Welcome to the 23rd meeting in 2023 of the Finance and Public Administration Committee. We have one public item on the agenda today, which is to take evidence on the sustainability of Scotland's finances from two panels of witnesses as part of our pre-budget scrutiny in this year. For the first panel, I welcome to the meeting, Jawee Souza, Deputy Director of Fraser Islander Institute, Professor David Heald, Emeritus Professor and Honorary Senior Research Fellow, Adam Smith Business School, University of Glasgow and Professor David Bell, Professor of Economics University of Stirling. I intend to allow up to 75 minutes for this session, and if witnesses want to be brought into discussion on a question that I've asked to any specific witness, please indicate to clerks and I can then call you. We have your excellent submissions, so I'm going to go straight to questions. I think that the first question is to you, Jawee, which is basically with regard to what you talk about in your submission with regard to real assumptions. What you've said is that the medium-term financial strategy highlighted a large funding gap of £1 billion in 24, 25 and close to £2 billion by 27, 28. The 24, 25 and future budgets will need to include realistic assumptions on spending commitments given the available level of funding and be clear about prioritisation decisions as well as realistic policy on tax. What do you consider to be realistic? The thing that I highlighted is that, given the constraints of the fiscal framework that the Scottish Government must operate under, it cannot run or have a gap in funding as large as it has currently planned, so there will have to be discussions and decisions made about whether there will be increases in tax reductions in spending, prioritisation across different levels of different programmes. Clearly, it will be possible to raise revenues should the Scottish Government wish to do so, but there are limitations to how much revenue you can raise. For example, we highlighted that there was a proposal to raise income tax by introducing a new band between the higher rate and the additional rate or the top rate. By 2P, that would only go a limited amount towards filling the gap that is currently being forecast. It is worth saying that the gap that was projected in the medium-term financial strategy is likely lower now because the income tax reconciliation has come in lower than the Scottish Fiscal Commission had anticipated at that time. Also, in the fiscal framework review, the Scottish Government has got more borrowing powers for day-to-day spending than it did before. The other thing that we wanted to highlight is that there was some talk about filling some of the gap with things like wealth taxes, but introducing new taxes is not only challenging in terms of the devolution framework. The actual process of introducing a new tax is quite long. It requires time spent in designing a tax, consulting on its implementation and actually preparing the implementation and collection mechanisms. The Scottish Government's financing position in 24-25 is unlikely to be helped by introducing a tax, a new tax, because it is highly unlikely that all of that would be able to be done by the time the new financial year rolls around. Thank you very much for that. That is very helpful. We have touched on one of the things that I was wanting to move on to next, which was wealth taxes. We are going to be on a round table meeting just straight after this one, taking evidence and a number of the witnesses there. We will be speaking to them about this. I have suggested quite substantial sums of money can be raised over a relatively short time by wealth taxes. For example, if not the current financial year, then financial year 25-26. What would your view be of that? The creation of a wealth tax would require careful consideration about what to leviate on, how to institute the collection mechanism or assessment that would be assessed like property taxes are at the moment, or would it be self-assessed? All of that takes a long time to implement. When you think about how long it has taken, it takes HWC or Revenue Scotland to introduce a new tax and get all the collection mechanisms in process and all of that. It is actually quite hard. If you remember when the UK Government tried to implement the health and social care levy, it actually had to implement it as a national insurance levy first, and it never did come into place, but when it was meant to come into place, it was to be corrected through national insurance because it took such a long time to get the health and social care levy in the system. It would be a question of whether, if it were to be Revenue Scotland to implement that, would it have the budget already at the moment for that to be implemented? I think that it is unlikely that you could raise substantial amounts of revenue immediately because the administrative processes just take a long time for it to be put in place. Professor Heald, you have said that you do not accept that the Scottish Government has prioritised economic growth or demonstrated a strategic approach to tax. Given your expertise in the area, what do you think it should or could do differently? Well, just while I was waiting to come into the room, I was given a copy of a diagram that I prepared. For a very long time, I have been an advocate of devolved taxes. That goes back to the 1970s, but I think that the UK tax system is a total mess and the Scottish Parliament has made the tax system in Scotland worse. We have a nonsensical position whereby we have a big peak at the higher-rate threshold because the differential higher-rate threshold is in Scotland and the rest of the UK. The national insurance threshold operates from the UK level and not the Scottish level, so people in Scotland are paying the higher rate of national insurance. In England, the national insurance threshold has gone to the 2 per cent rate. We then have the strange position that an emergency measure by Aston Darling when he started to withdraw the personal allowances at 100,000, which still remains at 100,000, produces another peak. We have two peaks in the marginal rate threshold to do with national insurance at one level and the withdrawal of personal allowance. That is complicated, as the diagram that we are talking about makes a point. Income tax is done on a separate taxation, which was a major issue in the 1980s about whether people who were married would be taxed separately or independently. We have a position whereby the tax system operates on individuals, but the benefit system operates on households. We have a strange position whereby a household with one income can quickly hit the child benefit withdrawal, whereas a household with two incomes could have a much larger combined income, but not get it. The UK scenario is where someone on £51,000 a year will lose child benefit, but if there are two people who earn £49,000 a year, they will continue to get the child benefit. They do not completely use child benefit. There is a phase withdrawal, but they hit the phase withdrawal period. That is why you get the peak. Eventually, you have lost all the child benefit and all the personal allowance. That is not strategic. The Scottish Parliament is constrained by what the UK Government does, but we have not been agile in terms of trying to make the system work. A very important technical point is that, in terms of incentives, it is the marginal rates that matter. We are going to get into a position whereby NHS consultants and senior scientists will start negotiating with their employers for net pay just the way that footballers and football managers already do. We have to be very careful. A rule of thumb that I noticed some time ago is that about 5 per cent of Scottish income tax payers in Scotland contribute 40 per cent of income tax revenues. That is the figures in the HMRC published data. We have to be very careful how we treat that group. If we teach public sector professionals about tax avoidance, we have a serious problem. I am labouring in this whole point a wee bit. The answers have been excellent and very interesting. They lead to so many other questions, because there is so much pressure on the Scottish Government to increase taxation. The public alliance, which we will speak to later, for example, is a coalition of many organisations that have all talked about increasing benefits, all the wealth taxes, putting up the higher rate of tax, putting up the taxes at the upper rate and so on. What do you feel the impact of that will be on a behavioural change and b economic growth, Professor Heald? To try and unpack your question, I think that at the time of the Smith commission, there was a broad cross-party consensus about having some social security benefits devolved, but we now got to the position whereby the Scottish Fiscal Commission thinks by 2728 that the Scottish social security benefits are going to cost £1.4 billion more than the Scottish Government gets in positive block grant adjustment. The problem about that is that means that, in the largely fixed budget, the Scottish Government has to divert money from co-public services such as health, education and local government. Local government is very clearly facing a very serious crisis now to pay for what the Northern Irish would call super parity spending. I worry about that, because people who are trying to help by progressive taxation policies are the very people who depend on public services more. People on lower incomes have less option of using private sector services if the public service is not working, so there is a very serious issue. There is also a technical point, which is really important, which is that, in England, social security spend is annually managed expenditure. It is recognised that you cannot necessarily predict it very well. Basically, the treasury covers. Once the benefit level is set and agreed, the treasury covers any underspend. In Scotland, because of the way the system works, it becomes part of the Scottish budget as a part of Dell. It makes the Scottish budget much more difficult to manage. The issue for the UK is that the UK is not fiscally sustainable. We cannot afford the present package of public services at the present package of taxes, so something has to give. Scotland has the same problem because it is locked in to the UK policies anyway, and that is going to affect what comes down the line. We know that there is a problem because there are big demographic drivers behind the OBR forecasts and the Scottish Fiscal Commission forecasts, but there is paralysis about things. One can either try to do something now or you can wait for the cliff edge where you will get a complete panic. Going back to your point about economic growth, I think that I do not regard industrial subsidies as necessarily the way to improve the economic growth. What the Scottish Government has got to do is to make public services work better and make infrastructure work better. One of the issues that is common to the evidence is the lack of multi-year budgeting, which is something that, to some extent, outside the Scottish Government's control is a very serious problem. Whenever the UK has a problem with the public finances, it cuts capital. Because there is separate control of capital and resource del, that passes through the Scottish Government. That is one of the reasons why the UK is actually bad at delivering infrastructure. If you want successful private sector delivery of the capital investment of infrastructure, the private firms need a reasonably steady flow of work. When you get this erratic jumping and collapse of capital expenditure, you basically lose capacity. There is another problem, which affects local government and health in the public sector. Clients lose the capacity to be an intelligent client in terms of capital expenditure. Without enumerating the various disasters— I was actually going to ask you about capital expenditure, I have to say. I did not like to interrupt in free flow, but the point that I also asked was about behavioural change. For example, if the Scottish Government decided, you know what, politically it is going to be very difficult for us to cut spending or whatever it happens to be, we are just going to have to hit that one or two per cent of our highest-tax payers. What would be the impact on that? What would be the impact on people who are just over the marginal higher-rate thresholds? What would be the impact on that? It is difficult to know what the behavioural effects would be. What I would point you to is the Scottish Fiscal Commission. The Scottish Fiscal Commission for 2324 is the first year of the changes. It reckons that the static costing of decreasing the top-rate threshold to £125,000, the static costing, i.e. nobody behaves any differently, is that you gain £33 million. The behavioural costing is that you gain £8 million. In terms of the top-rate going to 47 per cent, the static costing is £32 million, and the behavioural costing is £3 million. You will lose 90 per cent of the revenue. I have read the evidence from the committee that I do not think that there is any easy sources for higher-tax. If you want to get more income tax in, you have got to hit the basic right. There is not much more scope. We will find out in due cause whether the Scottish Fiscal Commission is being too pessimistic, but that is what determines what is available to spend because of the way that the fiscal framework works. Professor Bell, you have been very patient. I know that JR wants to come back in as well. I want to be able to give my colleagues an opportunity. I am only about three or four questions to the 25 that I wrote down here. I was going to ask you before we started, but one of the things that you talked about, Professor Bell, was that that look remains difficult with funding for day-to-day non-benefit spending set to be almost 2 per cent lower in 27-28 than in 22-23. That is despite forecasts for a significant increase in net revenues from Scotland's devolved income tax revenues over the next few years. If that did not materialise reduction, it would be closer to 5 per cent over the same period. I am just wondering if you can talk to that and possibly talk about it because we did talk about tax, but how do you feel that the Scottish Government could adjust its taxation policies to be more strategic, as Professor Hill put it? That presents the strategic approach that was occurring to me. Overall, do you really want to tax work? If, for example, one of your really top strategies is to get to net zero, why aren't you taxing carbon? That is a general point that one might make if you were thinking about a strategic approach to taxation. We are where we are, and, as both witnesses have said, the UK system is a mess and Scotland has added to that mess. It seems to me that there is further potential in confusing things in so far as, for example, the introduction of a wealth tax would take a lot of time and would probably require co-operation with the UK Government because a large part of people's wealth-holding will be financial assets and where those are held will presumably matter as far as the way that they are going to be taxed is concerned. It might be that. That is an interesting possibility, but I would have thought that there would also be informational requirements on HMRC, which are not currently in place and might have to be put in place. That might require the UK Government to go along with that. I imagine that that would have created a difficulty. When we were talking about the length of time to implement a wealth tax, what crossed my mind was that it took us about six years to implement social security in Scotland. It was very complex, the social security measures that we have introduced. A wealth tax is not a simple tax. In most countries, there