 Good morning colleagues and welcome to Aberdeen, in the second meeting in 2018 of the Finance and Constitution Committee. We're delighted to be in Aberdeen here this morning and I'd like to thank Aberdeen City Council in particular for hosting today's meeting. Now, the first item on our agenda today is to continue the committee's examination of the Scottish Government's draft budget mewn bwysig iawn y dyma, a maen nhw i ddefnyddio'i prifaffol o'r mewn bwysig iawn o'r tyfu'r flynydddiad. Mae'n rhoi'r beggidio'r bwysig iawn i gael y cymdeilio ar gyhoeddiolTradeedd, ac mae mae'n hi'n ymddangos gwirioneddol o fewn gwneud yn cael ei saffodol sydd wedi'i bwysig iawn ar ru'r mynd iawn. Mae'n rhai ddifus, fyddai'n ei ffordd instri i'w cyllid cael eu gymunedau a'r mewn gweld eu r factorial yma eho'r byddai'n gweld! F refreshing feedback on one thing that came through to me in regard to all the sessions I was able to attend was the issue of having more local control over decision and local spending. That seems to be a theme on almost all the tables I certainly was able to take part on. Now, we had an MSP representative at each of the five groups of workshops this morning. Bydd hynny yn ymdadew, maes eich ddweud i ddiwyddo fathried, ac floisi gan rin risau i gyd, i gyd adroddiun sailwyddol i'w youl. A oedd beth y Dai Eggisedg Wiyth Grifoli yn wedi'w ddechrau'r bydd gan'r problemau yn wyleu ei amser ar y dweud o nowe ac y trydaun, ond na y Tynau'r陽естhiol yn siaradien ei'r nameigrwyddol. felly rhyw ben anhwyntiau addyr â morhum breddau mym tribalr suggestion sfriedol— ein Llyfr o frequent theft-prburgh gyda Cymru, a'i cho ei grau hynny i hyff 안녕. Thank you very much, Bruce. I would like to share with the committee some of the thoughts of the contributors around our table. As you might imagine, we started off talking about fishing. Stephen Patterson from Peterhead Port Authority was telling us that there's been basically 10 years of steady growth in the industry. It's something like 200 million pounds of the value, which has doubled in the last 10 years, is what he told us. Of course, they're the biggest processor in the UK now, up here, supporting about 6,000 jobs. They very much rely on foreign labour, as you might imagine, in the processing sector. The salaries are pretty good in the sector. If they had any concerns at all, it would probably be sheared by colleagues around the table about continuing and sustaining employment in the sector. They are investing in a training programme to try to attract more younger people in the north-east to take an interest back in the sector, so there's some good work going on in that whole area. Of course, they also mentioned the potential impact on access to the fishing grounds post Brexit and what that might mean. They were concerned that if anything were to happen that were to upset the balance that we've achieved over a number of years in terms of fishing and volumes and quotas and so on, that would be a concern if that careful balance was disrupted. Susan Coole, from NHS Grampian, contributed to that part of the discussion about accessing staff. They have particular problems, as you might imagine, in the north-east about recruitment, and she particularly mentioned into the nursing sector, where costs and property costs, for example, are higher here, but wages tend to be the same throughout the NHS. Susan was telling us that they found a difficulty recruiting there. Interestingly, she had remarked that they had been successful in recruiting some staff from the oil and gas sector to come into the NHS. Not always entirely successful, she mentioned, but there was certainly an opportunity there for her to do. Dave Black, from the Grampian Racial Equality, was telling us that there's actually been a 34% decrease in national insurance registrations in this area, mainly from people coming from Poland and Romania. Whether that then will go on to have a negative impact on the local economies remains to be seen. It didn't appear to be a direct and immediate impact on that, but it's something that they're keeping an eye on, that there might be an impact on that. Joyce Duncan, from the CVO, gave us some really useful feedback. She said the value of the third sector in this area in Aberdeen City, it's about £350 million worth of value, supporting 10,000 staff, and incredibly, 70,000 volunteers, 25% of whom are European. She said to work in the voluntary sector in this area, which was quite an astounding figure that she shared with us. I've written down what she said there, she feels as though they're sitting on the edge of a precipice, that I don't remember her saying that to us, which was quite a concern for her. In common with many other groups, they would be looking for more multi-year commissions rather than the annual commissioning that we see in the third sector, and we'd discussed whether there might be an ongoing message for us there in our budgeting process to perhaps move away from single year to three-year processes and so on. That would be very helpful, that particular sector in the voluntary side of things. Back to oil and gas, we spoke briefly about the impact on the oil and gas sector. The best thing that Jamie Coventry from Aberdeen City Council said is that it's possibly stabilising the impact on the sector while not upturning, it's probably stabilising now, but they didn't anticipate any huge impact in the industry coming from Brexit. Per se, it did point us towards the work that's being done in Norway in terms of decommissioning the areas, and they seem to be a wee bit ahead of us in that technology and their development and application of that particular side of their technology. We talked about city deals, we heard a wee chat about city deals, and it was interesting to me to hear that some of the hopes and aspirations of local people around about the city deals concept are shared with even my area of Scotland. It's similar kind of components to what we'd be looking at in the industry, so focusing on life sciences, tourism, food and drink, and that seems to be shared now in the north-east, which came as a wee bit more of a surprise to me, and perhaps I would be expecting maybe more of a focus on the fishing sector and perhaps even a residual focus on the oil and gas sector. Tourism, there's about 20,000 people employed in tourism within Aberdeen and Aberdeenshire, and we had a little bit of discussion about the impact on hotel business, hotel occupancy rates and so on. It's down a wee bit, but I know from listening to one of the other contributors at another table that they're quite happy with some of the level of occupancy that is going on in particularly in the city at the wee bit, so there's maybe a wee bit of a mixed message there for me in picking that up and perhaps others have a more concise message to share. We then turned our attention to tax, and whether there was anything to be said at the moment for the impact of the land and buildings transaction tax and income tax on what's happening within the local economy, it would probably be fair to say it was inconclusive, I think, Adam, when we were trying to find out if people were making decisions based on the land and buildings transaction tax impact, or whether it was really an impact from the oil and gas sector that has the greatest effect and the higher value. On GDP, we were asking what can we do, what can both Governments do to help the local economy to develop, and of course we mentioned the stability of the population or the ability to grow the population was absolutely crucial. One of the figures that came was quite stark that one of the contributors said that 39% of babies born in this area come from non-UK mothers. I hope I've got that right, Adam, if you take a... I know that that was quite an astounding figure to realise that, but most of the people that are living are now second generation Europeans and see themselves as new Scots if we want to use that terminology. Turning to my last set of notes, what would you be asking the Cabinet Secretary later today, or would you like us to ask on your behalf, Joyce? What kind of percentage of funding does the Scottish Government push in towards the whole early intervention side of things rather than the acute side of what we do and what we deliver and to try to achieve more of a balance there? One of the other contributors said, we need a sense of security, people in the area need a sense of security and to feel part of this community. There's an amount of uncertainty and unsureness about the future and what the future might hold. Please also recognise the huge opportunity that still remains in fishing. The industry has been with us for 300, 400 years and possibly probably longer and there are huge opportunities there, but we've got to get the balance right. We mustn't post breaks that upset the industry in such a way that it actually causes damage to the sector ultimately. Lastly, the comment that we had was, please do what you can to protect businesses. There's no real connection between the value of a property that a business operates into the business rating scheme and the actual value that's within the business, so it would be useful if the Cabinet Secretary were able to recognise something in that area too. Lastly, in oil and gas, please maximise the economic recovery potential that we have here and get as much as we can out of the industry for the next generation that we expect to be with us. Adam, do you want to add in to that before we move on? The one thing that struck me, Gavina, really alluded to but was actually very strongly put by a couple of people at our table was that in contrast with economies such as the German economy, in the UK we don't support SMEs, anything like robustly enough. There was a big plea for us to think about a small business, a medium-sized business, much more than we do, particularly in terms of banking and banking arrangements, which was quite a strong theme. Thank you very much. James, do you want to feed back from your workshop too? Thank you, convener. We had a very helpful and informative discussion. We had representatives from oil and gas, culture, transport, aviation and fisheries and it was ably facilitated by my colleague Patrick Harvey. There were four key strands that came out of the discussion, first of all in terms of opportunities and also threats of Brexit. It was felt that fisheries was a potential opportunity, particularly the opportunity to grow the way the market is currently. 40% of fish is sourced at home and 60% goes to the EU and it felt it was an opportunity to reconfigure that, to grow the home end of the market. In order to meet that opportunity there was a need to address some challenges, particularly around skills and also greater automation. However, some of the members of the group were very concerned about not just some of these challenges but the whole uncertainty that Brexit had created and the potential negative impact that that was starting to have in the north-east and was going to continue to have, particularly with a lack of clarity around the type of Brexit and the actual plan around Brexit. I'll say more about that in a minute. As an example of that, the second area that we looked at was funding and there were some good examples from around the group in terms of practical funding that was in place, for example in the transport sector for hydrogen buses and also in the culture sector for local festivals, some of which attract 30% EU grant funding and there's no clarity going forward as to how the gap in these funding for these schemes would be addressed. So that was a concern around the group both in terms of local industry and also the community. We moved on to discuss the shape of the Brexit that people would like to see and I think the key message that came across is that people are looking for minimum change. They want to have access to the markets that they currently have access to. They don't want to see a lot of change to trade rules or new barriers introduced and there's a key factor in ensuring that we still have access to the EU labour market. The final part of the discussion, starting to pull it together, was to look at what are the key implications of Brexit locally in the north-east and what are the actions. What was the discussion group looking for from politicians and governments? I think one of the key themes that came out across the discussion was the skills shortage, particularly at the lower skilled part of the economy and there was a feeling that that was, in our examples, given of how that was filled by EU nationals. There's a real concern that Brexit may mean that we lose some of that skills base. There was also a recognition that there needed to be more done in terms of supporting young people getting into employment across all sectors. There were worries and anxieties about the potential impact for local housing. If Brexit has a detrimental impact as some people in the group were saying on the local economy in terms of pushing housing costs up and how that would affect not just young people but people across the board. The other issue that came across really strongly was the need for a greater recognition of local government here in the north-east and local solutions, particularly I think there's a frustration that people feel that not enough of the money that's raised in taxation locally comes back to the north-east. In order to try and mitigate the potential negative aspects of Brexit there needs to be more local funding and local solutions coming to local government. I think the overall message from the group in terms of what they were looking for is there's a real frustration about the uncertainty around Brexit. People aren't clear what the UK government and also the Scottish government are doing to address that and what they want is more clarity and they want to see practical action so they want to see across sectors government ministers including Scottish government ministers engaging on a one-to-one level with key players in the sector assessing what the issues are around Brexit and beginning to establish solutions because I think the key thing that came across as was that the uncertainty and the unknown is creating a lot of anxiety here in the north-east. That comprehensive feedback James. Patrick would you like to add anything to that? No convener, I think just to emphasise that last point the expectation that I think many of the people in our group had was that the discussions that we've had today need to not fall into a vacuum. It needs to be taken on both in terms of parliament and government engaging with different sectors about the need for planning despite the uncertainty but also for people who've had that discussion and perhaps discussed these issues with each other for the first time that opportunity for the discussion to take place not waiting for politics, politicians and government but within the organisations and individuals affected as well so it's about where those arguments go from here. That came out very strongly. I think that final