Seòmar agus comataidhean

Thank you very much for that, Professor Roy.

I will kick off the questions and then open up the discussion to members of the committee.

I will start with the issue that you have just touched on. I will not quote the full paragraph in your letter, but you have said:

“While higher productivity growth has a clear positive effect on the economy, the net effects on the public finances are complicated and to improve fiscal sustainability will require changes in public spending or tax policy.”

Professor Spowage talked about that at our away day last week. I would be interested if you could explain the reasoning for the fact that increased productivity might not reduce the sustainability gap. That is crucial to our deliberations as we move forward, and it is important to get that on the record.

The second issue is the changes that would be required to close that gap, even in a situation in which we have increasing productivity.

Obviously, if the economy improved, one would expect fewer people to be dependent on public services, and there would be the same impact if people’s health improved.

I think that that is pretty clear. Colleagues can ask further questions about that if they wish.

Let us move on to look in more detail at the forecast evaluation report. Page 19 shows that the number of top-rate taxpayers has increased from 14,700 to 18,000. Yet, on page 46, you say:

“the tax revenues paid by top rate taxpayers have actually fallen in two years.”

Why is that? If there is a significant increase in the number of such taxpayers, and given that we are in an inflationary situation, why have those revenues fallen?

Well, not from existing jobs. You have talked about displacement. If people are going to be displaced, they will not be displaced on the basis of lower wages and poorer working conditions, will they?

There is just one more question from me, and then I will open up to colleagues round the table. In paragraphs 8 and 9 of annexe B to your report, you say that

“Scotland’s lagging earnings growth since 2016-17 has been exacerbated by much stronger earnings growth in the financial services sector in London and the South East”,

and that

“Scottish employment linked to activity in the North Sea has ... fallen, lowering the average participation rate in Scotland. These jobs ... were generally high paying, which has likely contributed to the divergence in average earnings between Scotland and the UK.”

What kind of pace are we talking about? What decline in overall earnings is coming from that sector, relative to the rest of Scotland? Obviously, that is fundamental—including for the green transition process that we are trying to undergo.

Given that we are coming out of a pandemic and that we have the Ukraine war, the cost of living crisis and high inflation, a GDP forecast error of 0.2 per cent is remarkable. I know that there have been one or two areas in which the figure has been quite high, but the Scottish Fiscal Commission has still done an excellent job.

I open up the meeting to colleagues.

Good morning, and welcome to the 21st meeting in 2023 of the Finance and Public Administration Committee. I hope that everyone has had a good summer recess.

We have received apologies from Michelle Thomson.

Before we start, I thank those who participated so actively in our pre-budget scrutiny event last week in Largs and on the following day in West Kilbride. I know that members had lively and interesting discussions with local people, organisations and businesses about their priorities for the Scottish budget, which will help us with our pre-budget scrutiny. We will publish a summary of the discussions on our website in due course.

I record our thanks to Douglas Lumsden for all his hard work in supporting the committee’s scrutiny. I am pleased to welcome Jamie Halcro Johnston as a new member of the committee. We are also joined by Gordon MacDonald, who attends the meeting as a substitute member in Michelle Thomson’s absence.

I invite first Jamie, and then Gordon, to declare any relevant interests.

Right—so, the revenue from that group is not decreasing. I asked the question because there seems to be a contradiction between what is said on page 19 and what is said on page 46. One talks about—

I touch on that issue because about one sixth of income tax comes from 0.7 per cent of taxpayers. Throughout the document, you make a point of talking about the volatility of that specific group. I therefore think that we have to keep an eye on that issue.

Another point that comes through quite strongly in the report on a number of occasions relates to self-assessment. Looking at the graph on page 21, I was quite astonished at the jump in the outturn figures for self-assessment—they far exceed any others. Can you, for the record, explain that a wee bit?

Okay. Time is against us, so I will not push that any further. Thank you for that. I will open the session to colleagues. The first person to ask a question is John Mason, to be followed by Douglas Lumsden.