is a lot of avoidance. The only place where it seems to work, in my understanding, is Switzerland, but other places are largely regarded as not a very significant potential source of revenue. Coming back to economic growth, one of the things that you have to bear in mind is that if Scotland does end up with higher tax rates than other parts of the UK, that will be seized upon by those other parts of the UK when there is potential inward investment attempting to ensure that that inward investment does not come to Scotland, but goes to wherever their region might happen to be. Whether those taxes are significant and would ultimately deter people once they were here is another matter, but in a sense it is the impression given that it matters quite a lot, not only the tax rates in themselves. What you have said in your submission is that tax increases are likely to be unpopular and possibly counterproductive, and funding and reductions to other spending priorities are likely to be valued more by the electorate than the gains resulting from the introduction of the new policy, so-called loss aversion, which I find quite interesting. I have talked about this a number of times at this committee in terms of council tax reform. The people who will gain will just shrug their shoulders, but the people who lose will be less in chaff than. In fact, the consultation on council tax, which closes tomorrow, I have not had anyone contact me to say that this is great, but I have plenty of people say that I am not too chaffed about it, so I wonder if you can just talk about that and then I will let Joe in. This is the danger of entering into commitments that have medium-term or long-term implications and not then feeling it possible to stop those commitments because of the danger in terms of how bad the associated publicity, once something stops being funded, is. So we have sort of drifted into a position where some what we would call key parts of our public sector systems such as local government have sort of not really what has happened has not been significantly noticed by those setting the budget, but we have now got into a situation where local government is pretty much in severe difficulty and other programmes have started and have continued to grow. Of course, as I point out in my paper, health is one of those that has been growing consistently over the piece, but you end up in a situation where there are constantly additional demands for cash and a requirement to continue with those programmes that are already started. Unless there is some clear strategy, you end up and an understanding that funding that starts does not always continue forever. Unless you have that kind of understanding, you end up with this loss of version of people being deeply unhappy about the fact that their particular spending programme has been stopped when everyone thinks that such programmes are the most important things since sliced bread. And that loss of version makes governments nervous about making radical change. I was just going to come back to what Professor Hild was talking about, behavioural change, and just to make the point that there is something that the Scottish Government has to take into account, which is the fact that income tax in Scotland, or Scottish income tax, is not the same thing as income tax in Scotland. Therefore, because it is only on non-saving, non-dividend income, at higher levels of income you are more likely to have people who can change the way they get paid. If you change the graph that we were talking about, it only takes into account labour income, but if you can pay yourself in dividends, for example, then your calculation between the marginal rate that you pay at different levels of income could be very different. You could do it in a position where if you hike the rate a lot for people who can shift the way they get paid, you could end up in a situation where more income goes towards the UK Government and not to the Scottish Government. I have a few other things that I would like to ask, but I want to let colleagues in, so I am just going to ask one more question, which is a bit transparency because we haven't touched on that. Gial, I will stick with you because you have said in your response that a more forthcoming approach from the Scottish Government to the publication of financial memorandum for the committee scrutiny would be an improvement, so I am just wondering if you can touch on that because clearly that impacts directly on the work of this committee. It is really important for the committee to be presented in good time and in due course. I know that the committee has had some back and forth with ministers about being able to access them. It is really important for everyone to know the consequences of legislation when they come out and when they are announced as well. One thing that I think works generally really well is that if you announce something, you present a costing with it until legislation is being passed, because that is not necessarily the same thing. Professor Heald, you have said that budget documentation should set out clearly the additional costs of above-parity expense and reduced costs from below-parity expenditure. That comes back to my earlier point, given the very constrained total budget. If Scotland has services or things that it provides that are not provided in England, there is no barnic consequences funding that. That means that, at the same point that I have already made about social security spend, the problem is that that reduces the amount of funding that is available for co-public services. People think that Scotland, because the Scottish public is getting benefits from the Scottish Government that the English public does not get. That is true, but the point is that those extra benefits, where social security benefits or free university tuition, are being funded out of money that might otherwise have been used for local government, health and education. That is what seriously worries me. There is also a technical point that, on the social security spend, it is very difficult politically for Scotland to be less generous than the English public. Every time that Scotland has a power over social security, there will be pressure for Scotland to be sure how much more generous it is, but that further erodes the funding that is available for co-public services. To come back to a point that the chair has made about the council tax consultation, that consultation is looking to raise another £176 million before any compensation for low-income households in highly-rated properties or for councils that do not get any more money. It is ludicrous that, given the fact that it is fully devolved, we are still using 1991 house prices as the basis for council tax. I am strongly in favour of a residential property tax, but one is discrediting that principle that is a useful mechanism for funding local government. By using 1991 values, it just brings the system into total disrepute. If I lived in Ardrossan, I would be somewhat upset that the relative house prices in Ardrossan and West of Scotland generally have gone down relative to the east of Scotland. The Institute for Physical Studies has done a study in England, and it records that 50 per cent of English properties are in the wrong council tax band. It cannot do that work for Scotland because of data availability problems. It would be very beneficial if the committee could look into why it is not possible to replicate that work for Scotland. If people are in the wrong band, some people will be in two high bands and some people in two low bands, compared with if you did it on current values, that discredits the system. My personal view is that I am in favour of revaluation. I would be in favour of thinking about what the multiplier should be between the band D and the higher band, but you cannot sensibly do that on the basis of antique valuations. It goes back to a loss of version, to be perfectly honest with you, and whatever the Scottish Government would do on that will be attacked from all sides. That is probably why the predecessors and the Government's south of border are not exactly running to change that. It is worrying that we wanted a Scottish Parliament and that this is a core part of devolved functions. If we cannot manage our own tax system that has long been running in Scotland, it was run by the Scottish Office before devolution, if we cannot run the local tax system appropriately, it does not give any great credibility to Scotland asking for more tax powers. I think that it is about the Government's survivability if they were to implement this across the board, given the ferocious onslot that would come from all sides. It is just a political reality. The economic reality is different, in my view, from the political reality. I think that we would all agree with the economic reality. The last one on transparency, David, is about mitigations. The Scottish Government mitigates a lot of UK taxes. In fact, some of the witnesses who are following this session are saying that we should suggest yet more UK areas where the UK Government is, for example, reduced expenditure or where they feel more expenditure should be given. What transparency do you think? What do you think we should do to make the mitigations more transparent? By mitigations, do you mean mitigations? Professor Bell, can I ask the same question? You both called David. I forgot. I apologise. There is always a plethora of Davids in the economic world. Can I ask the same question? What exactly did you mean by mitigations? So, for example, the obvious one is what they call the additional room supplement of the bedroom tax. For example, the Scottish Government has been mitigating that for years, but I do not see much transparency in that. That is one thing that is mitigating. What should it do to make that more transparent in terms of the budget? David Heal is absolutely right. The changes in support for people on lower incomes are possibly in themselves. A strong case can be made that they are justified, but there is necessarily a cost. That cost should be made clear in the budget documents in all government communications. It seems to me that we need to understand broadly the shares of spending that are going to key areas such as health, education, social security and what share is going to capital spending. It is not clear to me that that kind of message and the trajectories that those shares have been and will take in the future are clear, both to the Parliament and to Scottish society more generally. It did come as quite a shock to me to note that on current trends health will be more than half the budget in a relatively short period of time. Even if people are not into the weeds of public spending, those generalities in terms of where our main spending areas are moving seem to me the sort of thing that needs to be got across very transparently. Let's open out the session. The first person to ask questions will be joined by Liz. Thanks very much, convener. Something that we haven't really mentioned so far is the fiscal framework and the fact that it was agreed very rapidly and somewhat to the committee's surprise because we'd expected a long drawn-out battle. Was it agreed to hastily, Professor Bell? I've got to say that it came as a surprise to me that the day our report was published we were told that the framework had been agreed. We did expect some much longer discussion. Clearly discussion had gone on in the background. Our report had been held back for four or five months after it had been completed. All of a sudden, all of the announcements came out together. It's an incredibly complex area. As you know, if you're not called David, you can't understand it. The outcome that we got, in terms of which mechanism was selected for setting the BGAs, is probably as good an outcome as Scotland could have hoped for. On borrowing powers, perhaps, there have been some increase in borrowing powers but not massively so. I suspect that, at the background, that was the trade-off that was being argued about between the Scottish Government on the one hand and the Treasury on the other. Where we are, as I point out in my paper, we could be quite considerably worse off going forward. I noted in your paper that the index per capital method is better than the comparable model, but are we not still left competing with England and, specifically, are we not still competing with London and the south-east of England, which dominates the English economy and therefore are we not permanently at a disadvantage? Well, the rules of engagement, as far as the report was concerned, were really around that we took the current broad structure as given and then argued between the comparable method and the index per capital method. We did not look at the option of going down the Welsh route. It is true that we will continue to be, for most of the BGAs, England and either tax revenues in England or social security spending in England, that will matter and it is England as a whole. One can go very fine grained about what risks it is appropriate to run or not. There is no manual that you can go to and say, well, this is how it should be, but what you are saying is correct. The way that the framework has been reformulated does not significantly change anything very much so that the broad framework that the comparator is England is going to continue. The fact that the block rate adjustments are linked to England, including London, obviously the weight that London has on the economy is significant, but it is difficult to think what could very easily be done otherwise, without changing the whole of the framework significantly. My personal view was that keeping the per capita index method was absolutely crucial. That is a success. I would like to see more boring powers, both the capital and for resource, but I can see that there was a trade-off. The treasurer refused when the physical framework was originally introduced to accept the fact that the fallback method was the index method, so that is a positive gain and that is now the established method. We have heard from various places that we need a better public understanding of how budgets work and, longer-term, should we have more taxes and more spend or less taxes and less spend? We get the impression that other countries—correct me if I am wrong—like maybe in the Nordic countries, there is a public debate on this and a public agreement that they want higher taxes and they want better public services. Is it possible to have that debate in this country, either Scotland or the UK? If you recall, we did have a citizens assembly way back in pre-Covid times. I remember David Phillips and I spoke at that. That was a mechanism that seemed to me to lead to a better, at least among the members of the assembly, a better understanding of the way that the finances work. As I have implied and the other members of the panel have implied, it is incredibly complex. There are some general principles that can be got across. On one-to-one with citizens, it is possible to convey the key messages. However, when filtered through the media, the kind of discussion that we are currently having is generally not going to make the headlines, make them sell more papers or get more views. I would like to be a bit more optimistic. I know that whenever you poll the general public on whether they want more or less tax, they say less tax and whether they want more or less spending, they want more spending. However, the reality is that there is a possibility of having a conversation, but this relates back to the medium and longer term budgeting that we are advocating for, which is that if you have a coherent strategy, not everything that is in a budget has to be popular individually for it to be understood by the public. Having a coherent strategy and the