Chamber and committees

On the overall impact, we have emerging data about business confidence from a number of sources. It is still a bit early to get a comprehensive grasp of precisely what the sectoral impacts have been. However, the Scottish Government’s chief economist is trying to ensure that we have that sectoral understanding as far as possible.

Throughout this period, we have had extensive anecdotal and survey data on the impact of the restrictions, but it is still a bit early to look at the overall economic impact.

On business support, members should have received a note that I sent to all MSPs yesterday—I am looking for nodding heads. That gives a line-by-line breakdown of how much funding has been allocated and how much is unallocated.

In terms of where we go next, I had started to describe that when I answered the convener’s question on this area. There are a number of options around recovery spend on areas including tourism and retail. Most of those sectors are saying that they would rather be open and trading. Therefore, the more that we can do to ensure that they can be, the better.

I am just looking through my emails to confirm that that note has been sent, but I will assume, based on members’ nods, that it has.

I will make three brief points.

First, you are right: we have taken a policy approach to social security that is fairer, puts dignity at its heart and encourages the uptake of benefit and welfare support, because we think that there is an inherent right to access that support. That means that we have baked a prioritisation into the budget. We must accommodate and account for social security payments. Those payments fluctuate—that is the nature of demand-led payments—and we need to be able to absorb that. That goes back to the issue that I keep going back to. Do we have all the tools that we need to manage risk?

My second point is about value for money. There is an issue that I am particularly exercised about. If we want to drive reform, the only way to do that effectively is through multiyear budgeting. That comes through the resource spending review. The question that I ask is this: for every pound that ends up in somebody’s pocket, how much does it take to get there? I would far rather that as many of those pounds as possible end up in the pockets of people who need them rather than paying for jobs along the way.

We have looked at, and we will do, quite a number of deep dives as part of the resource spending review with stakeholders as well as internally to consider the issue of value for money. We will start with outcomes—in other words, we will not try to determine budgets on the basis of affordability initially. If the outcome is to ensure that a social security system cares for those who need that, the imperative is for us to maximise the funding that goes directly to those people through the resource spending review.

That was only two points—I rolled all three into two.

Yes.

There is definitely a comparison to be made not just between Scotland and the rest of the UK. I certainly do not believe that that is ambitious enough, when you look at the UK’s economic performance against that of other countries, not least those in Europe. We need to lift our eyes and our ambitions beyond comparisons with the rest of the UK. You have, for example, cited the figures for Scotland’s productivity growth between 2007 and 2019, and indeed, as far as the pandemic is concerned, we reflected last week on the fact that Scotland is now back to pre-pandemic levels of growth in gross domestic product. According to November’s GDP estimates, we exceeded the figure for February 2020, and we broadly tracked the rest of the UK through the pandemic years. Moreover, unemployment is lower in Scotland than it is in the rest of the UK.

Although there are very legitimate debates that we all need to have about how we can be even more ambitious and aspirational for the Scottish economy, which is something that I would back completely, we cannot dismiss the strong fundamentals that the economy already has. There is huge potential, but I think that, over the past two years in particular, we have demonstrated that, despite health decisions being taken at slightly different times, we have broadly tracked the rest of the UK. We have also got back to pre-pandemic levels—and indeed did so in the same month as the rest of the UK; unemployment is lower; and we have made good progress over the past 10 years or so in productivity and foreign direct investment.

We all speak to businesses. Indeed, many of us will have spoken to international businesses that have chosen to relocate to Scotland, because of the talent pool, because of the reputation of our universities and colleges and because it is just a good place to do business in. We need to build on those strengths instead of dismissing or losing sight of them.

I will leave it to your mathematical calculations to determine the percentage. However, I think that the overall value of the £120 million is what you said.

I think that the UK Government does not have the figures. From its perspective, what goes to Scotland is the net position in final consequentials. When the UK Government is to make an announcement, it inevitably wants to see whether any departmental underspend could be redeployed to that new announcement, which might also require new money. Whenever the UK Government announces additional consequentials, the difficulty is that we know that we will get only the net impact and not the absolute figure that has been announced—the amount will not all be additional, which is where the challenge arises in considering what is and is not new. That is one big issue.

You will recall that the UK Government implemented the Barnett guarantee last year, which meant that all funding that was announced was additional. The guarantee was removed this year, and the only reason that I can see for not reinstating it is that the risk to the UK Government is too significant in a year when it wants departmental underspends to be used to manage new announcements.

