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You are right that this is primarily a justice issue and that, ultimately, when it comes to policing such issues, responsibility lies with Her Majesty’s Revenue and Customs and with Companies House, which both come under United Kingdom Government competence. Obviously, Police Scotland has a role when it comes to suspected criminality. However, with regard to funding, when something is a reserved matter, it will be funded on a UK-wide basis, which means that consequential funding will not be generated for the Scottish Government.

Please come back to me if I have misunderstood any element of your question.

We are still trying to fully comprehend what the impact will be, particularly on economic growth. A lot of our attention has focused on the impact on employees, rather than on employers. Let us consider the example of the hotel on the Isle of Skye that was in the press over the weekend. The owners were lamenting the fact that VAT is increasing, that they cannot secure labour and that prices are increasing across the supply chain. The national insurance increase is clearly another issue for such businesses to contend with, on top of a number of pressures that they are facing.

You will recall that we were all set to devolve air passenger duty when we discovered a pretty major issue to do with subsidy control in relation to the Highlands and Islands air discount scheme. We had extensive conversations with the UK Government about where the matter would sit. We could not expose our finances to any potential liability before the matter was resolved—as it had to be—with the European Union.

In the past six to nine months, however, the fundamental issue has moved slightly because of Brexit. We will want to progress the matter in our discussions on the fiscal framework. Ultimately, the challenge was to resolve the issue of the Highlands and Islands exemption before air passenger duty was devolved.

I hope to discuss it. We are not seeing a huge appetite for change, and I have not had much evidence of such an appetite during the pandemic when we looked for temporary fiscal flexibilities. I think that the discussion is unlikely, but there is an opportunity for civic Scotland—if I can put it like that—on a cross-party basis to come to a position on borrowing that is good for Scottish businesses and the Scottish economy, and is not new, since local government already has it.

The Scottish Fiscal Commission obviously has to judge our projections of capital borrowing, and its most recent report said that they were reasonable.

Yes and no. I wrote to the UK Government in the immediate aftermath of the announcement of the health and social care levy to seek clarity on various points. The response that I got did not actually give me any of those answers. The big question remains what we will get in additional consequentials. In the past, when there have been announcements about increased spend on health and social care that have generated consequentials, we have later discovered that those have been netted off against funding that was due to come anyway, so it is not all additional. We know what the UK Government has publicly announced for Scotland, but the big question for 27 October is whether that will all be additional or whether some of it will be netted off against decreases in other health and social care lines, so that it is not, for example, a net additional £1 billion.

That is a great question. From a technical perspective, being able to have a wider mix of tax powers would be far more effective for the management of our budget and of the economy. Taking business support as an example, we have just spent time discussing non-domestic rates despite the fact that that is not a business tax but a property tax. It would be good to have a broader mix of tax powers and to have all the powers associated with income tax as well as a wealth tax and perhaps capital gains tax. It would be helpful to understand and have responsibility for the interactions between national insurance contributions and income tax.

My first ask would be to have a far more comprehensive toolbox of tax powers at our disposal, so that we are not basing all our action on a few narrow taxes that cannot bear the weight of what we ask them to do. That is certainly true of income tax and that position is universally shared by tax professionals.

The second thing would be to be able to manage year-on-year volatility in the budget. It is hugely detrimental to have an arbitrary cap of £300 million for forecast error. It reduces our ability to plan ahead and it means that when forecast error exceeds £300 million, as we have seen in previous years, actual money that could otherwise be used for public services must be used to deal with the forecast error. The ability to manage our budget in year and from year to year needs to be considered.

My final point is that we should have a prudential borrowing scheme that is based on affordability. We already have to base capital borrowing decisions on affordability. I have to deal with the revenue consequences of capital borrowing in future years. I know that. The medium-term financial strategy sets out how we manage it. The notion that we would not use borrowing powers prudently if we had them does not bear scrutiny. We have had to do that in part with capital borrowing. All that we are asking for is something similar to the prudential borrowing arrangement that local government has.

Those are the three items on my wish list.

You talked about the reskilling that is required, which is vital. It will not help in the short term, but we need to ensure that the money goes to the people who most need it.

