Official Report 861KB pdf
Good morning, and welcome to the 26th meeting in 2024 of the Finance and Public Administration Committee. We have apologies from John Mason this morning.
Our first agenda item is a round-table discussion on managing Scotland’s public finances, a strategic approach, as part of our pre-budget scrutiny. I welcome to the meeting Allan Faulds, senior policy officer, Health and Social Care Alliance Scotland, which is known as the ALLIANCE; Alice Telfer, head of business policy and public sector, Institute of Chartered Accountants Scotland; Euan Lochhead, architect and retrofit co-ordinator, North East Scotland Retrofit Hub; Lewis Ryder-Jones, advocacy advisor, Oxfam Scotland; Michael Kellet, director of strategy, governance and performance, Public Health Scotland; David Melhuish, director, Scottish Property Federation; and Heather Williams, training lead and member of the women’s economic empowerment project, Scottish Women’s Budget Group. Unfortunately, Dave Moxham, deputy general secretary, Scottish Trades Union Congress, who was due to participate, is no longer able to attend.
Thank you all for your written submissions, which gave me a very enjoyable Saturday and Sunday of reading. We have around 90 minutes for this session. If witnesses would like to be brought into the discussion at any point, please indicate to the clerks and then I will call you. It is not a case of my just asking various questions of individuals. I am hoping for—as it says on the tin—a round-table discussion. As Allan Faulds already knows, I will put my first question to him, and then anyone who wants to come in should let me know. I will take people in the order that I see them indicate. I hope that we will get quite an informed discussion.
I will, if things start getting stuck, move on the discussion. Topics wise, we will go from taxation and growing the tax base to public service reform, potential behavioural response and capital expenditure, just as it says on the tin. I will try to involve every person who has given a submission on a topic as often as possible—that is, as often as you wish to come in.
Allan Faulds, in your written response to the first question in our consultation about the Scottish Government and its priorities, you said that you are quite happy with its priorities of eradicating child poverty, tackling the climate emergency and improving public services. However, you said:
“we believe that the priority of ‘growing the economy’ represents a step backwards in the Scottish Government’s approach to the economy.”
Given your submission and your reference to increasing public expenditure in a number of areas, how you can square that circle?
It is certainly not the case that the ALLIANCE is opposed to economic growth. It is more that the Scottish Government’s focus has moved away from its previous approach. In the previous Cabinet, there had been discussion about the wellbeing economy, so there was a lot of discussion about economic growth for a purpose—that is, growing the economy to grow the tax base but also to invest in public services.
We are slightly concerned that the formulation of the Government’s strategy under the new Cabinet is very much along the lines of a more traditional view of growing the economy almost for growth’s sake, which we are not particularly comfortable with. We recognise that these are straitened financial times, but we are keen for the Scottish Government, as well as having a growth mindset, to consider taking a human rights-based approach to public finances that recognises that there are certain things, such as high-quality social care, that we should provide to people as fundamental human rights, so that they can engage properly in society and the wider economy, and that, therefore, we should look at things such as our tax base with a view to how we deliver that, rather than simply looking at them purely through an economic lens.
Another point is the fact that investment in social security contributes to economic growth, because people who are on low incomes do not, by definition, spend money on leisure, hospitality and so on, as well as essentials. If they have a bit more income from social security, that goes straight back into the economy—it goes into local shops, businesses and leisure. Therefore, investing in social security should not be seen as being in tension with growing the economy, if that makes sense.
Yes, it does. However, there are issues to do with the fact that the Scottish budget is more or less fixed, and concerns have been raised about the fact that, in Scotland, almost £1 billion more is paid out in social security than would have been the case if we had retained the same social security levels as the rest of the UK. That £1 billion has to come out of other areas of spending in the Scottish budget.
Another thing that you said in your submission is that you want to make use of
“national level taxes, including income tax, to the fullest extent possible.”
This morning, Mairi Spowage, who is the committee’s budget adviser, said on behalf of the Fraser of Allander Institute that the perception exists—I believe that it is a perception, rather than the reality—that Scotland’s taxation level is already potentially deterring investment, and that one in six businesses has argued that. What is your view on that? Would using taxation in the way that you suggest not be counterproductive?
I will make one other point on that before I widen out the discussion. In the evidence that we took last week from Professor Heald, an eminent economist at the University of Glasgow, he referred to the Scottish Fiscal Commission’s belief that the behavioural impact of last year’s increase in the top rate of tax is that 85 per cent of that revenue has been lost. We will come on to discuss that later. How can we get the balance right in that respect?
I admit that that is a difficult question. The ALLIANCE is not a specialist tax organisation. Recently, we had a discussion with the cabinet secretary, in which the Institute for Public Policy Research took part. It was of the view that behavioural changes can sometimes be somewhat exaggerated and that, once such measures are brought in, they are not necessarily felt on the ground to the extent that the modelling suggests that they might be.
We talked about national-level taxation, but there is also a role for local-level taxation, given that, last year, part of the national budget went into a council tax freeze. There was a uniform belief across large sections of the third sector, local government and academia, including the Fraser of Allander Institute, that that did not represent a good investment of public funds. Although the council tax freeze was funded, it has put more restrictions on local government funding.
We have repeatedly made the point that, if a bit more progress was made on local government taxation—I will do what I always do, which is mention the fact that I was less than a year old when the current council tax valuations were introduced, and I am now 34—we would improve the local tax base and, in particular, the ability to tax wealth, especially property wealth, more accurately. Council tax is now very bad at doing that. If we had a slightly stronger local tax base, that would free up a bit more flexibility at the national level.
Lewis Ryder-Jones is the only witness who has signalled that he wants to come in. I am hoping that others will be a bit more enthusiastic as we progress.
Lewis, in your submission, you said that
“‘growing the economy’ cannot be a legitimate priority, without important caveats”,
that Scotland’s income tax system
“can, and must, do so much more”,
and that we must be “even bolder” on income tax. You mentioned council tax as well. Would you like to take up the cudgels?
It is great to be here this morning. Thank you for inviting me.
A lot of what I am about to say echoes what Allan Faulds has just said. I fully agree with the points that he made about growing the economy. On that, Oxfam’s position is that growth for growth’s sake does not lead to long-term positive outcomes for society. At this point more than ever before, we need to shift our perception of what type of growth matters and how it should be distributed. We use gross domestic product as the measure for deciding whether growth is good or bad, yet we know nothing about how growth is distributed through that measure.
The committee has been considering the national outcomes as part of its scrutiny of the new set that is going to be adopted for the next five years. We have a really rich set of measures in Scotland and it is about to become even richer. Those measures need to take priority and GDP needs to be relegated beneath them, and we need to understand how growth is impacting different parts of the economy.
From Oxfam’s perspective, the care economy is vital. It needs to grow not just because of the long-term implications of population ageing, but because it will have a positive impact on our poverty rates and gender inequality.
The climate crisis that we face is at a level that we are just not ready for. What is happening in central Europe right now is a case in point. We need investment in renewables at a scale that we have not seen and we need growth in those sectors—there is no doubt about that—but the way that the wellbeing economy monitor measures growth is still limited. That is our main point on the economy.
