahead. Do you not agree with what the OBR said that, in fact, the Government will have to reduce its tax take from the industry to sustain the industry for the longer term future? I think that the absolutely fundamental conclusion of the OBR was that Sir Ian Wood's view and his commission's view that there was still a significant economic opportunity that existed in the North Sea oil and gas sector. One of the other great strengths of the oil and gas sector is the fact that production methodology has changed and developed to adapt to the fact that the recovery of oil in the North Sea basin is now required to be by slightly different methods to the ones that have been previously adopted in the development of the sector. Of course, those issues of production costs are factored into the assumptions that we make about the likely level of activity that can be envisaged as a consequence of those steps. Joe Armstrong said in her assessment that what the Wood's review meant was that less tax per barrel than is currently the case is what is required to maintain the life of the North Sea. Do you disagree with that? Fundamentally, we come to a conclusion about what is the likely level of oil and gas production and the likely revenue flow that is going to emerge from that. That is what we have published, and we have published that transparently a couple of weeks ago and is there for people to see. Clearly, I take a different view on the pattern of activity than the one that has been set out by Joe Armstrong. I think that there is a much greater opportunity to develop the North Sea oil and gas sector if we ensure that we have a climate of investment and a stable policy climate in the development of the sector. I mentioned in a previous answer two of the key forecast assumptions that underpin the material that we published. I mentioned the assumptions about price and about production, but the other two are that tax revenues are linked to North Sea operating profits after capital investment and that both revenues and costs are assumed to increase. All of those factors are taken into account in coming to the projections that we have published. The same question that I asked of Danny Alexander. In the event of a no vote, is the Barnett formula set in stone? I think that I can only deduce from the public statements that have been made by the Liberal Democrats commission, the Campbell commission, that I'm not indeed actually the Liberal Democrats 2010 election manifesto, which I think… Well, it certainly was written by Danny Alexander himself and it said that the Barnett formula needed to be replaced by a needs-based formula, so I think that there is significant doubt over the Barnett formula in the event of a no vote. I'm not sure if I've shared this with the committee before, but I may have done, but I'm certainly sure that with other committees it's certainly a very strong body of opinion in other parts of the United Kingdom that wants to dismantle the Barnett formula. I had the President of the Local Government Association of England in to see me some weeks ago who was very clear and very open with me that he wanted to see the Barnett formula dismantled. Of course, the issue about the Barnett formula isn't just about the… in the event of a no vote. There's a current issue, which is flagged up to the finance committee, that the United Kingdom Government is trying to argue for a change to the Barnett formula as it currently stands today to deal with the application of the devolved taxes, land and buildings, transaction tax and the landfill tax, despite the fact that they made no such proposition in the 2010 command paper where they said that the block grant adjustment would be by a one-off change to public expenditure in Scotland. I'm now involved in negotiations with the United Kingdom Government trying to deal with the fact that they want to alter the Barnett formula under the current arrangements, regardless of the outcome of the referendum. From all of that, I think that we can only deduce that there is a significant threat to the continuation of the Barnett formula as we know it. It's also worth pointing out the potential quantum of that, the work done around the Hotham commission would suggest that a change from the Barnett formula to a needs-based formula could cost the Scottish budget up to £4 billion a year. I think that people have to be open-eyed about that particular risk. I take it therefore the message from Danny Alexander before that there wasn't agreement. Certainly I didn't take anything from what he said that there was an agreement between him and the Scottish Government over the methodology here for adjusting the Barnett formula. Is that valid? Because I understand that I've got the command paper—I was looking at the command paper from 2012 and it seemed to be quite clear in proposing something that everybody signed up to and the report to the finance committee is suggesting something else. Is that an area of disagreement? It's an area of current disagreement, yes. I've spent some time trying to say to the UK Government that I'm not prepared to—I don't see what the basis of us having any further adjustment to the—my point to the UK Government has been that the command paper says once land-and-builders transaction tax and landfill tax are applied there'll be a one-off adjustment to the block grant. The UK Parliament voted for the devolution of these tax powers on that basis. Subsequent to that agreement, the ground has now shifted and the UK Government is trying to get me to agree to a change to the Barnett formula, which the Parliament would be surprised to hear that I'm not prepared to do. I'm currently trying to resolve that issue, but it's very material because it obviously has an effect on the assumptions I can make in relation to the formulation of the 2015-16 budget, which I will be considering—well, I'm considering now and considering in the run-up to the announcement of the budget provision to Parliament on 9 October. Of course, there's no independent appeal tribunal, any kind of dispute mechanism other than ultimately what the Westminster Parliament decides to back. Am I correcting that understanding? Should they wish to override what you want? The statement of funding policy is one of the curious creations of the White Hall machinery. It is designed to agree the financial framework for a devolved Scotland, but the two signatures to the statement of funding policy that regulates this issue are the chief secretary to the Treasury and the Secretary of State for Scotland. I've got a number of issues that I don't like about the statement of funding policy, and I've made those points at spending review time, but I'm not a signatory to the documents, so Mr Biagi is correct that, ultimately, the United Kingdom Government, as the determinants of public expenditure, would be able to apply what conclusions they wish to apply in this respect. However, if we're operating in the environment of agreement and respect, I would hope we could come to some agreement on this point. The final question is, what is the precedent that this potentially sets, given that there is discussion of more powers for the Scottish Parliament in the event of a no vote? Now, believe it or not, from the no parties that the Liberal Democrats have proposed, income tax, capital gains tax, inheritance tax, aggregates levy, air passenger duty, assignation of corporation tax and assignation of dividends and savings taxes, all of those would mean changes to the Barnett formula, so if the UK Government is not going with what it signed up to in 2012 in this limited context, what would be the potential damage from changing an approach there, or the Scottish Parliament signing up to something and getting something else? I think that the evidence in this is quite clear, because in the UK Government's response to, I can't remember the exact process that they responded to, but in relation to the devolution of further powers to the National Assembly in Wales, the UK Government is making it quite clear