Chamber and committees

It is one of my greatest headaches, because last year we were deeply concerned that the UK Government could go right up or down with the funding that we receive. Bear in mind that consequentials emerge only from the money that is actually spent, and not the money that is announced.

Last year provides an important comparison. If the UK Government were to announce X hundred million pounds for the Scottish Government to spend on business, we would immediately be under pressure to spend it, but that amount from the UK Government could then be changed, after we had given the money over to business. Therefore, midway through last year, the UK Government implemented the guarantee, which was just to say that the amount would not be revised downwards. Unfortunately, that guarantee has not been extended to this year. That means that money that is announced could actually be clawed back, and, in the past, it has often been clawed back, as late as February or March in the financial year. Because I have to balance my budget to the penny, by February or March I will already have confirmed that, for example, teachers or businesses will get a certain amount of money. I am then left having to repay some of that money to the UK Government late on in the financial year. Clearly, I do not have the capacity in a fixed budget to suddenly create more headroom, once we have already confirmed that that money is being spent.

That happened the year before Covid. In February 2020, we got confirmation that, despite all the money that had been announced for us during the year, the money that we were going to get was less. That meant that I would have to repay some of that money—and that meant that it was capital—very late in the financial year.

I cannot afford to hold money back—businesses need it and public services need it. Our citizens need that money to be spent in the health service and in remobilising the justice system. Equally, in the back of my mind, I have the fear that money that is announced will be revised down, as has already happened in education; I think it was £25 million pounds that had been previously announced that was clawed back in May.

It is easier to handle that if it happens earlier in the financial year, but if it is in February or March, it is almost impossible. We cannot borrow—we cannot suddenly create additional money to pay it back.

It is a case of reconciling forecasts with outturn. At the beginning of the year, the SFC will forecast what it thinks we will receive in non-domestic rates. We plan what we will spend on public services on the basis of that forecast, but forecasts are just forecasts. The outturn—the amount that we receive in non-domestic rates—could be higher or lower. It is a balancing account, so we need to manage it and ensure that we can meet our commitment to spend £X million on the health service, for example. At the end of the day, it is just a forecast on which we base our budget, not the actual amount of tax take.

Absolutely. Those issues have been raised with the UK Government, and I will continue to raise them. I will also raise them directly with the banks. We have a good and constructive relationship with the banks in Scotland, and I think that they have been quite helpful through this crisis. However, the real test comes now, as people face a wall of liabilities. The question is how banks will help businesses through the next few years when repayment of bounce-back loans, CBILS loans and so on will be required, as it is already being required.

There has been an impact from Covid. We should also recognise the fact that we have maintained 100 per cent rates relief for a full year. We are tracking the situation. One reason why our guarantee to local government is so important is the fluctuations in non-domestic rates. South of the border, there has been a dip in revenue from non-domestic rates, and local government has been exposed to that, whereas there has been a guarantee that local government in Scotland will receive the income that we have confirmed.

Yes—those matters are always a concern, in the sense that they are among the many variables that we are dealing with as we try to manage our budget. I have said already that this year’s budget feels extremely challenging, because there is the need to remobilise our services, and there is the need to deal with the on-going Covid implications. There are a number of multiyear pay deals being negotiated, and we are also dealing with what is probably a more challenging outlook of funding from the UK Government, which will, we hope, publish a multiyear comprehensive spending review.

The biggest impact of inflation lies in trying to understand what our costs will be and whether there is sufficient budget to deal with those costs. This is not to sound like a broken record, but I have limited powers to increase capacity when it is needed. For example, if inflation was to rise considerably, meaning that our budget does not go as far as it needs to go, I cannot suddenly increase it. To take our capital budget and the affordable housing programme that Kenny Gibson talked about at the outset, trying to budget for that and trying to understand what the costs will be is where I am most challenged. The UK Government or any Government around the world that is dealing with fluctuating costs of that sort can make the appropriate changes either to borrowing or to other areas, but all that I can do is to cut the cake differently; I cannot increase the size of the cake to deal with increased costs.

When it comes to pay deals, workforces will be looking for adequate recompense for their labours, and there will be inflationary implications. Inflation is a very important reference for pay negotiations. If UK Government pay is flatter, we obviously do not get additional consequentials from that either.

I am sorry that that was a very long and waffly answer, but there are quite a few ways in which inflation has an impact. We are monitoring the matter carefully.

There has been progress in the sense that we continue to engage on an on-going basis with the UK Government. Obviously the fiscal framework is due for review in 2022, and that will be preceded by an independent report that will be presented to both Governments by the end of this year.

The committee will agree that the framework has been subject to some quite unprecedented stress testing, and we would not have anticipated the pressures that have been put on it when it was originally agreed in 2016. There is some disagreement on this, but my view is that the review should be quite broad in scope and that the report on it should consider not only the operation of the framework but how it can be improved.

The arrangements for the review require joint agreement between the two Governments. We have not been able to achieve that to date, but I will discuss the next steps with the Chief Secretary to the Treasury in the coming weeks. My goal is to get agreement and ensure that we meet the timetable, and I would really welcome the committee’s support in continuing to make the case to the UK Government for a broad-ranging review that is in line with the predecessors’ report on the fiscal framework. I hope that we can work together to achieve a meaningful review instead of just ticking the review box.