We agree with others that we have not finished what we can do on income tax. We understand the perceptions that you mentioned about discouraging investment. However, those perceptions exist partly because, if our starting point is the existing income tax system and we are tweaking the upper rates rather than going back to the drawing board and thinking about how we can build an income tax system that is perceived to be fair from the ground up—which is within the gift of the Scottish Parliament—we will always feel such pushback. We are not necessarily saying that income tax rates for middle-income earners need to increase. In fact, we are pretty clear that they probably do not at this point. There is no doubt that the tax burden needs to shift towards those with higher incomes.
On growing the tax base, we fully agree that local taxation is not fit for purpose. However, going beyond council tax, the system of business rates is also vital. That system could do much more to encourage fair work and some of the voluntary accreditation schemes, such as the Carers Positive scheme. We could use more stick along with the carrot to allow businesses to do more for their employees, which would ultimately have a long-term impact on economic growth in this country.
Since nigh on the financial crash, we have pretty much had a flatlining economy. The no-growth scenario has been tried. Unfortunately, the lack of economic growth and revenues is now undermining the other elements to which colleagues referred. I think that I am right in saying that income from, for example, ScotWind has been diverted towards the emergency budget measures that we have seen recently. That takes away significant potential for investment in retrofit, renewables and other measures.
Our standing point is that, unless we get growth in the economy, we will not increase the public revenues to be able to invest in those things. My fear is that we are in that tricky, vicious circle of low growth, increasing demands from the public, Government and society at large and a really big need for investment in infrastructure that will lead us towards, for example, the net zero agenda.
We have to get the economy primed and moving ahead at more than zero or flatlining rates. That has to be a priority for the Parliament right now. That is not economic growth for the sake of seeing 2 or 3 per cent on the GDP measure; it is growth for a purpose. That is where we need to be.
It is good to have a proportionate tax system in place. We note that there is a heavy reliance on the 10 per cent of people in Scotland who are higher-rate taxpayers. Our understanding is that around 65 per cent of the revenue comes from them.
We also note the Scottish Fiscal Commission’s comment on the behavioural impact and the figure that it has put against that. It is very difficult to get a figure for the behavioural impact. Sometimes it is almost conjecture, because a lot of the activities that might be involved might not be visible. For example, someone might pay more into a pension scheme or refuse to take extra hours; they might even choose to retire.
09:15It is recognised that there is a risk. A potential approach is to diversify from that risk. That includes looking across the spectrum of the tax bases, growing the economy, making Scotland an attractive destination for inward investment and providing the stability and certainty to give business the confidence to invest.
I want to ask about what we should do in the tax area, which Lewis Ryder-Jones and Allan Faulds have touched on.
Lewis, you said that we have not yet reached the limits of where we should go on tax, but the Scottish Fiscal Commission has told us that, in relation to the top rate of tax, we are looking at behavioural effects of around 90 per cent. Off the top of my head, I think that we are talking about a reduction in the sum that the Cabinet Secretary for Finance and Local Government was supposed to have available to spend as a result of the last year’s tax increases from about £80 million or £90 million to £8 million. I do not see what we can do in that area to realise more of that money.
You mentioned middle-income earners and increasing the revenue from them. We know that most of the money that has been raised in recent years has come from middle-income earners because of fiscal drag and people being pulled into the upper tax brackets. Those are people who earn between £40,000 and £50,000. At the moment, they do not feel rich—far from it—because prices are increasing and so on. I think that you recognise that. The committee is wrestling with the issue of how we might realise more of that money. Could you say a bit more about how you think that that could be done?
Yes, I recognise that.
When it comes to the perception that higher taxation is bad for the economy and the potential behaviour change, we need to be clear that, as Allan Faulds said, we are talking about conjecture—that potential behaviour change will not necessarily come to pass. We need to make sure that Scotland is the sort of place that people want to live in. The tax burden in the UK, especially in relation to income tax, is not particularly high, comparatively, but people’s disposable income in other European countries is much higher, and that has proven to stimulate economic growth. The Scottish Government’s former adviser Joseph Stiglitz has said on an array of occasions that reducing economic inequality globally and within countries is a vital part of sustainable economic growth.
Therefore, we need to make the case that having higher taxation is an investment, not a burden, and that those higher taxes allow investment to be made in public services in Scotland, so that we can create the context for people to say, “Ah—okay. Yes, I want to live here, even if my taxes are higher than they are down south.” That is our challenge. If we run away from that argument, we will never be in a position to win it.
With regard to the specifics of what we can do on tax, various bits of research have been done recently on adjustments to a small degree in the higher rate and the new advanced rate that was introduced last year that would create some fiscal flexibility. In my original answer, I recognised that such tweaks are not what is required to enable the scale of public spending that our public services need. Our tax system needs to be rethought from the ground up. That process might take two budgets to implement, but it is worth doing.
Indeed.
I will follow up on Lewis Ryder-Jones’s point about behaviour change. The economic theory behind that is based on the idea that we are all purely rational beings who are driven by money, but that is not the case.
We also need to look at, for example, human resource theory, which tells us that people are not purely driven by money. We are not purely driven by wages in the jobs that we choose and the work that we do. A lot more informs the choices that we make as individuals, and we need to remember that. As Lewis Ryder-Jones said, Scotland has lots to offer. Taxation may be higher, but what we get in return for that taxation is greater in terms of the country that we live in. We are trying to create a better proposition and we need to take that into account as well.
When we think about behaviour change, we also need to think about the fact that, if we are going to grow the economy, we need a healthy population in order to have a healthy economy. We need a population that is freed up and able to work. That means considering our social infrastructure, such as our social care and childcare. The economic impact of the cost of childcare is a massive disincentive for families to work, particularly for women.
When we talk about behaviour change, we cannot just think about taxation. We also have to think about the impact of the lack of social infrastructure on different groups in society. Investing in our social infrastructure brings about a base that allows us to grow our economy because, without that, we have stagnation.
I will merge the questions on behavioural change with the taxation section, because everyone is going on to it. I kicked it off, so I have only myself to blame.
Public Health Scotland is a public body and does not have a position on taxation, but the economy theme is important. Building on what Heather Williams said, I will contribute something about the symbiotic relationship between health and the economy.
We know from evidence that good jobs are important to the health of individuals and the community. We also know, on the flip side, that a healthy population is important to a strong economy. Public Health Scotland has been doing some work with partners on how we tackle some of those issues, particularly the large number of economically inactive people in Scotland. We think that the latest figure is that somewhere around 825,000 people are economically inactive, of whom 32 per cent are economically inactive because of ill health. We need to think about that.
It is important that we invest the revenue that is garnered from taxation and other revenue more deliberately in prevention and getting upstream. I might say more about that later. In Scotland, we have a poor pattern of public health: we have reducing healthy life expectancy and increasing inequalities. We need to focus on those measures in improving the wellbeing of the population as a whole.
We will come to that as we move on.
My question builds on what Heather Williams and Michael Kellet just said about economic inactivity. One of the considerable concerns that we have in Scotland is the number of people who are economically inactive; that is partly for health reasons, but there are also a lot of people who do not have health reasons and are not persuaded back into the labour force. Heather Williams mentioned childcare improvements. Do the witnesses have any suggestions about what else we have to do to persuade more people to come back into the workforce?
I will let Michelle Thomson ask a question and then will let Heather Williams in again.
My question is on a slightly different theme.
Okay, I will let Heather Williams respond to Liz Smith’s question and then I will let you in, Michelle.
