Seòmar agus comataidhean

Good morning and welcome to the seventh meeting in 2021 of the Finance and Public Administration Committee.

For agenda item 1, we will take evidence from the Cabinet Secretary for Finance and the Economy in what is our final pre-budget scrutiny session. Unfortunately, the cabinet secretary is unable to be with us in person as she recently tested positive for Covid-19. I hope that she is recovering well and that she has not been too badly affected by the virus. Members will have received a paper from the clerks along with private briefings from our budget adviser and the Scottish Parliament information centre’s financial scrutiny unit.

I welcome to the meeting Kate Forbes, Cabinet Secretary for Finance and the Economy, who is joined by the following Scottish Government officials: Douglas McLaren, deputy director, budget, pay and pensions; and Claire McManus, fiscal framework team leader. I intend to allow 90 minutes for the session.

Before I open it up to questions from the committee, I invite Ms Forbes to make a short opening statement.

Finally, the health and social care levy on national insurance will impact on the public sector in Scotland to the tune of around £151 million, with £67 million going on the NHS and £31 million on local government. I believe that the UK Government will guarantee that amount. Have you had a guarantee that those consequentials of £151 million will come through?

Also, what impact will the levy have on the private sector, when it comes to economic and jobs growth in Scotland?

Disinvestment is always the key issue in terms of prevention. We will certainly look at that in the months ahead.

I have some short questions to finish off. The first is about the fiscal framework. We have touched a lot on issues about borrowing. Five years ago, when the fiscal framework was agreed at the 11th hour, the budget limits were set in stone. Since then, there has been a 9.2 per cent erosion due to inflation, so I take it that one of the Scottish Government’s asks in the review will be that any limits that are set should be index linked to inflation. Am I right?

I am tempted to come back on that last comment, but I will move on, because I want to touch on a number of issues so that colleagues can expand on them.

The committee often gets suggestions that local government should be provided with more flexibility to, for example, raise revenue on its own. Indeed, we received such suggestions this year. Has the Scottish Government identified any additional revenue streams that it could adopt or could devolve to local government? Will it encourage local government and other bodies to develop their own revenue streams, given the current financial situation?

I am sorry; we seem to have lost the cabinet secretary.

Are you back with us, Kate?

Thank you very much for that opening statement. In time-honoured fashion, I will start with some questions before I go round the table.

The committee received 46 submissions in response to its call for evidence, and the cabinet secretary will not be surprised to learn that, although there were myriad calls from organisations for additional expenditure, the same organisations were much more coy about exactly how much they were calling for and, indeed, whom the Scottish Government would or should ask to pay for that expenditure. Often the responses suggested that any benefits from such expenditure would be long term but the costs would be much more immediate.

We have also had Labour politicians seeking a quadrupling of the Scottish child payment at a cost of £272 million a year and Conservatives suggesting that the Scottish Government could, if it so wished, pick up the tab for the £20-a-week cut in universal credit at a cost of £461 million a year. My simple question is this: how much room does the Scottish Government have for manoeuvre and what are its priorities in the coming year?

We have talked about demographics, skills and jobs. The Government has a young person’s guarantee, but it is facing a reduction of 60,000 workers in the 16 to 64 age group between 2020 and 2026. What does the Government do to focus on the 55 to 67 age group, for example. They have a lot of skills and experience, and many of them are very reliable. How will the Government get back some of those people into the workforce or get them retrained?

Okay, but let me continue with my question. I was not asking about the spending for which the national insurance levy is being raised, which is for health and social care; I was asking about the impact of the levy on local government, for example, which collectively will have to pay £31 million to the Treasury. I understand that the UK Government has agreed that it will provide—certainly south of the border—the consequentials in that regard. Has that been guaranteed for Scotland, so that some of that £1 billion that you mentioned does not have to be fired back into local government, police and fire services and so on? That is what I was trying to get at; I apologise if I did not explain that clearly.

Thank you. The second part of my question was about the implications of the national insurance increase for economic and employment growth in Scotland.

I am going to ask a couple of questions about the impact on economic growth of issues that are currently prominent in the news; in fact, I saw the Prime Minister answering questions on them in the news this morning.

In the hour prior to the meeting, we had a significant discussion about skills shortages with our budget adviser. Skills shortages are acute in many sectors, and there is huge divergence across Scotland—we acknowledge that. What additional resources will the Scottish Government invest to address those shortages? Which sectors are being prioritised? Is there a focus on geographic areas of the economy? In some areas, there is a surplus labour pool whereas there is a chronic shortage of labour in other areas. In economics, there is always the question whether the people should be moved to the jobs or the jobs to the people. What is the Scottish Government’s view on that, given that, when we consider the demographic future of Scotland, even over the next decade, we see that some local authorities will have significant population growth? For example, there is projected growth of 8 per cent for Midlothian, whereas there is a projected 4 per cent reduction for the Western Isles. What is the Scottish Government’s approach to that key issue?