Chamber and committees

I am merely trying to clarify the choices that you have made, and this is clearly one of them.

Just to clarify, my assumption was drawn from figure 3.17, where the teal line, which is your latest forecast, is significantly lower between 2021-22 and 2023-24 than the yellow line, which is your December forecast.

We all understand the underlying issues with oil and gas in the north-east. Your December forecast included quite a detailed regional breakdown that showed that that trend was also apparent in the south-east of Scotland, a place that we might have expected not to be in the same situation and which we might have expected would benefit from some of the same things that have benefited the south-east of England, such as the financial services industry. Has the Fiscal Commission carried out regional analysis and what does it show? Why are all the regions in Scotland suffering that lag, which seems to be more pervasive than in just the north-east?

Earnings growth and employment growth are fundamentally underpinned by growth in productivity. Figure 3.13 shows a downward trend in productivity growth since 2010. You state quite starkly in paragraph 3.39 that

“productivity growth has stalled in Scotland since 2015.”

I assume that that is largely tied to falling levels of investment in oil and gas. More fundamentally, you seem to imply that there is an inflection point in this financial year when we will start to see productivity growing again in Scotland. What lies behind that assumption? That almost gives us a hockey stick. I am always slightly concerned when I see such things in forecasts rather than in retrospect.

I have one final question, which relates back to a question that the convener asked and to your answer about what is likely to happen with inflation in future years. The convener made a comparison to the late 1970s and early 1980s. Am I right to infer that the fundamental difference is that we have a much more globalised economy, such that the spend on items that are rising in cost is not being cycled back round our economy but is going to other parts of the world, whereas, back then, in a much more isolated economy, it would have fed back round and provided headroom for earnings to grow? Is it the case that those revenues going elsewhere in the world, particularly to China, will dampen inflationary impacts, or am I doing too much amateur economic theorising?

I want to go back to the public sector head count. The aim is to return it to pre-Covid levels, and I accept and understand that you say that that will be done essentially through capping the total payroll at value, but not in terms of levels.

However, there will be a certain arithmetical outcome from that. As John Mason pointed out, half of the 30,000 staff are in the NHS, but its workforce will not be reduced. Therefore, in the remaining areas, there are two options: reducing people’s pay or reducing the head count. If you maintain the NHS head count at what it is, and that is half of the total number, that means that the other areas will need to reduce their head count by double the amount that they have increased it by. I just want to highlight that. From quarter 4 of 2019-20 to quarter 4 of 2020-21, there was an increase of 4,000 posts in the civil service, 7,000 in local government and 5,000 in public corporations. You refuse to be drawn on local government, but you do have control of the civil service head count. Will we see a reduction of 8,000 civil servants in the Scottish Government?

Thank you. One area that you disputed at your statement last week was the overall position on productivity growth and wage growth in Scotland. The Scottish Fiscal Commission is clear; in paragraph 3.39 of its report, it states that

“Productivity growth has stalled in Scotland since 2015.”

Likewise, on its projections of income tax receipts, the Scottish Fiscal Commission is clear that wage growth in Scotland is slower than the UK average. That is a trend that goes back to 2016 according to ONS figures; not a single Scottish region outperformed the UK average in that period.

Prior to 2016, Scotland typically outperformed the UK average. I am not talking about the higher performing areas of the UK, but the UK average. Do you accept that that is a fact, and is there sufficient focus on driving up jobs and wages? Ultimately, that is what we need to do to increase the amount of money that we have to spend on public services, and because it is a good in and of itself.

I guess it is a question of whether it is a correction or an on-going cycle.

Wages and productivity are inextricably linked—if you want to drive one, you have to deliver on the other. The demographic is definitely an issue in Scotland, but the fact is that the fiscal framework is, to a degree, indexed, so average earnings growth is the fundamental issue.

I do not disagree with what you have said about productivity, and I think that the NSET does a good job of narrating the issue, but I would still take issue with the view that it focuses sufficiently on solutions. Going back to what Professor Ulph said in the previous evidence session, I think that Scotland has a particular issue with labour market participation. He admitted that it was not clear what the issue was, but, as he put it, the overall labour force is probably the correct size, but it is not necessarily in the right places. That suggests to me that we need interventions that allow us to redeploy and reskill people and ensure that they maximise their wages, which is not just a matter of focusing on people who are out of the labour market altogether—although it is in part.

In that case, I have to wonder about the priorities in the spending review. You have highlighted the employability fund, but that is not the entirety of the skills spend; a significant proportion of the budget of the Scottish Fiscal Commission—I am sorry, I mean the Scottish Funding Council; I am getting my SFCs mixed up—goes to colleges, but that is flat cash through the spending period, with an 8 per cent cut. Likewise, universities make a significant contribution to skills, and Skills Development Scotland’s budget falls within the same budget lines. Again, those budgets are flat cash throughout the spending period, with an 8 per cent cut.

Therefore, there are at least four budget lines—four areas of spend—that contribute to skills and ensure that, as Professor Ulph put it, people are in the right places in the labour market. However, only one of them is going up—the other three are being cut. Is that the right priority, cabinet secretary?

However, if you drive up earnings faster than in the rest of the UK—you cannot do that in the short term, but it is not an unreasonable medium-term ambition—you can increase the amount of money that you have to spend. That can certainly be done within a five-year time period. Is that unreasonable to expect? You certainly cannot do that if you cut skills funding.

I agree with all that, but we will make progress only if we do detailed research, both quantitative—we need more refined data about how the situation varies by sector—and qualitative, which involves considering what those transitions look like. You have described the problem, but we need to carry out research to identify the solution.

I will pick up on something that you just said, which is absolutely spot on—too many people in Scotland are stuck in low-wage jobs. Picking out what the Resolution Foundation has said in recent weeks, I find it slightly horrifying that, although headline wage growth is happening at pace, if we factor in inflation and remove extraordinary wage payments such as bonuses, the poorest paid are actually seeing their wages shrink quite considerably in real terms.

At a time when so many relatively well-paid areas of work are screaming out for people, is there not a role for much more focused and direct interventions? This is a rather crude example, but how many people with a truck driver’s licence could earn £40,000 compared with the minimal wage that they might be on now for want of a training course? Do we need to be a lot more direct, focused and surgical? Although I absolutely agree with what you are saying about the modern apprenticeship, it takes several years to complete and it is quite inflexible. Do we also need a more surgical labour market intervention to get people into work where they are needed and, critically, where they can earn higher wages?