Chamber and committees

I can be very open and honest about my view on economic growth. Obviously, the co-operation agreement, which I am sure you have already read, had some excluded areas, including GDP growth.

My view is that we need fairer and increased prosperity. We cannot have economic growth without looking at fairness, because that would not secure the outcome that you and I are talking about. If we see a ballooning of income for the highest earning, with the tax revenue that comes from that, but we still see huge levels of in-work poverty, that is not a good result. Therefore, economic growth has to be fair and distributed.

In my view, we do that by ensuring that the focus of Government is on supporting businesses, industries and sectors that will bring more people into safe, secure and well-paid employment. We have seen the implications of that during the pandemic, because being in employment is a great blessing but, in and of itself, it is not enough to ensure that people are not in poverty. Employment has to be safe, secure and well paid. There are great opportunities in the Scottish economy when it comes to the just transition, the green economy, new and emerging technologies and alternative forms of energy. We must also ensure that each of our local economies is thriving because, to take a more regional approach, if Edinburgh and Glasgow are doing well, the national picture probably looks quite healthy, but I have a vested interest in making sure that the Highlands, the south of Scotland and the islands are doing well and that areas of deprivation are doing much better. Therefore, we must make sure that economic growth is fair, inclusive and sustained and not just economic growth for the sake of it.

I might ask whether Dougie McLaren wants to come in on non-domestic rates. To be clear, that does not indicate that there will be a 17 per cent increase in the tax rate. It refers to, I hope, the strength of the business community in terms of business survival rates and business growth. Right now, Scotland has the lowest poundage rate in the UK, which means that we are delivering a lower tax on more than 95 per cent of properties.

Over the next few years, we must ensure that we continue to provide certainty to businesses and allow them the headroom to recover. That was the reason why, this year, we extended the 100 per cent rates relief. Knowing that they will not be paying non-domestic rates will, I hope, allow businesses to recover and use the funding that they would have otherwise been paying in tax to invest in their businesses or to see them through the rest of the challenges that we face.

I know that there was a lot of discussion about the revaluation. One of my primary reasons for scheduling the revaluation for when we have is to allow the impact of the pandemic to be seen in rental values. I know that the north-east has a particular reason for wanting the revaluation to be earlier rather than later, in the light of the big economic challenges that it faces, but the reason for my decision is to ensure that rental values have filtered down and that the revaluation is fair. Going for a revaluation too soon could have meant that the rental values had not changed. For example, people were waiting until after the pandemic to rewrite their tenancy agreements. My hope is that, after the next revaluation, the rateable values will take into account and reflect the impact of the pandemic, so a fairer amount in taxation will be paid.

I am happy to take any follow-up questions on that. That probably covers it—Dougie McLaren does not need to come in unless he really wants to.

It is good to have a question on the non-domestic rates pool, which probably reflects your wealth of experience as a local councillor. The non-domestic rates pool should not have a direct impact on businesses; it is our way of managing the risks to public finances from non-domestic rates. We have had previous conversations on the matter, so you will know that, in relation to local government spend, we guarantee the amount of revenue from non-domestic rates that local authorities receive. In some years, that means that you and others in the north-east say that that is not fair. In other years, such as those during the pandemic, it means that local authorities can budget with certainty and security.

We manage potential fluctuations in revenue from non-domestic rates from year to year through the pool. It will not have an impact on business, and it does not influence or inform my view on what rate of taxation to implement. My interest is in ensuring that Scotland is as competitive as possible in relation to the poundage. Our non-domestic rates pool is just our means of balancing the account from year to year.

Thank you for the question, as this is an issue that local government has raised with me quite frequently.

I want to make two points, the first of which is that we are waiting for the outcome of the review to try to provide local government with certainty now. There was a request that we provide additional certainty, and I have confirmed to COSLA that I am content to do so. COSLA had raised with us the English model, in which changes can be proactively and prospectively made to capital accounting, and we are already giving an additional two-year flexibility in that respect. I have also confirmed to COSLA that I am willing to extend that further in the same vein as the English model, in which councils have additional discretion on what is the best model to use.

It is still important that we carry out the review, because there are questions to explore about what the most prudent and sustainable approach might be over the long term and how we ensure that it is consistent not just with other public bodies but with our standards, too.

I will start with the MTFS and then move on to the wider subject of the timetable. The original intention would have been to publish in May, but that was not possible, due to the election. I am interested in the committee’s view on that. There is on-going uncertainty because of the UK Government’s plan for a spending review. That spending review would be very helpful to inform our medium-term financial strategy. If we have it, we will be forecasting not on the basis of the best available evidence but on the latest data from the UK Government.

I think that there are no perfect timing options, given that the MTFS could not be published in May. It does not make sense to publish it in advance of the OBR forecasts. If OBR forecasts are published on 26 October or we have the promised UK spending review, it would be quite misleading to rely on OBR forecasts from the previous March. There continues to be a lot of movement in our economic and fiscal outlook, so block grant adjustments that were based on March forecasts would significantly overstate our budget.

That is the territory that I am in just now. I am happy to take the committee’s view on how we can spread out scrutiny of the budget, the MTFS and the resource spending review in a way that allows you to give the budget the appropriate attention that it needs, and I would be open to your views on how I can best work with the committee on that. I would intend, certainly for the 2022 MTFS, to revert back to its previous publication timetable in May, in line with the written agreement.