The women’s economic empowerment project is a joint project between us, the Glasgow Disability Alliance and the women in multiple low-paid employment project. The group said that, if we want to grow the economy, we need to consider the support that is available to support disabled people into the workplace. Many of them want to work, but the social and systemic barriers that we have in society, as well as employer attitudes and behaviours, are problematic and stop disabled people entering the workplace.
Particularly for women, one of the issues that we have is the way in which the social security system works. I refer to how conditionality in relation to universal credit has been increasing. The number of hours that you have to work to be classed as being in employment is slowly increasing, which is a disincentive, particularly in some of our more rural areas where there are childcare issues.
Those things create a perfect storm, and it becomes very difficult for individuals to move into work, particularly when councils are making cuts to things such as out-of-hours care that are not statutory responsibilities. Such cuts make it nigh on impossible for individuals to continue to work or to get good work in the first place.
That is helpful.
Lewis Ryder-Jones wants to come in on this point.
I agree with everything that Heather Williams just said, and I have one additional point, on terminology. We often talk about employability, but if we step back from what that is often taken to mean, we see that it is based on the idea that people have to come to the labour market, not the other way round. For the most vulnerable people—those who are in households with a disabled person, in households with unpaid carers and in households that are run by single parents, who are mostly women—often the problem is the jobs, not the desire to work. We need to switch our understanding of what employability programmes should be designed to do and have them provide tailored support. Lots of good work on that was done by fair start Scotland but, sadly, that budget has been stripped back. If we can reinstate some of that approach and increase the level of tailored support to those high-risk groups, that can make a massive difference by bringing the labour market closer to the individuals who need it most.
I want to get a flavour of something from the witnesses. We have been focusing a lot on revenue rather than capital.
We will be coming on to capital—that is one of our sections.
Well, we are coming on to it.
Right, okay.
This is my question, convener.
We will not bother having a structure, then. On you go.
I will carry on.
It is important that we disaggregate revenue and capital. David Melhuish, you commented in the Scottish Property Federation submission’s that the SPF has a “particular concern” about the “reduction in Capital Investment”. ICAS probably has a view on that issue as well. In the light of an anticipated 20 per cent reduction to the Scottish Government’s capital budget over the next five years—which we know is significant if we understand what capital can do for an economy—do you have anything to add on that? That reduction represents real challenges for the Scottish Government.
I also picked up a wee throwaway comment in the SPF submission about a 54 per cent decline in construction activity from July 2023 to July 2024, which seems utterly staggering.
Perhaps you could go first, David, and then Alice Telfer might want to come in on this point on behalf of ICAS.
The 54 per cent figure relates to the build-to-rent sector in particular. It probably ties into some of the earlier comments about perceptions, because much of that money will be coming from long-term investors—pension funds and other major investors—mostly within the UK but sometimes from overseas as well. Perceptions matter. From my experience of being in London for a couple of months in the summer, I know that the Housing (Scotland) Bill was dominating a lot of investors’ perspectives on Scotland. It was literally a case of, “We’ll not be investing for the time being while we wait to see what the outcome of that is.” Unfortunately, since that time, some of that has become reality. Different developments—together representing hundreds of millions of pounds of investment in jobs and in new, modern-quality housing—have been switched or lost or are moving, or the sites are now up for sale.
Our point in the submission was that that represents a big potential loss to the Scottish economy. We know that the appetite is there, because we are seeing it happen south of the border. Although there were other causes for uncertainty—Allan Faulds made the point earlier about there being other policy decisions on council tax that you were talking about at the time—I think that the housing bill created that uncertainty. We are aware that, since then, we have had the programme for government and a statement by the First Minister, and we must see what comes from those, but that was a key concern.
09:30There is a 20 per cent reduction in capital investment. Lots of development cannot go forward without infrastructure, but development really kick-starts the economy. We estimated elsewhere that every £100 million in new demand will add a further £73 million to the wider economy at some point. That figure is just for the commercial sector—the total for housebuilding would be bigger. Without that capital budget, it is difficult to invest in flood prevention schemes, in new public transport or road links, or even in education or, as was mentioned earlier, healthcare. Developers do contribute, but their capacity to do so will only ever meet a small part of the overall requirement for infrastructure.
Because we have leapt from taxation to capital expenditure, I will bring in Euan Lochhead.
I agree with some of the points that have been made to explain the decline in construction activity. Part of that comes from regulation and part from incentives.
In my experience, regulation is significantly holding back the construction of social housing. There has been uncertainty for quite a long time about what the standards are going to be. A lot of the people I work with just want certainty about those standards so that they can invest, but it has taken two or three years to get to a point where we have standards.
There is also an issue with the incentives to ensure that housing is compatible with net zero. Those incentives all focus on single measures, which means that the supply chain focuses on delivering single measures, such as solar panels or wall insulation, rather than on a comprehensive package of measures. We are trying to develop the North East Scotland Retrofit Hub to be a place where we can take oil and gas workers who have transferable skills, such as being electricians or being able to service heat pumps, and can put them to work on comprehensively improving houses. If we are to do that, the incentives need to allow capital expenditure or funding to be spent on a wide variety of measures and those measures need professional expertise in the form of something like a retrofit hub to enable professionals such as architects, engineers and surveyors to give advice about what needs to be done to specific houses. We do not want to see specific measures, such as solar panels, for specific houses. The system in my sector seems to be target driven rather than outcome driven.
I put that question to Allan Faulds, who has been very patient, to be followed by Michael Kellet.
I wanted to pick up on Liz Smith’s point about economic activity. Have we moved on from that?
If you want to say your piece on that, feel free.
My point is about how we think about economic inactivity. For example, if you—and I use that word generally, although we all know that care work is more likely to be carried out by women—are caring for your elderly parent and cannot get appropriate work because taking on more work would not balance out what you would lose in carer support payment, you will be considered economically inactive. However, if you are doing exactly the same thing but are caring for someone else’s dad as a paid job, you are economically active. How do we square what we view as economic activity or inactivity? Care makes a significant contribution to the economy and if a person is not providing care for their own father, someone else will have to do that, probably at a cost to the public purse.
I have not come up with a clever thing to say, but economic inactivity is not as simple as saying that someone is not contributing usefully to society. Lots of people who are economically inactive are doing very useful work that would be quite costly to replace. The issue of carers is within the gift of the Scottish Government and I know that it is considering reforms to the carer support payment and thinking about how to set up a social security system that better supports people into work and has less of a cliff edge for people who earn more than a certain amount and end up losing more from the carer support payment than they earn for working extra hours. We need to see a bit of a change in how we think about economic inactivity and what counts as being inactive.
I also have a point to make about economic inactivity and I endorse what Allan Faulds has just said about not underestimating the value to society of unpaid carers.
I will build on what Lewis Ryder-Jones said about trying to reach individuals who are further from the labour market. It is not a perfect solution, but we at Public Health Scotland are leading a project with the Government and the rest of the NHS in Scotland to encourage people to think about the concept of anchor institutions. The project recognises that public sector institutions have important power as employers and that they should think about how they exercise that power as they consider who they bring into the labour market. The NHS is the biggest employer in Scotland and employs around 180,000 people. Each board has an activity plan for its role as an anchor institution and that plan requires the board to think about how to bring new people into the labour market.