direction of travel that can be explained and that can be put into plans that allow public services to deliver to plan ahead will go some way towards addressing the concerns that they might have about being able to have that conversation. The idea of longer-term and multi-year budgeting, do you think that that is possible under the present fiscal framework, where we do not know year by year what we are going to get? I think that it is necessary to have some sort of medium-term plan, even if that funding is not completely set in stone, because you have to have a baseline from which you then compare what you eventually want your policies to be. I think that it is really important to have some holding assumptions, even if they are not the final ones, because that gives you a direction of travel, which then allows you to make decisions as to whether you think things should go towards more spending, less spending, more tax, less tax, etc. Professor Heald, I do not know if you want to comment on that. Also, does the Scottish Government have too many priorities that has been suggested to us? Most Governments have got too many priorities, because nobody likes saying that something is not a priority. One of the fundamental problems is that the UK spending review, the basic way that the spending review developed after 1998, was that a Government would get elected and it would set a four or five-year spending review covering three or four or five years. Various events such as Brexit, Covid, the cost of living crisis, political instability at Westminster have destroyed that system, so that it has become a one-year budgeting system, even if we call it a spending review. We have a problem at the UK level, which then transmits down to the Scottish Government level, which then transmits down to local government, which then transmits down to voluntary organisations, some of which have given evidence to the committee, in terms of one-year funding. If you want to improve the efficiency of the way that public spending works, actually getting back to a multi-year system would actually make a vast improvement. The trouble is that it is quite difficult to see in the present climate because of political instability. It is very difficult to see how you will get that back at the UK level. Without some stability at the UK level, it is not going to be possible to have stability at the Scottish Government, local authorities or charities. You can very much improve the efficiency of revenue spending if you have medium-term planning. You also will not make such a mess of capital projects. One of the points that I made earlier is that it is not just the provision of services, but the fact that the public sector clients have to have project management capacity and the private firms have to know that there is a steady flow of work. If there isn't, that is one of the reasons why the UK is so bad at infrastructure spending. I am assuming that we are not getting 34 minutes each, so I shall finish there. I will list to be followed by Ross Ross. Can I ask about both UK tax and global tax debates? In the first instance with UK, there was a huge issue about the UK tax structure being far too complex, far too many loopholes, not delivering on the revenue that it should be. People are avoiding tax too much big debate about inheritance tax, and on the global scene there are a lot of debates about whether we should be moving more towards environmental taxation and to try to stop some of the big multinationals depositing their money in safe havens, etc. Those are all very academic debates, taking up lots of column space in the Economist's Financial Times, the Spectator and New States, and all those publications. To what extent does a Government in Scotland have to try to second-guess what is going to happen there? Technically, there could be quite important changes in the future. My advice to the committee and to the Government would be to manage what we have better. The other thing that the devolved administration can do is to represent such arguments to the UK Government. Clearly, the UK is a minor player. Scotland is not even a player in terms of the OECD type initiatives about corporate taxation. One has to be very careful. There has been a very serious loss of trust in politics and in democracy. It is very important that the tax system is seen to apply to everybody. It is not just the revenue losses that some taxis have been seen as essentially voluntary for people with certain income and wealth. It damages the tax compliance of other people in the economy. What the Scottish Parliament should concentrate on is managing the taxes that we have better. As I said at the very beginning of my evidence, I think that we haven't got a strategic approach to tax. The marginal rates matter for incentives, average rates matter for progressivity. You don't make the system more progressive if you just put up marginal rates at the high end if you don't think about what the longer-term consequences are. In fact, the Scottish Fiscal Commission thinks that these consequences will come very quickly. What do you think the strategic objective should be in relation to tax if we are going to create more economic growth? Getting away from the idea that there are easy places to get more tax revenue, I think that you could get a much more sensible structure of income tax. The income tax schedule, we should be thinking seriously about this problem. Some people might think that £44,000 makes people rich. I don't think that £44,000 makes people rich. For a country that is worried about its demographic profile, the child benefit withdrawal policy, which is a UK policy, seems totally counterproductive. In terms of economic growth, it is a question of public services working well and infrastructure working well. Having an economy, the people who we have expensively educated want to stay in Scotland. We want to be a high-wage economy because the high-wage economy has benefits in terms of private consumption for those individuals and the tax revenues that they pay into the Scottish budget. Do you have any thoughts about the global and UK tax structures that would have an impact on what we do in Scotland? I would echo what David has just said in terms of the long-term future of the Scottish economy. It is essential that we retain as many skilled and well-educated workers in Scotland as possible. People are most mobile in their early 20s. They make decisions that affect their lifetime at that point. Having opportunities for such young people seems to me to be an essential part of enhancing the growth of the economy. What that also means is probably making things like start-ups much easier, supporting start-ups. That is where the public sector can play a role in de-risking. To some extent, we are not going to become a Silicon Valley but there are areas where Scotland can help to develop. There is also a question about the relationship with the private sector and ensuring that there is confidence in the private sector to invest and to grow their own operations in Scotland. Political instability does not help if that is the case. Political instability manifested in the sense of not really being sure what is going to happen next year in terms of tax rates or whatever support people might get. On the global thing, I have already mentioned that there are arguments now that if you are taking a very strategic approach what you should be thinking about is taxing carbon rather than people's work. That is a really tough thing to do because it has big distributional consequences. It is much less progressive than income tax. If you start taxing road use, rural communities would be hit hard. I make the point in my paper that fuel duties are going to fall over the next few years and that is going to create a huge hole in the UK Government budget. How is that going to be filled? We need strategic thinking on that front. I am happy to discuss further on the carbon taxation, but one thing that I would add to what David has said and which further throws confusion into the taxation of individual work is the national insurance system, which further complicates the marginal rates that individuals face and of course of which there is no control in Scotland. I am just interested in that because I hear what you are saying about the fact that we should do a lot better with what we already have. I just feel that in the context of us being part of the United Kingdom and a global community we have to be careful that our strategic objectives are in line with what is coming down the line in UK taxation and in global taxation because if we go off at a different tangent and suddenly find something that conflicts with that, we have a problem. It is a very complex area, but it is just trying to get a grip on that. It is true that, where you have differential tax rates between jurisdictions, you are going to set up incentives that are going to cause some factor of one of the capital or labour to move. That might not be instantaneous, but over time, if you have two quite distinct tax systems sitting close by each other, you do create incentives. Mr Suza, do you have any particular views about how we have a strategic objective that will allow us to create more economic growth, not nicely related to tax, but what do we have to do to get more economic growth? I think that what both David and I have talked about in terms of infrastructure is really important. I think that I am talking in my response about the cumulative effect of infrastructure spending and investment in the capital stock. Every year that there is less investment and less capital stock built, that compounds over time. Scotland has lower overall investment than the UK and significantly lower than the OECD, so it is lower by about a quarter, which means that productivity, which is heavily linked to the level of capital per worker, is going to grow more slowly. That is really important. That is one of the places where the public sector can make a difference in terms of inducing gross growth. I think that I would echo the point about tax. It is important to think about how the tax system in Scotland compares with the UK system in terms of the tax rates on non-saving non-dividend income, but also on savings in dividend income. Trying to avoid kinks in the schedule is really important. That is something that has to be considered when deciding things like thresholds as well as rates. Obviously, small divergencies probably will not make a huge amount of difference, but the effects can really be non-linear. If you increase income tax on a particular band by 1 p fine, increase it by 2 p, you are changing the incentives a bit, increase it by 5 p, that is a big difference. That is something that needs to be considered. I would like to pick up a little bit on what Mr Tews said about public opinion and challenge that idea a little bit that there is wide-scale public opposition to increasing tax. I am looking at two polls from roughly this time last year. The Scottish poll was actually from last December. That showed a majority of people a margin of more than two to one supportive rather than opposed to the Scottish Government's increase in the high rate of income tax. There was a UK-wide poll just before the Lestrus mini-budget showing a majority of people in favour of increasing taxes to increase spending on, among other things, social security, which is interesting given the attempts at demonising that. Even if you look at the last British election study, the vast majority of the UK electorate has left of centre economic values, even if they would not use a label like that, including a majority of Conservative voters. I recognise the difference between public opinion and the actual effect of public policy changes. If every GP in the country was in the minority people opposed to tax rises and had to move to Australia as a result of tax rises, that would have an impact clearly. Is there an issue here when we are talking about particularly what John touched on there and public discussion of taxation, that public discourse, as defined by politicians and by experts, is in a space that is quite far removed from where the majority of public opinion actually is in terms of core economic values? I think that there are two things. Obviously, you are talking about that specific policy, and I am perfectly happy to conceive that I was not aware of those particular numbers. However, as with all policies and intentions of policies, support tends to be higher when they are less specific and to fall when specifics are introduced. That is something to take into account, especially if we are looking forward to future tax policies. I will not necessarily comment on whether the public are in a particular part of the political spectrum, but I think that it is important to try to engage those views more systematically and try to have that conversation about tax. It is also important—and I will come back to what I was talking about—to have a long-term view of where we want to end up, because we have had multiple groups about tax. In the medium-term financial strategy, there was mention of a national conversation about tax, which is one of a number of conversations that have been put forward on this over time. It is important to think about the levers, and it is also important to think about just having a plan that gets discussed rather than just saying generally what to do more or less, having a plan and how that plan fits in with the overall aims of what it can spend on. Especially in a system like the one that the Scottish Government operates under, which requires a roughly balanced budget, there is a direct link between tax and expenditure that is less true at a UK level, where there is an overall change in fiscal stance that you could take that is not available to the Scottish Government. Professor Bell, do you have any thoughts on that? If I am remembering correctly, the citizens assembly that you mentioned came up with a pretty long list of potential new tax and revenue-raising powers, so that there was certainly within that assembly supposed to be broadly representative. There was a pretty broad consensus around not just the need to raise additional revenue but to broaden the sources of revenues. Have you been interested in your thoughts on where public opinion actually sits on those kind of questions? I suspect that public opinion is probably broadly in favour of increasing taxation. As we have heard in general terms, that is not a difficult proposition to agree with. What is more difficult is when you are actually confronted by the effects on you of the changes that might occur. Ultimately, I am not an expert on public opinion at all, but we do know that economic realities sometimes bite and nothing more so than with Brexit. Public opinion was obviously in favour of Brexit, and I am afraid that the chickens are coming home to roost now. The numbers that Ross referred to tend to have changed through time. If you go back to 1979, there have been shifts between when people wanted less tax and less spend or more tax and more spend. I would make the point that people tend to have a view that the best taxes are taxes that other people are thought to pay. That is the problem. I have already made the point that 5 per cent of Scottish taxpayers pay roughly 40 per cent of total Scottish revenues in Scotland from income tax. It is the behavioural response of a relatively small group of high-earning taxpayers that is relevant to the Scottish Fiscal Commission's numbers. Whether the Scottish Fiscal Commission is right to be so pessimistic about the effects of, for example, the drop in the top rate threshold and putting up the top rate, I do not know, and we will find out in due course. It only requires the movement of a relatively small number of taxpayers to have a significant effect