 Good morning, and welcome to the second meeting in 2019 at the Finance and Constitution Committee. As normal on your mobile phones, can you put them into a process that doesn't interfere with proceedings, please? The first item on our agenda this morning is to take evidence on the Scottish Government's budget for 2019-20 from the Cabinet Secretary for Finance, Economy and Fair Work. Derek Mackay is joined by Scottish Government officials, Eden Gleeswood, from the Head of Tax Division, John Nicholson, who is the Deputy Director of Public Spending. I welcome our witnesses to the meeting, but before we move to questions, Cabinet Secretary, from the committee, I invite you to make an opening statement. I understand the budget. It's comprehensive that I've given a statement to Parliament. I think I'm keen to get straight to your questions, convener. Thank you very much. Cabinet Secretary, the Scottish Fiscal Commission state in their December forecast report that it's not unreasonable to expect an average one-year-ahead error in their tax forecasts of around £530 million, and that of the 53 UK tax forecasts they have looked at, there was an error of £810 million in a Scottish context on more than 11 occasions. Given that your borrowing powers for forecast error are limited to £300 million, does that concern you? I know that we've discussed before the complex to the system and the fiscal framework, and there will be a review of the fiscal framework. Of course, I would want the forecast to be as close to actual as possible. There are provisions, of course, as you've described, convener, around our borrowing powers, and also the availability of reserves. I've said in terms of a budget that I would want to be able to have adequate reserves should there be any requirements such as that forecast error. Of course, we want the forecast to be as accurate as possible from the SSC and the OBR in terms of the BJA element. We have a number of levers to deal with that should the SSC forecast turn out not to be accurate as you have described, borrowing reserves and then decisions that might be taken in terms of that particular budget year as well. Having said that, of course, the further we go into this process in this system, the more data we have, the more accuracy that the SSC and HMRC has around the detail, the out-turn numbers and, of course, you get closer to each fiscal event, then we have the most up-to-date reports as well. Of course, a finance secretary watches this very closely. Of course, I'm mindful of it and that's why we have to have a number of levers to be able to manage that in the event of forecast errors. To get a better understanding of the possible extent of the SSC, I would certainly find it helpful if we could explore just one specific example. The most recent Scottish Fiscal Commission and OBR forecasts show that income tax receipts are now forecast to be £43 million lower in 2018 than the adjustment to the block grant when previously in December 2017 there were forecasts to be £428 million higher. To what extent should we therefore be concerned about those revised forecasts? Is there a need for the Government in some of the building and what you've already said to take a strategic approach to dealing with any potential shortfalls rather than waiting for the publication of the final out-turn figures in July 2020? And while we're just dealing with that area, where do you see the Scotland Reserve in that regard, given where it's currently at? We'll give an update on the Scotland Reserve, of course, at the next appropriate time. It remains a fluid, as you'd expect, because we present it at the medium-term financial strategy, at budget provision, we've done so as well. In terms of the strategy for dealing with it, the decision that Parliament makes from year-to-year on an annual budget is to determine the revenue that it raises and what it wishes to spend. If there was a request from committee or elsewhere to have a particular strategy to build up reserves to a particular figure, that would be a budget decision, essentially. If that's to put more aside in reserves, and some members have mentioned that in the chamber as recently as the last couple of weeks, if that was a deliberate policy choice, of course that is a choice, but to put more into reserves would take it away from day-to-day spending, and that's a political choice. What I'm trying to do through this budget is give both stability, stimulus and sustainability for our public services. Of course, because of the issue that you're flagging up around risk in terms of forecast error, not of course from the Scottish Government, but the processes that we're bound by in terms of SSE, OBR and the material impact that that has in terms of the resources that we have available, but if there was to be a strategy to, for example, set aside further amounts for the reserve to take it from day-to-day spending, that very well could be a strategy, but it will affect the budget as proposed. I just think that members should be very mindful of that. I have set out my ambition to try and ensure that we have an adequate amount of reserves. Of course there are repeated calls on me from all sides of the chamber to use any reserves that we do have, but I think that it would of course be appropriate to try and have reserves account for some of the forecast error if that transpires, but there are other levers, as I've described as well, and also the decisions that we take from year-to-year in the budget. Really importantly, it is advisable that those agencies advising us give us the best forecast possible so that there isn't that level of reconciliation that might concern us all. In that case, Alex. Thank you, convener. I'm very much in the same vein. We've heard in previous sessions that, by the time you get to 21-22, whoever's Scottish Finance Minister then will be starting with a negative reconciliation of £472 million, and with your proposal to draw down £85 million from the capital reserve and £250 million from the resource reserve, you'll have drawn down the maximum allowed under the fiscal framework. A simple question is, will you be writing a letter for your successor that there's no money left, and if that is the case, is it true to say that your legacy will be to a single-handedly bankrupted Scotland? Absolutely not, and that's absolute total nonsense. It's a very colourful language for this morning. As I say, I know there's been dramatic events in Westminster trying to emulate it. Here's a nice trimester, Burnett, but I'm afraid not. The reality is, of course, as we get closer to each fiscal event, we have the most up-to-date advice. I'm sure that all members are very familiar with this. We've had these debates. The forecast will inevitably change. The numbers will inevitably change. The most recent information from the SFC has actually upgraded their outlook in terms of economic growth. That's the most recent report that SFC has published, and that's progress from the medium-term financial strategy that was published last year. The Scottish Government has produced balanced budgets and will continue to do so. There is that flexibility that I've described in the arrangements. As we've previously discussed at committee, is there room for further discussion with UK Government around the borrowing limits and the caps? Yes, I think that there should be, because in light of some of the constraints that we face, it is right to have more fiscal and financial flexibility taken into account some of the issues that have been raised. In terms of the point of spending money, we have produced and have produced consistently balanced budgets. If I were to follow the advice of the Conservatives, we would have less income tax to spend on our public services, and that's the reality. Again, I didn't hear anyone say at any fiscal event before in terms of the budget last year that the SFC projections around income tax that led to the budget decision should all be banked and reserved. The request that I got from Parliament was to spend the budget. Balanced budgets, competent budgets, stability, but the financial arrangements that we have set out in the fiscal framework is what we're following, and there's provision as to how you deal with that in the event of forecast error. As I say again, this isn't the Government's forecast, this is the SFC's forecast, which I know you very comprehensively probed and challenged, convener, but the catastrophic circumstance that Mr Burnett has allowed will not come to pass. Colourful language or not, you did say on Wednesday that other levers are available to the Government in the event of a negative reconciliation. Can I ask you which levers are you looking at, and if not, why not? I think that I've already gone through some of those levers in terms of the borrowing capacity that we have in the event of the forecast error, the use of reserves, and then decisions that the Government can take or a finance secretary can take and propose into Parliament the budget in that year. I've also set out, it would be my desire to try and ensure that we have reserves as well, but if Parliament wants to take a choice to take more out-of-day spending to put it into reserves. That's a choice that the Parliament should take, but just like the same as the alternative to the budget overall, if parties wish me to do that, to take it out of the NHS, or local government, or education, or anything else, to put it into reserves at this time, that's a legitimate line of inquiry to put as an alternative, but it's not the position that's been put by other parties in the Scottish Parliament. It is to stimulate the economy, provide stability, sustainability of our public services and present that balanced budget, but we are all familiar with the issues of forecast error if the SFC have got any of the numbers wrong in terms of what they forecast, and they are, of course, just economists looking to the future and trying to establish what they think the tax takes will be in the future. I would want to reflect again that the most recent report upgraded the economic performance of Scotland. As subdued as it is, and we know that because of the pressures that are coming from the uncertainty of Brexit, which have certainly not been resolved as of last night, and some of the demographic challenges that our country faces, so the government is getting about trying to stimulate the economy, address these issues, and we'll be able to do more if we had more powers so to do. Again, to go into the complexity of the forecast, there's been revisions because of improved data. Again, something I know that the committee has probed with the SFC and the HMRC in terms of the tax take that's in Scotland, because increasingly we're moving from forecasts in what UK Government agencies think they raise in Scotland to greater detail in what they actually raise in Scotland. Of course, that is the premise. That's the numbers that we have to wrestle with in determining the budget. I've tried to set out the balance decision that I've taken in presenting a budget to Parliament that is very mindful of the need for today and this year and for the public services going forward. Thank you, convener. James Kelly. Thank you, convener. Good morning, Cabinet Secretary. The spice blog on the taxation impacts of your budget demonstrates that anyone earning less than £124,375 would be paying less tax as a result of this budget. Do you think that that's a fair taxation policy? I think that what we've done around taxation overall has met our tests around income tax. That's around having a more progressive system with the recalibration last year. Stimulating supporting the economy, supporting lower earners and raising more income. That was the four tests that we set out on the role of income tax in Scotland's budget. Of course, there are changes to the personal allowance. I do think that the tax policy that I've put across is fair