point that James made. Thank you Patrick. I now move to workshop number three. Ivan McKee is going to provide the report back in that regard. Thank you convener. I myself and Murdo Fraser were on a group that had representatives from Aberdeen and Grampain Chamber of Commerce, North East Scotland College, Aberdeen University and Aberdeen City Council and with a very wide ranging discussion but with that make up clearly there was a lot of focus on the education and skills sector and how that interplayed with local business in both directions. Clearly Brexit was the biggest subject of discussion and there was quite a number of points that came out in that regard. There was a bit of discussion about labour shortage and where it will be in terms of post Brexit being unable to access EU labour as easily as at the moment and then the discussion round about the skills gap and the role that colleges are playing, the important role that they are playing in labour inclusion and working to bring up skill people who are fillers from the labour market to bring them into the labour market to potentially fill a lot of those jobs going forward. There was a lot of discussion round about EU students and the uncertainty there in terms of the huge reliance that the university has in particular on foreign students and EU students, not just what they bring to the university in terms of spending money in the local economy but also the fact that it adds hugely to the attractiveness of the university. You are trying to market the university internationally and globally then it is very important to have that breadth of students on the campus so the whole uncertainty round about what the funding solutions would be for EU students going forward was a big part of the discussion. We talked about EU workers and the point was made strongly that it is not just low-skilled jobs but there are many EU workers that are filling jobs in the NHS. Food and drink sector was mentioned in terms of brewing skills from Germany. It was one example that came up. So there is a whole range of EU workers right across the skills spectrum which is going to be very much potentially a risk post Brexit and also the point that it is not just a question of the UK Government at some point saying it is okay for you to stay, that is a two way street and if the EU workers are presently here or people are planning to come and bring those skills, get the wrong signals then they could potentially vote with their feet. And how many to understand that those skilled people have the option as to where else they would go. I am going back and talking about universities in relation to research. There was a very big fear that the partnerships that university has across Europe could be severely disrupted with again people not wanting to come here and do research but making it more difficult to cooperate with other institutions across Europe. And again the impact that that has on business because then you start to see an impact where people don't want to come here for conferences or visits and that has an impact on hospitality sector etc. A lot of uncertainty around about funding, streams going forward, structural funding and also EU student funding which we have mentioned already and lastly on the Brexit discussion. There was some discussion round about trade links and the potential for Scottish Government agencies, SDI for example, to work not just to sell Scotland as a place to do business but to be more focused on what is happening locally in the north-east, working with organisations here so when they are making links internationally and be able to connect back into local organisations in the north-east and maximise that leverage and that obviously important post Brexit in terms of protecting foreign direct investment that is already here. But also expanding trade into non-EU countries and how that would play out and what work needs to be done to protect and move that forward. The second big area that we talked about was round about local issues so particularly local control and there was feeling that it would be beneficial if there was more local control on rates. Tourist tax was also mentioned and being able to have the full virtuous circle if you like of taking decisions locally on taxation. The money is staying locally and then being used to drive the economy locally which with that local control was felt quite strongly. There was also quite a bit of discussion round about different pots of money coming into different organisations in the north-east and perhaps any for better coordination between organisations in the north-east as to how best to focus that money to get the benefit and build the concept of the place and make sure everything was linked up and joined up. That again fed back into the university discussion we had earlier round about how you make the place more attractive for people that want to come and study here. There was some discussion about how the city deals had been structured and the projects that were included in that and whether or not that was maximised to deliver what it was felt was essential to generate the biggest benefit. The final point was some discussion from the Chamber of Commerce in particular round about rates and a message came through quite strongly that understanding the budget process is going through discussion and the draft budget isn't the final budget and they were very keen to make the point that the existing reliefs that were in place were protected through that process but also strongly made the point that there were issues round about manufacturing in particular fish processing businesses was given as an example where rates could be an issue and there was some concern about some of those businesses could relocate if that would seem to be problematic. I think that's all I've got, I don't know. Thank you, convener. I think that's a very fair summary by Ivan McKee of the issues. If we maybe just add a couple of things from my perspective, one thing we did talk about in relation to the post-Brexit scenario was the ability for Scottish businesses in particular to extend their reach internationally and whether there's the infrastructure there for them to do that in a bit of a sense that more work needs to be done. Around that area in particular and on the local agenda I was very struck with the degree of consensus there was around this idea that we could see more power devolved locally and things like the enterprise spend, the skills spend, even aspects of welfare spend could be controlled locally in a more joined up manner and balanced with more tax-collecting powers and tax-varying powers at the local level and it's clear there's quite a lot of ambition around that in the northeast. Thank you. Mardol. Now we need to workshop 4. Emma Harper will provide the report back for that, thank you. Our table, Alex Sander Burnett and I, we had a member from the Scottish Fishermen's Federation, National Farmers Union in Scotland, the Presbytery of Aberdeen and Aberdeen University. We followed the themes for discussion under the sectoral impact, employment and labour market opportunities and funding and then community impacts so we pretty much explored each area with each other. One of the emerging issues is what is the Scottish Government students' intentions as far as recruiting more Scottish students so is there going to be a position about engaging European students so right now there's 17.8% of European students at the University of Aberdeen. So is it possible that the potential petition in the future, the position in the future could be to widen access so more Scottish students getting into university, inclusive growth, disadvantaged background kids so the ask is to take away any uncertainty where is the student numbers going to be in the future. We looked at sectoral impact so as far as fishing, Fraserborough, Peterborough, Lowerwick are the biggest ports, 65% of fish caught by the Scottish fleet. There's only 11% of our fish caught in European waters so we have the ability to look at opportunities for, certainly for the fishing in the future as far as negotiating how we proceed as far as we can. There's a common fisheries policy. The ask is for a nine month bridge so that negotiations can proceed. As far as immigration there's certainly an opportunity for a nuanced immigration policy that would work for students at the universities and indeed that is certainly an ask for the National Farmers Union because of previous seasonal agricultural worker schemes. So the National Farmers Union representative Lorna is interested in the government helping make sure people are aware of where the workforce comes from, dairy farming workforce, there's issues with that, abattoirs, fruit and veg and berry pickers so it's interesting to explore that the government needs to get more message out about the purpose of subsidies. The farmers do not want subsidies but they are helping to support the industry as we are looking at the future so 360,000 jobs created in farming and for every £1 invested there's about £5.30 comes back into the economy so there's a huge opportunity for labour and trade and issues around the workforce. Government could do better to promote education for agriculture even fishing and construction so there's a call for careers guidance at school level, junior level to promote opportunities for developing the youth workforce in rural jobs including fishing. We spoke about an ethical approach to the labour workforce and maybe making an assessment to explore what kind of jobs are actually needed across the farming sector. Again, nuanced immigration policy was quite important and proposing that we have money to develop more businesses and smaller businesses from the government. As far as research and innovation that was interesting because our research is international, many of our teams are international and that's not just European teams, it's maybe exploring opportunities for research collaboration so financial support with America as well as China. Certainly we need further research and delivery for farming, blight free potatoes was brought up and they need to be better about sharing good research and research and development tax credits maybe could be more enabling. We spoke a little bit about other research as far as the electronic data and transfer is pretty sectoral as far as the tagging of livestock so that we can trace better for disease management or livestock management. I guess one of the funding asks was for the Scottish Fisheries Federation to have some proper financial support for stock assessment of fish so as we leave the EU that certainly would be something that would be supported and good feedback from Marine Scotland or about Marine Scotland. Norway provides money for research so stock assessment to look at the whole sustainability of it and additionally the potential for the Scottish Government to support further investment in manufacturing for local equipment so that our local industry, local farmers would purchase from within Scotland currently a lot of the equipment comes from Europe. Cultural community impact so the presbytery of Aberdeen were very interested in making sure that we maintain our cultural support and engagement with our EU neighbours and arts and culture requires active investment it just doesn't happen if you have economic improvements or economic stability. We actually do need to actively fund our arts and culture so we want to make sure we maintain our European connections and retain a focus and engagement and openness with our European neighbours. I think it has been a very good summary of what was a very thorough discussion, thank you. I think one point just to repeat and reinforce was around research and development and how important it is not only to maintain but increase our R&D funding but also more importantly to look at what barriers there were from turning research into business. A number of participants talked about how we seem to be very good at doing the research but not so good at turning it into business ideas locally and a lot of ideas maybe going abroad having been researched and developed in Scotland and so really what opportunities are there for the Scottish Government to encourage such investment. Thank you very much. Lastly in workshop 5 Neil Bibby you are going to provide the feedback from that, thank you. Myself and Ash Denham met representatives from the higher education, hospitality, tourism and construction sectors as well as representatives of local government and economic development. We firstly looked at the challenges facing different sectors as a result of Brexit. The first point that was made is obviously the North East economy is different from the rest of Scotland due to a focus on oil and gas but there is a need to support that industry but all other sectors in the north. The first area that we looked at was higher education but exit was described as potentially a catastrophe and it has been driven by uncertainty affecting the sector. I think that one of the key points that was made was around reputational damage and international work has already been affected by the idea that the UK is drawing inwards and it's not just affecting international work across the EU but in China and the USA as well and the higher education sector is finding it impossible to have high level researchers come through the area recently and Germany is seeing the benefit of this and it's not just affecting drawing in students but staff as well. On the issue of migration universities aren't able to answer the questions that staff and potential students have and I think that's because of that uncertainty. In terms of research statements have been made by the Government on funding but there's a sense that they're still not fully aware of the picture going forward. On energy again there's a feeling that companies want to invest in Britain and Scotland but they won't until they know where they stand. There has been more positive investment recently in the oil and gas sector as well as an increase in oil price but there's also a feeling that oil and gas won't last forever and there's a need to maintain strong leadership in the road or move to a low carbon economy because of that. On fisheries there may be an increase in landings as a result of leaving the EU but there will be a need for more investment in the processing sector to deal with that but again a lot of the workers in that sector are EU nationals. Tourism that was an interesting viewpoint from the tourism sector. Uncertainty is a less of an issue for them. In the short term the weaker pound has resulted in a stimulated more growth in the tourism sector but again labour supply in the hospitality sector from EU nationals is absolutely crucial. British Hospitality Association report shows that 62,000 EU nationals are required just to keep the sector ticking over. 80% of staff in one hotel localare non-GB EU nationals have also raised concerns that they may struggle to bid for events and conferences if academic strength and industry