 Welcome to the 11th meeting in 2016 of the Finance and Constitution Committee, as this is the first public meeting of the committee that she has attended, the public committee I stress. The first item on the agenda is for Dean Lockhart MSP to make a declaration of interest in a warm welcome to the committee and invite him to declare any relevant interests. I am a member of the Law Society of England in Wales. I own heritable property in Scotland. I have a shareholding in a smart metering company, which is based in England and which has no business interests in Scotland. That takes us to the next item on the agenda, which is to choose our deputy convener. Prior to doing that, I would like to express very sincere thanks and gratitude to Alex Johnson MSP for the work that he has done not only on this committee but also on the Devolution for their Powers Committee, which he shared with me in the last session. On behalf of the committee, I want to pass on our best wishes to Alex and his family. With that being said, parliaments agreed that only members of the Scottish Conservative and Unionist party are eligible for nominations as deputy convener. That being the case, I invite nominations for that position. I would like to nominate Adam Tomkins. One nomination has been received and I therefore ask the committee to agree that Adam Tomkins has been chosen as a deputy convener of the Finance and Constitution Committee. Are we all agreed? For the record, we are all agreed. I congratulate Adam and look forward to working with him. The third item on our agenda is to continue our pre-budget scrutiny by taking evidence on the public finances and economic performance. We have two witnesses today on that subject. I welcome you both to the committee proceedings this morning, Professor Anton Muscatelli, the principal of Glasgow University and Russell Gunson, who is the director of the IPPR in Scotland. We have received written submissions from both our witnesses, but before we move to questions from the committee, I wonder whether either of you want to make a short statement. Thank you, convener, for the invitation to attend. You have seen my written submissions, so I will not detain you too long, but I want to emphasise as an overarching point that the current Scottish budget is being set with an uncertain environment. The UK's own economic scenario has changed markedly. If you look at what most forecasters expect now, compared to what they were expecting in March or May this year, there has been a deterioration in that economic outlook. Some of that is nothing to do with recent events, but it is to do with a general deterioration economic outlook in terms of the world economy and slowdown. Some of it may be to do with local issues around some uncertainty around the Brexit referendum. Difficult to disentangle those two effects. Scotland has also slowed down in its recent relative economic performance, which with the new fiscal framework will impact on the available finances, which the Scottish Parliament will have to decide on in the budget. There are other effects, of course, with the depreciation of sterling, which will, as I said in my note, impact on both indirectly through spending decisions on the economic situation here in Scotland and indeed in the UK. Obviously, one of the key issues is also the interdependencies between the UK Government's decisions and the Chancellor's decisions in the autumn statement, which traditionally now has had a number of announcements anyway in terms of budgetary decisions or taxation decisions. It is no longer just the showpiece of the single budget, but even more this year because, of course, with a new UK Government effectively taking office, we know that there is going to be a reset in the fiscal policy and how that fiscal policy is set out. I think that it is obviously critical in terms of both the traditional Barnett effects but also the impact through the interdependencies of income taxation decisions that might be announced ahead of next year. I think that the main uncertainty is obviously facing, I think, the Scottish Parliament and the Scottish Government as they go ahead and set their budget and are happy to explore these in detail as they sit out and mine out. Thank you, Russell. Thank you so much for having me here today. I think that Anton has already mentioned probably the word of today, which is uncertainty, and I think that we had uncertainty going into before the Brexit vote in June. We certainly had that since and indeed actually the US elections of last week only add to that for Scotland and the UK. In the short term, we can, though, begin to see some of the effects we are likely to see. In the short term, the economic outlook was looking weaker prior to June's vote, but it looks weaker still since. The vote will certainly bring strong headwinds against the Scotland and UK-wide economy. That will likely take the form of two forms. One, an inflation shock. We are likely to see some estimates put it at 4 per cent, but certainly an increase in inflation towards the second half of next year, with reductions in living standards coming on the back of that. Secondly, a growth shock, which the IFS has put a figure of about £25 billion a year in terms of the black hole now facing the UK Government by 2019-20. That affects our public finances both across the UK and in Scotland. In Scotland, we were already facing significant cuts. Of course, let's not forget that, not that any of us around this table would. Those amounted to around £2 billion per year for non-protected departments in Scotland. Cuts to benefits in Scotland amounted to £600 million a year by our estimates by 2020. If there are further cuts next week from the autumn statement to fill that black hole, we are likely to see further cuts to the Scottish budget, too. Over the medium and long term, there are some things, regardless of Brexit, that we in Scotland and we in the UK needed to focus on. One of those main ones was around productivity. Productivity and absence of productivity growth has been at the core of us missing and misforecasting many of the economic growth targets that we have seen over the last few years. Regardless of where we sit in the UK, focus on productivity has to be one of the key things for the Scottish Government over this next parliamentary term and beyond. On public finances over the medium to long term, unfortunately, we are likely to see cuts continue through and beyond this parliamentary term. Beyond that, demographic change will hit our finances across the UK and in Scotland. In short, public spending pressures do not disappear any time soon. That is the dismal, if you like, part of it. The more positive side is that there are things that we can do about this, and it would be great to get into some of those potentials today. I know that some of my other colleagues want to ask questions around the issues of productivity, growth in the economy, but also consumer spending, the impact on those on lower incomes, etc. I want to try and get some of the scenes set and done first if we can. You have laid out your papers pretty clearly what the significant challenges are facing the UK economy as a whole. Given that the overall size of the Scottish budget in the future will be linked to the performance of the Scottish economy, it would be very interesting to know if you have any take at this stage on what the differentials might be between what is going to happen in Scotland and the rest of the United Kingdom. In particular, the result of Brexit. Understanding where the performance of the UK and the Scottish economy will go similarly, or there may be divergence in which way, if that was to happen. On the Scottish Parliament's budget, there are differentials. Tax revenue is differentials. You can have different economic growth, but the real key is whether tax revenue per head is increasing at a faster rate or a slower rate in Scotland than in the rest of the UK. In answer to that question, what you got to look at is where there may be risks or opportunities in Scotland from the particular makeup of our economy in that area. On the positive side, whisky, the drop in the value of the pound has had a strong positive impact on those export industries in Scotland, like whisky, like tourism, that have quite a lot of the supply chain based within Scotland and importing far fewer things from outside. Energy costs, however, may affect that in the future. On the negative side of things, I think that at higher education—and I'll leave Anton to talk about that—there are headwinds caused by Brexit and other things against that that particularly may affect Scotland. We can talk about the inflation effects that may affect Scotland a bit more than other parts of the UK too later. It is of course not likely to be the direct impact of Brexit, which will be a concern over the next three years, because even if things go on a timetable that the Prime Minister has announced, it is unlikely that Brexit would happen before the end of this forecasting period. We really are looking more at the expectations effects of Brexit, the depreciation of the pound and what it does to consumer and business confidence, the expectation of Brexit. Russell has mentioned the fact that depreciation sterling will have a differential effect. Certainly, you would expect food and drink, where the value chain is largely within the country to have, and therefore costs are not likely to be increasing too much because of import costs. You would expect that to do well. You would expect higher education to do well as well because of depreciation effects making it more competitive. The problem with that is that there might be happening around net migration targets and any impact on student visas. Higher education is quite interesting because it was outside the top 10 exports, but it is getting quite close to being one of our top 10 exports in Scotland now, but it could be hampered by whatever might happen around any tightening around student visas. I think that there are some interesting potential effects around the oil industry because of the fact that revenues are in dollars and cost base, at least not partly in pounds where that could help, but that is connected largely to what might happen to the oil price, so it has been more complicated. To be honest, one of the issues for me around the depreciation of the pound in the short term and the inflation shock that we have seen, which might be aggravated by the depreciation of the pound, is what it might do to consumer spending. As I say in my paper, a lot of employment in Scotland is linked to the public sector and salaries in the public sector may well be constrained by the public finances. You then have this inflation shock, which might be aggravated by the depreciation, and as Russell said, inflation could reach 3 per cent or 4 per cent depending on which forecast you believe by next year. That is going to reduce the purchasing power of public sector salaries. It is going to have an impact on consumption locally, so that is going to be an issue in terms of the Scottish economy's performance relative to the rest of the UK. We are more dependent on public sector employment than the rest of the UK. I think that it begins to paint some of the picture for us, so can I just take us up a bit to the bigger issue in terms of the numbers, as Ivan put it, and the 25 billion, 26 billion issue? Thank you, convener, and thank you for coming in to talk to us this morning. It was really just to get a bit more background, if you can, and cast some light. There's a 25 billion black hole that you've both mentioned, and clearly there's a number of issues driving that. There's the growth shock, the inflation shock, the drop in the value of sterling, anticipation of reduction in demand, anticipation of reduction of inward investment, etc. All of that, as far as I can see Brexit driven, would that be fair to say? Not all of it is Brexit driven. As I said before, there was a slowdown anyway in train, even before Brexit. I think that what Brexit has done for the UK possibly is an impact on consumer spending and business investment spending, but to disentangle the two effects we're going to have to wait for a few more quarters to see exactly how that would work. It was a slowdown anyway post this year's budget. To try and disaggregate the 25 billion effect, if you look at the Institute for Physical Studies report that both Russell and I mentioned in our papers, 24 billion of that is slower GDP growth. That's slower growth in the UK economy means that compared to what George Osborne said at the time of the budget to now, you look at growth over the next two, three years and there's going to be a gap in terms of tax take. Some of that is just to show you how sensitive these figures are. If growth projections of the moment by the IFS come true and indeed by other forecasters like the Bank of England, essentially by 2019 we will only reach the level of GDP that we would have reached under Osborne's forecast, the OBR forecast to be precise, sort of a year previously. Effectively you lose a year in terms of growth and that gives you a measure of the sort of tax take. You have higher inflation effects because of taxation. There are also, important to say also, one assumption that the IFS is making is that we get some money back in terms of EU contributions by leaving EU by 2019-20. If that weren't to happen, either because we entered a deal with the EU around the free trade agreement or we carried on paying between £8 billion and £10 billion, then the gap is not 24, it's 24 plus 8 or 10 because they are accounting for £8 billion. I was going to ask about that because I know that £350 million a week is a true number because I read it on the side of a bus so it must be true and I was going to ask you if that number, which is actually double that because it's £350 million, it's £17 billion so that is already factored in here and it's quite possible we need to pay as a kind of pay as you go for EU services that we currently enjoy, we need to fork that out on top of that so that 24 as you say could easily be 32 or 34. Even if you look at the Norwegian model or the Swiss model, which is a self-standing free trade agreement, the Swiss pay quite a lot per capita into the EU budget. The Brexit black hole could be 25 or it could be as much as 34 or 35, depending