and progressive. It's true to say that I've not increased the tax rates, so that's percentage tax rates, but what we are not doing is passing on the tax cut in terms of the higher rate threshold to the element of higher earners in Scotland. The decisions that I've taken are a balanced one of fair and are progressive, but it's true to say that because of the personal allowance that I'm not increasing the tax rates, that a number of people will be paying the same or less tax. Those who have tried to describe it as a huge tax hike would not be accurate. You think that it's entirely reasonable. Cabinet secretaries like yourself who are scheduled to earn 111,000 next tax year would be paying less tax? I would want to point out that Cabinet secretaries such as myself have taken a voluntary pay freeze since 2008. I've not been a Cabinet secretary that long, of course, but that is the position for Cabinet secretaries since I've been asked about my own position. Yes, I do believe that the income tax proposals that I've put forward are fair because they meet those tests of raising necessary income, protecting the economy, and that's an important balance right now to give that stability to protect lower income earners because that's the system that we've designed in terms of being more progressive. We're not passing on the tax cuts for higher-rate taxpayers that the UK Government is doing in terms of raising the threshold there. I do believe that the rates and bans that we've put across are fair, are progressive and are the right balance at this point for Scotland. You think it's fair that Government ministers, managing directors, chief executives on salaries of around £100,000 are paying less tax as a result of your budget? As a result of the budget, it meets the principles that I've set out, which raises more money, which is more progressive, which protects lower income earners and is far more progressive. It's not passing on the cuts from the UK Government in terms of the higher-rate threshold. It's very interesting that James Kelly is asking the question when the shadow chancellor in the UK Parliament has said that he will emulate Tory policy. He won't undo the Tory tax cuts in the UK Parliament in relation to income tax, but that's exactly what I'm doing. I'm not passing on the Tory tax cuts in Scotland that raises more money, it protects lower income earners. It's a more progressive system and it's fair. What I've also done is looked at the evidence. I've looked at the evidence in terms of impacts that might come to pass, if you, for example, as Labour has proposed, increase the top rate of tax. To a point, we actually raised less revenue. That would be counterproductive to our public services because that loss revenue would simply mean that we had less to spend in our public services. I think that the approach that I've set out is balanced, is fair and, in not passing on, the Tory tax cut is right in terms of the circumstances for Scotland in trying to deliver the society that we seek. If you looked at the evidence, have you taken account of the fact that, in terms of public services, we hear week after week in the parliamentary chamber of the crisis in public services and councils are facing the prospect of job losses and cuts in services? Why, then, have you set a taxation policy where 99 per cent of taxpayers will pay less tax in the coming year? I've tried to set out the composition and the structure of the tax base in Scotland and, following the evidence, I've met the tests that have been set out in relation to the role of income tax in Scotland. I'm wondering why the Labour Party is just photocopying the chancellor's tax cuts in Westminster and, in Scotland, I'm told that there will be no alternative proposals from Mr Kelly or any of the Labour Party in Scotland. So, if it's not my income tax proposals, what are the Labour Party's proposals in that regard? I think that it is absolutely defensible. I think that it's absolutely fair. For the tax that is paid in Scotland, you get a better deal. It is true to say that, for a majority of people in Scotland, it is the lowest tax part of the UK and it's the fairest tax part of the UK because the beneficiaries of our policy will include lower earners. So, a fairer tax system or a progressive tax system, and I think that one that is based on the evidence that's before us in terms of what optimises our income rather than puts income at risk is what the Labour Party has proposed. There is divergence from UK tax policy, but I think that it's divergence that reflects what we wish to see as a country in terms of the social contract, the entitlement, but also the economic growth and stimulation for our economy as well. Of course, there are challenges because of on-going austerity from the UK Government. I've covered the numbers in terms of the overall settlement to Scotland. If we take aside the health consequentials, then it's a real-terms reduction in resource to the Scottish budget, and that has put pressure on our public services. We've taken a balanced decision around tax, and specifically in relation to local government, I'm proposing a real-terms increase in resource and capital for local government as part of this budget. You may expect, cabinet secretary, that this is an area that a few people want to contribute in, and I think that we're probably here on the opposite side of the argument now, Adam. Ah, yes, thank you. Cabinet secretary, good morning. Do you agree that the highest 1 per cent of earnings in the Etty kingdom currently contribute over a quarter of income tax receipts, both to the Scottish Government and to the UK Government? I'd need to go through all the individual figures, but by nature of the composition of the tax base, they pay more. In terms of your ambitions to grow the Scottish economy, and in terms of your ambitions as cabinet secretary for finance to have more money to spend, or indeed to invest in the Scotland reserve, or to save elsewhere, do you accept the imperative need in the Scottish economy to attract a greater number of additional rate tax payers into the Scottish economy? I think I've referenced in the economy, committee. I value people irrespective of what their tax band is. We value people on a range of issues, and it's not necessarily just your tax band by which you will be judged. I've said we want to attract people to live, work and invest in Scotland for a whole host of reasons. We need that population growth. Obviously, we want to stimulate the economy and we want tax support as well. Again, I've not set a target just to attract top-rate tax payers, but we want to attract as many people to live, work and invest in Scotland as possible. As I've said at the economy committee, I value the nurse, the carer, the refuse worker and everyone else. It's not necessarily just top-rate tax payers, but everyone contributes to society. Indeed, we would all agree with that. For every 20 additional tax rate payers that we attract to Scotland, the Scottish Government accrues an additional £1 million annually in tax receipts. For 20 additional rate tax payers, we get £1 million extra to spend or to save. My question is, what is the Scottish Government doing to attract new additional rate tax payers into the Scottish economy? I'm trying to express, as I've done at another committee, that we need a whole host of people to support... I understand that, but I'm asking you specifically, given the immense contribution financially that additional rate tax payers make, I'm asking you specifically to identify the policies that the Scottish Government is pursuing to attract additional numbers of additional rate tax payers into the Scottish economy. I'm just slightly interested in why the need for nurses or carers or other professions aren't important as well. I'm not saying that they are not important, but I'm not saying that anybody is unimportant. Some are more important than others. Some pay more tax than others, and I am identifying that additional rate tax payers contribute an additional £1 million annually for the Scottish Government to spend. That money doesn't go south to Westminster, it stays in Scotland. I'm asking you to identify, notwithstanding the fact that the Scottish Government is doing specifically to attract additional numbers of additional rate income tax payers into the Scottish economy. Convenor, I've questioned the premise of the question, and I'll come back to it simply because I say that Scotland's economy needs a variety of different people who make a variety of different contributions to our society. To be asked what we're doing to specifically target a certain number of people, I'm asking you specifically to identify what the Scottish Government is doing to target a specific band of taxpayer. I think that the premise of the question is somewhat strange when we know that the economy needs a range of people. We want to attract as many people as possible to come, live, work and investment. In terms of what are we doing to try and achieve that, first of all we want a more welcoming migration policy. We want to build a quality of life that attracts people. We want quality jobs, so there's meaningful employment. We want to grow the sectors of the economy that ensures that there are those high-value jobs and we're doing that through our economic strategy. An education system that attracts people here because of the quality of education. Or the quality of life is important as well, that can be the environment, that can be the nature of our public services. The social contract is to say the prospects to live in a fairer and more socially just society. That should be attractive to all taxpayers as well as just those that Mr Tomkins wants to pursue. It's the kind of society that we seek that's more progressive, that's fairer and of course we want to raise the necessary revenue as well. There's that quality of life that I think is really important. Crucially in the SFC's work, when they look at our tax propositions, they look at behavioural effects, they look at behavioural issues and make sure that that is factored in that the numbers that they give me. What we have to be very mindful of in our tax policy of course is that we're not deterring people to come and live and work and invest in Scotland and that's why we take the evidence-based approach to ensure that we're optimising the revenue we can raise, attract people to come and live and work and invest in Scotland and ensure that we're also protecting our public services and so to do. I think that we're building a better country and that's itself attracting people to come and live and invest in Scotland. Of course the UK Government is a far more hostile attitude to migration. Of course it's interesting when you look at the SFC figures. Of course it's going to evenly do nothing at all. The numbers of additional rate taxpayers just in terms of the forecasts done by SFC say they're going to go up in 1920 from 15,800 to 2022-23 to 20,100. Despite, without the Government having to do anything, the numbers will increase. I just put that on the record as a fact from the SFC's own forecast. That's not a fact, because it's a forecast. Can I get that right? Patrick Stewart. Thank you very much, convener. Good morning. You've mentioned a couple of times, Cabinet Secretary, that one of your objectives on tax policy is to raise more revenue. This has been discussed in the chamber a couple of times, but I wonder if you could just say for the record what is the Scottish Government's assessment of the amount of additional revenue that is in the budget for 1920 compared with a scenario of following UK tax policy? In terms of divergence between our policy as proposed and if I had followed UK policy about £500 million. Thank you. That's specifically just an income tax to be clear. Given that that income tax policy was not, in fact, your own party's manifesto commitment but was the result of discussions