Finance and Public Administration Committee 16 September 2026

Good morning and welcome to the fifth meeting of the finance and public administration committee in session 7. I've received no apologies for today's meeting. I'd like to remind everyone to switch off or put to silent mobile phones and any electronic devices. The first item on our agenda is to take evidence on the committee's pre-budget scrutiny 202728 affordability and sustainability of Scotland's tax and spending plans. And can I welcome our witnesses this morning, Sandy Begby, chief executive of Scottish financial enterprise and Colin Borland, Scotland director of the Federation of Small Businesses. Before we begin, can I remind our witnesses not to worry about turning on your microphones? broadcasting will control those and if you'd like to come in on a discussion please just indicate by raising your hands and catching the attention of the clerks. Um I'm going to start this morning with a general opener uh for for for both of you. So, can Scotland realistically close its medium-term fiscal gap through stronger economic growth alone? Or will sustainable public finances require more significant tax reform and revenue raising alongside growth? Who'd like to start? I'll go first. That's okay. Um, so I think um just in terms of your question, I would also add in public sector reform into that. I think it needs to be a combination of economic growth um tax reform but not tax increases um and also public sector reform. I think so I don't think there's any one single answer to the longerterm fiscal challenge that the government faces. Um I should have maybe just said at the beginning um uh chair that I also sit on the public sector reform steering advisory board. So obviously have an insight on that and also the university funding review group. So have an insight on um some of the challenges in funding in that space. Um our angle around tax is that we've created um a deeply complex tax arrangement in Scotland. Uh we've got obviously a number of different bands, number of cliff edges which not only are in Scotland but also apply at a UK level. Uh, and we've now got ourselves in a position where in Scotland about 12% of taxpayers pay almost 70% of all income tax that's brought in. Put that in context. If you run a business and you had 100 customers, 12 customers are accounting for 70% of your revenue, which is an unsustainable position. Um, in our response, we uh made it clear that we felt as though the importance of economic growth should be targeted at broadening the tax base uh not increasing the tax. Um and particularly Scotland needs to um create and attract more jobs in that 50 to 100k bracket. Um financial services which is industry I represent. We pay an average 50,000 salary uh £50,000 a year salary. So well above the average in Scotland and I think Scotland should aspire to be a higher wage economy uh than it currently uh currently is. So I think as I say from in response to your opening question I would say it needs to be a combination of three things. I think public sector reform uh reform in the tax base but also an increase on economic growth which um if we've been honest uh really since the financial crisis has been uh relatively poor uh both not only in Scotland but also the wider UK. Thank you. >> Thanks. Before I move on to Mr. Brolan, can I just ask you to expand a little bit? You mentioned tax reform, not increases. So what taxes would you wish to reform? >> So I think there needs to be a discussion around the use of tax to stimulate economic growth. Um you know we've got ourselves into a position where um we we use the word progressive when actually we've got high taxes which the recent um study has shown has resulted in a decrease in income tax being brought in. So we've reached the point the laugher curve if not beyond it. So we need to think about how do we use tax to actually attract and grow the economy um not simply by um taxing uh the existing economy more. As I say the cliff edges are quite significant if you if you earn between roughly 43 and a half thousand and 50,000 in the in Scotland then you're paying a marginal rate of tax well into the 60%. So that's a a particular example of cliff edge and of course the UK cliff edge of earning over 100,000 to 125 and everything that goes along with that you're paying a higher marginal rate tax as well. So it's not just a Scottish issue the UK has um it's been well documented probably the most complex tax uh code anywhere else in the western world. Uh and it as a result of that it's created a whole range of different cliff edges. So what we have at the moment is as each budget comes around at a UK and Scottish level we have uh um in our opinion you have things introduced that merely put sticking plasters over the problem. Um the mansion tax is the most recent one. Um the visitor levy is another good example of that as well. So we need to take a step back and look more holistically at what a tax strategy should look like for Scotland given the devolved powers that we have that would also stimulate economic growth and attract more well-paid jobs to Scotland. Again, can I press you here, Mr. Bigby? I'm not hearing what taxes to reform. I'm hearing about issues with other taxes as as you view them. So, what taxes would you reform? What would you change? >> Well, non-domemestic rates has been for a long time has been, and Colin will be more familiar with this, but non-domemestic rates, uh, the consequences of that for businesses is significant. Um, and you know, is bluntly a mess, uh, in Scotland as it is in the UK. I think income tax as I've already pointed out we reached the point where we're now no longer attracting any more money in based on uh the recent um uh analysis from the Scottish fiscal commission. So I would um look to resolve uh or to review income tax and land and buildings tax as well in Scotland is a huge deter and if you go and speak to the house builders and people who are closer to the housing market they'll tell you the housing market in Scotland and broadly in the UK is also slowing down marketkedly due to the issue about stamp duty. So you would scrap them all? >> No, I'm not suggesting that scrap them all. >> That's what I'm trying to get get at here. >> What I'm saying is is that you need to step back and actually re have a look at the current tax landscape which has been built up over many years and has many many unintended consequences and we're not using tax as a way of thinking about how we grow the economy. >> Okay. I'm still not I'm still not clear I've got to the bottom of that but we might explore that as we go further on. Mr. Borland. >> Yeah. Yeah, I mean I think to answer your question, can small businesses on their own do it? I mean, jury's probably out in that, but I think if you look at the size of the sector, they can certainly make a pretty big dent in it. I mean, if you think about there's what 380,000 small medium micro businesses um in Scotland, employing over 940,000 people turning over nearly 100 billion pound annually. So if you think about if we can just get relatively small incremental improvements there. So for example if we could get you know if we can increase that number of employment by 2% that's an extra what 19,000 um jobs we would have in the economy. If you could increase the turnover by 2% that's the thick end of2 billion pounds extra you'd have in the economy. So there's definitely there's an option that there's opportunities there. But I think what underlines is the need for this budget to be a real budget for the business base. to expand and thereby broaden and strengthen the economic base. And that's why we've in our submission, we're sort of cautioning against the sort of the current fad for sort of chasing after unicorns, putting all your eggs in the basket labeled the next big thing and thinking about the changes, practical changes that could actually help it make it easier to set up and run a business in Scotland. And to pick up in Sandy's point, I think something like non-domemestic rates is an absolute was absolutely ripe for reform. I think some of the the recent revaluation brought out a number of fairly long-standing issues with at least two of the three moving parts. You know, your ratable value and how that's calculated is, you know, as a as problematic. And then the issue of um reliefs and how they then applied to the final bill. I think there's something like 22 the last time we counted. And they also overlap each other. They're applied differently. They're advertised differently. Some are applied automatically. Some have to be they only got through application. Um we still seem to have 14 assessors in Scotland where you know historically England and Wales get by with one. Those assessors are using up to eight different sets of practice notes to assess the same type of property in different areas of the country. All of that seems a lot of duplication. I think it leads to some of the communication issues that were again became apparent at the last revaluation. So if we're looking for areas where we can go in and start this public sector reform agenda, I would very much suggest starting there. >> Although I hadn't asked about public sector reform, the public sector reform agenda. I suppose I was looking at >> um can can taxes close that gap or what else do we need to do? What what what would your suggestions be from a small business point of view? And I I hear what you're saying about about rates, but >> I mean I would hesitate to hold myself out as an economist and whether it could actually do it. But I just think if you look at the size of the potential prize if we can get if we can get it right, then I think yeah, we can make we can make a dent in it. But I think that does mean looking at that overall business environment. What can we do to reduce costs, push push cash flow, make regulation operate a lot more sensibly and proportionately? those sorts of practical things that affect a day-to-day trading environment. Out the other end, I think when you see the size of the sector, I think the, you know, a small sort of tweak in the lever out the other end, the actual raw numbers would look pretty pretty big. >> Okay. Thank you, L. >> Perhaps slightly unfair to um put the evidence submitted by um another witness to you, but I'm going to do it anyway. We're going to hear from the Charter Institute of Taxation later on this morning. But I just on the back of Sandy your your comments early, I note in their submission that the the institute um suggests a key risk to devolve tax revenues and the credibility of Scottish taxes is the lack of a regular legislative mechanism for the maintenance of an amendment to devolve tax legislation. We remain of the view that a way forward is needed to enable the introduction of a legislative mechanism for Scottish taxes. I just wonder whether that was an idea that you would be sympathetic um to and and if so, what form you think it would take and maybe helping address some of the um concerns and issues that are uh that arise in terms of the tax landscape at the moment. >> Obviously, like fact you said, I've not seen obviously the return. So, I'm I'm you know um so I'm not entirely sure what they mean by that. I was going to say, but is the is the lack of a legislative or a regular legislative mechanism for looking at taxation something that you see as problematic or do you see the obstacles being elsewhere? >> I think if if what they're talking about is so we don't believe that there's a coherent long-term tax strategy for Scotland within the devolved powers that sit there. So I think um from a business point of view what happens is uh and again this happens at UK point but every budget that comes around you never quite know what's going to come up and and there's just constant tax changes and what from an investor point of view what investors are looking for is stability and um what we've currently got is a position as I say both at a UK and Scotland level whereby investors don't really know what's going to come up in each uh budget that's going to come along. So you got a lot a lot a lot of different speculation. So if there was a long-term tax strategy that actually laid out that actually what were the principles underpinned the tax in Scotland then and what that might mean in practice and then put some put some firm um lines in the sand that says these are the taxes they're not going to change any further um either good or bad. It's not necessarily the rate of the tax from an investor point of view. It's actually the stability of it that's more important. And at the moment we don't have that stability in the UK or in Scotland. I mean to some extent there would be an argument that the government might make that they've made quite clear what their direction of travel is and what they're seeking to achieve. Um and therefore um the the decisions they're making, the changes that they are making are generally more predictable than you're suggesting. That actually the concern is more that that direction of travel and the decisions that they are taking are ones that um cut against by by by by um your uh your estimation cutting against the objective of economic grow growth and and expanding the tax. Yeah, I would say I I think our our angle is is um tax policy doesn't align with the economic growth agenda. Um and you know I think that that's why I said at the very beginning of it is that in order to address the fiscal challenges in Scotland, we need to both address the tax issues of public sector reform but also then how do we drive that economic growth and tax is part of that. So I think that what happens is is we introduce a series of policies that actually undermine economic growth. um obviously approach to non-domemestic rates which has been touched on previously you know in our industry we know from a range of our members that in order to try attract higher rate taxpayers to Scotland the fact is that we've got that tax differential is a big barrier so actually we're not able to attract the talent to Scotland that we would want to attract to Scotland because they either come here and work for two three days a week but they will not move so Scotland's then losing out on all that discretionary spend at the weekends and etc etc people will just not move to Scotland because the tax differential. So our point is is at what point is that tax strategy running against that economic growth agenda and as I say London buildings tax is another example of that. So I think the um the point is is if economic growth is your is part of the answer to the fiscal challenge then what's the tax strategy to try and maximize the uh economic growth that you can generate because at the moment we feel that's running counter to that economic growth agenda. Michael, >> you mentioned in your um your submission that the you think that we're reaching a tipping point uh Mr. Begby um regarding the tax system and you describe a little bit more about why you think we're at that point. >> Sorry, Michael, I just missed the first part of your question. Um we're you said in your submission that you think we're at a tipping point. >> Yes. >> Could you tell us a little bit more about that language and why you think it's appropriate? Yeah, and I think obviously there was a lot written two or three weeks ago um uh in the press around the uh data from Scottish Fiscal Commission about the amount of income tax that was being brought into Scotland. Um there's a lot of debate um as like Colin, I'm not an economist, but you obviously you know the LER curve is something that we've looked at quite carefully and and you know we believe we've now got to a point a tipping point where actually the tax take actually is going to start to reduce because what you've not been able to factor in is behavioral change. people either not taking on extra hours or people um for example deferring more into pensions. Um people then choosing not to come and live here in Scotland as an example. So the the what a lot of these models don't take account of is behavioral change and I think what you started to see is that behavioral change start to come through. I can speak for my own um members. You will find people that are that simply will move to working four days a week in order to avoid going over that 100,000 level for example. So because the marginal rate tax then means it's just not point working. So people will start to change their behavior and I think that's what you're starting to see. >> And are you drawing on particular evidence for for that conclusion or is this just the observation of the the commentary you've seen externally and anecdotal? >> So um uh we we run a series of uh groups inside our own organization um which we use to input into government works. Um so we uh constantly engage with that group of organizations to understand what they're seeing within their own businesses and the impact of tax on the back of that. So we can speak with confidence certainly from our sector. I can't speak for other sectors but certainly from our sector that the fact is that that that um tax divergence is resulting in um behavioral change in the areas I just mentioned. So, so your group uh of businesses will typically have um your financial enterprise quite high earning people within them. Uh could you tell us a little bit more about the kind of uh measures you're seeing from those people in those groups? What what are they actually doing to the deal change their tax affairs? >> So, I think um uh you've seen certainly an increase in people paying into pensions. So, basically obviously using the tax breaks associated with that. These backspace have always been there of course but what happens is when you start to increase the taxes these things get far more attention and more focus. So people then start to take that behavioral uh change. What you're finding is people either um reducing their hours which is another one. Um so people will choose to reduce the hours that they work in order to keep their salary below a certain level. Um another as I mentioned earlier um there's a number of firms we we I think we're quite balanced and quite nuanced about the impact of tax on people. There's not a great evidence of people