Hansard

The Convener SNP

The second item of business is to take evidence on the implications of the financial powers arising from the Scotland Act 2012. I welcome to the meeting Prof...

Professor Gerald Holtham (Independent Commission on Funding and Finance for Wales)

In my remarks, I will focus on one part of the brief paper that I submitted, on the treatment of deductions from the block grant once tax powers have been de...

The Convener SNP

Thank you very much, Professor Holtham. Those comments and indeed your briefing paper have been very helpful. I will ask a couple of questions to start with ...

Professor Holtham

You will have to excuse me, convener, because I do not think that I am completely up to date with the debate. I know that the original suggestion was to base...

The Convener SNP

Is one of the benefits of the indexed method that it should encourage the Scottish Government to prioritise economic growth?

Professor Holtham

Yes, I think so. With the indexed method, you retain any benefits from the growth of your own tax base relative to the UK tax base.

The Convener SNP

The Scottish and UK Governments will have to plan to reduce any potential uncertainties. Is it not the case that most of the risk falls at the Scottish end?

Professor Holtham

Which risk are you referring to?

The Convener SNP

Well, the risk from getting the figures in these predictions wrong, certainly in relative terms. Do you accept that?

Professor Holtham

As I have said, the tendency in forecasting is to flatten reality. People do not forecast recessions very much. Guys in the private sector might want to make...

The Convener SNP

Could anything more be done to minimise that risk either way? After all, what many people are looking for is stable revenues.09:45

Professor Holtham

It is good that there is something such as the OBR, which is at least notionally one step removed from the Treasury. A difficulty historically has been that ...

The Convener SNP

Yes.On the taxes that have been devolved here, we have talked specifically about the Scottish rate of income tax. Last week, the OBR made it clear that it do...

Professor Holtham

I understand that. The ability to make forecasts on those small taxes is probably quite limited, so you are well within your rights to ask for some investmen...

The Convener SNP

I will now widen out the discussion to involve colleagues round the table.

Malcolm Chisholm (Edinburgh Northern and Leith) (Lab) Lab

That was a really helpful introduction by Professor Holtham. I think that there is a degree of consensus on the distinction between the smaller taxes, which ...

Professor Holtham

Yes, that is right. If what has been said is right and the OBR is not too hot at forecasting, it will simply be taking history and assuming that what has hap...

Malcolm Chisholm Lab

I was not very reassured when you said that the OBR tends not to forecast recessions—in other words, it looks on the bright side of things. I presume that, t...

Professor Holtham

Yes. I suppose that that is right. The process is symmetrical, of course. The OBR tends to underestimate changes on both sides, but if it underestimates a re...

Malcolm Chisholm Lab

I think that we are getting them, so I hope that those one-off deductions will not be such a problem. However, income tax is the big one, and I am really int...

Professor Holtham

In practice, assuming that you did not change the rate, the UK Government would make an estimate of what the revenue was worth—the 7.4 per cent, if you like—...

Malcolm Chisholm Lab

Initially, we will get just the 10p rate. Would the calculation be done on the basis of the growth of just that part of UK income tax or the growth of all UK...

Professor Holtham

This is one thing that we do not like in Wales, but the 10p rate is applied across the income tax range. It applies to people who are right at the threshold ...

Malcolm Chisholm Lab

Could there be a problem if income tax grows more strongly in England or Scotland not because of Government interventions, but for reasons that are not reall...

Professor Holtham

Yes, indeed. That is a risk that you are taking on. To be honest, I have not thought of a clever way to protect you against extraneous risks while leaving yo...

Malcolm Chisholm Lab

How possible would it be in practice to separate extraneous factors from factors that are related to Government actions?

Professor Holtham

It would not be possible. After 15 years, even the Government actions would be offset, but you would be starting from that base—you would not be going back a...

Malcolm Chisholm Lab

Looking back over the past 15 years, do you think that there are some extraneous factors that would explain the percentage of income tax being greater or sma...

Professor Holtham

Scotland has done fairly well over the past 15 years—the economy has not done badly at all. Of course, it is presumably very dependent on the oil price. The ...

Jean Urquhart (Highlands and Islands) (Ind) Ind

I have one observation to make. It seems, from reading the paper and listening to the OBR presentation—which was not very reassuring in terms of differential...