after the election, I think, very positive cross-party discussions, and given that you would have said at the time that your own party's spending commitments were fully costed and funded and that you've spent what you describe as health consequentials, Barnett consequentials, which you're free to decide where to spend. You spent those on health. That £500 million presumably shows up in some substantial increases in other spending areas. Where is it? I've published the budget year to year. It's in the budgets as proposed. In terms of the £500 million to be clear, again on the premise of the question, there is divergence and there was divergence in the income tax manifesto proposition from the SNP in Government and from the Conservatives. There was divergence in tax policy. Some of that is now driven by the fact that the UK Government has chosen to implement their higher-rate threshold earlier. Some of the divergence is coming out because of decisions of the UK Government and, of course, that has a material impact on us. In terms of the extra resources that's generated by the divergence in tax policy, the tax policy is able to set out, it's invested in the budget. Last year, in 1819, it was invested in the public services of Scotland and the decisions will take this year. If we were to take a contrary decision and follow the Conservative Party's income tax policy, what we would have to do is to take £500 million out of proposed spending if we were to follow that policy. So, where is the money from the tax divergence in the budget as proposed? I appreciate the answer at the extremely general level that you've given. I'm really hoping for a specific answer. You're saying that there is additional money in the budget for the coming year because part of your objective, part of your intention in income tax policy was to raise more revenue for public services. I'm asking you to identify specific budgets that have benefited on that kind of order of magnitude from the additional resources that are available. As you know, you're being told by, for example, council leaders all over the country that they're having to strip services down to the absolute bare minimum at the moment, so it's not in there, it's not coming in health because you've already acknowledged that that was a pre-committed SNP policy that would have been funded within the resources that you expected to have, and the additional Barnett consequentials have gone to health from that source. What are the other areas of expenditure that have seen this substantial uplift? Arguably, all the rest of government, you could argue, including local government, so I'll reference what I said earlier, convener, because this might be helpful, that we don't extrapolate generally out just income tax and say where is that element of revenue being allocated within the budget. You take a total approach of ultimately total revenue and then total spend. It's not hypothecated, I think, in the way that it's been suggested. To give that further detail, in terms of health consequentials, of course Scotland was shortchanged between about £50 million, so the tax changes that they were making makes up that figure to ensure that we can allocate to health services, so the resources that they were committed by the UK Government in terms of the uplift that they were talking about previously. As I've described before, the UK resource to Scotland, if we discount those health consequentials, for the reason that I've just given, we've said we'll pass on the health consequentials, for the rest of expenditure, that would have been real-terms reduction because of that resource allocation. It would have been real-terms reduction because of the offsetting of other budgets, essentially, from that decision by the UK Government. So what the tax policies have allowed us to do, plus the other decisions that I've been able to make, have ensured that other portfolios will enjoy that growth. Local government was a pretty good example. Again, if I had just passed on that real-terms reduction of Scotland's budget in terms of resource, Fiscal Dell, if I had done that, then local government would have been getting a real-terms reduction, but I'm proposing real-terms growth for the local government budget in terms of resource and capital. We don't, as I say, extrapolate that element out, but the tax revenues fund the budget as proposed, which the alternative, as I say, quite simply would have been a £500 million reduction to budgets if we hadn't taken the decisions that we've taken. That would have been £50 million less for health services and reductions for portfolios as well, to the tune of about £0.5 billion. That's the consequence if we had followed the tax policy. I know that other members want to come into local governments or perhaps come in in the back of that. Okay, we'll come back to that. There's still a number of areas and a number of people want to contribute in the tax area, so, Angela? Just while we're on tax, the Cabinet Secretary has said a few times in chamber under Nail Square that, as a result of UK-imposed austerity, that has led to a real-terms reduction in our total Scottish fiscal budget by 6 per cent or £2 billion over the decade from 2010 to 2020. I wonder if he can remind us how his decisions, overall on tax and borrowing bear in mind as the finance secretary has got many competing interests to balance how he's managed to mitigate the real-terms reduction to the Scottish fiscal budget and by how much. And what additional investment that has enabled in public services? Well, again, looking at those figures, we have debated, as I say, over the period 2010-11 to 2019-20, Scotland's discretion resource budget allocation is £2 billion lower in real terms than it was in 2018-19. That's 1.3 per cent lower in real terms. So, the decisions that we've taken on tax and borrowing reduce the real-terms reduction to the Scottish fiscal budget by 6 per cent or £2 billion, so that's 1.3 per cent lower in real terms. So, the decisions that we've taken on tax and borrowing reduce the real-terms reduction to the Scottish fiscal budget by 6 per cent or 3.8 per cent between 2010-11 and 2019-20. We've generated additional £712 million for investment in public services. That's £450 million from capital borrowing and £262 million from tax policy decisions. In terms of the budget that we are proposing for this year of interest in 2019-20, we've taken a number of steps that we've taken on tax and borrowing and proposed for this year of interest in 2019-20. The difference in terms of the budget that we are proposing between 2018-19 and 2019-20 is the difference of £2 billion in terms of the extra expenditure that we are proposing in this budget for our public services. The other aspect that I'm really interested in, convener, is how particular choices in investment can increase tax receipts. For example, we've got record investment in the affordable housing supply programme of £826 million. That has to be good news. I wonder how the Cabinet Secretary could talk through how that improves income tax receipts because it works its way through how everybody knows capital investment increases employment. I know that the Scottish Government has done some very specific work around crunching the numbers and what investment housing means for income tax receipts. Specifically, there's employment created through the immediate work, through the construction sector that we want to stimulate. That applies to a whole host of Government spending, whether it's on assets or infrastructure, to stimulate the economy. That investment of £826 million in housing helps to meet that housing target, providing more homes as well. That's an economic stimulus, short, medium and long term. The employment is created and we've got more people in meaningful employment. Paying tax will generate more income tax as a consequence. In investing in the economy, there's a circular benefit of the supply chain as well. Housing is one good example, and there's a range of commitments to stimulate the economy around manufacturing, around a competitive rates regime as well, to support business growth and stimulation at this time. Specifically on housing, it's a good example of infrastructure investment as the multiplier, effect, short, medium and long term. Providing more quality houses for people to live in as a good social outcome as well. Thank you for that. Can you share the detail of the number specific on the multiplier effect and what investment housing means in terms of increasing tax receipts? I can write back to the committee on the specific multiplier detail and on the economic benefits that come from housing specifically. Neil, you had questions in the growth area as well. Thank you. Good morning, Cabinet Secretary. In the first sentence of your draft budget statement, the Scottish budget prepares our economy for the opportunities of the future, and it's very important that it does. You recently hailed a growth in Scottish GDP, however, this is not forecast to be sustained. The SFC said that we do not accept the stronger growth to be sustained beyond 2019, averaging just over 1 per cent over the next five years. You said earlier that numbers will change and forecasts will change. I accept that, but it's not particularly reassuring. What evidence can you present as if any that we can have confidence that the growth figures will be higher than the rest of the UK over the next few years? Well, they have been higher for at least two quarters. We enjoyed higher GDP growth than the rest of the United Kingdom. We've had five consecutive quarters of GDP growth. I'm just looking at the press release right now from the Fiscal Commission. The headline has improved outlook for Scotland's economy, but long-term prospects remain subdued. As we know, we are already outperforming in terms of the previous forecast that the SFC had set out in terms of GDP growth. They did revise up the GDP growth, but the reason for the subdued nature for it, as I'm sure Neil Bibby is well aware is because of Brexit uncertainty and some of the other population challenges that Scotland faces, very specific reasons for that. We want to, of course, grow our economy in a sustainable way. That's why we've got the economic action plan. That's why we're trying to create a competitive tax environment. That's why we're trying to give stability to our country at this time when there's the instability of Brexit and the UK Government handling of that. The forecasts whilst being subdued have been surpassed so far. We will surpass, it looks like, once the numbers are reconciled, the GDP forecast for 2018 and looking forward, we want to stimulate that as much as possible. That's why it's important that the budget invests in the economy, in infrastructure, in digital, in improved productivity and in the growth areas that we'll have. There's an export strategy to enhance our exports as well as that pay policy just coming back to the benefits of people employment and tax. There's a range of measures that we're putting into place to try and support and stimulate the economy, give that stability as well. Some of the divergence between GDP in UK and Scotland is down to population. We're much closer on earnings per head, but specifically on growth, it's the population challenge that presents us with a disadvantage compared to the rest of the UK because we'll all work together to try and stimulate the economy. I say again that it's welcome news that we've had five consecutive quarters of growth and for some of those quarters we were outperforming the United Kingdom. You said that we need to stimulate the economy and you said that the budget provides an economic stimulus. That's an encouraged statement, but the proof of the pudding will be in the eating and the Scottish Fiscal Commissioner forecasting income tax seven years from £83 million because of the economic forecast. In terms of the stimulus, can