Official Report 629KB pdf
Good morning, and welcome to the 10th meeting in 2026 of the Finance and Public Administration Committee. We have received apologies from Patrick Harvie.
The first item on the agenda is an evidence session on the Scottish spending review and infrastructure delivery pipeline 2026. We are joined by Shona Robison MSP, Cabinet Secretary for Finance and Local Government. The cabinet secretary is accompanied by the following Scottish Government officials: Richard McCallum, director of public spending, and Cathy Sumner, head of the public spending team. I wish all three of you a good morning and welcome you to the meeting. Before we move to questions, I invite the cabinet secretary to make a short opening statement.
Good morning, everyone. I welcome the opportunity to discuss the spending review and infrastructure delivery pipeline. I am grateful for the committee’s engagement so far on those publications as part of the budget scrutiny process. Alongside the 2026-27 budget that was introduced on 13 January, there are a range of other important fiscal publications.
The Scottish spending review outlines resource spending plans for 2028-29 and capital plans for 2029-30, and is the first combined resource and capital spending review since 2011. The infrastructure delivery pipeline sets out the projects and programmes that will be supported through those spending decisions, providing a clear view of the investments that will underpin long-term resilience and economic growth. I hope that the United Kingdom Government continues to commit to regular spending reviews so that future Scottish Governments can also bring forward multiyear plans.
We face an extremely challenging fiscal landscape. At the time of publication, our resource block grant was forecast to increase by an average of only 0.5 per cent per year in real terms, while our capital block grant was forecast to fall by 0.3 per cent in real terms over the spending review period. Current events in the middle east may have a significant impact on prices and the economy. The Office for Budget Responsibility forecast last week did not reflect that, but there are real risks for inflation and growth, which could affect public sector costs and funding in Scotland.
As I have said before, we have very limited levers for managing budget volatility. That underlines the need for greater fiscal flexibilities, which I am keen should be pursued as part of the next fiscal framework review. Nonetheless, we have developed multiyear plans that are based firmly on our core priorities of eradicating child poverty, growing the economy, tackling climate change and ensuring sustainable, high-quality public services.
In preparing the spending review, we have considered the views of external commentators and stakeholders, including those of the committee, and we have aligned our spending review with that of the UK Government. We have clearly outlined how our spending supports our priorities and integrated public service reform.
I know that the committee will want to discuss the level of detail that is provided in the spending review, and we carefully considered the merits of providing more granular plans. Although I appreciate the view that figures at levels 3 or 4 across all portfolios could further support multiyear planning, I have to balance that with the flexibility required to respond to volatility over a multiyear period. For that reason, although we have provided more detailed plans in the largest spending areas, most portfolio budgets are published at level 2. I note that that goes further than the UK spending review, which provided plans at departmental level.
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For the first time, the spending review includes detailed portfolio efficiency and reform plans that set out how portfolios will deliver around £1.5 billion of cumulative savings over the period, through reform, productivity and efficiency, while protecting front-line services. These plans provide a clear portfolio-by-portfolio account of the actions that are being taken to deliver the ambitions of the fiscal sustainability delivery plan and the public service reform strategy, and they represent a step change in transparency. The increased level of detail has been welcomed by the Scottish Fiscal Commission, the Institute for Fiscal Studies and other stakeholders, which have recognised the clearer articulation of how savings will be achieved. We will build on that work, focusing on delivery, monitoring and assurance, and we will report publicly on progress as plans mature to ensure that they remain credible, achievable and aligned with our wider reform agenda.
The infrastructure delivery pipeline builds on our strong track record of delivery and sets out more than £11 billion of investment that will drive Scotland’s growth and development. It sets out that we will continue to explore revenue finance models to support the delivery of our infrastructure plans as we seek to make the most of public funding. With limited capital budgets, it is important that we look at all funding options.
Later this month, I will attend a Scottish local government pension scheme event to set out the Government’s ambitions for investment in net zero and discuss collaboration with pension schemes. The investment outlined in the pipeline will support productivity and help to deliver long-term resilience in crucial areas such as housing, energy, transport and digital connectivity. It includes supporting the delivery of affordable homes, investing in renewing our rail fleet and ferry vessels, progressing A9 dualling and investing across the national health service estate.
To support effective scrutiny of the delivery of our planned infrastructure investment, I have published details of expected costs and timescales of the projects and programmes in the IDP. The Government will report twice a year on progress to deliver these investments.
These documents, which were published alongside the Scottish budget, represent a more integrated approach to our short and medium-term planning. I hope that they will support the committee in its scrutiny. I thank you for your time and engagement with the multiyear spending publications. I look forward to discussing them in more detail.
Thank you very much. Your opening statement has, in fact, moved me to other areas than the ones that I was initially going to ask about.
I found your statement very helpful, and I take on board what you have said about budget flexibility. There is a lot more detail and transparency in the Scottish budget than in the UK equivalent. The UK budget provides plans at department level, whereas in Scotland, it is done to levels 3 and 4 in some areas and level 2 in others. Over the years, as you are well aware, the committee has pressed for consistency of approach. Do you not agree that if there were a simple approach of providing level 4 figures, for example, across the board, that would provide more certainty for stakeholders? I know what you are saying about flexibility, but if you are going to provide level 4 funding figures for some particularly big spending areas—where there are likely, I imagine, to be more changes than in the smaller areas—I would have thought that it would have been best to provide level 4 figures across the board.
: As I said in my opening remarks, it is important to have flexibility to respond to volatility. We can already see where that volatility may come from, with the uncertainty on the global stage, and, within a week of the budget being passed, we had a spring statement with a complete change in the funding outlook—I am sure that we will touch on that a bit more. Although additional funding is welcome, having that just a week after the budget has been passed shows how things move and change straight away. There is then the opportunity to deploy £900 million as part of the spending review.
As I have said before, the budget and the spending review are true at the time of publication, but, because our funding is dependent on UK Government decisions, it can change straight away—and it has.
We all appreciate that, but if you have those core level 4 figures, for example, and there is additional funding, that can be added to those figures, and people can see exactly where the Government’s priorities are.
I will move on to pension funds, because they have been talked about for years as a pot of gold at the end of the rainbow for housing and other areas. What practical challenges are there in accessing some of those funds? Housing has been mentioned repeatedly over the years, but that action has never quite transpired. The Deputy First Minister has been engaging with a number of people on that issue for some time, and we are still looking for some fruition from that. Where are we with that?
We are keen to work with the bodies that are overseeing local government pensions—the Scottish Government is not one of them—to align priorities and make investment in Scottish infrastructure an explicit aim of the pension schemes. In itself, it would be a bit of a change to have that as an explicit aim and to have a percentage aim. There are some very good signals coming, and the event that I will attend later this month will show that we are trying to align and increase collaboration across the pension schemes.
The Scottish National Investment Bank has an important role in that, and engaging with those stakeholders to progress collaboration opportunities is important. We have had some co-investment already. The Strathclyde Pension Fund has already co-invested with SNIB. SNIB previously invested £60 million alongside pension funds, including £45 million from the Strathclyde Pension Fund, in the mid-market rent sector, which is very important in delivering more in that space. SNIB has also partnered with Strathclyde Pension Fund—by investing £20 million alongside Strathclyde Pension Fund’s £25 million—to launch a £67 million venture fund, which is managed by Par Equity, to support innovative technology companies with high-growth potential in Scotland. There is a history here.
I would like to see change—this is the reason why we are attending the event later this month—in that there could be more collaboration, and those funds could have a more explicit aim to invest in Scotland, whether it is in infrastructure or in business growth. We will see what comes out of the event.
Toes have been dipped in the water, but the scale needs to be increased significantly, if that is possible.
It does.
You also talked about the mutual investment model, without naming it specifically. That was rejected for the A9. The costs involved in that are very significant in terms of resource and, with up to 3.6 times the cost having to be paid back, it is near private finance initiative levels. In what circumstances would that investment model be entered into? It looks like a very expensive way of delivering projects. If history has taught us anything, it is that we do not necessarily want to be in a position whereby, 20 years from now, people are still paying through the nose for projects that were delivered long ago.
