Meeting of the Parliament

Meeting date: Thursday, January 26, 2023

Official Report 1149KB pdf

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Budget 2023-24 (Committees’ Pre-budget Scrutiny)

The next item of business is a debate on motion S6M-07602, in the name of Kenneth Gibson, on behalf of the Finance and Public Administration Committee, on the Scottish budget 2023-24. I invite members who wish to participate in the debate to press their request-to-speak button. I call Kenneth Gibson to speak to and move the motion on behalf of the Finance and Public Administration Committee.

14:57  

I am pleased to open this afternoon’s debate on pre-budget scrutiny, on behalf of the Finance and Public Administration Committee.

The inclusion of this debate in the overall budget process was recommended by the budget process review group in 2017, with the aim of bringing greater transparency, influence and scrutiny to Scottish Government budget proposals. The debate also provides a welcome opportunity for conveners to set out how their committees have sought to influence the Scottish budget through their pre-budget reports, and for Scottish ministers to respond. That is why I am delighted to see that so many committee conveners will participate in the debate. I look forward to listening to their contributions, as well as to those of my committee colleagues and other colleagues. I will not touch on all our pre-budget deliberations; in closing the debate, the deputy convener of our committee, Daniel Johnson, will cover what I omit.

This year, the FPA Committee agreed to use the Scottish Government’s resource spending review, which was published in May, to inform our pre-budget scrutiny. The review set out spending plans for the remainder of the parliamentary session, supporting the Scottish Government’s ambitions from 2023-24 to 2026-27. Although it was not intended to provide fixed budgets, the review provides a clearer idea of the direction of travel for public finances, including public sector funding.

We focused our pre-budget scrutiny primarily on three spending review areas: the impact of the cost of living crisis on the Scottish budget 2023-24, proposals for public service reform, and how spending priorities might affect the delivery of national outcomes in the national performance framework. Our scrutiny was also informed by the Scottish Fiscal Commission’s “Scotland’s Economic and Fiscal Forecasts” and by “The Scottish Government’s Medium Term Financial Strategy”, which was published alongside “Investing in Scotland’s Future: Resource Spending Review” in May last year.

We thank our adviser, Professor Mairi Spowage, for her invaluable advice throughout the year. We are also grateful to all those who responded to our call for views, which ran between June and August, and to our witnesses for their evidence, which has helped to shape our findings.

However, with some notable exceptions, witnesses continue to emphasise the need for increased spending in their own portfolio areas and are reluctant to provide suggestions on where funding might be deprioritised, where additional revenue could be raised and what spending priorities should be. There is more often a willingness to assert that increased funding for their own budget area in the short term will lead to longer-term savings elsewhere in the future.

Pre-budget scrutiny came at a time when the cost of essential items such as food and energy was increasing faster than incomes, and inflation had recently hit a 40-year high. The Scottish Fiscal Commission’s May forecasts stated:

“The Russian invasion of Ukraine, steeply rising energy prices and further global supply chain disruptions in China have led to a challenging economic outlook.”

The United Kingdom faces the biggest annual fall in living standards since equivalent records began—7.1 per cent by the end of next year, according to the Office for Budget Responsibility—and just before we published our pre-budget report at the start of November, a third UK Prime Minister in as many months took office and serious concerns were emerging in relation to UK economic stability. In fact, economists and commentators had already spoken of the UK having entered recession.

In its 2022-23 budget, the Scottish Government made a series of savings in-year to identify allocations that could be used to fund cost of living support, including improved public sector pay offers. We heard in evidence from the Deputy First Minister last week that uncertainties remain on how it will balance the books for this financial year, with a sum of between £200 million and £500 million still to be found. It is concerning that there is still that level of uncertainty so late in the financial year, so any further information that ministers can provide today will be welcome.

The committee also notes the Scottish Government’s expectation that it will not be in a position to carry over any resource into 2023-24, which will place additional pressures on public finances next year. We heard evidence that the cost of living crisis is impacting people from across society, from businesses to households, to voluntary bodies and to communities.

In our pre-budget report, we welcomed the Scottish Government’s commitment to provide immediate support to those who are most in need. We were concerned about inflationary pressures persisting into the next financial year, however, and asked the Scottish Government to look further ahead at how immediate fixes over this winter might be extended into its budget for 2023-24. In responding, ministers pointed to the uprating of devolved benefits, including the early uprating and expansion of the Scottish child payment, continuation of the fuel insecurity fund and doubling of the Scottish child bridging payment as ways in which it would continue to support people through the cost of living crisis into 2023-24.

We heard compelling evidence that the crisis is having a disproportionate impact on women and asked how the Scottish Government could best support women through these challenging times. We also urged ministers to put in place robust and transparent processes to evaluate all policies and outcomes for their gender impacts. We hoped that that would better support committees in policy scrutiny decisions for their potential impact on women, including through evidence gathering.

In its response to the pre-budget report, the Scottish Government said that it was

“committed to ... mitigating ... the disproportionate impact of the cost of living crisis on women.”

It also said that it accepted

“the principle of integrating intersectional gender analysis into our policy making and are taking that forward as part of our wider work on equality and human rights budgeting.”

We have asked in our budget report for more details on exactly how that is being taken forward.

During pre-budget scrutiny, we heard different views on whether the Scottish Government should, in its 2023-24 budget, follow or diverge from the UK Government’s income tax policy. In our budget report, which was published yesterday, we explored in more detail the Scottish Government’s income tax plans for the next year, including the potential that negative behavioural impacts will reduce revenue, which was highlighted by the Scottish Fiscal Commission.

Where we continue to find common ground is on the need to increase productivity, wage growth and labour market participation in Scotland to bolster sustainable economic growth, including growing the tax base, and on the need for greater investment in research and development and greater support for innovation. Those issues are of particular interest to the committee and are ones that we continue to raise as part of our wider work, including in our forthcoming scrutiny of the Scottish Fiscal Commission’s first sustainability report, which will be published in March.

The Scottish Government has pointed to its national strategy for economic transformation as the stimulus for addressing inactivity, low productivity and slow wage growth. We continue to seek more detail on how it will do that, along with information on how budgetary pressures will impact on delivery.

The decision to cut employability services in-year during 2022-23 was of particular concern to the committee, although we recognised that that was just one of many difficult decisions that had to be taken in order to fund public sector pay deals and to address the cost of living crisis. We asked the Scottish Government for the analysis that it had undertaken on the reduction in funding for employability services in order to understand any adverse impact, including on its ability to meet child poverty targets. I raised the matter directly with the First Minister at the Conveners Group in September. We thank the Deputy First Minister for the assessments that were carried out and we welcome the rise in employability funding in 2023-24.

A significant focus of the resource spending review was on public service reform. The review was intended to provide a

“fresh vision for our public services reform programme”

and to set out

“a coherent package of action that will drive progress over the life of the current parliament, improving outcomes while driving efficiency and value for money”.

Those proposals also formed a significant element of the committee’s pre-budget scrutiny, and we asked stakeholders to provide their views on the Government’s proposals to achieve reform through digitalisation, to maximise revenue through public sector innovation, to reform the public sector estate, to reform the public body landscape and to improve public procurement.

We noted in our pre-budget report that reform and efficiencies often require expenditure up front and time to deliver, and we invited the Government to confirm whether its plans to achieve savings by the end of the parliamentary session are realistic. The limited information that was provided in the Scottish Government’s response did not give us sufficient confidence that its plans are achievable within that timeframe.

The resource spending review committed the Scottish Government to publishing initial outcomes and plans for its public service reform programme alongside the Scottish budget. In our pre-budget report, we asked that ministers develop detailed and transparent proposals that clearly set out priorities, funding, timescales and intended outcomes, as well as the potential impact on service delivery. Unfortunately, expected outcomes and reform plans were not published with the budget and there was no explanation for that, other than the suggestion that work was on-going. Officials are engaging with public bodies to initiate action in identifying opportunities to reduce overhead costs—for example, through rationalisation of estates and public bodies. We recorded our concern about that approach in our budget report and sought further detail in order that the Government could provide us with the assurance that we need that that work is on track and will improve public service effectiveness.

We recognise the challenges that the Scottish Government faces in identifying additional money to fund public sector pay rises in response to inflation. The committee noted in our pre-budget report that the Scottish Government is seeking to reduce the public sector head count over the rest of the parliamentary session to pre-Covid levels—from around 447,000 to 417,000. The First Minister’s commitment to a policy of there being no compulsory redundancies in that regard is welcome. We recognise that this is an uncertain time for all concerned, so we have asked for assurances that the Scottish Government will take a partnership approach with the workforce and that it will be open and transparent on those difficult issues.

We also sought assurances that ministers will approach reducing the public sector headcount in a systematic, transparent and co-ordinated way, in tandem with the public service reform agenda, while minimising adverse effects on public service delivery. In response, the Scottish Government said that it has developed its proposition around targeted workforce growth in priority areas and that it is for individual public bodies to determine locally the target operating model for their workforce. Again, we believe that more information is required. We continue to pursue progress on public service reform, pay and headcount in our budget report, and we look forward to receiving more information from the Scottish Government on those issues, in due course.

Finally, I want to return to where I started my speech—the resource spending review. When it was published, the committee welcomed the certainty and transparency that it provides in relation to expected spend in future years, although some of the decisions that would have had to be taken in delivering what is in that report would have been very challenging. As was acknowledged by the Deputy First Minister in recent evidence to the committee, Scotland’s economic and financial circumstances have changed dramatically since May. We therefore urge the Scottish Government to provide an update as soon as possible.

I now look forward to hearing colleagues’ contributions and am pleased to move motion S6M-07602, which is in my name.

I move,

That the Parliament notes the pre-budget scrutiny undertaken by the Finance and Public Administration Committee, and other parliamentary committees.

15:09  

Today’s debate is an important part of the Parliament’s scrutiny of the Scottish budget, and I appreciate the engagement across the committees in preparation for the debate.

It has been a particularly challenging budget to develop. The war in Ukraine, the surge in the inflation rate and the damage to the public finances that was done by the mini-budget in September have created an exceptionally difficult landscape in which to develop and bring forward the Scottish budget. As a Government, we have had to make difficult choices, and the Parliament will have to consider and determine those choices in the course of the next few weeks.

A balance must be struck between the funding that is available and what it can deliver for the people of Scotland. We have actively chosen to increase the funding that is available to the Scottish budget through our fair and progressive approach to taxation. We have brought to the Parliament a budget that sets a different path for Scotland, which prioritises the elimination of child poverty, the transition to net zero and the sustainability and effectiveness of our public services.

The Finance and Public Administration Committee’s report recognises the nature and scale of the financial challenges that we continue to grapple with in the current financial year and that set a challenging context for the year ahead. As I made clear in my evidence to the committee earlier this month, I take seriously the points that the committee’s convener made in his speech and in the report about the undesirability of there not being a path to balance the budget at this stage in the year. I assure the Parliament that that is not for want of trying and that it is a measure of the scale of the challenge that we face because of the factors that I recounted earlier in my speech. I further assure the Parliament that we are working to address the issues in the time that is available to us.

We have limited fiscal powers, so we have had no option but to reduce our spending in order to meet the pressures on our budget, not least the £700 million of additional funding that we have allocated for public sector pay, which makes a substantial contribution to assisting public sector employees to deal with the cost of living crisis that we face.

We recognise that public sector pay is an important issue to the Parliament. I explained in my budget statement that I was not publishing a public sector pay policy because of the uncertainty about the outlook for inflation and the need to conclude some pay deals in the current year. We can still make progress on pay discussions for 2023-24. Indeed, the Scottish Government continues to engage on pay issues with trade unions and public sector employers. Along with the Cabinet Secretary for Health and Social Care, I have been actively involved in negotiations relating to the agenda for change groupings that we are trying to resolve for 2023-24.

I appreciate that there is a wide range of views across the chamber on what the budget should support, and the debate offers an opportunity for a wider conversation. I look forward with interest to hearing the perspective from a range of committees in members’ contributions to the debate.

