Chamber and committees

Yes, and, in doing so, I will also ask whether any of my officials wants to comment on whether a figure for that funding has been included in previous years, which is what you are comparing the 2022-23 figure with.

I will provide a bit of colour. City deal funding is a unique funding mechanism. The UK Government basically gives us a lump sum at the beginning of the financial year and we then manage payments to city deal partners. I am not aware of how the funding for 2022-23 compares with previous years. However, it is important to identify that city deal funding sits outside the Barnett formula; it is factored in differently from other funding, because the money comes straight to us and we then send it straight out to partners.

I do not see that any of the officials wants to come in, so that is probably the closest to an answer that can be given.

You are asking specifically about the money for the north-east transition—is that right?

Do you mean in terms of last week?

This afternoon, the First Minister will set out, alongside the omicron figures and the next steps, what more we might be able to do for business. Most of that is informed by a figure of approximately £175 million that came from the UK Government on Sunday night. That is the £220 million, less the £45 million that was already factored in. That will be factored in this afternoon.

Any other funding that we make available right now is made available at some degree of risk, because it will need to be managed over the next three or four months. It is quite late in the financial year. At this point in the financial year, most of the funding is either contractually or legally already agreed. For example, it is for salaries, local government or legal commitments to do with transport, and it is very difficult to free up. Anywhere that we have discretion, it is about phasing it rather than either stopping something or delivering underspend. It is quite unlikely that there will be any underspends at this late point in the financial year.

That £20 million is part of the £500 million for the just transition fund, obviously. You will appreciate that quite a number of local partners want to have a say on how it is spent—my inbox certainly shows that. We have said that we are willing to engage with them on the specifics of how it should be spent, although, of course, it will be spent on helping with the transition.

Last year, in an agreement with the Liberal Democrats for £15 million of additional funding, we engaged particularly with Opportunity North East on how to allocate that money and I would want to engage similarly on how to deploy the transition funding. We have put the money in the budget and we are now engaging intensively to figure out the best way of deploying it.

It will be as soon as possible. The money needs to be spent in the next financial year, and we are now three months away from the end of this financial year, so the plans have to be determined fairly soon to enable the money to start being spent early in the next financial year.

You started out talking about income tax, and I will refer to that quickly. When it comes to income tax, the choices that we have made have created additional spending power for the Scottish budget—there is often a misunderstanding about that. The challenge falls in the relationship of the block grant adjustment and the fiscal framework. A lot of that is to do with unequal growth between the highest and the lower earners. That is accounted for in the Welsh fiscal framework but not the one in Scotland, and I think that that needs to be part of the review of our fiscal framework.

Moving on to productivity, the report was very useful in its breaking down of the detail, particularly of where the challenge is. It is an issue that all developed economies need to grapple with. All developed economies have suffered from an extended period of weak productivity growth over the past decade or so. Tackling that challenge is not made any easier by the fact that we are facing into huge productivity head winds as a result of labour shortages, supply chains disruption, disruption to our trading relationships with our nearest and largest trading partners, and our demographic challenges.

What are we doing about it? I have a number of points. One is that, again, I see this as a top priority. I am not shying away from the fact that we need to grapple with our productivity challenge. One of the primary ways that we will do that is to set it out in our national strategy for economic transformation, which is our 10-year outlook. It will include core data on productivity and set out three recommended interventions, which have been informed by the strategy’s advisory council of about 17 people. I am keen to publish that strategy. The committee will, however, appreciate that there are tensions around publishing an economic strategy that looks 10 years hence when businesses are in severe difficulty right now—three days before Christmas—so there is a bit of a timing challenge in doing that.

However, a lot of it will look at the need for public investment in core infrastructure, at private investment, or how we incentivise business to invest in businesses, and, lastly, at skills, or how we ensure that the workforce are in the right jobs, for the right businesses, during the right times. Those are the three areas that I would quickly recommend we step up our activity on.

I heard those comments, and they reminded me of previous exchanges that we have had. If you will indulge me, it is worth saying that the accounts again attracted an unqualified audit opinion from the Auditor General, which is a sign of strength when it comes to the accounts.