We are also working with Sir Michael Marmot and the Institute of Health Equity, which is based at University College London, to look at the Marmot communities approach. There is an emphasis on thinking about the role of the private sector as a good employer and about how the private sector can provide good jobs. A couple of years ago, the institute worked with Legal and General to produce a powerful prospectus on how the private sector should think about its role in improving employability and tackling equalities. I would be happy to share that with the committee if that would be helpful because it is a powerful prospectus.
Alice Telfer, I was going to turn to you next anyway, because you have your own contribution to make. In your submission, you said:
“Scottish tax decisions and quality of service provision”
are
“highly sensitive to changes which may compare unfavourably with the rest of the UK.”
Does Scotland ever compare favourably with the rest of the UK? For example, others have suggested that people might want to come to Scotland because of the additional social provisions here, such as free university tuition, free personal care for the elderly or free eye tests and dental check-ups—if you can get a dentist these days. Can you respond to what always seems to be one-way traffic?
Can you give me a page reference for that?
It is on the third page of your submission, in the second paragraph.
I do not see that quote, but I can answer your question.
I do not have any figures, but those are some of the positive factors that bring people to Scotland as an attractive place to live and build a business.
I can give an example. We were at the University of Dundee and talked to life sciences people who told us that folk can earn twice as much in other parts of the world but come to Scotland because it is a nice place to live with good quality of life and where house prices are not too high. I know that people have talked about the increase in council tax but, on average, it is around £700 less than it would be for an equivalent band D property in England.
We seem to hear that nobody will want to come and invest here if we put tax up by 0.1 per cent. Professor David Bell raised the issue of loss aversion, which means that you could give someone £100 and they would just shrug their shoulders but, if you took £100 away from them, it would be the end of civilisation. Loss aversion is an issue.
My apologies. Would you like to make your own contribution to respond to my point about the balance between investing in the social contract—as the Government might call it—and having higher levels of tax?
I do not at all disagree with what you are saying. There is definitely a multifaceted approach when people make decisions about what attracts them to Scotland.
I apologise, because you wanted to come in on something else, Alice.
Yes. I would like to comment on the point that Michelle Thomson raised about capital expenditure. I will respond to that in two steps. First, we believe that managing public finances on longer-term horizons is a crucial tool for meeting the public sector challenges. That is not just good practice, but it better matches the longer-term needs of the public sector. The longer-term horizons will offer greater flexibility to manage the challenges and to think through the consequences and keep aligned with strategic directions and priorities.
Secondly, our view is that short-term decisions for longer-term problems risk being costlier. We agree with David Melhuish’s point that capital expenditure is about investing in the future and helping to promote efficiencies and improvements over the longer term. Normally, capital and revenue costs are split, so that you do not take money from capital to fund your annual revenue costs. However, some bodies are getting permission to vire money from the capital budget to the revenue budget. That is not good financial practice, but it is clearly being used as a pragmatic short-term solution to pressing budgetary challenges.
On public opinion, a poll that was carried out by the Institute for Public Policy Research Scotland in the summer and that was published on 2 August showed that the majority of Labour, Scottish National Party, Liberal Democrat and Green voters support higher taxation. We are not living in a world in which the majority of people in this country do not want to be taxed; indeed, it is quite the opposite. Those are often quite slim majorities, but they are majorities nonetheless.
I am sorry, but is the issue not that people want others to pay higher taxes, rather than to pay higher taxes themselves? It is the easiest thing in the world to ask people who are not earning much whether they think that those who are earning a lot should pay higher taxes, but we are looking at how that would impact on the Scottish budget and the Scottish economy.
Yes, and I understand that. The poll actually asked people whether they would be willing to pay more tax, as well as asking about other people, so it was not one-directional. My point is about the perception that we are too highly taxed. Perception is important, but if we start showing some of the evidence that says that that is not the perception among the majority of employees in this country, that might change the perception of investors.
Another point is that we often get into a limited conversation about what tax is and focus solely on income from employment. Of course, important levers remain in Westminster around taxing other forms of income, namely from investment, and there is no doubt that we need movement on that. However, there are ways to tax wealth in Scotland that broaden the tax base away from income, and the most obvious one involves the most immovable asset of all: land and property.
You mentioned that we pay a lower rate of council tax in Scotland. That might be a positive thing for some, but it is not positive for the finances of local authorities across this country. It is realistic to think that we can change the system to make it fairer so that the majority continue to pay a lower amount, by making it a percentage-of-value property tax or shifting towards a long-term model of land value taxation. That would be a long-term approach that would need a lot of work in the interim, but it would make the tax system fairer and give us the potential to raise significantly more income for local government spending.
What would the perception be of the differences between Scotland and the rest of the UK in that case? It is clear that the new UK Government is not going down that road. I do not think that it has plans to revalue in relation to council tax or to bring in a land tax, for example. How would the change that you suggest impact on the balance in how people perceive Scotland and England in terms of their standard of living?
We have seen in recent years that Scotland can be a global leader on issues. This is not for today’s discussion, but the loss and damage finance issue is a case in point. Scotland can set an example globally and within the UK. It is not without the realms of possibility that Scotland can set a progressive direction and the rest of the UK will follow. That said, pressure on the UK Government to implement some of the changes that remain in reserved fiscal powers is vital. It is not one or the other that we need—it is both.
09:45
I think that you would have an uphill struggle convincing the voters of that. I have to be honest.
I am interested in the stability issue in relation to longer-term investment, where we are getting the money from and how it might be spent. Public Health Scotland says in its submission that, in the current climate, there is
“a tendency towards more reactive, short-term responses.”
We are in the third year of emergency in-year budget cuts from the finance secretary and of very short-term decisions being taken within the financial year. Can any of our witnesses talk about the challenges that that creates in the organisations that they represent, whether in the health service or for users of services more generally?
One of the problems that we face in the construction industry is that we do not have certainty about multiyear funding periods. The financial year runs from April to April. In the construction industry, that means that funding is approved in April and projects often begin just before the winter starts. Having three-year funding cycles for construction would make a big impact on construction projects getting off the ground.
In relation to the retrofit of housing, the funding is being cut. The ScotWind financing that was raised is being moved into day-to-day spending, by and large, whereas it was originally ring fenced for net zero. That money would have a significant impact on Scotland’s economy if it was put into, for example, encouraging retrofit. People in the north-east who want to transition out of oil and gas could be reskilled to go into retrofit.
It is important that, when we make commitments, we follow them through on a multiyear basis.
I think that the Scottish Government is optimistic that that might change after the budget on 30 October. However, as has been pointed out, we already have a five-year 20 per cent reduction in capital, so there will inevitably be reductions here, there and probably just about everywhere.
Multiyear settlements would be good, but multimonth settlements would be good, too. At the moment, it seems that projects are being thrown into turmoil in-year because, across the board, budgets are being cut in-year rather than from year to year. However, I am emphasising a slightly different point. I absolutely agree that longer-term, multiyear settlements can help to mitigate some of that but, at the moment, the management of public finances in Scotland is resulting in in-year chaos.
There has been reallocation of funding because of pay rises, as we know.
We will move on to public service reform, because we are more or less halfway through our time and that is an important issue to address.
Michael Kellet, you talk about prevention a lot in your submission. Between 2011 and 2016, the Finance and Constitution Committee discussed that in great depth following the Christie commission report, which we still refer back to. In the first three years of that parliamentary session, the finance secretary provided £500 million for prevention, and a number of initiatives such as family nurse partnerships were very successful in the NHS. The difficulty—if John Mason was here, he would certainly talk about this—was that organisations persistently said, “We are keen on prevention if you give us extra money,” but they would not disinvest in projects that were not providing value for money in order to invest in prevention. How do we address that issue at a time of great financial challenge?
