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The methodology takes account of population, among many other things. I might bring in Ian Storrie to talk more about what the methodology includes and does not include. However, to go back to a comment that I made in response to a previous questioner, I am open to reviewing the methodology. Every local authority has unique circumstances. The Highlands, where I am a resident, might have fewer people, but there are a lot more miles of road that need to be maintained. In Edinburgh, there might be a higher population and different challenges. Ayrshire will have its own unique challenges.

The methodology is hugely complex, because it tries to take into account all those unique circumstances, and, as I said, there are special allowances for the islands, over and above the methodology. The methodology endeavours to do that, but I am not beholden to it. If there was an appetite to review it, I am open to that. I have already had conversations with local authorities that are seeing exponential population growth—or decline—about ensuring that the methodology takes that into account.

If the convener does not mind, Ian Storrie might want to say more on what the methodology includes and does not include.

We have set out our public sector pay policy. I have been up front and open with the unions that I cannot inflation proof all elements of the public sector pay policy and that we have chosen to prioritise the lowest paid to ensure that those pay policies are inflation proofed.

Pay is a matter for local government—I have responded to Mark Griffin many times on that point. Pay for local government employees is a matter for the local authorities, which are responsible for managing their own budgets. Pay for local government staff will be negotiated between the trade unions—GMB, Unison and Unite—and COSLA through the Scottish joint council.

Local government employees have responded heroically. Day in and day out, I have seen their work on the front line, distributing welfare payments or business support grants. I would like a scenario in which all key workers are recompensed for the work that they do, but I have responsibility in our public sector pay policy—obviously not applicable to local government—and we have set out our own policy choices.

To echo Shona Robison’s comments, industrial action is in nobody’s interests. There is a process of negotiation through the Scottish joint council, of which the Government is not a member. I engage regularly with Gail Macgregor as the COSLA finance spokesperson with regard to financial challenges and budgetary conditions, but pay for local government staff is ultimately a matter for negotiation between COSLA and the unions.

It is good to join you this morning, convener. I appreciate that you have had a long evidence session already this morning, and that the Deputy First Minister and Cabinet Secretary for Covid Recovery provided you late last year with a detailed written response to a range of questions, so I will keep my opening comments fairly brief.

I will start with a comment that you will not be hearing for the first time, but I need to be clear at the outset: this project has been hugely challenging. The Scottish Fiscal Commission, which is the key forecasting body, states in its economic and fiscal forecasts report:

“Overall the Scottish Budget in 2022-23 is 2.6 per cent lower than in 2021-22, after accounting for inflation the reduction is 5.2 per cent.”

It is against that backdrop that we are discussing the local government budget this morning.

Our budget has had a laser-like focus on three key challenges: tackling child poverty, climate change and economic recovery. We are endeavouring, in the budget, to strike a balance that will, with limited resources, ensure parity of funding across sectors. The budget that has been published for next year confirms that even in the face of the significant economic uncertainty that has been caused by the pandemic, we are providing councils with—among other things—a real-terms increase of more than 5 per cent to their overall budgets for our shared priorities for the coming year. Local authorities have been key partners with the Government—perhaps never more so than during the pandemic, as we tackled it together to protect communities, businesses and public services. They will clearly play an important leadership role, as we move forward.

I recognise the importance of planning as part of the process. Our transformation of the planning system will help both to streamline the system and to free up resources to enable the good-quality development that we will need in the future. To support that, we will introduce new fees regulations that will help to ensure that applicants, rather than the taxpayer, cover the costs of processing planning applications. We are also investing in digital transformation of the planning system. I mention that because I know that it has been raised in the past.

I will stop now and hand over to my colleague, Shona Robison, who will say more about the settlement in relation to her portfolio.

My answer is that the First Minister has not declined the invitation. Rather than me disputing the characterisation of the letter of response, it would be easier for me to share it with the committee, so that the committee can read it.

Local government leaders wrote to the First Minister and me, and I responded, as I have responsibility for local government finance. The letter of response states clearly that I look forward to meeting the COSLA presidential team on, I believe, 20 January. If I have got that date wrong, I will correct the record. I am happy to share the response, if that is permitted.

Prior to publication of my budget this year, and in previous years, I have met Gail Macgregor regularly. I cannot remember the details off the top of my head, but there were probably three or four intensive meetings in the immediate run-up to the budget. I meet Gail regularly to talk more generally, but in those meetings I had very intensive conversations with her in order to get a full understanding of the pressures that are facing local authorities—I do not dispute that there are pressures—and to understand our shared commitments.