I thank the Finance and Public Administration Committee for its pre-budget scrutiny report and stage 1 report and for its acknowledgment of the wide-ranging challenges that the Scottish budget faces. I will carefully consider the recommendations in the report and will reply to the committee in writing in due course.

For the 2023-24 Scottish budget, I have carefully balanced the growing asks against the funding that is available. The budget recognises that we must take action now to enable us to overcome the even greater fiscal challenges that lie ahead. Our approach is set out in our medium-term financial strategy, and we continue to take steps to improve that each year in response to the challenges that we face. Further updates in relation to the implications of the current environment and the different environment to which the convener referred will be set out by the Government in due course—that is likely to be in the medium-term financial strategy.

Critical for the Scottish Government is our continued commitment to ensuring that our public services provide the support that people and communities need, improving outcomes and reducing inequalities while remaining fiscally sustainable. The UK Government’s financial plans will make that incredibly challenging, with the funding outlook for the later years of its spending review period looking increasingly bleak. For those and other reasons, I have taken decisions to increase the higher and top rates of taxation in the next year in order to boost the revenue that is available to the Scottish Government and the Scottish Parliament to address those questions.

Reform of our public services is vital to ensure their sustainability. We have already pursued those issues with public bodies and set out our approach, which is built on joining up service delivery to direct resources towards more person-centred services and, in doing so, make better use of resources.

Secondly, we will undertake a rigorous review of the public body landscape, the work that public bodies do and how resources are used to improve outcomes. That work is not easy and will involve a whole-system approach, which we know will take time to deliver the results that we require.

Thirdly, we are expanding the utilisation of digital technology in the delivery of our public services.

Finally, we will carefully manage public sector employment, in dialogue with public bodies and with our trade union partners, who must be at the heart of dialogue on all such questions.

Change happens when we all buy into and contribute to a vision of effective, sustainable and person-centred services that is both achievable and ambitious, and that will be the focus of the public service reform work that the Government undertakes.

I place on record my thanks to all the committees for their scrutiny work on the budget. In the time that is available to me, I will reflect on a number of the issues that they raised, although I will come back to that in my closing speech, when I have heard from committees about some of the issues that we can further address.

The Economy and Fair Work Committee acknowledged the current challenging economic circumstances and expressed interest in the financial support that we intend to provide for a range of economic and business areas, including enterprise agencies, tourism and the hospitality sector. The 2023-24 Scottish budget maximises the support that we can deliver for businesses through the budget directly and through non-domestic rate support mechanisms.

The Health, Social Care and Sport Committee acknowledged that the scale of the financial and operational challenge across the health and social care sector is unprecedented. That is why the 2023-24 Scottish budget will provide more than £19 billion of investment in health and social care. That is an increase of more than £1 billion, which has been made possible due to the additional revenue that we have raised through our fair and progressive taxation system. As a result, we are exceeding our commitment to pass on all the health and social care resource consequentials to the health and social care system.

The Social Justice and Social Security Committee offered views on a range of social justice and poverty issues. The Scottish Government takes those issues seriously, and I hope that our response in the budget to those significant issues is commensurate with the seriousness of the issues that the committee put to us.

We have taken exceptional steps to support Scotland through the cost crisis and, by the end of March 2023, we will have invested about £3 billion in a range of measures to support households. In addition, we are investing £442 million in delivering the Scottish child payment, which is the most ambitious child poverty reduction measure in the UK. We hope that that measure, along with the uprating in April 2023 of all other Scottish benefits by the September consumer prices index figure, demonstrates that we are providing a comprehensive package that will help us to eliminate child poverty in Scotland.

The Education, Children and Young People Committee raised the important issues of colleges, universities and early learning and childcare. The education and skills resource budget for next year will increase by £132 million, to more than £3 billion, to enable us to address many of those issues.

The Local Government, Housing and Planning Committee focused its pre-budget scrutiny on affordable housing. The Government has put in place investment to support the continuation of the long-term affordable housing programme—next year, we will make available more than £750 million for affordable housing. The local government settlement has been enhanced through a cash increase of £570 million, or 4.5 per cent, which represents a real-terms increase of 1.3 per cent.

The Net Zero, Energy and Transport Committee sought evidence on topics including the fair fares review and bus support, heat in buildings and the joint budget review. We have set out a range of measures, including the investment over the course of the parliamentary session of more than £1.8 billion in heat and energy efficiency, to enable us to properly address the challenges that the committee put to us. In addition, as we have set out on previous occasions, we are expanding the fuel insecurity fund.

In conclusion, I highlight the work that we have taken forward with our recent announcement of the islands deal. We have set out commitments to support our rural and island communities, and the rural affairs budget reflects those challenges.

I look forward to hearing responses from committees and will reflect on those issues in my closing speech. I stress the importance of ensuring that we set a budget that utilises the resources that are available to us, but I make it clear that some very difficult choices had to be made to get us to the position that we are in. I look forward to hearing the views of committees as we take forward our constructive engagement on the Scottish budget.

15:20  

As convener of the Health, Social Care and Sport Committee, I am pleased to contribute to this debate on the budget. To inform our pre-budget scrutiny, the committee issued a call for written evidence, which received a total of 20 responses. We took oral evidence from selected witnesses on 20 September 2022 and wrote to the cabinet secretary with our recommendations on 27 October. I am grateful for the cabinet secretary’s written response of 15 December and his appearance before the committee on 10 January 2023 to answer questions about the budget.

The evidence that we received highlighted concerns about the unprecedented financial pressures that our health and social care services face. Those pressures have been exacerbated by the spiralling cost of living, which is having a damaging effect on the wellbeing of our citizens and on our health and social care workforce, and by the vastly increased cost of running the national health service because of fuel costs and inflation.

Witnesses also highlighted the long-term impacts that the Covid-19 pandemic has inflicted on the physical and mental health of the Scottish population and on the wellbeing of the NHS workforce. That will require on-going financial support in the years ahead. Long Covid continues to impact the health and social care workforce, unpaid carers, those receiving care and the wider population. That, too, will continue to come at a considerable cost as we find out what treatments might be needed in future.

However, the impact of the pandemic has not been universally negative. Many of those who responded to our call for evidence were keen to highlight how positive experiences of the pandemic, and of how the pandemic was managed, have helped to drive innovations in healthcare delivery.

One of our recommendations to the Scottish Government is that it must continue to foster a culture of innovation in health and social care. We must ensure that the improvements in the efficiency and effectiveness of service delivery that were brought about by the ways in which our health and social care workers managed the pandemic are embedded and built on. For that to happen, we must ensure that we are properly monitoring and evaluating the cost-saving benefits of innovation and that we are learning lessons. As one of our witnesses told the committee, encouraging innovation includes giving practitioners the confidence to try new approaches.

My committee has long asserted that there are persistent and substantial gaps in the available data on various aspects of health and social care. Stakeholders who contributed to our pre-budget scrutiny told us that that impedes budget tracking and the assessment of spending against defined outcomes, meaning that certain outcomes might not be measured at all. Although we recognise the £1 million uplift in health spending and the increase in pay for NHS staff, it is vital that, given the Scottish Government’s constrained budgetary environment, we have the data to accurately measure the impact of spending against those outcomes and to target finite resources as effectively as possible.

Many of those who contributed to our pre-budget scrutiny highlighted the negative effect of single-year budgets on long-term financial planning and said that that can hamper efforts to prioritise resources towards preventative spending and to meeting NHS Scotland’s stated ambition

“to become a service which is both environmentally and socially sustainable”.

As the Convention of Scottish Local Authorities wrote in its submission to the committee,

“Overall, there remains a continued focus on input and output measures rather than outcomes when it comes to public spending. This drives behaviour and spending in ways that are not necessarily best value.”

We fully appreciate the immense strain that our health and social care services are currently under as they face immediate and acute demands that are, as I have said, unprecedented. However, prioritising preventative spending and net zero investment is a nettle that we know we need to grasp if we are to stand any chance of putting health and social care finances on a more sustainable footing in the long term.

The committee has called for clarity on when the Scottish Government will bring forward an updated medium-term financial framework for health and social care. We recognise that no budgets are set through that framework, but, nonetheless, publishing it would give health and social care decision makers greater certainty and confidence, enabling them to plan funding in the longer term and give greater priority to the preventative spending that we know will unlock better health outcomes in the future.

In our letter to the cabinet secretary, the committee also emphasised the importance of taking a whole-system approach to assessing the health impact of non-health spending. I commend the cabinet secretary’s commitment in his response to

“working ... with Public Health Scotland ... to explore better ways to embed the consideration of health issues into decision-making at national and local level”.

We also want to recognise the cross-portfolio working on tackling the poverty-related determinants of ill health, which represents a real step change in approach.

I note the forthcoming health impact assessment of the population health impacts of the cost of living. The committee has repeatedly made the case for more systematic use of health impact assessments, including as part of the budget process. I hope that that publication will provide an exemplar for the increasingly systematic application of a “health in all policies” approach to future budgets.

There can be no doubting the huge financial challenges that the health and social care sectors face, but if we are to achieve the goal of placing health and social care finances on that sustainable long-term footing, we as policy makers must retain a focus on longer-term planning, preventative healthcare and an integrated whole-system approach, fostering innovation, effectively measuring our progress and improving long-term outcomes.

15:27  

I rise to speak on behalf of the Education, Children and Young People Committee. For our budget scrutiny, we chose to look at both ends of the educational spectrum: early learning and childcare, and further and higher education.

August 2021 marked the introduction of the duty on local authorities to secure 1,140 hours of early learning and childcare for all three and four-year-olds and eligible two-year-olds. Members will know that local authorities have a dual role: they are ELC providers and they commission services from private, voluntary and independent nurseries and childminders.

Since the roll-out of the 1,140 hours, PVI providers have faced significant difficulties in recruitment. The Scottish Childminding Association told us that, during ELC expansion, the sector has lost more than 1,400 childminders. The National Day Nurseries Association described to us a crisis in the ELC workforce caused by the expansion in local authority employment and the pandemic.

The issues that have been raised with us include the rates of pay for providers differing between local authorities, as the Scottish Government guidance does not set out a specific rate for local authorities to pay. The committee has recommended that a mapping exercise be carried out, because we want to find out what hourly rates are being paid to staff across local authorities and the PVI sector. We also want to know the extent to which staff are moving from jobs in the PVI sector into local authorities and the monetary value of the in-kind support that is provided to the PVI sector.

We found that the rates that are paid to the PVI and childminding sectors vary between local authorities. For three to five-year-olds, they range from £5 an hour in Orkney to £6.40 an hour in West Lothian. We found that different rates apply for two-year-olds and that different rates are paid to childminders in some local authorities.

The committee is aware that a small number of local authorities do not provide an uplift in funding to the PVI sector for two-year-olds, despite the increased cost of that provision. We were told that underfunding is an on-going concern for many of those in the PVI sector, with several now operating at a loss. We also heard that the Scottish Government is reviewing the overall process for setting sustainable rates. We look forward to receiving information about the financial health of the sector and about the critical issue of staff pay, terms and conditions.

As part of the inquiry, we learned that, although some two-year-olds are eligible for funded places, uptake has been low, at around only 13 per cent in 2020-21. Local authorities have struggled to identify eligible families. However, we were pleased to learn recently that new data-sharing arrangements will allow local authorities to target information to eligible households. We all hope that that will lead to an increase in uptake.

The choice of where and when children access funded ELC is very important to parents and care givers. Private providers can offer greater flexibility than local authority-run settings. That flexibility is essential to those who do not work around traditional office hours, such as healthcare workers, albeit not only to them.

Cross-border provision is available between a small number of local authorities. We heard some evidence on that, from Argyll and Bute. That flexibility has been helpful for parents who live and work in different local authority areas. Local authorities are expected to work together to resolve cross-border issues and the Scottish Government has offered to look at what further work might be necessary to allow families across Scotland to access cross-border solutions.

