Chamber and committees

Clearly, the employment rate going down is not what we would have wanted to see, but there are a couple of points that I would like to make.

The employment rate is still in a good position, and labour market information tells us that there are big sectors in the economy that are struggling to recruit. Employment levels are still high and the economy is improving. The unemployment rate here is lower than the rate in the UK as a whole. The figure that I gave earlier, which I think was in response to Liz Smith, as a barometer for income tax showed that, according to HMRC data—the labour market statistics on payrolled employment in Scotland, which are important because those people pay tax—there has been an increase since April. There are 56,000 more people paying tax than pre-pandemic in February 2020 and 28,000 more than last May. As I said earlier, that is a good barometer for income tax, because it means that more people are paying more tax.

I am not at all complacent, which we should not be about the ONS figures. We need to see what the trend is and what the next set of statistics shows. In our economy, GDP is growing faster than it is in the UK, the unemployment rate is lower and earnings are growing faster than they are in the UK as a whole. The SFC forecasts show that that will continue. All of that is cause for optimism, but we should not be complacent about the employment figure.

The figure that we should be more focused on is the economic inactivity figure. We need to get that down and get more people into work. That is why work is being done to ensure that people who need extra support to get into work are given it. If you were to ask me which figure concerns me the most, it would probably be the one on economic inactivity.

We do not want exponential growth, because bodies have to live within their financial means, but we must recognise the issues in social security and healthcare.

If you would like me to do so, I am happy to write to the committee to set that out.

No—not at all. I would not accept that. To be blunt, I need to set out in the 2024-25 budget how we are going to deliver all this within a balanced budget. There are no ifs or buts. The detail will be there and we will set out how we are going to close the gap, because we have to. Unlike other Governments, which can borrow their way through difficult scenarios, we must balance our budget. That is a fiscal rule that we cannot escape and we have only limited levers to use in balancing the budget. Since 2007, we have had unqualified accounts from the Auditor General for Scotland, which show that we have managed to do that, despite the increasing challenges.

You mentioned NCS and childcare, which are areas where we need to create some headroom. I spoke earlier about childcare. If we want to increase the very good offer that already exists, which we see as being clearly linked to the priorities of growing the economy and growing the tax base, we must create headroom to do that. We might not be able to do that in one year, in 2024-25, which will be a very challenging year in which to do anything at great scale, but we can set out multiyear objectives and priorities for spending. I will be setting out the detail for the budget and for our next few years of spending plans and priorities. Childcare is a good example. We must ensure that we set out what and how we will deliver in the next few years.

Far from

“hoping that something will come along”,

we must consume our own smoke. We have very limited levers, so what you have said could not be further from the truth.

We are meeting ministers over the next few weeks.

As I said at the time of the statement, we need to look at our spend through the lens of the core missions that were set out in our policy prospectus. Given the financial challenges, the spend needs to be really focused. The core missions relate to poverty, net zero and sustainable public services. A lot of our policies are already focused on the first core mission—tackling poverty. For example, the Scottish child payment is a key lever in helping us to meet our child poverty targets.

We have more than 500 programmes running across Government. I do not think that it is unreasonable to put those programmes under that lens and to look at how far they go in meeting the core missions. There is a balance to be struck. It is clear that we must consider what the objective of changing any of the programmes would be and whether we can create better outcomes for people who need support the most.

We need to balance that with the social contract that we have with people who pay their taxes. Those who are paid more in Scotland pay a bit more in tax. Obviously, they need to receive their part of the social contract for that, which comprises a range of services that goes beyond what they would receive elsewhere in the UK. After all that work has been done—it is on-going and will continue over the summer, so there are no conclusions as yet—we want to reach a position in advance of the budget that strikes that balance and creates a credible and fair set of propositions.

As I mentioned in my opening remarks, I would also like to create headroom for tackling some of the big issues. Our desire is to get more people into work and to help them to take on more hours and to get better-paid work, and childcare is a key lever for that. We have made huge progress on that—the childcare offer in Scotland is far in excess of what is offered elsewhere in the UK—but we need to go further. However, in order to go further, we need to have the headroom to be able to expand the childcare offer. We need to think about that, as well as about sustaining the services that we already have.

We will be open and transparent. Once that work has been done, we will present our proposition. It will be for others to consider that and to agree or disagree with it. If people want to propose alternatives, they will need to set out the detail of their proposals.