on Scottish tax revenues, because at the top end, people might be paying very large amounts of tax, and if they relocate themselves to England or Switzerland or wherever you like, that could have a significant effect. I think that one should be cautious about assuming. You have to think about the tax package that people face. Paul Johnston, the Institute for Fiscal Studies, regularly denounces stamp-duty land tax in England by implication, because it actually impedes mobility. It impedes labour market mobility. It impedes people downsizing. One has also got to think about when one is trying to get more money out of high-income groups, you have got to think about the various ways in which they are taxed. As David Bell has already said, one has got to be very careful about the overall picture where people make migration decisions and labour supply decisions. I think that it is quite easy for us to get stuck in a bit of a chorus of despair about this, because we all acknowledge that we are facing the greatest financial challenge in devolution short history so far. At the same time, as you have all mentioned, particularly Professor Bell, you are mentioning, we have really ambitious targets in terms of hitting net zero, lifting children at poverty, etc. Inevitably, whether it is the net zero targets or child poverty targets, substantial increases in spending are going to be required if we are to stand any chance of hitting those targets. Even if you were very committed to a lazy fare, free market and economic model on net zero in particular that we do not have enough time left to find out whether that would work or not, we have such a limited period of time, you have all identified some serious challenges in us raising additional revenue through taxation. The opportunities for us to cut spending elsewhere are extremely limited within the context of the Scottish budget, so it is hard not to feel as if you are trying to edge us towards acknowledging that realistically, the targets that the Government has set, the objectives are not realistic with the financial resources that are available to us. Is that fair? We are obviously depends on what the UK Government does because the Scottish system functions relative to the UK Government. I go back to the point that it is the marginal rate of tax that matters for incentives and the average rate that matters for progressivity. I would actually be in favour of a more progressive tax system if you get the tax system right. 1991 values for council tax just bring it into total disrepute. The peaks that we are talking about in the marginal rate of threshold are ridiculous, but they potentially in the longer term have serious consequences. I think that we need a debate. As the chair has implied, nothing will ever happen without a degree of cross-party consensus on what to do. Given the proportional representation, this Parliament is always going to be very tight in terms of parliamentary majorities. Nobody is going to have a massive, blade-type majority here. The consequence is that you need a consensus of the parties to try and settle the problem. We have had 25 years and that has not happened. Do you think that that is possible? The aligned and progressive tax model that you are talking about is that possible purely with currently devolved levers if the UK Government was not to work in lockstep, for example, on the child benefit policy that you have identified? Is it actually possible for us to do that just with what is currently available under the devotion settlement? I think that if we managed our own local government taxation properly, we managed our income tax properly, I think that we would have more standing in conjunction with the Welsh Government and the Northern Ireland executive when it exists. The devolved administration, the UK is essentially paralysed. We have had five chancellers in about as many years. The UK has got its own problems. What the devolved administrations can do is give some leadership. The UK is just a very strange animal because most federations have at least a reasonable number of jurisdictions within that federation and no one jurisdiction dominates. I think that Ontario is the biggest at about 35 per cent of Canada. England is 84 or 85 per cent of the UK. That totally imbalances the system, but I do think that the devolved administrations—I commend the work that the Northern Ireland fiscal council has done—is produced a very good guide to Northern Ireland's public finances. To some extent, it did that, because the collapse of Stormont meant that there wasn't an executive in place to do it. However, one of the things that the committee could press for is for the Scottish Government or somebody to produce an authoritative guide to the way that this very complex system works. If I could go back to the net zero strategic objective, as I've said, the most obvious way to do that in two ways. One is to tax carbon and the other is to provide incentives for reducing carbon usage. Essentially, that won't happen without a huge amount of investment, and that requires Government spending to de-risk investment by the private sector in areas that will reduce our carbon usage. That in itself, firstly, taxing carbon is distributionally problematic, as I've already said. Secondly, providing incentives for the private sector, which is the only sector with a significant amount of money to invest at the moment, is problematic because the public sector needs to put in some money to take a bit of the risk out of investment in that area. I guess what I would say is that you've got to be up front about the challenges that are being faced. I'm not saying that it's impossible, but it seems to me that all of the discussion has suggested that there are too many demands on the public purse at the moment for them all to be simultaneously satisfied and, in a sense, there's got to be a prioritisation. Some carbon taxation is going to be regressive. Alcohol taxation is regressive. Tobacco taxation is regressive, but I support those taxation, but it matters what the system as a whole is like. That's it. We're going to look at the whole system. There may be very good public policy reasons for tobacco taxation and alcohol taxation, but we know that they are distributionally aggressive, but you've got to think about how the system as a whole works. It's obviously partly a problem of having the UK Government taxing, the Scottish Government taxing and local authorities taxing, so it makes a degree of fiscal co-ordination much more important. We haven't had fiscal co-ordination, even within Scotland. One of the reasons why local authorities are short of money is that we had a nine-year council tax freeze. The tax working group that the Government is putting in place is looking at the increase to the higher rate, and it's been discussed already. I think that the SFC is modelling that at £128 million on the static costings with behaviour effects down at £92 million. You mentioned, Professor Heald, that around the change from 46 to 47 pence rate the static costing was £32 million and post-behaviour was £3 million. Could you say a little bit about what you think is the reason for one of those losses, 90 per cent of its value and the other one, a smaller percentage? I'm not a fiscal modeler. That's a question that you'll have to put to the Scottish Fiscal Commission. Anybody else? I'm happy to talk about that. The way that the Scottish Fiscal Commission models that is that there's different what's called taxable income elasticity. The level of response by reducing either work hours or changing patterns of payments that people use to get income changes much more the higher your income is. The Scottish Fiscal Commission assumes that that is quite low up until £150,000, and then higher from there to 300,000, and then above half a million is much higher. That's why you get such a loss in the static costing from that. Do you have confidence in those numbers? All those costings are very uncertain just by the nature of it because they usually apply to relatively low numbers of taxpayers. It's very hard to do good studies on it. HMRC is currently doing an assessment of what the effect of changing rates in Scotland has been in terms of movement within the UK, but it's also in terms of changes in taxable income. We will get some more evidence in due course. It's very hard to be extremely precise. If, say, the OBR were to do this kind of assessment, they would probably rank it as a very high in certain costings. However, I think that it's pretty well established that the higher your income is, the more likely you are to respond to tax changes. As a panel, you've given us illustrated some risks that you think are coming. So, Prysa, you mentioned about if we teach higher-earning public sector workers to avoid tax, in essence, the more people that are going to be involved and where our income might come from and that there are real risks in terms of the longer term. Overall, that £92 million is into a black hole of nearly £2 billion that we're looking at by 2728. Given the risks that you've illustrated, do you think that it's worth it? I mean, if I'd been advising the finance minister, I would not have regarded putting up the high rate and the additional rate as something to do. I would have tried to redo the rate structure to try and get rid of these sudden peaks. The real problem, of course, is the question of the alignment of the national insurance threshold with the rest of the UK tax system. I think that teaching people who would not normally go in for tax avoidance, how to do tax avoidance, is not a very sensible policy. I would try and clean up the schedule. It goes back to what Grasgreer was saying. If there is a change of a public mind, one's got to make an argument for people that the system should become more progressive. It may have to become more progressive if things like carbon taxes are regressive to offset that effect. David Bell? I agree that measuring income tax elasticity is—the different bodies are doing it to the best of their ability, but there is still quite a large margin for error. I agree with David Heald that the rather strange structure that is illustrated in the diagram for our marginal rates makes no sense at all. I am not convinced that even getting all of that right will change the revenues in such a way that you are making a significant impact on what the forthcoming deficit looks like and economic growth. However, you want to define its sustainable associated with wellbeing or whatever, nevertheless, it is something that will drive revenue, the income side of Scotland's balance sheet, more positively. We are still suffering from the global financial crisis. It goes back. Until 2008, the economy was doing reasonably well. Since then, the UK economy and the Scottish economy have performed badly. It is a question of getting over that shock and, of course, we have then got the Covid shock and the customers in crisis. None of this accounts for behavioural effects that are external. If I am looking for a breast cancer oncologist at NHS T site, it is a very competitive international situation where that person could have multiple job offers. That is the kind of messaging that you are concerned about. You get stuff in the sports pages about footballers and managers who come to the UK from abroad wanting to bargain for their net pay, not for their gross pay. I can imagine that if you try to hire consultants or top scientists, that is going to be the kind of argument that public sector bodies in Scotland are going to have. No, I was agreeing with David on that front. It is also important to ensure that in the tax system everyone feels that they are making contribution. The fact that we have only got that 40 per cent of the income tax revenue is being generated by a relatively small number of people is in itself a big risk. Therefore, if we can, there is a case to increase the number of people with jobs that are paying less well than that, that may be how you define sustainable growth, is to try to switch that balance by giving a larger—it would have to be quite a large number of people—jobs that are below top rates. We have struggled to do that since the financial crisis. Can you ask about the gearing in the relationship between the UK and Scotland? You said that the Scottish system performs relative to the UK. That always will, whatever the constitutional settlement is in regards. How exposed are we? We have talked about that in the SFC projections that there are different measures of what our demographic trends are, and that is a key factor within that. In those assumptions, are we more exposed, do you believe, than in other parts of the UK? I would not say that we are necessarily more exposed than all other parts of the UK. We are probably more exposed than the South East is. Even the demographics are quite difficult to interpret. First, we have just had a census, so we will get in due course another set of population projections, which will replace the ones that the SFC has been using. As I show, population projections tend to vary quite a bit. That will have an influence. Then, there is the effect of changing demographic structure and how that affects spending. That in itself is also a contested area, as I kind of alluded to in my paper. The assumption that necessarily health spending increases with age is a theory that is not fully accepted across the board. How spending on health is growing is something that seems to me that the Health and Sport Committee and the Finance Committee have to keep a very close watch on. You said, in your submission, that if one assumes that the UK Government will take action to avoid the public finances continuing an unsustainable path, the Scottish Government's funding gap looks very different. There is a gearing issue here, isn't there? There is a real issue that the projections that the SFC has made are on the basis of, as I mentioned in my response, what is essentially an unsustainable path for the UK Government. That is why the gap looks like it is under 2 per cent, because the block grant just grows a lot because UK spending grows by a lot. The relationship between the two is intrinsically… If the UK Government, under the constitutional and fiscal framework, if the UK Government cuts back on that budget spending or does not increase it quite as fast, then all else equal, the funding position for the Scottish Government looks worse. That is something that has to be managed in that context. My last question, I suppose, is more of an observation, but on the multiple multi-year budgets, you mentioned political instability, David Hale in terms of 2016. I recall calls for multi-year budgets going back as early as 2010 when we had political stability because the Scottish Government was not delivering it at that point. Is there something that is a bit more intrinsic in the political performance of this place in our institutions, the relationship with local government, that means that it is not recognised that instability is now the key driving factor within that, but it is a longer-term problem? There were reasonable length spending reviews until 2015. That period since 2015 has had a whole series of very short-term reviews, whatever they were called. We need more stability at the UK level so that that stability gets transferred back down to the Scottish Government, which it can now transfer down to local authorities. There is pressure from other people who have given evidence to the committee for multi-year budgeting. I totally understand that, but if the Scottish Government has not got the degree of stability, it is very difficult to give genuine stability promises down the system. Even under those relatively stable longer-term budgets, the Scottish Government still does not deliver multi-year funding settlements to Scottish