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I will work constructively with the UK Government on every issue of importance to the people of Scotland. On business and other support, the difficulty that we face right now is, to put it bluntly, a complete lack of clarity about what is happening. One example that has a direct impact on local areas is green ports and freeports—and I am saying this just down the road from the Port of Cromarty Firth—and our problem in that respect is not a lack of constructive engagement but the fact that we are just not getting a solution or any resolution. We, like the Welsh and Northern Irish, had been hoping for a resolution of the issue in the March budget, but it did not come. The same applies to the levelling up agenda and any funding that might come through that.

The issue is less to do with constructive engagement and nearly everything to do with a lack of clarity. A newspaper headline last week, I think, suggested that we had rejected millions of pounds, which was news to me. For the most part, there is just a complete lack of clarity or engagement. Indeed, if you have engaged with any local authorities, you will know that they find engaging with the levelling up agenda to be a bit of lottery. They do not know whether they will get money or even what the precise process is. I will engage constructively, but it helps to know precisely what is happening and not to get pulled in at the eleventh hour.

I think that there are three issues in that regard. The first is the lack of clarity, which I mentioned. The lack of clarity on how some schemes are operating or will operate, and on how communities, local government and others will access them, is extremely unhelpful. Even before I get into the territory of saying that the UK Government should not interfere in devolved areas, there is the fact that we are faced with trying to prioritise a lot of infrastructure projects, such as hospitals and roads, which are important to communities, as I have already said.

The lack of clarity means that some of these communities and local authorities do not know whether they will secure capital funding through these alternative routes. I can think of an example with transport infrastructure in my local authority area: the local authority is considering going after the levelling up funding and it is also lobbying us for funding. What do I do? Do I allocate that funding, not knowing whether it will get funding from an alternative source, but knowing that, if it does get funding from an alternative source, that money could be used for another community? That lack of clarity is making our financial decision-making process extremely convoluted, and it is not giving communities and local government the certainty that they need.

The other element of that lack of clarity is about fairness. Again, when it comes to local government, the point about fairness is right at the heart of the methodology. I cannot announce any schemes or funds without COSLA, telling me, rightly, that the money should be shared equally across local authority areas. If one local authority area is getting substantial additional funding through the levelling up fund, and the others are not, do I use the funding that I have to compensate the others, or do I still share it equally? Will those local authorities that have not secured funding be content with that?

The second issue, which is really important, is that, right now, it will not, in any shape or form, compensate for the loss of EU funding. The assumption that it will is totally flawed. I am speaking to you now from the Highlands—an area that has benefited disproportionately from EU funding because of its rurality, deprivation levels and transport distances. Levelling up funding and shared prosperity funding will not compensate for the loss of that EU funding. The additional complex routes to funding, where it is, in essence, a lottery, will make that even worse.

The third point is that I do not believe that that funding will be additional. In the last budget, the UK chancellor talked at length about the additional capital spend on infrastructure across the UK and, in the same breath, announced a budget for Scotland that saw our capital budget cut by 5 per cent. I posed the question—well, my counterpart in Wales posed the question—to the Chief Secretary to the Treasury, of whether all that capital will be additional or whether we will see a net decrease in our budget as it is redeployed to alternative routes. The silence has been deafening, but what we saw in last year’s capital budget was that the increase in UK-wide spend saw a decrease in the Scottish Government’s capital budget. That means that that money will be spent on pet projects or whatever the UK Government chooses to prioritise. There is an actual tangible impact on our capital budget, which we spend on schools, hospitals and roads.

Those are my three primary concerns: first, the convoluted process and lack of clarity are undermining the certainty with which we can make plans, leading to increased unfairness across Scotland; secondly, it is no compensation for EU funding; and thirdly, there will be an equal and opposite decrease in the Scottish Government’s budget, which goes directly on hospitals, roads and so on.

