Finance and Constitution Committee

Meeting date: Wednesday, February 7, 2018

Official Report 551KB pdf

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Budget (Scotland) (No 2) Bill: Stage 2

The second item on our agenda is to take evidence on the Budget (Scotland) (No 2) Bill at stage 2. This item is intended to allow the committee to put questions on the bill and the amendments to the cabinet secretary and officials before we turn to formal stage 2 proceedings. We are joined by Derek Mackay, the Cabinet Secretary for Finance and the Constitution. The cabinet secretary is accompanied by the Scottish Government officials John Nicholson, deputy director of financial scrutiny and outcomes, Graham Owenson, head of local government finance, and Jonathan Sewell, head of the income tax and tax strategy unit. I welcome our witnesses to the meeting and invite the cabinet secretary to make an opening statement.

I welcome the Finance and Constitution Committee’s report on the 2018-19 draft budget. As I informed Parliament last week, I will respond to the report in full in advance of the stage 3 debate on 21 February. Today’s committee session will focus on the content of the budget bill, as approved in principle by the Scottish Parliament. In addition, following the spending changes that I announced at the stage 1 debate last week, there are a number of amendments to the bill that the committee will need to consider.

I will begin by focusing on some of the presentational differences between the draft budget that I published in December and the budget bill that was introduced on 25 January and that we are considering today. To assist the committee, I will explain the main differences, with reference to table 1.2 on page 3 of the supporting document. Column H in table 1.2 sets out the draft budget spending plans, restated for budget bill purposes. Columns B to G provide details of the specific adjustments that have been made, including the necessary statutory adjustments, to meet the requirements of the parliamentary process. There is only one actual change to the spending plans outlined in the draft budget that I would wish to take the opportunity to highlight to the committee.

To ensure that budgets align with the latest available information, there is a decrease of £222.4 million to the annually managed expenditure budget provision for teachers and NHS pension schemes. This reflects Her Majesty’s Treasury update to the discount rate applied for post-employment benefits announced in December 2017. The rate changes announced in December are used in preparing budget estimates but will have no effect on the current contributions paid out of salaries by scheme members or on current payments made to retirees.

Other adjustments set out in table 1.2 include the exclusion of £165.6 million of non-departmental public body non-cash costs, which do not require parliamentary approval and which relate mainly to the depreciation and impairments for NDPBs; the exclusion of judicial salaries and Scottish Water loan repayments to the national loans fund and the Public Works Loan Board, which again do not require parliamentary approval; and the inclusion of £5.4 million of police loan charges that need to be approved as part of the budget bill.

There are adjustments to portfolio budgets to reflect the requirement for separate parliamentary approval for a number of direct-funded and external bodies. Those include the National Records of Scotland, the Forestry Commission, Food Standards Scotland, the Scottish Courts and Tribunals Service, the Office of the Scottish Charity Regulator, the Scottish Housing Regulator, Revenue Scotland and the teachers and NHS pension schemes.

The restatement of local authority specific grants included in the overall 2018-19 local government settlement is there to ensure that they are approved and under the control of the appropriate cabinet secretary with policy responsibility. Full details of all grants that are treated in this way are included in the table on page 43 of the supporting document.

Those are all the technical adjustments and do not change in any way the budget that has been scrutinised by this and other committees and approved in principle by the Parliament. I also remind members that, for the purposes of the budget bill, only spending which scores as capital in the Scottish Government’s or direct-funded bodies’ annual accounts is shown as capital. That means that capital grants are shown as operating expenditure in the budget bill supporting document. The full capital picture is shown in table 1.3 on page 4 of the supporting document.

The stage 2 amendments that the committee is considering today give effect to the changes to spending plans that I announced to Parliament in the stage 1 debate last week. They will be formally moved later in this meeting. As I announced to Parliament last week, I will be providing a total uplift of £170 million to local government as part of the deal agreed with the Scottish Greens.

The amendments that I am proposing today allocate £10.5 million to support interisland ferries for the Orkney and Shetland isles; an additional £125 million to local government in 2018-19, with the balance of £34.5 million being allocated in 2017-18; £2 million for fuel poverty; £200,000 to accelerate the delivery of our four marine protected areas; and £70,000 in funding for the Scottish Sports Association. I have also agreed to make available up to £2 million for a local rail development fund, but that is not covered in the amendments, as discussions on how that will be taken forward are still on-going.