Let me say a few things. First, a value-for-money case has to be made.
As happened with the A9.
Indeed. It depends on the social value of a project. For example, projects that may deliver more in the primary care space would have a higher social value when it comes to scoring for the value-for-money case. It is also worth saying that we will never get an equivalent to the Public Works Loan Board. However, when it comes down to doing something or not doing it, the question is whether we find other ways of raising the finance to take, for example, primary care facilities forward. The Treasury is looking at exactly that because of the lack of health capital down south. It is also important to say that, compared with the initial old-school PFI projects, a model such as the mutual investment model is a huge improvement. The Welsh Government has utilised it for a number of projects and has managed to extract a lot of social value and gain out of those projects.
Such projects are a lot better than the PFI projects of the past, but it is still a more expensive way to borrow. If you look at the importance of the primary care facilities—the hubs—in delivering a new model for health, it is hard to see how you could do that without that primary care investment. Unless there is a change of direction in the decline in the availability of health capital, the question will be whether we can do it through only that mechanism. That is a decision that will need to be made by a future Scottish Government.
It is also important to say that we are trying to get intelligence from the Treasury around the models that it might use, because there might be economies of scale when it comes to extracting best value in that regard.
The two priority areas for that are primary care and further education. We have previously used revenue finance models for colleges, so it is not a new thing. Those two areas of priority would currently struggle to get through the capital departmental expenditure limit outlook that exists.
Well, 2.9 to 3.6 times the cost is still better than 5.5 times the cost for the Ayrshire schools programme in my area, or 15 times higher for the Edinburgh royal infirmary, but it is still a lot of money at a time when resources are not exactly abundant and would have to contribute towards that. I have concerns about that.
The Scottish Funding Council said:
“having a radical review of roles and responsibilities, almost putting finance to one side, could be beneficial”.—[Official Report, Finance and Public Administration Committee, 24 February 2026; c 38.]
That touches on the zero-budgeting model that we have raised in the committee on a number of occasions. Will more be done in that area? The committee felt that the responses to our requests in that area were not dealt with in any great detail and there was not any great commitment to that. At a time of financial difficulty, going back to first principles—although we accept that it is not something that can be done overnight—that model could be a way to release additional funds.
As part of the transformation of public services, that will absolutely be required and must be the key priority in the next session of the Parliament and for the next Scottish Government. If there is to be a boldness in how you deliver services, whether that is by changing the landscape of delivery or who delivers, it will require funding to be looked at in a different way. However, we need to have the blueprint of what that looks like, and then the funding needs to follow that blueprint.
The Funding Council said that it had
“a very welcome budget uplift for 2026-27, which will support stabilisation.”
The Convention of Scottish Local Authorities said:
“We need to have a radical review of what we are all delivering and what Scotland wants us to deliver.”—[Official Report, Finance and Public Administration Committee, 24 February 2026; c 13, 38.]
A good example is the post-16 education space. At the moment, you have the senior phase of school, colleges and universities, particularly through the flexible arrangements for access to university, which quite often target the same young people to try to persuade them either to complete the senior phase of school, go to college or embark on a university course. A lot of work has been done with the Withers review on how we deliver a system that works better for young people.
There is more to be done in that space. We could utilise the funding that goes into that space more effectively, but those will be decisions for a future Scottish Government. I am putting down my reflections, including those on my daughter’s experience. We can draw only on what we see and experience, but there is a need for us to look at that landscape.
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You talked about the budget being passed and additional funding of some £900 million over three years from the UK Government, although my understanding is that £540 million of that is in the first year but only £13 million in the second year, so it is a bit of a rollercoaster. Witnesses have suggested that it would be helpful for the Government to say how it will prioritise additional spending. We have the Scottish budget, but if additional funding becomes available, no obvious information seems to have been provided; for example, the Government could say: “Health and social care needs a boost, so that would be our number 1 priority.” Will the Scottish Government do that as part of the programme? Will it say, “This is our core budget for this financial year, and this is where the SSR is going, but if additional money becomes available, we would like to do this and we would like to do that”? If, for whatever reason, there was less money, and there was a shock to the system, it would also be helpful to know what would be deprioritised, but, more importantly, where additional funding will be invested.
As you have touched on, we must also look at the profiling of any additional funding. The additional funding for 2026-27—£545 million, I think—is not recurring.
I appreciate that. There is a £540 million drop, effectively.
We have to take into account that the recurring money, £380 million, comes in in 2028-29. It would not be wise to utilise that funding in 2026-27 for front-line services in case it goes off a cliff. However, as I have said before, on the utilisation of ScotWind to smooth through the very challenging year of 2027-28, the priority would be to unpick that, as we have done previously. Those decisions will be for the next Scottish Government, but there is an opportunity to unwind some of that ScotWind funding and smooth the spending review period through to 2028-29. I suspect that parties will write manifestos on their priorities for existing spend and any additional spend, but, as I said, there is an opportunity to unwind some of that ScotWind money and smooth the spending review period.
In 2028-29, there is a better outlook—at the moment, anyway—on additional funding and what was already in the system. A number of key pressures could easily benefit from some of those resources. It will be for the next Scottish Government to decide what the priorities should be for social care, which you mentioned, convener. I hasten to add that we have to wait for the main estimates in May for that to be confirmed.
As I mentioned in my opening remarks, we are in a period of global instability, with rising costs of living and pressure on public services. Everything is going to cost more, from police cars on the road to ambulances to local government services. We have to bear in mind that the cost of everything is going to go up.
One hopes that it is only a short-term shock, if anything.
I am sure that colleagues will want to explore the public sector reform strategy in some detail, so I will not go into it in any depth. The strategy sets out commitments to change the system of public services to be preventative, better joined up and more efficient, in order to better deliver for people, and it sets out how systemic barriers to change will be tackled. We have been talking about preventative spend in the committee, and it has been talked about a lot in this parliamentary session. John Mason and I were in the 2011-16 Parliament, and we discussed it ad infinitum. It seems to be talked about more than acted upon, so how can we be reassured that work will be taken forward to ensure that there is, as it says on the tin, better delivery in preventative spend?
First of all, I think that it is important for the Government, as it has done, to set out the level of ambition and the fact that this needs to be done across the whole of the public sector. That takes us into the quite tricky territory of trying to define front-line and back-office roles, and we need to do that in partnership with the staff side as far as possible.
The question, then, is how bold the next Scottish Government is going to be with regard to changing the delivery landscape. My sense is that there will be boldness in that respect, because we do need to think about that landscape and what it should look like for a country of our size. By that, I mean going beyond looking at how many of the 133 public bodies should or should not exist to questions such as who is doing what and where, and whether there is an opportunity to deliver services in a more integrated and joined-up way. After all, we know that supporting families early saves money; indeed, we see great examples of that already happening.
Family nurse partnerships.
Yes, and we need to see more of that sort of thing. We have laid the groundwork for what could be a really bold opportunity for the next Parliament.
A question for the Parliament is whether these issues become issues of broad consensus or of division. I still hear people saying in the chamber that it was not right to bring the police or the fire services into a single service—of which, incidentally, I am a very strong proponent.
Me too.
You just need to look at the way in which things such as serious and organised crime, for one, have been tackled.
It has been more efficient and more effective.
All of that, but there are still those who say that it was the wrong way to go.
If there is to be, as I think there should be, a real boldness when it comes to change, I just hope that not every detail of every change will be resisted at every stage as it goes through Parliament.
Luck favours the brave.
There needs to be a bit of a wake-up call that it is something that Parliament, and not just Government, should embrace.
I know. This has always been a real issue with disinvestment. Everyone wants more to be spent on prevention, but no one wants to disinvest in things that do not work as well.
Indeed.
I do not want to ask too much more, because, apart from anything else, John Mason will have his stopwatch out, and time is limited this morning.
The Scottish Government plans to report on progress on delivering projects and programmes set out in the investment delivery plan every six months. When will those reports come out? Will it be in May and November, April and October or whatever? I would just like to know what the plan is, so that we can get something tied down.
The first one will be in six months, so when would that take us to, Richard?
I did not think that it was six months from today—I thought that it was just every six months.
