Seòmar agus comataidhean

There is frequent use of the word “uncertain” in your report, I have to say. [Laughter.]

The review of the fiscal framework seems continually to get kicked into touch. There has been delay on delay.

More positive, perhaps, is that Scottish households tend to have smaller mortgage debt than those in other parts of the UK, which means that they will be less affected by rising interest rates—which will support economic activity in Scotland. I would hope that that would mean less fluctuation in house prices, apart from anything else—less decline, then less bounce back, so more stability in house prices. Has that helped economic activity in Scotland in any way? How much of a difference will it make?

I thank our witnesses for answering our questions and, indeed, my colleagues for their questions.

Before I close the meeting, I wish everyone a very merry Christmas, a restful festive break and a happy and prosperous new year.

Thank you. I have just one final question before I open out the session to colleagues round the table. It is a question about taxation. We see that fiscal drag will increase income taxes quite considerably over the next few years, and you have said that the Scottish Government should continue to consider

“ways that the tax system could be made fairer and better aligned to improving productivity and wellbeing, either through reforms to existing taxes or through the introduction of new taxes”.

By 2027-28, what share of gross domestic product will be taken up by taxes compared with now? Also, you say that the system could be made fairer, but fairer to whom?

We have an anomaly in Scotland whereby people who are earning £45,000 a year, for example, on marginal tax, will pay in the next financial year 42 per cent in income tax and 12 per cent in national insurance, giving a marginal rate of 54 per cent; on the remainder, they will have to pay excise duty, VAT and all the rest of it, depending on their lifestyle. However, for people earning over £50,000, their national insurance level falls to 2 per cent, so their marginal rate is significantly less. How can the tax system be made fairer, given those anomalies?

Paul Johnson of the Institute for Fiscal Studies said that borrowing will take the strain in the near term, with

“the great majority of the planned consolidation … due only after the next election”.

He added,

“what we are really doing is reaping the costs of a long-term failure to grow the economy, the effects of population ageing, and high levels of past borrowing”,

and concluded by saying that

“we are in for a long, hard, unpleasant journey … that has been made more arduous than might have been by a series of economic own goals”.

Do you agree with that?

That is one of the Government’s arguments for trying to ride out some of the current pay demands and not build them into the system.

It is indeed.

What Michelle Thomson has just talked about—fraud, corruption and money laundering—can be called tax evasion, but what about tax avoidance, which is somewhat different? Does the OBR analyse the impact of tax avoidance on the public finances?

Is that 5 per cent of total tax income or 5 per cent of GDP?

I think that we are in a more optimistic place in that at least we know what is happening. The OBR’s position has been strengthened by events in recent months, as I am sure that you will agree.

On the UK’s economic and fiscal outlook, you said:

“the medium-term fiscal outlook has materially worsened since our March forecast due to a weaker economy, higher interest rates, and higher inflation”.

You also talk about a number of those areas. For example, you said that rising prices

“erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support.”

Obviously, that 7 per cent fall in living standards will not affect everyone equally. Who does the OBR feel will be most adversely affected by it?