 Fbeiddych i ddweud i gael, awr 18, o'r Reginch Llywodraeth a Llywodraeth Y Cyfaint, ac ydw'r cyfaintbeth yn ei wneud o'r regent yn sefydliadau cyflymuniad hon, Fyndion Pwysigolau mewn demiion mewn ymdwyllus a'r strategiaid o Éich yw ffysigol, Fyndion Pwysigol ac Fyndion Pwysigol yn cael eu cyd-23, ac mae'r perafoddau allan i'r the First Minister's policy prospectus. Ms Robinson is joined by Scottish Government officials, Kathy Johnson, Deputy Director, Office of the Chief Economic Advisor, Alison Cumming, Director of Budget and Public Spending and Andrew Scott, Director of Tax and Revenues. Welcome all to the meeting and I invite Ms Robinson to give a short opening statement. Thanks very much, convener, and thanks to the committee for inviting me here today. This is, as I said in the chamber, my first MTFS publication as Cabinet Secretary for Finance. It's transparent about the issues that we face as we look at the public finances over the next five years and sets out how this Government will maintain a sustainable financial position over the medium term. Although the Scottish economy has proven more resilient than expected, the fiscal outlook remains among the most challenging since devolution with the Covid pandemic, the war on Ukraine, soaring inflation, putting significant pressures on the economy, society and of course the public finances. We are committed to tackling these head-on, which is why I ensure that the MTFS does not shy away from highlighting the scale of the challenge ahead. While I welcome the recent fall in inflation, falling inflation does not reverse the increasing pressure on households and businesses, with prices expected to be around 20 per cent higher by the end of 2023 than they were at the start of 2020. Indeed, we are experiencing record falls and living standards, which are not set to recover to pre-pandemic levels until around 2026-27. With regard to the Scottish Government's resource funding outlook, that has improved since the 2022 MTFS. The main drivers for that are significant improvement in the forecast net tax position, which has increased by an average of £1.1 billion per year since May 2022, as well as increases to the block grant as a result of announcements at the autumn statement and spring budget. However, the funding outlook for the next financial year, 2024-25, is set to be particularly challenging, with the SFC stating that once we account for social security spending plans and ring-penced Scottish local authority funding, we expect there to be less real-terms funding in 2024-25 than there is in 2023-24. We are anticipating a negative tax reconciliation forecast to be £687 million, with the original forecast produced at a time of significant economic uncertainty caused by the Covid-19 pandemic. That exceeds the Government's borrowing limit by £387 million, so that reduces the amount of funding that is available for the budget. We also expect a small real-terms reduction in the block grant next year. The risk of reconciliations for forecast error exceeding Government's borrowing limits will continue to grow. Borrowing powers are fixed in nominal terms, so there is now between a 14 and 27 per cent probability of total negative reconciliations breaching the £300 million annual borrowing powers for forecast error. I will continue to press the UK Government for further powers and for these limitations to be addressed as part of the fiscal framework review. In terms of resource spending, our projections show spending increasing from £45.2 billion in 2023-24 to £52.8 billion in 2027-28, meaning that our spending requirements could exceed our central funding projections by £1 billion in 2024-25, rising to £1.9 billion in 2027-28. The key drivers for spending growth are the public sector pay bill, social security and health and social care. Inflation has significantly eroded our spending power, particularly on pay with fairer pay deals for our valued public sector workers, to support them through the cost of living crisis driving spend above what was modelled at the resource spending review. The pressures are also severe for capital spending, where the price of infrastructure projects has risen by 14.1 per cent this year, according to the Office for National Statistics. The UK Government's failure to inflation-proof our capital budget means that we are facing our real terms cut every year up to 2027-28. Again, the challenge is particularly acute in 2024-25, where funding will reduce by 3.7 per cent in real terms. On the current trajectory, we expect the divergence between capital funding and expenditure to grow to around £900 million by 2025-26. Those are therefore incredibly challenging times, and I am committed to taking the difficult decisions in order to manage our public finances over the medium term to deliver on the key priorities for the people of Scotland and to mitigate the pressures being felt by the most vulnerable people in Scotland. This MTFS sets out the three pillars that will underpin this approach, firstly, focusing on public spending, on achieving our three critical missions. That includes a commitment to prioritise, exploring targeting, adopting a multi-year approach to the budget, delivering a fresh set of actions that is initially set out in the resource spending review and delivering a 10-year programme of public service reform. The second is supporting business to invest and create new jobs. We recognise the link between economic and fiscal policy to support sustainable inclusive growth and the generation of tax revenues, as well as supporting entrepreneurs, start-ups and scale-ups in helping business to raise productivity. We need to find the fiscal headroom to expand our childcare offer, as that will be a key part of our approach. Finally, the third pillar of our approach is maintaining and developing our strategic approach to tax policy. Our key commitments include establishing an external tax advisory group this summer, with the outcomes of this feeding into the budget for next year and the Government's longer-term tax strategy to be published alongside the MTFS in 2024. To conclude, the Scottish Government will continue to do everything possible within the limited levers that we possess to manage our public finances on a sustainable trajectory. As part of the fiscal framework review, we will continue to make the case for the fiscal powers and levers that will enable us to meet the fiscal challenges now and into the future. You have covered quite a lot of ground for us and the committee to cover it. We have about 15 minutes for each member to be asking questions, including the answers. You mentioned quite a key figure, which is next year's budget and the potential negative income tax reconciliation. I think that £712 million or £687 million is perhaps the taxes in total. Can you give us a little more explanation as to how you are thinking of dealing with that? In particular, can some be borrowed and can some where is the rest going to come from? Will you direct our questions to yourself if you want to bring in officials? Clearly, that is very challenging given that the levers that we have do not allow us to cover that extent of negative tax reconciliation. We have the ability to cover up to £300 million at the present time, which leaves a considerable gap. That is a challenge. As you can imagine, it is one of the key priorities in discussions with the UK Government around the reform of the fiscal framework review. We require a number of additional levers to be able to manage not just negative tax reconciliation but the peaks and troughs, the economic challenges, events such as Covid and other shocks that we do not have the levers to deal with on a largely fixed budget with limited borrowing powers. The top of the list in terms of that review is to gain a more expansive borrowing power to be able to manage the negative tax reconciliation. As I said in my opening statement, the reason that that negative tax reconciliation is so large was in relation to the forecasts during Covid, which were clearly outgiven the economic shock at that time. Two years later, we have to deal with that. We will want to press the UK Government in our discussions with them to get to a position where we have more flexibility to deal with next year's negative tax reconciliation, but should that arise in the future, we will be able to do that as well. I should also, just for completeness, say that we are anticipating that the tax reconciliation forecast is in a much more positive position going forward beyond next year, but we have to deal with it next year. That has raised a range of issues. I think that colleagues will come in on different things when they get their turn, but you have mentioned the fiscal framework review. Can you give us any idea about the timescale for that? Is there any chance that anything could be done before the 24-25 budget, because that looks like being a pretty crucial one? Even would it be possible to separate out some of the longer-term issues, but getting that borrowing limit and some of those figures changed is quite urgent, obviously. I think that we have discussed in the committee before and with the fiscal commission that just inflation and the increase in the Scottish Government powers, the £300 million is really out of date, isn't it? Our priorities heading into the review, which we are discussing with the UK Government, so it is imminent, are to ensure that the bullet grant adjustment methodology continues to protect the Scottish budget from potential slower population growth in Scotland, that is important, and to secure that greater budgetary flexibility and the appropriate and required budget management tools more generally and to retain protection from economic shocks that affect the Scottish and UK economies equally and to ensure that we have the appropriate suite of policy levers and that we are not unduly exposed to risks outside of our control. Those are the starting points. You will appreciate that it is a negotiation and negotiations are given take both ways, but those will be the central areas that we require to see progress on. Whether we can get something in place for next year's budget really depends on how those negotiations go. We are entering them in good faith. The committee will appreciate that a negotiation requires and the UK Government has very much asked for that to be in a private space, but I would want to share with the committee and Parliament more generally information that once that negotiation has reached a point, as soon as I am able to provide more information, I would obviously want to do that, but that is difficult. We cannot have a running commentary on a negotiation, I