Chamber and committees

Forgive me—I had not realised that you were talking about the public health supplement, so let me address that issue directly.

The commitment is to look at and explore the potential of introducing a public health supplement, which is something that was obviously introduced previously. As part of that process, we have had some early engagement with the very business organisations that have been talked about and have said directly to them that we want to look at any evidence of impact that they can provide. We are engaging with them; I have met them directly, as have other ministers, and we will continue to have that dialogue with them. Clearly, other organisations, not least public health organisations, will have a different view, and we will look at all that in the round before making any decisions on the 2025-26 budget position. That early engagement was one of the commitments that was made in the new deal, and it is now under way.

Of course, any gap in the public finances is due in large part to decisions made by the UK Government with regard to our financial position, and that could be addressed in the spring budget on 6 March if the UK Government so wished.

The measure is, I think, important, with its focus on public health and, specifically, on raising additional revenues to support our approach to tackling public health challenges, but I stress that no decisions have been made on definitely taking it forward. What we are doing is consulting at an early stage on what the evidence is telling us and asking the business community itself to provide some of that evidence. That engagement will continue.

I do not know whether I have that figure to hand, but from my days as health secretary I remember that it is very significant. When I announced the minimum unit pricing regulations a few weeks ago, I provided a couple of figures about the impact. I cannot remember them off the top of my head, but we can certainly get that for the committee, if it would be helpful. The impact is significant.

We know that Scotland’s relationship with alcohol goes deep and is very challenging. There is not just a health impact; there is an economic impact from lost days at work and so on. It is considerable.

Until we know the position at the spring budget in relation to any changes to capital one way or the other, we really cannot start projects that we might not have the money to finish. The £1.6 billion that, at the moment, we will not have between now and 2027-28 would have paid for a lot of health centres, to be frank. For context, I note that that is the cost of a major new hospital. We talk about percentages but, in cash terms, £540 million is a lot to lose every year in the run-up to 2027-28.

Our major call on the Treasury—and our number 1 priority—has been a reversal of that capital position at the spring budget. We need to see that before we can make a judgment about the infrastructure investment plan; after all, it would not be a good use of funds to start projects that we cannot finish. However, I am an eternal optimist and I hope that, on the other side of the spring budget, I will be in a position to revisit the position and set out an infrastructure investment plan that will take some of those projects forward. At the moment, though, I cannot give that assurance, because I do not know what the position will be.

It will be after the spring budget, once we have had a chance to look at what that picture looks like and to make judgments about what that means for capital availability. That comes with a caveat or a health warning, in that we could be in a better position than we are at the moment, but we could also be in a worse position, which would impact directly on the assumptions that are made in the budget. I hope that that is not the case, but it is wise to make that caveat.

That is why I came back to the committee’s report in the way that I did. If we were to publish it now, prior to 6 March, we would be revisiting it straight away, because of what 6 March could bring us.

I alluded to this earlier, but I accept that we need to look at what we can do in relation to that projection, and how much of it lies with decisions on efficiency, effectiveness, decision making and eligibility. All of those things are being looked at in relation to the social security system that we have at the moment, but the system is projected to continue to grow, because we are still in the process of finalising the shift of benefits. That journey is not complete.

The point about the social security system being demand led is fair, but it gets us straight into some quite difficult discussions, such as what the system will look like in five or 10 years and whether we need to review some elements of it to ensure that it is fair to everybody. Those decisions have not been made, but inevitably Parliament will have to debate that. We also need to ensure that decision making on the supports that are available at the moment is not completely out of kilter with systems that have been inherited, as that could become unsustainable.

Social Security Scotland is all over some of those issues. With the adult disability payment, for example, it is looking at consistency of decision making to ensure that no inconsistencies arise that could lead to unfairness in the system. It is also ensuring that the position will not become unsustainable, because of an exponential growth in awards, particularly those at the higher level.

However, although all of those levers can be deployed in the shorter term, they do not necessarily address longer-term growth. Parliament will, usefully, have a view on where social security sits in our budget. It is now a big chunk of it—in fact, it is one of the key pillars alongside health and local government—so where should it sit in future? If it is going to continue to be such a big chunk, as I suspect it will, that will mean taking decisions elsewhere.

Just for completeness, we could look at reducing demand on social security by using some of the other levers that are available. For example, we could avoid people falling out of work and into social security and becoming dependent on the adult disability payment, but we need to work out what we can do further upstream to try to interrupt that. It is quite a challenge, but we need to give it more attention.

We recognise that employability services are often delivered by third sector organisations, and I have a lot of sympathy for the third sector more broadly, and its call for multiyear funding.