How do we track the Covid spend? That is really difficult, and I will be open and honest with you about how difficult it is when it comes to the moving parts. In the past two weeks, we have seen a perfect example of how complex it is. Funding announcements were made, and the Scottish Government said that that money was not new spending power. New announcements were made, the Scottish Government said that some of that money was new spending power, and we set out how we were going to spend it.

The nature of our budgets at the moment is incredibly fluid. I would love it if we had a more mature debate in the Parliament about the nature of our budgets. As soon as I made the announcement about additional funding, the first calls were to ask what we had cut, and people were ready to lambast us for what we had cut. The nature of a budget is that things go up and down, and I would like us to have a more mature discussion about that.

I am open to ideas and recommendations about what we should publish. Two weeks ago, on budget day, we published a medium-term financial strategy, a five-year outlook, a public sector pay policy, our ambitions for tax and the budget document. That is all proactive and ahead of time. Now, we have published the accounts. This year, the accounts have received far more attention than they nearly ever do. The outturn statement seldom receives much, if any, attention, but it tells you what we actually spent, not just what we said that we were going to spend.

There are a lot of documents out there but, unfortunately, headlines emerge that are not always based on the hard fact within the documents. Perhaps that is because of political takes—I am not targeting that at the member who asked me the question, because he always does so in an intelligent and carefully considered way. If there is more that we can publish, we will do so. However, anything more that we publish will not be permanent; it will be a snapshot that will be out of date by the time of the next announcement, because that is the nature of budgets. I do not want to draw comparisons with being a shopkeeper, but unexpected things happen; budgets are only as strong as the ability to forecast perfectly, and none of us can forecast perfectly.

To cut a long story short, if there is more that I can publish, I will happily do so, but our on-going budget management is really difficult. That is why we have two points in time—the autumn budget revision and the spring budget revision—when we nail down where the budgets are at, rather than providing a running commentary on the nature of the budgets internally.

The issue with higher-rate taxpayers paying the marginal tax rate of 53 per cent on income between the Scottish and UK higher-rate thresholds is, to my mind, another sign of the inadequacy of the devolution settlement. That issue is exacerbated by the decision to introduce the health and social care levy next year, which means that those taxpayers are facing a combined marginal rate of 54.25 per cent. I wrote recently to the Chief Secretary to the Treasury to request that the national insurance upper earnings limit for Scottish taxpayers be aligned with the Scottish higher-rate threshold, but that has not been granted.

My sense of it is that, if we believe in the full devolution of income tax—or even if we believe in the full devolution of non-savings, non-dividend income tax, which is what has happened—we also need to have a voice about the other areas of tax policy that interact with that. You have just talked to me about the interaction with national insurance contributions. There are also interactions with pensions and with some of the allowances. It is just that, often, the national insurance contribution issue dominates.

However, I will take a step back: we have chosen, as I think is clear, to make income tax fairer and more progressive. Therefore, the majority—54 per cent—of taxpayers will pay less income tax next year than they would if they lived elsewhere in the UK. However, that is balanced by the fact that we are asking those who can afford it to contribute a little bit more. In return, those living in Scotland continue to have access to a wider and better-funded range of public services in the UK, whether that is prescriptions or tuition fees.

You talked about the reskilling that is required, which is vital. It will not help in the short term, but we need to ensure that the money goes to the people who most need it.

On energy costs and fuel shortages, we engage closely with industry, as I said. I guess that the big tool that I have at my disposal right now, and on which I am giving you evidence, is the budget. Industry figures repeatedly tell us that they are not looking for financial support. They want to be able to trade. The economy is recovering, trade is available and markets are there, but industry cannot meet demand. The difficulty is with supply, not with demand. When it comes to prices, energy costs and shortages, in our close engagement with industry leaders, they repeatedly tell us that the solutions lie not in financial grants but in enabling them to access the adequate and affordable supplies that they need.

We will repeatedly engage with the UK Government, but I do not have any unallocated budget this year to meet the shortages in full. We have neither the consequential funding for that nor the headroom to provide additional financial support.