That is something that we will agree with new sets of ministers beyond May. However, our intention is that, having published the IDP in January, we would be looking at publishing the first update on where we are with the plan probably just after summer recess. The format will be similar to how we reported on the previous pipeline information on projects, setting out where things are and providing an update on costs.
With regard to the IDP, there have been concerns about the cost timelines, potential overruns in projects and the split between delivery and development costs with regard to what exactly will be delivered and by when. However, cost is a difficult issue. Unless something that you have put out to tender has already been signed and delivered, the fact is that, if you put a hard and fast cost on something, you could make it the minimum for tenders. Therefore, I appreciate that that can prove difficult, but surely, once that is done, the costs, and indeed the delivery times, will be much more carved on tablets of stone.
One of the issues that we have, and which I raised last week with the Scottish Futures Trust and the Construction Industry Training Board, is that cost overruns and delays seem almost to be expected, which I think is wrong. If a sum of money is paid to have something done, it should be done by the date that has been agreed for that sum of money. We know that there is inflation, but one would have thought that optimism bias would be built in when a contractor submits their tender. Inflation is a feeble excuse for some of the overruns that we have had. The same problem is faced across the UK, with HS2 and other megaprojects vastly exceeding the initial cost estimates.
What extra information could be provided? For example, I feel that annex B in the IDP is more of a wish list than a detailed list of projects, which creates uncertainty. CITB told us that most construction companies are very small and that they want certainty in relation to what will come in the door over the next six months to two years. It would help if a lot more detail was provided for such projects. If it is not possible for the IDP to be specific on cost, should it not at least be specific on timescale?
The first thing to say is that information on the expected costs and timeframes for the projects that you are referring to will be included in future infrastructure delivery pipelines once the business cases have been completed and approved. We have tried to disaggregate the projects into those for which the business cases have been completed and those for which the business cases are still being completed.
With regard to your point about construction inflation and optimism bias, the Scottish public finance manual requires that, in developing business cases, the guidance that is set out in the green book must be followed. The green book explicitly requires adjustments to be made for optimism bias.
Since the Covid period, construction inflation has been running at an extremely high level, and it is unlikely to fall back to pre-Covid levels any time soon. There is also the current global situation, which will undoubtedly not help to create a stable cost environment. People are already talking about a shortage of materials, which will drive up costs.
In theory, all those things should be nailed down, optimism bias should be built in and the contracts should be well managed, but none of us can foresee events that lead to a shortage of materials.
I fully appreciate that, but an issue that I have discussed with the Scottish Fiscal Commission and others is the fact that the gross domestic product deflator is a ludicrous way to assess capital costs, given that it bears no relation to the actual costs. Mention has been made of modest declines in capital, but, when we look at what can be delivered on the ground, we realise that the declines are a lot greater than that. It is important that we have a realistic measure of capital costs.
An issue of great frustration to many members is the cost of the procurement process and the associated bureaucracy, and, in particular, the vast cost of consultancy fees and so on. As I mentioned last week, I remember Donald Cameron, who is now Lord Cameron, raising the fact that some £18 million had been spent on consultancy fees in relation to the Rest and Be Thankful. For God’s sake, it is just a road that is exposed to a lot of landslides. Why did it cost £18 million for consultants to work out a way of sorting that out? Ordinary people—laypeople—cannot comprehend why those fees are so vast. Such expenditure detracts from the delivery of projects, and it seems to lead to dithering and delay, with the result that a project that could be done in a year or two takes three years or five years.
What can be done to de-bureaucratise the delivery of such projects? In my view, the process for many of the projects that we are talking about seems to be a dripping roast for consultants.
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The creation of frameworks and programmes of work can help. That will not be possible in all areas, because there will be stand-alone projects that do not form part of a programme of work. However, if there is certainty regarding a pipeline of investment in housing or primary care, for example, consultancy costs can be brought down by doing things once and a framework can be created that does not have to be constantly revisited. When we have a line of sight on big investments, we can do things slightly differently. In relation to stand-alone projects, the difficulty is that, understandably, the public sector is under constant pressure to dot every i and cross every t, which costs money.
I do not know whether Richard—
Hold on a second. If £18 million is spent on consultancy fees, even if an astronomical sum of £1,000 a day is paid for consultancy, do 18,000 days of work go into that for one road?
I share your concern about such figures.
Come on. Things must be able to be done more efficiently, more effectively and more timeously.
Yes.
I know that the committee raised the issue with Peter Reekie from the SFT last week. The SFT has been doing a lot of work with local authorities, the NHS, Transport Scotland and other partners to get under the skin of why consultancy costs are what they are and to seek to bring them down when possible. We are working with the UK Government, the Welsh Government and others, because all nations are experiencing the problem and want to bring the costs down.
The cabinet secretary is right that we see spikes in consultancy costs for stand-alone projects. If we have more of a pipeline of work, we have an opportunity to manage consultancy fees in a different way.
I will open up the session to colleagues around the table.
Good morning, cabinet secretary. I was glad to hear you reflect in your opening remarks on the issue in the middle east. As you fairly said, it will obviously impact in some way, although none of us is certain whether the shock will be over the short or the longer term. Interest rates have an impact on UK Government debt and all these things are factors in relation to inflation, construction costs and so on. Have you started to do scenario planning, particularly for infrastructure and build projects, to consider some of the implications?
We have a risk register, and the global situation is clearly a key risk. The impact on interest rates, inflation and materials will be monitored. Obviously, we are concerned. We do not know how long the actual conflict will go on for, but there will be a tail of impact well beyond the cessation of the conflict. The situation will be monitored as part of our risk register.
I can see that the global situation will be on the risk register, but I am talking about the plans themselves. I am sympathetic to the point about what the Government can and cannot put in the SSR, because the only thing that we can be certain about is that it will be wrong—that is just the way it is. However, the impacts might quickly flow in for some near-side projects. As well as putting the global situation on your risk register, are you considering the potential impact on plans that are in train and, critically, on budgets?
We expect cabinet secretaries to be in constant contact with public services on areas that are most likely to experience the biggest impact. For example, there will be an impact on fuel costs. Cabinet secretaries will discuss with various public bodies and delivery bodies what the impact will be in reality and what that will mean for budgets and when things can be delivered.
Your question raises a wider issue about the lack of flexibility in the fiscal framework. I know that you have raised it before, as have I, and I will continue to do so. It will be really important for the next parliamentary session. Things like this come along and the levers that we have to flex in order to deal with an impact that could last for a number of years are extremely limited. I have got my last finance interministerial standing committee later this month, and I will continue to press the issue. We have agreed to carry out a review, but its terms must be realistic, given the current climate of uncertainty. The main certainty is the uncertainty of the next few years and what may come at Governments, including the cost and management of the services issues that you are alluding to. That really makes the case for greater flexibility.
I completely agree, because if what is needed in the face of such uncertainty is growth, the fiscal framework—or, more specifically, its limitations, particularly the lack of borrowing powers for capital, which is quite fundamental—restricts the Scottish Government’s ability to encourage growth.
I want to ask about a few other things that sort of fold into that. The first is flexibility in funding. Two weeks ago, in our evidence session with Police Scotland, we were told that when the forces merged to establish Police Scotland, the organisation lost its power to borrow and to hold reserves. The witness mentioned that Police Scotland was discussing the issue with you. Those aspects were described as
“incredibly important tools for us”.—[Official Report, Finance and Public Administration Committee, 24 February 2026; c 26.]
Following on from that—although it did not come up in that evidence session—is the issue of flexibility for colleges. The sector believes that it is being restricted in its use of, for example, the college transformation framework funding to focus on encouraging growth.
It would be useful to get a quick update on both those issues.
It is fair to say that the college sector and Police Scotland have raised these issues. The difficulty is that it would all count against borrowing, so their construct would have to change significantly. Otherwise, it is simply part of the one cake: it does not grow the cake, and therefore I cannot see what the advantage would be. In addition, if you completely changed the status of an organisation, there would be questions about where the accountability for delivery lies. It would become a different relationship.