Public Services prior to 2015. It did not do it. Since here, people call for it in 2013. I am challenging this because I worry that the political instability in the UK is the key issue right now. If we cannot deliver against that, that is a big problem and let us hope that we can. Is there something about the way that this place is performing that means that people are more reactive in second one-year budgets? We will not find that as the solution. I think so. My view and the view of the Fraser of Ireland issue would be that there is a possibility to do, even under the current arrangement and the instability that there has been in the last few years, there is a possibility to take a multi-year approach this more risk management. You look at things like what is the baseline level that we can expect if nothing changes and then as you get more defined funding, you get closer to that time, then you revise that. I think that would be informative for the public debate because people can see where things are going over time. I also think that it is natural that, as parliaments build in their processes, everything starts with the immediate pressures. I think that it is within the Scottish Parliament's gift to try and impose that structure and that something that could be looked at by MSPs as a whole. I come back to your earlier point about demography. It is important not just to look at demography at the Scottish level. A smaller population makes you think that you will be able to save money because of less people to provide services for, but what you might need to find is that you have redundant facilities in the parts of Scotland where people are moving from and you need new facilities in the parts of Scotland that they are going to. There is a spatial dimension to the demographic problem. It is not just the total Scottish population, it is where people live and work. I have made the point earlier about the fact that there has been a long-term decline in the prosperity of the west of Scotland and increasing prosperity in the east of Scotland so that Aberdeensia, for example, has required a lot more schools, whereas you might have spare capacity in places in the west. A more dispersed population is one of the founding principles of the Barnett formula, which we benefit from. Good morning. I would love to be able to lead us on to a topic that cheers us all up a bit, but I am not convinced that I will be able to manage that. I suppose that my first question is that you have given all of you such a compelling sense of the macroenvironment of the UK chronic under investment cap X, high debt relative to GP, demographic challenges, Brexit, short termism, the list goes on. Of course, it is the slowest recovery of all large advanced economies after the crash of 2008. You have also given us a very compelling insight into the limitations of Scotland being part of that wider economy. My first question is, do you think that the challenges are really understood? I think that they are understood by economists, I think that they are understood mostly by Government, but I am quite aware that following this session, we have another session coming up which invariably we hear a number of bodies looking for more money and with very good reason, because people are really struggling. To what extent is that realistic and to what extent is the real knob of the issue short-term political expediency against long-term structural and strategic planning? That being an issue in the UK over a long period of time and in Scotland. David Bell, do you want to go first? Thank you. So certainly we are coming up to a period where the challenges are such that starting new initiatives will have to be examined with a much finer lens than has been the case in the past. Possibly you should be thinking about what policy you are going to cut in order for this new policy to come in. As you alluded to, we are in a period of huge political instability, and that has not helped through the longer term. One little bit of stability that we had were the structural funds that were running over a seven-year period and have now pretty much disappeared to be replaced by annual budgets on everything. We can certainly improve the way that the tax system works, but I think that productivity is a greater problem, is a more important problem and trying to increase the productivity of workers in Scotland, and that interacts with all the other things that we have been talking about, demography and so on. It is very difficult to say no, but there are very serious trade-offs that are going to come about unless the revenues improve and the tax system generates at least as much as we are currently getting. The key issue that the Parliament can help with is making sure that there is transparency around that and not letting things drift into a very difficult situation. If I were to pick out two examples, it would be capital spend and local government. Just before I bring in Professor Heald, your comment about productivity. Surely there is a link with the limitations in capital borrowing powers as a critical way for the Scottish Government to improve productivity. Is there not a direct link because of that still pretty significant limitation? It seems to me that public sector capital spend can improve infrastructure, which can have a beneficial effect on productivity. It can also, if used wisely, de-risk private sector investments. It can be a catalyst for the private sector to invest, but we have to be able to do that in a way that generates the productivity enhancements that we are talking about. We want to avoid at all costs the infrastructure investment that is not leading to improved economic performance in one way or another. Professor Heald? I concur with most of that. Very clearly, given the fact that we have not recovered from the 2008 hit, we are dependent on the economy doing better. Whether we talk in terms of improved productivity or just economic growth, what actually happens on that front is crucial to the fiscal prospects of the Scottish Government. Some of the issues that you referred to stem from the present constitutional arrangement, but an independent Scotland would be very, very much affected by what was happening in its much bigger neighbour. The tax-type questions that we have been talking about would apply. If Scotland was in independent country, it would still have the question of the relationship of its tax system relative to the tax system in the UK. That is very true of Ireland. At the moment, Ireland managed to get in very low corporation tax rates, but its income tax structure is not that much different. Professor Heald used the term coherent strategy. I am long enough in the tooth in this committee not to say what would you do if you were the Scottish Government, but perhaps we could phrase it as what would you do if you were in charge of an economy of people's size roughly 5.4 million located to a large neighbour? What would be the key elements of that coherent strategy that you outlined? In the present constitutional context, I have already answered it in the independence context to which you are leading me. One of the temptations would be for a small country to have lower taxes than its big neighbour. When some people on the political left think that independence is going to be a socialist paradise, one of the points that I would always make to them is that the actual temptations will be for Scotland to try to have lower taxes than England. Whereas what we are in a position now is that Scotland has marginally higher taxes than the rest of the UK, but I think that in an independent situation, one would probably find a small country next to a very big neighbour tempted to have a lower taxes. Canada is obviously an exception to that, because in relative terms Canada is very small relative to the US and actually has higher taxes, but you can already do that if you have a political consensus for higher taxes. People keep talking about Scandinavia, but the point is that a political consensus has built up in most of the Scandinavian countries that it is actually different to either when the UK did have a political consensus and to the present moment when it does not have one. Mr Sue is a final comment to you about Brian's original question about the issue around short-term political experience versus long-term strategy. What I would say is that thinking about the limitations in terms of the budget that the Scottish Government faces comes back to the point about not thinking that resource is the main. I know that there are different management systems for resource and capital spending, but there is always a temptation to try and exchange some capital to pay for reserve pressures today. However, as I outlined before, Scotland already has a relatively low capital spending and that accumulates over time, so it is really important to keep in mind that cuts to capital today can have a significant impact on growth and productivity in the long term. That has concluded questions from the committee. I will ask one further question. Given all the talk about increasing taxes, I think that the Government is probably going to play it safe and impose fiscal drag on us all as both the Scottish and UK Governments did last year. I would say, of course, to stay a co-op, Professor Heald has said that income tax rises are always popular among those who are not going to have to pay them. When the SNP brought in the penny for Scotland campaign, which should be 1 per cent on a basic rate, I believe that our opinion poll rating went down from 48 per cent to an eventual 27 per cent, I was standing in the constituency of the lowest-highest unemployment in Scotland and people who had not had a job were denouncing is on that, believe it or not, even though one would have thought they had benefited. The question that I was going to ask was one that was not really touched on, yesterday it was announced that some of the pension funds that are stuck later are so awash with money now that they are going to reduce the local government contributions by about two thirds over the next couple of years, which will be a wee boon to local authorities. Is there a possibility for the Scottish Government to tap in perhaps to pension funds in terms of being able to fund some of its capital projects? I think that bringing in that kind of thing through the right action can have some risks, and the main duty of the people looking after those funds is to ensure their solvency. It is important not to interfere too directly in a way that makes that viability problematic. I would caution against looking at something immediately as a part of money and going after it directly. I remember in my experience, in Portugal, pension funds being directed to buy government bonds when rates were high because it would help to bring them down, and that turned out to be a disaster. In general, those are quite separate things, and one should not necessarily go after it immediately. I was thinking more about housing, for example, where there would be a return to the pension fund long-term. I appreciate that funds are there specifically to try to maximise income for their members, although some pension funds have looked over the past years about ethical investments to back or carbon-intensive industries. I think that the way that that could be done is to make that investment more attractive, per se, rather than directing them to do that. That would be my view. Instinctively nervous about directed pension fund investment, what I would say is that the Scottish Government and the devolved administrations generally ought to be arguing with the UK Government about not cutting capital down. If I was running the system, the UK would not cut back capital in response to the present fiscal problem. It would probably expand capital for the growth reasons that we have been talking to. The mechanics of the Scottish Parliament could either be enhanced capital borrowing powers, which is possibly unlikely given the fact that it is not significantly in the new fiscal framework, or just capital delts. You can either have more capital borrowing on yourself or higher capital delts coming through Barnett. There is about 10 per cent of financial year. Professor Bell. I find this an interesting idea. I would be wary of taking it too far, because pension fund responsibilities have to be seen to be the contributors to their pensions. We know that there are quite a few overseas pension funds that invest in aspects of the Scottish economy and the UK economy more generally. It would be good to understand what motivated their investment in bits of infrastructure in the UK and try to understand what kind of incentive could be put in place to leverage out some of that money to effectively replace at least some of the capital delts being lost. I do not know the mechanics, but as part of the private finance 2, which the Treasury announced in 1998, there was going to be more pension fund investment in public sector capital projects, but that quietly died. I will conclude by allowing witnesses to make one final comment on any issue that they feel that we have not touched on, that they think that we should have done, or that there is something else that they want to reinforce with regard to what they have said. Eilir, who would like to go first? One point that I have made and I have sort of alluded to is understanding the causes of why health spending increases. It is important to get a handle on that, given that the projections suggest that more than 50 per cent of the budget is going that way in about five years' time. That is a very contested area, and it is about the question of whether health spending increases as you get older, or whether health spending increases with proximity to death. That is a nice cheery comment there. It is very important. If you get something like 50 per cent of the Scottish budget going on health, there is going to be devastating consequences for the rest of the budget, given the likely total spend. It is also very important that we recognise that health is not just affected by health spending. The environment that people live in, the quality of housing that they live in and the fact that they have rewarding jobs, both financially and in terms of satisfaction, are very important. One of the worries about the decline of local government spending, the problems on the local government side, is that I am sure that some of the backlash from the cuts in local government spending are actually reverberating on the health service. It is very important to see the connections between the different kinds of spending. Some of our witnesses in the next panel will be touching on that. Gial, we started and we will finish. I am going to bring it to something a little different that we have not talked about, but I put it in my submission. It would be important, as part of the process of multi-year budgeting, to look at what the Government compares its spending plans with. We have reinforced a bit the fact that we think that it would be important to have more information about in-year execution and comparing plans with actual outturns of what has happened. We may be missing some important information about how much of the allocation of capital is actually being spent in the year. The 10 per cent cut in the allocation may be a different percentage than on the actual execution. It might also mean that the Scottish Government could prioritise different capital projects to ensure maximum utilisation of allocations, rather than just focusing on the overall plans. It is important that we do not compare apples with oranges. Thank you very much to our witnesses. You have given us lots of food for thought for the second panel, and indeed beyond. We will now call a break until 11.23. Folks, we continue our evidence-taking on the sustainability