Official Report 622KB pdf
Good morning, and welcome to the fourth meeting in 2026 of the Finance and Public Administration Committee. The first item on our agenda is an evidence session as part of the committee’s scrutiny of the Scottish budget for 2026-27. We are joined by Shona Robison, the Cabinet Secretary for Finance and Local Government, who is accompanied by the following Scottish Government officials: Jennie Barugh, the director of exchequer strategy; Richard McCallum, the director of public spending; Lucy O’Carroll, the director of tax; and Ellen Leaver, the director for local government. I welcome our witnesses to the meeting.
Before we move to questions, I invite the cabinet secretary to make a short opening statement.
Good morning. I welcome the opportunity to discuss the 2026-27 budget and its associated publications with the committee. I thank the committee and its clerks for the important pre-budget scrutiny that was carried out, and I welcome the opportunity to discuss the draft budget in more detail.
This year, the Government published an unprecedented volume of fiscal information, including not just the draft budget but the Scottish spending review, the infrastructure delivery pipeline and the draft infrastructure strategy, alongside more than 20 additional detailed supporting publications.
On 19 January, we published the strategic integrated impact assessment, which brings all the individual assessments together in a single coherent document. That allows us to offer a clearer view on the strategic and cumulative impacts of the decisions that have been taken in the budget. My hope is that that integrated approach will strengthen the transparency of our actions and, in turn, support more effective parliamentary scrutiny.
The approach marks a clear shift in how we set out future spending plans. It is the first time since 2011 that multiyear resource and capital spending plans have been presented together alongside the budget. The aim is to give the Parliament, stakeholders and the public a clearer and more stable view of the outlook for public spending. This year, we have also focused on producing a coherent set of fiscal publications with clearer alignment between the budget, the spending review and long-term infrastructure planning. I hope that that more integrated approach has assisted the committee in its scrutiny.
The budget is intended to support people and families across Scotland through funding for our social contract, including continuing to provide free prescriptions for all, maintaining the abolition of peak rail fares and ensuring that Scottish students pay no tuition fees; the introduction of additional measures that are designed to mitigate on-going cost of living pressures; and support for actions that encourage children’s participation in sport.
In relation to the other publications, the spending review sets out the Government’s medium-term financial plans, which cover resource spending up to 2029 and capital spending up to 2030. That provides organisations with greater certainty to plan ahead. The infrastructure delivery pipeline summarises major planned infrastructure projects and highlights priority investment that is intended to support long-term resilience and growth, including in areas such as housing. The draft infrastructure strategy sets out long-term priorities for infrastructure investment and describes how that investment supports wider economic, environmental and societal objectives, thereby aligning capital planning with the Government’s broader strategic aims.
Those additional publications provide a better platform for the committee to carry out scrutiny, and they are anchored in the Government’s four central priorities. First, on eradicating child poverty, the budget includes a £49 million increase to the tackling child poverty fund and uprates the Scottish child payment to £28.20. Secondly, the budget will grow the economy through changes to non-domestic rates, including changes to the basic, intermediate and higher property rates and a 15 per cent relief over the next three years. We are also investing more than £45 million to drive innovation, enterprise and entrepreneurship. Thirdly, we are tackling the climate emergency by providing more than £5 billion of climate-positive investment in 2026-27. Finally, we are improving our public services by investing record funding of almost £22.5 billion in health and social care and providing a real-terms increase in local government funding compared with the budget for 2025-26.
Underpinning all four priorities is the need for transformation. The Government has been clear that maintaining high-quality public services will require change in how services are delivered, with a focus on prevention, improved outcomes and long-term financial sustainability. With the publishing of portfolio efficiency and transformation plans as part of the spending review, there is further information on how each area contributes to the overall sustainability of the public finances, and we expect the plans to yield savings of £1.5 billion a year by 2028-29 for reinvesting in front-line services.
Convener, thank you again for the opportunity to attend today, and I look forward to discussing the budget and associated fiscal publications in more detail and to supporting the committee in its scrutiny.
We had a couple of preliminary goes at this last week, and we also discussed the matter in the chamber last Wednesday, so I think that we have talked about some of this already. In some ways, I feel like Elizabeth Taylor’s eighth husband: I know what to do—I just do not know how to make it interesting.
I want to start with an issue that we did not touch on last week—housing. The figures for housing on page 93 of the budget document look very impressive. At this point, I should say that I am going to refer to the autumn budget revision figures wherever possible, because I think that they are the most accurate when it comes to comparing like with like—and I have to say that we do really appreciate the increase in information, although we will touch on that a wee bit more as we go along.
We are seeing a quite substantial increase in the total housing and building standards line from £634 million to £813 million. Below that table, though, we see details of the affordable housing supply programme, which comprises
“Capital, Transfer of Management of Development Funding and Financial Transactions”,
That totals some £926 million. I work that out as a 45 per cent increase in housing spend next year. Is that actually the case? Can you give us a wee bit more information about those numbers? I just want to ensure that we are comparing like with like, given that there is no AHSP line anywhere in the tables.
I can bring in colleagues to talk about the detail, but there is a significant uplift in the funding for the affordable housing supply programme. Of course, it is part of the overall £4.9 billion of investment over the next four years. With housing in particular, it was important to give certainty beyond a one-year figure.
You have pointed towards a significant uplift for this particular year, convener, but it continues over the four years. I should say that £4.1 billion of that is public money, while the other £800 million will be private investment levered in to grow the pot for delivering the target of 110,000 affordable homes by 2032.
I will ask Richard McCallum to confirm that this is FT and capital funding.
Just before you come in, Richard, can you tell us where we can compare that £926 million with, say, the 2025-26 ABR figure? If we look at the fourth line of the table on page 93, we see £634.9 million going to £813.8 million, and then there is just a bullet point below that table. I just want to know exactly where the difference is in the year-on-year actual spend.
A combination of the capital resource and financial transaction lines comprises that increase to £925.9 million in 2026-27. Essentially, there is a greater degree of investment of financial transactions in 2026-27 compared with the 2025-26 figures, but we will come back to you on that for full transparency, convener.
I do not see that—in the FTs row, there is a dash, as though there were zero financial transactions.
That zero is correct. There are additional financial transactions being invested in the housing programme in 2026-27.
You are saying that the figure is effectively going from £634.9 million to £926 million. Is that correct?
Yes. I will come back on the 2025-26 comparator, to reflect on any further changes as a result of the transfer of the development funding. The total of £926 million is certainly correct, and we will make sure you have clarity on the comparator.
It looks as though the housing sector is getting a major boost. We know that, over the next five years, there will be a real-terms reduction in capital and a gross domestic product deflator of around 5 per cent in real terms. Where is that blow going to fall?
I will not go into the infrastructure delivery pipeline in great detail because we will take evidence on it separately, but can you say where there are likely to be significant reductions in capital spend? We asked for that in relation to that pipeline 25 months ago and I feel somewhat underwhelmed by the fact that the pipeline talks about the projects and the money that has been spent but it does not give details of timelines or the resources allocated against the projects that are in annex A and annex B.
There is a link, which leads you to a table—which I can share with the committee if it would be helpful. It lays out a significant level of detail.
The pipeline is split into two main areas. In one, the final business case for the projects has been approved and the funding is in place. The other is for those where the business case is still in development and therefore that funding will be allocated in future budgets. There is also a third tranche of projects that are not at that stage yet.
One of the projects in that tranche is in my constituency. It was put forward in 2004 and, 22 years later, it still has not moved to annex A. How long is that going to take? I know that it is a living document but it is not very inspiring when you look at the timescales—it seems to me that there is a “mañana” approach. Where is the sense of urgency about pinning some of those things down?
You will appreciate that it is sometimes very slow for some of the projects—given that they are larger projects, some of which are very complex, particularly those in the health space—
Some of them are not. The one that I am talking about is not complex at all. It is a road issue and it has been there for 22 years. I have raised the issue in the chamber so many times that I am fed up, but every time I get the same answer about when Government processes are complete. It has been 25 months since the committee first raised the issue of an infrastructure delivery pipeline. When you produce that, we need a lot more detail in the document, rather than links to other places where we have to go searching for further information.
I will certainly make sure that the committee gets that documentation. It lays out a significant amount of detail. The backdrop of capital declining by 0.3 per cent over the spending review period is challenging. As I have said, with the infrastructure investment pipeline, we have tried to be clear about those projects that are moving forward. We are also trying to be innovative in other funding streams to grow that envelope because relying on the capital departmental expenditure limit alone is restrictive, given the fall-off of capital.
That is why we are looking at revenue finance—in the primary care space and the college estate, for example—to try to grow that pot, because of the very point that you are making about the importance of infrastructure. CDEL is going to decline over the course of the spending review and that is reflected in what can be done by when.
As I said last week, I think that the real-terms reduction is going to be deeper because I do not think that the GDP deflator is accurate.
I have sympathy for you on that point. We know that construction inflation is running higher than GDP. In October 2025, annual construction inflation was at 4.4 per cent, and that builds on all the other increases over the years, especially the post-Covid years.
That impacts on bangs for bucks. Every £1 million that is invested in infrastructure buys significantly less now than it did 10 years ago. Every Government is facing that reality, which is why we are trying to grow the pot by looking at revenue finance.
08:45
It is commendable that the Government is increasing funding for critical safety, maintenance and infrastructure on the roads by 6.1 per cent compared with the ABR figure, and funding for ferries by 18 per cent.
However, in the past two years, I have raised the issue of why public-private partnership infrastructure investment appears in the transport section of the budget every year, but not anywhere else. I understood that that was going to be resolved one way or the other so that we could compare spending in different portfolios.
According to the outturn figure, there has been a 42.6 per cent increase in spend on PPP infrastructure investment in transport. Why would that be?
It must be the case that the projects in question are coming to a head from the point of view of the flow of those repayments. On roads, there are still significant payments to make on the Aberdeen western peripheral route and some of the motorways.
It seems as though the payments are being stepped up. Even compared with the ABR figure, we are talking about an increase of around 10 per cent. Why is the PPP expenditure in other portfolio areas not in the budget, as we have asked for it to be for at least the past two years?
I will make a couple of points about that. Transport is the largest area where there are such PPP costs. As the cabinet secretary said, the increase that you can see in that budget line will simply be down to the profile of the revenue payments.
In the health portfolio, because the repayments are primarily made by health boards, the PPP cost is part of the core budget that they receive. I appreciate that that means that those amounts are not included in the budget in the same way that they are in transport, but that just reflects the fact that different delivery partners are involved in health. That is why those figures form part of the health boards’ numbers.
If it would be helpful, we could come back to you with more information on the profiling.
It makes life easier for you if we can ask a question and get an answer because, that way, we do not end up having to keep asking the same questions year after year. I would have thought that that would make life easier for the Government.
There has been a massive improvement in the layout of the budget with regard to the autumn budget revision figures, but witnesses at last week’s meeting, including those from the Scottish Fiscal Commission, expressed frustration about the fact that there is still £606 million that is not set against the ABR. That means that, to an extent, we are in a situation in which we are comparing apples with oranges.
