Chamber and committees

Until we know the position at the spring budget in relation to any changes to capital one way or the other, we really cannot start projects that we might not have the money to finish. The £1.6 billion that, at the moment, we will not have between now and 2027-28 would have paid for a lot of health centres, to be frank. For context, I note that that is the cost of a major new hospital. We talk about percentages but, in cash terms, £540 million is a lot to lose every year in the run-up to 2027-28.

Our major call on the Treasury—and our number 1 priority—has been a reversal of that capital position at the spring budget. We need to see that before we can make a judgment about the infrastructure investment plan; after all, it would not be a good use of funds to start projects that we cannot finish. However, I am an eternal optimist and I hope that, on the other side of the spring budget, I will be in a position to revisit the position and set out an infrastructure investment plan that will take some of those projects forward. At the moment, though, I cannot give that assurance, because I do not know what the position will be.

It will be after the spring budget, once we have had a chance to look at what that picture looks like and to make judgments about what that means for capital availability. That comes with a caveat or a health warning, in that we could be in a better position than we are at the moment, but we could also be in a worse position, which would impact directly on the assumptions that are made in the budget. I hope that that is not the case, but it is wise to make that caveat.

That is why I came back to the committee’s report in the way that I did. If we were to publish it now, prior to 6 March, we would be revisiting it straight away, because of what 6 March could bring us.

I alluded to this earlier, but I accept that we need to look at what we can do in relation to that projection, and how much of it lies with decisions on efficiency, effectiveness, decision making and eligibility. All of those things are being looked at in relation to the social security system that we have at the moment, but the system is projected to continue to grow, because we are still in the process of finalising the shift of benefits. That journey is not complete.

The point about the social security system being demand led is fair, but it gets us straight into some quite difficult discussions, such as what the system will look like in five or 10 years and whether we need to review some elements of it to ensure that it is fair to everybody. Those decisions have not been made, but inevitably Parliament will have to debate that. We also need to ensure that decision making on the supports that are available at the moment is not completely out of kilter with systems that have been inherited, as that could become unsustainable.

Social Security Scotland is all over some of those issues. With the adult disability payment, for example, it is looking at consistency of decision making to ensure that no inconsistencies arise that could lead to unfairness in the system. It is also ensuring that the position will not become unsustainable, because of an exponential growth in awards, particularly those at the higher level.

However, although all of those levers can be deployed in the shorter term, they do not necessarily address longer-term growth. Parliament will, usefully, have a view on where social security sits in our budget. It is now a big chunk of it—in fact, it is one of the key pillars alongside health and local government—so where should it sit in future? If it is going to continue to be such a big chunk, as I suspect it will, that will mean taking decisions elsewhere.

Just for completeness, we could look at reducing demand on social security by using some of the other levers that are available. For example, we could avoid people falling out of work and into social security and becoming dependent on the adult disability payment, but we need to work out what we can do further upstream to try to interrupt that. It is quite a challenge, but we need to give it more attention.

We recognise that employability services are often delivered by third sector organisations, and I have a lot of sympathy for the third sector more broadly, and its call for multiyear funding.

There is a trade-off. In my discussions with third sector organisations, they often say that they are more concerned about multiyear funding than about the quantum: knowing how much they will have over time and being able to retain staff are really important. I get that, and I am sympathetic to that. We have tried to move, along with third sector organisations, to consider whether or not we can provide certainty over more than one year, at the very least, when finances are tight.

Doing that for large areas of spend such as local government would be very challenging, in the light of our having only year-to-year budgets at the moment. I would not want to give a false premise for almost a third of the budget. If we made assumptions that were just not correct, because we were basing them on speculation and did not know—we, too, have only the one-year horizon, and fiscal uncertainty at the moment is huge—that would not be helpful for a huge area of spend like local government.

However, that is easier to do for smaller areas of spend in which the margins of change can be managed more effectively. The third sector is a good area to try to give certainty to because, as I said earlier, third sector organisations sometimes struggle to hold on to staff when contracts are coming to an end and there is no certainty about funding. I am very sympathetic about that.

Good morning. I thank the committee for its budget scrutiny report, which I have carefully considered.

As I have highlighted to the committee and to the Parliament, the budget has been developed amidst very challenging economic and fiscal circumstances. The United Kingdom Government’s autumn statement was a worst-case scenario for Scotland, and we have further significant uncertainty on the horizon with the spring statement on 6 March.

Although some newspapers seem to have received a briefing relating to tax, we are clear that the UK Government needs to use any headroom that it has to invest in services and to provide consequentials for the costs of the 2023-24 national health service agenda for change pay agreements in the coming financial year, which was totally absent in the autumn statement.

Subject to what the spring budget delivers, as I have already advised local government, I am committed to passing on in full any consequentials that are received in response to increased teacher pension contributions and the estimated £45 million of additional funding to local government following the UK Government announcement in January, should they be confirmed as net additions to the Scottish budget. It is a fair budget for local government, but it is a challenging one, and I do not underestimate that. It is a challenging budget across the public sector.

If the capital funding position improves, I will also consider the funding position for our affordable housing supply programme, which continues to be a key priority for me. That all depends on the availability of additional funding from the UK Government, and the position on that continues to be uncertain.

Although additional funding is always welcome, the funding position could worsen, negatively affecting the assumptions underpinning the Scottish budget to date. As we have just seen again, the UK Government can unexpectedly reduce our funding, which is an on-going risk.