I thank Meghan Gallacher, and offer her a warm welcome. As I said at the beginning of the meeting, it is great to have the wealth of experience that arises from the backgrounds of members, and I look forward to your bringing that council experience to the chamber.

I would like ring fencing to decrease further; it has substantially decreased over the past 14 years in particular. During Covid, there were specific pots of money for businesses, households and education recovery, for example, because the nature of the pandemic unfortunately required us to distribute money in that fashion. Opposition members in the chamber were certainly holding me accountable for ensuring that those pots of money went towards the purposes for which they were intended.

However, with the local government settlement, I made it clear that the bulk of the funding that we distributed was not ring fenced. With regard to additional Covid consequentials, the last thing that I did before Parliament went into recess was increase local government funding by more than £250 million, which was specifically not ring fenced in order to allow local authorities to tailor it to meet the greatest needs in their local areas.

I agree with the premise of the question, and confirm that my goal is to try to provide maximum flexibility for local government.

There will, presumably, still be areas where Opposition parties and the Government agree that there should be additional funding—for example, for education—but that funding will be the minority. The majority of funding is not ring fenced, so local government can use its discretion in how it is spent.

At the risk of sounding like a broken record, I also welcome Elena Whitham, who is another councillor with a wealth of experience. This is going to be a great committee.

The member’s point on the fiscal framework relates back to Meghan Gallacher’s question, because if we have a rules-based fiscal framework to support future funding settlements, we can maximise flexibility for local government, and by doing that we can facilitate local government to use its discretion and tailor its financial support and its agenda to its local communities.

We had started that work prior to the pandemic, and we had committed to undertaking that joint work with COSLA. Unfortunately, the work was delayed during the pandemic, but we have recommenced those discussions to determine the scope of the work that is required.

I can tell you what a successful fiscal framework would not be: it cannot be something that is imposed by the Scottish Government on local government. For me, therefore, it is important that local government can bring forward for consideration its own proposals for such a framework. That could involve, for example, a two-stage process in which, first of all, we looked at some tangible asks such as—this brings me back to Meghan Gallacher’s question—the approach to ring-fenced funding and how we consolidate local government funding as part of the settlement.

In the second phase of the process, we could look at the local governance review and questions such as what wider fiscal powers for local government could be considered. Indeed, in the most recent co-operation agreement, we confirmed our interest in a citizens assembly to consider that very question. That is just one suggestion, but, returning to my earlier point, I think that success in this respect will be local government making its own proposals about what will work instead of the Scottish Government starting off by saying, “We think that this rigid and inflexible framework should be applied.”

We started to see a little bit of that during the pandemic. When I took to the Treasury a series of asks from local government and COSLA on the subject of flexibility, it agreed not to all but to some of them, and we were then able to implement and provide those flexibilities to local government.

I am concerned about the levelling up approach for two reasons. The first is the complete lack of clarity. It is doubly concerning that you, as a member of the committee, are not sure how the approach works and that I, who am responsible for appropriate funding of infrastructure and local government services, do not have much, if any, clarity on how it will operate. That is concerning, because we have to make decisions and we are trying to use our money as prudently as possible to make it go as far as possible.

The problem in my engagement with local authorities is that that process feels like a complete lottery: local authorities are bidding for funding but do not know whether they will secure it. They have to make decisions for the benefit of their communities, and it feels quite unfair that getting that money should feel like a lottery. The lack of clarity is concerning.

Just to give absolute clarity, we have had no input into the fund and we have no evidence of how it will meet the needs of Scotland’s people and places.

My second concern is that I have had no clarity that there will not be an impact on the Scottish budget. My concern about the increased use of the United Kingdom Internal Market Act 2020 and the increased unionisation of spend—if I can use that phrase, by which I mean the UK Government leapfrogging the Scottish Government or normal processes—is that the money has to come from somewhere. That money will be taken from the Scottish Government’s budget and used elsewhere. We saw that in last year’s budget when, on the one hand, the chancellor talked about an increased capital spend while, on the other hand, the Scottish Government’s capital was reduced by 5 per cent. That might sound like small fry, but that is money that goes on schools, hospitals and public infrastructure.

Those are my two concerns. On the one hand, there is no clarity for local government or for the Scottish Government and, on the other hand, the money might not actually be additional funding; it might just be money that is redistributed by alternative means.

Thank you for that question; I will be happy to follow it up with a bit more detail. This is an area of focus in the economic strategy. You will know about our vacant and derelict land fund, which was announced as part of this year’s budget to incentivise the use of brownfield sites and derelict land for economic development and regeneration.

I had the privilege of visiting a good example of that last week when I went to Ravenscraig, where substantial investment is being made by the private and public sectors to regenerate an area that is emblematic of a challenging time. That is the kind of thing that we want to do.

My question is about how we incentivise the use of such brownfield sites for the purposes of economic regeneration and development. I am always looking at things such as how we can use our tax system for that, although our scope there is limited, because we really only have a property tax in the shape of non-domestic rates. We are also looking at the funding that might be available to unlock the potential of such sites.

If I can provide more information that is specific to Meghan Gallacher’s local circumstances, I would be happy to do that. If she thinks that we are missing things that would enable the use of those brownfield sites, I would be interested to hear more, particularly in advance of setting this year’s budget.