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We have been joined by Kate Forbes MSP, Cabinet Secretary for Finance and the Economy, for our second evidence-taking session on the Scottish budget 2022-23. Ms Forbes is joined by Scottish Government officials Lucy O’Carroll, who is the director of tax and fiscal sustainability; Douglas McLaren, who is the deputy director of budget, pay and pensions; and Ian Storrie, who is the head of local government finance. I welcome the cabinet secretary to the meeting.

I remind members and witnesses that our broadcasting team will operate the microphones and that they should pause for a few seconds before speaking to ensure that they will be heard. I intend to bring members in to speak in the order that we discussed earlier. If anyone would like to come in at another point, they should type R in the chat function.

All questions should be directed to the cabinet secretary, in the first instance. If Ms Forbes wants an official to respond, she should make that clear so that the broadcasting team can bring them in.

We have up to two hours for the discussion. Before we open up the meeting to questions, I invite Ms Forbes to make a short opening statement.

Of course.

That concludes the committee’s questions absolutely on time. I thank Jackson Carlaw and the supporting officials for their evidence.

I suspend the meeting for five minutes to allow final checks to take place before the cabinet secretary takes questions.

In your statement on 9 December, you said:

“On income tax, the Government’s priority has been to make the tax system fairer and more progressive, and to protect low and middle-income taxpayers.”—[Official Report, 9 December 2021; c 72.]

However, on page 18 of its briefing, SPICe says:

“Scottish taxpayers who earn between the proposed Scottish higher rate threshold (£43,662)”—

that threshold has not increased by inflation, and neither has the UK one—

“and the rUK higher rate threshold (£50,270) will pay 41% income tax and 12% NICs on their earnings between these two amounts – a combined tax rate of 53%.”

That means that people in Scotland who earn between £43,662 and £50,270 will actually be paying more in tax than people who earn more than that. Someone earning £51,000 will have a marginal rate of taxation of 43 per cent, because of the 10 percentage point reduction in national insurance. How can that be deemed to be progressive, given that that includes many people who have families and large mortgages?

I can understand your argument about the UK, and, obviously, that is something that I subscribe to. However, if people earning over £43,662 are going to be confronted by a 54.25 per cent marginal rate of tax, perhaps the threshold should have been increased, rather than allowing the fiscal drag to ensnare more people in that tax net.

There has been a lot of debate and discussion on the resources that are available to the Scottish Government, but there has not been much debate on capital and infrastructure. Everyone accepts the figure on page 2 of the budget: there is a 9.7 per cent reduction in real terms of the draft capital. That is backed up by the SPICe report, on page 34. That has significant implications for Scotland’s capital programme, particularly as the cost of materials is still much higher than the general rate of inflation. What projects in Scotland are likely to be put on hold, from repairing fewer potholes to building more schools? What are the implications of that severe cut in capital resources?

Thank you. I said that members could come in a second time, but no one has more questions to ask, and the cabinet secretary has given us more than two hours of her time, which we greatly appreciate.

I thank the cabinet secretary for her evidence today, and I wish her and all the committee members a merry Christmas and a happy new year when it comes.

Our next meeting is scheduled for Tuesday 11 January.

That was very diplomatically put.

I will move on to my final question, which is on the £1 million contingency for enhanced security support for members. I realise that some prudent assumptions have been made in regard to that, which works out at about £8,000 for each MSP. What indications do you have of uptake? I know that it is relatively early days, but certainly I will not go up to anything like that level. What information does the SPCB have at this point?

Local government is a bone of contention, as it is every year. According to page 11 of the SPICe report, four portfolios have had a reduction in cash and in real terms, and one of those is social justice, housing and local government. However, last night, I received a copy of the local government finance 2022-23 total revenue support, which looks quite reassuring overall. According to that, across Scotland, the budget increases from £11,043 million to £11,853 million, which is an increase of £810 million, or 7.3 per cent, so that looks good. However, £319 million of that is undistributed, so could you confirm when that will be distributed and how it will be distributed?

When I looked at the increase in funding for local authorities, I was disappointed to note that the wealthier and more prosperous areas, such as Aberdeenshire, East Renfrewshire and Edinburgh have significant increases of 4.3, 4.8 and 4.9 per cent. However, if we look at the poorer areas of Scotland, we see the Western Isles getting a 2.1 per cent increase, West Dunbartonshire getting 2.9 per cent, Inverclyde and Glasgow getting 3.3 per cent, Dundee getting 3.1 per cent and North Ayrshire, which I represent, getting a 3.5 per cent increase. I am aware of the local government funding formula, but surely when we have a challenging funding situation we cannot have the areas with the highest poverty, highest unemployment and an ageing population—because many of the younger people are moving outwith Scotland or to more prosperous areas of Scotland such as Edinburgh, East Renfrewshire and Aberdeenshire—getting lower local government settlements.

Thank you very much, cabinet secretary. The committee looks forward to examining the report from the three Davids.

As you are aware, the committee has been given conflicting information and advice regarding the size of the Scottish budget from the Scottish Fiscal Commission, the Scottish Parliament information centre, the Scottish Government and the Fraser of Allander Institute. We will take the Scottish Fiscal Commission’s figure for examination and consider its implications.

The SFC says that the Scottish Government’s budget next year will be

“2.6 per cent lower than in 2021-22”

and that

“after accounting for inflation the reduction is 5.2 per cent.”

At the same time, spending on the Scottish Government’s largest social security payments, including new payments, is forecast to be £764 million more than the funding that it is forecast will be available through the UK’s block grant adjustment in 2024-25, which will reduce the funding that will be available for other spending priorities.

The latest SFC forecast shows that Scotland is lagging behind the UK on economic performance, that income tax receipts are falling behind the block grant adjustment and that social security spending is exceeding the block grant adjustment, so how do we ensure fiscal sustainability?

As long as that is on a non-commission basis.