strength is not there. But inbound tourism is at an all time high and they want to maintain that. In terms of other challenges rural development programme EU funding only guaranteed until March 19 and they need certainty on funding after that. We then went on to discuss what could be done. One person thought that the Scottish Government should be doing much more to attract investment in Scotland. There was a mix views on the table on that. Some thought a lot was being done but what was agreed was that it was important that we do send out the right message and that Scotland and Britain is open for business. Another key theme was thinking has to be long term particularly from the hospitality sector more than just one budget in the next year to year. There has been uncertainty regarding rates position with very last minute decisions and they would like to see a sensible resolution needed to take forward a rate structure. Also in terms of long term thinking more investment in transport and infrastructure was thought to be key to attracting investment as well. Funding for EU students, universities don't know if they will still have a fee for EU nationals. What will happen there is a key question they want answered and if EU student funding is withdrawn will it be maintained through Scottish students. We then went to discuss the labour supply. There was a feeling across a group that guarantees needed to be given to EU non-GB nationals who are living and working here that they can continue to do so. We need to look at how we can attract a non-GB workforce to come here. Acknowledging the difference of migration needs between Scotland and other parts of the UK. There is a feeling that Scotland needs more migration and if migration falls we need to change perceptions about the hospitality sector and possibly the rural economy to attract more Scottish workers into those industry. One person suggested looking at a regionally administered immigration system but there was the general feeling that people needed to feel welcome here and investment to attract people to come here. We then looked at opportunities as a result of Brexit. There was a feeling from one that we could see the modernisation of sectors that had previously been held back by EU rules, for example the agricultural structure based on the cap regime that could result in some changes there. Also some EU legislation would be good to avoid was the view of the hospitality sector, for example the package travel directive which is due to come under force which despite being well meaning could restrict the innovation of small businesses in the hospitality sector. There was also a feeling there was an opportunity to grow the manufacturing base particularly if we were out of state aid rules depending on where that is devolved and also more flexibility on regional selective assistance. On tax incentives there was a feeling that there should be tax incentives for start-up businesses that would incentivise people to come here particularly to visit. On funding it was important for higher education to not just work with EU institutions but that wasn't just about money, it was also about maintaining those relationships across the EU as well. There was also a feeling it would be good to know where possible if the UK didn't participate in geographic based programmes that the Scottish Government still could. On investment there was a re-discussion on innovation hubs, it was thought that they were a good idea but it was felt that they need to be better known on what they are doing and the benefits industry and also a belief that they need to be clearly aligned with opportunities and where do we want to go in the long term as well. We discussed at the end community impact, we heard there was a lot of pressure on the third sector, reliant on European social funding, affected already by public sector funding cuts and also potentially going to be hit by European social funding cuts as well which account around 40% of project funding. That's going to have a double whammy because potentially there could be an increase in demand and employability projects and advice projects provided by third sector organisations as well so again the plea to move beyond short term funding and thinking. That sums it up in keeping with the other groups, the key themes around uncertainty, need for long term thinking, sending out the right messages and local investment and funding. I would I think Neil's given a very comprehensive summary there, I'd just like to just bring out a couple of things that I felt came across really strongly. One of them was about Brexit and the reputational damage aspect of that, the perception that the UK is now sort of pulling up the drawbridge but this negative effect is not just in Europe, it's out with Europe which was interesting, China and America were mentioned. So effecting things like students and university staff, it's not just having an effect on the ones that might be coming from Europe but it's coming, those that potentially could be coming from out with the EU which I thought was interesting. Also about infrastructure, there was a plea for increased connectivity on things like the digital infrastructure but also roads, rail and so on. Particularly that they felt that this part of Scotland maybe was neglected and that was something that needed to be looked at for the future. We also spoke about what the Scottish government was doing to promote Scotland abroad particularly with regard to trade and foreign direct investment. There was a bit of a discussion about that and some people felt that there were plenty of things being done but then the people who didn't think that were saying well more could be done to promote what is being done so that more people are aware of what exactly is out there and how they can, with their businesses they can connect into that, what's available. Thank you much Ash Denham. Well thank you for my colleagues for that very comprehensive feedback from this morning's workshops. I'd like to thank also again those who participated in this morning's exercise. I hope they recognise some of the main elements that were discussed during the various workshops. We've obviously gathered a lot of information. We want to put some of that into the cabinet secretary's afternoon. Obviously we'll not be able to put it all to him but it will certainly form part of our report. Those who attended the sessions this morning are welcome to come to lunch but also to attend the session this afternoon with the cabinet secretary. I now suspend this particular meeting of the committee and for a very quick lunch because we'll need to start again at 1.15. Thank you very much. Good afternoon colleagues and welcome back to the Finance and Constitution Committee. The second item on today's agenda is to take evidence on the expenditure proposals in the Scottish Government's draft budget for 2018-19. From Derek Mackay, the cabinet secretary of finance and constitution, and we also remind colleagues we considered his taxation proposals at our previous meeting. Mr Mackay is joined today by Scottish Government officials Graham Owenson, who is the Herald of Government Finance, and John Nicholson, who is the Deputy Director for Financial Security, Scrutiny and Outcomes. And Scott Mackay. Sorry Scott, nobody's... What? Herald of Financial Coordination. Is that correct, Scott? I'm glad you're here to help us coordinate. Thank you. I welcome our witnesses to the meeting and invite the cabinet secretary to make a short opening statement. Thank you, convener. If I could just very briefly update committee on one matter from last week's revenue section. I will write to the committee but it was just to inform members that the issue in relation to marriage relief allowance, HMRC, has confirmed through my officials that that will be resolved. As I say, it was a technical matter and I've had confirmation through officials that that will be resolved. And I'll write to the committee for your full consideration. If I can then go on to expenditure, it is a pleasure to be with the committee in Aberdeen to discuss the expenditure plans for 2018-19. As I've said previously, it is in a challenging economic and fiscal environment. We know that our economic fundamentals remain strong but that we must boost our productivity and grow our working age population. And that's why there are a number of measures to help stimulate and support the economy, including £4 billion of infrastructure investment, a 64% uplift in the economy jobs and fair work portfolio, £50 million building Scotland fund, doubling investment to £80 million, a range of measures to support Scotland becoming a more active nation. £50 million will be invested towards a target to phase out the need for new impactful vehicle cars by 2032 and will also support a low-carbon innovation fund to the tune of £60 million. There will be £137 million as part of the commitment to invest more than £500 million over the four years in energy efficiency and heat decarbonisation. And of course the procurement of a £600 million investment package in our R100 digital programme supported by £21 million from UK government. In total it will be £2.4 billion in our enterprise and skills body and the most attractive business rates and non-domestic rates system anyway. The draft budget protects the public services and those that deliver them including a £400 million additional resource investment in the health service, over £200 million above inflation, a 3% pay rise for all those earning less than £30,000 and £233 million of investment for the expansion of early learning and childcare and £170 million to the attainment Scotland fund. Over £20 million will protect police budget in real terms and Scotland's police and fire services will retain the full benefit of their ability to recover VAT, boosting their spending power by an additional £35 million. The 2018-19 local government finance settlement funded through the draft budget for season increase both in revenue and capital investment as part of a wider package of measures and together with local authorities' ability to increase council tax by 3% worth around £77 million next year, this will generate a real terms increase in overall resources available for local government services. The draft budget also maintains our support to mitigate the worst effects of the UK government's welfare reform and deliver fairness for our citizens including fully mitigating the bedroom tax, establishing a tackling child poverty fund worth £50 million over the period of the child poverty delivery plan. The first £10 million of an ending homelessness fund. As the committee will know, individual portfolio ministers have lead responsibility for the planning and delivery of expenditure in their own areas, but these highlight hopefully an overview of this government's priorities. My Cabinet Secretary colleagues have been given evidence in recent weeks, in some case months on the spending proposals that each portfolio has set out in the draft budget. I hope that the evidence they have provided to Parliament gives much of the detail and that this has been helpful. I am happy to give my own perspective on the strategic direction that drives proposals where that would be helpful. I also hope that the committee agrees with the Parliament's financial scrutiny unit that we have been effective at delivering the budget process review group's recommendation on transparency and accessibility. Finally, I wish to put on record again my willingness to engage with all members of Parliament to build support from my tax and spending proposals and value the contribution that this committee will make in that process through your scrutiny of the Government's plans and your recommendations. I am sure that you are aware that this morning we had a cross-section of people from different organisations and businesses in the northeast area who came to give us some evidence on the issues of Brexit and also the Scottish budget. I am acutely aware that today's session is primarily focused on the expenditure side of the budget, but I think it would be appropriate for me to reflect on one of the key themes that came through in this morning's discussions. The other themes will be drawn out in our report when we bring it together towards the end of the month, which the Government will get a chance to respond in detail. Certainly one of the key themes from this morning was a significant consensus around the need for greater local control and in particular for greater local control over any taxes generated in the northeast of Scotland, whether that is business rates or any other taxation issues. I know you are not able to address that specifically in your budget for this financial year because the draft is already out, but how would you respond for that for the longer term about dealing with that desire for more local control, more decisions being made in the northeast and local solutions being found? On a policy front, there certainly is a desire for more localism and flexibility. In my, for example, the negotiations with local government, they have a clear desire for increased flexibility nationwide, not just in the northeast, and we are trying to respond to that. One of the ways is through the governance review that we are doing in partnership with COSLA, so we are looking at essentially local governance. There is a policy perspective here. There is legislation on community empowerment that I started when I was a local government minister, and there is legislation I think there that can be used. There is also power of wellbeing that is not that well used, so that is existing legislation, and maybe there should be more emphasis around the flexibility that that might give. So that is some of the policy intention, I suppose, but I want to tackle a major misapprehension, and I know it exists here in Aberdeen. I felt it through the course of the revaluation when I had to make this point. A lot of people do not realise that non-domestic rates is retained by each local authority. Council tax is retained by each local authority. Why do I make that what seems like an obvious point? Because sometimes people have been told that their money is sent elsewhere. For example, people in the north or east for political reasons have been told that their money was all sent to the central belt. Well, it is not. Council tax non-domestic rates have repennies ultimately retained by the local authority in which it was derived. In terms of that drive for more empowerment and more financial flexibility locally, there is occasionally a request for a transient visitor levia that attacks on the hospitality sector and there is some desire around that. It has not been in accordance with government policy, but it allows me to make the point that where authorities or local government or others approach Scottish Government with a request around greater financial flexibility and ability to raise taxes will engage in it. But it would be helpful if we had evidence and a business case that allows