 Yr unig gyrwch â'r 14 ynghylchedd y bydd ym 2019 ar y Ffrensyn Constituionwyd. Felly mae'n mynd i wneud gwneud o dod o g feelingon arabyn i ddangos. The first item on our agenda this morning is to take evidence on the Scottish Government's medium term financial strategy from Derek Mackay, who is the Cabinet Secretary for Finance, Economy and Fair Work. Mr Mackay is joined by Scottish Government officials Lucy O'Carll a Daniel Hynce. I welcome our witnesses to the meeting and I would invite the cabinet secretary to make an opening statement if he wishes. Thank you, convener. Briefly, the MTFS will help this committee and others to scrutinise Government budget planning by setting out the very real limits to our funding, clearly laying out the consequences of UK choices on Brexit, on austerity and our public finances, as well as providing a clear picture of the impact of the fiscal framework on future Scottish budgets. Alongside the latest economic and fiscal forecasts that set out a framework for the Scottish Government's spending review, as well as the fiscal principles and policies that will guide the use of our borrowing powers and reserve powers. In line with the written agreement between the Scottish Government and this committee, the MTFS sets out the economic and political context for the spending review, the criteria that will govern the assessment of budgets and the process and timetable for review. Irrespective of the UK Government's decisions about its spending review, we plan to undertake a review of spending in 2019 beyond 2020-21 with a focus on addressing Scotland's long-term challenges, notably climate change and child poverty. I welcome questions from the committee. Thank you for that short opening statement, cabinet secretary. The fiscal commission has told the committee that it is part of the first income tax reconciliation, that next year we can expect a reduction of £229 million in the Scottish budget. It also informed us of further potential reductions in income tax because of reconciliations in future years. If their forecasts prove to be accurate, they are mounting to £608 million in 2021-22 and £188 million in 2022-23. The committee said quite pointedly to us that the Scottish Government would have to adjust its spending plans or increase taxes to deal with the forecast reductions. It is fair to ask the cabinet secretary, do you think that those figures are accurate? Just how do the Scottish Government intend to manage this? What appears to be a very challenging picture? Convener, can I take the question in three parts in terms of accuracy, how they've arrived at them and then how we manage reconciliations, which is essentially the question, which of course is absolutely right to pose that question. First of all, in terms of accuracy, of course we know that our budget is driven by the SFC and the OBR numbers, so that is what drives the budget and the resources that we are dealing with. I've looked very closely at the SFC report, as you would expect, as it informs the MTFS, and the evidence that it has given to the committee in terms of accuracy and its explanation. In terms of reconciliations, I think that it is important, of course, because some people confuse forward forecasts with the reconciliations specifically, but talking specifically about reconciliations, it feels perverse that when income tax is rising, when overall the tax take will be up, when GDP is performing in a positive fashion, when we have low unemployment and when earnings growth has been increasing, when we have those negative reconciliations over the three years that you described, it does feel perverse in that regard. However, it is absolutely down to relative forecast accuracy, which is what the Scottish Fiscal Commission has explained. It has said that the forecast error was inevitable. In the new information that has appeared over the course of the evidence to the committee, the average absolute error could be around £500 million a year, positive or negative. Those figures are set in that context. In terms of the forecast errors, we are dealing with two different forecasters, with two different methodologies and two different sets of assumptions that arrive at the figures on outturn. As we have more outturned data, we have the exact figures, because those are still forecasts. We will have the outturned data in July for that first financial year. I point to the SFC's commentary and analysis, which says that reconciliation is not about performance of the UK or the Scottish economies but about the accuracy of the forecast. That is what this is about—the accuracy of the forecast has then been reconciled on outturn. The explanation for that is given by the SFC. We follow this analysis. Of course, although we have an increased income tax forecast for Scotland, it is the case at the block grant adjustment, so the income tax for the rest of the UK has increased more than in Scotland, making our net position worse than was forecast. Of course, at the next fiscal event, we will get further updates for forecasts. Beneath that shows that there is stronger than expected growth in UK receipts that had not been forecast by the OBR, and that explains the divergence in those figures between the OBR and the SFC. What they are not sure about is whether that is a distributional or cyclical issue. The SFC has pointed out that the negative reconciliations might be followed by positive reconciliations. In page 6 of the official report, the commentary that I have seen to the committee, it points out to further explain why they believe that this has happened. They believe that the higher concentration of higher-rate taxpayers and the recent growth from UK income tax has been concentrated among them. From my point of view, in other words, that has increased inequality between higher-rate taxpayers and increased inequality in the rest of the UK. Of course, as responsible forecasters, the SFC and the OBR will look at the out-turn data analysis and that will inform future forecasts with a deeper understanding to the tax composition in Scotland, based not on an estimate but on fact. In many of those areas, it is now turning to the question, so what do we do about it? I say explanation from how it is