It needs to be about more than efficiencies. Efficiencies are the de minimis position. There are 129 public bodies, all of which do a good job but all of which have estates and back-room offices—and some of which do similar things. As a minimum, we need efficiency and digitisation.

For example, the National Records of Scotland has transformed its organisation. Scottish Water, too, has become very agile—able to respond and to drive efficiencies but delivering a really good service. There are examples that the rest of the public sector could learn from and we are requiring it to do so.

I have the responsibility of driving forward the overall picture of the programme of work that we have set out. I have had bilaterals with all my colleagues to make sure that we have clarity on the short-term objectives such as efficiencies.

We are also looking at the medium to longer term. People are working in different ways, now, so is there an opportunity to look at the vast estates across the public sector? In addition, are there opportunities for mergers or shared services? However, I want to avoid people becoming consumed by structural change rather than by the objective of improving services and getting better outcomes. We need to avoid tipping into the territory of “Who will get what job?” rather than “What are the better outcomes that we need for our public services?”

I see this as a very important area of work. If we create new public bodies, we will need to have thought through whether that is the right way to go, rather than that being the first go-to. Perhaps we have all been guilty of that. That landscape needs to be absolutely agile and to work to best effect in delivering good outcomes for the public. As I have said, I am driving that forward. I am happy to keep the committee updated on some of the detail and to point to examples of good practice and good outcomes.

We are not aware of anything, but we sometimes find things out very late in the day. We do not get an awful lot of information in advance of the autumn statement, for example, so we do not know. However, we would clearly utilise any capital availability. We benefited at one point from a financial transactions increase, which we utilised for the affordable housing programme. That was the main use that we put FTs to. However, even that has dropped off, and it looks as if it will continue to decline. We will continue to make representations, because that is a key point in respect of the recovery.

In terms of the rest of the UK, we of course have the lowest poundage—that was the number 1 ask of business and that is what was delivered. We are discussing with business the issue of non-domestic rates. Tom Arthur, the minister responsible, has a working group to look at the future and business is represented around the table.

We want to make sure that Scotland is seen as a good place to invest and the SDI figures over the last period show that 86 employment opportunities have been supported here in Scotland, in terms of new and sustained business. I think that that has delivered about 8,500 new jobs or sustained jobs, which are down to the inward investment decisions that companies have made. Those companies could have gone anywhere, but they decided to come to Scotland. That has got to be a sign of their confidence and I am sure that we would all welcome that.

I was pretty explicit about the need to grow the economy and making that link directly into fiscal policy and the need for the tax base to expand and grow. The national strategy for economic transformation sets out the economic plan, and we need to look at issues—such as childcare, which I mentioned earlier—in terms of how we help those who are either not in work at the moment, or who are in low-paid work or have hours that are not sustaining their household budget. Childcare is one of the key elements.

We will continue to make progress and there are positive signs in terms of gross domestic product. I do not know whether you saw the Scottish Development International figures for inward investment. There is a strong base there to work from, but we need to make sure that that translates into our tax revenues. The latest forecast of the net position for income tax in 2023-24 has also improved, rising from £325 million at the time of the Scottish budget to £411 million in the latest forecast. Although that does not have any impact on spending power, it is encouraging as we develop our strategy to ensure the fiscal sustainability of the Scottish budget, and we need to do more.

Clearly, how the fiscal framework works and how all the moving parts of the framework deliver what we have to spend within our budget is relevant. I set out earlier why having more levers under our control is important. That would help us to smooth some of the peaks and troughs that inevitably happen around all those moving parts in terms of when they land and what money is available for us to spend.

There are encouraging signs that income tax performance is improving, but we should not be complacent about that and we certainly want to make sure that we continue to see growth, so that there is a net positive benefit to the Scottish budget.

NSET has set out how we will grow the economy in the key areas of growth. We also need to focus on, for example, employability and skills. The Withers review is showing the way forward on a much more coherent offer to people on skills development and upskilling.

Some huge areas of growth are coming in the green economy. We need to ensure that those opportunities reach everybody and are open to everybody, so we have a lot of work to do on employability.

There are some really good programmes for people who are in low-paid jobs, not just people who are not working. There are people who are in insecure employment and are being supported into more secure, better-paid employment. That is also an important part of what we need to do.

There is not one easy answer; all those approaches are important.