One area in which real concern has been raised is that of local government funding. The Government has made it clear that one of its aims is to tackle the cost of living crisis, but it will not be easy to tackle the cost of living crisis if people get above-inflation council tax rises. I would have thought that that is almost a certainty, given the settlement for local government. I think that the settlements in some areas are pretty robust—most of them seem to be above inflation—but that is not the case with the local government settlement.
The Convention of Scottish Local Authorities has provided a briefing to all members of the committee, which states:
“this is a very poor settlement which fails to address the dire financial situation of Local Government in Scotland. The 2026-27 Budget provided a small amount of additional, uncommitted revenue funding of £235m and an uplift to the Affordable Housing Supply Programme.”
As we have discussed, the affordable housing supply programme is getting a major boost, but there is a real issue when it comes to day-to-day spend.
The briefing goes on to say:
“In addition to the gap Councils face, the £497.5m gap in 2025-26 in Health and Social Care Partnerships will continue to rise as demand and complexity increases. The additional funding is only 30% of what we demanded for social care alone.”
Why is local government the poor relation in what is, in many ways, a good budget?
I will come on to those points, because there was a lot of detail in there but, first, I point out that all commentators have acknowledged that there is a real-terms increase. There is a difference of opinion on what the real-terms increase is, and I am very happy to set out why we say that it is 2 per cent.
I draw your attention to what the Scottish Parliament information centre has said. As in the past, it has said that, if you compare budget to budget, as we should, because of the in-year transfers, you find a cash and real-terms increase to the overall revenue allocation to local government. All that is set out in table 4.15, which shows that the overall settlement increases by £650.9 million. That is a cash increase of 4.3 per cent, or 2 per cent in real terms.
The reason why it is difficult to compare to the ABR is because of in-year transfers. In 2025-26, we had in-year transfers of £144 million for employer national insurance contributions and £109 million for pay. If you compare the budget to the ABR, the ABR will of course be inflated because of those in-year transfers of resources.
There might well be in-year transfers of resources for 2026-27, but we do not know that yet. That is why we contend that, for local government, because of that flow of funding in-year, some of which can be predicted and some of which cannot—no one predicted the employer national insurance contribution issue—we should compare budget to budget, as SPICe has said should be done. It is important to recognise those two elements of in-year funding on ENICs and pay in 2025-26. SPICe has recognised that.
That is why my contention is that there is a 2 per cent increase in real terms, when we compare this budget to the 2025-26 draft budget.
The Institute for Fiscal Studies has reported that the local government and finance portfolio will
“see reductions averaging 2.1% a year in real-terms”,
or £472 million, over the spending review period. How can local authorities bridge that gap? You are suggesting that it doesnae exist. Does that mean that council tax rises will be at inflation or below in the spring?
The spending review is a separate issue from that of the budget-to-budget comparator. The spending review is flat cash, and the reason for that is to do with the constraints of the spending review itself. However, if, as a comparator, we look back to the previous spending review in 2022, when local government also had a flat cash outlook, we find that the actual funding that was delivered to local government bore no relation to that outlook.
The spending review is for planning purposes, but, in the course of history, the figures in a spending review have never remained at the same level. Given that the UK is heading towards an election in 2029, there is no way that the figures in the UK Government spending review will hold as they are at the moment. I think that local government received about £3 billion more than was in the previous spending review outlook, in which it had flat cash. The reality for local government was much, much higher.
I gave those assurances to COSLA when I wrote to it. I set out that the spending review is for planning purposes, but the local government budget is set budget to budget. It has always been above the spending review outlook, and it is most likely to be again.
That is a bit of a wing and a prayer approach. Do you expect councils to tie down council tax increases to around inflation? They have issues with pay pressures and so on, and there are concerns about ring fencing. You have talked about the UK Government’s imposition of national insurance contributions, which is another on-going impact. What do you expect from local authorities on council tax, given the Government’s commitment to keeping the cost of living down?
I expect it to be reasonable. I will not put a figure on that. We have, of course, listened to COSLA. Local authorities wanted flexibility on council tax, so we have given them that.
We have increased the general revenue grant by £253 million. I have had a debate with COSLA in which it has criticised the level of social care funding. I could have hypothecated that £253 million for social care, but I would then have been accused of ring fencing money rather than giving local authorities flexibility.
The £253 million is in the general revenue grant, which can be used for social care or any other priorities for local government. Of course, we are supporting social care—the latest figure is £2.3 billion, including funding for the real living wage.
The £750 million of new money for social care that COSLA asked for just did not exist. I was very up front with it in the discussions that we had. That quantum is more than the entire resource consequentials for the spending review for one year. The money just was not there.
Do I accept that there are pressures in health and social care partnerships? Absolutely. We require to address those, and we need to work together to do so. However, I cannot provide money that simply does not exist.
What I have provided is a fair settlement for local government that represents a real-terms increase. There is a debate among commentators about what the level of the real-terms increase is, but everybody has accepted that there is a real-terms increase.
Overall resource funding is up by about 1.1 per cent in real terms. I take on board what you are saying. When one looks at the scale of the budget, £750 million would be all of that.
There have been a number of comments on the issue of colleges over the past couple of weeks. I asked you a question about that in the chamber when the draft budget was announced. You said in your statement that there is a £70 million uplift, which is about 10 per cent. If we look at net college resource, which is on the fourth line down on page 61 of the budget document, the autumn budget revision figure is £662.1 million and the budget figure is £721.1 million, which is a difference of £59 million. College capital expenditure goes down by £6.1 million.
I am looking to see where the £70 million is in those figures.
We have accepted, as I said in the debate last week, that the way that the figures have been set out is perhaps not the most helpful. Jenny Gilruth is writing to the Education, Children and Young People Committee this week to set out the figures in a way that is absolutely clear.
However, let me be absolutely clear that there is £70 million of new money for colleges—£62 million of resource and £8 million of capital. One of the problems has been that the capital has not been disaggregated in relation to infrastructure projects, such as the Dunfermline campus. That is new money, and Colleges Scotland has welcomed it. It has all been confirmed.
On top of that, there is £8 million—through the child poverty moneys—to deliver employability programmes through colleges. Therefore, £78 million of new resource will go to colleges in 2026-27. Through the spending review period, that uplift has continued. We have been clear with colleges, and work is going on now with them. Some of that is about stability funding, but some of it is about transformation. Colleges will be setting out their plans around what that transformation looks like. The funding will allow a period of stability and it will also allow colleges to get on with transformation, which they are keen to do. I am pleased that that has been welcomed.
Maybe others will wish to look deeper into that.
One of the Government’s priorities is to grow the economy. However, if we look at level 3 figures on page 84 of the document, we see that total enterprise, trade and investment spend is to go down, from £419.6 million to £397.7 million. We see significant reductions in Scottish Enterprise and Highlands and Islands Enterprise funding from the ABR figure, and even from the outturn figure for 2024-25.
How will the Government continue to grow the economy to the level that we want if there are going to be year-on-year reductions in enterprise agency funding? I believe that that issue has been going on for a considerable period of time.
On enterprise funding, there are some in-year movements, but we have done more to give the agencies more flexibility. Scottish Enterprise set out a programme of transformation that it wanted additional flexibility to deliver, and it has been given that. It is a reasonable budget in the light of our constraints, and Scottish Enterprise has an ambitious programme of reform to get on and deliver.
09:00
This goes back to the transparency issue, because there is a note in the budget that says:
“Enterprise Agencies receive additional funding at ABR to deliver specific projects and programmes. This means that figures for the ABR 2025-26 Budget and 2026-27 budget are not directly comparable.”
How is a committee expected to scrutinise the budget if we do not get directly comparable information?
I accept that some of the in-year transfers make it difficult. We have tried to be as transparent as possible and have explained why some of the funding sits elsewhere. We are providing more than £325.5 million of funding for the enterprise agencies, and they receive additional funding from the Scottish Government in the ABR and spring budget revision. I understand your point, but the funding is to deliver specific projects and programmes. It is difficult to compare figures from the 2024-25 outturn, 2025-26 ABR and 2026-27 budget because of the in-year transfers.
I think that you started off by saying that progress is being made on transparency and improvement. There is always more to do, but I guess that there is always a tension when portfolio holders—cabinet secretaries who hold portfolios—wish to make changes to programmes. Once money has been transferred and baselined, it is very difficult for them to do so.
I appreciate that, but we are just trying to get a clear picture of where budgets have gone—
I understand that, and it is a fair challenge.
—and of where money is being spent and not spent, so that we can see what is happening in a portfolio. Outside commentators who do not have the opportunity to sit here and question you for two-and-a-half-hours, as we are this morning, cannot see what is happening in reality because they do not have the information.
Sticking with the economy, what is the situation with the Scottish National Investment Bank? The Government is very ambitious about the bank’s work, but there has been quite a significant decline in funding since the ABR—it has gone from £227.4 million to £190.4 million, which is probably a 16 or 17 per cent reduction. I do not see any notes about projects or programmes, so why is its budget being reduced so significantly?
There is £200 million going to SNIB. We are supporting SNIB to make more “mission-assigned investments”—that is how it has described them—across Scotland. The bank has just celebrated its five-year anniversary and has already managed to crowd in £1.4 billion of third-party co-investments, so it is doing well.
We have also given SNIB flexibilities, which it had asked for, and we think that they will make a difference. We negotiated with the bank and agreed to give it those flexibilities. If it would be helpful, I can write to the committee and let you know what that will mean for the bank’s flow of funding, but we have been able to provide one of its key asks.
I notice that there is a £34.6 million capital allocation against the 2025-26 ABR budget, but that allocation was not in the 2024-25 outturn and it is not under the 2026-27 budget, so was that one-off spend? It just seems bizarre to go from zero to £34.6 million to zero again.
I will have to come back to you on that, if that is okay.
Okay, I could go into that more, but I realise that others are keen to come in.
I just want to add, on flexibilities, that we have agreed that, for each and every year, SNIB will have access to up to £25 million of the Scotland reserve to deposit funding that can be carried forward into the next financial year, which will help with its cash flow.
I will ask a final question before I let my colleagues come in. It looks as though arts and culture spending is growing quite healthily. Creative Scotland’s budget in the ABR was up by a third compared with the 2024-25 outturn, and it is now growing from £89 million to £100.7 million, which represents an increase of about 11.7 per cent.
However, the national performing companies, which gave evidence to the committee a couple of weeks ago, have said that, in some cases, they are operating with more or less the same amount of money as they had before the financial crash. Their budget in the ABR was £24.6 million, and their budget in the 2026-27 budget is £24.6 million. Given that culture spending seems to be growing very healthily—I know that the Government has a policy of increasing culture spend by £100 million over four or five years—why are the national performing companies losing out?
I saw some commentary about that. At the end of the day, it is important to find a balance in relation to funding for the national performing companies. They receive quite a significant level of funding.
They are getting the same amount of money as they were getting a decade and a half ago. In which other areas of Government spending are people getting the same amount as they were getting a decade and a half ago? In no other area—other than perhaps tuition fee payments—has funding been held for so long without an increase. That means that the national performing companies cannot perform productions that bring money into Scotland or carry out the work that they do in improving wellbeing, reaching out to schools and so on.
