Social Justice and Social Security Committee

Meeting date: Thursday, September 29, 2022

Official Report 699KB pdf

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Budget Savings and Reductions 2022-23

Our next item of business is an evidence session on budget savings and reductions in 2022-23. On 7 September, John Swinney announced £500 million of in-year reductions to the budget, and some of those are relevant to our remit—namely, employability, education maintenance allowance, concessionary fares and rail fares, and child poverty consequentials.

I welcome to the meeting the Deputy First Minister and Cabinet Secretary for Covid Recovery, John Swinney, who is also covering the finance brief at the moment, and his officials, Julie Humphreys, deputy director of tackling child poverty and financial wellbeing at the Scottish Government, and Michael Walker, senior finance business partner at the Scottish Government.

I hand over to the Deputy First Minister to make an opening statement.

I am grateful to the committee for the opportunity to discuss the emergency budget review and the underlying savings that are of interest to the committee.

As the convener said, on 7 September, I set out to Parliament the hard prioritisation choices that the Government has had to take, with the pressures of inflation placing a significant new burden on our budgets; a burden that was not planned for when the spending review was undertaken by the United Kingdom Government last autumn. People and businesses have been deeply impacted by the cost of living crisis, and the Government has vowed to do everything that we can to mitigate the crisis as far as possible. We must do that while meeting the increased costs of public sector pay and balancing our public finances.

My letter to the Finance and Public Administration Committee highlighted over £500 million in savings and reforecasting that we have had to take forward. The options are challenging, but we must do that in order to move to balance our budget and do everything that we can to help people in need. That is, of course, the harsh reality of having a fixed budget and limited fiscal powers. In addition, the majority of our spend cannot be changed at this stage of the financial year due to contractual and legal commitments. Therefore, there are limited options to make savings.

I should note that the 2022-23 element of our emergency budget review is part of normal financial management practices, with a number of savings arising as a result of natural demand. Formal scrutiny of budget changes will be undertaken through our normal budget revisions process, and impact assessments will, of course, continue to be taken forward as part of the annual budgetary process.

Notwithstanding the financial challenges that we face, the Government remains firmly focused on tackling and reducing child poverty and supporting strong and sustainable growth as part of the national strategy for economic transformation.

Our 2022-23 budget continues to take forward key programmes and policies, such as the increase in the Scottish child payment to £25 per eligible child per week from 14 November, the fuel insecurity fund and widening access to the warmer homes fuel poverty programme.

Finally, I note that I intend to publish the outcome of the emergency budget review in the week beginning 24 October. Further savings are likely to be required to balance the budget. I look forward to this morning’s discussion, and I am very happy to answer questions from the committee.

I turn to members for questions. We have grouped questions into themes of employability, education maintenance allowance, concessionary fares and transport costs, and cost of living consequentials and child poverty. Members, as ever, will also have their own questions, which I will bring them in on towards the end. To start, members should direct their questions to the Deputy First Minister, who will bring in his officials when he decides to.

Good morning, cabinet secretary. Thank you for coming and for the information that you shared with us in advance.

In the letter that we received recently, you said that you have taken the decisions that you consider to have the least impact. In relation to the employability service cuts, how have you carried out the assessment of impact? What organisations have you spoken to?

In relation to the choices that we face, it is important that I re-emphasise a point that I made in my opening statement. At this stage in the financial year, the range of options that are available to me is really rather limited because of the contractual and legal commitments that are made, in any circumstance, during the financial year. When we get to the mid-point in the financial year, significant programmes have already been allocated and undertaken, so room for manoeuvre and our choices are quite limited once we reach that stage.

My second point is on the employability budget, which will increase in this financial year—if my memory serves me right, it will be of the order of a move from about £56 million to about £71 million. It is just that the scale of the increase will not be as great as we had originally planned, which was that it would go from about £56 million to about £120 million. Regrettably, I have had to remove £53 million from that budget. Since that expenditure was not legally committed to any organisations, and given the growth in the budget and the fact that we are experiencing persistently low unemployment at this stage, I felt that I could afford to make such a budget saving, on the balance of risk. Ultimately, I have to take such decisions. Although I would have wanted to avoid that one, it is a necessity that we must confront.

I appreciate that the opportunities that are available to you are limited, particularly in year. Who did you speak to when considering which opportunities or options you had? Which organisations did you engage with? I appreciate that it happened in short order, but did you speak to any organisations or individuals to discuss the potential impacts of cuts to such services—including, for example, those for disabled people, lone parents and women?

