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I will ask officials to come in on the pilot.

It is fair to say that pay negotiations are quite often not just about pay; other elements relating to terms and conditions will be brought in. The four-day week has become far more of a live issue, not least because people’s ways of working have changed. Many more people work from home. I go back to Michelle Thomson’s point about productivity. It is not just the public sector that is looking at the issue; some private businesses are looking at it, too. Essentially, if staff can maintain or improve their productivity over four days rather than five, why not give that flexibility to them? The issue is current, a lot of employers are considering it and there is the public sector pilot. Does Alison Cumming want to give an update on that?

The leadership role sits with each cabinet secretary to look at all the programmes in their area, check them against the core missions and consider how far they go in delivering the objectives. We then look collectively at all that and think about what the picture tells us and what decisions we should make in the light of the challenging financial outlook and the need to reduce poverty, deliver on net zero, have sustainable public services and ensure that our economy is as vibrant as possible. We need to work through all that, with the initial phase being the leadership role that each cabinet secretary applies to it.

We are still in discussions with His Majesty’s Treasury about a suitable date for publication of the report. As it was jointly commissioned, we will obviously need to agree jointly the publication date, but we are committed to publishing it. There is no question about that—it is just a matter of when.

We are in the foothills of those negotiations; they are imminent, and we have been having correspondence backwards and forwards to try to shape the discussion. I am keen to be as open as I can, but I am mindful that the negotiation is quite tricky. We have our asks, and the UK Government will no doubt have its asks, too. However, I give a commitment that I will try to provide the committee with as much information on the detail as quickly as I can.

In 2022, the Scottish economy grew by 4.9 per cent compared to 4.1 per cent in the UK. The latest ONS data—it is not just the SFC that says this—show that earnings are growing faster in Scotland than they are in any other part of the UK. I think that the annual growth to April for median earnings was 9 per cent in Scotland and the next highest was 8 per cent.

Scottish earnings are forecast to grow faster than those in the rest of the UK. As you mentioned, the SFC forecasts that average earnings will grow by 4.6 per cent this year, compared to the OBR’s forecast of 4.1 per cent for the UK. The SFC will have done a lot of detailed analysis of the Scottish economy, and we should have confidence in its forecasts.

Let us look at the tax data. I keep coming back to that because it is hard evidence—it is what we know. The provisional in-year pay-as-you-earn tax data for the first 11 months of 2022-23 suggest that growth in Scottish PAYE income tax receipts has outperformed that in the rest of the UK. That is not a forecast; it is actual evidence.

We are not being complacent—we have to keep an eye on the situation—but there is cause for some optimism.

Of course, but any forecasts always have an element of risk and caution. The HMRC data show a trend in actual, here-and-now evidence that gives us some cause for optimism that the forecasts will show that trend continuing. However, we cannot be complacent.

NRS and Scottish Water were set the same challenge as other public bodies—that of ensuring that they can live within their budgets, which are under strain. They therefore need to drive their own efficiencies and consume their own smoke, if you like. However, they also need to improve outcomes, and that is quite a challenge.

Scottish Water has carried out a huge programme of efficiency and reform. NRS is similarly focused on digital opportunities. They were not forced to do that, but they have had the leadership in their organisations to recognise the need to do that. We need to make sure that that work progresses at that pace, not at the pace of the slowest. There is an organisation that brings together the leadership of all the public bodies, and work is being done to share that best practice and to ask, “How did they do it? What did they do? How can we do it?”

Public bodies know that there is no option, given the financial outlook, other than to make sure that they get on with the reform that they need to do. It might look a bit different in each organisation, but some of the principles are the same, and that work needs to be done at pace.

Ultimately, ministers will have responsibility for oversight to make sure that that happens at pace. I have talked in bilateral meetings with my colleagues about the need for pace here. Ministers are aware of the need to ensure that every organisation gets to the point of being as efficient and productive as it can be and having the best outcomes for the people it serves.

