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I appreciate that the role of the financial transactions budget has been a matter of some interest. I think that the notification of the financial transactions reduction was fairly late and that the Treasury agreed to defer that to the following year, given the lateness of the notice. My officials can correct me if I am wrong about that.

I ask Scott Mackay to talk about the engagement that takes place in Government to identify priority spend areas.

I do not want to pre-empt the outcome of the discussions. Clearly, they cover a range of portfolio and ministerial interests.

In general terms, I would say that you have touched on a very important point. With any programme of public service reform, any spend-to-save approach or any investment, what the constraining of budgets will mean for any Government—and it is one of the effects that we are still reeling from after the austerity that we have had at various points over the past 14 years—is that it will have to focus day to day on key, mission-critical tasks. Often the challenge that we have with reform is that we need to identify parallel funding to support change and transformation. That is just a general point, but all Governments have to contend with such things.

What we are seeing feeding through to next year’s budget, particularly around capital, are the consequences of decisions taken by the UK Government, which predominantly impact the discretionary fund that we have available. We are trying to manage that impact in a way that is consistent with the principles and values that the Government has articulated, in recognition of the key and central role that the NHS plays, not just in delivering public services, but as a key economic actor within the wider Scottish economy, too, and in recognition, too, of the key expectations that Parliament and indeed the public have that it be resourced adequately. That, again, has been reflected in the decisions that we have taken.

I can appreciate that there will be a range of views but, along with seeking to mitigate the risk of waste tourism, we have always wanted to provide a degree of certainty and stability for the sector as well. Furthermore, we have a clear target towards the end of 2025 and our approach on tax policy is consistent with that.

I clarify that the money is capital and has not been allocated through the spring budget revision that you refer to.

As I say, the money would be classified as capital expenditure to support the existing wide-ranging variety of work within the health portfolio. I cannot provide you with a line-by-line list of all of the various expenditure that is classed as capital expenditure within the health service.

Clearly, as I touched on earlier, we will have an exceptionally challenging set of circumstances around capital over the medium term, which the committee appreciates. Those circumstances form the context in which decisions on future capital projects—not just in the health service, but more widely—are considered.

The budget, of course, relates to the current financial year. This relates to ongoing activity that is part of the capital expenditure of the health service. I can appreciate the question about perception about money being allocated, but it is important to make the distinction between what is happening within this financial year—supporting ongoing NHS capital expenditure that covers a range of areas, which, I am sure, the committee appreciates—and what we are looking at from 2024-25 going forward, in the context of the capital constraints under which we will be operating.

I make the point on allocation and budgets that at the outset we allocate full amounts, but clearly there are developments, as the year progresses. There can be underspends, slippage or targeted savings, which can free up additional capacity. That applies to resource and capital and reflects the usual routine in-year budget management.

The challenges that we are facing were, of course, set out by the Deputy First Minister in the letter that she sent to the committee in advance of the UK autumn fiscal event. It is important to make the distinction that we are not in a situation where budgets are being set with some funding unallocated, but as we progress through the financial year, owing to the dynamics that I have referred to we will always seek to ensure, when resource or capital become available, that funding is effectively allocated to support the in-year position across public services.

There have certainly been changes from the position that we were in two years ago. Of course, the challenges persist; we have to contend with higher costs and the challenges that come with them, as a consequence of the period of high inflation that we have had. Inflation is still high, by historical standards. That presents ongoing challenges, as do the other factors that we have touched on.

We are committed to working within the limited flexibilities that we have, and to ensuring that we can work constructively and collaboratively to deliver capital projects. However, we have to set out very clearly the challenges that we are facing and their consequences for the delivery timescales of various projects.