Chamber and committees

Traditional capital is obviously cheaper than borrowing or other options. However, when it comes to either being able to do projects or not, the questions are different, so we need to take them in the round. Some of the considerations will include the nature of the project, how long it will take to deliver and how complex it is. All those things need to be assessed against where they leave us with the revision to the capital spending review that we will bring forward as part of the budget process. However, we will lay out why we have come to some of those decisions. Alison, I can see that you want to come in.

Thanks very much, convener. I will be brief.

Thank you for the invitation to join the committee today. I welcome the opportunity to discuss the preparations for the 2024-25 budget. I am aware of the committee’s long-standing interest in transparency, and I recognise the importance of my appearance here to engage with the committee in advance of the budget.

With the 2024-25 budget, the Scottish Government will look to deliver the vision that has been set out by the First Minister in the policy prospectus and the programme for government. We will be clear. We will be anti-poverty and pro-fair and green growth, and focused on delivering high-quality public services.

We also need to recognise the challenges that Scotland’s public finances face, including the economic shocks that we have faced over the past three years: sustained high inflation, the war in Ukraine, the fallout from the United Kingdom’s mini-budget last year, Brexit and the on-going impact of the Covid pandemic. The budget will be a budget of difficult decisions. In making those decisions, we will be required to address the scale of the challenges that our public finances face.

I met the Chief Secretary to the Treasury at the finance interministerial standing committee on 20 September. We had a frank conversation in which we discussed the current economic and fiscal context alongside the Welsh minister for finance and officials from the Northern Ireland Executive. It was made clear to the chief secretary that the UK Government needs to provide sufficient support to the devolved Governments to ensure that we can adequately manage the pressures arising from those challenges.

I can confirm that the Government intends to publish the draft budget on 19 December. I would like to reiterate the reasons behind that decision.

We are restricted in our planning for the budget by the timings of the UK Government’s autumn statement and the accompanying Office for Budget Responsibility forecasts. The agreement between the Scottish Government and Parliament to deliver a budget within three weeks of a UK Government fiscal event was made at a time when fewer policy and tax options were available to the Government. The forecasting produced by the Scottish Fiscal Commission is therefore now significantly more complex, as are the associated decisions to be made by ministers. Adhering to the three-week timeline is therefore no longer practically possible, unfortunately. However, I am keen to deliver a December budget. Our proposed date of 19 December ensures that we will lose only one sitting day of Parliament. I hope that the committee will agree that that is a reasonable compromise that will provide sufficient time for the scrutiny and passage of the budget bill once Parliament returns from recess.

I look forward to answering members’ questions. I am happy to confirm that I will make myself available to the committee throughout the budget bill process.

Let me end on a point of consensus: yes. The points that you make are legitimate. Doing it is sometimes a little more complex. Think of some of the reforms that we took forward—I am sure that there will be debate around these matters—such as the formation of Police Scotland, which has been a success with regard to the more effective use of resources and the solving of serious crime, although I accept that it has not been without its challenges. It was difficult and took a long time. It is only after a time that you begin to see some of the benefits roll out from a painful process.

I am up for structural public service reform, but, sometimes, when you get into the weeds of the changes that need to be made, opposition begins to grow. You have people asking, “What about this?” and people with vested interests saying, “This will be to the detriment of A, B and C.” You have my absolute assurance that I am keen to push to the maximum the opportunities for public sector reform, and that includes how organisations deliver their services, how they work together, the landscape and how we get that to make more sense, not in a detrimental way but in a way that is more effective. On that point, you will not get any pushback from me. My only point is that making it happen is sometimes more complex.

We hope to complete it as soon as possible. I can come back to the committee with firmer timeframes, but we want to conclude it as quickly as we can.

To be clear, in his letter to the NZET Committee, Neil Gray stated that officials were preparing to undertake due diligence, drawing upon the value-for-money assessment that was completed earlier this year, and to provide that committee and the Public Audit Committee with further information on that when the assessment was complete.

We have made our expectations clear to Ferguson’s, and I have been pretty clear with the committee about what those expectations are. Those two committees in particular will get that updated information, which I hope they will find helpful.

The shorter-term figures from NRS, which are important, show that we are still seeing net in-migration to Scotland from the rest of the UK, but you are absolutely right that—

The latest inward investment figures show that Scotland is second only to London and the south-east in attracting inward investment. That is testament to Scottish Development International and the work that it does in being very effective in bringing inward investment to Scotland, as well as to the skills of the workforce. Investors will look at a whole range of issues in a country. They will look at our strengths, including the key pillars of our economy; the sectors that we are known for; and our universities and the skill sets there. The fact that we, as a country, continue to do well on inward investment gives a perspective. There are always improvements to be made, but the fact that investors make those decisions to come to Scotland tells a very strong story.

I accept that the Scottish Government has made active choices around where to invest in social security spend. A good example is the Scottish child payment. I hope that everyone would agree, particularly when you think of the cost of living crisis that we are going through, that the fact that that has lifted 50,000 children out of poverty in families that would otherwise be struggling even more than they are shows that we made the right investment.

Of course, deciding to invest in social security supports that go beyond the block grant adjustment means that we have to raise that money somehow. The key pillars of spend are social security, the national health service and health more generally—and, of course, local government. All of those have been impacted by inflation and by the need to pay for inflation-busting pay deals. None of that is resented, but it has had an impact on the budget.

A lot of headwinds—not just social security spend—are impacting on the budget, and they are all coming at the same time, putting on pressure beyond that which was budgeted for when the last budget was set. We have tried to manage that in a way that focuses on how we keep people’s heads above water in a cost of living crisis, so we have prioritised spend on things that are absolutely critical. That has meant making difficult decisions elsewhere.

The local government budget rose by 3 per cent in real terms, but it will not feel like that, because inflation was running at 11 per cent at its peak and we did not have an 11 per cent inflation-proofed budget to be able to pass on that funding to local government or health. Although we have tried to protect the health budget in the decisions that we have made, the 11 per cent inflation rate has had an impact on health as well.

There is no getting away from those very difficult challenges. We have tried to make the best choices with the resources that we have available in a very difficult context, and those choices are pretty clear for everyone to see.

Yes, it has lifted 90,000 children out of poverty. I was underselling its impact, convener, so thank you for the correction.

Clearly, there is a lot in that. In the MTFS, we talked about the need to focus on seizing opportunities in areas in which Scotland has a competitive advantage; supporting entrepreneurs, start-ups and scale-ups; and helping businesses to raise productivity. Boosting labour market participation was also discussed, and one of the important things in the programme for government in that area was our enhanced childcare offer.

The university sector has a hugely important role in all of that. We need to listen to that sector—that is the first thing—and make sure that we are maintaining Scotland’s competitive advantage.

You are right: it is a two-way street. Sometimes we have been successful not just in retaining key research and development opportunities and businesses but in attracting some to Scotland. However, that has not always been the case. In such instances, we need to pay attention to what attracted the companies elsewhere and what we can do to try to avoid that happening in the future.

There are huge opportunities for us. For example, we have invested £42 million in our national Techscalar network to support the next generation of Scottish start-ups over five years. CodeBase, which I visited recently, was awarded the contract, and it will act as the service provider for Techscalar. It is very excited about the opportunities for Scotland in that sector.

However, we must not be complacent, and I would not want anybody on the committee to think that we are being complacent in any way, because it is a very competitive world and Scotland needs to compete on the global stage. We need to make sure that, where we deploy public money to lever in private finance, that is done in a strategic way. We cannot pay for everything, and we need to use our public investment wisely in order to lever in private investment to Scotland, particularly in those key sectors.