Meeting of the Parliament [Draft]

Meeting date: Thursday, February 1, 2024

Official Report 1041KB pdf

---

Budget 2024-25

The next item of business is a debate on motion S6M-12035, in the name of Kenneth Gibson, on behalf of the Finance and Public Administration Committee, on the Scottish budget 2024-25. I invite members who wish to speak in the debate to press their request-to-speak buttons.

14:55  

I am pleased to open the pre-budget 2024-25 scrutiny debate on behalf of the Finance and Public Administration Committee. The debate provides an opportunity for committees to discuss findings from their pre-budget reports and to explore how the Scottish Government has responded through its budget. I look forward to hearing more from members during the debate about the work of their committees. For example, this year, the Citizen Participation and Public Petitions Committee undertook pre-budget scrutiny for the first time ever, which will be of particular interest.

For 2024-25, the FPA Committee further developed its guidance for committees, including providing ideas for different approaches that can be taken, signposting to relevant Government and performance information and highlighting cross-cutting issues such as fiscal transparency, equalities, national outcomes and net zero scrutiny. The Scottish Parliament information centre has also taken on an enhanced co-ordination support role by identifying and publishing common themes that have arisen during pre-budget scrutiny across committees.

Before we start, I thank all members of the Finance and Public Administration Committee for their diligence in the work that has gone into producing our reports. I also thank our clerking team and SPICe for the exceptional support that we have received.

We need more transparency and accountability, and we need to see the reasoning behind decisions and the measurement of progress. Concerns regarding data gaps and delayed programmes have also been highlighted by various committees. Many such issues are also explored in the FPA Committee’s pre-budget report, to which I now turn. In its May 2023 medium-term financial strategy, the Scottish Government projected a potential £1 billion resource spending gap in 2024-25, rising to £1.9 billion by 2027-28. Inevitably, that will mean that there are difficult decisions ahead in relation to the Government’s approach to taxation, prioritisation of spending and the reform of public services.

The Scottish Fiscal Commission’s fiscal sustainability report, which was published in March last year, suggests that the longer-term funding position is no less challenging. The SFC projects that Scottish Government spending over the next 50 years will exceed the estimated funding available by an average of 1.7 per cent each year, or £1.5 billion in today’s prices, under current Scottish and United Kingdom Government fiscal policies. The UK is in a similar predicament. Scotland’s population is expected to continue to grow older, with potential implications for the future demand for public services, as well as Government spending and tax revenues.

It is against that background that the FPA Committee focused our pre-budget scrutiny on the sustainability of Scotland’s public finances. In January last year, we expressed concerns about the Scottish Government’s lack of strategic long-term financial planning and wanted to see what progress had been made in that area. However, we found little evidence to suggest that there had been a shift away from a short-term approach to financial planning. We also set out our concerns that affordability does not appear to be a key factor in Scottish Government decision making.

Our report also includes the findings and recommendations arising from a recent inquiry into the Scottish Government’s public service reform programme, given that the Scottish Government identified that as a clear area of focus to help it to balance the books. We found an absence of an overall strategic purpose and objectives for the reform programme, as well as delays in publishing the further detail that the Government had previously promised. The deputy convener will explore that area of our report in more detail when closing the debate.

In its 2023 medium-term financial strategy, the Scottish Government committed to publishing refreshed multiyear spending envelopes alongside the 2024-25 budget. We recommended in our report that that should include sufficient detail to enable meaningful parliamentary scrutiny and allow public bodies to plan ahead. However, the Scottish Government has published only single-year spending plans for 2024-25, and explains that that is because

“the nature of the Autumn Statement and the Office for Budget Responsibility’s forecasts make future prospects more volatile and it could be misleading to plan too far ahead across the board.”

The Government plans to revisit the multiyear outlook in its next MTFS, in May 2024.

The SFC told us that

“In our role as the independent fiscal institution for Scotland we encourage the Scottish Government to plan its Budgets over the short, medium and long term.”

The commission suggests that that approach is even more important against a backdrop of uncertainty, and the committee shares that view.

Our report noted that the Scottish Government plans to target spending towards delivering its three missions of equality, opportunity and community. We therefore recommended that

“the Scottish Government explicitly sets out in the Scottish Budget 2024-25 if there are any areas of spending it has assessed as not meeting its three missions test and where funding will, as a result, be reduced or ceased entirely”.

The Scottish Government’s response states that

“The published portfolio allocations will reflect where investment has been sustained and prioritised”.

Nevertheless, although the figures that the Scottish Government provided show where funding has been reduced or, indeed, increased, there is little explanation of why those decisions have been taken. Our budget report, which was published yesterday, calls for greater explanation in future years of how the Scottish Government has targeted its spending towards delivering on its key priorities.

We are disappointed that the capital funding that is available to the Scottish Government continues to fall. That is particularly concerning during times of financial strain, when Governments should be investing in infrastructure to stimulate economic growth. As members are aware, the capital budget comes primarily from the UK Government through the block grant.

The latest figures from the SFC are even more concerning. In the medium term, the SFC expects total funding for resource and capital to increase by 4 per cent in real terms between 2023-24 and 2028-29—assuming the Treasury’s gross domestic product deflator of 1.7 per cent as the measure of inflation. However, even using that modest figure, capital funding is expected

“to fall by 20 per cent in real terms”

over the same period, as stated on page 5 of the Scottish Government budget document.

During our scrutiny of the Scottish budget for 2024-25, we heard that the decline represents particular difficulties for areas of the budget that rely on capital funding, such as the affordable housing budget. The Scottish Government has responded favourably to the committee’s recommendation that, to support transparency, it should

“adopt a similar approach to that of the UK Government and Scottish Fiscal Commission in comparing”

its budget plans for spending with the latest estimates or outturns from the previous year’s spend.

Although that information is not provided in the budget document, the Scottish Government responded that it would

“set out the requested detail in an additional on-line publication in January 2024.”

That progress is welcome, but the data does not, as yet, appear to be published so, unfortunately, we have been unable to factor it into our scrutiny. Therefore, we call for earlier publication in the future.

Along with the SFC, we have previously called for budget data to be published by the classification of the functions of Government—COFOG—such as health, economic affairs and environmental protection. That allows spend to be tracked and measured more easily year on year, regardless of whether ministerial portfolios change. This is the second year that the Scottish Government has published COFOG data alongside the Scottish budget, which is very welcome.

This year, the SFC has also produced analysis based on that COFOG data and additional detail from the Scottish Government. Unfortunately, we have not been able to consider that analysis as part of our scrutiny this year due to a late January publication date, but members who attended yesterday’s SPICe—I have forgotten the word—briefing, which I chaired, with the SFC, will have heard great discussion and detail about COFOG data and how it makes measurement of spend much clearer. We asked the Scottish Government to provide that detail to the SFC at an earlier date to maximise the opportunity for parliamentary scrutiny of that analysis.

In our pre-budget report, the committee welcomed the establishment of the tax advisory group, as announced by the Scottish Government in May last year. Outcomes from the TAG were to feed into the Scottish budget 2024-25. We saw that as a step towards the creation of a clear strategy for taxation in Scotland and concluded that

“it is imperative that this work progresses at pace.”

However, there is no information in the budget on whether the advisory group has fed into the Scottish Government’s tax policies as announced.

The committee has heard much evidence in recent years about the potential for an increase in income tax to cause behavioural change. Given the uncertainty in that area, we asked the Scottish Government to confirm how it is considering potential behavioural impacts as part of its decisions on taxation policy in 2024-25, and as part of its planned new strategy for taxation to be published in May this year. We note the work that HM Revenue and Customs is doing in that area and hope that the analysis will help to support future decision making.

The committee recommended

“that the Scottish Government produces a full response to the SFC’s Fiscal Sustainability Report setting out the actions it will take to start addressing the longer term challenges ahead.”

However, disappointingly, the Scottish Government’s response is silent on that recommendation. That is crucially important given the challenges that Scotland faces. We have therefore restated our recommendation in our budget report.

The committee has consistently recommended that more action is needed to increase productivity, wage growth and labour market participation in Scotland. The Scottish Government has pointed to its national strategy for economic transformation as key to addressing the issues. We therefore asked what progress has been made on delivering actions under the NSET to help to increase productivity, wage growth and labour market participation. We also asked what plans are in place to broaden Scotland’s tax base.

The Scottish Government provided examples from the NSET, such as the roll-out of its Techscaler network to support start-ups and boost entrepreneurship; green hydrogen funding; the reaching 100 per cent broadband programme; and the introduction of fair work conditionality. The NSET annual progress report that was published in June 2023 set out a fresh focus on the new actions that the Government will progress to deliver a growing economy.

This year, we continued our focus on establishing the extent to which spending decisions impact on the delivery of the national outcomes under the national performance framework. That follows our “Report on the National Performance Framework: Ambitions into Action”. We have looked ahead to scrutinising the national outcomes that are proposed to arise from the Scottish Government’s recent statutory review, in which many committees will have a scrutiny role. In its response, the Scottish Government explained that its

“approach is embedded across Scottish Government activity”.

However, it is still difficult to see exactly how budgetary decisions align with the national outcomes. We hope that the Scottish Government will take the opportunity of the upcoming review to make that much clearer.

In our pre-budget report, we welcomed the Scottish Government’s approach to enhancing its taxonomy information. For the first time, that approach identifies and categorises by their climate impact all spending lines across the Scottish Government, for resource as well as capital. We understand the Scottish Government’s position that, as that analysis is new for 2024, it does not include a comparison with previous years; instead, it aims to set a provisional baseline from which to learn. We look forward to continued developments to support parliamentary scrutiny of how the Scottish Government’s spending decisions are impacting on climate change.

In the available time, I have been able to touch only on key issues in the committee’s pre-budget report and the Scottish Government’s response. However, I am sure that other committee members will expand on those points during the debate.

I move,

That the Parliament notes the pre-budget scrutiny undertaken by the Finance and Public Administration Committee, and other parliamentary committees.

15:07  

I recognise the debate’s importance as part of the Parliament’s scrutiny of the Scottish budget, and I thank the Finance and Public Administration Committee for its recognition of the budget challenges that are faced. I thank all parliamentary committees for the scrutiny that they have undertaken and I thank the clerks for supporting that process.

Developing the budget has been extremely challenging, given that it has been set in the most turbulent circumstances. As I have said before, the UK Government’s autumn statement in November represented a worst-case scenario for Scotland. As the Institute for Fiscal Studies noted, the tax cuts that the chancellor announced in November will be paid for by real-terms cuts in public service spending.

One particular challenge of the autumn statement was that the need for the agenda for change pay consequentials was not recognised, and I take the opportunity to urge the UK Government to use the spring budget in March to rectify that critical misjudgment. The International Monetary Fund echoed that call this week when it said that the UK Government needs to be investing in public services, not cutting taxes for the wealthy.

The UK Government did not deliver for Scotland’s budget, which has resulted in a real-terms reduction in our total block grant and a settlement that falls far short of what is required. That is why I continue to press the UK Government to use the spring budget to prioritise investment in public services over offering tax cuts, which would deliver a much-needed increase in capital investment and provide the support that households deserve during the on-going cost of living crisis.

As I said in Parliament in December, the UK Government’s fiscal settlement for Scotland has serious consequences for the delivery of our public services and we must manage that reality for the budget. It is essential to strike a balance between the funding that is available for Scotland and what can be delivered within it, which means difficult choices. With Scotland’s limited fiscal powers, there has been no choice but to reduce our spending to match the available funding.

I hope that the cabinet secretary can put on record that she welcomes the new fiscal framework, which allows greater flexibility for the Scottish Government.

Of course I do, and I have said that before, as Liz Smith will be aware. However, it helps on the margins and does not help with the central problem that the quantum available does not match the scale of what is required, and capital availability is a significant challenge to the infrastructure needs of our country. That is a point that I, the Welsh and the Northern Irish made to the Chief Secretary to the Treasury at our meeting last week.