I ask you what's the value of the economic stimulus that you're providing in this budget and how will we judge the success of your economic stimulus as provided in this budget in terms of growth, wages and employment figures? I'd say that the totality of the budget is quite significant, £42.5 billion. That's the... That's not a stimulus. A stimulus is additional revenue that you're putting in, so I'm asking you the value of the stimulus that you're providing in this budget. You can't just say that the whole budget is a stimulus. I can say that because it's perfectly credible to say that the budget helps to provide stability and stimulus. New measures in the budget include what I'm saying around the competitive tax regime, the growth accelerator and proposing investment in infrastructure, quite a substantial amount. The stimulus areas export which I've touched upon maintaining commitments around education, local services I know we'll come back to it, but real terms increase for resource and capital spend for local government including the town centre fund that I'm proposing and in terms of spend actually spending on public services does surprise the Labour members spending money on public services does stimulate the economy paying those salaries is a matter of fact if anyone who's read the SFC report will know that the increased expenditure stimulates the economy so I think it's perfectly fair for me to say that an uplift of £2 billion in expenditure will stimulate the economy as well as very specific economic interventions that I'm proposing. Asterity has been the reduction of spend in the public sector which I think has subdued the economy. Again, I would expect a Labour member to understand that. In the budget, convener, I have been asked a question in the budget it proposes over £5 billion of capital investment that stimulates the economy and proposes an expansion of early years in childcare as well. Energy efficiency is more an innovation the national manufacturing institute is a digital start for a whole host of areas in enterprise and skills but the totality of the budget will help to stimulate the economy that is recognised by the SFC in terms of what they've said generally about public expenditure and the positive impact it has in the economy to be fair. The additional revenue that this provides is £2 billion is that what you're saying? Is that the value of the economic stimulus I was asked what's the quantum of the economic stimulus as I say, the total budget is an economic stimulus £42.5 billion in terms of the difference between the budget in 1819 and the budget as proposed for 1920 is £2 billion so that's the extra resource that I'm proposing to spend as a consequence of the budget. We've covered the taxation area pretty well. I know Tom you wanted to come in on that but I'm going to go on to Murdo on underspends if you want to come in after Murdo, please feel free but I need to move on a bit. Murdo. We've got used to over the last couple of years a sort of pattern of activity around the budget where you publish your draft budget in December and you tell us all that's all the money there is and then we get to the stage 1 debate at the end of January or February and miraculously you've discovered a whole lot more money lying around that you didn't know about in December and use that to lubricate your budget deal usually with the Scottish Green Party. My question is this, how much money have you got hidden away this year that you're going to suddenly produce in a few weeks time that you haven't told us about yet? It's a morning of colourful language. As the First Minister said I have fully allocated the resources at our disposal. I've set that out in the budget how the budget is funded. What I have said though is that my door is open as a minority Government, we of course want to get the budget passed. I think it's really important for the stability of our country for the sustainability of our public services that the budget has passed. Therefore my door is open to other Opposition parties to come with me with alternative proposals if they wish to amend this budget and if that means additional resources in one area they'd have to set out how that would be funded by taking it away from another area or through an alternative tax proposition so I'm open to engagement on that. Thank you for that answer however it would help Opposition parties in that regard if they were fully aware of what additional sums might be lying around you haven't told us about that. For example last year I was just checking the official report from the committee for last year in the period from the 15th of January sorry last year 2018, 5th of January 2018 until the 31st of January 2018 12 working days you came up with an extra 110 billion pounds in that period 12 working days so is it reasonable for us to expect that the time we get to stage 1 which is coming up I think in what 15 days time you have found some additional funds or are you telling us this is absolutely it there's not a penny more available that we don't currently know about. I'm describing to committee that I've fully allocated the resources there were very specific circumstances that I know cheered up the whole Parliament last year that I was able to identify specific changes can be Barnett consequentials the forecast at the time or tax changes that were suggested but I'm genuinely answering the question I've fully allocated the resources at my disposal to present the best budget possible that takes into account the requests and demands and issues of importance to the people of Scotland so I've answered this very clearly to Mr Fraser. I'm not sure you've simply denied that it's available in 15 days time but let me ask you about the question of understanding. I've fully allocated the resources at my disposal if opposition parties want to bring alternative proposals to me I'll engage with any constructive reasonable opposition party Of course any opposition party of which I would count Murdo Fraser of course entirely reasonable as you know cabinet secretary but I think all of us would be better informed and better able to do that if we had the totality of the financial picture let me ask you specifically about the underspend because in the previous year in the budget for the current financial year of this £110 million that you produced I believe 70 million pounds of that came from the underspend so where are we in relation to the underspend and what additional underspend might you be able to discover to allocate to the budget for next year put it in it's factored in terms of the budget as published so there's nothing extra going to be produced over the next two weeks again convener I'm being perfectly clear that I've fully allocated the resources in the budget and I've set that out and in terms of budget process there's been changes requested through the budget process review group that I've been taking into account and I've set out the outset of the budget how the budget is funded and that includes use of the budget exchange reserve that I've set out okay thank you cabinet secretary we'll find out in 15 days time who's right Tom and good morning if past this budget would come into effect a week after the UK is scheduled to leave the European Union can you outline cabinet secretary what the consequences would be if this budget is not agreed to if the Scottish budget isn't agreed to I think it would be fairly it would be devastating to our public services the sustainability of our public services to the stability as well I think with the chaos that's going on in Westminster at the moment we know Brexit's going to be damaging to the UK economy, to Scotland's economy and we're trying to avert that but if the budget itself isn't passed the very specific arrangements around what you would revert to in terms of the differences that I've described earlier the figure between 1819 and 1920 some £2 billion that's the difference if the budget's not passed as I say there are very specific arrangements but I think it would create a great deal of uncertainty in terms of all parts of the public sector I think it would be quite alarmed if the budget wasn't passed it represents growth it represents growth for our national health service it would increase for local government for other parts of the public sector as well investment in the social contract of our country if it doesn't pass that would have profound effects I think that's why we have to work so hard to make sure we find the necessary compromise that the budget can be passed so we can release that £42.5 billion spend into our public services and provide the economy with the stimulus desperately I think requires right now particularly in view of the Brexit mishandling of the UK Government and it's for all of us to find that necessary compromise and just to clarify my understanding in that I'm sure of many of my constituents is where we are specific policy commitments for example around Frank's law and investment in early years that would be at risk I'm correct in understanding if this budget is not passed of course if some elements of policy of course are driven by statute but you have to have necessary resources to pay for them and the commitments that I've outlined in the budget if we're not raising the necessary revenue or they can't be paid for so I think those parties that have asked us to deliver certain policy commitments and haven't done that I think there's an onus upon them to ensure that the parties the extension of free personal care is a very good example of that so I would encourage all members to engage constructively with the budget to the committee if it wishes on what were to happen in terms of the budget not passing but in essence if a budget wasn't to pass you would revert to previous years budget but that assumes you've got the necessary income to pay for it so a Scottish rate resolution would have to have been passed as well the non-domestic rates element would have to have been passed too so I think with the chaos and calamity that's going on south of the border we should show that constructive pragmatic positive engaging approach in the Scottish Parliament to ensure that a budget can pass so that we can support our vital in public services give that economic stimulus and that sustainability as I say for those public services and deliver on a fairer tax system as well but to actually raise the revenue the revenue raising legislative requirements have to be passed thank you Patrick was supplementary to Tom's question just very briefly thank you given that Tom Arthur and the cabinet secretary have both made the connection and the comparison with the Brexit process and the rather reckless my deal or no deal approach that the UK Government have taken could I ask the cabinet secretary to acknowledge that that kind of catastrophic approach is entirely the wrong one especially in a context in the Scottish Parliament in which Fraser's recollection for example my party and his party voted for SNP budgets on precisely the same number of occasions since your party came to power I am a constructive and reasonable finance secretary and I'm setting out that I have found compromise in my previous two years budgets and I hope to find a compromise going forward, my door is open to engage with others and I hope to meet with success and do that for the reasons that I've given so I will continue to engage constructively to try and find the necessary compromise I don't think that I can be any clearer on that also checking the record the SNP for a number of years also voted for executive budgets in opposition so it is actually a responsible thing to do to vote for the executive and the government's budget because the alternative that Tom Arthur has touched upon would be very damaging to our public services and our economy if the budget were not to pass but it's our job to make sure we find that necessary compromise Emma, are