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I was pretty explicit about the need to grow the economy and making that link directly into fiscal policy and the need for the tax base to expand and grow. The national strategy for economic transformation sets out the economic plan, and we need to look at issues—such as childcare, which I mentioned earlier—in terms of how we help those who are either not in work at the moment, or who are in low-paid work or have hours that are not sustaining their household budget. Childcare is one of the key elements.

We will continue to make progress and there are positive signs in terms of gross domestic product. I do not know whether you saw the Scottish Development International figures for inward investment. There is a strong base there to work from, but we need to make sure that that translates into our tax revenues. The latest forecast of the net position for income tax in 2023-24 has also improved, rising from £325 million at the time of the Scottish budget to £411 million in the latest forecast. Although that does not have any impact on spending power, it is encouraging as we develop our strategy to ensure the fiscal sustainability of the Scottish budget, and we need to do more.

Clearly, how the fiscal framework works and how all the moving parts of the framework deliver what we have to spend within our budget is relevant. I set out earlier why having more levers under our control is important. That would help us to smooth some of the peaks and troughs that inevitably happen around all those moving parts in terms of when they land and what money is available for us to spend.

There are encouraging signs that income tax performance is improving, but we should not be complacent about that and we certainly want to make sure that we continue to see growth, so that there is a net positive benefit to the Scottish budget.

NSET has set out how we will grow the economy in the key areas of growth. We also need to focus on, for example, employability and skills. The Withers review is showing the way forward on a much more coherent offer to people on skills development and upskilling.

Some huge areas of growth are coming in the green economy. We need to ensure that those opportunities reach everybody and are open to everybody, so we have a lot of work to do on employability.

There are some really good programmes for people who are in low-paid jobs, not just people who are not working. There are people who are in insecure employment and are being supported into more secure, better-paid employment. That is also an important part of what we need to do.

There is not one easy answer; all those approaches are important.

Each public body will now be responsible for ensuring that it has the right size of workforce to deliver what has to be delivered, and that that workforce is affordable. As I said earlier, we recognise that areas such as social security and the health service keep growing, for all the reasons that we understand.

Yes.

No—that is not what I said. I said that we will create the headroom that we will need to enable us to progress our policies. What I do not know, though, is what else might transpire on the block grant in the future, and whether there will be changes to the outlook or to consequentials. Those are all additional elements that could be factored in, but we cannot assume any of them so we must, on that basis, set out what we know and how we will manage the fiscal position in the future.

The point that I am making is that there are things that we do not know that might have material impacts on what we set out. We need to manage that: impacts could be positive or negative. All I am saying is that that is a material factor. If we can set out our plans and say that we will do A, B, C and D but we then get to the autumn statement and something changes in a negative way, that will clearly have an impact on what we have set out.

I will make that point. The uncertainty does not help; it is really challenging all round. I commit to engaging with the committee as early and as much as I can, through the budget setting process for 2024-25.

There are two roads that we could go down. We could increase ministerial decision making over what local government spends its money on and increase ring fencing, or we could give local authorities more fiscal flexibility in deciding whether to spend more money on ASN teachers or other areas that they see as being priorities. We are at a crossroads, and those are the two routes.

My view is that giving local authorities more flexibility in their budgets will allow them to set the priorities for their local areas. Local authorities might well want to prioritise ASN teachers. However, we cannot have it both ways. In Parliament, we quite often hear calls for local government to have more flexibility in its funding, but there are then calls for ministers to be held to account for, for example, the number of ASN teachers or staff in each local authority area. We have to agree some fundamental principles, which will be set out in the partnership agreement and the fiscal framework.

On the overall local government settlement, I do not want to diminish the challenges that local authorities face, but we have to recognise that we have increased the resources that are available to local government in 2023-24 by more than £793 million. That represents a real-terms increase of £376 million, or 3 per cent. However, inflation and pay deals are impacting on local government in the same way as they are impacting on the Scottish Government, so we included £100 million in the budget to help local authorities with the pay deal for teachers.

It is not easy to wrestle with those things. There is no easy answer—if there was, it would have been done. We are at a crossroads, and my view is that giving local authorities more financial flexibility in how they spend and raise their money is a better road to go down than increasing ring fencing and Government direction.

I will maybe ask my officials to come in on that. The NDR is a hugely important and core part of local government funding, so we need to make sure that it continues to bring in much-needed resourcing. We have a strong package of reliefs, which is worth an estimated £749 million in 2023-24. Of course, there will be an important balance to strike on where we go with NDR in the future. That is why a consultative group has been brought together, under Tom Arthur, to look at how we go forward with NDR.

I assume that the 10 per cent increase is related to growth. Is that something that we should get back to the committee on?

As I said earlier, the lens that each programme will be examined through is the lens of the core missions. Do our programmes reduce poverty? Do they help to grow the economy in a sustainable way? Do they help us to reach net zero? Do they sustain the public finances? There will inevitably be a bit of political oversight of some of that. We will work through all of that.

On business taxes—you spoke about NDR—I mentioned the sub-group that is looking at NDR, which Tom Arthur is chairing. I guess that there is an opportunity to look at whether the supports are the right supports. Are there supports that need to be more focused? What does the business community itself feel and want as regards the priorities? Not everything is a priority and not everything can be agreed, so we need to get a sense of what the key priorities are and what delivers from the point of view of sustaining small businesses, which are the bedrock of the Scottish economy, and our key sectors.

All of that will be worked through. As I said, one of the key asks from business has been around maintaining the lowest poundage in the UK, which has been an important support for business.

At the end of this process, we need to reach a position that is balanced, that delivers on all those key objectives and that is affordable. Some quite challenging decisions will have to be taken. There are many asks of Government, from every stakeholder and every part of society. We need to land that in a space that is fair and consistent, and that achieves the objectives that we have set out.

There are also issues with regard to the use of the reserve and so on. We do not envisage air departure tax being part of the discussions. The issue of VAT and assignment has been around for some time, and a lot of work has been done on some of the challenges with assignment.

I would describe assignment as very challenging. Where assignments have no direct relationship to Scotland’s economic performance, we are really looking at a kind of statistical exercise, and that has inherent risks. We would be very loth to take all the risks without having any of the policy levers, so those discussions are on-going.

To be fair, the UK Government recognises the complexity of the issue and the risks. Therefore, we are trying to find a way forward that does not provide just another area of difficulty, and I am hopeful that we can get some agreement on that.