Chamber and committees

I want to come back to capital, briefly. I will ask questions for only another three or four minutes, because colleagues are keen to come in. What is the impact of the reduction in capital on medium to long-term growth? Even if we accept the GDP deflator—we know that the reality is completely different, but assuming that we accept that as a real figure—that will still mean a 20 per cent reduction in capital over five years. What will be the impact on growth and productivity of capital taking such a hit?

I have a final question for the moment. In its autumn statement, the UK Government did not look beyond 2024-25. What impact has that had on your forecasting for Scotland?

That would be 3 per cent.

That concludes the committee’s questions, but there are a couple of other points that I want to ask about.

First, I want to try and pin the behavioural response issue down a wee bit. In paragraph 35 of your report, you talk about £200 million gross and £82 million net, but, as we know, £74 million of that net figure comes from the new £75,000 band, and £8 million is from the £125,000 to £140,000 band. Where is the gross in those two figures? Are we talking about £8 million out of £40 million, £60 million or whatever? I want to get a better idea of where the tipping point is. I remember being in the Basque Country many years ago and being told, “If you put income tax up by 2 or 3 per cent more than the Spanish average, it does not make much difference, but if you go to 4 or 5 percent, it suddenly goes zzhhh”—that is, it falls away in a kind of reverse Laffer curve, so to speak. That is what I am trying to say. How much of the gross £200 million comes from the £125,000 to £140,000 band and how much comes from the £75,000 band?

Indeed.

Well, I only got it at half past 5 yesterday. [Laughter.]

Basically, then, you are saying that, out of the £143 million, you will generate £74 million, or slightly over 50 per cent, but from the £57 million you will generate only £8 million, which is probably about 13 per cent. That is interesting.

Okay. I got to page 96 of the report, which is on the land and buildings transaction tax. No one has touched on that yet. We are looking at quite a significant decline, from £813 million this year to a predicted £730 million. In other words, there will be an £83 million deficit, which, incidentally, is £1 million more than we will raise from the projected tax increases in the two rates that we have just talked about.

However, you then go on to look at residential tax, which, over the next four years, is forecast to go up by about 56 or 57 per cent—I am just doing the sums in my head. Can you briefly talk us through that? I see that, in paragraph 4.88, you say that you forecast that

“house prices would rise in 2022-23 by 6.0 per cent and transactions fall by 10.8 per cent”,

when, in actual fact, house prices rose by a wee bit more than that and transactions fell by a bit less. Can you talk us through the land and buildings transaction tax element, given that we are talking about a significant amount of money and a significant decrease, going forward into the next financial year?

Fiscal drag and rising earnings—

But, to a large extent, fiscal drag is the reason for the forecast being £2,211 million higher now than it was a year ago.