 Diolch yn fawr,�r Y Llywgeyr? Wel abide DNZZni yn 2016 o gweithio'ch cyddiol, wolanethau explain series ac y gallwn cyfnodyniadماeth,awr pan ag lyric Жalwyn yn i familiaid amsgry Welsh gafael. On the agenda, our members are happy that we take item 3, which is consideration of our draft report, on the budget scrutiny 2016-17 in private. It is item 3 on the agenda, and we are also content that we take consideration of the draft report in private at future meetings. Item 2, our concluding evidence session in relation to draft budget scrutiny 2016-17. I would like to welcome to give evidence on the Scottish Government's draft budget, John Swinney, Deputy First Minister, Cabinet Secretary for Finance, Constitution and Economy, who is joined today by John Mason, director of economic development and Mary McCallan, director of energy and climate change at the Scottish Government. Before we get into questions, Mr Swinney, do you want to say something by way of an opening statement? Thank you for the opportunity to discuss the 2016-17 budget with the committee today. In presenting the budget, the Government is determined to build on the consistent approach that we have taken since 2007 to create opportunities for all of our citizens to flourish through increasing sustainable economic growth. That challenge has to be exercised within the constraints of the public finances that are available to us. As I have set out to Parliament by the end of this decade, the Scottish Government's discretionary budget will be 12.5 per cent lower in real terms than it was in 2010-11. We have focused on the budget choices that we have made in this area of the Government's activity on supporting the implementation of the Government's economic strategy principally around the themes of investing in our people, in infrastructure, in fostering a culture of innovation, in continuing to promote Scotland internationally to boost trade and trade networks and to promote inclusive growth. To summarise some of those principal themes, we have chosen to invest £116 million in Scotland's digital infrastructure next year, a transformational investment to help meet our 2017 target, that 95 per cent of premises in Scotland will have access to next generation broadband. We have continued to support the small business bonus scheme, and in line with our recognition of energy efficiency as a national infrastructure priority, we will complement our efforts in existing schemes with the development of Scotland's energy efficiency programme. We will also continue to facilitate business and community investment in the low-carbon infrastructure through the renewable energy investment fund and specific low-carbon and community investment support schemes. On innovation, we see that as the key to tackling the productivity challenge within the Scottish economy, and we are committing more than £345 million to support innovation through our enterprise agencies and the Scottish funding council. Many of the opportunities to boost the competitive strength of the Scottish economy will come in our international activity, where we have seen good performance in the increase in international exports and to support that. We are establishing three new innovation and investment hubs in London, Brussels and Dublin, and we will continue to support Scottish Development International to help companies to expand internationally. Finally, on the theme of inclusive growth, the Government has taken forward steps to encourage and motivate support for the Scottish business pledge of voluntary commitment by companies to adopt fair and progressive business practices through the adoption of the living wage and other commitments. The establishment of the fair work convention will assist in developing a fair employment and workplace framework by March 2016. We take forward those measures within the priorities that are set in the Government's economic strategy and our programme for government, and I look forward to discussing those with the committee this morning. Thank you, Deputy First Minister, for that introduction. We are conscious that we need to be away by 11 to go to the finance committee. I remind members of the good to keep their questions as short and to the point as possible, and answers as short and to the point as possible would be helpful to get us through the topics in the time available. I think that the areas that we are keen to cover this morning are non-domestic rates, tourism, fuel poverty, the fair work agenda, enterprise agencies and finally renewable energy. I hope that we can get through that in the time that is available to us. I might start off by asking about non-domestic rates. Within the budget documentation, I have read correctly an expectation that the income from non-domestic rates projected for the coming year is to fall by £30 million, and there is reference to the fact that there has been lower than forecast growth in the tax base leading to this fall. Can you explain a bit more detail why you think that that has come about? The number of factors that have contributed to the situation. First of all, on inflation, the £2,015,16 increase was capped at 2 per cent, which our previous estimate, when we had made the long-run forecast of NDRI, was of an inflation figure of 2.3 per cent in September 2014, which would have given rise to £1.5 million. That contributes to a drop in income in the current and the forthcoming year, which always affects the size of the non-domestic rates pool. In addition to that, the expectation in September 2015 of an inflation forecast of 3.3 per cent, which translated into 2.1 per cent, was of an inflation forecast of 3.3 per cent, which translated into 2.1 per cent. That was a reduced further in the March budget statement to 0.9 per cent, so there is a cumulative effect of that lower inflation factor. Secondly, the buoyancy estimates that we had, we had an estimate of a buoyancy level for 2014-15 of 1.55 per cent. That actually translated into an actual of 0.82 per cent, so the growth in buoyancy was not as large as we had predicted. Those factors have affected the strength of the non-domestic rates pool. As a consequence, I have taken steps to try to maintain as far as possible the income that arises from non-domestic rates. Thank you for that. Your proposal is to double the large business supplement that goes from 1.3 to 2.6 per cent. How much are you expecting to raise from that measure? From that measure, we would expect to raise about £60 million. Although it is called the large business supplement, do you accept that there are many medium-sized businesses that would be affected, given that it is attached to properties with a rateable value of £35,000 or more, which would mean that there are many reasonably modest-sized shops in our high streets, for example, that would be hit by that supplement? You are correct that the supplement applies to properties with a rateable value of £35,000, convener. Clearly, those businesses are familiar with paying the large business supplement as part of the existing arrangements that they have. When you look at the detail of the annual increase that will come as a consequence of that, for a company that is paying the large business supplement, their business rates will rise by 3.4 per cent between 2015-16 and 2016-17. If we look back to 2011-12, the increase for similar companies was 4.6 per cent and in 2012-13, 5.8 per cent. Although you are correct in all the detail that you have said, convener, in the context of business rate rises and changes over the course of the last six years, the change from 2.3 per cent, which is the annual increase that will come as a consequence of that, including the core element of the business poundage and the large business supplement, will go from 2.3 per cent to 3.4 per cent, which is smaller than it was in two of the recent years in this respect. Both you and the First Minister have been quite strong in the past in talking about the need to create a competitive business rates regime in Scotland. However, the budget proposal is doubling the larger business supplement and making it substantially higher than the rate payable south of the border. How does this fit with what the First Minister said about making Scotland the most attractive place in the UK to do business? Do you not think that it sends out the wrong signal? No, because there are a variety of other areas of the approach that we take towards business rates, where we have a significantly more advantageous position in the provisions that we have in place compared to the