that, if there is a transfer of tax powers and responsibilities, there will be adjustments to the Barnett formula as a consequence. The Barnett formula is in play now. It is very clear from the UK Government that they have the Barnett formula in play. My point, which I have not been able to persuade them about, is that the command paper was crystal clear on those two taxes. It was a one-off adjustment and that was it. We are now having to consider alterations to the Barnett formula. In relation to the Welsh example, the UK Government has already gone there to say that there will be changes to the Barnett formula. I think that it is pretty clear what the direction of travel is from the perspective of the UK Government if it comes into the question of any further tax powers being devolved. I would like to ask the First Minister and the Cabinet Secretary when will you publish your assessment of the start-up cost of the Government in an independent Scotland? The work that we have done around all of these issues is that you will be aware in the white paper. I can point to several different parts of the white paper that covers this territory on welfare. You will find it in chapter 4 on foreign affairs and defence. You will find it in chapter 6, particularly pages 206 to 252. In general, in terms of some of the general principles that underpin this, you will find it in the material in chapter 10, I think, specifically around pages 343 to 350. I will set out again the reasons why we have not put a figure on that. We do not want to be in the same territory as the UK Government of mis-briefing enabry. It is a reasonable question to ask if the Treasury has been capable of putting such a figure on that. Then why did the field need to effectively make one up by plucking a figure out of thin air that was then criticised by the author whose work it was based on and his view, of course, is that it was overestimated by a factor of 12. Basically, the factors at play here, which I will run through very briefly, are as follows. Much of the infrastructure—this is reflected in many parts of the white paper—much of the infrastructure of delivering services that are currently reserved exists in Scotland. I will take and would be part of the share of UK assets that would transfer to Scotland the share of the assets that we would be entitled to. I will give just one example of that. Every single pension paid to a state pensioner in Scotland is administered from Scotland, from one of two pension centres, one in Motherwell and one in Dundee. Indeed, in many parts, most of the UK welfare system, as it relates to people in Scotland, is administered in Scotland. That infrastructure exists. We are not in the position of having to set that up from scratch. That would be a situation in which we would be, as a result of the negotiations that would follow a yes vote, seeking to transfer that infrastructure from the UK Government to the Scottish Government. You could also cite similar examples around defence and other areas. Secondly, where we are in the position of establishing new systems or even in terms of the transfer arrangements that I have spoken about, there will be options and choices for Scottish Governments around the timescales that will be involved. In fact, if I go back to my welfare example, it will be very much—the expert group in welfare in its first report made this point—to be very much in the interests of the UK Government for there to be a short transition period there, because the pension centres that I spoke about, as well as administering pensions to pensioners in Scotland, also administer pensions to many people outwith Scotland. There will also be opportunities for the Scottish Government to make savings in terms of how we deliver those services and the finance secretary can talk in more detail about Revenue Scotland, which is a perfect example of infrastructure that we are establishing now, where we are able in how we design that infrastructure to deliver efficiency savings that would not be available if we were to do that elsewhere. Lastly— So you can work in this for almost two years, apparently, and you've got no cost you can give us, not even an estimate, I guess, of what the cost will be for start-ups for an independent Scotland in terms of government. Richard Baker, you're either interested in the work we've been doing and the output of that work or you just want to score points. The third point I was going to make is that there will be, of course, a wider negotiation around the totality of UK assets in the share that Scotland will get. Some of those assets, like the ones that I've described, will transfer assets that are physically based and Scotland will transfer others. It wouldn't be practical to do that. There might not be a need for that, so there would be a financial consideration required to be made. The assets—this is based on the UK assets register—are worth £1.3 trillion. That's the work that we've done and we'll continue to look carefully at those issues. The Treasury is a good example of the dangers that befall you when you try to put a definitive cost on something that will be subject to the kind of negotiation and the kind of factors that I've spoken about. The Treasury, in trying to do so, ended up in the position of being criticised by Professor Dunleavy and that stands accused of overestimating those costs by a factor of 12. Yes, but at least a figure has to be presented by your Government, which we can debate, which is in the public, which is trans-marist. We can certainly debate it. Why, wrong after all this work that we've heard about, convener, is the Deputy First Minister saying that he has made no assessment of what the total cost or start-up is starting up in the new government agencies in Pensacol would be or that simply you're not going to tell the people of Scotland what the estimate is? No, I'm telling you about the work we've done and how that appears in the white paper. So there's no estimate of the overall cost? I can point you to particular parts of the white paper where it goes into quite considerable detail about—if you take foreign affairs, for example, looks at the UK state and foreign affairs. 5,000 properties valued at £1.9 billion, what a population share is not necessarily what will happen here. It will be a negotiated share, what Scotland's share of that would be. It looks in detail at what we would be seeking to establish. It looks in detail at the defence assets that a Scottish Government would inherit and how that would form the underpinning basis of our defence forces and how we would look to transition defence forces over a period of years in general in terms, as I say, in chapter 10 it goes into some of those issues and the principles that underpin them. So there is a wealth of work that is evidenced there in the white paper and would repay, I think, a close reading by the member. The memorandum, which Mr Swinney submitted to the cabinet some two years ago, stated that work was currently under way in the office of the chief economic adviser to provide this comprehensive overview of the institution's costs and staff numbers. Is all of that work therefore in the white paper? Can we find all the evidence of that report that was given to Cabinet in this document? Essentially, the work that Mr Baker highlights that was referenced in the document that I put to Cabinet, which is now in the public domain, essentially was setting out the tasks that we had to work through to set out the arguments around the proposition of Scottish independence, which culminated in the publication of the white paper. The white paper, essentially, encapsulates what we consider to be the most effective explanation of how all of those issues will be taken forward. The point that we cannot avoid here, and Mr Baker's point that at least the UK Government put a number out there, is a meaningless remark, to be honest, because what we have tried to do is set out the basis upon which we can see the transfer of additional functions coming into the