The most recent discussions, in the past two weeks, might be informative about another aspect. We talk to the UK Government daily—I do not know how often Dougie McLaren and co engage with it to get as much intelligence as possible about where we might end up—but the difficulty is that that intel might be out of date within hours.

I want to be as transparent as possible, but I cannot go public and say, “We got this update in the last hour and we’ll get another update in the next hour.” We cannot keep up a running commentary on what we receive. That is where it is difficult for Parliament to do scrutiny. We know that there are shifting goalposts, but we have to deal with a point in time, and figures are moving all the time.

We try to base decisions on the flexibility that we might have or on the financial position that we might have. We might make a decision—as I did last week with the £120 million—and I might be told the next week that, although we were told that there was additional funding, we have determined that that is not the case.

The UK Government budgets on a Government-wide basis. I do not dispute the challenges for it—it is a substantial Government with multiple departments that have multiple spending lines. We get the net benefit of all that. It is no wonder that it is challenging to get to a position, but that challenge is in a sense offshored to us to deal with.

I do not know whether that answers your question. Does Dougie McLaren want to say more?

Quite a powerful argument can be made in that respect. If local government can—as it does—manage its budgets effectively through this process with its highly skilled and trained directors of finance, it cannot be unthinkable that the Scottish Government is able to do the same. We have had conversations with Opposition spokespeople on this matter, but we think that there is, at the very least, an argument for indexing some of these arbitrary limits and ensuring that, as the Scottish Government budget grows, year on year, if not quite in line with inflation, the limits grow, too.

At the end of the day, any form of borrowing has to be affordable—I have to factor in the revenue costs for borrowing. We are not making decisions purely on the basis of a target or arbitrary cap; I have to factor in the revenue costs, and I do so on an annual basis.

As far as reserves are concerned, such an approach would just allow us to make decisions for ourselves. I do not think that anyone likes this constant debate and discussion and my having to go to the UK Government with new requests to carry forward outwith the reserve or otherwise. If the additional powers were granted—which is something that would not, as far as I can see, cause the UK Government concern—we could make those kinds of decisions on an annual basis.

As you will know, the principle that the Scottish Government is due compensatory payments has been accepted by both the UK and Scottish Governments. What is in dispute is the quantum. The different approaches lead to very different outcomes. Indeed, I think that I cited the scale of the divergence the last time that I was before the committee.

The issue will also be on the agenda this Thursday, at my meeting with the Chief Secretary to the Treasury. That means that, at that meeting, we intend to resolve two very substantial issues: the fiscal framework and the spillover dispute. You can wish me luck and wish me well in the hope that my negotiating skills lead to a conclusion on both matters and a positive result for the Scottish budget.

Absolutely. The full £440 million is available, but you need to remember that a lot of that was for business support and has already gone out the door.

You will remember that there was a dispute about whether the £440 million was new funding. A lot of that money has already been factored in—for example, the UK Government had previously announced £145 million in relation to a material change of circumstances in non-domestic rates. I could list all the other elements.

The £440 million is not new funding. However, it is the fact that we do not have to pay it back that gives us a bit of flexibility.

No. As we approach the end of the financial year, I am always looking at how much flexibility we have. The fact that I do not have to pay back any of the £440 million—even though that is allocated—gives me a bit of leeway.

The UK Government is saying that there could well be more money. Therefore, in addition to the flexibility that I think that I have as a result of not having to pay back the £440 million, the amount of funding could also be increased. I think that that increase will be largely driven by health consequentials, with a little bit of transport consequentials as well. We then get into the territory of that discussion about whether, if that comes from health consequentials, we need to pass it on to health.

I realise that these are quite tricky conversations. Much of this will be clarified by two things. One of those things will be, as Dougie McLaren said, the spring budget revision, which is our finalised accounts for this financial year—for this budget—although there will be more to come, because there is quite a lot of late movement. The other thing will be the spring estimates.

If we already had both those aspects formalised, I could give you specific figures. However, because we are ahead of the UK Government announcement, it is very difficult for me to do so. I am getting a moving feast in relation to funding from the UK Government. That is the territory that we are in.

The bottom line is that I think that there is sufficient flexibility for me to allocate that £120 million, because I do not have to pay back the £440 million and because I think that there will be a bit more room with additional funding. In addition, we are getting to the end of the financial year and I am seeing where there might be underspends that we could use or expenditure that we could move into next year.