That is not to say that these matters should never be looked at and discussed, but there are pros and cons. We are held to account regularly about the delivery of X number of police to do whatever. If you had a very different structure—akin to complete autonomy—to enable the organisation to have a status that could borrow, you would lose some of that accountability.
I do not know whether Richard McCallum or Cathy Sumner want to come in on that. Basically, that is the point.
Yes, it absolutely is. It would have to come from within the Scottish Government’s borrowing powers, were we to provide more. Ultimately, it comes down to the discussion about the fiscal framework and what comes next—that is where the issue needs to be dealt with.
It is ironic that the restrictions that are placed on the Scottish Government via the fiscal framework are passed on to public sector organisations.
Local government is a different construct and has a different status. Authorities can borrow, and it could be argued that they have more borrowing powers than we do. However, they must be cognisant of their ability to repay. Scottish local authorities have not made similar investment and borrowing decisions to some English local authorities, and we can see some of the results of their decisions. However, for the time being, the accountability and governance structure of organisations such as Police Scotland and the college sector are unlikely to change any time soon, I suspect.
Following on from that—I am doing a bit of an overview of this parliamentary session—one of the issues that we have touched on habitually is that, to understand growth, we need to have the data, but there are missing data sets. The Fiscal Commission also raised that issue. I previously wrote to the OBR about collecting data to allow us to see what the Scottish inflation rate was, which it basically refused to do, which was unfortunate. In relation to the fiscal framework review, are you also looking at gathering additional data—have you factored that in at all? If we do not have the data, we do not have sight of the information.
We are not really at that stage yet. The first thing that we need to do is to agree the scope.
The terms of reference.
Everything follows on from that, including whether the data sets will be available in the new fiscal framework environment. Clearly, if it is a more ambitious and quite radical review and there are more flexibilities and levers, you would want data sets that are in line with that. However, we are in the foothills of that work at the moment.
My last wee question is about an issue that I have brought up previously. There are quite limiting rules for SNIB in relation to its ability to recycle financial returns from successful investments into new deals. The Economy and Fair Work Committee has already written to the Treasury on that and got a perfunctory response, so we have had to write back. SNIB is another example of where we could try to find ways to stop inhibiting the ability to generate growth in the economy. That matter is not even in your portfolio, but I wonder whether you could comment on it.
I am not unsympathetic to that point, and we have given SNIB some additional flexibility.
Yes—you have changed some of the Scottish Government rules.
We should be open to doing more of that, to be honest. In the light of the experience of the operation of organisations such as SNIB, having more flexibility, within reason, is not an unreasonable ask.
Thanks.
Good morning. I want to ask about the Scottish Government’s decision to go down the route of issuing bonds as a means of raising resource for capital expenditure. What assessment has the Government made of the value for money for taxpayers in starting a new programme of issuing bonds rather than going down the traditional route of utilising the national loans fund?
The value-for-money case was thoroughly carried out. It is important to reiterate to the committee that it is not about borrowing more; it is about borrowing better. The tenor durations are more flexible under bonds than they are with the Public Works Loan Board. That is one of the main benefits of issuing bonds. It is about borrowing differently, not more, and with more flexibility. However, let me reassure you that all the value-for-money testing has been done on the programme. We would not have proceeded to this stage if that were not the case.
Okay, but some media outlets have projected that going down this route could cost £100 million more over 10 years than it would to borrow through the UK Government. What assessment have you made, through market testing, of the rates of interest and return that potential investors might expect?
Market testing will continue, because we need to make sure that we launch the bonds at the right time. The global situation, the markets and interest rates all need to be taken into account. You must also offset the benefits and cost benefits of having more flexible repayment periods, and all of that will need to be looked at in the round before the next stage.
We will keep the Parliament updated. We have successfully passed through the key gateways that we set for value-for-money testing. The next stage will be the market conditions. All that will be looked at and we will keep the Parliament fully updated on the next steps.
09:30
Do you anticipate when the first bond might be issued?
It will be in the next parliamentary session, although it will depend on market conditions.
How much of what you have committed to the programme so far has been spent on preparatory work?
The figure exists, so I will write to the committee and update you on that. It is quite a small amount of money compared to the programme. It has been spent on the establishment and consultancy costs. I do not have the figure to hand.
I think that it is £0.5 million so far to Ernst & Young, and £50,000 in legal fees.
I will update you to make sure that the costs that you have had so far are accurate.
One of the key areas that has already attracted some attention in the spending review is the ability of NHS territorial and national health boards to deliver efficiency savings. You are projecting efficiency savings of 3 per cent, which is above historic levels. What specific measures will the Scottish Government ask health boards to implement to achieve those savings, bearing in mind the fact that the first round of savings is generally easier to achieve than the second? If the Government is re-elected, what contingency plans will it put in place to ensure that front-line health services do not suffer should savings not be achieved?
First, I would say that the health boards have a good track record of delivering on efficiency savings. We have passed on all consequentials in full and it is fair to say that most commentators recognise that, within the constraints that we are under, health and social care has had a real-terms uplift of 5.1 per cent across the spending review period. However, health board efficiency and reform plans will have to deliver a minimum of 3 per cent per annum efficiency savings, and they will get to keep those efficiency savings to reinvest. That is important, because it is an incentive to generate the efficiency savings.
I should say that this is not unique to the NHS in Scotland. We are seeing similar challenges in efficiency savings in health services elsewhere in these islands. I think that NHS England is required to make efficiency savings of 4.5 per cent. To be blunt, we need to see a transformation of service delivery and it must be driven by efficiency savings.
The structure of health board delivery is a matter for the next Government, but without doubt there will be changes in the delivery landscape. Then there is the question of the shift in the balance of care. It is absolutely fundamental to the population health framework that more is done in primary care. The efficiencies in the system will have to drive that change, too.
I am not saying that it is easy. Health boards will be challenged and how they deliver will be monitored. They will also have to prioritise funding to the front line, which means that they need to look at some of their back-office functions. We have back-office functions in every one of our 22 health boards, whether it is the territorial boards or the special boards, and that needs to change.
It sounds as though you are outsourcing the difficult decisions to them.
Not at all. The Scottish Government gives a lot of support to boards in their delivery. There are weekly meetings on the reduction of waiting lists and improvement in performance, as you can imagine. We also have financial oversight, rigour, challenge and support for every one of the health boards, but change will have to happen. A lot of work is going on around subnational planning in relation to what can be done where, particularly for planned care. We need to make sure that planned care is being delivered in the right places for those procedures that people might have once or twice in their lifetime. That work is all part of the requirement for boards to ensure that every single pound is spent in the most effective and efficient way.
Obviously, the budget and spending review foretells a story where there will be a significant shift in resources away from health boards—and hospitals, more generally—and towards community-based initiatives. Do you as yet have an outline or a breakdown as to how those other health and social care services will be financed? What will the split or the emphasis be between primary care, social care and preventative services? Have you modelled that as of yet?
The Cabinet Secretary for Health and Social Care has been clear that there needs to be a shift in resources and output from acute to primary care, so that people can get more of their health services more locally. It is about making sure that procedures that can be done in a primary health setting, in a hub, can be done there, rather than someone having to travel to an acute service.
We are already seeing a lot of that; we are not starting from first base. If you think about eye care, for example, a lot of ophthalmology services are now being delivered in the community, rather than people travelling to hospital. A lot of that is done in partnership with specialists within the acute sector. This will be an evolution because of the size and scale of what we are trying to achieve.
In relation to ophthalmology, a lot of it is also now being done through the private sector—through Specsavers, for example. Do you concede that point?
Well, through independent contractors, yes.
Through the private sector.
It is a partnership with specialists, who would refer people to secondary care where concerns are identified. I think that it is a good partnership and I think that independent contractors would see themselves as part of that NHS offer—as part of primary care services and community-based health. They would see themselves as an important delivery partner within that.
The spending review includes quite significant reductions in real terms to the capital spending in health and social care over the period. How can we expect improvements to be delivered and productivity to be enhanced without increased investment in facilities, equipment and technology?
Capital availability is being cut in real terms. Our capital availability is going down and you can only cut the cake according to what size the cake is. In terms of the consequentials from the UK Government, health capital was tiny, from my recollection. That is one of the reasons why we are looking at revenue-based finance for primary care facilities. The UK Government and Wes Streeting are having to do exactly the same, because the health capital allocation to the UK Department of Health and Social Care is very limited. We have to be imaginative about how the new models can be funded.
