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Actually, it is more than that—we have announced £375 million. As you will know, a lot of it is from the UK Government, and £200 million is from our budgets. That comes from a number of sources. I think that the First Minister has set out that some of it is from the health portfolio, through consequentials that were received earlier in the year, and it also comes from a requirement for every portfolio to contribute to the costs. Every portfolio is now managing budget pressures in order to get to a position of balance this year.

I cite the fact that, in previous budgets, some of the funding for the following year has been based on carry forward. For example, as we come towards the end of the financial year, we can sometimes look ahead and identify where there might be late money that we can carry forward. In this year’s budget, there is no forecast headroom at all that can be carried forward into next year’s budget. From that perspective, this is an unusual year. The fact that no funding has been identified that we can carry forward illustrates just how challenging next year’s budget will be and how challenging this year’s budget is.

I will make one brief final point. One advantage of having an early budget is that we can give more certainty to taxpayers, local authorities and so on. However, there are drawbacks. The later you are in the financial year, the more certainty you have of where you will land in the current financial year. Because we set the budget so early, we base it on forecasts, which this year say that there is no headroom available to carry forward to next year.

If there are late consequentials, we expect supplementary estimates in the next few weeks from the UK Government when it finalises what this year’s budget looks like. If there is anything available from that, we will either need to use it for pressures this year or there might be something that we can do into next year, but that will be quite late on in the process.

The methodology takes account of population, among many other things. I might bring in Ian Storrie to talk more about what the methodology includes and does not include. However, to go back to a comment that I made in response to a previous questioner, I am open to reviewing the methodology. Every local authority has unique circumstances. The Highlands, where I am a resident, might have fewer people, but there are a lot more miles of road that need to be maintained. In Edinburgh, there might be a higher population and different challenges. Ayrshire will have its own unique challenges.

The methodology is hugely complex, because it tries to take into account all those unique circumstances, and, as I said, there are special allowances for the islands, over and above the methodology. The methodology endeavours to do that, but I am not beholden to it. If there was an appetite to review it, I am open to that. I have already had conversations with local authorities that are seeing exponential population growth—or decline—about ensuring that the methodology takes that into account.

If the convener does not mind, Ian Storrie might want to say more on what the methodology includes and does not include.

We have set out our public sector pay policy. I have been up front and open with the unions that I cannot inflation proof all elements of the public sector pay policy and that we have chosen to prioritise the lowest paid to ensure that those pay policies are inflation proofed.

Pay is a matter for local government—I have responded to Mark Griffin many times on that point. Pay for local government employees is a matter for the local authorities, which are responsible for managing their own budgets. Pay for local government staff will be negotiated between the trade unions—GMB, Unison and Unite—and COSLA through the Scottish joint council.

Local government employees have responded heroically. Day in and day out, I have seen their work on the front line, distributing welfare payments or business support grants. I would like a scenario in which all key workers are recompensed for the work that they do, but I have responsibility in our public sector pay policy—obviously not applicable to local government—and we have set out our own policy choices.

To echo Shona Robison’s comments, industrial action is in nobody’s interests. There is a process of negotiation through the Scottish joint council, of which the Government is not a member. I engage regularly with Gail Macgregor as the COSLA finance spokesperson with regard to financial challenges and budgetary conditions, but pay for local government staff is ultimately a matter for negotiation between COSLA and the unions.

I will answer the question in two parts. The first is that, although I do not want to constantly compare households north and south of the border, it is important to do so, because the same overall settlement is involved, as a result of the Barnett formula. Shona Robison has said that council tax is lower in Scotland than elsewhere. We should remember that, on average, council tax went up significantly in England last year after a number of years of rises, whereas, in Scotland, there has not been the compounding effect of an increase last year. That is precisely why, on average, band D charges are about £590 more in England and £423 more in Wales than they are in Scotland.

On what we are doing, witnesses on the previous panel alluded to the fact that, from April, we are reforming the council tax reduction scheme, with £351 million being baselined in the local government budget for the policy costs. We have changed the scheme to ensure that we do not miss people as a result of changes to universal credit. In other words, we are trying to cover as many eligible households as possible. For the past few years—certainly the past five years—the money that we have provided to cover council tax reduction schemes has been higher than the demand, so there has been headroom for local government to manage that.