We have provided a significant uplift in the culture budget—
You have, but the money is not reaching the national performing companies. If the culture budget was static, we might say, “Fair enough,” but it seems odd that, at a time when the culture budget is growing very healthily—we all appreciate that, and Angus Robertson has done a lot of good work in arguing for his sector—the performing companies are receiving real-terms reductions, given their flat-cash allocations.
It is for the Cabinet Secretary for Constitution, External Affairs and Culture and Creative Scotland to work out the details of who gets what. A lot of funding has gone directly to smaller arts and culture organisations that were struggling, which has brought stability to those organisations in constituencies across Scotland. We need to balance funding for the national performing companies with funding for local arts and culture projects whose viability was under question. Such judgments always need to be made.
Angus Robertson has been engaging with the national performing companies on their concerns. However, if you speak to some of the organisations that are now getting funding across the spending review period, they will tell you that the right decision was made on where funding should go. There is never enough funding to keep everybody happy, so a balance must be struck, and that balance has focused on local arts and culture projects.
Thank you. We will move on.
Good morning. I will pick up on a few points.
The convener asked about the NPCs, whose concerns and disappointment were greatly exacerbated by the fact that they have done what I would regard as the right thing. That is particularly the case for the Royal Scottish National Orchestra, which set out in its economic impact report its contribution in gross value added—it gets a £6 return for every £1 invested, which roughly equates to the figures for the college sector. If the focus is on organisations that provide a tangible, specific and measured return through economic growth, as the work of Biggar Economics shows, the question why those organisations have not had any increase in funding since 2009 becomes even more relevant.
I accept that, as you said, the creative sector has been struggling. However, the RSNO—and the other NPCs, although led by the RSNO in particular—did what they and I would regard as the right thing, by proving economic value in the form of gross value added. Yet, here it is, still with the same funding as in 2009 and the chief executive expressing concerns that it might need to move to a freelance model rather than jobs, which of course support the fundamental ecosystem. Do you not think that getting work done to prove its GVA and, therefore, its economic value, was the right thing to do? Should it not be rewarded for that?
Well, look, I think that the work that the RSNO has done in proving its economic value is important in itself—I am not disputing that for a minute. All that I am saying is that choices must be made in every portfolio and that demands are always larger than the available funding.
I am aware that the additional funding and the certainty of it has addressed the fragility of and pressure on the culture sector mainly in relation to organisations that have not had that guaranteed annual funding, which were the ones that were most at risk. I have certainly had that in my constituency and I am sure that many people around the table will be aware of organisations where that was the case. Creative Scotland went through its own review to try to make the funding more strategic and focused to bring that stability to the arts and culture organisations that many communities are reliant on and benefit from.
Ultimately, those were the decisions that were made. I am aware that Angus Robertson is engaging with the national performing companies, and we will need to see where that ends up. It is about that balance of where the funding should go.
What I am trying to convey is that, to me, there is a difference. Nobody is disputing that a whole variety of creative organisations bring about wellbeing benefits in communities. However, the RSNO provides clearly demonstrable wellbeing benefits, as well as economic benefits that have been published. It is known: it can take the Scotland brand to the world and bring money back in. If there is an emphasis on providing economic growth—that is one of the priorities—surely, where that is demonstrably the case for a creative organisation, it should at least have got some uplift instead of staying at the same flat cash since 2009. In other words, not every creative organisation is as good as the next one. I am not saying that economic growth is the only measure, because I realise that creative organisations bring wellbeing benefits, too.
You do not necessarily need to answer that specifically. The brief question is, have you set any direction for the Cabinet Secretary for Constitution, External Affairs and Culture to be mindful of not only wellbeing but economic contribution?
We would expect every portfolio to be very alive both to what the organisations in it bring to economic growth and to the importance of that in relation to everything that they do.
That simply does not seem to be the case here. I will not labour the point, because I want to go on to other things, but I think that what has been encouraged and what has been done has not been followed through. One of the reasons why the NPCs are so disappointed is that they felt that they were doing the right thing. For what it is worth, I felt that they were doing the right thing.
I want to move on, though, to a point about the Scottish National Investment Bank. I think that what you meant about the year end and the flexibilities was to do with the budget and allowing the SNIB to carry over investment allocations into the next year, which is a good thing. Having the bank on single-year funding was ridiculous, especially when we look at what it is trying to do. Nevertheless, if one of the priorities is economic growth, I would still have expected the SNIB to see an increase in its budget because of its real economic value.
09:15
Why did that not happen? The flexibilities are eminently sensible and probably long overdue, but I would have liked to see more money. When the SNIB has such a clear link with things that bring economic value and therefore meets one of the missions, why have we not seen it getting more money?
You will be aware of the reliance of the SNIB on financial transactions. We invest our FTs primarily with the SNIB and the housing programme. As I said earlier, the constraints of CDEL and FTs mean that we have to make judgments about what goes where, and we have maintained the £200 million to the SNIB, but it has been pretty successful at levering in £1.4 billion and the flexibilities that we have given it will help with the flow.
The Deputy First Minister and the SNIB have come to an agreement about what it needs in order to get on and do what it is doing. That outcome has been arrived at through negotiation and discussion with the bank, and we will continue to support it in doing what it is doing. I am sure that every organisation would like additional resources, but what we have done is support them to be able to do more of what they are doing. Giving them that flexibility was a key ask.
That is a good thing. I will keep on with the theme of economic growth. You will not be surprised to hear me asking about ScotWind. I still believe that there is something wrong with ScotWind money—a one-off payment that you will not get back, as Graeme Roy has commented—being used for revenue. From a fiscal rule point of view, that is just a big no-no.
I accept what you say about a fixed budget, lack of flexibility in the fiscal framework and so on, but it is not a good idea to use that money for revenue, even if you manage to protect some of it, because when it is gone, it is gone. It begs the question of what happens when you do not have ScotWind money for revenue.
I thought that the session with the SFC on that was interesting, because it said that it boils down to the lack of levers because of the fiscal framework—a point that you have made on a number of occasions. The SFC said that it is one of the few flexible pots of funding that we have, given the constraints on borrowing, the reserve and all the rest of it.
The SFC also said that it is not unreasonable to use the ScotWind money to smooth through that year, particularly when we look at 2027-28 and see the spending review looking like a V and then improving. If we had not done that, we would have had to make some major reductions to funding lines, including the main ones, such as local government, health and social security. That was the alternative in the absence of any other lever to smooth through that year. However, our track record shows that we have been effective in reversing out ScotWind allocations that we have made in previous years, because we recognise that we do not want to utilise that money for resource spending. We have been successful in reversing those allocations out and our intention would be to reverse as much as possible in 2027-28 for use in future years.
As I said earlier, I do not believe that the UK Government’s spending review outlook, on which we are basing our outlook, will hold in its current form, given that we are heading towards a general election in 2029. The figures for 2027-28 and 2028-29 will change, for sure, in terms of the funding available.
The choice that we had was either to smooth things out through the use of ScotWind money or to show significant reductions, which we would have to plan for now.
All of this links not just to economic growth but to fiscal sustainability, which, as you will know, the committee has referred to quite a few times. I am surprised that the Government has not committed to responding to the Scottish Fiscal Commission’s fiscal sustainability report. Why is that? Given what you have said about the constraints of the fiscal framework, I am sure that you understand and agree with the importance of fiscal sustainability. Why is the Government not planning to respond to the Scottish Fiscal Commission?
We have responded through the immediate spending review outlook. Indeed, it is why the fiscal sustainability delivery plan sets out efficiency savings that go quite far and quite deep in reducing corporate costs, with a reduction of 0.5 per cent over the course of the year, or around 11,500 full-time-equivalent posts. That will mean delivering services differently.
All of that will help ensure that, by the end of the period, we are in such a position that the books are balanced and the changes that need to be made in the transformation of services have been made. The public sector will be smaller at the end of that period, due to all those levers.
As for the wider, longer-term outlook beyond that, I would say two things. First, there has to be a fundamental review of the fiscal framework. I have made that point many times, and I have raised it many times with the Chief Secretary to the Treasury. Commentators in the main are supportive of our view that our levers are very constrained when it comes to smoothing out rocky periods in the flow of resource funding. It does not flow evenly, but our levers in that respect are very constrained.
The second thing is the demographic changes that are coming, which will require us to go further and faster with the transformation of services and with the use of more preventative spend to prevent people ending up in hospital and to address the exponential growth in the over-80s. All of that has to be looked at in combination with all of our front-line public services. We are really in the foothills with some of the automation and digitisation approaches, but we need to expand all that.
That would be my response: we are absolutely doing these things. All the work that is on-going in the immediate period will need to be stepped up if we are to be able to take on that demographic challenge.
If the target for public sector reform is £1 billion, I am surprised that the investment available for invest to save is only about 3 per cent of that. Traditionally, it is quite expensive to save money. It costs money to save, so I thought that a figure of about 3 per cent was very low, and it makes me question how realistic the £1 billion figure is—although I know that that is a separate discussion.
We would expect the savings that are being made to be reinvested in further savings, so we would want a bit of a cranking up to happen—
It is going to have to go some, if it is to go from 3 per cent to £1 billion.
The £30 million last year was really to oil the wheels of change, but the wheels then have to keep going within each organisation, rather than—
It will need an exponential increase in speed, I think.
I will leave it there, because I appreciate that everyone else on the committee wants to come in.
I call Craig Hoy, to be followed by Liz Smith.
Good morning. I want to go back to the question of transparency and in-year transfers. According to the Institute for Fiscal Studies, the key figures have been, in its words, buried “in an annex”, and this is resulting in “a recipe for confusion”. I also note that, because the Scottish Fiscal Commission has gone through the process of properly baselining all routine in-year transfers, it has described its account as “a more accurate picture”.
The convener mentioned the £606 million that has not been baselined in that way. Why is the Scottish Government so resistant to putting in the budget the sort of very clear picture that the SFC has now put together? Are we not left to conclude that this is a deliberate ploy by the Scottish National Party Government to artificially inflate some budgets and hide cuts in others?
Well, no. With regard to local government, if you look at table A.09, you will see that it actually lists all of the areas that are subject to in-year transfers, for the very reason that we want to be transparent. That has been the same in the last few budgets, so that information is there.
Sometimes these things happen for portfolio and policy reasons. The fact is that, once the money is baselined, ministers have no control over it if they want to change policy. The active travel line for local government is a good example of that. As I understand it, the Cabinet Secretary for Transport has changed the policy with regard to how active travel funding is to be given. We can provide more detail on that, but if that money had been baselined, she would not have been able to do that; she would have lost any control over being able to make changes in policy.
There is a balance to be struck here. Do you just put all the money out the door and then, if there is a change of policy, do you have to bring the money back? These are judgments that have to be made. We have baselined a lot of money, and we have done so each year. The direction of travel has certainly been towards baselining more and more funding.
Ellen, can you remind me what the additional baselining is? Is it £2.2 billion?
Since the Verity house agreement, it has been over £2 billion.
