Seòmar agus comataidhean

Thank you for the invitation to join the committee, convener. I am sorry once again not to be with you in person. I hope that the committee has not started to draw any conclusions from the fact that I seem to have to self-isolate only when I have a Finance and Public Administration Committee evidence session. I also thank the committee for its engagement to date with regard to the budget timetable.

I know that you asked for very brief opening remarks, convener, but I wonder whether I can make some comments that will be helpful to the committee’s scrutiny. I am grateful that, in agreeing 9 December as the date, we have duly balanced the time to develop our budget proposals with the time for due scrutiny. As the committee knows, our position is as ever contingent on our settlement from the Treasury on 27 October, but this year at least we should have firmer and fuller information than we have had for the two previous budget processes. The timing of the United Kingdom spending review and the autumn budget seems to be a return to the pre-Brexit and pre-Covid cycle, but as yet I do not have any insights into whether that means that the Treasury plans an update in the spring.

With this budget, the fiscal framework and the wider devolution settlement will continue to be tested with the related volatilities having increased and the levers and the flexibilities remaining constrained. That applies as much to our in-year management, with the UK Government repeatedly indicating consequential funding of “up to” a provisional amount that is subject to confirmation later in the year, by which time the moment or the need for that funding has often passed. As I have always said, additional funding is generally welcome when it comes, but what I want to emphasise is that the arrangements for confirming the funding generally fall short of what is required, especially during a real-time pandemic response.

I will continue to engage positively with the UK Government as we recover from Covid. I had a meeting with the new Chief Secretary to the Treasury last month, and in the coming days I am due to attend a finance quadrilateral that is focused on the spending review. We will, of course, take our strategic lead from the programme for government, and the budget will reflect and fund the Government’s priorities. Moreover, as indicated in our recent correspondence, we are continuing to carry out preparatory work on a multiyear resource spending review, and we plan to publish a framework for consultation around the time of the budget.

Finally, I will be pleased to answer the committee’s questions on the fiscal framework outturn report, the publication of which fulfils the Government’s commitment to transparency in the operation of the fiscal framework and provides the Parliament with information to support its scrutiny. That report shows a total provisional reconciliation of -£14.8 million that will apply to the 2022-23 Scottish budget, with the final reconciliation confirmed once the final outturn data are published later this year.

I look forward to the committee’s questions.

We do not need to wait for that. Conversations are continuing with the UK Government, and we are still fully committed to devolving the duty. There are two points to highlight. The first is that we were making good progress on resolving the Highlands and Islands exemption. Secondly—although I do not want to keep using it as an excuse—the fact is that Covid struck. Many areas that were being progressed at pace prior to Covid are now being picked up again. Because of the wider conversation that we are having on the fiscal framework, it makes sense to have our other conversations in that context.

I am happy to bring in Colin Cook on that, because he does a lot of work in that space. Various recovery proposals have been submitted, and we are looking at the best way to support phase 2 over the next two years. That is a longer-term approach. Phase 1 was about the immediate challenges, but phase 2 will look more broadly. Does Colin Cook want to speak more about that?

In some areas, we have seen a swift resolution, even if it is a temporary one. Last week, there were a number of discussions on the challenges with CO2, which, to give credit where it is due, have been resolved temporarily so that there has not been a reduction in our CO2 supply. However, there are still live issues with energy costs, which I think will continue to have an impact on prices, supplies and the ability to deliver to customers. Those issues have not been ultimately resolved.

We have seen a swift resolution of some issues. They are challenging issues, so I do not want to be overly critical. However, I am much more critical on labour market shortages, because they are resolvable. They are within the gift of the UK Government but, too often, an ideological position rather than anything else has prevented a swift resolution. Last week, there was an emotive comment by a Polish lorry driver on the radio, when he said that European citizens have felt unwelcome for a number of years and that you cannot just turn on the taps now and assume that they will come flooding back. We are seeing shortages right across the board, including in care homes, hospitality, tourism and manufacturing. Those have been exacerbated by the pandemic, but there is no doubt—I think that everybody is pretty much agreed about this—that the shortages have been significantly exacerbated by an immigration policy that has reduced the number of EU citizens working in this country.

The short answer to your first question is that that is why we have an advisory council. I do not think that there is any doubt that there are some difficult choices to be made. We need only look at our inboxes, as constituency and regional MSPs, to know that there are differences of opinion about what we should do and what we should prioritise.

At the end of the day, we have to base our response on the consultation and on the advisory council’s debates and deliberations in order to come to a position and ultimately to prioritise for the long term. We have seen internationally that countries that decide on their agenda and stick to it for a longer period see returns and changes. That is what we are keen to do.

On the financial position, the Audit Scotland report highlights one of the challenges for us. In my role as finance secretary over the past year, I have seen the United Kingdom Government distinguishing less and less between Covid funding and non-Covid funding—for good reason. With a lot of our support, it is challenging to distinguish what has become business as usual and what has become specific business support.

I refer you to the recent announcement of £25 million for ventilation. In a sense, that is very specifically Covid related, but businesses have had to adapt what they are doing, which has become business as usual. I certainly want to be as transparent as possible. With the recent publication of the autumn budget revision, we are updating the budget with the most recent information on consequential funding. We will continue to be transparent about the funding that comes to us.

A difficulty is that, this year, we do not have a budget guarantee. Last year, when the UK Government announced funding, it did so alongside a guarantee that the money would not reduce. This year, our funding will be confirmed only at the main supplementary estimate, which usually happens in February. Therefore, until February, we are dealing with estimates. That is not a complaint; it is just a fact. The figures can go up or down, and we need to make sure that, in formally updating the budget, what we put in the budget revision is based on as much fact as possible, rather than on estimates, so that it aids the Parliament’s scrutiny of our budget position.

