Chamber and committees

If I were to summarise what you are saying, it is that our budget choices need to be aligned to the national performance framework. Sometimes, that will require difficult decisions as to where we put the money. For example, in the big debate about preventative spend, putting more investment upstream to change the outcomes is important. There is an opportunity to do that in a significant way with the resource spending review, because that will be multiyear. Most of the outcomes that we are talking about will not be delivered in the space of a year. For example, changing health and social care outcomes is a multiyear initiative and the resource spending review will allow us to look at how the compounding effect of multiple years delivers that change.

The challenge that I would put to you in return—I cannot recall whether I have spoken about this previously in this committee, or whether it was in the Local Government, Housing and Planning Committee—is that the nature of our debate in Parliament needs to reflect the magnitude of the choices. If we are to spend more money on active travel, it has to come from somewhere. If we want to recycle money from acute healthcare to spend on active travel—I am just using that as an example—we must have a mature debate. It is in that fashion that the Opposition must scrutinise, and the Government must present, where that penny is best spent.

We all know that funding supplies are not unlimited. If we think that it is important to invest in prevention rather than cure, that will require money to be shifted. Every time I stand up to present a budget that displays any reductions at all, those are immediately latched on to and criticised, so we need a mature debate. The Government certainly needs to be pushed by the Opposition to contend with those issues, and the Opposition needs to reflect that, too.

It is a difficult problem to solve, because we cannot force people into particular occupations, but we can make those jobs more attractive, and there was a real focus on that in the tourism recovery task force’s work. Previously, I referenced some of the short term urgent work that we were happy to do with the tourism industry, which was specifically to help recruit to those roles, by presenting tourism as an attractive industry to work in. A lot of the tourism recovery task force’s work looked at how to make it a more attractive career option. Rather than assuming that it is just a filler job until people get something else, we need to think about how we make it more attractive. The tourism recovery task force—which, again, is predominantly industry based—had a number of suggestions on how to do that, and we have provided initial support, particularly around skills and training. I know that I am talking about skills and training, but that is also part of the attractive package within the tourism industry because we hope that, if people feel like they are being invested in, they will have a greater sense of loyalty and responsibility to the job. Terms and conditions and pay go alongside that, so trying to ensure that the living wage is being paid is one small example. It is a huge area and, where we can provide support, we will do so, whether that is financial support or working with the industry to implement its recommendations. However, that work is very much industry led and that is important.

At the very least, but basing limits on affordability rather than arbitrary caps would be my default position.

As you can imagine, over the past few years in particular, local government has looked extensively at ways of generating income. For the most part, local authorities have developed their own schemes. We saw that impact acutely during Covid, when some local authorities were more exposed to income reduction than others. You will recall that I put in place funding to cover the fact that some local authorities were no longer generating income during Covid.

On additional taxation powers, prior to the pandemic, we were in discussion with local government about a number of different local taxes, including the tourism levy, on which members, the Parliament and people beyond the Parliament have different views. We were considering the most comprehensive devolution of additional tax-raising powers to local authorities since the advent of devolution. Covid has put a temporary stop to some of that.

However, I am sympathetic to allowing additional fiscal flexibilities for local government. If we call for fiscal flexibilities for the Scottish Government, it is only right that those be passed on to local authorities. We have managed to secure some temporary additional fiscal flexibilities for local government; in fact, we have been more successful in securing temporary fiscal flexibilities for local government during the pandemic with the support of the Treasury than we have been for ourselves. I am very happy to continue to explore with local government what additional powers it needs, but I stress that different authorities have different balances of income from different taxes, other fees, charges or income, or from the Scottish Government. That is how it should be. Local authorities should be able to tailor their income generation approach to local circumstances.

I do not know whether it is just my connection. I am struggling to hear committee members.

I am sorry; I did not catch that.

