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The spending review outlook on capital is very difficult—full stop. That is because there is a real-terms reduction in capital in the spending review. We cannot escape the fact that that has a flow-through to every part of the public sector; it is on a downward trajectory.

There are some anomalies in local government’s capital position. There has been one-off capital funding of £40 million for ScotWind, and funding of £20 million will continue for 2026-27. However, local government knew that that funding was not guaranteed. We are now profiling flooding funding in a way that more realistically reflects how it will be spent, because that funding was continually being underspent.

On top of that, we are trying to find imaginative ways of growing the envelope. I have been keen to open the prospect of accelerator deals with individual local authorities. That prospect will depend on their borrowing capacity and their debt levels, and not every local authority will be in the same position, but the accelerator model deal that we had with Edinburgh has allowed Granton to become a major infrastructure expansion area, not just for housing but for transport and all the rest of it. We are looking at West Lothian for Winchburgh station. We are looking at the island authorities for infrastructure investment in the Western Isles, Shetland and Orkney. I am keen to have further discussions with individual local authorities about whether we could have one or a cluster of local authorities around some of those infrastructure investments.

It is about trying to grow the pot because the capital departmental expenditure limit outlook is so restricted. We have used financial transactions mainly for the affordable housing supply programme, and local government gets its share of that in housing investment. Against a challenging backdrop, we are trying to be imaginative in the ways that we are looking at expanding what we can deliver where.

First, I reiterate that I understand some of those concerns. It is important to put on the record again that the average growth in rateable value is 12.23 per cent. That is not to say that there are not some increases that are much higher than that, but the average is 12.23 per cent. We have also lowered the basic, intermediate and higher property rates, delivering the lowest basic property rates since 2018-19.

In recognition of the concerns, we have done two things. First, we are providing revaluation transitional reliefs to protect those who are seeing the most significant increases in rateable values, ensuring that the gross bills of an estimated 60,000 properties are lower in 2026-27 than they otherwise would have been. That will smooth out the increases over the next few years, rather than it being a big bang and potentially affecting the viability of businesses. There is £184 million of investment in that alone.

In addition, there is the relief for retail, hospitality and leisure premises, which is 15 per cent for basic or intermediate property rates for properties with a rateable value of up to £100,000. That is the relief in mainland Scotland—we are going further in the islands and in some remote areas, where the relief is up to 100 per cent. For the first time, retail and leisure will also benefit from that; we previously had a relief for hospitality only.

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Finally, although it is a bit opaque, you will be aware of some of the press speculation about whether the UK Government was going to move further on hospitality, given its revaluation exercise down south. The UK Government has intimated that there may be further support for hospitality. I have written again—that is now two letters—to the Chief Secretary to the Treasury to say that we need to know whether that is going to happen and, if so, whether there will be consequentials. If there are consequentials, we are looking to give further support to the hospitality sector through that process.

Taken together, we have a package of reliefs which, as I said in my opening statement, is estimated to be worth £864 million. That is substantial and I hope that there will be recognition that the transitional reliefs will go some way to smoothing out the issues for those who are facing additional costs.

You are right to point to what is a significant investment. I guess that it goes back to the point about choices; it means that we are putting—or, I should say, nailing—our colours firmly to the mast. I was trying to think of the right expression there.

We are being explicit about where we are putting capital, but it does mean that other areas will perhaps not get quite so much. The £926 million of capital funding will absolutely ensure that progress continues towards meeting the affordable housing supply programme target of 110,000 affordable homes by 2032. It is part of the ambitious multiyear investment of £4.9 billion, £4.1 billion of which is public investment over the next four years, with the other £800 million being levered in from the private sector for things such as mid-market rent. That will support the delivery of around 36,000 affordable homes, which is estimated to provide up to 24,000 children with a warm, safe home. It is a big deal, and a big investment.

We need partners to deliver that. Local government is clearly a key partner, as are the registered social landlords. We want the private sector to play its part, too, particularly in areas such as mid-market rent and build-to-rent properties, where there is clearly a demand and a market.

I would also point out that construction inflation is still impacting on house building, so we have to try to ensure that money goes as far as possible. In that respect, more homes Scotland, the new housing body that Màiri McAllan has announced, is an attempt to ensure that we extract best value for money in terms of land availability and economies of scale. There is a lot happening in the housing space that we should be quite excited about.

I understand that, and it is a fair challenge.

I will have to come back to you on that, if that is okay.

I just want to add, on flexibilities, that we have agreed that, for each and every year, SNIB will have access to up to £25 million of the Scotland reserve to deposit funding that can be carried forward into the next financial year, which will help with its cash flow.

We would expect every portfolio to be very alive both to what the organisations in it bring to economic growth and to the importance of that in relation to everything that they do.

I thought that the session with the SFC on that was interesting, because it said that it boils down to the lack of levers because of the fiscal framework—a point that you have made on a number of occasions. The SFC said that it is one of the few flexible pots of funding that we have, given the constraints on borrowing, the reserve and all the rest of it.

The SFC also said that it is not unreasonable to use the ScotWind money to smooth through that year, particularly when we look at 2027-28 and see the spending review looking like a V and then improving. If we had not done that, we would have had to make some major reductions to funding lines, including the main ones, such as local government, health and social security. That was the alternative in the absence of any other lever to smooth through that year. However, our track record shows that we have been effective in reversing out ScotWind allocations that we have made in previous years, because we recognise that we do not want to utilise that money for resource spending. We have been successful in reversing those allocations out and our intention would be to reverse as much as possible in 2027-28 for use in future years.

As I said earlier, I do not believe that the UK Government’s spending review outlook, on which we are basing our outlook, will hold in its current form, given that we are heading towards a general election in 2029. The figures for 2027-28 and 2028-29 will change, for sure, in terms of the funding available.

The choice that we had was either to smooth things out through the use of ScotWind money or to show significant reductions, which we would have to plan for now.

We have responded through the immediate spending review outlook. Indeed, it is why the fiscal sustainability delivery plan sets out efficiency savings that go quite far and quite deep in reducing corporate costs, with a reduction of 0.5 per cent over the course of the year, or around 11,500 full-time-equivalent posts. That will mean delivering services differently.

All of that will help ensure that, by the end of the period, we are in such a position that the books are balanced and the changes that need to be made in the transformation of services have been made. The public sector will be smaller at the end of that period, due to all those levers.

As for the wider, longer-term outlook beyond that, I would say two things. First, there has to be a fundamental review of the fiscal framework. I have made that point many times, and I have raised it many times with the Chief Secretary to the Treasury. Commentators in the main are supportive of our view that our levers are very constrained when it comes to smoothing out rocky periods in the flow of resource funding. It does not flow evenly, but our levers in that respect are very constrained.

The second thing is the demographic changes that are coming, which will require us to go further and faster with the transformation of services and with the use of more preventative spend to prevent people ending up in hospital and to address the exponential growth in the over-80s. All of that has to be looked at in combination with all of our front-line public services. We are really in the foothills with some of the automation and digitisation approaches, but we need to expand all that.

That would be my response: we are absolutely doing these things. All the work that is on-going in the immediate period will need to be stepped up if we are to be able to take on that demographic challenge.

We would expect the savings that are being made to be reinvested in further savings, so we would want a bit of a cranking up to happen—