guess. We accept that we cannot have a running commentary, but I think that both ourselves and, frankly, at Westminster, the committees need to be doing a certain amount of scrutinising. Can you give us any idea of timescales on that? The report, I believe, has been completed, the initial report but has not been published. Is there then meant to be a review and any negotiations are after that? In terms of the report, we are still in discussions about a suitable date for publication with HMT. Obviously, it was a jointly commissioned report, so we need to agree jointly the publication date, but we are committed to publishing the report. There is no question about that, it is just about when. We are in the foothills of those negotiations, so they are imminent. We have been having correspondence backwards and forwards, trying to shape what that discussion will look like. I am keen to be as open as I can, but I am mindful that a negotiation is quite tricky. We have our asks and the UK Government will no doubt have its asks as well. I will give a commitment, convener, that I will try to provide the committee with as much information as early as I can around the detail as quickly as I can. Can you say anything about any more of the issues that are borrowing? We have seen that already. Capital borrowing would be another one. There are already issues sitting in the background that have not been dealt with, such as air departure tax and VAT and so on. Are you expecting those to be part of negotiations? There are other issues around the use of the reserve and so on and so forth. In terms of air departure tax, we do not envisage that being a part of the discussions. VAT in assignment has been around for quite some time and a lot of work has been done around some of the challenges around that assignment. I can describe it as a very challenging thing to do where assignments have no direct relationship to the economic performance of Scotland. You are really looking at a statistical exercise and there are inherent risks in that. We would be very loath to take all the risks without any of the policy levers. Those discussions are on-going. I think that the UK Government, to be fair, recognised the complexity of that and the risks. Therefore, we are trying to find a way forward that does not provide just another area of difficulty. I am hopeful that we can get to some agreement on that. To move on to something else, you mentioned the external tax stakeholder group. Some of us feel that we have talked about tax quite a lot. I fully agree that we need to engage the public more in why we have tax and is tax a good thing or a bad thing and questions like that. Can you explain a little bit more why we need this external tax stakeholder group? In particular, to take a specific one, council tax, we have been planning to replace for ages and ages and it still has not happened. Let me take the council tax first. You might be aware, I am sure, of the joint working group between ourselves and COSLA, which is looking at local government taxation generally and broadly. Some progress has already been made around the issue of second homes and empty homes. They will also have the space to be able to look at council tax reform, albeit that will be a longer term ambition to get that right and get that agreed. That provides a forum for those discussions to take place. There is also a backdrop of the new deal for local government. Part of that is the fiscal framework, which is being worked on. The partnership agreement has come first, which sets out the principles and will be announced soon. The fiscal framework will look at how local government budgets will be taken forward. There is no secret to say what we are talking about. There is more flexibility. Also, working with local government around revenue-raising powers, obviously one of the latest is the visitor levy, which local government is keen to have and it is a power that they can use or not use. It shows a direction of travel that we want to empower local government both with more flexibility and with more levers. It is important that we hear a range of stakeholders. I suspect that we will be sending out the invitations imminently. The range of views on that external group will be quite broad from those who wish us to go further in terms of using tax leavers in a progressive way and those who wish us to be more constrained with the tax leavers. It is important for me to hear that range of views. Ultimately, the Government will have to come to a view and set out our stall in terms of our tax proposition for 2024-25, taking all that into account, looking at the pressures on the budget but also the need for fairness in taxation and to land in a space that balances all those competing demands. As soon as we send out the invitations to furnish the committee with the detail of who and the meeting schedule across the summer—it would be my intention to have a series of meetings across the summer—into the lead-up to the budget. Colleagues may want to come in on that as well, but I have one other thing that I wanted to touch on. In the medium-term financial strategy that was mentioned, the quote is unapologetically direct to our resources to those in greatest need and about effective targeting. Is that a hint that there is going to be more targeted support and benefits for people rather than universal benefits? As I said at the time of the statement, we need to look at our spend through the lens of the core emissions that were set out and to be really focused given the financial challenge. That was in terms of poverty, net zero and sustainable public services. If you take that first core mission, a lot of our policies already are very much focused on tackling poverty, so Scottish child payment being a key lever in helping to meet our child poverty targets. We have over 500 programmes running across Government, so obviously a lot of programmes. I do not think that it is unreasonable to be putting those programmes through those lenses to look at how far they go in meeting those core missions. In doing so, there is a balance to be struck. Clearly, looking at what would be the objectives of changing any programmes, can we create better outcomes for people who need the support the most? Balancing that with the social contract of people who pay their taxes and those who are paid more in Scotland pay a bit more, they need to receive the social contract for that, which is a range of services that they receive that go beyond what they would receive elsewhere in the UK. In coming to the position after all that work has been done and it is on-going, so there are no conclusions as yet, but it is on-going over the summer, we want to reach a position in advance of the budget that has that balance, which creates a credible and fair set of propositions. I mentioned in my opening remarks some headroom to tackle some of the big issues. If we take our desire to get more people into work and to help people to take more hours on to get better paid work, childcare is an absolute key lever there. We have made huge progress and the childcare offer in Scotland is far and way in excess of that offer elsewhere in the UK, but I think that we need to go further, but to be able to go further we need the headroom to be able to expand that childcare offer. We need to think about that as well as sustaining the services that we have. Once that work has been done, we will be open and transparent. We will present our proposition and it is for others to look at that and to either agree or not agree. If people want to propose alternatives to that, they will obviously need to set out the detail of those proposals. I welcome the acknowledgement of the serious fiscal situation that the Scottish Government is facing. That was good to hear from you. You said in the medium-term financial statement to Parliament that, by 2026, you are going to commit the Scottish economy to what you described as a sustainable trajectory and that you made no bones about the fact that tough decisions are going to have to be made. All the forecasters and Scottish Government statistics are projecting very considerable increases in health spending, in social care spending and in social security spending over the next five years. I am writing saying that the social security one alone is something like going up from £5.3 billion to £7.8 billion, I think that it is. Those are all policies that tie into what you have just spoken about in terms of addressing poverty and addressing those who are most vulnerable. If that spending is going to be so high, can I ask you where you think that you are going to be able to make the tough decisions that will help the fiscal situation? In addition to what I have just said, we are going through all of our programmes through that lens of those core missions. Over 500 programmes, we will look at how each of those programmes will help us to meet those core missions. In addition, you are quite right to point towards the increase in social security spending beyond the block grant adjustment. I am going to make no apologies for that. I think that it is the right place to invest money given the cost of living crisis and our need to lift people out of poverty, but we need to be able to afford that. That will mean that some of those difficult decisions are being made. I cannot give you detail today, because that work has not completed. I would want to present that in the round in terms of what that looks like. The other pillar is that, in terms of growing the economy and the tax base, there are some causes for optimism. Data that was published this morning shows that the HMRC data for May 2023, published alongside the labour market stats, shows 2.44 million people in payroll employment in Scotland. That is an increase from April and 56,000 more than February 2020, which was obviously a pre-pandemic, and 28,000 higher than last May. That is a good barometer for income tax. We are seeing some cause for optimism in terms of feeding through into a more positive tax reconciliation position, which is good. We need to do all that. We need to make sure that our spend is focused on where it needs to be. We need to make sure that we grow the economy and therefore the tax base. We need to have a fair and proportionate tax system that, as we have said, supports progressive taxation, whereas those with the broadest shoulders pay a bit more. That has brought in much-needed revenue to the economy, to the budget. Had we not made those changes in Scotland, our public finances would be considerably less. All of those have to be looked at in the round. I will come to the tax issue and widen the tax base in just a minute. Can