I do not pretend to have the perfect answer, but I recognise from the get-go that prevention happens—as you said, family nurse partnerships are an example. The work that we are doing in the health service on vaccination is a very good example of prevention. There is investment in prevention that sustains. However, you are right that, in reality, we have not delivered on what the Christie commission recommended, because of the financial pressures that committee members and others have talked about.
As a society, we need to take a step back and rethink our approach to prevention. There is loads of evidence that, if we invest upstream, the return on investment is much greater than it is if we have to provide health treatment or deal with failure in relation to demand. As we say in our submission, it is vital that we focus on primary prevention and tackling inequalities. That will reduce demand on pressed public services, including the health service, and it should free up resource for future investment. Nobody argues with the merits of prevention, but delivering it is the really hard part, particularly at present, given that, as the convener and Mr Marra said, public services are really struggling due to the challenging financial circumstances.
We have made two practical suggestions that the committee and others might want to consider. Demos, the Health Foundation and other think tanks have made the case for making preventative spending a category of public expenditure. There would be resource spend, capital spend and preventative spend. That could give us a benchmark for investment in prevention and allow public bodies to be held accountable for that continued investment over time. That might be a way forward.
Hold on a second. Are you arguing that the NHS budget should be divided into those three areas, or are you arguing that it should be divided into those three areas with additional money for prevention? That is not really what we are saying. If we are spending on prevention, we have to look at disinvestment.
I will give an example. In a previous parliamentary session, we took evidence from Birmingham City Council, which had done a lot of work on prevention. It said that it was very difficult because it had to speak to social workers who had done a job for 35 years that had been, frankly, completely useless. Those were its words, not mine—I do not know what was done in that social work department. The council said that it had to get those people to do things in a completely different way, with a different mindset, because the amount of money that that non-service was costing was immense.
I am not saying that any area of the NHS is equivalent to that, but the Scottish Government has, in effect, a fixed budget, and we are not in the days when a cabinet secretary could stand up and say, “By the way, I’m going to allocate £500 million for preventative spend over the next three years, although it didnae work last time because folk just wouldnae disinvest.” Are you saying that preventative spending should come from the money that is allocated to the NHS, with a section hived off?
Yes, but it would not be a question of hiving off money.
Sorry—that was the wrong expression.
We recognise the financial pressures. We are not naive in thinking that extra resources will be coming over the hill, but we think that there should be a focus on prevention.
We recognise that the NHS and other public sector bodies already spend a lot of resource on prevention. The focus of our territorial delivery health boards on supporting the health and wellbeing of children in the early years, through the work of health visitors, family nurse partnerships and so on, is really important, and one of the things that we are arguing for, suggesting and promoting in the wider NHS community is that it would be absolutely wrong to reduce such funding. There are other examples of current, really important preventative funding. However, we think that it is worth considering creating another category of public expenditure, which is an idea that others have promoted. That would allow us to track preventative investment and its impact over time in a really useful way.
The other important thing, which is married to our first suggestion, is to deliver a system of accountability, particularly for public sector bodies, that focuses on prevention. Public bodies should not just be held to account for immediate delivery; there should also be a focus on the work that they do upstream to prevent people from falling into the proverbial river in the first place. That should be seen as being as important a factor of success as the delivery of more immediate services. A mind shift is needed.
I am not pretending that that is easy. I am, in effect, the director of finance for Public Health Scotland, and I sit in round rooms with colleagues in territorial boards who are wrestling with difficult decisions, because there is real pressure in relation to waiting times and the performance of accident and emergency departments.
To be fair, the NHS does a lot. You talked about vaccination, but there are also free eye tests, which avoid problems coming down the line that would cost a lot more.
Yes. We give some examples in the two-pager that goes alongside our submission. There are some really good examples of effective intervention. The Childsmile programme has been hugely successful in changing the oral health of children in our society for a number of years now. There are really good examples that we can build on.
Indeed.
I have three people who want to come in. I will go to Heather Williams first, to be followed by David Melhuish.
With regard to public sector reform, we would echo Euan Lochhead’s comment that we need to get better at looking at how we use the outcome framework to drive expenditure. We need to become more outcome focused in our budgetary processes, and there needs to be greater transparency. We need to be able to follow the money from the Scottish Government budget to health board budgets and local council budgets to see what is happening with public expenditure in Scotland. It is very difficult to do that, and it is exceedingly difficult when there are in-year changes. Such changes can make things difficult.
One of the other things that we really struggle with—Euan Lochhead touched on this, too—is the siloed approach that we take when we focus on issues in Scotland. A key target, not just for the Scottish Government but for local authorities, is child poverty. We might have child poverty plans, but when we look at, say, non-residential social care charging, child poverty does not come into the consideration. There is a lack of policy coherence in the public sector.
There are also the integration joint boards. We get councils at budget time saying, “We’ve passed a balanced budget—aren’t we wonderful?” while the integration joint board is sitting with £30 million of savings that need to be made. There has been no integration of budgets.
When we think about public sector reform, we need to move away from the siloed approaches that we have when it comes to delivery. We need to think about outcomes and have an overview that allows us to see what something that we do at a certain point will mean downstream and how it will affect the NHS. At the moment, all that we do is to look at our little bit of the pie, whether it is for retrofitting, active travel or whatever. We do not consider what it will mean for other areas.
Part of the problem is that we are really bad at analysing the impact of our decisions. Because of how it is delivered in practice, the public sector equality duty is really poor. Our analysis of the issues, of prevention and of whom our decisions will impact on and whom they will or will not benefit are really poor in the public sector.
Thank you.
David, I note that, on public service reform, you have said:
“there is a widespread lack of resource, capacity and ultimately, delivery.”
Yes. For our sector, interactions with public sector services would very often be in the realms of planning or building services, or they could be with statutory agencies, from Historic Environment Scotland through to the Scottish Environment Protection Agency and Transport Scotland. A common theme, particularly in the local services sector, is a lack of resource with regard to people, and a growing concern is that the experienced, skilled people who are there are probably nearing the end of their time. That can have significant consequences. For example, the lack of fire safety experts can delay approvals for developments in buildings or, indeed, for retrofitting and remediation. I am thinking, too, of cladding remediation, given that we are only a couple of weeks or so after the publication of the second Grenfell report. Those things can have very practical consequences for delivering developments.
That said, there is a lot of innovation going on right now. For example, local authorities are investing in graduate apprenticeships and they have had some good successes in that respect. The same is true of certain educational institutions. For example, the University of the Highlands and Islands has, I think, increased its construction and built environment course on the basis of graduate apprenticeships. I highlight the Scottish building standards hub that is hosted by Fife Council, which was launched just a couple of weeks ago. It should help to create consistency and, I hope, efficiency and improved performance across Scotland in that field. I note, too, that the planning hub was launched in the programme for government last week, albeit that we hope that it will move beyond concentrating on hydrogen and go into the wider planning areas.
The resource pressures have clear and practical consequences for the economy. They delay things, which is a concern for our members. We have always said that, on the planning side, our members are happy to pay a higher fee; all that we wish is to see improved performance going along with that. Of course, the Government is investing in planning, too.
10:00
I note that you got that comment about higher fees in. I call Lewis Ryder-Jones, to be followed by Jamie Halcro Johnston.