Scottish Government, how we would handle that and how, essentially, elements of that would be subject to negotiation about the precise operational arrangements and also about the sharing of assets. Therefore, to put a specific number on that, we can set out the framework, we can set out the methodology that is all set out in the white paper, we can set it out in as much detail as we can in all the areas that we can possibly do that. The example that the Deputy First Minister gives on page 229 of the white paper about the issues in relation to international representation are done to be as informative as we can be in the debate. However, we cannot properly put a precise number into that analysis if it is going to be subject to negotiation and a discussion with the UK Government about the share of assets and about operational transfer of functions. I think that is a completely reasonable explanation. Is it the case that you have made no attempt to estimate what the cost would be, or simply that you do have an estimate that you are refusing to publish before the referendum, to allow the people of Scotland to be informed judgment on this very important issue? What I am saying to Mr Baker is that in the white paper, we essentially draw together the entire framework of how these issues can be progressed in advance. If we can get to very specific levels of detail around, for example, the number of overseas offices that a Scottish Government would envisage being part of our international network, we quantify that because that is our— And the cost of it as well? Of course, I would say that the cost is between £90 million and £120 million. Is there on page 229? Therefore, you should be able to aggregate an overall cost for that, quite simply. No, but it would be helpful if Mr Baker would listen to all of the answers that I am giving. What I am saying is that where we can be very specific about the type of arrangements that we envisage, we will put detail in place, but where we quite readily accept that there is a need for negotiation and dialogue with the United Kingdom Government, we have to fairly and honestly reflect that in the white paper. If we put in a specific number in there, it would be as much value as the UK Government getting itself into the complete gull that it got itself into in the publication of its paper a couple of weeks ago. If the Treasury thought that it was possible to do that, then it does beg the question why they plucked the figure out of thin air. They have not explained thoroughly why they got to the figure that they reached. The author of the work on which he places it has said that it is overestimated. I cannot have an argument across the committee. I think that that comment really does deserve to be challenged. They have explained the basis on which they got to that figure. I grant you that. They have attempted an explanation, but it is based on work. The author of which has said that they have got it completely wrong and that they have overestimated by a factor of 12. If the Treasury had been able to get to the precise figure that he is talking about, then they would not have had to engage in that kind of jiggery pokery about it in the way that they did. We will not conduct this dialogue across the committee. Before we leave this, can I ask you, Dr Gillespie-Sing, as you have kindly joined us this morning, have you or your office done work on the set-up costs? I think that all the work that has been done is reflected in the white paper and the work that the Cabinet Secretary and Deputy First Minister have outlined. So you have not done any detailed costings that have not appeared in the white paper? As I say, all of the work is reflected in the Government's position. I was on the question that I asked you. I did not ask if it was reflected. I asked you, have you done detailed work on costings that do not appear in the white paper? No. We heard this week that more than 20 million meals have been given to people in food poverty in the UK by the three main food providers, that is Oxfam Church Action on Poverty and the Trussell Trust. Those figures are from the below the breadline paper that you will be aware of. They make the case for tackling poverty pay and raising the minimum wage to the living wage. Could an independent Scotland have a higher minimum wage, and what difference would that make to social security payments, given the fact that the majority of families in poverty are actually working? That is a very pertinent point and a very timely question. Alison Johnstone will be aware that, in the white paper, the current Scottish Government gave a commitment that, if we were the Government in an independent Scotland, we would guarantee to increase the minimum wage at least in line with inflation every year. It is instructive to note that, over the past five years, had that happened, the lowest paid in our society would be £600 a year better off. We absolutely accept the importance of tackling and challenging the low-wage economy or the aspects of the economy that are based on low pay. Going further than that, Alison Johnstone will be aware of the second report of the expert working group on welfare that was published last week that makes the recommendation that an independent Scotland should look at over time, and with appropriate compensation to businesses to allow them to make the transition, but that, over time, we should look to raise the minimum wage to the level of the living wage. I said when I launched the report with the convener of the group last week that I was sympathetic to that. Clearly, the Government has to give proper and due consideration to recommendations of that nature, but it is fair to say that we are looking at that sympathetically and supportively. The key point here is what drove that recommendation in the expert group report, which Alison Johnstone has indicated. If we lift people out of low pay, then we not only improve their quality of life and their ability to have a decent quality of life for them and their families, but we also reduce social security payments because much of the significant proportion of social security spend is on tax credits that are being paid to people who are in work but earning very low wages. If we can lift the level of wages, then we say on the estimate that the working group put on it was about £280 million, I think, from memory. You do save money on social security that can be freed up for investment elsewhere, as well as lifting people out of poverty in a much more effective way. Another aspect of that is that the journey towards improving levels of remuneration right across the workforce within Scotland goes hand in hand also with an investment strategy to improve the quality of employment within Scotland, which then of itself generates greater economic impact and strengthens the public finances as a consequence. That is where some of our thinking is reflected in our most recent paper about improvements in productivity levels within Scotland. Our inquiry would be looking into the future economy of Scotland, but in my view a successful economy is one that doesn't just focus on GDP, but it's about wellbeing and increased living standards for all. Are there any other specific policies that you could see occurring in an independent Scotland that would broaden that focus? Sometimes we see economic growth occurring, but it doesn't impact on the lives of far too many Scots. First, I begin to answer that question by talking about the way in which the Government has structured its policy performance framework within a devolved Scotland. It is focused on, yes, the primary objective of increasing economic growth and economic performance, but by doing that through what I suppose would be called a balanced scorecard of taking into account some of the factors that Alison Johnstone has referred to, of wellbeing, of sustainability, of geographical inequality and intergenerational inequality, and by essentially establishing that as a template of what we're trying to achieve in our economic