Chamber and committees

On the current financial situation and the issues with which I am wrestling, the Cabinet Secretary for Finance and the Economy, Kate Forbes, and I have written to UK ministers and various Chancellors of the Exchequer. There have been a few in the past few weeks, and we might have more. We have done so to make the case that the effect of inflation has been to erode the value of our budget, and to make an appeal, which I have done with my counterparts from Wales and Northern Ireland, for an uplift in budgets to deal with public sector pay pressures and the pressures of inflation. That is necessary: our budget will not change unless there is a positive change in English public expenditure during our financial year.

Essentially, we have a fixed budget once the tax year starts. I am required by law to set a tax rate, which cannot be changed during the financial year, so tax cannot change. I characterise our powers as cash-management resource borrowing powers. They do not allow us to accumulate a resource borrowing capacity. Therefore, we are, essentially, dependent on any changes to budgets that are made in England.

We have written a series of letters to chancellors and Prime Ministers, but we have received no responses. On Friday, I spoke to the Chief Secretary to the Treasury in the aftermath of the mini budget. The chief secretary made it clear to me then that he is insisting on application of the current comprehensive spending review, which means that there will be no uplift to budgets.

I notice from overnight news information that the chief secretary has now written to—or is in the process of writing to—Whitehall departments to require reductions in expenditure. That is not an encouraging sign for what lies ahead in relation to expenditure in future years.

As I have said to Parliament already, the pay deals that we are having to put in place because of the effect of inflation should be looked at. Members of staff and public servants are concerned about their financial situation, and they want some protection from inflation. I was extensively involved in the local government pay settlement dialogue, and I am glad that we got to a conclusion on that. We estimate that we will have to find, from the public purse, £700 million more for pay than we had anticipated. I am having to make many changes to ensure that we can afford things. The local government pay deal significantly enhances the position for staff on low incomes: there are significant increases—in excess of 10 per cent—in the pay of low-income members of staff, which I very much welcome.

That still does not amount to an awful lot of money for those individuals and it is nothing like what some affluent people will get through the tax cuts that were announced last Friday, but it is welcome progress, nonetheless. Those decisions put financial strain on our budget, and the concerns have been echoed by my counterparts in Wales and Northern Ireland, who operate within exactly the same constraints.

They are two slightly different numbers. The £1.7 billion is, in essence, the erosion of the value of our expenditure. The £700 million is hard money; it is money that has to be found.

On Pam Duncan-Glancy’s first observation, I take a very different view about the constitutional arguments, because I think that they are central to the dilemmas that I face. The analysis that Emma Roddick put to me about the ability of the Scottish Parliament to exercise the full range of powers is absolutely correct—for example, yesterday the Irish Government set out a diametrically different budget—

I was not talking about those organisations; I was talking about members of the Scottish Parliament. Members of the Scottish Parliament have hard choices to make, and it is, frankly, not much use for members to complain about the choices that I have made without giving me alternatives.

I have been completely transparent with Parliament. There was, for example, no obligation on me to come to Parliament on 7 September with a statement about the financial position and setting out the range of changes: I could have just done it all in the background, in an autumn budget revision. There is very little public commentary about autumn budget revisions, so I could have just done that, but I did not. I came to Parliament openly and transparently and shared the problem and my view of the solution. It is then incumbent on members, if they do not like the solutions that I have come up with, to tell me how I should do it differently.

In the process, I will engage with all manner of groups, and I am very happy to listen to them, but, with respect, I have not seen a scintilla of an alternative in terms of what I should be doing.

Obviously, we carry out a great deal of discussion with organisations about the formulation of our budget priorities, so that we have a good awareness of the issues. For example, when we were taking decisions about setting out plans for expanding the range of employability services as part of the formulation of our wider programmes, we engaged with a range of organisations so that the Government had knowledge of what was involved in such programmes.

We have strong monitoring information on the capacity of existing programmes that will be untouched by the changes, which shows that there is still adequate capacity in those programmes to enable them to deal with referrals of individuals. In our existing programmes that are untouched by the changes, there remains capacity to support individuals who require employability assistance. On the basis of those assessments, I came to the conclusion that the Government could make the saving and that we would be able to manage the implications, because we still had capacity within our existing programmes.

We considered a combination of those things. In essence, the earlier budget estimates assumed a greater recovery in public transport patronage post-pandemic than has materialised. I again stress that it is an entitlement, so if it translates into more costs, I will have to address the issue in the course of further judgments that are made during this financial year, which would simply add to the pressures that I wrestle with at a different stage in the financial year.

We looked at the comparison between pre-Covid levels, Covid levels and, to use this terminology, Covid recovery levels in order to form the best estimate. I am not going to sit in front of the committee this morning and say that I am 100 per cent confident that we have that absolutely precise. We will continue to monitor it as the year progresses and, if there is a need to put in further financial support, of course, we will do that.

That sums it up in a nutshell. I have a long track record in this Parliament and as a minister. I served for nine years as finance minister and now find myself—very surprisingly—back in the finance area of activity. I have never seen financial strain and pressure like that which I am seeing and wrestling with just now. I do not use those words lightly. I managed through the financial crash and the years of austerity under George Osborne and Danny Alexander. I left the finance brief in 2016 thinking that we had perhaps managed to mitigate the worst of austerity, but that was as nothing compared with what we are now wrestling with.

The fundamental point that Emma Roddick has put to me is that a centre-left Government that believes in progressive values and wishes to secure a fairer and a greener future for our fellow human beings in our community finds that ever more difficult with the agenda that is being pursued. I would actually not accuse the UK Government of being “conservative”, because certain protections of core values are associated with conservatism, but I did not recognise that happening in the financial statement last Friday.

In relation to the choices that we face, it is important that I re-emphasise a point that I made in my opening statement. At this stage in the financial year, the range of options that are available to me is really rather limited because of the contractual and legal commitments that are made, in any circumstance, during the financial year. When we get to the mid-point in the financial year, significant programmes have already been allocated and undertaken, so room for manoeuvre and our choices are quite limited once we reach that stage.

My second point is on the employability budget, which will increase in this financial year—if my memory serves me right, it will be of the order of a move from about £56 million to about £71 million. It is just that the scale of the increase will not be as great as we had originally planned, which was that it would go from about £56 million to about £120 million. Regrettably, I have had to remove £53 million from that budget. Since that expenditure was not legally committed to any organisations, and given the growth in the budget and the fact that we are experiencing persistently low unemployment at this stage, I felt that I could afford to make such a budget saving, on the balance of risk. Ultimately, I have to take such decisions. Although I would have wanted to avoid that one, it is a necessity that we must confront.

My point to Pam Duncan-Glancy was that the existing provision of services is maintained. For example, the work that is undertaken in the employability and workforce skills programmes—such as the no one left behind scheme and the employability fair start Scotland work—all remains in place. It is just that a planned increase in expenditure is not taking place as a consequence of the pressures that we face. The employability budget lines were projected to increase from £56 million to £125 million. Instead, they will increase from £56 million to £71 million. It is simply that an expansion of capacity has not been undertaken.

The plan was for us to try to make greater inroads in supporting people who are currently economically inactive to become economically active. I take the view, which is not universally held, that people who are economically inactive require significant holistic support to assist them into employment, because it is unlikely that it will be a straightforward journey. There is plenty of opportunity in the labour market just now so, if people are economically inactive, there is likely to be a wider contextual challenge. We had been planning to expand some of that support—which, by its nature, is likely, per capita, to be a more expensive degree of intervention—to try to make greater inroads into the economically inactive population. The budget restrictions that I have had to put in place are likely to mean that we will not be able to do as much of that as we wanted to do.