Chamber and committees

The previous UK Tory Administration and the current Labour one have also frozen the thresholds for higher rates until 2028-29, I think—Lorraine King will correct me if I am wrong. Essentially, it would not have been affordable for us to do anything else. That is the honest answer.

We have done what we have done, up to the limits of affordability, to support people who are on the lower rates of tax, and the action that we have taken in that respect and in respect of social security is worth about £400 a year to people on low rates of pay. Unfreezing the higher-rate thresholds would not have left money for investments in health, education, the winter fuel payment and so on. Those are choices that have to be made.

We have decided not to make any further changes to rates and bands, in order to give stability to taxpayers.

We recognise that the tax base and the tax take in Scotland have been very important in enabling us to fund many of the things that we are funding, including delivery of public services. We have £1.7 billion that we would not have if we had made tax decisions similar to those that were made for the rest of the UK. We know that we can go only so far at a time when household budgets are still under some constraint, so, in the light of all that, we made the decision that what was most important for the rest of this parliamentary session was some stability and certainty. The tax strategy sets that out with the commitment that there will be no changes in rates and bands.

We have massively increased baselining of funding—a lot of the local government funding has been baselined—and we have made some significant changes around portfolios. Earlier, I mentioned nursing education. The health service decides how many student nurses we will have, and the money is then passed to education to deliver that training. We have to ensure that the money sits in the right area for the policy, because that will determine how much can be done—in that case, how many nursing students can be delivered by education services.

We have tried to set out the funding in as transparent a way as possible, but there are good reasons that make a lot of sense for in-year transfers. As I said to the convener earlier, if there is more that we can do in that space, we will do it, but there are sometimes some good reasons for in-year transfers.

As I said, we regard investment in social security, including some of the mitigations that I mentioned, as an investment in people and in anti-poverty measures. Giving children the best start in life means they are more likely to be economically productive later in life, so you could argue that it is an investment in society that will give economic returns later.

My answer is that it is about prioritisation. We are prioritising not just social security spend but front-line services. The action that we are taking on fiscal sustainability covers a number of areas and aims, to ensure that we can afford the supports that we are providing. There are seven areas, but I will give you the headlines. They include the workforce, recruitment controls and the changes that we will make on backroom services so that we can prioritise funding for the front-line public service reform programme, on which Ivan McKee has given you a fair amount of detail.

The decisions that we have previously taken on tax provide an additional £1.7 billion in 2025-26, compared with the situation if we had matched the UK Government policy, according to SFC estimates. There is also the work that we are doing to boost and grow the economy, and the investments in the budget will help to do that. The invest to save fund is working to release more funding. The efficiencies that Ivan McKee has set out amount to about £280 million over the past two years and another £300 million over the next two years, but the invest to save fund will go further than that. There are also things such as health and social care reform.

I have laid out those measures because they are all pillars of the sustainability delivery plan. I will provide more detail on that to align with the medium-term financial strategy. A lot is happening across Government, and I am keen to give transparency on that and to set it all out in one place. That is what the sustainability delivery plan will do, and we will publish it alongside the MTFS.

Let me give you an assurance that we will not be unpicking the investments that we are making, whether in green energy, enterprise or any of the other supports that we are putting in place. We recognise the importance of growth. Investment in infrastructure is the biggest growth enabler, and we are now able to invest in affordable housing because of the change in the capital budget trajectory. Obviously, we hope that that will continue through the spending review. There is a question mark there, because we will need to wait and see. However, that investment is important because it is an absolute lever for growth. There will not be any unpicking of those investments. It is really very much around the margins.

A lot of it is about certainty and confidence, is it not? The feedback, not just from the housing sector but from some investors, is that this is a really important move to give that confidence and certainty. That brings me back to the point about the spending review. The best certainty that we can give is multiyear certainty. We have to wait until the spending review in June to see what the trajectory of capital is looking like. I have worries about the current market and what the chancellor may or may not do, given that she will box herself into very limited room for manoeuvre. I would be concerned if the outcome of that was a different trajectory on resource and capital, but we will see in June. She is likely to say something in March, too. I have some concern.

Some of that investment will be longer term, because starting to build new housing has a lead-in time. However, it is also for things like voids. We need to get motoring with registered social landlords and councils and get those voids turned around. I saw that a council—I cannot remember which one—was employing additional tradespeople to help to get those voids turned around. We are sitting with thousands of voids and we have families in temporary accommodation. We really need to get those properties turned around. That can happen in the short term, as can off-market acquisitions. New build is important, but one of the issues will be the cost of new build. Construction inflation has meant that unit costs are now way in excess of what they were, so we have to be realistic.

The net position is a product of two sets of forecasts from the SFC and the Office for Budget Responsibility. Revenue from Scottish income tax is forecast to grow strongly and raise a record £20.5 billion in 2025-26, which is £745 million more than the SFC forecast when last year’s Scottish budget was published. At the same time, the OBR has significantly revised up its forecast on income tax in the rest of the UK. Given the way in which the framework works, what you set out is the outcome.

We are committed to growing our economy, and the income tax net position is forecast to increase in each year of the forecast horizon. That is a positive, but that positive net position has been moderated by the OBR’s forecast revision.

First, some of the investments in the budget are being made to help to grow the economy. Investment in green energy, enterprise, affordable housing, transport and major infrastructure will help to boost the economy and, in particular, the construction sector.

Before I move on to colleges, I note that there are some very positive signs in the Scottish economy, despite the challenges that we have just rehearsed. Productivity has grown, compared with the position in the rest of the UK, and gross domestic product per capita has grown faster in Scotland than it has in the rest of the UK since 2007. We have higher levels of inward investment—a record number of foreign direct investments—and we are very strong in key sectors of the economy. That is not to minimise the OBR’s point about relative stronger growth, but the underlying Scottish economy has improved markedly and it is important to recognise that. In terms of—

I think that that might be quite controversial.

I could cite to you a number of decisions that Labour councils have made that I do not find particularly appetising, and I am sure that you would not want to criticise the performance of those councils. So, I will not pick out the decision making of a particular council, because that council will have made a range of decisions, some of which you and I will agree with and some of which we might not agree with. You could say that about all 32 councils.

Much to my frustration sometimes, changes to funding formulas are down to the 32 local authorities making decisions about how funding should be provided. The only decision that I have made is about the funding floor, which takes account of census data on shifts in population, which I cannot ignore. Apart from the overall Government settlement, that is one of the areas in which I make decisions.

However, anything about distribution formulas comes down to the vagaries of how COSLA makes its decisions. If I were to step in to that area and say, “I don’t like the decision you’ve made on the distribution formula because it doesn’t benefit this council or that council,” I would probably get short shrift, and not just from COSLA—I imagine that there would be questions in the chamber of the Parliament about it as well. Those things must be looked at in the round.