We have had a huge amount of competing demands for the capital availability. Sometimes, when I am at this committee, I am asked about roads; at other times, I am asked about local government capital or about housing. We have had to ensure that we can provide what we can. The on-going maintenance of the health estate has been a priority and the capital availability that we have is, by and large, being spent in those areas. That is why we need to look at a revenue-based finance model for a new generation of primary care facilities, and that is exactly what is going to happen in NHS England as well.
I have two final questions on priorities. The Scottish Government says that growing the economy is one of its priorities, yet funding for enterprise agencies has been cut, in real terms, over the spending review period. How can growing the economy be a priority when the engine of that potential growth has been cut?
The enterprise agencies are very important, but the Scottish Government’s investment in economic growth goes well beyond them. We have £900 million of capital investment in local and regional economies and £480 million in key growth sectors through the enterprise agencies, so we are targeting key growth sectors through those agencies. We have £4.9 billion of investment in housing, which is an investment in the economy, and the infrastructure investment pipeline generally, which is worth £11 billion, is absolutely an investment in the economy. We are targeting key sectors—offshore wind is another major investment area—and we are trying to ensure that the money is spent as smartly as possible. Likewise, we are ensuring that investments made by the Scottish National Investment Bank and through the use of financial transactions all face towards areas of high growth and housing opportunities.
In the autumn budget revision for 2025-26, the budget for offshore wind was £137 million, but by 2028-29 it will have been cut to £61.7 million.
That reflects the pace at which investments can be made. We have made a commitment of £500 million over five years, but there will not be an even split each year. We want that sector to grow, but its growth has not been consistent. I do not think that anyone can criticise the Scottish Government for not investing in offshore wind. We have, and we will continue to do so.
In a similar vein, in relation to priorities—we will not relitigate the argument about welfare spending—you have said that growing the workforce, and therefore the tax base, is one of the critical ways in which the Scottish Government can increase economic performance, raise tax and alleviate some of the pressures on public spending. What should we read into the fact that the employability budget over this period is flat in cash terms?
Employability funding is still significant.
It is clearly no longer a priority.
It is a priority. In addition to the employability funding, we have new funding exactly in that space, which will go to colleges to support the enhancement of their offers to the people they can bring in. That is part of the wider employability investment. Colleges are getting £8 million—it is a new fund that will be very much about helping those furthest from the labour market into work, particularly those who may find the college route less intimidating than other employability programmes. That idea came directly from the college sector, which had looked at what it could do to enhance its offer and improve the scope for getting people back into work. It is a good investment and I am looking forward to seeing how it develops over the next few years.
On public sector pay, there is the whole question of the 9 per cent uplift target. Quite a lot of that has gone in the first two years. What are your expectations around that?
09:45
In most sectors, we have two-year deals, which is a good thing because they create efficiency, effectiveness and time for discussions about things other than pay. Those deals are very important in bringing some stability to our public services and mean that we do not have to be constantly in negotiation around pay.
As for the third year of the public sector pay settlement—2027-28—I have said that it should form part of the budget for 2027-28. We need to see where inflation goes. It was going down, but, because of the global situation, we now have a question mark over whether inflation will continue to reduce. That clearly drives the pay position and pay bargaining. My overall comment would be that pay increases for 2027-28 will need to be extremely modest, given the financial pressures for that year in particular, although, again, there could be multiyear deals that come off the back of the two years that have already been agreed. The more multiyear pay deals that we can get into, the better, because they remove some of the uncertainty for our service delivery partners.
I presume that, if inflation looks unpredictable, the trade unions and others will not be keen on multiyear settlements, because they will not know—
However, they see the benefits of them, because they spend an inordinate amount of time in negotiations, too. They can also secure things beyond pay as part of multiyear deals, which quite often include other areas of transformation and reform, so they can be a mutually beneficial tool. There is an inextricable link between headcount and pay. I have said that before, but it is just a fact that has to be borne in mind, and the unions are well aware of that.
That takes me on to another question. Can we expect efficiency savings to be evenly distributed across the board? We have an increasingly elderly population, so we need more people on the social care side rather than fewer. The police and fire services had a major reform, which I supported, and that has been good. Their argument might be that they have had a major reform, so it is now up to other sectors to have major reforms.
It is their argument, absolutely. Every organisation still has areas that it can continue to transform, but I recognise the work that the police and fire services have already done. That has been a standout transformation and it was very ambitious. Will it be the same everywhere? No, it cannot be, because there will still be areas where that is not possible.
You touched on the demographic challenges of social care. It would be crazy to reduce that front-line workforce, would it not? We could not do that in the face of those demographic challenges, so the savings will not be evenly spread. Of course, we have already said that front-line workforces need to be prioritised, which means that back-office supports and corporate functions will need to be delivered differently. We need to look at the use of automation and technology for some of that, so that roles can be changed.
All of that work is under way. It will not be the same everywhere, and the savings will not be evenly distributed. As is ever the case in any organisation, there will be some who are first out of the traps and getting on with it, and there will be some who take a bit longer to get to where they need to get to.
You used the word “front-line” twice, and the convener mentioned it before. Does that mean that all the accountants will lose their jobs?
I am a big fan of accountants, but do we need as many? I do not want to pick on accountants. I have used health as an example, so let me return to that. We have 14 territorial boards and eight special boards—although I think that the number might be going down to seven—and they all have their own corporate functions. That situation has grown up over many years and is a result of the way in which public services develop—that is what they do. Indeed, many of them have taken on new responsibilities. All of that is understood, but the way in which the support services are delivered needs to change. That is a big area of efficiency and transformation.
That is not to say that those roles are not important. They are important, and people in front-line services could not do their job without support services. I do not want to imply in any way that those jobs are not important, but the functions can be delivered differently. We can use technology to support the delivery of those functions in a way that perhaps would have been more challenging 10 years ago. That is being done in many other sectors, and we need to harness that.
The committee is very keen on zero-based budgeting, although I am not quite as committed to it as other committee members. I understand that it is quite a resource-intensive process, and you need accountants and other people to do it. If you are going to strip everything right back and look at everything again, that is a costly process. It takes resources, does it not?
It consumes most of the civil service in the Scottish Government for large parts of the year. There is a need to open up the bonnet and look at everything underneath to see what is working, what is not, what needs to change and what we can afford. That happens on an on-going basis.
A relatively new exercise that we have done is budget tagging, which enables us to track spend in relation to the key priorities a bit more effectively. Whether we are doing zero-based budgeting or following the routine budgetary processes, every time, we open the bonnet, unpack what is there and challenge it. I have sat in meetings going through budget lines and asking, “What actually is that and why has it been there for 10 years?” The answers are quite interesting sometimes.
The problem that I have with zero-based budgeting is that we have certain major assets, such as hospitals, which I presume we will carry on with, so there is no point in taking everything back to zero. However, there are some areas that we can look at more than others.
I touched on that in the exchange that I had with Craig Hoy. We are not going to spend the £22.5 billion in health and social care on something else. However, we could make pretty radical changes to what we spend that money on within the health and social care ambit. For me, that is probably a more productive conversation, because Parliament would be up in arms if anybody suggested spending all that money on something else. That would not be realistic, given the demographics and the demands on health and social care. I would turn the question on its head and consider how that money is spent within those services—that is where I would focus my attention.
You have already been asked about the MIM and the idea of revenue-based investment. I was in Glasgow City Council when we did the schools PFI programme. That was presented as the only game in town, but, when we look back on it, we see that it has been incredibly expensive, although, as you have pointed out, we got the schools quicker. If we had used traditional funding, we would have had to wait longer for the schools. I accept that there is a challenge in that, but I remain sceptical and think that we are going to pay over the odds.
In a way, all these things are just devices to get round the fixed borrowing limits. I do not understand why Westminster sets those limits when, in effect, it can borrow as much as it wants.