I go back to the issue about the projected increases in health, social care and social security? You are saying that you are looking at 500 different programmes as to where potential savings might be made. Does that include the national care service? The national care service, as the committee is aware, is being the programme and the parliamentary timetable that was paused in order to create some space over the summer to look at trying to reach a more consensual position, not least with local government. That meant that the financial statement around the national care service would need to be revised. The commitment has been made by the minister to provide that information in advance of stage 1. Clearly, that work is on-going. The national care service is important in creating, and I have said this before, as a former home care organiser. I could speak for the whole committee session about that, but I will not. I have seen it up close and personal where the system does not work for people and that there needs to be more consistency around national standards and ways of delivery that mean that people get the service that they would expect no matter where they live in Scotland. How we get to that point clearly is part of the discussions that are happening over the course of the summer, but we need to have reform in that space. In terms of the overall budget of health and social care, like systems everywhere in certainly the UK and across Europe and beyond, the growth in health and social care has been driven mainly by demographics and the ageing population. We need to provide for that, so in terms of the growth of workforce that continues to grow. However, as I think that we have probably had many discussions about in Parliament, we need to try to avoid hospital admission. We need to change some of the systems that can help to sustain people in a way that is not about everybody ending up into the acute system. Reform is a really important part of that, as well as ensuring that the spend can deliver what needs to be delivered. I think that the committee is interested on two fronts. First, as you know, we have issues about the financial memorandum and the initial financial memorandum that we had. The lower estimate was £1.3 billion. Obviously, that is a very considerable amount of money in relation to some of the things that we are discussing. The reason that I am asking the question is to whether the Scottish Government would consider realigning some of that money to help with the other expenditure. We have so many stakeholders in this Parliament who came to give evidence at committees. We have four committee reports where the particular national care service programme that the Scottish Government has put forward is obviously not desperately popular. I am just asking for confirmation that that is something that is going to be reviewed. It depends, though, who you speak to. If you speak to stakeholders who are stakeholders that are in recipients of care, they are really keen to see progress on things like national consistency standards and all of those improvements. Where there are challenges, local governments view is that they do not want to lose that local control over the service that they provide. We can find a way forward through all of that, and I guess that the money will relate to what that looks like and what the time frame for delivery of that is. We have to get that right before the money comes into play. I suspect that there will need to be a new financial memorandum, and that will, of course, be there for all to see in advance of stage 1. I have to be a new financial memorandum. I would reflect again that four committees of this Parliament are not happy with the current plan, so that is the reason why I was asking the question. I will turn to the tax issue. You have made no apology for a progressive tax agenda. Is it not the case, cabinet secretary, that the current structures are not yielding the increase in revenues that we need? In the 2020-21 budget, the revenues were only £96 million more than the amount that was subtracted from the block grant. That was institute of fiscal studies, and I think that the Scottish Government came out with the same statistic. What do you propose doing to ensure that the tax base is not only wider than it is just now, but that the revenues that we get from tax overall are going to increase? That is a major part of the equation that you described in your opening statement. First of all, I was pretty explicit about the need to grow the economy and making that link directly into fiscal policy and the need for the tax base to expand and grow. The end set sets out our economic plan. We need to look at issues such as child care that I mentioned earlier on in terms of how we help those who are either not in work at the moment or are in low-paid work or in hours that are not sustaining their household budget. Child care is one of the key elements of that. We will continue to make progress. There are signs that are positive in terms of GDP. I do not know whether you saw the SDI figures of inward investment, so there is a strong base there to work from, but we need to make sure that that translates into our tax revenues. The latest forecast of the net position for income tax in 2023-24 has also improved, rising from £3.5 million at the time of the Scottish budget to £411 million in the latest forecast. While that does not have any impact on spending power, it is encouraging to develop our strategy to ensure the fiscal sustainability of the Scottish budget. We need to do more. Clearly, the fiscal framework is relevant in terms of how that works and how all the moving parts of the framework deliver what we have to spend in our budget. Having more levers at our control—I set out all the reasons earlier on why that is important—will help us to smooth the peaks and troughs that inevitably happen around all those moving parts when they land in terms of the money that is available for us to spend. There are encouraging signs that income tax performance is improving. We should not be complacent about that, and we certainly want to make sure that we continue to see that growth so that there is a net positive benefit for the Scottish budget. Cabinet Secretary, we are not standing that. It is not the case that the overall tax revenues are nothing like what we need to be able to take in to address some of the funding gap. That is the problem. Today's statistics about unemployment, employment and economic inactivity were pretty stark about the numbers of people who are not in work at all. Of course, that means a loss of potential revenue. We have got the issue with North East jobs, which are some of the better paid with people playing and paying slightly higher tax rates. That money is not coming into the Scottish Government, so it is a pretty serious situation where the tax revenue that the Scottish Government is getting just now is nothing like what is required to deliver extra money for the Scottish Government for its public expenditure. First of all, the gap that you talked about cannot all be closed by taxation. I have not said that. I am saying that our spending plans in terms of the focusing and the targeting on the key core missions that I mentioned earlier on, all of those pillars are important. Tax is one, but having the powers to raise more money, clearly, is important. However, if you look at the SFC forecast around nominal earnings in Scotland, it is talking about that going through a period of higher growth relative to the growth in earnings forecast by the OBR for the rest of the UK over the next five years, supporting our tax base. It cannot be the only answer, but it is an important part of the equation. It is looking more positive. Aside from what we choose to do in terms of the tax policy, the revenues are looking more positive, and that has got to be something that is, hopefully, welcomed. On the figures this morning, unemployment is still below that of the UK. Employment is slightly fallen, but it is still in a good place. Economic inactivity is right, and that is why we are taking the action around supporting people into work. Bearing in mind, there are acute labour shortages in many sectors. We need to join the dots there of supporting people into work in making sure that, whether it is training or whether it is support in skills support or childcare, we help people into work and into more better paid work and additional hours if that is what they are seeking. What would you do to make Scotland more competitive in terms of tax, in comparison with the rest of the UK? In terms of the rest of the UK, we have the lowest poundage. That was the number one ask of business. That is what was delivered in terms of the poundage. We are discussing with business the issue of non-domestic rates going forward. Tom Arthur, minister responsible, has a working group where businesses are represented around the table to look at the future going forward. We want to make sure that Scotland is seen as a good place to come and invest. If you look at those SDI figures over the past period supporting 86 employment opportunities here in Scotland in terms of new business and sustained business, which I think delivered about 8,500 new jobs or sustained jobs that are down to those inward investment decisions that companies have made, they could have gone anywhere, but they have decided to come to Scotland. That has got to be a sign of their confidence in coming to the cake here in Scotland, and I am sure that that is something that we would all welcome. One of the things that was discussed with the Scottish Fiscal Commission last week was the 14 per cent cut for capital expenditure from 2023, 2024 to 2028, 2029. I had asked the SFC for clarification what the implications of that could be in limiting our ability to invest, particularly traditionally economists should say that you invest when your economy is not doing so well. The clear point that emerged was that it has a direct impact on productivity. We know that there is a massive issue with productivity in the UK, and because of those limitations, there is an issue with productivity in Scotland. I wanted to ask whether you had been able to do any modelling of that diminution of productivity, because it does not seem to be understood that lower productivity leads to a lower tax take and that lower tax take then leads to less money being available to spend for public services. I do not know if you are behind the scenes and it may well be some of your officials whether you are able to model that, because I suppose the point that I am making is that this 14 per cent cut in real terms will have a direct