Chamber and committees

Good morning, cabinet secretary. Thank you for joining us. I note, just as an observation, that the language in the general report did not feel as though it absolutely cut to the heart of the urgency that the committee feels about the need for really good financial planning in the future. I will highlight one sentence in the Government’s response:

“As part of the planning process, my officials will consider the potential to pilot a ‘zero-based budgeting approach’”.

I would say that

“consider the potential to pilot”

was probably the most egregious phrase. That wording does not exactly set the heather on fire.

I have a few general questions. We have been clear in expressing our concerns about the publication of strategic financial documents, and there is a sentence in the Government’s response that says:

“I am also aware that setting out multi-year spending plans ahead of a Scottish election could restrict the options of a new administration.”

Is that just an excuse for not doing anything? Surely any new Administration would just tear up any plans if it was so minded.

I have another wee point to make. I just want to check the 60 per cent figure for employer NICs, although I appreciate that the numbers are still fluid, as was picked up by the convener earlier. A couple of weeks ago, COSLA was claiming that it had a shortfall of £265 million, with the Scottish Government giving it £144 million. Those figures were quoted a couple of weeks ago, before the recess. Of course, that is only 54 per cent of the costs. I appreciate that there are other factors at play in how the 60 per cent figure is derived.

Thank you. That clears that up.

On a point that Craig Hoy made earlier, I was heartened to see data on back-office costs emerging. To my knowledge, it is the first time that we have had a hard figure for those, so that is good. On the comment that we will implement reporting on internal recruitment and monthly head counts in public bodies, I am surprised that that does not happen already, with monthly reports and management information showing the numbers that we have and the variance. I would have expected to see that as standard. Given that we now have a figure for back-office costs, which is heartening, I wonder how many of these data items we do not have.

I thought that it would be useful to have some colour on that, because, as I have been fond of reminding people, the Scottish Fiscal Commission’s report about getting to net zero makes it clear that the UK Government cannot do that without Scotland and that Scotland cannot do it without the UK Government. Fundamentally, the fiscal framework as it stands is completely inadequate to get us to where we need to be. Therefore, I thought that the response was somewhat perfunctory—you missed the opportunity to set out why you agree with us. Also, if you agree with us, why did you say “Noted” and not “Agreed”?

[Made a request to intervene.]

We, in Parliament, know that policy making often results in unintended consequences. However, for this UK Government policy, we can be clear not only that the consequences can be predicted but that they have been planned. The UK Government knew that the rise in national insurance contributions would place a direct burden on the workers that it still wants to pretend that it supports.

As any competent economist will tell you, the legal assignment of national insurance contributions—which, in this case, is to employers—is irrelevant to who ends up bearing the cost of them. To be technical for a minute, what matters is the elasticity of labour supply and demand, or how sensitive the decisions of employers and workers are to wage changes and costs. Since firms’ demand for labour is generally more elastic than workers’ supply of labour, that suggests that most of the burden of employer NICs will be shifted on to employees through a drop in wage growth and a loss of jobs.

I think that the crucial words are “at the moment.” I am setting out clearly how that position will shift as a direct consequence of the policy.

The Labour UK Government has created in its explanation a new concept: the elasticity of truth. It is trying to hoodwink the workers, who, along with the public, will pay. The negative effect of the employer national insurance hike will not happen all at once. The OBR forecasts that workers will bear around 60 per cent initially, rising to 76 per cent in the medium term. Employers, too, will have to find other ways of absorbing the remaining costs.

The immediate reaction of business demonstrated a waning of confidence. As we know, business confidence is critical for growth; a lack of it also leads to a postponement in recruitment and the shelving of investment plans.

There is not only a rise in the employer rate from 13.8 per cent to 15 per cent; there is a huge drop in the earnings level threshold from £9,100 to £5,000. Both of those moves can only limit growth, which is the antithesis of what the UK Government states that it wants. We are not talking about marginal effects, as the Government expects to raise an additional £24.5 billion annually.

We are told that some smaller businesses will benefit from a rise in the employment allowance from £5,000 to £10,500. That is true, and it is very welcome. However, as ever, the devil is in the detail. If someone’s business is doing more than half of its work in the public sector—which, most notably, might be for local councils and NHS services—they are barred from claiming the allowance. That will exclude thousands of Scotland’s small businesses. A very small company with only one director who is the only employee and is liable for secondary class 1 NICs cannot claim either. As we know, there are many such small businesses in every constituency in Scotland.

At the start of my speech, I referenced unintended consequences. It is disappointing that the UK Government knows fine well the consequences and that it has chosen to direct those consequences at employees. Its elasticity with the truth is perhaps no surprise. It is up to us in Scotland to expose the uncomfortable truth and support as best we can businesses and workers alike.

I welcome the moves to, for example, provide PACE support, hold a careers fair and carry out a skills audit, and I absolutely welcome the £25 million funding. If the intention is to expedite potential project Willow proposals, the recent leak of the report points to truly eye-watering sums of money that will be required. Presumably, that funding will come entirely from the UK Government, given that the majority of the proposals would require capital investment. Will the First Minister outline whether he has had the chance to discuss that with the Prime Minister? Given his statement today, will he outline how he thinks that that investment will mitigate the loss of the existing skills base, particularly with regard to the all-important chemical cluster in that area?

Yesterday, 435 workers at the Grangemouth refinery in my Falkirk East constituency were given redundancy notices, and refining will cease at the end of June. Despite statements from the Prime Minister, and from the leader of the Labour Party in Scotland, who promised to

“step in to save the jobs at the refinery”

and

“put hundreds of millions of pounds behind it”,

the UK Government has instead prioritised eight sites—none of which are in Scotland—for the likes of sustainable aviation fuel.

I understand the need to transition, but the “just” in just transition has turned into “just wait” for the workers, the wider cluster and the community. Will the First Minister join me in condemning the United Kingdom Government for its lack of action? Will he set out what specific steps the Scottish Government is taking right now to support the workers and ensure that there remains a skills cluster from which to transition?

To ask the Scottish Government how it plans to invest in the hospice care sector, in light of the £4 million referred to in the draft budget 2025-26. (S6O-04301)