Obviously, we carry out a great deal of discussion with organisations about the formulation of our budget priorities, so that we have a good awareness of the issues. For example, when we were taking decisions about setting out plans for expanding the range of employability services as part of the formulation of our wider programmes, we engaged with a range of organisations so that the Government had knowledge of what was involved in such programmes.

We have strong monitoring information on the capacity of existing programmes that will be untouched by the changes, which shows that there is still adequate capacity in those programmes to enable them to deal with referrals of individuals. In our existing programmes that are untouched by the changes, there remains capacity to support individuals who require employability assistance. On the basis of those assessments, I came to the conclusion that the Government could make the saving and that we would be able to manage the implications, because we still had capacity within our existing programmes.

I have one further question in that area. You have set out that there is already a process for you to engage with such organisations. However, last week, the committee heard from the Scottish Human Rights Commission that it

“was not a brilliant process”.—[Official Report, Social Justice and Social Security Committee, 22 September 2022; c 7.]

That is where my concerns lie. On a good day, we rely on processes being really good. On a difficult day—I am sure that the decisions that you were taking were difficult—if a process is not quite up to scratch, that makes it all the worse.

Given that, and given what we also heard about the third sector’s concerns—for example, about the ability of the no one left behind approach to have dealt with capacity in the first place—what could you do between now and bringing in the emergency budget to reassure such organisations that you will take account of the issues and needs of the people they represent?

When I look at the way in which Government engages, there is extensive engagement with organisations in the formulation of our plans. At a personal level, I am involved in some of those discussions, but my colleagues—principally, the Cabinet Secretary for Social Justice, Housing and Local Government, as well as the Minister for Just Transition, Employment and Fair Work—take forward a range of discussions with organisations that have an interest in the sphere of employability.

Generally, the Government has every opportunity to hear and understand the perspectives of different organisations in that respect. Obviously, we will continue that dialogue. I will be talking to a range of interested parties as I finalise issues around the emergency budget review. We have had a number of submissions from organisations about what resources should be available to assist with cost of living challenges and where they would be best deployed. The committee will be familiar with the range of propositions that have come forward from organisations, and we will certainly undertake further dialogue on that.

In response to the questions about equality impact assessments, those are carried out in relation to budget statements and programmes and we will continue to do exactly that.

Thank you.

Thank you for making the time to speak to us this morning. To follow on from Pam Duncan-Glancy’s questions, what will be the practical effects with regard to the employability budget reduction? You said that there is an increase in the budget and that the changes will not affect services that are being provided. I am trying to work out what the extra £56 million was planned to do, if its absence is not going to affect direct services.

My point to Pam Duncan-Glancy was that the existing provision of services is maintained. For example, the work that is undertaken in the employability and workforce skills programmes—such as the no one left behind scheme and the employability fair start Scotland work—all remains in place. It is just that a planned increase in expenditure is not taking place as a consequence of the pressures that we face. The employability budget lines were projected to increase from £56 million to £125 million. Instead, they will increase from £56 million to £71 million. It is simply that an expansion of capacity has not been undertaken.

The plan was for us to try to make greater inroads in supporting people who are currently economically inactive to become economically active. I take the view, which is not universally held, that people who are economically inactive require significant holistic support to assist them into employment, because it is unlikely that it will be a straightforward journey. There is plenty of opportunity in the labour market just now so, if people are economically inactive, there is likely to be a wider contextual challenge. We had been planning to expand some of that support—which, by its nature, is likely, per capita, to be a more expensive degree of intervention—to try to make greater inroads into the economically inactive population. The budget restrictions that I have had to put in place are likely to mean that we will not be able to do as much of that as we wanted to do.

That is helpful, and I agree with your analysis of the situation. As we come out of Covid, the issue is that the number of disabled people who are unemployed has gone up compared with the pre-Covid figure, and that is true across many other parts of the world, so it is not just a Scottish issue. However, the percentage of disabled people who are unemployed is now much higher in Scotland than it is, for example, in England. My concern is that those who are particularly disabled and want to get back into employment will not get those services. Is it your analysis that the figure is likely to grow higher and that more disabled people will be unemployed in the next six to nine months because they are not getting the holistic support that they need to get into employment?

08:15  

I do not think that that will be the case, because, as I said to Pam Duncan-Glancy, there remains capacity in our programmes to support individuals and deal with referrals.

Mr Balfour is correct in saying that good progress is being made on narrowing the employability gap among disabled people. That progress has been made in the aftermath of Covid. In addition to that, other existing programmes that remain unaffected by the changes still have capacity to support individuals. I have to concede that, as a consequence of the reduction, the rate of progress in reducing the employability gap might not be as fast as I would like it to be. However, as I set out to the committee, I am faced with some very difficult choices in trying to balance the budget in this financial year. Choices of the type that we are discussing are the ones that remain open to me.

