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Good morning, and welcome to the 34th meeting in 2022 of the Finance and Public Administration Committee. We have received apologies from Douglas Lumsden, who is attending a funeral today.

The first item on our agenda is an evidence session with the Scottish Government’s expert panel on the Scottish budget for 2023-24. We are joined remotely by Professor Sir Anton Muscatelli, principal and vice-chancellor of the University of Glasgow; Professor Frances Ruane, chair of the national competitiveness and productivity council and research affiliate at the Economic and Social Research Institute; and Dr Mike Brewer, chief economist and deputy chief executive at the Resolution Foundation. I welcome you all to the meeting.

I intend to allow up to 75 minutes for the session. We will move straight to questions. Our questions do not have to be answered by everybody. I will put my questions to Professor Muscatelli, who can decide which of his colleagues should answer. Although more than one person can answer, that does not need to happen.

The “Expert Panel Interim Commentary on the Implications of the UK Government Fiscal Statements for the Scottish Government Budget” sets out the panel’s thinking

“on how the Scottish Government could respond to the challenges it is facing through the tax system and the wider implications for public services and the economy.”

It suggests that the Scottish Government will need to find a balance between

“providing short-term support to vulnerable households and businesses; and ... investing to grow and improve the productivity and resilience of the economy in the medium to longer term.”

Has it done so?

You have said that the UK Government’s decision not to enhance capital funding given the high levels of inflation

“will lead to a steep decline in the purchasing power of Scottish Government investments ... this may hamper the Scottish Government’s ability to meet its net zero targets and damage the economic recovery”.

You said:

“it is important to achieve the right type of growth: growth that is sustainable and in line with other wider policy objectives, such as reducing inequality and the transition to net zero”.

Clearly, you will not be recommending the building of a giant coal mine, which they are suggesting will go ahead in Cumbria. Will you give us some examples of sustainable growth that is of the right type to reduce inequality and support the transition to net zero?

[Inaudible.]—on the Scottish budget 2023-24. I warmly welcome to the meeting, in person, Professor Graeme Roy, who is chair of the Scottish Fiscal Commission; Professor Francis Breedon, who is a commissioner on the Scottish Fiscal Commission; and John Ireland, who is the Scottish Fiscal Commission’s chief executive.

Professor Roy, I understand that you wish to make a short opening statement.

I am sorry—I try and put the questions to Professor Muscatelli so that he can decide who answers.

I think that it is a bit of a stretch to suggest that the Scottish child payment going from £10 in April this year to £25 next year somehow represents a real-terms cut.

Yes. I apologise—I should have been clearer about that.

That is interesting and is what one would anticipate.

You have said that the underlying structure of the Scottish economy is undergoing profound shifts. You talked about the impact of the pandemic. More people work from home, and some people suffer from prolonged health effects. Have you looked at that? In recent weeks, we have taken evidence from various panels to the effect that, across the UK, around 600,000 people have left the workforce; the corollary is that the number in Scotland is about 60,000. Do you look on that as a long-term consideration or as a one-year or two-year blip, when it comes to your projections of future economic growth and so on?

Thank you. I have just one more question before I open things up to colleagues around the table. Last Thursday, you sent me a letter, which said that non-domestic rates will be levied on a revalued roll. You said that

“significant uncertainties remained throughout the forecasting process.”

Obviously, that is of concern to the Scottish Fiscal Commission. Will you expand on that a wee bit, for the record?

I will follow up before I let Liz Smith in. I am struck by something that you said, Professor Breedon. You said that you assume that the 1p increase in the top rate will increase taxes by only £3 million rather than £30 million because of behavioural changes, but that if we put the rate up by 2p, that amount would double to £6 million. Surely you get to a point where the effect of behavioural change exceeds the additional income level. If the volatility is such that a 1p increase will take 90 per cent off the revenue, surely 2p in the pound—I am quite astonished at that high level of elasticity—would tip it over the edge and you could end up with negative revenue.