us to consider it more fully. We will be open-minded on these matters. Evidence of greater financial freedom, city and region deals, the budget for that is doubling in this draft budget from about £60 million to £120 million. That is greater financial freedom within that. I think there is a sense of community empowerment. Community empowerment itself is being supported by the community's brief. I think there is a range of areas in which we are supporting that localism, but some of the misunderstandings about local government finance I think I have to clarify. But certainly I think there is an ongoing debate about who controls what and that is why we are engaging in a governance review and we are doing it in partnership with COSLA. Let's get into some of the specifics of the expenditure side of your budget cabinet secretary. One of the main concerns, I'm sure you'll be aware yourself, it's been raised by a number of people with regard to the spending allocations in draft budgets being the level of funding for local government. I just wondered how you would respond to these concerns and how you intend to reflect on them and what you might do about it. I know that we touched on this at the revenue side and I've said it at the presentation of the draft budget that it was a fair settlement for local government. I know that they were forecasting and planning for worse. This was better I think than any council had been planning for. In the negotiations I had with COSLA, certainly at the meeting they reacted positively and they appreciate the efforts around understanding their needs. Now if you take an example in that, they identified to me their need in relation to social care was around £60 million and that's why the figure to support local authorities and social care is at £66 million. Responding to individual requests for support, say around teachers pay as well, was satisfied. Local government will always ask for more, that is their right, that is their duty. As a council leader I would have done and indeed did to do the same but I think overall the settlement is fair in that it represents some resource. Broadly flat cash and capital and increase overall if councils do choose to use their council tax powers that would generate £77 million that takes local government into the territory of a real terms increase of course using the GDP deflator. So I think in recognition of the fiscal challenge that we all face is a fair settlement and one of which has been able to respond to many of their concerns. What's more there's a number of partnership areas that isn't just a local government function or a Scottish government function for example early learning and childcare and we're able to progress our plans on nursery provision and childcare by investment in resource and capital to that effect as well. A full £150m in capital goes to local authorities. For all those reasons I think it's a fair settlement at £10.5 billion including the resources that I've mentioned. The Secretary indicated that they want to ask questions in this area through the clerks so if there's others who I don't take in please let me know but I think Neil Bibby I think you have a question in this area. I've got a couple of questions if I may. Just on the issue just to clarify according to Spice between 2017-18 and 2018-19 there will be a real terms cut to local government of 2% in the general revenue grant and the non-domestic rate income is that correct? I'll scrim to cover the detail if you want to do line by line. I don't know the exact figures in front of me but certainly if you add in the specific grant line then it's a flat cash. Specific grant in a minute but 2% cut in local government real terms in the general revenue grant and the non-domestic rate income 2% cut equals £183m excluding the specific grant is that correct? That's what Spice says, I'm not challenging the Spice thing. Mr Nicol, you're always on about discretionary spending and concerned about your budget being cut in terms of discretionary spending. Why then are you cutting discretionary spending for local councils? Well again what I've been able to explain is that overall the resource reduction to Scotland's budget is down by £211m. I turn it into growth for Scotland's public services by yes using our tax powers. We clearly have set out a budget that has investment for the NHS for education within that as well for police and fire and other commitments. Recognising that local government is a priority does deliver shared priorities. There is essentially a flat cash settlement for local government not reduction in cash with an increase in capital. Now it's part of that in terms of discretionary spending and other projects. We believe that childcare provision is a joint priority so it's not unreasonable in giving an extra allocation to local authorities or for that or for teachers pay or for the pressures around social care that they receive that investment as part of the settlement. That might be one of the reasons for point of difference between the Spice briefing and the numbers that we've given you. I think it's interesting when it comes to discretionary spending it seems to appear to be one rule for yourself for Scotland's councils. But even when you include additional money through specific revenue grants you're saying that that's a flat cash settlement. Spice are saying that that would result in a real terms cut of 1.4%. Would you dispute that? I'm not going to argue back and forward about the Spice briefing versus our briefing. The figures I've presented to you is our position as a government and in that we are saying that yes specific commitments and that may be a dedicated resources for a dedicated function. But it's one that local government delivers leads to a cash increase in resource albeit small about £3 million and a more substantial relation to capital. The difference I would make between for example local government and the health service unless we want to introduce prescription charges which should be determined by the government. Local authorities can increase their resource by using their council tax powers. Other parts of the public sector don't have that ability. And the resource at which they receive is almost entirely determined by the Scottish government the decisions we make in the draft budget. Councils across Scotland in Aberdeen and Glasgow are bracing themselves for significant savings and cuts. Your own council are looking to cut funding for vital support services for vulnerable families looking to reduce bin collections, potentially increase parking charges, day centres are at risk. Isn't it the case that excluding health the majority of services to the public are provided through local government? And then why is there then a real terms cut to local government budgets? You've said that this is a budget for public services. How can it be a budget for public services if it's a budget that's cutting in real terms local government budgets? Broadly speaking local government accounts for about a third of public sector expenditure, the NHS another third and everything else the third. It is a major delivery vehicle for public services. I've made the point that if local authorities use their council tax power they can deliver a real terms increase for their budget. I would make the point that a lot of local authorities do scenario planning and budget preparations and many put in the public domain what savings may look like. Then they get the settlement numbers and reconsider the savings options that they've put in the public domain. And there's always a difference between the savings options that's put in the public domain and what's actually decided and delivered by local authority councillors. Having a settlement that was better than the forecast and I'm not saying suddenly we've entered the land of malkan honey for local government far from it. There are challenges. I've recognised that before but what they are preparing for is better than what they might have been forecasting for and presented savings options for. So local government is an important part of the public sector family and I do believe it's a fair settlement in the challenging fiscal circumstances that we face. But that said, I know this is questions to the cabinet secretary but if not investing in the health sector why shouldn't that be a priority? Why shouldn't investing in higher education be a priority as well as investing in local government services and within that of course there are ring fenced funds for attainment as part of the overall settlement which is delivered by local authorities. You've described it as a fair settlement this afternoon. I think in the press you've described it as a very fair settlement. But according to SPICE between 2010-11 and 2017-18 local government revenue budget has fallen by 8.5% when the Scottish Government budget fell by only 5.9%. How can you say that local government has been treated fairly when you're disproportionately been cutting local government budgets more than your own budgets and how can you suggest it's a fair settlement when you're actually cutting it in real terms? Now we can argue whether I think it's a fair settlement or a very fair settlement. You can choose as a committee what term you prefer. I would say in response to the question over a period of time it was possible to protect local government. Now just from memory the overall reduction comparison to local government in Scotland versus south of the world about fourfold. I think the reductions in England are about 28% in real terms because local authorities have that ability to be able to raise council tax then that of course can supplement their income to provide services and that has to be borne in mind. There are pressures on other parts of the public sector including the NHS. There are commitments of course to ensure that the NHS is funding. As I've pointed out it has a large call on our resources. We discussed that over elections. It's a priority for the public as well and I'm sure Mr Bibby is not disputing the need to invest above inflation resources in the National Health Service at this point in time. In relation to local government as I say the two settlements that I have proposed to oversee so far have ensured that local government got a fair settlement and this year if the user council tax powers will be in the terms of real terms increase in resource. I think the circumstances that's a good outcome for local government. There's other want to ask questions in that area so let me get some others in on that issue and I'll come back to you before we move on to other areas but I think Willie Coffey wanted to ask some questions as did Patrick. Thank you very much, convener. Cabinet Secretary, you mentioned the figure in your remarks here at 10.5 billion for local government but in referring to the spice paper I also have in front of me it tells us that when you add in the other sources of support to deliver local services this actually climbs to 11.3 billion. I mean if some colleagues are like to omit some of this investment that's taking place within local government because it's not directly on the initial allocation but there are substantial extra funding made available to support local services and when you add all this up it comes to about 11.3 billion and not the 10.5 that you mentioned is a figure that you can confirm or clarify for us please. I don't have that spice paper in front of me, what? I mean I obviously attend local government committee as well and what I've described to local government committee is that there is the revenues that are proposed in the grant settlement, the non-domestic rates as well and then there are funds that come from portfolios that go through local government as well so there's a range of funding streams that do reach local government especially when they're joint priorities. But contextualising it again I've said that the settlement is broadly the same with an increasing capital but even on capital we have to take into account the massive investment housing which is largely done through local government and RSLs or city deal or regional deal arrangements as well. Housing is up to about £700 million to achieve the target of 50,000 affordable homes and city deals is doubled essentially city and region deals and they are negotiated with local government as key partners so there's a range of funding streams beyond core settlement that reaches local government. Sometimes there's again a misunderstanding and I get the point a view around other pressures on local government and that's why sometimes there's a difference in the figure between what local government received from Scottish government overall and overall pressures that they might face and that's why sometimes the figures are different and interpreted as a Scottish government reduction to local government when in fact there's extra pressures that they may well face but it's not a reduction. Thank you very much. If I can paraphrase your response cabinet secretary to the UK budget you said that the extra capital money and financial transactions was welcoming you would try and do good things with it but that it was important to remember it couldn't pay for public services it wasn't revenue funding. Doesn't local government have a right to make the same argument because whichever way you count the grant to local government whether it's just the general revenue grant or including all of the other funds that are available all the various ways of counting that produce significantly bigger revenue cuts than the 77 million you point to as the ability to raise extra council tax. So that council tax even if they all raised by 3% cannot make up the cut in the funding that can provide public services at local government level. So isn't it clear that unless you change your position on the draft budget the inevitable consequence is cuts to public services at council level. A local government will have choices to make about what it chooses to invest in I would just make the point that adding those what I think are partnership priorities takes you to position of a cash increase in resource it's not a real terms increase I recognise that point it's a cash increase and I make the point that local authorities can use their tax powers to take it into resource terms. A increase for front line services and as I say capital is separate but Patrick Havy makes the point about resource and I can't be clear I accept that it's about flat cash in terms of resource and if the council's user powers then it can take it into real terms growth by that achieving 77 million pounds. Three figures that we've got from the spice briefing depending on which grants we count are a 183 million pound cut or a 135 million pound cut or a 157 million pound cut. None of those can be made up with 77 million pounds can they? Well not in those figures no. Not in those figures but what I would want to understand more fully is what are the elements of that that are discounted by spice as new resource that we would include to