You will come back to the Parliament in two or three weeks’ time with your budget. I think that last week’s United Kingdom budget will have resulted in some Barnett consequentials. I appreciate that it is early days yet—less than a week—but is there any mitigation from those Barnett consequentials that means that the cut or reduction, whichever word you want to use, might not have to take place?

The implications of the United Kingdom Government’s mini-budget last Friday in Barnett consequentials for this financial year—I stress that the conversation that we are having is just about this financial year—total £35 million. Those are a consequence of the changes that are being made in stamp duty.

I have taken no decisions about the consequentials. I am, to say the least, uncertain about whether the changes that were made last Friday will come to pass, given the fact that enormous market volatility is being experienced. However, that is the available impact on this financial year and I will consider those questions as I formulate the provisions around the emergency budget review.

For completeness and accuracy, I stress to Mr Balfour that the emergency budget review will consider the issues around balancing of this financial year’s budgets. Budget statements will be made later in the year in the normal sequence of events and will be accompanied by the normal level of forecasting that Parliament would expect.

Pam, do you have a supplementary question on that before you take us into the next section of questioning?

I do, and I can run it on if that is helpful.

Mr Swinney, I hear you say that the current level of service will continue but there will not be as big an increase in the budget. That worries me, because the current level of service still delivers high numbers of unemployed disabled people in Scotland. Therefore, putting in the money in the first place would have been helpful and taking it out now will have serious consequences. The SHRC said last week that doing so removes a poverty prevention method, so I worry about the impact of this on disabled people’s poverty.

Have you considered that? Will you consider it in the emergency budget review? Do you have any indication of the impact that it might have on the Scottish Government’s targets to close the disability employment gap?

I consider all that information because, as a member of the Cabinet, I carry collective responsibility for the Government’s objectives. Therefore, the success of the Government’s programmes, in whatever area of policy they happen to be, matters to me, so I want to ensure that we can be successful. I was heavily involved in the formulation of the child poverty delivery plan, for example, and such issues are material to me in the conduct of policy. However, I come up against hard financial choices. I understand the concerns that people will have about the scale of increase not being as great as we would like, but in a difficult context, I think that this is a rational policy choice, because we have available capacity within existing programmes to support our endeavour.

However, we may not be able to put as much resource into this as we would like to, given the financial pressures that we face, and that is the dilemma that I am trying to square. Ultimately, I have a legal duty to balance the budget, but there has been an increase in financial pressure that has come from a number of places. One is the erosion of the value of our budget because inflation is more than double what was predicted, which undermines the value of our budget to the tune of £1.7 billion. There is also a necessity to resolve public sector pay claims, which are coming in at a much higher rate than was anticipated in the budget. I have to find resources to balance all that, and, in that context, we have to make considered policy choices. Those choices might be difficult and have wider ramifications, but I am trying to make choices that protect the programmes that enable us to pursue the policy agenda to which we have committed ourselves. However, I will keep those issues under review.

I appreciate that, and I appreciate the context in which the decisions have been taken. However, I have to say that I am not reassured that those decisions have fully taken into consideration a number of priority groups, such as those in the child poverty plan and people with protected characteristics. I do not think that I have had that reassurance today.

My next question is about the education maintenance allowance. It looks as if you are budgeting for failure of uptake of that. Should we not be encouraging people to take up the money and the benefits to which they are entitled? If uptake is higher than forecast—I know that it is a demand-led budget—what are your plans to get money from elsewhere?

Education maintenance is an entitlement, so, should an individual apply for it, they must get it regardless of the size of the budget. We do our level best to estimate the likely demand for education maintenance allowance. Historically, the budget line has been underspent, and one of our obligations in our approach to the management of public finances is to follow the guidance that budgets should be taut and realistic. In the circumstances that we are in just now, when I am having to take resources from one area of the Government’s budget to allocate to another—to pay public sector pay claims, for example—and I have to find money to do that across different areas of Government, I have to ensure that there is budget clarity for accountable officers to make it clear that they have the necessary finance to spend. Therefore, if I have £3 million in an education maintenance allowance budget line that I do not think I will require, I can take that away and put it somewhere else, such as to address public sector pay claims, and that will allow me to support accountable officers to fulfil their obligations.

Obviously, we have made a judgment that is based on the best evidence that we have available to us. Should the total cost for education maintenance allowances be greater, I will have to address that financial pressure during the course of the financial year. All the budgets are monitored daily, and the information is provided to me to enable me to make judgments about where it is appropriate for us to reallocate expenditure to meet financial pressures.