Another sector that offers vital services to people across Scotland is our colleges. They do fantastic work, and we all want them to thrive and to deliver the skilled workforce that is essential to growing Scotland’s economy. We heard about the significant funding challenges that are faced by our colleges. The Scottish Funding Council said that the sector forecasts an underlying operating deficit in every academic year to 2026-27. Staff costs make up a high proportion of colleges’ overall costs, and the sector projects significant staff reductions, of around 200 to 300 full-time equivalent staff members in each of the next five years.

I realise that Sue Webber is speaking for the committee. Is it the committee’s thinking that we should give a bit more to the colleges and a bit less to universities?

I would hate to pre-empt our college inquiry report. I thank Mr Mason for his question, but, if he does not mind, we will wait until later in the year to see what that says.

Although there has been an increase of £26 million in the colleges resource budget for the coming year, that is only 0.6 per cent in real terms. It is important that colleges find out what that means for baseline funding in future years.

In 2022, Audit Scotland highlighted that capital funding has

“consistently fallen short of the level needed”

for maintenance in colleges. Furthermore, given that the ability of colleges to raise funds is limited, the committee is concerned that they will not be able to meet their net zero targets by 2045. We believe that an assessment of the current position and an investment strategy should be completed as a matter of urgency.

I will speak briefly about universities. Our universities have a fabulous reputation across the world. We welcome the students who come from across the world and we recognise the cultural diversity that they bring. However, Scotland’s funding model for universities is now structurally reliant on international fees; that source of revenue is forecast to overtake Scottish Government funding as a percentage of the sector’s total income, by 2023-24. We have asked the Scottish Government how it plans to ensure long-term sustainability and to mitigate the risks of reliance on international student fee income.

In closing, I am sure that members would like to join me in thanking the staff who delivered vital services to children and young people across Scotland.

15:34  

I welcome the opportunity to speak on behalf of the Constitution, Europe, External Affairs and Culture Committee. We focused our pre-budget scrutiny on the culture spending portfolio. I thank all those who attended our round tables and who submitted evidence to the committee.

Although culture spend represents a relatively small proportion of the budget, the return on investment in culture, heritage and the arts is significant. Culture enriches our lives and provides a platform for innovation. It is of strategic national importance, from Edinburgh’s festivals, which attract more than 4 million people to our capital each year, to Scotland’s screen sector, which contributes £500 million to the economy and is set to become a £1 billion industry by 2030. Our grass-roots cultural organisations work in communities up and down the country to change lives every day. Scotland’s cultural heritage is intrinsic to who we are as a nation. It plays a crucial role in how we market and position ourselves globally—Burns night, which was last night, is just one example of that.

Over the past year, the budgetary challenges that Scotland’s culture sector faces have become much more acute. The evidence that the committee heard was clear and sobering. The committee found that the culture sector is experiencing significant financial pressures, which are, as Iain Munro of Creative Scotland said, driven by a “perfect storm” of reduced income generation, increased operating costs and longer-term budgetary pressures. That comes as the sector struggles to recover from the Covid-19 pandemic and has been compounded by the cost of living crisis that is affecting us all—indeed, we heard that the cost of living crisis presents

“an even greater short and medium-term challenge”

to the culture sector than the pandemic did.

Let us not forget that culture was among the sectors that were hardest hit by the pandemic. We were told that the emergency support that the Scottish Government provided had been essential in helping many cultural organisations to stay afloat. Now, however, the sector’s already fragile recovery from the pandemic is in doubt, as cultural organisations are vulnerable to significantly increased operating costs. That has followed on from longer-term budget pressures for the culture sector, which go back to 2010. In its session 5 report “Putting Artists In The Picture: A Sustainable Arts Funding System For Scotland”, the Culture, Tourism, Europe and External Affairs Committee pointed to a

“real-terms reduction in funding for the arts”.

During the Constitution, Europe, External Affairs and Culture Committee’s evidence sessions, Sir John Leighton, who is director general of the National Galleries of Scotland, said that

“we face a funding challenge the like of which I have never before witnessed or, indeed, imagined.”

He made it clear that the roots of the challenges

“lie in patterns of funding across a longer period”.—[Official Report, Constitution, Europe, External Affairs and Culture Committee, 29 September 2022; c 24.]

Creative Scotland’s core revenue budget has reduced in real terms by approximately £13.1 million since 2010-11. The impact of the longer-term pressures, combined with further fiscal pressure arising from the recent resource spending review, featured as a key theme in the evidence that the committee received. If the spending review plans prove accurate, funding for culture and major events will fall in real terms by an estimated 4.7 per cent by 2026, despite being protected in cash terms.

This year’s budget settlement for Historic Environment Scotland and the National Galleries of Scotland was welcomed and was said to provide a “year-long breathing space”. However, the rationalising of estates, which Mr Gibson spoke to earlier, is a very different challenge for Historic Environment Scotland than it is for other organisations. Funding for Creative Scotland is down by more than 10 per cent, but that will be offset by national lottery income and reserves while the Scottish Government faces budget constraints. Although we welcomed hearing the cabinet secretary’s reasoning for that decision at committee, it is not recurring money and therefore not a long-term solution.

The committee recognises that other areas of the budget are also under considerable pressure, so there are no easy budgetary solutions in tackling the considerable difficulties that the culture sector faces. However, there must now be an increased urgency to accelerate innovative solutions to the funding challenges that culture faces. That includes the development of additional public and private revenue streams for the sector.

The committee wants progress to be made on establishing a percentage for the arts scheme, which has been consistently proposed by our community and third sector organisations. We should also consider how the culture sector could benefit from the proposed transient visitor levy, given the role that culture plays in attracting visitors to Scotland.

The committee has discussed at great length the mainstreaming of culture across portfolios. We would like to see consideration of investment in culture from other budget lines and a reappraisal of what is considered to be health spending. That should include recognising the contribution that preventative spend in the arts makes towards health and wellbeing—whether that is through projects such as choirs for sufferers of dementia or chronic obstructive pulmonary disease or craft classes to tackle isolation, stigma and mental health problems. On the Scottish Government’s aim of redirecting funding towards demonstrable preventative approaches, we need to see progress.

The committee has made all those recommendations previously and, in the face of the “perfect storm” that I described earlier, we reiterate them because the evidence that we have received suggests that a strategic approach is still lacking when it comes to mainstreaming culture. To quote Sir John Leighton, the ambition to embed culture in health and wellbeing is

“still rotating in mid-air; it is rhetorical”.—[Official Report, Constitution, Europe, External Affairs and Culture Committee, 29 September 2022; c 45.]

The committee welcomes the cabinet secretary’s reassurances that closer cross-portfolio relationships are being developed, but we need to see that in action.

I turn to multiyear funding—

I am afraid that you are going to have to wind up, Ms Adamson. You have had seven minutes.

I apologise, Presiding Officer. I shall leave my remarks there.

I appreciate that. I am afraid that we are quite tight for time.

15:41  

At this time last year, the Economy and Fair Work Committee’s focus was on support for business to recover from the pandemic, encourage investment and create good employment opportunities. We all acknowledged the challenging economic circumstances that existed at that time. However, as we look ahead to the next financial year, it seems that circumstances will be no less challenging.

The committee heard that, for some sectors, the economic outlook is worse than it was last year and the need for business support is even more urgent. I will focus on two sectors—tourism and hospitality.

In the lead-up to Christmas, the Scottish Tourism Alliance told the committee:

“From a business point of view, everybody would say that we are in a worse place now than we were last year, without question.”

In the hospitality sector, wage inflation and the rising costs of food and drink have been continuing concerns, but increased energy costs have

“dwarfed the problems that the businesses were experiencing”.—[Official Report, Economy and Fair Work Committee, 5 October 2022; c 26, 28.]

We know that tourism can provide sustainable economic growth across Scotland, but the sector is under severe pressure. Two of the committee’s key budget recommendations to the Scottish Government were to work with the Scottish tourism recovery group to identify the best business support for the sector, specifically including further business rates support; and to protect VisitScotland’s international promotion budget, because such expenditure is critical to maximising income for the sector in 2023-24.

The Scottish Government’s written response to the committee, and the Deputy First Minister’s evidence to it last week, set out the measures that the Scottish Government will take to help all businesses, but they do not include targeted support specifically for the tourism and hospitality sectors. The Scottish Government’s plans to freeze the poundage and create transitional reliefs, together with the small business bonus scheme—all of which will benefit some properties in the hospitality sector—are welcome. However, the committee was strongly in favour of the tourism and hospitality sectors being prioritised for business rates support. We are disappointed that enhanced targeted support for those sectors is not on the table, given the concerns that have been expressed.

Similarly, in response to the committee’s call to protect VisitScotland’s international promotion budget, the Scottish Government’s written response did not provide comfort. At our evidence session last week, the Deputy First Minister sought to provide assurances that joint promotional work could be undertaken with a range of partners, which would create efficiencies, and that there had been a shift in the direction of digital marketing.

The committee acknowledges that VisitScotland is effective with its marketing spend, but the committee’s view remains that it would be short sighted to cut the budget for international promotion. There is a real opportunity to bring to Scotland spending power that would support our tourism and hospitality sectors. There is strong evidence that international visitors stay longer and spend more in local economies. Investment in that area brings financial rewards and supports regional economies—an opportunity that has been recognised in Ireland, which has announced a £62 million investment in tourism attractions. The committee does not underestimate the financial pressures that the Government faces, but we want opportunities to be grasped, and we would support the readjustment of other funds in that area towards international tourism.

The second key committee recommendation relates to the Scottish Government’s commitment to establish a women’s business centre. The committee and many stakeholders welcomed the fact that the programme for government earmarked £50 million, over the current session of Parliament, to establish such a centre. We know that women experience difficulties in accessing financial support from traditional sources and that there is a lack of gender-disaggregated data on women’s businesses and procurement activity. We also know that women tend to run smaller businesses; if there are problems in accessing finance, any business will lack the structural capital to grow or expand trade, get the right networks in place and take advantage of opportunities.

In our pre-budget letter, the committee noted that there is significant opportunity from enhancing women’s contribution to Scotland’s economy. We asked for the establishment of the women’s business centre to be prioritised in this year’s budget. The committee is therefore disappointed that there seems to have been no discernible progress.

In December, we asked the Deputy First Minister how much of the earmarked £50 million would be spent in the coming financial year. In response, we were referred to the review that Ana Stewart was undertaking on widening access to entrepreneurship for women. The committee was told that long-term funding decisions have not yet been made. The Ana Stewart review was commissioned last April and, at that time, it was reported that full findings and recommendations would be available in September. However, we still await them.

The response that the committee received from the Government sounded rather conditional. The committee is convinced of the benefits of a women’s business centre, and we want that to be progressed. That would be another good example of the Government being able to grasp opportunities. We know that there is so much to be gained from women having greater involvement in the economy.

The committee identified two other spending priorities for the coming year. We want a focus on skills development and on incentivising workplace learning for the engineering and manufacturing sectors in particular. We also want to see investment to support expansion of those sectors, which have a buoyant export potential; that presents an opportunity to focus on green energy transition support.

I will close on employability spend. Along with the Finance and Public Administration Committee, we have concerns about that. At the start of September, the Deputy First Minister announced that savings of at least £500 million were needed, which included £53 million of employability support spending.

Employability services support those who wish to work but face barriers to doing so. There can be many reasons why some people find it difficult to get into work. The Fraser of Allander Institute has published a good analysis of employability spend and why it is important.

At the Conveners Group meeting with the First Minister, and again last week, when the Deputy First Minister was at the Economy and Fair Work Committee, I sought clarification on that reduction. The committee was told that it involved the removal of a projected increase to planned expenditure, and not a reduction to any spend on programmes that are being delivered.

The committee understands that savings have to be found. We note the assurances that were given that capacity remains in existing employability programmes to take on new programme entrants, but the committee will wish to monitor that. We are taking evidence on the disability employment gap, and we remain concerned that the impact of the reduction is removing opportunity from people who, while they may be furthest from the workplace, not only deserve to be included in our workforce and society but have a valuable contribution to make to Scotland’s economy.

