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On 27 October, Paul Johnson said that the budget was “very disappointing” and that it showed that household income would be “pretty stagnant” at around 0.8 per cent growth this year. He went on to say,

“This is actually awful,”

pointing to

“High inflation, rising taxes, poor growth keeping living standards virtually stagnant for another half a decade.”

In his speech that day, he went on to say:

“Average gross earnings could have been some 40% higher had pre crisis trends continued.”

How does that compare to other western countries?

Over the past few years, how accurate has the Office for Budget Responsibility been, compared with the SFC? There are significant differences in the forecasts for the next five years; the SFC predicts that the tax take in Scotland in five years will be £486 million more than the OBR has predicted. It is interesting that the OBR predicts that £78 million will come in from Scottish landfill tax while the SFC predicts only £18 million because of the impact of policy. That is a £60 million difference, which is quite a huge difference for that tax. To help us to consider how the OBR is doing relative to the SFC, will you say how accurate the two organisations’ predictions have been over the past few years?

We will soon see.

The Institute for Fiscal Studies has been quite excoriating in its critique of the UK budget, and I noticed that one of the comments was that

“A crucial ingredient in this year’s policy decisions has been the way in which OBR forecasts appear to have driven policy.”

You touched on that a wee bit in response to Michelle Thomson’s questions, but what can and should the UK and Scottish Governments do differently in terms of fiscal policy? There has been a lot of critique—given your role, I understand that—but do you have more positive suggestions for how we can make things better?

What should Scotland’s spending priorities be, given what Daniel Johnson said about there being a jump in resources this year, but a real-terms decline in the following two years? Sustainability of the public finances is, obviously, a major issue for us in Scotland.

One issue is that the OBR does not necessarily have access to the data that it requires to look at specifically Scottish circumstances. Are there any data streams that could be added to make forecasting in a Scottish context more accurate?

Paul Johnson says that the

“primacy of asset accumulation, and the importance of asset holdings”

has been prioritised over improving living standards through earnings, which will impact on low-income households in particular. Is it fair to say that?

Good morning and welcome to the 13th meeting in 2021 of the Finance and Public Administration Committee.

The first item on our agenda is to take evidence from the Office for Budget Responsibility as part of our budget scrutiny. We are joined by Richard Hughes, director, and Professor Sir Charlie Bean and Andy King, budget responsibility committee members. It is the first time that we have taken evidence from the OBR this session, and I thank Mr Hughes and his colleagues for making the journey to Edinburgh.

We have 75 minutes for discussion and will have to finish promptly just before 10.30 am, in time for our second evidence session.

As we have been given a small but perfectly formed statement by the OBR, I will open up the questions. I do not mind who answers the questions—that is a matter for the witnesses, and one or more can answer.

In the third paragraph of your overview of the October 2021 economic and fiscal outlook, published on 27 October, you stated that there are

“supply constraints in several markets.”

You go on to say that

“these supply bottlenecks have been exacerbated by changes in the migration and trading regimes following Brexit”,

and you

“expect CPI inflation to reach 4.4 per cent next year”.

What is your view on how the consumer prices index will impact the Treasury gross domestic product deflator, which is obviously important for the setting of budgets in Scotland? Is the situation with supply bottlenecks improving, and when do you expect it to return to as near normal as possible?

I will stick with inflation. No one has answered the question about CPI versus the Treasury deflator yet. I was struck by the difference between the OBR’s assumed nominal earnings growth in 2022 of around 3.9 per cent and the 1.3 per cent that is in the Bank of England’s monetary report. That is a huge differential. Most people would probably think that the OBR is nearer the mark on that. From your perspective, do you think that the Bank of England will look again at that, and will there be implications for interest rates? We know that the bank voted seven to two against changing the interest rate last month. What is your feeling about that, and how will it impact on your forecasts?

Is it not the case that, if people are incentivised to invest in assets, they are less likely to invest in the productive elements of the economy that are high risk, which impacts on productivity and growth?