However, I stress that the education maintenance allowance is an entitlement, so, if demand outstrips the £22 million that will be retained in the budget, I will have to find the resources to accommodate that. Based on previous years’ experience, that is an appropriate judgment to make.

Thank you.

Good morning to you and your officials, Mr Swinney. Thank you for joining us.

I will carry further the line of questioning that Pam Duncan-Glancy started. Is cutting the EMA budget consistent with trying to improve uptake among those who move on from the Scottish child payment?

Yes, because it is a demand-led budget, so whoever is entitled to it will get it. It is simply about making sure, given the degree of pressure that I am having to deal with within this financial year, that I do not allocate money into budget lines in which it is unlikely to be required when it is required in other budget lines.

An important part of this, which you have outlined, concerns the projected lack of uptake of the benefits that are currently available. When it comes to this year’s in-year spend, where do other benefits—for example, the best start grant—sit, and are those also being earmarked as potential areas in which finance is currently allocated but may not be spent?

Essentially, I have made two decisions on demand-led budgets: education maintenance allowances and concessionary travel. I do not have any evidence that allows me to make judgments about any other programmes at this stage. However, as I said in my last answer to Pam Duncan-Glancy, these issues are being monitored daily on my behalf and I will make further judgments on these points.

In the normal sequence of events, these are the type of fairly regular changes that are made by Government in either the autumn or the spring budget revisions, as we assess the demand for particular programmes. Those formal opportunities will be available to the Parliament so that it can consider the implications of any changes in demand.

Thank you for that. It would be helpful if you could provide that information to the committee as well, so that we can see where things sit, because, for example, some of our work involves trying to encourage uptake.

I have a final question in this section. A lot of people are seeking clarity over how the change will trickle down to other services. Where are protections expected by ministers—for example, in schemes that support young carers—and what work is being undertaken on that?

In my letter to the Finance and Public Administration Committee, I have set out the specific changes that are being made. If further changes are to be made, I will do that transparently.

I have been completely open with the Parliament. There is no obligation on me to come to the Parliament in September with the statement that I made. I could have left it all to the autumn budget revision. However, I have a duty of candour to the Parliament. It should hear the issues and difficulties with which I am wrestling. Those should be set out to members. Any further changes of that nature will be set out in a similar fashion.

We move to a theme that we have already touched on: concessionary fares and transport costs.

I have just couple of questions, Deputy First Minister. How did you make the decision to cut that budget, and what effect will it have on encouraging people to use public transport rather than their cars?

08:30  

The judgment that I was making there was based on looking at the available data on the levels of usage of public transport in the current context. We fixed our budget—obviously, concessionary travel is a crucial social and economic benefit in our society—and made our best estimates of what we reckon will be the uptake of the concessionary travel scheme.

We looked at the data that is available to us through the financial year showing the degree to which people are returning to public transport in the aftermath of Covid—there is obviously a degree of nervousness or anxiety about using public transport—and made a judgment about where we think that demand will eventually settle.

Again, there is a degree of judgment involved here and, ultimately, if we find that the budget line exceeds what I have predicted in the latest update, we will have to meet that cost from other areas in the budget. However, I hope that the steps that we have taken will be appropriate and that the predictions about the budget will have the necessary accuracy.

I will pick up on the new youth concessionary travel scheme. I say this as somebody who is a non-driver and who therefore uses the bus a lot: it amazes me how many children in Edinburgh are still not using the scheme. They are putting their fare in and paying for the bus.

One reason for that is that the scheme is quite complicated to apply for; I say that as somebody who tried to get it three times for my children. There is variation across Scotland in how to apply and how easy it is to apply. I wonder, not necessarily for this project, but looking forward, whether the Scottish Government could make applying for the scheme easier. The issue concerns me, particularly as people who struggle to get access to the internet or do not have a passport are not necessarily picking up on the scheme. They may be the people who need the scheme more than those who have already applied for it.

I am aware that different approaches are taken in different parts of the country to what support is available to people—for example, the arrangement for my son’s national entitlement card was handled through the school and done very efficiently. It was a totally straightforward process and there was no difficulty whatsoever, and he is now using his national entitlement card with some gusto.

Given that the scheme has been open since only January, there have been high levels of uptake in a relatively short space of time. We are promoting awareness of the national entitlement card among young people, and we encourage them to take it up. We make necessary judgments about the volume of usage, which allows me to make the judgment that I have made about the size of the budget.