of Scotland's finances with our round-table discussion. I therefore like to welcome to the meeting Adam Stacour, a head of policy and communications at Age Scotland. Dr Judith Turbine, chief executive of Children in Scotland. Philip White, director of public policy research Scotland. Stuart Hay, director of living streets Scotland. Ruth Boyle, policy and campaigns manager. The Poverty Alliance. Michael Kelly, director of strategy governance and performance. Public Health Scotland. Alasr Sim, director of University Scotland. I want to thank everyone for their written submissions. Rather than me asking a whole load of different questions, I am only going to ask one question, which will be to you, Ruth, to kick us off. Anyone who wants to comment on what Ruth has said, if they just let me know, and we will just buzz around the table so that everyone gets the maximum opportunity to speak, and I will only come in as and when, i.e. not very often, which will satisfy John, because he is always moaning about how much I speak at these events. So, Ruth, your submission, which is very detailed and excellent submission, is called The Case for Fair Attacks Reform in Scotland. You will have heard some of what the economists before you have said, and what they have basically talked about is, let's see what you have said first of all. You have talked about it is important that critical national priorities cannot be sacrificed due to a lack of funds. You have talked about new and improved forms of local taxation that target under tax wealth, as well as business and polluters. You have called for a fundamental rethink from scratch about how income tax can best be designed. You have called for cross-party process to replace the council tax, and you have called for a local inheritance and local payroll tax. One of the things that the economists said was that we have a small finite group of people who pay a very high proportion of tax in Scotland, and they have real concerns about behavioural impact. For example, if we decide to go down the road of increasing taxes significantly, I am wondering how we can deliver what the poverty alliance wants to deliver in terms of its social policy and how we can fund those, given the constraints that the economists presented to us in terms of not only the fiscal gap that the Scottish Government has just now, but the impact on higher tax payers should some of those policies be implemented, i.e., they might leave Scotland or they might decide to work less, or they might have more avoidance. Ruth, the floor is yours. Thank you very much for inviting the poverty alliance to give evidence today. I am really pleased to be here. The reason that we are here is because we think that it is totally unjust that people would be experiencing poverty in a wealthy country like Scotland, yet right now we see that a quarter of a million of our children are currently living and having their life chances restricted by the injustice of preventable poverty. You are right that we think that key national priorities cannot be sacrificed due to a lack of resources. We see in the latest scrutiny report from the Poverty and Inequality Commission that the investment in the actions in the best start bright future has not matched the ambition of those policies. Philip and I are here today to represent more than 50 organisations who endorsed a briefing on using our tax powers progressively, and those 50 organisations have come together with a very simple message, and it is that to see the transformational change that we know is needed to meet our national priorities on poverty and the climate, we need to see transformational investment. In the current economic and fiscal environment, we think that that necessitates a progressive use of Scotland's taxation powers. We know that Scotland has taken a more progressive approach to tax than the rest of the UK so far, but what we are calling for in our briefing is for the Scottish Government to go further and faster. We heard very stark in modelling earlier today in terms of that £1.9 billion shortfall by 2728, and that is going to put pressure on existing spending. Never mind the additional resource that we know is necessary to meet those national priorities. What that would mean if we do not take progressive action on tax will be further cuts. In the papers for the committee today, we see that local authorities are saying that all of the easy cuts have been made, and we see from the people and the community organisations that we work with day to day that that is absolutely the case. People are still dealing with the impact of over a decade of austerity, and we know that any further cuts are going to have a really tangible impact on their lives, particularly because in some cases that will mean cuts to statutory services. We have outlined a range of options in the paper today, which I am sure that Philip Penaibol will be able to talk through over the course of the session. In the short term, we are outlining options to use our income tax powers more progressively. What the economists have said is that, if you implement some of those policies, you will not actually get any more money, because the people will simply A, avoid it, B, work less hard, or C, will leave Scotland. For example, what they said was that when the top rate went up by £1 in the pound last year, 90 per cent of that revenue was lost to behavioural change, so someone who might work five days a week will just say, I am just going to work four days a week because I am not going to lose all this money to tax, so why should I work for that? It is one thing to say, if we do X, we will raise £500 million extra in tax, or whatever the figure would be, but if you are going to lose 90 per cent of that, possibly the opposite, you end up losing, you know, you implement £500 million of tax, but because of those changes, you lose £600 million of tax. It does not deliver the changes that you and I am sure everybody really wants to deliver. Everybody wants to tackle poverty and we want to have better paid jobs, etc., etc., and more money for the health service, but how do we realistically fund that when the impact of behavioural change is so fundamental to doing that? You can raise tax as much as you like, but if the money goes elsewhere, how do you do that? In the papers for today's committee, the Scottish Fiscal Commission has said that that behavioural change is challenging to quantify. When we are putting forward progressive policy change, we do often see a slight backlash in terms of what might be the unintended consequences of it. We have seen that from policy changes from the national minimum wage, for example. I think that when there were changes to non-dom status in 2017, there was a lot of concern that that would lead to a mass exodus. When you look at analysis from the University of Warwick, that does not play out in terms of what happened. We need to be clear that there is a range of reasons why people choose to build their lives in Scotland, and that would move beyond simple tax powers. We also need to make sure that, if we are going to increase tax, people feel the benefit of that taxation in terms of the local public services and the opportunities that they have. When you look at polling, we would absolutely disagree that tax is not popular. We see polling from IPPR Scotland that shows that 60 per cent of people support tax increases, even if it means that their tax would go up if that was invested in our social safety net. Similarly, in the Scottish social attitude survey, we see an increasing majority supporting the redistribution of wealth from those who are better off to those who are least well off. When we are talking about people working less, that is one of the fundamental issues with our tax system, which is that it is overly reliant on income tax, so we rely on income tax to do much of the heavy lifting. One of the key points that we put forward in our briefing is that we need to shift the dial towards taxing wealth. That is a really untapped potential in terms of how we could raise the revenue, and that is why we have put forward other proposals around replacing the council tax with the property value tax or that local inheritance tax as well. We should not get solely focused on income tax but instead be looking at this package of reform.  Philip, you are nodding a lot up to what Ruth was saying, but one of the things that economists said was that wealth tax is complex to implement and can take several years. We are obviously looking at the budget for £24.25, so even assuming that we thought that the wealth taxes were appropriate and could be implemented, what kind of time period are we talking about and what can be done for this forthcoming tax year, which is the one that is obviously staring us in the face now? I think that we acknowledge the pressures on income tax and the figures that are in there. You have got 1 per cent of taxpayers in the top rate and only 5 per cent in the higher rate, so we know that it is quite a small group and that has been well recognised. There is an argument here about we need to grow the economy as much as we can. We need to grow the tax base as much as anything. I think that that is well recognised. On behavioural effects, I think that I was not here. The joys of being in the health committee, which I am sure I can repeat a lot of what I said this morning and there are people that are scrutinying here. As Ruth has alluded to, the evidence for on behavioural impact right now with the devolution of SRIT is incredibly limited, so we still do not quite know what is going on. There are two factors that are particularly pertinent. One is that there is a very high proportion of public sector workers sitting in the higher and top rates because of the high proportion of public sector workforce in general in Scotland. The other is that, right since the devolution of income tax to Scotland, the simplest way to avoid it would be to shift your income into dividends, given the fact that it was simply non-saving, non-dividends income that was devolved. There is also a question of the devolution settlement and how it can be addressed through that. Overall, the questions about behavioural changes still are not quite known yet, but I think that you go on to your more substantive point. You look just at this year, there is obviously a question about sustainability of public finances, so we absolutely have to look long term. In terms of the short term, obviously, this First Minister has spoken previously about their attraction to introducing a new rate in band between the current higher and top rate. We have set out some options for what you could do there. The other thing is that, in risk alluded to it, and again, timescales probably do not allow you potentially to do it for April, but I think that you need to go as far as you possibly can. We recognise that income is potentially limited given the size of the taxpayer base in Scotland. We also know that wealth is a hugely untapped resource in Scotland, so right now, the richest households have 217 times the wealth of the least wealthy households. That is a huge disparity. You start to look at where that wealth is held. It is held on property. It is, again, the single largest asset that people have wealth in. That is why we have kicked it into the long grass for years. I have lost count of the number of commissions and manifesto commitments and reviews and everything else that we have undertaken into council tax. We know that it is outdated. We know that it is regressive. We know that it is not playing its full role in revenue raising in Scotland. We absolutely need to replace council tax. Again, there is a question about how revaluation will take a long time. Could you do that by April? Potentially not, but at the very least, we are starting to go further. Obviously, the Scottish Government has set out its options to return to player 1 with the multipliers and increase them for the higher bands. We have approached that as a necessary evil and cautiously welcome, in that we know that it still has some regressive elements, albeit council tax reduction smooths that out to a significant chunk. Again, it is in the paper in more detail in there. However, that is the most immediate option. We cannot go further on income tax right now. We can do more with council tax, but to just keep tinkering around the edges of both of those things is going to leave a lot of revenue untapped and ensuring that we continue to have that relatively small base of taxpayers. Time to come back in, but John, to be followed by Michael. Okay, thanks very much. We have concentrated so far on how we can raise more tax for the existing expenditure. I am sympathetic to that, but to be a little bit devil's advocate, are there areas of expenditure that we could cut back on? For example, is the Scottish social security system too generous compared to the UK? The previous panel told us that making up that difference is having an effect on other services. Link to that is that the Scottish Government has too many priorities, so we are trying to simplify things, just a few of them. What about the idea of, are we being too generous with giving the bus pass to everybody? Should we be more means testing, targeting some of that expenditure? John is not asking a specific question. Is that right?  Yes. Okay, so does anyone want to respond to that? I will let yourself in and then Ruth, before I let Michael in. Okay, I will start off with a general comment and Ruth, I dare say anything. I do think, there are a couple of things I would want to say. First of all, this is a chance for us to look at the long term. I know that we have to look at next year, but actually when you are in a crisis like this, we do need to think about what we are doing in the long term and getting a political consensus around using taxes differently on that. That is the work that we should be doing now. On priorities, I absolutely agree. I think that there is a lot of work on at the moment, some really hefty projects. It is difficult that prioritisation exercise is very difficult, but I do not think that we should be having that conversation about what is it that is going to really help us to fulfil? How are we going to really work on child poverty? How are we going to not let that slip any further? I would say child poverty overall. How are we going to do that? What could we not do at the moment without? There are a lot of really good policies. The national care service is a good policy, but do we have the capacity to implement it in the way that we are implementing at the moment? I think that there is a discussion to be had there in terms of expanding it out. Are there other things that we should be concentrating on to make sure that what we are investing in is the preventative, the stuff that in the long term saves you from having to invest more money? That is where the prioritisation exercise is to sit. I think that we have to be brave about that, but I do think that the discussion had to be had. John Saynes said that we should cut back on some areas of expenditure. What areas would you suggest? The first point that I wanted to come back on was the idea of the social security system being too generous. We would push back on that in the approach that the Scottish Government has taken to social security has been extremely welcome. We all rely on the social security safety net, but we know that it is a vital lifeline for people who live on low incomes. When we look at the child poverty targets right now, as I said, we are not on track to meet those, but we know that the action that has been taken through the social security system in particular the Scottish child payment has done basically all of the heavy lifting in terms of helping us to get closer to those targets. The Scottish child payment is expected to lift 90,000 children out of poverty. We know that our members do not think that we have reached the end point of what we can do through the social security system in order to address poverty. On your point about universalism versus targeting, I am not going to sit there today and say that that is a simple debate, because it is absolutely not. However, when we look at the pros and cons of universalism versus targeted, we know that universal services are really important in terms of overcoming the impact of poverty-related stigma. We know that that function is a barrier to uptake. I am sure that Adam will be able to talk about that in the context of pension credit. We also see that functioning as a barrier in the context of free school meals. Targeting was a theme that emerged from the First Minister's anti-poverty summit, but something that we would be concerned about is whether we have sufficient data, sufficient intersectional data in particular, to actually target resources and policies effectively. We know that there are tools within the budgetary process, so human rights budgeting and gender budget analysis, that help us to make sure that the budget is meeting the needs of those who need it most, but we are not routinely using those tools. The priority family approach is really important in the context of child poverty. 