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We will certainly engage with public bodies on taking forward that reform. The important point is that the public sector exists for the benefit of citizens. We need to start with citizens, and they will not necessarily be aware of or interested in the backroom shared services. In an age of digitalisation—obviously, digital is one of the key focuses—we need to consider things such as shared cloud services and shared investment in digital capability.

We have talked about estates. Sharing estate will lead to the need to share services as well. Many bodies do very similar things with their finance or human resources capabilities. As I said, I am not sure that citizens are as interested in the backroom capabilities as they are in getting the service that they want. We all need to be aligned on the need to improve outcomes for citizens, whether that is individual businesses, households or anybody else.

We will certainly work with public bodies and look at the art of the possible. I want to ensure that we protect and preserve public bodies’ autonomy to deliver services to citizens as they wish, but I also want to work with them where they need, for example, investment in their information technology or digital services and where there is scope for those to be more effective. The Scottish Government has been working on our shared services—even within the Scottish Government, we can ensure that we have one system for all the parts. There is a lot of scope, but we will need to act carefully. Obviously, we will report on the initial conclusions in the upcoming budget.

We have had discussions, and I will see the Chief Secretary to the Treasury next week, when, I am sure, we will continue those discussions on the fact that our current assumptions around block grants are largely based on an out-of-date spending review that does not take inflation into account.

I will continue to make those points to the Treasury. I certainly would like to see, at the very least, some review of the fiscal framework, taking into account the impact that inflation has, not only on our spending power but on the way that certain elements keep track with inflation.

Those conversations will continue. I am, generally, an optimistic person, but I have been having those conversations for a very long time.

I sincerely hope that our budget will not be as bad as I feared but, ultimately, the only way for that to change is for the UK Government to increase the funding pot and take into account the huge increases in inflation.

I think that I heard three questions in there. I will take them in turn.

Thank you very much, convener.

I thank the committee for its input into the resource spending review and the medium-term financial strategy.

Obviously, this is a hugely challenging time to be delivering a spending review. We are recovering from a pandemic as well as experiencing an unprecedented cost of living crisis, and there is quite clearly significant volatility in the funding outlook. Despite that, I think that our partners appreciate their having as much certainty and transparency as possible in our setting out the spending parameters for the next few years.

That is what lies behind the spending review, which commits £180 billion over the next few years. We started the process by focusing on a number of key objectives and priorities. Where you have priorities, you, by extension, focus your attention and funding on them. Those priorities include tackling child poverty, transitioning to net zero, economic recovery, and strengthening the public sector in Scotland. In addition to that, we have added as another priority responding to the cost of living crisis.

We have also set out commitments to drive reform and greater efficiency across the public sector because, notwithstanding the current uncertainties, the funding position is constrained. As far as that position is concerned, the assumptions in the MTFS and the spending review are based principally on the existing block grant settlements as implied in the 2021 UK spending review, the OBR forecasts of future public spending, and updated tax and social security forecasts from the Scottish Fiscal Commission.

When the UK spending review was set last autumn, inflation was about 3.1 per cent. Despite the fact that inflation is now hitting a 40-year high of about 9 per cent, the UK Government has not updated its spending plans. We have far less funding in real terms, and we have had to use the best available assumptions. In addition, there has been a real-terms reduction of 5.2 per cent between last year and this year, and our real-terms funding will grow by only about 2 per cent across the whole four-year period, once we account for the devolution of social security benefits.

As the committee knows, I have highlighted some of these challenges with regard to delivering our priorities, and there are other issues that emerge as a result. That also goes to the heart of a point that the committee has made in the past about the limitations of the current fiscal framework and the lack of economic and fiscal levers available to the Scottish Government to manage the volatility and risk that are inherent in any forward-looking spending review.

Finally, we have also undertaken a targeted capital review to address a lower than expected capital grant allocation provided by the UK Government. As members will recall, we had set out our capital spending review in advance of the UK Government’s own spending review to try to provide as much certainty as we could in emerging from the pandemic. That review will invest around £18 billion between April 2023 and 31 March 2026, with over half a billion pounds of additional funding directed at net zero programmes compared with the funding in previously published plans.

As a brief conclusion, the aim of the plans is to provide as much long-term certainty as possible in an extremely volatile economic situation.

That is a fair question, and it was captured in the Fraser of Allander Institute’s pre-RSR publication analysis. I think that the Fraser of Allander Institute asked about the level of granularity that could be published and suggested that we publish just a high-level narrative with priorities.

I thought that it was important that we provide as much granularity as possible. That is why it goes to level 2. Due to the level of volatility in the funding—I can unpack a lot of the assumptions that underlie the available funding—it is extremely difficult to be any more granular than level 2. Even providing level 2 detail was challenging.