get to that flat cash figure. What is the reason? What is the policy objective that the government has for you know we've got a table in the spice briefing as well showing areas of Scottish government expenditure that are going up in real terms and the areas that are going down. Local government is consistently in the bottom half of that chart showing consistent cuts. What is the policy objective the Scottish government has of consistently placing local government at that low priority? With clearly limited resources and we are making a decision to use our tax powers we have priorities and service needs to consider and the main one clearly is the National Health Service and we've made it clear that investment is required in the NHS and it is reflected in our spending plans to invest over 400 million pounds more in the National Health Service. Yes government is about choices and priorities but I believe that we've been able to protect local government at recognising that it has revenue raising ability as well. There are many as I say again, many partnership areas in which local government delivers them and Scottish government is investing in them for example in capital and housing. A massive increase in that, I think it suggests that council, we trust councils to deliver housing and we want to invest in housing so it's an example of a massive increase in resources to be able to achieve that target. I think we have been able to show that there are priorities delivered by local government that the government supports. Education is another example tackling the attainment gap clear and some colleagues might object to ring fencing but I think it's been necessary and it's worth has been proven in allocating that resource to local government but in a ring fenced fashion. Changes in the draft budget. Out of about 25 headings local government is the third last, that's the third biggest cut. Is that a fair reflection of the Scottish government's priorities? Local government is receiving a fair deal and has done by this government. If your question is not already being captured then I'll move on to another area. Just to finish off, I don't think the settlement is either fair or very fair. I think it's a dreadful settlement and I don't think COSLA even accepts it's a cash flat settlement either but surely a fair settlement would be taken on in the essence of what COSLA has said about the increasing demands and the increasing costs that are being placed on councils. Demand isn't static. COSLA have said that they would need an additional £545 million just to stand still with that increasing demands, those increasing pressures, those increasing costs. So just want to ask you, we've dealt with obviously the cuts, the real terms cuts that are there but why have you also ignored the plea for additional funding for local government in COSLA specifically the £545 million? Do you think they're wrong when they're asking for £545 million just to stand still? No I think they're right and I'll quote the evidence they gave to your committee when they said I don't think we're calling for an extra £500 million explicitly so even COSLA seem to have told you. Sorry local government committee I do apologise, I look at every committee not just the finance committee and even COSLA is not seriously arguing for that kind of figure, that's just a matter of public record and a matter of fact. That's in the public domain. As part of those negotiations I know that local government is more realistic and constructive and that's what they've said as a consequence of those negotiations. They play in the real world, they negotiate on what their actual pressures are and we come to a settlement, I now write 32 out of 32 local authorities and ask them if they'll accept this offer or not. I make the point that it's also a no sanction or a sanction free budget as well so engagement is constructive and I just say again what COSLA said to local government committee is even COSLA is not asking for that figure that Neil Bibby has just referenced. In the course of that discussion we've obviously heard about the government's priorities around the health service and expenditure and given that's the biggest expenditure area perhaps we should go there next and Ivan McKee I think had some questions. I'd like to touch on the health budget and then also talk about the outcomes in the national performance framework so in two parts to this. First of all in terms of the health budget I mean looking at the numbers in 1819 there's a real terms increase 175 million 1.3% and a cash increase of 373 million 2.8% which is obviously to be welcome. I really just want to look at that over the two years so far in this parliament and looking forward to consider where we go over the lifetime of this whole parliament in terms of manifesto commitments. So the numbers I can see in cash terms has been a 740 million increase and there's a 2 billion commitment over the five years of the parliament and in real terms as we know a 500 million increase commitment to the health budget and so far in the first two years has up by 370 million which is obviously a significant way down that road. I don't know if you want to comment on where we're up to so far in two years into the five years on the manifesto commitment for the term of the parliament and where you think that is going and if you see that manifesto commitment is being secure. I think it would be best just to repeat what the health secretary said that she believes and her officials believe that that financial commitment is on track to be truly judged by the end of the parliamentary term in its true sense but it's on track in that above inflation increases have increased. We have passed on Barnett consequentials including in quite difficult circumstances. Can I come back to that Ivan? Is that okay? I need to just get a broader spread of voices at this stage from different perspectives and in that case I'm going to come to Adam on issues to do with I think social security and equality. Thank you. I just want to try and understand how the numbers in the budget document relate to the government's changing priorities around social policy, children families and Ferris Scotland. First question is that if you go to the community's portfolio budget and you see that the Ferris Scotland budget has been increased I think it's fourfold from about 7 million pounds to just shy of 28 million pounds and at the same time the equality budget has been increased by I think it's 12% up to 22.7 million pounds and at the same time there's an additional 24.5 million pounds for the third sector so those three lines of the budget put together amount to 75 million pounds. How do you ensure that that 75 million pounds is spent effectively? What's that 75 million pounds trying to achieve? Why do we need to spend 75 million pounds on those lines of the budget this year whereas last year it was very significantly less than that? OK. I'd make the point that the call on resources portfolios is something a matter of discussion yes at cabinet but between myself and cabinet secretaries. What they then determine as priorities within that they have some flexibility for. So I would suggest in some of this in assessing the priorities within that portfolio that Angela Constance and Jean Freeman may be able to offer up more on why those areas are in the need that they believe to be presented like that. I would argue that clearly we've done a lot around equalities, inequality, poverty, tackling of issues of a sense of nature whether it's sectarianism and discrimination. So I think a lot of the work around that is involved in these particular budget lines but the cabinet secretary in terms of the overall settlement that she has used these are the priority within that and there has been an increasing call upon those resources. If we take just I think part of the equality line hasn't increased for a number of years and the cabinet secretary has taken the view that it should be increased at this point in time. So that is more of a question to the cabinet secretary about priorities within that strategic spend but I think it shows that for the community's brief that they have sufficient resources to deliver what they've pledged to deliver in terms of the programme for government commitments. The biggest single increase is in the various Scotland budget which has a very significant increase, a fourfold increase and as I understand it, cabinet secretary, correct me if I'm wrong, but as I understand it that's largely because of commitments that the Scottish Government is undertaking pursuant to the Child Poverty Scotland Act which we passed earlier on or which we passed late last year. But I notice that in the education and skills portfolio the budget for children and families is shrinking and in particular the budget for creating positive futures is shrinking by about a third by some 30 million pounds. So what I'm trying to understand is when you look at all these numbers together, whether there really is a change in priorities and a change in spending commitments or if money is just being taken out of one budget that relates to children and families that happens to be in the education and skills portfolio and put in another budget which relates to children and families which belongs in the community's portfolio. I think now you can hear me more clearly I'm sure that the committee welcomes that. I think if I can use that as an example to engage with both committees it may well have come up at the committee session with each cabinet secretary so that you can do the finance committee's job of a strategic overview of the budget bring both together. But rather than try and speak to another cabinet secretary's portfolio on the detail of their commitments, I would rather take that as an example and then bring together a strategic response about how the two relate which takes me to essentially the charge which there's a bit of caution going on within the system that's not the case. Overall whether there are changes to budget lines it's because if either there's been a transfer of responsibility or there is no longer a requirement for a particular spend in a portfolio then that line may change but there's no sense essentially of any sense of obfuscification and part of myself to make any savings. To prove the point I'll write back to the committee on that example that's been given by Mr Tompkins because as I say some of the portfolio spend will be determined by the portfolio itself and what it sees are its pressures and priorities. Yes there's an overview, yes there's a strategic approach, yes collectively we deliver on priorities but there is some flexibility for cabinet secretaries. As you can see through reading the cabinet secretary engagement with parliamentary committees engagement around what may be a priority for them and why they have arrived at the decisions that they have. But there's no sense of any transferring of lines to hide any sort of savings so I'll try and make that point. That wasn't even the context that Adam Tompkins said actually because it was growth in budget lines that led to the inquiry so I'm happy to clarify in writing. I'm surprised to see that the children and families line of the budget is shrinking given that we know for example that the biggest single driver of homelessness in Scotland at the moment is family breakdown. Is it shrinking because you know you're not going to need to spend any money this year on the discredited named persons? Is that why that budget is shrinking? No it's not is the straightforward answer to that question. If you take children and families for example if you want to talk about what is in the budget in relation to children and families priorities clearly there's work around attainment, there's work around mitigating welfare reform, there's the expanded baby box, there is more around family nurse partnerships, there's enhancements around social care provision as well. All of that if you look at the totality of resource it is absolutely to go into the core of the question matching the policy priority and delivering what we said we would in the programme for government. But where individual budget lines change, comprehensive budget lines of a substantial budget then maybe just because of the nature of that budget line but absolutely we're delivering more overall for children and families and that's reflected through portfolio spend. Emma Harper has some questions in the area of the qualities as well I think. Thanks very much convener. The Scottish women's budget group provided us a briefing ahead and in reading the information there's many positive points and there's also some recommendations that they've made in the brief and Adam Tomkins has touched a little bit about homelessness but I'm interested in the economy and fair work pension portfolio. There's a lift of 64% and the Scottish women's budget group actually welcomed this new tax bans and protecting people on lower incomes so in terms of spending in this portfolio could you expand on where you would like to see the money spent from the uplift that you've put into this portfolio? I think it relates to some of my opening remarks about growing the economy and stimulating the economy and I think you've also tied the question into qualities as well which would make sense both on how we assess tax policy and how we spend resources as well. You can make an assumption that expenditure on enhanced childcare only benefits women, actually benefits women and men but that would be good for getting more people into the labour market. That's not in this portfolio but what is in this portfolio will be increased resource for city deals, research and development, business support, employability and training as well so that will all have a focus on growing the economy but also supporting skills and the gender gap and the skills challenge as well. As an economic growth, one of the substantial element to be fair of the uplift in the economy brief will be around the use of capital and financial transactions too and that will be for example to support Scottish Enterprise, Highlands and Islands Enterprise, the new south of Scotland agency preliminary work there as well as capitalising the National Investment Bank. I think I've touched upon R&D because we know that enhancing and improving productivity is important to the strength of the economy overall as well so I think equality is tied into all of this overall growing the economy, having a fairer economy, allowing people access to opportunities to get into work if that's appropriate for them and as you've touched upon the Equalities Group and I know I've had a further meeting to have as well. I appreciate spend and tax that's significant here and the income tax policy is in being more progressive will benefit women. Just as you bring up the South Scotland Enterprise Agency which has been developed which I welcome, there's £10 million as an initial funding proposal for that. Is there any specific idea or detail come forward yet? That was also mentioned