on what happens with those payments. As Anton said, a chunk of this was entrained before June's votes but a large effect has happened on the back of June's votes. The previous forecast would have been the March budget so you're only talking about a matter of a few weeks between that and the vote on the 23rd of June. I'm assuming George Osborne wasn't so completely clueless that the thing changed within a matter of days or weeks after his budget so I've got to assume unless you can give evidence to the contrary that the vast majority of this black hole is the Brexit black hole. Much as I would like to attribute everything to Brexit to the moment, I do think that we need to wait for a few more quarters to see exactly what I do agree there's an effect. Folling on from that, I suppose, I'd like to understand clearly we've got some issues, right? Potentially 20 per cent cuts in certain spending areas, etc. We need to grow our way out of that to some extent. What extra powers do you think that Scotland could get in the short term in addition to what's already coming? That would give us some levers here to drive more growth potential in the Scottish economy? In the short term, I saw two weeks ago a very smart answer from one of the Davids which was, I won't give a political answer to a political question but I think that that is a fair question to ask. In the short term there are only a few things that the Scottish Parliament could get in terms of additional powers that would affect this. Again, I said this in the opening statement that productivity growth actually sits underneath why these forecasts seem to be more like chasing a rainbow almost every time the OBR makes a forecast that's 18 months away and everything will be back to normal. The trouble is that that's a UK-wide problem and the trouble is every time, every six months, a budget event happens that's still 18 months away and we've been like that for the last five years or so. Underneath, how do you affect productivity? That is a bit of a holy grail, I must say. There are huge powers already within the Parliament that could affect productivity around skills, around the education system. There are powers that aren't that could affect productivity, for example there are boring powers but are they significant enough or not for that purpose? If it are there to cover the shocks in the fiscal forecast not to drive significant investment. But for small capital borrowing powers aren't there. The short answer is that this is a long-term problem. Short-term powers may have some effect but it's a long-term issue that we need to focus on. There's nothing specific that you would say that would be helpful to have in Scotland? One of the things that we have identified and seen in the report from the Council of Economic Advisers and I am a member of that group and I would certainly endorse strongly that part of the report. One of the issues that Scotland has faced within the wider UK picture that Russell pointed out is that we have had an impact on the onshore impact of the oil and gas effect of the decline of that industry. We do need to look at those sectors that are highly innovative in Scotland, ranging from engineering to life sciences. There's a huge amount of potential. We have in terms of R&D sort of spent two thirds of that is happening within the higher education sector. There are strengths over there which are absolutely global but you need to generate the demand pool. If you look at the Council of Economic Advisers report, it shows you how complex that innovation ecosystem is. That complexity is important because it's not straightforward to manage. I think that looking at the way we can concede that space between what is a very highly successful scientific base that we have in Scotland and to try and create more demand pool, to attract more R&D units to Scotland around major industries, I think is going to be absolutely key. If you look at the spend at innovation centres, for instance, the Scottish funding council has put in place there, it's of the order of 90 million. I need to check that figure. It's certainly tens of millions that have been put invested. That is still a fraction of what Germany invests in its industrial strategy. You look at the UK picture, innovate UK, which is supposed to play a very similar role. It's a fraction of what Germany spends. Germany has increased its R&D spend from the public sector in the last few years considerably. Has China, has France, even at times of fiscal stringency? We haven't. In the UK we haven't. I think that this is one of the areas that we really need to look at and how to get the best possible investment around that interface space between industry and the science space, which is what is strong in the UK and in Scotland in particular. Is that the entry in this? Yes, thank you. Good morning. It is a follow-up to Ivan McKee's first set of questions to Professor Muscatelli around the £24 billion figure that you mentioned as the economic shock cost from Brexit. Is that predicated on hard Brexit or is that a figure that is variable depend upon the type of Brexit that might occur? As I understand it, having read the IFS report, I really don't think they make a particular distinction, partly because it's a forecast up to 2019-20. The main impact of Brexit, and the reason I was possibly being slightly facetious earlier, is that the main impact we've seen so far is potentially a slight slowdown around additional to what was happening around consumption and business investment growth. The real impact, as I've said before in the press, is going to happen after 2019 or whenever the date is of Brexit, because that's when your trade links get disentangled, particularly if it's a hard Brexit. At the moment, the IFS is basically not making a judgment on that, so that gap is essentially largely because of the slower projected growth in GDP growth, which is partly an expectation of Brexit. It is partly because the global environment has deteriorated in the last few months. Do you think that it's fair to comment that the UK economy is actually performing relatively well since June, compared with European competitors? In the last few minutes, the unemployment figures have come out and unemployment is now at its lowest rate since 2005. Economic growth in particular sectors doesn't seem to be accelerating. Should we be so downbeat about our prospects in the short term? I think that it's all relative. It wasn't just the chancellor who was forecasting in March about better GDP growth, it was the OBR, so there's definitely been a deterioration in prospects. You're right that we haven't fallen off the edge of a cliff, but then a number of people like myself who were commenting on Brexit were saying that they were never expecting to fall off the edge of a cliff before Brexit actually happens, because the effects of Brexit will come once those trade linkages are broken, if they are going to be broken through a harder Brexit. I think that it's good to see that we're still getting growth in the system. It comes back to a point that Russell made. Employment figures are good, but with growth slowing down, that doesn't paint a very good picture on productivity. That's a key issue. We're not generating that employment through productivity growth. That is pretty much in line with the central estimates prior to the Brexit vote in June, so the experts that Michael Gove maybe disbarged were turned out, maybe not entirely wrong. The devaluation of the pound is again pretty much spot on the expectation central estimate. The IFS is using an average of independent forecasters, so it's not just a single forecast of their own. It's a range of others. You can look at economic growth, unemployment figures, but if you're looking at tax revenue, productivity growth, it's a lot more negative picture. I want to move on now to try to paint some of the potential scenarios of that big, big churn, how it's going to translate into Scotland. I think that Ash Denham wanted to pick up some of those issues. Mr Gunson, I've got your paper here and it's very interesting. You present three different scenarios that you think could potentially affect Scotland's public finances going forward. One of them, they range from an effect on the public finances of between 15.3 per cent cut up to a staggering 21.6 per cent cut. This is over the next few years up until 2019-20. I wonder if you could lay out what those three scenarios are for us. First, we already have a large number of cuts on the way. As of March, prior to anything to do with Brexit votes and prior to anything to do with economic shocks, there were £2 billion worth of cuts that we estimated in real terms per year compared to 2015-16 by 2019-20. That's the context, and that's just the spending within the Scottish Parliament. At the start, there's another £600 million worth of cuts to those in receipt of social security in Scotland, to the side of anything that comes through Holyrood. What we looked at was how Philip Hammond, the UK chancellor, could fill this black hole next week in the autumn statement. One option, and we should be clear, is that he fills it entirely from additional borrowing. To be clear, that would not be a stimulus, really, in the sense that revenue would just be to maintain public spending plans as they were as of March. That borrowing would just be to stay where we were, in essence. Alternatives, and those have certainly been the alternatives used in the past, would be to cut day-to-day spending. We looked at three scenarios. One, extreme, was he used public spending to find the full £25 billion to reach that surplus that we heard so much about from the previous chancellor. That would lead to £1.3 billion worth of cuts in Scotland, in addition to what was already planned to non-protective departments. All the way through to if he takes what would be quite a balanced approach, but would still lead to additional cuts to day-to-day revenue spending, so taking a quarter of that £25 billion black hole from day-to-day spending would lead to about £340 million a year. In the scheme of a £30 billion budget, one person could say, well, that's 1 per cent. We can deal with this, but in the context of significant additional cuts already and £340 million when you have very little money to spend, there's a huge amount of money to spend in Scotland. Would you be able to make a judgment on which of those you think would be the most likely? I think that I can fall back on that key word for today, which is uncertainty. I think that one of the Davids two weeks ago said that he hadn't felt so unclear as to what the approach from the UK Government was. I can absolutely share that view. We do not know its mixed messages. We know a couple of the rules have been thrown away, but we don't know whether we're going to see a significant fiscal stimulus, any kind of fiscal stimulus, whether he's going to use simply the Government's books to find new forms of innovative funds or whether we're not going to see anything. I mean, I just follow up on that. What I've heard is that, like yourselves, there might be a delay in meeting that budget surplus. That would, of course, take you towards scenario one, at least for this horizon. The other possibility is that they might move towards a golden rule type arrangement again, whereby you're not balancing the books in total, but you're shifting between current and capital spend. If that's the case, that could help to set some of these effects, although it would be effectively still having to find savings from within revenue budgets. Those are the two scenarios that are being painted around by economic commentators. It's the most likely that they might not try to hit the same target as was said originally, but delayed by a year, and then a golden rule on top of that, which would avoid some of the more dramatic additional cuts of scenario two and scenario three of Russell's paper. Whatever scenario we have in this environment that's coming, obviously it's going to have impacts on consumer spending wages, those on lower incomes, as a number of members want to ask questions around that area. Neil, would you like to begin? You've measured a few times the issue of consumer spending and the effect of public sector wages constraints. We know that people on the lowest incomes spend more of their disposable income than those on higher incomes. I wonder if you could expand on the impact that public sector wages constraints would have on consumer spending, what sectors of the economy might be affected, but also you mentioned that Scotland is more reliant on public sector employment than the rest of the UK. It's just to explore to what extent that is, that we are more reliant. I haven't done any sort of calculations in terms of what impact that could have on terms of our growth effect. We are certainly quite a bit more dependent on public sector employment. As you say, those on lower incomes tend to spend more of their disposable income, so you would expect some impact on that. It would also, of course, not help in terms of our aims in terms of trying to reduce inequalities, because you would begin to have that impact as well over the next two, three years, which is not helpful at all. I haven't actually quantified what the impact would be in terms of GDP growth or in terms of tax revenue. It would have less impact on the tax revenue effect, as Russell has been emphasising in his paper, because for obvious reasons you wouldn't have that reduction in consumption would probably only feed through with a lag on to the tax base. In terms of the inflation effect on poorer households in Scotland, as well as public sector workers, there are, of course, those that are on fixed incomes, particularly those that are on social security other than pensions. We shouldn't forget that we reached around 5 per cent inflation after the 2008 crash. At that point, benefits were index-linked, so those on the lowest incomes were protected to some extent from that inflation shock. This time, as of April of this year, we are in a cash-term freeze for working-age benefits that are implemented by the UK Government. Public sector workers could look at in terms of a social aspect. It would be a different question if you were looking at an economic aspect where they wanted to boost the economy. Would you do that through public pay