As I indicated to the committee on 16 January, the cuts to capital funding are causing real issues for the Scottish budget, particularly our health and housing capital budgets. I fully understand the difficulties that that creates. Those are top priorities to be addressed, as I said at the committee, should additional capital become available. We emphasised that point to the Chief Secretary to the Treasury at our meeting.

That is why our fair and progressive approach to taxation is so important. It enables the Scottish Government to increase the funding that is available for the Scottish budget. Our tax approach means that, in 2024-25, we will have an estimated £1.5 billion of additional funding to support Scotland, compared with what we would have had if we had followed UK Government tax policies.

I thank the Finance and Public Administration Committee for its report on the budget, and we will respond fully to it ahead of stage 2. As has been indicated to the committee, further work is under way to update the infrastructure investment pipeline to ensure that it is affordable and deliverable and provides best value for money. We plan to publish that alongside the next medium-term financial strategy, as it is important that future investment plans are embedded in our wider thinking on fiscal sustainability. That will be after the spring budget comes out, when we will have a better idea of what that fiscal event means for our budget.

I also recognise the committee’s desire for genuine public service reform. That is why we have laid out broader goals and a programme of action. That area is complex and difficult. We have set out our objectives, our approach and our structure, and we are now working across Government on our critical path to delivery. It is also important that we take our workforce with us in that process. I met the civil service trade unions again this morning, and we discussed that matter alongside other issues.

For the 2024-25 Scottish budget, I have carefully balanced the growing asks against the available funding. I have made decisions against our key missions of tackling poverty, addressing net zero, sustaining public services and, of course, economic growth. The budget for next year gives our national health service the protection of an uplift above real terms—we are investing more than £0.5 billion in our front-line boards, taking total investment to £13.2 billion in the year ahead. That means that our resource funding for health and social care has more than doubled since 2006-07.

I also recognise the vital services provided by local government, which, like the rest of the public sector, faces significant budget challenges. I am pleased that, despite the challenge, our local government revenue funding is now 2.6 per cent higher in real terms than it was in 2013-14, as confirmed in the recent Accounts Commission report. I do not underestimate the challenges that are faced by local government, which is why this budget is providing record funding of more than £14 billion. That includes £144 million of funding for a council tax freeze, to provide certainty and support for households across Scotland.

I also appreciate the interest from local government in the new funding, estimated at £45 million, that is anticipated as a result of the new local government funding for social care that was announced for England on 24 January. I am very sympathetic to local government’s interest in the new funding. It has not been confirmed as yet, and we have to wait for the UK to confirm it. The earliest that that can occur is the spring statement on 6 March.

I wholly support the Parliament’s recognition of the importance of supporting the economy. That is why this budget is supporting a fair, green and growing economy with £5 billion of investment across the Government. The enterprise agencies are important in that, and they help us to deliver more widely on the Scottish Government’s three missions. In recognition of their role, we are providing more than £307 million to our enterprise agencies over the coming year. That funding will support their work to create jobs and business growth, and it is fundamental in our efforts to tackle poverty and generate the investment that is required to improve our public services.

The Scottish budget represents distinct choices, including our single largest investment, which is £6.3 billion in social security benefits and payments—an increase of more than £1 billion compared with 2023-24. That supports people with disabilities to live full and independent lives, helps older people to heat their homes in winter and aids low-income families with their living costs.

The 2024-25 budget also prioritises support for our young people, with nearly £2 billion of funding for universities and colleges supporting the delivery of high-quality education, training and research.

In terms of delivering on our net zero ambition, £4.7 billion is being spent on climate positive activity. I appreciate the interest in the £200 million of ScotWind funding that is used in the budget to help support climate change activity and the delivery of vital public services.

The Government also values the contributions that are made by our remote and rural communities, and we are providing £4.3 million of capital investment to support the delivery of our national islands plan and our carbon neutral islands project, which is helping to tackle the climate crisis. In addition, £15 million is being restored to the rural affairs portfolio budget, which will be used to support farmers, land managers, rural communities and businesses across a range of programmes.

The positive impacts that culture has on our nation’s health and wellbeing cannot be overstated. By recognising the transformational power of culture and the value of the contribution that it makes, the Scottish Government will deliver significant benefits for the people of Scotland. We are able to confirm that we will increase funding for the culture sector next year to £196.6 million, which is an increase of nearly £16 million.

Underpinning our support for communities is the financial investment that we are delivering in our justice system. We are investing £3.8 billion across the justice system, which represents an 11 per cent increase in resource funding compared with the current year.

I conclude by recognising the work of the Equalities, Human Rights and Civil Justice Committee. The equality and fairer Scotland budget statement, which was published alongside the budget, looks at the impact that the Scottish budget will have on the people of Scotland.

I thank the committees for their constructive engagement and I look forward to further discussion, not just this afternoon but in the weeks to come.

15:18  

I am pleased to be speaking on behalf of the Constitution, Europe, External Affairs and Culture Committee. The focus of our budget scrutiny, as it has been throughout the parliamentary session, has been the Government’s culture portfolio spend. That approach has the benefit of building on previous working positions and gives us an opportunity to better assess progress over the years.

Through our cumulative scrutiny over three years, we have heard a consistent narrative around the on-going financial challenges. Although Covid support was welcomed and acknowledged, recovery for the sector has been a varied landscape. For example, Historic Environment Scotland experienced a fall of 80 per cent in revenue in 2020, but it is now seeing an increase in visitor numbers, and foreign visitor numbers are recovering. It caveats that, however, with a concern around the impact of cost of living and fuel bill costs on households and, indeed, the pressures on its own buildings.

We approached the budget scrutiny with three questions. How has the culture sector evolved in the past 12 years? What progress has been made in that time on accelerating innovative solutions to budgetary pressures? What are the challenges to the future of the sector and the need for a strategic approach to ensure its sustainability? The Scottish Government's culture strategy will be key to that.

A year ago, we found that the budgetary challenges that the sector was facing had become much more acute. We were contributing to a perfect storm of long-term financial pressures, reduced income generation and increased operating costs. In written evidence this financial year, Edinburgh International Festival suggested that

“The perfect storm ... has worsened in the last 12 months.”

Glasgow Life agreed that the storm

“shows little sign of abating and is perhaps deepening.”

External and public funding pressures persisted. There was the cost of living, fuel costs and the commitment to fair work. The sector remained under significant financial strain, with the risk to its future sustainability more severe. The cabinet secretary observed:

“The responses ... to the committee’s call for views ... make sombre and extremely stark reading.”—[Official Report, Constitution, Europe, External Affairs and Culture Committee, 5 October 2023; c 2.]

Last year, the committee concluded in its report on culture in communities that

“funding constraints within the current financial environment”

pose

“a significant challenge to the successful delivery of place-based cultural policy, including with respect to the funding of ... local government cultural services, and of publicly owned community spaces where cultural activity can take place.”

The committee recognises the current challenging economic circumstances and the urgent need to restore confidence in the culture sector as it continues to face significant pressures.

The First Minister has committed to increasing the Scottish Government’s investments in artisan culture by £100 million over the next five years. The evidence that the committee received during our pre-budget scrutiny predated that announcement. The committee did not have an opportunity to scrutinise the commitment further until well into the budget process, but the cabinet secretary provided us with more information about the commitment when he appeared before the committee two weeks ago. We have since written to the cabinet secretary to seek further detail on what the sector can expect in the years after 2025-26. As cultural bodies and stakeholders repeatedly told us, and as the cabinet secretary noted in his opening remarks to the committee on 18 January,

“there remains a need for longer-term clarity and confidence.”—[Official Report, Constitution, Europe, External Affairs and Culture Committee, 18 January 2024; c 30.]

Let us not underplay the importance of the creative economy to Scotland. Culture adds colour to our lives, shapes how we see ourselves and contributes to our shared sense of community and wellbeing. It plays a role in how we position ourselves globally. I am about to risk the wrath of our many brilliant cultural organisations by highlighting just a couple, but I mean no disrespect to the others. We are in the midst of Celtic Connections, which is one of our brilliant festivals, along with the Edinburgh International Festival and the other Edinburgh festivals. It is a thriving sector, which stands out. Our screen sector is also booming at the moment—a very welcome movement.

The growth sector statistics show that the gross value added by our creative industries in 2020 was £4.4 billion. That is a 62 per cent increase over the previous decade. However, over the past year, the existing budgetary challenges faced by Scotland’s culture sector have become even more acute, as they have in many walks of life and in many areas that we will discuss in the chamber this afternoon. We want to see what progress can be made with innovative funding solutions. We know the asks, but we need to see progress on multiyear funding and cross-portfolio funding models that embed culture in the wellbeing society, and on approaches to additional public funding, such as those that consider how the transient visitor levy might be used or how we engage with more private investment in culture.

The committee found little progress on those fronts when we reported last November, and we are calling for much greater urgency and a clear pathway to make tangible progress on implementing those funding models. The cabinet secretary told us last year that the Scottish Government is still in the foothills of making progress in cross-portfolio working. In our “Culture in Communities” report, the committee recommended that the Scottish Government now set out how it will accelerate that work.

In our pre-budget scrutiny report, we said that there is a need for much “greater urgency” and we strongly urged

“the Scottish Government to set out detailed plans for the steps it will take to achieve tangible year-on-year progress”.

As I have already mentioned, the culture strategy for Scotland, which has been warmly welcomed by the sector, will be key to doing that. As the strategy states,

“We will engage across government to mainstream culture in policy making, prioritising health and education in the first instance. Our work will recognise the transformational power of culture and value the contribution it makes to achieving key policy outcomes.”

15:25  

I welcome the opportunity to speak in the debate on behalf of the Education, Children and Young People Committee.

For our budget scrutiny, the committee focused on issues including funding for further education and local government education budgets. The work of colleges and their funding allocations have been a considerable focus for the committee throughout this parliamentary session. Our colleges, which are largely dependent on public funds, are facing significant financial challenges. The committee has repeatedly raised concerns about the extent and impact of those challenges, not only in our scrutiny ahead of this budget but in our scrutiny of the 2023-24 budget and in our college regionalisation inquiry report.

Ahead of last year’s budget, the sector projected significant staff reductions of around 200 to 300 full-time equivalent staff per year from 2022-23 to 2026-27. Those projections were based on a flat cash settlement for the sector across that period.

Although an allocation of £701.7 million was initially announced for colleges for 2023-24, which was £26 million higher than the year before, the Scottish Government took the decision to withdraw those additional funds. Audit Scotland pointed out that that meant that the Scottish Government’s funding for the sector had reduced by 8.5 per cent in real terms between 2021-22 and 2023-24. Similarly, universities saw £20 million of their funding removed. Further in-year cuts of £56 million across university and college sectors during 2023-24 have placed further financial pressure on them.

We know that colleges are critical in providing opportunities for learners of all ages and, importantly, in ensuring the realisation of the Scottish Government’s national strategy for economic transformation, or NSET. The committee is concerned about the scale of the cuts that are projected by the sector and the impact that they will have. The committee has therefore asked whether the Scottish Government has modelled the potential impact of college staffing cuts on its NSET. I would welcome a response to that from the minister, cabinet secretary or whoever closes the debate later today.

The question is even more pertinent for 2024-25, given the Scottish Government’s decision to reduce the resource allocation to colleges by 8.4 per cent in cash terms and 9.9 per cent in real terms, compared with last year’s budget. Universities will also have a reduction in their resource allocation from the £809.2 million that was initially announced for 2023-24 to the £760.7 million figure that was announced for 2024-25, which is a reduction of 5.9 per cent in cash terms.

The committee recognises that colleges need more resource, but also acknowledges the challenging nature of the current financial climate for the Scottish Government. The committee has therefore consistently raised the need for colleges to have as many financial and operational flexibilities as possible.