position south of the border. I think that we have to bear that point in mind. We have also got to bear in mind the point that I just made to you, convener, that in terms of the scale and the scope of the increase here, it is actually smaller than in two of the most recent years that we have experienced in terms of the scale of the business rates increase that has taken place for companies in such a category. Last question that I have on business rates. There is a proposal that I see to limit the rate relief on renewable energy projects to those that our whole community owned. Do you know how much that is likely to raise? That will raise about £10 million. I do not have any members who have any follow-up questions specifically on business rates before we move on. Have you not considered finding a way to ensure that those renewable energy projects that have an element of community ownership gain an element of that relief, which can be able to benefit the community body in question? I would have thought that the provisions that we have put in place would capture that, but I will make sure that that issue is properly and effectively captured in the approach that we take. I wonder if we could ask for some more detail in writing about the measures and mechanisms that the Deputy First Minister is referring to. There has been a slight reduction in Visit Scotland's overall budget. Do you see that tourism is extremely important for Scotland and for economic development? We are a successful year in terms of food and drink. Do you think that that success in the platform of that success is sufficient for growth and that you are expecting another good year in terms of tourism for Scotland? In relation to the budget, the 2015-16 budget has been inflated by £5 million of one-off costs that were designed to build on the legacy of 2014, which we all appreciate was a particularly significant year in tourism for Scotland. The Visit Scotland budget in 2015-16 was, essentially, higher than we would have ordinarily anticipated it to be. Therefore, the setting of the budget is at an appropriate level to support the organisation and to assist it in its development. I think that what is becoming ever more apparent about Visit Scotland is that it is more and more becoming an organisation that fulfills probably three purposes. One, that it gives strategic leadership to the tourism industry, but it does not do that exclusively. We have been greatly assisted by the work of the Scottish Tourism Alliance, which is an industry-led body that is driving a lot of the improvements in the strengthening of the tourism proposition within Scotland. Secondly, Visit Scotland is now proving itself beyond any question to be one of the most successful marketing organisations in the world. The quality of its marketing material is extraordinary. It is assisted, I would say, by the strength of the proposition and our natural environment, but the marketing activity of Visit Scotland is, in my opinion, second to none. Thirdly, Visit Scotland is now increasingly moving towards being a digitally anchored organisation. We see vast levels of tourism activity now being undertaken through digital means and methodologies, as opposed to how we were accustomed to five, ten or certainly decisively twenty years ago. Visit Scotland is now changing as an organisation to reflect those two latter factors of being, essentially, predominantly a marketing organisation and, secondly, an organisation that is immersed in digital activity. That, therefore, enables its resources to stretch much further in the work that is able to be undertaken. On that last point in terms of digital connectivity, a lot of work has been done in your opening statement. You mentioned the improvements within broadband. How significant is that for some of our smaller, more rural and remote areas to engage within tourism? It is absolutely critical, convener, not just in terms of broadband but also mobile connectivity. I think that I can see a route map on broadband to superfast broadband, which is really quite encouraging. I think that we will certainly get to the 95 per cent target by 2017. I am optimistic that we might even get beyond that by the combination of stretching the commitments that we have already made to the superfast broadband programme and complementing that with the work that is undertaken by community broadband Scotland or facilitated by community broadband Scotland but undertaken by numerous community organisations throughout the country. I am less optimistic as we sit here about mobile connectivity, where I am now regularly involved in discussions with the mobile providers, but we have significant areas of rural Scotland that are not able to function on the type of mobile connectivity that visitors arriving in Scotland from Japan and trying to use the connectivity with which they will be absolutely accustomed in rural Japan will not be able to use that in large parts of Scotland. It is getting better, I accept, but we still have quite a distance to go. We have no statutory power here, but what I am trying to encourage is a collaboration among the mobile operators to which I have to say that they are responding positively to share infrastructure and to identify ways in which we can use some of our interventions to try to support the roll-out of mobile connectivity in rural Scotland. You set the budget prior to the flooding incidents that have taken place in Scotland, in areas such as, for instance, the Malm Constituency and Ballotar, to which you visited in Hogmanay. Do you see a role for a visit to Scotland in helping them to recover to get infrastructure within communities such as Ballotar, or in places such as Newton and Stewart, to be up and ready for that? In terms of the recovery of the infrastructure, I do not see that as being a role for which Visit Scotland would be an organisation that is ideally suited to contribute. What I have announced so far in relation to the flooding incidents has been designed to try to partner with local authorities and businesses to get things back up and running as quickly as possible. In some respects, if I take the Ballotar example, the infrastructure support that I have made clear will be available to restore the A93 to connect Ballotar with Brimar is a very important contribution to the tourism proposition. I had a meeting just on Monday in a constituency capacity with the Cairngorm National Park leadership, and they were going through with me just the scale of the damage that has been done to the walking network, the path network and the bridges network around the river D. I was encouraging them to talk with Aberdeenshire Council about making sure that, when Aberdeenshire Council makes a proposition to the Government about access to that infrastructure resource, it is sufficiently comprehensive to restore as much of the infrastructure as is possible. I think that what Visit Scotland can contribute is to affect the knowledge and information about areas of the country that are desirable to visit. Of course, Ballotar is notwithstanding the floods that were set back earlier on in the year with the fire that was placed in the former Ballotar railway station, which is a magnificent piece of architecture undergoing renewal now. I think that, when we have difficulties in individual localities, I am sure that Visit Scotland can increase the accent and emphasis on particular areas of the country and its attributes to try to encourage a return of the visitor economy. Finally, with regard to the hospitality sector and fair work, do you envisage a greater uptake of the living wage in that sector? How can you perhaps influence that to encourage good and appropriate quality for our tourists coming to Scotland and to ensure that the people providing hospitality are paid a fair wage? Our approach to that is to encourage and motivate the industry to voluntarily take part in that activity. I have visited a couple of businesses who are in the hospitality sector. They have committed themselves to the living wage and they are seeing the fruits of that as a consequence of that commitment. The fruits of that are in terms of lower staff turnover and greater longevity of staff staying with them. Higher motivation and productivity are a consequence of people being better remunerated. In the examples that I have seen, I think that the tourism companies and hospitality companies that have gone down this route have seen the fruits of that. I appreciate that the economics of some of these sectors make a change of that nature and abrupt