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Thank you very much for that very helpful opening statement, and good morning to you.

We have taken a lot of evidence on the matter so far. Most of the questions that I will ask will reflect the responses that we have had.

You talked about the challenges that we face, the difficult decisions that are being made, and your discussions with the United Kingdom Treasury and Government. On the discussions in Scotland, as well as those wider discussions, the Fraser of Allander Institute said in its evidence:

“There will have to be discussions and decisions made about whether there will be increases in tax, reductions in spending or prioritisation across different programmes.” —[Official Report, Finance and Public Administration Committee, 19 September 2023, c 1.]

Where are we in those discussions?

That is big of you. Thanks.

Scottish Financial Enterprise and Professor Bell have provided evidence to the committee. Professor Bell said:

“if Scotland does end up with higher tax rates than other parts of the UK, that will be seized upon by those other parts of the UK whenever potential inward investment opportunities arise in an attempt to ensure that they do not come to Scotland”.

He went on to say:

“the impression that is given, not just the tax rates themselves, matters quite a lot, too.”— [Official Report, Finance and Public Administration Committee, 19 September 2023, c 7.]

What is your view on that?

You touched on universities; I will ask about them next. In its evidence, Universities Scotland said that we still punch well above our weight in Scotland. For example, about 13.25 per cent of research and development spend is in Scotland and, of course, we have only about 8.2 per cent of the UK’s population. However, that spend has declined from about 15.4 per cent in recent years. Universities are of the view that, if we want to continue to outperform the rest of the UK and, indeed, encourage new business start-ups, which will lead to more people being in work in highly skilled jobs and paying more of the taxes that we require to fund our public services, we need to invest more in research and development start-ups and innovation.

As the convener of the cross-party group on life sciences, I am aware of the example of a significant company that moved from Dundee to Cambridge because there had not been enough investment in lab space. I am also aware that Heriot-Watt University is looking for similar investment in order to advance its artificial intelligence research. Again, that is because it is threatened with competition from Cambridge. It is doing well against Cambridge and other parts of the UK, but it wants us to continue to have that advantage. We win some and we lose some: we have actually attracted businesses from Cambridge, so it is not a one-way street.

How are we going to ensure that public sector investment continues and that investment is not just left to the private sector? Universities have said that their research—I am sure that the Scottish Government has access to that—shows that every £1 that is spent in research and development creates a further £8 of investment in the sector. What are we going to do to continue to leverage that and increase it? All the economists who speak to us say that, if we broaden the tax base, we will have more people with higher salaries who pay more tax, and that will fund the public services that we all want to see.

Thank you very much. I will open up the session to my colleagues around the table.

The theme of this budget scrutiny is fiscal sustainability. I realise that you have two major issues to address. One is the budget for the forthcoming year. You are also trying to put Scottish fiscal sustainability on a long-term track.

Professor David Heald said in his evidence:

“the UK tax system is a total mess, and the Scottish Parliament has made the tax system in Scotland worse.

We are in a nonsensical position.”—[Official Report, Finance and Public Administration Committee, 19 September 2023, c 3.]

He went on to talk about how the tax system in Scotland is not particularly progressive. For example, the marginal rate for someone earning £43,662 is higher than it is for someone earning £10,000 more because of the interaction with national insurance. How will the Government address that?

I can understand the reluctance to say where in the Scottish budget the money should come from; after all, you probably do not have the same understanding of the budget as we do, and why would you? It is not your job to have that level of understanding.

As for the Scottish Government’s philosophy, should it consider holding, reducing or increasing spending? If the latter, should we think about increasing taxation to provide that additional funding?

Sandy Begbie could argue that more money being spent in his sector would produce greater growth and therefore more taxation and more money for public services. You have heard the figures already. As I said earlier, the financial services sector accounts for 13 per cent of Edinburgh’s workforce but contributes 30 per cent of the economy, which is money available for public services. You mentioned that a lot of people—200,000—work in fragile communities where there is no other employment. They help to bind such communities, particularly those in rural areas in my constituency and many others.

Where would you want to pitch to the Scottish Government that additional funding is needed and where it should come from? In broad terms, should it come from taxation or from lower spending elsewhere?

We did not even get on to integration joint boards, community planning partnerships, and regional growth deals and city region deals.

I disagree with Mr Begbie; I certainly would take on such reforms. In Ayrshire, there are three councils and a health board. Why not have one structure? It is certainly my view that we should do that, and I have expressed it publicly over a number of years.

Are you saying that the objective remains the same but that the path to it has changed?

Indeed.