In reaching the decision that you have come to on the use of buses, did you look at usage during the Covid pandemic, and did you look at comparable years before that? It strikes me—I am sure that you will appreciate this with your Covid recovery hat on—that disabled people and older people have been more reticent about going back to using buses. I would be worried if the amount was based on only very recent patronage.

We considered a combination of those things. In essence, the earlier budget estimates assumed a greater recovery in public transport patronage post-pandemic than has materialised. I again stress that it is an entitlement, so if it translates into more costs, I will have to address the issue in the course of further judgments that are made during this financial year, which would simply add to the pressures that I wrestle with at a different stage in the financial year.

We looked at the comparison between pre-Covid levels, Covid levels and, to use this terminology, Covid recovery levels in order to form the best estimate. I am not going to sit in front of the committee this morning and say that I am 100 per cent confident that we have that absolutely precise. We will continue to monitor it as the year progresses and, if there is a need to put in further financial support, of course, we will do that.

Thank you.

Convener, may I follow that up with my additional questions on another area?

There are members with additional questions, so may I bring you back in on that?

Yes.

Thank you.

Jeremy Balfour is going to start our questions on cost of living consequentials and child poverty.

I want to get a bit more detail on how the £82 million was going to be used in the first place. I am not sure that I could find that information within anything that has come to us. What was it going to be used for?

The £82 million is a product of decisions that were taken by the United Kingdom Government, which gave rise to a consequential. As members know, those consequentials come into our budget but they do not come in with a badge on them; they come in as consequentials and we decide their allocation. Obviously, a range of measures to assist with the cost of living challenges are provided in Scotland that are not provided in other parts of the United Kingdom, and we have allocated resources for those measures. The £82 million had been allocated into the Scottish Government’s budget to help us meet the various elements of expenditure that we put in to support our programmes that assist with the cost of living and other matters.

If I can push on that a wee bit, Deputy First Minister, I am not sure that I understand yet what that £82 million was going to be used for. I appreciate that the money goes into a big pot, and you described how that pot is spent. However, it is hard for the committee and the Parliament to know the intended purpose if we do not know how the £82 million was going to be spent. For example, was it for social security or education? Presumably, you had allocated £82 million to a particular Government department or budget. Where is that money coming from?

Essentially, the money does not come in with an intended purpose; it comes in as a consequential and the Government decides how it will be spent. For completeness, I have set out that, in order to meet the financial pressures that we face, we are allocating this within the wider budget management of the Scottish Government, which, of course, deals with a range of requirements, such as tackling child poverty, dealing with the cost of living and supporting individuals with their energy costs through the fuel security fund and various other measures of that type.

Maybe I will try just one more time. On a practical level, will it mean that a particular service is affected? It is a reasonable amount of money, so does it mean that a third sector charity will not be getting funding or that a particular project will not now be run? I appreciate that this is happening at a high level, but what consequence will it have for individuals in Scotland for the next six months?

It means that a range of programmes are being funded that, ordinarily, would not have been able to be funded had we not allocated the money in the way that I am allocating priorities today within the Scottish Government’s budget.

Can you give us a list of those programmes?

It does not really operate in that fashion, because, as Mr Balfour said earlier in his questions, the money comes into the wider pot of public finance and, from that pot, I have to support a range of programmes. We would not be able to afford the budget provisions that we have if I was not allocating the £82 million towards the range of programmes that are supported across the Scottish Government. It does not come in badged in a particular fashion that enables me to say that £10 million of that £82 million has gone towards this or that. It is part of the general financing of the Scottish Government’s budget. All these issues are reconciled in the annual budget, the autumn budget revision and the spring budget revision.

Okay. I am a bit confused, but I am sure that others will pick that up.

Deputy First Minister, at the start you mentioned the fiscal limitations. I know that I have asked you this question before, but this is for the sake of the committee. On the discussions that you are having with the UK Government about the fiscal framework, you mentioned the budget being inflation proofed. What discussions have you had about that? You mentioned that the budget is worth £1.7 billion less.

Many social security services are demand led. What difference would additional borrowing powers make—in particular, with regard to the social security budget, rather than to others?

On the current financial situation and the issues with which I am wrestling, the Cabinet Secretary for Finance and the Economy, Kate Forbes, and I have written to UK ministers and various Chancellors of the Exchequer. There have been a few in the past few weeks, and we might have more. We have done so to make the case that the effect of inflation has been to erode the value of our budget, and to make an appeal, which I have done with my counterparts from Wales and Northern Ireland, for an uplift in budgets to deal with public sector pay pressures and the pressures of inflation. That is necessary: our budget will not change unless there is a positive change in English public expenditure during our financial year.

