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I have a question for Stephen Smellie but, on the previous point, I think that one of the key issues that we have at the moment relates to how not just the private sector but the Scottish Government conceives of productivity and growth. They view public services almost as not being part of the economy, but the fact is that such services make up about 45 per cent of the economy and they are—or, at least, they should be—driving innovation and productivity. They should be the foundation for growth. One of my criticisms of NSET is that its vision of productivity and growth does not have a clear space for public services and the public sector.

Stephen, I completely agree with you about public sector pay. In particular, the very long-term squeeze on local government has had a direct impact on the pay of some of the most critical workers. We are now facing a real crunch, but I do not think that we are discussing it actively enough. The public sector pay bill is about £21 billion out of a total budget of £44 billion, and we have had vague suggestions from the Scottish Government that it wants to reduce public sector head count to pre-Covid levels.

To be blunt, I am really worried that there is a big crunch coming and that people are not being honest about it. There is, at the very least, one genuine challenge that needs to be met: people in the public sector need pay increases if they are to pay their bills, but that sort of pay bill at the macro or high level makes things difficult. Does Unison have a view on that? Do you share my fear about the lack of frankness on the things that are being considered with regard to public sector head count?

I want to make a brief comment about something that Stephen Smellie said earlier. It is important to note that a lot of Scotland’s higher earners are in the public sector. We have a different profile of higher earners, so some of the tax points do not have the same impact in Scotland and England. It is important to understand that.

Before I ask my question, I remind the committee of my entry in the register of interests. I am a director and sole shareholder in a company that has retail interests, which is probably understating the level of bias that I have towards the retail sector, frankly.

I have some key questions for David Lonsdale. I was interested in the point in your submission about non-domestic rates and the proportion that retail pays. Could you elaborate a bit further about the impact that non-domestic rates have on retail? Critically, to echo the drift of some of my colleagues’ questions, what do you think should replace it? It is one thing to say that non-domestic rates do not work, but should we be looking at something that is levied on revenue, or should it be a property-based or, indeed, a land-based tax?

Does the SRC or the British Retail Consortium have a view on what might be fair and, critically, what might be more in line or synergistic with economic growth, helping businesses and driving the investment in their local environment that rates might not?

The convener will be delighted that you arrived at the right answer by suggesting that he should convene that body.

I very much approach the budget and the decisions that we have with my small business owner’s hat on. We can look at all sorts of things in terms of complexity, but, to get down to brass tacks, a lot of it boils down to what the Government’s expenditure is. What is optional and what is not? What is fixed and what is variable?

It is clear from Audit Scotland’s submission that the Scottish Government’s £22 billion payroll cost for direct and indirect staff is its single biggest cost. That contrasts with things that are mentioned in the submissions from the bodies that are represented in front us today and from others, such as £1.5 billion-worth of spend on procurement. That is small beer compared with the payroll cost. What are Stephen Boyle’s thoughts on the Scottish Government’s options on head count?

Critically—this is also mentioned in your submission—the Government’s medium-term financial strategy assumes that the workforce will continue to grow at 1 per cent a year. To my mind, that stands in contrast to Government statements about reducing head count to pre-pandemic levels. What handle does the Government have on head count? Where is the Government thinking on how it will manage head count over the coming years?

That would be helpful. You specifically quoted the early years funding. How much of the funding for that specific policy is having to be subsidised from core discretionary funding?

I understand the point; I am wondering whether you have quantified that. I understand that your budgets are under pressure because of ring fencing. That is where you go from a cut of 7 per cent to one of 15 per cent. In the submission, you imply that, on top of that, you are having to subsidise those ring-fenced areas from your discretionary budget. I am asking whether you have a quantification of what proportion of your budget that is. What is the addition to the 15 per cent effective reduction?

I understand that. However, my question is about a slightly different point. You are saying that the ring-fenced areas for policy delivery are not being sufficiently funded, and I was asking you to clarify by how much. If you can provide that in writing, that would be really helpful.

Managing finances is complicated—I will come on to the 40 financial reports shortly—but I would suggest that managing people is even more complicated and difficult.

At the top end, the MTFS assumes 3 per cent pay growth, but that has been superseded by the most recent pay awards of 5 per cent. Are you saying that the Government’s working assumption is that the payroll bill will essentially remain fixed and that it will therefore have to manage the head count accordingly? Secondly, are the systems and processes in place to enable it to do that? I think that that is being implied or stated in broad terms, but my fear is that without detailed work behind the scenes it could lead to some quite brutal outcomes for people who work in the public sector.

I will keep to one question, but it will have two strands. COSLA’s submission states that, in real terms, local government budgets have been cut by 7 per cent since 2013. Mr Manning pointed out that, within that, two thirds has gone to ring-fenced areas. Further on, the submission states that those ring-fenced areas have to be cross-subsidised from local government discretionary budgets. Does that imply that a sum comes out in addition to the 15 per cent real-terms cut, in that you have ring-fenced funding that impacts on core and then you have to cross-subsidise? If so, can you attach a quantum to that cross-subsidisation?

Indeed. That raises some very big questions that go way beyond this committee’s remit.

Moving on, given the complexity of what needs to be done and managed, I note that the ability to track what is spent against what is pledged in the budget is critical. Again, that brings me back to my experience in small business. I have posed this question before, but let me pose it again. The lack of clarity that exists on the public record is one issue, but to what extent are the Scottish Government’s internal systems able to provide clarity? Those are two distinct questions. The lack of clarity is frustrating for us and there are public accountability issues, but there will also be delivery issues if systems and processes are not in place within the Government to enable it to track its spend against what has been budgeted for. Are such systems in place, in your view?

I will pitch one last question to both Susan Murray and Charlotte Barbour. I am interested in what you have said in your written submissions and this afternoon about things such as public transport and impacts on tax. We have had reference to the unemployment rate in Scotland, but the detail that is missing from some of that discussion is that we still have lower labour market participation rates in Scotland, among both younger and older people.

Is there sufficient thinking, in policy terms, about the linkages between what programmes the Government undertakes and their impact on tax receipts? In other words, given that we are now much more dependent on income tax growth, is there sufficient joined-up policy making that looks at how we both get more people into the labour market and grow wages for those who are already in it? Does that lie at the heart of the public transport question and the helping people back into work question that the David Hume Institute raised in its written submission?

I will put that to Susan Murray first, then to Charlotte Barbour.