performance. Then the policy interventions that we make would be designed to try to achieve that and improve that. For example, the measures that we take on trying to shift the emphasis of investment by using the tax system, which we can't do just now, to incentivise research and development, for example, would be to try to improve the quality of employment within the Scottish economy and to improve the level of private sector research and development expenditure, where we have a very poor, and a consistently poor level of private sector research and development expenditure in the Scottish economy when compared to some of our counterpart countries. The difference between Scotland and Finland on private sector R&D expenditure is a factor of five. Clearly, if there is more private sector R&D investment, the likelihood is of better quality employment and, as a consequence, better remuneration and an economic benefit that arises as a consequence. Of course, if there is the benefit, as the Deputy First Minister has highlighted, of a reduction in social security costs, there is the opportunity to redeploy public finances in a different fashion to try to support long-term and sustainable investment as a consequence. Yes, there are a variety of different ways in which we can intervene to deliver that better level of performance. You spoke about the tax system. Public services obviously cost money. I am a huge fan of public services and I do have concerns about your announcements with regard to corporation tax and air passenger duty. Obviously, some taxies desperately need redesigned. The work on stamp duty is a good example of that. Do you agree that there is a need to secure better public services through taxation? We have to ensure that we have a tax system that, both in terms of its design and who it is raising money from and the overall amount of money that it is raising, is capable of supporting the quality public services that we want to see. The key point at the heart of our argument is that there is no requirement to raise taxes in Scotland to fund the public services that we have. Individual tax decisions will be for future Governments of an independent Scotland to take. We, as you have pointed out, make a specific or a couple of specific recommendations, one on corporation tax, one on air passenger, due to, if you take corporation tax—and I appreciate that there are a range of different views on that—but it is a policy with a very clear purpose in mind. We recognise that, if we are to have the good quality public services and the kind of society we want—and I think that we will probably share a view on what that should look like—we need to earn the wealth to pay for that. Having a competitive rate of corporation tax is all about generating and supporting economic growth, encouraging more investment in Scotland that leads to more people employed and more people paying tax. Having more people, we have debates about tax and public service. Almost always gets reduced to, should people pay more tax. I want to see more people in work paying the tax that we currently pay, and that is how we increase the tax revenues that we have. That is why, in the paper that we referred to earlier on, we put so much emphasis on getting participation in the labour market rates up, increasing productivity, growing our working-age population. We are increasing our tax take, but we are not doing it by taxing people more. We are doing it by having more people productively contributing in the economy. Other political parties are offering further devolution in the event of a no-vote. Do you have any faith that the offers will help address poverty and inequality that have blighted society for far too long? Do you think that they could help to propel a more successful Scottish economy, or do you see them simply as alternative funding mechanisms? I come from the perspective that says that I want this Parliament to be as powerful as possible. On one level, I welcome the fact that the other parties that you referred to are belatedly, but nevertheless seem to be embracing the principle that it is better to have decisions made here rather than at Westminster. I would have two issues that lead to me being very sceptical about the offers that you refer to. One is the extent of the powers that are being offered. Obviously, there is no agreement between the parties on the no side of the debate about what more powers should be devolved to Scotland, but, even if you take the maximalist position, which I think the convener might disagree with, I think would be the Liberal Democrats position, still leaves the vast bulk of our tax base in the hands of Westminster, still leaves almost all welfare policy in the hands of Westminster, and we know the damage from experience right now that Westminster Governments can do with welfare policy, would still leave power over immigration in the hands of Westminster. I look at the various offers and I just do not see that they add up to enough to really enable this Parliament to address the challenges that we face and maximise the opportunities that we have. My second point would be, I suppose, just around a degree of scepticism about the deliverability. On the other side of a no vote in September, there would be the political will to deliver any extra new powers to Parliament. The parties that are now offering more powers were not keen to see that option on the ballot paper, so it is not on the ballot paper, so there is no cross that people can, in the no box that people can put their cross into, guarantee those extra powers. We know from past experience that my colleague Mr Swinney remembers more clearly than I do in 1979, obviously, but only slightly, I hasten to add, of Scotland being offered more powers if they voted no only to end up with 18 years of Conservative Government. I think that we have to have a degree of healthy scepticism about the more powers and why we are getting these offers at this particular moment. I am sorry, Joan. We need to chop up a little bit, I think, on questions and responses. Joan McAlpine. Thank you very much, convener. You could bear with me. This morning, I was questioning Mr Alexander about his briefing paper that he released based on Professor Dunleavy's figures, which Professor Dunleavy then dismissed. Mr Alexander would not explain why that paper was misleading or why he chose to mislead the public in that way, but I do not know if he caught this evidence, but he did seem to be sticking with the £1.5 billion figure quoted by Professor Young, which has also been dismissed by Professor Young himself. What would be your response to that? My response would be to, essentially, look at how you would be able to come to a conclusion on that question. You can only do that by having a concluded view on how the final arrangements of the governance of Scotland would be established after independence. That will be product of negotiations, so inevitably there will be an element of that. We have gone through some of that detail already about how transition periods would operate on the welfare system or on other aspects of functions that might remain shared functions on a temporary basis or on a permanent basis. All those questions are material to come into that judgment. Just trying to take a scenario on the £1.5 billion scenario is an assessment based on some analysis that has been undertaken in Quebec, but then has that undermined by Professor Young in the fashion that Joan McAlpine talks about. I think that that does not make that any more robust an assumption than the original fatal error of trying to extrapolate Professor Dunlevy's work to get a £2.7 billion figure. My other question would be about the Institute of Fiscal Studies. You will be aware that the Institute of Fiscal Studies has been mentioned quite a lot this morning and brought out a report in February of this year saying that more than half of the UK Government's cuts were still to come in terms of public services. In the event of a novel, what are the implications of