Seòmar agus comataidhean

Good morning to our guests. I want to get straight into the meat and bones of the content of the HMRC reports. There are more than 100 pages to digest and, as the convener said, we have not had much time to do that, but what is contained therein has been the source of a lot of commentary over the past 24 hours from an analysis point of view, but also from the media and, unfortunately, as is always the case, from a political point of view.

It is important that the committee gets under the skin of the facts and figures, so I ask HMRC to enlighten us on the key findings of the reports. They singularly pick out the year 2018-19, but nothing since then. They give a snapshot—I understand that—but it seems odd that we have had no further analysis of any subsequent years. Maybe you can comment on that. I would also like to know what you found when you analysed the 2018-19 tax year, when Scotland moved to a five-tier system. What is the situation regarding our income tax base? Is it better, worse or indifferent?

Okay. I know that other members have a lot of interest in that issue.

I understand that, but I have a concern that, if we have to wait five or six years for the 50-page reports that contain that data, it is impossible for them to be used to inform Government decisions. They just show what has happened, and not what might happen in the future. What we really need to know is what the trend has looked like over the past few years, particularly when there has been further divergence in tax bands and fiscal drag.

You said that there was a small or moderate loss of income. The analysis in your report says that it was about £60 million in the financial year 2018-19, but that related to a very small number of people. It does not take a lot of behavioural change or a lot of people to drop out of the Scottish tax system for there to be a fairly substantial loss in the income that the Government receives and, therefore, has available to spend on public services. Will you give us an indication of how worrying that figure might be? Table 19 in the report shows that just 60 people coming out of the system at the top rate equated to a loss of almost £38 million of income. That is huge.

It does. Of course, someone does not need to be ultra-rich for divergence to affect them. When someone earns just £50,000, there is a 20 per cent differential between the income tax rates. That could affect a much wider range of people.

Ms Stafford, you are director general of the Scottish exchequer. Is it a concern to the Scottish Government that just 16 per cent of Scottish taxpayers form more than 62 per cent of the tax base? As we see in the report on 2018-19, any change in the number of people in the higher bands, or any behavioural change, will have a huge detrimental effect on the amount of money that the Government has to spend.

It was notable that the Scottish Government was quick to comment publicly on the net migration figure. However, over the past 24 hours, various commentators and analysts whom we often rely heavily on for independent, neutral analysis, such as the Institute of Directors, the Fraser of Allander Institute, Scottish Financial Enterprise and a bunch of others, all say that the numbers themselves are quite meaningless if we look only at the net migration figure and that what matters is how much money is coming into the system and how much money has been lost from it.

That goes back to my original question, which I am not sure was answered. If we lose higher-rate and top-rate taxpayers, that will have a much more substantial impact on the amount of money that comes into the system. We do not have a year-by-year analysis of that, and it is very difficult for the committee or anyone else to take a view on that if we do not have the data.

I think that many people would disagree with that. Anecdotally, we are hearing a number of voices being very vocal maybe not necessarily about the statistical analysis of migration, but the quantitative analysis is that every respected industry body says that it is really struggling to recruit people and that tax divergence is the primary cause of that. I hear what you are saying, but business leaders are saying entirely the opposite.

Thank you, convener.

I have four quite meaty areas to cover and not a lot of time to do that, which is unfortunate, but I will do my best. The first is justice, which you mentioned in your opening comments. I appreciate that there is some on-going work on prisons, prison populations and remand numbers, which we have delved into a lot, and that you are looking at court case backlogs and other live issues. I get the impression that you will be keep a watching brief on those things, but I am interested in what additional audit work you will be doing on the justice sector. There was mention of community justice and legal aid. What will those pieces of work look like?

On child poverty, is it your opinion that you will do work to assess whether that is the right type of benefit, and whether it is the level of money that is paid or whether it is how the benefit, when paid, is used that improves outcomes? It is very difficult to quantify whether you get a positive outcome from simply increasing the amount of benefit, for example.

Okay. Will you do any comparative analysis between the demographic situation in Scotland and the other four nations of the United Kingdom? For example, if we in Scotland are sitting with relatively low levels of unemployment but there is a baseline of people who rely on social security, will you look at how that compares with other parts of the UK and if the cost to Government to deliver a baseline of social security in Scotland is disproportionate?

That is all very helpful. I will park social security—we could spend all morning talking about that.

You have already mentioned public sector reform, which was built into quite a lot of the lines of questioning, but I want to pick up one last point about it. I go back to a piece of work that you did on Scotland’s workforce, which is very relevant to public sector reform. Obviously, a lot of working adults in Scotland are directly employed in the public sector, through either devolved public sector functions or a mixture of devolved and reserved public sector functions. The number of such staff is around 500,000-plus. I know that that number has been increasing in recent years. That is quite a substantial chunk of the workforce, which clearly comes at a cost to public agencies.

I was interested to see that around 80 per cent of all public sector workers work in the NHS or in local government, and that the other public bodies mop up the rest of those jobs. Does you see that percentage increasing? Does that raise any flags for you in terms of doing some audit work? What work will you be doing around public sector workforce reform?