Chamber and committees

Excellent—thanks.

My question might be best put to Richard Hughes, in the first instance. I am interested in hearing your thoughts on how appropriate the GDP deflator is as a measure of inflation for Government. At the moment, there is quite a gulf between the 3.7 per cent that it states, on the one hand, and, on the other hand, the consumer price index and retail price index levels, which are into double figures.

In the wider debate on the issue, it seems to be broadly recognised that neither method is quite right for measuring the impact of inflation on a Government, but the GDP deflator is the one that is used officially. I am interested in hearing your thoughts on how appropriate it is in the current financial context.

That is great—thank you. The context for asking that question is that we are all limbering up for another debate on Thursday about whether the Scottish budget has gone up or down in real terms, which depends entirely on how we measure “real”.

I have one final question, on the Scottish tax base. Income tax makes up the majority of our devolved tax base. As was just mentioned, the rate of growth in wages is currently far lower than inflation, but wages are certainly set to grow by far less than wealth—in particular, the wealth of the wealthiest people in our society.

Given that income tax is devolved and makes up the majority of our devolved tax base, and that the lion’s share of what is left is land and buildings transaction tax and council tax, are Scotland’s public finances overexposed to short-term shocks in the economy in comparison with UK-wide public finances, which can be supported by a much wider range of taxation measures on wealth or corporate tax, as was mentioned earlier?

It is not on that particular point, convener.

Thanks very much. Is there a measure that currently lands somewhere between the two, which might be a more appropriate one on which to base assumptions on the impact of Government spending?

Thank you—that is everything from me.

I can come in at any point.

Like John Mason, I apologise for having been late this morning. It had nothing to do with buses or trains, either; it was due to a much more mundane issue about my pass and gaining entry to the building.

Convener, may I check something so that I will not be wasting time by duplicating matters? In its initial questions, which I missed, did the committee cover the GDP deflator?

Those were really interesting points, so I appreciate your circling back to my previous question.

My final question is on a different area. When lowering the threshold for the top rate of income tax has been considered in the past in Scotland—recent tax papers by the Scottish Trades Union Congress and the Institute for Public Policy Research have included proposals in that area—the counterargument has been that that would result in significant behaviour change and would not raise additional revenue.

Part of the argument is that a Scotland-specific reduction in the threshold could result in people on higher incomes simply moving elsewhere in the UK to avoid paying the additional rate. If the Scottish Government follows the UK Government’s lead in reducing the threshold to £125,000, that behaviour change element will be eliminated, although there will still be the prospect of people converting their income into other forms to avoid paying income tax.

Do you expect tax avoidance-related behaviour to change in that regard? I have to say that I have never found the argument to be massively credible, but I am interested in your thoughts on it.

You have hit on a key area that really needs to be considered in the review of the fiscal framework, which is the perverse incentives that it creates.

I hope that you do not mind me jumping between a few different areas. First, I will follow John Mason’s line of questioning around inflation. I am interested in your thoughts on debt interest. It feels as though the era of cheap money is over globally, at least for now. However, the UK went through a particular episode with debt interest rates on the back of the mini budget. What is your expectation of the rates over the next couple of years?