There were PFI deals that were absolutely dreadful for the public purse and should never have been agreed to—let us agree on that. Lessons have been learned from some of the negative experiences and costs, and I think that the public sector is now much better at negotiating. It was not a good negotiator in some of those deals. Some of the new revenue finance models are better value for the public purse and they deliver better social benefits. We have regularly spoken to the Welsh Government about the mutual investment model, much of which was based on our non-profit-distributing work.
We probably would not use those models if our borrowing powers were not constrained. The question is then about how we can pivot and save resources to secure better outcomes for patients by building primary care hubs if we do not currently have the capital to do that. We would have to say, “I can’t put £4.1 billion into housing, because I’m going to have to spend the money elsewhere.” We have a range of competing priorities, all of which are absolutely essential. If we regard doing things and delivering things differently as essential for the population health framework, there must be capital investment. The capital departmental expenditure limit is just not available at the moment, but I would like that to change. We bang on about our capital limitations to the UK Government all the time, but, in the absence of any movement on that, the only way to increase our resources is through revenue finance and by getting the best deals that we can. We can get better deals through economies of scale and through something such as a primary care programme that extracts the best deal, although those deals will still have to meet the value-for-money tests, otherwise they will not get off first base. I can assure you that those tests are robust, which is sometimes a little frustrating.
I know. It is easy to look back at PFI and say what a bad deal it was, but, at the time, we thought that we were getting a better deal. Glasgow followed Falkirk, so we tried to learn from its mistakes.
I will be honest and say that I am not sure how some of those deals meet the value-for-money tests that are in front of me now. I do not know whether the rulebooks have changed since then, because I was not around when those deals were being done.
I will not spend too long on this, but the accounting rules have changed. PFI was a device to get around the borrowing limits. The rules have now changed and we have a whole range of different funding models. I accept that those models allow us to get the asset more quickly, but it feels to me as though future generations will be paying more for the asset than they would if we could borrow the money for it.
You will have to make the asset work for you, so that it saves money elsewhere in the system because services will be delivered in a different way. Those things will have a bearing on decisions that—I hasten to add—have not yet been made.
John Mason may recall that I was a councillor six years before him and we opposed PFI or PPP from the start. There was none of this, “Oh, we realised years later that it wisnae great”—it was opposed from the start by the SNP, Labour and the Liberal Democrats. Certainly, the SNP opposed it throughout. That is historical fact.
Cabinet secretary, in response to the convener, you said that you had a suspicion that the next Scottish Government will have to be bolder. What did you mean?
I think that there is an appetite to be bold.
In what respect?
I think that there is a realisation that carrying on with the structures and landscape that we have is not going to be sustainable or optimal. I do not think that that outlook will be a peculiar to the SNP—I suspect that the manifestos of all the parties will be in that transformation space. The proposals might look different, but I think that there will be an appetite to be bold, which is good, because that should mean that the scope of collective debates on such issues in the next parliamentary session is not as small when it comes to considering change.
Is that a recognition that the current Scottish Government has not been able to afford all the priorities that it has set out and that some of the difficult choices that have, undoubtedly, been made have not been enough to ensure fiscal sustainability?
It is a recognition that, over the next 10 to 20 years, any Government will need to grasp issues relating to the way in which we deliver services and what the landscape should look like. For example, demographic challenges are coming down the line, so our existing structures and landscape will need to change to meet those challenges, even if everything else stands still.
I do not want to open a can of worms and debate this issue for the next two hours, but the Government brought forward plans to do things differently through the creation of a national care service. I am not saying that those plans were perfect, but there was a knee-jerk reaction to them that went well beyond consideration of whether the details were imperfect. We have reached a situation at the tail end of this parliamentary session in which the chances of change happening are very limited. I hope that, in the next parliamentary session, the Parliament collectively—not just the Government—will see things a bit differently and will not try to stop things happening just because it can.
The Scottish Fiscal Commission has been warning about the lack of fiscal sustainability for a long time, not just in recent years. The current Government might need to reflect that it has not been bold enough in taking more difficult decisions to ensure that our finances are in a better place. Do you accept that?
All Governments could be bolder, but they have to be able to get things through the Parliament. I am afraid to say that, although we could have brought forward 101 bold plans, I am not sure how many of them would have got through the Parliament. I will leave that as a question mark, but I suspect that very few would have got through, because I do not think that there is the will to engage in boldness. All that I am saying is that there is an opportunity for that to change and I hope that it will.
Incidentally, we have laid the groundwork for such change. Our efficiency plans set out that transformation must happen. That includes a reduction in head count. Even just saying that and setting it out is quite bold, and that has by no means been universally welcomed on the staff side of things.
Our plans set out our intent that the public sector must change. What needs to come next is the detail of what such change will look like in relation to the landscape, different roles and how our public services look and feel. That is the next step, but the groundwork has been done. A lot of work has gone into that.
We probably could debate that for another couple of hours, but I do not want to do that.
My next question relates to a comment that you made to the convener when he asked you about the social value that you get from public money when making your spending plans. Do you feel that the evidence behind the choices that you make is sufficiently available to the Parliament and, more important, to the public, so that we can understand why the Government has selected specific priorities and not chosen to do other things that many people would like it to do? Is that evidence sufficiently strong?
You asked me that in the chamber, and—
I did not get an answer.
To be fair, I think that I said that you made a reasonable point, so let me say it again: you make a reasonable point.
Yes, but what is the answer?
The answer is that there is always more work that can be done to outline why decisions have been made.
We have done a lot to outline why the investments that we are making in social security are important in enabling us to meet the statutory targets on child poverty. The child poverty delivery plan lays out the detail of that. Anyone who looks at the child poverty delivery plan will understand why the funding is going to social security, because it shows a trajectory towards meeting the statutory child poverty targets.
Is that level of detail laid out everywhere? Probably not. There is always scope for improvement in that regard. We need to say to people, “We’re making this investment here because it’s fundamental to economic growth in that region of Scotland. Here’s the evidence for why we think that that is the case.” There is always more that we can do to explain and justify why we are making investments.
I have referred to our major investment in housing a couple of times. We have articulated the rationale for that, which is that it is not only a major investment to help to tackle poverty, but an economic investment. That is why it was right to make that capital investment in housing. That investment has knock-on effects elsewhere—we have talked about the knock-on effects for health.
The Government of the day should justify its decisions. If more information can be set out, I would not disagree that it should be.
When it comes to big infrastructure projects that could make a substantial difference to the lives of people in Scotland and, most importantly, stimulate economic growth, we are in a very difficult situation, because we cannot possibly do all the infrastructure projects that we would like to do.
Indeed.
Therefore, when we are talking about billions of pounds of investment, it is vital that the evidence is put before the public and before Parliament so that we can ascertain whether we will get the social value and the value for money that you mentioned in your response to the convener. Has enough evidence been provided to back up the decisions and choices that have been made?
I think that we have made improvements, but improvements can always be built on, and I am sure that there are ways in which we can do that. After every fiscal event, we always reflect on what people—whether external commentators or this committee—have said. Certainly in relation to the budgets that I have been involved in, we have always listened to what the committee has said. We might not have completely satisfied all the asks that the committee has made, but they have not been ignored. We have made changes and improvements, and that will be the case in relation to the current set of fiscal documents, too. We will look at what has been said and consider whether there is scope to make further improvements.
So you will leave a note for your successor on those matters.
Maybe just a small one.
Not of the Liam Byrne variety.
Good morning, cabinet secretary. Following the spring statement, there will be an additional £542 million of revenue available for 2026-27. As you have set out, the capital increase is much smaller. Will that additional money help to avoid an emergency budget? The Institute for Fiscal Studies and the Fraser of Allander Institute have both predicted that an emergency budget will be necessary. I imagine that you would take umbrage with their predictions. Will that money help to avoid such a scenario?
We will not need to have an emergency budget, regardless of the spring statement changes, because we have set out our plans and the expected efficiency savings. Every cabinet secretary knows the envelopes that they are working within. I am not saying that it is easy. We have a monthly monitoring process. I report regularly to the Cabinet on the path to balance to ensure that we are where we need to be.