increases? I don't know, but the social effect of people on benefits in a cash-terms freeze with inflation at 4 per cent is very different than the environment that the UK Government thought they were going into in terms of low inflation. I wanted to ask a little bit more about precisely that area. I understood from your paper that the full inflation shock is going to be passed on by the UK Government to the poorest people in society. I am concerned. I asked the two Professor Davids a couple of weeks ago about what we in the Scottish Government or in the UK Government could do to protect these people to mitigate these effects. David Bell replied that the UK Government could consider not passing on some of the benefit cuts that were planned, but I get no sense that that is a likely outcome of next week's budget. While they are saying that they will freeze benefit cuts and go any further, they have already committed to quite a considerable cut in social budgets. I just wondered if you could give me your thoughts around that and particularly if there is anything at all that we can do to mitigate that or the UK Government could do to mitigate that situation, which is pretty dire, I think, for the poorest, most vulnerable people in society. The first place to start is that pensioners, of course, through the now almost, I do not know if it is famous or infamous, but triple lock means that they should be protected from inflation shocks. Pensions go up by whichever is biggest in terms of earnings or inflation, and inflation will no doubt be bigger than earnings this time round. It is those other than pensioners that we are talking about here. It is uncertain as to when the social security powers will come to the Scottish Parliament, but it will not be in time for next year's inflation effect. If that is more prolonged, there may be things that the Scottish Parliament could do through those new powers, for example, topping up. The cost of that would be very significant, I would suggest, and we would only add to the pressures that we have outlined elsewhere in the budget. It falls to the UK Government in the main. There may be some mitigation. We have seen that before with, for example, the bedroom tax that the Scottish Parliament can do, but that will be around the edges compared to what the UK Government could do in terms of its overall social security policy. If you are getting no sense from the UK Government, and I think that there is a good few people at the moment that are getting no sense from the UK Government in a variety of ways, but on social security we do not know the pressure within the Government to abandon some of the cuts that are already planned, whether that would be around the freeze or whether that is more likely to be around some of the work allowance in the universal credit cuts. In short, more of the cuts to benefits have yet to happen compared to the cuts that have happened already. If inflation is on top of that, you can see how those very households that are facing big cuts could be under huge pressure. I would totally endorse what Russell said. I think that it is a put-out look for those working-age benefits. The only other thing that I would add to all that Russell said is that there are some commentators who are urging the Government to look at that triple lock, especially for wealthier pensioners, because if you are really worried about the effects of inequality here, there are some parts of that triple lock as protecting pensioners who have some very good occupations. You could try to do something at that end to try to alleviate what is happening in terms of the bottom end of the income distribution. Russell, on your submission, you have just spoken about some of the answers. You highlighted the inflation shock, and you looked at the potential impact on the Scottish budget in the two areas that you highlighted where there might be exposure, which was NHS and police budgets. Can you just expand on that a wee bit? There are only a few spending commitments, as opposed to policy commitments, within the Scottish Parliament's spending budgets. The protected departments, in essence, are those, so there are NHS spending, which is pledged to go up by £500 million plus inflation by the end of this parliamentary term. Secondly, there are police budgets, which are protected in real terms throughout the parliamentary term. There is also a floor on college spending in cash terms, so that is not necessarily protection, but still more protection than other departments may face. Inflation is a relatively complicated interaction. It is not quite as simple as saying that if inflation goes up, then to protect those budgets in real terms, you must match the inflation rate. It is something called the GDP deflator, which I won't go into, but it is slightly different and likely to be a little lower than inflation. However, it will likely lead to pressures to increase those spending commitments at a higher rate than it would otherwise have been. On the revenue side, I highlighted the effect of inflation shock on the income raise through the income tax policy of freezing the higher rate threshold with inflation. In short, that might mean that the gap between the higher rate threshold in Scotland and the higher rate threshold down south is narrower than we expected it to be when we announced that proposal, which might mean that, because it is narrower, we raise less money again because of the differential being the key here in terms of how much money we raise from tax policy in Scotland. There will likely be pressures—not quite as significant as the numbers that we are talking about—on inflation, on health and police budgets. However, there will be pressures across all budgets, if we are pushing those pressures down to departments themselves to deal with higher energy costs, etc. There will be pressures across the public sector. To add to that, clearly, if you look at these protected sectors, some of them are more dependent on those non-pay costs. The NHS, the drug budget for instance, the energy costs are the ones that, even if you are able to control public sector pay to avoid that being linked to inflation fully, you will experience additional costs. They will erode some of that additional spend in projected departments. On that, on areas such as the drug budget, would you expect that to rise by more or less than the projected inflation rate? In any case, as we know, those costs tend to rise faster than inflation anyway because of the fact that there is constantly an introduction of new drugs. In terms of the exchange rate effect, it is largely through the fact that these are internationally traded commodities that will be priced and higher and sterling. It would tend to match the exchange rate effect that is opposed to the GDP deflator. Just bearing in mind, the Scottish Government is aware of all the factors that are preparing the drug budget, which will be published in a few weeks. What steps do you think it could take to minimise the exposure from the inflation shocks? It is not easy. It is not something that is easily avoidable because it is a complex effect that will affect. I think that they should probably try to look at the differential effect that Russell pointed out between different sectors, which are more exposed to an inflationary shock. Beyond that, there is not much that you can avoid. There is another effect that we have not discussed yet, but I mentioned it earlier. It depends on what the UK Government does in terms of tax thresholds and whether they are fully indexed or not. If they are, that has an interactive effect with the modified block grant that Scotland will receive. That needs to be factored in. The Scottish Government has a very difficult forecasting job on its hands to look at that effect. That will also be key in determining whether, for instance, the announcement that took place to freeze the thresholds on higher-rate tax might be eroded if there is a change in policy on the part of UK Government announced in the autumn statement. Those things have to be also properly calculated. I want to come back to the question about differential impact on different groups in society, but could I quickly pick up on one of the points that you were discussing with James Kelly, in particular Russell, about the potential that increased inflation would erode the extra revenue that the Scottish Government hopes to generate by retaining the current thresholds for the higher-rate? Presumably, it would take only a very modest increase to that higher-rate to restore that lost additional revenue if it was to happen. Do you know how much that would be? We haven't done the modelling to give you an exact figure on that, I'm afraid, but to give you an idea, if inflation were to reach the levels projected by the independent forecasters that IFS brought together, it's likely to bring the higher-rate threshold in Scotland up to more like £47,000 a year by the end of this parliamentary term, as opposed to what it was projected to be, which was more like £46,000 a year, that £1,000 difference. It doesn't sound huge amounts, but that roughly back in March would have meant about £150 million a year difference. It's not an even distribution at that level of income. You couldn't simply say, well, reduce it by £1,000 and that will get the money back, but that's the rough ballpark of what you're talking about. It sounds as though it would only take a modest increase to that higher-rate if the Government was to decide that its policy objective is not to freeze the rate for high-income people, but that its policy objective is to generate the extra revenue that it said it was going to. It would take only a very modest increase to the rate to restore that lost revenue. It's decreasing the threshold, which is what we're talking about, from £47,000 to another figure. The Scottish Government is free to set the rate now. The rate in terms of 40 per cent, 40p in the pound, is not what we're talking about. We're talking about the threshold, but whether that's a modest amount or not, you'd have to be a higher-rate taxpayer to suggest. The core of your question is, should the Scottish Government protect, in real terms, the higher-rate threshold, or should it protect the revenues that it was seeking? That's a perfectly good question to ask. Returning to that earlier set of questions about people at the sharp end of these impacts, they're not higher-rate taxpayers, they're not people on high incomes who can well protect themselves from the effects of increased inflation or from a squeeze in public services. The people who are going to be most at risk, either in terms of reduced public sector pay, either in terms of the freeze on social security payments, or indeed the impact of inflation and cuts to public services, are likely to be the same groups of people most acutely affected by all of these factors. I wonder if either of you have done any work on understanding the way in which particular groups women, young people, disabled people will be particularly affected, as opposed to the cumulative effect across society as a whole. I haven't done any modelling of that type, but you could easily do an extrapolation. The IFS usually does a very good impact analysis by the sale of the income distribution. It could easily be looked at for Scotland. I agree with you that that's where the negative impact is most likely to come. We haven't done a work on that, but there are a number of studies that show the intersectionality between disability, gender and poverty. You can extrapolate from that that if those in poverty are being hit or those on lower incomes are being hit hardest through this, it's likely to be also hitting harder those groups too. One of the responses that might be called for in relation to that is about investment in social infrastructure. Traditionally, if there's a bit of extra cash floating around in the short term, as some people have suggested, there might be a little bit of short term stimulus on the capital side. Traditionally, it's all hard building infrastructure that gets priority, shovel ready projects and the like, which does have a lower economic benefit particularly for women. It's more heavily a male dominated area that you get the employment benefits there. A case can be made that investment in social infrastructure is going to have the maximum social and economic benefit if we've got any loosening in the short term. Areas like childcare, for example, where traditional measurements of productivity don't really apply because if you're reducing the number of people working in that area trying to provide the same level of service, you get a rubbish service as a result. The benefit is measured in a less-been counting kind of a way. I'm wondering if you could respond to that case for investment in social infrastructure if, as we say in a week, we hear that there's some short term loosening. I think that it's about striking a balance. If you'll go again to the report that we presented as a council of economic advisers to the Scottish Government, we did urge them to continue their work on an inclusive growth diagnostic. Inclusive growth is at the heart of the Government's economic strategy. You can look at those areas where you can have an impact on both growth and a positive impact on the distribution of income. You mentioned childcare. That's an interesting area where you could have a positive effect on both outcomes for those groups, which not all of them can be measured in terms of productivity and GDP. You could also have an impact on growth because you're potentially improving the employment prospects on that end of the income distribution. However, I would also balance that. I have to say back to where we started this conversation. We need to also look at what investments are going to boost the productivity and the tax base of the whole of the economy longer term. Ultimately, it's not just about the next two or three years. It's about what happens after that in terms of our growth and tax performance relative to the rest of the UK. It's about striking a balance. I agree very much with that. If we're facing two sides of the same challenge over the long term, one is tax revenues, productivity growth, economic growth, the other is how do we afford our public services, how do we potentially get more efficiencies out of them? Those are