flow-through to the tax take available to spend on vital public services. Let me start with the capital funding point. You are right. It is an extremely challenging capital outlook at a time when we want to be investing in the infrastructure, so it is the worst time for capital budgets to be cut. I remind the committee that our capital funding is expected to reduce by 7 per cent in real terms between 2023-24 and 20-27-28. Barnett funding is by far the largest element of the Scottish Government's capital funding envelope, so it is dictated by those decisions, so it is hugely challenging indeed. As the MTFS explains in short, the challenges in capital funding outlook mean that it may be necessary to prioritise borrowing capacity in the coming years, potentially at the expense of longer term capacity. We have some difficult decisions to make about how we manage our way through that, and, of course, we will have to set all of that out, and we will do so. In terms of the wider point about productivity, we have now appointed chief economist Greg Irwin, who actually did an excellent presentation to a pre-cabinet discussion on many of those issues, such as the prospect of GDP, earnings, growth, but productivity is an important part of that, and increasing productivity is clearly a key part. The end set is clearly recognised as well in terms of what needs to be done, so all of that is critical. In terms of how we go forward, we publish progress updates on the delivery of capital investments twice a year, and those updates cover all the infrastructure projects over £5 million and all the programmes over £20 million. I think that there is one due soon, and I think that those will show that the importance and the variation of those infrastructure investments, we will come back to Parliament setting out how we are going to manage through that constrained capital funding going forward. I am sure that the committee will take a close interest in the detail of that. You lead me on to another wider point, which is the difficulty for ordinary members of the public to understand the complexity of the fiscal framework and what the implications are. Talking about tax take, I appreciate that, for most members of the public, it is really hard for them to understand that there is a direct impact by having limitations on borrowing powers for the Scottish Government to pay for CAPEX projects. Perhaps a wider area is that people understand that limits on immigration mean less people paying tax. Are you considering how we make it clear to people that, yes, I agree that we have an issue with our breadth of tax base? I think that everybody agrees with that, but there are standard levers that you might want to pull to increase them. As part of your discussions with the UK Government, can you see, although it was probably not mentioned in the report, that a differentiated immigration policy fundamentally to increase the tax base should be part of those discussions? Let me say first of all that you are absolutely right about the constraints on migration. I saw that there was quite a lot of commentary from the business community this morning on the challenges that they are having in recruiting to large sectors of the tourism industry. They are very clear that it is down to not being able to access labour that they previously accessed through the European Union, and they are very explicit about that. We are trying to do what we can, and we have the new talent migration scheme that we are going to launch soon in attempting to encourage people to come and live and work in Scotland. As I said earlier, there are plenty of opportunities for people to do that, and we want to promote that. In terms of how much those issues can be brought into the discussions around the fiscal framework, you will appreciate that a lot of those discussions will be quite technical, so they are technical around the issues of borrowing powers, the limits, the reserve, rather than necessarily around the wider policy issues that form part of the backdrop to all of that. It does not mean that they are not important, and we raise them with the UK Government all the time, but the actual negotiation around the framework will be around the technicalities of what the framework is at the moment and where we see the key things that need to change and be adjusted that will make a difference to the ability of us to be able to smooth out some of the things like the negative tax reconciliation. That will not be the job done though. Getting some adjustments to the framework is just part of a process. We want to have those additional levers, including migration. Those calls and those asks will, of course, continue beyond the detail of the framework. Just my last area, you will be aware that the committee is looking at public sector review and spend and so on in the light of the rolling back from the resource spending review. Obviously, I note your three key missions of which part of that you will be looking at public bodies and public sector reform. To what extent are you open minded to really thinking quite ambitiously about that? Part of my private worry is that agencies themselves may simply look at efficiencies, although I suspect that a lot of them have been doing that for a period of years due to public sector constraints. We had a very interesting comment that perhaps the Government being able to mandate bolder, more ambitious projects would really need to come from Government. I suppose that my simple question to you is that are you going to be able to have a level of ambition in what you look at, although I appreciate projects such as that have a cost in themselves and are very complex and time-consuming? I am not negating that, but it is just to get a sense of, is it more than efficiencies in other words? It needs to be more than efficiencies. Efficiencies are the kind of de minimis position. 129 public bodies are doing a good job, but all with the states, all with the fact room offices, all some are doing some similar things. As a minimum efficiency digitisation, you look at the work of the national records for Scotland, they have transformed their organisation. Scottish Water is also an organisation that has become very agile and able to respond and drive out efficiencies but delivering a really good service. There are examples that I think the rest of the public sector could learn from and we are requiring them to learn from. The programme of work that we have set out and I have got the responsibility to drive forward the overall picture of what that looks like. I have had bilaterals with all my colleagues to make sure that we have clarity around the short-term objectives, so efficiencies clearly, but the medium to longer term, what are the opportunities people were working in different ways now? What is the opportunity to look at the states that are quite vast across the public sector? Are there opportunities for mergers, for shared services? What I want to avoid is that people become consumed with structural change rather than the objective of improving services and better outcomes. We need to just avoid the question of who is going to get what job, territory and not on to what are the better outcomes that we need for our public services. I see that as a very important area of work. We need to make sure that we are creating new public bodies that we have thought through whether that is the right way to go rather than being the first go-to. That landscape needs to be absolutely agile, it needs to be working to best effect delivering good outcomes for the public. I am happy to keep the committee updated of some of the detail and to point to where there are examples of good practice and good outcomes. Some of the questions I was going to ask have ones that Michelle Thompson has asked and others, but I want to revisit first of all the fiscal framework. From what you are saying, Deputy First Minister, it seems to be that the negotiations, which I know that you cannot go into detail about, seem to be in the undergrowth of the discussions and the detail of the discussions. I wonder whether the more fundamental issues, my own views of the fiscal framework, have failed over time. However, what Michelle Thompson said about the impenetrability of that is that people cannot possibly understand—it is a bit like the UK tax code, it is so complex—that cannot be good for transparency and accountability. Is that being looked at? Secondly, the very basis of it whereby expenditure in England is decided and then literally consequentially Scotland gets a share of that seems to me to be totally counterintuitive to what devolution is meant to be about, which is to recognise the differences in different parts of the UK. If those more fundamental issues are being examined or is it the case, it is really about how it is working in the detail of it alone. Let me agree first of all on the premise. We have to deliver against one rule set by the UK Government that is to balance the annual budget. That is our requirement. We have to deliver that fiscal rule with those limited fiscal levers at our disposal, with no ability to borrow for the day-to-day spending that other Governments would, and almost two-thirds of funding tied to UK Government spending plans. That is the backdrop to the challenges that we have. I would answer that in two parts. The first, in terms of the review and the immediate, is to secure some immediate improvements. If you are looking at a scale of 1 to 10 of a major complete rewriting of the fiscal framework being 10 and no change being one, we are somewhere in the middle of wanting some significant adjustments to the framework to help us to manage some of that difficulty. However, we are not going to get a full complete rewriting of the framework at 10. That is just not the territory that we are in. We need to take what we can get in terms of getting an improvement to our position. That is what we will do. There is then the wider question about what is the future. We absolutely need to get into a space of looking at the fiscal powers more generally. Obviously, we have a very clear ambition for what that looks like, but there are also opportunities under devolution to have far greater fiscal power. If you look at local authorities, they have more fiscal powers in terms of borrowing than the Scottish Government has. That cannot be right, and the Welsh Government is similarly minded that we need to get back to some of the fundamentals here. There may be opportunities in the future to negotiate something far more ambitious and that can change some of those fundamental restrictions and inherent links to every UK Government funding decision and spending