15:48  

It is my pleasure to speak on behalf of the COVID-19 Recovery Committee on our pre-budget scrutiny work. I thank all those who gave evidence to the committee and responded to our call for views, which informed our letter to the Government in advance of the publication of the budget documents in December. I know that stage 1 of the Budget (Scotland) (No 2) Bill is coming up, but I think that it is important that we have this debate today to hear how the pre-budget scrutiny work of committees has helped to influence and shape the Scottish Government’s budget.

Our committee agreed to focus its scrutiny on the on-going costs associated with the pandemic, as set out in the Covid-19 strategic framework, and on how the Scottish Government has planned to fund its Covid recovery strategy. We were interested in the read-across between the strategic documents and the Scottish Government’s other fiscal documents such as the resource spending review, the medium-term financial strategy and the “Equality and Fairer Scotland Budget Statement 2022-23”.

Before I go on to talk about our pre-budget work, I would like to say something. Although we are, thankfully, no longer in an emergency situation, for a lot of people, Covid is not over. That includes in particular those who have suffered loss and those who are trying to cope with long Covid, and I offer my sympathies to them. Those people are always at the forefront of our minds in our work on pre-budget scrutiny and on the recovery strategy and the strategic framework, with no exception.

In its pre-budget work, the committee heard evidence on three main themes: Covid recovery and the cost crisis; on-going Covid and pandemic preparedness associated with the strategic framework; and the outcomes-based budgeting and policy evaluation associated with the recovery strategy. The committee also touched on the wellbeing economy and considered the read-across between the Scottish Government’s strategic documents and how they support the Government’s stated aim of achieving a wellbeing economy. I will take those themes in turn.

First, on Covid recovery and the cost crisis, we asked the Government to clarify whether budgetary and inflationary pressures had impacted on its priorities and its ability to deliver on the outcomes as set out in the Covid recovery strategy. As we have already heard in the debate, the Government has confirmed that the cost crisis has indeed had an impact, but it is still committed to making progress towards the shared Covid recovery strategy outcomes. The response to our pre-budget letter also highlighted that the recovery strategy will run up to September 2023.

We asked the Deputy First Minister about that last week, when he came to give evidence on the budget, and he explained that the aim is to mainstream Covid spend across all portfolios. I fully expect the COVID-19 Recovery Committee to be involved in ensuring that that mainstreaming is done effectively.

We also called for more clarity and transparency on funding directed at achieving the priorities and outcomes that are set out in the recovery strategy, and more detail on the evaluation and effectiveness of those funding allocations. I was pleased that the Government agreed that budget transparency is important. Its response highlighted its commitment to the delivery of the national outcomes as set out in the national performance framework and the fact that its budget was set accordingly. This is an area of continued interest to the committee, and I will talk more about it later.

Turning to the on-going Covid costs and the pandemic preparedness associated with the strategic framework, we considered the report of the standing committee on pandemic preparedness and its recommendations, and looked at the budgetary implications of the on-going cost of dealing with Covid. We asked for an assurance that the Government would commit additional resources to implement the strategic framework, if that was required to respond to a new variant of concern or a mutation in the future.

That point was made by a number of witnesses, and the Government has said that it remains alert to the threat that is posed by potential new Covid variants. It also pointed to the plans published by Public Health Scotland that set out the processes that will be undertaken to identify and assess any future risk.

We also heard about the importance of funding the on-going activities in relation to vaccinations, surveillance, testing and personal protective equipment, and were reassured by the Government’s commitment to allocate funds for those measures.

On-going surveillance, in particular, was an issue that we focused on and have since explored further. We wanted to understand how the waste water surveillance played a major part in identifying Covid outbreaks during the pandemic, and how that, and genomic sequencing, can continue to be used in the event of any further outbreak.

We looked at what future investment might be needed in surveillance measures and genomic sequencing for the on-going Covid-19 response and future pandemic preparedness. I am sure that members from all parties would agree that we do not ever want to be in a position in which we are unable to respond to another variant that emerges. It is important that, despite the current fiscal pressures, the Government allocates appropriate funding to pandemic preparedness and on-going surveillance measures.

We heard that good preparedness measures require a baseline level of funding and that project funding is not sustainable in terms of recruitment. With regard to the learning around PPE, we heard that stocks should be actively used rather than being warehoused.

I will turn briefly to the outcomes-based budget and policy evaluation, which is an issue that is of continued interest to us. In considering the funded policies that are contained in the recovery strategy, we were keen to know how the success or otherwise of certain policies can influence future policies and Government budgets. We explored the Organisation for Economic Co-operation and Development’s Covid-19 recovery dashboard, which was developed to monitor how different countries are performing in the context of recovery. While giving evidence, the Deputy First Minister acknowledged that one of the challenges in deciding public expenditure priorities is assessing the most effective use of public expenditure at any given moment.

In light of the evidence that the committee heard, we recommended that the Government consider the OECD Covid-19 recovery dashboard and explore whether Scotland should adopt a similar approach to monitoring its recovery from the pandemic. Indeed, we considered the OECD dashboard in more detail just last week in advance of our session with the Deputy First Minister. In response, the Government again referred to the national performance framework and its similarities with the dashboard as a tool for measuring recovery through the stated outcomes relating to Scotland’s economy, environment and wellbeing.

Finally on the wellbeing economy—this will have been of interest to other committees—we heard differing views on what exactly constitutes a wellbeing economy and that it is not clear how the national performance framework is used as a policy decision-making tool to help to deliver a wellbeing economy.

I will conclude. It is worth reiterating that one of the core objectives of the budget process is to improve transparency and raise public understanding and awareness of the budget. I believe that our pre-budget scrutiny has achieved that objective in relation to Covid spend.

15:55  

It is my pleasure to contribute to the debate in my capacity as convener of the Local Government, Housing and Planning Committee. The committee’s pre-budget scrutiny this year focused primarily on the budget for the affordable housing supply programme. I will touch on that scrutiny, but I also want to focus on the work that the committee has undertaken on the predicament of local government budgets and the challenges ahead for local government.

In recent months, the committee has held evidence sessions on the interrelated issues of budget allocations for local government, the new deal for local government and the local governance review. The committee is yet to draw any conclusions on those matters, but I want to highlight some of the key issues arising out of those sessions.

To begin with, however, I will reflect on our work on the funding for the affordable housing supply programme. As I said at the outset, that was the focus of our pre-budget scrutiny, but we also held sessions on the issue earlier in the parliamentary session—and we will continue to do so as we move through it. Each time that we take evidence on the issue, we find that the challenges that the housing sector faces are that bit more severe than they were the previous time that we took evidence on it. In particular, the costs of construction appear to continue to rise each time that we explore them with stakeholders.

We note that, although the capital grant budget for the affordable housing supply programme has been reduced, that reduction has to an extent been mitigated by an increase in financial transactions funding. That said, as the Cabinet Secretary for Social Justice, Housing and Local Government recognised in her evidence to the committee, the increasing cost of construction means that that investment does not deliver the same returns that it once did.

In the context of the existing grant funding regime, the prospect of meeting the Scottish Government’s target for building affordable homes seems increasingly remote at the moment. The committee recognises that, to meet those targets, there needs to be a focus on innovative financing methods. We welcome the Scottish Government’s recognition of that need and its establishment of an innovative finance steering group. The committee is keen to be kept up to date on the work of that group, and it encourages the Scottish Government to ensure that that work is progressed as a matter of urgency.

We also recognise that the pressures on social landlords are not limited to the delivery of new stock, but that they extend to the investment required to decarbonise their stock as well as to maintaining that stock. In this parliamentary session, the committee will continue to explore how social landlords meet those competing priorities in the current financial climate.

Lastly on housing, I emphasise that, in investing in affordable housing, we must ensure that we are building homes that meet the varied and complex needs of all of Scotland’s people and that placemaking objectives are being achieved. It should not simply be a case of delivering housing numbers alone.

As I said at the beginning of my speech, I also want to look at the committee’s exploration of the funding challenges that local government faces. Each day seems to bring yet more news of seemingly insurmountable problems to be faced by local government. Among other things, councils have to face the challenges of pay inflation and living wage costs; costs associated with Covid-19 recovery; energy inflation; non-pay inflation, including costs of materials, construction costs and contract inflation; and demand for, and price sensitivity of, chargeable services and the related impact on income from fees and charges.

There is universal recognition that local government does not currently have the fiscal levers to meet all those challenges. In that context, we have been exploring the potential impact of a new deal between the Scottish Government and local government, including the Government’s commitment to introducing a fiscal framework, as well as fiscal empowerment issues in the local governance review.

Local government and the Scottish Government reaching agreement on a new relationship will be central to enabling local government to respond to the challenge that it faces. We welcome the ambitions of the new deal. The programme for government envisaged a new deal which would enable local and national government to work together

“to achieve better outcomes for people”,

to balance

“greater flexibility over financial arrangements with improved accountability”,

to provide

“certainty over inputs, outcomes and assurance, alongside scope to innovate and improve services,”

and to recognise

“the critical role played by local authorities in tackling the climate emergency, for example through delivering ... heat and buildings, waste, active travel and nature restoration goals.”

We took evidence from council leaders before Christmas and, in particular, they stressed the importance of multiyear settlements so that councils can continue to provide services and meet new and emerging needs. They also emphasised the need for increased financial flexibilities, including more fiscal powers to allow councils to meet local needs. It seems conceivable that the new deal as currently envisaged could provide the certainty of funding and financial flexibility that is sought.

This year, as in every year, our scrutiny of the budget was dominated by the disagreement between COSLA and the Scottish Government on whether there has been an increase in funding to local government and what proportion of the funding settlement is ring fenced or directed. It is critical that any new deal must provide greater clarity on such matters.

It was originally envisaged that the new deal would be in place for the new financial year. The cabinet secretary told the committee that it would take a few more months, but that efforts to reach an agreement would be “turbocharged”. It is critical that we get this right, so taking longer and reaching a better agreement has to be welcomed. In saying that, this cannot drag on for years to come. The predicament of local government is such that a long delay will not be sustainable. The local governance review is nearly six years old. The new deal cannot go down the same trajectory. We look forward to scrutinising the new deal in the coming months.

We also look forward to scrutinising the upcoming tourist levy bill. As a committee, we are keen to explore how local authorities can raise more of their own revenue, while recognising that core funding from the Scottish Government will still be essential to local authorities meeting the challenges that they face.

Finally, certainty about funding, flexibility in the use of funding and increased revenue raising will not in themselves answer all the challenges faced by local government. In introducing the recent Accounts Commission local government financial bulletin, William Moyes said:

“If they are to find a safe path through the difficult times ahead, councils need to focus more on service reform”,

based on strong engagement with communities. As a committee, we recognise that we are now 12 years on from the Christie commission. As much as a new deal is needed, so too is service reform, and we look forward to playing our part in driving that change.

16:03  

I am pleased to speak in the debate as convener of the Criminal Justice Committee. I thank the committee clerks for their support during the budget scrutiny process and I thank all the members of the committee, who worked collegiately together during it. I would also like to thank the cabinet secretary for his attendance at committee on 23 December last year to give evidence as part of that process.

The justice spending portfolio covers the important work of our police and fire services, our prisons and courts, and many other key bodies which are critical to the safety of the public, such as third sector charities. It is for those reasons that the committee was concerned to read the resource spending review of May last year, which proposed flat-cash settlements for the years ahead. The Scottish Parliament information centre estimated that that would mean that resource spending in our remit could fall in real terms by £102 million, and that capital spending might also decrease in real terms by £5.2 million.

For individual bodies, such as Police Scotland, the Scottish Prison Service and the Scottish Courts and Tribunals Service, we had been looking at real-terms reductions of nearly 8 per cent, according to SPICe. Clearly, that would have had a very significant implication for criminal justice bodies—indeed, much of the evidence that we heard from different organisations was stark and reflected their concerns about the potential impact on their function, staff and effective delivery.