Essentially, we have a fixed budget once the tax year starts. I am required by law to set a tax rate, which cannot be changed during the financial year, so tax cannot change. I characterise our powers as cash-management resource borrowing powers. They do not allow us to accumulate a resource borrowing capacity. Therefore, we are, essentially, dependent on any changes to budgets that are made in England.

We have written a series of letters to chancellors and Prime Ministers, but we have received no responses. On Friday, I spoke to the Chief Secretary to the Treasury in the aftermath of the mini budget. The chief secretary made it clear to me then that he is insisting on application of the current comprehensive spending review, which means that there will be no uplift to budgets.

I notice from overnight news information that the chief secretary has now written to—or is in the process of writing to—Whitehall departments to require reductions in expenditure. That is not an encouraging sign for what lies ahead in relation to expenditure in future years.

What difference would additional borrowing make to you in terms of this particular budget? As I said, many services are led by demand. I am aware that devolved Governments outwith the UK have such borrowing powers. What difference would additional borrowing powers make to you in dealing with issues that we have talked about?

As I have said to Parliament already, the pay deals that we are having to put in place because of the effect of inflation should be looked at. Members of staff and public servants are concerned about their financial situation, and they want some protection from inflation. I was extensively involved in the local government pay settlement dialogue, and I am glad that we got to a conclusion on that. We estimate that we will have to find, from the public purse, £700 million more for pay than we had anticipated. I am having to make many changes to ensure that we can afford things. The local government pay deal significantly enhances the position for staff on low incomes: there are significant increases—in excess of 10 per cent—in the pay of low-income members of staff, which I very much welcome.

That still does not amount to an awful lot of money for those individuals and it is nothing like what some affluent people will get through the tax cuts that were announced last Friday, but it is welcome progress, nonetheless. Those decisions put financial strain on our budget, and the concerns have been echoed by my counterparts in Wales and Northern Ireland, who operate within exactly the same constraints.

08:45  

You mentioned that the impact of inflation on the budget was worth £1.7 billion. The public sector pay increase that you mentioned is £700 million because of the impact of inflation. Are you talking about the £1.7 billion plus the £700 million?

They are two slightly different numbers. The £1.7 billion is, in essence, the erosion of the value of our expenditure. The £700 million is hard money; it is money that has to be found.

So, the full amount is £2.4 billion.

I would pause before adding the two numbers together, Mr McLennan, if you will forgive me. The point that I am making is that, whatever we say about the erosion of value, £700 million in hard money, which we did not anticipate at the start of the financial year, has to be found in the budget, which has to balance by the end of the year. That is the challenge with which I am trying to wrestle.

Thank you, Deputy First Minister. That clarifies the point for us all.

Good morning, Deputy First Minister. You mentioned the joint letter from you and the other devolved Governments to the chancellor. In that letter, you talk about the need for the UK Government to provide more targeted action. Given that the UK Government holds the key fiscal levers, in addition to key powers over energy and around 85 per cent of welfare powers, will you outline what action it needs to take now to help people?

The two points that I will address on energy costs and welfare were made powerfully by the statement from the International Monetary Fund on Tuesday evening. In essence, the International Monetary Fund argued for targeted intervention. One of the weaknesses in what the United Kingdom Government is doing is that the measures are not sufficiently or specifically targeted so, as a consequence, they contribute to the financial volatility that we are experiencing.

People on low incomes are at a significant disadvantage in terms of their ability to cope with significant increases in energy bills, when compared with people who are more financially secure. Therefore, we would have liked the energy cost provisions to have been much more firmly targeted at people who are in fuel poverty. We are now seeing extensive growth in levels of fuel poverty in Scotland as a consequence of the situation.

On the wider questions about household income, a straightforward and effective measure—for which there is precedent—to tackle the issue would be an expansion of universal credit. That is an intensely targeted measure. The Scottish child payment, which is a product of our intervention, is intensely targeted at people who face financial challenges.

Those are areas in which we could use more focused intervention by the UK Government, which would create much better-targeted benefit for people who suffer the most.

We have talked about reductions in spending but, as you said, the Scottish Government has highlighted its increase to, and extension of, the Scottish child payment as a key measure that it is taking to help families and to tackle child poverty. Is not it the case that, without full powers, the actions that the Scottish Government takes will continue to be undermined by the UK Government’s inaction or policies that actively undermine the Scottish Government’s efforts to tackle child poverty?

I am increasingly worried about spending constraints, and I am even more worried having heard what the Treasury was briefing last night about them.