90 per cent of children who experience poverty fall into at least one of those groups, but we do not have sufficient data about the experiences of poverty for those family groups and we do not have sufficient data about how policies are meeting their needs. If we are to go down a targeting approach, we need to make sure that that is being accompanied by the gathering and usage of robust equalities data to make sure that we are meeting the people that we say that we are intending to. I think that there will be a theme that everyone will talk about areas where we would spend more money in, but no one is going to actually say that we should spend less in. Michael Trifor by Stuart. Can I take one step back into some of the question that the convener was pushing on regarding your response around the tax rates, which is essentially that those jobs are sticky, and you believe that they are. There are two other issues in that. I was speaking to doctors yesterday at GP surgeries in Dundee yesterday, who told me that they in particular do not have a headcount problem, but nobody works five days, so they have a massive capacity problem, so they cannot deliver. That is a trend within the workforce anyway, and will changes in the differential tax rate on your work that you have done not impact on that? The other thing that I have problems with in Dundee is attracting breast cancer oncologists, and you will know that cancer rates for the poorest of women are much, much worse than richer women, so that is actually about poor people. That is an internationally competitive sector, and we find it really difficult to bring people to Scotland to do it. What modelling or consideration have you given to whether it is more likely that I get breast cancer oncologists in Dundee to help those women if we increase those tax rates? I think that you want to answer that. Any colleagues, but I think that I can take this. I have actually made something on John's question as well, so I will try to take each of those in town. I am not going to sit here today, albeit probably could, and say that these are areas where you could save and equally that debate about means testing universalism with one that rages on, but I say that it rages on, but I do not think that we have ever really had a grown-up debate about it. It normally gets shouted down on the other side, but I think that it does just take one example, childcare. It took years and really significant investment to get universal childcare for threes and fours. We are now looking at a commitment made at the start of this Parliament to extend that to ones and twos, starting with the lowest income households by the end of this Parliament, so five years to extend that to ones and twos. They are the group that, if you want to talk about particularly getting women back into the workplace where there was a huge problem, that is the group where significant and generous funded offer, particularly for the lowest income households, to help them get back into work to tackle poverty, would have been hugely beneficial. But we started with the universal offer at the upper-age group and then decided to extend, so at least to start with, a means-tested offer for younger ages, whereas actually, in probably the ideal world, what you would have done is gone. You know what, it is a difficult choice, but we are going to do a means-tested offer for one to four right now and then we will look to expand that to universal as resources and time and capacity allow, but we did not do that. It is one of those examples of where it does not have to be in either order. It is about how you face, how you target and how you ensure that you are using resources in the best possible way, but again, we almost did it back to front upside down. There is a separate point about where you put your money and so this was, you could literally just go and get a transcript of my comments at health committee this morning because we had a huge discussion in our pre-budget scrutiny around preventative spend and it is one that more than a decade on from Christy is still an ambition rather than a reality and I'm sure I know Public Health Scotland said lots about this, but you look at those health projections for example, so over the next 20 years we know that Scotland's population is declining, but equally the annual disease burden is increasing and that's happening for two main reasons, one in particular we've gotten the aging population so again we know the cost start to increase, but we're also getting sicker as a nation and as a result we're also getting poorer as a nation, but again that is a large proportion of that is avoidable disease and ultimately actually avoidable mortality that if we had started to shift our resources much earlier we could have prevented, so we did some analysis earlier this year looking at the economic and social harms of poverty so just a couple of the highlights that we found in our analysis we found that at least £2.3 billion of just health board funding is being directed towards responding to the cost of poverty and then over and above that we're losing at least £1.6 billion in economic contributions as a result of lower employment and lower output, so you can see the huge drag that poverty has on the economy, but again because we've not shifted our resources at any point into prevention and we're still quite often dealing with the consequences, whether that's in health, whether it's in social security, whether it's in any other public service we deal with the consequences rather than tackling the root causes. Phil, can you specifically answer Michael's point that he was concerned about how increase in taxes is going to be caused? I knew it was fun, I knew it was free, I had to come back on. So we have, I agree, and there's lots of quirks within the tax system that make it less and suboptimal, so for example I think it's been raised previously that you've got, as a result of the quirk give, and I'm going to call it a quirk because it is a quirk and I don't think there are ways that you fix it, you've got a quirk of devolution whereby because now suddenly you've got an income tax system that is no longer aligned to a reserved national insurance system, you've got an instance where people when they hit what is now the higher rate in Scotland but you have not yet hit the higher rates at a UK level, their NIC contributions are still at the higher rate whereas obviously they drop down to 2% when they hit the higher UK rate, so those people between about £44,000 and £50,000 actually have a much higher marginal tax rate than those who then hit £50, triggered the UK drop in the national insurance rate and as such then their marginal tax rate comes down. So you've got quirks like this which is why we recommended that there should be a fundamental review because we quite often just tweak we'll either freeze rates and we'll do that by, we'll bring people in by fiscal drag, we will, you know, I've already said it myself, we'll introduce new rates and bans but there comes a point where you're just kind of adding more clunky bits into a system without recognising and responding to those quirks that exist within the devolution settlement and elsewhere in what that means for someone's marginal tax rate. So if you actually, what we've suggested is we need to go right back to scratch, we now recognise that we want to have a progressive system, I don't think you'd do that by just in the long term adding in more rates and bans, we need to like start to rethink actually what is the tax system we need look like and more importantly where do those quirks and interactions come through with the reserve system? Does that answer your question, Michael? No, sorry, that's right. The two examples I use, sorry, I recognise that we're jumping about a little bit, so they was about people reducing their hours, so in the first instance, so GPs who are not working full-time and therefore massive capacity issues and GP surgeries and that being a general trend and whether the proposals you've put in place you've thought about whether actually increasing those taxes would result in people reducing their hours, so in key core services to help poor people in Scotland. And the other one is about attracting international talent such as breast cancer surgeons in Dayside. So I kind of want to get away from the stickiness side of it, I think that's right, but in this idea about you know we're looking towards trying to get somebody from internationally to come in and whether we're going to prevent the NHS from being able to do that, again it's a key service for the poorest people in Scotland and just whether you've done any work around the proposals you've put in places that impact on those two issues. So we haven't specifically, but there's lots of kind of economic analysis around how rational people are and whether or not people are rational actors and what they respond to. So actually the thing that people respond to most in particular if you're talking about recruiting talent and attracting talent, I highly doubt that someone sitting in country A, B or C is looking at the tax system what they are looking at is the salary on offer, sorry, they may disagree, but in terms of attracting international talent they are looking at the starting salary so they are and they're looking at what actually the compensation package is before and they may then get to it before they get into a consideration of then what that means in terms of a starting salary in a UK or Scottish tax system and a starting salary in a French or Australian tax system. So that's the attracting talent, the retaining or the potential to reduce orders, again that is all part of the behavioural responses and again people can be irrational in terms of how they respond to those changes. Again it's as much about pay and rewards and compensation and burnout actually in particular in the health service, again someone reducing their hours in the health service is probably at much risk of doing that as a result of burnout and demand as they are as a result of the tax system.  Yeah I'm sure there isn't, there definitely isn't but I mean our previous evidence session Professor David Hale talked about people negotiating around their net, net pay position so in essence it's green with you and that somebody internationally is going to look at that whether it's coming out through tax or it's coming through a lower basic wage is probably a material to somebody making that move internationally. Does that then not result in the NHS having to pay more, substantially more to make up for the cuts and then actually it becomes a bit of a vicious cycle where the public sector has to pay on your logic into the system rather than actually gaining? I think well it's a separate discussion about pay and indeed lots of the projections that are showing increasing health spend they're primarily being driven by increasing pay awards that they are and so pay is going to go up in one way or the other in the health service so it is. There's potentially a question about the extent to which it goes up to compensate for those effects as opposed to just general awards that you would expect but we definitely know that pay pressures are increasing in the health service. Okay Stuart you've been very patient. Okay I'm going to try and answer a question about areas where you could maybe not spend some money and I think transport is one area in terms of our priorities there in some of the road building schemes such as the A9, £3 billion that's a lot of money and it could do a lot of good elsewhere that's not to say you shouldn't spend some money there but if you want to get road safety benefits you can get them for a lot less so we need to look at these types of projects and I think transport in itself can start to fund itself if we're a little bit smarter about it and I'd give one example when you put any bit of transport infrastructure in the land value uplifts that's just straight profit to whoever's building on that land we don't capture that very well through the planning system and we could do that fairly quickly there's been attempts to do that but we need to have a national system on that and the other areas parking we give parking away for free in a lot of towns and you know councils say they're skint but they still can give parking away for free and I think they need to think about what could we do with that money for that community rather than subsidising parking yeah there was a bit of a backlash on my area when it was suggested that parking be priced actually so and the council actually changed its policy on that I mean one of the things that came out with the last session Stuart was road pricing and it was and I mean how do you actually achieve that without impacting adversely on rural communities for example I mean would you only have road pricing in urban areas for example or in motorways or how would you get around that because quite clearly Scotland is for many people rural communities are very fragile and they don't really have any alternative to car you can talk about public transport all you like we really increase you know the bus service for twice a day three or four times a day isn't going to make much odds to some people and the car will remain essential for a number of people in our communities I think we need to look at urban areas in rural areas separately and I think we need to look at as the economist said the whole the whole system in terms of what people pay overall and I think there is obviously a compensation mechanism needed within road pricing to make sure that these rural communities aren't penalised and I think that the technology and the systems that are available to do that but we do have a target to reduce traffic in Scotland and at the moment we're kind of not doing anything on a fiscal sense to actually achieve that and we want to achieve that and we'll have all sorts of negative consequences which will impact on the NHS they will cost money in terms of road deaths road casualties the consequences of air pollution and probably the biggest one we don't talk about in terms of the NHS is the cost of an activity for people just don't get out and about because there's too much traffic in their communities and they don't they don't feel safe and that impacts on our old people especially if they're not walking they're not getting the strength the balance they're then more likely to pick up a condition that's a long-term condition that costs the NHS