Seòmar agus comataidhean

I am almost tempted to start by asking what text messages the cabinet secretary has had, as she said that an hour is a very long time at the moment. However, I will not ask her to divulge that.

I am interested in going back to the points that the convener and Liz Smith raised about the Scottish Fiscal Commission’s report and asking the cabinet secretary to extrapolate. I asked the Scottish Fiscal Commission representatives this question as well, when they were in front of the committee. Figures 2.3 and 2.4 in the commission’s report, “Scotland’s Economic and Fiscal Forecasts December 2021”—I do not expect the cabinet secretary to recall what those say—set out the tax net position and forecast the social security net position and new payments. Combining the numbers for 2026-27 for both those lines gives a tax net position of a deficit of £355 million, and social security represents £764 million of additional commitments and spend. That would indicate—if you accept those projections—that a sum of £1.1 billion to £1.2 billion would need to be found from other budgets.

Do you accept those projections? I accept that the issue goes beyond this budget, and it probably goes beyond the spending review in the new year. However, it is certainly on the horizon of this Parliament, and it suggests that some quite difficult in-line changes between budget lines will need to be made in the coming years. Is that a fair analysis of those forecasts?

No—I kind of agree. Basically, income tax and social security bills are outwith your control in some manner or means and, if they put pressure on your budget, they will force you to manage budget lines elsewhere that are in your control, and that will be the dominant feature of the comprehensive spending review and the budgets in this session. That is what I am trying to get at.

That is helpful. I will add one point. There is also a question mark over the timings of some of those publications; timing them better could help with the maturity of the debate, and I am happy to discuss that in the future. I could go on, but in the interests of time, I will finish there.

Forgive me, but, in a sense, that response just continued the description of the problem rather than providing analysis.

If we look at figure 3.19 in the SFC’s report—this is directed more at the cabinet secretary than at Lucy O’Carroll—we see the particular problem in north-eastern Scotland. That is understandable, given the situation in the oil and gas industry. However, the issue is that no Scottish region performs better than the UK average. Indeed, no Scottish region performs better than Wales or Northern Ireland, which are devolved Administrations. Given that we have the levers, one would hope that Scotland as a whole would perform better than the UK average. At the very least, one would hope that some Scottish regions would do that, but they do not. Indeed, many of the regions that I have identified have exactly the same demographic problems and precisely the same issues with the legacy of deindustrialisation as Scotland has.

What is the analysis? Why is Scotland lagging behind? More important, why is every Scottish region lagging behind the UK average and the other devolved nations? Is that not a critical question that the Scottish Government must have a handle on?

I would not call it that, Mr Carlaw, but you get the broad theme.

I rather suspect that, if Douglas Lumsden was asking questions after me, he would reflect that local government would like multiyear budgets and predictability just as much as the Scottish Government would, but I will move on.

On the point about growth, and especially income tax, the big surprise from the Fiscal Commission’s report, in a sense, is that the reconciliations were a lot more detrimental than expected. Many of us were expecting them to be positive, rather than negative. Figures 3.16, 3.18 and 3.19 in the commission’s report deal with income tax changes. This was touched on by Liz Smith, but it is worthy of further interrogation. I am looking at the change in pay as you earn—PAYE—in terms of mean pay and of total pay. It strikes me that there is more going on than has been alluded to.

Some of the analysis that was presented by the Government was that, as ever, Scotland is lagging behind London and the south-east, but the analysis that is presented in the report would suggest that the situation is actually significantly worse than that—the comparison is not just with London and the south-east. Critically, one would expect some of the points that you made about upper pay bands to apply equally to other regions, such as the north-east and north-west of England and Wales, yet Scotland is lagging behind on most of those measures. I would be interested to hear your analysis of that.

Professor Graeme Roy and others have highlighted the issue of labour participation rates for younger and older cohorts. Is that not a big problem? Should we not pay much more attention to labour participation and ensure that we are putting people into the right sectors, especially at a time when there are labour shortages? A glass-half-full view is that that is an opportunity to get people into better paid jobs.

Yes but, frankly, you can look at the other cuts as well. The two other perspectives that the SFC provides show roughly the same picture.

Before I ask about regional comparisons across the UK, I wonder whether we can get some extrapolations with regard to the implications for the funding envelope in the medium term. What took most people by surprise was that the net tax position reduced available funding by £190 million instead of adding to the funds, and a deeper look at your report suggests that the issues that that has caused the Scottish budget are only going to increase.

What are you actually saying the implication will be? According to figures 2.1, 2.3 and 2.4 in chapter 2 of the report, you seem to be saying that the block grant is essentially going to stay flat over the next five years and that, by 2026-27, there will be a negative net tax position of -£355 million and—critically—new social security spend and other additional spending will have resulted in a negative position of -£764 million. Is the implication that, in the next five years, £1.119 billion will have to be found in the Scottish budget to cover that? Is that the correct analysis of the trends with regard to the block grant, the net tax position and social security spend?

That is a helpful and important answer. If we are looking forward to a comprehensive spending review halfway through the next calendar year, that gives a picture of the overall envelope that it will have to work within.

The next key question touches on the point around the net tax position. Why is Scotland performing less favourably compared with the rest of the UK? For me, the big change is that that comparison is not only with London and the south-east—as the cabinet secretary has alluded to—but with every other region across the UK.

I said to committee members during our private session before the meeting that my rough rule of thumb is to assume that we will always be behind London and the south-east, that we will be somewhere around the south-west, and normally a bit better than places such as Wales and Northern Ireland. However, that is not the case when we look at our net income tax position; indeed, every single Scottish region is lagging behind pretty much every single region in the rest of the UK. Why are those impacts so much more significant in Scotland in comparison with places such as the north-east of England or the midlands that might—one would suppose—have comparable demographics to Scotland?

It strikes me that this area requires much more attention from the Government and, indeed, the Parliament. I include in that the specific point about labour market participation, but I struggle to understand how that explains the issue in its entirety, given that you would have thought that the demographic challenges would appear in other UK regions. Scotland is not so different from places such as the north of England or Wales. Where should we look for that explanation, or should further analysis be done so that we can adopt the right policies to address the issue?