in the briefing from the Scottish Women's Budget Group but they didn't specifically look at equality type aspects of it but I'm interested if there's any further detail about it. I don't have any more detail at this stage but the economy secretary who has lead responsibility here I imagine would and essentially it's taken because let's not pretend that Scottish Enterprise didn't try and support the south of Scotland, it did. I mean I visited projects supported by Scottish Enterprise in the south of Scotland but what the creation of the new agency would always give a greater focus to that part of the country in this resource is to ensure that there was a concern and suppose that the new agency would just be created of extracting out of Scottish Enterprise that which was already going on in the south of Scotland. So this additional resource is to make the point that's about additionality not just replication of SE's work. The economy secretary could provide more on the development of the agency if that's required by the committee. Can I ask one question about the homelessness issue? Adam Tomkins brought it briefly as well. There are specific different issues attached to women who are homeless if they've especially got children and the Scottish Women's Budget review eluded to that. Is there any additional information that you would be considering or looking at their review to maybe alter any budget spending that would be tailored more towards homeless women? Again, convener, I have to be very careful then going beyond my function and role as finance secretary. Individual portfolio cabinet secretaries can say more about some of the detail behind proposed spend. It's for me to make sure that the necessary resources are available and that's why we've increased both resources specifically for poverty and separately for homelessness. That's the first £10 million or the £50 million ending homelessness together action fund. Accountable lines for that then go to the portfolio brief which is communities. Just briefly a supplementary on the evidence from the Scottish Women's Budget group. I think if we're going to acknowledge that evidence we should acknowledge the serious criticisms that it does contain. Not so much about one year's budget but about how we do budgets, how government does budgets and how parliament scrutinises budgets. The evidence that's been submitted, the submission says that like previous budgets, this one lacks gender competence. They give specific examples in relation to social care as an investment in the economy and also to the way in which the phrase economically inactive fails to recognise the economic value of unpaid work, the bulk of which is done by women. We're not going to fix this overnight in a single budget but does the government recognise that there's a lot more progress that needs to happen in terms of gender analysis in the construction of budgets as well as our responsibility as parliament in the scrutiny of budgets? Does the government recognise there's a lot more progress that needs to happen there? I can go on at length but I'm happy to concede the point. Yes, I think we can do further work here. I hope we can hear some further output in what's going to happen differently in the future. That's helpful to get some clear honesty there. We're going to move into areas to do with capital and the economy now. Murdo Fraser? Thank you, convener. You've said in the past, cabinet secretary, that this is a budget to help the economy. In some of the discussions we had earlier this morning with sectoral representatives from the northeast, they were making the point to us that spending on connectivity is important to help economic development in this part of the world. Looking at the spending plans on connectivity in table 12.1, what that shows is that spending on motorways and trunk roads has been cut from this year to next by £136 million and spending on digital connectivity has been cut by £76 million. So that's an aggregate cut of £212 million in areas which businesses are telling us would help grow the economy. So how does that help economic growth in the northeast and other parts of the country when you're making such large cuts in these areas? It's not necessarily a cut because the nature of capital spending is you spend resources on a project until it's complete and substantial parts of the A9 or if you take the Queensford Crossing or other roads projects, once they're complete you no longer have to pay for their construction. So I think the nature of that is the completion of a number of projects that then leads to you. Yes, a pipeline of future projects, but overall it's the nature of projects which are very warmly welcomed but ultimately being complete has a different profile of spend. That's another example that you don't necessarily just fund the budget line to the same extent on capital, capital is delivered by the projects and the projects are largely complete. Another example I suppose where you could point to the current digital regime coming to an end but in preparation for the £600 million investment reaching 100 which is taking super fast broadband to every part of Scotland and that £600 million spend is profiled to start not in the next financial year because procurement to this takes about a year of advance although that's the advertising for that procurement in the public domain. It starts in a future year so if you take digital there's a point where expenditure goes down but is then ramped up again significantly as the project takes shape. So it's not necessarily because those fluctuations in expenditure doesn't suggest that it's not a commitment or a priority it's just the nature of spending on capital projects. Just on the digital, I hear the point that you're making in response but you'll be aware of the focus there's been on the issue of digital connectivity within Parliament over the past few months in particular and yet the reduction in the digital spend is more than 50% from this year to the next. Now would there not be an argument for starting the next scale of project sooner rather than seeing this big drop off in the capital spend on digital for next year? I make the point again that this is the nature of procurement of such large infrastructure projects. Let's put aside the political argument about whose responsibility it is of course we all know it's a reserved function. There's no point having that debate. The Scottish Government's getting on with delivering a quality of digital connection that's far superior to that which will exist south of the border. 30 megabits not much slower 10 and we're taking it to every part of the country as well but to be able to procure the job to do that is a massive exercise. Even if it goes quickly as we want it will take a year and Fergus Ewing leads on this but has been working tirelessly to try and get clarity from the UK Government around their procurement intentions. Why is that important? Because it's important to understand what UK Government was going to do at a UK level and how they would be procuring digital from one of the very few suppliers that can do it at scale so it's terribly complex. But the explanation I give is that as our digital schemes come to an end that we're planned for the superior commitment to take a parallel right across Scotland will require full and proper procurement in a professional way. Myrdal phraser would expect no less and that takes time and that's why the profiling of spend is as it is. Can I ask a related question? I'm wondering how much flexibility there is in the budget. At this point in the process last year you'd come to Parliament and presented your draft budget. By the time we got to the stage 1 debate at the beginning of February you'd found an extra £191 million from the budget exchange mechanism as you called it or down the back of the sofa. As I think some of the others characterised it as. What's down the back of your sofa this year? It's for the committee as I'm moving house so I don't have the requirement at the same sofa. So if anyone in the committee requires a three piece, I'm only joking, the issue last year related around flexibility was non-domestic rates. I've read the Audit Scotland report but the plan is to get that back into balance so that was one area of flexibility. The other was around budget exchange which I've set out helpfully in a precedent table one in the budget document. I think I touched on this last week on page 184 covers the additional resource that's going into the budget. Now you'll see on the line budget exchange reserve for 2017-18 it was £203 million. For 2018-19 it's proposed to be £158 million. For example that was the other area of flexibility. Frankly finance cities in the past may have been able to hold on to that for financial management reasons or anything else. I up front used it for the purposes of those budget negotiations. The reason that figure is that frankly there's very tight financial management and that's what is felt by officials is most appropriate at that time. But that figure of course remains under review because we're not at the end of this financial year. So hopefully that answers the question because that was the two key issues and the third was of course a change in tax policy which generated a sum which then contributed ultimately to the final position of the budget. So when you come to present to your stage one of the budget bill to parliament in a few weeks time are we expecting there will be any dramatic changes to the size of the budget or are you telling us that this is it? Convenor all I can say if muddle phraser is in the chamber there is always drama in the chamber. I'll be blunt here. I continue to have an open door with opposition parties. I clearly can't get a budget through parliament unless there is an abstention or a proactive vote for the budget. I continue to negotiate with any willing partner including muddle phraser. Of course it would help all potential negotiating partners if they knew how much money you had in your back pocket. Well let me say that for the reasons I've pointed out I think I've fairly said the difference in non-domestic rates flexibility. There's a clear plan to bring that into balance and that's why that position is as it is and on a budget exchange that is the current assessment of what is reasonable to contribute to the budget and so what is the other level available to parties while changing tax policy or if any party thinks I've made the wrong priorities in terms of expenditure there may be shuffling of numbers there so it's not for me to tell opposition parties how to bring alternative proposals to me but the budget that I've presented in our perfect world is the budget that I would like to go through at stage 1, 2 and 3 but I'm a realist I have to engage with other political parties. I'm not sure the finance committee is the place that I want to see a negotiation begin between the Scottish Government and the Conservative Party which would surprise everybody but that seemed like the beginning of a real opportunity there. But listen, before I go on to Ash Denham, the whole issue of the NDRI issue was really, which Murdo was raising, James Kelly had questions in that area. So let's just deal with that now because it's a supplementary to what has been dealt with and I'll come to Ash. Okay, thanks convener. You said in your opening statement Cabinet Secretary in response to the convener's summary of this morning's sessions that non-domestic, all non-domestic rate income was retained locally by local councils but in actual fact that's not the case for this year. If you look at table 1018 in your own document non-domestic rate income is £2.812 million and the distribution of that is £2.636 million so there's actually a £176 million gap, £176 million less has been distributed than has been taken in. Do you want to explain that? Yes, I can explain it by pointing out that non-domestic rates essentially is multi-year budgeting. Some years it's raised more than is distributed and that accounts for that. There is a balance to be cleared but ultimately it was all given to local government that continues to be the case. What in effect that means in this year that what has been forecasted to be collected by local government is not all going to be distributed, £176 million is going to be retained? Nothing's retained, it means in the pool which meant that there were some years when local government benefited from the fact that essentially I can assure Mr Kelly that the resources are guaranteed. What's set out in the local government figure that's what local governments get irrespective of what's collected through non-domestic rates but some years more was distributed than was collected. So what we're doing is ensuring that the pool is in balance ie back at zero so yes for some years less will be distributed than is accrued but that makes up for the converse in other years. The point I'm making is that if all the money that was collected in relation to non-domestic rate income was distributed then local government would have £176 million more and that would solve perhaps some of the issues that committee members have raised? That as a proposition may well be correct and true. It wouldn't keep Audit Scotland happy if there was a negative balance I have to say on that. I don't think it would keep the finance committee happy if I wasn't addressing that balance and had no plans to address that balance but that could be a choice but essentially the desire is always to try and get distribution as close to forecast as possible and where it's in deficit is to address that. That's what Audit Scotland have asked me to do. My plan to do it is through the budget. This is perfectly normal practice. This is what happens to get the account back into balance and it's fiscally responsible and it will be achieved according to my plans in the course of the next financial year. But it is a policy choice if you choose not to do it. There are consequences. Just one final question just to be clear. The figures in the budget currently are £2.812 million in terms of what is forecast to be collected and £2.636 million in terms of distribution. Are those figures your final figures on this or are there going to be any amendments to them? No, they'll be our final figures. That's our forecast, yes. What has happened in the previous cycles is there may be massive changes because of appeals information coming in but I think I'm looking at grey and orange in here. Those forecasts are as robust as they can be and what's more have been overseen by SFC? Yep, so from 2018-19 there's a Scottish Fiscal Commission forecast and just to add what the Cabinet Secretary said previously. It's prior year adjustments so taking a number of years all of the income, non-domestic rates income goes back to local government. The legislation indicates that non-domestic rates income can only go to support local government spending. But again, it is true to say if you choose not to address the deficit that is a choice but it will fly in the