Chamber and committees

Essentially, the money does not come in with an intended purpose; it comes in as a consequential and the Government decides how it will be spent. For completeness, I have set out that, in order to meet the financial pressures that we face, we are allocating this within the wider budget management of the Scottish Government, which, of course, deals with a range of requirements, such as tackling child poverty, dealing with the cost of living and supporting individuals with their energy costs through the fuel security fund and various other measures of that type.

It does not really operate in that fashion, because, as Mr Balfour said earlier in his questions, the money comes into the wider pot of public finance and, from that pot, I have to support a range of programmes. We would not be able to afford the budget provisions that we have if I was not allocating the £82 million towards the range of programmes that are supported across the Scottish Government. It does not come in badged in a particular fashion that enables me to say that £10 million of that £82 million has gone towards this or that. It is part of the general financing of the Scottish Government’s budget. All these issues are reconciled in the annual budget, the autumn budget revision and the spring budget revision.

The two points that I will address on energy costs and welfare were made powerfully by the statement from the International Monetary Fund on Tuesday evening. In essence, the International Monetary Fund argued for targeted intervention. One of the weaknesses in what the United Kingdom Government is doing is that the measures are not sufficiently or specifically targeted so, as a consequence, they contribute to the financial volatility that we are experiencing.

People on low incomes are at a significant disadvantage in terms of their ability to cope with significant increases in energy bills, when compared with people who are more financially secure. Therefore, we would have liked the energy cost provisions to have been much more firmly targeted at people who are in fuel poverty. We are now seeing extensive growth in levels of fuel poverty in Scotland as a consequence of the situation.

On the wider questions about household income, a straightforward and effective measure—for which there is precedent—to tackle the issue would be an expansion of universal credit. That is an intensely targeted measure. The Scottish child payment, which is a product of our intervention, is intensely targeted at people who face financial challenges.

Those are areas in which we could use more focused intervention by the UK Government, which would create much better-targeted benefit for people who suffer the most.

I am increasingly worried about spending constraints, and I am even more worried having heard what the Treasury was briefing last night about them.

The consequence of last Friday’s mini-budget has been a loosening of fiscal policy. I disagree with a large number of the measures in it and the approach that has been taken. The way in which it has been done is disastrous. Fiscal policy has been loosened and there has been no explanation of how it will be delivered in a sustainable way. I am not in any way surprised that the markets have responded as they have, because that is the height of fiscal irresponsibility. If the UK Government wants to recover from its fiscal irresponsibility, it will have to fiscally tighten. That will come down on spending. That is a disaster for us, because the block grant pays for the child payment. If the UK Government decides to tighten budgets that affect English departments, that will tighten the budget in Scotland.

The point that Natalie Don has put to me is 100 per cent correct. The fiscally irresponsible decisions that were taken by the UK Government last Friday will have to be rectified if it is to avoid a financial crash. In doing what it has done, it will tighten the budgets in Scotland. What we face, as a consequence of raging inflation—which, again, is the product of fiscal irresponsibility—is going to become a much graver problem in years to come, as a consequence of those decisions.

I certainly agree with one part of the statement, which is that mitigation comes at a price. The Scottish Government is meeting the costs of mitigating a number of United Kingdom Government measures.

I am not sure that I quite accept the point that mitigation is not sustainable, because I view it as my duty to make it sustainable—because I want to protect people as much as I can from the hardship that is inflicted on them. However, I accept that there are limits to fiscal sustainability. I find myself quite close to that, at this moment.

I have had to come to the Parliament, and I am here at committee, to explain the rationale for that. If I do not address now the current level of financial pressure, I will be in danger of not being able to balance the budget, this year. I have a record of fiscal responsibility; I believe in fiscal responsibility. That is why we are doing what we are doing.

I am working to ensure that we operate in a sustainable fashion because measures such as the Scottish child payment, which I have just discussed with Natalie Don, are absolutely fundamental to the commitments that we can make to the most vulnerable people in our society to support them through a difficult period. The Scottish child payment is a fantastic intervention. However, it would not be necessary if universal credit was at a credible level; we would not have to face such things in our budget if universal credit was at a more credible level.

When it comes to quantifying the effects of mitigation, it is probably safer to write to the committee with an estimate of that calculation. However, measures that are being applied by the Scottish Government, such as the child payment, total very close to £200 million. Actually, the updated forecast on the Scottish child payment is £219 million for this financial year. That is partly because we have accelerated payment and have brought the increase forward to 14 November. That is one element.

