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One issue is that the OBR does not necessarily have access to the data that it requires to look at specifically Scottish circumstances. Are there any data streams that could be added to make forecasting in a Scottish context more accurate?

Paul Johnson says that the

“primacy of asset accumulation, and the importance of asset holdings”

has been prioritised over improving living standards through earnings, which will impact on low-income households in particular. Is it fair to say that?

Good morning and welcome to the 13th meeting in 2021 of the Finance and Public Administration Committee.

The first item on our agenda is to take evidence from the Office for Budget Responsibility as part of our budget scrutiny. We are joined by Richard Hughes, director, and Professor Sir Charlie Bean and Andy King, budget responsibility committee members. It is the first time that we have taken evidence from the OBR this session, and I thank Mr Hughes and his colleagues for making the journey to Edinburgh.

We have 75 minutes for discussion and will have to finish promptly just before 10.30 am, in time for our second evidence session.

As we have been given a small but perfectly formed statement by the OBR, I will open up the questions. I do not mind who answers the questions—that is a matter for the witnesses, and one or more can answer.

In the third paragraph of your overview of the October 2021 economic and fiscal outlook, published on 27 October, you stated that there are

“supply constraints in several markets.”

You go on to say that

“these supply bottlenecks have been exacerbated by changes in the migration and trading regimes following Brexit”,

and you

“expect CPI inflation to reach 4.4 per cent next year”.

What is your view on how the consumer prices index will impact the Treasury gross domestic product deflator, which is obviously important for the setting of budgets in Scotland? Is the situation with supply bottlenecks improving, and when do you expect it to return to as near normal as possible?

We shall end this evidence session on that very positive note. I will not ask for the name of the hotel.

I thank Mr Hughes and his colleagues for taking the time and trouble to come all the way to Edinburgh. That is really appreciated in the current circumstances, and it definitely gives you lots of brownie points from the committee. We much prefer to take evidence face to face, if we possibly can.

I also thank you for all your evidence. We could have asked a lot more questions if we had the time, but we have a full agenda today. Thank you for coming to see us, and we hope to see you again before too long.

Our next witness will be Carl Emmerson from the Institute for Fiscal Studies, who will join us remotely. I suspend the meeting to allow final connection checks to take place. We will be back at 10.29 for a 10.30 start.

On 27 October, Paul Johnson said that the budget was “very disappointing” and that it showed that household income would be “pretty stagnant” at around 0.8 per cent growth this year. He went on to say,

“This is actually awful,”

pointing to

“High inflation, rising taxes, poor growth keeping living standards virtually stagnant for another half a decade.”

In his speech that day, he went on to say:

“Average gross earnings could have been some 40% higher had pre crisis trends continued.”

How does that compare to other western countries?

Paul Johnson said that the decisions taken by the chancellor were

“almost entirely a set of policy choices unrelated to the pandemic.”

He went on:

“High inflation, rising taxes, and poor growth, still undermined more by Brexit than by the pandemic, will see real living standards barely rising and, for many, falling over the next year.”

Is that something that we are seeing elsewhere, or is the UK unique in being in this situation? If the UK is not unique and other countries are battling the same issues as the UK—Brexit excluded—and doing just as badly, we cannot criticise the UK Government. Is the UK doing specifically poorly on these issues?

The issue of productivity is crucial because the sectors in which more and more people are needed, such as social care, are the ones where it is hardest to deliver the productivity gains that are require.

A shortage of skilled labour for the high-tech and more productive jobs that we need to keep the economy going and create the additional resources that we want to invest in health and social care and so on will force up wages in the short, medium and long terms. How will that impact on our international competitiveness as a global trading economy?

I will stick with inflation. No one has answered the question about CPI versus the Treasury deflator yet. I was struck by the difference between the OBR’s assumed nominal earnings growth in 2022 of around 3.9 per cent and the 1.3 per cent that is in the Bank of England’s monetary report. That is a huge differential. Most people would probably think that the OBR is nearer the mark on that. From your perspective, do you think that the Bank of England will look again at that, and will there be implications for interest rates? We know that the bank voted seven to two against changing the interest rate last month. What is your feeling about that, and how will it impact on your forecasts?

Is it not the case that, if people are incentivised to invest in assets, they are less likely to invest in the productive elements of the economy that are high risk, which impacts on productivity and growth?

Inflation is leading to fiscal drag, which is a windfall for the chancellor. What is the impact on middle-income earners in particular?