Chamber and committees

ScotWind money is non-recurring. More money is coming through the likes of the innovation and targeted oil and gas round; we can expect £54 million from that in 2024-25. As you have seen in the autumn revision, £424 million from ScotWind was set aside. However—let me be clear again—we are bearing down strongly on costs, including all the measures that we have taken on recruitment controls. We are driving down non-essential spending out of an explicit desire to minimise the use of ScotWind money, for reasons that we have rehearsed a number of times.

We spoke earlier about capital, which is a potential source of infrastructure investment in many of the strategic areas where we need to make progress. Having as much of that at our disposal as possible is an absolutely clear objective for me and I will keep the committee updated on progress.

Once or twice: I can write to you with the dates.

Yes, and it has been raised and discussed by members of the group.

The group is not determining tax policy or tax rates. It is looking at where tax strategy needs to land to ensure that we maximise awareness, get high levels of compliance and have a system that is fair, understandable and easy to navigate. We want a system that takes cognisance of how it drives behaviours.

I absolutely accept that services are critical to tackling poverty. I also accept that, in constrained financial times, all services and layers of Government must make difficult choices. However, I point to what the Accounts Commission and the Scottish Parliament information centre have said about the relative position of local government which, despite the challenges, has had a real-terms increase in funding, and the fact that an increasing proportion of the Scottish Government’s funding has gone to local government. Local government has always asked for an increase in share, and that share went up by 1 per cent in the previous budget.

Is there more to be done? Yes, there is. One of the opportunities for local government and, in particular, for services such as employability is that, through the spending review that the UK Government is leading, which will report in the spring around resource and capital—I am sure that we will touch on it today—we can get back to multiyear envelopes for services. That is really important for employability, because it funds a lot of third sector organisations that provide those supports to parents. A one-year funding envelope means that those organisations struggle to retain staff, so moving to a multiyear scenario will help local government per se but also help with those discrete areas of service.

It was ever thus.

Those are discussions that we need to have. I would make two points about that. Having sat through the early years of the debate on prescription charges right through to their being abolished, I know that there are some complexities to the issue. For example, someone who requires a prescription of paracetamol in large doses will not get that over the counter; they will need to get that through prescription. I am not saying that that is always the case, but some people require regular prescription of pain relief that cannot be obtained over the counter.

I can see that removing paracetamol from the list sounds straightforward to do, but how would we deal with those who rely on pain relief in higher doses? How would they get it? It sounds straightforward but, as soon as you open up such things, there are always complexities to deal with, as you can imagine.

Should we continue to discuss such issues? Yes. We need to ensure that, in every area of Government, there are no closed doors to thinking about how things are done more efficiently and effectively. I know that my health colleagues are certainly not close minded on any of those things, but it is inevitable that something that sounds straightforward never is.

Yes, that was the figure. Let me say a few things about why we ended up with that pay policy. I should also say that I am mindful of where we go next with pay policy. We have to think about the purpose of pay policy. Is it about managing expectations? Is it about driving expectations? Is it about signalling the Government’s expectations to the wider public sector?

The UK Government does not set a pay policy, and I do not think that it has any intention of doing so. I am mindful of the purpose of pay policy.

The Scottish Government pay policy that was published at the end of May set out multiyear pay metrics. It took account of a number of things, including affordability, which was based on the known funding at the time. Under the previous UK Government, spending reviews were started and suspended and budget dates were moved—I should add that there was poor communication as well—so we had to base the pay policy on the best estimate of the available funding.

We looked at the economic conditions. Inflation was forecast to be 2 per cent for this year alone. We wanted to do multiyear metrics from 2024-25 to 2026-27 to give some certainty; we said that anything on top of that would really need to be funded through efficiencies, which has happened in some sectors in order to fund pay deals. I should also say that the civil service unions have more or less settled for the 2024-25 element of the pay policy, although we are in discussions about the future years. For civil service trade unions, the policy resulted in a positive outcome.

There is also the wider public sector, around which the UK pay review bodies’ recommendations are key. We had no idea what those recommendations would be, and the level at which they were set was a bit of a surprise to a number of people. We then had a choice of how to respond. The new UK Government’s acceptance of those recommendations gave us a huge challenge; when it then said that it would fund only two thirds, with the other third to be found through departmental savings, that was another challenge. All that resulted in my having to take action in order to create headroom through the savings that I announced, as the UK pay review bodies’ recommendations created an £800 million pressure.

The issue, which was discussed quite extensively at the finance interministerial standing committee in Belfast, is that the UK pay review bodies’ recommendations have a contagion effect. I do not mean that in a pejorative way; I mean that they set the bar for what other sectors will land on. We have no input into them and we get no information about the workings of why they have landed where they have. The UK Government can accept them or not without any discussion with the devolved Administrations.

The four of us at the standing committee concluded that we needed to do things better than that. There needs to be a way of co-ordinating public sector pay across the UK that does not generate huge pressure for the devolved nations. That is about the timing and purpose of, and the input into, the recommendations. The Chief Secretary of the Treasury is cognisant of all that, and we need to see where that gets to.

I am keen to get away from single-year pay deals and maintain the multiyear look. Knowing what the resource envelopes will be from the spending review will be incredibly helpful for us in potentially considering multiyear rather than single-year envelopes. It will give clarity about the parameters over a longer period to those negotiating on both sides in the public sector, who will then be able to consider how much is front-loaded and back-ended and to examine reform and efficiencies. That is what my thinking is going towards—I want to take that forward on a multiyear basis. It leaves the question of 2025-26, but I will say something on pay and workforce as part of the budget.

I am sorry—that was a bit of a long-winded answer, but there is a lot of complexity in there.

That is what we could afford, based on the budget and the intelligence that we had about available funding. I could not set a pay policy that did not have funds available. I would have had to make savings at the beginning and to set a floor. If I had said 4 per cent, that would have become the floor and I would have had to announce a swathe of savings to create that floor.

We will provide it with that, and I will reflect on all of the lessons—

They are twofold. One of our priorities is to make sure that, through our continued success on inward investment, we are able to grow in key sectors, such as green energy. That growth is funded partly through our priorities with the Scottish National Investment Bank and others, such as the commitment to provide £500 million over five years to help to lever in private investment, which is very successful. There is a lot happening in that sphere. We also have the other key sectors, such as financial services, life sciences and artificial intelligence, in relation to which we would expect our economic institutions and SNIB to align to ensure that we continue our success in growing those areas.

Essentially, we want not only to create opportunities for people here, but to bring people to live and work in Scotland. Some of that will be in our more remote and rural communities. The growth in such areas is great to see. For example, the work around the Cromarty Firth green freeport, with the potential transformation, the housing development and so on, is amazing.

The other end of the spectrum is about getting more people into work. Indeed, I have already mentioned some of our work on employability and on getting parents into work. That is important, because it has the added benefit of reducing the need for the supports that we provide, at a UK level and in Scotland.

In a nutshell, we want to grow the economy in those key sectors and to keep people here and living in Scotland, but we also expect net in-migration, particularly in highly skilled areas. For example, Western Isles Council said to me that it could employ every young person in the work on offshore wind developments, but it will still need people to come and live and work in the islands. That is really important for repopulation and so on.