change of that nature quite a challenge. I think that it is important that the fair work secretary takes forward in this area, which all ministers involved in promoting is an important part in changing the ethos and the outlook of the sector to improve the value of the employment that is being undertaken. The Deputy First Minister has characterised VisitScotland in your view as providing strategic leadership, marketing and digital connectivity, a digital resource for the tourism sector. Given that you have made provision for a reduction in the budget of VisitScotland this year, I think that it is four and a half per cent in the resource budget, in which of those three areas do you envisage VisitScotland finding the future? I think that what I explained to the convener before was that the VisitScotland budget in this current year included an additional £5 million to allow further investment. That was essentially a follow-up to 2014 to give the organisation an opportunity to try to build on what had been an unprecedented level of attention and focus that had been in Scotland in 2014. That is not resource that ordinarily would have been there for VisitScotland to utilise. I think that the organisation in its trend position is broadly in a comparable position to where it would normally be in its trend financial position. The setting out of those three principal pillars of the activity of VisitScotland is designed to give clarity about the choices that the organisation will make as to how it will spend its resources. I would expect VisitScotland to be investing heavily in marketing and digital activity, because I see that as being absolutely critical to how we reach people. The capability through digital technology to reach more people than was possible under the conventional approaches that marketing campaigns would have had available to them is of an extraordinary level of comparison and capability. I think that what we can see is that the resources that are available will be able to go much further because the medium through which the resources have been used, principally digital connectivity, allow us to reach a much wider audience. In short, what you are saying is that the £5 million to build on your homecoming was spent at its job and that essentially is a job that you consider to have been done. I would never consider the job to be done. I think that what is created is a higher platform. If we add to that stronger digital capability and outstanding marketing materials, which is what I see coming out of VisitScotland, I think that that has the capability to ensure that the organisation can continue to provide that very strong promotion of Scotland and the explanation of Scotland as an attractive and dynamic place to visit. I think that we can move on to the issue of fuel poverty. I will start with Patrick Harvie. Good morning, Deputy First Minister. Can I begin with an apology? As Mr Swinney knows, I am sometimes critical of the Government, but I like to give credit where it is due as well. When the budget was published, I have to confess that I gave too much credit where it was not due. I congratulated the Deputy First Minister on what looked like a modest increase in the energy efficiency budget. It is an increase compared with the previous draft budget, but not with the amount of money that was spent in the final budget for the current year. I apologise for giving credit where it was not due. Why should we take seriously the commitment to make energy efficiency a national infrastructure priority when the budget is going down, not up? I would describe the budget as static, so I would describe it. It is higher than the 2015-16 published budget document. Mr Harvie is absolutely correct in that respect. I supplemented that during the financial year, and I have preserved those resources in the budget that is available at around £103 million. In a context where the resources that are available to the Government are reducing, I think that that is an outcome that demonstrates the Government's commitment, which is not a one-off commitment. Over the course of the past few years, we have spent about £0.5 billion on energy efficiency measures. It is part of a sustained programme that I have signalled in the budget that will be continued through the Scottish Energy Efficiency programme. You describe it as a static budget. It is clearly a reduction compared with what has been spent in the current financial year. Even if we called it static, how does that square with a commitment that was made more than a year ago? In November 2014, you came to the committee during its budget scrutiny that year and answered questions from my colleague Alison Johnson. That is the point at which you said that energy efficiency would become a national infrastructure priority. Eight months later, it was confirmed that that was a formal policy announcement. We still see nothing in the budget to demonstrate that the work that that implies is going to be funded. Even looking at the infrastructure investment plan, which does not put much in the way of meat on the bones of the policy, it suggests that the first phase of the national infrastructure priority will be delivering existing programmes more effectively, developing new pilot schemes and preparing for the effective implementation of powers that are set to be devolved through the Scotland Act. All of which would seem to be additional to work that is currently happening. Why is there no funding for that additional work? The importance is to look at all the different elements that can come together in this respect. The first thing is to confirm that energy efficiency is a national infrastructure priority. I said that that would be the case and the Government has followed that through. Secondly, in a constrained financial climate, the Government has preserved the resources that are available for energy efficiency. As I will come on to say in a second when we look at other areas of policy, the Government is putting in resources to ensure that we are able to advance the agenda that we are pursuing here. Thirdly, we have signalled the role-out of the actions to support the national infrastructure policy by the very clear commitment in the short, medium and long-term to the Scottish Energy Efficiency programme, which gives absolute continuity and certainty about the direction in which our agenda will take. Fourthly, there are other aspects of our expenditure on non-domestic industrial energy measures on the heat sector, which are contained in other budget lines that are not part of the energy efficiency line that we are concentrating on in this particular exchange. We will spend about £34 million in 2016-17 on some of those measures. The fact that the Government is giving short, medium and long-term clarity to those areas of activities and doing that as part of a wider policy programme demonstrates the commitment to implementing the national infrastructure priority. You said that you have signalled the role-out of an ambitious new programme. I accept entirely that you have signalled it, but it does not look as if you have funded it. At what point would we anticipate a significant increase in funding to pay for a significant increase in activity? Would it be in two years' time? Three years' time? Four years' time? I have said to Mr Harvey that we have given our commitment in a difficult spending round to maintain the resources in this area of expenditure on energy efficiency, but there are other contributory factors such as the ones that I have just mentioned in relation to heat and low-carbon infrastructure and district heating. There are a variety of different interventions when we look at it in the round that the Government is taking to advance the energy efficiency agenda in a range of different sectors. We have not also talked about some of the work that is going on within our public services to deliver energy efficiency schemes through the collaborations that are taking place with local authorities. The work that has been undertaken by health boards through the green investment bank to try to advance some of the schemes that transform the energy use that we undertake and the costs that that applies to the public sector. There is clearly no chance that the fuel poverty target, which is for 2016 for this year, is going to be met. Is not that ample demonstration that not just in the current financial year but over a number of years successive Scottish Governments have not been ambitious enough on this agenda? I do not think that that is a fair characterisation