Sometimes, during the yearly debates, as the convener understandably put it, we lose sight of the fact that many commitments are shared by COSLA and the Scottish Government. I say COSLA because it is the body that represents all local authorities—each local authority will have slightly different nuances.

The other thing that we have done this year, which is unusual, is that Shona Robison and I have between us endeavoured, over the past two months, to meet every single local authority—their chief executives and local authority leaders—to make sure that we have a handle on their local circumstances. Although COSLA will, understandably and rightly, present a blanket approach for local authorities, we wanted to ensure that we also understand the challenges that are faced in each area, so the invitation to meet went out to local authorities. I cannot recall precisely how many I have met and how many Shona Robison has met.

We have endeavoured to get the high-level view from COSLA and to get into the detail of each local authority area. The challenges that Inverclyde Council faces are different from those that Moray Council faces, and those are different from the challenges that Glasgow City Council faces. The conversations that we have had hugely informed our budget. A lot of financial commitments might not be taken into account in the annual debate about core budgets.

There are two issues that I hear about regularly from individual local authorities and from COSLA. The first relates to the challenges around social care, which is why we have significantly increased social care funding. Incidentally, I point out that I have tried to ensure that consequential funding for health and social care has gone to local authorities precisely because I know of the social care pressures that they have cited.

The second issue is income inequality and the fact that the pandemic has exacerbated the challenges that are faced by the most vulnerable people in society, which is why we are rolling out free school meals further, in collaboration with local authorities.

I do not want to speak for COSLA, but I think that it and individual local authorities would agree that the two examples that I have cited are important shared commitments, which is why they have been prioritised as part of the overall local government settlement.

That is in this year’s budget, which is fundamentally different from next year’s budget.

We have frozen the higher and top-rate thresholds and increased the starter and basic-rate bands. Largely, we have echoed what the UK Government has done with regard to freezing bands. I recognise that decisions made in previous years mean that that gap remains frozen this year.

I would be happy to. I remind the committee of our position last year: the budget included £500 million of additional Barnett consequentials, which had not been confirmed, although an assessment had been made that it was highly likely that that funding would arrive, and ultimately those assumptions were exceeded in aggregate. We try to take decisions in the budget based on the best available evidence. As you will all know, because of the way in which the funding position works, additional announcements are often made in year that, had they been baked into the budget from the beginning, might have led to more efficient use of funding.

In next year’s budget, we have made similar assumptions surrounding likely sources of income. Those assumptions include, first, income from the next round of offshore wind leasing, the precise scale and profile of which is expected to be confirmed early in the new year. If the budget had been later—as it has been in the past two years—that would have been factored in.

The second assumption relates to the resolution of a long-standing disagreement with the Treasury on the effect on the block grant of personal allowance adjustments. The methodology was finally confirmed this summer, although it is still part of live discussions and negotiation.

The final element is further Barnett consequentials, including some that, despite being linked to UK spending announcements, were not included in the 2021-22 funding position—in other words, announcements that have been made but for which the funding has not been drawn down in this year.

From my perspective, if the budget were later—let us say, March—it is quite likely that we would have been in a position to factor in all those things. We have considered all those sources individually and collectively, to arrive at a prudent, risk-assessed figure of £620 million of additional expected resource funding.

Lastly, it is important to say that we have not made any assumption on the availability of resource funding from the Scotland reserve. We will see how this year pans out. The additional omicron challenges are putting extreme pressure on this year’s budget. It is quite unlikely that there will be much to carry forward into next year.

In the interests of being fair and transparent, we published our capital spending review last autumn, which set out where we intended to invest over the coming years. Unfortunately, the capital that was allocated to us through the comprehensive spending review from the UK Government was lower than the conservative and cautious estimates that we had provided in the capital spending review. It might be that some of that capital commitment will need to be managed over a longer period, but I still refer the committee to the commitments that we made in the capital spending review, because that has informed the choices that we have made in this year’s budget. Of course, we have also chosen to make use of capital borrowing.

With regard to some of the high-level lines on capital, there is significant investment in infrastructure, decarbonisation efforts and the regeneration capital grant fund. There is a clear and ambitious willingness in the budget to use as much capital as possible, particularly next year, when economic recovery will still be vitally important.

I am happy to unpack any particular line, but I hope that that gives a general overview of our capital position.