The consequence of last Friday’s mini-budget has been a loosening of fiscal policy. I disagree with a large number of the measures in it and the approach that has been taken. The way in which it has been done is disastrous. Fiscal policy has been loosened and there has been no explanation of how it will be delivered in a sustainable way. I am not in any way surprised that the markets have responded as they have, because that is the height of fiscal irresponsibility. If the UK Government wants to recover from its fiscal irresponsibility, it will have to fiscally tighten. That will come down on spending. That is a disaster for us, because the block grant pays for the child payment. If the UK Government decides to tighten budgets that affect English departments, that will tighten the budget in Scotland.

The point that Natalie Don has put to me is 100 per cent correct. The fiscally irresponsible decisions that were taken by the UK Government last Friday will have to be rectified if it is to avoid a financial crash. In doing what it has done, it will tighten the budgets in Scotland. What we face, as a consequence of raging inflation—which, again, is the product of fiscal irresponsibility—is going to become a much graver problem in years to come, as a consequence of those decisions.

Good morning, Deputy First Minister. Last week, we heard from the Child Poverty Action Group in Scotland about a number of asks of the Scottish Government, including some mitigation measures.

Professor Philip Alston, the UN special rapporteur on extreme poverty and human rights, said:

“mitigation comes at a price and is not sustainable”.

Do you agree with that comment, and will you give an indication of how much of the Scottish Government’s spending is currently going towards mitigation?

I certainly agree with one part of the statement, which is that mitigation comes at a price. The Scottish Government is meeting the costs of mitigating a number of United Kingdom Government measures.

I am not sure that I quite accept the point that mitigation is not sustainable, because I view it as my duty to make it sustainable—because I want to protect people as much as I can from the hardship that is inflicted on them. However, I accept that there are limits to fiscal sustainability. I find myself quite close to that, at this moment.

I have had to come to the Parliament, and I am here at committee, to explain the rationale for that. If I do not address now the current level of financial pressure, I will be in danger of not being able to balance the budget, this year. I have a record of fiscal responsibility; I believe in fiscal responsibility. That is why we are doing what we are doing.

I am working to ensure that we operate in a sustainable fashion because measures such as the Scottish child payment, which I have just discussed with Natalie Don, are absolutely fundamental to the commitments that we can make to the most vulnerable people in our society to support them through a difficult period. The Scottish child payment is a fantastic intervention. However, it would not be necessary if universal credit was at a credible level; we would not have to face such things in our budget if universal credit was at a more credible level.

When it comes to quantifying the effects of mitigation, it is probably safer to write to the committee with an estimate of that calculation. However, measures that are being applied by the Scottish Government, such as the child payment, total very close to £200 million. Actually, the updated forecast on the Scottish child payment is £219 million for this financial year. That is partly because we have accelerated payment and have brought the increase forward to 14 November. That is one element.

Ms Roddick will be familiar with the fact that the Government mitigates the bedroom tax, which is a critical measure in alleviating one of the more pernicious aspects of the UK welfare regime. A range of other measures are in place. For completeness, I should probably write to the committee with a detailed answer on that point.

Thank you for that. It is clear from the fiscal announcement last week that the UK Government is going down—funnily enough—a very conservative path, in cutting tax for high earners and uncapping bankers’ bonuses. Peter Kelly from the Poverty Alliance told the committee that governing is about decisions. Does the Scottish Government have different priorities, and is it making different decisions?

We are, but we are trying to do so in a way that protects the fundamental values that we believe in and the fundamental elements of our programme for government. Emma Roddick will be familiar with the programme for government that was set out at the beginning of September. It develops the thinking that emerged from the Government’s manifesto for the 2021 election, which was based on, essentially, ensuring that we secure a fairer and a greener future for individuals in our society. Those priorities and those values were reinforced by the Bute house agreement with the Scottish Green Party, which flows into the programme for government.

We are setting the direction, which is about ensuring that we create a fairer society, that we make the transition to net zero and that, in doing so, we create new and sustainable employment opportunities in Scotland. Those are the underpinning values, and the decisions that I am taking are designed to protect that programme as much as possible. Clearly, however, the decisions that I have had to take put significant financial strain on the Scottish Government.

It sounds difficult. We might be getting to the point where it is impossible for a centre-left Government to work within a fiscal framework that has been set by a more right-wing Government elsewhere, while also mitigating a lot of that Government’s decisions. Is the situation a demonstration of why we require independence?

That sums it up in a nutshell. I have a long track record in this Parliament and as a minister. I served for nine years as finance minister and now find myself—very surprisingly—back in the finance area of activity. I have never seen financial strain and pressure like that which I am seeing and wrestling with just now. I do not use those words lightly. I managed through the financial crash and the years of austerity under George Osborne and Danny Alexander. I left the finance brief in 2016 thinking that we had perhaps managed to mitigate the worst of austerity, but that was as nothing compared with what we are now wrestling with.