that for Scotland? The point that is difficult to be precise about is exactly what impact that would have on the Dell budget, which is the budget that I currently have control over, or the annually managed public expenditure, which is essentially the welfare budget and some pension costs and debt interest of course. Assuming that the UK Government was to follow through with that pattern of reductions in expenditure, the question prevails is how big is the hit going to be on welfare versus how big is the hit going to be on devolved public expenditure, but the conclusion is that it has to come somewhere in that analysis. What the UK Government has not set out is how much further they would go on welfare and if they do not make significant savings more beyond the ones that they have set out on welfare, then those cuts have to fall on the departmental expenditure limits that affect our public services, which are our health service, education service, local government, transport etc. It is difficult to separate those functions because the UK Government has not done that analysis and has not published it, but it certainly is a very clear agenda of significant reductions in public expenditure. My final question is in terms of the paper that you published a couple of weeks ago on economic outlook for Scotland post independence. You talked about the effect of a growth in employment on GDP national wealth. Could you explain a little bit more about how the powers of independence will allow us to grow employment and what your industrial strategy would be? A great deal of it would focus on essentially using the powers that we would have at our disposal to create a more attractive climate to undertake research and development activity within Scotland and therefore as a consequence to drive future growth within the economy. We are fortunate to have a very strong university research network and establishment with growing connections with the business community. I do not think that we are nearly sufficiently getting the proceeds of that good working in terms of the launch of new ventures, the application of new technologies and the ability to support those new technologies to wider markets. That is a crucial part of our economic strategy would be to encourage higher levels of investment and higher quality investment opportunities as a consequence. Secondly, there are some of the measures that we would take in trying to improve the competitiveness of Scotland. Although there may not be tax measures that appeal to Alison Johnson, there are powerful measures in relation to improving the connectivity of Scotland through air passenger duty or through the attractives of Scotland as a business location. Of course, we know from our existing performance that Scotland already is a very attractive destination for an inward investment. We need to make that ever more significant. Thirdly, we need to intensify the efforts that we undertake to encourage more and more Scottish companies to become involved in international business activity and to export their goods and services to a wider audience. One of the very interesting and powerful examples of that is, for example, the oil and gas sector. The oil and gas sector is now made up of two very distinct components. One is the production activities in the North Sea, but the other is the enormous export activity that is undertaken in skills, technology and expertise to other jurisdictions to support the development of the oil and gas sector based on the experience that has been gained here in Scotland. Finally, we are in a very strong position given the leading position that we have on sustainable forms of energy to encourage that internationalisation by development of our renewable energy potential, which is clearly attracting significant international interest. I have one question for Mr Swinney and one for Deputy First Minister. Before I do that, yesterday I was at Harington to Compass School, and one of the pupils there was asking questions. One of them said that if we were to have our own currency, he suggested that we should be called the Thistle Bucks. I promised that I would tell the Cabinet Secretary for Finance that, but I assured him that we will continue sterling. Anyway, Scotland's trade surplus in 2013 was £2.8 billion. The UK had a deficit of £29.5 billion. I do not want to get in the devolved and scaremongering, but if we take out Grangemouth and Elgin for the last five years, our current budget balance has been better than the rest of the UK. Our net fiscal balance has been better than the rest of the UK. If we look at situations across some of the regions of the UK, child poverty is, in some cases, worse than Scotland, but it is still very bad. What might happen to the rest of the UK, given their 1.3 trillion deficit and the pull-out of Europe, being good partners and good neighbours? What do you think will happen to the rest of the UK, given all of those figures? I think that what the economic data tells us is that there is a fundamental imbalance in the United Kingdom economy. I think that the data is pretty clear that we have succeeded in Scotland in creating a stronger economic platform than has been possible to be created in a number of the regions of England and in other devolved administrations, but we have not been able to create the type of economic powerhouse and intensity of activity that is in and around the south-east of England. That has been a factor largely for the entirety of my adult life. I think that that will cause significant economic imbalances within the rest of the United Kingdom. The inequality gap will just grow yet further. The issue is why we attach enormous significance. It goes back to the formulation of our performance framework, Scotland Performance, back in 2007, on the tackling of inequality, where we possibly can tackle it, because it is a major social and economic challenge and difficulty for any society. It is a challenge and difficulty for us in Scotland. It is an even greater challenge within the United Kingdom and will be an even greater challenge in the rest of the UK after independence. As for the question of EU membership, I have made no secret of the fact that the Prime Minister has started off on a very reckless journey in relation to European Union membership. We have an opportunity in September to avoid getting into the difficulties of EU membership that the UK will get into in 2017. Deputy First Minister, I wonder if I may ask, without getting into the detail of the oil and gas numbers again, that the Bank of Scotland report on 4 April 2014 indicated that 39,000 jobs could be created directly in the oil and gas production and in the very major supply chain. A huge opportunity. However, within that, only 4 per cent of the total workforce are women. I want to comment on how we can encourage more women to become involved in this huge opportunity. The report that you referred to on oil and gas, and the first comment that I would make is that it underlines the fact that the oil and gas industry is an enormous advantage and bonus for Scotland. Sometimes in this debate it can seem a wee bit weird to hear it described as if it is this enormous burden. Many, many countries across the world would love to be in the position that we are in. I think that the challenge for the future is to steward it properly, to make sure that we can maximise the revenues that have yet to come from the North Sea and to steward those revenues in a way that allows us not just to meet current needs but to leave something for future generations. I will try to be brief here because I think that there are various different strands to an answer to that question that go from encouraging women and young girls to see the kind of job opportunities and careers that you are talking about in terms of the oil and gas industry as attractive and make sure that we have the right skills in place, that they are getting access to modern apprenticeships and skills opportunities in the kinds of jobs and professions that, perhaps