There is a trade-off. In my discussions with third sector organisations, they often say that they are more concerned about multiyear funding than about the quantum: knowing how much they will have over time and being able to retain staff are really important. I get that, and I am sympathetic to that. We have tried to move, along with third sector organisations, to consider whether or not we can provide certainty over more than one year, at the very least, when finances are tight.

Doing that for large areas of spend such as local government would be very challenging, in the light of our having only year-to-year budgets at the moment. I would not want to give a false premise for almost a third of the budget. If we made assumptions that were just not correct, because we were basing them on speculation and did not know—we, too, have only the one-year horizon, and fiscal uncertainty at the moment is huge—that would not be helpful for a huge area of spend like local government.

However, that is easier to do for smaller areas of spend in which the margins of change can be managed more effectively. The third sector is a good area to try to give certainty to because, as I said earlier, third sector organisations sometimes struggle to hold on to staff when contracts are coming to an end and there is no certainty about funding. I am very sympathetic about that.

Good morning. I thank the committee for its budget scrutiny report, which I have carefully considered.

As I have highlighted to the committee and to the Parliament, the budget has been developed amidst very challenging economic and fiscal circumstances. The United Kingdom Government’s autumn statement was a worst-case scenario for Scotland, and we have further significant uncertainty on the horizon with the spring statement on 6 March.

Although some newspapers seem to have received a briefing relating to tax, we are clear that the UK Government needs to use any headroom that it has to invest in services and to provide consequentials for the costs of the 2023-24 national health service agenda for change pay agreements in the coming financial year, which was totally absent in the autumn statement.

Subject to what the spring budget delivers, as I have already advised local government, I am committed to passing on in full any consequentials that are received in response to increased teacher pension contributions and the estimated £45 million of additional funding to local government following the UK Government announcement in January, should they be confirmed as net additions to the Scottish budget. It is a fair budget for local government, but it is a challenging one, and I do not underestimate that. It is a challenging budget across the public sector.

If the capital funding position improves, I will also consider the funding position for our affordable housing supply programme, which continues to be a key priority for me. That all depends on the availability of additional funding from the UK Government, and the position on that continues to be uncertain.

Although additional funding is always welcome, the funding position could worsen, negatively affecting the assumptions underpinning the Scottish budget to date. As we have just seen again, the UK Government can unexpectedly reduce our funding, which is an on-going risk.

The recent UK Government supplementary estimates now indicate a reduction in our financial transactions of £64 million this year. That is unexpected and will be hard to manage, because it could impact on key policy areas such as housing. That is why it is so important for the UK Government to use the spring budget as an opportunity to improve the capital budget position, which will be crucial for affordable housing plans and other priorities such as NHS infrastructure projects.

I did not lodge amendments to the Budget (Scotland) (No 3) Bill ahead of this meeting. However, the committee will be aware of the Cabinet changes that the First Minister announced on 8 February. They included combining economy, net zero and energy to create a strong new portfolio for building Scotland’s economy. That means that transport should now be considered an individual portfolio, to reflect the importance and complexity of that vital delivery area. The portfolio changes therefore affect the Scottish budget, which is why at stage 3 I will propose a small number of technical amendments to reflect those changes. The committee will appreciate that there was insufficient time to prepare those amendments ahead of the 9 February lodging deadline for stage 2.

I thank committee members for their on-going engagement on the budget bill. I look forward to our discussions this morning.

We have raised that issue. Alongside other ministers, I had a constructive meeting with the hospitality sector. Don’t get me wrong—of course those in the sector would have liked to see NDR relief passed on in Scotland, but I wanted to be really clear with them that we had to make a difficult choice between investing that money either in public services or in the business rates tax cut. Of the £310 million of consequentials, £260 million was for business tax cuts. In the light of the pressures on public services, I could not, in all conscience, do that.

We then talked about other areas and the hospitality sector raised concern about VAT as a key issue. I have since seen some interviews with leaders of the hospitality sector in England, who are calling for changes to the VAT threshold because of its impact on their businesses. It is a complex landscape, with a number of pressures; the costs of goods, power and premises all have an impact.

You are also right to point to the significant package of reliefs, which is worth an estimated £685 million for 2024-25 and includes the small business bonus scheme. We have a competitive support package for businesses and have gone further by supporting 100 per cent relief for the islands and hard-to-access remote areas of Scotland. We intend to monitor the impact of that and to gather evidence on whether the reliefs are working as intended.

I might be wrong, but I suspect that the reliefs will probably not continue in England beyond this year. Rather than having stop-and-start reliefs, we have committed to working with the sector to look at what we can do to give long-term, sustainable support. That would be better than having a cliff edge at some point in the near future, which would not be helpful.

We will certainly take that point away and consider it.