you a question or are you still there? Well thank you convener it was really just to clarify that what you said earlier about the Barnett consequentials and health that where or are not now coming to yesterday at health and sport committee Jean Freeman was asked questions about the budget and the issue of the funding gap of the, I think it's 55 million pounds that the NHS isn't getting now but your tax decisions that you've taken as budget will help meet that funding gap, am I correct and how has that been managed can you just clarify that? I think that has been outlined I do welcome the health consequential I want to say that first of all it is welcome that there will be health consequential but the issue is what was committed to Scotland and what Scotland will receive because of the offsetting elsewhere is less, that figure is correct of 55 million pounds and I had said that we would reinstate that there's a total spend to health services that we would reinstate that and that essentially ensures that health resource funding will be increased by £729 million so I think that's quite a significant increase and Jean Freeman would have gone through the detail at health committee that will take total resource spending on health and sport to £13.9 billion and that also means more support of an area of interest to many members as well around mental health specifically because it's been touched upon that there have been many requests for more expenditure and that was one and I think that that's absolutely the right thing to do so yes, in our tax decisions we've reinstated the short changing of the £55 million in relation to health consequentials and as I say I've outlined that as a nature of the Barnett consequentials an increase in health but been offset by cuts to elsewhere because of the construct of the UK Government's decisions and it's just a wee sup to what Tom Arthur brought up about Frank's law for instance and if the current budget is approved there will be a package of investment of £120 million transferred from the health portfolio to local government to help with the integration of health and social care so that's actually a really important contribution to support local government in managing our integration process as well so as well as the specific resource around free personal care that's true, the integration journeys are really important one to ensure that people get the support that they need and in the discussions I had with local government there was a request around more support for social care and I was able to meet that request okay, thank you Willie L.B.T.D I just wanted to ask you a question on land and buildings transaction tax on the fiscal commission last week why they thought the forecasts for revenue were going up significantly at the same time that growth and sales was slightly behind the UK and it wasn't entirely attributable to the policy change on ADS it was roughly double the amount of revenue we would get through that, what's your take on this and why are we seeing such good performance in the next few years? I would want to take credit for the policy change because the intention is to raise revenue from that whilst giving that degree of stability as well so the SFC can answer for their own forecasts and some of those transaction taxes of course they can be volatile based on the nature of the market the market composition as well any sensitivities within it but we will raise more revenue and some of the fears around the more progressive structure of LBT in relation to residential are unfounded in that we have raised the necessary income commercial transactions are even more volatile because it's just the nature of what property in the commercial sector happens to be selling at a point in time so whilst recognising the volatility of a forecast and of the market sensitivities the policy changes that I'm proposing will continue to raise revenue so that's a pretty sound basis in which to continue the market will be affected of course by any shock in the economy that may come from UK macroeconomic policy and Brexit but these forecasts are based the budget is contingent upon a deal in terms of UK and the European Union so the reason I say that is that forecasts are based on their economic forward look recognising the volatility but on LBT as Mr Coffey has suggested we will generate more money through our tax policy than over and above the BJA block grant adjustment and you can see that over there it's very positive of course the forecast may change Adam on business rates thank you I wanted to ask a couple of questions about business rates if I may in your budget document you said this our high streets and town centres are facing challenges as retail patterns change and evolve and it is essential that we support them to become more sustainable what your reaction is to the Scottish retail consortium's take on your draft budget in which they've said this that the large business rate supplement remains twice that which applies in England businesses in Scotland pay a total of £65 million extra each year in comparison with what they would pay in the rest of the UK and that this higher rate in their words simply makes it more expensive for high streets and retail destinations and raises the hurdle for attracting commercial investment what's your response to that? Mr Tomkins is only looking at the large business supplement not to business rates or non-domestic rates in their totality because actually the approach overall I think has been welcomed by business representative organisations as being very welcome in terms of business and I think for town centres as well decisions have taken more widely and of course there is the Barclay recommendation to reduce the large business supplement I've said I'll do that when resources allow but we are confirming the decision around the poundage uplift down from RPI to CPI actually we're going below that to make sure that for vast majority of businesses all those medium-sized businesses in Scotland that they're paying less tax than they would if they were south of the border it's actually a slightly under inflation increase in non-domestic rates and that has been welcomed by the business representative organisations we're continuing with the small business bonus I'm proposing a town centre fund and as I said there's city deals as well which will support that economic growth so I think if you look at business rates, non-domestic rates and their totality it will show support I think for businesses including in retail we're continuing the transitional relief as well that I've proposed so that cap for north-east in terms of offices, Aberdeen and Aberdeensia for hospitality over the piece recognising the very particular challenges that they face as well we've lifted 100,000 properties out of rates altogether and as I said the poundage uplift is less than the rest of the so I think all in all that's a very supportive package for businesses and takes a relief package to about £750 million so £3 quarters of a billion and that's an increase in the relief so looking specifically at large business supplement discounts everything else we're doing through non-domestic rates to support the economy and particularly those local economies cabinet secretary you said that you hoped to be able to implement a review recommendation that the Scotland only surcharge of the large business supplement is eliminated when resources allow but the Berkeley review as I recall has a specific timeline set out in its recommendations what's your timeline what's your forecast of when resources will allow you to take this necessary step I'm not proposing to do it in this budget because I don't think resources allow me to do it in this budget but I think the other decisions that I've taken are lifeline to our town centres to businesses right across the land it's significant that Mr Tomkins has quoted the SRC and I said you should look at the totality of their comments it's very much in the Christmas spirit that SRC said with Scottish retailers feeling the pinch after a difficult year we're glad the finance secretary has been more of a Christmas elf than Scrooge in this year's budget his language not mine I've worded it exactly the same way he goes on to say he moved to protect ordinary workers from income tax rises and investment infrastructure, housing and skills are positive which should support the economy I'm happy to say I missed that particular fancy dress party but can I ask these are the quotes you should also maybe have looked at as well as those that you have specifically touched upon about the operation of business rates particularly in the hospitality sector and this is an issue that has been brought to my attention across Glasgow the region I represent recently and as I understand it in the hospitality sector business rates are assessed by reference to a formula which focuses on turnover as opposed to profitability or floor space or number of employees or any other number of factors that are used in other sectors and this has led to what can only be described as eye watering and punitive increases in business rates applied in the hospitality sector across Glasgow so for example in a local and much-loved restaurant just around the corner from where I now live in the south side of Glasgow the owner is faced with a 411% increase in business rates is this something that Cabinet Secretary is aware of is it something that he's looked at is this the formula for assessing business rates in the context of hospitality that he's looked at in the forthcoming bill if it is still forthcoming on business rates that I think we were promised in the most recent programme for government or is it something that we need to take forward separately so Mr Tomkins has asked am I aware of it I've reported this to Parliament a number of times the issues around non-domestic rates the very specific issue around hospitality and I've acknowledged that in my rates decisions that I proposed a cap of 12.5% so that we capped the increase that hospitality would endure from year to year I've proposed that and I have committed to that but I think what all members should be very mindful of are the decisions of the assessors around the methodology and how the assess value is actually assessors not for government Scottish Government ministers do not direct the assessors on the methodology I need to be very clear about that that is a matter for them and they are answerable to the courts ultimately about this I do agree however that they should look in terms of engagement with the sector I've encouraged them to do this engage with the sector around the methodology that they use and I think they are working through the various fora that they have to engage with hospitality but the decisions that I have taken capped the increases within state aid for individual businesses at 12.5% on hospitality and of course it's for local authorities to make sure that that's implemented because they collect the non-domestic rates but again I need to be really clear with committee it isn't for ministers to direct assessors as to how they change their methodology that is the assessors independent function but I think they are engaging with the sector around that there are different choices it's not turnover, it's not profitability there are other factors that arguably should be taken into account so I am aware of the issue it is something as I say that I cannot direct assessors but where I have the decision making power I have capped the increases for hospitality since it's been raised specifically that's for the whole country within state aid limits which means there's an amount of relief that can be attained and it does reach a limit but I have implemented this transitional relief committed to it and then for everyone who's paying non-domestic rates lowered the poundage to a below inflation increase and lowered it from RPI to CPI that's