I hope that I have given you enough information without concluding a position right now, and you can perhaps take a view on that.

On the budget timetable, we have obviously had two years of significantly delayed budgets. There is no perfect time. If the UK Government publishes its budget first, we have the best available evidence that we need but, if there are any delays to the UK Government’s budget, we are left in a position of choosing whether to take inadequate and inaccurate information and base a budget on that in order to give security and certainty to businesses and local government, or to wait, increasing the delay of giving that certainty to local government but having the best available evidence. I would very much like to revert this year to what we did formerly, which would be to consider a budget in late autumn.

That would be my hope, but we really need the UK Government and the chancellor to confirm that. Until he confirms that, I am working off hints, suggestions and indications, rather than anything more concrete.

They are very helpful figures. For the past year, we have been in discussion with the chief economist about the long-term impacts of Covid. Probably as early as last summer, we were very much looking at a K-shaped recovery. In other words—I think that I spoke to the Finance and Constitution Committee about this—some businesses and sectors were doing comparatively well. New businesses were being created. The tech sector, for example, was obviously booming. However, other sectors were really struggling. That could have led to the SFC’s figures, which suggest that there will be less long-term scarring. Some sectors will probably be dealing with that scarring for longer than others. Although the national picture might be more optimistic, some sectors of our economy will probably need help for longer and will have longer-term scarring than others. There is a different picture when we break it down sectorally.

As you can imagine, I have been all over this—for want of a better phrase—to understand the financial implications and consequences. On housing, which you mentioned, we set out the budget for our original target of 100,000 homes in the capital spending review, and as a result of a number of different discussions—and in light of next week’s programme for government, which is a really important consideration—we will be considering that capital requirement. As for the core financial implications on the resource and capital sides, they will be settled in the budget-setting process. We have come to an agreement, and our responsibility now is to fund that part of the budget.

Secondly, I point out that it is a multiyear co-operation agreement, which leads us into the resource spending review. That review is where we had intended to cost and plan for multiyear commitments, and the co-operation agreement will now be factored into it. I am sure that you are all sighted on this, but, just to give you a little bit of history, we had hoped to carry out our multiyear spending review last autumn. However, we could not proceed with it, because the UK Government’s planned resource spending review did not go ahead last year. We are hoping—certainly the hints have been made and the intentions are there—that the UK Government will do its comprehensive spending review this autumn, and that will allow us to publish our own plans for our intended multiyear spending, which will include the co-operation agreement.

Thank you—that is a very good question. The SFC forecasts are cause for optimism. I do not think that we can downplay the difference between the January forecasts’ really tough outlook for the Scottish economy—which I had to base my budget on and which reflected the huge impact of the pandemic—and where we are now. They are but forecasts, which are based on various variables that the SFC would have gone into, such as vaccinations and lockdowns.

In terms of the fiscal impact, from a financial perspective, one of the biggest challenges right now is the fact that there has not been much additional consequential funding from the UK Government in the past few months. Right now, we are trying to remobilise the health service, the justice system and a host of different public services, as well as dealing with the on-going Covid impact, from a budget that has not been supplemented by additional consequentials from the UK Government in the way that it was last year.

At the moment, the pressures on the Scottish budget are such that we really need the structural support for businesses to be in place—furlough and self-employment income support. If we were to find ourselves going into another lockdown—at the moment, that is not what we are discussing; we are talking about trying to maximise the impact of the baseline measures—we have no certainty that furlough would be in place or that self-employment income support would be in place. I have no certainty that there would be any additional funding in place and I am not sitting on funds right now that I could deploy to support businesses. We would need additional help from the UK Government.

There is a bit of déjà vu here from last October, when furlough was due to come to an end and we repeatedly asked for it to be extended. It was extended at the last minute, but the Scottish Government’s resources are just not sufficient to help businesses to the level at which they need to be supported through furlough and self-employment income support. We would need to ask the UK Government for additional help, because funding would be required on a scale that we cannot provide in light of the need to balance and fix our budget. I cannot borrow for those emergencies that you are talking about.

I will take a short detour, as you talk about block grant adjustments. One of the areas of the fiscal framework that needs to be reviewed concerns income tax and the associated methodology. The SFC has detailed that in its own reports. We are conscious that the methodologies that apply to income tax for our tax base are probably not as helpful as they could be, in that we have a different tax base from the rest of the UK. For example, we need to maximise the number of people who are paying, and broaden the tax base at the upper end because of the way in which tax is calculated. There is currently a question around the methodologies that are applied to the tax base and the way that the block grant adjustment is calculated. However, I shall leave that to one side.

With regard to what else we could do, it is clear that we are more exposed to the impact of what happens with oil and gas. The committee will have seen that in the forecast that the SFC published last week.

When there is a reduction in demand for oil and gas, that has implications for individuals who are working in that area, and therefore we are more exposed to the income tax implications of that. My view is that we need to diversify, and that is why the point of the economic strategy is to focus on the opportunities that there are with alternative emerging technologies, renewables and the just transition. Different countries around the world are grappling to get the competitive advantage that new and emerging technologies offer. I want to ensure that it goes to Scotland—that the supply chains in Scotland are creating new jobs as a result of pioneering research and development. That is one area where I think that we can have a competitive advantage, if we get it right. None of this happens automatically, without us intentionally trying to ensure that we capture the opportunities here in Scotland.