a lot of money okay Adam to fall by Judith thank you convener I'm not gonna to despair give you a list of things to cut just now but it was to to John Mason's point I wish I could it's because it's quite complex actually if you think about the budget process it's not that transparent we're looking budget lines that come out that are you know billions of pounds and the kind of the the decimal points of the rounding error kind of element this is vast vast amounts of money which can themselves pay for massive projects such as you know the national congestionary travel card and one thing and I suppose my bit better than this is about universality and for 20 plus years Scotland has gone down this path of making things free for as many people as possible and hugely popular with the public and on the face of it you know you're looking at all this the bus pass for instance maybe costs 250 million pounds or now more than that with with younger people rightly having access to that but what are the other benefits to this and also for the long term and I remember actually convener probably a couple years ago you tried to obscure me in a sense to suggest that the 60 year old free bus pass should become 65 of which I our former chief executive was delighted at 59 not to have succeeded in the ground but the point is that we're looking to the future as well for these things when you've got a quarter of people who are between 55 and state pension age you're looking on poverty in Scotland most likely to be women most likely to be carers and that just because you have a bus pass for instance I'm using bus passes one example doesn't mean you can use it and your point convener about rural Scotland you know will speak to lots of older people who would love to use that entitlement but just can't that the connectedness that they'll have as a result of access to some kind of transport means that their lives are better the public health challenges are less severe that they can take part in social fabric activities such as volunteering childcare lots of different things so the point is that we're going to come to is like your job is enviable actually because every single year have the same challenges that we've got huge amount of priorities for the country that they're getting more severe and the the regular room in terms of funding these things is going to be really really tough so I think the universal thing is an important point and with the fact that there are so many people even when you have a very very low income eligibility don't claim pension credit while it's not within this parliament this Scottish government's remit just now is a third to 40% of those who are entitled to it don't claim it whether it's through stigma whether it's inaccessibility digital exclusion didn't even know exist in the first place the system fighting against them so soon as you create a system whereby there is a line that's very very inaccessible and there's never been a discussion of what is that line what is the line of the deserving person because I've been to many cost of living events for MSPs and MPs over the last 18 months and more often not all the people come to me and say my income is £10,000 a year what is there for me and the answer is nothing you're just over pension credit level and that's it the sort of the line is somewhere but it's absolutely devastating and a 42% of pensioners in Scotland don't even have enough income to pay income tax so under £12,500 a year it demonstrates across our society we've got a huge number of people who are really struggling and this is I suppose a challenge for the future as well so this is not I'm not a bear of good news and here's all the things you can cut but actually thinking about all of these pots of money are very much interlinked but the real challenge is here how is that money spent like how is it spent well you know at the transparency you have as a committee of the Parliament on to future future spends as well and that multi-year question that we've had before is really really important so that we're not in a position where and maybe it's necessary because the politics of political giveaways election purposes are otherwise our commitments and some things are not realised or not so it's a really challenging position but the idea that we've just got some easy fixes and it's challenging and we've got a lot of people we're looking at council tax a good example it's in the news just now but how regressive that is to increase of those in the highest tax bands because of the nature of why they're identified to be there in the first place what we don't look at this is not just about wealth there's not to disagree really with IPR or poverty alliance and this is what we don't measure is someone's ability to pay liquidity and if we're looking at just wealth for instance in capital in a house well to pay for that tax then you might have to sell your home but you don't have anywhere else to go and we must not forget when the social care system most people interact with social care system like residential care homes so i'm to use their homes to pay for social care so if that goes then your ability to pay for social care is depleted and indeed now we've got the social care contract there's nowhere near enough to actually meet the need when you've run out of money so all these challenges are interlinked I don't think it's very easy like stop this do that but I think it's part of how your transparency of how is that money being spent being spent well in the future and how can we prove that preventive spending will help the lowest incomes to future because our population is aging of course it is and even if we had more younger people we'll still have more and more older people and not to the David Bell's point about getting closer to death to the cost more whether you hear that or not everyone's life's a little bit different depending where you are with your constituency convener and like kind of low income or in the health chance there too so I've gone a bit of a rant there I know but the point is the point is about I don't think you do have simple switch on switch off and actually the knock on impact that switch off might mean that you spend more money later on so for instance to lay discharge means that people 140 million pounds a year in that but actually the care needs and health needs as a result of being hospital for a week or two weeks is much more than that 262 pounds a day in hospital so they're very very complicated questions that you're asking yeah I mean I think there's a couple of points well first of all in terms of the issue about reason sorry lowering the bus pass age from 65 to 68 that was a suggestion that came not from me but from age Scotland in the 11 to 16 parliament from Callum Chomchuk he said the money saved should be spent on adaptations for older people so age Scotland were actually at that time saying you know we think this is it and I thought it was very brave because so many people come here you know not not mention the names not looking at anyone specifically saying oh I we should spend more money in this but not how we can save money on that and I think we have as a committee and the Scottish Government has to look at that but what John Swinney then did was he says no I'm not going to reduce the age from 65 to 60 but will increase the decidable adaptations budget by 25 percent so there was a win really a big win there for age Scotland in terms of the thing he touched on in terms of people you know having to sell their homes you know not just for wealth tax but for going into a residential care home I mean this affected my mother and many other people and I'm speaking to a leading economist who has a good relationship with this committee and he said two of his aunt he's just said you know what rather than going to a care home and see the house getting sold we're just going to go on a world cruise for the next couple of years and spend the money that way and it wasn't a flip in the mark because that's what they actually did because there are some people who of course don't actually aren't able to save up and buy a house but they don't then have an asset to sell but people who feel that they've got an asset that they might want to you know pass on at least in part to their children are unable to do so so there's a real issue there about about the fairness and that I mean one of the things that people talk about I should say don't know if anyone wants to try and define it for me but it's fairness and I think fairness for one person is maybe fairness for another anyway I'm starting to wonder off as well so the next person to ask to ask a question will be Judith sorry her comment will be Judith to be followed by Michael Kelly mine was quite some time ago so but I just I just very quickly would like to reflect back on what are the incentives that make people want to work somewhere and I do think that's quite important because I work in a sector where people are not incentivised by money we get we are trying to get to a state where we're paying people fairly and again that's a good question what it's fair but where people are paid appropriately but we're never going to be in it for like the big bucks and and I see that in lots of different realms of life people make decisions not just they do make decisions based on salary and that's important but if we create a society where we people come here for other reasons that might not you know you might not immediately attract your breast cancer specialist but they will be coming for the package but not just the package that they're getting from the hospital but the package that they get when their child goes to school and the package that they get because they'll be looked after when they're old and all these different things so I think just it's very simplistic well I know that's not what you're saying but like money is not the only driver in terms of what the decisions people make what they do and in fact it's very often that the secondary or the tertiary or you know the the bottom driver certainly in my experience of my business chicken and egg is it not I mean if the economy doesn't grow and we're not able to attract any investment because people feel that there will be tax disproportionately high then you're not going to have the money to provide these services so you know Scotland could become more of a backwater more young people will leave etc population will stagnate or decline with the lowest population growth in the entire world in the 20th century for example you know 2 million emigrated in the half century after the world alone so there are real issues to address in terms of that that whole package and it's about trying to get the optimum right not the maximum or the minimum but the optimum so that we can actually achieve what I think most of us want to achieve anyway Michael to be followed by Alistair thanks very much convener really welcome the opportunity to be here today I'm not a tax expert at all convener so I won't attempt to answer the committee's very sensible questions but I agree with Adam I think this is a really difficult challenge the one thing I wanted to make clear and it might surprise the committee convener is that I'm not here making the case today for a bigger slice of the pie for the NHS and for the health and social care budget the pressures on the NHS are very real and Mr Marra talked about some of those but there are many right across the country and one of the things we are prioritising public health scotland is working with our patient facing bores to deal with these pressures but the reason I'm not making a case for a bigger slice of the pies because as I think it was professor Heald says we recognise the investment in health services doesn't equate to improvements in health and the committee will have heard before I'm sure but the estimates and this is based on King's fund is that in terms of the health services contribution to the health of the nation only about 20 per cent of the health is caused by that investment of health services 50 per cent is about the building blocks of health about the social and economic factors about the physical environment that people live in that's why the case that public health Scotland want to make today convener is for preventative investment and particularly primary preventative investment and partly to answer some of the questions we we heard and I think this is one of your stats Philip that research you published earlier this year but the failure demand caused by poverty alone within the NHS the estimate is it causes 2.3 billion of spending of the 19 billion 19 billion pound total spend on health and social care services so that gives you some estimate and that I think will be an underestimate of the total failure demand of the impact of not investing preventatively the other point I wanted to make keen convener that we've not covered today perhaps is that I think there is something about sustained collaboration across public services and the third and private sector towards shared goals with improved health and wellbeing at its heart and that's why convener in this context we in public health Scotland really welcome the review of the national performance framework we think that's really important we welcome the verity house agreement that can a parity between national and local government recognition of needing to work very closely we've heard about the challenges in terms of local government funding and the fact that they control so many of the social and economic building blocks if I've just talked about we also welcome the thinking around the wellbeing and future generations bill learning from experience in Wales of the future generations commissioner and effectively that for me is around systematising a long-term and preventative approach how we think about public spending in Scotland and our submission to you convener would be that in terms of scrutiny of the budget this year in future years would be something that the committee it should pay attention to thanks okay thank you very much allister in your submission you talked about research and development in Scotland still punching well above its weight so 13.5 per cent compared to 8.2 per cent of population but that's also down from about 15.7 per cent just a few years ago so can you talk to us about how the important that is and about how important the university sector is to Scotland's economic growth wealth and prosperity yeah thank you very much I'm very welcome to have that opportunity declaring an interest as well as being director of university scotland and most so a board member of the Scottish council for development and industry and some of my perspectives reflect that role as well and I think you know critically when you're talking about the sustainability of Scotland's finances from a university perspective and we believe that we are drivers of inclusive growth and productivity and that that is absolutely key to the sustainability of Scotland's finances and indeed to creating a prosperity that lets us invest in making sure that we're looking after the the most vulnerable in society so from you know briefly I think what we're doing in investing in a high skills economy is incredibly important I was talking to colleagues in the Republic of Ireland just a couple of weeks ago we were saying they're much faster bounced back from the 2008 financial crash was largely based on their very high skills availability very high level of graduates in the population and ability to track foreign direct investment on the basis of that and they have bounced back a lot faster and done as I think with with that being one of their advantages graduates create growth graduates bring skills the economy to create tax growth by by generating a virtuous cycle of high skills more productive employment and