Chamber and committees

I will prime Gary Gillespie, in case he wants to come in with additional analysis about additional costs.

Certainly, the anecdotal feedback from businesses, particularly smaller businesses, is that higher costs and increased bureaucracy have impacted on trade. They seem to be disproportionately affecting small and medium-sized enterprises that had previously been able to trade in and of themselves. Some larger businesses are able to access markets more easily, but there are increased costs.

If we go back to the questions about how we improve our productivity in our economy, I note that one of the most significant opportunities is through increased exports. That is why our export plan and the 25 per cent target are so important; there being additional costs of accessing one of the largest trading blocs in the world does not help with that.

Gary Gillespie might have some analysis on EU exit.

?Thanks very much, convener. I will take that on board and keep my opening remarks fairly short.

As you said, the national strategy for economic transformation was published earlier this month. The strategy sets out what we want to achieve and what kind of country we want to be. We want a strong economy that outperforms the previous decade, builds on our strengths and recognises our weaknesses.

Some of those weaknesses are short term and relate to the emergence of the economy from Covid, but some of them are longer term and the strategy does not shy away from that. We used extensive and detailed analysis, consultation and input from the advisory council for economic transformation to develop five programmes of action. Although “Delivering Economic Prosperity” explains the front end of the strategy, I encourage members to engage with the analytics paper, which is a lot lengthier and gives more detail on the data that underpins the five programmes of action.

The five programmes of action are entrepreneurial people and culture, which covers citizens; new market opportunities, which covers emerging economic opportunities—in particular, those that relate to net zero; productive businesses and regions; skilled workforce, which will enable all of that; and, finally, a fairer and more equal society, which is what we want to achieve.

I know that the committee, the country and the Government will judge me on our ability to deliver what we have set out, so there is also a hugely important sixth programme that focuses on delivery. That will introduce a new, streamlined model to maximise our success. That issue has been of interest to the committee on a number of past occasions.

That is all that I have to say at the outset, but I could go into detail about some of the challenges that we face. The situation in Europe has become worse since the strategy was published, and that will have an economic impact. Therefore, my last comment is that publishing a 10-year strategy when none of us has a crystal ball is challenging. The strategy has to be flexible and high-level enough to be able to adapt to emerging situations, but it also has to be focused on the routes to success. I hope we have achieved that balance by being flexible and focused at a macro level as well as on the key vehicles to success.

The Bank of Scotland and PWC would disagree with you. Both of them have referenced Scotland as leading the way in the creation of green jobs. In the UK, the greatest opportunities in the green economy are already here in Scotland. That is not wishful thinking for the future; that is in the present.

Our commitment, which comes through loudly and clearly in the strategy, is to a just transition. Great economic opportunities are emerging. I have already referred to some of them, such as ScotWind. We must do that transition fairly. We have moved a significant distance on conditionality, with a commitment to embedding conditionality by this summer. We also recognised the importance of sectoral agreement and of trade union recognition. Those points will ensure that the transition, and the significant economic opportunities, are underpinned by a fair-work approach.

Adam Reid may want to come in on the subject of fair work.

Absolutely. There was a lot in there.

The point about measuring transparency is legitimate. I will cite an example from this year of spending that has, I think, been difficult for the committee and Parliament to scrutinise, and for me to draw lines from. In a spending review year, the UK Government provides us with, in essence, a block net position. In normal years, as it were, we get the breakdown, so we can see to a greater extent what, for example, has been generated as consequentials elsewhere and should come to Scotland. We can then argue for how that money should be spent. That is where the national insurance contribution debate has kind of struggled, because the money is not disaggregated.

The other thing to consider is, of course, late consequentials. As I sit in front of the committee now, I do not know my final budget position for this year, because that money is still to come.

I absolutely accept that more transparency is needed; the more I get, the more I can pass on. I am always open to the committee detailing where it needs more transparency.

I will move on to improving outcomes, which is of fundamental importance. I know that there are local government colleagues around the table who can probably speak to this more effectively than I can. Perhaps one thing in how things currently operate that we should not do is place so many reporting requirements on local government. It has to report on outcomes from, or delivery on, every single pot of funding that is allocated. That is burdensome and onerous for local government, so I have made a commitment to try to reduce reporting requirements, as part of the resource spending review.

We have those requirements, however, in order to measure outcomes. For example, if investment is for employability and skills, I want to know that it has been spent on employability and skills. I want to know not just that it has been spent on that, but that there are, at the end of the day, people who are closer to the job market than they otherwise would have been, and that we are reducing levels of economic inactivity.

