Chamber and committees

Tackling poverty and inequality is one of the three top priorities in the budget. In fact, such is our commitment and effort, we have perhaps not funded other things in order to maximise the support for tackling child poverty in particular and poverty and inequalities more generally. Shona Robison will be able to speak at length about the commitments in her portfolio. I can speak about the funding that backs that up to ensure that we are tackling poverty and inequality. Local government is the most critical partner in that. Whether we are talking about support in education, free school meals or doubling the Scottish child payment, those are all financial commitments that the Government is choosing to make. That means that there is less funding for other things but that is the right decision to make because of our commitment to end the scourge of poverty in Scotland.

Shona Robison is probably better equipped to speak about the policy commitments because it is her portfolio.

Actually, it is more than that—we have announced £375 million. As you will know, a lot of it is from the UK Government, and £200 million is from our budgets. That comes from a number of sources. I think that the First Minister has set out that some of it is from the health portfolio, through consequentials that were received earlier in the year, and it also comes from a requirement for every portfolio to contribute to the costs. Every portfolio is now managing budget pressures in order to get to a position of balance this year.

I cite the fact that, in previous budgets, some of the funding for the following year has been based on carry forward. For example, as we come towards the end of the financial year, we can sometimes look ahead and identify where there might be late money that we can carry forward. In this year’s budget, there is no forecast headroom at all that can be carried forward into next year’s budget. From that perspective, this is an unusual year. The fact that no funding has been identified that we can carry forward illustrates just how challenging next year’s budget will be and how challenging this year’s budget is.

I will make one brief final point. One advantage of having an early budget is that we can give more certainty to taxpayers, local authorities and so on. However, there are drawbacks. The later you are in the financial year, the more certainty you have of where you will land in the current financial year. Because we set the budget so early, we base it on forecasts, which this year say that there is no headroom available to carry forward to next year.

If there are late consequentials, we expect supplementary estimates in the next few weeks from the UK Government when it finalises what this year’s budget looks like. If there is anything available from that, we will either need to use it for pressures this year or there might be something that we can do into next year, but that will be quite late on in the process.

The methodology takes account of population, among many other things. I might bring in Ian Storrie to talk more about what the methodology includes and does not include. However, to go back to a comment that I made in response to a previous questioner, I am open to reviewing the methodology. Every local authority has unique circumstances. The Highlands, where I am a resident, might have fewer people, but there are a lot more miles of road that need to be maintained. In Edinburgh, there might be a higher population and different challenges. Ayrshire will have its own unique challenges.

The methodology is hugely complex, because it tries to take into account all those unique circumstances, and, as I said, there are special allowances for the islands, over and above the methodology. The methodology endeavours to do that, but I am not beholden to it. If there was an appetite to review it, I am open to that. I have already had conversations with local authorities that are seeing exponential population growth—or decline—about ensuring that the methodology takes that into account.

If the convener does not mind, Ian Storrie might want to say more on what the methodology includes and does not include.

We have set out our public sector pay policy. I have been up front and open with the unions that I cannot inflation proof all elements of the public sector pay policy and that we have chosen to prioritise the lowest paid to ensure that those pay policies are inflation proofed.

Pay is a matter for local government—I have responded to Mark Griffin many times on that point. Pay for local government employees is a matter for the local authorities, which are responsible for managing their own budgets. Pay for local government staff will be negotiated between the trade unions—GMB, Unison and Unite—and COSLA through the Scottish joint council.

Local government employees have responded heroically. Day in and day out, I have seen their work on the front line, distributing welfare payments or business support grants. I would like a scenario in which all key workers are recompensed for the work that they do, but I have responsibility in our public sector pay policy—obviously not applicable to local government—and we have set out our own policy choices.

To echo Shona Robison’s comments, industrial action is in nobody’s interests. There is a process of negotiation through the Scottish joint council, of which the Government is not a member. I engage regularly with Gail Macgregor as the COSLA finance spokesperson with regard to financial challenges and budgetary conditions, but pay for local government staff is ultimately a matter for negotiation between COSLA and the unions.

I heard those comments, and they reminded me of previous exchanges that we have had. If you will indulge me, it is worth saying that the accounts again attracted an unqualified audit opinion from the Auditor General, which is a sign of strength when it comes to the accounts.

How do we track the Covid spend? That is really difficult, and I will be open and honest with you about how difficult it is when it comes to the moving parts. In the past two weeks, we have seen a perfect example of how complex it is. Funding announcements were made, and the Scottish Government said that that money was not new spending power. New announcements were made, the Scottish Government said that some of that money was new spending power, and we set out how we were going to spend it.