leaving Scotland. Um because um bluntly if you're going to leave Scotland in our industry you're pro probably sorry you're pretty much going to go to London um of course your cost base of living there is far higher than it is here. So there's no we're not saying it's pushing people out of Scotland but what we are saying is is it is actually acting as a deterrent to firms who are actually looking to bring people to Scotland. And given that we're one of the sectors who are growing at three three and a half% a year, we think there's further growth there that could be had but the tax is acting as a degree of a barrier to that. >> And is that lead to recruitment challenges as well? >> Yes. As so I think that you've got recruitment challenges in the sense of bringing people from elsewhere in the UK to Scotland. So what we're doing what we do at the moment and the way that we fund sorry the way that we develop the pipeline of people into our sector is predominantly through working very closely with universities and colleges. So their curriculum we've managed to influence so that we actually developing our homegrown pipeline but it's still a barrier to the particularly at a senior level. People are saying we're not going to move to Scotland because of the tax differential. They'll take a job in Scotland but as I say will then choose not to necessarily live here and they will they will commute um two or three days a week. Okay, Mr. Bland, is that these phenomena uh observed in your own area? >> Um, not to the same extent. I think the last time we asked members about this, which was a while ago, um, the majority were what I would still call a basic rate taxpayer. You know, the issues, you know, being a higher rate or advanced rate taxpayer is a problem that most small business owners aspire to have. Um, and also they're also rooted in their community. I mean, some of we have very highly globally mobile But many more of them are, you know, physically rooted in in in communities. So this is probably um a second order concern for them. Um however, we haven't asked the question more recently. So um we don't have good reliable up-to-ate data on any sort of um behavioral impact. >> Okay. So you would say I mean there's it's an interesting um divergence in the the two areas. Would you say that using a common group of elasticity for the different behavioral effects would be the right thing to do or the wrong thing to do? By that I mean it seems on lower rates behavior change is less than higher rates. To me that seems quite obvious but that's what you're both telling us. Is that right? I think there's pro I mean for our guys there's probably the element of practicality as well about the nature of the business the nature of your customers and how mobile that is whereas something like you know I mean we don't speak for financial services but something like that which you could see how that could be you know internationally quite mobile so I think that maybe comes into it as well but as I said we haven't actually specifically asked that question yet. >> Okay. Yeah I think mentions the point about mobility I think is a really important one. So I think um because depending on the sector then clearly there is higher levels of mobility than others um and we are in most areas of the sector probably much more mobile sector than say you would get in some small businesses or tourism or retail etc where there's far far lower uh mobility. So I would I would I would concur with that. Um but I would agree um you know that um obviously we are a sector we employ 157,000 people uh in Scotland so uh and we would like to grow that further um but as I say the attracting of people here is is a challenge and it's becoming an increasing challenge >> and in these behavior effects and there's two different areas there is the um in essence the impact if we modeling or the Scottish fiscal commission was to be modeling income from uh a change to the tax rates, but you're also describing loss of tax that's not necessarily going to be on that kind of top rate. So, um, lack of people being prevented from coming here. I'm just trying to get move into this kind of modeling side of it because we've got other evidence in the next panel about different models that they've applied that don't seem to tally with what you're describing. >> Yeah, I think it's always difficult to try and model what you don't get. >> Yeah. you know, so there's a lot, you know, for example, as I said earlier, you know, we we uh because we poll our members a lot. You know, there's there is no evidence really of people any significant numbers of people leaving Scotland. Um so this idea that uh we would we certainly would not agree with the point which is that that tax divergence is driving lots of people out of Scotland, wouldn't agree with that at all. It's not there's not any great evidence of that. But what we do know is that we're not necessarily getting people coming to Scotland and and those conversations about moving to Scotland. um as I say are are proving to be really really difficult. Don't forget the land of buildings tax as well. If you're actually coming to buy a house here in Scotland, then it's going to cost you substantially more. Um and but what we're then losing out, which again you can't really model, is people then living here and then going and spending money at the weekends and spending money on small businesses and retail and tourism, all the rest of it. So, so you can't but you can't model that. But it goes without saying there's a natural progression which is if you actually were to attract more people to Scotland then there's going to be a broader economic benefit but very difficult to model >> and you've expressed concerns previously Mr. Beby about um younger people not returning to Scotland. Yes I believe so there's Could you maybe explain some of that to us? >> Yeah I I think um I mean that takes you slightly into the um which obviously I've declared my um uh interest. I'm on the university funding review group. So um there is evidence on government statistics which show that you know we we the current policy is means that there's a number of young people will lose leave Scotland because they can't get places at university because of the cap. I'm not saying that's right or wrong. I'm just saying that that that's what the stats show. Um and then the stats would also show that once they've left Scotland um the the majority of them would not come back once they've finished their studies. So you've got the effect of young people leaving Scotland. Um and obviously that's you know that talent drain has been you know well documented. Um uh so that's a challenge. I think the other point I would make as well is if you talk to some particular professional services firms um the career path historically would have been recruiting people say in a leads or Manchester and then maybe moving them to five years to to work in Glasgow or Edinburgh and then maybe moving them to London. That's a far harder cell now because the five years of coming to to Scotland, one is you've then got the the cost of buying a property. Secondly is you may well be repaying a student loan. So therefore your take-home pay is really important. So therefore you're losing out on that. But the third point is as well is um uh you know quite often people are only working two three days in the office which means that you know why would they make that move if they're only going to be you know maybe working three days in the office or servicing clients across the UK for example. So that career path that used to be in place that's been disrupted as well. Okay. >> I have some questions in another area for you Mr. Borland later on but I'll I'll come back to that if that's okay. Thank you. Commun >> Paul Stford. >> Thanks Commina. I'll just take this opportunity to draw members attention to my register of interest as a sitting councelor and west loian council in case it comes up later. Um Mr. Bey, I just wanted to follow up on that point um about the evidence you're using um to look at those behavioral changes and just if you've got any comments on the HMRC data showing that there's net inward migration of taxpayers to Scotland. I don't know if that's um detailed enough to show what what kind of taxpayers and what sectors. Um, but I don't know if you've got any comments on that and and whether you think a tax regime alone um influences people's decision to come to Scotland or are you aware of other other things that could be priorities for them? And then just following on from that, would you say that if we were if we went back to aligning more with the UK regime, would that be enough to attract um the the kind of skills that you're talking about >> or do you need something? I think you mentioned a Beckham style tax incentive in question. >> So what was the last point? >> I think you mentioned a Beckham style tax incentive. >> I have Yes, I mentioned that. Yeah, I'll come on to that. Um so um on the HMRC we have asked that for that data we can't get a hold of that data. So um you know net migration is positive but what people are coming to do here are they working are they retiring what doing it's we can't get that data so I don't have any insight on that. Um I think you know in terms of whether people move or not um there are a whole range of different factors that people take in account you know schooling st you know stage of their life you know um family etc. So again, we're not saying that tax is the only factor in that. Uh that would be wrong to say that, but it is a factor in in how people will consider it. But it's not the only factor. There are clearly many other factors. And that's why I was mentioning earlier about there's no obvious evidence of people in the great numbers moving to go to, for example, London because, you know, while you might retain more of your your net income, your cost of commuting, your cost of um uh your home, etc. is going to be far greater than it would be in in Scotland. Even though Edinburgh's expensive, it's nowhere near as expensive as London. So, there are a range of other factors uh in uh in in that. I think um um aligning with the rest of the UK, I think um that's we've been quite clear that we think that would be a a good step. Um I do think though, even if that proved challenging, I think simplifying the Scottish tax regime would be um a good step forward. um you know we've introduced a number of different bands um and again that creates then cliff edges within that um so I think that um we should think about how we might want to simplify and make it easier for people to understand the Beckham's point we put in um you know um you know we we have responsibility devolved responsibility for income tax the point was um uh we used it as an example of being creative um we're not necessarily saying that is the exact answer but there are examples of some like Madrid, for example, who have used that quite effectively to attract workers um into industries that they see as high growth. Um they're attracting people who in the main will be a um will rely very little on public services. So there's not a drain on the on the wider public services and they will give them a reduced income tax rate for five or six years. Once they then uh chosen to stay there, then they would then move on to the normal rate of income tax. So they used it a way to attract talent and skills that they need to grow their economy um and using the tax. Uh so what we were calling out was um just and um let's think creatively about how we can use those powers to actually help stimulate economic growth and attract the type of skills that we want. That might not be the answer but let's at least think about it. >> Okay. Thanks for that. >> Thank you. Good morning panel. Uh Mr. Begby uh just to go back to something that Michael Mara was asking about the behavioral change uh briefly and it was something asked about last week. He talked about the mobility and there's no evidence that people are moving away. Now on that point the ONS says 45% of workers earning £50,000 plus which I think was roughly the level that your members are starting at hybrid or remote work as against about 8% of those earning under £20,000. So, and apparently the managerial and professional uh workers workforce, which again I think you represent, is the most likely to hybrid work. Now, your submission says the Scottish tax base is highly reliant on a small number of taxpayers. So, when you say you're starting to see behavioral change due to the different tax rates, is there any evidence of that small number of taxpayers making choices about where to base themselves? uh and if so or in any event what impact would that have on the economic agenda. >> So for the question is connection between working pattern hybrid working and then also where people choose to work etc. >> Right. >> Yeah. So I I I go back to my earlier point which is um particularly in professional services we have firms who will have um appointed someone into a job which would be Scotlandbased but the individual is not required to be in the office 5 days a week say three days a week and therefore they will choose then not to move to Scotland. Um they may also in professional services they may service UKwide clients. So therefore even if they were based in Scotland they would still need to travel to help parts of the UK. So if you're living elsewhere in the UK, then more and more people are saying, "I don't need to be based in Scotland. Why would I pay more income tax when hybrid working means I'm only in the office 3 days a week?" We do have firms that are 5 days a week. So and that is absolute blanket. So if people are going to um um come and work for them, um uh good example is JP Morgan. They are quite quite clear five days a week in the office. So if you're going to come and work for GP Morgan Scotland, you're either going to have to commute or pay or whatever, but you're going to be in the office five days a week. But that's that is not the norm. Most people are around about three days a week in the office. And that hybrid working has changed where people think about location and their quality of life and where they want to be based. >> And is there any evidence that people are making that choice not to become Scottish taxpayers? >> Yes. Yeah. And you and you can see that that you know there's there's data in the public service alone about a number of people who are employed by the public service in Scotland who who are not living in in Scotland. So I can see that data in the press as well. But we've got as I say we we are constantly engaging our members on this topic. Um and particularly in the professional services space there's lots of evidence of uh people not choosing not to move. >> Mr. of Orland slightly different area, but uh business rates has been mentioned by both of you a couple of times. Mr. Bergby earlier said it was a mess. Um your submission picks up on the review of what we're calling anomalies uh that uh was announced in I think June of this year following a revaluation in April. Uh now some might say that that review that planning ought to have been done prior to launching any significant change. What would you say to that? And is there a general issue with launching change without fully working through the consequences? >> Yeah, I think that's a fair point. I mean it could have been done after the last revaluation. it could have been launched because the issues that have emerged this time were pretty much the same as come round pretty much all the time. I mean obviously as I think as I said in my opening remarks of the three moving parts in your business rates bill your ratable value your the poundage and reliefs two of them reliefs and ratable value have got significant issues in terms of how they're calculated. I mean just one quick example. Obviously your rate of value is supposed to be a notional idea of how much annual rent you pay on a business property. And we had a member who rented from the council and an industrial unit and to make the calculations easy, we'll say it was £12,000,000 a month. His rateable value determined by officers of the same council was twice that 24,000. So, so I phoned him up and said, "Are you some sort of really hot negotiator here? Have you driven a really hard bargain?" He said, "No." I went in and I said, "I want that unit." They said, "It's a grand a month." I said, "Fine. Where'd I sign?" So, then someone else has come in, probably works like two or three desks away from them, has come in and and got it wrong by a factor of 100%. Now, that just shows you that there are serious issues round about methodologies. not helped with the fact as I said we've got 14 different assessors applying up to eight different codes of practice in the same sectors in different areas of the country when you think about it you could just merge that into a single a single agency put under the opaces of revenue Scotland which would have again the advantage that you increase some democratic accountability there because part of the problem is you've got autonomous bits of government saying I can't interfere with that I can't interfere with that um so I think that would help address some of those not all Would it save money, be more efficient, get rid of all this stuff about the kind of patchworks of a release? I mean, it look, it's brilliant that we have reliefs to to knock the roughest edges off, but it reminds me a little bit of co now, you know, when we we introduced a relief to deal with this particular problem. Oh, no, we've created another problem over there. So, we run over there and patch that one up. And now in co you give people a free pass to that because it was exceptional times. I think here we can see structural issues about how that system how that system operates even down to the level that the process by which you apply or if you did indeed have to apply. Um I mean again another case we did it took us best I mean one one of my colleagues who is about as close to an expert as you can get in this took him the best part of an afternoon to work out which reliefs apply in a certain case and in what order. Some had been automatically applied some had to be applied for. that members went