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Tory MSP Murdo Fraser says Scotland's productivity forecasts are growing below the rate of the rest of the UK.

Mr Fraser says income tax revenues per capita are the same as the rest of the UK.

Mr Chote says the latest income tax changes have not been taken into account by the OBR.

He says his November forecast and fiscal commission's forecast are quite close.

The OBR chairman says the differences in productivity forecasts are down to population growth.

Brian Taylor
BBC Scotland Political Editor

Income tax. Public spending. Employment. Pay. The NHS. Schools. Indisputably, serious stuff.

But there was more than a touch of mischief about Derek Mackay's demeanour as he got to the tax bits of his budget.

Normally, he exudes gravitas, solemnity even. But he could not help playing to the gallery with a declaratory grin when he insisted that, for most people, Scotland would now be the lowest taxed part of the UK.

Said gallery - led enthusiastically by Mr Mackay's predecessor, John Swinney - applauded loudly.

The reason for this glee? Politically, the claim is a direct and precise retort to Conservative attacks that Scotland is taxed more highly.

But, of course, when the dust dies down, the Tories will return to that attack.

Read more from Brian

The UK government has set a longer-term goal to get the budget into balance by the mid 2020s, which the OBR does not believe it is on track to meet, Robert Chote explains.

It is unclear whether more fiscal constraints will be put in place, he adds, depending on how committed the UK government is to balancing the budget.

Historically, governments have decided a certain level of deficit is acceptable, he says.

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OBR chairman Robert Chote says problems with productivity are a global phenomenum, which shows how tough a problem this is.

Mr Chote says numerous reports say spending more on education, training and infrastructure, as well as planning reforms, would improve productivity.

These are slow burn policies, he says.

The OBR chair says one of the reasons for low productivity has been low interest rates.

Image source, EPA

Labour MSP James Kelly raises pay growth.

Robert Chote says the OBR has not taken account of the Scottish government's announcements on public sector pay as it was decided late in the budget process, nor has the SFC.

If public sector employers no longer have to cap pay growth at 1%, it is assumed that wage rises will return to the same level as private sector pay quite quickly, he explains.

Mr Chote adds that public sector employers may respond to this by changing how they balance budgets between pay and non-pay, for example by opting to spend less on procurement.

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Labour MSP James Kelly asks about the forecast of weak growth and says the number of average hours worked has increased.

Mr Kelly says the wages that people are earning have not been matched to inflation.

Mr Chote says it is uncertain whether people are responding to weaker earnings growth and are working longer or are adjusting in other ways.

Committee convener Bruce Crawford asks for detail on the decision to revise growth downwards.

Robert Chote says the most important determinant is the growth in potential.

He notes the productivity forecast is at its worst on record and has been sustained for a decade.

The difficulty in deciding the weighting of the last ten years and the historical average for the purpose of modelling future productivity is discussed.

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Last December the Scottish government announced income tax changes that will see higher earners pay more than elsewhere in the UK - and lower earners pay less.

Finance Secretary Derek Mackay announced a new tax band of 21p for those earning more than £24,000.

The higher rate of tax will be increased from 40p to 41p and the top rate from 45p to 46p.

But a starter rate of 19p in the pound will also be introduced, Mr Mackay confirmed in his draft budget.

Mr Mackay said the move to a five-band income tax system will mean no one earning less than £33,000 in Scotland will pay more tax than they do now.

• What does the budget mean for you?
• Brian Taylor: 'Mischievous Mackay's taxing budget'
• Douglas Fraser: Budget growing pains
• Scottish budget: At a glance
• read more here

Mr Chote says the SFC did not include forestalling.

The OBR chairman says this is not a dramatic difference from the OBR.

He says on LBTT the differences in the forecasts between the OBR and SFC are as expected.

On landfill the differences are slightly greater as the SFC has more information, he says.

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Mr Mackay's budget statement was accompanied by the first economic estimates from the new Scottish Fiscal Commission, which said the country is facing "subdued" growth over the next five years.

The independent body predicted the Scottish economy will grow at less than 1% per year until 2022 - lower than that predicted by other economists.

Its five-year forecast suggests GDP growth will be 0.7% in both 2017 and 2018, rising to 1.1% in 2022.

It said the outlook was "driven by slow productivity growth and exacerbated by demographic challenges".

Read more here

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On the Scottish Fiscal Commission's first forecast, Mr Chote highlights the weaker outlook for Scottish GDP growth than the OBR's prediction for UK GDP growth.

He says the main drivers are to do with weaker population growth, a less optimistic view of productivity growth and different view on spare capacity in the economy.

The OBR has not looked in detail at the new income tax proposals, Mr Chote confirms, though he does highlight potential cross-border issues which his organisation will consider.

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OBR chairman Robert Chote says the phenomenum of weakness in productivity is by no means happening only in the UK.

Mr Chote says the growth potential of the economy over the next five years is judged to be less than the OBR thought in March.

He says the UK government policy measures announced in March added to borrowing.

Mr Chote reiterates there is a weaker outlook for the economy and a weaker outlook for the public finances.

OBR Chairman Robert Chote confirms the next forecast will be on Tuesday 13 March alongside the UK government's Spring statement.

He describes collaboration with the Scottish Fiscal Commission as useful in terms of creating forecasts.

Turning to the OBR's November forecast, he says growth for 2017 has been "somewhat weaker" than originally anticipated, but the main changes were around weak productivity and strong labour market performance.

Image source, Getty Images

Growth forecasts for the UK economy were cut sharply following changes to estimates of productivity and business investment.

The Office for Budget Responsibility (OBR) now expects the economy to grow by 1.5% this year, down from the estimate of 2% it made in March.

Growth, it says, will drop to 1.3% by 2020 and then rise to 1.5% in 2021.

The lower growth means that by 2021-22 government tax receipts will be £20bn lower than the OBR's March forecast.

The OBR expects borrowing as a share of economic output will still fall, but not as fast as it predicted in March.

It forecasts that borrowing this year will be 2.4% of Gross Domestic Product (GDP), rather than its previous prediction of 2.9%.

By 2021-22, it says that percentage will be down to 1.3%. However, in March, it had expected borrowing to have fallen to 0.7% of GDP by then.

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The Finance and Constitution Committee, external take evidence on the draft budget from the OBR chairman Robert Chote.

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The Finance and Constitution Committee, external will shortly take evidence on the draft budget from the OBR, the Fraser Of Allander Institute and the finance secretary.

1. MSPs will begin by taking evidence on the OBR's economic and fiscal outlook from its chairman Robert Chote
2. MSPs will then take evidence from Finance Secretary Derek Mackay

Read the meeting papers, external and submissions, external.

Good morning and welcome to Holyrood Live's coverage of the Scottish Parliament on Wednesday 10 January 2018.

The Finance Committee will hear from OBR chair Robert Chote and Finance Secretary Derek Mackay as it continues its onerous scrutiny of the draft budget for 2018/19.

MSPs quiz justice ministers and law officers, before questioning culture, tourism and external affairs ministers.

Justice Minister Michael Matheson delivers a ministerial statement on the Chief Constable Phil Gormley's leave of absence.

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MSPs will then debate the Glasgow 2018 European Championships.

Image source, Glasgow City Council 2018

This evening's members' debate is led by Tory MSP Adam Tomkins who will mark Holocaust Memorial Day 2018.

Image source, Auschwitz