I will start with the capital funding point. You are right—it is an extremely challenging capital outlook at a time when we want to be investing in the infrastructure, so it is the worst time for capital budgets to be cut. I remind the committee that our capital funding is expected to reduce by 7 per cent in real terms between 2023-24 and 2027-28. Of course, Barnett funding is by far the largest element of the Scottish Government’s capital funding envelope, so it is essentially dictated by those decisions. It is indeed hugely challenging. As the MTFS explains, the challenges in the capital funding outlook mean that it may be necessary to prioritise borrowing capacity in the coming years, potentially at the expense of longer-term capacity, so we have difficult decisions to make about how we manage our way through that. Of course, we will have to set all that out and we will do so.

On the wider point about productivity, we have now appointed a chief economist, Gregor Irwin, who gave an excellent presentation in a pre-Cabinet discussion about many issues such as prospects, GDP and earnings growth, and increasing productivity is an important part of that. The NSET has also recognised that and what needs to be done. All that is critical.

On how we go forward, we publish progress updates on the delivery of capital investments twice a year; I think that one is due soon. The updates cover all the infrastructure projects over £5 million and all the programmes over £20 million, and they will show the importance of and variation in those infrastructure investments. We will come back to the Parliament to set out how we will manage through constrained capital funding going forward. I am sure that the committee will take a close interest in the detail of that.

In addition to what I have just said, we are looking at all our programmes through the lens of the core missions. There are more than 500 programmes. We will consider how each programme will help us to address those core missions.

You are quite right about the increase in social security spend beyond the block grant adjustment. I make no apologies for that; it is the right place to invest money, given the cost of living crisis and our need to lift people out of poverty. However, we also need to be able to afford that, which will mean that some difficult decisions will have to be made. I cannot give you any more details because that work has not been completed and I would like to present it in the round.

The other pillar is growing the economy and the tax base. Data was published this morning that shows that there is cause for optimism there. For example, according to HM Revenue and Customs data for May 2023, which was published alongside the labour market statistics, there were 2.44 million people in payrolled employment in Scotland last month. That is an increase from April 2023, 56,000 more people than in February 2020—pre-pandemic—and 28,000 more than last May. That is a good barometer for income tax. There is some cause for optimism that that will feed through to a more positive tax reconciliation position, which would be good.

We need to do all of that. We need to ensure that our spend is focused where it needs to be, that we grow the economy and therefore the tax base, and that we have a fair and proportionate tax system. As we have said, we support progressive taxation whereby those with the broadest shoulders pay a bit more. That has brought in much-needed revenue to the budget. Had we not made those changes in Scotland, our public finances would be considerably less. All those issues must be looked at in the round.

The single island authority idea has come from the local authority and public sector bodies in the islands. They came to us and said, “We’d like to go ahead and scope out how this could be done in a different way, but we need you to be on board,” and we have said that we are on board. We need to work through the detail, clearly, but we absolutely want that innovation, fresh thinking and reform. That will be a really interesting one to watch.

On council tax, I am sure that you are aware of the joint working group that we are involved in with the Convention of Scottish Local Authorities, which is looking at local government taxation generally and broadly. Some progress has already been made on the issue of second homes and empty homes. The group will also have the space to look at council tax reform, albeit that it is a longer-term ambition to get that right and to get it agreed.

The working group provides a forum for those discussions to take place. It is also set against the backdrop of the new deal for local government. Part of that is about the fiscal framework, which is being worked on. A partnership agreement has to come first to set out the principles, and that will be announced soon. The fiscal framework will look at how local government budgets will be taken forward. I think that it is no secret to say that what we are talking about in that regard is more flexibility and working with local government on revenue-raising powers. One of the latest such powers is the visitor levy, which local government was keen to have. Councils can choose to use or not use that power. That shows that our direction of travel is to empower local government with more flexibility and more levers.

With regard to the external tax stakeholder group, it is important that we hear from a range of stakeholders. We will send out invitations imminently. The views of that group will be quite broad and will range from a desire for us to go further by using tax levers in a progressive way to a desire for us to be more constrained with tax levers. It is important that we hear a range of views. Ultimately, the Government will have to come to a view and, when we set out our stall on our tax proposition for 2024-25, it will take all those views into account. We will look at the pressures on the budget, but also at the need for fairness in taxation and the need to land in a space that balances all the competing demands.

As soon as we send out the invitations, I will be happy to furnish the committee with the detail of who will be on the group and the meeting schedule over the summer. It is my intention to have a series of meetings over the summer and in the lead-up to the budget.