Seòmar agus comataidhean

I would be very concerned about that, which is why I made the point that getting full funding of the public sector’s NI increase in Scotland is very important. Local government makes the same argument. Just because the local government position in Scotland is beyond what the Barnett share for local government would be, there should not be a punishment for local government—or the health service or any other service—because over the years we have invested in our public services beyond what the rest of the UK has invested in its public services. The UK Government made a decision on employer national insurance contributions out of the blue, without any warning, and the onus is on the UK Government to fully recognise the impact on Scotland’s public services, including on local government.

When it comes to the final number that we get from the UK, what do we do with it? Whatever that number is, I have said that I want to be fair to local government. However, being fair to local government does not mean that I can cover 100 per cent of the costs of employer national insurance contributions, because I would have literally nothing left for the rest of the public sector, including the health service, the police and the fire service.

I want to be fair, and I recognise that timing is an issue for local government, given that budget setting will begin soon, so we need to resolve the matter. All that I can say to you and the committee is that we are chasing the Treasury on a daily basis to get an answer.

I would say that we have recognised the position of and the importance of capital to local government. The 2025-26 budget sets out more than £7 billion—sorry, I am just looking at the capital grant figures. [Interruption.] I will come to the affordable housing position in a moment.

In my earlier answer, I referred to the general capital grant. We have allocated an additional £108 million of general capital grant, which is a real-terms increase of 14.2 per cent, and we have reinstated the £31 million that was used for the 2024-25 pay deal, giving a total capital increase of £139 million.

I would perhaps push back slightly on some aspects of what COSLA has said. For example, £40 million was allocated from ScotWind for capital funding for local government, which is essentially completely discretionary as long as it is spent in the net zero space. It is new money, but COSLA has perhaps not recognised it as such in the way that I would have liked or expected it to do. There will be very few restrictions on how that £40 million is spent, but it is not regarded as new money in the way that I think that it should have been.

Ellen Leaver has pointed me to the fact that, beyond that, we also have the £768 million for the affordable housing supply programme. That was one of the big asks from COSLA for the housing budget. We also have other investments from which local government will benefit, such as the energy efficiency and clean heat measures.

I know that COSLA has asked for additional capital, but I think that the capital position is fair.

In principle, I am very keen to look at making sure that local government has the maximum number of levers available to it, although that would have to be within the context of financial sustainability and affordability. That does not necessarily mean that local authorities would all use those powers. The visitor levy is a good example of where local government has the option; it does not have to use the levy, but can choose whether to do so.

We are consulting on the potential for a cruise ship levy, and our “Programme for Government 2024-25: Serving Scotland” document makes it clear that we are going to

“Intensify work on designing a cruise ship levy”.

Again, that will not be for every local authority—it will be of interest to some more than it is to others.

Our “Scotland’s Tax Strategy: Building on our Tax Principles” document commits us to establishing

“criteria that should be considered when determining the level of government at which a tax could be delivered”.

That will allow us to consider proposals for taxation in a consistent way.

The joint working group on sources of local government funding and council tax reform is continuing to meet—in fact, we will meet next week. We are looking at proposals for the future of local taxation, because I think that there is a desire for a fairer system in that regard, but trying to build political consensus around that is important. It will not get past first base in a new session of Parliament if it does not have a degree of parliamentary consensus.

I mentioned earlier that we will consult on the general power of competence. Again, that has to be delivered in a way that has substance and meaning for local government, rather than simply being something theoretical that might not be used.

Local government has been keen to pursue a number of areas, including a levy on second homes, for example, which we have delivered within the confines of what we are able to do through secondary legislation. Going further than we have already done on that would require primary legislation.

Fundamentally, COSLA and local government are the employers and lead any discussions around pay. We have become involved to support the resolution of some of the pay disputes, because industrial action is also costly. We have therefore tried to support resolution in order to avoid that.

One of the things that COSLA argued for very strongly was for money not to be ring fenced. In this year’s settlement, we have therefore minimised ring fencing. Since the Verity house agreement, I think that £1.5 billion of funding has been de-ring fenced, including £500 million for 2025-26.

What we have not done in relation to the £1 billion increase is say, “That is for pay, that is for this” and so on. In essence, it is for local government to decide how it will manage its funding. Within that is, of course, the discretionary funding—the £289 million—and real-terms protection for the revenue grant. Each local authority then has to make a decision about the level of council tax.

I guess that that also brings me back to the point that I made earlier. The pay costs of the public sector are substantial, which requires us collectively, including local government, to look at how we support that going forward. That will mean looking at the size and shape of the public sector and doing things differently. Shared services, for example, are perhaps not as extensive in local government as they could be.

I hasten to add that that is a matter for local government. However, when we are looking at public service reform across other parts of the public sector, such as considering how we can do things differently and how back office functions can be shared, I would hope that local governments are also in the space of looking at some of that, which I think that they are.

He was referring primarily to income tax rates and bands in order to give certainty.

It will be different for different organisations. One of the reasons why pay progression has never been part of pay policy is that different organisations will be in entirely different positions with regard to pay progression. The health service is in a very different position from other parts of the public sector, and the value of pay progression is markedly different from one body to another. Pay progression has never been recognised as part of pay policy, and it has always been assumed that public bodies and organisations will absorb the costs of pay progression within their budgets. Those will be different for each organisation, so it has never been calculated as part of pay policy. I recognise that pay progression is a factor, but it will be different from one organisation to another.

The policy of 9 per cent over three years was intended to give scope and latitude for configuration in a way that meets the needs of organisations and that they can afford. Pay policies must be affordable and organisations must be able to deliver them within the allocations that they have been given. With regard to whatever decisions are made on the specifics for each organisation, I note that deficiencies, head count, reform and doing things differently are all part of the way that organisations are expected to manage their pay bills.

No—issues about partners of students coming to study, and so on, are also important. There is no doubt that people have been put off and have gone elsewhere. The UK Government can certainly also do something about the employer national insurance contributions issue, for example.

I am not trying to dodge responsibility; I am just saying that there are a number of headwinds. I accept that the Scottish Government’s funding is a key part of the sustainability of the university sector, but so are research capability—being able to attract research funding—employer national insurance contributions and international students. I am keen to engage with the UK Government on those points. I know that Scottish and northern English universities have particular problems with their ability to attract a number of international students who are perhaps gravitating elsewhere.

I will look at the issue that you have raised and come back with a fuller response. Going forward, I am open to looking at what more we can do within the confines of the resources that are available to us. There are issues that are not just for the universities, but we have to play our part in making sure of the sector’s sustainability.

I would not describe it or recognise it in those terms. Are there challenges for the college sector? Every sector has its challenges. The big challenge, which we touched on earlier, is joining up our skills landscape in a way that better delivers for employers and the economy. Dundee and Angus College is a great example of a college that has really got ahead, reformed and made the changes that it needs to make. It made decisions to invest in some areas and to disinvest in others in anticipation of some of the headwinds over the past few years, when budgets were particularly constrained. That college is in a pretty resilient and forward-looking position. Across the whole college estate across the country, I think that colleges are in different positions, but that shows that it can be done. It is down to local leadership, vision and a real joining up of the skills landscape with others across the city.

Having a daughter who returned to education and went through the college system after having left school at 16—much to my pain at the time—I recognise that the college system is an amazing opportunity for people from all walks of life. I am very aware of its value. If there is more that we can do, I want to do it, but it is partly about joining the dots of the skills system—that must be done.

I will need to come back to you with details from social security colleagues, but I suspect that the heart of the issue is that it is a system that families feel more encouraged to access rather than being discouraged.