decision that we take the consequence from, which are not always positive and quite often are not positive. That is not going to be achieved through what is quite a technical review of the framework in the here and now, but my ambition is that we need to go far, much further than that, in terms of how the current system operates. I think that that is, in some senses, disappointing, but I would hope that, within the constraints of that technical led's review, it used to be said that granted expenditure formula for local authorities in Scotland was understood by two people. I think that it is half that, understand the fiscal framework. It would be good to see that expanded, if possible. On the general area of tax and resources, you mentioned a generally improving tax position. Just to say that there is research published last night showing that there has been a 79 per cent increase in council tax in England, whereas in Scotland there were about £300 or £400 on average less than that, so it is a pretty competitive position across the tax take. However, have you done any analysis on the impact of generally higher public sector wages in Scotland driving that increase in revenues and generally lower unemployment, certainly over the last year or so in Scotland? Is that responsible for, and I realise that some of that is quite recent, although evidence just published shows that the increase in Scotland in the wage growth was about 8.4 per cent, as opposed to 7.1 per cent in England and Wales. Is that what is driving the increased tax take? I will bring officials in in a second. It is absolutely right that we have a larger public sector in Scotland and it is better paid. Inevitably, that will have an impact in terms of the importance of the public sector for the tax base. It also has a challenge because of public sector paydeals. You have a larger public sector, and the paydeals are going to have more of an impact. Of course, we have tried to avoid strikes, so we have landed paydeals that are above what was budgeted for. That is one of the factors pointed to by the SFC in terms of one of the challenges. Nevertheless, it is an important element in terms of our economy and, of course, it is important in terms of delivering public services. I do not know whether there is anything that officials want to add, Andrew. Very briefly, when the fiscal commission was here last week, they talked about some of the modelling that they had done on that. However, the overwhelming situation is that three quarters of the tax take comes from the private sector. What is happening there is much more significant. What the fiscal commission has done overall is to very marginally upgrade its wage growth assumptions for the next year, and that, in part, explains why the tax take is higher. There is obviously a relationship between private sector, wage growth and public sector at wage growth in any economy. My last question is going back to the point that Michelle Thomson raised, and it is back to the idea that we are going to see a cut in capital budgets by 14 per cent by 2020. Again, Michelle Thomson's point that most economists would agree, and I have been a critic of the £2.5 trillion of debt that the UK Government has accumulated, but most economists agree that debt that is incurred as part of capital expenditure is beneficial for an economy, and that being the case, and you may have answered this in relation to Michelle Thomson's point, is there a particular argument being put to the UK Government on this, that the capital constraints that are there just now are not serving, certainly Scotland or even the UK, is there a particular representation beyond the general point about how damaging having austerity budgets is, but on the capital side, is there any sign that the UK Government will be willing to move on that? We have raised that, obviously, as a key concern around the budgets and the fiscal outlook in terms of capital. We have made all of those points that, in terms of Covid recovery and recovery from the cost of living crisis investment in infrastructure, are important and key. For that to be reducing is the wrong decision. We have made all of those representations. We have made that point very robustly. Is that position going to change? The outlook is the outlook. As things stand at the moment, there is no sign of that changing, but the autumn statement, we will watch very carefully to see if there is any recognition that reducing capital budgets at this time is not the right policy and not the right direction of travel. However, I can only tell you what is in front of us at the moment, and that is that very difficult outlook on capital. A very brief last point on that. It was, as I am sure you remember, in the 2010-2018 period, not unusual for the UK Government to announce sudden expansions of capital finance. We used to find shovel ready projects, as it was called, but that seems to have just fallen away. You do not expect any movement in relation to that. We are not aware of anything, but we sometimes find out very late in the day. We do not get an awful lot of information in advance of the autumn statement, for example. We do not know, but clearly we would utilise any capital availability. We had benefited from an increase at one point on financial transactions, which we had utilised for the affordable housing programme. That was the main use that we put FTs to, but, again, even that has dropped off and is looking like it will continue to decline. We will continue to make those representations, because it is a key point in terms of that recovery. Just a factual question in the first instance, cabinet secretary. You might not have the answer to the hand, but given that a number of public sector pay negotiations were only concluded after Parliament passed the budget, do you know what the total public sector pay bill in Scotland now is for £234 million? We know that it was £900 million above what the budget had programmed for in terms of the entire pay bill. I have something in my mind of around £24 billion. I can come back with the exact figure, but it is a large chunk of the budget, clearly most of the money. Oh, it is over £24 billion. It goes on on pay. I guess that is the point that I was making to Keith Brown, because the pay deals to try and avoid strike action, we have, and because of inflation costs and people's household budgets really suffering for that, we wanted to try to reach as fair settlements as possible, but clearly with pay being the main expenditure in the accounts, any addition to the pay bill is going to be considerable and these things need to be balanced. Thanks very much. The committee had a round table a couple of weeks ago with various representatives of the public sector organisations and one of the points that came up during the course of that discussion was that a number of the bodies that were represented around the table had expressed an interest in the Scottish Government's potential pilot of the four-day week. I say this with the significant caveat that this is by no means the universal position of trade unions representing workers in the public sector, but a number of public sector workers in Scotland, a number of local union reps within various public agencies have expressed an interest to me in that, partly in recognition of the fact that they know pay rises in line with inflation across the board in the public sector are not affordable right now. Although they are interested in maximising the payoff for me to their members, they are expressing an increasingly significant interest in other changes to terms and conditions that might be beneficial to workers. Do you have any update on the progress with the four-day working week pilot? I will ask officials to come in on the pilot itself, but it is fair to say that in any pay negotiation it is quite often not just about pay, so other elements will be brought in around terms and conditions. The four-day week is something that has become far more of a live issue, not least the way that people's ways of working have changed, so many more people working from home. I go back to Michelle Thomson's point about productivity. There is something about—in quite a lot of—it is not just the public sector—some private businesses are looking at this as well. Essentially, if you can maintain or improve your productivity and you can do that over four days rather than five, then why not give that flexibility to staff? It is something that is very current that a lot of employers are looking at. In the public sector, we have the pilot. Alison Thomson, do you want to give a bit of an update? Yes. The plans for the pilot are being developed. We are in discussion with a small number of public bodies who have expressed an interest in taking part in that pilot. We have a very modest budget set aside for this financial year to support them in doing that, particularly to generate the evaluation and the evidence of the impact of the four-day working week. Obviously, there are different ways in which a four-day working week can be operationalised. A number of those can also come at a cost to the public finances if it is about reducing the number of hours that we work in a week if we do not see those productivity gains alongside it. All those factors will be taken into account in terms of the pilot. I would expect that we will be able to give an update to the committee if it is not interested in it in the next couple of months. That would be fantastic. Thank you. Just to clarify, the intention then is for the pilot to operate at some point in the current financial year, or to at least start in the current financial year. Yes, that is that intention. Cabinet Secretary, you mentioned the 500-ish initiatives and programmes that the Scottish Government has. On that point, I am interested in how we ensure best value for money and policy coherence across all those initiatives, particularly in relation to the overarching missions around reducing poverty net zero. For example, there is something in the region of £3.25 billion of expenditure each year in NDR relief, or £3.25 billion that is not taken in NDR income. Some of that clearly aligns with Government's overall objectives. The renewable relief, for example, obviously contributes to the net zero objective, but it is a small one. What instructions are being given to your Cabinet colleagues and to SG directorates to ensure that they are getting the best value for money out of every initiative that they are responsible for, that might not necessarily have an obvious connection to one of the overarching objectives, but which could contribute towards it? For example, in other areas of NDR relief that