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We need to do a range of things, which are set out in the national strategy for economic transformation. First, we have to have clear and effective regional economic strategies and measures in Scotland, so that all parts of the country have distinctive approaches that best address the needs and circumstances in different localities. The investment that the Government has made in funds in the north-east of Scotland to support the transition of the oil and gas sector is an important example of that. It is an indication of us taking tangible, practical steps to put in place regional economic strategy mechanisms.

In the south of Scotland, we have a distinctive south of Scotland economic strategy, which is led or supported by South of Scotland Enterprise and with which the Government actively engages. That is about enhancing some of the opportunities in tourism and the leisure environment and in the productive capacity of the food and drink sector. Those are just some examples relating to regional economies.

Secondly, we have to invest in the activity on tech development in Scotland. For example, we have the investment in the tech scalers programme, which has been commissioned from CodeBase and has now been rolled out in different parts of the country. The convener referred to that in his initial question. Investment in the capacity of the tech sector is important.

Thirdly, we have to engage substantially with and enhance the already developing collaborations between the university research sector and the business community. We are in a much stronger position today than we were five or 10 years ago, as a consequence of that approach. Universities have responded magnificently to the challenge, and they have opened their doors much more effectively to the business community, which has been much more engaged. I am optimistic that that work will be undertaken and will be effective.

My final point is about the Fiscal Commission’s assessment of what lies ahead. Obviously, this is an annual budget process, so we look at snapshots of information for this financial year and the next financial year. The Fiscal Commission has to do something slightly different; it has to look at the individual year-by-year performances, but it also has to give a sense of its expectations on the direction of travel. Its expectations about the direction of travel on earnings growth in Scotland are very different for the period going forward as compared with the period that we have just gone through. That is an indication of the progress that we can expect to make on productivity.

The first thing that I would say is that I do not consider our position to have a discernible effect on middle-income earners in Scotland. Essentially, the steps that we are taking are affecting individuals who are in the top two quartiles of the population in terms of earnings. We are concentrating the measures that we are taking on the top two quartiles—we are not discernibly affecting middle-income earners. [John Swinney has corrected this contribution. See end of report.]

My second point is one that I made in response to questions from the convener, I think. When people choose to live in Scotland, they know that they are gaining access to a much wider range of public service provision and opportunities than would be the case if they lived in other parts of the United Kingdom. I will not rehearse all the details, but we have the policies on free personal care, tuition fees, early learning and childcare and prescription charges. We have made certain choices that are available to members of the public in Scotland, and I think that that will feature in the judgments and decisions that individuals take.

Lastly, I think that people make judgments about a range of factors relating to where they live and work. From a variety of different perspectives—whether the social contract that I talked about, quality of life or access to facilities and services—Scotland is a very attractive place for people to live and work in and that will be reflected in the judgments that individuals make.

The Government may well take forward changes to the public body landscape but, fundamentally, organisations have to take forward their plans within the resources that the Government has made available and by taking account of the principles that have been set out in the Covid recovery strategy, the resource spending review and the budget document.

It is about how we, as a society, operate and utilise our resources. In that respect, I am thinking principally about our use of transport. Transport is a significant factor in the journey to net zero, so changing our activity in that regard is a significant factor in the exercise. There are wider issues to do with resource use and the steps that we all take to ensure that we do as much as we can to support the net zero agenda.

We are working hard to resolve outstanding pay deals. We find ourselves, for example in the context of the health service, in a situation in which some unions have accepted a deal and some are yet to accept a deal. We continue discussions, obviously, and we are trying, to the greatest possible extent, to avoid industrial action. Obviously, there are some other workforces with which we are yet to reach agreement. I simply reassure the committee that we are working actively in dialogue to try to address all those questions.

The difficulty that I face in this financial year is that, as I have reported to Parliament and reinforced to the committee today, I am yet to find a path to balance in this financial year that I can be confident about. That means that the offers that we have made available for this year with the resources that are available are essentially the best that I can make available in this financial year. That is a material factor in those discussions.