unified by potential investments that we can make now for the long term that achieve one or the other or both. It's not just about the employment of the people in building the new buildings for childcare centres or for new roads. Although it is absolutely two members of the commission on widening access, before you, I think that trying to affect the gender balance, for example, in parts of these sectors would be very important to do, but it's the effects of the economy beyond that. Although the people who are employed through the investment might be not balanced, the effects on the economy may well be more balanced in terms of gender or any of those other groups that you mentioned. That's an interesting area. If that room was to develop in the budget from what I've seen from various commentators, that would suggest that that's going to be strictly in the area of capital spend and less likely to be in revenue spend, where some of the areas that Patrick's picking up would be driven from. Are there other areas of the capital spend that we could use to improve that social capital rather than the revenue spend, where the wages would come from? Two things. The capital budget is, of course, much smaller than the revenue budget. It's about 10 per cent, roughly, compared to the 90 per cent revenue budget. Secondly, any stimulus is very unlikely to save us from some of the numbers that we talked about earlier, so this might well be a short-term boost of an order that is much smaller than the cuts that we already faced, if I mind any other cuts that come. Thirdly, a lot of the stimulus or investment that we've seen on the capital side in recent years has been through not necessarily cash capital but more using the government books, using the power of government guarantees, etc. Innovative finance investments, particularly in housing, for example, we've seen a lot of that, where we get money to spend in Scotland but it's quite restricted as to how and on what we can spend it on. Having said all of those things, yes, there are areas of childcare and health. There are capital investments that we can make that get our public services, get our social side of our country ready for what we need to face over the next 10, 15 years. I guess the other side of that is what you said, around the productivity and economic driver issues that might not help as much on the tax day. Well, they may not be dislocated, so inclusive growth, which I think is an absolute, you know, the right priority, you can, through childcare as a perfect example, see some huge economic benefits whilst also tackling some social inequalities while you do it. From some of the longer-term issues that you've described in your paper, Russell, in terms of particularly around the demographics, way out to 2060, I think, some of your thinking has gone on. That would start to begin to address some of these longer-term issues. Murdo. It's a very brief follow-up, if I may, convener. I ask this because it's topical, because I think we're debating fuel poverty this afternoon, but if there is an extra capital money available in the autumn statement, would it be possible to use some of that for energy efficiency improvements, say, in public or private housing? And if so, what would be the economic benefit from going down that route? Well, again, as Russell was saying, if it's aimed at the bottom end in terms of social housing and helping to alleviate fuel poverty, it could actually have quite a good impact in terms of consumer spending, as long as that would be translated into effective consumer spend, and it would alleviate poverty at the same time. Potentially, it could have a potential impact on labour supply at the end, because a lot of those problems, as Russell was emphasising earlier, are the same people that tend to be in fuel poverty, tend to be in a poverty trap, then probably do not add as much as they could to the economy through labour supply. You would have positive effects, so, yes, absolutely, that would group that within social spend, if it's targeted at the lower end of the income distribution. It's a slightly different point, if I may. Both papers mention that the relative performance of the Scottish economy going forward will have an impact on the Scotland budget in terms of the relative performance against the rest of the UK. Recent reports have shown that there is a divergence, and that divergence is expected to continue. There is a report out yesterday by PWC highlighting this. Can you give us some sense going forward of the impact, if this divergence does continue, what will be the impact on Scotland's budget, given the, I think, 50 per cent of the budget will be determined by that relative performance? The economic growth is obviously a huge determinant in this, but it's tax revenue growth per head that is the key factor here. You can have, and we have had across the UK, economic growth that hasn't been particularly tax rich equally, that is very unlikely, but you could have slower economic growth and much quicker pay growth and tax growth with that. It's really important to be clear that what we're focused on here in terms of the Scottish Parliament's budget and the direct effects on that are tax revenue growth per head relative in Scotland to the rest of the UK. We have seen slower economic growth recently in Scotland compared to the rest of the UK, and a big part of that has been the oil and gas sector up in the northeast, facing some hard times since the oil price fall over the last couple of years. That doesn't seem to be, whilst the projections are for oil price to go up, a little from where it is now. Again, the dollar to pound conversion may benefit at the margins. It doesn't look like we're going to be reaching the levels of the oil price seen two years ago, anytime soon at least. You may see that sort of drag on economic growth continue for a bit longer. On the other hand, I mentioned it earlier, whisky, some of these exports, parts of the economy that don't have huge external supply chains to Scotland or to the UK, may benefit hugely from the pound devaluation. Uncertainty, again, I'm afraid, but the signs have been, Scotland's, been growing slower than the rest of the UK recently. There are some signs to suggest that that will continue in the future, equally some positive from the pound, particularly devaluation for some sectors, too. It's very difficult. It's a great yard for economists, I should try and forecast GDP more than two or three years out. If you look at the history, if you try to replay it, I think that David Bell and some of his colleagues at Stirling did a very good exercise. They asked the sort of counterfactual question. They said, if the current arrangements have been in place, say, at the time when devolution started, how would the Scottish budget have evolved rather than how it's evolved purely as a Barnett grant? Actually, you can see that there are periods of time when the Scottish economy recently has grown much, you know, more than the rest of the UK. So if that can be reproduced, then clearly that would be a benefit. I agree with Russell in the short term. I think the challenges around particularly oil and gas will take some time to overcome. Then, after 2019-20-20, it depends on the differential effects of Brexit. If it's a hard Brexit, it actually has some very serious implications, as has been pointed out. Particularly because there are a number of sectors that, although they might not export directly to our UK, you see that, for instance, we have a large volume of exports and legal administrative financial services to the UK, but that's part of the value chain where that is re-exporting the EU. You could easily see, for instance, Scotland being really hard hit if a hard Brexit causes a dislocation in the financial services industry and the value chain around it, similarly with food and drink, if there were major tariffs on things like Scotch whiskey, etc. Those are the things that we need to look at further on. In the next two or three years, you'd probably expect that Scotland will do well to keep pace with the UK over the next two years. It depends on how much of a revival there is around onshore impacts from oil and gas and those other industries that are sensitive to the depreciation and might actually benefit from the depreciation. Willie, I think that you have the issues that you wanted to pick up, then I'm going to come to add them on. We're kind of on that anyway on the pound. Could you give us a bit more of a flavour of the likely other impacts that there could be as a result of the collapse in the value of the pound? For example, I know of a local electronics company in Ayrshire that is reporting its costs have gone up about 13 per cent since the collapse in the value. If that kind of thing is replicated across the economy, that is bound ultimately to have an impact on spending decisions that the Government takes. I just noticed some recent figures here where the value of imports to the UK in September, only September there, has now topped £50 billion, which is quite a significant jump in previous months even. What kind of impacts could it have if the value of the pound remains roughly where it is? Absolutely. I think that what you've just highlighted shows that the depreciation of the pound is really not good for certain sectors of the economy, particularly if they're part of an integrated value chain where they import a lot of their raw materials. That is a serious effect. There's another issue about such a sharp depreciation, which is that economists always know that there's a lag in any, even for those sectors where there's a positive effect, there's always a lag. It's what economists call the J curve effect. First of all, your balance of payments actually deteriorates because, as you say, the cost of imports goes up and the volume of exports has not yet reacted. I think that's what we're going to observe for the next little while. Actually, for the UK as a whole, our balance of payments actually will deteriorate probably as a result of that unless you find that our industries are particularly sensitive, our export industries are particularly sensitive to that improvement in competitiveness. What I worry about, and just to the heart of your question, is that even for those industries that are, could gain from that competitiveness effect, there are other factors that will stop us taking advantage of it. That's where Brexit comes in. If you have a situation where an industry might consider well, location in the UK might be a great idea now that the prime minister is depreciated, they might say, but we're not going to go there because, despite the competitive advantage, we don't know whether we're going to be part of the single market. Those are the sort of effects that could be really dangerous because you're then really relying on that industry that's already there to respond to that. I mentioned higher education as another classic example. We could take advantage of it, but not if you're going to reduce tier 4 visas because then we can't respond to that increased competitive advantage. I worry if it's exactly about that, the initial deterioration of the balance of payments and the fact that, because of the Brexit risk, people will not invest in the UK, either domestic investors or foreign direct investment. You've got a benefit potentially to those that are exporters, but only if they're not importing a huge amount of their supply chain in from outside of the UK and we're much, much more open economy than we were, for example, prior to being in the EU. Secondly, as Anton says, if you are a company domestic or otherwise that wants to take advantage of the exchange rate being where it is and potentially being there for some time, business investment is what you would do to take advantage of that. Unfortunately, while consumer spending seems to be pushing the economy forward and continuing the growth that we have seen since the Brexit vote in June, we haven't yet seen the figures for this, but it's potentially likely that business investment has shrunk because of that uncertainty that Anton mentioned. In other circumstances, business investment may be coming to help us through an inflation shock that will affect consumer spending next year, or we guess, but equally that would help us to take advantage of this devaluation in the pound with the uncertainty around Brexit whenever that happens. It is less likely to be able to take advantage of that. Do you see any prospect of the value of the pound getting back to its pre-Brexit value of about a Euro 31 or any way made? Do you see any circumstances that would allow it to get back to that kind of level sooner or otherwise? I think that the one set of circumstances that would allow that is one that restores confidence that that's what the UK's competitive position will improve, i.e. the UK Government saying that it's going to be a soft Brexit but it's going to be part of a single market. If that were to land, you would see the pound. In fact, you'll have seen that whenever there's any bit of news that suggests a softer Brexit, whether it's the High Court case or something else, the pound shoots up for several hours before it has come down again. The announcement that we're going to be still part of the single market would take the pound pretty much back to where it was. That's the positive aspect of re-strengthening the pound if you like. There's a more negative potential around other currencies weakening and you're seeing the effects of the US election potentially having that effect. Relative to other currencies, the pound may strengthen because those other currencies weaken. Those are things that you can't really predict. Certainly a lot of people didn't predict, for example, Trump winning in America, but those types of events, those big events, whether in Europe or in the US, could make the UK's currency stronger relative to those ones for more negative reasons. Adam, there's some questions about employment issues. Before I say anything, I should just remind the committee of the interests that I've declared in the register and in particular the fact that I hold a chair in the university of which Professor Muscatelli is the principal. You've painted a very gloomy picture. Borrowing may go up. Uncertainty is increased revenues, hit, spending, cut, inflation rising, growth