Chamber and committees

One of the explanations is to do with relative performance of the financial services sector in the rest of the UK compared with that in Scotland. My understanding has always been that we have a strong financial services sector in Scotland. Why would the financial services sector in Scotland be underperforming that in the rest of the UK?

“Doldrums” might not be a technical economic term, but it is a good descriptive one.

I think that that is relatively straightforward. We see the increase and we know what the consequentials are when it comes to health. However, if we are saying that there is, in essence, a 7 per cent cut, and we still have all that Covid cost, which extends beyond health, then there is £1 billion to £2 billion to be found in other budget lines, which is legacy Covid spend, but it is not clear where that is.

Do you agree with that, David Eiser? Of course, the other question is whether I am looking at the right numbers here.

My final question is about the really interesting points that Graeme Roy made about Scotland’s relative economic performance. In a sense, that is what is driving all of this, and according to the oversimplified rules of thumb in my head, I have always assumed that Scotland will do a little bit less well than London and the south-east but better than pretty much the rest of the UK. However, the analysis suggests that that is not correct any more and that we are actually trailing most of the rest of the UK.

I have also always assumed that Scotland is not that different from certain other parts of the UK, whether it be the south-west in some ways and the north-east in others. What is so particular about Scotland with regard to lower participation and slower income-tax growth?

Professor Roy, you also made an interesting point about our companies being less productive, but what is driving that? You suggested that we have not been as good at adopting technology and so on, and I wonder whether you can go into that in a bit more detail, as I find it really interesting.

A challenge, then.

I have a final question, following on from our discussion about labour markets, but taking a longer view.

The last two years have been a brutal shock, exposing our reliance on imported labour to make up gaps and, indeed, do certain tasks that the UK population does not want to do—essentially, low-wage, low-skill jobs.

In the longer run, global population growth, which was around 2 per cent in the 1970s and has fallen to about 1 per cent now, is projected to fall further to about 0.5 per cent in the middle of this century and come to some sort of equilibrium by the end of the century. It strikes me that any sort of model that relies on us continuing to import labour is flawed, regardless of the other things that have happened. Do you share that assumption? If so, does there need to be more focus on increasing the productive capacity of the existing population, because the economy will require working-age people to be more productive, whether by means of skills or automation? Does public policy need to be more focused on that issue?

What is the view of the IFS of the comprehensive spending review in relation to Scotland? My understanding is that we will see a 7.7 per cent increase in real terms, but that is front-loaded in the first year, and there are actually small real-terms decreases. That increase of 7.7 per cent is a historically high increase in the block grant. However, I think that that profile leads to some challenges in terms of what it means over those three years. Is that a fair characterisation? Does the IFS have any insights in terms of the decisions that the Scottish Government must make?

Let us bear those points in mind, with what Sir Charlie Bean said earlier, and step back a little bit. We are in a situation that is not panning out as predicted. We see significant labour market frictions and significant differential frictions between different sectors in the economy. It strikes me that, in that situation, making predictions on future earnings becomes a lot more difficult, because you need to forecast almost on a microeconomic rather than a macroeconomic basis what will happen in each individual sector. Is that a fair summary? What is the OBR doing to look at how we can drill into specific issues in specific sectors and extrapolate for the wider economic outlook?

If I remember the election period correctly, the IFS was very fair in that it was equally withering about all the manifestos, which was good of you.

In the previous evidence session, we were looking specifically at the nature of the rise in income tax receipts, noting that Scotland was not seeing such big increases and that we were seeing big differentials between sectors, which brings challenges. Is there sufficient public policy focus on how we plug gaps in particular labour markets or address those differentials? That seems to be a new challenge, and one that is more challenging because of Brexit, but it does not seem to be getting the focus in terms of public policy that it deserves, north or south of the border.