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The SPS has been engaged in discussions with the main subcontractor, Serco. That is really around the transfer being effected in a way that looks after the interests of the staff while looking after the safety of prisoners, too. The SPS is embarked on that process.

The member rightly mentions the costs of inflation. On the idea that we would somehow avoid those costs of inflation were we to go back to or maintain the private contractor, I do not know any private contractor that would want to bid for a contract that did not recognise the costs of inflation. I referred to that in the exchange that I had with Pauline McNeill on Addiewell.

You should bear it in mind that the Kilmarnock iteration of PFI came many years—nine years, I think—before the deal was done for Addiewell, by which time contractors were keen to ensure that the inflation costs were part of the bid that they made. I am not sure that there would be the savings that have been hinted at by trying to ignore inflation. In any event, as regards this Government’s position, we believe that prisons should be in the public sector.

After I have made a couple of comments, I will ask Donald McGillivray to come in. This project is a bit like high-speed rail—it has been going on for many years. As I said, I was involved in a joint police board on the roll-out of Airwave, which was complicated. I have many concerns over this project, which I have registered with the UK Government, and the Welsh Government has also registered concerns. The budget changes over time, and the spend does not match the profile as we would expect. That is the basic underlying situation, but Don is very heavily involved in that, which I am sure he enjoys.

As the committee will know, earlier this month, the Deputy First Minister, in his statement on the emergency budget review, set out clearly the nature of the financial challenge that we face. The drivers of that challenge are well known; they include Brexit, the on-going impact of the Covid-19 pandemic, rising energy prices and high rates of inflation, which is, I think, currently at a 41-year high. Those pressures are impacting on households and on our vital public services.

Many of those pressures were evident when the resource spending review and the update to the capital spending review were published in May, and they have become even more pronounced in the subsequent months. Inflation means that our budget has already fallen by 10 per cent in real terms between this year and last year, and the announcements in the United Kingdom autumn statement do very little to address the damage that that has done to the Scottish budget.

Despite those pressures, and the necessary realignment of our spending plans, we have, this year, worked to continue to support front-line justice services. That includes support for the on-going process of recovery from the Covid-19 pandemic, with the number of outstanding trials reduced by more than 10,000 between January and September this year. In fact, the number has been reduced even further since then, by around 12,000, to around 31,000.

We are building on the success of the new digital approaches that were developed during the pandemic. For example, the new digital evidence-sharing capability will enable evidence to be shared more efficiently and swiftly, thereby helping cases to resolve earlier. We have continued to modernise the prison estate, with the opening of two new innovative community custody units for women in Glasgow and Dundee, which reflects our commitment to trauma-informed approaches to rehabilitation.

Crucially, in the context of the cost crisis, we are supporting justice organisations to offer pay settlements that are well above the levels that were projected when our budgets were set at the start of the year. That is significant and challenging for the justice portfolio in particular, given the high proportion of our portfolio spending—over 70 per cent—that is committed to staffing costs.

The resource spending review numbers for next year are not final budget allocations; those will be set out by the Deputy First Minister next month. However, it would not be honest or beneficial to our justice services to pretend that exceptionally difficult choices will not have to be made across all portfolios, including justice, in the final budget allocations.

The funding that the UK Government has outlined over the coming two years falls well short of the combined impact of Covid recovery, energy costs and inflation, so we will inevitably need to match our plans with the available resources. However, as far as possible, my aims for the budget process remain those that were set out in “The Vision for Justice in Scotland” document, which was published earlier this year.

Those aims are as follows. We will continue the progress of Covid recovery in our courts, in particular for the most serious cases in our solemn courts. We will ensure that there are trauma-informed approaches for victims and witnesses, drawing on innovative recommendations such as those that Lady Dorrian set out. We will support our police and fire services to continue to deliver vital public services as they modernise and adapt to changing demands. We will support the work of our legal professional and third sector services. We will invest in our prisons to support rehabilitation as well as effective community justice services, including alternatives to custodial sentences and remand.

Members of the committee will recognise, however, that we will need to respond to those priorities within an increasingly tight financial context that is likely to last for an extended period.

With that, I am happy to answer any questions that the committee has as part of its pre-budget scrutiny, and to consider those issues in the on-going budget process.