Those commitments will be funded through a combination of around £62 million in expected additional income tax revenues and around £110 million from a combination of anticipated underspend in 2017-18 and drawdown from the Scotland reserve. As the committee has just heard, the SFC has forecast that an additional £55 million will arise from the change in the higher-rate threshold and that there will be a further £7 million of tax revenues due to the change in the pay policy threshold to £36,500. The final mix of underspend and reserve drawdown will be determined at the end of the financial year, once there is greater certainty on the year-end financial position.

I hope that those introductory remarks have provided the committee with a useful explanation of some of the key aspects of the budget bill. I am happy to take any questions from members.

I want to pick up on one of the themes that I tried to explore during the stage 1 debate about some of the future challenges around the budget.

You will note from our report on the draft budget that we highlight a potential risk to public finances if there is any significant forecast error in future. You will also have seen that we are looking for further details from the SFC on why, despite the fact that it forecasts lower economic growth per capita relative to that in the UK, it forecasts that income tax revenues per capita in Scotland will grow at the same rate as those in the rest of the UK. Given that uncertainty and volatility, can you provide the committee with some understanding of how the Scottish Government intends to address this challenge and avoid as much as possible any unwelcome surprises when we eventually get the final outturn data for income tax revenues in September 2020? It would be helpful to know about your planning on that.

That is a good question, and one that we will all be focused on. Obviously, we want forecasts to be as robust as possible. I was watching the evidence earlier and I think that I heard Patrick Harvie say that no economist gets forecasts exactly right and to the penny, such is the nature of forecasts. Of course, we want SFC forecasts to be as robust as possible but, that said, there is a range of interventions that we can make.

First, there is the reserve to help with smoothing from one year to the next if that is required. The budget is substantial, at around £40 billion, so there is obviously flexibility to accommodate some of that but, if the forecast error was on such a substantial scale that it was beyond our financial means to resolve, there are the borrowing powers as part of the fiscal regime. So there is in-year budgeting, managing the issue from one year to the next, the reserve, the overall approach on tax take and, of course, the fiscal framework, through which the methodology that we have is tax to tax. In that regard, even though gross domestic product growth is not what we would want it to be, the analysis shows that wage growth is individually and specifically stronger. There is a range of actions, from in-year management, use of reserves and all the other tools that we have in the box but, if the scale of the error is substantial, there is provision to borrow in accordance with the fiscal framework.

If the forecasts were so far out, would you require Treasury agreement to enter into that process of drawdown from borrowing powers to help to smooth it out?

Yes. We would have to meet the necessary criteria and we would require Treasury engagement.

Adam Tomkins has questions on transparency.

Cabinet secretary, do you agree that it is essential for effective parliamentary scrutiny of the budget process that the Scottish Government is as transparent as possible about its budget proposals?

Yes.

We have not had the pleasure yet of your response to our report on the draft budget, which was published a couple of weeks ago, but you will see when you look at that report that there are a number of specific recommendations about transparency. Have you had a chance to reflect on those recommendations yet?

Yes. I think that those should be taken into account as part of the overall work around the budget process review group as well. We will consider all of that in full in considering the process.

Is it compatible with the principle of transparency, which you have said is essential to effective parliamentary scrutiny, or is it a breach of that principle for you to produce more than £160 million of additional spending between the publication of the draft budget and the actual budget?

I do not think that there is any breach at all. It is a substantial budget, and there is obviously flexibility. When I appeared before the committee previously, I was asked about what financial resources the Government has and I have repeatedly made the point that areas such as budget exchange and carryover can be determined as the process moves and we get to the year end. If you take—

What kind of—

Let me make the point, if I may, because it relates to the budget. I have also presented information on the Scotland reserve to Parliament. On other matters, such as the non-domestic rates pool, I have been perfectly clear about what the Government’s plan is.

Sorry, I thought that you had stopped.

Can you give us a bit of transparency on the Scotland reserve? What size is it? What size was it before you made the deal with the Scottish Green Party and what size is it now that you have made that deal?

As I have previously reported to Parliament, and as I am sure Adam Tomkins actually knows, there have been years when we contributed to the Scotland reserve. As a consequence of the fiscal framework, there are parameters around budget exchange from one year to the next. Where we have generated tax revenues that could go into the Scotland reserve, that is what I did, to the tune of £74 million, which has been reported to Parliament. That can be deployed now and in future years. I have described the decisions that we can take around budget exchange—that is year-end flexibility or, if you like, the carryover—and the Scotland reserve. There is also the tax change to fund the proposition that will secure the passing of the budget. At all stages, I have been forthcoming on the Government’s financial position. If we use the tax reserve for the balance, there will still be Scotland reserve resources available for next year.

