Seòmar agus comataidhean

I wanted to follow up on David Eiser’s point about whether the budget is seven point something up or seven point something down. I will confound you both by saying that I can recognise both figures and not be rigid about my view on it.

I recognise that, in the total figure, because of Covid there is approximately £5 billion resource funding in the current financial year. However, to my mind, the key point is that throughout the debate around Covid spend, the Government has been pretty clear both publicly and privately that that money cannot be used for non-recurring budget items. We can all accept that Covid has not completely gone away, so the costs that we incur have not disappeared, which is why we end up in that fuzzy middle position. Is there an issue around transparency and about the clarity on how that £5 billion has been allocated, whether it has been allocated, strictly speaking, on non-recurring Covid items, and what in the current budget is Covid related?

This budget is particularly difficult to track. Several items are jumping between budget lines and it is not entirely clear what in the budget is directed at Covid. Is that a fair assessment of why we find ourselves in this position?

That is fascinating. I think that we need a committee session on that topic alone.

Does David Eiser have anything to add?

Thank you. I do not know whether Graeme Roy wants to add anything.

It is also important so that Government can manage.

The Scottish Fiscal Commission’s document is important in providing a medium-term outlook on fiscal pressures. I think that we were all surprised by the pessimistic outlook on tax and the implications in that regard; there is also the potential growth in social security spending.

I want to test a bit of logic that I put to the SFC. If we take the broad assumptions—and I freely accept that we are talking about forecasts, which are liable to error—about a negative net tax position of around £355 million, coupled with additional social security spend of around £764 million, does that mean that a deficit of about a billion pounds will need to be addressed in the Scottish budget over the next four to five years?

I will follow on from the convener’s line of questioning on income tax forecasts.

It is of critical importance that since the introduction of the fiscal framework, income tax is a large component of what we have available to spend in Scotland. I am interested to understand why the OBR projects growth in income tax receipts being slower in Scotland than in the rest of the UK. If that is the case, mitigating that should be a real focus of public policy in Scotland. Can you explain the underlying assumptions behind that forecast?

Bearing in mind what Mr Hughes said regarding the attempts of the OBR and the SFC to reconcile their methodologies, I note from your paper that it looks as though there will be a £380 million difference between what you and the SFC forecast for income tax receipts. Will you provide a summary of that difference of opinion? I assume that the SFC is looking at the same demographic figures.

In the interests of time, I will hand over the questioning, but I hope that one of my colleagues will pick up on that interesting insight.

Let us bear those points in mind, with what Sir Charlie Bean said earlier, and step back a little bit. We are in a situation that is not panning out as predicted. We see significant labour market frictions and significant differential frictions between different sectors in the economy. It strikes me that, in that situation, making predictions on future earnings becomes a lot more difficult, because you need to forecast almost on a microeconomic rather than a macroeconomic basis what will happen in each individual sector. Is that a fair summary? What is the OBR doing to look at how we can drill into specific issues in specific sectors and extrapolate for the wider economic outlook?

I have a final question, following on from our discussion about labour markets, but taking a longer view.

The last two years have been a brutal shock, exposing our reliance on imported labour to make up gaps and, indeed, do certain tasks that the UK population does not want to do—essentially, low-wage, low-skill jobs.

In the longer run, global population growth, which was around 2 per cent in the 1970s and has fallen to about 1 per cent now, is projected to fall further to about 0.5 per cent in the middle of this century and come to some sort of equilibrium by the end of the century. It strikes me that any sort of model that relies on us continuing to import labour is flawed, regardless of the other things that have happened. Do you share that assumption? If so, does there need to be more focus on increasing the productive capacity of the existing population, because the economy will require working-age people to be more productive, whether by means of skills or automation? Does public policy need to be more focused on that issue?

What is the view of the IFS of the comprehensive spending review in relation to Scotland? My understanding is that we will see a 7.7 per cent increase in real terms, but that is front-loaded in the first year, and there are actually small real-terms decreases. That increase of 7.7 per cent is a historically high increase in the block grant. However, I think that that profile leads to some challenges in terms of what it means over those three years. Is that a fair characterisation? Does the IFS have any insights in terms of the decisions that the Scottish Government must make?