because if I look at the fuel poverty rate, if the fuel poverty rate in Scotland had risen in line with inflation, the fuel poverty rate in Scotland would be 9.5 per cent instead of the 35 per cent that it is because fuel prices have increased. I do not accept the argument that Mr Harvie is making that there has been a lack of commitment because he knows that he has been involved in these discussions over many years with me about a long-term commitment that we have given towards tackling fuel poverty and increasing energy efficiency. There has been sustained funding over many years. The Scottish energy efficiency programme was giving a commitment to multi-year funding to improve energy efficiency of buildings in Scotland. We can see that part of the challenge that we face has been about fuel prices, not about the investment that we have made in the sector. We all agree that, even since those fuel poverty targets were set in the first instance, everybody acknowledged that a devolved Scottish Government can do very little about energy prices, can do less still about people's incomes but can do a lot about energy efficiency and demand reduction. That is where the greater effort should clearly have been if we were going to get anywhere closer to meeting that target. We have seen a situation in which we have undertaken 900,000 energy efficiency measures since 2008. That cannot be in anyone's book described as anything other than a substantial set of measures to support the delivery of energy efficiency. We must assume that there will be fewer in the coming financial year given the reduced budget than in the current financial year. Mr Harvie and I are just going to have to part company about the size of the budget. I think that the budget is by and large comparable with the budget that was under my control. There is a loss of £15 million worth of resources because the United Kingdom Government has terminated one of the energy efficiency programmes that we were passing on in Scotland. That is not the case. On that particular scheme, that was a bespoke scheme that was delivered within Scotland. I stand to be corrected here but I am pretty sure that we were obliged to deliver it in that fashion to enable access to that resource. Let's just separate out the two issues here and the two different considerations here. The first is that the £15 million that was part of a United Kingdom Government programme came to an end. There was no money that came with that for 2016-17. That is not a case of a general budget choice that we have made. That is money that has stopped courtesy of the United Kingdom Government. In the budgets that we have under our control, we have maintained the expenditure available for fuel, poverty and energy efficiency in what has been a tough financial climate. That comes as part of a programme that has delivered 900,000 energy efficiency measures since 2008 and, to look forward, a programme that, as a Scottish energy efficiency programme has set out, will be a sustained multiyear financial programme to support energy efficiency within Scotland. To me, that is a fair characterisation of the national infrastructure priority. Can I put it to you that when you are spending millions of pounds on a consultation on fracking and other techniques that even your party members do not want you to proceed with and cutting the energy efficiency budget, there has got to be a question about priorities here, hasn't there? I think that the debate in Scotland needs to be served by the type of analysis that we are undertaking on unconventional energy. I think that people would be quite surprised if we didn't do things properly, where you frequently get criticised by some people for not looking at all of the evidence, so we have to look at the evidence because a whole variety of different opinions have got to be addressed in this process. Mr Harvie is wrong to characterise the investment that the Government is making as anything other than a strong consistent level of support, which is part of a multiyear financial agreement. It is still on the subject of fuel poverty, cabinet secretary. The energy company obligation, as far as I can see Scotland seems to have leveraged out quite a substantial proportion higher than our population share since 2013, to support, obviously, measures mitigating fuel poverty. However, I notice that, as a result of UK Government changes, we have lost about 93 million of eco in 2014-15. What kind of challenges does that pose in terms of fuel poverty strategy? On the first point of Droma Caplan, she is absolutely correct that we have managed to secure 11.5 per cent of total measures that have been delivered under eco in Scotland so that the performance has been good. What we are determined to do is to use the techniques and the methodology that has enabled us to deliver that stronger performance. In the forthcoming financial years, there is an expectation that eco funding will be reducing from 2017 onwards. We will be working to make sure that the good arrangements that we have in place will be able to maximise the resources and interventions that we can secure as a consequence of leveraging measures out of that process. Does it make any difference the fact that we are being devolved powers to deliver it? I know that they are quite limited but, in terms of administering and delivering it, does that make any difference to what we can do? The powers that have been executively devolved enable us to exercise some flexibility and, where we can use good techniques in the design of programmes and interventions, the more we can try to combine the way in which we deliver particular services, the better it can be to provide solutions for individuals as opposed to delivering one bespoke programme. If we are able to design a more comprehensive offering that meets a wider set of needs of individuals, we may manage to make the resources go a bit further. That thinking is what underpins a lot of our approaches about the devolution of the new powers. We will take that view around welfare provision, where we are already involved in some areas of activity in the welfare environment. With the addition of new responsibilities, we can perhaps make a better proposition out of those range of powers. We will take forward the same approach on fuel poverty. In the session on fuel poverty, where we took evidence from Stuart Wilson and Norman Kerr, they were quite critical of equal. Stuart Wilson described it as horrible and administratively heavy. I assume that that is perhaps what you are talking about, that we could tackle some of those problems. In all those schemes, we have been successful in managing to increase the proportion of measures that have been successfully obtained within Scotland by trying to take an efficient approach about the administration and the delivery of these programmes. If we can take them forward in an integrated way, alongside other programmes and interventions that we advance, it is an opportunity for us to deliver much better outcomes for individuals. In terms of targeting the measures, both witnesses talked about how it tended to be focused on getting the biggest bank for your buck in terms of carbon saving, which was not necessarily a good thing for rural Scotland. The way that Norman Kerr tends to work is that it will replace a boiler in the central belt of Scotland, whereas it is more difficult in rural areas. There was also a criticism of the Scottish index of multiple deprivation being used to target fuel poverty measures. Given that fuel poverty is more concentrated in rural areas, it represents only 2 per cent of the poverty under the Scottish index of multiple deprivation. How do you target the budget to ensure that you reach the rural households that are suffering the deepest levels of fuel poverty? The crucial way of tackling that is by giving good and effective partnerships in localities to enable us to identify those who would best benefit from those measures. The analysis that Joe McAlpine has put forward is that I understand and accept that fuel poverty will be more easily visible in areas of urban concentration, but it is no less serious in areas of rural isolation and, indeed, in some circumstances, ever more challenging as a consequence. The way that we tackle that is by effective partnerships with local authorities and other community-related organisations who can provide us with the intelligence as to where measures can be most effectively deployed. We have some good learning of some of the schemes that have been undertaken within