flagging. What cheers you up? With the answer to that, perhaps it's not least in part that we have record employment in the UK, which is record inclusive employment. Two more jobs in the British economy than ever before, more women in work, more disabled people in work than ever before. As far as Scotland is concerned, a persistent problem in that the employment growth rate in Scotland lags behind the employment growth rate in the UK as a whole, which presumably can't be blamed on Brexit. If that's right, I wonder what your reflections would be on why that is, why the employment growth rate is persistently lower in Scotland than it is in the rest of the UK and what we as a Parliament should do about it. We did some work actually in June looking at this in part. Looking at the crash in essence, what's happened since the 2008 financial crash across the UK in comparing Scotland with the rest of the UK. Scotland went into the crash in 2008 with an employment rate advantage, and that had been quite a historic one. But we've lost that throughout the crash, so we both dipped to Scotland and the rest of the UK in terms of employment. The rest of the UK recovered more quickly than Scotland did, and therefore we're roughly the same rate now in terms of employment, whereas again we used to have an advantage. So what keeps me positive? What are we hopeful about other than personal life? All of those good things that keep us going. We can keep to our hobbies. If you are pessimistic, you can be absolutely sure you're going to fail. So productivity growth, I think there are things that Scotland can do on that that ties right into employment growth. Demographic change, it's a huge success that we have an ageing population. This isn't a negative. We have people living longer than ever before, and that is down to government and down to us as a society over many, many years, many colours of government getting that right, and there's huge opportunities that come from that. And if Scotland can reform public services, manage the ageing population, grow our way productivity-wise out of what we face, we'll be among the first in Europe, in the Western world to do it. We could crack this, not just for Scotland, but for other parts too. So that's a way more optimistic view than potentially the briefing that came in, but back to the pessimistic. Why has the employment rate not been as strong in Scotland? There are so many factors in there. On and gas again, it has coincided there. In the financial services sector, you've seen quite a withdrawal of high-skilled jobs from Scotland to elsewhere in the UK, and we've seen a reduction in employment in financial services in Scotland over that same period of time. It's a smaller sector now, though, of course, too. So there are factors that are global, there are factors that are UK, and there are factors within the control of the Scottish Parliament. I suppose for us we have to be cognizant of them all, but focus on those that are within our control here. And I would again say productivity growth, public service reform has to be the focus for us. I don't think I can add anything to the employment analysis that Russell has given you. I think it's a very accurate statement, and I think it's that investment in a combination of skills, looking at employability, particularly at the lower end of the income distribution that we've already mentioned. What keeps me positive? I do think—I would hope—that economic rationality begins to take hold at some point in the whole Brexit debate. I've written a couple of times over the last two, three weeks suggesting that even if you were on that part of the debate that suggested that the heart of Brexit was what the UK wanted, you should really think of soft Brexit as a staging post to that. To be honest, one of the reasons why we're having so much uncertainty at the moment and why there's so much concern and reflected in what's happened to the exchange rate is because there isn't a plan and people don't know what's going to happen. That's why having a single market as a staging post, to have a discussion that, frankly, if somebody had said to me, devise a rational plan to disentangle yourself from the EU, how long is it going to take it? I would not have said two years. Two years would not have been my answer. It would have been in the order of seven to nine years to do in a rational way that looks at all the aspects. Something that gives assurance to the economy that is going to be a prospect of a rational way out of this impasse is what is really, really important. What keeps me positive is that economic rationality tends to come to the fore, not always, but usually does. If it doesn't, people will quickly learn the consequences of their actions. There are not many other things that I can look to. I'm afraid that it's slightly less optimistic than Russell is. I can give you one other positive effect, although there is a negative tinge as well. If there is a rebalancing of fiscal and monetary policy and there is an improvement in rising long-term guilt yields, you will see pension deficits begin to come down in the UK, which is a positive thing. However, we need to recognise that that has an impact on borrowing rates, which has an impact again on some families that are dependent on borrowing for housing. We haven't talked much about the rebalancing of fiscal and monetary policy, but we're beginning to see the potential impact of not only the Trump election but Brexit on what's happening to guilt yields in the UK. That would open up probably a whole new session of discussion. In the meantime, I'm very grateful for Professor Anton Muscatelli and Russell Gunstown from IPPR coming along today and giving us the evidence that they have. I hope that members have had the chance to ask all the questions that they want to ask. I'm just going to suspend this session to allow the change of our witnesses and again thank you very much. The fourth item on today's agenda is to take evidence on inter-government relations from two Scottish Government ministers. We are joined for this item by Derek Mackay, the Cabinet Secretary for Finance and Constitution, and Mike Russell, the Minister for Unique UK negotiations on Scotland's place in Europe. We have Scottish Government officials Jerry Hendricks with us today and also Alison Byrne is also in attendance for this session. Just so that people know, as the First Minister is appearing before the conveners group at 12.30, I'll need to bring this particular session to close by about 12 at 25 past at latest, but plenty of time anyway I think. I'm just making sure that those guys realise what's in front of them here. I believe that the Cabinet Secretary for Finance and Constitution wants to have an opening statement and the Minister for Negotiations in Scotland's place in Europe may have a couple of words to add to that, so please feel free, Cabinet Secretary. Thank you, convener, for the opportunity to give evidence with my colleague, the Minister for UK Negotiations in Scotland's place in Europe, who will add to my opening remarks, which are generally on inter-governmental relations. Smith report recommended that the current inter-governmental machinery between the UK Government and the devolved administration should be reformed. In December 2014, the joint ministerial committee plenary meeting, the GMC-P, agreed that the joint secretary should develop proposals for revising the memorandum of understanding on devolution. As the committee will have noted from the communique following the 24 October meeting of the GMC-P, work has been proceeding on measures to make it a more effective forum for the management of inter-governmental issues. However, the world has changed since the EU referendum. If the Prime Minister is to deliver her commitment that she won't trigger article 50 until a UK approach and objectives for negotiations is agreed, then the reviewed inter-governmental machinery must enable the process being set up for EU negotiations to deliver meaningful engagement. That includes GMCEN, the forum in which the Minister for UK Negotiations in Scotland's place in Europe represents the Scottish Government. The GMC-P therefore remitted further work to the secretariat to ensure that this is the case and will return to this once the GMC-EN is up and running in a satisfactory way. Another Smith recommendation is that inter-governmental relations should be underpinned by stronger and more transparent parliamentary scrutiny. The devolved further powers committee report changing relationships, parliamentary scrutiny of inter-governmental relations, led to the development of a written agreement on parliamentary oversight of inter-governmental relations. That agreement was developed jointly between the Scottish Government and the Scottish Parliament. It was signed off by the Deputy First Minister and ratified by the committee in March of this year. The Scottish Government is committed to openness and transparency in our joint working on both a bilateral and multilateral basis. We're committed to complying with the written agreement and I believe we've made a good start during the current session of Parliament with relevant committees receiving information about the finance minister's quadrilateral, the joint exchequer committee, the joint ministerial working group on welfare as well as the GMC-P and the GMC-EN. Is there a way to work with the Parliament to deliver this commitment and that the Minister for UK Negotiations in Scotland's place in Europe will be able to add to this in terms of the most recent updates that have clearly overtaken issues? It's a pleasure to be back at this committee where I think I first heard that the job that I'm now occupying was to be created if members remember the wayday properly. I want to say two things about the structure that has been established. The first is to confirm the view that academics have given to this committee and parliamentary committees have concluded themselves that there are many issues arising out of the joint ministerial structure that require to be resolved. The structure itself has not operated efficiently or effectively for almost all of the time that it's been in existence. The purpose of the revised MOU was, of course, to try and change that situation and having that revised MOU in place eventually may do so. A bigger influence may be the establishment of the GMC-EN. For the first time in the GMC structure, there is a need for a grouping that can both agree actions and have oversight of those actions. In other words, the GMC-EN requires to agree on what elements of the UK negotiating position in Europe should be, given the interests of the devolved administrations, and then has to have the confidence that the committee understands that those are entered into fully by the UK Government and are reported back in a way that the committee understands have been effective. Whether or not that can happen, we will discover as the GMC-EN continues in operation. It has had a single meeting, which was last week, and we now have agreed meetings on a monthly basis. As time goes on, we will discover how that works. I'm very happy to discuss, insofar as I can, the detail of what has taken place at those. Adam Tomkins, thank you very much. Both of you have already alluded to the fact that numerous commissions, parliamentary committees and some academics have written when they have studied the United Kingdom's joint ministerial machinery that that machinery is not fit for purpose. I confess to having written some of those reports or helped to write some of those reports myself. Before we understand whether that claim is correct or not, we need to first understand, don't we, what the purpose of the anti-kingdom's joint ministerial machinery is? What is the Scottish Government's view as to what the purpose of the UK's joint ministerial machinery is and ought to be? I would offer a view that it is to help ensure good governance and implementation of issues that have been agreed. My closest interest has been around the finance minister's quadrilateral, where all the devolved administrations come together with the UK Government to discuss finance matters. It might include negotiations and issues of interest to all of us joint working and implementation. It is a forum in which we can share issues, ideas, implementations proposals and respect for all the administrations and governance. The joint next checker committee is now a very useful forum specifically for implementation of Smith, where there are functions that have been devolved and other finance matters that are of interest. My experience of both so far has been a fairly positive one, where I have been able to raise issues, make progress and inform the committee of areas in which we have had agreement from the UK Government on issues that we have sought agreement on. So far, my experience, as Cabinet Secretary for Finance and Constitution, is the areas that I have been servicing finance have had a better start. They will meet more regularly. There will be a new rhythm of meetings, keeping with fiscal events and GMC plenary as well. I think that there is a very helpful rhythm now to those meetings. For my finance brief, they are very helpful. I think that they are taken seriously by the UK Government. The last quadrilateral meeting was in the same day as the joint ministerial meeting. In London, several servants advised me that they might not always be as positive as that meeting. For my first, I thought that it was a good start. I think that the machinery is there to help to serve good governance and recognition of the UK Government role and our role on matters that affect both Governments and their competencies. That is very interesting. I understand, Cabinet Secretary, that one of the things that you have not said in terms of what you think the purpose of either the quadrilateral or the Joint Exchequer Committee is joint policymaking. It is about respect. It is about sharing information and ideas, but it is not about joint policymaking. Is that right? We have a position that we respect each other's competencies. We might try to influence the other. Obviously, we would guard very closely our rights around devolved issues, but there are reserved matters and financial decisions that would impact upon them. There are many examples that I can give, but it is generally