significant because it means that for every small and medium sized property in Scotland it's not getting any other reliefs they're paying less because they were south of the border so everyone not just hospitality benefits from that as there's a room for amendment and non-domestic rates bill let's discuss that when we get to the non-domestic rates bill where I'm sure members will have a great deal of interest in it but I think we need to be very careful not to jeopardise the independence of the assessors in making their decisions but I'd encourage Mr Tomkins to of course engage with the assessors around the issue that's been raised with them I've encouraged the sector to do that as well so there are ongoing discussions between the hospitality sector and assessors but I can't leave anyone with the impression that it's a ministerial decision that's very helpful thank you okay Neil I think you want to raise the issue about the Government issues yeah thanks last year you said local councillors were getting a fair settlement but Cosly and others disagreed and you ended up giving them some more money this year local authorities again clear you're cutting their core budgets by £237 million are they getting a fair settlement this year well I believe that they are again I've described that the chancellor had the opportunity to end austerity he hasn't taken that opportunity if I had simply copied the chancellor's cuts the rest of the public sector in Scotland it would have been a real term reduction that's not what I'm proposing for local government I'm proposing a total core funding package for local government amounting to 11.1 billion pounds so that 2019-20 local government finance settlement increases local government day-to-day spending for local services by £197.5 million in cash terms and delivers an increase in capital spending of £207.6 million so that is a real terms increase in both revenue and capital settlements for the year that's proposed a real terms of increase of over £210 million on the overall settlement of course local authorities can also use their council tax powers as well as a function that not every other portfolio has but local government can raise council tax if they do it up to 3% that would generate a further £80 million I've gone over this in great detail with local government committee I'm happy to do so of course convener here again but I have gone over this in great detail with the local government committee but these are the figures that I've set out to Parliament I've said before and said again this morning that if you exclude Barnett consequentials for health that the Scottish Government budget has been cut in real terms councils are saying if you exclude money for additional childcare and social care responsibilities their budgets are substantially cut in real terms elsewhere but you've turned round to councils and said childcare and social care additional funding is for core services and they need to see it in the round do you not see the contradiction in your position? and childcare and health and social care integration is core to the local government function it's a debate that I had at local government committee I've made that clear I don't see that separate to local government I see it as part of local government but you're complaining about the UK Government budget allocations excluding Barnett consequentials for health it appears to be one rule for you and one rule for councils and with respect I don't think you're the so arbiter of what core services are can I also ask that Scotland's councils are facing increasing pressures as we know there's of course the outstanding issue of teachers pay which is set to be a significant cost which if not fully funded will result in even more council cuts will you therefore fully fund the eventual pay settlement for teachers? again there's live negotiations the tripartite arrangements for the teachers pay issues between the Scottish Government local government through COSLA and the teaching trade unions it would be inappropriate for me to set out any detail on something that hasn't been agreed yet but I hope that there is agreement I hope that we find that consensus with local government and the teachers representative trade unions and then of course we'll look at the funding of that the Scottish Government is trying to be as constructive and helpful as possible as am I as finance secretary but it's hard to outline the funding package when agreement hasn't been reached yet but I hope we do reach agreement on that Thanks Bruce, just on the local government issue I mean two of COSLA's spokesperson last week I think that the local government committee disagreed councils in England and Wales is collapsing and thank God there's a different approach being taken in Scotland Cabinet Secretary, your budget proposals on page 86 your document shows quite clearly an increase in local government finance from £10.6 billion last year nearly 11.1 in any of these terms that's an increase surely so I don't understand why members would continue to claim that's a cost Well I have set out why it is an increase, it is real cash so it is real money going to local government we can debate the priorities within that but it is real money it is a real terms increase in resource capital I would say that for as long as I've been finance this is my third budget as proposed to parliament which is proposing a third year of increase in real terms to local government and this has been really challenging financial circumstances to go back to Mr Bibby's question I've had simply photocopied Chancellor's budget, it would have been real terms cuts to other portfolios all other portfolios including local government I'm not proposing that, I'm proposing a real terms increase for local government and in terms of the policy choices and priorities I only can say that when I watched the evidence of the COSLA spokesperson for resources she described our priorities as excellent priorities and there is partnership working with local government so I'm not underestimating the challenge on any part of the public sector because the UK government's on-going austerity but what I'm proposing is actually a real terms increase Patrick I suspect everybody understands the reason why there are different interpretations being put on these figures it's not necessary to disagree with the new policy commitments that the Scottish Government is telling local government to deliver it's not necessary to disagree with those policies in order to still be concerned about the core funding of services that are out with those new national commitments that have ring-fenced money attached can I share with you some comments that have been sent to me by one council leader saying there is quite simply nowhere else to go we are now in a position where like our fellow Scottish local authorities we must seriously consider the unthinkable stripping services right back to the absolute bare minimum delivering only statutory duties and cutting absolutely everything else that while much valued by the people we serve we are simply no longer able to continue to deliver I've spoken to people both in council leaderships and in the trade unions that represent council workers who are telling me about whole council functions that are being in danger of being shut down about budgets like supply teaching which are in danger of being devastated you know that that's happening because those councils are speaking to you as well don't you? I know that as I've said I don't underestimate the challenge in any part of the public sector but what I'm proposing is a real terms increase it is for any opposition party if they wish to amend this budget and take more money away from another portfolio and give it to local government to set out what that should be and how that should be done and I'd encourage opposition members if that's what they want to do bring that to me but I have tried to give local government the best possible settlement in the circumstances with that on austerity from the UK government I have tried to ensure that we give local government a fair settlement and that in terms of what I'm proposing is a real terms increase notwithstanding the fiscal challenge that I've been presented with in addition to that local authorities do have the power of course to raise council tax as well to supplement their income and I also say that I've set out the public sector pay policy and this isn't meant by any way of criticism but on we've mentioned the teaching staff but on non-teaching staff as well local authorities are offering a pay award that they must believe is affordable too so I recognise that there'll be financial pressures on local authorities as there's financial pressures upon the Scottish government but Parliament set out a number of commitments that it wishes to see delivered and that includes free personal care and to fund that to ensure that there's a necessary resource to fund that is significant if members wish not to do certain things whether that's free personal care or expand what we're doing around education or the pupil equity fund then they can say so but we've set out our educational, social and other commitments as part of the budget but it does represent a real terms increase and that's what I'm proposing if other members wish to propose more specifically for local government they have to set out where that would come from others will do that just as I and my colleagues are trying to do in positive ways there's a great deal about the UK government's policy, economic philosophy and so on that I profoundly disagree with but they at least have the decency when a tax is devolved not to say we'll cut your block grant to Scotland if you set tax rates that we disagree with they don't put your arm up your back and say we're going to constrain you in that way and you've talked about the extra resources that are available because Scotland is now able to set its own tax policy shouldn't local council leaderships also have that ability to make fiscal choices at the local level that are right for their circumstances rather than being constrained in the way that they currently are by your government at least when Thatcher did right capping she had the decency to do it on a statutory basis not by bullying well I think that Patrick Harvie will know fine well that his analysis isn't accurate because the UK government does actually cap council tax increases in England so the basic premise is actually inaccurate because the UK government does... I was talking about the UK government's relationship to the Scottish government and the ability that we now have to make tax choices that are right for Scotland shouldn't that same respect go down the level from Scotland to the local government here? Well I understand that at the 2016 Scottish Parliament election for our council tax proposition because that's ultimately what we're discussing here. They voted to cap council tax at 3% and that's the position of the Scottish Government that's not a surprise and I think it's a great relief to many households that that is a position in these difficult times that council tax is capping it's hardly underhand when we put it in a manifesto and we were elected on that basis. We're into this area of local government so we need to draw a few more questions. I've still got some sort of entries to go in this yet so I've got Murdo and then Tom and James. Thank you community. I never thought I'd hear the day Patrick Harvey delivered a compliment to Margaret Thatcher. That's a first for this committee community. I wanted to follow on the questions from Patrick around local government finance and tie it back to a line of questions a little bit earlier. Do you accept, cabinet secretary, that the Westminster block of ground to Scotland in its entirety including resource del, capital del and the account managed expenditure is higher today in real terms than it was in 