Chamber and committees

Good morning, and welcome to the 25th meeting in 2022 of the Finance and Public Administration Committee. I am in the chair this morning because the convener, Kenneth Gibson, has had a family bereavement. I am sure that I speak on behalf of the whole committee when I express our condolences at this difficult time for him and his family.

Under agenda item 1, does the committee agree to take item 3, which is consideration of draft correspondence, in private?

Members indicated agreement.

The next item on our agenda is an evidence session with the Deputy First Minister and Cabinet Secretary for Covid Recovery on Scotland’s public finances in 2023-24, as part of our pre-budget scrutiny. Mr Swinney is joined by officials from the Scottish Government—Andrew Scott, director of tax and revenues; Gary Gillespie, chief economist; and Scott Mackay, head of fiscal management and strategy. I welcome you all to the meeting and invite Mr Swinney to make a short opening statement.

Thank you. When we were in private session, I assured colleagues that I would be strict and fair with regard to time allocations, so I have to hand over to others at this point.

Thank you, Deputy First Minister. I agree with your position that, as far as possible, we should carry on with our usual budget processes. Consistency, clarity and certainty are all vital components of prudent and responsible budget setting.

I want to ask about a couple of points for clarification. Has the Government had communication or correspondence with the Scottish Fiscal Commission regarding the level of data that it has, or expects to have, and whether it feels equipped to carry out the budget forecast?

Also, you questioned whether the UK Government’s fiscal plans might need revising. Are there thoughts about potentially having to revise the Scottish Government’s resource spending review in the light of UK Government fiscal changes, and is there a mechanism for doing so?

I am sorry—I was not going to make it easy just because I like retail.

One thing that struck me was the fact that 20 per cent of business rates revenue is being paid by retailers when they make up, crudely estimated, about 10 per cent of the economy. That sets the context in stark terms.

I have another question. I understand your wariness of things such as a tourist tax, but I think that individual levies such as that can be useful levers for local government. To be candid, my worry is that introducing them one by one encourages local authorities to put them up to the maximum. I would rather see a basket of different levies. If we could design those correctly, could they not be beneficial by ensuring that money from local economic activity gets invested in those towns, cities and local environments? That should be beneficial for both the businesses that want to operate there and the people who want to live there. Is it about getting those levies right rather than them being wrong in principle? I would be interested if you or other people have a view on that.

I just wanted to make a wee observation to Catherine Murphy.

Your point about the systemic nature of inequality is absolutely spot on. It is disproportionately women who work in social care, for low pay. However, we are also seeing the costs of people who are stuck in hospital spiralling. I am constantly hearing stories of elderly people who cannot get home. The systemic aspect can be considered from a big or macro point of view, but also specifically. It would be interesting to hear your reflections on that.

I have a question for Stephen Smellie but, on the previous point, I think that one of the key issues that we have at the moment relates to how not just the private sector but the Scottish Government conceives of productivity and growth. They view public services almost as not being part of the economy, but the fact is that such services make up about 45 per cent of the economy and they are—or, at least, they should be—driving innovation and productivity. They should be the foundation for growth. One of my criticisms of NSET is that its vision of productivity and growth does not have a clear space for public services and the public sector.

Stephen, I completely agree with you about public sector pay. In particular, the very long-term squeeze on local government has had a direct impact on the pay of some of the most critical workers. We are now facing a real crunch, but I do not think that we are discussing it actively enough. The public sector pay bill is about £21 billion out of a total budget of £44 billion, and we have had vague suggestions from the Scottish Government that it wants to reduce public sector head count to pre-Covid levels.

To be blunt, I am really worried that there is a big crunch coming and that people are not being honest about it. There is, at the very least, one genuine challenge that needs to be met: people in the public sector need pay increases if they are to pay their bills, but that sort of pay bill at the macro or high level makes things difficult. Does Unison have a view on that? Do you share my fear about the lack of frankness on the things that are being considered with regard to public sector head count?

I want to make a brief comment about something that Stephen Smellie said earlier. It is important to note that a lot of Scotland’s higher earners are in the public sector. We have a different profile of higher earners, so some of the tax points do not have the same impact in Scotland and England. It is important to understand that.

Before I ask my question, I remind the committee of my entry in the register of interests. I am a director and sole shareholder in a company that has retail interests, which is probably understating the level of bias that I have towards the retail sector, frankly.

I have some key questions for David Lonsdale. I was interested in the point in your submission about non-domestic rates and the proportion that retail pays. Could you elaborate a bit further about the impact that non-domestic rates have on retail? Critically, to echo the drift of some of my colleagues’ questions, what do you think should replace it? It is one thing to say that non-domestic rates do not work, but should we be looking at something that is levied on revenue, or should it be a property-based or, indeed, a land-based tax?

Does the SRC or the British Retail Consortium have a view on what might be fair and, critically, what might be more in line or synergistic with economic growth, helping businesses and driving the investment in their local environment that rates might not?

The convener will be delighted that you arrived at the right answer by suggesting that he should convene that body.

I very much approach the budget and the decisions that we have with my small business owner’s hat on. We can look at all sorts of things in terms of complexity, but, to get down to brass tacks, a lot of it boils down to what the Government’s expenditure is. What is optional and what is not? What is fixed and what is variable?

It is clear from Audit Scotland’s submission that the Scottish Government’s £22 billion payroll cost for direct and indirect staff is its single biggest cost. That contrasts with things that are mentioned in the submissions from the bodies that are represented in front us today and from others, such as £1.5 billion-worth of spend on procurement. That is small beer compared with the payroll cost. What are Stephen Boyle’s thoughts on the Scottish Government’s options on head count?

Critically—this is also mentioned in your submission—the Government’s medium-term financial strategy assumes that the workforce will continue to grow at 1 per cent a year. To my mind, that stands in contrast to Government statements about reducing head count to pre-pandemic levels. What handle does the Government have on head count? Where is the Government thinking on how it will manage head count over the coming years?