not at those finance meetings' joint policy. It is more about financial understanding and negotiation, maybe at resolving matters. For example, block grant adjustment or implementation of a power, rather than determining a new policy as such through the Joint Exchequer or the quadrilateral, as to the wider issue of joint ministerial preliminary and as it relates to the current European issues. Maybe Mr Russell would want to add to that. I think that you have to distinguish between what the Scottish Government would like to get out of and what it regards these meetings as being important for and what the other participants regard them as being important for and also what the actual function of the meeting is. If I can illustrate that in two ways. The GMCE has always been the best attended of the GMC meetings. I was a member in 2009. I remember being at one meeting where there were 20 UK ministers, myself and Rodri Morgan, which was exactly an equity of arms, but the purpose of the GMCE was to brief ministers on what was in the upcoming council agenda. A lot of UK ministers attended that in order to get a briefing from Ucrep about what the European situation was. In those circumstances, it was not really a joint ministerial meeting. It was Scottish ministers being involved in a white-hall structure. That happened to be the GMCE structure. The GMCEN has a clear terms of reference. I think that they have been provided to you, but they are very clear. I am happy to provide them. The terms of reference are to discuss each Government's requirements of the future relationship with the EU, to seek to agree a UK approach to and objectives for article 15 negotiations, to provide oversight of negotiations with the EU, to ensure as far as possible that outcomes agreed by all four Governments are secured from these negotiations and to discuss issues stemming from the negotiation process, which may impact upon or have consequences for the Scottish Government, the Welsh Government or the Northern Ireland Executive. There is some clarity about what we are trying to achieve in those meetings. The GMC plenary is a consultative and co-ordinating meeting between the Prime Minister and the First Minister. There is the GMC-O, which is the officials meeting, and that services what is taking place through the other committees. There has been the GMC-D, which is a domestic GMC. I think that that is formally in abeyance at the moment. There are no plans for a further meeting at this time while the EU meeting takes place. It is a complex structure. The overall Government approach is clear. Each part of it has a different function, and one part of it, the GMC-N, now has a clear terms of reference as to how it is to operate and what it is to achieve. That is a very helpful overview of the position that we are in. Thank you, Mr Tomkins, for taking it out. Ash Denham, I think that you had some issues about where the improvements could be made following Smith. Cabinet Secretary for opening statement, you mentioned the Smith commission that substantial reform was recommended out of that. It used words like scaling up, that there should be a new memorandum of understanding, especially in light of further devolution that is coming. I am just wondering that you spoke that there has been some work done on that. How would you characterise the progress that has been made towards that goal so far? There were on-going negotiations to try and improve that. Obviously, we would aspire to parity of esteem and try to make sure that machinery works well. There are regular meetings, so there is a range of things that we would like to see improved. However, that has all now been overtaken. There were elections and perda periods since then, but it has all now been overtaken by the European issue. That has now become the focal point of intergovernmental relations. Mr Russell leads on that. Of course, the First Minister is involved in the current negotiations around what that new memorandum of understanding would look like, but what Government continues with, of course, is the existing machinery around making sure that the Joint Checker Committee and the Finance Minister's quadrilateral continues to work, because that is the implementation of the currently agreed powers. We are getting on with that. We are trying to make sure that that works well, whilst the discussion continues on whether a new memorandum of understanding could be agreed. There is an agreement that the memorandum of understanding, with further discussions on that, will proceed after the GMC-EN structure is in place and operating, and there is a commitment to another GMC plenary before the triggering of article 50. I suspect that it will be on the agenda then. If the further MOU does take place, what extent do you think that the reflections and recommendations from the Smith commission will be incorporated into that? Do you see a timeframe for when it might happen? If it does not happen, if it is on hold, as I think I am picking up? How does that affect on-going relationships between the two Governments in light of further devolution, in light of complexities over Brexit, that there is not this new structure in place that would help with those discussions? The issues that we are already in play around implementation of Smith, I would like to say, is going fairly well. There is a pragmatic approach. The Secretary of State meets relevant ministers. I have some oversight into the implementation of policy and finance. We are approaching that in a very positive and constructive spirit and mood, and our civil servants work together. Of course, the Government would take a view around our constitutional position, but we are absolutely getting on with what has been agreed and making sure that the infrastructure is in place to achieve that. That all continues and is to say whether it is access to ministers or officials to achieve that work is on-going, so I can assure you that that is happening. The current intergovernmental relations is heavily dominated in terms of the emerging agenda is around the European position because of its criticality and the state of politics in the UK at the moment. Ebit, on behalf of the MOU and the change dynamic because of Brexit, can you just explain what happened there a bit more? I think that there is a general understanding that we are on the road to having an MOU. That is partly the issues that we can report to Parliament once negotiations and issues are concluded and they are not concluded. I think that there was good progress to get a new memorandum of understanding, but post-Brexit it is focused more on the relationship that the Administrations have with each other and the UK Government. The approach that the UK Government will take, so I think that a new agreement was getting there. Let's say that the referendum had gone the other way and it hadn't happened, then I think that probably the last joint ministerial council playing the recession would probably have been discussing this without the European issue having been dominant. That is the facts of the matter. We probably would have had a new agreement in place to make an assumption because that would have been the main issue, I suppose, but we are where we are. It is the European issue that is dominating hence Mr Russell's involvement. Mr Russell would have attended the last meeting rather than me, which signifies the importance of this issue, whilst we got on with the other issues of cross-government work. I don't think there are many issues that would worry us in the present situation. It just hasn't been concluded as yet. It is perhaps indicative of the lack of urgency on this matter from the UK Government that the last GMC plenary was in the end of 2014. It doesn't seem to be at the top of agendas. I think that what has focused minds on the GMC structure now is the European situation. I don't think that it's not simply a question of the European negotiation process being dominant in the relationship. It has also drawn attention to the need for a GMC structure, which is effective and has resulted in a development of the GMC structure. We may see changes in the entire structure. I think that Patrick has got a supplementary in this area. Thank you. Good morning. I am still trying to take this away from the Brexit process, because I know that others are going to come on to that. Before the referendum results, a number of the recommendations in the Smith commission called for work to be on-going between the two Governments to arrive at an agreed position. Changes to allow, for example, victims of trafficking to be given temporary right to remain in Scotland to allow some kind of replacement for the post-study work visa agreements to allow asylum seekers to lodge a claim from within Scotland. Those are areas where there wasn't an absolutely hard and fast recommendation, but a call for discussions to happen between the two Governments. Has the previous intergovernmental machinery given any opportunities to progress those issues? How do you anticipate those issues being easier to resolve with the new machinery once it's in place? We don't really know about the new machinery, because there's no agreement in place. In terms of the old machinery, of course we have an issue with the fact that if there was a dispute, ultimately it would be the UK Government that decides, so they might be the party that we're arguing with, and then the UK Government makes the final decision if there is a dispute in governmental relations. The Scottish Government ministers, of course, would raise issues of importance, whether that's through communication meetings or the formal structure in any event, but if it's a matter reserved to Westminster, yes, they can just ignore it, and sometimes that does mean potentially not even getting back to Scottish Government ministers in good time. There is an understanding of the previous experience. Is it the case that those issues were put on the table, first of all, by Smith, that there was some discussion between the two Governments and then the UK just said, no, we're not interested in doing it at all? Is that what's happened? Or has the thing been gummed up or delayed by a lack of communication? Sometimes it will be maybe a failure to respond to what Scottish Government has raised if the UK Government doesn't want to respond, so we do think that that element back to the original question isn't fit for purpose, it doesn't respect the nature of Government in Scotland. What UK Government, I suppose, would say that's a matter of their competence, but it doesn't lead to healthy relations on areas where there is a dispute, and the current difficulty is if there is a dispute it would be for UK Government ultimately to decide. We would say that's a weakness in the system in an area that's out with our direct competence. There's also the issue sometimes where UK decisions cut across devolved competencies. For example, the apprenticeship levy, which is a tax imposed in Scotland without any proper consultation with anyone, really, and it has cut across devolved competencies and responsibilities. That's the kind of issue that I would raise as part of the machinery and the infrastructure. I've done so, I've written to you about it as well. It's still the case that UK Government can ignore the protocol and there isn't really a mechanism to resolve that, whether that will be resolved in any new memorandum of understanding that does remain to be seen. The additional issues that are identified by Smith remain issues that you want to see progressed and that they are still on the table. Yes, I think that there would be much more we would like to see to have a totally harmonious position where the Scottish Government can express views that can be seriously taken on board and a more effective mechanism of resolution. I think that you perhaps might just take an analysis of the last two years and, in hindsight, you could describe it as being focused on urgences that have occurred. You had the Smith recommendations, but then you had the process of putting into place the fiscal framework, which essentially took over the space there on both sides. Once that had been resolved, pretty quickly we were into the issue of Europe and that has taken over the space that has been available. I think that that does say something more widely about the difficulty that exists in making sure that that mechanism is fit for purpose and operates effectively. Carwyn Jones always says that you have to remember that this is a joint process and is a question of that joint commitment to get things done that is required. I suppose that that gets particularly intensified when there is a considerable issue that requires resolved for both sides. Before we get into Brexit issues, GMCEN issues, Murdo, I think that you wanted to pick up some issues around the France squad stuff. Before I do that, I can ask a quick follow-up to Patrick's last question. I am interested in this area of discussion around the Scottish Government bringing, whether it affects the reserved issues to the joint meetings. Have you experienced of UK Government ministers raising devolved issues where they are critical of the Scottish Government stance? As I said, apprenticeship levy is an example that has cut across the devolved responsibility. A prospect of a sugar levy will also impact in Scotland as well, so there has been no engagement with it. We would argue that those are devolved areas that they have intervened on. Obviously, you are using those forums to make representation to the UK Government where you think that they have got policy wrong on reserved issues. Are they doing the same to you in the other way around? Certainly, in the finance squads that I have had and the Joint Exchequer Committee, they have been more focused on outlining their position and listening to our requests. Has been the nature of discussion, to be frank, at the meetings that I have been involved with? I was a member of Plenary, Domestic and European in 2009. I can remember on many occasions that happening and a particularly vitriolic attack by the then Secretary of State for Scotland, Mr Jim Murphy, on the First Minister. I quite assure you that he appeared to give as good as he got. I have a couple of questions that I want to ask about the finance minister's quadraternal. Mr Mackay, you wrote to the convener on 3 