face of what Audit Scotland and other Audit agencies would expect of us. Good afternoon, Cabinet Secretary. The draft budget includes a 64% increase for the economy, jobs and fair work budget, which presumably covers a number of interventions that you've taken to support the economy. In response to a question by Emma Harper earlier, you mentioned a couple of interventions, funding for research and development and also capitalisation of the Scottish Investment Bank. Are there other interventions also that are covered under that 64% increase? If everything that's in that portfolio chapter should be covered in that 64%, I think there's actually a factual correction in the document, whether it's a lower percentage somewhere in the document, the actual figure is 64% increase in that portfolio. I think quite substantially in the chapter but the economy secretary of course will return with greater detail on how some of that's laid out because some of its future investment plans, we've spoken about the Barnett consequentials but capital and financial transactions over a number of years. So some of the detail for example around what the capitalisation of the Scottish National Investment Bank will look like is yet to be determined because we're still finalising the rematch because we're consulting on that but there's a lot of investment that will absolutely throw from these decisions. Those for 18-19 around research and development because no productivity is an issue or actual investment in infrastructure is all significant. Housing isn't mentioned in this portfolio, that would be elsewhere, that would be in the community's portfolio but of course it'll be a matter of fact that investment over £100 million in housing is good for construction, good for skills, good for apprenticeships and then good for those folk who will be living in the quality affordable housing as well. Do the draft budget document, there are interventions that help to grow our economy and tackle some of the issues that we know we face but that increase covers largely the capital and financial transactions uplift with some specific resource investment as well and the enterprise agencies continue to deliver a key function around some of that assistance. It is. You mentioned there the Scottish Investment Bank and the draft budget is proposing to capitalise this with £340 million of investment. I think that's a really interesting development, this idea of a new scheme with a view to providing long term patient capital. In this morning's workshops that was regarded as quite a positive step by the Scottish Government but some of the participants were unsure of how this was going to work moving forward and they were looking for assurances that this will lead to better investment decisions. Would you be able to explain a little bit more around how you think this particular funding will achieve more for the Scottish economy? The economy secretary would lead on that. I've certainly been involved in some of the discussions with Benny Higgins on its formation so we're still at the stage, yes we've made a financial commitment. The investment bank will receive these resources arguably it could receive more depending on how we want this to look and that's why we're engaging on the structures. It works best in getting as much leverage in of the public investment, the financial transactions and that kind of capital. It might be exploration as well around pension funds and others who might want to contribute to it because there's a great deal of potential in this being a success if it reaches a critical mass and that will lead to more people buying into investing and Scotland investing in infrastructure but what we want to try and achieve out of it as well as multiplying the benefits of positive domino effect so by making that commitment it shows we're serious about the investment bank and I think it will support, it's a potential to support both the private sector growth but also and crucially public sector infrastructure because of the long term nature of it. It's still at an early stage in that we're engaging and consulting on the structure of the bank but that resource that's allocated of £340 million is from 2019 onwards that's a two year figure and of course we'll look to try and supplement that. The other element of that is before we get to that was the building Scotland fund which is a precursor to the bank and that resource can be achieved in 1819 and again the Cabinet Secretary will consider, Keith Brown will consider the best way to compose and structure that. Thank you. Alexander I think you have some questions in this here as well. Thank you very much convener. The Cabinet Secretary mentioned financial transactions earlier and the draft budget includes £489 million in 2018-19 for financial transactions. Have a financial transaction money is interest free and the amounts to be repaid are not adjusted for inflation and the money can be repaid over 25 up to 25 years depending on the projects. Can the Cabinet Secretary confirm the real terms value of financial transaction monies to be repaid by the Scottish Government at the Treasury might be significantly below the original amount granted? The financial transactions line has increased in terms of what UK Government was proposing to give to us. I welcome that. Questions for monies to be repaid will be less in real terms. It depends what we spend them on but on the basis of what you've just described yes. I just ask what assessment does the Cabinet Secretary put forward as to what that profile will be? Discussions with Cabinet Secretary in terms of what their requests are for the spending financial transactions or discussions with the Treasury on the repayment schedule. I'll ask John to cover the technical issue of discussion with Treasury on that. I want to be absolutely clear that the financial transactions increased arguably did come as something as a surprise because in engagement with UK Government ministers they gave no hint that there would be an increase. What I've welcomed is the potential to have budget exchange carryover because the sums are such that to be able to spend you want to plan properly, you want to ensure that they're invested correctly as well. So I want to be assured that there'll be the ability to have budget exchange especially for this financial year because it's come so late in the day that you'd want to be assured that you can carry it into the next financial year. So my engagement with ministers was no pre-warning. I get the courtesy call frankly the night before the budget to say what the headline figure is going to be. I don't get any detail beyond that. That's up to UK Government. I think there's a better way of doing business with us to conduct our affairs and give me a bit better notice. But anyway it is what it is and from that financial transactions figure we've then worked through both the allocations for the draft budget but officials engage on the detail. The only conversation I've had in the past was around the extent of financial transactions whether we could have budget exchange because of the nature of them as Mr Burnett has described. It's good to have flexibility from one year into the next and the level at which we can have budget exchange. In terms of the repayment terms and so on, if John you could cover that. Just to say that we are still in discussion with the Treasury over, as Mr Mackay says, we've received significantly more financial transactions than we expected to have available. Discussions on the profile of those and when they'll be used and ultimately when they'll be repaid is still under active discussion. So the answer to your ultimate question will require us to conclude that discussion with the Treasury on when we expect the FT's to be used and ultimately when we expect them to be paid. This is a hypothetical example. I think SPICE calculated for us that 80 million of financial transaction money repaid over 20 years with inflation at 3% would be equivalent to a repayment of 44 million. I'm just wondering what kind of assessment has been done or will be done and what will we see in terms of the 489 million. Can we just ask what we've been asked to assess exactly? Is it a repayment figure? Is it the value of it? Is it essentially a repayment figure? It's just to say that that is obviously ultimately dependent on how those financial transactions are ultimately utilised in terms of the repayment on individual programmes. So it may be that the repayments on an individual programme are not directly linked to an even profile. So it may be a repayment in full at the end in which case the real terms calculation, there will be quite a variety, the point of trying to make quite a variety. It's not as straightforward as a straight line analysis and it's ultimately dependent on finalising those programmes which hasn't been done yet. Is it dependent on the programmes from what I understand from the briefing that the repayment schedule is agreed with the Treasury and is based on the anticipated profile of Scottish Government receipts? So it's linked to once we've finalised the profile of the investments that we're making with that then there's an annual return that we do to HM Treasury and we've finalised that profile on an annual basis. Okay and so then the difference between the choice of programmes you could invest in or fund will have different profiles and will we be presented with assessments of those? Is that the question? Does that become public? Is there any sensitivity about that now? I mean if the finance committee wants more of this I can happily give more, I can see the appetite of the other committee members for it so if you want it you can have it. I'm just wondering if there's a difference in decisions of whether you're investing in programmes which have a short term repayment or you choose to invest in or fund a programme with a longer repayment profile because at the end of the day the final sum to be repaid will be less in real terms. It's actually less of that and more of the value of the programmes in themselves so when you have the availability of financial transactions the internal process frankly is to engage with Cabinet Secretary and say what is the demand, what is the need, what is the potential use of financial transaction and then I have ultimate responsibility in determining how that's distributed. But from a policy point of view it's what will add greatest value to the economy. Because of the restrictions on it not every portfolio can make use of them so in the community's brief you can't use them to pay welfare benefits but you can use them for a help to buy housing scheme for example. So portfolios suggest their potential use and clearly economy is suggesting that using it to help capitalise the national investment bank's pretty substantial use of it in future years. So it's more judged by the contribution to our objectives and the economy and if you then I wish further information on the analysis of the repayment profile we can provide that to committee. Thank you very much. I want to come back to you in regard to the national performance framework issues which you didn't get a chance to ask earlier. Thank you, thanks convener. The area I want to touch on is we've obviously talked a lot about inputs, how much you're spending in different areas of the budget but clearly at the end of the day what really matters is the outputs and the outcomes from the various portfolio departments. Now clearly we've got in place the national performance framework which measures or attempts to measure what government is delivering as a consequence of the money that the budget is spending. Now there's been some comments from the budget process review group which I thought recognises that we've got that framework in place. There's perhaps more work to be done in terms of clearly laying out what the outcomes we're trying to achieve with the budget spend in each particular area and how you track that, what milestones you've got in place and how we move towards that. Certainly from my own looking at this in particular areas there's perhaps more the link between what we're measuring, what money we're putting into the budget, what that money is supposed to achieve, how we're measuring whether we're achieving that or not, perhaps not maybe as robust yet as it could be. So I'd just like your reflections on that as you see that there's more work to be done around about the national performance framework and how that links to budget spend lines and what direction you see that going in. Of course there's work underway at the moment because we're looking in a cross-party and there's a great deal of public sector and civic Scotland engagement as well on Scotland performance and the indicators that we work to. So is there work going on? Yes there is. We're looking at aligning that with where we are right now. It was due for a refresh and that's happening. In terms of how it relates to the budget, all politicians that I've ever heard in the Scottish Parliament say we're really focused on outcomes, not necessarily inputs. Then we go to the chamber and we have a rami about teacher numbers, number of nurses, number of this and a number of police numbers. That's politics but it's a wee bit less focused on outcomes than you would expect from all politicians I suppose to be fair. Do we look at the Scotland performs regime? Yes we do. So it sets out the broad ambitions for our country, the themes within that and then the indicators and it says where's more work required because it's got a traffic light system and where progress has been made and where progress has not been made. I'm sure that the minister and officials as well look at that in determining decisions. There is not an absolutely true relationship between figures necessarily of performance and spend because there is also the matter of political choice as well. Someone could say well you've got crime at a 41 year, 43 year low and you're meeting all your targets there therefore you should spend less money there and more money elsewhere. Well that's not the choices politicians make. So I make the point that yes we look at it, yes it guides much of our thinking but it's not formulaic in the sense that it leads to automatic spending decisions and it's under review, it's under live review right now in a cross party and cross sector way. That's good to hear that and hopefully in future we'll be able to have spent more time talking about what's been delivered rather than as you say just knocking back and forward numbers about what's been spent. Thank you. I think you had issues to do with the general structure of the budget as well in the future around preventative spending of three year budgets. Yeah, yeah, thanks very much convener. On behalf of some of our contributors this morning, Cabinet Secretary, Aberdeen Council of Voluntary Organisations and others, they were asking about how the budget works and whether there's potential for it to move to multi-year budgeting and you mentioned that yourself in relation to the non-domestic rates issue that was mentioned earlier. They of course feel that that gives more stability to the various sectors, not just the voluntary sectors but others too and it also has an impact on the opportunities they can provide for training and skills development. If it's over a year it's much more harder to deliver that. What are your flexibilities and constraints probably as well in moving the whole Scottish budget scenario to that kind of level where it's perhaps on a multi-year basis and what the advantages might be for something like that? I recognise the concern and the criticism. It would be better for everyone in the public sector frankly if they were able to plan on a multi-year basis. I totally understand that but me included. 