Chamber and committees

The next item on our agenda is an evidence session with the Scottish Fiscal Commission on its “Forecast Evaluation Report” and its paper on “Productivity and Fiscal Sustainability”, both of which were published on 29 August 2023.

I welcome from the Scottish Fiscal Commission Professor Graeme Roy, chair, Professor Francis Breedon, commissioner, and Claire Murdoch, head of fiscal sustainability and public funding.

I intend to allow up to 75 minutes for this session. Before we open to questions from the committee, I invite Professor Roy to make a short opening statement.

You are absolutely right. That is, of course, a policy choice, and I am not asking you to make such policy choices, because you would demur if I did so. However, it is interesting that you have touched on the situation with the current devolution arrangements and have said that we would have to change public spending or tax policy. What would we have to change to bring the finances into long-term sustainability?

Colleagues will press some of those issues further as we progress through the meeting. I do not want to hog the whole meeting. The first colleague to ask questions will be Ross Greer and he will be followed by John Mason.

Thank you very much for that, Professor Roy.

I will kick off the questions and then open up the discussion to members of the committee.

I will start with the issue that you have just touched on. I will not quote the full paragraph in your letter, but you have said:

“While higher productivity growth has a clear positive effect on the economy, the net effects on the public finances are complicated and to improve fiscal sustainability will require changes in public spending or tax policy.”

Professor Spowage talked about that at our away day last week. I would be interested if you could explain the reasoning for the fact that increased productivity might not reduce the sustainability gap. That is crucial to our deliberations as we move forward, and it is important to get that on the record.

The second issue is the changes that would be required to close that gap, even in a situation in which we have increasing productivity.

Obviously, if the economy improved, one would expect fewer people to be dependent on public services, and there would be the same impact if people’s health improved.

I think that that is pretty clear. Colleagues can ask further questions about that if they wish.

Let us move on to look in more detail at the forecast evaluation report. Page 19 shows that the number of top-rate taxpayers has increased from 14,700 to 18,000. Yet, on page 46, you say:

“the tax revenues paid by top rate taxpayers have actually fallen in two years.”

Why is that? If there is a significant increase in the number of such taxpayers, and given that we are in an inflationary situation, why have those revenues fallen?

The next item on our agenda is evidence on the draft Land and Buildings Transaction Tax (Green Freeports Relief) (Scotland) Order 2023. I welcome to the meeting David Melhuish, director of the Scottish Property Federation; Derek Thomson, Scottish secretary at Unite the union; and Liz Cairns, researcher at Unite the union.

I intend to allow up to an hour for this session. If a witness wants to be brought into the discussion at any point, they should indicate that to the clerks, please, and I can then call them. I will direct my questions for Unite the Union to Derek Thomson, but if he would prefer Liz Cairns to answer them, I would be quite happy with that. We will simply suck it and see, so to speak.

We have your submissions, which I thank you for. We will go straight to questions.

My first question is to David Melhuish. In response to our questions, you talked about the five-year timespan being

“simply too short for the nature of long term investment in the two green freeports”

in Cromarty and Leith. You also said:

“we note that the green freeports will not be fully operational until at least 2024 or perhaps even 2025. We therefore suggest that the qualifying period should be extended to at least 7 years.”

What would be the benefits of that to your industry and, indeed, the wider Scottish economy? How much investment and employment do you realistically expect to come into those two green ports?

You have said in your submission that you

“cannot accept an economic situation which allows for private sector employers in Freeport areas to increase profits as a result of government subsidies while vital local public services that our communities and those in greatest need depend upon, are allowed to wither on the vine.”

Where is the evidence that that will happen? The whole point is to create economic growth, which will increase tax revenues, which will allow further revenues overall for the Government to invest in services.

I will put a lot of these questions to the minister when he gives evidence, to find out what he has to say.

David, what kind of jobs and what kind of businesses do you envisage will go to the freeports?

I do not think for a minute that there will be 100 per cent displacement, but I do not think that there will be zero displacement either; it is bound to be somewhere between the two. That is a concern. Do our guests have any evidence on what level of displacement they think there is likely to be? I will ask the Scottish Government about that specific issue, but are you able to give us best and worst scenarios?