The fundamental point that Emma Roddick has put to me is that a centre-left Government that believes in progressive values and wishes to secure a fairer and a greener future for our fellow human beings in our community finds that ever more difficult with the agenda that is being pursued. I would actually not accuse the UK Government of being “conservative”, because certain protections of core values are associated with conservatism, but I did not recognise that happening in the financial statement last Friday.

We have just a small amount of time left. I will bring Pam Duncan-Glancy back in to ask a quick question, then Miles Briggs.

In the interest of brevity, I will resist the temptation to discuss the constitutional settlement, which we have just touched on. We have spent considerable time on that.

One thing that I have taken from this morning’s evidence session, and which is really important, is that you have said that decisions should be fiscally responsible, but I take the view that cuts to employability for disabled people and others is not fiscally responsible, because it will have an impact on their fiscal status.

09:00  

Can you reassure us—I have not been reassured so far—that you will involve organisations such as the Women’s Budget Group in in-year decisions as well as in longer-term budgeting processes? Will you make a commitment today that you will do that, so that they can help you and provide expertise, so that you can make fiscally responsible decisions that do not further entrench inequality?

On Pam Duncan-Glancy’s first observation, I take a very different view about the constitutional arguments, because I think that they are central to the dilemmas that I face. The analysis that Emma Roddick put to me about the ability of the Scottish Parliament to exercise the full range of powers is absolutely correct—for example, yesterday the Irish Government set out a diametrically different budget—

[Inaudible.]—Deputy First Minister, the question. I would love to debate those issues with you at length, but we do not have enough time to go into them. My questions were about how you made the decisions in the budget that you currently control. I would really appreciate reassurance on the record, because a number of organisations are looking for that.

I will come on to that. Looking at the comparative example from the Republic of Ireland, dramatically different decisions are being taken by an independent country that is in close proximity to us and has made different constitutional choices. There is an important lesson for us in that comparison.

I am very happy to engage with all groups as much as I can on the issues. I listen to people’s perspectives, and I think that I have a track record of listening to different views. When I was finance minister, I enjoyed my interaction with the Women’s Budget Group; I have huge respect for its work and have valued it enormously. However, I have to make this point to the committee bluntly: if people are going to complain about the choices that I have made, they have to give me alternatives.

Those organisations would offer and have offered alternatives, so I would not characterise that as complaining; rather, it is a plea to be involved in the process. Witnesses last week and before have told us that the process was opaque and untransparent, and that they were not able to get involved in it. They want the reassurance that they will have a meaningful conversation with you about the budget.

I was not talking about those organisations; I was talking about members of the Scottish Parliament. Members of the Scottish Parliament have hard choices to make, and it is, frankly, not much use for members to complain about the choices that I have made without giving me alternatives.

I have been completely transparent with Parliament. There was, for example, no obligation on me to come to Parliament on 7 September with a statement about the financial position and setting out the range of changes: I could have just done it all in the background, in an autumn budget revision. There is very little public commentary about autumn budget revisions, so I could have just done that, but I did not. I came to Parliament openly and transparently and shared the problem and my view of the solution. It is then incumbent on members, if they do not like the solutions that I have come up with, to tell me how I should do it differently.

In the process, I will engage with all manner of groups, and I am very happy to listen to them, but, with respect, I have not seen a scintilla of an alternative in terms of what I should be doing.

That is unfair—especially given the cost of living plan that the Scottish Labour Party has put to the Government on several occasions. I will leave it there.

In the two minutes that we have left, we probably cannot have a debate about the Barnett formula or budget negotiations between parties, so I want to ask about Social Security Scotland and the management of budgeting. Around £301 million of its budget is operational expenditure. What discussions is the Government having about projected future spend on running the organisation?

That is not just about Social Security Scotland. It is implicit in the resource spending review that we have to very carefully manage the size of the public sector workforce, which grew dramatically during Covid. We have to ensure that it is sustainable on an on-going basis.

Discussions are on-going with all elements of the public sector about levels of workforce, the commitments that need to be fulfilled and the sustainability of budgets. That will be an on-going priority and as budgets are set, the committee will have the opportunity to scrutinise any decisions that flow from that as part of the management of the workforce and its size.

I thank the Deputy First Minister and his officials for making the very early start this morning. We will consider the evidence that we have heard under agenda item 4.

I suspend the meeting for a brief comfort break and for witnesses to change over.

09:05 Meeting suspended.  

09:10 On resuming—