the Home Energy Efficiency programme that the Government has taken forward about how we have reached into rural localities. By that partnership, we have managed to undertake some very good planning of where the interventions could best be taken forward. However, we have different working groups within the Government that are looking at how we can strengthen that proposition and how we can make it more focused to make sure that people who live in rural properties, who will be invariably off-gas, that they can find alternative and more sustainable forms of energy efficiency. I have a follow-up on fuel poverty from Liz McAlpine. Dr Price, you have acknowledged that the fuel poverty budget has been reduced from £119 million in the current year to £103.3 million in the forthcoming year, but you have said that most of that is because of £15 million of bespoke UK funding, which is no longer available. Can you tell us of the £103.3 million in the budget for the forthcoming year, how much of that is bespoke UK funding, which you do not control and you would not replace it to cease? It is all Scottish Government expenditure. The money that has been bespoke UK funding that you are no longer able to spend is 100 per cent. All of that has ceased. That is the situation. On that programme, Mr MacDonald, the consequentials of the UK Government's Green Deal Home Improvement Fund in 2015-16, which was ended, and the consequential funding will no longer be available. You would accept that taking into account the ending of that funding, your overall expenditure in this area has seen a reduction for the coming year in the order of 13 per cent? I know what Mr MacDonald is trying to do, but I am simply pointing out the factual base here. There is a programme that bespoke UK funding, which we made available for this purpose, and it has been removed. That is the policy decision that has taken place here. In advance of this autumn's budget process or this year's budget process, ministers a number of times talked about embedding climate change in the budget process. Would you characterise the decisions that you have taken in this area as embedding a priority in dealing with the impact of climate change or reducing and mitigating the effect of climate change? By providing clear and consistent support to measures to deliver energy efficiency and a variety of other measures that are part of the Government's programme. The decision that you have taken not to find additional resource to counterbalance the loss of UK bespoke funding, as you have described, does not appear to give priority to tackling climate change? There is a wider dimension here, Mr MacDonald, if I may say so, which is about the consequences of decisions that will be taken by the United Kingdom Government. I have been absolutely clear to Parliament that it is not going to be within my gift to ameliorate all the dreadful decisions of the United Kingdom Government. If anyone thinks that I have the capability to ameliorate the scale of reduction, a 12.5 per cent reduction in real terms in our budget over a 10-year period, I am afraid that that is not the case. I do not suppose that many people do assume that, but there is the question about— Forgive me, Mr MacDonald, that is essentially what underpins the question that you have asked me. No, at all. I am not pointing you to what I want you to do. I am asking you what priority choices you are making. Given that, of course, every finance minister has to make decisions, you are making a decision here that a judgment made by the UK Government on a specific programme is one that you will not seek to counterbalance in any way, and therefore there is a significant reduction in the fuel poverty budget. I have got to take a range of decisions, Mr MacDonald is absolutely correct in that respect, but the £100 million of funding that we are providing in this area is £100 million more than the United Kingdom Government is providing. That is a pretty clear and tangible commitment of our determination to tackle climate change and deliver energy efficiency. I suppose that, looking at the two areas that I have asked you about, you described the Visit Scotland reduction as a comparable trend with what we would expect to be, and you described the reduction in fuel poverty as static. Would it not be more direct simply to say that those are budget cuts? No, they would not, because I am putting the budget decisions that I have made into a proper context, and I think that the committee would expect that of me. I think that we need to move on to energy, and I will bring in Richard Lyle. Good morning, Deputy First Minister. Can I turn to renewable energy budget? I read off, and I was interested with an explanation. The Scottish Government has said that the challenging macroeconomic condition for the energy sector as a whole, and thereafter the UK regulatory and policy changes now threaten the Scottish Government's approach to energy. I think that that puts this in context with the previous question. These changes combined with the sustained uncertainty concerning future levels of support for other technologies such as offshore wind have created, and I would suggest a difficult budget and investment climate. However, I note that the community energy line sees an increase of some £6 million, which, according to you, reflects the on-going commitment to the many energy through funding of Wave Energy Scotland. What is your view on the renewable budget and the UK government renewable policies that have affected your budget? In the decisions that I have taken here, convener, I have had to adapt to what I consider to be the market conditions that prevail within Scotland as part of the United Kingdom. There is undoubtedly a more challenging climate in taking forward some of the renewable ventures as a consequence of changes in the UK policy. I am essentially trying to utilise the resources that I have most effectively to try to support our wider renewable aspirations. One of the challenges of the past few years, and I think that I may have discussed this with this committee before, but I have certainly discussed it with the Finance Committee at spring and autumn budget revision time, is that we have made in the last few years some pretty significant allocations of resources to the development of renewable energy. However, we found ourselves not able to spend that money because the projects have not come forward to attract. There have been plenty of good projects that have come forward, and we have supported them, but they have not come forward in the volume that we anticipated. I have come back at different stages over the past few years to reallocate resources where we have not been able to spend them to make sure that they could meet other priorities. I have tried to make the best assessment that I can of the demand that exists for energy projects support, and I have spread that across a variety of renewable energy projects across the capital projects on the low-carbon economy. Some of the wider energy requirements to ensure that we deliver a low-carbon environment. Those are all measures that support the wider energy policy objectives of the Government, but we have attached particular significance to the development of community renewables, where there are some encouraging developments that are creating sustainable projects in different parts of the country. In regards to some of the energy renewable projects, and also touching on maybe Mary McCallan's department, do we monitor what has been done by contractors? I am also worried about fuel poverty. Do we monitor what additional work is being done if the contractors go in to do? Maybe I am taking it wider a wee bit on boilers. Someone has got their boiler renewed, but someone comes in and says, oh, you also need your radiators done, but the Government does not pay for that, but you have to pay the additional. Do we monitor what has been done? Because I have a concern that sometimes people are being asked to do additional more work than what they should be getting done? I think that there are two different perspectives that I would take an answer to that question. One is about the quality of advice that individuals should receive, and the Government supports dispassionate energy advice to be available to individuals so that they can make a proper and informed decision about what would be a valuable and sensible set of energy efficiency measures that they undertake. It is important that people have access to that good quality advice, and the Government supports the