are not necessarily about lifting people out of poverty, you could apply a condition that the company can only get that relief if it is signed up to pay at least a real living wage, as a speculative example. How are we ensuring that policy coherence and best value for money across the board? As I said earlier, on the lens that each programme will be put through is around core missions. Do they reduce poverty? Do they help to grow the economy in a sustainable way, net zero, sustaining public finances? Of course, there will inevitably be a bit of political oversight on some of that as well. We will work through all of that. In terms of business taxes that you mentioned to NDR, the subgroup that I mentioned earlier on that is looking at NDR, which Tom Arthur is chairing, is an opportunity to look at whether the supports are the right supports and are there supports that need to be more focused? What does the business community feel and want in terms of the priorities? Not everything can be a priority and not everything can be agreed, so we need to get a sense of what are the key priorities and what delivers in terms of sustaining small businesses, bedrock of the Scottish economy and our key sectors. All of that will be worked through. As I said earlier on, one of the key ask from business has been around maintaining the lowest poundage in the UK and that has been a key ask of business and has been important support for business. We need to reach a position that is balanced and that delivers on all those key objectives and is affordable. There will be some quite challenging decisions. There are many asks of government from every part of every stakeholder or every part of society and we need to land that in a space that is fair, consistent and achieves the objectives that were set out. I am still interested in how we achieve the policy coherence aspect of that. Is each cabinet secretary responsible for ensuring that the book is balanced in their portfolio in their own way? On the basis of the First Minister's perspective from April, are there a set of instructions being issued? For example, in education, I cannot remember off top of my head whether there are conditions attached to the pupil equity fund. A lot of people equity funding is used by schools to pay for third and private sector organisations and has clear additional benefit but I do not know if we attach, for example, a real living wage condition to use of the pupil equity fund, which would align with the poverty objective. Is that overarching set of objectives being used to give instruction to each director, each cabinet secretary, to ensure that we are achieving that kind of policy coherence and value for money? The leadership role sits with each cabinet secretary within the area to look at all of the programmes within the area to make sure or to check against those core missions and whether or not how far those programmes go in delivering those objectives. Then we will look collectively at all of that in terms of what does that picture tell us and what decisions should we make in the light of the challenging financial outlook and the need to reduce poverty, to make sure that we deliver on net zero, to make sure that we have sustainable public services and that our economy is as vibrant as it can be. We need to work through all of that and the initial phase is the leadership role that each cabinet secretary will need to apply to that. Cabinet secretary, you mentioned earlier the question from Liz Smith about the employment rate. You said that it went down slightly. From what I am seeing, it went down by 1.8 per cent, and I do not think that that is a slight drop. I think that that is quite a huge drop in relative terms. What sort of impact will that have on the tax net position flowing through? Obviously, it looks like it is going to be positive going forward to the net position, but when we have a drop like that, what sort of changes can that have to that position? Clearly, the employment rate going down is not what we would have wanted to see. First of all, the employment rate is still in a good position and the labour market information tells us that, essentially, there are big sectors within the economy that are struggling to recruit. Employment levels are still very high and the economy is in a place that is not improving. Unemployment is lower than the UK as a whole. The figure that I gave you earlier on—I think that it was in response to Liz Smith around the barometer for income tax—was showing that the HMRC data, which is the actual data in terms of labour market statistics in terms of payroll employment in Scotland, which is important, because those are people who are paying tax, has increased from April and is 56,000 more than pre-pandemic February 2020 and 28,000 higher than last May. That, as I said earlier, is a good barometer for income tax, because that will be more people paying more tax. I am not complacent at all. We should not be around the ONS figures, and we need to see what the trend is in terms of what the next set of statistics show. We have an economy that is—the GDP is growing faster than the UK's. Unemployment is lower and earnings in Scotland are growing faster than the UK and the SFC forecasts show this to be continuing. All of that shows cause for optimism, but we shouldn't be complacent about the employment figure. I should also say the point that was made earlier on in the figure that we should be more focused on is the issue of economic inactivity. We need to get that down. We need to get more people into work, and that is why the work that is going on around making sure that people who need that extra support to get into work are given that support. That is probably the figure that, if you were to ask me what concerns me most, would be the economic inactivity. How are you going to address that economic inactivity? Clearly, NSET has set out how we are going to grow the economy in terms of those key areas of growth. We also need to focus on things like employability and skills. The Wither's review is showing a way forward in terms of a much more coherent offer to people in terms of skills development, upskilling. We have some huge areas of growth that are coming in the green economy. We need to make sure that those opportunities reach everybody and that they are open to everybody. We have a lot of work to do around employability. There are some really good programmes where people who perhaps are in pretty low-paid jobs—we are not talking here just about people who are not working, but there are people who are in insecure employment and who are being supported into more secure, better-paid employment. That is also an important part of what we need to do. There is not one easy answer here, but I think that all of those are important. You mentioned the OBR figures and the SFC figures. They are diverging quite a lot. 2 per cent is the OBR's forecast for earnings growth, and it is 2.6 per cent for SFC. However, they say that that should be interpreted with caution as it is sensitive to changes in the forecasts. How much confidence do you have that the Scottish economy or earnings growth is going to outperform the rest of the UK? As we all know, that is key when it comes to the fiscal framework. We have to be outperforming the rest of the UK to see the positive block grant adjustments. In 2022, the Scottish economy grew by 4.9 per cent compared to 4.1 per cent in the UK, and the latest ONS data shows that earnings are growing faster in Scotland than in any other part of the UK. Scotland has 9 median earnings annual growth to April. Scotland was 9 per cent. The next highest was 8 per cent. Scottish earnings are forecast to grow faster than the UK. The SFC, as you mentioned, forecast that average earnings will grow by 4.6 per cent this year compared to 4.1 per cent forecast for the UK by the OBR. I think that the SFC will have done a lot of detailed analysis around the Scottish economy itself, and we should have confidence in their forecasts. On the final point, if you look at the tax data—and the reason I keep coming back to this is, I guess, that it is hard evidence—it is what we know. The provision on in-year PAYE tax data for the first 11 months of 2022-23 suggests that growth in Scottish PAYE income tax receipts has outperformed the rest of the UK. That is not a forecast. It is an actual—here is—the evidence. We are not being complacent here. We have to keep an eye on it, but all I am saying is cause for some optimism. They also say that it should be interpreted with caution. Of course, but I guess that any forecasts always have an element of risk and caution. However, when you look at that HMRC data, it shows a trend that is in the here and now evidence that would hopefully give us some cause for optimism. The forecast will show that trend continuing, but of course we cannot be complacent. Moving on to public sector reform, I think that you mentioned that you are working on an overall picture of what the public sector landscape will look like. When do we expect to see that? I would imagine that that is going to be key for setting the budgets in years to come. We are not starting from scratch here. You will have heard my predecessor John Swinney talk a lot about public service reform. We have been working over quite some time to get the public sector and public bodies thinking in a more sharply focused way about efficiency, about how they work with each other and what their future plans are that can deliver better outcomes in a more efficient way. There is a 10-year programme of public bodies and public service reform that seeks to do all that. My job is to bring a pace and acceleration to some of that work across Government and to have that radar of beyond the individual bits of what does that look like as a collective picture in terms of the public sector and how can we make sure that we do not just do the minimum in that space but that we are getting every public body maximising what they are doing in the most efficient way to the best performing. I mentioned NRS and Scottish Water. How do we link up the best performing and what they have done and make sure that that happens everywhere? You mentioned public bodies working better together. Do you think that that is going to be something that they will voluntarily do or do you think that that has got to be mandated because the evidence that we have heard is that they only get proper big reform when it is mandated centrally? If you look at NRS and Scottish Water, they were set the same challenge as other public bodies to make sure that they can live within their budgets which are under strain and therefore they need to drive their own