traditionally, women have tended not to go into. Angela Constance, as the Minister for Youth Employment, is very focused on some of the issues. There is a more generic part of the answer to that question, which is about ensuring that we provide the social policies that support women who want to go into the labour market or return to work to pursue careers. That is where the childcare policy that we have set out in the white paper has been talked about many times in the past is so important to make sure that costs of childcare, which is in the UK just now amongst the highest of any country in Europe, are not a barrier to women who want to return to work and reaching the full potential of their careers. I think that there is a range of things that we need to do. Some of them we are trying to progress now, some of them we will be more able to progress with the powers of independence. The pay gap, 44 years after the Equal Pay Act, was passed as another challenge. Having the ability, as the Scottish Government, to set out the timescale and the implementation plan for that would be an enormous advantage to many women who are currently not being paid fairly and equally for the work that they do. In the white paper, it mentions redistribution of wealth, and, like much of what is in the wealth, there are no policies on how that is going to happen. Could you perhaps tell us today what policies you have on the redistribution of wealth and how we will tackle inequalities through that? I take the completely opposite view to Margaret McDougall. I think that the white paper is full of policy propositions that would not overnight—because you cannot tackle these problems overnight—independence is not a magic wand, but policies flowing from having our hands on the levers of power that would allow us to tackle some of the deep-seated inequalities. In the white paper, I have just mentioned childcare. I was talking earlier on to Alison Johnson about some of our proposals, both in the white paper and some proposals that would flow from the expert working group on welfare, around how we redesign a welfare system to lift people out of poverty, to make sure that people are being properly supported into work. They are getting paid a fair and decent wage when they are in work, but they also have a welfare system that ensures that we have a decent safety net. Some of what the finance secretary has been talking about around using economic powers to ensure that the quality of jobs that we are helping to create for people are of a level that, again, helps to lift people out of poverty. Of course, I can point to a whole range of policies that we are currently implementing in the devolved set-up that are about protecting the incomes of the lowest paid. Our social wage set-up policies are very important to us. I know that Labour is currently going through a process of deciding which ones they want to keep and which ones they want to get rid of, but we are very committed to the council tax freeze, to free access to university. I came from a working-class background in the west of Scotland. I would not have gone to university. I would be sitting here right now if I had not had access to free university. That, for me, is one of the key policies that we have introduced and are committed to maintaining in order to ensure that, regardless of your background, you get the chance through education to reach your potential. I am very proud of the current policies of this Government that are about closing the inequality gap and maximising opportunity for people regardless of background. I know that the powers that come with independence will allow us to build on that. I would allow any Government in an independent Scotland, including a Labour Government, if they had the political will to build on that. You have spoken mostly about inequalities, but I am asking about your policies on redistribution of wealth. Could you perhaps in that email now? All about closing the inequality gap is about redistributing the current allocation of wealth across our society. All of it is about making sure that we are lifting people out of poverty, raising their income levels by making sure, for example, that they get a decent pay for a decent day's work, ensuring that young people, regardless of the background they come from, can use education as a route of poverty. All of that is absolutely integral to that task, which I think is one of the most important tasks in Scotland over the next few years of closing a gap that is part of the UK is widening. The final point that I would make to Margaret MacDougall on this is quite an important point here. If you do not agree with the policies of the SNP for an independent Scotland, that is fine, that is your entitlement. Put forward some of your own policies about how we would use the levers of decision-making power in an independent Scotland to do things better if you think that we are not proposing things that live up to that. Be ambitious, there might be a Labour Government in an independent Scotland able to implement the kind of policies that you think. Just if I could speak to ask Mr Swinney a question around wealth. I noticed that the Deputy First Minister steered away from mentioning taxation as a way of redistributing wealth. That is a long answer to my question. If Mr Swinney could perhaps tell us how he mentioned tax take a couple of times this morning, what consideration has been given to tax take and tax levels in an independent Scotland? The first point that I would say is that we make in the white paper, we make it clear that there is no necessity for there to be an increase in taxation for the public finances of an independent Scotland to be sustainable. We would inherit the tax rates that are currently in place in the United Kingdom and it would be up to the Government of an independent Scotland to change and vary those as that Government had a mandate to do so. With the exception that we make clear that there is a particular provision in relation to the tax allowance for married couples that we would not apply and we would redeploy the savings from that to other purposes. Essentially the choices would be there for a Government to determine what was the appropriate tax measures to take based on the electoral mandate that they sought and took forward. The second point that I would make is that we have an opportunity, and I think that this is pretty widely acknowledged, if I attribute it correctly to the Institute for Fiscal Studies but certainly to other organisations, that being a smaller country gives us the opportunity to operate a more efficient tax system and to set out to embark and collect the tax that is rightfully due. I have just spent, before I came to this committee this morning, I spent the morning with the finance committee going through amendments to the Revenue Scotland and Tax Powers Bill, where I am setting out for the first time in legislation in Scotland the approach that we will take towards tax collection and tax management. A couple of fundamental principles in that bill are a very, very high level of intolerance towards tax avoidance and we have just chewed over with the finance committee again this morning whether there is more I could do to stretch that and I am open to those discussions. That is an important point about tax take that we actually set out from day one, that we are deadly serious about collecting the tax that we want to collect and that we are going to design a system that is based on that collection rather than on essentially the opportunities for creative planning, if I can put it euphemistically, that can often be applied in the tax system within the country. By operating on that more efficient climate, as we have also demonstrated with the costings of Revenue Scotland, where there is a 25% saving to the public versus the consequence of the activities of Revenue Scotland, I think we have got a lot to be confident about the approach that we take on tax take. Right. We have heard about how you would not increase taxation within