Perhaps the problem that we have is that we have different definitions of transparency because, with respect, I do not think that that was a very transparent answer. I asked you what size the Scotland reserve was before you did the deal with the Scottish Green Party and what size the Scotland reserve will be now that you have done the deal with the Scottish Green Party. You have not answered either of those questions.

I have tried to answer the question, but there are the issues that I set out in my opening statement. If you listen to what I am actually saying, the final determination on what is deployed will be based on what is available in budget exchange. If there is more available for carryover at the end of the year, we will use less of the reserve. As it stands right now, on current planning assumptions, we would use about £40 million of the £74 million in the Scotland reserve, but that may change as a consequence of what might be available in budget carryover. In the interests of transparency, that figure for the reserve is annually reported to Parliament and any underspend that may arise. That is normally provided with the June outturn figures, which is what I have done since becoming finance secretary, in a very open and transparent way.

The money that is being drawn from the underspend and the Scotland reserve is £110 million. A similar situation arose last year, when £120 million was drawn down from that. Is it not the case that, in effect, you have that block of money set aside almost as a slush fund for your negotiations as part of the parliamentary process?

I would not describe it as that, Mr Kelly, although you can use any term that you want. In previous years, any underspend at the end of the year might have been carried over and used through the course of the year. If we want to be fully transparent, it is not a bad thing to set out what the underspend might be and how the Government proposes to use it. In fact, if it is being used to agree parliamentary support, I think that that is a good thing, and I am sure that Mr Kelly would welcome that. It is far more credible than the plans that I have seen from the Opposition Labour Party on how to fund a budget. It is a very prudent, wise and transparent use of resource.

The only thing that is fluid at this stage, which is the point I was trying to make, is exactly how much will be available at the end of the financial year. Of course, we are getting to the end of the financial year, but there is finessing of that at the end of the year of a substantial multibillion pound budget.

11:00  

If you are really committed to transparency, as you have tried to reiterate in your answers to Mr Tomkins, would it not be better, when you publish the draft budget, to also publish the underspend figures and the Scotland reserve figure, so that we all know what you are taking into the negotiations?

I think that the Scotland reserve figure is in the documentation.

The information is in table 1 of annex A.

So it is in the documentation.

Budget exchange is a moving figure, so whatever I put in the draft budget will be the figure at a point in time. As the committee considers its approach to the budget process and financial planning, it can make requests for updates, but it is a moving figure, in terms of any underspend that might exist in the organisation.

I accept that it is a moving figure, but in December you must have a forecast of what you think the underspend will be at the end of the year. If that figure was available for all involved, we would get an idea of how much you might be looking to introduce at a further stage in the budget.

I suppose that the point I am trying to make is that we can make a judgment at a point in time, and on 14 December the draft budget set out the potential use of budget exchange at that point.

What was it?

The figure of approximately £158 million was in the draft budget. It is in the same table. The point that I am making is that that figure will change before we get to the year end, because we cannot get spending exactly right.

Of course, the important point is to make sure that we can carry it over. There have been years when carryover was lost to Scotland, but we have been deploying it. The difference in the past couple of years has been that we have been able to use it as part of budget negotiations and deploy it. One could argue with the will of Parliament in advance as to how that is deployed, because, previously, it may have been deployed over the course of the next financial year.

I would like some clarity, so that I am absolutely sure of what we are talking about here. There is a table 1 in the annex to the draft budget, which was published in December.

Yes.

In that, the budget reserve figures are £203 million for 2017-18 and £158 million for 2018-19.

Yes.

Were the amounts that you have been talking about that gave you the required flexibility to finance the arrangements with the Greens taken from those figures?

No, those figures were what were produced at that point in time, as part of the budget. That was the snapshot of where the budget underspend was expected to be at that point. That answers the question.

Incidentally, that improvement to the budget—putting in the table to further explain how elements were being funded beyond the use of tax-raising and revenue-raising devices—was made as a result of recommendations of previous years. It is an innovation.

The point that I am trying to stress is that that number changes because spending continues in the Scottish Government.

I would like to get some clarity on the extra £110 million from underspend and reserves that you spoke about. You said to Adam Tomkins that you expect that about £40 million of that will come from reserves. Can we assume that £70 million is coming from underspend?

