Chamber and committees

That reflects pay awards, appointee costs following the introduction of curriculum for excellence, to ensure alignment with the real living wage, inflation and other operational costs as well—it is for pay awards, inflation and various other operational costs.

As you would imagine, it will be invested in a range of areas of capital expenditure. As I touched on a moment ago—and I think is more broadly reflected across the autumn budget revision—we are operating in an environment where capital budgets are under significant pressure. Of course, the position that we are moving into in the next financial year is compounded by the reduction in the capital that we will receive from the UK Government over the medium term. Craig Maidment or Scott Mackay, do you have the figures on the capital position in relation to the overall NHS capital allocation at hand?

That just reflects the challenges within the construction sector on these particular capital projects. These are macro factors that are not within our control. We have to be able to respond to the economic environment we are in.

You asked a specific question around Scottish Water, convener, and I will ask Scott Mackay to come in on that.

We have set out the elements that are ring fenced. We have a commitment, through the Verity house agreement, to establishing a fiscal framework for local government. That is work that we are committed to seeing through and are working at pace to deliver. Where we are in the process of setting a baseline for 2024-25 represents a point on a journey. I know that there is interest in Parliament, in the committee and, certainly, in local government in continuing discussions about what further progress we can make.

We provide some commentary on that in the guide that we have provided to the committee. There is informal information that can be shared at official level and there is engagement between the Deputy First Minister and Cabinet Secretary for Finance and the Chief Secretary to the Treasury through the finance interministerial standing committee. There are such opportunities but, as was touched on earlier, uncertainty is inherent in the process, in that our earlier assumptions around capital and negative consequentials have not, ultimately, prevailed.

Ultimately, that reflects the way in which the wider UK fiscal framework operates. In respect of supplementary estimates, we find out what our final allocations from the UK Government will be very late in the financial year. We seek to provide as much information as possible to ensure that the budget, as amended for the financial year, reflects the position as we understand it. Of course, the position is not finalised until the end of the financial year—or even beyond it. That is challenging, so we seek to strike a balance. I acknowledge that, within that, judgments have to be made, but the situation is, ultimately, just reflective of how the UK fiscal framework operates. Scott might want to add to that.

The money is being allocated in-year and is part of the spring budget revision for 2023-24.

It certainly could be beneficial, but availability of capital is, of course, only one element: many other factors determine the viability of capital projects. We recognise that there have, in recent years, been challenges in terms of supply chain shortages and inflation. Pressures within the construction sector can have an impact, as well. Capital resource being available is not necessarily in itself a guarantee that an organisation’s project can progress at the pace that it would want.

Broadly speaking, given that the challenge that we face right now is that lack of capital is constraining what we want to do, the additional flexibility is welcome. As that grows over the coming years, it will be of benefit.

Would any of us start from this position? I do not think so. Clearly, we operate within the broader UK fiscal framework. I cannot give you a prescription for a revised approach for the whole UK. The situation presents significant challenges. I think that an approach by the UK Government that was more cognisant of the impact on the devolved Administrations and their significant responsibilities would be in everyone’s interests. That is not a political point—it is a technical point about how we do things, which I think could be improved.

Clearly, the situation creates challenges. We are getting towards the end of the year and are anticipating negative capital consequentials. What should we do when we are anticipating negative capital consequentials and have a requirement to balance the budget? Let us remember that we cannot spend a penny over budget and that we have very limited capacity to carry forward budget—barely more than 1 per cent—through the Scotland reserve. I have characterised the situation previously as trying to land a jumbo jet on a postage stamp. There are challenges.

There are various ways in which that could be improved—I am sure that the committee will have various views on this—but ultimately, the case more broadly is that every aspect of the public finances in Scotland is driven by decisions of the UK Government. The process, which does not get as much attention, and which we are considering this morning, also creates challenges.

Ultimately, there is asymmetry in respect of information that the UK Government has and information that we get. We have to make decisions based on assessment of risk and we have to take a cautious prudential approach and ensure that the budget balances at the end of the year. That creates challenges. I do not think that it is inevitable that we should have challenges because of processes related to devolution within the UK. Those things could be addressed, and the matter is worthy of consideration. Certainly, if the committee has particular views on it and wants to engage either with us or the UK Government, I would be very interested to have such discussions.

I cannot give you a specific analysis of the time value of those resources compared with what it was 12, 18 or 24 months ago. There will be broader statistical analysis of the overall impact of inflation within the construction sector and its impact on capital projects. I am happy to source that and provide it to you.

It just reflects the particular circumstances that attend these particular projects. As I have said, the commitments are there, but—and I touched on this earlier with regard to capital—different aspects and factors can have a bearing on the actual timeline for delivering capital projects. I think that such elements—indeed, we touched on the same thing with regard to business cases—are reflected in some of the decisions taken in that particular portfolio.