I want to touch on preventative spend, which Michael Kellet talked about, but also on impact assessments and the problems that Heather Williams outlined with regard to seeing budgets and outcomes.
The year before last, when the First Minister was still the Deputy First Minister, this committee held an inquiry, which a colleague of mine gave evidence to, on what needs to happen with the national outcomes and the national performance framework. In your report, you made it quite clear that the national performance framework needs to become the “golden thread”—I think that that is the term that was used—that goes through all other policy and spend. We fully agree with that. The national performance framework, as I said at the start of this morning’s session, is a really powerful wellbeing tool. In fact, our assessment at Oxfam—we work on these things globally—is that it is one of the best in the world. However, it is quite clear that it is not being used and it does not drive policy and spending. My question is: why is that?
Oxfam’s answer—others such as Carnegie UK and the Wellbeing Economy Alliance fully agree; indeed, some really interesting research on the matter came out just last week—is that the accountability through the legislation that underpins the national performance framework is very weak. At present, a public body just has to have due regard to the 11 national outcomes. How is that going to drive change towards any of them?
The Scottish Government committed to bringing forward legislation to change that back in 2021 but, sadly, that proposal—the wellbeing and sustainable development bill—has been absent from every programme of government since then including the most recent one. There is detailed research on what such a bill could achieve in terms of accountability and through strengthening the wording around national outcomes. Public bodies, the public sector, the Parliament and, potentially, civil society and others should not just have regard to the national outcomes; they must show how they are progressing them. That means having preventative spend and long-term thinking and aligning budgets with outcomes. We need a decision-making context that allows that accountability to take place. Currently, we do not think that it is there.
The committee will be taking evidence on that immediately after this session, Lewis.
I go back to Heather Williams’s point about silos. In an area such as the Highlands and Islands, if people find it hard to keep their homes warm—indeed, we have some of the highest levels of fuel poverty anywhere in the country—they are, unfortunately, more likely to need NHS services. However, those services are under huge pressure.
You talked about silos, Heather. Even in the health service, primary and secondary care are not really integrating, and as a result, more pressure is being put on, for example, the Scottish Ambulance Service, which is not directly under the control of NHS bosses.
We have talked very generally about public service reform across the country, but is such reform almost more important in rural and island settings than in other areas, simply because fewer choices and alternatives are available?
From my experience of working up in the Highlands for a period of time, I know that rurality leads to many issues with regard to people’s experience of not only delivering but engaging with public services. We have been doing some work with the north Highland women’s wellness group, particularly in relation to women’s health services in the Highlands. That is a perfect example of a lack of analysis of decision making impacting on individual groups—in this case, women and their ability to work and contribute to the economy.
We absolutely need to take rurality into account. However, that siloed approach is often the problem. For example, when it comes to the delivery of health services, we go to one place for one thing and another place for something else. People do not live their lives like that. An issue with my housing can impact on my health, my finances and my ability to work. We need to look at more place-based services, as opposed to the siloed approach whereby the health service does one thing and the local authority another, and we have a pretendy integration that does not work as intended and certainly does not provide better outcomes for the most vulnerable, who need those services to work for them.
I have a couple of quick points. I echo what Lewis Ryder-Jones said about the national performance framework: it is potentially powerful, but that potential has not been realised. That goes to what I said earlier about accountability being key in national performance and national outcomes. As we said in our written submission, there is a clear implementation gap. Like Lewis, we were and still are supportive of an approach that encompasses wellbeing and sustainable development, which could build on the experience in Wales, from which we in Scotland can learn an important lesson.
Secondly, the whole-system approach that colleagues have talked about is important both nationally and locally. We have an instrument for that in community planning partnerships, which bring together key players locally. Work is under way to see whether that model can be improved.
One thing that might bring some value to that table is the work that I referenced earlier that we are doing with Sir Michael Marmot and the Institute of Health Equity. By the end of this year, we hope to have three emerging Marmot communities or cities—whatever we might call them—in local areas across Scotland. We are also doing work with Michael Marmot at a national level, based on the experience in Coventry and other Marmot communities, which will help us think about improving and changing the dial on some of those outcomes—in particular, from our perspective, in health and wellbeing—perhaps through bringing together partners locally, including from the voluntary, public and private sectors.
I come back to the point about different parts of Scotland having different requirements. In the Highlands and Islands, where we do a lot of work, fuel poverty is much higher than the national average. That is partly because the electrification of heat has already happened in the Highlands and Islands, to a large extent, without focusing on the fabric of the buildings. If, in our investment, we focus on the fabric of buildings, that has, as we discussed, an impact on various outcomes, including those for health—as has been recognised by the NHS in Scotland, which has prescribed heat for some people.
The issue also impacts on people’s ability to work. Living in a cold home affects your motivation.
To take housing as an example, we must look at what the outcome needs to be and at the wider impacts on someone’s life other than their paying less in energy bills.
It is about focusing investment on the things that will have the biggest impact on the widest range of outcomes. Reducing the demand from housing does that, whereas just installing a heat pump to replace the gas boiler may be much cheaper initially but might lead to the person paying higher prices—and may even make their home colder if there is no focus on the fabric-first approach.
We need a way of getting professionals involved in the development of fabric retrofit projects, and central funding is needed to stimulate investment from the private sector to encourage activity in that field.
David Melhuish’s point about planning led me to think of a question. I am interested in folk’s thoughts about reform of the level at which Government power is set. Planning is a good example. Planning fees are not set by councils; they are set nationally, and many councils make a loss, which does not incentivise them to resource their planning departments properly. That has a knock-on effect of significant delays for developments. The issue has been consulted on recently, so we might well see progress on that.
There is perhaps a wider question, however. If we are talking about public sector reform and efficiency, do you have any examples around tax spend, a final levy or a charge such as planning fees and whether those powers are at the right level of government to get the most efficient return?
Alice Telfer has quite a lot to say about reform. I am not going to quote her document just yet, but I might—I have it sitting right in front of me.
Yes—I will need to find the appropriate spot in the document.
I have two points to make. The first is on reform and the second is about maximising efficiency of expenditure.
The definition of reform is not just about major structural change. Reform can also be a series of small steps that can be quite powerful, which could include comparisons with other bodies, sharing data and good practice, and reducing variations. It is also about encouraging and promoting the culture of focusing on continuous improvement and encouraging ideas from staff and other stakeholders.
The second point is about maximising the efficiency of expenditure, which we covered in our submission. The point is about having clear evidence of need and how specific actions support delivery in that regard.
It is important to understand whether consistent use of impact assessments—which I believe Heather Williams raised—has the intended impact. If not, it is about going back and reviewing what needs to be done. Part of that might involve earlier intervention and scrutiny to check that the foundations are in place, and building a stronger focus on value for money, given the financial circumstances. It is also about what we can learn from benchmarking and investigating productivity, and understanding where that might be causing a blockage.
You say in your submission:
“Improving productivity is a key gap in the strategy. More emphasis on understanding productivity and why it is decreasing or fluctuating or varying across Scotland, and what can be done to address this is critical.”
How do we do that?
How do we do that? The managers are best placed—
That is a bit too rhetorical. The committee is looking for answers.
On the specifics, quite a lot of work is probably already being done, and I have given an example of the NHS, but it is maybe not communicated well enough for the general public to understand how it is being taken forward.