We noted that the Scottish Funding Council introduced some flexibilities for colleges this academic year, including reducing the level of activity that colleges must deliver for their funding and ensuring that a proportion—20 per cent—of their funding is not directly related to the delivery of credits and, therefore, cannot be clawed back if activity targets are not met, to recognise the semi-fixed costs that colleges have. In his evidence to the committee, the Minister for Higher and Further Education and Minister for Veterans explained that colleges had not used those flexibilities as expected, largely due to a “lack of understanding”. I hope that the minister will continue to work with colleges to ensure that those flexibilities are fully understood and, therefore, to allow colleges the opportunity to really benefit from them.

The minister has committed to exploring what other flexibilities are possible for colleges as part of tertiary sector reform. We welcome that commitment, but we urge him to consider what further interim flexibilities are possible, ahead of such reforms. Colleges cannot afford to wait.

In scrutinising funding for local government education budgets, the committee took evidence from the Association of Directors of Education in Scotland and the Chartered Institute of Public Finance and Accountancy Scotland local government group. Witnesses from ADES welcomed the fact that education budgets have been protected, but they highlighted that, as a result, other areas of local authority spending have borne the burden of savings targets. They also highlighted that savings elsewhere still have an impact, because education depends on other council services to operate.

The committee noted that ring-fenced grants and directed funds—including the £130 million for pupil equity funding—make a significant contribution to the spending on education by local authorities. However, witnesses highlighted that when such directed or ring-fenced funds are provided for the first year but are not uprated for subsequent years, that amounts to a cut in funding, with local authorities needing to make up the shortfall from elsewhere in their budgets. Given the pressure on local government budgets and the fact that inflation remains high, the committee believes that, when the Scottish Government provides directed or ring-fenced funds, it should be clear about how it will uprate those funds for subsequent years.

As part of their evidence, witnesses also highlighted the fact that, on several policies, including free school meals and absolute teacher numbers, inputs rather than outputs continue to be measured. In our letter to the cabinet secretary, we reiterated that it is of critical importance that there is a focus on the outcomes that policies are expected to achieve, rather than the inputs. We also stressed the need for such evidence-based decision making, especially at times of financial constraint, to ensure the most effective use of funding. It is essential that the Scottish Government understands what the impact of policies will be when it decides which ones to pursue. After all, we know that such choices will be difficult to make, and having evidence on their impact will go some way in helping to justify and understand those choices.

I am conscious of time. The committee recognises the pressure on the Scottish Government’s budget. We further recognise that the Scottish Fiscal Commission’s financial outlook indicates that such financial challenges will continue over the medium term and that, consequently, the Scottish Government will not be able to keep funding all public services to the level at which they have previously been funded.

It is essential that the Scottish Government is clear about what its priorities are, and that it communicates that to the people and organisations that work in, and are reliant on, the sector, to ensure that there is widespread understanding of what is to be achieved.

I call Claire Baker, who will speak on behalf of the Economy and Fair Work Committee.

15:32  

Today’s debate gives conveners an opportunity to talk about their committees’ scrutiny of the budget, but, first, I want to thank the Finance and Public Administration Committee for its report and its considered comments on the budget.

I begin by highlighting the Finance and Public Administration Committee’s reflections and evidence on the economy. According to its report,

“The Committee is unclear, in light of spending cuts to further and higher education, enterprise agencies and employability, how the Scottish Government has, as intended, prioritised its spending towards supporting the delivery of a fair, green and growing economy.”

The committee goes on to say that some individual decisions

“appear to conflict with the priorities of tackling poverty, growing the economy and prioritising public services.”

That opinion reflects views that were expressed to the committee in evidence, including by Professor David Bell of the University of Stirling, who said that

“it does not look like the budget particularly favours economic growth”,

and the Fraser of Allander Institute, whose representative stated that he

“would not say that the budget is particularly focused on growth.”—[Official Report, Finance and Public Administration Committee, 9 January 2024; c 10, 9.]

That is where my committee’s session with the Cabinet Secretary for Wellbeing Economy, Fair Work and Energy began yesterday morning. Part of the frustration that my committee experiences in looking at the annual budget relates to the fact that only a limited number of budget lines in the portfolio point towards demonstrating an economic growth strategy. Although the national strategy for economic transformation is to be refreshed, the budget lines for the portfolio are largely on the decline.

The cabinet secretary made the case for investment in public services, which, as the Finance and Public Administration Committee identified, are principally in health and social security, but the Government must be mindful of the fact that investing in the economy and supporting businesses to expand and increase employment produces increased revenues for such investment. In the 2024-25 budget, funding for the wellbeing economy, fair work and energy portfolio has been reduced by more than 8 per cent in real terms, compared with last year.

In her opening speech, the cabinet secretary emphasised the role of the enterprise agencies, but this year’s budget particularly impacts on all three, with support for Scottish Enterprise reduced by nearly 17 per cent in real terms, for Highlands and Islands Enterprise by 14 per cent and for South of Scotland Enterprise by almost 22 per cent. If financial transactions are included, the capital budgets of the three enterprise agencies will reduce by more than 24 per cent in real terms.

The VisitScotland budget falls by 12 per cent in real terms, primarily because of a significant two-thirds reduction in the capital budget. That largely impacts on the rural tourism infrastructure fund, but the Scottish Tourism Alliance also told us that that will lead to a slide in core marketing, international competitiveness and creating awareness. Although budgets are being reduced, there is a lack of detail about the expected impact of those cuts on the enterprise network and VisitScotland, on their staffing levels and on the support that they can provide to businesses.

I do not imagine that the cabinet secretary is unaware of the significant concerns that are being raised by the tourism and hospitality sectors about the precariousness of their businesses. There is recognition of the negative impact of energy costs and of the wider UK economic environment, but the committee also heard about the sector’s frustration at the lack of Scotland-specific action and lack of engagement with the sector.

For the second year, although Barnett consequentials of around £260 million have come to Scotland through the retail hospitality and leisure business rates relief scheme, no similar scheme has been introduced here. Wales has introduced such a scheme and Scottish businesses describe operating at a disadvantage.

Would the convener and her committee accept that although some businesses in the retail and hospitality sector need support, others are doing very well?

It was interesting that the committee heard that although some businesses might appear to be doing well, the issues that I have raised already, such as energy costs and other business pressures, are reducing profitability margins. We have all seen the closures, particularly in retail and hospitality, across the country. Those businesses are still in a precarious situation.

The Scottish Government has said that hospitality businesses on Scottish islands will benefit from 100 per cent rates relief for 2024-25. That is welcome, but the cost of that is understood to be just £4 million.

The committee was told that businesses feel unsupported and that there was a “lack of respect” in the run-up to the budget. UK Hospitality Scotland said that the budget was an opportunity to see what difference the new deal for business had made, but there was frustration about lack of engagement and concerns were raised about conflicting priorities—an issue that was also identified by the Finance and Public Administration Committee.

We recognise that the small business bonus scheme supports businesses in the sector, but an estimated 10,000 businesses are not eligible for the scheme. The cabinet secretary said yesterday that the Government is looking at what can be done on business rates reform in the long term. The Government must address that issue, but we have no timescale for action.

My committee also asked about changes to taxation and the impact of tax divergence within the UK, which we heard could present recruitment and retention challenges. I welcome the Finance Committee’s call for the Scottish Government to review the potential impacts that differing income tax policies have on business and the economy.

In 2021, one of the Government’s stated priorities was to provide £50 million of funding support for a women’s business centre. Despite regularly asking for updates, the committee has seen no progress. Following Ana Stewart’s review and the “Pathways: A New Approach for Women in Entrepreneurship” report, the recommendation is now for a national network of pre-start centres, which the Government is supporting. Yesterday, the cabinet secretary said that that will be resourced by £1.5 million in the innovation and industries line of this year’s budget, which is somewhat short of the £50 million that was pledged in 2021. The committee will continue taking an interest in that area.

In our pre-budget letter, we asked for an update on the Scottish Government’s £100 million commitment to help businesses to improve their digital skills, capacity and capability. By last February, only £38 million of the allocated £100 million had been spent. That £38 million represented support that was provided through digital development grants, digital development loans, the DigitalBoost national programme and a pilot project on digital productivity. It is disappointing that

“due to financial pressures and new priorities”

those four programmes are paused, when the evidence that we heard was that they were oversubscribed and that Scotland is behind other countries in terms of our digital business offer. In this area, more strategic funding is being retained but the direct support to businesses, which they really valued, is going.

In addition to scrutinising business support, the Economy and Fair Work Committee continues to focus on the investment needed for workplace training and skills development. Supporting businesses to address priority skills and skills gaps is vital, and the committee has concerns about removal of the flexible workforce development fund and the impact that that will have on employee development.

It is regrettable that the employability budget for next year is down by more than 24 per cent. In particular, the fair start Scotland budget will fall by £13.9 million, thereby closing it to new referrals. That is against the backdrop of last year’s reduction in planned spending.

With the labour market pressures that we are experiencing and there being a real risk of a rise in unemployment, employability services are vital for supporting those who wish to work but face barriers in doing so. Last year, we asked for assurances on equality impact assessments, as cuts in this area risk marginalising people and reducing their opportunities. The Fraser of Allander Institute continues to provide analysis highlighting why employability spend is important. The committee will shortly turn its attention back to Scotland’s disability employment gap and what more is needed to address it.

We all want to see investment in public services that everyone benefits from, but one key source of revenue to enable investment is a strong economy, and the Government must be mindful that cuts in this area can have negative long-term consequences. It must do all that it can to generate economic activity in communities across Scotland.

I call Ariane Burgess to speak on behalf of the Local Government, Housing and Planning Committee.

15:41  

I am pleased to speak in this debate on behalf of the Local Government, Housing and Planning Committee. The committee’s pre-budget scrutiny this year focused on workforce issues in local government. However, that has, in the course of budget scrutiny, broadened out to wider consideration of the financial sustainability of local government. It is on that broader perspective that I will focus my comments.

Being mindful of the committee’s remit, however, it would be remiss of me not to reflect on the proposed cut to the affordable housing supply programme budget. Before I turn to the primary focus of my comments, I will touch briefly on that. Although we have not yet scrutinised the implications of that potential cut, the committee wrote to the minister asking for an indication of the considerations that informed the cut, and of its implications. In his response, the minister pointed to a 10 per cent real-terms fall in UK capital funding over the medium term between 2023-24 and 2027-28 as precipitating the cut. He notes that a review of deliverability of the affordable housing supply programme scheduled for 2026-27 will be brought forward to 2024. He also notes that, in parallel, the Scottish Government will accelerate work with the financial community in Scotland and elsewhere to boost private sector investment in Scotland and to help to deliver more homes.

We will be holding round-table sessions later this month to look at the Scottish Government’s “Housing to 2040” strategy and the extent to which its aims are being delivered or, indeed, whether they continue to be the right ambitions for housing in Scotland. As part of that, we have asked participants to reflect on the implications of those cuts for the deliverability of the strategy and for meeting Scotland’s housing needs more generally. We will reflect on the minister’s response to us.

I look forward to sharing the findings of this work with Parliament. As Charles Schulz, the Snoopy author, said:

“That’s the secret to life ... replace one worry with another”.

With that in mind, I turn to reflect on our consideration of the local government budget. The challenges that councils are facing are, undeniably, sizeable. Among other things, councils are having to face the challenges of pay inflation and living wage costs; costs associated with Covid-19 recovery; energy inflation; non-pay inflation, including in the cost of materials and construction costs, and contract inflation; and demand for and price sensitivity of chargeable services, and the related impact on income from fees and charges.

In that context, at the end of last year, the Local Government Information Unit published its first-ever survey looking at the state of local government finance in Scotland. It found that confidence in council finance is critically low—indeed, the survey report said:

“Respondents from eight different councils said that there was a danger financial constraints could leave them unable to fulfil their statutory duties”.

In our budget considerations last year, we stressed the importance of local and national government concluding a new deal to meet the challenges. We stressed in particular the importance of agreeing a fiscal framework, and we welcomed the Government’s commitment to that. It is pleasing, therefore, one year on, to see that progress has been made. The committee was immensely pleased to see the Verity house agreement, which was published last June.

