Chamber and committees

You make a fair point. I cannot quite see what the solution would be, unless we could genuinely move to multiyear funding. However, that would involve our knowing that we would be able to provide such funding, because we had an assurance that we would receive multiyear funding. Without knowing that, we would find it difficult to work in a different way.

Your point is a reasonable one, though. Alison Cumming might be able to say more.

At the moment, that money is supporting the spending side of the budget, without which a difficult budget would have been made even worse.

I take your point. I am not unsympathetic to the suggestions that are being made, and I certainly do not have a closed mind to either your point or Michelle Thomson’s point. I am wrestling with the here and now, while also having an eye to the future. There is a bit of a tension, given that I am looking at pounds, shilling and pence in portfolio allocations and difficult discussions and decisions have to be made around that. It is a challenge. However, as I said, I do not at all have a closed mind to the principle of those suggestions.

The Resolution Foundation described it as a “stagnation nation”, with all of the above that you have just described. A number of key indicators show Scotland’s position in that very difficult economic and fiscal climate. For example, Scotland’s GDP per capita has grown faster than the UK’s since 2007. Productivity has grown at an average rate of 1 per cent a year in Scotland, compared with the UK’s 0.5 per cent. We are making better progress on things such as the gender pay gap. In terms of inward investment, we are the top-performing region outside London and the south-east, and we had the third-highest wages and gross value added per person when those were last measured, in 2021.

Sometimes a certain narrative about the Scottish economy is put forward by people who seek to portray it in a particular way. I am not downplaying any of the challenges, but the key economic indicators show, over a number of years, a trend in many strengths that underlie the Scottish economy. For one thing, the tax base is up, and that is good. The Fraser of Allander Institute has adopted

“an atmosphere of cautious optimism”

for 2024, and the Fraser of Allander Institute can be quite challenging at times, so that is welcome.

As you pointed out, there is no mechanism to harness any profits relating to minimum unit pricing. One of the challenges with that is being able to separate out how much of it is in relation to minimum unit pricing. The sector will tell you that that is a challenge, which is a reasonable point.

I want to convey today that there are strong arguments on both sides. We want to listen to them all and make a considered judgment well in advance of 2025-26 on what the right balance is to ensure that we are fair to the sector, which has no doubt had its challenges, while also recognising the public health challenges that you have just alluded to, which continue to put pressure on our health service and our economy.

The position for us is very difficult, given how our budget is constructed and the process for our budget through the year. This situation highlights and demonstrates that our fortunes, or otherwise, are wholly dependent on decisions that are made elsewhere. It does not make for a sensible set of arrangements to enable us to set a budget.

For example, the in-year reductions that we had to make were very painful and difficult. The Welsh Government has also made the point that, if we knew how we were going to end up at the end of the financial year and had an indication of any in-year adjustments that were going to be made, perhaps some of those decisions would not have to be made. Likewise, if we had known that financial transactions were going to be reduced, we would have been able, perhaps in year, to have made some account of that. However, we are now left with having to look for flexibility from the Treasury to manage that reduction in FTs next year. At the very time when FTs and capital have been cut, we have had this surprise added to the mix, which has come along at the last minute. That highlights the fact that the structure and the system are a fundamental problem. That is what needs to be resolved, rather than our trying to manage the changes so late in the year.

Indeed. That is the difficulty with the constrained timetable in which we operate—not least as regards ensuring that our tax position is clear and has been notified and so on, and that the public sector is aware of the budget position well in advance of the start of the financial year. The spring budget timetable is very challenging indeed, and we made that point to the Chief Secretary to the Treasury. We also made the point that it could severely impact the assumptions made in our budget, which would be announced barely a week later.

We have made direct requests in relation to the basis for our budget, which, for the moment, has been set around the autumn statement. We have asked for flexibility on that. Should the UK Government’s spring statement offer opportunities for us to enhance our budget, we would want to use that flexibility. There has been precedence for flexibility being given in previous years. In light of those circumstances, such flexibility would be helpful. However, so far, we have had no confirmation from the Treasury that it will be given.

It is important that we take both short-term and longer-term views. The Scottish Fiscal Commission’s modelling takes into account factors such as behaviour change, but work that His Majesty’s Revenue and Customs will publish later this year will provide more detail.

We will continue to consider, monitor and evaluate our policies for any impact, whether it be on behaviour change or any other element of the economy. We will do that through the auspices of organisations that are trusted and independent, such as HMRC. The work that it is doing in this space will be extremely valuable. I am sure that the committee will take an interest in that information, as soon as we have it and it is in the public domain.

No. I have picked up probably what you have picked up, which is that we are looking at moveable feasts here. There is speculation about further tax cuts; we are in an election year, which is clearly going to be a factor; and we have this major fiscal event on 6 March, which, if you listen to what the press briefings are alluding to, will mean further tax cuts, although others are saying that such a move will not be sustainable. Indeed, the commentary from the Office for Budget Responsibility is that it is definitely not. I have seen nothing to suggest any long-term strategy for any of these issues—it all seems very short term at the moment.

I have not made a decision about that. I am optimistic that all the funding will be utilised for its intended purpose. We have not made decisions about how remaining funding will be distributed.

We have given the SNIB the vast bulk of the financial transactions that we have available to us. However, remember that, as we have discussed previously, UK Government financial transactions have gone off a cliff. That is unfortunate, because the two areas of spend for financial transactions have traditionally been the affordable housing supply programme and the SNIB. We have prioritised the SNIB for the financial transactions that are available to us. That means that the affordable housing supply programme has less available to it in financial transactions.

The supplementary estimates that I referred to indicate a £64 million reduction in financial transactions that we will have flexibility to manage in 2024-25. That will heap pressure on the areas of the Government that use financial transactions. The additional pressure of managing that further reduction in financial transactions is now in the pot. We will have to assess that once we see the full picture in the spring budget on 6 March.

I make the point that FTs are a useful source of funding. We have traditionally utilised them well in the two areas of spend to which I referred. When they are significantly reduced, that has an impact. Because of the capital position—a 10 per cent reduction in capital availability—we are not able to supplement the reduction in FTs with traditional capital. Those things have an impact, and that is the impact that they are having. If the position changes in the spring budget, we will want to revisit it, because we recognise the importance of the SNIB.