My final point is that we cannot look at council tax arrears in isolation. Challenges with paying council tax are part of a challenging financial situation for households. We cannot look at the council tax reduction scheme, for example, in isolation from our wider budget commitments. There is £197 million in my budget to double the Scottish child payment and extend it to under-16s. Over the past few months, Shona Robison has taken forward a huge amount of work to provide additional support to households.

We need to look at the wider support. Without getting too political, a lot of that is compensating for a welfare system that does not help families when they need to be helped. Removing £20 a week from households will not help them to pay their council tax.

I assume that you are talking about the funding for business support relating to omicron.

I have another meeting with my counterpart in the UK Government in the next few weeks—in fact, it might be this week. I think that it is. I apologise; it has been brought forward because of omicron. Covid consequentials are one of the most frequently raised issues on my agenda for meetings with the UK Government, so I will again talk about the need to cover them.

Off the top of my head, I cannot think of any budget that has been immune to the impact of Covid. Whether it is justice remobilisation or the need to remobilise hospitals and wider social care services, Covid has an impact right across the board. Nonetheless, we have a budget from which Covid consequentials have been stripped out. Over the past two years, they have amounted to about £14 billion. Last year, it was about £4 billion. That money will not be available but we still need to absorb the costs of Covid because we cannot wish it away. That means that Covid is clearly a priority, so we rightly have to meet the costs of it, but that puts pressure on other things that we want to do. That is how I frame the matter.

One of the last things that I did in the past financial year, just before purdah started, was to allocate an additional £275 million of Covid consequentials to local government, over and above the £259 million—if memory serves—of Covid consequentials in the settlement for local government. A considerable amount of funding was allocated to help local authorities with Covid pressures.

However, those payments were clearly one-off Covid consequentials in the same way that Covid consequentials are one-off payments for us, which makes it harder for local government—in the same way that it makes it harder for us—to deal with the on-going costs of Covid without additional funding to deal with it.

Will I answer that one?

I will resist setting out any expectations, because that completely flies in the face of giving local authorities discretion. However, on average, a 1 per cent increase in council tax raises about £30 million, so 3 per cent would raise about £90 million, which is what we used to fund the freeze last year. That is the kind of ballpark figure that you are talking about when you reference 3 per cent.

Thank you very much, convener. I thank the committee for allowing me to come and give evidence so soon after publication of the budget. Events over the past two weeks have almost overtaken the budget that was published, so this scrutiny session is hugely important.

This is another challenging budget; it is probably the most fiscally challenging budget that I have been involved in over the past few years. It is now, I hope, beyond debate that our overall funding for next year from the UK Government is falling. On the other hand, I recognise that our funding is greater than its pre-Covid levels. We can get into some of the numbers and the data during our scrutiny session.

I am keen to provide as much transparency as possible on the budget, given the extreme levels of volatility and uncertainty that exist right now, particularly in our fiscal outlook. I have set out clearly where we have had to make assumptions about our funding and I have set out some of the difficult choices. Even before omicron hit, it was clear that public services’ responses to Covid would continue beyond the end of this financial year.

Over and above the impact of Covid, it is important, as part of our recovery, that we push ourselves to be as ambitious as possible within our fiscal constraints. It is very much a budget of choices and it is a transitional budget, as it continues to address the immediate pressures in the NHS and supports the recovery effort. It should be seen as a step on the road to our resources spending review for the longer term. The choices that we have made are all informed by the priority themes of tackling inequality, supporting economic recovery and fulfilling our net zero obligations.

I know that the committee has been busy this morning. I know also that predecessor committees have been interested not only in where budgets are spent but in how they operate, so I commend the report on budgets that I saw this morning from David Bell, David Eiser and David Phillips, which underlines the need for fiscal flexibilities and guarantees at a time of volatility such as we are in just now. I hope that that is in line with many of the committee’s previous discussions.

I look forward to the committee’s questions.