Approximately, yes.

Thank you.

When you came to the committee on 15 January, when we met in Aberdeen, I asked you about the amount of money that was available in the budget in this area. In relation to the “Budget Exchange/Reserve” line, the figure for which is £158 million, you said:

“In the past, finance secretaries may have been able to hold on to that money for financial management reasons, for example. I have used the money up front for the purposes of budget negotiations. The figure is what it is because there is very tight financial management, and that is the figure that officials think is most appropriate.”—[Official Report, Finance and Constitution Committee, 15 January 2018; c 32.]

When you presented your budget to Parliament on 31 January, which was 12 working days later, that figure of £158 million had gone up by £110 million. That is a 70 per cent increase in 12 working days. Is that reasonable?

Yes. Some of the reason for that—if you want a deeper understanding as to why some of these issues emerge—is demand-led budgets, and some of it is factors outwith our control, such as Treasury issues or other elements of funding. Those figures can change, and it is not unreasonable for me to report to the committee, using the best information that I have been given at that time, and then take forward the budget. That figure will continue to be fluid until the end of the financial year.

With respect, we are talking about a period of 12 working days from when you gave evidence to this committee, which is trying to conduct budget scrutiny, to when you presented your budget bill to Parliament. When you are not providing full information to this committee and the other committees in this Parliament that are trying to carry out budget scrutiny, is that not holding the committees in contempt?

Absolutely not. I am sure that the Tories are just using colourful language here. What I have done is present the information that I have—the official fiscal position of the Government—in a transparent and productive way. I am happy to provide some official engagement on why we arrived at the current underspend figure, if you wish.

Well, I wish, so let us have it out with all the information just now.

What Mr Mackay was explaining at the committee on 15 January was the rationale by which he arrived at the £158 million underspend figure that was printed in the draft budget. The period between that figure being fixed and what we are talking about now is not 12 working days, but a longer period than that.

No, no—hold on. With respect, Mr Nicholson—

We will let Mr Nicolson conclude what he is saying.

The other point that Mr Mackay made was that in previous years, far less of the anticipated underspend has been allocated at the point of the draft budget, and more has then been secured as part of the final budget deal. This year, we have secured more of the underpinnings of the draft budget from our anticipated position on underspend, and the room for further movement since the draft budget was published has been more restricted.

As Mr Kelly pointed out, we have reached an end position that is broadly equivalent to last year’s position, in terms of the overall quantum that we are talking about, but the movement between the draft budget and the budget bill is far smaller than it has been in previous years because there has been less additional resource available to allocate.

Thank you for that response, but, to be clear, Mr Nicholson, on 15 January I was not asking Mr Mackay about what was in the draft budget. I was asking quite specifically—as you will see from the Official Report—how much additional money might be available. I was asking about the position as at 15 January, so the appropriate period is 12 working days.

To be clear, that would have been an accurate answer at that time. It is as simple as that.

We will move on to a different area. Ash Denham has some questions on health.

Obviously health is the largest portfolio, and within it is an ongoing process of—I do not really like this word, but I will say it—modernisation and change. In the budget there is a quite a big increase to the “Transformational Change Fund” line. Does the cabinet secretary think that that strikes the right balance in that portfolio, given the modernisation agenda? How will that money be allocated?

That is a good question, because funding of the national health service is significant and important. There has been a real-terms uplift, which has been welcomed. The Cabinet Secretary for Health and Sport is very clear. The agenda is about investment and, at the same time, reform or modernisation—if you do not like the word “transformation”—to support the kind of changes and interventions that will help to reduce demand. Some of that might be around better use of technology and specific interventions to improve performance.

That figure of £126 million is a mixture of transformational and reform funding amounts, and it will also support the regional delivery plans. It is a once-for-Scotland approach, through which those national improvements will be felt at a more local level. It is also about supporting more sustainable models of care—I have touched on digital capability.

The health secretary is very clear with me that, although there are increasing demands on the health service, investment has to go hand in hand with that transformation in relation to better delivery of services and the adaptation of services to be able to respond to those pressures.

In addition to that, there is more for mental health, which is good for preventative purposes, and more for social care, to support the infrastructure at community level. There has been good work around health and social care integration. Part of the package will support the territorial boards, so it is absolutely about delivering transformation and improved performance, at the same time as investing an amount that is well above inflation.

I would also like to ask you about low-carbon infrastructure. As part of that, there is a £2 million rail development fund. Do you have any more details on what that might look like?