Heather Williams, on participation, productivity, Scotland’s economic growth and growing tax, you say in your submission:
“There is an urgent need to invest in disabled people’s employment and to address the systemic barriers that prevent disabled people from accessing employment.”
You have already touched on that. Can you expand a bit more on it?
Yes, absolutely
The perspective is so huge.
One of the concerns of the group that we worked with when we looked at the four Government priorities, particularly for the disabled women who were present, but also for the women from the women in multiple low-paid employment group, was that when we talk about growing the economy, some of the rhetoric that we use in the UK is about people who are “economically inactive”. I have to say that, as an organisation, we really do not like the term “economically inactive”, because none of us are economically inactive—we will all be doing something that benefits the economy, whether that is in paid work or not.
10:15The group was also very concerned about some of the rhetoric that we have around growing the economy and social security, particularly for disabled people. We need to look at productivity and how we can increase the number of people who are available to work in Scotland and consider those structural and systemic issues. Often, those systemic issues happen because of public sector failures. It is about our not seeing the needs of disabled people and women and about taking gender-neutral and gender-blind approaches to our policy and design of interventions, which impacts negatively on individuals.
On employment for disabled people, the question is about what society can do. It is about looking at how that interaction between taxation and the benefits system works, taking into account the additional costs that disabled households have and thinking about what support individuals need to be able to get into work.
It is also about employers and employer attitudes. Lewis Ryder-Jones mentioned the carrot and the stick and the incentives that Governments can use to encourage employers to take on their responsibilities and to consider how they can support people with lots of diverse needs in the workforce. You increase productivity through having well-supported, healthy individuals as your employees. It is about what the state, but also business, can do for disabled people.
It is also about looking at yourself. When I was in Glasgow City Council, it passed a motion that any organisation that had contracts with a local authority would need at least 3 per cent of its workforce to have disabilities. That does not seem very ambitious now, but I found out that, in the council itself, less than 1 per cent of the employees had disabilities. Sometimes, people are looking outwards and not at their own organisations.
I want to pick up on a point that Mr Lochhead has made about retrofit of houses and the cost that it will mean for Scotland. Also, I want to acknowledge that Ross Greer asked a question and I missed it, so I apologise—I would have tried to answer it as well.
We did some work last year with IPPR Scotland and the Scottish Federation of Housing Associations on exactly that point about what the cost of retrofit would be and how should it be distributed to ensure that all houses, whether rural or urban, can retrofit to the level that is needed and install green heating systems. We found that the investment is less than a third of what it needs to be annually to reach the target and, more importantly, the research also uncovered that the best way to pay for retrofit—the way that makes it cheapest for middle and low-income households—is through progressive taxation, not through loans and up-front costs that the household pays for.
That brings us full circle to the point about perceptions. Tax and spend are highly connected. We need to make the case that it is more efficient to deliver significant investment in something such as heat in buildings through progressive taxation than to do so through households fronting that cost and taking on loans and debt. I bring it back to making the case for progressive taxation to go further than it already has if that will ultimately make retrofitting cheaper for households.
However, investing in retrofitting houses is, really, capital, which in effect the UK Government dictates. With a limited amount of capital, which might or might not increase after the budget, should the Scottish Government invest more in retrofitting houses to reduce heating costs, for example—which might have an on-going health prevention benefit—or more in more affordable houses? I know what Euan’s answer would be, but I am just asking you, Lewis.
When I was a councillor, I remember that my local repair team was aghast when I said that I wanted the windows in 1,500 houses to be—I do not know what the word is, but you rethingummy them—
Replaced?
No, not replaced. I am talking about when you make the windows wind and watertight, but you retain the same windows. There is a word in my head. They said to me, “You do not want to do that, councillor. You want to get new windows put into 50 houses, and then you can get a nice photograph taken in front of them, rather than repointing them”—that is the word that I was searching for. I said that I wanted them to be repointed.
The point is that it is about how you allocate resources effectively. If you had the money, would spending it on retrofitting be a better use of the overall Scottish budget, if we think of its impact on people’s health and wellbeing, rather than spending it on building new houses, assuming that we had the skilled workers who were trained in number to do it ? I am being devil’s advocate.
Straight up, I do not take a view on that, and neither does the research that we worked on with IPPR Scotland last year. The crux of the case that we are making is that, for existing housing stock, which includes social housing, it is more cost effective for the household for that cost to be included in progressive taxation. That would be not only more cost effective for middle and low income households, but fairer for everyone than expecting households to take on the cost themselves.
I do not have to be a Mystic Meg to know what Euan Lochhead is going to say, but I will let him say it.
You make a good point. Other countries in Europe are doing similar things. For example, in Ireland, significant funding of up to €50,000 per household is available to upgrade a house to a certain energy efficiency standard. Two things would drive investment: having the standards and incentives in place. It is not about just having money to upgrade a house; that money also would build an industry with high-skilled, well-paying jobs. Over time, that would become the norm. Unfortunately in this country, we have some of the worst housing stock in Europe. We have a much longer way to go to upgrade it and a lot more investment will be needed to do so. Once people see the benefits of retrofit across all tenures, that would drive people to start to want more from their housing, rather than putting up with a mouldy and damp corner in their bedroom, for example.
The difference between houses in the Western Isles and the Faroe Islands is incredible—and not to the benefit of the people in the Western Isles.
I will come in on Ross Greer’s question about where powers lie and public service reform. As a general principle, the ALLIANCE agrees with localism and the idea of taking as many decisions as possible at the most local, community level possible, because, apart from anything else, taking decisions at a higher level can feel very disempowering for people in local communities. However—this is a risky comment, not so much in the committee room, but in council chambers across the country—people need to not be overly protective of their current remits and think instead about what would work best for people.
Take the specific example of social care, which we are very concerned about. The National Care Service (Scotland) Bill is progressing through the Parliament, which other colleagues will discuss and other committees will talk more about. At the pre-budget scrutiny evidence session last year, a representative from local government said that they did not like the term “postcode lottery”, because the decisions that are made are different, local, democratic decisions. However, if your local council has democratically decided that you are not going to receive care, or that you will have to pay through the nose for additional charges for care, that is pretty cold comfort. You will not be filled with love for the concept of subsidiarity. A difficult balance needs to be struck between ensuring that there is a degree of local flexibility so that needs in different areas can be responded to, including in urban, rural and island areas, and ensuring that there is a basic floor for standards that people will not fall below. Such a floor would mean that people’s rights would be upheld and that they could access fundamental services.
When we are talking about public sector reform and the balance of power between national and local government, it is important to get the balance right and to not do things just because that is the way they have aye been, or for fear of upsetting one level or another of government. Instead, we should think about what will work best for people.
On the point about social care, I note the example of Aberdeenshire versus Moray. Someone who lives in Aberdeenshire just across the border from Moray will get less access to social care than those who live across the border. Local government issues aside, that is not fair for people, and it does not deliver on their basic human rights and needs.
It will be interesting to see whether the national care service will resolve such issues, which it is supposed to.
We are almost at the end of our time. I ask all our guests to have a wee think for a minute or two about any final points that they want to make on any issue that we have not covered or on anything that we have covered that they wish to re-emphasise. The person who will be last to give his view will be Allan Faulds, because he went first earlier today—you have more time to think, Allan. I am looking for volunteers to step up to the plate; otherwise, I shall do eeny, meeny, miny, moe. Lewis Ryder-Jones has volunteered. On you go, Lewis.