2010? I've tried to specifically draw the fiscal del issue. Simple question, yes or no? We do this every year but I'm very clear in the analysis that I'm using is the fiscal del the day-to-day expenditure on resource and our front-line services and we have this debate every single year. The reason I focus on that is that's what funds education, local government and the health service and I've done it repeatedly because Murdo Fraser knows how significant that is to our budget. Thank you cabinet secretary. I think we'll take that as a yes that we know that the overall budget has increased in real terms since 2010 and the reasonable one is that resource del has reduced since 2010 albeit there are arguments about how much it's been reduced and Fraser Valander would dispute the figures you have quoted to the committee. It's very kind of Murdo Fraser to make that compromise for the first time. Do you not see the parallel between the approach I've just outlined in relation to the UK Government's overall settlement and the settlement you are giving to the UK Government because you are arguing but local government are getting more money in real terms but because of argue that may be the case but because the additional money is being allocated to particular areas the amount of money they have for their core spending on resource has been reduced that is exactly the same argument you are deploying about the block grant from Westminster is it not? No it's not because of the UK Government and that is partly the discussion about the fiscal resource available for local government that's what they're pursuing that's what they're interested in is exactly what I'm describing that the Conservative Government have reduced over the 10-year period and excluding the health consequences into the next financial year as well so no it's not the same argument but I am delighted for the first time that Murdo Fraser has conceded that the UK Government has reduced the resource since 2010-11 and that's the first time Murdo Fraser has conceded that for the avoidance of doubt I did not concede that and the official report will tell us that I shall read that to the official report with great interest now it's very briefly following on from Patrick Harvie's point in the analogy he made between Scottish Government and local government and UK Government and Scottish Government have drawn, for example, through reductions in social security spending and specifically around areas to do with the welfare fund that money is ultimately being found out of Scottish resource money that's something that's made possible through our income tax policies in Scotland and the Scottish Government has decided to mitigate that money which has been withdrawn from the UK Government and that is having obviously an impact on the budget that's resource that's having to be committed so there are areas where we're having our own resources because of reductions in the UK Government's spend on these areas but there is an even more sizable figure about the total reduction in welfare spending overall so there's that which we can mitigate but the overall pernicious effect of the UK Government's welfare policies is absolutely having a profound impact on individuals and for that matter the economy but yes there are various budget lines around welfare and poverty so we are using and supplementing to try and mitigate the damage from Westminster decisions and to confirm we do not get the savings that are made by the UK Government when they take these policy decisions no we wouldn't make savings it's a cost to the Scottish Government but a necessary investment to support the most vulnerable in society thank you leaving aside the debate about figures and cuts I'm sure the cabinet secretary would accept under pressure in recent years and I've had to look closely at individual departmental spend and identify any reasonable efficiencies now I wonder if the what does the Scottish Government do in regard to that in terms of looking at their own departmental spend to eradicate any inefficiencies I mean to give an example there was a story in the press at the weekend on how a million pounds had been spent on Scottish Government taxes the figure seemed a bit high to me so how do you run through each of your departments and eliminate any wasteful spend the question on general efficiency within Scottish Government is a good one we like all parts of the public sector have to be efficient and I do go through with each portfolio and cabinet secretary their budget requests their efficiencies there savings as well so I would expect every single part of the public sector to be mindful for value for money efficiency and to all try and find those efficiencies whether it's in procurement or productivity assets in the state so we absolutely go through it methodically we also share the experience we've got the leaders forum which brings together all parts of the public sector to share that good practice so yes I expect efficiency to run right through Government not to be the preserve of any one part and focus on value for money and that's an expectation and as we go through the budget it's something to challenge every portfolio to do you said it was shared are there any published examples of efficiencies that have been identified well we certainly produce information of efficiency savings local government does it as well they provide a letter every year they still provide that report in terms of the overall efficiency that they've made I can look further at what more we can publish around efficiency savings but I think there's a lot in the public domain in terms of efficiencies that the Government and public sector makes but again the totality of expenditures is massive so it would be useful if you could indicate to the committee where we could go to see examples of this methodology we've been followed through Cabinet Secretary I think it would also be useful to understand what the scalar reduction in the administration of the Scottish Government has been over the years compared with local government I think that would be quite an interesting comparison We do have some information on the website in terms of the efficiency savings but I'm happy to look at what further information we may have that the committee might find helpful Angela Two quick questions on local government Given the uncertainty in case around Brexit I wonder if the cabinet secretary could remind us of the certainty that he has given local government with respect to resource planning assumptions for capital investment in housing this year but for future years and also if he could say something share some of his thoughts about how we could improve the fiscal autonomy for local government I'm very much in favour of that dialogue provided increased autonomy is also matched with increased accountability often that it's Scottish Government ministers that seem to be held to account for decisions that are taken at a local level It's an excellent question in terms of the resource planning assumptions for housing specifically the commitment for this financial year is substantially £826 million I can provide more information to the committee in terms of the forward years in terms of that commitment there's some £3 billion commitment around housing to achieve that housing target and we've set out some of those figures to local government on a multi-year basis so they have that certainty that they can plan and get on with the job so they have a great deal of certainty of course that's all on the premise that the budget is passed actually because if the budget is not passed they don't have that certainty to release that resource to build the houses so I'm happy to share the figures for the committee because that's not just one budget but there is a multi-year element of that so that in this area of capital spend we can get on with it and meet that commitment of homes on the second question around fiscal autonomy of local government I have said repeatedly I'm open to that I'm open to engagement on that but I've asked in that spirit that people bring along that proposition what is the request and how can it be progressed so I'm open minded on more fiscal autonomy for local government right now we're having the national discussion around transient visitor levy that element of debate so I think I've shown that I'm open minded on this, I'm happy to engage if people bring forward constructive suggestions to further empower that local decision making okay okay, thank you and your officials for giving us evidence this morning on the budget and I'll suspend this meeting and I'm going to give it 5 minutes suspension to allow a changeover of witnesses okay, colleagues our next piece of business is to consider subordinate legislation relating to the land and building transaction tax we're joined for this item by Kate Forbes, the Minister for Public Finance and Digital Economy and James McClellan, who's the head of fully devolved taxis policy unit in the Scottish Government and before we come to the formal consideration of the minister's motion we will take evidence on the land and building transaction tax tax rates and tax bans etc Scotland amendment order 2018 and I welcome our witnesses to the meeting and I invite Kate Forbes if she wishes to make an opening statement thank you very much convener just a few words and then very happy to take questions from the committee so land and building transaction tax amendment order provides for changes to LBTT rates and bans as set out in the budget of 12 December and namely those are a series of changes to the rates and bans for specifically non-residential LBTT and an increased rate of the additional dwelling supplement if I take the 2 in turn in terms of non-residential LBTT those changes ensure two things first that Scotland remains a competitive place for those wishing to buy business premises two thirds of all non-residential transactions i.e. those under 350,000 will pay less tax or no tax and all transactions will pay no more tax than anywhere else in the United Kingdom but it also of course raises vital revenue for Scotland in terms of the additional dwelling supplement those changes will raise revenue but equally important perhaps will also support first time buyers and home movers helping them to compete with buy to let investors or those buying a second home which is perhaps a particular challenge in rural areas and the rate will increase from 3 to 4 lastly in terms of process and timing proposals are put forward following discussion with Revenue Scotland and as I understand it their evidence makes that clear and in terms of our timing we sought to balance the clear risk of forestalling if the introduction of the changes were delayed until the 1st of April 19 as per SFC evidence and as I understand the committee will appreciate but it also allows Parliament the full 28d period to scrutinise the legislation taking recess into account we have lastly also included transitional provisions so that any transactions concluded prior to the 12th of December will not pay the increased rates and that I think is an important principle of fairness but I now look forward to the committee's questions thank you minister, I think we start with questions from Murdo good morning ministers before I go down this route I just remind members of the entry in my register of interests that relates to my property investments can I ask about the increase in additional development supplement from 3% to 4% I quite appreciate from the Government's point of view it's a revenue raising measure the committee has had evidence from a number of interested bodies Scottish Property Federation the Scottish Association of Landlords Arla property mark and NAA property mark expressing some concern about the potential impact of this on investment in the private rental sector and they all make a similar point that already we are seeing due to not just the