Yes, £2.2 billion has been baselined since Verity house. The direction of travel has been towards baselining that money for local government, but there are areas where cabinet secretaries feel that there is a policy reason to hold the money, because policy might change. If you do not hold the money, you do not hold the policy.
I just want to come in for a wee second, cabinet secretary. You suggested that the explanation for this was on table 8.09, if I heard you right—
I am sorry—it is table 4.15, convener.
I wondered that, because there is no table 8.09.
No, it is table 4.15.
Thank you—that was helpful. Sorry, Craig.
I have to say that I am struggling a little bit. When the Scottish Fiscal Commission can look at pots of money and say that they are routinely transferred—that is a regular process—why would you want to keep them in one budget portfolio, only to shift them, as you have done in previous years, later in the year, unless there is some element of trying to create some confusion about the underlying picture?
We are not trying to create any confusion, which is why table 4.15 sets everything out.
But there is confusion now in local government, and it is causing real problems for councils across Scotland. They were told that in the budget they would get year-on-year real-terms increases, but the councils that I am speaking to are looking at quite considerable above-inflation council tax increases, because they do not believe that they will get the levels of funding that you say they will. That is the impact of the confusion that you are sowing.
I am not sowing any confusion. There is a real-terms increase for 2026-27; I set out very clearly to the convener earlier that that additional funding is absolutely there. If you do a budget-to-budget comparison with last year, you will see that there is a 2 per cent real-terms increase in funding.
The spending review that you are referring to is essentially for planning purposes, and it is flat cash, because the figures at our disposal are incredibly tight. As I explained earlier, 2027-28 is particularly tight. The planning assumptions that I have set out to local government are based on what we have available to us, but the funding position, budget to budget, is likely to be different from that. As I pointed out to the convener, when you look back at the 2022 spending review, you will see that there was a flat-cash outlook then, too. What local government actually got was about £3 billion higher than that.
We can plan only on the basis of what is in front of us, but I expect those figures to change—and to change considerably.
History does not always foretell the future. You are saying that, in the run-up to the election, a UK Labour Government will find more money and spend more, which you will benefit from. Is that not a wing-and-a-prayer approach to long-term spending planning?
09:30
No. I have set out what we know in the spending review, which is that we have flat cash, and I am saying that no spending review has ever stayed the same—none. It was the same under the previous Conservative Government. No spending review remains as it is set out; it always shifts. All I am saying is that, on the basis of the history of what has always happened with spending reviews, there will be movement on the figures. We have tried to say, on the basis of what we know for sure, what it will look like, but all past spending reviews have moved and shifted in a positive direction, and that is what I expect to happen.
For 2026-27, there has been a real-terms increase in local government funding on the basis of the funding that is available to us, which I have set out.
Analysts are projecting that there is a significant chance that the next Government might need some kind of emergency budget in 2026-27. Are you busy writing a “there is no money left” letter for your successor?
No, not at all. I do not accept your point. We have always managed to balance the budget. If you are going to quote, you could quote some of the credit rating agencies that have praised the prudent financial management in Scotland.
I think that we have set out a reasonable position for local government funding. By any commentator’s view, there has been a real-terms increase, but there is a difference depending on whether you compare to the ABR or to last year’s budget. The reason that you cannot compare to the ABR is that, as I set out, we had employer national insurance contribution funding of £144 million and pay of £109 million, which inflated the ABR position. SPICe, which guides committee members as to what is reasonable, has clearly said that that is why it is not reasonable to compare the budget to ABR. It is more reasonable to compare the local government settlement from budget to budget, because of the in-year movements. I agree with SPICe on that.
In relation to tax, you are making a virtue of saying that the majority of people in Scotland will pay less tax than people in the rest of the UK. Has that been the case for the past two years?
Taxpayers in Scotland earning less than around £33,500 will pay less income tax in 2026-27 than they would if they lived elsewhere in the UK.
How much less?
I will come to that if you give me a minute. According to the SFC’s estimates of median incomes, which were published alongside the budget, more than half are set to pay less after deductions in 2024-25, 2025-26 and 2026-27. As I have said before, accounted-for deductions, such as pension contributions, are required to reflect the tax that is actually paid by taxpayers.
On your question about the level—
Pounds and pence annually would be a good figure to get. How much less are people paying in tax each year?
The average household in the lower half of the income distribution will be around £480 better off than it would be under UK tax and social security policies. You have to look at it in the round. It is not just about tax; it is also about social security.
I am asking for a simple figure, which you must have, cabinet secretary. If 55 per cent of Scots are going to pay less in tax than people in the rest of the UK, what does that equate to in pounds and pence over the course of a calendar year? It is a simple question.
Relative to tax paid in 2025-26, someone would be £32 better off. The policy impact relative to the SFC baseline is £25 up to an income of £40,000. Do officials want to add anything to that?
No—those are the correct figures, cabinet secretary. As you said, the issue is seeing things in the round—not only the tax, but other benefits on the other side of the ledger, including social security.
I do not want to see things in the round. I want to see the figure by which this claim that you are trumpeting—
Well, I have just told you the figures.
If you look at the complexity of the Scottish tax system, it has been built in such a way that it effectively allows you to make that claim. It is barely worth the paper that the press release was written on. The figure is £32 a year. When I described the budget as cynical, that is the kind of example that I was alluding to. Why was it fair for you, in the budget, to increase benefits in line with inflation but not the upper rates of the tax thresholds?
I will come on to that in a second. On the one hand, you are saying that it is important that I prove that a majority of taxpayers will pay less than they would if they lived somewhere else in the rest of the UK. Then you move the debate on and say, “Aha! But it’s not that much less.” The point is that we are not increasing the tax burden on the lower paid; we are reducing it and taking it in hand with social security supports. Those in the lower half of the income distribution in Scotland will be about £480 better off than they would be if they lived anywhere else in the UK. That is significant. It is a deliberate attempt to support those who are on lower incomes.
On your point about the higher thresholds, three quarters of taxpayers are not affected by the freeze to the higher thresholds. We are not freezing them to the same extent, over the same period, as the UK Labour Government. We will review the policy in a shorter period than the UK Government has set out, because it is right to do so.
If we were to shift the higher rate threshold, even to about £44,000, that would cost £125 million. If you are proposing that we should do that, you will have to point out where that money would come from. Earlier, we discussed funding for local government, and you pressed me on whether there is a real-terms increase. If I had to find £125 million to marginally increase the higher rate threshold to £44,000, it would mean that there would be £125 million less for local government or health.
Those are the choices that you have to make when you are in government, in order to reach a fair position. People get a lot from the social contract for the taxes that they pay, and they get far more in terms of social benefits. Those are the policy choices that we have set out. It is for others to set out alternatives, but they also have to say where the money would come from.
Finally, welfare expenditure is an area where I think savings could be made. By the end of the decade, the welfare bill will be approximately £10 billion. Given that there is a significant amount of public money on the table, what assessment has the Scottish Government undertaken, or will it undertake, of the true overall costs of the benefits framework that you have put in place? What assessment are you making of behavioural change, which would include lost tax receipts when benefits disincentivise work?
We have made an investment in social security in Scotland because we believe that it is the right thing to do. Incidentally, the inflation increases that you referred to were agreed unanimously in Parliament. It might have been before you were elected, Mr Hoy, but every party signed up to those inflation increases in the legislation. In fact, I think they were actually moved by one of your former colleagues. It is not just the SNP Government that has agreed this; it was a unanimous position taken by the Parliament that these benefits should be uprated by inflation. If you are now changing tack and changing your mind, the important thing is that you need to say who should lose out and how the system would change.
By the way, to do that, you would have to consult and do a full assessment, which is also set out in the legislation. The idea that that would be done for 1 April this year to save money for your tax cuts is for the birds, because it would not. It would take at least a year to go through the process of changing benefits and removing them from people, in addition to which you have not specified who the losers would be.
We have made the investment in social security. As you can see from the SFC’s analysis, the proportion of investment that we think we will have to make, according to the medium-term financial strategy, has fallen for a number of reasons, including those relating to the number of adult disability payment claimants. That pressure throughout the spending review period has been reduced for the reasons that have been set out. A report that has just been published by the chief social policy adviser says that the two main contributors to the increase in disability benefits are rising rates of ill health and the UK Government’s raising of the state pension age. I make no apologies for our investment in social security.
The question that I asked was what assessment of behavioural change has the Government undertaken? I am not hearing that you have done any.
There is no evidence that there is a cliff edge for people who are on disability benefits. You need to remember that some of these people are already in work. We have not seen any evidence that there is a cliff edge that prevents people from getting into work because they are on benefits. The latest figures show that the number of people who successfully claim adult disability payment through Social Security Scotland is quite modest. We need to consider everything in the round before making judgments.
My final question is on the same theme. This weekend, it was revealed that 60,000 people are claiming ADP for anxiety-related conditions. Do you know how many of those 60,000 people are in work and how many are not in work?
No, but I am sure that I could get those figures for you.
I hope that you would accept that the need for mental health support has increased, particularly in the post-Covid era, not just in Scotland but in other jurisdictions. We need to support those people, and we also need to support people to avoid falling out of work. That is why it is important that people get the right support when they need it, including when they return to work. We need to support people back into work, which is why we are funding our employability programmes and providing £8 million for colleges to work with parents and help those who are furthest from the labour market to get back into work.
Nobody disagrees that work is the best way out of poverty, but I believe that Scotland has a compassionate and fair system for people who need support. Those who want to change that system need to set out how they would do that and who would lose support.
Good morning. When it comes to making difficult policy choices in the very tight fiscal circumstances that we all face, do you agree that the emphasis should be on the policies that deliver the best outcomes and that there should be less emphasis on the policies that do not?
It is hard to disagree with that in principle. It is a case of considering the evidence on the outcomes of policies. I assure you that, when we set budgets and through our work on the spending review, policies are pretty robustly scrutinised and tested. Every cabinet secretary in every portfolio is challenged to set out the degree to which their spending is having an impact on the First Minister’s four key priorities. That work was done through the spending review process, which was quite rigorous.
There are always choices to be made. Judgments about the impact of removing a source of funding to a particular service or a particular social benefit will be made in the round, but I assure you that these things are regularly and rigorously challenged.
09:45
I am interested in that because, as you will recall, in paragraph 73 of this committee’s report on the budget we expressed our disappointment that there was not more detail about this very issue, particularly when it came to measuring the value of universal payments. In replying to that criticism, the Government said:
“the Scottish Government is developing its approach to public value”,
which
“will embed a framework for understanding spending proposals”.
That was the Scottish Government’s response.
This time last week, I asked Professor Graeme Roy whether he was aware of what that framework was. He said:
“I am not aware of it.”—[Official Report, Finance and Public Administration Committee, 20 January 2026; c 25.]
Can you provide us with some detail on what that framework is?
What I can tell you is that, when we went through the spending review process, a process was set out that all portfolios and cabinet secretaries had to follow in terms of the value and impact of the spend within their areas. A key set of questions and challenges were followed through for every portfolio, and I engaged directly with each cabinet secretary in challenging them on that. They had to set out on a template the value of the spend within the portfolios. That process was consistent for each area of spend across Government, as you would expect.
