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We need to do a range of things, which are set out in the national strategy for economic transformation. First, we have to have clear and effective regional economic strategies and measures in Scotland, so that all parts of the country have distinctive approaches that best address the needs and circumstances in different localities. The investment that the Government has made in funds in the north-east of Scotland to support the transition of the oil and gas sector is an important example of that. It is an indication of us taking tangible, practical steps to put in place regional economic strategy mechanisms.

In the south of Scotland, we have a distinctive south of Scotland economic strategy, which is led or supported by South of Scotland Enterprise and with which the Government actively engages. That is about enhancing some of the opportunities in tourism and the leisure environment and in the productive capacity of the food and drink sector. Those are just some examples relating to regional economies.

Secondly, we have to invest in the activity on tech development in Scotland. For example, we have the investment in the tech scalers programme, which has been commissioned from CodeBase and has now been rolled out in different parts of the country. The convener referred to that in his initial question. Investment in the capacity of the tech sector is important.

Thirdly, we have to engage substantially with and enhance the already developing collaborations between the university research sector and the business community. We are in a much stronger position today than we were five or 10 years ago, as a consequence of that approach. Universities have responded magnificently to the challenge, and they have opened their doors much more effectively to the business community, which has been much more engaged. I am optimistic that that work will be undertaken and will be effective.

My final point is about the Fiscal Commission’s assessment of what lies ahead. Obviously, this is an annual budget process, so we look at snapshots of information for this financial year and the next financial year. The Fiscal Commission has to do something slightly different; it has to look at the individual year-by-year performances, but it also has to give a sense of its expectations on the direction of travel. Its expectations about the direction of travel on earnings growth in Scotland are very different for the period going forward as compared with the period that we have just gone through. That is an indication of the progress that we can expect to make on productivity.

The first thing that I would say is that I do not consider our position to have a discernible effect on middle-income earners in Scotland. Essentially, the steps that we are taking are affecting individuals who are in the top two quartiles of the population in terms of earnings. We are concentrating the measures that we are taking on the top two quartiles—we are not discernibly affecting middle-income earners. [John Swinney has corrected this contribution. See end of report.]

My second point is one that I made in response to questions from the convener, I think. When people choose to live in Scotland, they know that they are gaining access to a much wider range of public service provision and opportunities than would be the case if they lived in other parts of the United Kingdom. I will not rehearse all the details, but we have the policies on free personal care, tuition fees, early learning and childcare and prescription charges. We have made certain choices that are available to members of the public in Scotland, and I think that that will feature in the judgments and decisions that individuals take.

Lastly, I think that people make judgments about a range of factors relating to where they live and work. From a variety of different perspectives—whether the social contract that I talked about, quality of life or access to facilities and services—Scotland is a very attractive place for people to live and work in and that will be reflected in the judgments that individuals make.

The total uplift for the health and social care portfolio is approximately £1 billion. My recollection is that the Barnett consequential that arose was of the order of £300 million. The Scottish Government is passing that on in full, but we are going much further in the allocation of resources that we are making.

There are three key points there, convener. First, the way in which I have presented the economic argument in the budget document is essentially to say that our economic ambitions must be realised through the delivery of a just transition to net zero. That will involve the channelling of our economic activity to ensure that, out of the transition to net zero, Scotland realises the economic opportunities that will be available to us principally through the delivery of the national strategy for economic transformation. As the committee can see in the detail in the budget document, I have set out clearly the measures through which we are depending on the success of the national strategy for economic transformation to realise that economic transformation.

Secondly, social security expenditure, which you raised, is a matter of political choice. The Government has opted to make political choices on welfare that are in stark contrast to the decisions of the United Kingdom Government. We have decided to take measures to support individuals who face significant challenges. A particular illustration of that is the Scottish child payment, which accounts for a substantial part of the divergence in expenditure to which you have referred. That is an active political choice.