The recent UK Government supplementary estimates now indicate a reduction in our financial transactions of £64 million this year. That is unexpected and will be hard to manage, because it could impact on key policy areas such as housing. That is why it is so important for the UK Government to use the spring budget as an opportunity to improve the capital budget position, which will be crucial for affordable housing plans and other priorities such as NHS infrastructure projects.

I did not lodge amendments to the Budget (Scotland) (No 3) Bill ahead of this meeting. However, the committee will be aware of the Cabinet changes that the First Minister announced on 8 February. They included combining economy, net zero and energy to create a strong new portfolio for building Scotland’s economy. That means that transport should now be considered an individual portfolio, to reflect the importance and complexity of that vital delivery area. The portfolio changes therefore affect the Scottish budget, which is why at stage 3 I will propose a small number of technical amendments to reflect those changes. The committee will appreciate that there was insufficient time to prepare those amendments ahead of the 9 February lodging deadline for stage 2.

I thank committee members for their on-going engagement on the budget bill. I look forward to our discussions this morning.

We have raised that issue. Alongside other ministers, I had a constructive meeting with the hospitality sector. Don’t get me wrong—of course those in the sector would have liked to see NDR relief passed on in Scotland, but I wanted to be really clear with them that we had to make a difficult choice between investing that money either in public services or in the business rates tax cut. Of the £310 million of consequentials, £260 million was for business tax cuts. In the light of the pressures on public services, I could not, in all conscience, do that.

We then talked about other areas and the hospitality sector raised concern about VAT as a key issue. I have since seen some interviews with leaders of the hospitality sector in England, who are calling for changes to the VAT threshold because of its impact on their businesses. It is a complex landscape, with a number of pressures; the costs of goods, power and premises all have an impact.

You are also right to point to the significant package of reliefs, which is worth an estimated £685 million for 2024-25 and includes the small business bonus scheme. We have a competitive support package for businesses and have gone further by supporting 100 per cent relief for the islands and hard-to-access remote areas of Scotland. We intend to monitor the impact of that and to gather evidence on whether the reliefs are working as intended.

I might be wrong, but I suspect that the reliefs will probably not continue in England beyond this year. Rather than having stop-and-start reliefs, we have committed to working with the sector to look at what we can do to give long-term, sustainable support. That would be better than having a cliff edge at some point in the near future, which would not be helpful.

We will certainly take that point away and consider it.

I take your point. It is not an unreasonable request, and we could give it further consideration, but any such amount would have to be very modest, given the fiscal position. I can envisage a scenario in which we are in Parliament, being asked questions about resources in the here and now, while at the same time, we have this pot sitting. However modest it might be, it would be a focal point, and we would be asked why we were not deploying it for X, Y and Z. Those are the very real debates that we have all the time around the here and now. If we were in a different fiscal position right now, what you suggest would be a very wise thing to do and a constructive way of building resilience. It is one of the few genuinely flexible areas of funding that is not constrained by all the machinations of the fiscal framework and so on.

At the Net Zero, Energy and Transport Committee, we had a discussion about whether you could align with the £4.7 billion the resources that are already being deployed and are having a positive impact on our climate change goals. You could cut that money however you wanted to in relation to investment in offshore wind commitments or in some of our other positive action on climate change, and that is something that I will continue to consider.

If, in the short to medium term, we find ourselves in a better financial position, your suggestion will have some merit, but I feel quite constrained at the moment. When public services absolutely require every pound of investment, I find myself quite torn between the attractiveness of doing what you suggest and having that money available in the here and now.

There are a lot of moving parts around that. The housing minister has been actively looking at levering additional investment into affordable housing—mid-market rent, in particular—through the private sector, and at how we might be able to utilise some of our funding to create business models that make that more straightforward. We are looking at how we can be imaginative. I am less precious about where the funding comes from to keep on track.

The only point that I would make, I guess, is that the capex reduction is challenging enough, but it also comes hot on the heels of construction inflation at its peak. I think that it was at 25 per cent at one point, and it is never going to go back to what it was previously. As a result, you might have your pot of money, but you are getting fewer bangs for the buck, because of the higher cost basis. That is a challenge even before you get to the challenge of the availability of capital funding, so we are going to have to look very closely at what can be done and what the trajectory of delivery is. If we can lever in external funding sources, that will ensure that we can deliver and keep things on track, but it will be a challenge.

Yes, absolutely. You could break this into two parts, the first of which is some of the short-term reforms that have already been taken forward on, for example, second homes and empty homes and which I think have been helpful. However, we have an absolute commitment to examining what longer-term reform might look like and whether we can land in a space of a fundamental reform either to the council tax system itself or, indeed, a new system.

Local government is committed to that, and I would think—I would hope—that there is an element of cross-party consensus that reforms need to be made to the system. Whether we can find that space of consensus, I do not know, but I think that it would be very helpful. After all, whatever we land on has to stand the test of time, be fair, address some of the anomalies and be able to raise enough revenue. All of those are, I think, key elements.

We have the joint working group, which has functioned very well in focusing mainly on some of the short-term reforms. There is no doubt, though, that we need to set out a path to that longer-term reform. It is not going to happen overnight—clearly, it will take a bit of time—but some destination point has to be agreed and we are keen for that to happen.