Chamber and committees

Not yet, but, interestingly, Michael Marra was on a Convention of Scottish Local Authorities political panel last Friday for which there was, of course, a local government audience. Local government has the same challenges as every other part of the public sector. I made an offer to those from all the parties on the panel. I told them that my door is open for me to hear any constructive suggestions for different choices. I said that we will set out very clearly our choices but that, if others want to make particular choices and provide suggestions on where the money could be redirected from, they could do so.

There might be some attempt to make out that the position that we are in with the Scottish budget is a particular, peculiar Scottish problem. I can say categorically that it is not. Having sat in the room with the Welsh and the Northern Irish, I know that we are in exactly the same position. If anything, we have levers at our disposal that they do not. The Northern Irish do not have politicians to be able to articulate some of those issues, so they are in a particularly difficult position. We stand absolutely together in saying that the ability of devolved Administrations to manage the headwinds as a result of the constraints that we have is exactly the same whether we are in Scotland, Northern Ireland or Wales. We made that point collectively to the Chief Secretary to the Treasury.

There are no easy answers. There is no obvious tool sitting there that we have not deployed; we are deploying all the tools that we have. As I said, my door is open. If there are parties that want to have a genuine, serious discussion about the choices that we have to make, I am very much up for that.

Those are all really important questions. Considering taxpayer behaviour is a vital part of our tax policy decisions. You pointed to some of the academic and empirical research. There is quite a lot of uncertainty when it comes to estimating taxpayers’ behavioural responses. It is important to say that the Scottish Fiscal Commission is, of course, responsible for producing the independent forecasts for the Scottish budget. That includes taking a judgment on the scale of the behavioural responses, so that is already built into its forecasts.

We absolutely need to be cognisant of that. We have limited levers, and we have to deploy them very carefully. The decisions that we have made to date have taken all that into account. Of course, the issues around the decisions that people make about where to locate and why are quite complex. It is not all about tax. In fact, for a lot of people, it will not be about that; it will be about not only some of the other supports that they may get in Scotland that they would not get elsewhere but the many other issues that they need to take into account.

National Records of Scotland data show that we have net in-migration from elsewhere in the UK. Some of that is from the working-age population. We have to look at the empirical evidence and then make judgments in the round. It is a key issue, and one that we are looking at very carefully, particularly in the midst of pressures on household budgets and on the cost of living.

You are right. Obviously, we are looking at all those issues, and we will continue to do so right up to the budget. I think that, when I was last in front of the committee, I talked about some of the on-going work on all our programme spend and whether it all delivers on the priorities that have been set out. The First Minister clearly set out the policy prospectus, which followed through into the programme for government, with the three key missions of community, equality and opportunity. We asked ourselves whether those programmes, some of which have been around for quite some time, meet the test of those missions. We are continuing with that work.

On the other levers that are open to us, the limited tax lever that we have must be considered very carefully. We need to consider the consequences of any changes further to the changes that we have already made. As a consequence of the changes that we made in last year’s budget, £520 million was generated from income tax. That has been critical in helping us this year, not least because we have had the almost equivalent figure of over £500 million in additional pay pressures beyond what was budgeted for.

All those things have to be taken in the round. We are looking at the need for reform of the workforce in our organisation and across the public sector. How can our public services work better and more efficiently? That work has been going on for some time. The digital programme across the public sector has been working well in generating opportunities for more efficient services.

We will continue to look at how we can address a very challenging set of circumstances next year, when the budget will reduce in real terms, and we will have to look at using all those levers and at making some very challenging decisions. We will try to be as open and transparent about that as we can, and we will set out the conclusions of all that work as we get to the budget. I am very happy to try as best as I can to keep the committee updated on that work as it proceeds.

The new deal for business has been important in ensuring that business is round the table as a key stakeholder on an on-going basis not just for budget decisions but for decisions more generally around perception and what we say. The programme for government was explicit on economic growth for a purpose, such as the benefit that it can bring to all our citizens.

