Chamber and committees

It was not a negotiation between equals. Obviously, the Treasury always had the whip hand. We will certainly put the question to the Deputy First Minister, but no doubt she had to accept, more or less, the progress that has been made. Some of that progress is on capital borrowing, which will no longer be fixed at £3 billion in total and £450 million a year for capital expenditure. The limits will now increase in line with inflation. As Mairi Spowage has pointed out, that should really have been the case from the beginning, because the value of those borrowing powers has been eroding significantly over time.

I am interested in how the capital borrowing power inflationary impact has been assessed, because it is based on the gross domestic product deflator. Between 2023-24 and 2027-28, it is predicted to be 5.5 per cent. That is not the figure for this year; it is the total over the next four years. Is that in any way realistic? It would mean that the resource borrowing limit would go from £600 million in the current financial year to £633 million and the capital borrowing limit would go from £450 million to £475 million. How realistic is that, Mairi?

In your submission, you say:

“There is still a question though about whether the limits for forecast error are adequate given the risks the Scottish Government are facing ... Given that forecast error is all that this borrowing mechanism can be used for, it would seem sensible to consider that they should be extended further.”

The next item on our agenda is a round-table discussion on value added tax assignment in Scotland. For this session, I welcome to the meeting Charlotte Barbour, who is deputy president of the Chartered Institute of Taxation; David Phillips, who is associate director of the Institute for Fiscal Studies; John Ireland, who is chief executive of the Scottish Fiscal Commission; Professor Mairi Spowage, who is director of the Fraser of Allander Institute; and Mark Taylor, who is an audit director at Audit Scotland. We have around 75 minutes for this session. I would like it to be a discussion between us all. If witnesses or members would like to be brought into the discussion at any point, they should indicate that to the clerks and I will call them.

Initially, I will ask a question to Charlotte Barbour, and then anyone else who wishes to comment should let me know. The discussion will proceed in that way. It will be somewhat different from the last session.

In your submission on behalf of the Chartered Institute of Taxation, you said that

“the lack of a suitable model for identifying and assigning VAT revenues raised in Scotland, the lack of policy autonomy that would be afforded to the Scottish Government from a policy of ‘assignment’, and the introduction of additional risks to the Scottish budget”

mean that, in your view, this would be a highly risky adventure, so to speak. Will you expand on that?

I turn to John Ireland. In its submission, the Scottish Fiscal Commission says:

“we are still in a situation where the estimates of VAT raised in Scotland are too volatile to be suitable for the purposes of VAT assignment.”

We queried that. I specifically asked about Scotland relative to the other 11 nations and regions of the UK, because our geographic and demographic profile is very different. For example, our rurality is quite different from that of the Midlands, for example.

I will let John Mason in, but we have talked about VAT assignment, and everyone seems to think that it is a dead duck, for the reasons that have already been discussed such as the fact that the Scottish Government would not have any control over it. Do people feel the same about the devolution of VAT at this time or do people have different views on that?

Are there any further comments from anyone?

Thanks very much. There will be no fact-finding visits to Italy, Belgium or Germany. I want to make that clear.

I am not hearing an overwhelming endorsement from people around this—I was going to say round table; it is more of a horseshoe, to be honest. Everyone is all bunched together.

Yes, I think that there is an element of that. There was a lot of politics in that. I suppose that the Scottish Government felt under a duty to follow the recommendations of the Smith commission and to look at them in detail. It has done that, but how long can you flog a dead horse? That is probably the issue here. There is no enthusiasm certainly for assignment anyway. I do not think that there are many people who are shouting from the rooftops for devolution of VAT either at the present time, unless I am mistaken. No. Does anyone else want to comment on this? It is a nice, cheery session, isn’t it?

It has been a very constructive session because, as has just been said, we have had eight years talking about this and if we, as a finance committee, with the unanimous support of our witnesses and across the political parties, are saying that assignment should no longer be looked at, that is a very strong message that we are sending to the Scottish Government on this.

Unless anyone has any further points that they want to make, I will wind up this quite short round-table session. I had expected it to go on a wee bit longer but, because of the unanimity of views that have been expressed through very detailed and high-quality submissions, I think that we have come to a very strong and unanimous conclusion. Does anyone else have anything to say? Going once—okay.

Thank you very much to everyone for attending and participating in today’s discussion. It has been very useful.

That concludes the public part of our meeting. We will continue to take evidence on the fiscal framework, and we will certainly convey our views to the Scottish Government regarding VAT assignment. We have the Deputy First Minister in next week and no doubt we will put these issues directly to her.

The next item on our agenda, which is a discussion of our work programme, will be taken in private. We will have a wee five-minute break to enable our witnesses and the official report to depart. Thank you.

That is an issue that Mark Taylor is specifically concerned about as well.