November with a summary of the latest meeting, which was on 24 October. You make reference in that letter to the HM Treasury approving and providing AME budget cover for the Scottish growth scheme, which I think is welcome. You also narrate that the Treasury had agreed that there would be an up to a 15 per cent budgetary carry forward permitted for financial transactions, which was a change of approach. Can you tell us what does that represent in monetary terms for the Scottish Government? In terms of actual new cash, it does not mean anything by way of new cash, but what it means in terms of the Scottish growth scheme is, as I described before, that it gives us a budgetary cover to be able to use AME if required for the Scottish growth scheme over that period, where we could give loans and guarantees to companies that can support them in their growth to get access to finance. If there was default, it then has a call upon our resources, so it has no cash implications. I think that perhaps you misunderstood my question. My question was not about the growth scheme, it was about agreeing the 15 per cent budgetary carry forward and what that represents in monetary terms. It does not mean new money, it just gives us the flexibility to carry forward as used to be the case in terms of higher levels of carry forward for financial transactions. The limit was lowered quite drastically, and this was an issue that other administrations faced as well, that to land exactly on the line is very difficult to do. You do need a margin of flexibility, and it was felt that the reduction was too strict and too rigid. The devolved administrations agreed that we needed further flexibility. Maybe it was more of an issue for the other devolved administrations, but we were all sympathetic, so it's simply having more flexibility for budget exchange, specifically in financial transactions if that was required. I'm sure that Mr Fraser is aware of the nature of financial transactions that can be issued and you can get close to the line. Some of it's assistance for help to buy, for example. The nature of applications is not a normal budget, you can determine how much you spend, some of it's demand led. For all those reasons, further flexibility seemed like a reasonable request, and the chief secretary, the treasurer, agreed with that and increased the limit at the request of all the devolved administrations. It's no new cash, but it's flexibility. I think that that's a good example of joint discussion and showing flexibility in arrangements so that we're all able to deliver policy. I understand that. My question is simply, to put it in monetary terms, how much this represents and maybe it's something that you need to write back. I can write back with the quantum of current financial transactions and what that is, yes. Thank you, that would be helpful. My second question relates to the question of current EU funding streams. I've had a position with various constituents, I'm sure that this will be common across the chamber, who were in the process of applying to the programme. The UK Government announced on 3 October that such funding would be guaranteed for England and Wales. The Scottish Government didn't make a parallel announcement for another month until 2 November. What was the reason for the delay in the Scottish Government coming forward with that confirmation of the position? I think that what we had sought was, and I can check all the dates, was just that we had absolute clarity on the resources that would be coming to Scotland, so I could then pass on those guarantees to the stakeholders in Scotland, which is what I subsequently was able to do and have done. We still don't, of course, have clarity beyond that period, but certainly I've passed on those guarantees. We needed clarity on the figures and all the information that we would require, but that pledge has been followed through. Okay, and was there any reason that you're aware of why that clarity wasn't available from Treasury when they made the announcement on 3 October? There are sometimes follow-up from the actual letters to the Scottish Government. An example of that was when we discussed the Scottish growth scheme at the quadrilateral meeting. I also like to have it in writing, so again I'm happy to check the timescales. But there was no, in principle, difficulty. The Government, of course, considers financial matters, and I was of the view that if we had got those guarantees from UK Government, then in due course we could follow that through, and I'm delighted that we've been able to do that, because that does have a call, of course, on resources, but I think that it's the right thing to do. On the issue of the fiscal framework, one thing I'm not entirely clear off in terms of the processes that exist is what's the dispute mechanism if there's a fallout around the fiscal framework issues? Well, so far it's worked fairly well, I say, on implementation, so there's cross-working between the Secretary of State, relevant departments and ministers, and there's any expectation that we get on with it, and the Joint Exchequer Committee looks at these specific matters of negotiation. So far we haven't reached a dispute. I suppose one of the differences with some of the other machinery that's in place is the nature of the Joint Exchequer Committee. It's a sense that ministers are almost co-chairing it, the location changes, and it's not a sense of the Chief Secretary to the Treasury convening a meeting discussing with me. There is this genuine joint arrangement that just feels more like parity of esteem, and it feels more like the Administrations are working together on an agreed format, which is the implementation of Smith. So far we haven't had to trigger any dispute mechanism, because if there has been an issue around implementation, whether that's understanding of figures or data or whatever it happens to be, we're working a way through by getting access to officials. If there was a dispute, there would have been an expectation that it would be resolved jointly, because we know what the agreement is we're working to. Given that it's a joint agreement, it might not always be that relationship that we've currently got at the moment, and there may be circumstances in the future where the relationship between the Scottish Government and the UK Government, for whatever reason, isn't as productive as you're just described. So what is the actual process that's involved in there, if there is that dispute? You're right, convener, that we haven't had to go to that yet in the past. It would have been that process of JMC, it's my understanding, but the fundamental problem we've potentially got with that is the UK Government ultimately determines the outcome if there is a dispute. That's why there's an expectation that we resolve matters at Joint Exchequer Committee, where there is finance minister to finance minister, and civil servants are expected to get on with it. As I said, in each policy area at the moment, where there has been an issue about data or finance or joint working, we raise it, it should be taken on board and we should find a resolution. If that fails, and it does go back to the JMC machinery, ultimately it's for the UK Government to determine a dispute. It doesn't put us in the strongest position, but that's why we're trying to make, in terms of what you're asking me about, fiscal framework implementation. I'm going to move into a slightly different area now. I want to start to understand the issues around Brexit, the negotiations etc. Before we get into the specifics of the JMCEN, Mary Todd and Neil Bibby had some questions about general oversight, reporting back mechanisms, differences in the UK Parliament, the Scottish Parliament and indeed what happens in the European Parliament. We've rounded over the past few months the significant differences between the UK Parliament and the Scottish Parliament in terms of transparency and accountability in the way that we work. It's very much at the core of the Scottish Parliament to be transparent, accountable and allow parliamentary scrutiny of what the Government is doing. I wonder if you would comment a little on the opportunities for scrutiny of what the UK Government is doing in terms of EU negotiations and also I'm struck that there's a difference in terms of how easy it is for the EU Parliament to scrutinise, to comment, to feed into the process and how difficult it might be for us to do that from the Scottish Parliament and will leave perhaps or you might want to comment on how challenging that might be. It will be very challenging for any European Parliament, probably in the pole position on this, both because it will regard itself as a player and wish to have information, but also because it has a vote at the very end of the process. It is a European Parliament that has to vote by simple majority on the conclusion of the negotiations. What that means, having spoken particularly to Guy Verhoft, is that the European Parliament, who has Parliamentary oversight of that process, is not the negotiator, but he has oversight of that process. His view, and it was echoed by other views that I've heard in the European Parliament, is that the Parliament will wish to take an active role in looking at what is taking place and to make sure that the constitutional due process is observed. That will mean that the committees of the Parliament will take evidence that there will be discussion of one sort or another. The UK Government's position, I can't speak for the UK Government, but clearly it is presently in a legal action, involved in a legal action in terms of the rights of Parliament, particularly with regard to the prerogative. The Scottish Government has indicated that it wishes to participate to join itself into that action. The application has been submitted by the Lord Advocate. It is the view of the Scottish Parliament that we should take a view on the article 50 process and that the Scottish Parliament should have a consent motion and we believe that that is something that we want to see and we will argue for and we would want to take place. That is up to the triggering of article 50. Beyond that, I think that it will be a reactive process to see what the parliamentary process is. For example, the Great Repeal Bill is promised for the next parliamentary session at Westminster. There are considerable issues in that for Scotland. There would have to be an involvement from Scotland. Would that require a separate Scottish Bill? It should require a legislative consent motion if it doesn't have a Scottish Bill. All those things will have to come forward. I think that it would be inconceivable if there was not also a process in which I was able to report to the Parliament the progress that we are making, particularly with key devolved issues, in terms of securing the position in the UK Government's negotiating strategy. We do not know what that strategy is at the moment. We do not understand it. We do not understand the high principles guiding that strategy. That is something that I said yesterday in a debate. I think that we are clearer about what the principles are guiding the Scottish Government strategy, which we bring them to debate regularly in the Scottish Parliament. Some people do not seem to enjoy that as much as I do, but we bring those into the Parliament and they are, for example, issues surrounding the single market, free movement and a range of other issues, which are our concerns. We wish to see addressed and we will have more detail on those later. It is a mixed picture. It is an emerging picture and it is a picture that changes fairly rapidly. I would hope that it would be transparent, not in terms of the everyday of negotiation. I accept that you do not negotiate in the full spotlight, but you have to be open about the principles that you have and you do have to offer reassurance to people. That reassurance must, at least in part, be public. The Nissan letter is an example of private reassurance, which raises alarm bells, which makes other people wonder if they have been excluded, rather than included, that may have implications in terms of state aids and present commission rules. There needs to be a consideration of that, too. In a wider context, you have things like the Japanese letter, where you have a very cogent letter, a very early letter from the Japanese saying, listen, there are big issues, and one of those is transparency. That is specifically mentioned in the Japanese letter. We have to do our best to make sure that transparency is observed, accepting some issues around negotiating process. I would say that, in terms of discussing the intergovernmental relations and the structures for that, we have talked a lot about the structures that are in place, but I would ask you both to say, do you have confidence that they actually work well, and that the Scottish situation will be reflected in negotiation, that we are in a position to influence the discussions, and that we are getting a real sense of clarity? We are not getting a real sense of clarity. We have entered into these discussions in good faith. We continue to be part of them in good faith. We will bring forward our ideas, and we are ours to the table in good faith, and we will endeavour to make progress. So far, we are moving very slowly, in some ways, in an unsatisfactory slowness, but we are doing our very best. The terms of reference that I read out are extremely important. We will expect those terms of reference to be honoured and to guide and underpin what we are trying to do, and we will constantly return to those. We are starting to get into the GMCEN issues, which I want to get to with Ivan, because I think that he wanted to do that, but Neil, go over the wider issue. Yes, just in terms of the scrutiny, the parliamentary scrutiny element of it, tell us what the Scottish Government's planned contact is with EU institutions over the coming months and the nature of that contact. That is a matter that I should make clear that is being undertaken by my colleague Fiona Hyslop. She is responsible for that. I work with both Fiona and Derek and directly to the First Minister and via the Cabinet, the Cabinet Subcommittee and the other structures. Fiona Hyslop, and I am quite sure that she will be happy to talk to you about it, is working on a strategy of engagement. She