from a notional bill of about five grand down to 950. Now think about all the people who've not come to us and haven't asked those questions because they're doing a thousand other things. So you so you write the check, grit your teeth and move on or you cut worse you cut something somewhere else. Absolutely. This must be must be I mean you can't know how big something unknown is but um it must be the tip of the iceberg and how many people are paying thousands of pounds more than they have to and that's because it's not simple it's not transparent it's not consistent and we can't give that advice where if it's a single Scottish system then obviously that becomes a lot more you know a lot more practical to implement so yes I think there's a raft of issues we should have looked at them a long time ago but at least if if we're in the market for silver linings and I would very much suggest that we are at least the most recent experience tells us that you know these issues haven't gone away. It wasn't a one-off and let's let's get talking. Sorry, the other point I should have mentioned as well is one of the issues with this revaluation was the the revaluation notices dropped in about late October, but we didn't get a Scottish government budget until January. So you had people then panicking for months because they s you know particularly if you'd fallen out the small business bonus scheme you you never had a rates bill before. People are saying I'm panicking what we're going to do. They're thinking that the RV is actually their total liability and all sorts of other things. But we but we can't actually the bills because um we don't know what the poundage rate is going to be until the budget and we don't know what the reliefs are going to be. Adding to that the other complication is councils couldn't some councils couldn't then apply their reliefs because of issues with their IT weren't able to cope with it. So they had to work it out manually. So yes is the short answer. >> Thank you. And on solutions and noting what you say about reliefs, uh the previous UK Conservative government froze the small business multiplier for I think four consecutive years and put 75% business rates relief for retail, hospitality and leisure. Are there lessons that Scotland could be learning from that approach about using the rate system more deliberately to support small firms and indeed the high street? >> Yeah, I think there's Yeah, you can see the attractiveness of that because it's a lot simpler, it's a lot cleaner to use different poundage rates for different sectors or different types of business rather than a network of reliefs that are applied inconsistently, you know, not and all that and people don't know about, etc., etc. I think I said there was 22 of them the last time we counted. you know, so that that looks administratively neater and again I would say I think you could do it if we reformed the system and put under a single body that was accountable to minister through revenue Scotland. >> Very grateful. Devener >> Kim um question for you first of all Mr. Begby you mentioned student loans briefly. Do you think that student loans in Scotland since their introduction has prevented people from coming into the entry level jobs? And um I'm an advocate of lifting the rate at which people start paying tax. And you think that's a factor as well. Um, I've got personal knowledge of a number of kids that were at school with my sons who have come through university, have looked at their student loan, looked at the likelihood of getting onto the housing ladder in terms of what they would be able to earn at entry level in Scotland and they've gone to Australia. So, how much of an impact do you think that has been? And looking back to the old grant system that we had, do you think that we maybe should have retained that and we'd be better off now if we had? Um what I can talk I can't talk specifically about the student loan but I think um uh I've done a lot of work in youth employment. I did the young person's guarantee for Scottish government in the back of co and I chair developing young workforce uh as well. So I think this point about um you mentioned there about raising the level of income tax um I big advocate of that. I mean I think that you know we we I mentioned earlier about simplifying tax. I think also if you were going to leave people with more money in their pockets then raising the basic rate of income tax would seem that to me anyway one of the most straightforward ways of doing it. So I think that um you know I think that that would then allow young people then to obviously retain more that they earn. I think we've also got ourselves in the position and again um Col have a view on this as well around the impact of national insurance increases uh on the youth employment marketplace um and you know the numbers that's been written most recently by the Alan Melbourne report um and some of the factors that have played into the policy space that have resulted in uh young people being uh certainly unemployed or unable to get employment. I think all those are are factors and as a result of that we will have young people that will choose to go and work elsewhere um uh overseas for example um partly because of attacks, partly because the opportunities are just simply not there uh for them. Um so and then we're losing that talent. So we've put them through education and then we're losing that talent to the to the Scottish economy. >> And do you have an idea of what that starter rate of tax should be? Have you done any research or have any information on that at all? Uh, no. I we that's not something we would do as a matter of course. But I think if you look at the current tax rate, you've basically got you're starting to pay tax after £12,571, you know, on from that. I think and obviously there's been a constant hold off those rates. Uh, you know, that fiscal drag. Um, I think we need to move away from that because all we're doing is pulling more and more people into into paying tax, but it should be significantly higher than than where it is at the moment because again, I'm no expert on this, but it just strikes me that through the public sector reform agenda, what we're doing is we're taking money off people and putting it through a machine and then giving them it back to it through, you know, whether through benefits and welfare, etc. We'd be better off trying to leave people with more of that money in the first place and make and make work and but absolutely do it at the bottom. We're not suggesting anything get changed at the top. We're just trying at the bottom move those rates up. >> So you would advocate perhaps then a progressive system that could be evaluated with specific outcomes to see how it was working for the economy as a whole. >> Yes. Correct. >> Okay. Um and a question for you Mr. Borland. So in terms of the small businesses um which you represent, if um I was sitting in an aboard meeting and looking at the risk register of many of these businesses, what would be the main challenges that that I would see um sitting in terms of those risks and what would be the highest risks? Um I think costs and from that flowing into margin because for the the last probably about 10 12 quarters we've seen crop costs increase significantly and it's all the ones you'd expect you know fuel employment energy etc. And until relatively recently, the data that came back from members suggested that um revenues were beginning to steadily increase expected things more expensive. That seems to have tailed off now. So what you're seeing is that the margins are getting thinner and thinner and thinner and people are still burdened in some cases with co debt and other things or other costs coming down the line at them. So there's a number of businesses who are bluntly running out of road >> because obviously you don't need to be a genius to work out you know if you're your if your revenue is going up 5% your cost going up 10% that's not sustainable so I think yeah cost I think it's a huge issue cash flows maybe a close second you know again it's the old cliche about it's not like a profitability it kills businesses it's a lack of cash >> and how big a factor is crime within the retail sector of businesses you're representing It comes up continually, absolutely continually. And some of the stories that members have told us >> um are absolutely horrific. Um it's one of these things that um I think needs to be taken, you know, um a lot more seriously. I think for particularly for, you know, well, any sort of retail crime, but small independent businesses that that's your house that's on the line. You've put your family savings into it. You could have worked for decades to build that business up >> and for someone to decide to kind of just take take take and that then undermining your business model and forcing you out of business is an absolute, you know, it's not just a personal tragedy. It's something we should be worried about for the whole economy. >> And I know that police task force task forces have been formed. >> You're drifting off the the topic that we're looking at. >> I was just to a quick one about preventative spend if I could. >> Well, I'll come back to you on that one. Alan Brown, >> thanks and apologies. um that I missed the the start of the session. Um just a follow up for yourself, Sandy, following from what Liam K was asking before about tax behavioral change and you're you you believe there's now some evidence of um people taking employment in Scotland, but because of the hybrid work, you're saying that they might not choose to live in Scotland. So how concrete is that evidence? you know how how you know substantial is the evidence base for that and what kind of numbers are we talking about? >> So I think um um so I think it's good good question in the sense that um we we gather uh the evidence from only from our membership which we only represent 125 firms. So but there we we probably cover about 80% the total employee employment in our sector in Scotland. So it's about 157,000. So we cover about 80% through our membership. got all the large firms. I mentioned earlier that um a lot of this is specifically in the um professional services space. So you've got the consultancies and the legal firms and accountancy firms and uh etc. where they've just got a lot more mobility. So because a lot of these firms are well pretty much they're all UKwide firms. So um precoid what would happen is well people were in the office 5 days a week you say you were based in Scotland then you would be in your office 5 days even though you might be servicing UKwide clients. Co has undoubtedly changed the world of work. Um and it it has meant that in most cases there's some form of hybrid arrangement that exists in pretty much all our firms. Not all but the vast majority of them. That then means gives people much more flexibility about where they stay. So what I can say is that is uh with a lot of certainty because as I say we engage our membership on this on a regular basis both in terms of the the world of work and how it's evolving but also those behavioral changes is that particularly in that professional services space there's a lot of evidence that shows that you know there are numbers of people who are choosing not to take jobs in Scotland. They'll take the appointment but they'll continue to live elsewhere in the UK. The hybrid working allows partly allows them to do that because they'll only in the office three days. So they'll come to say travel to Edinburgh or Glasgow on a Monday morning and then they'll go back on a Wednesday night. Um but also increasingly so a lot of these jobs are also covering UK white clients as I mentioned earlier. So you might as well stay where you are. So um the attraction to come is just not there partly because of partly because of tax. Um but as I mentioned earlier to an earlier question tax is not the only factor. I mean you've got things like schooling and family and other things. So I'm not I'm not just saying it's one factor. >> That's what I want to explore a bit further because presumably arguably um companies can now recruit in that UKwide basis where some people for family reasons might not have chose to apply for a job and relocate to Scotland but actually now the hybrid working actually opens up you know different opportunities for people that they might not have otherwise access. I mean, >> yeah. So, I think you've got people who I would I would split into two two there. Um, uh, don't mind. One is where you've got someone a firm who already employs someone that may have a job in Scotland actually that if that job is based in Scotland, then what they're finding is is having that conversation with people to move is a far harder conversation. So, people will they'll probably want to retain their employees. So, they may well allow them to leave where they are. If you go and speak to we've got a number of executive search firms who are members of ours as well. This is a constant topic that comes up. So when they get into trying to recruit someone into a senior job in Scotland and they're not just covering our sector, so they're covering other sectors as well. One of the factors that comes up is is one is do I need to be based in Scotland? So do I need to relocate? And if I do, will I be compensated for the increase in tax that I'm paying? So the term Scottish premium in the recruitment marketplace at an executive level is is a real thing because people are saying if they're going to be asked to come and move here then I'm going to have to be given a higher wage to compensate for the increase in tax and not not all firms can afford to do that. And then you've got the increase in in the higher cost of then purchasing your home versus elsewhere because obviously moving is a big cost anyway but then you got the land and buildings tax on top of that. >> Yeah. But equally, if somebody's weighing up a package, council cards cheaper, your house prices are actually cheaper. So, you actually might make money by selling and and we came to Scot and get better opportunity. >> I think it depends on where they're moving from and that's where we're quite we're quite think we're quite um balanced on that. I think if you're talking London and the southeast in that immediate area, then you're absolutely right. I think the the comparison of cost of living is quite is quite different. But our industry 60% of all jobs are now out outside the London and the southeast. So you've got big financial centers in man in Manchester, Leeds, Bristol, Belfast as examples. So if you're trying to recruit people from those locations, then the cost differential is far lower than it would be than say a London and the southeast. >> Okay. Um and just to follow Okay. No, just follow on from Kim's question if that's okay about personal allowance. I mean, just to be clear, purse allowance rates are thresholds set by the UK government. So that that's out with the Scottish government's control, even if even if you thought that is a good way to to grow the economy and have people paying less tax. Is that that correct? >> Yeah. And and we represent and that's right. I've tried to balance my comments about there are factors here that are within the UK like national insurance for example. We were very much against the national insurance increase because we could see that that was going to have an impact particularly on youth employment and and businesses. um and I completely accept that. But I think the broader point is when we look at tax as an organization, a trade body that represents businesses that cover the whole of the UK and international, we will look at both UK and Scottish government tax approaches um accordingly. >> We've got a lot of ground still to cover. So can I ask for concise questions and concise answers? I appreciate it's a very complex area, but if if we can do that, Michael Ma. Yeah, it's it's very briefly on the issue on domestic rates. Parliament voted on the 3rd of June for and a quote immediate and comprehensive review of the business rate system. Um have either of your organizations been told by the government about any form of immediate and comprehensive review? >> Not that I'm aware of. I think the what's it called? The non-domemestic rates consultative group. Um I'm not aware that that has met substantially. I think it's had one brief meeting since the election. Um the other one which is specifically about retail leisure, no about hospitality methodology, we've got a technical one. We're not involved in that, but I would expect to be involved in that. But in terms of what's actually happening, um there's nothing that I can recall at the moment. >> Okay. Mr. Begley, >> not aware of anything either. Thank you, >> Liam MacArthur. is around public sector efficiencies. Solan, I think the FSB pointed to opportunities within um procurement that might open up um the ability to um sustain economic growth. I mean, I suppose a simplification of procurement sounds on the on on the face of it um something that we should all be getting in behind. Attempts to adjust procurement in the past and simplify it has often led to framework agreements which I know manymemes um claim kind of crowds them out um and and and reduces the opportunities for small businesses to participate. So in terms of procurement reform or changes and and simplification, how would you see that working in order to achieve the economic growth that we're looking to achieve? >> Yeah, I mean you're absolutely right. We've been here before. Um but I think maybe the advantage we have this time is the passing of the community wealth builder act um earlier this year because that's putting actual statutory duties on public bodies to monitor and report back on in a uniform way on how they're actually spending money. And I think if there's going to be further procurement reform then that has to sort of um sort of implement the be done in the spirit of the act because I think one of the problems has been historically that um a lot of this comes down to um actions by individual purchasing managers and if you're a purchasing manager and your boss says I want that I want this cost reduced by 10% you're going to reduce it by 10%. um you are