But given that there is concern—which this committee has expressed not just this year but for several years now—that it is absolutely critical to have transparency in times of difficult circumstances, is it not something that the Government would choose to provide more detail on than we currently have?
The Scottish Fiscal Commission made the point that, if you compare the current Scottish spending review to what was produced in the 2011 spending review, we are not getting nearly enough of the budget line 3 spending requirements. It is therefore very difficult for us, as a committee that is supposed to be scrutinising the finances of the country, to know exactly where the most productive policy engagement is and where the Government would be perfectly in order to deprioritise, because the outcome is not so good. Is that not fundamental to the process of budget making?
The figures that we have provided are at a significantly more detailed level than what is in the UK spending review, for example, which is much less—
I am interested in the Scottish one. Let us not forget that the Scottish Fiscal Commission has had to come up with some of its own figures in contrast to what the Scottish Government has been saying. The Scottish Government has said that there is a 6.6 per cent real-terms increase in the education budget, but the Scottish Fiscal Commission has said that it is a 0.8 per cent real-terms increase. The Scottish Government has said that there is an 8.9 per cent real-terms increase in the housing budget, but the Scottish Fiscal Commission has said that it is a 3.9 per cent real-terms increase.
First, on the point about the level of detail, we have provided level 4 detail for health and local government. Have we provided it at that level for social security?
We have provided it at level 3 for social security.
We have provided level 3 detail for social security. We have provided additional detail for health and local government because those are among the biggest spending areas.
On your other point, we have, on a number of occasions during this session, tried to set out why we have a different comparison for the local government budget—it is a budget-to-budget comparison rather than comparison with the ABR, because of the in-year movement. We have set all of that out in the budget—as we did last year and, I think, the year before—in table 4.15.
We have tried to be as transparent as we can be with the amount of material that we have published, not just in the budget but in all the associated documents. Is it complex? Yes, there is a lot of material and a lot of information there. I accept that, but we have absolutely tried to set all of that out in as transparent a way as we can.
I do not doubt that, cabinet secretary. I am sure that it is a difficult job, particularly just now. However, the Scottish Fiscal Commission—which is clearly being very diplomatic about this, as it usually is—is not confident that some of the statistics that the Scottish Government has presented to it match up with its own analysis. Mairi Spowage told us that, when it came to college funding, she was not at all clear about where the specific lines were in that portfolio. We had David Bell saying that he was “completely confused” about how the fiscal sustainability delivery plan closes the fiscal gap. Is it not an embarrassment to the Scottish Government that there are experts in their field who do not feel that there is sufficient transparency in the Scottish budget?
On college funding, I think that reasonable points were made. We have responded by saying that the Cabinet Secretary for Education and Skills will provide clarity to the Education, Children and Young People Committee on the presentation of that funding, given the issue of all the infrastructure investment being put together and items not being separated out, including things such as the Dunfermline learning campus, which has not provided clarity in the college funding line. Where a fair point has been made, we have tried to respond to it.
On the point about the fiscal gap, what we set out in June in the fiscal sustainability delivery plan included a lot of detail. That has now been built on by the work that Ivan McKee has done on each portfolio, with its savings plans and efficiency plans. The workforce reduction plans clearly set out where those reductions are going to happen and the definitions of front line and back office. There is a lot of material that lays out the path to the savings that we need to make by the end of the spending review. I am not sure how much more detail could be provided in that space.
On the local government issue, as SPICe has recommended, we compare the local government budget to the local government draft budget, because of the in-year transfers into the local government funding line. I have already talked about the 2025-26 position, in which there were two particular areas of funding that would distort an ABR comparison—employer national insurance contributions and pay.
I am trying to be very transparent about why the figures are the figures. I am not sure how much more I can say about that.
I am just putting it to you that, despite what you say about the ABR and so on, our experts who are scrutinising the budget are being very clear in all their comments. It is not just one person saying this; our senior economic analysts are all saying the same thing—that, as we scrutinise the budget, there is confusion over where the budget spend is and, therefore, over where the best results are. Also, let us be honest, cabinet secretary: your budget speech had to have two corrections made to it, which were welcome and made quickly. There was an issue about the A96 and an issue about the provision for school swimming.
The on-going lack of transparency makes it difficult not only for the committee but for the public to understand which lines of spending will best deliver the results that the Government is seeking to achieve.
The A96 issue involved an omission from the infrastructure investment pipeline, which should have had the A96 corridor as a third line. That is what was signed off by ministers, and I am sure that the record will show—because it is a fact—that the line that was removed should not have been removed. In my statement, I talked about the elements that were part of the budget and the spending review, and, in answers to questions following my statement, I made clear our commitment to the A96 corridor as a whole.
On the swimming issue, I got it wrong when I said that it was temporary funding—it is not. I am sorry, but, after about two hours of questioning, we might occasionally get something not entirely correct. It is actually continuing funding, which is a good thing. I am afraid that there will occasionally be errors, and we have tried to correct them. In every budget, with all the material, there will be some errors, for sure, but we have tried to correct them as quickly as we can.
Never mind the measures in the budget; overall, considerable concern has been expressed about how the Scottish Government delivered it, and there has also been the analysis of our experts.
SPICe is also an expert organisation that provides support to parliamentarians, and, every year, it compares the local government settlement from budget to budget, because of in-year transfers. I am not disputing anything that anybody has said; all that I am saying is that there are good reasons why we do not compare local government funding to the ABR, which I have tried to set out as clearly as I can.
Thank you for your answers so far this morning, cabinet secretary. I will continue with this area, if I can.
The Scottish Fiscal Commission has produced a table—it is figure 4 on page 15 of its report—that sets out its understanding of what has happened. Why do you think that it has felt compelled to do that work? You have given a robust defence in response to various questions about transfers, but why has the SFC felt compelled to do that work, if it does not think that the information is hazy at best?
I will bring in colleagues, but at no point in our discussions with the Scottish Fiscal Commission has concern been raised with us that the information is hazy or not transparent. Any information that the Fiscal Commission provides is helpful. If it is able to provide additional clarity, that is not a bad thing.
Thank you. We have had a fair amount of evidence from the Scottish Fiscal Commission and the other experts that Liz Smith referred to that the information is hazy at best.
Ahead of next year’s budget, would the Government agree a process with the Scottish Fiscal Commission?
We have a process with the Scottish Fiscal Commission.
I am asking about the presentation. I know that you have a memorandum on how the budget is prepared, but will you agree a process for the presentation of transfers, so that we do not have to have two hours of questions about the issue and so that we can have the transparency that the public need? Would you agree a process?
You have probably heard me say at another evidence session like this, since I have been finance secretary, that I will always consider what improvements and changes can be made in the light of recommendations. We work closely with the Scottish Fiscal Commission, and we will want to look at its recommendations and reflections. If it recommends setting out the in-year transfers in a different way, we will respond to that. One reason why we have table 4.15 in the budget document is to set out clearly what the lines involved are. The answer is yes, of course.
Thank you. That would be a useful thing for everybody concerned.
In the coming year, will pay rises be restrained to 1.1 per cent in Scotland?
We have very much focused on getting two-year pay deals as part of the 9 per cent pay policy, and we have done so successfully. That brings a level of certainty to those who provide public services that there is now a space to talk to the unions and workforces about transformation, rather than just about pay. Buying time for that work to be done is really important, and the two-year pay deals are critical.
As I have said, we will set out what the expectation is for 2027-28, with the recognition that it will be tight to remain within the 9 per cent pay policy.
10:00
The SFC does not think that you will do that and has not used the pay policy in its forecasts. Are you concerned that the SFC does not believe what the Government is saying about its pay policy?
I am keen to hear what the SFC has to say about pay. I have seen its comments and reflections.
There will be a number of factors, including what the potential transformation and reform will mean for the delivery of workforce reductions. There is a clear relationship between head count and pay, and what organisations can deliver via efficiency savings will be important and will play into future pay rounds.
Inflation will also be important. If it comes down to 2 per cent, as desired, that will be a factor in pay negotiations for 2027-28. Given the pressures on the budget for that year, we will need pay constraint. It will be a very tight year indeed, and we must set reasonable expectations. I believe that pay increases have been fairly generous so far, but they have also allowed us to avoid costly strike action. We must look at these things in the round.
In your answers today, in the Scottish spending review and in the budget, you are asking us to assume that you will make good on a lot of promises, including those about workforce reduction and public sector productivity. You have set out a pay policy of 3 per cent each year, but it is clear that you have not managed to keep to that. You have also not adjusted it, although your policy was that, if the figure went above 3 per cent one year, there would be a reduction in the subsequent year.
That is a pretty clear example of the Government’s inability to control its cost base. You have given reasons why that is, but you are asking the committee to put a lot of faith in your ability to control some of those costs when we have a concrete example of you not managing to do that.
I would say that the two-year deals mean that we are in a good place on pay. The alternative would be industrial disruption in many sectors, which we have managed to avoid by having two-year deals. Those are affordable and would not have been agreed if they were not so.
The robust work that has been led by Ivan McKee will have to deliver workforce reductions. We have set out what those reductions will be in every area. Cabinet secretaries and organisations, including health boards and other front-line services, will be required to deliver those reductions and will be tracked as they do so. We are not working on a wing and a prayer: there will be tracking, requirements, accountability and transparency in the delivery of all of that.
The final piece of the pay policy will be to revisit it in 2027-28 to see what is possible in the light of budgetary constraints, where inflation is and what the efficiencies have delivered by then. Head count and pay are absolutely interlinked.
That is not perfect, but you know as much as I do about the cost of industrial action—not just the cost in pounds and pence but the cost through the disruption to and impact on public services—and we have managed to avoid that.
In June 2025, the minister, Mr McKee, set out a £1 billion target, which was increased to £1.5 billion in the budget. The target is based on assumptions that independent commentators have called “heroic”. For example, public sector head count increased by 6 per cent in the most recent quarter for which figures are available. Your track record suggests that you are not delivering on the process that you have in place, so why should the committee believe that you will be able to deliver on the process that is ahead of us?
I do not accept that characterisation. Work has been done at a very detailed level to deliver reasonable workforce reductions, which now have to be delivered. Essentially, they are baked into the assumptions that are being made about funding. Workforce reduction has to be delivered; it is not a nice-to-do.
The Government has been saying a version of that for years—going back to the resource spending review that your predecessor commissioned. It has been talking about restraint in those areas. However, the latest published figures show a 6 per cent increase.
I will come on to the latest workforce figures.
If you look at what we have done to date, you will see that we are not going from a standing start. We have in the past delivered savings on workforce and on the single Scottish estate. We expected to save about £280 million from the work that was done over the two-year period to 2024-25, and the final figures show that the programme saved more than that—it saved more than £320 million over that period. We have saved money, and that can be demonstrated.
On workforce figures, we have seen a massive reduction in the contingent workforce—that is, contractors and those in temporary positions. We have also seen reductions in the core civil service.
According to the Government’s own figures for the third quarter of 2025, public corporation numbers rose by 5.8 per cent.