I thank all of those who gave evidence to us and for the candid way in which they set out the challenges ahead, such as how they could fund decent pay increases for their staff if the resource spending review plans were to come to pass. For example, Police Scotland told us that every 1 per cent increase in police pay in the future would cost £11 million per year to fund, which equates to around 225 staff; hence, a 5 per cent pay increase would cost about £222 million per year and could equate to a reduction of just over 4,400 officers and staff if no extra money was forthcoming.

Similarly, the Scottish Prison Service’s chief executive said:

“there is no or at most, very limited, opportunity to the scaling back of”

its

“operations without significant risk to health and welfare support ... reputational damage, the loss of”

services

“and the risk to operational stability across the estate.”

We heard that, in our courts, the Scottish Courts and Tribunals Service

“might have to reduce summary and civil business by up to 25 per cent, cut back on the £3 million that goes into the budget to pay for part-time judiciary and look at the unpalatable option of reducing staff numbers.”—[Official Report, Criminal Justice Committee, 2 November 2022; c 5.]

We also heard from senior staff in the Scottish Fire and Rescue Service that savings of between £29 million and £43 million would equate to a reduction of approximately 780 whole-time firefighter posts, or around 20 to 25 per cent of the whole-time firefighting workforce.

It is for those reasons and others that the Criminal Justice Committee said that the Scottish Government should find extra resources in its budget to provide a better settlement for organisations in the criminal justice sector than that proposed in the resource spending review.

The member talks about the Government finding extra resources, and our committee convener talked about how we need to balance the budget. Did the Criminal Justice Committee have any suggestions about where those resources should come from; for example, should we cut the NHS budget, raise tax or something else?

I think that it is uppermost in everybody’s minds, not just those of committee members, that if we are to increase a budget somewhere, we need to look at where that will come from. We were certainly very conscious of that, but our priority in the budget scrutiny process was to look at the evidence that we were taking from the sector and reflect it in our report to the cabinet secretary.

We also said that any extra resources that could be provided needed to do more than just be used to support any pay increase awards in the sector.

In his response to our budget report, the cabinet secretary gave assurances that he had

“no intention of overseeing a budget for the police force that results in 4,000 officers leaving”,

and that he also wanted to protect the provision of high-quality services in our prisons and courts.

I welcome those assurances and I welcome the fact that the cabinet secretary has been able to negotiate an additional £165 million of investment to address the significant pressures on the justice system. I note also that the capital budget for the sector will increase by £37.4 million in 2023-24, which is very welcome.

We know that the cabinet secretary has had to make some hard choices here, and I trust that our pre-budget scrutiny and the evidence that we took have helped him in the process of decision making. However, I note that, despite the extra resource, some difficult choices will have to be made.

The committee will be happy to work in partnership with the Scottish Government and other criminal justice bodies in 2023-24 and beyond, to prioritise spending and to make best use of the money that is available.

16:09  

I am pleased to contribute to today’s debate on behalf of the Rural Affairs, Islands and Natural Environment Committee.

The RAINE Committee focused its pre-budget scrutiny on two areas. First, the committee wanted to understand the impacts that inflationary pressures have had on the RAINE portfolio. Secondly, it scrutinised the implementation of the islands plan and the associated islands programme funding, specifically in regard to addressing population decline.

The RAINE portfolio has seen a reduction of only 0.1 per cent since 2022-23, but that figure masks some changes to the detail. The real impact of inflation equates to a reduction in the portfolio of 3.3 per cent. In addition, the £0.5 billion in savings that have been made to tackle the cost of living crisis has had an impact, with more than £60 million of those savings coming from the RAINE budget, including £33 million in savings from rural support. The rural support savings were described as a deferral of UK Government ring-fenced funds, which are to be returned to the RAINE portfolio in future years. The committee will continue to monitor those deferred funds in the next financial year.

In the light of those budgetary and inflationary pressures, the committee sought to understand how the Scottish Government will support farmers and crofters. In evidence, the Cabinet Secretary for Rural Affairs and Islands assured the committee that her priority was providing stability to the sector, and she cited the direct cash injection of £650 million into the RAINE portfolio and the expedited direct payments.

In February, the committee will kick off its pre-legislative scrutiny of the agriculture bill. That legislation and the associated policies will be vitally important for the future of the agriculture sector, forming the framework under which we will support farmers and crofters to transition to a more sustainable model.

The agriculture section of the budget has received a significant increase of 69.6 per cent compared with last year. That comes from a doubling of funding for the national test programme from £10 million to £20 million, and an increase in delivery costs for the programme from £3 million to £5.2 million. The Government says that that funding, alongside the agriculture transformation fund, is intended

“to support the transformation of how farming and food production is supporting Scotland to become a global leader in sustainable and regenerative agriculture, and to support the industry to achieve our statutory emission targets.”

The national test programme and the agriculture transformation fund are recent budget packages that have been created to support agriculture reform. Looking at the last few years, we see that the overall budget for those activities is still significantly below the original budget that was set out for the agriculture transformation fund when it was announced in February 2020.

Furthermore, uptake of soil tests and carbon audits have been lower than expected, with only 12 claims for carbon audits and 21 claims for soil sampling as of December 2022. It is, however, expected that applications will reach a peak towards the closing date.

The cabinet secretary has confirmed her ambition to expand the national test programme, and pointed to animal health and welfare measures that could be added to it. The committee is scrutinising the national test programme as part of its pre-legislative scrutiny to ensure that the programme is delivering on the Scottish Government’s ambitions and, importantly, that it is adequately supporting farmers.

At the other end of the supply chain, business development will see a significant decrease of 78.8 per cent in capital spend, from £16 million to £3.4 million. Those savings relate to the fact that the food processing, marketing and co-operation grant scheme, which was designed to support the development of food and drink processing businesses, will not run in the 2023-24 financial year. According to the Scottish Government, the reason for that is to allow a review to ensure that the scheme addresses future sectoral challenges and can better “serve the needs of” the industry. That is disappointing, as the scheme appears to have been well received, and following Covid it has continued—and it would continue—to support struggling businesses to recover. We will continue to monitor that budget line over the future years. The committee would have liked this scheme maintained at least until the economic situation had stabilised.

Marine Scotland has received a budget increase of £14 million, or 14.7 per cent, to support commitments to net zero and biodiversity. It includes funding for supporting initiatives such as the national marine plan, designating highly protected marine areas, and implementing policies from the fisheries management strategy, such as remote electronic monitoring and future catch policy. Marine Scotland stated that much of the increased budget relates to additional staffing and research capability, which is required to deliver a successful planning and consenting regime for offshore renewables and an increased focus on marine conservation activity.

The committee discussed the uplift to the Marine Scotland budget with the cabinet secretary and raised concerns that the shift to offshore renewables could further contribute to spatial squeeze in the marine environment. The cabinet secretary acknowledged the potential impacts and committed to continue to review operations. The committee will continue to monitor how progress is being made to balance commercial interests with wider conservation activities, to ensure the equitable use of marine areas.

We raised concerns about Marine Scotland’s capability to cope with its increased responsibilities and encouraged the Scottish Government to undertake an assessment of its operational capacity, to ensure compliance with the anticipated expansion of marine environmental protection.

I turn to the islands. The committee scrutinised the implementation of the islands plan and, specifically, the associated islands programme funding, taking evidence from local authorities and the Scottish Futures Trust. Local authorities painted a stark picture of the impact that inflationary pressures were having on island communities. Argyll and Bute Council highlighted that travel and fuel costs in its area are, in effect, 185 per cent and 70 per cent higher than those in urban UK areas. Those significantly higher costs make securing capital projects more challenging for island authorities.

Although the committee is pleased that the Scottish Government has taken on board our comments regarding how funding can be improved in future years, it is disappointing that the Government decided to reduce the capital element of the islands programme budget in real terms, particularly given the inflationary pressures. The cabinet secretary acknowledged the constraints on the islands programme capital budget and highlighted the islands growth deal, which is providing £50 million from the Scottish Government and £50 million from the UK Government over the next few years.

Although the islands growth deal is to be welcomed, local authorities told us that they need a greater degree of certainty about the funding that they will receive, so that they can plan ahead. That is particularly relevant to capital projects, which need a pipeline to give contractors certainty that projects will get the green light. When the committee wrote to the cabinet secretary, it appeared that there was a concerted move to provide that certainty on a multi-annual basis. The cabinet secretary confirmed that multi-annual funds were not possible, due to the annual allocation process, but committed to providing as much certainty and clarity as possible.

Scrutiny will continue on how the islands plan and programme funding can be improved to deliver for our island communities. I hope that, in the coming year, we will get the chance to visit some of the projects that are funded under the programme to see what impact they are having on the ground.

16:17  

I welcome the opportunity to speak on behalf of the Social Justice and Social Security Committee in the Finance and Public Administration Committee debate on the Scottish budget.

During this budget cycle, we have been acutely aware of the challenging economic circumstances in which the Scottish Government has prepared its budget. Notwithstanding that, the committee has been keen to ensure that budgetary decisions within its remit focus on protecting people on low incomes, as they are most affected by the cost of living crisis. Crucially, that includes the third sector, which provides vital support to some of the most marginalised groups.

To support that work, the committee has also examined how the Scottish Government is taking a human rights approach to its budget decisions and what that means for achieving social justice and addressing inequality. The cost of living crisis has brought poverty and the right to an adequate standard of living into sharp focus. The Scottish Human Rights Commission drew our attention to the need for poverty to be viewed in human rights terms and emphasised that

“Poverty represents a failure (a violation) to fulfil the right to an adequate standard of living that is established in international human rights law. Other rights, like the right to education, to work and decent working standards, to health and adequate food and adequate housing, are also affected by poverty ... Poverty, viewed through this lens, is thus best viewed as a cluster of human rights violations in Scotland.”

The Scottish Government has prioritised tackling child poverty—it is one of the four key priorities that it set out in the resource spending review. We welcome the increase in the Scottish child payment to £25 per eligible child per week, which the cabinet secretary has indicated should reduce relative poverty to 1 per cent below the interim target of 18 per cent. Of course, we will not know whether that is the case until statistics are available in 2025. The committee will therefore keep a watchful eye on progress throughout this parliamentary session.

With inflationary increases eroding the value of financial interventions, we actively encourage other committees to keep challenging the Scottish Government to tackle child poverty through policies that lie within their remit. Social security is just one way to invest in people.

The committee notes that, in 2023-24, the Scottish Government needs to find £776 million above what it receives in social security block grant adjustments, which is more than double what is needed this financial year. According to the Scottish Fiscal Commission’s recent forecast, that funding requirement is expected to continue to grow, reaching £1.4 million by 2027-28. How to address that gap and the impact of the cost of living crisis proved to be a little more controversial for the committee. However, we wait to hear the outcome of the review of the fiscal framework and whether that will ease the pressure. Still, the fact remains that social security is, rightly, a demand-led budget and that, as such, funding will need to be made available.

It is therefore critical that we double down on preventative measures. We heard that for preventative policies to make a difference and to lead to sustainable and consistent improvements, such measures need to be funded over the longer term. We took evidence from the Deputy First Minister on the £53 million in-year cut to employability funding. The committee was concerned that that would slow down progress on parental employment, which is a preventative approach aimed at reducing child poverty. We recommended that the cut should be time limited and asked the Scottish Government to provide a timescale in which the funding will be reinstated to the level before the cut. In response, the Government has committed to reinstating funding for 2023-24.

As I set out at the beginning of my speech, we have maintained our focus on the funding issues that the third sector faces. The issues that the sector is experiencing are long running. However, the pandemic, which was swiftly followed by the cost of living crisis, has seen the situation worsen to levels that have not been encountered previously.