additional dwelling supplement but a number of other legislative changes both at Westminster and at Holyrood including changes to taxation the investment in private rented property is less attractive than it was to potential landlords as a result there is a contraction in the market and there is a knock-on impact they would argue which leads to higher rent so there is a social impact from making the private rental sector less attractive to investors and I'm wondering light of that what consideration the Scottish Government gave to those issues when I decided to go for the increase from 3% to 4% I'm also wondering if you could explain to us why the 4% figure was arrived at was it just a figure plucked from the air did it seem a reasonable increase or was there anything more scientific about reaching that 4% figure so I think there's three questions in there and I'll take them each in turn first on investment then on rents and then the evidence for the increase in 1% in terms of ADS is worth bearing in mind that there is a policy objective here as the ability to raise revenue and that is to support first-time buyers and I think the important evidence in that regard is given from the SFC whose analysis showed that any decline, well the majority of the decline in ADS transactions would be made up of first-time buyers and home movers in other words that where there is a loss of ADS-related transactions the majority is absorbed by the market when it comes to first-time buyers and home movers which in itself is part of the policy objective of this change but secondly in terms of the investment we do recognise the role that the private rented sector plays and in the evidence I think it's fair to say that was provided tax is seen as just one of a range of financial regulatory and other considerations and the Scottish Property Federation was clear in its committee evidence that other changes have more significance than the changes to ADS there sector remains a steady 15 per cent in Scotland so whilst perhaps an increase in ADS means that some take other decisions some in the property sector take other decisions others see new opportunities as well most importantly too when it comes to investment we recognise the role that the private rented sector plays and when it comes to creating affordable housing often people will choose the private rented sector as a form of affordable housing and that's why we have the exemption for six properties or more when it comes to ADS in order to get that balance right moving on to rents again it's worth saying and it's perhaps obvious that these changes have no bearing on landlords with existing property it only applies to new purchases and whilst I obviously can't comment on decisions that individual landlords might take in specific circumstances tax is again one of a range of other concerns the ONS statistics shows a 0.5 per cent annual increase in rents to November 2018 across all private tenants in Scotland and that's compared to an annual increase of 1 per cent in England and 0.9 per cent in Wales and that suggests that whilst ADS has been in place albeit at the 3 per cent that it hasn't resulted in a significant increase in rents lastly to touch on the point around why 3 to 4 per cent we were very keen to strike the balance which the question highlights in terms of supporting the private rented sector whilst also achieving this policy objective of supporting first-time buyers and the SFC evidence again I think makes that clear that we've got the balance just about right because as I say the majority of ADS transactions which are lost will be made up of first-time buyers and home movers but there's an important point there around fairness so in the budget process we of course looked at different rates and there was a judgment taken that a 1 per cent increase strike a balance between supporting the sector but at the same time supporting first-time buyers okay thank you for that minister so on that last point you made about the increase would it be reasonable for the Scottish Government to be monitoring where the impact on the market is in relation to the increase and should the evidence show a detrimental impact on the private rental sector is that something that might be reviewed in the future? Absolutely that will definitely be kept under review because of the twin aims here of supporting first-time buyers as well as revenue it's quite important that we track the various representatives that have written to you with evidence and I appreciate their evidence it's important that we track the sector continues to be a solid 15 per cent we track that we track rent increases and we also most importantly perhaps look at the appetite and the demand from first-time buyers and home movers and we've of course got a range of initiatives to support first-time buyers but the key concern is to ensure that if you want a home in Scotland you're able to get an affordable home in Scotland I wonder if I can ask one other question on a slightly different subject but related in the submission from KPMG they make the point that the period within which you can claim back ADS if you're an inadvertent second homeowner is 18 months in Scotland as opposed to three years elsewhere I ask given the increase in ADS as the Scottish Government considering increasing that period from 18 months to three years I've certainly had cases in the past with constituents who inadvertently are caught in this situation because they can't sell a property and they end up being hit with ADS which was never the policy intent is that something that the Scottish Government will consider? We do recognise that there are some concerns around the application of ADS in specific cases but Fraser will know because I think he welcomed it at the time we've of course legislated in the past for a minor change to make it fairer for those who if there is a couple moving in together and only one name was on the previous house to change some of the suggested changes while sympathetic are quite significant in scope and so whilst there's no plans to undertake a review at this time we will shortly be consulting on a new approach to the planning and the management of devolved taxes which will provide a more structured and efficient means of making some of these changes I am mindful of that particular challenge from 36 months to 18 months but I would probably argue that it only affects a small minority of cases because in most situations somebody has been able to sell a property within the 18 months and in terms of those who have indicated a desire to claim back most do so within the 18 months it's extremely rare for it to prove a challenge Minister you mentioned fairness as one of the objectives of Government policy more frequently told that that's a goal of tax policy generally for the Scottish Government I think that the problems with this relate to the changes that are being proposed today but actually go back to the conclusions of the Merleys report in 2011 which said that there was no sound case for maintaining what was then stamp duty and recommending that it be abolished notwithstanding the changes that are being proposed today does the Government recognise that LBTT remains a tax that are great many people on ordinary incomes who are living in typical value homes will pay several times in their lives but someone like the Duke of Beculu will probably never pay Patrick Harvie recognises an important point around fairness and I think that while not touching specifically on the changes that we've made today our efforts in making these changes is to make the tax fairer and to make sure that we do two things when it comes to LBTT we protect those who are perhaps on the lower income levels as much as possible whilst also with a policy objective with ADS of protecting those who are trying to get on the property ladder for the first time so whilst no tax is perfect and LBTT is not perfect and I think looking at the one change that we have made so far since the tax was introduced recognises that we are willing to try and make these taxes as fair as possible but recognises that there will always be scope for doing more I think that LBTT was a slight improvement on what went before and those changes are a slight improvement in their own right but is the Government still open to the wider argument that the tax base needs to include a modern approach to asset wealth values such as land and property rather than really transactions? I think certainly in terms of the way that the Scottish Government has taken on those matters over the course of the last two years in particular we are always looking at ways to make current taxes fairer and to ensure that if there are improvements to be made more generally to the tax take that we consider those as well but when it comes to this it's also worth recognising that with this SSI going if it's approved today that will raise an additional almost 40 million pounds which will go directly to supporting people who live and work in Scotland Thank you Thanks very much Kate, I asked the fiscal commission last week who had forecast fairly healthy growth in the LBTT revenue over the next five years why they thought that was and it wasn't entirely attributable to the policy changes they are yielding a net revenue gain for us but the gain in LBTT revenue exceeded that so I just wanted to ask yourself that just shortly before you and of course Derek took the entire credit for that being due to policy changes but there seems to be an additional element here of gain for us in LBTT that isn't quite attributable to the policy change More than happy for him to take the credit for that and not me but it's true to say that for all years from 1819 onwards LBTT is forecast to raise more than is removed from the block grant adjustment and in terms of reduction in forecast this year the SFC was quite clear that that relates to flatter house prices and transaction growth which is a common feature across the entire UK housing so I think that demonstrates that it is a tax that works and is raising valuable revenue and of course with our own taxes being so contingent on the performance of the rest of the UK is a vitally important tax Do you think that there's an element of it where property values are moving through the thresholds and therefore yielding is more of a revenue there? I think that the fiscal commission have kind of alluded to that as a potential explanation for part of this I think that the changes have reflect the slightly more unique aspects of the Scottish property market that is slightly different from the rest of the UK Nobody else has indicated a desire to ask a question we therefore moved to agenda item 3 which is consideration of the motion on the order and therefore invite the minister to move S5M-15215 that the Finance and Constitution Committee recommends that the land and buildings transaction tax tax rates and tax plans etc Scotland amendment order 2018 be approved I move Any other further comments? I don't intend to oppose the instrument but it's worth putting on record some of the issues that have been raised in the previous evidence session from stakeholders about the potential impact on the private rental sector from these tax changes so I think that the jury is still out on the likely impact and we need to be careful to keep a close eye on the market impact of these tax changes We can note that in the report but I'd now put the question on the motion the question is that S5M-15215 be agreed are we all agreed we're not agreed in which case there will be a division I miss saying that so all those in favour please show all those against please show there were 8, 4 and 3 abstentions the motion is approved and the committee will now produce a short report on the order as previously agreed the next item will be taking the next item in private I thank the minister and our officials and now close the public part of the meeting