The directly employed workforce is reducing, having decreased by 1.6 per cent over the 12 months to September 2025. That is the largest reduction in the directly employed workforce in a 12-month period since 2012. There has been a reduction, but we need to go further.
The definitions of “front-line” and “back-office” are important, and we have been discussing them with the trade unions. We have a board that is responsible for the delivery of all of this, and we have been working with the trade unions to ensure that they have a voice around that table.
We could not be more serious about the need for us to change how the public landscape looks and is delivered. We need corporate services to be reduced. My budget is reducing because of the reduction in corporate services and the reduction in total operating costs. All of that is set out clearly in the budget. Is it ambitious? Yes, it is. Is it deliverable? Absolutely. It needs to be delivered, and it will be.
On a point of detail, you say in the spending review, on finance and local government, that there is a target of £193.4 million for savings and efficiencies, of which £128 million sits under the heading of “Other Efficiencies and Reform”. That offers no level of detail for us to scrutinise whether that figure is serious or deliverable, does it?
In all the documentation that Ivan McKee has set out as part of his work on public service reform, he has gone into a huge amount of detail for each portfolio area. Each portfolio area has had to complete returns on the level of workforce reductions for each public body. Each public body has a target for head-count reduction, which can be tracked. All the material on that can be provided, and I am happy to provide it if doing so would be helpful.
That would be useful.
You mentioned in previous answers that pro formas were being prepared by cabinet secretaries. Can you provide those to the committee?
I will provide the questions and the framework of the discussions. I will not necessarily provide material on the detailed discussions held about that information, because they were part of my meetings with colleagues about what the options were.
Do you not think that we should see the options that were considered?
What we discounted and what we decided to do are all part of ministerial business. I will provide information on what areas were discussed, what format portfolios were required to look at and what questions were provided to them. I can provide all of that, if that would be helpful.
Thank you. I have noticed, in recent days, that the Scottish Government is to establish a new public body on housing. Will you be removing another public body as a result?
Work is going on with regard to what rationalisation and changes across the landscape will look like. I am sure that, during the election campaign and in their manifestos, each party will set out its view of what the public sector and the public body landscape should look like.
I think that the housing public body will provide a very important function—
I am sure that it will, but we previously heard a commitment to a one in, one out approach. We are not going to see one out before the election.
We are absolutely committed to reducing the public sector landscape—
Just in the plans.
We will set all of that out, as I am sure that your party will.
Yes, I am sure that it will.
Lastly, in your budget statement, you mentioned a commitment to colleges and to college capital and you referred to the project that is being planned for Dundee and Angus College. However, that project is not in the delivery phase, and it is not in that mysterious area of development. Frankly, it looks as if it is in the deep long grass of the future. Despite highlighting the project’s importance, do you admit that there is no money in the budget for it at all?
I had a very good meeting with the college principal last week, when we talked about the work that is happening on what is a very ambitious project and how the Scottish Funding Council is gearing up and working with the college as one of the first out of the box, if you like, to use a new revenue finance-based funding mechanism. The Scottish Funding Council is working on the detail of that with the college; the college principal is now sitting on the funding group; and the group has been given to autumn to come up with the actual mechanism and vehicle for delivering the revenue finance infrastructure plan, starting with the two colleges that have been prioritised—Dundee and Angus College and Forth Valley College. That vehicle can be used for further investment in the college estate; the key will be private sector investment through revenue finance, and that detailed work is on-going.
I guess that my reflection back to you, Mr Marra, is whether casting doubt on a project and describing it as being kicked into the long grass is in any way helpful in building confidence in the private sector, which will be required to come to the table to provide the finance. I do not think that that has been received very well by the college—
To be fair, cabinet secretary—
—and those who work in the college. It is really important that we build confidence in a very ambitious project that the Scottish Funding Council is prioritising. Lots of detailed discussions are going on. I am sure that, if you were to ask the college, it would be able to tell you about them.
Obviously, I speak to the college on a regular basis.
Well, then, I am sure that you will be aware of that detail.
Yes, indeed.
It is your plan that put the project not in delivery or in development but in the future. You will recognise that the Kingsway campus has to be closed within two years, because of reinforced autoclaved aerated concrete. That is the lifespan that it has been given. Do you think that this plan, in which you have placed the project in some amorphous future, will ensure that the money flows to allow us to build a new campus within two years?
I think that you need to speak to the college, because you are now misunderstanding the various phases of the project. The first phase is a shift out of the RAAC-affected building to Gardyne campus, and it will involve looking at the existing resources that the college has been able to identify, plus resources that are available through negotiations with the Scottish Funding Council. Those negotiations on the first phase are on-going.
The phase after that is the Wellgate centre regeneration project, and that is where the revenue finance vehicle will come into play. We are talking about two different things here.
I do not think that we are.
I can assure you that we are talking about two different things.
Cabinet secretary, I am not sure that you know what is in my mind as I am talking to you, so I will explain it to you. This part of the process—the upgrade to Gardyne campus—is partly funded by the UK Government and is contingent on a broader plan in order to deliver the whole plan. My question to you is this: at what point will we have clarity on whether that money will flow to allow the whole plan to proceed?
The first bit of the plan is using some of that money—
But it is contingent on the decision, cabinet secretary.
I am well aware of the detail, Mr Marra. You do not need to tell me—I am well aware of the detail. It will involve those sources of funding—the Tay cities funding—but that will have to be matched. That is why the Scottish Government is in discussion with the Scottish Funding Council about the first phase move to Gardyne.
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In addition, and separate from that, is the Wellgate infrastructure project, which is far bigger and more expensive. That is where the revenue finance vehicle needs to be established—the timeframe that has been given is by the autumn—to make sure that the work can go ahead with the vehicle to deliver and get the private finance on board. That is more technical, as you will appreciate, because it involves a special purpose vehicle that will have to be established, with all the requirements that will go with that. The first phase of that is under discussion with the Scottish Funding Council. It is well aware of the timeframes around RAAC, and I assure you that it is well aware of the detail.
We are talking about planning ahead. It is good news that the 2027-28 reconciliation, which was thought to be £851 million, is now down to £310 million. That is compared with what we thought last June. It strikes me that, when there are such large swings in forecasts, it is almost impossible to plan several years ahead. We are so dependent on Westminster and what happens there. Do you think that we can plan ahead?
I was quite struck by the session that you had with the Scottish Fiscal Commission, which laid out in relation to the use of ScotWind funding the severe limitations on us and the lack of levers, which mean that we are not able to smooth out the peaks and troughs of funding. As things stand, we are reliant on the peaks and troughs of the UK spending review; 2027-28 is a trough and it will be challenging. We do not have the levers to smooth that out, other than by being able to deploy ScotWind. Without that, we would be looking at resource reductions to allow us to plan.
On your point about negative reconciliations, yes, we can borrow to cover those, as long as they are within a certain limit. The modifications that were made around the edges of those powers in the previous fiscal framework review are not unwelcome, but it was so limited in nature. Like the other devolved Administrations—the Welsh are saying exactly the same—we need more flexibility and additional levers to be able to borrow to smooth out. We are limited in that at the moment, which is why I have been trying to get the Chief Secretary to the Treasury on to a page where we agree a more ambitious review and work out its terms.
The time is right. After many years of limitations, we now know what the issues are. The time is absolutely right for a more ambitious review.
One of the points that Professor Heald raised last week was that, especially with social security spend, which is demand led, the UK has two separate headings—departmental expenditure limits and annually managed expenditure—so there is more flexibility at the UK level if social security is a bit higher than expected. We do not have that, and what we have is purely within DEL, effectively. Is that something that you would speak to the Treasury about?
Yes, potentially. It is a good point on police and fire pensions, for example. We have finally managed to get agreement to move funding into AME. We were carrying all the volatility and all the risk, so we have been able to shift that into AME, which gives us no fiscal benefit apart from future proofing against risk. It is a good thing, and we have moved forward with that.
Your point is well made. Although there have been constraints, UK Government departments have traditionally relied on reserve claims. I understand why the new UK Labour Government has put in place some pretty rigid restrictions—we had the chaos of the previous UK Tory Government underfunding budgets and relying entirely on reserve claims, and we ended up having to have emergency budgets because we found out what funding we had only late in the day. Those changes are welcome, but the fundamental point remains that, when we consider the peaks and troughs in the spending review outlook—2027-28 will be particularly difficult—the only lever that we have been able to deploy has been the one that we have created ourselves: the ScotWind fund.
Social security spending, which has been mentioned, has been a bit of a challenge, but we understand that the gap between what we are paying and what the UK is paying is narrowing rather than widening, as it had been. People were perhaps a little surprised about that. It has been suggested that fewer applications are now being accepted. Can you say anything about that?
Social Security Scotland has been doing some analysis on that. Initially, a lot of existing cases were transferred, and we might now be getting into a different phase of ADP applications. Social Security Scotland has been looking at the reasons for the change, and the report by the chief social work adviser that has just been published or is just about to be published attempts to shed some light on that.
Overall, if we compare what was set out in the MTFS with the current predictions for social security spending up until 2029-30, we see that the figures are quite significantly down. One of the reasons for that relates to UK Government changes to benefits and its decision on the two-child cap. The reduction helps with fiscal sustainability, which we discussed earlier. The removal of a few hundred million pounds makes the path a bit easier, which is to be welcomed.
Were some of the forecasts that suggested that we could not afford social security a bit alarmist?
We have debated that issue numerous times. We are clear that our investment in social security is good for our country, for our people and for the economy, because people tend to spend their money locally, as we have talked about previously.
I am just making the point that the position has narrowed compared with what was set out in the MTFS. Some of that narrowing is primarily down to UK Government decisions, but some interesting information on applications is emerging. I am sure that Social Security Scotland will look in some detail at why there has been a fall in the number of successful applications. As I said, I think that the initial cases that were transferred involved very few changes to entitlement, but the new cases that are being dealt with might well be different. I am sure that Social Security Scotland could provide additional information on that.
Professor Heald said that, as more taxes have gradually been devolved to Scotland, the risk that we face has increased. Broadly speaking, I am in favour of Scotland controlling more taxes. I am sure that you recognise that Scotland is taking on more risk, but does the Treasury recognise that? That is another reason for reviewing the fiscal framework.
Yes, potentially. That is interesting, and, again, we could provide information on this to the committee. The devolved Administrations undertook some analysis on the assumptions that the Treasury makes about the risk of exposure when borrowing, for example. Treasury assumptions are always for the maximum level of risk and volatility, yet we would never make such decisions. However, due to those assumptions, the Treasury’s approach is that we cannot have additional flexibilities and powers because that would affect UK Government borrowing and, in essence, distort or put additional risk into its plans and planning.
However, we have had a very interesting debate with the Treasury about its assumptions being at the worst-case end, when no Government would do something at that level of risk. The Treasury has been assuming a high level of risk, but the devolved Administrations said that, actually, we would take decisions at a lower level of risk. There is much less risk involved than the Treasury has been assuming. We thought that that might be a way in to those additional flexibilities, particularly at the end of the financial year, but, so far, we have not managed to persuade the Treasury. Jennie Barugh has been closer to the detail, so perhaps she can add to that.