It is pleasing, too, that, although there have been significant challenges since then to the relationship between local and central government, particularly in the council tax freeze, both sides remain committed to the agreement and to progressing with its ambitions. Nonetheless, the ambitions of the Verity house agreement are yet to be realised, and we must see significant progress being made towards them in the course of this year.

Central to realising the ambitions of the Verity house agreement, and to meeting the immense challenges that local government faces, must be the immensely complex efforts to agree a fiscal framework. Those have been on-going for many years. Nonetheless, it is critical that a fiscal framework be agreed as soon as possible. A framework must be in place in time to inform next year’s budget and enable the Scottish Government and local government to work together more effectively.? We cannot wait another year.

In the absence of a fiscal framework, unfortunately, we found our budget considerations again beset by different interpretations of the budget figures. I am confident that such a sentiment will have been expressed by all my predecessor conveners of the various iterations of the local government committee over the past 25 years. We cannot keep on doing this for another 25. The Scottish Government and the Convention of Scottish Local Authorities must agree a common understanding of the figures and how best to present them, so that we can focus on outcomes for our communities, not debate different interpretations of figures.?

There must also be clarity and certainty around what is ring fenced and what is not, and what spend is directed and what is not. We continue to hear different interpretations of those, and we must get beyond that so that councils can be clear on their flexibility to deliver for their communities.

The Verity house agreement expresses an ambition “wherever possible” to provide “multi-year certainty” to local authorities. We appreciate the challenges in providing local authorities with that certainty; however, the committee would welcome any further reflections on how, as part of a fiscal framework, there could be a move to multiyear funding.

The committee looks forward to working with the Scottish Government and local government this year, in the drive to progress the Verity house agreement and, in particular, in the drive towards a fiscal framework. We cannot be here again, next year, saying the same things.

I call Kaukab Stewart to speak on behalf of the Equalities, Human Rights and Civil Justice Committee, for around seven minutes.

15:48  

As convener of the Equalities, Human Rights and Civil Justice Committee, I am happy to contribute to the debate.

The three principles of human rights budgeting are participation, transparency and accountability. In our 2024-25 pre-budget scrutiny, we set out on a three-year plan to look at each of those principles in turn. We started with participation; transparency will be explored in 2025-26 and accountability in the 2026-27 pre-budget scrutiny.

Over the summer, instead of a typical call for views, we ran a public survey, which was aimed at understanding how people relate to the budget. More than 100 people responded to that survey, and we saw clearly that people understand budget decisions in the context of how they affect their lives. We also got the impression that it is often difficult for citizens to see the positive impacts of the Scottish Government’s decisions. I thank the people who took part, because the survey gave us information that touched on almost every portfolio, and their input showed the value of reaching out beyond our usual stakeholders.

Alongside the survey and hearing evidence from stakeholders including BEMIS, COSLA, the Health and Social Care Alliance Scotland and the Scottish Women’s Budget Group, the committee put a specific focus on engaging and working with a citizens panel.

The committee’s officials, the clerks, the Scottish Parliament information centre and the participation and communities team identified a group: the whole family equality project, which is supported by Capital City Partnership. It agreed to take part in work to help us, the politicians, learn how they, the people, view and understand the budget process and, in particular, how the budget impacts on their lives.

Before I talk about the citizens panel process itself, I say a massive thank you to the citizens for their willingness to engage with us. They demonstrated a lot of passion and it was good to see their confidence and understanding grow throughout the process to the point that, if they were not happy with something, they would certainly let us know.

At the end of August, our officials met 12 participants from the project to build capacity within the group, discussing roles and the differences between the Parliament and the Government, and giving the panel an introduction to the budget process. That was followed by an online drop-in discussion to help the panel prepare for the next stage of the deliberative process, which was a facilitated workshop with the committee on 12 September, which was also attended by Collette Stevenson as convener of the Social Justice and Social Security Committee.

It was an opportunity to discuss how and when people should be able to participate in the budget process and the barriers to that. It also allowed the participants to share their lived experience and explain how they felt that spending decisions had influenced their experiences in areas such as social care, health, local government and education and young people.

On 24 October, five members of the panel spoke to the committee in public session, during which they told us questions that they would like us to put directly to the minister—and we did exactly that. However, there was disappointment among the panel as they felt that the minister was not able to answer the questions in sufficient detail, due to the intersectional nature of their questions, which meant that they covered issues across portfolios. We followed up by writing directly to the appropriate portfolio ministers.

It would be fair to say that previous iterations of this committee have encountered similar issues. If equalities, inclusion and human rights are to be properly mainstreamed, there needs to be a clearer sense and demonstration of ministers working collegiately across portfolios. One thing that came through loud and clear during our engagement with the panel is that people—citizens—see the Government as one entity, not as a range of disparate silos. It is important that we, as members and as committees, recognise that. If we do not, what impact will we have?

Citizens were very clear in their understanding that there are competing budget demands and that difficult choices need to be made, but they needed more information on the rationale for decisions. As well as being expressed by our citizens panel, that point came through loud and clear in our post-budget session this Tuesday, when our witnesses, Professor O’Hagan, Heather Williams and Clare Gallagher, all said that it is really difficult to understand how budget or spending decisions and allocations have been reached.

We all acknowledge that times are challenging and that the Scottish Government and others have very tough decisions to make on how they allocate money. That said, as Heather Williams pointed out, people will have different views on how funds should be allocated or what should be prioritised, and they may well disagree with some decisions. However, if there was a better or clearer explanation as to how tough decisions were reached, at least people would be able to better understand the reasoning and processes behind them.

Witnesses remarked that progress is, indeed, being made; however, it is very slow and very much a work in progress. It is important to recognise where progress is being made. A good example of that is the increased linkage between the budget and the programme for government, which is welcome. An observation on how that can be further improved is that we need clearer links to performance against outcomes. The upcoming refresh of the national outcomes is an opportunity to consider how that might be made possible. We should all give some thought as to how we can assist the process through our scrutiny. We need to encourage as well as challenge.

We regularly recommend that the Scottish Government mainstream equalities. Our predecessor committees also encouraged more mainstreaming of equalities and human rights across all committees’ scrutiny of the budget. That must be further developed and become embedded.

There are opportunities. We can be creative and innovative. For example, there are opportunities for joint committee working in some aspects, to ensure that the fullest scrutiny is applied. We can make recommendations to the Scottish Government, and we can ask what it is doing, but there is nothing to stop us working in partnership with real people in citizens panels, listening to them and considering the solutions that they suggest.

The SPICe blog that was published yesterday provides useful context and offers some helpful pointers on how all committees might adapt their scrutiny.

Following our experience of working with the citizens panel, I would strongly encourage other committees to consider that approach.

I now call Edward Mountain to speak on behalf of the Net Zero, Energy and Transport Committee.

15:56  

I welcome the opportunity to speak on behalf of the Net Zero, Energy and Transport Committee. It is our role to scrutinise the Scottish Government’s actions to secure progress towards becoming a net zero nation and to check whether it has the resources that it needs to tackle the climate and nature emergencies. We have a huge remit, and in the time I have I can pick out only a few highlights.

Last year I stood up in the same debate and undertook, on behalf of the committee, to hold the Government to its commitment to increase transparency around the carbon footprint of its budget. Some progress has been made this year, with the publication of the climate change and carbon assessment alongside the budget, which we welcome. However, on Tuesday morning, just as we were starting to take evidence from the Government, we were told that some of the figures used in the assessment were inaccurate. Clearly, there is a huge amount of work still to be done for the Government to reliably articulate to the Parliament how budget decisions contribute—or indeed do not contribute—to reductions in carbon emissions.

One theme of our budget work has been funding for public transport, which is a vital component of the Scottish Government’s own ambitions to reduce car travel by 20 per cent. On buses, we heard about grants and funds being reduced to zero, with late notification of that to key organisations such as the Strathclyde Partnership for Transport. We are unclear how such decisions will help to deliver the step change to net zero.

The committee has dedicated much of this parliamentary session to ferry services, as did our predecessor committee in the previous session, so it will come as no surprise that I mention that issue here. It is disappointing to hear that money has not been allocated for work to upgrade the harbour at Ardrossan; it will merely continue to a review of the business case for that harbour. We also heard that no decision has been made to procure vessels through the small vessel replacement programme, although funding has been “earmarked”. We still do not know what the final costs of hulls 801 and 802 will be.

The electric vehicle charging infrastructure has been another theme of our budget work. We were pleased to hear about the delivery of 2,700 chargers through £65 million of funding for ChargePlace Scotland. However, progress through the electric vehicle infrastructure fund is less clear. The fund is to develop 6,000 new charge points over four years. We are now half way through that period. We heard this week that £20 million of the fund has been committed but not yet drawn down, and the fund has yet to deliver any charge points. That raises questions about the effectiveness of spending and the pace of progress under the fund.

Another part of our pre-budget work has involved assessing the budget settlement for Scotland’s environmental regulators. We were pleased to see that both NatureScot and the Scottish Environment Protection Agency have received a real-terms increase in funding for this year. We hope that that will translate into real progress in areas such as habitat restoration and robustly enforcing existing laws and regulations that protect the environment.

Before I make my next point I remind members that I am a partner in a farming partnership. The land concerned has trees on it, but I have not applied for any planting grants in the past 10 years. My point is that the trouble with the good news about SEPA and NatureScot is that it is somewhat undercut by the news elsewhere in the budget. For instance, we need to see an acceleration in tree planting, both for habitat restoration and to absorb carbon emissions, but funding for Forestry and Land Scotland and woodland creation schemes has been reduced, despite setting ambitious targets that have already been missed since 2017. We know that this is a tough financial year, but we question the consistency of decision making and its implications for the Scottish Government’s reaching its own goals. We remind it that forestry is not a tap that it can turn on and off as required.

I turn to the budget allocation for energy. The Scottish Government’s ambitions for the offshore wind sector are welcome. However, we have raised questions about the efficacy of funding for as long as we continue to have somewhat clunky marine consenting and licensing arrangements. The cabinet secretary told us that the decision to kick-start the £500 million fund for offshore wind energy meant that funding for hydrogen energy innovation was not being prioritised in this budget year. We note that, so far, only 7 per cent of the £100 million previously committed to hydrogen energy over the parliamentary session has been allocated, with no additional moneys being made available in this budget.

The Scottish Government has previously committed to spending its considerable revenues from ScotWind leasing on tackling the climate and nature emergency, yet we have heard that the money drawn down so far has been used to support the overall budget, and that that might be the case for the foreseeable future. Again, we appreciate the Government’s financial predicament, but it is worth reflecting on the long-term benefits that ring fencing could afford.

We are at a crossroads in our journey towards net zero—2030 now looks pretty close to us. There are questions about whether some of the decisions in this year’s budget maintain the momentum that we will need if we are to meet our 2030 and 2045 targets. To that end, I add a note of qualified optimism. There will be a climate change plan this year. Some of us wish that it could have been produced sooner. I am told that it will be delivered by November. It would have helped the committee’s budget scrutiny had we had it in our hands, but we are where we are. The plan will set out what the Government intends to do to deliver its carbon reduction targets and details of the associated funds that are needed. Alongside the Parliament’s other committees, we look forward to considering that plan and, I hope, achieving a better understanding of the Scottish Government’s policy choices, which it now thinks it will still be able to deliver by 2045. Indeed, that plan should make our budget scrutiny next year more meaningful.

16:03  

I am delighted to speak in the debate on behalf of the Social Justice and Social Security Committee. First, I put on record our thanks to all the organisations that assisted with our pre-budget work.