provision of that advice. Secondly, we monitor the delivery of energy efficiency schemes, and we monitor those to make sure that there has been appropriate solutions to be delivered and that the interests of the public parts are being maintained as part of that process. I want to move on to look at the fair work agenda and the funding for the enterprise agencies. I will start with Johann Lamont. I note from the budget that is an identification of £1.5 million specifically in the draft budget for fair work. What other budget lines contribute to your commitment to fair work? You will find that the work of organisations such as Skills Development Scotland or Scottish Enterprise or Hans Lanns Enterprise will be making a contribution to that fair work agenda into the bargain. One of the expectations that we have placed on the enterprise agencies, and particularly through the process of account management, is that we are asking the enterprise agencies to increasingly use the channel of communication that they have with companies through the account management structure, which is the principal channel of communication between the agencies and companies, to maximise the emphasis that is placed on companies taking the measures that are involved in the business pledge. They are not just nice things to do but beneficial things in terms of the productivity and the capability of individual companies. They will have significant benefits for members of the public into the bargain. I note that the Skills Development Scotland budget is formed by 4 per cent. There is pressure across all the different budgets of agencies. The resource budget of Scottish Enterprise is down by 4.6 per cent. The resource budget of Hans Lanns Enterprise is down by 4.6 per cent. I suggest that there will be a key way, along with 1.5 million, of developing the fair work agenda. You mentioned Skills Development Scotland. In fact, the budget has been cut by 4 per cent. I have to get organisations to be more productive and deliver more impact for less resources. It is a constant theme of the budget process. 4 per cent cuts are because of their inefficiencies, not because you have simply had to find a way of reducing budgets. You have made an active choice to make that cut to Skills Development Scotland at the same time as you have told me that the fair work agenda is a clear priority for the government. I am challenging public sector organisations to deliver more value and more impact as a consequence of the activities that they undertake. I want organisations to look at their way of operation and to work much more actively towards sharing of services and ensuring that we remove the inefficiencies that still bedivel the public sector in Scotland. That is a slightly different point from a point where there is an initiative around fair work, which I welcome. I welcome the fact that as a cabinet secretary with that responsibility, I would be interested to know how that means dreamed into the thinking of government more generally rather than simply being one role. Your answer to the question of how you develop the fair work agenda gives me a general point, a reasonable point about inefficiencies in the public sector. I am still not clear why, what it is, you are investing in fair work that is different if you are applying the same rules across all the organisations. What I explained in my answer a moment ago is that in the enterprise companies, the dialogue that Scottish Enterprise or HIE have with companies that they are dealing with will be about persuading and encouraging those companies to be participants in the fair work agenda. That is the mainstay of the dialogue that we now undertake to encourage companies to pay the living wage, to make a commitment to the issues of gender balance within the fair work agenda. To contribute towards improving the productivity of companies, to encourage the internationalisation of companies, those are all things that will help and strengthen the quality of employment and to advance the fair work agenda. At our evidence session on 11 November, Scottish Enterprise confirmed in a quote, our focus is on the growth element of inclusive growth. That is what Scottish Enterprise does. Do you think that that is a fair reflection of the Government's view of the role of Scottish Enterprise, given your statement that you are in favour of the fair work agenda and that Scottish Enterprise has a role in that? It is not my view of the Government's view of this, nor is it my view of Scottish Enterprise's view of this. John Lamont, I am sure that I have written a quote, but in my opinion, from my dialogue with Scottish Enterprise, its board and its leadership and the guidance that I have given to the organisation, the issues around advancing the fair work agenda are part and parcel, and the ethos of Scottish Enterprise? They were simply wrong or misrepresented when they said that their focus was on the growth element. They should have focused on both. You cannot divide them in the way that they have tried to do. Would that be a fair characterisation of your view that you cannot divide the inclusive bit from the growth bit? The two things have to go together in the fair work agenda is at the centre of that. That would be my view of it. I would be grateful if John Lamont could share with me the quote that she is referring to. We can make sure that. I have quoted it to you already. The confirmed quote focuses on the growth element of inclusive growth. I can see it in the spice briefing, but I would like to know where that came from in Scottish Enterprise. Was it expressed by a representative of Scottish Enterprise? Well, yes, but it is a Scottish Executive confirmed. I am not being difficult about this. No, I am not being difficult either, but I would be very keen if you could. What I am very keen on is not just when the Cabinet Secretary for Fair Work and Skills came. It was very clear that she was committed to the job that she was to do. What we would be keen to do is to make sure, or I would be keen to make sure, is that throughout the Government there is an understanding of the equal priority to fair work as well as to growth. That would then direct not just encouragement but direct control of public funds that you have within your control to give to organisations if it was informed. Not just by the opportunity for growth but by the opportunity to establish fair work practice. I am very happy to confirm that my view is that you cannot separate the inclusive from the growth. The inclusive growth are one and the same thing, so I am very happy to confirm that as the Government's position. What you have heard from the Fair Work Secretary is absolutely the same message that I give to the wider business community and that I give to the enterprise agencies. I will explore that particular quote because I am not comfortable with that. It came from Adrian Gillespie, who is the managing director for operations company growth innovation and infrastructure at Scottish Enterprise. It was made on the record in this committee on 11 November. I will have a look at that because it would not be my view of the world. For example, Scottish Enterprise managing grants and so on that they would not be given or support to organisations that did not match some pretty basic tests around fair work. The priority that we are attaching is to motivate companies to support the inclusive growth agenda. That should increasingly drive the steps that we take to direct the advice that we give to companies in the work that Scottish Enterprise takes forward. If there was no indication that people were being motivated in the way that they wanted to, would that mean that you would then be clear that they should not have access to public funding? The business pledge is a voluntary agreement. Mr Harvey was asking me about this in Parliament last week. We are determined to actively lead a process to encourage and to motivate the company—Base of Scotland—to voluntarily participate in this agenda. I think that in the committee we have recognised the benefits of encouragement as well. However, there is a carrot and a stick. There are quite big carrots available to companies in accessing public funding. I wonder whether we are willing equally to recognise that some of these organisations are very bad work practices. It would be your view that they should not be accessing those grants. I certainly think that we should use the possibilities of public sector support to drive better practice within the workplace. Thank you very much. I am pleased that