It is not a new idea that you can achieve efficiencies if you build something new according to modern standards and if you do it in the right way, not least because you can also make it much more efficient in terms of the climate change challenge. The proposed prison in the Highlands—the replacement for HMP Inverness—will be our first net zero prison, so yes, of course, we can make efficiencies. For a number of years, we have had a programme of renewing what is, in essence, a Victorian estate. We are going through that process. The business case is developed for each proposition that we have.

We are not proposing a cut, although you could argue that that might end up being the case, depending on whether there is a real-terms increase. The difference between real terms, which accounts for inflation, and flat terms is an important distinction to make. However, there are some flexibilities between resource and capital that we are examining closely. One example is body-worn cameras. There is obviously a capital cost to those but there is also a substantial revenue cost and we are looking to see what we can do to maximise the capital contribution.

It seems to me that, especially after the early part of the previous decade, between 2010 and 2016—I know that that is going back in history somewhat—we regularly had better capital allocations than resource allocations from the UK Government. We also had fairly frequent allocations of financial transactions, which can be applied only in limited ways. However, now, there is a much greater tightening of the grip on capital provision.

I make the point that the indicative capital funding envelope has been maintained from the spending review that was published in February last year. That maintains essential capital funding for the core justice services. That will always be a priority over new initiatives. It includes core services such as estates, technology and fleet. We have also confirmed more than £500 million of capital for our prisons, including the modernisation of the prison estate, which has been on-going for some time.

It is true to say that the spending power of that capital budget has been eroded by inflation and now pays for significantly less as the cost of raw materials increases. However, we remain committed to substantial capital investment in the justice system. We have to keep it under review and how that is done will be part of our discussion and negotiation with the different parts of the portfolio.

We want to see how the existing ones are working first of all. They are absolutely ground breaking—nowhere else has done anything like that—so it is only right that we ensure that they are having the intended effects before we move on to a further roll-out. That roll-out is intended, but it will be based on our experience with the two units that have been up and running.

That will depend on future capital allocations. There are issues with the age of the institution at Greenock, so in the meantime we have carried out works to ensure that it is in a proper habitable condition. The possibility of replacements will depend on future capital allocations, which, as I have said, are currently as constrained as I can ever remember them being.

That relates more to Addiewell prison than to Kilmarnock prison, because the Addiewell contract has an indexation feature. To be perfectly blunt, I would not have signed that contract. In a different context, the local authority in my area, which is small, is now buckling under the pressure of its private finance initiative contracts for schools. As you said, when inflation is at a 41-year high, the impact that that can have is very serious—it is potentially about £4 million per year in this case. We are involved in discussions, but room for manoeuvre is extremely limited.

To go back to my point about schools, my local authority has tried very hard during the past number of years to renegotiate some of those contracts, but that has proven to be extremely difficult. Get-outs from such contracts can be very expensive in their own right.

To be fair to the people who signed the contract, they did it with indexing in mind, and perhaps they would argue that they did not expect to have a long period of low inflation. They managed the process during that time, and they would expect the cost of inflation to be covered in the payments that are made to them, because their overheads will also be rising.

There is limited scope, but the SPS has been looking at it.

My understanding is that the tax liabilities are termed a reserved UK income tax. I am not sure whether that applies personally to the employees. There is no current plan to have employees based in this country; they will be visiting employees. As I understand it, the IIC has no offices in Scotland or the UK.

To check that I have those facts right, I ask my officials whether they want to comment.

First of all, we said that inflation is at 10 per cent and rising. The budget that we have for this year is worth around £1.7 billion less than it was when it was announced in December. At that time, as you know, inflation was around 4 per cent.

Over and above that, the extra budget pressures for the higher-rate pay settlements that reflect that cost inflation are at around £700 million so far, and deals have yet to be done with the Prison Service, teachers and nurses. According to my figures, that has reduced the value of our budget by 2.6 per cent, which goes up to 5.2 or 5.3 per cent, when inflation is taken into account.

Those figures are very real. We cannot strip out from our budget the effects of inflation. I do not know anyone who seriously contests the tightening of the budget. The Welsh Government and UK Government departments have referred to the pressures of inflation. More worryingly, we now seem to be embarking on a further phase of austerity, given the budgets that have been announced. The pressures are very real. The public accounts can be checked; however, those are my budget figures.