We are exploring that. Frankly, although there is a new stations fund, there are the on-going issues with the Treasury around the rail settlement to Scotland.

There is a need to support those who want to take forward feasibility studies to get a sense of how they could progress the prospect of rail enhancements or rail stations in a local area. There are people with particular expertise on that with whom we will engage to make sure that such a fund could be properly channelled. The purpose of the fund is not necessarily to raise expectations that a new station might be coming down the line immediately—although it might be—but to give people the necessary support to take forward bids and provide the potential for infrastructure developments to happen. It was identified through the course of the negotiations as something that should be explored. That is what we are doing, and I have made a commitment to fund that.

Thank you.

We will now look at local government issues.

Good morning. In addition to low-carbon infrastructure investment and the significant and welcome shift of the Government’s position on public sector pay, local government was a significant focus of our discussions and, in the exchange of letters between us that is already in the public domain, it is very clear that we were focused on achieving the reversal of the cut that the Scottish Parliament information centre had identified in the Scottish Government’s funding to local government. We put significant options to you for how you could do that; it is the Scottish Government’s decision to fund that at least partly from reserves and underspend rather than from additional tax changes. Bearing in mind the earlier discussion about the importance of the reserve, are you satisfied that the tax changes and the other changes that are necessary are adequate to fund the complete reversal in the £157 million cut that SPICe identified in local government funding?

I do not agree with the terminology because, of course, we were giving more cash and there was a debate, which we have had at the committee, about what should be included in the figures. Anyway, I am absolutely confident that the extra £170 million will be provided for, so much so that, when we move the local government settlement order—the redetermination order—it gets the money. I am therefore absolutely confident of that investment.

I was going to ask you about the local government finance order. In your opening statement, you drew attention to the fact that some of the overall £170 million package is coming from what would be an additional 2017-18 local government finance order. I would like to know when you expect that to be laid and when you expect it to be moved in Parliament. Also, just for the record, could you give us a clear confirmation that councils will be in a position to move that additional 2017-18 money into their budgets for 2018-19?

Yes, councils absolutely can carry forward the funding—there is no rigidity about it. Councils have welcomed it.

The redetermination order will be laid in Parliament on 20 February

11:15  

So that will be laid before the stage 3 debate on the budget.

Yes.

That is helpful.

You will also be aware that we have had correspondence from the Convention of Scottish Local Authorities, which welcomes the progress that has been made in supporting local government. It has also drawn attention to the question of whether that change will be in the baseline for the future. The change to the previous year’s budget happened ultimately, but local government needs to have some degree of certainty for the future. It has clearly said that it is important for councils in setting the budgets to know whether the funding is recurring, and it has asked the committee to raise that point with you. What is your response?

I will need to deal with that in the budget discussions in 2019-20. I have not set any portfolio budgets beyond this financial year. Yes, there is project funding. Yes, there are multi-year commitments for elements such as housing, and there will be commitments on childcare, city deals and so on. I am hoping to get the 2018-19 budget through Parliament successfully. I have not proposed to set out the baselines for 2019-20. I would not ordinarily do that. I am not proposing to do that, because that would all be subject to discussion, budget preparation and negotiation for the next year.

I absolutely understand the point that local government wants as much certainty as possible and would like the funding to be in the baseline, but I have not set that degree of certainty for any portfolio in the Scottish Government or, as is the case with communities, part of a portfolio. That will be a matter for planning for the next budget year.

Obviously, the purpose of Scottish Government funding local government at all is to ensure that vital services that people need in every community in Scotland can be delivered. The point of having debate and discussion on the level of that support is to ensure that those services can meet people’s needs. Even if you are not able to answer the question about the baseline before stage 3 of the budget, surely you would accept that local government will be in a far better position to protect those services for the long term if you are able to give clarity on this question earlier this year than you did last year. It was left until very late in the current process to confirm whether last year’s changes were baseline changes. Surely that needs to be done much earlier in the current process to give local government earlier clarity on the question.

It is a fair point, and I understand it, but it is the nature of the process and the timescales, which I know we have touched on as well. We can do all the scenario planning with all the assumptions we like, but there is then the impact of the UK budget and then, of course, our own process. I get the point, though, about giving local government as much certainty as possible. That would apply to every part of Government, in terms of delivering transformation.

The other unknown within that is the dynamic of what might change in the provision of local services. For example, if we make further progress on health and social care integration, we do not know exactly what that will mean for the financial formulas for either local government or health. I would just make the point that I understand the need for greater certainty.