arisen, why the reconciliations are as they are right now. If I make the assumption that they are right, so I think that that is prudent and ffiscally responsible for me to do it, to assume that they are right by further amendment to that, then work through the consequences of that. Welsh, recognising that the Fraser of Allander Institute has said that many factors will be outwith our control that are materially significant to Scotland's economy, such as issues around oil and gas contributions to the economy, migration and other matters, Brexit and other matters. As we look at the potential reconciliations, the tools that we have to manage that will include what available resources are there at the time. Bearing in mind, although we have the ability to draw down from the reserve and the borrowing powers that are set out in the MTFS, it will still be the case that the majority of funding comes from the block grant. The block grant, the Barnett consequentials, is still significant to Scotland's budget and UK fiscal policy and UK tax policy, as it relates to Scottish tax policies. That will determine the available resources that we have, which should be one of the determinants. Available resource borrowing is up to £300 million, and the use of the reserve to draw down to that to help to manage the kind of reconciliation in the scale that has been set out. A range of factors are there—block grant, Brexit, austerity—will all impact in future resources and the tax policy of the UK Government, because that will determine the resources that we have going by the fiscal framework. All of that will then set the context for me managing those reconciliations as part of the budget process, which, of course, I would explain at budget time. I do not think that I would have been right to set out individual scenarios. I know that there has been some criticism of that, but some scenarios—how I could have done that—but I have set out the principles that I would deploy in terms of the use of the borrowing reserve. Politics changes from day to day. UK Government's tax position is very likely to change, for example, leadership contenders for the Tory party will ultimately become prime minister. Whatever tax policy they have will be materially significant to the fiscal framework in the relative position for us in terms of tax. I will take a prudent, ffiscally responsible approach to manage those substantial reconciliations—not helped, of course, by BRICS uncertainty, but that is the explanation around forecast accuracy. That is all that this is about, how it has been explained by the SFC and then what the Scottish Government does to manage that. I agree that there is substantial reconciliation that is required. Reflecting on what you have said, cabinet secretary, the two words that the Fiscal Commission said to us were adjusted spending plans are increased taxes, but you have not reflected on that in your comments. Why? That is because, in the much fuller explanation, what they do not know, what I do not know and what the UK Government right now does not know, is what their budget will look like, whether they will have a spending review, whether they will use the fiscal headroom at £26.6 billion, what their tax policies will be, so bearing in mind that the block grant, the largest determinant to Scotland's budget being the block grant, is determined by the UK Government. With their financial position in such a volatile and uncertain position, those matters are materially significant to the Scottish budget and that will then set the context for the other things that we do. How much revenue we raise, and this is a point of reconciliation in terms of tax, will be determined by what is the UK tax policy and what is the Scottish tax policy. Yes, we may have to look at spending as well, of course, but that will be, as well as all the other determinants that set the Scottish budget. There are too many unknowns in terms of what the UK Government might do in their fiscal policy, because that drives so much of Scottish fiscal policy and how we respond to that because of the nature of the fiscal framework. We have in front of us a very stark set of forecasts from the Fiscal Commission, and we know that there are only forecasts, but you just said, cabinet secretary, and I agree with you, that the prudent thing to do is to assume that they are correct. That is what you just said. The prudent thing to do is to assume, for the purposes of our conversation this morning, that those forecasts are correct. The forecast is that you have a £1 billion black hole in your budget. Let me ask the question. You have a £1 billion black hole in your budget, and the Fiscal Commission says that there is not enough in the Scottish Reserve in your borrowing powers to cope with that. That will mean that the Scottish Government will have to adjust its spending plans or increase taxes. Their words are not ours, and the prudent thing to do is to assume that that is correct. We turn to the medium-term financial strategy to discover what your spending plans are to cope with this £1 billion black hole, or what your proposed tax increases might be in a range of scenarios. We find absolutely nothing on either score in the medium-term financial strategy. That homework has been marked by the Fraser Valander Institute and you failed, didn't you, cabinet secretary? No, I think that you will find that I have successfully passed three budgets in a row. I have balanced the books and I continue to do so in a ffiscally responsible way. I have set out the principles that I will deploy, so to do. The economic indicators for Scotland right now are record low unemployment, outperforming the rest of the United Kingdom at 3.3 per cent, UK unemployment is higher, record employment in Scotland, record export increases, GDP growth that has been sustained and better than the SFC had previously forecast, as they say, exports on the rise, outperforming the rest of the United Kingdom, and foreign direct investment, second only to London and the south-east of England. Income tax is rising and earnings growth is on the up in real terms. I think that those are strong economic indicators and strong economic foundations. Let's turn to those specific questions, but