is meeting with and talking to the ambassadors of and representatives of at various levels of the member states, and that is an on-going process. I am assisting that, where it is helpful to do so. I am focused much more on the UK discussions, but I am also engaging with European institutions as is she. We need to explain two things, and it is helpful to understand them. The first is the constitutional due process, which is what the European states are looking to the UK to do. That is between the European member states and the UK as a member state. Of course, there has to be an inclusion of the other parts of those states where those are part of the constitutional structure and settlement. The representative of the commission as a negotiator has indicated in his negotiating priorities that one of those is the exceptionalisms. He has mentioned Gibraltar and Northern Ireland particularly, but exceptionalisms include Scotland, Wales, clearly, London, presumably, and those are all areas that have made a case and are making a case for being exceptions. That has to be part of it, and we have to put our case and explain how that works constitutionally. Of course, the GMC-EN structure is now part of that constitutional make-up, and there is a term of reference for the GMC-EN, so that has to be known. That is one part of it. There is a wider part of it, which is making it clear to the 27 member states what the situation is in Scotland. The situation is in Scotland that 62 per cent of people voted to stay. There is a positive debate and dialogue going on about this, and that the Scottish Parliament is considering, on a regular basis, issues to do with Europe and Brexit and the referendum, and is taking a view on them. That is the democratic process in which we are engaged. We are doing both of those, and we are doing them openly and transparently. We are absolutely, our diaries are subject to publication and freedom of information, so people know where we are and what we are doing. Just as a follow-up, we have received letters from both of you about the discussions that you are having with the UK Government on a range of issues, but it would be fair to say that we are not being updated on the discussions that Fiona Hyslop is having with EU Governments or EU ambassadors, and I think that would be helpful. There is an external affairs brief, and, obviously, evidence can be given. There is a complete transparency in terms of what we are trying to do and how we are trying to do it. I met last night the convener of the European External Affairs Committee and the vice convener. I am very happy to meet conveners and vice conveners of committees and to talk to committees at their convenience. The point that you are making there is that, if there are letters coming into the system, they probably are going to the external affairs committee. I do not think that there would be any reason why we should not be copied into them, even though it is not directly our area of remit. I think that that is fair, and I am certainly not resisting that at all. I am just looking at the compliance of the memorandum of understanding. It is about the infrastructure in terms of the Administrations and UK Government. It does not actually say every time that you engage with any Government. I am not being a purist here. I am just making the point that the agreement is very specific to intergovernment relations as they relate to the UK. There are very specific provisions for how we engage with Europe. Separately, of course, the Cabinet Secretary and Minister would be happy to come and explain to you their engagements to pursue policy, but we should not get across wires about the arrangement. The point that I was making is that that is not for us. That is actually for the external affairs committee. I think that it is not only transparent in the parliamentary terms. I seem to remember this week that I saw a picture in the Polish ambassador being tweeted. I do think that there is a publicity about it as well. Conversations have taken place and are being reported. I want to delve into a wee bit more under the bonnet, if you like. What happens at the JMCEN, the gym centre, or whatever it is called? In terms of the structure of that, devolved nations are involved in that. Do you feel that you are given the opportunity in those meetings to present the case in enough detail? Do you feel that you are being listened to? In terms of what is coming back, have you got any more clarity on the UK's position and what level of information are you getting back from the UK Government? We have only had a single meeting of the JMCEN. I think that everybody is there in good faith. Again, there is a picture on the internet that was published last week of the meeting, so it is quite open, who was present and who was talking. I think that we will have to see as time goes on whether we believe that the structure that has been established is working efficiently and effectively. I believe that there is an intention to discuss with us, but it is not a consultative meeting. I think that that is quite important. We are not consultees in any sense, nor are we to be treated—the Scottish Government cannot be treated—as just another stakeholder. This is government-to-government relationship, and therefore it must be conducted as government-to-government relationship. There are key issues of devolved competence that require to be discussed openly. There are issues that may not be of devolved competence, but which underpin issues of devolved competence, which also need to be discussed. Free movement of persons is one of them. There are issues of things that may presently have European competence, but were they to be returned to the UK as a result of that, should come directly to the Scottish Parliament? We are not into those as yet, but they need to be discussed. We will see what comes out of the process, but I repeat again that we are entering it in good faith. We are entering it with as much transparency as we can, and we are listening to what people are saying, what the Parliament is saying. The debates that are taking place are very helpful in that regard in terms of what views are. I am doing a great deal of engagement work with communities, with organisations, listening to what they say and trying to fold that into the process as well. It will be an iterative process. I hope that it will develop into a process that is meaningful. I suppose that the next big issue will be what is in the article 50 letter and what that letter says specifically about the Scottish situation. That is the next test. How often are those meetings planned to be? Two lateral meetings are planned every month, but there will be bilateral meetings as well. I have met David Davis on two occasions outside the multilateral meetings. I have met Welsh negotiator, the finance secretary, Mark Drakeford, who has that responsibility. I will continue to have those bilaterals. Those bilaterals will be folded into the process as well. It is not just the formal meetings of GMCEN, but there will be other discussions as well. There is, of course, the celebrated hotline, which I have used on one occasion, and David Davis has used on one occasion for the other way round. My speed of response was a little faster. You might not have had the clarity yet that you might have sought from those discussions from the one meeting of the GMCEN that has already taken place, but are you getting any level of information at all in terms of what to expect was going to come? I cannot go into the detail of that, but I think that there is more information in the system now than there was a month ago. Whether that is the right information, whether that is the information of which you can draw conclusions, whether that information is being analysed in the way that I would believe it should be analysed are other issues. It has been moving more slowly than we wish to move. It has been frustrating at times, but there is a movement. I just wanted to ask a quick follow-up, if I may minister, about your understanding of the UK constitutional position with regard to this. It seems to me that, from time to time, you are capable of citing bits of the constitution and leaving other bits of the constitution that are perhaps less convenient to the side. Is not it the job, not of the Scottish Government but of the Scotland office in the United Kingdom Government to represent Scotland with regard to reserved matters? Is not it the job, for example, of the Scotland office to feed into the United Kingdom Government what the views of Scotland are, what the views of Scottish stakeholders are with regard to reserved matters, including the United Kingdom's membership of the European Union rather than the job of the Scottish Government? Or is that a bit of the constitution that isn't so important as the terms of reference of the JMCEN? The Prime Minister committed herself in her first meeting with Nicola Sturgeon to fully engage the Scottish Government, and I would regard representing a range of issues as full engagement, particularly the relationship of those issues to devolved matters. I think that it is sometimes difficult to define exactly what a devolved matter is and what it isn't. I've given the example of free movement of persons. That underpins some key devolved sectors of the Scottish economy. It would be very strange if I were to draw an artificial mental line between those aspects of devolved matters that I could talk about and those matters that I couldn't talk about. Unfortunately, there is a flexible approach to this from the Scotland office as well. Perhaps that is because it has different advisers now, because what they are doing is working closely with us. I am happy to say that David Mundell has been keen for him and I to do some joint meetings in Scotland, and I am very happy to do so. There is a flexibility in that, but I won't be going to the JMCEN and remaining silent about matters that I think are of importance, no matter what the technical definition of them is. I gave you that commitment. Whether it is a commitment that you like or not, that will be the reality. I am sure that your joint meetings with Mr Mundell are low-key, quiet and calm affairs always. I just wanted to pick up one very brief point just for clarity. You talked about the importance of the article 50 letter referring to the Scottish situation. Is it an absolute requirement from the perspective of the Scottish Government that that letter sets out at some level of detail what arrangements are being sought for Scotland? What is it that you expect to see, what is it that we need to see in that letter that relates to the Scottish situation? I do not think that I talk in terms of absolute requirements. I do not think that that is helpful at this stage, but what I would say is that I would think that an article 50 letter, whatever it is and has never been done before, so that is a shorthand term for whatever the process is. I think that we would have to refer to the special circumstances that Scotland finds itself in and the special requirements it has. That would be what you would call a differentiated position. That has been much debated in the chamber, but I think that it would be important that that was the case. Whether that will be the case, we do not know. It is very early days. We do not yet know if there is to be a bill that will require parliamentary approval to trigger the article 50 process. The Prime Minister and David Davis have both said that the process that triggering will take place before the end of March, so I do think that that is important. I therefore think that developing clarity about what we believe should be in that letter in terms of Scotland will be important. That has been communicated to the UK Government already. I do not think that there is any doubt that our discussions as they go on will focus more and more on the need for differentiation in those regards, but it is difficult to know what we are differentiating from. I think that that is an important issue. If any article 50 triggering was a one line that said that we are off, I am not sure that there is grounds for a footnote. If there is more detail in it, I think that that is required. We do not know that. That is a situation that we will not know. One might have expected to know some four months out from that process, but one does not know yet, so that will be a developing situation. The European Parliament issue that Marie Todd talked about earlier is a role for the European Parliament. There are a number of committees here undertaking different evidence-taking sessions around the question of Brexit, the same is going on in the House of Commons, the House of Lords. What do you think that this committee itself could positively do in terms of what we could contribute to the process from the perspective of the Scottish Government? There are two things. One is to do with your finance role, which is to have a clarity upon some of the financial aspects of Brexit, particularly Government financing. The issue has been raised of issues of finance that are coming from the UK to Scotland and the European financing. I think that the second one is to continue in the constitutional role to have a watching brief on the operation of the mechanism, which is probably the outcomes of the mechanism of the most interest to the European external affairs committee. It is the effective operation of the mechanism that might be of most interest to you. That will be a matter for you and the committee will no doubt take a wide view of its remit that its committees and ministers and Governments do, but I do think that that would be particularly helpful. I think that you used Ivan's description that we want to get under the bonnet as much as we possibly can without getting our fingers dirty. Will you give us a commitment from your own perspective, Minister, that you will provide us with as much information as and when you can do? I am absolutely happy to give you that commitment. I shall look up in my greasy overalls from under the bonnet and try to give you as much information as I can of what is happening in there. I thank you both for coming along today and being engaged with us in the way that you have. I am very grateful for that. I thank you to members also and I close this particular meeting with the Finance and Constitution Committee.