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I return to the question of improving productivity and wellbeing, which is one of the central themes of your research. Earlier, my colleague Michelle Thomson asked you about where we can get the biggest bangs for the buck when it comes to improving productivity, and you provided a couple of examples.

I wish to develop the point a little further. We are in a very difficult situation across the UK, including Scotland, because a sizeable number of people, particularly those in their 50s and 60s, are coming out of the labour market. That will obviously have significant implications and give rise to difficulties further down the line with regard to productivity and tax take. I think that Professor Muscatelli talked earlier about skills and labour market flexibilities. What, in your opinion, do we have to do to drive greater flexibility in the labour market, while ensuring that we retain more people in the market than might be the case now?

I assume, therefore, that you would like the funding to follow that priority area, because it would be helpful to spend more money on innovation and the university sector, for example, and on ensuring that we drive towards those kinds of productive industries of the future.

Finally, it is generally agreed that the national performance framework is a good thing to have, but how easy is it to measure what the best outcomes are in it, and how much is that allied to Scottish Government policy?

I absolutely understand the arithmetic to which you are referring. My point is that the knock-on effect might be that some people are deterred from going into the market. Therefore, the estimated £34 million of tax revenue perhaps does not have such certainty over the period, because the situation might put people off coming into the market.

I understand that. It is always difficult to measure expectations and what people are going to do.

I turn to inflation, which is obviously one of the most important things to try to address. Professor Breedon rightly said that high inflation is due to cost factors, and that that particularly affects people on lower incomes. I want to relate that to Professor Roy’s point in his introduction that the expectation is that next year inflation will fall “sharply”—I think that that is the word that he used. What is the reason for thinking that it will fall sharply, given that the cost factors will continue, particularly if the war in Ukraine continues and the supply chains still have very high prices? What certainty do we have that inflation will fall sharply, rather than just coming down, given that the cost factor is still very strong?

I accept that point.

Professor, I want to ask you about something that is obviously close to your heart—the universities sector, and its role in developing innovation and digital technologies and helping to upskill people. What else does the universities sector have to do to improve the future skills of the graduates coming out of the sector?

Thank you.

I want to pursue this question, which the convener is right to ask, about behavioural changes. There is almost a Laffer curve of the likely trends. I go back to the additional dwelling supplement and the £34 million. I understand how you have used your arithmetic to calculate that. There was a lot of comment at the weekend about shortages in the rental markets, because the increase from 4 per cent to 6 per cent might mean that some people do not go into the market at all: that behaviour would take some people out of the market. Would that have an impact on the £34 million that is expected?

I understand that it is the rate of increase that matters. It is just that international events are incredibly uncertain at the moment and there is always the possibility of exogenous shocks and so on. I hope that we will not have that.

I will come back to productivity, which is critical to the future success of the economy. It strikes me, and I think I would be backed up by a lot of economist groups, that Scotland is in desperate need of more higher-paid jobs, particularly jobs that could see people transition from currently fairly highly paid jobs in the energy sector, for example, to other highly paid jobs. In your analysis, do you predict that we are on the right path to getting more higher-paid jobs, thereby addressing the productivity issue?

Good morning. Professor Miles, I will take you back to the issue of inflation. When you discussed that with the convener, you rightly identified the problem with Ukraine. What you said is very much in line with other evidence that we have taken, which suggested that the larger part of the inflationary situation just now is due to cost factors.

I am interested in a remark that you made in your November forecast, in which you said that although,

“In the UK, CPI inflation is set to peak at a 40-year high of 11 per cent in the current quarter”,

it is expected to fall back “sharply” during the course of next year. Given that the cost-push factors are likely to still be quite strong, where does the “sharply” come from?