I do not think local government minds that the extra £170 million has come a wee bit late in the day. I think that it welcomes the £170 million; certainly it has in the correspondence and council communications that I have seen. I understand the point, but it relates to the nature of the relationship that we still have in Scotland on fiscal policy, whereby a large chunk of the spending decisions that affect the country and therefore determine what we have are still made by the Treasury and the Chancellor of the Exchequer. That drives our timescales.

I throw to Opposition parties the offer that, if we were to have greater certainty at an earlier stage in the budget, I would welcome that more than anyone. That is certainly not a criticism of the Scottish Green Party, but if we had greater certainty from the other parties, maybe there could be earlier discussions on what the asks are and what the outcomes might look like. The only sense of delay now for the local government figure is that that was clearly a point of negotiation, and it improved to the benefit of local government.

I have one brief final point. We have just heard a few minutes ago from the Scottish Fiscal Commission that if the wider public sector—in particular, local government—is able to achieve a similar pay policy to the Scottish Government’s pay policy, that will increase the extra income tax revenue beyond the £7 million that it has already projected. What will you use that for?

I was watching the Fiscal Commission earlier, and I can say that that is the cheeriest news I have heard all day.

It was an “if”.

If it factors that in, it is up to the Fiscal Commission to justify its forecast and for local government to determine its pay policy. I must not—

It would be reasonable if local government manages to achieve a more generous pay policy, and the extra income tax generated from that would benefit local government as well.

That is not a proposition that I am making. I think that local government has benefited very well out of the Government’s tax policies and budget.

Neil Bibby had some questions in this area.

After the revised funding for councils that was agreed with the Scottish Greens, many councils still believe they will have to make significant cuts. With the revised funding and with a 3 per cent rise in council tax across the board, do you believe that councils have enough funds to avoid making further cuts over the next year?

Broadly, I think that that will leave councils very well resourced indeed. There is an above-inflation increase in the resources coming from the Scottish Government and, in addition, councils can raise the council tax. I think that that puts local government in a very strong position, which is why COSLA and a number of reasonable council leaders have welcomed it. Again, this is in the fiscal context of a reducing resource budget coming to Scotland and reducing front-line resources. We have been able to overturn that by using our tax powers to invest in services, whether that is the NHS or education or the uplift in the economy brief, and now local government has an above-inflation increase in its settlement from the Scottish Government, as well as all the other schemes that we are working in partnership with local government on.

Councils will be looking at expanding elements of service, such as childcare, and there is the city deals investment and investment in housing. That is hundreds of millions of pounds of extra investment to support local economies and local services. Local authorities are also able to raise their council tax, so I believe that it puts them in a very strong financial position.

I know that some councils will have been consulting on what might have been seen as radical options. They do it every year; they did it when I was in local government. Sometimes it is officer inspired; the elected members are never going to choose those options, but they are presented. It is good in the sense that it gives transparency and there is then dialogue and engagement and an understanding is reached. Invariably every year most of those decisions are made and are not followed through, and I would argue that the settlement to local government should address a number of the concerns that Mr Bibby may have had.

I will just restate that many councils are still saying they are going to have to make significant cuts over the coming year. Over recent months, as you have said, we have had councils all across Scotland publish plans for cuts, but you have said that that was before the revised budget settlement. As you know, in Renfrewshire, for example, we have seen the prospect of day centre closures and proposals to reduce grey bin collections, introduce parking charges and cut funding for family support services. Is it your position that there is now no financial necessity to make such cuts?

That would be me determining what Renfrewshire Council should do with the extra resources that it will have.

I am not asking you to determine what it should do. I am asking you whether there is a financial—

I think that, if you check the Official Report, you will see that that is exactly what you asked me to do.

I am asking whether there is a financial necessity to make such cuts.

I think that the enhancement to the settlement should allow councils to revisit the necessity, perceived or otherwise, for some of the reductions that might have been consulted on. Let us just see how some of those proposals work out, but it is not for me to make those decisions. I am no longer leader of Renfrewshire Council, and Neil Bibby is no longer a member of that council sparring with me there either.

Ivan McKee will raise issues to do with pay.

Welcome to the committee, cabinet secretary. I want to talk about the changes that you have made to the public sector pay increase. You have increased the level at which a 3 per cent increase would apply from £30,000 to £36,500. How many people are affected by that and what kinds of job roles are we talking about?

