Chamber and committees

I was just wanting some clarification, so thank you for that.

You are predicting that, by 2024-25, there will be a £764 million shortfall in social security spending. Looking at that figure, I think that it is obvious that some measures are fixed and will remain in the budget, but surely the idea behind some of the measures that are being introduced to try and drive down levels of poverty is to reduce the number of people who are eligible and who are claiming benefits. Has any of that been taken into account in assessing the figures?

In that case, we will go straight to questions. I will base my initial questions on the statement that Professor Roy has just made. You basically said that we must look at public service reform, and that we must be genuine in that reform. However, the issue will be about how we bring in genuine reform and move towards prevention, more efficiency and better use of the public pound, and whether such reform will be seen simply as cuts, and so on. Could you address how we can approach that?

The second issue is, regardless of whether we do that and regardless of whether it is successful, there is still a long-term issue around the sustainability of the public finances and the relative divergence in tax revenues between Scotland and the rest of the UK. Following on from that—I will ask David Eiser to comment on these matters, too—what can we do to reverse some of the issues with productivity that we have in Scotland? If the economy was 1 per cent more productive per year than it is now, for example, we would not face this problem for much longer. How do we address those broad issues? I ask those questions before we get into the meat and drink of the budget itself.

David Eiser touched on the Scottish Fiscal Commission assessment, which sits half way between the Scottish Government’s and the UK Government’s assessment of the figures. In paragraph 9, the Scottish Fiscal Commission says:

“Overall the Scottish Budget in 2022-23 is 2.6 per cent lower than in 2021-22, after accounting for inflation the reduction is 5.2 per cent.”

As David Eiser said, one of the issues is that that includes the drawing down of resources. What are the implications for the long-term sustainability of Scottish finances, given the fiscal framework that we have to work within, which has become increasingly tight through inflation and so on?

You touched on the issue of demographics, which was discussed a lot in the session with the previous witnesses and in the pre-meeting private session.

David Eiser, perhaps you could touch on that. I would also be happy for you to respond to any of the points that have been raised. We discussed, for example, the fact that immigration is down, perhaps because of Brexit; the birth rate is down; and even the number of younger people who are in tertiary education is down. However, we still have a high—in fact, a record—number of vacancies in Scotland. Around 100,000 people, or roughly 4.5 per cent of the working population, are unemployed. If those people were in productive employment, that would make a difference. What could we do to upskill those people in order to improve market participation and reverse some of the trends that we currently see?

You were going to say something about capital, David.

I sometimes think that we look too much at what is happening in the UK and that we should look further beyond our borders, where there might be many more ideas for us to look at.

That brings us to the end of our time. I thank our guests, David Eiser and Graeme Roy, for again providing thought-provoking and helpful evidence for our scrutiny.

We will allow our witnesses to leave and then I will take a couple of minutes to update members of the committee on a couple of important matters.

Indeed.

The decline in the number of younger people in the labour force has come up quite a lot. We discussed it to some extent in our private session before the meeting. What is the reason for that decline? Is it that more young people are in higher education? Is it our lower birth rates, or the fact that there are fewer young migrants in the population? Why is the situation here so different from that in the rest of the UK?

I have to say that it is all a bit vague. I think that colleagues will want to explore the issue in some depth, because there are no numbers against the £620 million to explain how it comes together.

With regard to your forecasting, how has your thinking evolved since August? Why have there been changes in your judgment over that period? One of the main surprises that came out of the budget was the £190 million reduction in the net tax position, relative to your previous forecast. Will you talk us through how you arrived at that?

If we take the nadir of business rates to 2027, the growth will be 69 per cent. That is why I did not take the nadir: it was from 2022-23 to 2026-27. I discounted what was an unusual year, but there is still a 25 per cent growth in rates, which is quite a lot for the business community to cough up. That is why I was wondering about your view on where that money will come from. Is that increase being driven by inflation? It is at twice the level of growth. Why are you predicting an increase from £2.8 billion to £3.5 billion over that four-year period? It seems quite a big increase in a relatively short period.