On energy costs and fuel shortages, we engage closely with industry, as I said. I guess that the big tool that I have at my disposal right now, and on which I am giving you evidence, is the budget. Industry figures repeatedly tell us that they are not looking for financial support. They want to be able to trade. The economy is recovering, trade is available and markets are there, but industry cannot meet demand. The difficulty is with supply, not with demand. When it comes to prices, energy costs and shortages, in our close engagement with industry leaders, they repeatedly tell us that the solutions lie not in financial grants but in enabling them to access the adequate and affordable supplies that they need.

We will repeatedly engage with the UK Government, but I do not have any unallocated budget this year to meet the shortages in full. We have neither the consequential funding for that nor the headroom to provide additional financial support.

The short answer is that we will not hit that limit if we continue on the trajectory that we set out in the medium-term financial strategy, because we cannot. We have to allow for headroom and obviously have to manage our budget in a way that allows for unforeseen circumstances. The medium-term financial strategy set out our approach to borrowing, and clearly the next one will set out that approach as well.

That does not mean, however, that we could not use additional borrowing powers if the cap were higher. I believe that our borrowing powers should be more in line with those of local government, whose prudential borrowing scheme is based on affordability rather than arbitrary caps. The latter do not take into account the changing nature of the challenges or the economic imperatives to invest or not to invest, so the argument is for something that is more akin to the arrangement that local government has rather than arbitrary caps.

Thankfully, as far as our net zero commitments are concerned, two areas are already highly visible. The first is the capital spending review. It was completed last year and published alongside the infrastructure investment plan, and gives a long-term multiyear view of investment in infrastructure. I do not know whether this has come through in the evidence that the committee has received, but one of the primary drivers of the shift to net zero will be investment in low-carbon infrastructure.

We talk at length about the need for a transition in transport; however, that will require public and, indeed, private sector investment in transport systems. The same goes for heating and power. The capital spending review stands prior to this budget, which will action the next year of the capital spending review with regard to investment in low-carbon infrastructure. I also point out that that has been accompanied by a £2 billion low-carbon fund to accelerate investment.

The second area is the programme for government and the co-operation agreement with the Greens, which are quite clear about the shifts that need to be made. The budget is actually just the power behind the programme for government; it enacts the programme with real money, from a challenging settlement.

In short, we are not cautious about getting money out to the people and the services that need it as soon as we can, but what has really exacerbated things during the year is the level of volatility. You will forgive me for stating some basics here, but I want to build up my argument.

The fact is that we cannot overspend our budget; at the end of the financial year, I have to bring to Parliament through the outturn statement a budget with no overspending, because the Treasury would not look kindly on us if we overspent. In-year budget management is all about trying to maximise spending power for the services that need it and to meet all the asks. After all, every day in Parliament, there is always another ask for more money.

At the same time that we trying to maximise that spending power, we have to come in on budget. The difficulty is that, during the year, there is volatility. For example, with the UK Government’s announcement of health and social spend, we were told that we would get up to £520 million; that will be confirmed in the main estimates, which means that the final confirmed position will probably be known in January, February or March. If all that £520 million gets spent on the important services that it needs to be spent on—and we will spend that money; please do not read into what I am saying some lack of commitment to spending the money that needs to be spent—and we are told in January or February that we will get £400 million in consequentials, because the UK Government equivalent departments have not spent the full amount to generate the full £520 million or because it is recycled funding, I suddenly have a shortfall of £120 million that I need to make up with only a matter of weeks to go before the end of the financial year to ensure that our budget comes in on balance. That is the level of risk that we face.

Knowing that that is the position, we are managing our budget in year on a daily basis to maximise our spending power while at the same being cognisant of the fact that, once the money is spent, it is challenging to make up any shortfall. One actual example was a sum of £25 million for education. The UK Government announced some education funding, which was very welcome, and we passed that money on to education. However, when we saw the May estimates, we discovered that the actual funding was £25 million less. In other words, it was £25 million that I was not going to receive but which I had already passed on. This is not a complaint—it is a request for more levers to manage that kind of volatility and ensure that we come in on balance.

Last year, the Barnett guarantee made it clear that there would be no negative consequentials and that what had been announced would not be clawed back. I therefore had total reassurance that when the £25 million was announced it could be passed on without the fear that the actual sum might be less. The guarantee has been taken away this year, because the UK Government’s volatility is such that it cannot predict with any certainty what UK departments will spend. That is why the increased volatility this year has made things very difficult. We manage that volatility internally, but it makes things more challenging and any Government in this role would find huge value in having more tools to manage it.