I will speak about a few key areas of the committee’s scrutiny. As other members have mentioned, the setting of the budget must be seen in the context of challenging financial circumstances and difficult choices. Our scrutiny focused very much on poverty and the impact that the Scottish Government’s budget could have on addressing it. Given that many people continue to face difficulties in making ends meet as cost of living impacts persist, we recognise the importance of maintaining the real-terms value of benefits. That is why we called on the Scottish Government to uprate all Scottish benefits by September 2023’s consumer prices index rise of 6.7 per cent, and we are pleased that it did so.

The vast majority of the £7.5 billion social justice budget—£6.7 billion—is for social security. The £1 billion increase in investment on social security compared with last year will provide support to more than 1.2 million people. The Scottish Government has chosen to spend more on social security in delivering 14 benefits, seven of which are unique to Scotland. That includes the Scottish child payment, which is worth £25 per eligible child per week. The Cabinet Secretary for Social Justice advised that the payment is lifting 50,000 children out of poverty this year.

Although child poverty is still too high, the cabinet secretary assured the committee that the Government is relentless in its focus on reaching the targets on child poverty and it has promised to provide an update on progress.

We also note that the Government’s approach to the application process for the adult disability payment has resulted in a higher number of claimants receiving support. That is very welcome. Ensuring that people with long-term health conditions and disabilities get the support that they need is crucial to building a fairer Scotland.

On the scale of social security investment, the Scottish Fiscal Commission told us that social security spending in 2024-25 will be almost £1.1 billion more than the Scottish Government receives from the UK Government through the social security block grant adjustment. It is estimated that the difference will rise to £1.5 billion in 2028-29. The committee acknowledges that increased investment in social security has to be funded and that that has implications for the Government’s budget decisions in other areas.

Another key theme that was examined in our pre-budget scrutiny was homelessness. Recent statistics show that the number of homelessness applications increased in 2022-23. Shelter Scotland and the Scottish Refugee Council called for housing to be prioritised in the budget. They referred to the current situation as “a housing emergency”, but Shelter Scotland highlighted that

“it is not just one crisis. It is an affordability crisis, an accessibility crisis, a crisis for children and a crisis of cost, and all those crises have come together as an emergency.”—[Official Report, Social Justice and Social Security Committee, 5 October 2023; c 26.]

When the cabinet secretary appeared before the committee, we asked why, given the importance of new affordable housing to reducing poverty and homelessness, the Scottish Government had cut the affordable housing supply programme budget. She highlighted the impact of the UK Government’s decision to slash capital spending. We also heard about the impact of inflation and Brexit-related workforce challenges on housebuilding costs, and that the Scottish Government will work with stakeholders to maximise value for money. We hope to hear confirmation from the Scottish Government soon about its ambition to build 110,000 more affordable homes by 2032, and we will continue to monitor the budget’s impact on homelessness.

A further area of stakeholder interest was the proposed parental transition fund. The cabinet secretary advised us that the fund cannot be delivered as originally planned due to the interaction with reserved tax and benefits, but that the Scottish Government will continue to deliver on the overarching policy aim to support parents into employment. We wanted to understand the decision that was taken. The importance of parental employment in addressing child poverty cannot be overestimated.

Our recent report on tackling child poverty through parental employment takes an in-depth look at the cross-cutting actions that are needed to make progress. We were keen to know what the Scottish Government will do to support those parents who would have benefited from the fund. The cabinet secretary stressed that the Government is still spending £90 million on employability support. We have yet to discuss the Government’s response to our report, but I am sure that we will carefully consider follow-up work and the impact of the budget.

I will briefly touch on fair funding principles for the third sector. We continue to press the Scottish Government for updates on the provision of multiyear funding, as the Scottish Council for Voluntary Organisations has made a plea for more consistency. We look forward to receiving a detailed update from the Government on that, as well as on its commitment that organisations will be notified of approved funding for 2024-25 in March. That would afford organisations the best opportunity to deliver crucial services in the coming financial year and to seek match funding, particularly as many of those services provide essential support to people with complex needs who are experiencing poverty.

We all recognise the challenging fiscal circumstances. The committee welcomes the Scottish Government’s decision to increase investment in social security. Estimates suggest that, overall, Scottish Government policy is lifting 90,000 children out of poverty. We will monitor that and continue to scrutinise the impact of Scottish and UK Government policies on social justice, and committee members will listen closely to the Scottish Government’s response to the debate.

16:11  

I apologise to the Presiding Officer, members and Kenny Gibson in particular for my late arrival to the chamber at the start of the debate. I am pleased to contribute on behalf of the Rural Affairs and Islands Committee. I want to reflect on our pre-budget scrutiny as well as on our session with the cabinet secretary three weeks ago following the publication of the budget.

I will be honest and open with members in saying that the time that was allocated for our pre-budget scrutiny exercise has, once again, been significantly squeezed as a result of the volume of legislation that the committee is considering currently. As, I am sure, other committees will have experienced, the year-round approach to financial scrutiny is challenging when committee time is mostly taken up with bills and legislation. For that reason, the committee took the decision to continue with its previous approach to scrutiny by specifically focusing on the funding commitments that are associated with the implementation of the national islands plan, with a broader, more general overview of the rural affairs and islands portfolio. I will update members on our pre-budget scrutiny, before concluding with comments on the budget.

The implementation of the national islands plan is supported by the capital funding for the islands programme. The Scottish Government’s stated aim for the islands programme is to help to fund “critical and transformational” infrastructure projects while addressing “pervasive problems” for island communities.

The Scottish Government’s 2021 programme for government included a commitment to invest £30 million over five years through the island programme but, at the time of our pre-budget scrutiny, there was no specific capital allocation for the islands plan for 2024-25. The committee recommended that funding levels should be maintained in line with the commitment that was made in the 2021 programme for government. We now note that £4.3 million in capital funding for the islands programme, with funding for the carbon neutral islands project, has been announced for 2024-25.

Most of our scrutiny centred on the capacity and funding of the islands programme and on its ability to make what the Scottish Government has said are “critical and transformational” infrastructure projects address the real challenges that our island communities face, such as the disproportionate impact of the cost of living crisis—the Shetland Islands Council suggests that the cost of living is as much as 20 to 65 per cent higher for some island communities than the UK average—fuel poverty and depopulation.

The cabinet secretary emphasised that no single intervention would address the issue of depopulation and that support for island communities straddled multiple portfolios. The islands plan, its 13 strategic objectives and its associated funding will shortly be reviewed. The committee will want to see clear evidence of the benefit of those critical and transformational infrastructure projects within island communities.

I turn to the budget that was published last December and the cabinet secretary’s evidence to the committee in January. The first thing to note is that the rural affairs, land reform and islands portfolio had the largest percentage reduction in its capital and resource budget: a 7.8 per cent reduction in cash terms and a 9.3 per cent reduction in real terms.

We heard from the cabinet secretary that the Scottish Government has

“had to take difficult decisions and make very difficult choices”.—[Official Report, Rural Affairs and Islands Committee, 17 January 2024; c 3.]

The committee sought reassurance that budget reductions would not impact negatively across the agricultural, fisheries and forestry sectors.

The cabinet secretary provided some clarification of where the Scottish Government anticipated being able to meet current demand despite budget cuts. The committee will continue to keep a close eye on matters to ensure that on-going spend can deliver the Government’s stated ambitions.

We were told of the return of £15 million to the portfolio. However welcome that may be, it should be noted that that is only a fraction of the £61 million that was taken out of the portfolio as part of the 2022 emergency budget review.

We heard evidence from the Confederation of Forest Industries—Confor—that the £32 million—or 41 per cent—cut to the budget for woodland grants would be devastating and would mean that the tree planting targets would not be met. In addition to the resulting impact on climate change targets, the cut would lead to job losses, lead to the destruction of millions of trees and be a blow to sector confidence that will take a long time to recover from. The cabinet secretary conceded that that was “particularly disappointing” and highlighted some of the work that is being done to move forward. The committee has only recently taken on forestry as a policy area, but it is clear that we will need to monitor it closely.

Our pre-budget scrutiny looked at the level of funding for developing science and technology in the marine sector, and we welcome the cabinet secretary’s response, which sets out her intention to make science and technology funding one of the top priorities of the marine directorate. The committee looks forward to hearing more about how that commitment will improve the scientific evidence base to inform fisheries policy, particularly for inshore fisheries. We look forward, in due course, to further discussions with the cabinet secretary on the funding that is available for marine science and technology.

Finally, the cabinet secretary told us that one of the reasons for the cut in the marine directorate budget was the decision not to proceed with highly protected marine areas.

16:16  

The Health, Social Care and Sport Committee recently concluded its pre-budget scrutiny for 2024-25. The exercise highlighted several important themes as key areas for the Scottish Government to work on over the coming years.

The first of those themes relates to multiyear budgeting. Many respondents to the committee’s call for written views highlighted that the current model of single-year budgeting hampers the delivery of services and stands in the way of the transformative change that is required in the sector.

Following calls from our committee for the Scottish Government to bring forward its refreshed medium-term financial framework for health and social care, I note the cabinet secretary’s commitment that it will be published in the spring. I reiterate the committee’s request that the framework provides more detailed analysis than was previously set out in the medium-term financial strategy and the resource spending review.

In previous years, the committee has highlighted concerns about the availability and accessibility of data related to health and social care spending, and the Scottish Government subsequently gave a commitment to make progress in that area. However, the committee has heard evidence of on-going issues with data and the challenges that that creates in measuring and reporting on progress towards meeting defined budget and policy goals.

I welcome the cabinet secretary’s response to the committee’s pre-budget scrutiny letter, which sets out the range of data that is currently available to support decision making, analysis and scrutiny and indicates that there is

“ongoing work to improve availability and accessibility, and to improve transparency.”

The committee’s pre-budget scrutiny highlighted the importance of the NHS Scotland resource allocation committee formula in determining levels of funding to be allocated to individual health boards in Scotland. In his response to the committee, the cabinet secretary confirmed that

“Work to review the formula is underway”,

but that it “will take time” to complete.

We also heard concerns from Audit Scotland that a number of Scotland’s 14 territorial NHS boards might not be able to break even by the end of the latest three-year financial planning period, as they are currently required to do. It would be helpful to receive reassurance from the Scottish Government today that robust contingency plans are in place to deal with such an eventuality.

The cabinet secretary also told the committee that the level of co-operation between boards in reducing costs, particularly through shared services and functions, is “variable”. The committee would be grateful if the Scottish Government could keep it updated, as data becomes available, on how it is encouraging further co-operation between boards and on how effective that has been.

The committee heard evidence that workforce capacity remains the biggest risk to the recovery of NHS services after the pandemic. Equally, there is concern that any increases that have been committed to in the health and social care budget might be consumed by recent—welcome—pay settlements, which avoided strike action by healthcare staff in Scotland, and by the impact of inflation.

In that context, I welcome the cabinet secretary’s update that progress has been made towards reducing NHS Scotland’s reliance on agency staff. As the workforce is the sector’s most important asset, it is vital to retain a focus on getting the best out of the workforce, which includes using innovation to free up capacity while ensuring that the workforce’s health and wellbeing are consistently and proactively supported.

Issues that relate to preventative spend have been a recurring theme in the committee’s financial scrutiny this session. Evidence that was submitted to the committee highlighted the significant challenges of moving towards a preventative approach to health and social care spending in the context of acute short-term demand for services.

During the committee’s budget scrutiny session, the cabinet secretary made the point that performance on two key measures has been moving in the wrong direction—mortality rates are increasing and health inequalities are widening. A reinforced focus on preventative spending could have a real impact on reversing those negative trends.

We acknowledge that, in the face of the current severe budgetary pressures, maintaining a focus on prevention will be a huge challenge. However, for the long-term sustainability of health and social care services, we should not let that weaken our determination to keep that focus.

Many who submitted evidence to the committee argued for initiating a national conversation to involve the public in discussions about the future of health and social care in the context of increasing demand, demographic change and finite budgetary resources. I welcome the cabinet secretary’s acknowledgement in responding to our pre-budget scrutiny letter that, although the Scottish Government is committed to ensuring that the fundamentals of Scotland’s NHS do not change, reform is required.