It is worth recalling why we had emergency statements in the past. We had emergency statements because, under the previous UK Government, we did not find out what funding was available to us until nearly the end of the year. At the point at which those emergency statements were made, we did not know how much money was coming. We could not just say, “Hmm, let’s wait and see,” because we would have been too far into the rest of the year.
One of the good things that the UK Labour Government did when it came into office—and I have said this before, and I will say it again—was to have as much certainty as possible at the start of the financial year, which enables us to plan. That is a good thing. We have planned on the basis of what we know, so there is no requirement for emergency budgets, unless something catastrophic happens and we have another global pandemic, or we have something else that knocks every Government’s finances off course, but we are not predicting that. Yes, there will be impacts, but there will be no requirement for any emergency budget.
It will be for the next Government to set out how the spring statement resources are utilised, but it would be helpful, potentially, to unwind some of the ScotWind allocations—if that is what the next Government chooses to do.
I will maybe come back to that.
You will have been concerned by the analysis by the Fraser of Allander Institute and the Institute for Fiscal Studies. We regularly receive commentary and evidence from them and this committee rightly takes their opinions very seriously. They are identifying what they are calling “heroic assumptions” in terms of efficiency savings in parts of the public sector and real concerns about pay, which has obviously been outlined already. What have you taken from their analysis when you have looked at it and reflected on it?
As I said earlier, I always reflect on the commentary, whether it is from this committee or external stakeholders, but I also look at the plans that we have set out. I spoke earlier about the health board efficiency plans. The health boards have got a track record of delivering to that level for many years, and, of course, they get to reinvest those savings. There is nothing within the plans that we have set out that suggests to me that we are not going to be able to deliver what needs to be delivered. It is not a walk in the park. It will require change. It will require the efficiency plans and the headcount reductions to happen and to happen in a managed way, and we are holding all parts of the public sector to account for all of that.
You mentioned the ScotWind money; £50 million was allocated from ScotWind in 2026-27, so it sounds as though you imagine that that money would then be put back in.
I can imagine it but I am not going to be here, so it will be for the next Government to make those decisions.
That is a fair point. I hear that. However, I want to get your observations on the use of ScotWind generally. It strikes me that this has been quite a useful thing for the Scottish Government, as it essentially means that you have had a second cash reserve. I wonder how replicable some of that is, because it was essentially a windfall payment that created the situation; it was constrained by the politics, in essence. There is always pressure for you to run to the full extent of your actual reserve, whereas, because this second reserve has a different nominal purpose, it allows you to then draw it back and say that there is an imperative to pay it back in.
When we are reflecting on the conduct of the fiscal framework and the ability to do something about it, this has proven to be something that is quite useful for the Scottish Government in managing its finances, has it not?
It is the only flexible resource that we have, which says a lot about the fiscal framework. That is why it is so important. We have been able to utilise ScotWind, and I was very clear that I did not want to have to deploy the ScotWind resources that we had for 2027-28, but that, in the absence of any other choice, it might need to be done. However, if there are now choices that can be made that unwind that, that flexible resource will have been extremely helpful in relation to smoothing out the peaks and troughs when going from one budget to another.
Leaving that aside, on the ScotWind allocations that have been made and are being made, many of those are going to exactly what ScotWind was intended for. Look at the funding that is going into just transition, nature restoration, interisland connectivity, heat in buildings, woodland creation and offshore wind, for example—people would say that those are the right types of investments. It is a flexible resource and, in arguing for fiscal flexibility through the framework, we could point to the importance of that flexibility and the difference that it has made.
10:15
What purpose did you seek to achieve through the Scottish spending review? What was the objective that you set for your Government?
The spending review was an opportunity to provide a line of sight to the allocation of the resources that we had in front of us at that point. It was to give a sense of the funding outlook, with the caveat that, as everybody across the public sector understands, that outlook is only true for the point at which it is published, because the information changes. Lo and behold, it changed straight away. It was an opportunity to give a sense of the direction of travel and of the outlook. However, such an outlook will change and has changed already.
So, it was more about giving sight of projected figures rather than indicating the Government’s intent.
Well—
I will continue if I may, cabinet secretary. Some of the language that you have used this morning was about the need for intent to change, including during the spending review period. You are looking for more boldness at the end of your Government’s term, and you are setting that out, but it is for future Governments. However, the spending review period goes into the next Parliament, and I would have thought that the time for a Government to say “This is what we intend to do and how we want to change the shape of what we do as a country” is when you set out those big numbers as your projections for the future, so that institutions can plan appropriately to do those things. Is it fair to say that institutions still do not really have sight of your plan for change and that the spending review was a missed opportunity?
The funding envelopes, by their very nature, are constrained by the availability of funding. Funding growth is very limited. The funding outlook is the funding outlook, and we are not able to change it, so it is a case of what goes where.
I have already referred to the uplift in health and social care over that period. I have been honest about health having benefited above and beyond the resource consequentials that we said we would pass on. The bigger question is what that resource will be spent on. As I said earlier, we are not going to say, “Right, we’re going to change that commitment to uplift the health and social care spend, because we are going to spend it on something else.” It is more about what that spend will deliver over the course of the spending review; it will have to deliver and be spent differently from how it delivers and is spent at the moment. The same could be said for all parts of the public sector, but health is such a big part of the spend.
I will stick with health. Last week, the Institute for Fiscal Studies published a report entitled “Public service spending and performance in Scotland”, which pointed out that health spend is 2 per cent higher in Scotland than in England, down from 4 per cent higher in 2019-20 and 11 per cent higher in 2010-11. The spending gap has shrunk since 2010-11 as a result of the decisions that your Government has taken. To me, that goes back to the question of purpose. You are right to highlight that the spending review shows the allocation of the money that is available, which is set out in the broader spending review. However, given that we are seeing outcomes such as a real lack of productivity in our Scottish health service and neighbourhoods in Scotland having lower life expectancy than equivalent areas in England, is there not a lack of purpose in your spending review? What do you want to change? What does the Government want to do and what direction do you think should be taken?
First, with regard to the inputs, we have delivered above and beyond the resource consequentials to health for as many years as I can remember. That is a fact, but your question is about what is delivered for that. Albeit that there was additional money, over the past eight or nine months, there has been a major improvement in productivity and in the way in which that productivity has been delivered, with extra appointments and procedures and people being seen more quickly. The challenge will be to sustain that improvement, and that is what health boards are being tasked to do, so subnational planning is a key part of that. It is not about putting money in and then it just goes. The productivity has to be sustained and that is about what is done where. We must make sure that we utilise sites to the best of their ability and have more elective surgery sites that are away from the emergency care interruption that we get in some of our major acute hospitals. All of that is subnational planning and looking at the map. It is not about health boards doing their own bit, but about looking at the whole map and doing that subnational planning. That will be absolutely critical to sustaining increased productivity.
It is also worth putting on the record that the Office for National Statistics has said that there are key differences in the way that things are measured, so some of the headline statistics for England, Scotland and Wales are not directly comparable. Nevertheless, your point about productivity is right. It now needs to be sustained, and that is the challenge. The First Minister has been absolutely clear with our health service managers that that is the expectation.
The same report says that hospital activity is still below pre-pandemic levels, despite the fact that there are 14 per cent more staff. I think that that makes your point, cabinet secretary.
Yes, but there is variation. In some parts, activity is much higher.
Of course—it is a global figure.
Last week, we took evidence from the Scottish Funding Council, which only has level 2 indications in the Scottish spending review. The SFC says that that causes it very significant problems. Why is it only getting level 2 figures?
I touched on this in my opening remarks. We have set out that level of detail, given the uncertainties over the spending review period, apart from in the major areas of spend—health, social security and local government. There is probably scope in the future to go further than that, but that level of detail compares well with the departmental levels that are provided in the UK Government budget. We have given a level of detail that the UK Government has not, but the lower the level of detail, the more constrained we are in future choices.
For our universities and colleges, that is a particular problem, because they are far more reliant on direct Scottish Government funding than their equivalents elsewhere.
I understand that.
With level 2 figures, there is no way for the Scottish Funding Council to differentiate how much money the Government has set aside for colleges from how much it has set aside for universities. We have a situation in which our universities, collectively, are shedding thousands of jobs across Scotland, yet they have no sight of what that allocation is going to be. Could you not seek to remedy that?