Perception is important. Investors will primarily look at what the return on their investment will be. At the moment, one of the important elements for not only the investor panel but other potential investors into Scotland is certainty around priorities for investment, strategic decision making and clarity on net zero, for example. That is what they are looking for. There is a lot of interest from private investors who want to come to Scotland to invest, but they need certainty and continuity on the proposition. That is why it is important to be clear about how we see Scotland’s renewable energy future and net zero investment, be that in district heating systems, the decarbonisation of buildings or electric vehicle infrastructure, for example. A lot of investors are very interested in some of those opportunities and, of course, in getting a return on the investment that they are making.

I should also say that business is very much involved in some of those pre-budget discussions. If you look at the new deal for business sub-group on non-domestic rates, for example, which Tom Arthur chairs, you will see that there have been a lot of honest discussions about the choices. There are differing views in business on where support should go and on whether it should be based on the sector or on the size and scale of the business. Those discussions are being had in that sub-group.

I get your point, and we need to make sure that Scotland is seen as a good place in which to invest. Those judgments are based on a range of factors, and we need to make sure that we pay attention to each and every one of them.

Work on the fiscal framework continues. It is quite complex, because there are pros and cons to every way of doing things differently. For example, you could have a rules-based framework in which the money is provided at the start of the year and that is it. There would be cons for local government in that position when you consider where inflation is and the need for us to offer in-year support beyond the budget, such as for pay.

I guess that local government is working through some of its own challenges. There is no perfect system. A lot of work is gathering pace around where the framework lands us. I do not think it will be the finished product for this budget because, by its definition, it is quite difficult and complex. The principles around it are “local by default, national by agreement”, so any further ring fencing must be by agreement, rather than us saying, “Right, well, that’s for that, and that’s for that”, and the removal of ring fencing will happen as a process rather than an event. There are some easier areas to remove ring fencing from that are not as contentious; there are others that are a bit more contentious, to be frank. If you look at funding for education—attainment moneys, pupil equity funding and so on—most of that goes to schools directly, so we need to work through those things.

The Verity house agreement provides an opportunity because everybody understands that the fiscal position is very challenging and that carrying on as we are is not an option. Therefore, one of the levers that we can support local government with is having more flexibility around the money that it has to meet some of the local priorities and make decisions that will be around local decision making.

We are also keen to look at whether there are additional revenue-raising opportunities for local government. Some are already in place, such as the empty property relief scheme and the transient visitor levy. There may be others, and we are really keen to look at those. There is a lag time with some of that because it takes time to develop those, but the principle of more revenue raising in local government is one that I absolutely support.

It is a good question. First, though, let me reiterate that the role of the Scottish Fiscal Commission is to be an independent body for producing those independent forecasts. As I said, it makes a judgment about the scale of the behavioural responses, so we have that external look. I know that lots of different evidence is provided, but that external, independent look is important.

You make a good point about how we, with the limited powers that we have, attract more people to live and work in Scotland. I think that you agreed with us on the rural visa pilot, which has gained cross-party support but is not agreed at the moment.

The evidence that we have so far shows net migration to Scotland, including by people of working age. That figure is not as big as I would like it to be, but it is in the NRS figures, and it is important that we keep a close eye on it. We are not resting on our laurels. The work of the population task force is important, and next year will see the launch of the talent attraction and migration service. That will support international workers in the migration and relocation process by saying, basically, “Come to Scotland and work, wherever you are from”. The service will be targeted not only internationally but at elsewhere in the UK and will have opportunities for people to utilise their skills in any jobs here. It will also help employers to target more effectively and navigate a complex system to attract people from outside the UK to come and work in Scotland. That service will be helpful. I assume that it will target sectors that need to bring particular skill sets to Scotland and that it will do that in a more effective, co-ordinated way. I am happy to come back to the committee with more information once the service is launched.

We are not resting on our laurels. We do not have control over migration, so what can we do? The one thing that we can do is work with the agencies that we have already established not only in Scotland but internationally to work through the new service to target and get the message out about the skills needed and job opportunities in Scotland.