Trying to ensure that we have sufficient budget for commitments is clearly an issue that dominates my attention. Social security is no different. We must try to ensure that we are cutting the cake of funding in a way that is fair.

I do not think that anybody could disagree that, as we emerge from the pandemic, some individuals and sections of society have been more exposed to its impact than others. Inequalities have been exacerbated.

Just as my job is to try to help businesses through this tumultuous time and give them the support that they need, in the same spirit, helping families through is one of the reasons why we wanted to help local government to freeze council tax and ensure that there was more money in people’s pockets. Clearly, the social security system must help people who need help, when they need it, with a view to helping them to get back on their feet or at least to tackling child poverty.

It is not a concern, in that it is important to do, but we ultimately need to ensure that the funding is in place. When it comes to the budget—I am sure that I will be in front of the committee again in the not-too-distant future to talk about it—we have choices about what to prioritise. We cannot create new money, so what do we prioritise within the budget that we have?

I regularly engage with the UK Government, and I firmly believe that one of the most powerful levers that we have when it comes to economic recovery is capital investment in infrastructure. It creates jobs, it supports businesses and it is good for our local communities. It is a triple win as far as I am concerned.

Our primary source of funding is the UK Government. That is the primary means by which I am trying to secure additional capital, and capital is now one of the areas of greatest risk when we look at the future, because of the unionisation of spend under the United Kingdom Internal Market Act 2020. It is an area on which I continue to press for additional security and certainty, with a plea that we invest in infrastructure over the coming years as a way of recovering well and recovering better.

Yes and no, but the most important ingredient is the UK Government’s spending review. Last year, as I said, we proceeded with a capital spending review even though we did not have a capital spending review from the UK Government. There is a lot of inherent risk in that, because the UK Government is our primary source of funding.

When it comes to our own resource spending review, we are undertaking internal work right now to develop a sustainable, multiyear financial plan. I know that it is of great importance to local government as well as other bodies, including the NHS, to be able to plan on a multiyear basis, instead of lurching from year to year. For example, third sector organisations often want multiyear commitments from local authorities and cannot get them.

That internal work is on-going. We have not taken a final view on a publication timeline, because so much depends on whether the UK Government publishes its own comprehensive spending review in the autumn. Once we have more clarity on that, I will fulfil our commitment to set out a framework in advance of a spending review and to engage with the committee, as well as stakeholders more widely, to inform that final document.

Yes—those matters are always a concern, in the sense that they are among the many variables that we are dealing with as we try to manage our budget. I have said already that this year’s budget feels extremely challenging, because there is the need to remobilise our services, and there is the need to deal with the on-going Covid implications. There are a number of multiyear pay deals being negotiated, and we are also dealing with what is probably a more challenging outlook of funding from the UK Government, which will, we hope, publish a multiyear comprehensive spending review.

The biggest impact of inflation lies in trying to understand what our costs will be and whether there is sufficient budget to deal with those costs. This is not to sound like a broken record, but I have limited powers to increase capacity when it is needed. For example, if inflation was to rise considerably, meaning that our budget does not go as far as it needs to go, I cannot suddenly increase it. To take our capital budget and the affordable housing programme that Kenny Gibson talked about at the outset, trying to budget for that and trying to understand what the costs will be is where I am most challenged. The UK Government or any Government around the world that is dealing with fluctuating costs of that sort can make the appropriate changes either to borrowing or to other areas, but all that I can do is to cut the cake differently; I cannot increase the size of the cake to deal with increased costs.

When it comes to pay deals, workforces will be looking for adequate recompense for their labours, and there will be inflationary implications. Inflation is a very important reference for pay negotiations. If UK Government pay is flatter, we obviously do not get additional consequentials from that either.

I am sorry that that was a very long and waffly answer, but there are quite a few ways in which inflation has an impact. We are monitoring the matter carefully.