Thirdly, we will have to pay for all that from our success in boosting productivity and earnings within the Scottish economy, which is the focus of the national strategy for economic transformation. The Scottish Fiscal Commission’s estimate of earnings growth in the next few years indicates that it has a level of confidence that the measures and priorities that have been put in place will provide the foundations for achieving the increase in earnings growth that the Fiscal Commission has predicted and which underpins the budget announcements that I have made.

I reiterate to the committee what I said to the convener: steps are being taken constantly to reform public services. I want to debunk for the committee the idea that we are waiting for something to happen to undertake public sector reform, because we are constantly changing the way in which public services are delivered in order to live within the financial restraints that we all face.

The Government agreed with local government an approach to public service reform through the Covid recovery strategy work, which laid heavy emphasis on the design of person-centred public services. That is about learning some of the important lessons of Covid and applying them to the delivery of public services. For example, we undertake less transactional activity between different aspects of public service, and undertake more delivery of services around individuals to assist them in meeting the challenges that we face.

Work that is under way in the Dundee pathfinder project, with which Mr Lumsden may be familiar from his constituency interest, is exploring how that can be best undertaken by a collaboration involving Social Security Scotland, the Department for Work and Pensions, Dundee City Council and a variety of other organisations, including those in the third sector, to better meet the needs of individuals and support them. Reform work is under way.

The challenge that public organisations face is that they have to live within the reality of the financial settlements that I can make available to them. We have provided, in the Covid recovery strategy, for example, the means and mechanisms by which organisations can do that.

Inevitably, as a consequence of the budget, there will be a need to put into practice some of the provisions that were set out in the resource spending review. For example, the size of the public sector workforce will be affected by the scale of the budget. Organisations will be taking those decisions based on the financial settlement that the Government has made available.

Yes.

We plan to spend more next year on employability than we will spend this year, so there is an increase in the projected expenditure on employability. However, in the emergency budget review, I removed around £54 million-worth of expenditure that was planned to be undertaken on employability in this year.

If we had spent that £54 million this year and I had set the budget that I have set for next year, there would have been a reduction, but we did not do that. We took the money out this year for a reason that I think I explained to this committee; I certainly explained it to the Social Justice and Social Security Committee.

At the moment in the financial year, which was quite advanced, when I had to take the emergency budget review decisions, I had a limited range of sources of expenditure that were not legally committed, and those employability resources were not legally committed. I had to take a set of difficult and abrupt decisions to free up money to be able to afford increased public sector pay bills during this financial year. I reassure Mr Lumsden that there is incremental growth from this year’s actual expenditure into next year on employability programmes to support the child poverty reduction activity.

The other factor that allowed me to remove the expenditure that was planned to be undertaken on employability in this financial year was that we still had capacity in the existing programmes for individuals to enter employability activity. That money could be removed because there was still adequate capacity to enable our child poverty measures to be supported; it is just that we were not expanding the programmes to the extent that we had predicted.

It is undeniable that that could be done, but I have to make a judgment about what resources are available. That is a key point about the Dundee pathfinder in which we are looking closely at what works in supporting people out of economic inactivity and into productive economic activity. Some good learning is coming out of that programme that will influence how we deploy employability expenditure in future.

I come back to my point on capacity. In essence, these are demand-led programmes, so if I, or the Cabinet Secretary for Finance and the Economy, who should be here doing this, find in the course of the next year that there is the need for more investment because the capacity is being used up already, that is obviously an issue for substantial consideration.

I cannot give you that precise information now, but I will write to the committee with the best available information that we have. I am not sure that we will be able to give that number, because there will still be appeals under consideration, but I will give the committee the best information that I can at this stage.

First, let me assure you that I do not think that it applies universally to all capital projects. For example, higher education research expenditure is covered by capital expenditure and it is not affected to the extent that a project that relies heavily on input materials will be affected. Construction projects are a significant concern at the moment because of price inflation on raw materials, and that can obviously affect judgments. That is not me indicating that that judgment will be applied in all circumstances. We have to be mindful of where and when it is appropriate to make that judgment, but it is a relevant factor to consider.