Furthermore, the committee received oral and written evidence that highlighted significant shortcomings in linking health and social care spend to specific outcomes. On the basis of that evidence, the committee asked the Scottish Government how it intends to shift away from a focus on short-term targets towards a long-term outcomes-based approach.

In response, the Scottish Government highlighted that its care and wellbeing dashboard provides a framework to drive progress towards a common set of long-term outcomes. In its updated format, that is a welcome innovation. As part of the annual budget process, it would be helpful to map progress towards the long-term outcomes against health and social care spending.

As part of the forthcoming five-year review, the committee would welcome a debate about how the national performance framework can be reformed to become a more effective tool to support strategic outcomes-based policy making and spending in health, social care and sport.

The committee’s scrutiny of the budget for 2024-25 highlighted key challenges that we need to confront to place health and social care spending on a more sustainable footing for the long term. I and my fellow committee members look forward to continuing to scrutinise the extent to which the coming year’s budget is meeting those challenges in the months ahead.

I refer members to my entry in the register of members’ interests, as I hold a bank nurse contract with NHS Greater Glasgow and Clyde.

16:23  

I welcome the opportunity to contribute to the debate as chair of the Scottish Commission for Public Audit. One of the commission’s main roles is to scrutinise and report to Parliament on Audit Scotland’s budget proposals.

Last Friday, we published our report on Audit Scotland’s budget proposal for 2024-25. Audit Scotland’s budget comes from two sources: the fees that it charges audited bodies and the funding that comes from the Scottish consolidated fund. Our report notes that Audit Scotland’s budget proposal represents an overall 8.4 per cent increase on the funding that was required from the Scottish consolidated fund under last year’s budget.

The commission met in December last year to consider Audit Scotland’s budget proposal—specifically, the £13.229 million of funding that is required from the Scottish consolidated fund. The 8.4 per cent increase represents an additional £1.029 million on last year’s budget.

We heard that, of the proposed 8.4 per cent increase, costs relating to Scotland’s participation in the biannual national fraud initiative made up 1.9 per cent, and the costs of delivering non-chargeable audits to organisations such as the Scottish Government, Environmental Standards Scotland and Consumer Scotland made up another 1.8 per cent. Although we understand that only 4.7 per cent of the total increase is within Audit Scotland’s direct control, we raised concerns at the level of the overall increase, particularly in the context of the significant pressures on Scotland’s public finances.

As members know, Audit Scotland is unable to carry reserves, so any of its budget that remains at the end of the financial year is returned to the Scottish consolidated fund. However, that leaves very little time for the money to be reallocated and spent effectively before the end of the financial year. Given the significant and on-going pressures on Scotland’s public finances, we sought reassurance on the robustness of Audit Scotland’s proposed expenditure and efficiency savings, and we noted its focus on productivity and efficiency. In our report, we ask Audit Scotland to, in the future, apply more focus on ensuring that accurate financial planning is undertaken at the outset of developing its budget proposal, in recognition of the fiscal constraints across the public sector.

Audit Scotland’s budget proposal also sets out plans for its audit modernisation project. The budget proposal states the importance of ensuring

“that public audit is efficient and effective, both now and in the future”.

Year 1 of the audit modernisation project, which is 2024-25, is expected to cost £148,000. That will be funded through internal efficiency savings. We heard from the Auditor General for Scotland that audit modernisation will be a significant factor in budget proposals for the next three years but that, at this stage of the project, any future cost estimates would be speculative.

Our report draws the Parliament’s attention to our plans to strengthen our function of scrutiny and challenge in relation to Audit Scotland. As part of that, we plan to hold additional informal meetings on emerging priorities, and we have identified the audit modernisation project as one such priority. We also plan to review the timetable and written agreement for the submission of Audit Scotland’s budget proposal to ensure that we have sufficient time to fully examine and discuss the detail of the proposal with Audit Scotland prior to its formal submission.

The final budget allocation for Audit Scotland is, of course, a matter for the Scottish Government, but, in closing, I draw the Parliament’s attention to the conclusions that are set out in our report on the steps to be taken in the future. We expect in future years to see more evidence from Audit Scotland on how it plans to achieve efficiency savings and avoid underspends. We also set out the steps that the commission plans to take to strengthen its scrutiny and challenge of Audit Scotland on those matters.

16:27  

Only this week, the IMF reset its predictions for the UK economy. It predicts that the UK will be the second-worst performer in the G7 this year and the joint third-worst performer in 2025. We have had, in essence, and as reflected in the Finance and Public Administration Committee’s report, no growth over the course of 2023.

A response to the dire performance of the UK Government was made in the committee by the Office for Budget Responsibility:

“the real spending power of Government departments in England goes down by about £19 billion over the forecast period ... If those spending plans are sustained, there will be fewer real increases in Barnett consequentials—[Official Report, Finance and Public Administration Committee, 12 December 2023, c 9, c10.]

In other words, we have to expect further cuts in Scotland’s budget.

The context that we are discussing today exposes yet again the fundamental weaknesses and uncertainties that are involved in operating within a framework of UK dependence. The only way of fully addressing public sector funding pressures, particularly in the absence of appropriate borrowing powers, is to maximise efforts to create long-term sustainable growth.

The consequence of the UK Government’s economic failure has profound implications. I deeply regret, and have spoken often about, the cut in the capital budget. Regrettably, it has led to the Scottish Government making cuts to affordable housing. We know and understand that investment in house building has very positive benefits, not least in terms of growth. We know also that the Joseph Rowntree Foundation has described the cut as

“brutal in the context of the housing situation in this country”.—[Official Report, Finance and Public Administration Committee, 9 January 2024; c 3.]

I absolutely appreciate the difficulty that the Cabinet Secretary for Finance has been placed in by dependence on the UK, but I hope that that proves to be a short-term cut. As soon as possible, it must be fully restored and the impact on the Scottish Government’s commitment to complete 110,000 affordable homes by 2032 minimised. We know that a lack of affordable homes leads to rises in homelessness and poverty and has negative impacts on health and education.

Another area considered in committee that is important for long-term planning is the opportunities that are presented from offshore wind. During 2022-23, more than £756 million was raised from the leasing of seabed rights for offshore wind farms. I noticed the view of Professor David Bell that such funds should be regarded

“as equivalent to a sovereign wealth fund”,

which

“should be used to support future generations”.

He explained that,

“To be equitable, it should not be spent only on the generation that has been lucky enough to have that revenue gathered.”—[Official Report, Finance and Public Administration Committee, 9 January 2024; c 14.]

He also agreed with the suggestion that fiscal rules should be applied to protect the funds, and I was pleased to see that included in the report from FPAC. I understand and totally empathise with why the cabinet secretary took a different view and focused on revenue spending, but we need to find a way to give some priority to future generations, to our future economy and society, and, critically, to enabling growth.

My final comment concerns public administration. The need for reform is overwhelming. I absolutely sympathise with the complexity and expense of the situation. It is time consuming, populated by vested interests and so on, but the landscape is beyond cluttered and it has to be reduced. Only—

I am sorry; I do not have my glasses today, so I cannot read what I have written.

I suspect that, over too many years, the solution has been seen as creating a quango, a commission or whatever, and now we have a real problem that needs to be solved. The cabinet secretary has faced an unenviable task, and I think that she deserves our support, not just now but in the future, in navigating through an extremely difficult set of circumstances.

16:32  

I do have my glasses.

I welcome the budget report and, as well as thanking the clerks and our special adviser, I think that the convener deserves considerable credit for his level-headed focus and, indeed, award-winning leadership of the Finance and Public Administration Committee, because that has helped us along the way considerably.

It is an important report, not just because budgets are always important, but because the circumstances are difficult. Obviously, there are on-going difficulties from inflation and the increasing volatility in global relations with, of course, the knock-on effect on trading routes, supply chains and so on.

Next week, in stage 1, we will take our party-political stances on the budget, setting out our different perspectives and how we would cost that. However, today is all about setting out some of the issues that have arisen not just in the Finance and Public Administration Committee but in the other committees, the leaders of which have spoken this afternoon.

Central to all of that is the desperate need to raise an increasing amount of revenue but, at the same time, to improve productivity and economic growth, and to address economic inactivity, which is definitely at a worrying level. The committee therefore believes that the Parliament should be fully focused on policies that will encourage more people back into the labour force, which in turn raises questions about economic structures and public sector reform. The conclusions about that in our report are very clear, given the extent of our concerns in that regard.

We should note, at this point, that it is the common view of many economic commentators and of key business groups that Scotland is in desperate need of many more highly paid jobs. There are encouraging signs in the energy sector, green technology, gaming and financial services, but we need to address the other sectors and to ensure that there is a just transition for oil and gas. However, that needs to be properly supported, too, given that it is so important to the revenues that we bring in.

The other significant tension, which has been the major focus of the committee’s scrutiny, is taxation and the associated behavioural changes. Committee colleagues will agree that some worrying data has been presented to us by the Scottish Fiscal Commission and other forecasters showing that current tax policies, while increasing revenues in the short run, are likely to have detrimental effects on consumer and business behaviour. We are very interested in the modelling of that, which, to date, does not appear to have been undertaken.

The committee is also very mindful of the issue of longer-term strategic planning and the Scottish Government’s prevarication in that respect. The huge rise in predicted future spending for health and social care, and social security, demonstrates the scale of the black hole that the Scottish Government is facing in the years ahead. Inevitably, that raises interesting questions around the fiscal framework. Ariane Burgess made an important point earlier. It is not just about the fiscal framework between the UK and Scottish Governments but about a fiscal relationship between the Scottish Government and local authorities. When it comes to that, we would like to see progress on a three-year funding basis.

The convener has rightly raised concerns about the timescales for public sector reform, and the lack of detail, given what was previously announced by the Scottish Government. That is an important point, given the significant implications for budget planning and, indeed, for forecasting. On the same note, we have an issue about the extent to which public sector pay deals will affect the forthcoming budgets for 2024-25 and the years after that.

Then there is the capital issue, which is important. Michelle Thomson was right to speak about that, because it is not just the Scottish Government but the UK Government that has problems with that. No doubt we will have more debate on that next time.

I will end with the issue of forecasting. The committee would welcome assurances from the key stakeholders—the Scottish Fiscal Commission, the Office for Budget Responsibility, the Office for National Statistics and HMRC—that they are working as closely as possible to provide all the detail that is so important to the Finance and Public Administration Committee and all the other committees in this Parliament in order that they can scrutinise effectively how the Scottish Government raises its revenue and spends taxpayers’ money.

16:36  

I echo other committee members’ thanks to the Finance and Public Administration Committee clerks.

This budget was set in a more difficult context than any that we have seen so far in the devolution era. As the committee’s convener noted at the start, we went in with a £1.5 billion gap in our public finances, a huge cut to the capital budget—10 per cent by the measure that the Scottish Government uses and 20 per cent by the Scottish Fiscal Commission’s measure—and a deeply dysfunctional process, particularly at the end, when we have a mad dash for a couple of weeks between the UK autumn statement and the publication of the draft Scottish budget.

Regardless of that, a budget should reflect a Government’s priorities and make clear what it believes in. Indeed, that is what the Deputy First Minister says in the first line of her foreword to the budget document. The Scottish Government outlines its three priorities, or missions, which are equality, opportunity and community. Those can all be agreed on, but there is a bit of a problem there: what does not meet one of those priorities? Priorities imply that there are other things that are not priorities, which is good and necessary when we have a budget that does not stretch far enough.

I want to highlight some examples of what I think are high-value areas of spending that are aligned with those missions. In contrast to what is said about my party an awful lot, there are lots of things that the Greens want to see grow. We want more high-quality lasting jobs in green industries, for example—preferably in businesses that are owned in Scotland, and even more preferably in businesses that are owned by their workers. We are proud of the fact that that is happening in Scotland. Around the same time as the draft publication of the budget, the Fraser of Allander Institute report showed that, in 2021 alone, we went from 27,000 to 42,000 jobs in green energy. That trajectory should continue, with new measures, such as those in national planning framework 4, shortening the decision time for onshore wind applications and creating certainty for businesses in the sector.

