Chamber and committees

It is very important that we try to encourage Scotland-domiciled students and those who come to study here to remain living and working in Scotland. We certainly try to do that.

If you are talking about the 1,200 places specifically, I would note that, had the money for those places continued to be invested—as we called for at the time; we said that the Covid money should not go off a cliff—we might have been able to make different decisions. However, that position was never going to be able to be sustained into the future, because that money was deployed as a mechanism to take account of the spike in university applicants as a result of the Covid period.

It was a short-term intervention, which we have delivered for two years beyond the period covered by the Covid moneys. In terms of support, the position with Scotland-domiciled students is that we want the universities to continue to provide and deliver opportunities for those students, but we cannot continue to fund the Covid-related 1,200 bubble that was funded previously. The resources are simply not there to do so.

I think that it is pretty unusual. There is an unusual set of circumstances, in that the extent of the changes that might be made in the spring budget—given that it is an election year and given some of the noises that are being made in the media about what could happen vis-à-vis income tax changes—could have a profound impact on our budget.

That is not a number with which I am familiar. There is no number, as such, because the Scottish Funding Council is still to have discussions with the university sector about the places that will be available. The point that I am making is that 1,200 is the figure that has been referred to: I am explaining to you why there is a bubble and what its legacy is. The Funding Council is discussing with the universities the number of places, in order to settle on a number that is affordable and sustainable.

First of all, growth is a priority. Earlier, I set out some of the economic indicators in the Scottish economy that show an improving position. The strategic investments that we are making, particularly in net zero and green energy, are the right investments, and we have been encouraged by the investor panel to make them. However, there is no getting away from the fact that, with less money on the resource side and particularly on the capital side, we cannot make the investments that we would want to make. We cannot do that, because there is less money.

We have had to make some very difficult decisions on where we make the investments. For example, we need our enterprise agencies to focus on the key priorities, so there will be things that they are not able to do. Our capital investment is geared to try to use public capital in a strategic way that levers in private sector investment. All those things will be critical to continuing to see the improvements in economic performance that I laid out earlier.

I come back to the point that, with less money, we have had to make difficult decisions, and that has impacted on areas where we would rather not have had to make those decisions. However, there is no escaping the fact that decisions had to be made somewhere in the budget, and those are the decisions and priorities that we have made.

First, you are right to identify some of the very big challenges for the construction sector more widely and the housing construction sector more specifically. Interest rates are still high, there is inflation in the cost base, and all of that has led to some of the difficult decisions that have been made by the companies that you mentioned earlier.

That is the backdrop, so we have to think about what we can do with the £556 million investment that we are making and how that can deliver the biggest impact. I spoke earlier about the housing minister’s discussions with the private sector about levering more investment into mid-market rent opportunities. There is an appetite in the investment sector to invest in housing and we must harness that in a way that can provide a business model for doing so. The housing minister is working on that.

It is fair to say that the profiling of the target will have to change. There is never a straight road to a target: there are always bumps, peaks and troughs in delivery. It is fair to say that we are looking for back-end peaks but that we have a very difficult outlook on capital at the moment. That might change, but that is the outlook at the moment for our capital budget reduction. We cannot rely on public capital and must look at alternatives, which makes delivering the target very challenging indeed. Having said that, we are already more than 14 per cent into the delivery of that specific target, but there is still a long way to go.

No. I cannot account for journalists picking up on particular figures, and I cannot reconcile that with the budget figures. I am not clear where that figure has come from, to be honest.

I do not think that your cynicism is totally misplaced. As you say, every organisation takes on a life of its own. In terms of the growth of public bodies, we have been clear that the controls, assumptions and presumptions need to change. There should be a presumption against forming a new body as a solution to a problem, and the Cabinet will be required to give its approval to any suggestion or proposal for a new public body. In the past, it perhaps became the default that there had to be a new public body, whether due to a new piece of legislation or a new function. Of course, that is not necessarily required, given that there are already public bodies that could potentially take on the functions.

Therefore, the question is what we do with the existing landscape. There are a number of aspects to that. One is some rapid work around controls over the size and function of existing public bodies. Without a doubt, the workforce controls that we are putting in place will impact on all public bodies. They might not impact each public body to the same extent, but they will have an impact, because some public bodies are in a different position from others in the growth of their role and functions.