worried about maybe being a little bit bit creative because if case goes wrong are is your senior manager going to have your back is the political leadership going to have your back so I think giving them that the courage to take that on and backed up by legislation is is incredibly important >> is I mean is there is it too early to to say that there's evidence to demonstrate that the community wealth building changes are leading to the capturing of that we involved olved in a number of groups and discussions looking at how exactly though that's going to work. How's the guidance that sits underneath the act going to work and we're also um in the process of commissioning some research to sort of study about exactly what that sort of practice should look like. So the the short answer is yes it is um far too early but I think we've given ourselves a fighting chance of actually delivering it and I think the other thing that's important about that as well is that it looks at um procurement strategies based on a local place you know so why is your local college and hospital buying the same stuff in their own frameworks as opposed to how you know how many fresh sandwiches do we need prepared across the key an institutions on a particular area um in in a week right how did we design a contract we can divide up that local people can bid for uh to to meet that need. So I think it's just think thinking about creatively like that and enshrining that um I think is is helpful and also being honest about the about the length of the journey we need to undertake in this. >> Right. Okay. Conscious of the convenor plea for for brevity. So I'm quickly move on to the issue of um business and regul regulatory impact assessments. I to some extent there are those who maybe suggest that they are more of a tickbox exercise than something that substantively gets to what those impacts are likely to be. In your submission you talk about trying to um frontload those earlier into the into the process. So I suppose the question is do you have confidence in um the Bria um setup as as things stand or there changes to the way in which these are carried out that that would improve the the value and and what would you see as the benefits of bringing those earlier on into the into the process in terms of the the outcomes for the line? >> Yeah. No, I mean it has to change. Um, and it is on paper. It's now, you know, has to be done, but what would more importantly is it has to be a a Bria that looks specifically at small business issues. There was a piece of legislation which I can't quite bring to mind at the moment, but it went through um significant went through it legislative journey and the Bria spoke to two small businesses who were impacted completely differently from how large multinational would be. So we need to it has to be focused on the small businesses who will be on the front line of of implementing it. I don't downplay the cultural challenge of um you know government managers and bringing that into the process which is probably why it needs a little bit of sort of mandatory effort behind it to make sure it happens. And yes I mean and the benefits are we know what we're we know what we're debating. can talk about, you know, if if we implement this, if this affects 25%. This is what the impact would be, 50% 75%. You're having a more honest conversation rather than, you know, statements of conjecture depending on what option, you know, in terms of like give us give us three options you're looking at and demonstrate that you've caused them and demonstrated that you've looked at the impact. I think that would be a significant step forward. I may be remiss of me as the MSP for not to point to the um the need to look at the overlap between Brias and island impact assessments because actually the business impacts in in certain island and rural communities is is likely to be different from from that in urban and central belt area >> which is why you need to look at it at that level of detail. >> Okay, I'll leave it there. >> Thank you Liam K. Thank you convenor on the procurement that Liam MacArthur was asking about. Last week Sandy Begby you told the economy committee there are no organizational incentives in the civil service to do anything different on procurement. Has there been any noticeable change in approach since the appointment of a cabinet secretary for public service reform? and have you seen any change to the institutional barriers to reform? >> Yeah. So my my comment last week was in the context of um how do you bring about cultural change in the public sector to actually think about procurement as a lever for both economic growth but also to help with the public sector reform agenda. Um there was a fellow panel member last week made a comment about the fact is that he runs a business um and he had basically given up on trying to engage with the procurement process and would no longer bid for public sector contracts and that's a small business uh in Scotland. Um uh and I'm aware of at least one other who who have who's chosen to do exactly the same. Um so I think there is um this point about um so in terms of the appointment of the public um uh cabinet secretary of public sector reform I think the procurement agenda is absolutely in that uh on that agenda. Um but I think it's but it is being looked at on the basis of how do you improve the productivity the performance of the public sector and use procurement as a lever to help drive that public sector reform agenda but also how do you then think about using it as a way of of um economic growth as well. So at the moment um it's a it's a process um that is carried out as Colin said but it doesn't necessarily it delivers a particular outcome but it's not being used uh in a way that would at the moment align with that broader public sector reform agenda. >> Thank you. On that public sector reform agenda, I asked Colin Borland earlier on about planning and strategy and things in relation to business rights. Uh but on the on the same tone, in June of 2025, the public service reform minister said that to close the looming five billion pound black hole in the public finances, the civil service would shrink by four to 5% by 2030. Uh I was I'm reading figures this morning that in June of this year, the civil service headcount was up by 1%. Uh Sandy Begby first then do you get any sense of what the actual reforms might be to deliver this? Any sense that this has been strategically planned in advance so we know what the consequences might be and of course whether they'll actually be delivered. So I think um obviously I'm an adviser to the board. I think there's a lot of planning that's gone into it. I have been around this agenda for the last um three four years previous prior to um current cabinet secretary coming into post. Um I would also say I was nine years as a non-executive with the Scottish government uh from 2004 to 2013. So I've been in and around public sector for a while. Um I would say this is probably the the most serious uh attempt at public sector reform I've seen. Um there's obviously a series of work streams and plans that sit beneath that. Um I I'm not belittling and in fact I've said gone on record as to say the size of the challenge is enormous because you bluntly you're trying to change an organization that tolerant to all intents and purposes hasn't really gone through any significant change over the last decade or so. Um my own background in in my corporate career included running three big transformation programs. So I'm well aware of some of the challenges associated uh with that. um the the cost base from a people uh uh perspective is high and I think that was obviously going to have to be part of the agenda that to reduce the headcount um you know um I think there is undoubtedly there will be inefficiencies in the public sector as it stands today as there is in any large organization so it's not criticism per se the public sector but normally in this kind of situation where you've had an organization that hasn't changed for quite a period of time anywhere between 5 and 10% in efficiency should be achieved relatively straightforwardly in my experience. Um, and as I say that's just a reflection of the sheer size of the organization and the fact that you've got working practices that have been ingrained for quite a long period of time. I think once you get beyond that then you're really thinking about how do you then transform the way the services are delivered and what services are going to be delivered. I've also gone on record I did last week to say that part of the agenda needs to be invested to save. uh you're going to hit a limit to how much you can just save by simply being more effective and more efficient. And you're going to have to invest in technology and AI in order to change the way in which you deliver services for a lower unit cost to address what is an increasing demand in certain parts of the public sector. So I think that invest to save has got to be part of that agenda as well. Um but overall clearly and to answer your question I think the there's a lot of those building blocks in place I would expect to see in this scale transformation in terms of delivery that's undoubtedly it's going to be really tough because there are always barriers associated with any big transformation program and you know we're still really um we still need really need to get into those barriers and dealing with them. The procurement one's an example of that which is Igra the point about there are no organizational incentives around using procurement differently. Uh it's a big part of the public sector. You know that's that that needs to change. >> Very grateful. Colin Borman. >> Yeah. I mean I think I think Sandy's right. I think we've all been involved in corporate restructures. We've all been hauled in by the the board or the chamber and told reduce those costs by 10%. And it's fairly un unremarkable in in the world of work. I think I was reading when these stats came out yesterday that the size of the public sector of Scotland's increased by something 45% since 2019. So, and I believe it was the permanent secretary um who said something like half of all Scottish government employees have management responsibility. So, that sounds to me like quite an old-fashioned sort of pyramid shaped management structure. So, you think it would be right for what most of us do is have a much flatter structure and you can strip out various various layers there. I mean I'll leave that to the people actually manage it to do it and they'll maybe tell me I'm massively over oversimplifying things but when you've got a situation and again it was a publicly quoted figure where the wage bill has gone up by a billion pounds in a year and most of that's down to regradings then you would think you know I think is it 13 billion the annual wage bill but I mean but it's a lot of money so if you could just take 10% out of that because the first 10% is the easiest 10% always when you do something like this um if you can take that out now and bank that you're, you know, you're you're a healthy way towards um that 5 billion that we need to find. >> Grateful to you both. Good >> Stanford. >> Thank you. I think my question is for Borland. I liked your comments on being in the market for silver linings. I think might be more like silver bullets that we're looking for. But I just wanted to touch on your submission around young people and apprenticeships >> um and and talking about wherememes sitting there and the fact that your sector's so large that even small changes could could give us quite big gains in that area and I think Mr. Begby touched on the Melbourne report. So your report states that Scotland sits um slightly better than the rest of the UK at 38% compared to 41 of not in education, employment or training. Firstly, do you think there's any significance in that difference that we should be looking at? Is is there anything we're doing slightly different that that could be then expanded? And then what are the barriers tomemes taking on more apprentices and should that be tackled at government level or is it best tackled at local level? >> Yeah, I mean in terms of the first point, the difference between Scotland and England. Um I'm not aware of anything that's emerged from the figures that would explain that but I mean either way both figures are still far too high and both still represent an absolute massive waste of opportunity and talent. I think in terms of involving smaller businesses one of the really good things in program for government was the fact that this apprenticeship accelerator grant has been confirmed and that's something that we call for for quite a while because one of the barriers um round about hiring apprentices is of course cost. I mean one member who's in construction told me over a course of a full construction apprenticeship in terms of you know training materials all the rest of it probably looking at £80,000 you know so that's not insignificant amount of money so if we can make sure that that grant is focused squarely on smaller employers not giving as a subsidy to big employers to get basically paying the money to do stuff we're going to do anyway but to people for whom it will actually help get that decision over the line and I think that's going to have the biggest impact because to follow what Michelman was saying about, you know, small businesses tend to employ locally. We recruit from the local labor market. We employ people who are further from the labor market. We're more likely to employ based on um potential that we can see in people rather than maybe a mechanical HR scoring process. So, in terms of getting people who are furthest from the labor market back into economic activity, our record is it's pretty good or it's certainly better than the people um round about. So I think that's where you're going to get the biggest bang for that particular buck. >> And have you had any indication about whether that might be targeted in that way or >> not as yet but it's a case I look forward to making. >> Great. And then my second question was on um work experience um which you had said high quality work experience should be treated as preventative investment and look at a a kind of national program. Could you just give us a bit more detail on what you would envision being the most effective way of doing that? >> I mean I think authorities fit into that as well. Um yeah, one of the things we've found when we've looked at this before is is the patchy nature of it. And quite a lot of it comes down to things like how enlightened a particular head teacher is. So there's some absolutely excellent examples and there are some not so excellent examples. So if you'd had a you know like we have you know a national system that people could dial into could register with you could ease some of that burden and bureaucracy and also make it easier because we we also hear stories about local businesses who do want to give something back who want to say I'm interested in this but they they don't know who to approach if they do approach they might get rebuffed. So I think that would probably help streamline that system and widen participation. >> Okay. Yeah. >> Just come in a couple of those points. I think I mentioned all Melbourne report. I think um um again as I said earlier I've been around this area for quite a number of years as many many have. I don't think there's anything in Melbourne report that doesn't apply to Scotland in terms of a lot of the the the root causes and we'll see what comes out of his recommendations report in October. Um I think it as was um independently validated the young person's guarantee uh just well postco during co did have a marked impact on reducing the level of youth unemployment in Scotland to a lower level in the UK. Um and um uh as I say that was um uh independently measured. Obviously that guarantee then become mainstream and and you know it was put in place for a particular uh series of events but you know over 25,000 opportunities created in 18 months uh to mitigate the impact of that. Um I think the um part of that guarantee was quite a simple premise which is businesses continue to talk about the lack of skills uh which is holding back their growth and productivity. Um you know we have you know a number obviously a number of young people who are inactive at the moment. Um so the opportunities exist. It's how do we reorientate the system to connect the young people with those opportunities and apprenticeships is are part of that. Um because the downstream costs of having young people out of employment are significant. Um as we talked about in the young person's guarantee report um the point about work experience I would um just highlight a particular initiative that is um being um implemented at the moment up in Aberdine which I think is a really interesting initiative under developing your workforce which is basically guaranteeing all young people who don't go on university a foundation apprenticeship depending on their background. So you're basically saying that if um in you know fourth year at school then you will be guaranteed a foundation apprenticeship um and that's been funded by the schools and the council um and I think it's a really interesting idea and I've spoken to Alan Milworn about that which is underpinning for young people this idea that you've got a different path in life um and you know using local employers using the DYW network of local employers to provide those opportunities and then that usually after that foundation apprentichip they then go on to college to com to do the full apprenticeship and then into employment. >> Yeah. And I think there is evidence that suggest if you catch them really quickly before they end up longer term unemployed, it makes a big difference. Thanks for that. >> Kim Schmillian >> um a question for um yourself Colin Warland first. There's a lot of activity going on in terms of creating positive pathways for kids leaving school. Um, but they still to a certain extent rely on the kids being proactive and finding that information for themselves. You touched on head teachers. Do you think there should be a more uniform program of exactly how we should