I am just trying to get it out the way for you, to be honest.
We have not yet discussed one of the things that the call for evidence questions focused on in relation to tax, which is the tax strategy. We expect to see the strategy in November, before the budget in December. Obviously, it has been framed as building on the 2021 framework for tax, which we assessed as part of our evidence submission.
I want to emphasise that, as the Government develops the tax strategy through the consultation that is taking place over the next six weeks or so, we must see beyond the conceptual side of things that the 2021 framework did quite well to articulate. It had strategic objectives and expressions of what tax should be for, but it failed to adequately articulate how the Scottish Government intends, in practice, to use and reform devolved taxes to deliver on objectives. The new strategy must do that. It must move beyond a theoretical model and set a clear, strategic direction for tax, which includes making choices on whether we want to use the tax system to redistribute or to do other specific things.
The final point on the tax strategy is that, in 2021, the framework for tax set out a programme for work. However, very little of that programme was delivered on. Some work remains unstarted and other work is delayed. We think that the tax strategy must transparently commit to a series of work that aligns to the strategic objective that the strategy lays out.
I noticed that, throughout your submission, you say things such as that Scotland’s income tax system needs to
“raise more money ... than the rest of the UK”
and that we need to enable
“significantly more public spending on people, public services and green infrastructure”
to improve the
“adequacy of social security entitlements”.
However, you have been coy about how much additional resources should be raised to do those things. Is it an extra £10 million, an extra £100 million or an extra £1 billion?
Organisations have been quite clear. To pick an example from the array of things that we think more money should be spent on, let us go with the Scottish child payment. If we were to increase that up to the £40 a week that is necessary, there would be quite a clear figure attached to that. To be honest, the figure has slipped my mind right now, but it is in the hundreds of millions of pounds, and it could be costed and paid for by specific changes to taxation.
How much additional money would you raise? That is the issue.
The short answer is that I do not have a response. However, it is a lot.
I have a quick point to make about incentives for retrofit and redevelopment, not just of homes but with regard to a lot of the latent potential that exists in the country. There are a lot of older buildings that need to be changed radically, including office buildings that, in many cases, will not return to being offices. There are listed buildings that need to be brought back to life, usually in great locations in urban centres.
I would like there to be an emphasis on incentives to get people to invest in their own homes or older buildings to bring them back to life. That touches on things such as providing support for property improvements and not just charging vacant rates to the maximum, because that will not attract people to invest.
Progressive taxation is great. I like the idea of grants for people, but the few millions of pounds that were raised last year through the change to tax bands will not make much of a dent in the overall requirements for retrofit.
I have majored today on a shift to prevention and on making that practicable, and I have talked about the importance of improved accountability to make that happen. One thing that I did not mention and that is probably important to recognise is the audit environment in Scotland. In Public Health Scotland, we have seen from the Accounts Commission and Audit Scotland an increasing recognition of their power in holding public bodies to account in relation to their focus on prevention. That feels positive from my perspective, so I thought that I should share it.
10:30
I am not getting any volunteers, although a guy called Euan has just caught my eye.
In the context of this committee, investment in housing as infrastructure could stimulate a lot of growth in the Scottish economy. That needs to be consistent from year to year to enable industries such as the one that I work in to grow. Just now, the retrofit industry is very fragile and young, but in other countries such as Ireland and Germany, which have provided significant funding, that has given the industry a chance to develop. That gives an opportunity for people in industries that are looking to transition to a net zero future, such as oil and gas, to reskill and drive improvements in the Scottish economy.
We have touched a little on the lack of accountability that there often is around the outcomes from public sector investment. We need to get better at linking the decisions that we make to the outcomes that we are trying to achieve and at monitoring and evaluating those. For us, it is important that we use a gendered lens in decision making and that we recognise that the decisions that we make have a different impact on men and women in society because of our norms and expectations. If we do not do that equality analysis, we will end up making life worse for those who are most vulnerable in our communities, which is what we are starting to see in decisions that are being taken, particularly at a local level.
As I said, there is a lack of policy coherence. The programme for government talks about preventative spend and using community places but, when we look at the decisions that are being taken at local level, we find that we are cutting back on those things. There is a lack of coherence between what we say that we are trying to do and what is being achieved on the ground. We need to ensure that we use that equalities lens, or it will end up costing us more money in the long run.
We make three main points in our written submission. One is about promoting a long-term approach to planning. Another is that we need a holistic approach to revenue generation and cost reduction—it is not just about tax, and a tax is not a silver bullet. The other point is that, in the context of limited resources, it is important to have strong alignment of the priorities, including the cross-lateral and cross-cutting aspects of services, and to understand the trade-offs.
In case there was a misunderstanding earlier, I would like to reaffirm that the Scottish Fiscal Commission’s point on the behavioural aspects is significant and important, even though it is difficult to quantify. The SFC offers strong credibility on the point that that is a risk that perhaps needs to be looked at.
With long-term planning, you are talking about 10, 20 or 30 years, but there are different Governments and stuff like that, with different policy priorities. How practical is it to think that a Government would stick to priorities that someone else decided on umpteen years ago?
The point is that the long-term nature of public service needs does not sit well with a 12-month or a two or three-year strategy, especially on the capital side. If you want to promote investment to improve future services, that could be on an extensive timescale.
Your written submission states:
“The Scottish public sector is also comparatively larger than the rest of the UK and better paid with a widening gap.”
For example, 17 per cent of the workforce in England is in the public services, whereas the figure for Scotland is 22 per cent and the average salary for the same job is £2,400 higher in Scotland. Do you want that gap to be narrowed?
That was really just an example of the decision-making process, rather than a comment about policy. The figures cited came from a Scottish Government document.
I turn to Allan Faulds.
I will end by re-emphasising the constant call by the ALLIANCE for a human rights-based approach to all aspects of public finance, including spending and revenue raising.
We can speak, and have spoken, about growth, behavioural change and divergence from the rest of the UK and we could do that until the cows come home, but our starting point should not be to discuss the level of taxation that we think is acceptable. We should start with what kind of society we think is acceptable in the light of our human rights obligations and then build taxation and spending around that. We should also take on the hard task of reshaping the narrative to that end instead of accepting current narratives as being unchangeable. MSPs should take the lead on that.
I go back to something that David Melhuish said earlier about how we have been trying no growth since 2007. We did not try no growth; we tried austerity, which has dominated my entire adult life. I was applying for university when the economy went to pot in 2007. The ALLIANCE, large parts of civil society and—crucially—many economists have been absolutely clear that austerity has not worked and did not work. We therefore push back very strongly against any glib suggestion that tax cuts and belt tightening will even grow the economy in the first place, because that has not been experienced in recent years. It certainly will not give us an economy that works for people and where they have good quality of life and see their human rights being upheld.
I thank all our guests. We have run slightly over time, but that was worthwhile to get as many contributions as possible. I hope that everyone feels that they have been listened to. We will take your views into account when we produce our pre-budget draft report.
We will continue taking evidence on the sustainability of Scotland’s finances on 1 October. Next week, we will discuss digitisation and reform with Estonian MPs, officials and relevant organisations because we are off to Estonia for a few days to address those issues.
We will take a five-minute break to allow for a change of witnesses before moving on to our next agenda item, which is about the national performance framework.
10:37 Meeting suspended.Previous
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