No, not explicitly, but it is fair to say that the Welsh Labour Government will probably be making that point through its own channels. However, there is absolutely no difference between our position and that of the Welsh Government: it really constrains the time that there is to scrutinise the budget, not just for the Government but for the Parliament.

On top of that, the Scottish Fiscal Commission needs time to do its forecasts and gather the information that it draws on. That all leads to a very complicated landscape with very little time. It is not sustainable in the long term to have that constraint. We will continue to make those representations—as, I am sure, will the Welsh—to try to come up with a better set of arrangements. One of our asks has been earlier sight of some of the decisions beyond the formality of the autumn statement, and it is fair to say that we have had limited success with that. Some of that reluctance is due to the theatre of keeping back some of the information, but it would be really helpful to know the direction of travel in advance. Sometimes, we are picking stuff up as it comes into the public domain and trying to work out what it means for our budget. That is not ideal. We will continue to make those representations and we will see where we get with them.

I have some sympathy for that, but it would certainly have to be in the longer term, because what happens in the here and now is that services run in a particular way. If you wanted to move those services elsewhere and change how they work, it would take funding to make that change happen. That is quite challenging when funding is difficult, but you will get no argument from me about the value of every pound spent on prevention. I will come on to a couple of examples.

We have implemented some of the Christie principles. For example, if you think about youth justice, you see a very different pattern of service provision that has reduced the number of young people going to prison and enabled young people to find alternative ways to address harmful behaviour.

I am really excited about the pathfinders in Glasgow and Dundee on the principle of how to develop the system of social work as it is into the system that we want. With a bit of Scottish Government funding, which was actually quite modest, Glasgow has turned around its childcare system and social work support for children to the point of seeing a huge reduction in the number of children who come into care and an increase in those who can remain with their parents. Whether it is from the point of view of the family, the children or the budget, being able to maintain and keep families together?in a safe way, of course?reducing the number of children coming into care and improving the outcomes for those children ticks so many positive boxes. It is indisputable that that model could work well beyond Glasgow.

Dundee’s pathfinder in Linlathen is more about agencies getting out of their silos, working together, engaging with people—the staff do not wear a badge that says that they are from the Department for Work and Pensions, the council or wherever—and asking them what they need that would make a difference. Some of the answers from families about what makes a difference are quite surprising and are not what the statutory services might think.

Should we do more and could we develop something on preventative spend as part of the budget? We are in the foothills. I would like to do more, but trying to carve out the funding is an issue. The pathfinders show that it can be done by using modest amounts of money to unlock that big spend. We sometimes focus on bits of programme spend, but if we could unlock the billions that are tied up in systems at the moment and change the way that those systems work, we could be a lot more impactful in the outcomes.

How do we shift? That is the question. I, along with colleagues and local government, need to work out what trajectory of spend is needed to make the difference. Next year’s priority is the recruitment and retention of social care staff. If we do not get that right, we will not get the other bits of the system right.

Let me say two things about that. If we applied that approach across the board, you would not see any more folk coming into the NHS, social care or Social Security Scotland, which is still expanding its services. I was imparting to you that there needs to be a recognition that there are still some areas of growth. That does not mean that all areas of the public sector will grow—I will come to the figures for the core civil service in a second—but it does mean that a more nuanced approach is required to recognise that there are some areas, in social care, the health service and Social Security Scotland, that need to continue to grow.

On a point of agreement, if I can be helpful, part of the constraint on costs going forward is because the workforce in the public sector, regardless of which part, needs to be affordable. We cannot afford a workforce that there is not the money for, and that is a key element. Civil service numbers dropped marginally over the last reporting period, and workforce recruitment controls are in place across the civil service. There is a recognition that areas where there are new developments and policy areas may need to be treated differently from other parts of the core civil service. If you are asking me, bluntly, whether the size of the workforce will need to reduce over time, the answer is yes, it will. However, within that, there will still be areas where it does not reduce, for the reasons that I have just set out.