There are two parts to that. First, we need a growing economy to ensure that there are tax revenues. I am a firm believer in the notion that, if businesses are trading well and paying their taxes, we have a secure source of revenue, and that was the reason why we extended non-domestic rates relief for a full year. We could have implemented non-domestic rates halfway through the year, when signs of recovery were obvious, but I wanted to extend relief to a full year in order to maximise the time for industry to recover. As we go into the budget, we will be very cognisant of the need to ensure that our taxation enables businesses to fully recover and fully trade. Clearly, since the pandemic, other challenges have faced business, not least the shortages that have perhaps hindered their ability to trade fully.

Secondly, we have to continue to use the mix of tax that we have. We get limited income tax as well as non-domestic rates, which, although a property tax, are often considered as the primary business tax. To be honest, I do not see any huge room for manoeuvre in both just now. We know that, when it comes to income tax, what really matters is our performance relative to the rest of the UK; moreover, we do not have allowances or incentives with it and we have to be mindful of how it interacts with national insurance contributions. As for non-domestic rates, they are a property tax rather than a business tax.

My first answer to your question, therefore, would be economic growth, and my second would be room for manoeuvre on tax policy.

It is a very significant consideration in our budgeting. You have mentioned a number of the impacts that it can have on our budget, but perhaps the most obvious one relates to pay, given that a significant percentage of our budget is spent on people—for example, the staff in our NHS, local government and public bodies. Public sector pay is therefore an important element of our budget setting; it has certainly been a big focus of previous budgets, and you have to be mindful of inflation when it comes to public sector pay policy. Inflation has other implications, too, but as you will know, it has an impact on costs, and we cannot escape its impact if we are to achieve our policy aims or build the infrastructure that we want to build.

I do not want to put him on the spot, but I wonder whether Dougie McLaren wants to come in on this question.

I am certainly open to suggestions about, and we will give more thought to, how we can be more publicly transparent in the budget. However, a more mature debate about the realities of budgeting is required, because a lot of our budget is demand led. Budgets were demand led for some business support. If, for example, we announced that £50 million was available and only £40 million was spent, which exhausted demand, accusations that the budget was underspent would be made, but that is the nature of demand-led budgets.

Sometimes demand can exceed the budget that is allocated, so we must manage that, and sometimes demand is less than was forecast. Budgets are a moveable feast, and budget revisions—they usually happen twice a year, with the exception of the Covid period, when they have happened three times a year—are just a snapshot in time, and as much certainty as possible is required when we publish them.

You made a point about the UK Government. I am sympathetic to the UK Government’s position that you cannot definitely say to the penny how much will be spent over a year at the beginning of a year or even at any point in a year, because who knows what might happen? Fuel shortages might happen or other events might need to be responded to. Budgets will always be slightly moveable feasts. My difficulty is not with budgets being a moveable feast but with having a fixed budget that must balance, which means managing a very volatile situation with very limited levers.

To go back to your question, if we can do more on transparency, I am open to that. If we can build more transparency into the budget revision process, I am open to that. I know that the committee will scrutinise that in the coming weeks, so your feedback from that could inform future budget revisions.

Your predecessor committee was very helpful in this regard. Its report on the fiscal framework was supported by all parties. The report identified some benefits of the fiscal framework, particularly during a period of volatility, but it also identified some of its shortcomings. We are due to work with the UK Government to commission an independent report on the fiscal framework. I am keen that that report captures all the points that the previous committee and independent stakeholders such as the Fraser of Allander Institute highlighted.

The previous committee’s report demonstrates that the arbitrary caps on borrowing for the forecast error and on spending are not keeping pace with inflation, with the size of the budget or with the potential size of the forecast error. The report also suggests that we have limited ability to carry forward and manage the budget across years. Thirdly, there are challenges to managing levels of volatility and risk and we should consider some additional levers to help the Scottish Government manage that. It is a very technical area and I would be grateful if the committee continued considering what it believes should be done with the fiscal framework. The review or the report should not be so narrow that we are not cognisant of what the pandemic has taught us about the operation of Scottish Government finances.