engage with kids when they're thinking about the next stage of their lives in terms of education training um, and give them more support at that stage? >> I think as much you know, as you can give them, as much practical advice as you can give them, the better. And the more you know, sort of people with that sort of experience you can expose them to, the better. Because, you know, you could be a young person, your parents might have been in the same industry, the same sort of jobs for most of your life. Teachers may have been, you know, in that profession for, you know, a number of years. And the world of work's changing really quickly. So, I think the more that you can you inject into it, that's great. I would also put in a plea for people to point out self-employment and entrepreneurship as a career path. It might not be right. It might be right for you at the age of 16 and you go straight into launch that brilliant idea. People do but also I think it's a good idea that if you've gone away you've learned a trade or profession at some point when you think what's my next step going to be because I'm stuck in a corporate structure or whatever. Actually my next step is to move out and climb my own ladder. So I think to big that up and make that more more a more realistic option for kids particularly kids who don't have a background in family business um because you see a lot of that tends to be generational you know and if you can make that a realistic option then I think that could pay dividends as well. There's a lot of evidence out there that um kids who are routinely playing truent um are the ones that are getting into crime and they're the ones that are then not entering in into the labor market. Um I'm obviously thinking that we should maybe do a lot more to identify these kids and help them at that stage. Um so that that would then take them out of the criminal justice system which again would be good because you know that's an area that's cashstrapped as well. Um, what would you think about maybe integrating something like that into what what you've suggested? >> I mean, I guess that's the kind of thing that we mean when we talk about preventative spend, you know, spending money here, so we're not spending 100 times as much at the other end. >> Yeah, I think it is. It's definitely a big issue. Um, also in terms of STEM subjects and obviously we saw the PISA results recently. Are you of the view that we're still not doing enough to get kids even school with these really technical abilities and skills that they would then take forward into university and college courses and then get jobs that would actually pay well and improve broaden the tax base? >> I mean when I talk to members about this the the thing they say the most important skill they want people to arrive at them with is the ability to learn >> because there's no point saying I want 200 vibe coders I need them by next Tuesday because by the next Tuesday comes around you'll need something else. >> You know things are moving quickly. So it's ability to be able to pick pick up new stuff pick up quickly and and develop and move on. I think that's crucial. The other side of it is and I know not everyone likes the term but soft skills but actually are pretty hard-headed business skills about the ability to to sell to answer the phone to work as a team you know to to communicate effectively etc etc. That's the sorts of things that our members say that they could would really make life easier for them. I've I've actually seen some of that research and it indicates that it doesn't matter whether the child is a school lever, a college lever or a university lever, they have these same issues. So, I'm thinking maybe yeah, work experience, more extensive work experience, maybe while at school would would help with with these difficulties that they they have in the workplace. >> I think anecotally that makes perfect sense. Do you think about how much you learned in your first Saturday job? Just how to deal with the public, >> you know, and so it's things like that that turn out to be invaluable and stay with you for the rest of your career. >> And that kind of thing would be better entrenched in schools, maybe working in partnership with businesses in the local community. >> Yeah. I mean, I'm not too bothered about the mechanism, but as long as it's accessible to local employers, then, you know, um yeah, I think sounds very sensible. >> Thank you. >> Can I just come in on your point about the um young people ending up in the justice system? >> Yeah. So um uh as part of the young person's guarantee we funded a program in Dundee uh in partnership with the wise group where we basically worked with the schools uh the teachers local council some employers uh college to basically identify young people who without some form of intervention were highly likely to end up in the justice system. So we worked with um just under 70 of them um worked them for a year. But with the wise group we also did wraparound support for the family because most of these young people tended to come from families with no parent in in employment uh and from particular difficult backgrounds. Uh and as was indivi again independently validated at the end of that program we only lost one young person. All the rest of them ended up into going into college and doing an apprentichip and into work. So we we we we proved that point that that early intervention as I found out at that time it would cost us around about £40,000 a year to keep a young person in prison and that program cost it was high cost but it's about £4,000 per young person. Doesn't take a lot to work out the cost differential. Um and so so I I think we've got lots of evidence points in Scotland around the fact that early intervention works. Um, it's just about having the courage to scale it, but I'm not also underplaying the the challenge which is part of the public sector reform agenda, but how do you shift some of the resources into prevention from dealing with those downstream consequences? That's a it's hard, but unless we try and find a way through that, we're still going to constantly pick up the downstream consequences of not having that early intervention. >> So, I think that example that we've both talked about is a no-brainer in terms of preventative spend. And I know a lot about the work that the wise group's done. Did they try and pitch that at a higher level to government in terms of um funding and and and being proactive in rolling that out? You did. And what was the response? >> We did. We did. I I think it's I think it's it's a different government at a different time. We were just coming out of co, you know, there was a lot of other things. So I'm not making comment one way or the other. I think but my my main point is is we do have a lot of pilots and evidence points in Scotland and again through my work with YPG and DYW what I've said is let's not create further evidence points we've already got enough to show that what can work let's think about how do we then scale them can they be scaled not all of them can be but can they be scaled and if they can be let's try and work through and find a way of doing that >> I'm always amazed at kids that leave school um and they still have reading and writing challenges I had an experience of this recently with a young girl working in my husband's dental practice who couldn't actually pass the dental nurse exams because she was fantastic in every other respect but she couldn't manage to get the arithmetic component. So yeah, I agree with everything you've said about that. Thank you. >> Thank you. Can I thank the witnesses for their evidence this morning um and for your time and I will briefly suspend the meeting for a change over witness panel. Thank you. We'll now continue our evidence taking as part of the committee's pre-budget scrutiny for 2027 28 affordability and sustainability of Scotland's tax and spending plans. And can I welcome our second panel of witnesses this morning? We have Juan Pedro Castro, economist at Future Economy Scotland. Sarah Cowan, member of Tax Justice Scotland, and Joan Walker, technical officer for the low incomes tax reform group at the Chartered Institute of Taxation. And uh I'm going to start off the questions this morning with the same question I asked the previous panel. So, can Scotland realistically close its medium-term fiscal gap through stronger economic growth alone, or will sustainable public finances require more significant tax reform and revenue raising alongside growth? Who'd like to start? >> Um, thanks. Um so I think um aligning uh economic development policy levers to achieve sustainable economic growth is very much something that should be like a core focus of the government which is a core priority of the current government and that will help the sustainability of public finances in the long term. Um but I think the the benefits of any such approach uh are quite uncertain and uh would only materialize over the kind of medium to long term. Um so as important as getting like infrastructure right and skills strategies right uh they don't directly address the fiscal gap that we are seeing over the duration of the current parliament. Um and so uh we think uh it should definitely be a focus uh but it's by itself not enough and uh tax reform that is revenue raising at the same time as being like supportive of economic growth and uh fair and progressive uh should definitely be part of the of the policy mix. Um, hi and thank you for the opportunity to participate in um this committee discussion and also to say that as well as a member of Tax Justice Scotland, I work at the Scottish Women's Budget Group which works to progress women's equality through budget um public budgets and economic policy. So I'll bring in some evidence from from both sides. I think in the conversation around economic growth, it's really vital to consider um how and for what purpose we seek that economic growth. Uh what areas um economic growth is sought in and what we value within our society. Um and for too long um that there's key areas that that aren't considered part of of economic strategy. Um particularly areas which we describe as social infrastructure that look at um investment in areas such as care both social care and child care that need to be viewed um both in terms of what they provide to society but their role within supporting economic growth. >> Not disagree with that but specifically I'm looking at the the um medium-term fiscal gap. >> Okay. Yeah. Um so I suppose specifically on your question about if it can be closed through um economic growth alone. Um in terms of uh views from tax justice Scotland, we think fundamental tax reform is needed in Scotland um to grow the tax base in a fair and effective way and to contribute to uh raising more revenue to support public services. Um and and and that is that's a vital part of um closing the fiscal gap um to ensure that we can um enable significantly higher public spending um for and redistribute income and wealth. So there's the two elements to it closing the fiscal gap but also the importance of redistribution. >> Joan. >> Yep. Thank you for the opportunity to to speak to you today. Um we wouldn't normally comment on matters of economy as such uh being focused mainly on the tax system specifically. Um but it appears that the fiscal gap is not going to be closed by economic growth alone because um there's too there's too many other factors that can limit economic growth. Um and uh I think the other one of the other aspects that that you've got to consider is the the way that the fiscal framework means that we interact with the with the UK government's um economic growth and how that affects uh the funding situation in Scotland. >> Okay. So I think two out of three of you have mentioned tax reform. Um what taxes would you reform? Um so we published a report earlier this year called funding Scotland's future um that recognizes the challenging fiscal um situation and proposes uh tax reform that is deliverable uh under current devolved um the debol framework um and on revenue raising reforms uh we propose four specific changes. Erh we think uh council tax h needs to be abolished h and we proposed abolishing not only council tax but lpt which is a very harmful tax on mobility and replacing it with a a progressive property tax uh that is charge at 0.75% of property values h on the property value up to £400,000 h and 1% beyond that uh and that would raise over 2 million sorry 200 million pounds Um beyond council tax uh which I think should be a priority for this uh parliament session uh we proposed uh abolishing NDR uh and replacing it with a land value tax that is charged at 2.9% of um undeveloped land uh property values. H this has the benefit of uh not incentivizing business investment which is something that uh kind of can hurt businesses that invest in their properties uh for growth um which is not the case under land value tax. And we also propose extending it to cover uh forestry land over the duration of the parliament uh not just uh commercial properties. Um and this would raise over 400 million. Um another land related tax that we propose is a betterment levy uh which would tax 30% of the land value uplift from planning decisions uh um of like changing like the denomination of land from rural land to like uh kind of buildable uh land and we estimate that just a 30% uh kind of take uh could uh raise 70 to 80 million pounds and Finally, but the one that we uh that that our proposals raise the most money from and that is ultimately one that I think cannot be ignored given the challenging fiscal situation. We also propose raising income tax further. We propose a 1 percentage point increase of the bottom three bands, a two percentage point increase of the top three band top three bands and h lowering the higher rate threshold to to 40,000. And this would raise 1.5 billion pounds after behavioral responses are taken into consideration. It it's a big change. Um but uh we look at international comparators and we find that actually if you look at um um like other OECD countries uh median earners are taxed relatively lowly in the in in Scotland and in in the UK when you compare to like more like the kind of Nordic countries that we like to compare ourselves against uh like Norway and Sweden which combined progressive taxation which we've achieved here in Scotland with a broad-based uh kind of higher starting h rate of h income tax. Um this um would h this would like ask for a bit more from median earners but in exchange it would like fund uh like stronger public services and make sure that Scotland can continue to deliver its kind of proud social contract. >> Anyone else want to come in on this? And we agree that reform of council tax is urgently needed. It's an outdated and unfair tax um that's regressive in nature, disproportionately impacting those on lower incomes. Um and with a significant um an an announcement around significant local government reorganization, we think it's vital that local government finance is also looked at as part of that process. Um and we don't think the local government finance uh local government uh restructure alone can change the finance challenges that is faced by local government. Um the current there there's no real logical reason um for the current valuation of properties to be based on 1991 property values. So we think that should be a key starting point is a revaluation um of all properties. And um I think the publication of the recent analysis from the council tax consultation demonstrates the public support around council tax reform uh with 82% of respondents to that consultation in favor of change and 67% of those respondents in favor of re-evaluation. It chimes with polling that we've done at tax justice Scotland um looking at council tax reform um with again five times as many Scots supporting urgent reform as and as those who oppose it and other tax justice Scotland members the way the well-being economy alliance have done further um work to understand people's views around wealth inequality and wealth tax of which council tax was viewed as one and again found strong support for a change um to council tax along Alongside that, um, moves to bring in the private jet levy, um, a really important additional tax power, um, to bring to Scotland and Tax Justice, uh, Scotland members, Oxam Scotland, have been clear about setting the rate for that tax, um, as high as possible and have recommended it should be 10 times higher than the highest rate of air passenger duty. Um and finally on on income tax um continuing a progressive um approach to income tax and recognizing um as future economy Scotland's analysis shows the need to bring in further revenue through income tax um pro progress. >> Okay. Thank you Liam MacArthur. >> Sorry. >> Oh sorry. Yes. >> Sorry. Um so um very much agree on um council tax requiring um reform. The the revaluation position is now 35 years out of date. Um we wouldn't pay income tax or VAT based on uh values from 35 years ago. So um that needs to be updated. Um it also has two kinds of regressivity built into it. council tax. Um firstly, within each band, as properties within that band move up in value, they actually pay proportionally less tax than than properties lower down in the band. And also obviously overall uh the the proportion of tax paid uh in the higher bands is gradually gets uh lower. Um so there's various things that you could do to improve that. um we could uh amend the the way that the banding system works. Um there's also an issue with council tax reduction. At the moment about 18% of households actually claim council tax reduction. Um council tax offers a big opportunity for um redistribution as well as revenue raising. Um >> we may well go touch on some of that further on. >> Um so reform could uh could um reduce the need for people to claim council tax reduction. Um I think uh I can't remember who mentioned it Sarah or um Juan Pedro. um that um there needs to be better understanding of council tax fund of council funding and the fact that council tax does not fund the whole of of council spend in particular is a is a big issue. Um on income tax um the the focus tends to be on