Over the past year or so, there has been a concerted effort across the devolved Administrations to engage on fiscal flexibilities because it is a shared issue across the different Administrations. As the cabinet secretary said, quite a lot of work has been done on that. The Treasury position just now is that the chief secretary is not willing to have that conversation outside of the context of an overall review of the fiscal framework, so our expectation is that no decisions will be taken on additional fiscal flexibilities until we are in that fuller review. The agreement is that the broad scope of the review will be agreed before the Scottish election in May, with that work carried forward thereafter. The intention is that the review is concluded in 2028, which is obviously quite a long timescale.
A lot of the areas in scope for the review were rehearsed last week in committee with the experts to whom you spoke, and one of the main contenders is the scale of the reserve. That came through in the committee’s letter to the Government on the scope of the review. The annual cap on borrowing and the size of the reserve are the two things that really constrain the Government in being able to pass money through from one year to the other, for example.
To go back to the example of in-year social security spending, the Government has the ability to borrow to offset any in-year change to the net position on social security, which is a helpful flexibility for managing the in-year position. However, there is an annual cap on borrowing and, in the event that that had already all been used to, say, offset a negative reconciliation, we would not be able to draw on the additional borrowing to manage the social security spending in year. For example, as has been said, the reconciliation was going to be £851 million—that changed, but, if it had continued, we would have used all the resource borrowing for that year. That is an example of the cap on annual borrowing being a constraint. The other one is passing through the reserve.
That is helpful. The UK Government has said that it will have only one fiscal event a year. Do you believe that?
In the light of the chaos that ensued with the previous budget, I am not sure that I do. It is difficult to assume that that will be the case in the light of what we all witnessed, so I am not sure.
I have one or two specific questions. How is the money from the two extra council tax bands, which I think will come from only some local authorities, be spread around?
Ultimately, that is something that COSLA will need to decide on.
An option for COSLA would be to decide on a distribution formula that would address a situation in which the authorities that—to be blunt—make the most money from those two additional bands keep that money, and no one else gets it. You can see how that sort of thing would benefit some local authorities more than others. An alternative would be for COSLA and local government to agree a distribution formula in that respect. However, that is not for me to dictate; that would be for them to decide among themselves, and it will not be without its difficulties.
I should say that, unlike the UK Government, which took the money into the centre, we have agreed the principle that the money should be retained by local government, but the issue, then, is how it is retained. In any case, this will not take effect before 1 April 2028, so there is scope and time for local government to discuss those matters and come to some agreement. We will have to see how things develop.
On the air departure tax, which has been a long-standing issue, have we got the Highlands and Islands exemption sorted now? I thought that that was a sticking point.
We have proceeded very carefully on this issue, and we are in discussion with the UK Government on it. I can guarantee that we will maintain a Highlands and Islands exemption, but that will be possible only if we have devolved powers over ADT.
The UK Government has advised that we cannot simply pour the existing air passenger duty exemption into the ADT regime without undertaking a full subsidy control assessment, and the issue that arises then is that exempting international flights from Highlands and Islands airports could raise competition issues, as it would mean international flights being subsidised. Therefore, we have developed a revised Highlands and Islands exemption that will protect Highlands and Islands aviation connectivity and comply with the UK Government’s subsidy control regime.
We have written to the local authorities that are impacted; we are going to launch a consultation on the new exemption—this week, in fact; and we will undertake a programme of engagement with the aviation industry and regional stakeholders, particularly the local authorities, on what we are proposing. We want to hear what they have to say on that.
Linked to that is the proposal for a tax on private jets. Is there a danger that they will just all head off somewhere else, instead of coming to Prestwick, which I think makes quite a lot of money out of selling them petrol or whatever it is they put in their planes?
Obviously, the UK Government is looking at this, too. Again, we would want to do this within ADT from 2028-29, so there is time to look at the detail. We think that the rate of the private jet supplement in 2028-29 will be set out alongside the broader ADT rates and bands in the 2027-28 budget.
It is only fair that this contribution be made, given that the carbon emissions per passenger from these flights are greater than those from commercial flights, and that folk pay that additional supplement for the right to be able to use Scottish airports. We are also seeking to engage with the UK Government on having further devolution to address the issue of private jet ghost flights—that is, flights that do not have any passengers. Like the UK Government, we believe that those who operate and own private jets are able to make that additional contribution.
I do not disagree with any of that.
My final point is on preventative spending. We have asked whether preventative spending could be separately identified, and I believe that some kind of tagging exercise will be going on, with perhaps a report in the summer.
Richard, do you want to come in on this?
Yes. As part of the overall public service reform strategy, one of the key pillars of the PSR work is prevention and one of the focuses is to do budget tagging. That is work that we are doing across all level 4s of the Scottish Government budget. We are also working with colleagues in local government and in health and social care, so some NHS boards are also involved in that work. Come the 2027-28 budget, we would like to be in a position to have a report in the summer and to see what that identifies in terms of tagging. It will also help to inform some of the decision making.
Is that on top of the analysis that we already have? It is not instead of anything that we have already.
No, it would be an addition. It would be a full tagging exercise beyond that.
That is great. Thank you.
We are two hours in, so I am inevitably going to cover some of the ground that colleagues have already covered. Several members have talked about local government and I am going to have another stab at it.
The Scottish Government claims that there is a 2 per cent increase in real terms for local government, and local government claims that it is significantly lower than that. It is all very familiar, isn’t it? Pretty much every year, in good times or bad, there is a difference of perfectly valid and legitimate interpretation between central and local government about whether the settlement is generous, whether it could be better or whether it should be challenged.
Can I have a conversation that moves beyond that familiar debate about whether it is generous—there is inevitably going to be a difference of views—and focuses more on the consequences and the adequacy of the settlement to meet the need that exists at local government level. Most of us are aware that Scottish Government finances have been under significant pressure for a long time. Do you accept that, whether or not you have done as much as you can, local government finances are now under severe pressure?
I accept that, because all the things that we have talked about previously—pressures, demographics and pay—require all our public services to transform the way in which they do things to meet those challenges. Local government is no exception to that.
One of the reasons why I have protected the general revenue grant and the £253 million is that local government will say that, in order to transform and do things differently, it needs maximum flexibility rather than ring-fenced funds. We have baselined a lot of funding to remove ring fencing, and we have put that money into general revenue to give maximum flexibility.
We have to have conversations about shared services, and some parts of local government are already having those conversations. We are looking at corporate services, sharing services and the removal of boundaries across the public sector. We talked earlier about public bodies and how there will be fewer of them and they will look different.
Local government also needs to look at how it delivers its services. The three Ayrshire councils are in advanced discussions about how they can share more services, particularly some back-office functions. I am hopeful that other local authorities will likewise look at how they can work beyond the boundaries of their constituent parts.
We also need to look at digital roll-out in local government. Again, some local authorities are quite far down the road on automation and the way in which the public access services, but others are not so much.
I suggest that the situation goes significantly beyond what you are describing there. There are always ways in which parts of the public sector can improve what they do, whether they be administrative, technological or anything else. It is a bit like preventative spending—we have to spend a bit of money up front to make some of those changes. We do not simply spend less money by doing things differently. Quite often, we spend more in the short term by making those changes. The situation that councils are facing now surely means that some of their core statutory duties are at fundamental risk. Have you had warnings about that from COSLA or from anyone else?
I will bring Ellen Leaver in to say more, but we have regular discussions with COSLA and with individual local authorities. For a number of years, we have ensured that we have a clear picture of any individual local authorities that are in more difficult situations than others. We have some very small local authorities and, without getting into the reasons why local authority boundaries are as they are, a small number of authorities have council tax bases that make it very challenging indeed to provide the range of services that are required by an authority of their size. We have been working with some of those authorities to look at how they might share services with neighbouring authorities and we have supported some authorities with ambitious change programmes. Local authorities are not all in the same position. Some can make economies of scale.
I would like you to answer my specific question. Have there been warnings from any local authorities, or from other experts in local government, to say that core statutory responsibilities are now under threat?
I will bring Ellen Leaver in to talk about the communication that she has had with COSLA about that.
As the cabinet secretary said, we have regular communication from individual councils as well as from COSLA and there is also regular reporting by the Accounts Commission in the form of best value reports as well as its thematic and annual publications, all of which contain a wealth of information and data. We also have individual discussions and follow-up conversations that enable us to understand what is happening and feed into the decisions that are being made as part of that on-going dialogue.
I have been working on local government for four years and there have been conversations throughout that period about the challenges in delivering statutory services, as well as preventative or more discretionary services. That has been consistent and has fed into the conversations about reform and about looking at how some services are delivered. We are working with local government, other public bodies and partners to explore using invest to save funding and the opportunities for transforming certain areas, such as food law delivery, that have existed as they are for decades. We are looking at how to reform and change the way in which some services are delivered in a digital age and in a landscape where the skills pipeline is not bringing qualified people through and we need to look at things differently. All of that is being discussed and collaborated on so that we can transform what we do, as the cabinet secretary set out.
The cabinet secretary spoke about some of the pressures that differ for different local authorities and drew particular attention to smaller local authorities where scale is an issue, but I will mention an issue that is facing some of our biggest authorities. I think that you are already aware of the extreme pressures on homelessness services. Those pressures result partly from progressive legislation on homelessness, which most of us in this Parliament strongly support, but also from changes in the asylum system that are beyond the control of local government, this Parliament and your Government. As a result of a combination of those factors, some local authorities are seeing unprecedented levels of pressure that will not only make politically unconscionable cuts to discretionary spending inevitable but threaten core statutory duties, for councils and for integration joint boards and health and social care services.
Earlier, you talked about the spending review and the idea that, as the UK Government approaches the next election, it will not want to do politically unpopular things that cut local government. Are you not in exactly the same situation right now? Your party is in administration in Scotland and in several significant councils that are facing those severe pressures. Is there not clearly a need for some way of addressing those specific, extreme pressures that have arisen, the reasons for which may be outwith council control or your control but which are going to make politically unconscionable choices inevitable at local government level in the immediate future?
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I am well aware of the issues that you are referring to. First, as you have alluded to, all roads lead to the Home Office on that issue in relation to the policy—
Not that finger pointing takes us anywhere.
No—I will come to that in a second. It is important to set out why this has happened. It has not happened by accident; there is an inadequate level of support from the Home Office for the number of people who are being supported by Glasgow in particular.
What do we do about it?
What is important here is that we are in discussions with Glasgow about those matters. I want to make sure that we do not enable those who would seek to exploit the position to do so. It is important that those discussions are enabled to happen, and we are having them directly with colleagues in Glasgow—at both official and political levels—about how we manage a very challenging situation. I will be happy to keep the member appraised of the outcomes of those discussions.
However, we cannot let the Home Office off the hook for the position going forward. The Home Office must acknowledge that what it is creating is not sustainable. We are jointly lobbying the Home Office about those matters.
I agree with you about where responsibility for the cause of the problem lies, but the responsibility for how we deal with the problem sits here, in the Scottish Government and the Scottish Parliament and at local government level. I am grateful for the offer to keep us informed. I hope that you will be willing to do that not only for the committee but for Glasgow MSPs on a cross-party basis.