efficiencies and consume their own smoke if you like. They also need to improve outcomes and that is quite a challenge. Scottish Water has carried out a huge programme of efficiency and reform. NRS similarly focused very much on digital opportunities. Now they were not forced to do that but they have had the leadership within their organisations that recognised the need to do that. I guess that what we need to make sure is that the pace is not at the pace of the slowest, it is actually at that pace. There is an organisation that brings together the leadership of all of the public bodies and there is work going on there to share that best practice around how did they do it, what did they do, how can we do it. I think that public bodies know that there is no option given the financial outlook than to make sure that they are getting on with the reform that they need to do. It might look a bit different in each organisation but some of the principles are the same and we need to see that pace now. Ultimately ministers will have a responsibility of oversight to make sure that that pace happens. I have been in my bilaterals with my colleagues, we have been talking about the need for pace around this so ministers are aware of the need for them to ensure that we see every organisation get to the point of being the most efficient, the most productive, the best in terms of best outcomes for the people they serve. All the examples that you have given there are bodies becoming more efficient in themselves, working better still within their, I am going to say silo maybe that is not the best word to use, but it is actually how we get bodies working better together across the board. I am talking about local authorities working better with the health boards, working with the IJBs, is that going to be something that has to be mandated going forward? Silo's absolutely need to get out their silos but I think they recognise that. If you look at the opportunity for shared services for example that is being actively looked at and should be actively looked at, there may be opportunities for organisations to go further than that in terms of murders. Local authorities are in a bit of a different position because they are independent organisations however many of them are looking at the potential to work more closely with their neighbouring authorities around shared services. There are also discussions around whether there are quite discrete specialist roles. Is that something that local government can share rather than each trying to recruit from a small pool of specialist people? I think that there is an appetite given the opportunities through the new deal for things to be done differently. There is active discussion in Orkney and the Western Isles around a single island authority. That is something that they have raised previously, they are keen and I guess champion at the bit, might be the description to get on. The driver for that being you are again trying to recruit people to all out particular leadership positions to all these different organisations fishing in the same small pond and actually they have come to us to say that we need to do things differently and we want to encourage that. Now there are some issues to be overcome, not least the point you made about the relationship between the local authority and the health board and the lines of accountability there but these issues are not insurmountable. Where there is a will there is a way and I think that we want to be very encouraging and permissive to say whether it is local government or any other part of the public sector to be generating ideas for reform rather than it is always been done this way. The single island authority could end up being a trailblazer for how things might be done differently elsewhere. That is maybe one to look at. Do you think that they will do that voluntarily or do you think that has to be mandated? That is the key thing that I am trying to understand. The single island authority has actually come from the local authority and public sector bodies within the islands themselves. They have come to us to say that we would like to go ahead to scope out how this could be done in a different way but we need you to be on board and we have said that we are on board and we need to work through the detail clearly but we absolutely want that innovation and fresh thinking and reform and I think that that will be a really interesting one to watch. Yes, you are out of time. If we have a lot of time at the end I might let you back in but it is Michael Marra's turn now. Thank you, cabinet secretary, for all the information so far. On 16 May we took evidence from the permanent secretary regarding a range of issues in the operation of the civil service and one of the issues that committee was interested in was the status of the resource spending review and the objective of returning the public sector workforce to the size pre-Covid. He talked a little bit about the progress in that area but he said, and I quote, I do not think, sorry, we asked about the status of that policy within government. He said, I do not think that that has been publicly stated by the new government. Is it wondered whether you could give us clarities whether that approach remains the policy of the SNP government? So, you are right to point out that that was the position. The Scottish budget for 2023-24 set out that it is for individual public bodies to ensure that workforce plans and projections are affordable in 2023-24 and then the medium term. We are looking really for public bodies to ensure that the workforce numbers and model is within their financial envelope. Essentially, it boils down to having the policy. If you were to take a policy across the whole public sector of returning to pre-Covid levels, that is a bit of a blunt tool. In recognition that some areas of the public sector will, by necessity, have to continue to grow health for one, social security when it is delivering its programmes, the policy needs to be more nuanced than that. Essentially, what we have said is that public bodies need to have their workforce—the numbers of their workforce need to be affordable within their financial envelope—and that we have set out some workforce scenarios in the MTFS, with low growth being 0.3 and high being 2.2. That is in recognition that some parts of the public sector will continue to grow. It is a more nuanced approach, but the overall message is that the public sector needs to make sure that its workforce is affordable and that their projections are within their financial envelope. The blunt tool, as you put it, of pre-assessor Kate Forbes, has been dropped? For each public body, it will now be responsible for making sure that its workforce is the right size to deliver what needs to be delivered, but it is affordable. That, as I said earlier, is in recognition of areas such as social security and health, which are areas that are continuing to grow for all the reasons that we understand. I have taken that as a yes. It is important to have the clarity of the public sector given the lack of clarity from the permanent secretary, whose department seemed to be pursuing a particular trajectory, but said that he had no clarity on the stated policy of the Government. It might be useful if we had that stated in clear terms, so I am not correct in saying that as a yes. We do not want to see exponential growth. Bodies have to live within their financial means, but we have to recognise social security, health and so on. If you want, I am happy to write back to the committee with that set out in writing, if that would be helpful. I think that that would be useful for the permanent secretary and the leaders of the different departments as well. Part of the commentary was about recognising that there would be pay growth, given that you have outlined some of that today, and that we had to understand the affordability across those other areas. On that basis, part of the commentary on the medium-term financial strategy was that there have been areas that were light on costings, such as the national care service, child care, mentioned by various colleagues already. The Institute for Fiscal Studies talked about that gap and said that there was a little sense of how that gap would be closed. Reading it and listening to it, if I may characterise it, it feels a little bit like you are hoping that something will come along. No, not at all. I certainly would not accept that at all. So, to be blunt, come the budget 24-25, I need to set out how we are going to deliver all this within a balanced budget. There is no ifs, no buts. That detail will be there and we will set out how we are going to close the gap. Unlike other Governments that can borrow the way through difficult scenarios, we have to balance our budget. That is a fiscal rule that we cannot escape, and we have limited levers to be able to do that. Of course, since 2007, we have had unqualified accounts from the Auditor General, so we have managed to do that despite the increasing challenges. What you have set out in terms of NCS and childcare are areas that we need to create some hedgeron for. I talked about childcare earlier on around if we want to increase the very good offer that is already there. If we want to increase that, because we see it very clearly linked to growing the economy and growing the tax space, and that is a priority, we need to create the headroom to do that. It may not be able to be done in one year in 24-25. In fact, that is going to be a very challenging year to be able to do anything in great scale, but beyond that, in terms of setting out those multi-year objectives of priority for spend, I will certainly be setting out the detail for the budget. What our spending plans over the next few years will be in terms of the priority, so childcare is a good one, that we need to make sure that we set out what and how we will deliver over the next few years. Far from hoping that something will come along, we need to sort and consume our own smoke with very limited levers, so nothing could be further from the truth. That is the pledge that the First Minister made in his election campaign to be First Minister on childcare. That can only be delivered if there are further cuts, is that right? That is what a headroom is. What I have set out are the three areas for the public finances. First is prioritisation and making sure that we are targeting and looking at all of our programmes. You would expect any Government to do that. The second is increasing our tax base so that we keep more of the tax that we raise. The third, of course, is what that tax policy is. All of those levers are equally important