Obviously, we will continue our dialogue with the relevant trade unions, but I am significantly constrained. If, for example, I were to offer more money for a particular pay deal in this financial year, I would have to find that money, and that would simply add to the total that I am still trying to resolve in this financial year. There is a real cash pressure.

The one caveat is that the United Kingdom Government has yet to set out its supplementary estimates. I do not know what will come out of that process. As I said, I expect that to be within the next six weeks or so. Obviously, if any relevant issues arise out of that, I will advise the committee of that.

It is pretty clear that every health service in the western world is under colossal pressure. Scotland’s health service is no different but, as has been rehearsed on countless occasions—Liz Smith’s colleagues vigorously resist this point being made but I will make it again—although Scotland’s accident and emergency performance is not as good as we would want it to be, it is better than that in other parts of the United Kingdom. That is one example of how the delivery of public services is better in Scotland than in other parts of the United Kingdom.

Let us take schools as an example. When I became a minister, 63 per cent of pupils in Scotland were educated in good or satisfactory school buildings. That figure is now more than 90 per cent. I am very proud of the investment that we have made in the school estate. Young people are being educated in much better conditions than was the case before with higher expenditure per capita in education than in other parts of the country. I know that this does not suit the narrative of some people in Parliament but, in my experience, young people are getting a fabulous education in Scotland. Yes, it is disrupted because of industrial action, but I cannot spend money that I do not have on pay claims that I cannot afford. I have been candid about that point.

On transport, the Government has invested significantly in expanding the rail network and expanding electrification programmes. We have put in place concessionary travel schemes for older and younger people. The use of the young people’s concessionary travel card has been phenomenal. It has given young people much more mobility and flexibility.

Those are some of the things that people in Scotland are experiencing that are all to the good.

I cannot give a definitive answer, so I had better write to the committee on that. I am obviously looking very carefully at the interaction with the supplementary estimates, which might well have an effect. I suspect that we will have a better idea of the position by the middle of February, when we will be at quite an advanced stage of the budget scrutiny process here. It is unlikely that a spring budget revision will be brought to the Parliament before the conclusion of the budget process—stage 3 of the budget bill—but I will confirm with the committee in writing when I have a better idea of the position.

I am constantly looking at what steps I have to take. I am not doing another emergency budget review, because I have done one already, but I am constantly looking at how to find a path to balance the budget, because it is my legal duty to balance the budget, and I have quite a number of variables to consider. We are not at the end of the financial year or the end of the road yet. We have a long way to go on that, and there are a lot of variables, not least of which is the supplementary estimates from the UK Government.

My point is that I might have a notional allocation of a sum of money to meet a pay deal, but if I do not balance the budget, that money does not exist.

It is important that we do not just consider this as a question about why I chose 1p, because we have already taken a decision on 1p. This is where Professor Roy is absolutely right to say to us that the Government has to make a careful judgment about the degree to which tax divergence happens.

I have to make a balanced judgment—which I am confident in when it comes to the budget that I set out to Parliament in December—that the scale of difference in tax, when considered alongside the scale of difference of the delivery of the public propositions in Scotland around the social contract and the attractiveness of Scotland as a place to live and work, is in sufficient balance to justify the measure that I took.

To go further might take us into territory that would create some wider difficulties for the Scottish tax base and I need to be mindful of the importance of sustaining the Scottish tax base at all times.

We have commitments in the Bute house agreement to take forward discussions on the reform of the council tax, and we will pursue that. There is also the local visitor levy bill, which will come to Parliament, but that relates to an additional form of local taxation.

The Government obviously gives consideration to sources of taxation. However, a point that is relevant to some of the issues that the convener raised with me earlier is that, if we were to develop any new taxes, we would have to seek the consent of the UK Government to introduce them. It is not something that we can just take forward under our own steam.