Audit Scotland’s report reflects on what has been a challenging budget situation—not in terms of the money that we have but in relation to keeping track of what the UK Government has announced, the figures that are still estimates and the money that has been confirmed as fact.

That is a good question; it is something in which I am taking an active interest. You will be familiar with the limits under our procurement rules and procurement law in relation to local content, for example. I would value the committee’s views on how we might better use procurement to embed resilience in respect of things like procuring local content. There are limits to what we can do, under procurement law.

I will take a step back from procurement to look at the wider point. If our country has learned anything from the past two years it is, first, just how resilient our businesses are already and, secondly, how important it is to build on businesses’ strengths to ensure that we become more resilient.

As you can imagine, writing a 10-year strategy is hugely challenging because we do not know what challenges might be around the corner. We certainly did not foresee the pandemic and, I think, some challenges that we are currently facing were not foreseen by the UK Government. Building in resilience is important.

I also recognise that we are exposed to forces that are outwith the Scottish Government’s control. I have already referred to labour shortages on which urgent action needs to be taken; the problem could be solved with a fair degree of ease if steps were taken on visas and immigration policy. I think that the UK Government has accepted that in with its most recent announcement on HGV drivers. The question is whether that is too little too late; it should have been done more quickly.

All those things will be considered very carefully in the run-up to publication of the budget. The enterprise agencies—you also mentioned VisitScotland; there are a number of other public bodies that have important roles to play in economic development—need support. They need the right support because often the best support that they can provide to businesses is wraparound guidance and advice. For a business that is trying to get into an export market, Scottish Enterprise and Scottish Development International have the skills and resources to help it. Often businesses need guidance and advice more than they need financial support, although we need to make sure that financial support is available. Jamie Halcro Johnston talked about resilience and developing supply chains; it will be important to ensure that they are dealing with mitigating the people and skills shortages.

This year we have invested a combined total of £347.8 million in our enterprise agencies, which was an uplift of almost 17 per cent. That reflects the need to support businesses. One of the challenges that we will face in next year’s budget is a significant reduction in financial transactions funding. Some of the support that we have previously given to enterprise agencies was in the form of financial transactions, which have allowed enterprise agencies to provide the right kind of support to businesses that were looking not necessarily for grants but for short-term financial support. The UK Government is moving away from providing FTs because of changes to its housing-supply programme. That means that our spending power will decrease, so we will need to look at other ways of providing funding, through a very challenging budget.

There is a big question about FTs in this year’s budget. As I said, the UK Government appears to be committed to continuing the help-to-buy scheme, which gives us an element of reassurance that FTs will continue to some degree. We also expect the UK Government to publish its multiyear spending review on 27 October, which will give us a sense of what is to come over the next three to four years.

This year, we prioritised the SNIB, and the two priorities for our funding were business support—primarily through the SNIB but also some support for Scottish Enterprise—and our housing programme. In short, if we do not fund our housing programme and the SNIB through FTs, we have to do it through capital, and capital is also in short supply—largely because we cannot borrow substantial capital—so I would much rather use FTs. The short answer is that we will continue to prioritise FTs for the SNIB.

Our commitment to capitalising the SNIB—[Inaudible.]—remains undiminished. How I do that is a headache for me in collaboration with the UK Government, but that commitment to ensuring that the SNIB has the funding it needs is undiminished. I hope that this year’s budget proves that commitment. We have been unwavering in ensuring that the SNIB has the support it needs to do its job.

Maggie Chapman has referred to our commitment to strengthen conditionality further. There are specific targets. For example, we have committed to introduce by summer 2022 a requirement on public sector grant recipients to pay at least the living wage to all employees and to provide appropriate channels for effective workers’ voices, such as trade union recognition. We need to strengthen our commitment to conditionality through engagement with the unions, businesses and other stakeholders. The effectiveness of the approach relies on its proportionality and on ensuring that we can measure real benefits from it.

When we associate conditionality with outcomes, there is a real danger that businesses will not be able to deliver. For example, if we were to say—I know that you are not suggesting this—that a business can get a grant only if it commits to creating 10 new jobs in its first year, that might be the wrong metric for it, and it would probably lead to an unsuccessful outcome.

I think that paying the real living wage should be a given—that that should almost be a non-starter and a basic expectation. Members will have seen in the discussions about green ports or free ports quite recently where the real living wage has proven to be really difficult to deliver in collaboration with the UK Government. We could not come to a compromise on the notion that businesses should be paying at least the real living wage. That means that we have taken our own approach and that the UK Government will do its thing.

In short, we have a number of levers to try to deliver that, and conditionality is a key part of trying to ensure that we embed fair work across the country.

I engage with the trade unions on that very topic. Richard Lochhead leads on the work and, obviously, he has regular dialogue with the Fair Work Convention.

On the fair work first approach, we have to think of different ways of doing things because we do not have employment powers. That means using a lot more of the softer approaches, but we intend to launch a consultation in the coming weeks on what a leading fair work nation would look like in order to align with the aims of a just transition to a wellbeing economy. That consultation, which will invite responses from anybody who chooses to respond, will be a very wide one, and it will inform a review of our existing fair work priorities, particularly in the context of Covid’s impact on the labour market.

There will be a formal consultation and simultaneous extensive engagement with trade unions on a one-to-one basis. Richard Lochhead, the First Minister and I are active participants in that work.