60% of revenue decisions are in the hands of the UK Government in Scotland, not in the Scottish Government therefore and we are all subject to any economic shock. So without that absolute certainty in the resource that I will have available to propose to Parliament, without that certainty I'm in the kind of challenge position as well. If you take the issues issue, the budget variance could have been hundreds of millions of pounds negatively or positively so it's just that variance and uncertainty that gives me the challenge as well. Would I like to have multi-year budgeting? Yes. Do I see the value in it for all those involved? Yes I do. But it's not true to say that if a thing is only a one-year determination. I mean for that matter as a minority government I would love for an opposition party to say I'll not just vote for your budget this year but for every year for the rest of your term. That sounds pretty good to me I have to say. That will give us certainty but in truth we couldn't lock down every figure because of the determinants not in our control. Having said all of that there is a multi-year settlement for some areas where I've been able to do it. For example housing because I recognise you can't build the houses, you can't have the certainty if you don't give a multi-year settlement for housing. Child care delivery will also be a multi-year settlement not this year because we're still discussing with local government the figures that we can agree on but the intention is to have a multi-year settlement recognising the pressure and no doubt we all heard and felt from culture. They're suffering from a downward trajectory on lottery income so I have made a commitment to try to make up the loss in lottery so I've tried to be helpful in a number of areas without locking down every figure that's so inflexible that the budget is no room for manoeuvre but I totally understand and appreciate the desire for multi-year budgeting. The public sector pay. James I think you've done something so good Patrick. Okay, thanks a lot convener. You outlined the pay policy at the start cabinet secretary. Can you tell us how much has been included in the budget to cover the cost of that? The pay policies traditionally dealt with as part of the overall settlement within portfolio spend so there isn't normally a set aside resource for pay policy. The pay policy that's been arrived at is deemed to be affordable by those portfolios so I don't have a separate allocation for pay policy. It's all part of the budget settlement. So when you worked out the pay policy you didn't work out crossings linked to that? I could give the member the cost of say no change, no change this year to the pay policy that I propose if that's of assistance but what I'm saying is not a separate bit in the budget for that and that I just get the specific figure if that's of assistance to the committee. And this is from no change to the policy that we propose. Okay, so it would be £138 million. So the policy of 3%, 2% is understood as £138 million is the figure. For those under our pay policy which is those public bodies and Scottish Government staff, clearly pay policy becomes the benchmark for others which we don't necessarily need. Direct but it becomes the benchmark so it's important to make that point. I might be able to question mark why that figure isn't as high as maybe you had assumed but that's just for those under our direct pay policy. I understand the different responsibilities but if we take local government as an example and I know that you're not directly responsible for pay policy and local government however if you take the funding of that previously we were operating under a 1% there were 1% settlements and in order to we've had a table from Spice that estimates if you include local government employment employees including police officers and firefighters etc. The additional cost of moving to the pay policy that you outlined would be an additional £90 million in terms of the local government settlement. Now was that taken account of in terms of when you were calculating the local government settlement? Yes local government certainly raised that over the course of negotiations and I'll answer any question that committee may want to ask me but sometimes it's unfair to quote others but certainly the question from local government was be mindful of public sector pay policy when I'm determined Scottish Government pay policy and as well as the financial settlement. Additional £90 million that's required for the uplift is included in the local government settlement? I'm certainly not making that. I don't set out a specific allocation for local government pay as part of the settlement. With the exception of teachers that was specific because the Scottish Government is involved in the tripartite negotiations there and it helped ensure that there was a deal to continue the delivery of education and resolve that particular dispute. So I wouldn't ordinarily set out an allocation for pay within the local government settlement and I have seen some commentary from one leader to suggest that they believe that that can deliver that if they want to go embarking on a 3% pay policy to deliver that. That is a matter for each leader and it's a matter for local government. Certainly not for me to direct their pay policy. Is it not the case then that you've set out a pay policy but you haven't funded it? I've set out a pay policy for Scottish Government and it becomes the benchmark for the NHS and I've made very clear commitments around the NHS. I don't set out a pay policy for local government and I think the settlement that they have is for them to negotiate with the trade unions. But their settlement should look like going forward. The pay increase should look like going forward. Since the government confirmed some months ago that it would lift the 1% pay cap, there have been a number of different forms of words used to describe exactly what the government intended to do in the run-up to the publication of the draft budget. I think your parliamentary liaison officer spoke on national television saying that the pay settlement should be at least inflation. I think the form of words that you and the First Minister have both used in the Hollywood Chamber is a pay settlement that takes account of the rising cost of living or takes account of inflation. Would you acknowledge that that hasn't been achieved in the pay policy that you published alongside the draft budget and that everybody in the public sector under that pay policy, including those directly affected, would continue to see real terms cuts in their pay? I believe that it has achieved what I set out to achieve, which was to, and it's good to hear I was aligned with the First Minister's position on it, which was really taking account of inflation, affordability overall and absolutely lifting the pay cap. I do believe that that's what I have delivered. I have set out a progressive pay policy, just as we have a progressive tax policy, and we've made a decision to have a 3% increase for those up to a 30,000 or 2% increase for those above, to retain the position on supported measures for low pay, a position around no compulsory redundancies, and a position around capital. That is in accordance with lifting the pay cap and having a more progressive pay policy. You would accept, though, just on a matter of fact that 3% is below inflation and therefore a real terms cut? It's below the current rate of CPI, as last I saw the figure at 3.1%, which is expected to come in to line at 3%, again, forecast to just be back at 3%. If it does that, then the award up to £30,000 matches inflation, which achieves what I said it would, which is lifting the pay cap. On that £30,000 cut-off between the 3% and 2% rates, you mentioned that the Scottish Government does have a role in relation to negotiation with teachers. Obviously, that's a process that's ongoing, and we don't know what the result will be, but do you anticipate that point of principle on a £30,000 cut-off point being acceptable to teachers? Is it consistent with the Government's emphasis on needing to address the problems in teacher recruitment and retention? I make the other point that there's a further support in addition to the base policy around progression as well. Do I think that the current proposition satisfies the yes, the yes, the representative body of teachers? No, it appears that from the public commentary it does not, to answer it, honestly. Why it wouldn't? I can certainly understand for those in the public sector that are working in our public services that have had years of pay restraint, why they might want more. Yes, of course I can understand that. Government intend to respond to their call for not necessarily in a single year, but a restoration in the value of their pay. I'm not sure that the Cabinet Secretary can negotiate a pay deal here with EIS in front of the Cabinet in front of the finance committee. I would simply make the point that the years of pay restraint helped ensure that we didn't have compulsory redundancies, that in having pay restraint we still had clear divergence from UK Government policy around no compulsory redundancies, measures to tackle low pay, we were more progressive and we still allowed progression when the UK Government didn't. Having the pay policy that we did, we were able to retain staff numbers far more than in the public sector than was the case south of the border, might otherwise have been the case in Scotland. As to the point about the commitment, I believe we have delivered with me an enhanced pay policy compared to what's been in place in previous years and I've tried to quantify that for the interests of the committee. As to the longer-term direction of travel, yes, we would want to repair some of that inflationary impact on the take-home pay of staff categories. That is a direction of travel we would wish to take but in any event we have to do it within the realms of affordability and I think this year's departure from previous policy should be a welcome one. I did have one specific question on capital that I didn't get in earlier. Obviously there was some discussion earlier about the financial transactions and I don't think any of us would expect that you can answer to a level of detail exactly what all of that is going to be used for just yet. But there is a substantial capital budget in the current, in the draft budget for the coming financial year. There's a lack of specific information about the projects that that covers and in particular I'm interested in the carbon governance, the climate governance of the capital pipeline. The Scottish government's aware of the call from the low carbon infrastructure task force for the need for 70% of capital spending or infrastructure spending to be on low carbon. We're substantially below that figure at the moment in Scotland. Can you tell us what the proposals on capital spending in the draft budget do to the figure on low carbon infrastructure? Are we going up? Are we going down? What are we at? And what level of detailed information is publicly available on the capital pipeline as it stands at the moment? OK. There's something like six-monthly reporting to the Public Audit Committee. Public Audit Committee received information in terms of that auditing of those plans. There's the infrastructure investment plan that is periodically updated and that outlines overall investment plans of the government. Of course, what this budget is asking approval for is one year's investment around the capital plan and expenditure therein. As the question on sustainability and something like active travel will double the figure from £40 million to £80 million specifically for active travel. Overall on low carbon, I want further analysis done on this. But I believe that this budget would represent more on the transition to low carbon economy, whether that's on transport such as rail, where the committee will be aware. There's very specific issues around rail funding for the next control period, which is 2019 onwards. But I would believe that overall there's a greater contribution to the journey, pardon the pun, on low carbon. I'm happy to share more of that with the committee as it's developed up. Are you specifically saying that the draft budget for 2018-19 increases the proportion of the capital spend that is on low carbon? I believe it does and I'm happy to provide further information to the committee if you want me to analyse that in a fashion that we can agree. The budget of course has its own environmental impact assessment, but that's actually just in the procurement of goods in that particular year's a consequence of the budget position. The carbon assessment of the budget doesn't go into any detail on the capital side. What are the projects that are being funded under the capital budget for the coming financial year and what are the carbon implications of that? So that's a matter I'm happy to engage with the committee on and provide further information. What I was pointing out is the accountability of spending infrastructure is reported to another committee. But to give the committee satisfaction around the carbon assessment, I would do further work in presenting that to the committee. Okay, I think there are a couple of areas Cabinet Secretary committed today to write to us further and writing to the issues raised by Adam Tomkins earlier in the committee's proceedings and obviously just now with Patrick Harvie. I think it just remains me now to thank the first of all those members of the public, members of business community and organisations who came along to our workshop sessions this morning. It's a very valuable piece of work to thank members for their contributions throughout the day. To thank the Cabinet Secretary for his attendance here in Aberdeen today. To thank the City Council for allowing us to use their magnificent building here. I don't know if anyone saw the remarkably imposing picture of Henry Ray who was the provost here between 1984 and 1988. He must have occupied the seat unloadout at some stage. It was an imposing rather magnificent picture. I'm glad I wasn't needing to be as formidable as he was on his picture. With that, I close the proceedings of the committee. Thank you very much.