Seòmar agus comataidhean

I always do.

First, I will comment on productivity. We absolutely recognise that productivity has to be part of the discussions that we have with all parts of the public sector. There is a lot of evidence that, since Covid, some levels of productivity have not recovered. There are a lot of reasons for that, and we understand a lot of them, but it is critical that, in driving reform forward, particularly in health and social care, productivity is part of the discussions.

On the infrastructure investment pipeline, the simple fact is that, until the capital spending review in the spring, I will have no idea what the capital budget will be from 2026 onwards. Trying to set out an infrastructure investment pipeline without knowing what the capital envelope will be does not strike me as being very sensible because that would do one of two things. First, it could constrain what we are doing. You never know—there might be a change in the fiscal rules for capital and we might end up getting a bigger envelope. One can only hope. I am not entirely sure that that is where we will end up, but there is a scenario in which that happens. If we do not wait, we would be making decisions that are based on a scenario that might change.

Secondly, doing that might drive down confidence, because what people want is certainty, and we need to give certainty to projects that are potentially in the pipeline. I do not want a stop-start approach, because it does not make sense to say something if it has to be immediately revisited.

I am happy to write to the committee on what would be in our guides on making sure that we are being prudent.

We have put a lot of effort into exploring other potential revenue-based options for capital. We already have some good examples of that in the local government sphere, such as outcomes-based funding through the LEAP project.

We are not resting on our laurels and saying that this is just about capital departmental expenditure limits and availability. We are looking at what else we could lever in, but that comes at a revenue cost, and it has to be affordable over a longer period of time.

—and efficient way.

We are continuing to look at bonds. As you will remember, that was an investor panel recommendation. We are going through a due diligence process and I will provide more information when we produce the Scottish budget. A bond would have to be issued at the right time, so we need to look at market conditions and all of that. Work continues, and I am happy to keep the committee updated.

Once, I think.

Thank you, convener. Good morning, and thank you for the invitation to join the committee today. This is the first time that I have appeared in front of the committee formally since the summer recess and the United Kingdom general election. There have been some significant developments during that time, many of which I updated Parliament on in my statement in early September.

The Chancellor of the Exchequer’s statement at the end of July outlined the results of the Treasury’s spending audit, which described a £22 billion shortfall in the UK’s public finances and set the scene for a difficult UK budget on 30 October. The audit also estimated that this year’s departmental spending budgets are at least £15 billion lower in real terms compared with 2021 spending review plans.

On 27 August, the Scottish Fiscal Commission provided an update on the current economic and fiscal context. My statement to Parliament on 3 September set out the difficult decisions that we are taking to achieve financial balance this year.

The First Minister and I have taken a constructive approach to engaging with the new UK Government, and I am pleased to have seen a marked improvement since the election. The First Minister and I met the chancellor in Glasgow on 28 August and I have subsequently engaged with her on our priorities for the UK budget and our willingness to work together to achieve those.

Last week, I met the Chief Secretary to the Treasury, Darren Jones, along with the finance ministers from Wales and Northern Ireland at a meeting of the finance interministerial standing committee in Belfast. That was an opportunity to discuss with the chief secretary the challenges that are facing devolved budgets and how best to address those challenges.

The meeting was also an opportunity to convey some of the issues that were raised in Parliament two weeks ago on Scotland’s priorities for the forthcoming UK budget. The chief secretary was receptive to those issues and I am keen to see that constructive engagement continue.

Since my recent correspondence with the committee, work has begun in earnest towards the publication on 4 December of the Scottish budget for 2025-26. The budget will be built on the principles outlined by the First Minister in the programme for government—eradicating child poverty, building prosperity, improving our public services and protecting the planet. I will continue to work with parties across the chamber to seek common ground, and I look forward to continuing to engage with the committee throughout the budget process.

I look forward to engaging today and, indeed, to further engagement throughout the coming month.

As I have said a number of times here, we are cognisant of the issue of marginal tax rates. Because our system is a hybrid one of reserved and devolved taxes, it is a bit clunky, which, without a doubt, causes complexity.

We continue to monitor that, and not only internally. There is a great deal of external scrutiny through the Scottish Fiscal Commission’s work, and we have also given His Majesty’s Revenue and Customs funding to monitor some of the behavioural issues that you referred to. The first round of that monitoring showed continued net migration into Scotland across all income bands. However, we are not in any way complacent. We will continue to monitor all that, to make sure that we keep on top of any things that emerge.

It is positive that average earnings growth is up—and is up compared with the rest of the UK—as is the number of top-rate taxpayers, according to the latest available figures. Scottish tax performance has improved, so there is a strong base, but we are not at all complacent.

I ask Lucy O’Carroll whether she wants to add anything.

I will give Parliament assumptions within an envelope. However, for the reasons that I have set out, I do not want to give a figure that becomes a floor. I do not want to give a figure that, in essence, becomes the minimum for pay policy and drives expectations that everything will be above that.

The other complexity is that pay is not just about the pay policy figure; it is also about the non-pay element. For example, part of the deal with the civil service unions was about the value of the shorter working week, which was given a percentage value that then became part of the pay policy for the civil service.

It is more complex than just providing a figure for a year, so we need to recognise that complexity and avoid a policy becoming a driver. We need to ensure that our negotiating teams have an envelope that they can work within that recognises all that complexity. Therefore, rather than just providing a figure I am looking more at a framework that can help, on a multiyear basis, to ensure, through pay, that we can address reform, efficiency and productivity, and that all those things can be part of the framework. That figure does not serve us well.

The point about the larger civil service is correct, so the Barnett consequentials do not cover it. Therefore, in the budget, I will also set out our workforce plans and policy, because those are inextricably linked. There is absolutely a relationship between the sustainability of public finances and workforce numbers and pay—they are also inextricably linked.

Lower-paid staff in the Scottish public sector are paid 10 per cent more than their counterparts in the rest of the UK, so there is a benefit to public sector pay from the action that we have taken and the investments that we have made in public sector pay.

No—