Voluntary organisations face increased costs, including transport, supplier and materials costs, and rent—the most significant costs are energy and staffing. The Scottish Council for Voluntary Organisations reminded us that the sector provides public services. It advised that

“voluntary organisations employ more than 135,000 people, which is 5 per cent of the Scottish workforce.”

The Poverty and Inequality Commission explained the impact on volunteers. It told us that

“volunteers who were offering to drive to deliver packages and care support to people can no longer afford the fuel”.

On the consequences of single-year funding on advice services, the Child Poverty Action Group said that

“short-term funding means that they cannot take someone on and train them up, because by the time they have done that, the funding will be over and the person will have had to leave.”—[Official Report, Social Justice and Social Security Committee, 22 September 2022; c 22, 25, 28.]

The Scottish Government has acknowledged that the sector needs stability of funding and the opportunity for longer-term planning and development. The Cabinet Secretary for Social Justice, Housing and Local Government advised us that the Government has adopted fairer funding practice, and that it is committed to increasing multiyear funding, with multiyear settlements as the default wherever possible, which is a welcome step forward. We will, of course, follow progress to see whether that approach is having the desired impact on the sector, as we are aware that other grant funders also need to deliver multiyear funding.

Before I come to the end of my speaking time, I would like to cover homelessness. Having a place to call home is an important aspect of an adequate standard of living. Following publication of the budget, Shelter Scotland raised concerns that funding for homelessness services had been frozen and that funding for the delivery of new social homes had been cut, impacting on the Scottish Government’s international obligations on the progressive realisation of rights.

We asked the cabinet secretary about that. She clarified that funding

“for the affordable housing programme remains at £3.5 billion.”

However, she recognised that that translates to a real-terms reduction from the previous budget, which, the cabinet secretary noted, is due to the

“impact of high inflation”

and

“a 3.4 per cent real-terms reduction in our UK Government capital allocation between 2022-23 and 2023-24.”—[Official Report, Social Justice and Social Security Committee, 19 January 2023; c 15.]

However, the cabinet secretary did highlight that the Scottish Government was taking “steps to mitigate” the impact. On funding to eradicate homelessness, the cabinet secretary hoped to have two clear purposes—a reduction in the use of temporary accommodation and the prevention of homelessness—which would bring about a “sharper focus”. Again, we will continue to scrutinise progress in that area.

In conclusion, we have used our scrutiny to ensure that the Scottish Government’s budget takes account of low-income households and the impact of poverty and related preventative actions.

We acknowledge that this coming year’s budget is set against a very challenging fiscal context, not least because of the current cost of living crisis. It is essential in times such as these that the budget works to maintain the right to an adequate standard of living for the people of Scotland.

16:24  

I am pleased to give an overview of the Net Zero, Energy and Transport Committee’s scrutiny of the 2023-24 budget. The main backdrop to our work has been the committee’s inquiry into the role of local government and its cross-sectoral partners in financing and delivering a net zero Scotland. That was the inquiry’s title, which is almost as long as the inquiry was. It started in November 2021 and touched on almost every aspect of net zero delivery at local level. It provided a really useful primer for our budget scrutiny this year.

The inquiry report came out on Monday, and I urge all members to have a read of it—or, at least, its executive summary, which is just two pages long and gets straight to the point. In it, we say:

“Scotland will not meet its ambitious target of being net zero by 2045 without a more empowered local government sector, with better access to the skills and capital it will need to play a full role in this energy revolution”.

To be clear, that means that councils will need additional core resource to help to meet the costs of transition.

There will be a chance to debate that report, so I will move on from it to touch on three issues that we highlighted in our pre-budget scrutiny. The first is public transport. A fair fares review is being undertaken, covering pricing for all main modes of public transport. Our budget letter expressed concerns that the review had a low profile and that its timetabling and outcomes were unclear.

We asked for more clarity on all that and on what resources the Scottish Government anticipated setting aside at the end of the review to achieve the significant modal shift away from car use that we all want. The Cabinet Secretary for Net Zero, Energy and Transport’s response was perhaps clearer on the first point than on the second. Last week, we sought to tease out the discussion further in a public evidence session with the cabinet secretary, and it was helpful to have clarification that the pilot scheme to be run under the review to remove peak fares on trains will apply only to some services and not nationally.

The cabinet secretary reminded us that buses—not trains—are by far the most widely used form of public transport, but the bus sector has been struggling, especially since the Covid pandemic. The committee acknowledges the resource that the Scottish Government has put behind the sector to help it to see out these difficult times. However, we want to be assured that there are policies in place to ensure that the sector not only survives but thrives in the longer term, not least because we will need a strong bus sector to help us to decarbonise transport. Whether we are there yet is not clear. For instance, councils are clearly still some way from making use of their new power to run local bus services. I am sure that the committee will want to keep an eye on that over the rest of the parliamentary session.

Besides the local government inquiry, the other main evidential source for our pre-budget scrutiny was the committee’s snapshot inquiry in late spring last year on energy price rises. At the time, the outlook looked very bleak indeed, with truly frightening forecasts being made of the bills that householders would have to pay by the end of the year. If matters seem just a little less bleak now, I hope that that is due in part to the call that the committee and others made last year for a clear, decisive and confidence-restoring intervention by Government—principally by the UK Government, although the Scottish Government has had an important role to play, too.

Home insulation is an important and largely devolved area. In our pre-budget correspondence, we set out our disappointment at the apparent lack of urgency in escalating retrofitting and insulation programmes in response to the fuel crisis. The underlying issue is the overall heat in buildings strategy and how to pay for it, which is another issue that our local government inquiry touched on. I suggest that the Parliament will need to return to the issue in greater depth during this parliamentary session.

Finally, and very briefly, I draw the Parliament’s attention to the committee’s work in seeking to commit the Scottish Government to greater transparency on the carbon footprint of the national budget, so that we, as parliamentarians, can make a more informed decision at this time each year. There is no doubt that this is tricky and technical work, but, to paraphrase John F Kennedy when he announced the Apollo missions, we do this not because it is easy but because it is hard—or, rather, we ask the Scottish Government to do it. To its credit, it has undertaken to do so, albeit rather guardedly. I give an undertaking on behalf of the committee to hold the Government to that commitment over the course of this parliamentary session and to ensure that progress is made in that really important area.

16:30  

As the Finance and Public Administration Committee, we have quite a focus on the budget for a fair part of the year. At the risk of repeating what I have said in previous years, the Scottish budget must be as fair as we can make it and meet as many needs as it can, but it must also be affordable, so it can never meet every need as we would, ideally, like it to.

In the first place, I very much welcome the effort to increase our resources so that we have more to spend on vital public services such as the NHS and local government services. I welcome the income tax increases, which add just 1p to the 41p and 46p rates.

The UK tax system is far too complex and inconsistent. As long as national insurance remains separate and regressive, and as long as income tax, corporation tax and capital gains tax are not more closely aligned with one another, we will get inconsistencies and artificial behaviour to avoid tax, such as people who are really employees becoming companies in order to pay less tax. As the Deputy First Minister said at our committee meeting on 10 January, such behaviour may be legal but it is also “morally wrong”, because people who live in Scotland benefit from things such as the policy of no university tuition fees and better early learning and childcare, and they should therefore be paying more tax for those advantages.

Most people do not choose which country to live in on the basis of which has the lowest tax. They look at overall quality of life, they want to have a sense of community and, obviously, they want to be close to family and friends.

Although income tax is fairly progressive, which is welcome, our property taxes are not so progressive. That point was made by Professor Anton Muscatelli and the expert panel. I welcome the increase in the additional dwelling supplement from 4 per cent to 6 per cent. It is only a 2 per cent change, but it can help to swing the balance towards first-time buyers and away from second-home owners and those who buy to let, which has to be a good thing. I bought my flat when I was younger, as, at that time, did many people who were on fairly ordinary wages and salaries. However, it has become increasingly hard for younger people to purchase a home, and we need to do what we can to help them.

It is probably worth saying at this point that, in November, the committee had a very useful full-day conference with the Royal Society of Edinburgh on taxation in Scotland, and good papers on taxation have been produced by the Institute for Public Policy Research and others. I strongly believe that we need to get the general public more involved in discussing tax and where we, as a nation, want to go. Do we want to have lower taxes and to see public services decline as a result? Alternatively, do we want to have high-quality public services, with higher taxes to pay for them?

While I am on the bigger picture side of things, I should mention the fiscal framework. I very much welcome the fact that it is being reviewed. I know that we signed up to it fairly voluntarily, but it seems to me that it is fundamentally biased against Scotland. We cannot really compete with London and the south-east of England, so we will keep losing out unless the framework is changed.

Finally, I come to the Scottish Parliamentary Corporate Body budget. I was very concerned by the proposal that the budget for the commissioners and the ombudsman should increase by 8.1 per cent. On top of that, we heard that there are calls for the number of commissioners to increase to 14. We need to remember that that money is being taken away from actual services. Every £1 for the commissioners is £1 less for front-line services.

My final point is about MSPs getting a pay increase of 1.5 per cent. I think that that is reasonable in the circumstances, and I very much welcome it.

Overall, we would all like to do more than this budget can do. However, our room for manoeuvre is limited, and I think that it is a very reasonable and realistic budget in the circumstances and that it should be supported.

16:34  

I welcome the committee’s budget report, and I thank our clerks and our special adviser. I also thank the convener for his level-headed—at least, most of the time—approach to the task in hand. It is an important one, not just because budgets are always important but because this one is set against circumstances that are much more difficult than usual.

Next week’s stage 1 debate will see us all taking party political stances on the budget, but today’s debate is much more about the key issues that have been raised during evidence sessions. Central to those is the ambition to raise increasing amounts of revenue while at the same time improving Scotland’s productivity and tax take. That will require addressing the issue of the number of people in the working population as set against the total population, which means having policies to encourage people back into the labour force after the pandemic and addressing the large number of people who have never worked at all.

That raises questions about what the public expects and should expect of the state. I am sure that Mr Swinney will agree that the Scottish Government cannot be expected to do everything.

At this point, we should note the received wisdom of many economic commentators and of key business groups such as the Confederation of British Industry that we are in desperate need of more highly paid jobs. That point was raised during the event with the Scottish Fiscal Commission yesterday. Scotland is far too prone to having a low capacity for economic growth, and, as we heard yesterday, that could lead to serious issues in the future.

That concern about economic growth raises a tension that a couple of conveners have mentioned. How do we find a balance between our commitment to a green economy and ensuring that the traditional industry can perform well enough to provide high-salary jobs? There are also questions about which policies will best encourage future investment in our industries. Financial services, renewables, energy and high-tech manufacturing are the areas most in the running to produce those highly paid jobs.

On the basis of estimates that have been provided to us, the committee has also discussed the issue of behavioural change. My colleague Michelle Thomson has rightly said several times to the committee that behavioural changes are important to economic policy, and the committee has been asking how we can measure behavioural changes. John Mason referred to the increase in the additional dwelling supplement from 4 to 6 per cent, which might produce extra revenue and protect first-time buyers, as is the intention of the Scottish Government, but behavioural change in that area is causing other issues. Scrutiny of this budget has raised many issues around behavioural change.

The convener rightly expressed our concern about the timescale for public sector reform and the lack of detail that we have received about previous announcements by the Scottish Government. It is important that we get some clarity. Kenny Gibson was right to say that that is a major issue, because it impacts so heavily on the Scottish budget.

It is also interesting to note the comments by a few stakeholders about the principle of having three-year budgets, which would give a bit more certainty for planning ahead. Many of our stakeholders need some certainty about how they might be able to spend their money.

Ms Smith, I must ask you to conclude.

I am on my very last line, Presiding Officer.

I again pay tribute to all the stakeholders for their input to our scrutiny, and to the convener. I look forward to hearing the other speeches.

16:38  

It is a pleasure to follow my FPA committee colleague and to hear contributions from everyone who has spoken today. It is refreshing to have light rather than just heat. Many very valuable observations have already been made about the committee’s report, so I shall simply make a few additional observations.