you have said that you do not recognise the view of the world in that quote from Scottish Enterprise. I think that it surprised some of us as well, so I am pleased that you are going to look into that. You have talked about using the account managed status, that relationship with companies as a channel of communication to encourage companies to engage in this fair work agenda, hopefully sign up to the business pledge and the commitments that it embodies. I acknowledge that it is early days. At present, we were told that there are 2,300 account managed companies and 39 or 40 have signed the business pledge. Do you think that it would be reasonable if this expectation that this channel of communication is going to be successful at achieving what you want it to achieve? Do you think that it would be reasonable to have a target date for maybe not 100 per cent compliance but for compliance with the business pledge to be the norm amongst account managed companies? I am not so excited on the issue of having a target, but I want to see us making very sustained progress on this journey. The account management process is designed to encourage the best working and business practices that can be undertaken. We have an opportunity in that dialogue to advance many of those arguments with companies and encourage them to participate. I would be staggered if a substantial proportion of the 2,000 or so account managed companies were not operating on a basis today that was absolutely consistent with the business pledge. There will be a lot of existing good strong practice that is going on within those account managed companies. There will be more that can be done and there will be other companies outwith the account managed system that we need to encourage and motivate to participate. That is what we will continue to do. Would it be reasonable to have a target date and a general expectation that, after a year of work, we are not still looking at 2,000 account managed companies that have not signed up? After a couple of years, we might be getting somewhere close to halfway, for example? I would certainly be happy to look at the progress that we make and to see whether that is judged to be a reasonable amount of progress on a year-to-year basis. If it is judged to be unreasonable to intensify the efforts to try to improve that performance. Perhaps an annual report to Parliament on the level of uptake that would be a useful suggestion. Before we leave this area of questioning, I remind members that we have a committee's report on the issues that are coming out tomorrow morning. We shall shed some light on those issues. I think that there is a plan to have a chamber debate on some of those questions, which we can all look forward to in the next few weeks. Sorry, Mr Deputy First Minister, do you want to come back? I have just put in front of me the quote that the agent Gillespie said. When I read it all, convener, I was a bit surprised when I heard it and I was surprised as to where it had come from. Let me read the full quote. Our focus is on the growth element of inclusive growth. That is what Scottish Enterprise does. It stimulates growth, including in the key companies and sectors that we work with. The inclusive element of that presents a big opportunity because what we are striving for through more internationalisation and innovation is for the economy to be more productive. The more inclusive we can make our assets, whether they be people or infrastructure, and the more engaged we can make the system of people skills, the more competitive and productive the economy will be. It stands to reason and there is evidence to show us that more inclusive economies grow faster. Have we now seen the full quote? That might be your view, Mr Harvey, but have we now read the full quote? I understand, and I think that the characterisation of it was somewhat selective. The important issue was not just about a label inclusive, but the meaning of a fair work agenda, which is much more focused and we would not expect your budget to reflect that. I think that what I have explained today is the fact that that ethos is absorbed and taken forward by our agencies as well as by government. There is a question that we did look into when we did our inquiry into fair work. It is relevant to the budget, which is that we are all aware that Amazon is an employer that has had sudden publicity for its employment practices. Amazon was in receipt of a substantial grant in regional selective assistance via Scottish Enterprise when they came to set up their plan in Fife. Given the way that Scottish Government policy has developed in terms of fair work, if Amazon were not to come today seeking assistance from the Scottish Government or through its agencies, would that be forthcoming without conditions attached? I think that we would be applying the characteristics and the thinking of the business pledge to the requirements and the conditions that we would expect of a company to fulfil that was getting public assistance. That has moved on from the position that happened a few years ago when they did get assistance? I think that that is a fair characterisation. Mr Harvey mentioned that he regrets making an apology and giving you credit for the budget. I am not known for fawning, but having looked at the UK finances, you and your team deserve full credit for producing a budget that focuses on continuing the creation of wealth with London, Dublin, Brussels and the digital connectivity. Can I ask a question in terms of Scottish Enterprise? The capital budget has been reduced by 23 per cent, but its business plan assumed the same capital allocation for 2016 to 2017 to £54.7 million. As there has been an adjustment clearly because it has introduced a financial transaction of about 21.5 million, can you confirm in terms of the financial transactions that are to be repaid? Do we actually believe that they will be repaid and is the mechanism there to ensure that that 21.5 million that is in the Scottish Enterprise budget, there isn't one for the islands and islands, that the financial transaction budget of 21.5 million will be repaid? Yes. When you look at the capital line and the financial transactions together, it totals 63.4 million compared to an AC capital budget of 54.7 million in the current financial year. There is a substantial increase in the resources available. The reason why Scottish Enterprise is an appropriate organisation to utilise the financial transactions is that they are essentially loan facilities. Scottish Enterprise is actively involved in a range of loan provisions to different organisations. There is a very good opportunity for us to use the financial transaction mechanism in an organisation that is tried and tested at issuing loans. Loans, of course, have to be repaid. I think that one of the other areas in terms of looking at not repayment but savings is that the strategic forum has a recovery in the budget of 40 million. How often does that forum meet and do we know what it has saved this year by the five bodies working together? It is not just that the forum meets a couple of times a year under my convenership, but it is the working environment that creates what I have been anxious to do. If we look at the responsibilities of Scottish Enterprise, Hans Hans Enterprise, VisitScotland, Skills Development Scotland and the Funding Council, there are some common themes in there. What I am anxious to do is to make sure that we create an ethos and an environment within those organisations that is purposeful about trying to achieve a much greater impact as a consequence of joint working and collaboration, rather than just each organisation working within its own domain and its own silo. I think that the strategic forum creates that opportunity on that platform and it is able to deliver greater value as a consequence. I think that I have been through with the committee before that some of the thinking that went into the formulation of the Innovation Centre proposition, which has now been taken forward and which is a significant investment by the Government in improving the productivity of the economy. It has emerged out of our strategic forum work and it has been a combined development proposition that has been delivered in a much more efficient and valuable money context than was the case with previous ventures of this nature. You are content that you think that the £40 million is a reasonable cross-functional savings? Yes. Last question is, you have changed the depreciation of assets that have been changed in terms