Chamber and committees

The next item on our agenda is an evidence session with the Scottish Fiscal Commission on its “Forecast Evaluation Report” and its paper on “Productivity and Fiscal Sustainability”, both of which were published on 29 August 2023.

I welcome from the Scottish Fiscal Commission Professor Graeme Roy, chair, Professor Francis Breedon, commissioner, and Claire Murdoch, head of fiscal sustainability and public funding.

I intend to allow up to 75 minutes for this session. Before we open to questions from the committee, I invite Professor Roy to make a short opening statement.

You are absolutely right. That is, of course, a policy choice, and I am not asking you to make such policy choices, because you would demur if I did so. However, it is interesting that you have touched on the situation with the current devolution arrangements and have said that we would have to change public spending or tax policy. What would we have to change to bring the finances into long-term sustainability?

Colleagues will press some of those issues further as we progress through the meeting. I do not want to hog the whole meeting. The first colleague to ask questions will be Ross Greer and he will be followed by John Mason.

I think that about 12,000 more people are employed in the sector. However, the productivity outcome is not something that we looked at when we were doing post-legislative scrutiny in this area a year or so ago.

That concludes questions from the committee. I have one further question, which is about David Bell’s paper. John Mason touched on it, so I thought that I should do likewise.

In the exchange, we discussed the issue of potential spending changes and tax changes that will be necessary—not the specifics, but the fact that they might be necessary. Professor Bell talks about loss aversion, which is something that I have raised before in the committee. That is the issue whereby people, if you give them additional funding for whatever, simply shrug their shoulders and say, “Thanks”, but if you take something away, they are extremely hostile to that, and it causes much more of a political backlash than the gain that you would get from doing something to give them the same financial sum.

What implications does that have for long-term fiscal sustainability and the ability of Governments to take decisions that may require to be taken?

I wanted to end on that because fiscal sustainability is going to be the key issue in our budget scrutiny this year.

I thank you very much for your evidence today, Professor Roy and Professor Breedon, and I also thank Claire Murdoch. It is very much appreciated, as always.

It has been a reasonably long session so far, so I call a break until 11 o’clock.

Thank you very much for that, Professor Roy.

I will kick off the questions and then open up the discussion to members of the committee.

I will start with the issue that you have just touched on. I will not quote the full paragraph in your letter, but you have said:

“While higher productivity growth has a clear positive effect on the economy, the net effects on the public finances are complicated and to improve fiscal sustainability will require changes in public spending or tax policy.”

Professor Spowage talked about that at our away day last week. I would be interested if you could explain the reasoning for the fact that increased productivity might not reduce the sustainability gap. That is crucial to our deliberations as we move forward, and it is important to get that on the record.

The second issue is the changes that would be required to close that gap, even in a situation in which we have increasing productivity.

Obviously, if the economy improved, one would expect fewer people to be dependent on public services, and there would be the same impact if people’s health improved.

I think that that is pretty clear. Colleagues can ask further questions about that if they wish.

Let us move on to look in more detail at the forecast evaluation report. Page 19 shows that the number of top-rate taxpayers has increased from 14,700 to 18,000. Yet, on page 46, you say:

“the tax revenues paid by top rate taxpayers have actually fallen in two years.”

Why is that? If there is a significant increase in the number of such taxpayers, and given that we are in an inflationary situation, why have those revenues fallen?

Well, not from existing jobs. You have talked about displacement. If people are going to be displaced, they will not be displaced on the basis of lower wages and poorer working conditions, will they?