I think that it's important to contextualise if I'm being accused by the Conservatives of economic mismanagement. I think that that's somewhat hypocritical at the moment when you look at the continuation of austerity, or Brexit chaos that's impacting on the economy and, as the SFC have stated, very clearly will have a profound impact on the UK and the Scottish economy. In terms of that £1 billion reconciliation, let's stick to the facts. Those are figures driven by the SFC and the OBR. Those figures are reconciliations around forecast error, not economic indicators, forecast error. That's said very clearly by the SFC. Does that present a challenge to the Government and the Parliament? Of course it does. Of course I would prefer that I had £1 billion positive reconciliations, but we have to work within the figures that are presented to TOOIs. To describe it in the pejorative language that Mr Tomkins has is unfair, because it just disregards the last 15 minutes of evidence that I've given that there is more to the Scottish budget than just those income tax reconciliations. There are the other matters of the financial envelope, the block grant and the other levers that we have around borrowing. It is true to say, I certainly accept the point, that in terms of the reconciliation from income tax year 2018-19, which applies to budget year 2021-22, the forecast reconciliation at £608 million does indeed go beyond any deployment of drawdown of the reserves or essentially the borrowing power that we have. Even if he maxed both, it would be true to say that that does not reach £608 million. My point back is that you have to consider all the levers, the totality of Scottish Government resources at the time. We won't know what the block grant will be in that budget year 2021-22. Therefore, there are a number of material considerations that would come into play here, so it is not true to say that it would be just spending or tax adjustments, because the main driver of the Scottish budget continues to be the block grant. In terms of the spending plans, I made it very clear in the medium-term financial strategy that I costed policies last year, but I made it very clear that I am undertaking a spending review. The UK Government has committed to a spending review, but it now seems to be provaricating on that point. I have written to the Chancellor to treasury asking, are they going ahead with a spending review, and I have not under-replied to my letter. I think that the letter was dated April. I know that there is a bit of uncertainty in the ranks of the UK Government at the moment, but they have not confirmed whether they will determine a spending review. Again, that is important to give us the necessary information for us to conduct a spending review. The reason why there are not costed new policies is because we will be conducting a spending review that does exactly that. We will be conducting a budget process that does exactly that. The MTFS is not meant to be a mini-budget. In terms of the Fraser of Allander commentary, I have read it with great interest. It has welcomed parts of the medium-term financial strategy, such as the principles, the approach around spending review and the capital elements, where I have given more detail on the borrowing requirements and principles there. If the Fraser of Allander institute is frustrated that I have not set out a full-scale spending review or costing more policies, it is for the reasons that I have just given, but what it does is absolutely contextualise the financial challenge that we face and the kind of approach that I will take to address the challenges that have been raised. However, I want to reassure Mr Tomkins that I am absolutely taking the forecast seriously and that that will be the assumptions that we are working to. We are some way through the looking glass, are not we, cabinet secretary? If you think that it is all rosy in the garden and yet we are facing a £1 billion black hole in these reconciliations, it is interesting that in your medium-term financial strategy you say nothing about growth below trend, you say nothing about real earnings being lower now than they were a decade ago, you say nothing about productivity lagging behind key competitors. Wherever you look in the medium-term financial strategy, it has been condemned as not fit for purpose, as failing to meet the tests that were set for it in the budget process review, whether we look at what you have said about economic risks, whether we look at what you have said about fiscal risks, particularly social security spending or whether we look at what you have said about spending priorities, what you have said in the medium-term financial strategy has been condemned not by the Conservative Party but by the Fraser of Allander Institute. Let's just focus on one element of it because it's an element that is focused on in the SFC's comments, which you still haven't responded to adequately, cabinet secretary. In comparison with last year's MTFS, this year you say nothing whatever about spending priorities. You say nothing about what areas will be prioritised and in particular you say nothing about what your strategy will be for non-priority areas. Given that we are looking at the potential of a £1 billion black hole, given that you clearly won't want to share with the committee this morning what your future tax policies will be, what are you saying about spending and in particular what are you saying about spending in areas that you have identified as non-priority areas to meet the £1 billion black hole that you are going to have to meet? I disagree with the premise of the question. I believe that throughout the SFC, as driven by the budget process review group, the report and the forecast that the SFC has published does have the financial forecast over the five-year period. It does have a funding trajectory. It does have the determinants that are significant here. It does outline the fiscal disputes that we have with the United Kingdom Government. It has set out the principles for the spending review. The spending review is at the point at which we have the further cost of policies, and then we set out what the priorities are within those. We are also delivering upon a