Ms Roddick will be familiar with the fact that the Government mitigates the bedroom tax, which is a critical measure in alleviating one of the more pernicious aspects of the UK welfare regime. A range of other measures are in place. For completeness, I should probably write to the committee with a detailed answer on that point.

That is not just about Social Security Scotland. It is implicit in the resource spending review that we have to very carefully manage the size of the public sector workforce, which grew dramatically during Covid. We have to ensure that it is sustainable on an on-going basis.

Discussions are on-going with all elements of the public sector about levels of workforce, the commitments that need to be fulfilled and the sustainability of budgets. That will be an on-going priority and as budgets are set, the committee will have the opportunity to scrutinise any decisions that flow from that as part of the management of the workforce and its size.

The implications of the United Kingdom Government’s mini-budget last Friday in Barnett consequentials for this financial year—I stress that the conversation that we are having is just about this financial year—total £35 million. Those are a consequence of the changes that are being made in stamp duty.

I have taken no decisions about the consequentials. I am, to say the least, uncertain about whether the changes that were made last Friday will come to pass, given the fact that enormous market volatility is being experienced. However, that is the available impact on this financial year and I will consider those questions as I formulate the provisions around the emergency budget review.

For completeness and accuracy, I stress to Mr Balfour that the emergency budget review will consider the issues around balancing of this financial year’s budgets. Budget statements will be made later in the year in the normal sequence of events and will be accompanied by the normal level of forecasting that Parliament would expect.

I consider all that information because, as a member of the Cabinet, I carry collective responsibility for the Government’s objectives. Therefore, the success of the Government’s programmes, in whatever area of policy they happen to be, matters to me, so I want to ensure that we can be successful. I was heavily involved in the formulation of the child poverty delivery plan, for example, and such issues are material to me in the conduct of policy. However, I come up against hard financial choices. I understand the concerns that people will have about the scale of increase not being as great as we would like, but in a difficult context, I think that this is a rational policy choice, because we have available capacity within existing programmes to support our endeavour.

However, we may not be able to put as much resource into this as we would like to, given the financial pressures that we face, and that is the dilemma that I am trying to square. Ultimately, I have a legal duty to balance the budget, but there has been an increase in financial pressure that has come from a number of places. One is the erosion of the value of our budget because inflation is more than double what was predicted, which undermines the value of our budget to the tune of £1.7 billion. There is also a necessity to resolve public sector pay claims, which are coming in at a much higher rate than was anticipated in the budget. I have to find resources to balance all that, and, in that context, we have to make considered policy choices. Those choices might be difficult and have wider ramifications, but I am trying to make choices that protect the programmes that enable us to pursue the policy agenda to which we have committed ourselves. However, I will keep those issues under review.

Mr Fairlie will be familiar with the range of powers and responsibilities that the Government has within the parliamentary system. Of course, one of the key limitations is that we do not have the capacity to borrow for resource spending purposes, other than for very limited purposes in relation to financial management. Therefore, in the scenario that Mr Fairlie has put to me—a pandemic emerging that would require additional public expenditure within a financial year—in order to prioritise dealing with such a pandemic, the Government could provide support only by taking resources that are allocated to other areas of expenditure. Obviously, I would hope that if there were to be an event that happened at United Kingdom level, the wider workings that we saw during the Covid-19 pandemic would be relevant and would be applied. Obviously, the Government would co-operate with that in any future scenario.

The reason why that needs to be done is that we have to use all the means available to us to support public servants, many of whom work for integration joint boards, to deliver healthcare in our society following increased pay deals to deal with the consequences of inflation.

I do not need to explain this to Jackie Baillie, but I will, just for completeness. The Scottish Government cannot borrow for resource purposes, and we cannot change tax rates during the financial year, so unless the UK Government expands the resources that are available by changing the spending envelope, no extra resources will be available to us.

During my conversation with the Chief Secretary to the Treasury on Friday, I took the opportunity to press the case for increases in public spending. He was entirely unsympathetic to my appeals for that step to be taken, so the Scottish Government must, because we do not have access to flexibility, look at various ways in which we can utilise resources in order that we can afford increased pay claims and address other pressures within the financial year. What Jackie Baillie cited is one example of the steps that the Government has to take.