Hansard

Thank you very much for having us back so soon after our last visit to the committee. On behalf of the commission, I offer you all good wishes for the new year. I also offer Andrew Hughes Hallett’s apologies; he really wanted to be with us. I assure the committee that the three of us spent many hours on a phone call yesterday, so Campbell Leith and I are very current with Andrew’s thinking. As with the run-up to the writing and finalisation of the report, if there are questions that we think are in his area of expertise, we will let you know that he might be able to add something further. Since we last met on 25 November, the commission has published its “Report on Draft Budget 2016-17”. We concluded that the forecasts were reasonable and made a number of recommendations. We note in particular that the forecasts are now being made on a five-year basis, which is good as it makes them consistent with other forecasts in the UK. In our eyes, it also perhaps adds some urgency to making some enhancements to the Scottish Government’s forecasting methodologies that would make them more suitable for that five-year time frame. You will have seen that our report has evolved: it is longer and fuller in explanation and background, and it contains appendices showing not just our activities over the year but the minutes of our challenge meetings with the Scottish Government. We started producing those minutes in August when we had the resources to do so. As minutes of meetings should be, they are agreed by all participants. As I said, the report has evolved—it even has a cover and paragraph numbers. I say that tongue in cheek, but we expect it to continue to evolve over time. Our way of working has also evolved, and we hope that that is apparent to some extent in the report. We value our engagement with the Finance Committee and we have taken steps, such as producing the minutes, to provide evidence of transparency and independence—two themes that have come up in our discussions with the committee over the past year. We note that the Finance Committee has published its report on the Scottish Fiscal Commission Bill; clearly, once the bill is finalised, it will lead to further evolution of the commission over time. In our report, we have made some promises for the future. We have promised to develop a protocol in the coming year on how we work and how we interact with the Scottish Government. We have begun some early thinking on that. We state that we will do our own analysis of the outturn numbers once we have a full year’s worth of outturn numbers for the devolved taxes. That is really important. We know that the Scottish Government will do that as well and clearly we will need to see where that takes us. We also state that we will begin a programme of producing some technical papers and we are just starting to think about what they might comprise. We do not have any in the hopper at the moment so please do not look for them in a week or two, but they will come. To conclude, I will state succinctly our key concerns in this year’s assessment and scrutiny of the Scottish Government’s forecasts. On LBTT, we were pleased that, in looking at the tax for additional properties, the Scottish Government at least speculated and talked about behavioural factors. We think that those are important for all aspects of LBTT transactions, particularly given the five-year forecast time horizon. To our minds, it is increasingly urgent that the modelling for LBTT moves on and begins to incorporate appropriate behavioural factors. There was discussion in the earlier evidence session about policy—today’s policy and tomorrow’s policy—and we are all keeping an eye on whether the Scottish Government’s policy on landfill is having the effect that it is expected to have. The landfill tax is an area of real focus. Non-domestic rates income is Andrew Hughes Hallett’s key area of focus. As you will see in the report, we think that we have to bottom out the nature of the impact of buoyancy through the cycle—particularly what happens cyclically in terms of buoyancy. Once we have our arms around that, we can begin to pull in and look at wider and broader economic factors. There is no real data on the additional properties tax. For that segment, we have very little to go on in Scotland, as we do not know a lot about who owns additional properties and how many they own. There is speculation about what the pool of properties might be, but some further work must be done in that area as well. Finally, it is about outturns, which I just mentioned. We need to see what really happened in relation to previous forecasts. Those are the areas of concern that we have expressed in the report. We have also expressed them verbally to the Scottish Government. We expect the Scottish Government to get back to us, as promised, with its views on our recommendations, outlining its plans and how it intends to react to those recommendations. We have stated in various fora, and I state again, that we believe that the Scottish Government will likely need to enhance its forecasting resources in order, for instance, to develop the LBTT model further. That is what we expect from the Scottish Government. I invite the Finance Committee to give any feedback that it has on the report in addition to asking its questions.