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I would argue that they are not cuts. I would argue strongly that we have protected the enterprise agencies in particular. For example, we have protected the budget of Highlands and Islands Enterprise. Its spending power has been maintained. I know that there was dispute in the press about HIE’s budget falling, but that relates to its non-cash allocation. That is about budgetary cover for a depreciation of assets and accounting standards, so it is not about spending power. That was based on what HIE identified that it needed to cover the non-cash basis.

HIE’s budget has been protected. I have already talked about VisitScotland’s budget being protected. You also mentioned local authorities. There is a debate taking place this afternoon that will allow us all to air the issues in that regard, but we have protected the local government budget.

However, I concede the point that protecting spending in flat cash terms does not take into account the significant challenges around inflation. This morning, we had the announcement that, last month, the consumer prices index rose to 5.4 per cent. That is significant and substantial. I cannot inflation proof any part of the budget, because my budget is not inflation proof and these are challenging times.

I will not go into details now but, on top of that, I could cite the city growth deals for Moray, Inverness, the Highlands and the islands, all of which are contributing to economic development in one of the best bits of Scotland.

I remind members—Jamie Halcro Johnston will know this—that that question relates to this year’s budget rather than next year’s budget, which is what the committee is taking evidence on now.

I think that the First Minister has been quite open about the fact that that budget was largely identified from an overall figure of £375 million. The Scottish Government identified £200 million that could be taken largely from health consequentials, understanding that there is a health implication of us keeping Covid transmission low and that, to do that, we need to compensate businesses for being closed. There is a health element to that.

In our management of budgets, particularly in the run-up to year end, we try to ensure that every part of the Scottish Government’s budget comes in on balance—on budget—so an intensive piece of work is being done right now to manage every budget line. Within that, we have identified funding across the board—I cannot go through a list with you at the moment, beyond citing the health consequentials—that we are using to manage that £100 million impact. It will not impact specific lines that I can reference now beyond health, because that is just the nature of our budget management.

That is a good point. Gordon MacDonald will know that the enterprise agencies have their own revenue streams, although that is perhaps less the case with South of Scotland Enterprise, as it is fairly new. The agencies have portfolios that they manage and that supplement their budget positions. We are discussing what is allocated by the Scottish Government. The agencies are constantly on a journey of trying to improve the way in which they operate, support businesses, create greater business and community resilience, protect and create jobs and deliver a fair and green economy.

When the economic strategy is published—it will be soon—I want it to galvanise the enterprise agencies and provide clarity on what they should be doing. I am of the view that we cannot do everything as an economy. We need to identify our strengths, back those strengths and ensure that we have competitive international advantages rather than try to do everything moderately well.

You will have seen that the enterprise agencies have developed their own performance management frameworks. They are working together to make sure that they are better aligned. In their annual business plans, which are approved by Scottish Government ministers, set out their commitments to meeting agreed targets and milestones. Every penny that is spent on enterprise agencies has to deliver benefit to the Scottish economy. I want the enterprise agencies to perform as well as possible and to be clear in their ambitions and approach.

I do not know whether the member would like me to bring in Richard Rollison to speak about some of the other things that the agencies are doing, but otherwise I have probably covered it.

No. That absolutely needs to happen. I would like to see it happen, and I would like to work with the Scottish National Investment Bank to enable it to raise third-party funds. You will know that it is undergoing a process as part of the bank becoming Financial Conduct Authority regulated, which is a key stepping stone on the road to it being able to raise and manage third-party funds. The bank is on that journey.

The chair said a few months ago, although I think that the comment was taken somewhat out of context, that the £2 billion overall capitalisation was never enough to meet the huge opportunities. I agree, and it was never intended that the bank would manage only £2 billion. The point was that it would be able to leverage and crowd in additional funding, and that is where we need to end up.

Thank you very much, convener. I thank the committee for inviting me to the meeting.

In general terms, the finance and economy portfolio budget for next year provides £1.75 billion in total to strengthen Scotland’s economic recovery, with a firm commitment to build a net zero wellbeing economy and to protect and create good-quality jobs across Scotland. Obviously, overall Scottish Government funding for next year is significantly less than that for the current year, with Covid funding having been removed at a time when we undeniably need to invest in the economy and help public services to recover. I think that committee members will want to touch on the on-going Covid impact without our necessarily having the Covid funding to cover that. We also have on-going challenges that are presented by the European Union exit, particularly for our labour market. That means that some really tough choices have been made in the budget, because it cannot deliver the resources that all our partners need in full.

The budget will invest £635 million across our enterprise agencies, the Scottish National Investment Bank and VisitScotland to support economic recovery and transformation. We are providing £124.6 million in total for employability support for those who are most impacted by Covid and we are contributing to our national mission to eradicate child poverty. We hope that that will help businesses to tackle the skills shortages that they are experiencing particularly acutely now.

To accelerate the potential contribution that digital technology can make to the Scottish economy, we have allocated £192 million to improve connectivity and boost the digital economy. That is an increase of £48 million from this financial year, and it includes targeted support for small and medium-sized businesses.

Those are just some of the headlines. The budget is progressive, but it is also transitional, as we are working towards finalising the 10-year national strategy for economic transformation, while we do all that we can to mitigate the immediate impact of Covid uncertainty on the economy.