Scotland in an independent Scotland, that is what you are saying. Yet we are hearing that pensions for example, you are not going to increase or you are unlikely to increase the retirement age, we have an ageing population. We have heard this morning from witnesses that that cost is likely to be around £6 billion. How are you going to balance the books given that we are not going to see any increase in taxation to cover pensions or welfare systems? I thought it was nice that Margaret Maudou referred to a panel of witnesses this morning, as if there were some independent authorities on the subject. They were two representatives of the United Kingdom Government, so I will only offer that to just say that we are not coming here with the most— That is how I knew them, witnesses. Just any old witnesses, I know. Any old witnesses that turn up any other week. Obviously, on the issue of the retirement age, for example, we have set out in the white paper that we would explore the justification for what is a rapid change in policy to increase the retirement age from 66 to 67. The timescale for that has been dramatically accelerated, and we are going to look at that again based on the fact that although life expectancy is improving, there is still a relatively poorer experience in life expectancy in Scotland compared to other parts of the United Kingdom. What independence gives us the opportunity to do is to consider whether there is a necessity to move to that increased retirement age, and we have set out the details of that in the white paper. Crucially, all of these judgments would have to be made within the wider judgment that we make around the sustainability of the public finances, which would be the routine decisions of Government to make. The other point is to briefly make. If you look at things like pensions and welfare and all of the services that are currently delivered on a reserved basis by the UK Government, we pay for all of these out of our taxes and our national insurance contributions, so we do not get them for free. We contribute to that, and if we look at social protection, which includes spending on pensions and welfare, it constitutes a lower share of our GDP and a lower share of our tax revenues than is the case for the UK as a whole. Our starting point in those things is that we are in a more affordable and sustainable position. Like any Government of an independent Scotland, any Government of any independent country has to be fiscally responsible and balance the books. John Swinney has got a better record in doing that than some of his UK counterparts have had over recent years. We start in a strong position and independence is about giving ourselves the ability to access our own resources and make our own judgments about how those resources are best spent. You may not be aware, but earlier on this morning, when we were with Danny Alexander and Mr Carmichael, there seemed to be very proud of the fact that, thanks to their policies, a growing and a very large number of people in the UK now no longer pay any taxes at all because they are earning such a little amount of money. Would you agree that there is scope in terms of what you were talking about earlier on in creating a higher-wage economy that we move towards that for those people to benefit, those people at the lower end of the earning spectrum, but also the Scottish Exchequer to benefit from an increased tax take without raising taxation rates at all? I think that it's important that people in low incomes are protected, but what worries me about the current debate is that we almost accept low pay as a factor of life. I don't want to accept low pay as a factor of life. We need to take steps to improve the level of remuneration that some people—large numbers of people—are living on. That's why, in all of our arguments, we set out the case for moving to a higher-value economy, the consequence of which would be to improve the remuneration of individuals. I'm supposed to be absolutely honest about it, as a finance minister. I've got a vested interest in ensuring that people are earning more money, so they're able to be proportionately more in taxation as a consequence of earning more money. Moving on to the oil and gas in terms of taxation, it seems to me that talking to people in the industry that George Osborne's tax rate in 2011 had a very negative effect, and that the 16 significant fiscal changes over the previous decade had the cumulative effect of depressing the industry and, therefore, possibly the tax revenues that accrued from that industry. Do you want to comment on that? I think that it's beyond dispute that the 2011 tax changes had a disastrous impact on the industry and the interrupted investment, the interrupted development of the sector. The fact that the UK Government spoke about those measures in 2011 with a sense of celebration and achievement, and by 2012 they were taking a completely different tack. I think that tells us all we need to know that even the UK Government realised that it had got it spectacularly badly wrong in 2011. One of the points that I would agree with the line of questioning that Mr Baker was taking earlier on is that there is a necessity for the industry, given the challenges of a mature basin, is that we have a more stable regime in place for companies in which to operate and to invest, so, therefore, creating that more stable regime would be a priority for the Scottish Government. Moving on to the OBR analysis, my reading of that seems to suggest to me that there are quite a number of areas of taxation that are associated with oil and gas, but which, though we are, do not include in our analysis. You mentioned supply chain, the international supply chain has been very, very significant now, but it seems to me that this, and going on from a recent Bank of Scotland report that suggested that we will see an increase of 39,000 jobs in oil and gas over the next two years. It seems to me that employment taxes will increase as a result of that and that the OBR is not capturing all the taxation that will result from the kind of renaissance that we are now seeing in oil and gas. Do you think that that is a reasonable assessment? I think that there are certain changes that have been made to the calculation of oil and gas revenues, where the OBR has shifted essentially the emphasis or elements of what historically we were doing in the tax take that would flow into North Sea oil and gas revenues and accounted for it in different ways. Of course, that obviously has an effect on, it does not take the tax income away, but it affects the presentation and the arguments around about that. I think that there is a key point about the oil and gas industry, is that a very substantial proportion of the employment within the oil and gas sector is very high-value employment and there is obviously a significant tax benefit arising out of that into the bargain. I suppose that it finally comes back to the point that I was making in Iran, whereby there are two distinct components to the oil and gas sector. There is the production activity in the North Sea basin, but there is also the very substantial domestic and international business that arises out of the technology and expertise that is exported from the oil and gas sector in Scotland. I was quite shocked this morning to hear Danny Alexander say that he had really taken no account of the value of Scotland's exports and their contribution to the UK balance of trade deficit in informing their thinking about whether they should maintain a currency union with Scotland after independence. I was really quite shocked that Mr Alexander did not seem to feel that that was a tall significant. Could you comment on that, please? I think that it is symptomatic of the fact that, fundamentally, the Treasury team has taken an entirely political campaigning stance on this question and it will change in the event of a yes vote. My final question is just a brief one, but, again, both Mr Carmichael and Mr Alexander seem to suggest that, after