The nature of our budgets at the moment is incredibly fluid. I would love it if we had a more mature debate in the Parliament about the nature of our budgets. As soon as I made the announcement about additional funding, the first calls were to ask what we had cut, and people were ready to lambast us for what we had cut. The nature of a budget is that things go up and down, and I would like us to have a more mature discussion about that.

I am open to ideas and recommendations about what we should publish. Two weeks ago, on budget day, we published a medium-term financial strategy, a five-year outlook, a public sector pay policy, our ambitions for tax and the budget document. That is all proactive and ahead of time. Now, we have published the accounts. This year, the accounts have received far more attention than they nearly ever do. The outturn statement seldom receives much, if any, attention, but it tells you what we actually spent, not just what we said that we were going to spend.

There are a lot of documents out there but, unfortunately, headlines emerge that are not always based on the hard fact within the documents. Perhaps that is because of political takes—I am not targeting that at the member who asked me the question, because he always does so in an intelligent and carefully considered way. If there is more that we can publish, we will do so. However, anything more that we publish will not be permanent; it will be a snapshot that will be out of date by the time of the next announcement, because that is the nature of budgets. I do not want to draw comparisons with being a shopkeeper, but unexpected things happen; budgets are only as strong as the ability to forecast perfectly, and none of us can forecast perfectly.

To cut a long story short, if there is more that I can publish, I will happily do so, but our on-going budget management is really difficult. That is why we have two points in time—the autumn budget revision and the spring budget revision—when we nail down where the budgets are at, rather than providing a running commentary on the nature of the budgets internally.

The issue with higher-rate taxpayers paying the marginal tax rate of 53 per cent on income between the Scottish and UK higher-rate thresholds is, to my mind, another sign of the inadequacy of the devolution settlement. That issue is exacerbated by the decision to introduce the health and social care levy next year, which means that those taxpayers are facing a combined marginal rate of 54.25 per cent. I wrote recently to the Chief Secretary to the Treasury to request that the national insurance upper earnings limit for Scottish taxpayers be aligned with the Scottish higher-rate threshold, but that has not been granted.

My sense of it is that, if we believe in the full devolution of income tax—or even if we believe in the full devolution of non-savings, non-dividend income tax, which is what has happened—we also need to have a voice about the other areas of tax policy that interact with that. You have just talked to me about the interaction with national insurance contributions. There are also interactions with pensions and with some of the allowances. It is just that, often, the national insurance contribution issue dominates.

However, I will take a step back: we have chosen, as I think is clear, to make income tax fairer and more progressive. Therefore, the majority—54 per cent—of taxpayers will pay less income tax next year than they would if they lived elsewhere in the UK. However, that is balanced by the fact that we are asking those who can afford it to contribute a little bit more. In return, those living in Scotland continue to have access to a wider and better-funded range of public services in the UK, whether that is prescriptions or tuition fees.

The funding is certainly not coming from underspends, because this year’s budget is particularly tight. It actually comes from a whole range of different sources, and it has been painstakingly built up from funding that had been earmarked for different initiatives and schemes. In my own budget, there were elements for employability, while in the health budget, there was other business that was going to be undertaken. Those things still need to be done, but they will need to be managed over a longer timeframe rather than being stopped completely. However, I think that we will get into the territory of having to stop things completely if no more funding is forthcoming.

No. It would not be available anyway, because it is all about our internal management of budgets. The key is the autumn budget revision, which we have just had, and the spring budget revision, in which every penny will be accounted for in a transparent way, particularly with regard to transfers. In other words, you will at that point see transfers from the area for which the budget had been earmarked to the area where it will be spent. At a time of quite considerable flux, any breakdown would just be a snapshot, and I therefore point you in the direction of the spring budget revision, not least because there might be additional announcements tonight. The fact is that, as soon as you publish one thing, it is out of date, but the spring budget revision will be the point at which you will be able to see all the allocations and transfers and to hold us accountable for our decisions.

What I am discovering is that, in times of Covid, an hour is a very long time. Anything could happen. This time last year, the UK Government told us that there would be no additional pennies and then—within the hour, I think—something like £400 million was announced.

There are no guarantees at this point in time but, based on what I know right now about the budget, I find it difficult to believe that there will be much, if any, resource underspend. If there were to have been, we would have factored it into the carry-forward and baked it into the assumptions for next year’s budget, which, for the first time in probably two years, we have not done.