One of my biggest concerns is the flat capital budget. The Scottish Fiscal Commission points out that that is a real-terms cut of £185 million due to a lack of UK Government funding and the impact of inflation. I again emphasise that capital funding is vital for investment in long-term infrastructure improvements and for research and development spending. Typically, Governments will borrow to invest, yet in that matter the Scottish Government has significant restrictions where the UK Government has none. Our unbalanced devolution provides full powers to cut spending but vastly inadequate powers to borrow in order to invest.

I want to raise an issue regarding the data that we have on the Scottish economy. In some areas, such as inflation, we are entirely reliant on Office for National Statistics data for the UK. In relation to understanding our economy, we also have inadequate data on the differential impacts of policy by gender, which is an issue that the Deputy First Minister will know that I continue to pursue with some vigour. In other words, if we are to see more strategic and long-term financial planning, which the committee has rightly called for, it would be purposeful to have all the data that is needed for us to do so. Therefore, rather than a focus on measures that serve no specific policy-making purpose, such as “Government Expenditure and Revenue Scotland”, I would welcome a focus on identifying areas such as the Scottish inflation rate and how our economy serves women as well as men.

There are other areas that could benefit from additional focus. For example, in giving evidence to the committee, Professor Sir Anton Muscatelli pressed the case for serious thought to be given to ensuring that growth results in an increased tax take. One aspect of spurring growth is that it will do more to encourage entrepreneurship and, in that regard, will do much more to support women entrepreneurs who face structural barriers. With that in mind, I look forward with interest to the forthcoming report by Ana Stewart and the tangible Government actions that I hope will arise.

Last week, at the University of Glasgow’s Adam Smith event in Parliament, the Deputy First Minister talked of the importance of empathy and understanding the concerns of others. Smith also wrote of the importance of the rule of law. None of those things is served by the extent of corruption in the UK, where, each year, hundreds of billions of pounds in criminal assets is allowed to be laundered through the City of London—that is vastly more than the entire annual budget of the Scottish Government.

Former chancellor Nadhim Zahawi has been exposed yet again today, with more revelations about his tax affairs and the threatened use of abusive lawsuits to silence Dan Neidle. Even worse, thanks to openDemocracy, we now know that the Treasury under Rishi Sunak helped Putin’s Prigozhin, when supposedly under sanctions, to mount a targeted legal attack on a London journalist.

There is a financial cost to corruption and a lack of ethics, and it does not just remove money from our gross domestic product. Ultimately, it results in fewer doctors, teachers and nurses, and it presents a risk to Scotland’s global brand of probity.

16:42  

As others have said, the current context is by far the most difficult in which a Scottish Government has had to set an annual budget. At this point last year, inflation was running at around 2 per cent, the UK Government had cut the Scottish block grant by just over 5 per cent in real terms, and we were rightly describing that budget as the most challenging yet in the devolution era. However, that time feels like the good old days when compared with what has transpired in the months since.

Fair pay for public sector workers is now one of the biggest challenges that the Scottish Government faces. To be absolutely clear, I note that the Scottish Greens believe that all workers—in the public, private and third sectors—deserve pay rises that are at least in line with inflation. However, with inflation rising above 10 per cent, a real-terms budget cut from the UK Government and an extremely limited set of tax powers, it is just impossible for the Scottish Government to deliver that level of pay increase without paying for it with devastating service cuts and job losses. It would cost around £2.5 billion. That is more than twice what had to be cut in last autumn’s emergency budget review. I think that I am safe in saying that the Scottish Greens have the most radical tax policies of the parties in this Parliament, but even our proposals for existing tax powers would not raise close to the amount of money that would be required.

The Scottish Government has made painful decisions in order to fund the fairest possible pay offer to public sector workers, both in decisions to reallocate in this year’s budget and in decisions in the draft budget for 2023-24. However, until this Parliament has the financial powers of a normal country, the only ways to fund fair pay without catastrophic cuts to services are for the UK Government to deliver pay awards to public sector workers in England that are enough to generate adequate consequential funding for Scotland, or for it to give the Scottish Government funding to make up for the damage that has been caused by inflation in-year.

The Finance and Public Administration Committee wants more forward planning from the Scottish Government. However, public sector pay is an example in which some of us have sympathy for the challenges that the Government faces. It is certainly not ideal for the budget to have been published without an accompanying public sector pay policy document, but it is understandable, given that current pay disputes have not yet been settled. I respect the right of unions to negotiate and demand as they see fit, but to me the situation presents a strong case for multiyear pay settlements to become the norm, for the purpose of forward planning.

The relationship between tax and spending has always been challenging. Perfectly understandably, plenty of organisations engage with the budget process to demand additional funding for themselves, their priorities or their sector. However, very few groups propose where that money could come from. I therefore commend Unison for its submission to our pre-budget scrutiny, which included a range of proposed savings and tax changes. I agree with most, but not all, of them. Some are long-term reforms that could not be delivered in the next couple of years. However, it was a credible set of progressive proposals, which absolutely helped to shape the debate on tax policy last autumn.

I hope that the Government will respond positively to the committee’s encouragement that it revisit the previously proposed national discussion on tax. The public deserves high-quality debate on how public money is raised and spent. However, as the convener noted, we are locked into an annual pattern of every sector just demanding more money—a bidding war that grossly oversimplifies how our public finances actually work. Worse than that, it makes it impossible for members of the public to distinguish between deliberate choices that are political, which they have a right to criticise, and those that are the inevitable result of external factors or limitations on the powers that are available to us.

Significant contributions are being made to the wider debate, such as the Scottish Trades Union Congress’s tax paper, which was published shortly before the budget. That paper is relevant to the committee’s other major conclusion on tax reform—about council tax—which neither aligns with the aim of having a progressive tax system nor gives councils the flexibilities and the financial resources that they need. It is a bit comical for a tax system to be based on valuations from 1992. That is two years before I was born—and I am on my second session in the Parliament. The Scottish Government and the Greens have a shared commitment to changing the council tax. I look forward to seeing progress towards that during the coming financial year.

I look forward to what I am sure will be a more robust and ideological debate next week, but I am glad that we have this opportunity ahead of that to discuss issues of process and substance on which a broad consensus can be achieved.

16:46  

The Finance and Public Administration Committee heard much evidence from economic experts on their views on the budget, both for this year and for future years. I, too, take the opportunity to thank them for their time in considering what are complicated issues. I also thank the committee clerks for, somehow, distilling our conversations into the excellent report that we are debating.

The report flags many areas of concern that the Government needs to address in the coming months. However, let us start with a positive. The Scottish Fiscal Commission has advised that the resource funding in the Scottish budget is set to increase by £1.7 billion, which equates to £279 million in real terms—the largest-ever core resource block grant. However, that is just about where the positive news ends.

These are certainly challenging times and we still have many uncertainties, which are highlighted by the report. Even at this late point in the financial year 2022-23, the devolved Government has no real certainty over how this year’s budget will be balanced, or about the impact that that will have on the 2023-24 budget.

When the resource spending review was published in May 2022, we had been told that public service reform was key to providing a balanced budget. We were told that digitisation was key, that public sector innovation was key, that the reform of the public sector estate was key and that improving public procurement was key. However, nine months on, we are still no clearer about when those reforms will be delivered and what they will mean for our public services, or about the impact on our finances if they are not carried out.

We knew that reform meant a reduction in jobs to pre-pandemic levels. We can all guess where the axe will fall if we exclude health services from the reduction in the head count. It will, yet again, fall on local government—the easy target for the Government. Local government is under increasing pressure from the budget. I understand that the finance directors of all 32 local authorities have written to the acting finance secretary, outlining their concerns.

At committee, I often ask the Deputy First Minister about the Government’s commitment to early intervention and prevention. To be fair, I always get back warm words, saying that those are absolutely key. However, again, I see no evidence of that in the budget. More and more local government funding is ring fenced, so that when it comes to cuts it will be our sports grounds that are cut, which will add to obesity and a greater health bill in future years. It will be community centres that are closed, which will lead to social isolation and poorer mental health. It will be education that is cut, which will lead to a widening attainment gap, and social programmes will be cut, which will lead to increased crime and a larger justice bill in the future.

Short-termism is a theme that runs through the committee report—in particular, when it comes to building growth and productivity in Scotland. In his evidence to the committee, Dr Mike Brewer described the budget as being

“predominantly focused on dealing with the short-term challenges that are posed by the rising cost of energy and food.”

Professor Muscatelli stated in the same evidence session that the national strategy for economic transformation

“must be pursued with vigour because it is aimed at genuinely lifting business investment and productivity.”—[Official Report, Finance and Public Administration Committee, 20 December 2022; c 14-15, 10.]

I am concerned by the lack of focus on growth in this year’s budget and by the short-termism that is at its heart.

In previous debates on the budget, I have said that you can tell a Government’s priorities by what it commits finance to. In this budget, we can see only real-terms cuts—education and skills budget cuts, housing budget cuts, rural affairs and islands budget cuts, enterprise budget cuts and Police Scotland budget cuts. This is a short-term budget, from a short-term finance secretary in what, I hope, is a Government that has a short-term future.

16:50  

I welcome the opportunity to contribute to the debate as chair of the Scottish Commission for Public Audit. The SCPA’s main role is to scrutinise Audit Scotland’s budget proposals and accounts. Last Friday, we published our report on Audit Scotland’s budget proposals for 2023-24. Unusually for the SCPA, we did not make a recommendation that the Parliament approve the total budget.

Audit Scotland describes itself and its role as providing

“politicians, decision-makers and the public with assurance and information about how public money is spent”.

That is more important than ever at a time when public spending has risen sharply in response to the pressures on public services.

In the case of Audit Scotland, though, who audits the auditors? Who provides that scrutiny and assurance about how the public money that is allocated to Audit Scotland is being spent? That is why the SCPA was established, under the Public Finance and Accountability (Scotland) Act 2000. The SCPA provides that scrutiny of Audit Scotland and, in turn, reports its conclusions to the Parliament. By Audit Scotland, we mean the agency that provides the Auditor General for Scotland and the Accounts Commission with the services that they require to carry out their respective duties. Its budget comes from two sources: fees that it charges to audited bodies, and funding that comes from the Scottish consolidated fund and is approved by Parliament.

The SCPA met in December to consider the Audit Scotland budget proposals, specifically the

“£12,050k of Parliamentary approved funding which represents an increase of £563k from 2022-23.”

That figure could be broken down and attributed to six different factors, but I will focus on just a few.

Looking at the increase in fees and expenses paid to external audit firms that undertake work on behalf of Audit Scotland, the SCPA was keen to understand more about what was driving up costs. The budget proposal states that those fees will increase by 56 per cent in 2023-24, equating to £2.55 million. After receiving further evidence, the SCPA noted that the previous fees were unsustainable. It noted the increase in regulation around auditing and that the fees were

“consistent with an ... costing and benchmarking exercise.”

In relation to fees charged to audited bodies, we sought an explanation for the variation across sectors in fee uplifts, in particular in relation to the further education sector, where the average fee increase is 57.5 per cent. Audit Scotland explained in evidence that the fees that it charges audited bodies are informed by the outcome of the procurement process to appoint external audit firms, and that the increase in fees is most acute in the further education sector, due to the size of the organisations and the baseline costs required to deliver an audit compliant with the code of audit practice.

The SCPA was content with the rationale and explanations for most of the proposed increases in funding. Where we had difficulty was in understanding the rationale for a proposed £278,000 increase in support for the Accounts Commission. The commission’s function is to hold councils and other local government bodies in Scotland to account, and it is supported in its work by the staff of Audit Scotland. We noted that the Accounts Commission had already created and was about to fill a full-time role for a controller of audit. The commission also said that it required more staff for analytical work, stakeholder engagement and providing a refreshed website. The SCPA was keen to understand the drivers and assessments for the new post and the associated work.

