Chamber and committees

Thank you.

On the capital point, we knowingly published our capital spending review last year before the UK Government published its spending review, which is due in the autumn. It would therefore have been the case anyway that we would have had to look at our capital spending review and our multiyear commitment to infrastructure in light of what the UK Government publishes, and that will still be the case.

Clearly, we have to factor in what capital we receive and what our commitments are, but our commitments still stand. We have not rolled back on our published commitments when it comes to capital investment, but they are subject to what capital is allocated to Scotland as part of the spending review. Do you want to come back on that point?

They are extremely important and my commitment to them going ahead is subject to a massive issue over which I do not have control. When we published our spending review last autumn, we said that we were publishing ahead of the UK Government’s spending review and basing those proposals on the best available evidence that we had at the time.

I really hope that the chancellor publishes his multiyear spending review in autumn—it still has to be multiyear, because we cannot lurch from year to year in our capital plans. What we did last year was in good faith and based on the best available evidence. When the chancellor publishes his capital review, I will look to ensure that what we are given can fund what we have committed to. We will need to ensure that there is money coming in for the amount to go out.

May I clarify that you are talking specifically about things like replacing EU funding and levelling up?

The new framework for tax supplements the Scottish approach to taxation, and forms our framework for how we make tax policy. It invites stakeholder views on how we can better design and deliver tax policy in Scotland. The devolution of income tax and other taxes is still relatively new, and tax stakeholders continue to tell me that engagement around and understanding of devolved taxes still need to be built and developed.

The framework is trying to put more flesh on the bones of our approach to taxation. It builds on what we have said before, but views and comments from stakeholders are also being invited on how we improve the design and delivery of tax. I hope that it might also raise broader awareness of those relatively new devolved and local tax powers.

I am fairly confident, in that the SFC is good at its job, but this is clearly a time of huge uncertainty. Earlier, Daniel Johnson asked about whether other issues—such as a further lockdown, for example—need to be factored in. There are a lot of uncertainties right now in relation to the performance of our economy, and that clearly has an impact on tax take. Two years ago, I could not have foreseen that we would be implementing a full year of non-domestic rates relief at 100 per cent. There is quite a lot of volatility right now.

The SFC and others are very good at their jobs, and they produce the best forecasts that they can. I cannot deviate from the SFC’s forecast—I must spend within it, whether I think it is right or wrong. However, from year to year, the forecast will be out. No forecast is perfectly and completely aligned with the outturn, so there will be some addition or reduction.

I am happy to bring in Dougie McLaren if he wants to come in, but that probably—I hope—answers your question. The forecast will never be exactly right, but I have confidence that the SFC knows what it is doing.

Workers in the oil and gas industry have some of the most critical skills that our economy needs over the coming years. My commitment is to ensure that they have access to skilled work that reflects their talents and capabilities.

Around the world, every society and every Government is grappling with what a just transition looks like. In my view, a just transition means a fair transition in which we do not leave people behind. Right now, there are huge opportunities on the horizon as part of that just transition, including in renewables.

The oil and gas industry is already grappling with the issue. Irrespective of what I say or my Government says, we have seen 18 months of a global reduction in demand, which has led to a lot of people—including those in the wider supply chain, in which Douglas Lumsden will be more well versed than I am—being concerned about their jobs and what their future holds.

The Government’s job is to try to provide certainty by looking at how we diversify the economy, which has been impacted by issues that are outside our control. Nobody could have foreseen Covid or, perhaps, the renewed and intense focus on the climate emergency. Our job is to ensure that every individual who is working in oil and gas right now, with some of the most important skills internationally, continues to be able to use those skills in a meaningful and secure job. In so doing, we will ensure that the north-east continues to be a vitally important contributor to the national Scottish economy.

Thank you, convener. It is great to be with you this morning. I am sorry that I am not there in person. I had hoped that it might be the first in-person finance committee since the pandemic struck.

I want to continue to build on the open and collaborative approach that we had with your predecessor committee in the previous parliamentary session, and I am grateful for the early engagement that my officials have had with your clerking team.

I will raise a few issues at the outset. I am getting quite a bit of feedback from my microphone; I hope that you can all hear me okay.

First, I know that the committee will want as much early clarity as possible on the process and the timetable for next year’s budget. I would like to build on my experience with the past two budgets with regard to contending with the implications of, and uncertainty around, the timing of the United Kingdom Government’s net fiscal event and to move to early consideration, with the committee, of those implications. In light of the uncertainty around the UK Government’s budget, there are pros and cons to going ahead of, or waiting for, the UK Government’s budget. That debate has been informed by the SFC’s forecast last Thursday, and the Office for Budget Responsibility has now been requested by the chancellor to produce its forecast at the end of October.

There are several other areas that the committee will need to—[Inaudible.]—so I will make only one more point before I hand back to you, convener. Needless to say, we are producing Scotland’s first framework for tax for consultation—a new enhanced Scottish approach to taxation. We are setting out our programme of work on tax over this parliamentary session. I look forward to the committee’s views on that.

I will stop there and again make the point that I am getting a lot of feedback, so I hope that you can hear me and that I can hear you.

The short answer is yes, but the way we budget involves trying to get a sense for the full year. What we do not want for the budget is to spend and then have to save, save, save and get more money at the last minute because money is suddenly getting cut. That is an ineffective way of budgeting, so my team and I manage the year’s budget by trying to get a sense from every portfolio of what they want to achieve. Most of these projects are not just for one year; they are multiyear projects. Building a new hospital is multiyear. You cannot just turn on the tap for two months and hope that that delivers a project. We try to manage that demand over a longer period, because very few projects can be delivered with, for example, just a month’s extra funding in one year.

The key is being able to carry forward and being able to manage our money over several years. Having that arbitrary break at the end of the financial year and not being allowed to carry capital forward leads to very ineffective budgeting, because it causes you to spend an amount in one month that should be spent over several months in the next financial year.

On the first point, about the outturn report, I understand the premise of your question but it is important to reflect that our income tax policies raised £148 million over and above the block grant adjustment. That £148 million would not have been secured for the public purse if it had not been for the change in policy.

I will make two additional points. First, we have been clear that our income tax policy is endeavouring to do two things. We are seeking to achieve two results. The first is security of public revenue. In order to say that the health service will get £X billion over the next year, I need to know that that money is coming in. We need to be sure that we will raise it. However, we are also trying to ensure that the policy is fair. We have been clear that we intentionally made changes to maximise the progressivity of income tax. It is not perfect, but we have powers only over rates and bands, not over the personal allowance, incentives such as gift aid or the interaction with things such as pensions. It needs to be seen in that context.

Having said that, I clearly want to secure the long-term sustainability of our income tax policies. In other words, I want to continue to ensure that we have the money that we need. We are currently undertaking a policy evaluation to better understand the impact of the 2018-19 policy reforms. We hope to publish the findings later this year on the precise impact of those policy changes. I am sure that that will be of interest. Covid excepted, we have continued to see growth in Scottish receipts exceeding that of the rest of the UK. This is the second consecutive year in which we have seen that growth and we want that to continue. We will wait to see what the impact of this Covid year has been.

I have a third point, which is around the risk that all of that creates. If we look at the reconciliations from the past two years, we can see that the existing borrowing and reserve powers in the fiscal framework are not sufficient to deal with the level of volatility in forecast error. I will stop there, but there are three implications of that. One is to ask whether it is important that we have more than one objective for income tax. Secondly, is it important that we continue to raise more than we would have done from the block grant adjustment? Thirdly, what is the best way of managing that level of risk and volatility? My view is that we need a broader review of the fiscal framework to ensure that it can deal with that level of volatility.