of how you moved from Scottish Enterprise, Hans Hans Enterprise and VisitScotland, for example. How realistic are the asset registers of those organisations? An assessment is made of the strength of assets. There can be a significant amount of variation in the strength and the value of particular assets, but those have to be done on a professional basis to provide us with, because they will drive the requirements for depreciation that will be part of our wider budget. Software applications in design, are those costs capitalised or are they treated as revenue? In some cases, people do to them as revenue, but they are capitalised. I would either handle as revenue. Thank you very much, cabinet secretary. Would you acknowledge that one of the highest priorities for the Scottish Government currently and for the foreseeable future will be to respond to the oil jobs crisis and its impact on the Scottish economy generally and the north-east in particular? Of course. The situation in the oil and gas sector is very, very challenging. As we saw yesterday with the announcement from BP and earlier the announcement about Petrofac, we have a very significant challenge to wrestle with. As Mr MacDonald will know, we have established the oil and gas task force, which is meeting on a regular basis and designing a work programme that is designed to be as productive and of assistance in trying to resolve what is clearly a very difficult situation. That is helpful. I again, without wanting to encourage an exchange of quotes from the official report, Mr Swinney may be aware that I raised those questions with both enterprise agencies when they appeared as part of the pre-budget scrutiny process. Highlands and Islands Enterprise were quick to say that they were engaged in an assessment of the economic impact of the oil jobs crisis on the Highlands and Islands. The Scottish Enterprise did not make the same comment. To be fair, it did reflect some of the other priorities that they rightly have in responding to situations where people are losing their jobs. Do you accept that assessing what the impact of that crisis is on regional economies is a priority in order to direct funding and effort over the next year? Understanding the extent of that impact will be important. One of the points of the Government's economic strategy is the increasing emphasis that we place on regional economies in Scotland. As a point of analysis, I think that it is important that we consider and study the strength and capability of regional economies. The economy board in the Scottish Government looks at these questions and looks at how we can best take the policy measures that are designed to resolve those issues. The energy jobs task force, for example, is just one illustration of how we take steps to try to focus on addressing what will be a more widespread issue. I can now safely talk about the issue in GDP statistics this morning that came in at 9.30 am to show a decline in production. Undoubtedly, that is not just a north-east of Scotland issue. That will be an issue that is emeryting from the difficulties in the oil and gas sector, but will have a much wider effect across Scotland. It is not easy to compartmentalise all those impacts. I accept that there will be a significant impact in the north-east of Scotland, but as the GDP statistics show, there will be a much wider effect of that across the range of regional economies in Scotland. That is certainly a view that I and many others I know share. A year ago, the Scottish Government, Highlands and Islands Enterprise and Scottish Enterprise all took part in supporting the oil jobs summit convened by Aberdeen City Council. That laid out some of the priorities for all public bodies in responding to the situation. The leader of Aberdeen City Council was interviewed this morning on Radio Scotland and said that, in her view, the issue now—the priority now—was for both UK and Scottish Governments to come forward to the table with a positive response to the bid that they have made for a city region deal. Is that a view that Mr Swinney would share and is that something that can be acted upon in this financial year? There are on-going discussions about the city deals. It requires the participation and the agreement of both Governments. I am happy to confirm that there is good work undertaken in that respect. The infrastructure secretary met Lord Dunlop from the United Kingdom Government on Friday to discuss those questions. We are actively considering the different propositions that have been put to the UK Government in response to their call for bids. Finally, having looked at the budget as you have presented it, is there any further provision that would be required within the Scottish Government budget for next year in order to enable support of that bid going forward? It would depend on what the outcome of those discussions was. If there is an outcome that requires to be supported financially, I would have to make some decisions about that. That would be within the scope of what you have available to you? I would have to make that the case. I have a follow-up from Dennis Rubson. Cabinet Secretary, I am grateful for Mr Donald raising the issue for especially the situation in Aberdeen in the north-east. Do you believe that there is a role for the Scottish Government in contacting the chancellor to have meaningful tax breaks to incentivise further exploration to help stabilise the industry? Obviously, in the medium to long term, there might be aid to recovery. I make the chancellor—I am just trying to think of which particular conversation it was—must have been in advance of the budget in March. We discussed the issues of oil and gas taxation and the gravity of the situation that we are facing. The chancellor listened to the points that I made about a variety of different issues and said that he would give them consideration. To be fair to him, he did give them consideration and acted on a substantial number of them. The one that he did not act on was about a greater incentivisation for exploration. In my recent letter that I wrote to the chancellor in advance of the autumn statement, I made the case for such a relief to be considered. The chancellor did ask me at that meeting that if he did do something that was helpful and beneficial, would I support this and give it as much encouragement? From the record, I have held my side of the bargain that what was delivered by the UK Government in March was helpful. Obviously, we are going through a period in which the situation is becoming more challenging. I think that the need to look again at those questions becomes ever more significant for the chancellor and for the Scottish Government to consider. Do you believe that such tax incentives would help to stabilise the industry and lead to a recovery in the medium to long-term in that industry? Is there a role for the minister—I know through the energy task force—to intervene with oil and gas UK and trade unions at the moment? Mr Ewing is actively involved in persistent discussion around the oil and gas sector. It is a relentless part of his responsibilities, which he takes very seriously. That involves discussions with companies, trade unions and oil and gas UK. It involves discussions with the oil and gas authority, which has been a good innovation by the United Kingdom Government, and a well-led organisation that is in a difficult situation providing real, effective leadership. There are elements of what has happened that are really to be welcomed because we are in a better place. Further incentives might help the situation. We have obviously seen an improvement in production, but value is a major consideration in the context. We are in a position where we need to explore every available option to make as much of an impact as we possibly can. I would just observe that we have a short report on oil and gas coming out on Monday in consequence to the recent evidence that we took on that. We shall address some of those points. I think that it is worth making the point in passing that, in terms of the evidence that we took from the sector, while I think that they said that any additional tax incentives would be welcome, it was not at the top of their list of asks and they were quite clear about that at this stage. If there are no more questions, I think that we can draw the session to a close. I thank you very much Deputy First Minister for coming along and answering the questions and thank you to your officials too. At this point, we will suspend briefly and go into private session.