It was explained to us that the Accounts Commission felt that it should be making more impact and had decided to initiate a change programme. After hearing evidence and requesting additional information, we still found ourselves in the position of not being able to reconcile the asked-for budget of £278,000 with the need for that budget. We needed more substantive detail about the assessments for the work and its budget, and did not feel that a case had been made. We came to that position against the backdrop of the current economic outlook, the cost of living crisis and the difficult choices that are being made on the Scottish budget in seeking the most efficient outcomes in public spending. That is an unusual position for the SCPA to find itself in. We are required to examine the proposals from Audit Scotland—

I must ask you to conclude, Mr Beattie.

—and to report on them to the Parliament. On previous occasions we have recommended approval of the proposals as part of the budget. We simply draw the attention of the Parliament to our concerns on the provision of what we see as being insufficient detail on part of the proposals.

I call John Swinney to wind up.

16:55  

May I first take a moment to reflect on Mr Beattie’s point? It is an important one, but I cannot say much about it because it concerns a parliamentary matter. However, the unusual subject matter that Mr Beattie has had to raise is one that the Parliament needs to reflect on. It is a matter not for the Government but for the Parliament, and it is one that it needs to take very seriously indeed.

There is a technical aspect, which is that, although the Auditor General reports to the Parliament, the Audit Commission reports to the Government. There is a dual role in place on that technical point.

I am seeking not to get hung up on that technical point. Mr Johnson will understand that it is a rather invidious position for me to be in to be commenting about the auditors. I am simply pointing out to the Parliament that it needs to take seriously what Mr Beattie and the SCPA have put on the record.

Liz Smith made the most revealing comment of the whole debate when she said that in today’s contributions we have looked at the substance, the scrutiny and the evidence, and in next week’s we will get into the party politics. I therefore ask members to forgive me if I pay slightly more attention to what some colleagues say today than I will do next week. That is a little warning.

As he regularly does, Mr Mason gave the Parliament some pretty sobering warnings about the importance of the hard choices that are involved in the budget process and also in the reconciliation of difficult questions about tax. I welcome his support for the tax stance that I have taken.

Mr Mason’s speech was followed by that of Douglas Lumsden, who made a strong argument for more funding for local government but did not offer a single scrap of evidence as to where that money was to come from. That just passes the usual test of contributions from the Conservatives on such questions: it is empty rhetoric.

In his contribution Mr Greer recognised the importance of the budget making provision—as we have had to do by adaptation and amendment in this financial year—for the challenge of public sector pay. On the concerns that I hear from members about the fact that the Government is not yet in a position to confidently set out its route to balance in this financial year, I say that it is not for the want of trying. It is also a measure of the scale of the difficulty and the challenge that the climate of surging inflation represents for us.

There are three principal themes to the Government’s budget. I will reflect on each of them in responding to members’ contributions.

First, in relation to the attack on child poverty, Michelle Thomson made a significant comment, reflecting on the Adam Smith legacy event, that it was important to have empathy for others—to walk in their shoes. If anyone needed to understand that, the contribution that Natalie Don made to the debate—in powerfully setting out the arguments made by the Social Justice and Social Security Committee, and the emphasis on the sustained measures on tackling child poverty—was an important example of such empathy and of understanding such challenges, which her committee has done in focusing on the position of low-income households. It also relates to the point that Claire Baker made about the importance of sustained investment in employability. I am glad that in next year’s budget we have been able to improve the available resources for employability despite the interim cuts that I have had to make this year.

I turn to the theme of net zero. Edward Mountain set out—as did Finlay Carson—some of the inherent challenges in the journey towards net zero but also the necessity of making those commitments. The Government believes that we have put in place, with regard to capital expenditure in particular, the type of support that is necessary in that respect.

The third principal theme of the budget is sustainable public services. Gillian Martin, on behalf of the Health, Social Care and Sport Committee, reflected on the importance of the budget settlement for the health service and on the investment in social care.

Audrey Nicoll, on behalf of the Criminal Justice Committee, reflected on the difference between the budget settlement and the resource spending review, and on the fact that the Government has listened carefully to the challenges to ensure that we properly invest in the criminal justice system and meet its challenges.

Ariane Burgess made clear, with regard to the local government settlement, the importance of the investment that we have made and the need to ensure that that is sustained in the period to come.

In concluding, I will reflect on a couple of other contributions. The first is a point that Siobhian Brown made in relation to the Covid recovery activity. I reassure Parliament and the COVID-19 Recovery Committee, as I did last week, of the importance that we attach to mainstreaming the thinking behind the Covid recovery strategy across the Government’s programmes. One of my priorities in the budget has been to do exactly that.

Lastly, Clare Adamson made a powerful point—

Will the member give way?

Very briefly.

I am sorry—I tried to catch Mr Swinney just before he came to his last point.

The Net Zero, Energy and Transport Committee was very keen to find out the carbon cost of all the decisions that we are making. Is the Deputy First Minister prepared to reiterate the agreement that the Government will work to, in getting to net zero, regarding the actual cost of the carbon in terms of the money that we are spending.

I might wish to pursue that discussion with Mr Mountain in due course. My feeling would be that what we publish in relation to the carbon assessment should fit his requirements, but if it does not, I am happy to explore that further, because the issue has to be resolved. I think that we are doing enough in that respect, but I will happily explore the matter further.

Clare Adamson made an important point about the relationship between the amount of money that is spent on cultural investment and the disproportionate impact that that has on our society and wellbeing. If I did not know that point already, I would not have been listening to Fiona Hyslop, who for many years, as the longest-serving culture secretary in the Parliament, used to beat me into submission in budget agreements with that very argument. I pay warm tribute to her for that. It is an important point, and I assure Parliament of my sympathy with that view. I reiterate that I want to ensure that we do all that we can to support investment in our cultural sector, recognising that, in the tough times that we are living in, people need to enjoy and appreciate the importance of investment in the culture that makes us who we are as a society.

17:03  

I am pleased to be closing this afternoon’s debate on pre-budget scrutiny on behalf of the Finance and Public Administration Committee, as the committee’s deputy convener. It has been an excellent debate, and it is an important opportunity for us all to tie together the work of our various committees and focus collectively on the priorities that are undoubtedly seen through the budget.

I also pay tribute to the clerks. If there was one thing in Douglas Lumsden’s contribution on which I think that we can all agree, it is that they do an excellent job of weaving together the multiple different lines of questioning that we provide into something that looks far more coherent and robust than the raw material might suggest.

I also want to thank the members of the committee. As we heard during the speeches today, although we might have different perspectives, we have a shared approach, which is about ensuring that the implementation of tax policy is fair, robust and progressive, which John Mason talked about, and looking at how money is spent and what its impact is, which we heard about from the convener and from Michelle Thomson in her contribution on data. One of the key focuses of the committee, bearing in mind our public administration brief, is the need for clear strategies and plans as a framework to marshal spending.

One of the most important aspects of our shared view—on an on-going basis and in this afternoon’s debate—is that we must have a goal of increasing prosperity in Scotland. Ultimately, that has to be one of the fundamental purposes of Government, and that must be seen in the budget.

I want to briefly point out that one of the more obscure responsibilities of our committee is that of scrutinising the Scottish Parliamentary Corporate Body budget. This year and last, we have considered a number of issues around project spending and the costs that are attributed to Parliament. The scrutiny of the parliamentary accounts and budget proposals is an important function of our committee.

On the SPCB budget, does the member have any thoughts on the staff cost provision that is awarded to MSPs, relative to the Parliament’s wider staffing budget for the year ahead?

That raises an important point. The committee considered the fact that the rate of inflation is way ahead of the pay settlements that are being offered across the public sector, including the Parliament. I am concerned about the difference between the settlement for parliamentary staff and members’ staff. Perhaps the committee could consider that as part of its scrutiny in future years, and we might also think about hearing from staff representatives and trade unions as part of that scrutiny. I hope that that covers the member’s point.

I thank members of various committees for their speeches, in which there were overarching themes, including the squeeze on public finances, the choices that that leads to and the approaches to that. Like others, I will highlight Clare Adamson’s speech, because it covered those points comprehensively. She highlighted well the hardship and difficult decisions that cultural bodies are facing as a result of the current situation. That point was also highlighted by others, including Ariane Burgess, with regard to the housing budget. Of course, the issue also affects private sector employers through the decisions that the Government is making in terms of the levies that are being applied to them. This is undoubtedly a difficult time.

Clare Adamson also highlighted the need for innovation when approaching matters. That touches on the points that Mr Mason made about the need to have balance. We will need innovation, and we will need to consider that carefully. I urge members of the various committees to think about the substance of that point. We all agree that we need alternative approaches—that is undoubtedly true—but, until we get into the detail, we cannot see the difficulties around that in practice.

In its deliberations, the committee considered two particular points in relation to the approach. One was about looking at cross-portfolio impacts and preventative spend. I thought that that point was addressed excellently by Siobhian Brown and Natalie Don. If we are going to tackle poverty, that must be done on a cross-portfolio basis. However, as Clare Adamson pointed out, we must also look at the wider impacts of spend, such as cultural spend.

That point is hugely important, which is why the committee spent so much time examining the national performance framework. Earlier this year, we published the findings of our inquiry into the NPF—our “Report on the National Performance Framework: Ambitions into Action”—in which, as we have done in other reports, including one that we published this week, we indicated that there must be a clearer link between spending decisions in the budget and how those impact the delivery of those national outcomes.

At times of fiscal constraint, it can be tempting to discard frameworks and plans such as the NPF. However, I think that, in such times, those frameworks and plans become ever more important, as they enable us to prioritise spending on the areas where it will have most impact. That point was brought to life by members very well.

Likewise, Clare Adamson and other members have brought to light the importance of multiyear financing and having clear patterns of funding. We highlighted that point in our pre-budget scrutiny report. In response, the Scottish Government said:

“It is challenging to identify in a meaningful way the individual annual impact of multiple budget lines on the delivery of longer term, complex national outcomes.

We are instead developing an approach centred around multi-year programmes, the associated outcomes and the annual spend profiles attached.”

We were unclear about precisely what that will involve, so we sought more detailed information. It is clear from members’ contributions that that is very important.

I will touch on Sue Webber’s contribution. The committee undertook work on the financial memorandum on delivering 1,140 hours of early learning and childcare. We see clear evidence of why a multiyear approach and clear patterns within a framework are needed—otherwise, there might be outcomes that are contrary to those that are intended. We should note with concern the reduction in the number of settings, especially in the private, voluntary and independent sector. That serves as an example of why robust multiyear funding and clear funding formulas are needed.

I want to highlight Gillian Martin’s contribution, as her remarks on the health budget are particularly important in bringing things together. Although the health budget might well be facing very clear issues—we are all aware of those—there is learning and innovation to be found in that sector. On her points about data and the need for more robust monitoring and evaluation, that will be absolutely critical if we are going to use our budget in innovative ways to deliver more in uncertain times. That tied in very well with Michelle Thomson’s contribution.

The committee also made comments about net zero and climate change, and the need for greater clarity. Our work on improving our efforts on carbon budgeting will be on-going. That touches on points that Edward Mountain raised.

Capital spending remains important. We welcome the Government’s commitment to bring clarity by providing information on the classification of functions of government—COFOG. That might be a bit of a niche point for other members, but that is very important for transparency.

Finally, I want to touch on the proposals for the national care service, given the interest that the Finance and Public Administration Committee and many other committees that are represented in the chamber will have in that. The 2023-24 Scottish budget does not specify what level of spend has been incorporated into the relevant budget line for the establishment of the new service, so we found it difficult to determine whether the amount allocated in next year’s budget reflects the figures of between £60 million and £90 million in the related bill’s financial memorandum. We welcome the Deputy First Minister’s commitment to provide a revised financial memorandum, but we express our concerns about the lack of clarity in the budget.

I thank all members for their contributions to the debate. I look forward to the stage 1 debate on the Budget (Scotland) (No 2) Bill next week, which might have a somewhat different tenor and tone. We will hear more about the Scottish Government’s plans, and I am sure that we will hear a response to those.