independence, the UK will not buy Scottish energy, but, just yesterday, DEC released a further warning about UK energy security, suggesting that it might have to take some old generating plant out of the mothbongs. It has relaxed some of the safety requirements on carbon rods for nuclear power generators. It seems to be not credible that they will not continue to buy energy from Scotland after independence, given that we export a fair degree already south of the border. I think that that is a fair conclusion to draw. I think that the issues around energy supply and energy security to the rest of the United Kingdom will require a continued active relationship with generators in Scotland, not least of which in fulfilling the carbon reduction targets of the United Kingdom. I study by York aviation in October 2012 that APD rates in the UK had increased by around 160 per cent for short-haul flights, and between 225 and 360 per cent for long-haul flights since 2007. By 2016, the likely impact of that would be £210 million less being spent per annum in Scotland by inbound visitors than if APD had not risen in that fashion since 2007. First of all, do you accept the analysis by York aviation that I have just mentioned and what is your Scottish Government's view of the impact of the current APD rates on the Scottish economy? I will kick off. I broadly accept the York research that you refer to and the numbers that you have quoted. I paint the picture of the damage that the APD is doing to our airports, to tourism and to the broader economy. I am sure that members would have heard Gordon Dure from Edinburgh Airport on the radio just yesterday morning when he was outlining very, very powerfully in my view and from a completely non-political standpoint the impact of the APD on how they operate. He explained the disadvantage that him and his colleagues start with every time they go into a negotiation with an airline about a new route. They are starting behind because they have to factor in the impact of APD. I think that the case for being able to reduce or get rid of APD is overwhelming. I would pray in aid of that statement the fact that we just last week had the Conservatives saying that they thought APD should be devolved. I suppose what I would say is that if you believe that, you must believe that it is right for the Scottish Government to be making decisions about APD. If you do think that is the case, then get on and do it. Why are we waiting? If we had the ability now to do something about APD, then we could start to deal with some of the impacts on the economy that you have described. I cannot for the life of me to see why we have been in this position for several years now of trying to make that case seemingly, making the case in principle, but being unable to get to a position where the UK Government agrees to do it. Certainly I asked the previous two witnesses this morning from the UK Government the similar questions about to ask you, but the Strathlite Commission and the Campbell Commission, both the Conservatives and Liberal Democrat parties' views on the constitution stated that APD should be devolved. In fact, the Strathlite Commission went on to say that there is no need for fresh legislation. Given that is the case, it seems to be that everybody now agrees that APD should be devolved and there is no need for fresh legislation for it to happen, do you find it rather confusing at least that Diana Alexander said this morning that we would have to wait after a no vote before such legislation could happen? Yes, although for me it would simply lead back to the comment that I made in response to Alison Johnston about my scepticism about whether those powers will actually ever be delivered in the event of a no vote, because if you, and by you I am talking here about both the Conservatives and the Liberals, because as you rightly say, both of their policies now is devolution of APDs, so if that is a sincere position, if it can be delivered without, as you say, primary legislation, then why on earth would you sit back and wait in order to do it? You would get on and perhaps it would be a way for both the Conservatives and the Liberals to show some good faith that they actually are serious about more powers and the fact that they won't appear willing to do that, I think it certainly heightens the scepticism in my mind. I have written to the UK Government making this point, asking them to get on with it, and to the best of my knowledge I haven't yet received a response, but there can be no justification if you believe that it's right to devolve APD not to just get on and do it. You may be aware of the study, the economic impact of air passenger duty. There has been a question much raised about if you cut a tax in this case of air passenger duty, how do you fill the, to use the terminology of some of the other parties, a black hole in your finances. The economic impact of air passenger duty study published in February 2013, UK-wide said that abolishing APD would boost the UK GDP by 0.46 per cent in the first year and continuing benefits of the 2020. It said that UK economy would be boosted by at least £16 billion in the first three years and result in almost 60,000 extra jobs across the UK in the longer term. Is that the Scottish Government's analysis of the impact of abolishing APD in Scotland would in fact not result in a black hole in the finances but an increase? That's the whole point of doing it. Again, people in the airport industry will make this point. It's about if you just take tourism, by getting rid of APD you're able to be more successful in establishing air routes. If you get more tourists coming into Scotland, these people will be spending more money here, they'll be paying that on the things that they buy, so you'll be growing revenues. As you say, it's borne out by independent analysis. Getting rid of APD will actually benefit the economy because it takes away a blockage to growth and tourism and growth in the wider economy. Can I add one additional point to what the Deputy First Minister said? The crucial point about this being a power that we could exercise with independence as opposed to being exercised under a devolved environment is that under independence we would be able to bear the fruits of the investment in the decision, so the increased VET, the increased economic activity, the increased employment, all of that would flow into the exchequer of an independent Scottish Government. I would be deeply sceptical based on my experience that I was discussing with Mr Biagi about block grant adjustments that would see any of that under devolution. I have one final quick question on a separate subject. This morning, Mr Carmichael distanced himself from the UK Government's patronising campaign about using legal figures to discuss the benefits of staying in the union. Can I just confirm that the Scottish Government, under no circumstances, would spend £30,000 on legal? I can say that, as finance minister, in my professional capacity that I would not be spending £30,000 on legal on behalf of the Scottish Government, I cannot rule that out as the father of a three-year-old son who adores legal, so I am not quite sure that I can. I hope that that is a sufficiently careful answer that I have given to Mr Carmichael. On that note, I think that that is a nice end to our discussions. Can I take this opportunity to thank our witnesses this morning for coming in and helping us with our inquiry? Indeed, as this is the last public session of our inquiry, can I just put on record my thanks to all those who have given us evidence, either in writing or orally over the last four months of our inquiry? I can also take an opportunity on behalf of the committee members to thank our team of clerks and the SPICE for all their assistance throughout this inquiry, and personally can I thank all my fellow committee members for their diligence during the inquiry and their general good conduct throughout. Thank you very much and at this point we will go into private session.