I add one other comment. There was discussion earlier about culture funding. I am in the happy position that I will be sitting at this table on Thursday morning too, with Angus Robertson—lucky me—and, no doubt, some of these questions will be put to him. Will you have a conversation with the Cabinet Secretary for Constitution, External Affairs and Culture about the impact on the national performing companies and the issues that were discussed earlier? It is not only about whether there is an uplift for them in the coming financial year—currently, there is not, and I would like to see that change if it is at all possible—but about the clarity about what they can expect in the future.
At the moment, the national performing companies are being told that they may see an uplift in the coming years. That is so vague and non-specific that they will be forced to make changes that will result in the loss of cultural infrastructure for Scotland. Even if they only had clarity about the trajectory that they can expect to be on, they might not have to make damaging choices. Will you commit to having that conversation with the cabinet secretary for culture and seeing what level of clarity can be provided that will prevent the companies from being forced to make damaging decisions?
Of course. I will make sure that the cabinet secretary for culture is aware of the discussion that has taken place this morning about those matters, as we will do for any issues that have come up for other portfolios. I am sure that you will make the most of the opportunity on Thursday morning to address those issues in more detail.
Thank you.
Cabinet secretary, you will be delighted to know that we have only 10 minutes left. I intend to use those 10 minutes. [Laughter.]
I will go back to council tax issues and local government funding. There is an issue in relation to local government funding that we have not touched on and which I want to cover. You will be aware of the Local Government Information Unit report on the survey sent to chief executives, council leaders and senior financial officers that found that every respondent intends to reduce spending on services and increase council tax in 2026-27.
The report concludes:
“The scale of council tax increases continues to be significant. Not only is every council planning to raise council tax, every council is planning to raise it by at least 5%. Over a fifth plan to raise council tax by over 10%.”
Surely that is a real concern for the Government.
In previous years, there was the legendary Derek Mackay sofa. The Government would say, “This is all our money. It’s all committed. Blah, blah, blah. We don’t have anything else.” Then Patrick Harvie and his colleagues would negotiate and—lo and behold—£100 million would come out from the back of Derek’s sofa, and local government would have some amelioration for its budget. That tended to be an annual event for some time. What room does the Scottish Government have to manoeuvre on such matters in the coming weeks?
I have taken the view that it was important to set out the funding in the draft budget. Is there a wad of cash somewhere that has not been allocated? No.
One reason why it was important to engage with the Opposition in the lead-up to the draft budget was to try to reflect the key things that were asked for in it—although not everybody’s asks will be reflected and we cannot meet all the demand. I have tried to do that, particularly with what the Greens and the Liberal Democrats asked for. Those elements are all reflected in the draft budget.
We have engaged with local government on the potential for delivering complex care in a different way. One problem for health and social care partnerships is unforeseen high-tariff packages coming in, which can be costly for health and social care partnerships. They can slow down the process of the person coming out of hospital, because it is known that the package will disrupt the assumptions that have been made. Sometimes, those people do not have the best experience of getting back into the community, and they do not always get the package that they require, given their complexities.
Therefore, Neil Gray has embarked on discussing with COSLA whether we could deliver complex care in a different way, where the Scottish Government supports a split with local government on some of those high-tariff packages. The criteria would need to be set out very clearly—a high bar would be needed—but we could support the costs on an agreed split to avoid those disruptive, eye-wateringly high-tariff packages.
Most importantly, that would be better for the people involved, because they could be supported to get home, into the community, or into an appropriate setting more quickly. Delays in that area are some of the longest delays in hospital. There is more work to be done, but the principle is that we could support that.
This is maybe an answer that you were not expecting: on whether there is a wheen of money in a sofa somewhere, the answer is no, but we are talking to local government about supporting them in the social care space in a way that can avoid the expensive packages all falling on local government.
We heard about capital reducing in real terms in future years due to reductions in allocations from Westminster and about significant boosts to the housing budget. However, there is a 14.7 per cent reduction in local government’s core capital budget.
There has been a lot of noise in the chamber about the A96 and the A9—I think the A9 will get £200 million next year. That would pay for a lot of potholes that could be fixed by local government, frankly—if local government was not seeing that 14.7 per cent reduction in its capital.
I am wondering what the Government’s thinking is there, as that is a significant reduction in a year.
I will bring in Ellen Leaver, as that also relates to the position on capital in 2025-26.
In the current year, we have provided a £40 million climate change emergency fund through capital, on a one-off basis through ScotWind funding. We have continued that, for a second one-off year in 2026-27, at a lower level of £20 million, but that does not continue in the forward forecast on the spending review. Those are one-off sources of funding, and we are tapering that climate change funding.
There is also a reprofiling of the flood prevention money. In year, we identified four flexibilities to use around pay money. There was a £75 million pot of funding in the capital space for flood prevention works, which was not going to be spent in year. We have reprofiled that in this financial year to support flexibilities to meet the pay costs in year. That having been identified, a joint working group between local government and Scottish Government considered the profile of flood prevention funding against planned spend over the coming years. We have reprofiled that capital in 2026-27 and into future years.
The tapering of the capital costs is therefore the reduction in the one-off funding for climate change and the reprofiling of the flood prevention funding against planned spend—with funding otherwise remaining flat. You are seeing the change over the spending review period resulting from those two changes in particular.
I should say that I welcome the £38.4 million that went into Millport’s flood prevention. Indeed, there is another sum of £3.97 million coming up.
In recognition of the capital constraints, I have been keen to reach what I guess you could call accelerator deals with individual local authorities on infrastructure priorities. We have been quite successful in doing that in the past. We have a very successful example in Granton, here in Edinburgh, and we are considering working with West Lothian Council on Winchburgh station. We are considering the three island authorities’ essential infrastructure investment.
It is essentially by using local government borrowing that we will provide support, with other funding streams coming into play, and build a package to help address the constraints in capital by growing the pot in those ways. I have been clear with COSLA that I am open to considering what else we can do in that space.
So, for instance, prudential borrowing might be able to help ensure that we maintain the spend at capital level.
Yes, essentially—with some private investment, too. It is about trying to grow the pots.
It is really helpful to get under some of the figures through answers like that. That was a very helpful response.
I hope that I will get a helpful response to this next question. SPICe has said:
“The Climate Action and Energy portfolio sees the largest percentage decline of all the portfolios (19.0% in real terms).”
Dealing with the climate emergency is obviously one of the Scottish Government’s priorities, so I wonder if you can explain why it has had such a significant decline—or reduction, I should say.
I will bring in Richard McCallum on the detail but, as I said in my opening statement, we have the overall position of what we call the taxonomy of the climate-moving elements of the budget. That level has gone up—it is above £5 billion now and it covers, across government, the areas that will make the difference in terms of the investment.
I invite Richard McCallum to provide a bit more detail.
I will make a couple of points. This comes back to some of our earlier conversation about the spending review period. Over the spending review period, the climate and energy spending plans are broadly flat, at least in resource terms, while the capital position changes slightly—there are a couple of peaks and troughs over the spending review period.
This perhaps links back to some points that others have raised earlier. Under the portfolio efficiency and reform plans, the savings that are made by portfolios will not be taken back by the centre; they are to be maintained with the portfolios.
Although there is a flat-cash resource settlement at the moment, that position will be subject to budget reviews each year. The encouragement for those in individual portfolios is that, the more money they can save through efficiency and reform, the more money can be reinvested in that portfolio.
11:00
That is a welcome development. I appreciate that there is a real incentive to save money if you know that you will get to keep it and spend it elsewhere in your portfolio, instead of it being pinched by someone else.
I am almost done. We suggested in our pre-budget scrutiny report that
“the Scottish Government undertakes a review of the extent to which the level of social security assistance provided supports economic activity”,
but the dedicated review that we asked for does not seem to be taking place. Has the Government done any work, or does it plan to do any work, to see which social security policy has had the greatest impact in reducing poverty and getting people back into productive employment?
From analysis of the tackling child poverty delivery plans, we know that the policy that has resulted in the biggest move towards meeting our statutory targets on child poverty is the Scottish child payment—it has resulted in the biggest shift by a country mile.
The reason why Scotland is the only part of the UK where child poverty rates are falling is, primarily, the Scottish child payment. That is why we are increasing the payment by inflation, and we are focusing on the under-ones because we know that there are additional costs for them.
The chief economist did an analysis of benefit spend in local communities, which I am sure I have referred to previously. There is an economic impact on local shops and services in communities, because people tend to spend locally.
A lot of rigorous work has been done to find out which of the employability programmes work. It can take a while for someone who is particularly far from the labour market to get into work, and there is sometimes a higher drop-out rate because of the challenges.
We are focusing on wraparound support or what the First Minister calls whole-family support. That includes support for employability not just in relation to skills and training but in relation to childcare and transport. What are the barriers that prevent someone from successfully getting a job and then maintaining that job, particularly in the first few months? We are trying to provide more bespoke support.
The programme that the colleges will run will be a really good addition. Colleges Scotland provided a very impressive and persuasive proposal for supporting people back into work. Some people will find a college a less intimidating environment in which to take steps back into work. Over and above the £70 million of funding, £8 million is being provided to colleges to deliver that programme, which will be analysed and evaluated.
A lot of work is being done in this space, and it is important to keep it all under review so that we know what is working best and what is perhaps not working so well.
When you were engaging with Craig Hoy’s questions on income tax, you said that people will be £32 a year better off. Why does the Government talk only about income tax? Why does it never say that people are, on average, £700 a year better off as a result of lower council tax and water bills? Why does it never talk about the overall tax burden, given that talking only about income tax is somewhat one-dimensional?
We do. One reason why I referred to the average figure of £480 for those in the bottom half of the income spread is that that figure includes social security support as well as the benefit of lower income tax.
However, you are right to point to people in Scotland having lower water and council tax bills. Earlier, we talked about the position on council tax, but council tax for an average band D property in Scotland is still markedly lower than it would be south of the border. Therefore, we have to look at things in the round.
In addition, if you have kids at university, you know the difference—my goodness. South of the border, people are now paying more than £10,000 in tuition fees.
The figure is £9,790.
Oh, I slightly exaggerated—families have to pay almost £10,000 for each child. That is not the case in Scotland. That is part of the social contract.
We need to consider things in the round. I see parties proposing that we embark on billions of pounds of tax cuts without having any plan for where the money will come from. The money has to come from somewhere, and it has to come from somewhere from 1 April. It cannot be something that might happen further down the line; parties need to set out in black and white where the money will come from. Such proposals have been short in coming.
I realise that you have another engagement at 11.30, and we have other items on our agenda, so I will call a halt to the evidence session. However, before we finish, I will give you a final opportunity to emphasise anything that you feel we have not touched on.
I think that we have covered a lot of areas. We will follow up with the additional information that I have promised to provide to the committee as soon as we can. I thank committee members for their time.
Thank you very much. It has been a long initial evidence session, so I will suspend the meeting before our next agenda item.
11:06
Meeting suspended.
11:16
On resuming—
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