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Does that 1 per cent equate to approximately the same as the UK figure?

Mr Davies, I have been involved with public audit committees since the Scottish rate of income tax was introduced several years ago. I want to begin with a very simple question, and then I will focus more on the actual report.

One of the things that jumps out of the report is the 70 per cent increase in the number of missing Scottish postcodes. It still represents a small proportion of the taxpayer population, but if it includes large numbers of high-net-worth individuals, it could have a significant effect on the tax collected. What is behind that increase? What is driving the error?

I turn to one or two specific issues. Paragraph 1.2 on page 10 says:

“HMRC calculates the final outturn figure from several components”,

but it does not actually mention what those components are. I do not know whether explaining them will require a lengthy response. If it requires just a short one, that will be fine, but if not, you can perhaps drop us a note.

Surely it indicates that there is a flaw in the process.

Given that the problem has been happening every year since the system was instituted, it must endemic to it.

I could go on, but I am conscious of time.

In paragraph 15, you say:

“HMRC ... estimates Scotland’s share of net losses was £800 million ... based on a proportion of the UK figure, rather than ... Scotland-specific data”.

How exactly does it calculate that share of the net losses? Is it simply a percentage based on the volume of taxpayers that we have or is there some other esoteric formula?

I will ask for a bit of clarification on one or two specific areas of the report.

As I said, anybody reading the report would have a concern at the level of estimations right the way through it. I know that you consider that the system that is in place is robust, but that is dependent on having a system to produce those estimates. It is very difficult to get a grip of the facts, so let me ask one or two questions.

In paragraph 6 on page 4 of the report, you talk about HMRC producing

“a provisional estimate of Scottish income tax revenue for that year.”

Is that in line with what you do for the UK?

The convener has already highlighted the multiplicity of references to estimates in the report. That is not terribly encouraging when we are trying to plan expenditure against the income that we are likely to get from taxation.

When the Scottish rate of income tax system came in, the first year or two were a bit of a shambles, to be honest, but we kind of expected that. However, it disappoints me that I do not see improvements or the elimination of recurrent problems since then. As the system refines itself and HMRC identifies the weak points and variables in the system, I would have thought that HMRC would work to eliminate those anomalies. I do not see that happening—I see the same stuff again and again. You might think that it is still relatively early years, but I would have hoped that some of those anomalies would have been eliminated by now.

Do we have any idea at all of the impact on the actual revenues that are being collected?