The reason for that is partly driven by inflation. As I have already said, much of our spending review is based on the UK Government spending review, as members would expect. Inflation was at 3.1 per cent; it is now at 9 per cent, and it is going to rise. We have to make a judgment about the risk. Being too granular carries its own risk in terms of planning things that might not come to pass.

It is not easy and, at the end of the day, this is not a budget. We will set out our tax rates and our public sector pay policy, for example, in advance of each budget.

You are right to comment that it is a judgment call. We have pushed as hard as possible to be as granular as possible in an extremely volatile situation.

Obviously, many families who will receive the child payment or additional support are already in work, too. You cannot look at, for example, the figure of £1.8 billion for the Scottish child payment in isolation from the employability and training budget line, which is going up by £100 million over the next few years, because those are two sides of the same coin. From a child poverty perspective, Government has a moral obligation to care for children in poverty, because it is not their choice to be in poverty, and those figures need to be grappled with. However, simultaneously, it is about helping parents not just by getting them into work, because many of them are already in work, but by ensuring that they are paid sufficiently, which is where the real living wage comes in, and that their employment is secure.

The child poverty plan captures all of that. The resource spending review comes in behind it and funds it. However, we cannot ignore the issue and we must tackle it. We have made a choice to tackle it through the priorities that we have set out for the resource spending review.

Yes, and I would argue that it is important spend. I would argue that £1.8 billion for the Scottish child payment is an important choice that we have made. However, you are right that it is a choice, and where you choose to prioritise one area of spend, you by necessity deprioritise other areas. We have chosen to make tackling child poverty a core objective. We have backed that up with increased spend on social security. We have reformed social security powers over which we have control, and tackling child poverty must be one of this Government’s missions.

Interestingly, I think—unless I am told otherwise in the next few minutes—that it is pretty much supported by all parties in the Parliament. Therefore, it is a choice. However, ultimately, if we achieve our objective, those figures should decrease. You should not set out to invest in social security over the extreme long term because, if you manage to tackle child poverty and you meet your child poverty targets, you should see that spending figure coming down, because there will be fewer families in need of that additional support.

Yes, it is a choice that we have made. The other difficulty with social security, of course, is that it is demand led. Therefore, the forecasts will inevitably change, because no forecast is 100 per cent aligned with outturn. For that reason, we must ensure that we have the capacity to meet that demand from within our own budget, irrespective of where the demand falls. Therefore, it creates risk and volatility, but it is a choice of this Government, and I think that it is the right choice. With regard to the Scottish child payment, it is not unreasonable to suggest that, if you meet your child poverty targets—the Scottish child payment is one of the levers for doing that—you will see that figure fall.

Absolutely. First, you asked about local government. The question is similar to the question that you asked me about education. I think that that will be a recurring theme in the various questions that are asked this morning. I am not in any way denying the extremely challenging outlook that we face right now with the funding that is available to us, and the job that we have had in trying to be as fair as possible across the public sector.

To go off on a brief tangent, we set out three objectives in our budget: tackling child poverty, transitioning to net zero, and economic recovery. We have intentionally added resilient public services to that list because, if we were to base all our decisions on those first three objectives, core public services would find things very challenging. We have therefore tried to protect those core public services.

I am not in any way saying that the outlook is not extremely difficult. There are no two ways about it. That is why public sector reform—including, for example, the estates—is so important. If we can become as efficient as possible, that will allow us to focus our funding on front-line services and, ultimately, to focus on achieving those objectives.

I have two quick points to make on local government. First, in the most challenging circumstances, we have protected the revenue budget in cash terms, with £100 million in the final year, and we have also protected the baseline of £120 million from this year. That means that local government will receive about £42.6 billion over the resource spending review period.

Secondly, because it is level 2, those figures do not include the funding that is normally allocated to local government from other parts of portfolios, such as the transfers from education and social care. You will therefore see a significant uplift in future budgets, because the resource spending review does not provide the granular detail on the funding that is made available through those transfers.

There is also a point about flexibility, which has to go hand in hand with the fiscal framework. Now that we are through the local government elections, that work is being dusted off again. It has not stopped, but it obviously had to be briefly suspended during the local government elections. The fiscal framework has to look at maximising the flexibility and empowerment of local authorities.

On the estates programme, l note more briefly that it is not about focusing all the Scottish Government workforce in, for example, Edinburgh; it is about the fact that we now have hybrid working across Scotland and therefore it does not make financial sense for me to continue to renew leases—it is largely about leases rather than necessarily outright ownership—when buildings are only half or a quarter occupied. It is about how to ensure that we maximise the use of that estate. If we can save money on estates, for example, I can maximise more money for social security to feed hungry kids or to help front-line workers.