the behavioral change at the higher end of the levels but there there's a potential to increase the tax base at the lower end by considering the interactions with the rest of the UK tax system and also the interactions with the UK benefit system in particular universal credit. um for universal credit claimment they can be discouraged from increasing their work um because uh of the the 55% taper. So that someone who is claiming uh universal credit um if if an a change to the tax rate or a change to their income tax um liability means that their tax liability reduces by say £1,000, then they actually see their benefit claim also reduced by £550. So they only see a £450 benefit. whereas someone higher up the income chain who um uh who isn't claiming universal credit will see the full benefit of the thousand pound increase. Um so um there there's things that could be done to uh increase potentially increase uh participation uh lower down the income scale and that would potentially increase the the tax base. >> Thank you. Um we'll now move on to questions. as as members are aware when we have a three member panel um we we need to be tight in our questions and tighten our answers so that we get through every member's question and we can explore some other issues that come up. Selma, >> thanks. Good morning. I'll probably just direct this to John Walker if I if I may. Um, in in your submission, the institute submission that talks about um, one of the key risks at the moment is the lack of a regular legislative mechanism for the maintenance of an amendment to devolved tax legislation and going on to to talk about um the value of introducing a legislative mechanism for Scottish taxes. Obviously, I mean, the the the current government has had a long-standing commitment to reform council tax as yet undelivered. Um there is a currently um review been undertaken in terms of non-domemestic race rates reform. Um the that the parliament introduced lands buildings um tax taxation fairly recently seem to be there. I'm slightly curious as to what the mechanism is that that the institute is is alluding to in in its written submission. what that benefit might bring in terms of ensuring the tax landscape is um effective in helping um both in terms of economic growth but also in terms of closing that fiscal gap. >> Okay. Y um uh so um basically our our starting point is that um legislation that results in the imposition of a burden whether that's a compliance burden or a financial burden on taxpayers uh should be set out in primary legislation. Um that should in theory allow wider consultation. um it allows a longer time for scrutiny in parliament rather than u the secondary legislation uh mechanisms that we have. So um like a a negative a statutory instrument that requires negative consent if um if that if that requires an amendment I I understand that it just it just fails if there are any amendments made. It can't it can't actually be amended as such. Whereas primary legislation, it can go through a process of scrutiny. Amendments can be made as it's as it's passing through parliament. Um, now inevitably we're not perfect. We're all human. uh we make mistakes and that means that also uh the people that are drafting legislation occasionally make errors in drafting and sometimes they can be picked up during the uh scrutiny process uh when legislation is passing through parliament. Um when the um land builders transaction tax was originally brought in um and then the additional dwelling supplement uh the additional dwelling supplement was brought in very quickly. Um and changes were made had to be made uh quickly by secondary legislation. Um and then there had to be further primary legislation to allow those same technical amendments to be made retrospectively because again a a limitation of um secondary legislation is that it can't make amendments uh retrospectively. And while in many cases we wouldn't want that to we wouldn't want tax amendments to be retrospective in some cases it is uh important that they are retrospective. And that was that was the case of the land and buildings transaction tax. Um so we think that it would be helpful to have a primary primary legislative um spot in the calendar. Maybe not every year, maybe every couple of years. But what that would do is it would allow technical amendments to be made, maintenance amendments to be made to primary legislation um that require primary legislation to be made rather than statutory instruments um and and it would allow the uh necessary scrutiny. Um one example of this sort of happening recently is the Scottish aggregates um tax bill. Now that uh act when it was passed it al in part two it included amendments to the revenue and uh revenue Scotland and tax powers act 2014 and long- aaited land and buildings transaction tax amendments that had been first raised in 2017. And so they were they were brought in sort of seven years later. um and that's how long it had taken for them to find space in in a primary piece of legislation. Whereas if you had something like a tax bill, it would allow you to have a definite spot for those places. We're not necessarily suggesting that you have an annual finance bill like the UK so that you're uh so that you're subject to the to the vagaries that that sometimes happen with with the opportunity to to just produce legislation every year. But to have the the option and the availability and the ability to amend tax legislation when you need to um is is a valuable addition I think. But there's not there's not a question that given the the complex interaction between different taxes and and Mr. Castro, you you set out quite a comprehensive list of reforms that actually having a a mechanism that brought forward all of that simultaneously. So there's an understanding of of of of what you're trying to achieve um kind of as a whole um would be would be manageable. I mean in a sense even council tax reform itself has proved beyond the reach of the the government having committed to it for um successive sessions of parliament. So presumably trying to land this alongside reforms of of the type that you're talking about would just be biting off more than they could chew. Um yeah, I I agree the the proposals um sort of we've talked about earlier are definitely comprehensive and and complex. We don't have a view on the preferred legislative kind of mechanisms to address that. Uh we do think um like part like time at at the parliament floor and consultations would definitely have to be part of that process. And so perhaps especially at that consultation process at that consultation stage separate consultations that address each of these different like significant reforms separately will probably be beneficial. But in terms of how that fits in with the parliamentary schedule, no strong no strong views. >> Okay. >> Thanks very much. >> Your submission leans very heavily on the funding Scotland's future papers. I want to ask some questions about that. I'm going to start off. Do you think that somebody earning £40,000 is rich? >> Uh no. H I think uh depending on household composition um someone earning £40,000 can be like a very different kind of uh kind of levels of living standards. H but there's definitely uh some families that would be just getting by normally. Um so the the question is hinting at whether a 44% marginal tax rate on that income is uh perhaps too high for a millionaire. And we think h it's definitely like a significant ask uh but it's not out of line with the ask that is made from similar median earners earners elsewhere in OECD countries and crucially it would help uh fund the kind of public services that the government um kind of wants to deliver in terms of like many of them universals that would be beneficial for people in that kind of income bracket as well like free tuition fees free prescription option. Um I will say um that's sort of that that's an important part of the proposal in in that um it raises quite a significant bit of revenue. >> It's it's a very significant portion of of the revenue that you proposed. So of the 1.8 billion that's within there and I'm finding it difficult to to interrogate in some respects because you've post hawkked the um the behavioral effects and it's not included in the desile tables within the methodology. So it's difficult to actually see the distribution of of impact clearly but I think it's about 1.5 billion of your total 2.3 billion but at least 660 million of that comes from taxes on these earners. Is that correct? >> Yeah, that is correct. On those earners and earners above that threshold that would be paying that higher rate for um for a longer period of their tax. So actually the the the impact on um on a person earning 42,000 at the margin is important. It changes from 21% to 44% but in terms of the absolute tax h burden it's not that significant because it's only 2,000 that are charged at that higher rate. um we we show in the report that I think the number is like 2/3 of the additional income that is raised from our proposed reforms will come from earners uh above £50,000. So still in sort of medium to high income territory but definitely uh kind of but not those uh households are affected by that change >> because the the vast bulk of revenue that's been raised by the Scottish government in recent years in terms of their tax changes also falls on these individuals. the number of people who have been pulled into higher tax brackets through fiscal drag and the amount of money that's been delivered for from the increase in the very top rates of tax is is in essence is vanishingly small. >> Um and so you've proposed an additional 2% uplift on the top rate of tax. Do you know how much that that would realize >> the top >> very top rate? We have the numbers in the report h not divided by each individual reform but divided by income brackets. So how much you would raise from uh households in uh like kind of earning above 500,000 earning about above um u yeah 300,000. So actually my bad h in the report we say the change to the top rate on a static basis uh would bring an additional 100 million pounds relatively small within the kind of uh the broader package. uh after behavioral adjustment we don't have that same breakdown but we do know that um we would be taking in u roughly >> uh5 million pounds >> from from earners over 500,000 yeah >> I mean these these are these are not even rounding errors yeah in terms of I mean the whole paper just doesn't feel very progressive at all to me >> if I'm honest in terms of the impact that it's going to have on people because the people that you're talking about in essence a lot of them are teachers, nurses, people who are really struggling with the cost of living uh dayto-day >> and I suppose you what I'm reading from the proposition here is that this should potentially be a substitute the 2.3 billion for what the government's current approach is around trying to realize the fiscal gap that they've created of a5 billion pound gap in the public finances. So you're proposing in essence that a really substantial part of that should be paid by middle earners in Scotland, many of whom are struggling right now to make ends meet. Um because you're recognizing that the behavior effects on on the top end are so large that they are it doesn't deliver anything. I mean is that your proposal? >> So I think it um two things have been confused. H I do think as we show in the report the majority of the additional incomes comes from additional earnings comes from those earning more than £50,000 and it is um it is top earners that at the individual level are most impacted by the reforms. This is the case for income tax. It's also the case for the uh progressive property tax we proposed. The reason why it raised less revenue than you might expect is yes behavioral h responses but also because there are not that many top earners in Scotland to fund to raise 2.6 6 billion out of through the income tax system which is why we're proposing having this honest conversation about um broadening the tax base and asking a bit more from uh the majority of taxpayers um as a way of funding public services and I think it is true that um there's this group in the middle which uh sees a bigger change in at least like the top the the rate they're facing at the top um the impact on their average tax rate across their income would not be that significant. Um and crucially, as I said before, I think like this is what we think is needed to allow for this promise of strong and sustainable public services to be delivered. H we think efficiency savings as proposed by the government are 100% going to have to be part of the solution. Um and we we welcome uh like efforts to make uh public service reform and and and >> you describe those as uh unrealistic in your submission. >> Yeah, I I think expecting uh 1.5 or 1 billion out of 1.5 billion over the next 5 years to come out of efficiencies in the NHS is unrealistic. the NHS which is already understaffed suffering from long waiting lists and therefore uh we think there's that issue and then there's also the issue that actually long-term uh public uh service reform requires investment upfront uh to fund uh kind of the design of this consolidated health boards or the design of these consolidated public bodies. So we think uh those two things mean expecting to close the gap just out of efficiencies. It's definitely unrealistic but that should be part of the effort alongside h tax reform. I think like the the issue with the efficiency argument is that um it's it's it's a very short-term um short-sighted effort at closing what is like a a specific budget gap that has emerged over the next few years. But actually >> it's not emerged. has been created by the government and I agree that they've got us in a mess. Can I come on um to Sarah Cohen? You mentioned Sarah about changes to the um a private jet tax as a replacement for I mean what do you think that that would realize in terms of amounts of money because if yeah if you got a figure >> um and these figures come from Oxam Scotland who's a member of Tax Justice Scotland that done the most work on this but um setting it at that kind of higher rate they're looking at raising around 30 million a year um and 90 million over the uh course of the parliament. Um I think an important thing around that type of tax is it is it yes it can raise um revenue but it can has the dual purpose of maybe limiting the number of private jet flights and therefore the climate impact it can have through that as well. >> And you're talking about a multiplier of you know times 10 in essence to stop people from flying is your logic. So, so that that money will trend towards zero >> next. If it's effective at changing behavior in relation to climate, then yes. >> So, is the 30 million before or after that behavior change >> uh before >> before so if is times xed up by whatever amount I mean these are incredibly small numbers whether we might agree on a kind of like a a moral basis as to whether people should be flying private jets in and out of Dundee to play golf or or otherwise. I mean, these are vanishingly small amounts of money, particular if you're timesing them by 10 to to 10 towards Z towards zero. I suppose the progressive proposals that you're both kind of bringing to the table, I'm saying don't really deal with any of this the scale of this. Is that is that not the case? Um I would I would dis disagree with that point in terms of well what we've what we've seen so far in terms of council tax is inaction. So change in council tax brings something to the table. Um and an continued inaction leaves an unfair tax in place. Uh it harms public services because it does not bring enough revenue in. I mean we we review local authority budgets every year um for the last four years. So we see uh we look at the decisions they're making about where they're making savings from a gendered uh point of view. Um we see decisions being made to cut back on on child care, for example, so that it's delivered from the term after a child's first birthday rather than the week after a child's first birthday. And that can leave a gap of five months when someone's not receiving their funded child care that they're to to be entitled to. Um when the Scottish government says all three year olds will receive funded childare. Um, so so in act the alternative has appeared to be inaction on climate change and and that's not good enough for the people of Scotland. >> Okay. Back back in June, I think it was the 3rd of June, the parliament agreed for immediate talks on council tax reform. Have any of your organizations been involved in those talks from the government's point of view? >> No. No. >> Okay. That's little surprise to me. Um, I'm going to um one last question to Mr. Castro then maybe one to uh um Miss Walker if that's okay. Um Mr. Cast, you mentioned in your submission, >> is that okay? Very short. Thank you. I will try and be be brief. Um you talk at the top of your submission around um economic growth and the need to to address that. There's very little in the paper that actually proposes anything to drive economic growth other than a renegotiation in the fiscal framework, which isn't the same thing. So would you recognize that a renegotiating the f fiscal framework is not a measure by which to achieve economic growth? >> Uh yeah so the paper very much focused on fiscal reform that was the remmit we set ourselves. We've done a lot of work on actions that the Scottish government can take to promote uh uh growth and inclusive growth at that. Um there's been two papers published uh in collaboration with the IIP center in uh the UCL um which look at what it would look like for the government to take uh to develop a more strategic green industrial strategy that shapes markets and drives investment um through like like a central role for public. >> Those cost quite a lot of money as opposed to dealing with the fiscal gap I think at the moment. Um, Miss M. Walker, the on the evidence we've taken from Mr. Castro, would your organiz organization be concerned about increases on low tax increases on low and medium tax payers given your agreement? Um the low-inccome stat reform group is part of the chartered institute