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These decisions are carefully considered. I point out that it is estimated that the new advanced rate will impact only the highest-earning 5 per cent of taxpayers but, nevertheless, the decision was not taken lightly. We have, of course, looked very carefully at the assessment from the Scottish Fiscal Commission on any behavioural change, and that is factored into the net gain or benefit from the tax changes. The SFC estimates that £82 million will be raised from the advanced rate, which is not an insignificant amount. We also have the analysis that is being worked on by HM Revenue and Customs, which will be made publicly available later this year. That builds on the evaluation of the 2018-19 income tax reforms, which found very limited evidence of Scottish taxpayers lowering their declared income, for example, in response to increasing tax rates.

It is important to note that we still see net migration of working-age people from the rest of the UK to Scotland with a net gain that averages about 7,000 people per year. Over time, that adds significantly to Scotland’s workforce and it is important in growing the economy.

However, we should not be complacent about these matters and we keep them very much under review. Taken as a whole, the SFC estimates that the tax changes that we have made over a period of time compared with the rest of the UK are worth about £1.5 billion, which represents a significant contribution to public services.

You started by talking about the marginal rate, and we have to be cognisant of that. The marginal rate for earnings between £100,000 and £125,140 is mainly due to the personal allowance taper rate, which is entirely reserved. The marginal rate for taxpayers in the rest of the UK is also significant.

We are not complacent and we do not take such decisions lightly. However, in the most challenging of budgetary circumstances, if we had not made the decision, even less money would have been available for public services at a time of constraint.

There are not widespread errors. That error has been picked up and we are not aware of any others.

That is not dissimilar to what happened in the previous budget, when pay policy was set out in March last year. There is difficulty in being able to predict the outlook in the light of the forthcoming spring budget, which could make significant changes to our fiscal outlook. It is important to understand what that will look like as part of the issuing of pay metrics. With the level of uncertainty, it would not be right to do so now.

That is why the timeframes are what they are. I accept that, in an ideal world, we would want to align that with the budget, but because of all the difficulties in forecasts, that has proved to be very difficult. We will set out our plans for public sector pay following the spring budget, which will provide an update on the fiscal outlook and, most importantly, on the UK Government’s public spending policy, which could impact on our budgets. Given that pay is such a large part of our budget, as I set out in my letter to you, it is prudent that we do that.

The protocol sets out the information sharing that is expected in the lead up to the budget. We provided the SFC with the latest position on public sector pay costs for 2022-23 and 2023-24, and we commented on the pay award assumptions that are being made for future years. On the specific metrics, we are in an unusual position in which an upcoming spring budget could have a major impact on the available spending, even though our assumptions have been made based on the autumn budget.

I think that it is pretty unusual. There is an unusual set of circumstances, in that the extent of the changes that might be made in the spring budget—given that it is an election year and given some of the noises that are being made in the media about what could happen vis-à-vis income tax changes—could have a profound impact on our budget.

That is not a number with which I am familiar. There is no number, as such, because the Scottish Funding Council is still to have discussions with the university sector about the places that will be available. The point that I am making is that 1,200 is the figure that has been referred to: I am explaining to you why there is a bubble and what its legacy is. The Funding Council is discussing with the universities the number of places, in order to settle on a number that is affordable and sustainable.

First of all, growth is a priority. Earlier, I set out some of the economic indicators in the Scottish economy that show an improving position. The strategic investments that we are making, particularly in net zero and green energy, are the right investments, and we have been encouraged by the investor panel to make them. However, there is no getting away from the fact that, with less money on the resource side and particularly on the capital side, we cannot make the investments that we would want to make. We cannot do that, because there is less money.

We have had to make some very difficult decisions on where we make the investments. For example, we need our enterprise agencies to focus on the key priorities, so there will be things that they are not able to do. Our capital investment is geared to try to use public capital in a strategic way that levers in private sector investment. All those things will be critical to continuing to see the improvements in economic performance that I laid out earlier.

I come back to the point that, with less money, we have had to make difficult decisions, and that has impacted on areas where we would rather not have had to make those decisions. However, there is no escaping the fact that decisions had to be made somewhere in the budget, and those are the decisions and priorities that we have made.

First, you are right to identify some of the very big challenges for the construction sector more widely and the housing construction sector more specifically. Interest rates are still high, there is inflation in the cost base, and all of that has led to some of the difficult decisions that have been made by the companies that you mentioned earlier.

That is the backdrop, so we have to think about what we can do with the £556 million investment that we are making and how that can deliver the biggest impact. I spoke earlier about the housing minister’s discussions with the private sector about levering more investment into mid-market rent opportunities. There is an appetite in the investment sector to invest in housing and we must harness that in a way that can provide a business model for doing so. The housing minister is working on that.

It is fair to say that the profiling of the target will have to change. There is never a straight road to a target: there are always bumps, peaks and troughs in delivery. It is fair to say that we are looking for back-end peaks but that we have a very difficult outlook on capital at the moment. That might change, but that is the outlook at the moment for our capital budget reduction. We cannot rely on public capital and must look at alternatives, which makes delivering the target very challenging indeed. Having said that, we are already more than 14 per cent into the delivery of that specific target, but there is still a long way to go.

Clearly, we have no intention of doing that. The big negative tax reconciliation that we thought that we were facing next year, which has been reduced—thankfully—was, of course, very much related to the forecasting during the pandemic. The figures that Matthew Elsby set out for the percentage risk demonstrate that it would not be anticipated that we would have a negative tax reconciliation of that magnitude very often. It was very much related to the set of circumstances at that time.

I am very clear that the uncertainty associated with the proposed approach to VAT assignment, along with your point about no additional fiscal or policy powers being granted to manage it, is an inherent and currently unmanageable risk to the Scottish budget.

A lot of the work that has gone on has tested some of that. In the fiscal framework review, we got to an acknowledgment of the complexity and risk. The concerns then really need to be addressed by both Governments. Officials have met following the conclusion of the review to establish where both Governments stand on the matter and to discuss next steps.

There will be another meeting early in the new year at which I think that evidence from this committee will be part of the discussion on whether the conclusions on VAT assignment are now clear in relation to the recommendations by all the experts and the evidence heard at this committee.

The outcome of those discussions will be considered at a future meeting of the joint Exchequer committee. My intention would be to keep the committee updated on that outcome. The process would need to come to a position that is acceptable to both Governments in relation to what happens next, rather than only one Government giving its view. I am very aware of that and I would like to get to an agreed position on what we do with the issue.

However—in total agreement with the convener—I would not countenance taking on that inherent risk without any of the policy levers. To be charitable, it was perhaps simply not fully understood at the time that the inherent risk and the impact on the budget was going to be borne totally by the Scottish Government. In light of all the evidence that we have now, I would like to think that we would come to a pragmatic and sensible conclusion.