The budget includes £67 million for the offshore wind supply chain. To me, that is spending to seize opportunities, which is very much aligned with the opportunity mission. The jobs that will be created will add to the tax base, continuing the positive trajectory that we have seen for tax revenue in the past couple of years, after a difficult period of losing similarly high-paying jobs in the oil and gas sector in the years previous to that.

Alongside the solar targets that the Government has set, and other measures, we will continue to see jobs growth in a really important sector for our economy. It will also strengthen the tax base. Edward Mountain, speaking for the Net Zero, Energy and Transport Committee, mentioned the real-terms uplift for NatureScot’s and SEPA’s budgets. Obviously, as a Green, I am pleased to see that. In addition, at the Finance and Public Administration Committee, the chief executive of NatureScot, Francesca Osowska said:

“I see in the budget a shift towards recognising the long-term challenges of climate change”.—[Official Report, Finance and Public Administration Committee, 9 January 2024; c 42.]

So, there is alignment with that mission.

I contrast that alignment with the note that the FPA Committee report makes on the council tax freeze not aligning with the equality mission. The £140 million that is not aligned with that mission is no small amount. Again, there is a contrast. That is £140 million, but there is £1 billion more going into the social security budget. That is a clear demonstration of the commitment to the equality mission, to continue the progress that has been made this year in lifting 90,000 children out of poverty.

However, we must be up front about the implications. Across all parties, we agreed that it was necessary to uprate social security payments in line with inflation, but that clearly outstrips the Barnett consequentials that are available. The money has to come from elsewhere, as it is a priority. The Scottish Government has chosen, with the support of all our Parliament, to prioritise supporting the most vulnerable, but we must be honest about the implications of that. There are demands—mostly reasonable ones, many of which we have heard this afternoon—for spending elsewhere, but that is not possible when we have chosen what to prioritise within a limited budget.

I have highlighted climate and child poverty as spending examples because those are two areas that are linked to statutory targets that, again, were agreed by all parties in the Parliament. If we cannot prioritise everything, we certainly must prioritise those. We have a legal obligation to do so, but it comes at the expense of other areas of the budget, which we need to be far more honest about. We must create more space in the Parliament to do that—outside what is obviously a very politicised budget process after this point—and, outwith the budget process, I hope that the Government will take the opportunity to hold more debates in Government time for us to air those longer-term issues.

16:41  

Unlike Liz Smith, I will not start by praising the convener of the Finance and Public Administration Committee. He has a high enough opinion of himself already.

Thank you, Presiding Officer, for the opportunity to speak. I realise that today’s debate is primarily for conveners to put forward their committee’s angles on the budget, but it is good that the Finance and Public Administration Committee members get to contribute as well.

There are a lot of angles on the budget, so I can touch on only a few. There is a tremendous increase for social security, from £5 billion to £6 billion. That is unmatched in other parts of the budget, partly because it is demand led and possibly harder to limit. The Scottish child payment and the adult disability payment are both necessary if we are serious about tackling poverty and inequality, but we will need to consider carefully how the budget grows, as the Scottish Fiscal Commission has suggested that it might.

One suggestion from witnesses has been to consider whether the Scottish child payment could be increased even further. It is widely accepted as one of the Scottish Government’s greatest successes, and it has had a real impact on child poverty, so it is worth seriously considering whether the council tax freeze, which costs £144 million, or a further increase in the Scottish child payment would be more effective in supporting households in poverty. Some organisations that are active in that sector have argued that a council tax freeze tends to benefit the well-off more.

On taxation, Liz Smith painted a slightly gloomy picture on possible behavioural change. At the committee, we have had different kinds of evidence on whether raising taxes will put off organisations and individuals being in Scotland. However, we should remember a few other things. A mortgage in London is likely to be £8,000 a year more expensive than it would be in Scotland, and the quality of life here is better in many regards—for example, there are no student tuition fees.

In the bigger picture, the UK tax level is too low to sustain quality public services. In the UK, some 38 per cent of GDP goes to tax and public services, which is much lower than the figure in countries such as France, where it is 47 per cent, and Belgium, where it is 53 per cent.

Linked to tax are the anomalies between the UK and Scottish systems, especially around national insurance and personal allowances, which we point out on page 11 of our report. The Scottish Government has indicated that the UK Government has been “unwilling to engage” on that issue. It seems to me that we can have a proper, joined-up and logical income tax system only if the full system is devolved, including national insurance and personal allowances.

Public service reform has been mentioned by other members and has been a theme that the FPA Committee has considered over a period of time. We realise that it is a tricky area and that there could be losers as well as winners. However, we do not think that there should be procrastination on that, and we would like to see clear and definite plans as soon as possible.

A specific aspect of public service reform is the increasing number of commissioners and other office-holders. The Scottish Parliamentary Corporate Body’s role is, clearly and correctly, to ensure that commissioners and others have the resources that they need to be able to undertake their functions effectively. We agree with that. However, the committee has concerns about the growing number of commissioners and about whether resources are being diverted away from front-line services. That is why the committee will carry out an inquiry on the topic.

Another theme throughout the budget process has been whether we need to wait for the Westminster spring budget before setting out more longer-term plans, such as an updated infrastructure investment plan. I accept that we need to get the balance right in all of this, because we are very dependent on Westminster budgets and other decisions. The more information we have, the better. However, I fear that there is almost always uncertainty coming down the line and we need to plan ahead, even if those plans have to be changed later on.

My seventh and final point is on non-domestic rates. There have been calls for us to copy England in hospitality and give greater relief to businesses across the board. However, we know that some parts of hospitality are doing extremely well and do not need Government support. Therefore, I agree with the Scottish Government’s approach of targeting support where it is most needed—for example, in the islands. In an ideal world where finances were less limited, we could do more, but we must choose our priorities. If Opposition parties think that the priorities should be different, they need to tell us where to spend more and where to spend less.

I call Jamie Halcro Johnston, who will be the final speaker in the open debate.

16:46  

I join my fellow committee members in thanking our clerks, for their work in putting together the report; our adviser, Professor Mairi Spowage, for her guidance, which was particularly helpful for me, as a relatively new member of the committee; the witnesses who gave their time and expertise; and SPICe, for its support.

During our scrutiny of the draft budget, I focused largely on how it might impact on the rural and island communities that make up so much of my Highlands and Islands region. Of course, that involves looking not only at the rural affairs budget, but at all areas in which decisions might have consequences. In our evidence session with the Deputy First Minister, I listed the various budget lines where cuts had been made and my concerns about the impact that that could have on our rural and island communities. Such concerns were raised by Fin Carson in his contribution.

I recognise that the Deputy First Minister’s response is that the Scottish Government has tried to prioritise the sector’s priorities within a tough budget, but that leads me on to how decisions are made and the transparency of that process, which some of our witnesses raised as an issue, and which our convener, Kenny Gibson, highlighted in his speech. Although the budget shows us where funding has been reduced or ended, we found that there was little explanation of why those decisions had been taken.

One example of that is in relation to reductions in the housing budget, which was mentioned earlier. Another example, which was highlighted by the Fraser of Allander Institute and mentioned earlier by Fin Carson and Edward Mountain, relates to the forestry budget. That budget experienced a significant increase in last year’s budget, but it experienced a significant cut this year.

In our pre-budget report, the committee recommended that the Scottish Government should set out explicitly any areas of spending that had been assessed as not meeting its three-missions test and in which funding would, as a result, be reduced or ceased entirely, but we remain unclear about how the Scottish Government has assessed its decisions in line with its priorities. Therefore, the committee agreed that it would be helpful to have a more detailed explanation of how such decisions are reached and of the trade-offs that the Scottish Government has to make in taking them.

That would be of interest in relation to the cuts in the budgets of some of the key drivers of economic growth. The committee was unclear about how reductions in the budgets for further and higher education, enterprise bodies, including Highlands and Islands Enterprise in my region, and employability would deliver the economic growth that most of us agree is so vital.

Although I recognise that the Deputy First Minister expects enterprise bodies to focus on their priorities, they will have to do so with decreasing support. It will be important to know how the Scottish Government intends to assess any impact on economic growth, and I look forward to that information being provided to the committee.

I turn briefly to council tax and, in particular, the impact of the proposed freeze on bills. Witnesses highlighted that it will impact councils differently. The Fraser of Allander Institute highlighted the example of Orkney Islands Council, which is my home council. Council leaders in Orkney have been considering a 10 per cent increase in council tax, but if agreement is reached between the Scottish Government and COSLA to compensate councils for only a 5 per cent increase next year, councils such as Orkney Islands Council risk being left short. In contrast, those councils that might have sought to increase their council tax bills by less than 5 per cent would, as the Fraser of Allander Institute made clear, gain from that approach.

There is a risk that any council tax freeze will create winners and losers. The committee also noted that any such freeze does not expressly target those living in poverty and asked how the policy is in line with the Scottish Government’s stated plan to prioritise spending that delivers on its three missions.

There is only so much that can be covered in a four-minute speech. I hope that colleagues from across the chamber will ensure that the key concerns and recommendations included in the committee’s report are raised and, most importantly, that the Scottish Government takes those on board.

16:50  

I thank all the speakers, particularly the committee conveners, who have contributed to what has been a largely consensual debate, although Liz Smith struck a slightly ominous tone when she reminded us that that might be quite different when we come to the stage 1 debate next week. Let us keep up the consensual tone while we can.

I will begin with a general comment before moving to the specific issues that were raised. As I anticipated, and as we will see again when we move through the other stages of the budget, the focus has inevitably been on where budgets are reducing, rather than on where they are increasing. It is inevitable that we will reduce some budgets: we have less money and must make difficult choices. We cannot fund everything and have tried to ensure, by and large, that funding decisions are made in line with our key missions.

That brings us to some quite difficult choices. Claire Baker talked about some issues that have been raised by the hospitality sector, which has had quite a lot of engagement with ministers. I met with the sector recently and Tom Arthur has had on-going engagement. Understandably, the hospitality sector would like £260 million of the £310 million of consequentials for 2024-25 to flow through into cuts in business rates. However, from a Scottish Government point of view, that would have meant less money for the NHS and for other front-line public services. I was very up front with the sector about that when we met.

Those are difficult choices, and we make them not out of a lack of respect for any sector but because we must focus on our priorities. When I made those choices, in collaboration with colleagues, funding front-line public services had to take priority at this difficult time. I will continue discussing how we can support the sector in a way that we can afford.

I have one more general comment to make before I turn to specifics. Many members have, rightly, mentioned the challenge caused by capital budget reductions, not least in the housing budget. I reiterate my commitment to look at that as a key priority. I take into account Kenneth Gibson’s comments about different ways of analysing the figure, but I will stick with the idea of a 10 per cent reduction. It is worth reminding members that in real terms—money terms—that amounts to a £540 million cut each year up to 2027-28, or a cumulative reduction of £1.6 billion. In reality, that is the replacement cost of a large hospital, half the affordable housing budget, numerous areas of capital spend or the purchasing of a lot of trees.

I make that point for public consumption, apart from anything else, because, sometimes, when we talk about a 10 per cent cut in capital budgets, we wonder what that actually means in reality. In reality, it means £1.6 billion. That is why one of my key asks of the Chief Secretary to the Treasury—who is, I hope, in listening mode, as we had a very constructive meeting—which is the same as the ask from the Welsh and Northern Irish Governments, is that we revisit that decision at the spring budget.

That is also why the infrastructure investment pipeline is so important. It is difficult to not wait until the spring budget, because if we get some movement on capital—which I really hope we do—that will have a major impact on what we are able to fund in that pipeline. Therefore, the sequencing and timing of those key decisions are important.