I will certainly take that away and feed back to education colleagues, but there have been a lot of public statements about the prioritisation of the college sector and how much the uplift is in relation to the settlement. Yes—colleges did get a better settlement than universities on this particular occasion. That was broadly welcomed because of the role that they play, but there is also a need for transformation in the college sector. We touched earlier on who does what, where. That also impacts on the universities. We have previously discussed the issue of institutions all fishing in the same pond for the same people. Is there a need for our institutions to play to their strengths a bit more, rather than trying to do everything? Maybe that discussion is for another day.
At our meeting on 24 February, a colleague from the Scottish Funding Council said:
“At the moment, we have only level 2 figures for future years, and we cannot issue multiyear allocations to institutions on that basis. We would very much welcome greater certainty and clarity on multiyear funding.”—[Official Report, Finance and Public Administration Committee, 24 February 2026; c 14.]
I will reflect on that, and I could certainly pass back those comments to the education secretary.
My last question is on the infrastructure pipeline. Last week, a witness from the Construction Industry Training Board told us that the organisation was critical of the fact that the current arrangements mean that it is unable to plan for a proper pipeline. It said that the horizon that can be seen is insufficient to allow it to deal with the skills issues. That runs on from what we have just talked about in relation to colleges. Is the horizon that you have set out with regard to people having sight of the pipeline too short to allow our private and public sector institutions to plan for the future?
Do you mean the timeframe that the pipeline is operating within?
The view of the Construction Industry Training Board is that it does not have sight of enough projects. It needs a 10-year view.
I get that.
The public sector can take a 10-year view, but the private sector is much more ad hoc and reactive.
I understand the point that the board is making and I am not unsympathetic to it. The difficulty is that we have to, as best we can, align the infrastructure investment pipeline with the capital availability that we know we have. That constrains how long an outlook we can have. We could set out a pipeline that is based on speculation rather than what we think the capital envelope will be, as that envelope will probably change. We cannot set out projects and have work done on them if they have absolutely no possibility of ever seeing the light of day.
It is a bit of a quandary, because there are benefits in setting out that longer timeframe. However, if you only know the capital availability up to a certain point, what would we be basing that timeframe on? I acknowledge that there will be a tension because of that, for sure.
Thank you.
At the most recent Scottish Parliament information centre seminar that I spoke at, there was a discussion of front-line services. I was asked what front-line services are, and I said that the public would consider no one in that room to have a front-line service job—indeed, we could say the same thing about this room today.
Is “front-line service” not an unhelpful term to use? Does the Scottish Government have a definition of front-line services? People think of nurses and doctors as being front-line workers but, of course, they could not work effectively without everybody from porters and pharmacists to human resources professionals and the maintenance teams that back them up.
There is a working definition of front-line staff for the purposes of understanding the shape of corporate costs across the public sector, but there will always be grey areas.
The working definition determines that front-line staff are those who, as any part of their role or for any amount of time, are in contact with the public or external bodies and are essential for delivering a public service related to the preservation of human life, health, public safety, public order, the law, transportation, food supply or property. There are long lists of examples of staff who are and who are not front-line workers—I will not talk you through them, because they are obvious. There will always be grey areas, but that definition is a guideline.
We require each organisation, in collaboration with other bodies that are similar, to think about how it can provide those support functions in a different way. The obvious example—I will come back to it for a third time—concerns the fact that we have 22 health organisations, all on similar systems and all with similar support functions behind them, and there are obvious conclusions to be drawn with regard to how things could be done differently in that space. There are other bodies that have similar roles that could share some of their support functions—and, indeed, some bodies that have quite different roles that could do likewise. We are trying to ensure that we create a culture of change that takes on a life of its own.
10:30
I have always been an advocate of delayering and decluttering the Scottish public sector landscape. It is, to me, nonsensical as it stands; it is like a tree that has grown branches and all the rest of it over many years. De-bureaucratisation, which was very effective in, for example, the police, is really important and something that we should press forward with. In saying that, I am not saying that those who sit behind the front-line services do not play a valuable role; indeed, we should not forget that, given that one cannot work effectively without the other.
Something that is not done enough is the sharing of best practice. We have talked about productivity; as I mentioned to the Cabinet Secretary for Health and Social Care in the chamber, I think that, if we are looking at productivity, surely we should be looking at those areas that deliver the best productivity and asking why what they do cannot be mirrored in other areas of the health service, in another part of Scotland or in a local government department elsewhere in Scotland.
Do you not agree that there needs to be more reform in order to do that? Incidentally, this is something that I mentioned in the first parliamentary session, which ran from 1999 to 2003, and we are still in the same position. There is still a real issue about sharing best practice. People have wonderful ideas but, for some bizarre reason, they do not really want others to implement them, or so it seems to me. Can the Government do more to ensure that, where things are working exceptionally well, others are encouraged to mirror that best practice?
First, I want to agree with your point that support staff play a valuable role. We are not saying that they do not—the issue is how those valuable roles will be delivered in the future.
Indeed.
As for best practice, I absolutely agree. “Once for Scotland” is still very much a mantra in the health service, but it needs to deliver that. There is a bit of what I would call a “Not invented here” view, not just in the health service but in other parts of the public service—you see it in local government, too. It makes you think, “Why?” If something demonstrably works, there will have to be a pretty good reason for not implementing it.
It might be that something that works in a densely populated part of Scotland might not have direct applicability to a very remote or rural part of Scotland. That is understood. As a general rule, however, if something works, it should work everywhere, and we are taking that approach. You would have to have a pretty good reason for not implementing change that demonstrably benefits services, and work is on-going in that respect. We do not always hear about it, but a lot of innovation is indeed happening, and that innovation should be harnessed.
A reflection that I would make, having spoken to those who deliver services directly—not just the managers who manage them—is that they tell you all the time that they can see ways of making changes. Those on the front line need to be listened to.
That is exactly the point that I wanted to finish on. I have previously mentioned at committee that, when I worked in pharmaceuticals, the company had a staff suggestion scheme. They were asking, “How can you save us money?” Months later, nobody had made any suggestions. I said, “Why don’t you give people an incentive? Five per cent of whatever is saved goes to the individual who makes the suggestion that you take forward.” They said, “Aye, okay, we’ll try that. We’ll give maybe 5 per cent of whatever is saved in the first year to the person who made the suggestion.” They were absolutely inundated with suggestions, because it became a really personal thing for people.
You might think that people with a public sector ethos should be making suggestions anyway—and I am sure that they do—but I think that, if you were to incentivise people and say, “Look, you’ve been working in this department for 10 years or whatever. If you can come up with ideas that will allow us to deliver the service more efficiently and more effectively and which save us money, we will reward you with a bonus of 5 per cent of that in the first year”, there would be a lot of suggestions, a lot of good ideas and a lot of savings. Everybody—certainly the people who made the suggestions in those departments and the people who received the services—would benefit. Surely that sort of thing should be piloted, even if you did not want to roll it out completely. I would also say that, when it comes to innovation, boldness and imagination, groupthink and caution are still two big watchwords that we have to work against in the public sector in Scotland.
Do you have any final points that you wish to make, cabinet secretary, before I say how wonderful you are?
I do not think so, other than to say that this will be my last appearance. It has been challenging sometimes, but I think that each session with the committee has always been a cause for reflection and thought. I welcome, and have very much appreciated, the committee’s mainly—nearly always—constructive engagement.
Thank you very much. As you said, this is your last session, so it is a bit of an end of an era. After all, you have been serving Scotland in this Parliament for 27 years, many of them in senior Cabinet posts. I wish you all the very best for your future endeavours, Shona. You have been very generous in sharing your detailed answers with us in so many evidence sessions and over so many years, and I am sure that we will miss you more than you will miss us. [Laughter.]
Thank you.
I think that Liz Smith has a bottle of champagne and a bouquet of flowers. [Interruption.] Oh, she forgot them anyway—never mind.
We will have a five-minute break and there will be a changeover of witnesses.
10:35
Meeting suspended.
10:41
On resuming—
Air ais
Attendance