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The Scottish Fiscal Commission’s sustainability report was about where we would be by 2072 if things did not change, rather than what the allocations might be.

Jamie Halcro Johnston made a point about population displacement, and I think that you touched on it as well, cabinet secretary. It is a real issue. Arran, in my constituency, has the demographic profile that the SFC predicts for the whole of Scotland by 2072. It is important that we do not look at Scotland as one unit; we need to look at island and rural Scotland differently. It would be helpful if rural funding allocations for housing were spent and, indeed, if deliberations over them did not take three years to progress, as they have done in my constituency.

I have one further question. John Mason and one or two others touched on the issue of decluttering. We have Westminster, Holyrood, local government, health boards, integration joint boards, community planning partnerships, three enterprise agencies, region and city deals, 150 non-departmental public bodies and an increasing number of commissioners. A national care service board is also going to be established. You mentioned a presumption against new public bodies, but, surely, the Scottish Government has to be much more ambitious about decluttering the public sector. You talked about overlap, but there must be overlap, duplication and confusion. I do not think that there is anyone in Scotland—I would be surprised if there was anyone—who knows how all of those fit together and work. I suggest that the Scottish Government address that. Will the Scottish Government give greater priority to that?

Good morning, and welcome to the 25th meeting in 2023 of the Finance and Public Administration Committee.

There is one item in public on the agenda, which is an evidence session with the Deputy First Minister and Cabinet Secretary for Finance on the sustainability of Scotland’s finances, as part of our pre-budget scrutiny. The session will also cover evidence that we heard earlier in the year on public service reform.

Ms Robison is joined by Scottish Government officials. Dr Alison Cumming is director of budget and public spending; Dr Andrew Scott is director of tax and revenues; and Ian Storrie is head of local government finance. I welcome all of you to the meeting, and I invite the cabinet secretary to make a short opening statement.

Thank you. I thank the Deputy First Minister for her responses. It has been a real shift—almost two and a half hours. I congratulate you on your stamina. Unfortunately, despite the myriad questions, we did not touch on non-domestic rates, we did not really get into AI or data, and we did not really talk about public procurement or, indeed, council tax reform. I hope that you and your officials will look at the evidence that has been submitted by witnesses and deliberate on it as we move forward. I thank you once again for your answers, which are greatly appreciated by the committee.

That concludes the public part of the meeting. We will consider a report on the sustainability of Scotland’s finances and public service reform in private at our meeting on 31 October. We will now move into private session to consider our work programme. We will have a two-minute break to allow the Deputy First Minister, her officials and the official report to leave.

Indeed, but that is less than one third of the increase in social security spend. Do you accept that, if you are reducing money in other areas of public expenditure, that will, paradoxically, have an impact on people who are in the lowest quintile for household income, as they are the people who are most likely to depend on those services?

The Federation of Small Businesses welcomed the £15 million that is going to be committed to help entrepreneurs. However, that is not even one tenth of 1 per cent of the Scottish budget. There is an issue of balance if we are going to retain and attract the people who will pay the taxes. What came over strongly from witnesses was that it is not necessarily about increasing taxes; it is about broadening the tax base. If more people earn more, they will, therefore, pay more. Will the Government look again at the balance in the public resources that are going in to boost those sectors where we will get a disproportionate return in the economy?

I suggest that, in the UK and Scotland, most of the additional revenue comes from fiscal drag caused by high inflation rather than anything else.

Capital is a critical area. At First Minister’s question time last Thursday, I raised the issue that, according to the Auditor General, the UK Government is going to cut Scotland’s capital allocation by 7 per cent in real terms over the next four years. That is obviously a major issue. Our witnesses—for example, Scottish Financial Enterprise—talked about how critical it is to improve Scotland’s infrastructure not just on the ground, with bridges, harbours, roads and railways, but in the digital space. Last year, when your predecessor, John Swinney, looked again at the budget and the commitments that had to be made due to the need to meet wage increases, some money was actually taken out of capital. As all witnesses have suggested, capital is essential for economic growth. Given that public sector capital is likely to be scarcer in forthcoming years, will the Government commit to ensuring that capital is not switched to resource but is invested exactly as it should be? The Government went to the Treasury to get permission to do that, but I hope that it will continue to invest capital as it should be invested.

Thank you very much for that very helpful opening statement, and good morning to you.

We have taken a lot of evidence on the matter so far. Most of the questions that I will ask will reflect the responses that we have had.

You talked about the challenges that we face, the difficult decisions that are being made, and your discussions with the United Kingdom Treasury and Government. On the discussions in Scotland, as well as those wider discussions, the Fraser of Allander Institute said in its evidence:

“There will have to be discussions and decisions made about whether there will be increases in tax, reductions in spending or prioritisation across different programmes.” —[Official Report, Finance and Public Administration Committee, 19 September 2023, c 1.]

Where are we in those discussions?

That is big of you. Thanks.

Scottish Financial Enterprise and Professor Bell have provided evidence to the committee. Professor Bell said:

“if Scotland does end up with higher tax rates than other parts of the UK, that will be seized upon by those other parts of the UK whenever potential inward investment opportunities arise in an attempt to ensure that they do not come to Scotland”.

He went on to say:

“the impression that is given, not just the tax rates themselves, matters quite a lot, too.”— [Official Report, Finance and Public Administration Committee, 19 September 2023, c 7.]

What is your view on that?

You touched on universities; I will ask about them next. In its evidence, Universities Scotland said that we still punch well above our weight in Scotland. For example, about 13.25 per cent of research and development spend is in Scotland and, of course, we have only about 8.2 per cent of the UK’s population. However, that spend has declined from about 15.4 per cent in recent years. Universities are of the view that, if we want to continue to outperform the rest of the UK and, indeed, encourage new business start-ups, which will lead to more people being in work in highly skilled jobs and paying more of the taxes that we require to fund our public services, we need to invest more in research and development start-ups and innovation.

As the convener of the cross-party group on life sciences, I am aware of the example of a significant company that moved from Dundee to Cambridge because there had not been enough investment in lab space. I am also aware that Heriot-Watt University is looking for similar investment in order to advance its artificial intelligence research. Again, that is because it is threatened with competition from Cambridge. It is doing well against Cambridge and other parts of the UK, but it wants us to continue to have that advantage. We win some and we lose some: we have actually attracted businesses from Cambridge, so it is not a one-way street.

How are we going to ensure that public sector investment continues and that investment is not just left to the private sector? Universities have said that their research—I am sure that the Scottish Government has access to that—shows that every £1 that is spent in research and development creates a further £8 of investment in the sector. What are we going to do to continue to leverage that and increase it? All the economists who speak to us say that, if we broaden the tax base, we will have more people with higher salaries who pay more tax, and that will fund the public services that we all want to see.