of taxation and um what we aim for is we don't we don't normally comment on the burden of taxation. What we normally comment on is the way it's administered, the way it's operated. We're looking for a simple and effective tax system. um in terms of uh spreading the burden that I I think I mentioned earlier the interactions uh with universal credit and things um sometimes it's more effective to help people on lower incomes through social security than it is through the tax system. If you raise the personal allowance doesn't help people who aren't even earning enough to to pay tax anyway. So there there's other options. Maybe increasing the work allowance in universal credit. It isn't in your it isn't in your gift unfortunately. So >> but those interactions are those point very well made. Thank you so much. Thank you. >> K. >> Thank you. Good morning. >> No Joan Walker. Um taking Mr. Mar's questions there about Mr. Castro's proposals to increase taxes on everyone but particularly middle earners and reduce the higher rate threshold to £40,000. The Chartered Institute has highlighted that someone earning between about 43,000 and about 50,000 in Scotland faces a combined marginal income tax and national insurance rate of 50%. And that compares with 28% elsewhere in the UK. In practical terms, does that discrepancy risk discouraging people from taking additional hours, overtime, promotion? Uh, and are there any other behavioral changes that your organization fears from that? Um anecdotally it we certainly hear that that it that it may affect people's decisions to to um take on extra work um or accept higher pay. Um certainly there are and throughout the UK there are people who make use of uh pension contributions um to uh increase their tax relief effectively increase their basic rate band. Um and and that is a a a key way for people who have that ability uh to reduce the amount of income uh on which they're paying a higher rate of tax. Um other other options for them are gift aid donations. Um but certainly those those options are available and um I think the pension contributions is a is a definite thing. I think the the other behavioral um options are more anecdotal from what we don't really have the ev the actual uh data to support. >> I'm very grateful I'm coming to Mr. Castro. I see you want to uh pick up on that question and this might actually stimulate uh your response anyway because uh in your submission Mr. Castro, you specifically say in relation to increasing the tax rates and reducing the higher rate threshold that uh you're accounting for behavioral responses when you make your estimates. This committee's heard uh quite a lot that there is a darth of evidence uh as to what those behavioral responses might have been. Uh so it rather begs the question uh what evidence did your organization use to account for those behavioral responses uh and what behavioral responses did you find? >> Yeah, absolutely. Thanks for the question. um on the anchoring to the UK and um that gap between um um UK and Scottish tax rates at uh the kind of 40,000 um level of earnings range. We definitely recognize this and I think like the the the government has already lowered the high rate to some extent and might choose not to h do that further and I think in the report we set out how much the the proposed reforms would raise if that higher tax rate was not changed and that's a like a decision for for the government on the behavioral responses specifically just finally on anchoring but I do think there's a question around like whether comparing h our tax rates to the UK's uh constantly uh makes sense when we're trying to deliver a different quality and and scale of public services. Um the two like taxs cannot remain the same if we are to deliver a a different shape of uh public services on behavioral responses. Um it's true that it's a highly uncertain um c uncertain sort of art. What we do is we replicate the SFC's methodology uh which is what the SFC uses to calculate behavioral responses in the in its cost of policies for the Scottish budget. Um, so this is a methodology that was developed at the time that income tax was devolved and it draws from empirical evidence uh mostly from the UK but also some studies from the US um that from cases where income taxes were changed and it settles on on a range of uh what gets called like income elasticities like responsiveness uh which vary by income as evidenced by empirical studies. Uh this is something that's definitely not a settled question and we very much uh encourage and like welcome the Scottish government's efforts to like understand specifically what does behavioral responses look like in Scotland based on like actual policy changes over the past couple of years. I know there's efforts um like internally in the civil service to like like get robust evidence on on what that looks like. Um there's been some media reports around the whether recent reforms have won or or lost uh earnings and a lot of this has been based on like headline results that actually hide a lot of like modeling uncertainty which was recognized in the reports that were being referenced themselves. So I think more evidence definitely needed here. >> I'm very grateful. Uh moving back then to Joan Walker who I suspect may wish to comment on that anyway uh on that behavioral change. Your submission Joan Walker has highlighted that darth of evidence and indeed the complexity of gathering it. that it's now 10 years since Derek Mcai as finance secretary didn't even know what the laughter curve was and we still are playing in that environment. So helpfully the chartered institute references the 2024 tax strategy commitment to hopefully get that data but we're still awaiting the evaluation. Um I think also that is what will be used to inform the 2728 budget. So Joanne Walker, do you have any confidence it will be ready in time? And do you Mr. Castro used the words that uh the data will be robust. Do you have any confidence that the conclusions may indeed be robust? >> I I have no knowledge of whether that that data will be available in time. I I that's not that's not something that I'm in a position to to to know. I mean, we've got outturn results from HMRC. We have um undertakings to to look into these um uh potential behavior behavioral changes, but I I I'm not aware of when it's meant to be being published. So, I'm sorry I can't comment on that. That's perfectly reasonable and perhaps something the committee can take forward. Convener. >> Thanks convenor. Um good morning. I just wanted to pick up on um a point by um Juan Pedro Castro about international comparisons and I think the tax justice Scotland's submissions had um referred to the future economy Scotland having conducted wider analysis of how Scotland's income tax regime compares internationally to OECD countries um in relation to behavioral responses and modeling necessary. Um I just wondered how valuable are those comparisons given that we're sitting in a devolved context with very very um few levers available and within the limitations of the fiscal framework. Do you still think they're valuable to make those comparisons and where where are you looking specifically that could inform our thinking? Um I I I do think those comparisons are uh valuable there. It is true that we exist within a devolved context. H but that deolved context includes the devolution of non-savings non- dividends income tax which is a significant uh portion of um deolved like the devolved budget. Um so I think there is scope to uh diverge from the UK policy uh on income tax policy as this government has done already and I think that should be guided less by anchoring to specific UK rates and more by um uh views on what the the the desired structure of the income tax system is on the basis of how much revenue we want to be uh um raising from it and what the progressiveness uh of it should be and I think um European or OECD countries can serve as um as an example of like alternative roots there. It is true that there's like behavioral responses are like like the relationship to the UK is relevant for some factors like behavioral responses. Um but yeah when we look at that OECD evidence what we find is that both the UK and Scotland h tax median earners way lower uh than most comparable OSD countries and um this is a factor in basically income tax not raising as much as it otherwise could. >> Okay, thanks for that. And then just to come to yourself, um, Miss Walker, the tax justice Scotland submission had argued that broadening the tax base might require a wider public discussion about taxation. And I think that's probably where we're we're at right now. We talked a lot about the LER curve. Um, and I'm just thinking about tax literacy among the public and perception of fairness. Now, are we at a point where we're sort of at the limit of what we what we do with income tax and we need to consider I know UK wide there's been a lot of talk about wealth tax. Is wealth tax um do you think it's important in this devolve context or are we better looking at the taxes that we already have and reforming those? You've talked about council tax but obviously there's a lot of barriers that we've come up against with that. >> Yeah. Um thank you. Uh I think in terms of tax literacy there's there's a lot that can be done. Um there's there's misconceptions around council tax um and what it what it pays for um uh and what the intention is for it. Um there's a a huge misconception around um income tax and the powers that the Scottish Parliament has. Um the CIOT has uh run five polls using Mark Diffly Associates since 2018 um since the start of uh main income tax diversion. Um and in 2026, earlier this year, we we completed the fifth of those surveys. And um not only were 70% unaware of the ability to claim uh pension contributions, tax relief. Um but only 21% of people that responded to that survey understood that income tax powers are shared effectively between the Scottish Parliament and the UK Parliament. 47% thought that the Scottish Parliament controls the whole of income tax. Now that is potentially uh you know that's a quite big issue in some respects um that that needs to be um overcome uh in terms of a wealth tax. Obviously at the moment you you can't have a national wealth tax here. We could have uh local wealth taxes. Um the difficulty with wealth taxes from a practical point of view is there's a lot of decisions. Um what assets do you include? How do you value them? Um then there's there's other things. Um you know do people if you if you exclude certain types of assets do people then move everything to those kinds of assets so so you don't you're not able to tax them anyway? Um there there are other options. We do effectively uh already tax income and gains from wealth. Think with things like capital gains tax and arguably uh income tax on rent is is a form of tax on an income from from wealth. Uh and interest and and dividends are also a form of taxing income from wealth. Um, so those are those are options for fairly soon. Scottish Parliament's going to have the power to set its own rate on rent, rental income. At the moment, it's just the same as all non-savings, non non-ividend income. Um, so the decision on rates may be affected partly by what the UK government uh does, but it it may also be that uh you you make a there's a decision there to be made as to how um the Scottish uh parliament want to approach um the taxation of rental income. Um that answer your question for you, >> Tim. Um Mr. Castro, if I could come to you first. You talked about international comparators in your opening statement. Um but the fact is that many uh countries who have had wealth taxes have actually ditched them um because they end up being counterproductive. You also talked about higher tax rates in the Nordic countries um which is correct. But I do believe that in those countries they do get many benefits back particularly um in relation to to their fuel costs. Um so you know I'm I'm wondering you know have you perhaps maybe got your um your data in terms of how people are going to to react to these um correct um and also a question for Miss Walker. Um, do you really think that middle inome people who can now change their working hours quite easily with new employment legislation are going to wear these um tax increases um particularly given that we're probably looking at high inflation next year? And um I really don't think from a political perspective, you know, any party would be particularly happy about making these moves. >> Um on wealth taxes specifically, we explore wealth taxes in the report. H future economy Scotland does not recommend um pursuing a wealth tax in the devolve context. We sympathize with the um spirit of uh wealth taxes. um but agree with the limitations and practicalities um that have been set out by Joan and um we we therefore uh don't engage so much with the international evidence on wealth taxes because we're not recommending one. Um we do think there's better ways of taxing the wealth through the taxes that are already in place like council tax which is that tax on uh property and NDR and and I've set out some of the recommendations for those specific taxes um previously on like I think I absolutely agree on like issues of like the I guess like the the the the difficulty of the political conversation around higher tax and uh I think like the fact you pointed out there around how other countries like Nordic countries uh that have higher taxes also offer higher services is precisely the kind of conversation or the kind of argument that the government should try to be try to make. Um so I think it it doesn't make sense to talk about tax in a solution. Obviously everyone would rather be tax less than more if we could choose to do so. Um but taxes fund public services or avoid public cuts. Uh and the government has an ambitious program uh as far as uh poverty eradication, progress toward towards climate targets and strong uh services like the NHS is concerned and that's going to require further resourcing. So I think those Nordic countries that are high tax, high public service provision are precisely the example that we should aspire to. And if we move the dial on tax, we we will have more room to maneuver on the public services side. >> But I I would argue back uh with you in terms of what you've said that in these Nordic countries, they support people across the board. Um you know, everyone benefits from getting money back to help with their fuel costs, for example. But here in this country, we're spending money on free prescriptions, which quite honestly I think a lot of people would be prepared to pay for themselves. So, you know, it it these are the things that that I'm concerned about. >> Yeah. I we we haven't looked into um like we don't have a position on like which specific policies the government should prioritize or or what model of like universal service provision um is desirable. uh we so we think like that that that's something like that policy direction is something that h to be set by the Scottish government but we do sympathize with the the spirit of h like a social contract that asks a bit more from taxpayer but delivers more whether that be targeted social security support like the Scottish child payment which is doing amazing work or universal policies like free tuition that ease barriers barriers of entry to higher education. Um we're less concerned on like what the next thing should be or which one should be protected most but we sympathize with the spirit I guess. >> Um thank you. Um in terms of um the income tax situation, yes, I mean it's it income tax increases at that sort of um level where the the effective u the marginal rate is is 50%. Um that is, you know, it's potentially damaging to people's um perception of whether they're they're going to maybe take extra hours. And there are there are very you know that there are potential uh behavioral implications uh that are recognized in terms of people at that level of income. Um I suppose one of the concerns that has been raised is whether it will drive migration out of Scotland. Um and I I don't know whether it's quite enough to do that. Obviously the time will tell, the data will tell. Um but for that band between 43 662 at the moment and 50,000 where that marginal rate is 50. Uh on that band of income I think the extra tax that is paid is about £15,000 per year. Um so it you know it is a sizable chunk >> but that's a foreign holiday for many people. >> Well yes. No, I know it's a it is a sizable chunk of money. Whether it's enough to make someone think, I'm going to move south of the border. It I suppose it it depends, doesn't it? Everyone's everyone's different. Everyone has different circumstances. There's an awful lot of other factors that people have to consider, you know, whether they've got family connections here, whether they want to be in Scotland for other reasons. Um, you know, I myself, I've lived most of my adult life in Scotland. You can probably tell from my accent that I'm that I am English, but but I have lived here since 2000. And um it the you know there's a there's a reason why some people come to Scotland and maybe want to stay in Scotland. Um uh so there there's a lot of other factors at play not just tax in terms of people coming into Scotland which I know we do have net positive migration at the moment. Um >> but is that of taxpayers? Are you aware? >> Sorry. >> Is that if we got migration into Scotland is that people who are paying tax? >> I I'm I don't know. I don't know about >> that's clearly a crucial question. >> Yeah. >> Yeah. Um I mean in terms of migration in one thing that might affect people as well as income tax because this this discussion has focused very much on income tax but there are there's another tax that could play a role and that is land and buildings transaction tax. It isn't a huge revenue raiser for the Scottish government. It's it's fairly sizable but it um but you know the rates are slightly higher here. And then if someone is looking to come in and they've already got another property, the additional dwelling supplement is very punitive at the moment. So, uh that's a very high rate. And we've been talking about