Alongside the budget, we have published a consultation on the resource spending review. We will publish a full resource spending review in May 2022. I look forward to engaging with the committee on the review in a way that suits it. It will be the first time in a number of years that we are able to embark on multiyear budgeting. I know that multiyear budgeting has long been a request of this committee and others to provide certainty for our public bodies, businesses and taxpayers.

The way that you phrased that question is particularly helpful. You have instantly grasped some of the challenges that we face. We have worked on a strategy for six months, and I am quite pleased with what it intends to achieve. Its objectives and evidence base are clear, and it has been heavily informed by quite a remarkable council of advisers and extensive consultation.

That said, there are, obviously, acute risks in publishing a strategy at a time when businesses are quite rightly saying that they face challenges now, tomorrow and next week, without the Government investing significant time and attention in looking at what we should be doing in 10 years’ time. That is one of the tensions. We have that tension with some of the other strategies that were due to be published before Christmas, including the retail strategy, because that is all focused on recovery.

There is a particular tension in publishing a strategy that is 10 years long. Obviously, it must take into account not only the immediate impacts of Covid, which we are well versed in, but two other elements: the long-term structural challenges that there were pre-Covid and which there will be after Covid—perhaps in an exacerbated form if we do not grapple with them—and trying to identify where Scotland can grow over the next 10 years. This week alone, we have seen a pretty substantial and significant announcement on ScotWind. There are phenomenal opportunities for our supply chain, but I am of the view that economic success is never inevitable; it comes as a result of clear targets, clear approaches and working collaboratively with business.

I hope to be able to publish the strategy very soon. I certainly hope to publish it as soon as we have emerged from the protections—the First Minister announced the removal of many of those yesterday—and we are all, including the committee and the business community, in a space in which we can continue with that. I see that as happening in a matter of weeks, not months.

You are right to say that the initial £25 million during this financial year was from Covid consequentials. That goes to the heart of comments that I made in my opening remarks about the difficult choices in the budget. There are some difficult choices on where to prioritise funding, which I am not shying away from. Areas across the board were previously funded by Covid consequentials, and we have had to determine whether they can be absorbed in our budget.

I have engaged with representatives of STERG, and we have not withdrawn our support for the recommendations in the STERG report. We have previously accepted the recommendations. I would very much like us to be able to progress those recommendations, and I am working with VisitScotland and others to see how we might do that. The door is not closed on trying to progress them with financial support, but we have not identified a specific ring-fenced pot of money in the budget to progress them.

I have been in conversation with the tourism industry quite intensively over the past month or so. There is an opportunity, particularly once all the protections are removed and tourism can function fully and trade normally. There is a real appetite to then focus back on recovery. I would like to see whether there is more that we can do on the finances to ensure that we can progress some of the early points.

The tourism industry is citing the real need to invest with confidence. That comes from marketing internationally as well as locally. We have perhaps been holding off on our commitment to invest in a big marketing campaign because of the uncertainties of the time that we are living in, particularly when it comes to international visitors. There is still a commitment to do that when the time is right, and the door is certainly not closed on identifying additional support, but that will probably need to be in-year rather than in the budget.

It sounds as if Colin Smyth and I are on the same page. It is entirely because of the huge economic challenges that we face that the total allocation across the three enterprise agencies—Scottish Enterprise, Highlands and Islands Enterprise and South of Scotland Enterprise—is the highest that it has been since 2010. In the overall budget this year, we have not just protected the enterprise agencies’ budgets, but ensured that there is funding to help them to respond to the economic challenges that we face.

I have discussed the budget allocation with each agency’s chair and chief executive, and they are planning their business activity right now. We are also fully funding the financial transactions requirements for the Scottish National Investment Bank. You cannot get away from the fact that not only have the enterprise agencies been protected, but there is funding in place to help them respond.

You talked about cuts to HIE and South of Scotland Enterprise. There are two changes to their budgets. One is removing the ring-fenced Covid funding, which I have explained already, and the second is the non-cash element that seems to be dominating discussions. Non-cash funding is not spending power. It is just to cover depreciation and accounting standards, and it is determined by what the enterprise agencies tell me they need. That is where there is fluctuation, particularly for HIE and South of Scotland Enterprise. Incidentally, Scottish Enterprise’s non-cash allocation has gone up significantly, because of the need to cover some of those issues. It is not about spending power.

I can go into that in great detail, but anybody who suggests that the structural challenges in the Scottish economy are entirely the result of budget decisions on the enterprise agencies is missing the point in the SFC’s evidence and the evidence from many other commentators.

There are a number of challenges. Productivity is an obvious example. Although productivity has increased in Scotland over the past decade and a bit, it still lags behind. We need more significant investment in businesses from the private and public sectors. We need to tackle the skills challenges and try to reduce economic inactivity. There is a whole host of issues on productivity and growth. There is also our dependency on particular sectors in the economy. When those take a hit, as happened with the oil and gas sector in the Covid period, there is a disproportionate impact on the Scottish economy compared with the impact in other parts of the UK.

We could probably spend an entire evidence session on the structural challenges and also the opportunities, but suggesting that the entirety of the structural challenges is purely linked with enterprise agencies’ budgets is probably short-sighted.

One way of doing that is to apply fair work conditionality. For example, if a company cannot access a grant or get a public contract unless it is investing in its employees, there is an incentive for it to invest in its employees. The primary way of creating incentives is through conditionality. We are trying to embed conditionality in all forms of business support.