There is a lot in that question, so I will take each point in turn. The bottom line is that the primary way of increasing public revenue in order to fund our public services is through broadening and increasing the tax base. In order to do that, we need to maximise the number of people in fair, well-paid secure employment. I am sure that the SFC made that point in relation to its updated forecast.

There are primarily two ways of doing that. My primary concern is an economic subsidy over the next 10 years that deals with the structural challenges of productivity and maximising the number of well-paid jobs. In addition, although we are—I hope—heading for significantly lower unemployment than we perhaps feared, a lot of businesses are saying that they are struggling to recruit. Many of them formerly relied on European Union labour. Without the staff, most businesses cannot grow and develop, and individuals are not earning and are therefore not paying income tax.

First, therefore, we need to ensure that our economic strategy for the next 10 years has a laser-like focus on the areas where we want growth and development and economic recovery, and secondly, we need people. First, we need to focus on ensuring that as many people as possible who are already resident in this country have the right skills for those jobs, but we also need to ensure that we have an attractive immigration policy. So many sectors just cannot recruit right now because of their previous reliance on EU labour, which is no longer materialising.

In terms of what I am actually going to do, those are the answers. First, we need a long-term economic strategy that deals with structural issues such as productivity; that is what I intend to do in the economic strategy that is due to be published in the next few months. The second focus is immigration and attracting to this country a workforce that is able to fill roles in order to allow businesses to trade profitably and to enable people to pay income tax.

It is one of my greatest headaches, because last year we were deeply concerned that the UK Government could go right up or down with the funding that we receive. Bear in mind that consequentials emerge only from the money that is actually spent, and not the money that is announced.

Last year provides an important comparison. If the UK Government were to announce X hundred million pounds for the Scottish Government to spend on business, we would immediately be under pressure to spend it, but that amount from the UK Government could then be changed, after we had given the money over to business. Therefore, midway through last year, the UK Government implemented the guarantee, which was just to say that the amount would not be revised downwards. Unfortunately, that guarantee has not been extended to this year. That means that money that is announced could actually be clawed back, and, in the past, it has often been clawed back, as late as February or March in the financial year. Because I have to balance my budget to the penny, by February or March I will already have confirmed that, for example, teachers or businesses will get a certain amount of money. I am then left having to repay some of that money to the UK Government late on in the financial year. Clearly, I do not have the capacity in a fixed budget to suddenly create more headroom, once we have already confirmed that that money is being spent.

That happened the year before Covid. In February 2020, we got confirmation that, despite all the money that had been announced for us during the year, the money that we were going to get was less. That meant that I would have to repay some of that money—and that meant that it was capital—very late in the financial year.

I cannot afford to hold money back—businesses need it and public services need it. Our citizens need that money to be spent in the health service and in remobilising the justice system. Equally, in the back of my mind, I have the fear that money that is announced will be revised down, as has already happened in education; I think it was £25 million pounds that had been previously announced that was clawed back in May.

It is easier to handle that if it happens earlier in the financial year, but if it is in February or March, it is almost impossible. We cannot borrow—we cannot suddenly create additional money to pay it back.

It is a case of reconciling forecasts with outturn. At the beginning of the year, the SFC will forecast what it thinks we will receive in non-domestic rates. We plan what we will spend on public services on the basis of that forecast, but forecasts are just forecasts. The outturn—the amount that we receive in non-domestic rates—could be higher or lower. It is a balancing account, so we need to manage it and ensure that we can meet our commitment to spend £X million on the health service, for example. At the end of the day, it is just a forecast on which we base our budget, not the actual amount of tax take.

Absolutely. Those issues have been raised with the UK Government, and I will continue to raise them. I will also raise them directly with the banks. We have a good and constructive relationship with the banks in Scotland, and I think that they have been quite helpful through this crisis. However, the real test comes now, as people face a wall of liabilities. The question is how banks will help businesses through the next few years when repayment of bounce-back loans, CBILS loans and so on will be required, as it is already being required.