What we report on requires clarity, which we can get on outcomes only by doing deep dives on specific areas. The area that I look forward to getting in about through the resource spending review is employability and skills. We know that we spend substantial sums on employability and skills; nobody can argue that we are not spending the funding. However, as you and I know, businesses say that there is a mismatch between skills and jobs. There are all sorts of other issues, including immigration and our reliance on overseas workers.

At the end of the day, we need to know whether the significant funds that we spend on colleges, universities, the no one left behind policy and other programmes are delivering a net result for businesses. They would certainly say that we could do more. If we are going to do more, that cannot mean just me spending more money; we have to improve the effectiveness of the programmes that receive the funding.

I will make one last comment. This has been a really long answer, for which I apologise. The proposed national care service provides a very good example. At the moment, patterns of delayed discharge differ greatly across Scotland. The funding theoretically goes to each part of Scotland proportionally, but there are very different outcomes and results. There is a question about which local circumstances prove to be challenging. For example, there will be greater challenges in recruitment for Perthshire and the Highlands. How do we create a national care service that delivers improved outcomes, rather than just shifting pots of money from here to there?

I hope that it will be concluded very soon. On Thursday, I am due to have a conversation with my UK Government counterpart, the Chief Secretary to the Treasury, about the next part of the fiscal framework review. I do not have a date in mind; final details are being confirmed. We are clear about what we would like to see, and it is a case of negotiating a position.

My sincere hope is that the conversation on Thursday will be fruitful and constructive and will move us forward. A lot of work has gone on between officials on both sides, but it will come down to a finalised agreement between me and the UK Government. Nothing on our side is holding things up; it is just a case of getting a finalised agreement with the UK Government.

Funnily enough, that does not really feature in the conversations that I have about the budget. Reducing spend does not really make the agenda in those conversations. Actually, there is one exception. I do not mean to call them out but, in previous years, the Greens were always very good at coming forward with proposals to increase spend while also identifying reductions in spend.

To clarify, the £440 million is a one-off. It is certainly not in our baseline. As far as I know, the UK Government would classify it as Covid consequentials. It is certainly largely one-offs. I cannot think of anything in that £440 million that is baselined. The fact that that is a feature relates to an important premise of your question.

I would certainly like to baseline the £120 million. The reason for my being slightly more hesitant than I might have been in previous years is that we are about to embark on a resource spending review. I sincerely hope that, in that review, rather than talking about what has been baselined, we start from a position of considering local government’s need and what budget it needs.

I think that previous years’ conversations on what should and should not be baselined will become redundant. This time last year, I was asked repeatedly for baselining figures, and I said at the time that I would be happy to return to those conversations. I am sympathetic. I could say that the money will be baselined. However, the £440 million is not baselined, so we will need to identify funding this time next year to cover the costs that local government has identified.

That is right. Again, for comparison, the overall health budget is £18 billion, the local government budget is £12.6 billion and the overall budget is around £40 billion.

I thank the committee for its very comprehensive and helpful report, which I was pleased to respond to yesterday.

Today’s amendments have one broad purpose, which is to increase the local government budget next year by £120 million. As I confirmed to the Parliament during the stage 1 debate, due to the changing position last week on this year’s budget and funding from the United Kingdom Government, it is my intention to utilise the Scotland reserve to carry forward sufficient funding from this year to allow me to allocate a further £120 million to local government for next year.

As members may be aware, any plan to carry forward funding requires the Government to use the Scotland reserve, which will therefore be presented as an underspend on this year’s funding when the final outturn is published later this calendar year. I hope that we can all recall our conversation at today’s committee when it comes to scrutinising that position later this year.

The amendments to the Budget (Scotland) Bill deliver on the commitment to give local government an additional £120 million. There are three amendments required to achieve that change. I will not move the amendments right now. I am happy to take any questions.

Yes, it will. Intentionally, it makes a point of rejecting a UK regional economic model in which London and the south-east essentially power the rest of the country, because that is completely unsustainable and is not, I think, defensible. The danger is that we adopt a similar approach in Scotland. I fundamentally reject that. We need to ensure that all regions of Scotland can participate in economic opportunities and contribute.

Obviously, national figures could be boosted by focusing on a few areas, but that would be to the detriment of the rest of Scotland. If you believe in a wellbeing economy model—by which I mean a model in which growth or prosperity is a means to the end of lifting people out of poverty, reducing child poverty and achieving health and social outcomes—you need to take a fairer approach that looks at strengths in the Highlands, Ayrshire and the north-east and asks how we can back those fundamental strengths.

Aberdeen and the north-east have a very proud and rich energy history, and parts of the Highlands have a proud and rich history in acting as supply chains. Let us back those strengths. However, what else can we do in Ayrshire, for example? Where are the opportunities? We should be intentional about supporting communities there to maximise the benefits of the assets and resources that are on their doorsteps.