Obviously, that figure helps with the whole spectrum from the lower paid up to those on £36,500. My understanding is it would cover more teachers and nurses, although I recognise that teaching is very specific and is a matter for tripartite negotiations.

The increase will benefit a majority of the public sector workforce—well, those under our control. We have touched on how it is a benchmark. It is a benchmark in health and I have already said, on 14 December, that I would match anything that may come from the UK-wide NHS review anyway, for the avoidance of doubt. Local government in its discussions expressed the view that it would feel pressure to match Government policy, or that there would be an expectation that it would do so. It is entirely a matter for local government.

Of course, much of the local government workforce is learning less than £36,500. It covers a great deal of public sector workers. Obviously, the increase has benefits to the Government in terms of tax take, but the way we have done it, by capping the increase at £80,000 and setting the threshold at £36,500, also helps to tackle inequality.

I know that there was some discussion earlier as to what Government pay policy covers. It might be helpful if I supply the policy papers that were announced on 14 December—I know that the numbers have changed—to the committee if that is helpful, so that you know exactly who it covers. I saw some debate on that in your earlier evidence session with the SFC.

How much of the funding that you announced last week has specifically been allocated to cover the pay policy?

That is a fair enough question. I do not separate out pay as a specific part of the Scottish budget. It is part of portfolio spending and part of the settlement to organisations. It is deemed that organisations should follow the pay policy—that sets the parameters—but the funding is within the settlement. We should bear in mind that every portfolio—I think apart from the rural economy and connectivity portfolio—has a real-terms increase in its portfolio line. REC is quite different because it is not necessarily about resource spending. Some of that is switched to capital as well, so there is satisfactory funding within the overall budget because we have used our tax powers and because we have made the investments to fund the pay policy.

Following publication of the draft budget report, SPICe analysis established that there was a £200 million shortfall between what was in the budget and what was needed to cover the full extent of the pay policy. You then announced an extension to that policy last week to cover those who are paid up to £36,500. I put it to you that the policy is not fully funded in the budget.

I would simply reply that it is in terms of the overall settlements to portfolios. As I say, all portfolios bar REC have had a real-terms increase in their budget lines and there is the provision there to deliver that. Certainly, the Cabinet is clear that the pay policy should be delivered, so I would argue that the resource is there and a deal should be honoured.

Finally, what is the additional cost of the extension of the policy that was announced last week and how is it budgeted for?

The extra cost for that specific element is £25 million.

How is it budgeted for out of the £170 million?

It is all part of the overall budget, as I have expressed. I do not separate out lines. It is all part of the overall settlement to portfolios, which have to live within the settlement and deliver the pay policy as outlined.

It sounds to me as if you have announced an additional £25 million commitment but not provided the funding for stakeholders and budget holders to be able to cover that.

I am simply trying to state that it is already within the settlements to portfolios, and if cabinet secretaries who lead departments and services felt that they could not deliver it, they would say so to me and they have not. It is an agreed position: they will deliver the pay policy and it is in their resources that have been set out. That is in the context, of course, of growing resources as a consequence of the decisions that the Government has taken.

Willie, forgive me if I missed you out earlier, but I think that you still have a question.

I have a supplementary question on local government. You have said that it is an above-inflation increase of course and, from the figures that have been provided to us, I can see that my authority, East Ayrshire Council, is due to gain another £3.6 million from your amendments to the budget, which is very welcome in that part of Ayrshire.

11:30  

Do you have any indication as to whether other authorities are going to exercise their power to raise council tax by 3 per cent? We know last year that some, despite asking you to give them more money, refused to raise any more money locally themselves. I think, if memory serves me correctly, that they were all Labour councils. Do you have any indication on whether all the councils will use their discretion this year or whether they are hedging their bets?

That is a very good question. Mr Coffey’s recollection of those councils that did not use their ability to raise council tax last year is correct. I do not know whether it aligns with electoral cycles—maybe; I cannot give a Government view. I can tell you only that the intelligence that I have is that most councils appear to be planning to use their ability to raise council tax by 3 per cent. It is entirely a matter for them whether they do that, of course. We will see how their budget cycles pan out in light of the extra resources that have been allocated to local government, which give them a real-terms increase in resource and a substantial increase in capital.

You said that COSLA has written and welcomed the proposals.