There are areas that are de minimis of what you would expect public bodies to be doing. Looking at shared services, for example, is a must. Does every public body need its own human resources or payroll department? That is one of the reasons why investment in digital capability is important, because it can potentially provide a one-door approach for all the support functions for public bodies instead of them having their own systems. That brings a huge benefit in terms of cost and sustainability. The investment by the Scottish Government in providing a digital system to support payroll and HR has many additional benefits. To avoid using up more time, I will not go into further detail, but I am happy to maintain a dialogue with the committee about the detail.

The more challenging question goes beyond the Government. A lot of the public bodies and roles that have emerged—commissioners and so on—are also in the parliamentary space. We have to take a step back and ask ourselves whether, with our population size, we have the landscape that is required for the sustainability and public sector efficiency that we need to be quite rigorous about.

The housing budget is very challenging and we face a large cut in the capital budget. I take your point about whether the cut is 20 per cent rather than 10 or 11 per cent, but the sustained cut in capital budgets is extremely challenging for the housing budget. If you take into account all the other challenges, including inflation in construction costs, the outlook for housing is very difficult.

Having said that, we believe that the investment that we will make in our housing budget will help to lever in private sector investment. The Minister for Housing is working with partners, investors and the private sector to look at how we can lever in additional private investment.

The figure for public capital investment is a decrease of about 13 per cent. One of the main drivers has been the reduction in financial transactions, which have gone down to £176 million. The housing budget has traditionally been the recipient of financial transactions, but those have dramatically reduced. We have had to deploy the £176 million of financial transactions that we do have to the Scottish National Investment Bank, in order to maintain its capability.

Such decisions are not easy. It would probably be fair to say that that was one of the most difficult decisions. If the availability of capital funding changes in the coming weeks and months, housing would be the key priority for that additional capital.

I should say, for context, that we have a good track record of delivering on affordable housing. We have delivered more than 126,000 affordable homes so far, which is 40 per cent more per head of population than in England and 70 per cent more than in Wales. The context is that good track record.

On the target of 110,000 homes by 2032, we have delivered more than 14 per cent of that so far. The most recent figures, which are to the end of September last year, show that almost 16,000 affordable homes have been delivered towards the 110,000 target. Clearly, there is further to go. Because of the really challenging financial position on capital, not just this year but for the foreseeable future, we have had to turn our attention to innovative finance solutions.

The Minister for Housing will provide further detail on that, but he has been engaged with investors and the private sector, where there is clearly an appetite to invest, particularly in mid-market rent, for example. We need to lever in more of that to help us to deliver that target.

Thank you very much, convener.

I thank the committee for its work in the pre-budget scrutiny phase, and I look forward to working with it on the Budget (Scotland) (No 3) Bill.

The challenges that Scotland’s public finances face are well known to the committee. When we met on 3 October last year, I said:

“The budget will be a budget of difficult decisions.”—[Official Report, Finance and Public Administration Committee, 3 October 2023; c 1.]

The pressures on the 2024-25 Scottish budget cannot be overstated. In my view, they represent the greatest challenge to any Scottish Government since devolution.

We continue to manage a wide range of pressures due to volatility from global factors such as Ukrainian resettlement, the impact of inflation, the cost of living crisis and, of course, the on-going legacy of Covid-19. I say again that the United Kingdom Government’s autumn statement delivered the worst-case scenario for Scotland. It contained a fiscal settlement that undermines the viability of public services across the whole of the UK. Our block grant funding for the budget, which is derived from UK Government spending decisions, has fallen by 1.2 per cent in real terms since 2022-23, and our capital spending power is due to contract by 10 per cent in real terms over five years.

As I said in December, we cannot mitigate every cut that the UK Government makes, and we are at the upper limit of the mitigation that can be provided within our devolved settlement and competence. The UK Government has chosen to prioritise tax cuts at the expense of the national health service and other public services, but our values and, therefore, our choices are very different. Our missions and values of equality, opportunity and community were the guiding principles of the budget, which is a budget to protect people as best we can, to sustain public services, to support a growing and sustainable economy, and to address the climate and nature emergencies.

At the heart of the budget is our social contract with the people of Scotland, whereby those who earn more are asked to contribute a bit more, everyone can access universal services and entitlements, and those who need an extra helping hand will receive targeted additional support. We have chosen to do everything in our power to protect Scotland’s public services and deliver for the people of Scotland. That includes a £6.3 billion investment in social security and more than £19.5 billion for health and social care, alongside record funding for local authorities and front-line police and fire services.

I welcome the opportunity to meet the committee to discuss the 2024-25 Scottish budget in more detail and to assist with the scrutiny process.