to making sure that our public finances are sustainable. We can create some of that headroom now looking towards the future. We will need to see what the autumn statement brings in terms of whether there will be any improved position over the next few years in terms of the block grant. We just do not know that and whether there will be any potential for consequentials on things like childcare. Of course, that will be factored in to all of that. That is my point about something that might come along. The common trait on this is that the Institute of Fiscal Studies, Spice, Fraser of Allander, is talking about the size of the gap. There is no indication in terms of the strategy. It does not feel very strategic in terms of how the gap might be closed and then highlighting that there might be further consequentials that will allow us to do some of the things that we have already committed to doing. That is not what I said. What I said was that we will create the headroom that we need to be able to take forward our policies. What I do not know though is what else will transpire in terms of the block grant going forward, whether there are going to be changes to the outlook, whether there will be changes to consequentials. All of that is additional that could be factored in, but we cannot assume any of that. What we have to do is to set out what we know and how we will manage the fiscal position going forward with what we know. The only point that I am making is that there are some things that we do not know that might have a material impact on what we set out. We need to manage that. That could be a positive impact. It could be a negative impact. All I am saying is that it is a material factor in terms of whether we can set out our plans and say that we are going to do A, B, C and D. If we get to the autumn statement and there is something that changes in a negative way, clearly that is going to have an impact on what we have set out. Do you have a date for a meeting with ministers on the fiscal framework from the UK government? We are meeting ministers in the next few weeks. Are they more specific? We are, well, eminently. It is much more specific. In case of date changes, it is eminently. Okay, that is fair. I think that it is obviously of significant interest to the committee. I am picking up a point earlier on about the relative competitiveness of council tax rates. I think that it is something that perhaps feels a little bit less commented on. Over the last few years, in our home city of Dundee, we have had 180 cuts to teacher numbers, the number of additional support needs teachers have dropped from 165 to 93. There has been a cut for attainment challenge funding, which has resulted in 22 posts being lost, including speech to therapists in nurseries and schools. It is a very significant issue. On those issues, there are costs, real costs, to some of the most vulnerable people from that supposedly competitive rate, is not it? The council tax position in relation to England has been set out previously in terms of the council tax going forward. Obviously, there has been more flexibility in the council tax setting. We have moved away from the freeze that was previously in place. Councils have had more flexibility in terms of the council tax rate that they set. Some of the financial challenges facing local authorities are the financial challenges facing the public sector more broadly. Some of the policies that we have put in place around things such as the attainment challenge funding and PEF funding have been important levers. What I would say about Dundee City Council is that it has also put in place quite an extensive package of supporting people through the cost of living crisis. For example, the food and security network is providing and supporting organisations that are literally putting food on people's tables. Tough times for local authorities will make tough decisions, but looking to the future, that is one of the reasons that we need the new partnership agreement. It is the reason that we need the new fiscal framework with local government. There are two aspects to that. One is that local authorities need more flexibility in how they spend their money, and that will mean moving through a programme of looking at ring fencing. That does not mean that there will be an overnight all ring fencing has gone, but it is an acknowledgement that there are lots of pockets of funding that local government has, all of which they have to report before and some of which is very constraining, but that probably does not make a lot of sense. The partnership agreement will set out the principles of how we are going to work together, and the fiscal framework will set out some of the detail around how that will work. Given that flexibility, it will mean that local authorities, over an increasing period of time, will have more levers at their disposal. The second part is having more fiscal levers. I am keen to work with local government around what other fiscal levers they may wish. We have had a few in terms of the second homes, empty properties, visitor levy, but there may be more that local government wants to discuss. I am keen to have that discussion with them. I suppose that the specific about how some of that would work. That number has dropped in additional support needs teachers in Dundee from 165 to 93, almost halved since between 2010 and 2022. It is the balance there, is it not? The national conversation on education that reported back just last week said that there is a sense of crisis and additional support needs teaching across the country. It is one of the principal concerns of the whole of the education system from children, parents, families, teachers, and the whole gamut of that. How do you then drive through the kind of change that you are talking about in fiscal arrangements and make sure that we can address that problem? That is a trend that cannot be allowed to continue, surely? There are two roads to go down here. There is one of increasing ministerial decision making over what local government spends its money on and increasing ring fencing. Or you have more fiscal flexibility for local authorities and they would have more flexibility about whether to spend more money on ASN teachers or other areas that they see as a priority. We are at a crossroads and those are the two routes. My view is that giving local government more flexibility around its budget will allow them to set the priorities for their local area. In ASN, that may well be an area that local government wants to prioritise, but we cannot have it both ways. Quite often, in Parliament, we hear calls for local government to have more flexibility over its funding. In the next four ministers to be held to account for how many ASN teachers or staff are in each local authority. We have some fundamental principles to agree here, and that is essentially going to be set out through the partnership agreement and the fiscal framework. What I would say in terms of the local government settlement in total is that that is not to diminish the challenges that local authorities face, but we have to recognise, first of all, that we have increased the resources that are available to local government by more than £793 million in 2023-24, which was a real-terms increase of £376 million, 3 per cent. However, inflation is impacting on local government in the same way as it is impacting on the Scottish Government. Paydeals are impacting on local government in the same way as they are impacting on the Scottish Government. Of course, we included £100 million in the budget to help local authorities with the teacher paydeal. Those are not easy things to wrestle with. There is no easy answer. If there was, it would have been done. My view is at that crossroads, giving local authorities more financial flexibility, whether that is how they spend their money or how they raise their money, for me is a better road to go down, rather than increasing ring fencing and direction. Douglass, are you very keen to come in on something else, just briefly? Just briefly, thank you, convener. In terms of non-domestic rates, we see it increasing by more than 10 per cent over the next three years. Can you give us some narrative around that? Is that because of growth or is it because businesses are going to be charged more? I will maybe ask my officials to come in here. What I would say is that the work on NDR in terms of its huge importance, of course, to local government funding in terms of being a core part. We need to make sure that it continues to bring in much-needed resourcing. We do have a strong package of reliefs, worth an estimated £749 million in 2023-24. Of course, that is going to be an important balance to strike around where we go with NDR into the future, which is why that consultative group has been brought together under Tom Arthur to look at how we go forward with NDR. In terms of the 10 per cent, I do not know whether that is something that we might come back to the committee on, but I would assume that it was growth. Andrew? I think that it is something that we should come back to the committee on. It is contained in the SFC's estimates, and it is very roughly the figure that you get to by 28-29. I think that it should come back to you just on the nature of that reaction. The figure is between 23-24 and 26-27 on looking at, which is more than 10 per cent. I am looking at 3374, which is 28-29, which is also about 10 per cent. 3437 by 26-27. We will write back with the detail of why we think that that is increasing, if that is okay. One of the points that has come up from a few questioners has just been the uncertainty in the UK Government's budget setting on timing. I think that this has come to committee quite a lot. Well, I suppose that it is a request more than a question, but can you press the UK Government? I know that you cannot dictate to them. If we had consistency every year as to when their budget is, so that we could then build on their budget and then local governments and everybody else. I will make that point. It does not help, but it is really very, very challenging all around. I guess that the commitment that I will make is to engage with this committee as early and as much as I can through the budget setting process for 24-25. That is great. Thank you very much. I thank you, Deputy First Minister and your officials, for your evidence today. That concludes the public part of today's meeting. The next item on our agenda, which we will be taking in private, is an evidence session with the Cabinet Secretary for NHS Recovery, Health and Social Care on a proposed contingent liability. So we now move into private session.