COSLA issued a press release during the stage 1 budget debate. Do not get me wrong—local government will always ask for more money. I certainly did when I was a council leader. COSLA has given

“credit where it is due”—

its words not mine—and recognised the extra resources that have been given, and it is engaged in partnership on areas of joint priorities and so on, which is important to us all. Certainly, it has welcomed the extra resources of course.

Neil Bibby has a question on child poverty.

Given the concerns that have been raised about child poverty during the budget debate, is it still the case that the children and families budget is facing a reduction?

I do not have that budget line in front of me. I can speak about the overall approach, as I have done in the committee on a range of interventions in equalities, welfare, social security, housing, the child poverty fund, and the ending homelessness together fund, for example. The child poverty action plan will be coming out this year and we will have the new mechanisms for social security as well.

That completes the evidence session on the budget at stage 2.

Item 3 is the formal proceedings at stage 2 of the Budget (Scotland) (No 2) Bill. Everyone should have a copy of the bill as introduced, the marshalled list of amendments that was published on Monday and the groupings list of amendments, which sets out the amendments in the order in which they will be debated. We will begin that process.

Section 1 agreed to.

Schedule 1—The Scottish Administration

Amendment 1, in the name of the cabinet secretary, is grouped with amendments 2 to 6.

Amendments 1 to 6 relate to the authorisation to use resources that are provided for in schedule 1 and will adjust individual portfolio allocations within the budget to reflect the spending announcements that were made at stage 1.

Amendment 1 adds £70,000 to the health and sport portfolio for the Scottish Sports Association.

Amendment 2 allocates an additional £200,000 to accelerate delivery of the four marine protected areas in the environment, climate change and land reform portfolio.

Amendment 3 allocates an additional £10.5 million for funding of the inter-island ferries for the Orkney and Shetland islands—allocated as a specific grant to local government—to the rural economy and connectivity portfolio.

Amendment 4 allocates an additional £127 million to the communities and social security portfolio—£125 million for local government and £2 million for fuel poverty.

Amendment 5 increases the total allocation of resources for the Scottish Administration by the net uplift of £137.77 million.

Amendment 6 increases the overall cash funding authorisation for the Scottish Administration under section 4(2) of the bill by £137.77 million, in line with the additional spending that was announced at stage 1.

I move amendment 1.

I indicate my support for the amendments that have been lodged on the basis that they introduce additional moneys into the budget, which is welcome. However, I believe that the overall budget package is still not fit for purpose.

The discussion that we had about local government and pay under the previous agenda item illustrates that local government is still underfunded, particularly given the £1.5 billion of accumulated cuts that there have been since 2011. I do not think that the pay intent announced by the cabinet secretary is transparent or fully funded, and I believe that other areas of the budget, including those relating to the NHS and action to tackle child poverty, do not go far enough.

Therefore, although Scottish Labour will support the amendments, we do not support the overall approach to the budget and will continue to oppose it.

I put on record my support for the amendments. It is very positive that we have, for the second year in a row, managed to prevent additional cuts to core funding for local government. Nevertheless, James Kelly makes a fair point in saying that local government has suffered significant cuts in previous years and we have not yet repaired the past damage. I sincerely hope that this is the last time that the Scottish Government’s budget process ends up as a rearguard action against local government cuts. We must ensure that, in the future, local government is in a far stronger position to make its own financial decisions. I hope that the Scottish Government engages in that discussion positively over the months ahead.

As members have no other comments to make, do you want to wind up, cabinet secretary?

The amendments reflect the announcements that were made at stage 1, and I appreciate the engagement of the committee. As it has been raised, I reiterate that the local government settlement represents a real-terms increase for local government, even before it has the option of deploying its council tax powers. The settlement has been very well received, and the other amendments reflect the constructive deal that has been done with the Scottish Green Party. I would encourage all political parties, including the Labour Party, to engage more constructively in the future if they want to help to shape future budgets.

Amendment 1 agreed to.

Amendments 2 to 5 moved—[Derek Mackay]—and agreed to.

Schedule 1, as amended, agreed to.

Section 2 agreed to.

Schedule 2 agreed to.

Section 3 agreed to.

Schedule 3 agreed to.

Section 4—Overall cash authorisations

Amendment 6 moved—[Derek Mackay]—and agreed to.

Section 4, as amended, agreed to.

Sections 5 to 11 agreed to.

Long title agreed to.

That concludes stage 2 of the Budget (Scotland) Bill. I suspend the meeting for five minutes to allow a changeover of witnesses.

11:38 Meeting suspended.  

11:42 On resuming—