income tax a lot. But I think it is important to remember that there is land and buildings transaction tax and that additional dwelling supplement that can also, you know, could have an impact on people deciding whether they can afford to buy a house or not. Um, you talked about focusing on tax changes because I think you acknowledged that there's probably scope for very little economic growth, but you know, if someone decides to drop a day a week to get out of this high rate tax ban, that will inevitably have a productivity um correlation. So, you know, in in terms of any kind of end benefit, I can't see that happening because it's just the both of them are going to even themselves out surely. Um yeah, I mean I suppose it depends as well whether employers then uh employ someone else to pick up pick up the slack and and and whether they do in this climate or not is is a is a good question too. I mean I'm I'm I'm not disagreeing with what you're saying. I I'm commenting on on the tax factors. I I think I can say with some certainty and with knowledge of employing many people over many years that if one person reduces their working week by a day that person's day will not be filled. >> Yeah. I mean it's difficult to fill one day. >> Thank you. >> Thanks convenor. Um can I ask Joan Walker um William K was asking earlier on about comparisons of marginal tax rates between Scotland and the rest of the UK. When you do that analysis, do you do take into account things like uh student tuition fees, repayments, because that's actually quite quite a hefty chunk in some, you know, in somebody's income. >> Um, thank you. Um yeah, I mean every time there is a budget whether UK or Scottish, I personally run a spreadsheet um comparing all the all the tax liabilities or and it it also gives me the marginal tax liabilities and the effective tax rates as well. Um I don't add in the student tuition fees, but I I'm very aware of that. There's also things like high income child benefit charge that kick in um you know at a certain level at 60,000 pound now. Um so there there's a lot of factors that can actually uh mean that someone could end up with with a a marginal rate of 100 100% or more at certain stages. Um for pe people on higher incomes um over 100,000 um it's about 62%. Um obviously and then once the personal ounce is fully removed at uh 1251 140 then uh above that the the marginal rate drops again. But there there are a lot of spikes. Um the the the higher rate to the higher rate bit is is just one of many >> big spikes. >> Yeah. It just seems to me if we're talking about educating people and getting people to understand taxation. So far, if I look at the UK government website, if you're in a plan to student loan, >> a threshold of 29,300, which is quite a low threshold, you then start paying a marginal additional 9% above that. So that that for me for comparing for comparing rates that that 9% where somebody's burdened with that the rest of their working life, that's it's quite significant. >> Yeah. Um, yeah, unfortunately there's a there's a lot of different factors that that you could take into account and it it will vary from from person to person. Um, >> okay. Thank you. Can I quickly ask Sarah? Sarah, you're quite robust about wanting council tax um a ball effectively replaced by a property tax. Have you done undertaken any modeling to see if revenues could be grown in terms of alternate proposals? Because obviously your your whole arguments about fairness. So would the Scottish government be able to introduce a system that was more progressive but and raise additional monies? Is that is that a possible outcome? >> Um we would view that as a possible outcome. We haven't undertaken our own modeling around that. Um, ahead of the Scottish government's consultation on tax, there was modeling done on for a a kind of costneutral change with in terms of revaluation and some changes to the bands that were consulted on. Um, but then the the decision on on how much revenue could then be raised in the future would come at the local level um after changes have been made to to the system. I think what we would call for within uh reviewing those changes is that as part of the budget process and the decision- making process on taxes that gender budget analysis and human rights budgeting analysis are part of that process of deciding how how high you may raise it to look both at the impacts the tax would have on people and on challenging inequalities um but also at the benefits it could bring in terms of uh raised revenue. Um and I just wanted to come in on on some of the the previously remarked on things in terms of kind of the conversation on tax and participation um within for the Scottish public on that. I think it's a it's a gap in Scottish budget process that there is no public consultation around the budget more widely um and that the only way individuals may be able to feed in is through committee scrutiny which is a a hard level um for for people to get involved in. And I think in if you're looking at how to prioritize decision- making within the budget process, I think it's really important to hear from people to know who you're hearing from and to know ensure that you're hearing from some of the people who are possibly worst affected by the current economic systems. Um and that tax the tax system and discussion on tax has a important role to play in building trust in our political systems as well. Um so there's a real opportunity in widening that discussion and I think the council tax consultation and its the analysis of its results is an important example of that. Just one more on council tax reform or or going to a property tax. has ended on any work looking at um the possible growth benefits of some people having more disposable income because obviously the argument about council tax has a hurts the lower earners a bit more. So is there any analysis done in terms of what what that extra disposable income could mean to families? >> Um it may be that Scotland may have done some uh analysis on that. I think the the overarching thing to say is that the people on lower incomes with the more marginal incomes are more likely to spend their disposable income in local economies. We've done some modeling around it when we've been looking more at the care sector and job creation within the care sector and being able to demonstrate that sort of um job creation returns for local economy in terms of um both direct and indirect job creation. Um and we know that those um on lower incomes um women being a higher proportion of those are more likely to spend their money locally. So um positive effects we would uh look to see from that. We haven't done the modeling specifically but I think IPR Scotland may have done more. >> Can I go? >> Yeah. Yeah. um on on council tax reform being revenue raising that's something that we model in the report uh based on our data the revenue neutral rate for replacing just council tax with a proportional property tax will be something like 0.6%. We instead propose h abolishing not only council tax but also LBTT and raising the rate to 0.75 and 1% on the value of properties over 400,000 and that raises additional revenue of 200 million. H we think that it's important to tackle both at the same time because there's a lot of there's a long leading time to council tax reform. H and there's a lot and and but there's also like medium-term fiscal pressures. So delaying one for the other um would be counterproductive. Um we haven't done any modeling on the impact on growth of improving the council tax or property tax system itself. Um I think like on council tax the issue at the moment is that a lot of the tax liability of people is very arbitrary based on very old uh property values rather than like their current property values. But that itself might not have a huge impact on growth. What we do know has a hard like a big impact on growth although it's hard to quantify it is LBTT which is a tax on like the the purchase of property which acts as a mobility tax someone on middle earn earnings moving two three times over a decade for work uh h reasons will be facing that tax multiple times whereas someone h who's just like living in their house even if it's more valuable h not moving h doesn't face any tax h so we think that the two should be looked at in in conjunction. >> Thank you. Thanks. >> Thank you, convenor. I just a very brief question to Mr. Castro and it's something that's very important to uh my region. Um future economy Scotland has argued that the just transition and movement into new industries is very important in growing the future tax base. uh but said after the recent program for government that Scotland is long on ambition but too often short on delivery and there's still no serious plan to mobilize investment to create green jobs at the scale required and indeed your submission says Scotland has underperformed in green job creation. You set out a number of recommendations as to how to address that. some of which involve funding, some of which involve the procurement issues that uh we were examining earlier. Mr. Castro, is the fundamental problem here a failure of the Scottish government to invest andor to prioritize and deliver effectively andor to incentivize the private sector investment that might be required? >> Um, thank you. Um yeah, we we mentioned that in the report and it's a fiscal question as well because uh as you all know uh the tax net tax position on income tax depends on performance relative to the UK. So shocks that affect Scotland but don't affect the rest of the UK means that we're kind of can have an impact on the Scottish budget and Scotland is disproportionately exposed well the oil and gas industry makes up a disproportional share of the Scottish workforce and of the Scottish high earning workforce as well. Um so making sure that those workers stay in Scotland, stay in well paid jobs um is very much h like should very much be like a fiscal priority. H we we've talked about in a previous report about the the failure to um to transition some of those workers into green jobs. And I think it's worth separating out the decline of oil and gas which has been driven by the decline of the basin and um is kind of like the latest manifestation of a long-term trend with the very much urgent need to develop uh green industries and green industry employment. Uh we find that the record on this has been weak over the past decade. Three oil and gas jobs have been lost for every Yeah. for every green energy job created over the past decade. Um so we think this is definitely not good enough but uh we note in the report that there's potential for the for the trend to shift and for green uh employment creation to make up um for that shortfall and absolutely I think we we call on uh some under the umbrella of a green industrial strategy call on the government to be more proactive to first invest directly for example on Scotland and uh and take equity stakes there, but also on like key infrastructure projects um and on like retraining h and also um yeah promote uh private investment through vehicles like SNE h seeking like additionality in some of these sectors. Um there's analysis by RGU in Aberdine uh which says that the potential employment creation could far away uh job losses in the oil and gas sector. But this depends crucially on on shore and domestic supply chains onto Scotland and on a speedy ambitious delivery against offshore wind targets. Uh so this is very much about going faster and harder on the green transition if we want the green opportunity to materialize. Thanks for that. And just you mentioned the RGU report uh which I think also recognizes that and please do do correct me if I'm remembering this wrong that in terms of because this is all about growing our tax base and growing the economy. I think you need two green jobs to replace every one oil and gas job to to make the figures work. Isn't that right? >> Yeah. I think it probably depends if you're looking at GBA or earnings. I think the GBA gap is definitely a lot bigger. Uh but a lot of that goes on profits uh to um to oil companies or on tax to the UK excheer. There is definitely still a significant gap on earnings which is what matters for income tax. We look at this in our uh labor market transition uh report and for some for some industries uh using a mix of different data sources um we find I forget the exact figure but I think it's comfortably like larger than 20% in many cases. Um so I think ensuring good pay in the green sectors is very much like has to be a priority and but even then I think there needs to be a recognition that the the the the significant salaries that oil and gas workers um earn are like broadly across the green um supply chain are unlikely to be replicated and therefore we do need in terms of like the the fiscal impact to not only match an oil and gas job worker to an green job, but we need to like be creating net jobs as well. >> Understand? Very grateful. >> Liam McCarth, we heard in an earlier session, I think, from the Scottish Fiscal Commission that essentially the the Scottish government had got itself into the position where the Scotland revenues were almost being used as a second reserve. Um there were concerns that were raised about that. um in in the context of that evidence session, but from what you're saying there in the report that Mr. Kurs alluded to is the the the the failure to use those Scotland um funds for the purposes of investing in sort of strategic infrastructure and and other aspects that are required for achieving net zero. Um, is that in is that inhibiting our our ability to kind of realize any fiscal and and economic growth benefits from from those resources? I mean, are there any concerns you'd have about the approach Scottish government are taking that regard in the sense of using this this fund if not to plug gaps in the public public um finances at least cover those gaps in a short-term basis? >> Yeah, definitely. And I think in the last Scottish budget there was got when revenues used for resource budget h as well which seems very much misaligned with this idea of this oneoff revenue that you're getting from from the leasing round should be used strategically for like long-term economic growth and investment. Um I'm unsure what percentage of those over 700 million Scotwin of that 700 million Scotland revenue has been used up. I think in some cases it's been sort of like earmarked for different like investment proposals but that might not have actually been used. Um but I think there needs to be a lot more clarity on uh first how much money remains and second ensuring that that remaining money is used for uh long-term investment in the northeast in uh green industries and I think the recent announcement from the government of its intention to set up u a wealth fund Scotwin wealth fund is welcomed. We also have argued in a Scotland report um first that the the auction process should be uh reconsidered for the next round to maximize public revenues but second also that the Scottish government should be investing in like a percentage of equity on these projects to ensure that it has uh kind of long-term revenue from that wealth creation that is happening h of Scotland's coast and we think that is definitely like that is definitely like a capital requirement that's going to require more capital investment and capital budgets. We haven't touched on it at the moment but are even more uh pressured than uh resource budgets but finding the the capacity to deliver that would ensure revenues like for the lifpan of those projects which is sort of is sustainability is as like as linked to sustainability as it gets. >> Thanks. Question was also on capital investment. So not in oil and gas or renewables though more on the university sector and how we use that. Um the submission from future economy Scotland suggested that investment should focus not just on infrastructure assets but also in developing domestic supply chains and manufacturing capacity. Um so just and so that we can prevent economic benefits flowing elsewhere when we've invested early on. Um, and I know you've worked with LC on a missionsorientated industrial strategy. Sorry, this is a very long-winded question, but I read a report from Harriet W University um called Scotland has the research now. Its needs the infrastructure to use it. Um, and it was around Harriet W's medical device manufacturing center and it was just whether we should be looking at creating shared infrastructure so that we can develop the innovative landscape to use university research um to promote um economic growth. looking at research and development facilities. I don't know if you've got any comments about what the landscape's like at the moment or if that is an area we should be looking so that our worldass university research doesn't flow elsewhere and it does contribute to our own economic growth if you can follow that. >> Yeah, I uh I follow the logic. I I'm afraid um I don't have much specific to say I'm not familiar with the her report. I think the the logic of um leveraging the university sector and the innovation that is happening in Scotland very much agree with and I think it's part of the industrial strategy report we produced um as far as how that is done through uh man like capital investment I don't have many kind of novel ideas there but the idea of making sure that the spending which is happening gets more h economic like We we're getting more economic benefit out of either by linking to the kind of domestically produced innovation from universities or as we say in the submission by ensuring that a proportion of that is um first like leveraging domestic supply chains but also through conditionality creating good jobs uh that are kind of fall under the sort of like fair work um um definition is really important. Can I thank the panel for their evidence this morning. We've gone a bit over time, so thank you for for bearing with us um and for the information that you've imparted to us this morning. Um at our next meeting on Wednesday, the 23rd of September, the committee will continue evidence sessions on pre-budget scrutiny. And that now concludes the public part of our meeting.