In the remaining time, I will address some of the comments from members. As always, the convener of the Finance and Public Administration Committee, Kenneth Gibson, set out some of the key issues that we are facing, including the issues around data, tracking and behaviour. The HMRC analysis and work that it is undertaking will be very important in that space. As I have said before, it is of benefit to the Scottish Government to have in front of us the evidence from all sources around the impact of some of the decisions that we make.

We still have positive net in-migration to Scotland. People of working age are making the decision to come and live here. However, we take the comments of the Scottish Fiscal Commission and the committee’s deliberations on that very seriously.

Members, including Kenneth Gibson, mentioned the long-term fiscal sustainability issue. We will very much come back to that. My suggestion is that we align the longer-term debate with the next medium-term financial strategy in May, but I am open to discussion with members about the best timing for that. I give a commitment to revisit the matter.

Clare Adamson, on behalf of the Constitution, Europe, External Affairs and Culture Committee, talked about innovative funding solutions and cross-portfolio working. In difficult financial times, we must be imaginative about how we use the collective funding that we have, and we need to get out of silos. That is not just in the culture sector; it is across the board.

Sue Webber made some interesting points about the additional operational flexibilities. There is a requirement on Government and ministers, when times are tough, to maximise some of those flexibilities in the college sector and elsewhere. We must also be clear about our priorities—if there is less money, in our enterprise agencies or in any other body, we have to be very clear about what our priorities are. Not everything can be a priority, and we cannot ask organisations to do more if budgets are stretched. We have to be really clear, so that is a fair point.

I also agree that outcomes are more important than inputs, but the harsh reality of political discussion on teacher numbers, for example, then comes into the arena. The more we can focus on outcomes across the board, the better, but the issue runs up against quite hard political discussions in this place.

I have mentioned Claire Baker’s comments about the NDR choices, so I will not labour that point—excuse the pun.

Ariane Burgess talked about the fiscal framework and the progress that has been made. That is very important for local government. We might have our differences around council tax freeze policy with COSLA, but we agree that the local government fiscal framework will be important in ensuring that we help local government to move on to a more sustainable footing.

Kaukab Stewart reminded us of the importance of equality in all our budget setting.

Edward Mountain reminded us of the importance of our net zero ambitions. Despite the reference to some of the budget corrections in the annex, the overall £4.7 billion remains a commitment to positive action on climate change.

Will the cabinet secretary give way?

Do I have time?

Yes.

Annex J is the one that is in question. Will the cabinet secretary address when the committee might get that? We were told late in the day, when we were discussing it. It has not yet been received.

I will follow that up as a matter of priority and make sure that we get it to the committee as quickly as possible. I think that it is imminent, but I will double check that once the debate is over.

Collette Stevenson talked about the importance of the funding that we are investing in the Scottish child payment and social security as a whole. She reminded us of the key mission to reduce poverty. It is a huge investment, and there is a question for us about making sure that that investment is sustainable. I think that John Mason made that point. We have to consider that as part of the longer-term horizon.

Clare Haughey talked about multiyear budgeting. Her request was about the contingency plans for health boards and the requirement for a sustainable footing. I agree with that absolutely, and we have commissioned three-year plans from NHS boards—to 2026-27—for that very reason. Given the level of spend that our health boards deploy, and the pressure—not least pay pressures—that they are under, we have to support them to make sure that they can deliver what we are asking them to deliver.

Michelle Thomson made some excellent points. She reiterated the IMF comments, which are pertinent and timely, the restriction of the levers that we have, our dependency on UK Government funding decisions in Whitehall, and the consequences of those. She talked about reform and about the decluttering of the landscape, which are absolutely crucial. We are determined to play our part. There is a parliamentary element to that—I think that John Mason referred to that. There might be space for cross-party working on that, but it must not become a bun fight about which organisations should continue, or be formed or not be formed. There is a recognition that, collectively, we need to pause to think about the numbers of commissioners and public bodies. I am certainly up for that discussion, if others are.

Liz Smith was very complimentary of our award-winning Finance and Public Administration Committee convener, but I am not sure whether that will continue. The point is that we have an opportunity in some of the things that we agree on. We disagree on lots of things, but there are things that we can agree on, and we should try to create some space to work together on those areas.

Ross Greer reminded us that not everything can be a priority and that we need to be clear on why some areas are a priority and some are not. I take that challenge on board.

Will the cabinet secretary give way?

The cabinet secretary must conclude.

I am keen to conclude on others’ comments.

Ross Greer pointed to the importance of investment in green energy—the £67 million investment in the offshore wind supply chain, which is part of a £500 million ambition.

John Mason challenged us on the need for evidence when looking at the decisions that we make on the social contract, and the importance of that.

Be brief, please, cabinet secretary.

I will finish on this point. I very much agree on the complexity of a hybrid taxation system and the need for the complete devolution of the tax system. I look forward to further engagement over the next few weeks.

I call Michael Marra to wind up the debate on behalf of the Finance and Public Administration Committee.

17:04  

I am happy to start this speech as deputy convener of the Finance and Public Administration Committee by setting out my appreciation for all my colleagues. I will not pick out anyone in particular, but the expertise that they bring to our discussions and the very collegiate nature in which we have those discussions is greatly appreciated.

I thank all members who have contributed to this useful debate to get insights into the work of the various committees on what is a very challenging budget for the Government. There are clearly areas of common interest and themes across committees, some of which I will touch on.

I ask the Scottish Government to reflect and make greater progress on those issues, as the cabinet secretary has already committed to doing. I highlight that those issues include enhancing transparency and accountability—which is a key concern of our committee—providing more explanation on decision making, and avoiding slipping timetables for the delivery of programmes and strategies, which has too often been the case.

The latest example of that is that, although the Scottish Government is committed to providing outturn figures by the end of January, we are into February, and the committee still has not seen those figures. I know that tax returns were being completed in the past few days, but it would have been good to see those figures in front of Parliament.

As well as touching on members’ contributions, I will talk a little bit about the focus on public service reform, which is a key element in our pre-budget report. My colleagues on the Finance and Public Administration Committee have set out some of the broader economic challenges that we face as a country. Michelle Thomson rightly referenced the IMF’s note of significant caution for the UK chancellor in the face of downgraded growth forecasts.

Liz Smith touched on some of the global situation that impinges on that, with trade restrictions and conflict presenting unpredictable headwinds for the UK economy as it seeks to recover from the unpredictable behaviour of Liz Truss and Kwasi Kwarteng, in part. However, that sluggish growth predates the catastrophic mini-budget.

The Deputy First Minister set out the capital challenges and the value of that cut. It is vital that we have a UK Government that is truly committed to growth in our economy.

Kenneth Gibson started the debate by setting out the very long-term challenges that our economy faces, particularly around demography. That has been highlighted by the Scottish Fiscal Commission in its long-term forecasts and work. Some of the challenges that the finance secretary is facing in her budget are not unpredictable—they have been predicted.

I was struck by a comment that I saw online from Torsten Bell of the Resolution Foundation bemoaning the explosion in dog ownership during lockdown, as he seemed to think that having recalcitrant and misbehaving animals in the household is part of the cause of people deciding not to have children. He was advising that that is a very long-term trend that the UK is facing, and that it is particularly pronounced in Scotland. The challenges in our tax base and in the funding of our public services will therefore continue into the future, and we need to grapple with that as a Parliament, as we have in part been doing today.

We should also reflect a little on the approach that the Chancellor of the Exchequer took in the autumn statement and the approach that we might anticipate in the budget statement to come in March. It was reasonably well signalled that he is a chancellor who does not really want to reheat the UK economy and that he is particularly concerned about getting interest rates down. That approach has been well signalled by the Government; whether some of us agree with it or not, the signals were clearly there.

Ross Greer insightfully set out that a Government for which everything is a priority has no priorities. That is certainly the case. We have structured some of the debate around the missions that the Government has set out for what it wants to achieve from its budget. The conveners have set out the great wealth of evidence that their committees have taken from citizens and organisations across Scotland about what they want from the budget.

One theme in the debate is the lack of focus on growth, which is one of the missions that the cabinet secretary and her Government set out. Claire Baker, from the Economy and Fair Work Committee, commented on that and on the evidence that her committee has taken. Certainly, that evidence has been reflected in the Finance and Public Administration Committee. There is a real concern that the Government really has not met its own challenge and stepped up to the plate in providing growth.

On a related issue, Ariane Burgess of the Local Government, Housing and Planning Committee talked about the cuts to affordable housing budgets. The provision of housing is certainly a key issue in ensuring that we have growth in our economy, not just for the provision of housing for families but for the supply side and the supply chain, ensuring that there is provision in the labour market.

Collette Stevenson touched on the same theme on behalf of the Social Justice and Social Security Committee. She painted a deeply worrying picture, from evidence that she and her colleagues have taken, about multiple crises adding up to an emergency.

In her opening speech, the Deputy First Minister set out her sympathy for the call on the housing budget, and she set out to the Finance and Public Administration Committee that housing would be the priority should more money become available. I am sure that that is a circle that can be squared in our negotiations with COSLA, which will continue to be challenging, as we have explored today. There is a need to find resource for local government, and the housing side of that is perhaps something that the Deputy First Minister can bring together into one place.

John Mason shared his concerns about the proliferation of commissioners. We have great sympathies across the Finance and Public Administration Committee on that point, and I think that we are all glad that that is on the record today. There is more work to come from our committee in that area. That relates to a general perception about the proliferation of public bodies in Scotland; it is part of the key question about public service reform.

On that broad theme of reform, I am aware that many of the committees that were represented in the debate are examining specific issues and instances of reform, such as justice reform, the national care service and education reform. I intend to close my remarks by focusing a little bit on that area.

Our pre-budget report expressed concerns that the focus of the Scottish Government’s reform programme has changed multiple times, even since May 2022, as have the timescales for publishing further detail on what that programme will entail. We have made recommendations that aim to bring much-needed impetus, focus and direction to the Scottish Government’s reform programme to ensure that successful outcomes can be achieved at a much quicker pace.

The Scottish Government previously agreed to provide six-monthly updates to the committee, and the first of those updates was published alongside the Scottish budget in December. We asked the Government to include a clear vision and strategic purpose for what it wants to achieve through the reform programme; the financial strategy to accompany the programme, which was committed to by the then Deputy First Minister in March 2023; and details of each workstream under the programme, including milestones for delivery and clear measurements of what we would term success.

It is clear from the update that the Scottish Government provided that it is at a much earlier stage of the reform programme than was expected, particularly given that it was first described as a priority in the resource spending review back in May 2022. Of course, we can go back as far as the Christie commission in 2011 to see a blueprint for how some of that reform might have been delivered, but that was 13 years ago. It is disappointing that such little progress has been made in the intervening time.

The Government’s update set out key aims and principles for a 10-year programme of public service reform and actions that it needs to take in the next one to two years to respond to immediate budget challenges and build a platform for on-going change. Over the next three months, the Scottish Government intends to agree a shared approach to reform with local government, the public sector and the third sector, and the Deputy First Minister set out some of that. Unfortunately, there was no mention in the update of the financial strategy that was intended to accompany the reform programme. In our budget report that we published just yesterday, we asked the Scottish Government to revisit its recommendations, and I would appreciate it if it would do so.

Our report also set out our concerns regarding the confusion that still appears to exist in relation to the Scottish Government’s policy on public sector headcount and workforce levels, not least within the Scottish Government itself. In its response, the Government said that it intends to set out the pay metrics for 2024-25 following the UK spring budget. This is the second year in a row that the Scottish Government has not published a public sector pay policy alongside the Scottish budget in time to be factored into the SFC forecast. The committee is disappointed at that delay. Given the significant rise in the public pay bill in Scotland, that is a key issue that the Government should address.

The committee looks forward to further engagement with the Deputy First Minister and Cabinet Secretary for Finance and the whole Parliament in the coming weeks as we address the budget that is before us.

That concludes the debate on the Scottish budget 2024-25.