manifesto around policy commitments that the Government has undertaken. We are working our way through that. Of some of the matters that Adam Tomkins raised but did not want me to address, but I do not think that it is fair to raise them and then not allow me to address them. Factually incorrect, real wage earnings is on the increase. Income tax take in Scotland is on the increase, and economic performance is strong, all threatened by Brexit. That is what the Fiscal Commission—Mr Tomkins is shaking his head, but that is what I am sorry, Mr Tomkins. Where can you point to in the fiscal commission report that says what you are saying? Nowhere. What the fiscal commission says very clearly in its report is the Brexit threat that is impacting and subduing our economic performance. There are key factors. Population and productivity are absolutely areas to focus on. Some of which are out with our control. That is what the Fiscal Commission report has said. It may be a complaint about what is not in the report. Maybe Mr Tomkins should have read the report and he would have been better informed for this morning's questions. Cabinet Secretary, you have now accepted in your opening answers to the convener that the position set out in page 46 of the medium-term financial strategy of a £1.025 billion gap between what has been set in budgets and what is forecast in terms of future revenue and block grant adjustments. The scale of the problem is really stark. What is really surprising is that there is no detail in the document as to how that is going to be dealt with. If you take child poverty as an example, in your own constituency there is a ward rent through South and Galahill where child poverty is at 35 per cent. That is something that I know will concern you greatly. However, it is really gallant that when you look at the document in terms of child poverty, there is a reference to, it should reach outcomes, but there is no assessment of the fact that there is a £1 billion forecast gap now. There is no assessment as to how that is going to be dealt with going forward to address the unacceptable levels of child poverty, not only in your constituency but throughout Scotland. The document itself covers the medium-term financial strategy. Last year, it had costed policies. It will take policies from budget to budget. It will be the case that the community secretary will give a statement on the targets around child poverty in June, so there will be far more detailed analysis and debate at that point, specifically on child poverty. MTEFS is not meant to cover a comprehensive spending review as a mini-budget, but it sets out the medium-term strategy and the latest forecasts. We must not confuse the child poverty target's actions and policies with the medium-term financial strategy. I look forward to, as I have said in the principles for the spending review, making child poverty a priority within the Government's spending plans. I believe that we have used the tax and spending regime in a progressive and fair way. From memory, there was only one member of the committee suggesting that I should depart from the SFC forecast. It is just as well that I did not depart from the SFC forecast. From memory, it was James Kelly who said that I should depart from the SFC forecast, which would have compounded the issue of £1 billion reconciliation. I have said in answer to the convener and Mr Tomkins that I assume that those figures are right for the purpose of having a plan to work our way through the reconciliations with the various tools at our disposal. It speaks to the inadequacy of the fiscal framework in dealing with the scale of reconciliation. If it is true to say that there will be a pattern of negative reconciliation, and if it is true to say that, as the Fiscal Commission has done by way of new information, that the absolute average of potential error could be around £500 million a year, then I think that it shows the inadequacy of the resource borrowing powers and the ability to draw down with all the other complications that we have and also the welfare powers as well. No matter what, I will balance the books. I will give a ffiscally prudent and responsible budget to Parliament that does so every year. We will absolutely target the areas of spending that would be right and progressive and tackle child poverty and sustainable economic growth, which I am sure will reassure Mr Kelly. Contrary to what Mr Kelly has said in the press this morning, those reconciliation numbers are down to forecast error by the forecasters, not Government economic policy. In terms of the new budget approach, which we are now following, the whole point of our medium-term financial strategy was not just to produce the numbers and note them, it was to assess the implications of that going forward. This document completely fails to do that. It is not for purpose, so it would not be better to produce a rewrite that would better inform members of the committee and politicians throughout the Scottish Parliament as to the issues that we face. We struggle to take lectures from the Labour Party who have not produced competent budgets since my time as finance secretary when my medium-term financial strategy does set out the principles that will deploy, does set out the financial scenarios that we are facing, does cover the issues of the determinants that determine the Scottish budget and the kind of approach that we would take to tackle the reconciliation. Further to the medium-term financial strategy, I am giving evidence to the committee this morning and how I intend to approach those issues, including that reconciliation. I think that there is a lot of detail in the medium-term financial strategy. Whether it is the Labour Party that cannot produce competent budgets, I am meant to follow the perspective of Prime Minister Boris Johnson, whose tax plans do not last five minutes. Never mind the enduring nature of our fiscal forecasts and budget approach. I believe that it has the necessary information. I am happy to take questions on it. That is why I am here this morning. Thank you, convener, and good morning, Cabinet Secretary. I just want to bring you back to a figure that you shared earlier on, and this is the fiscal headroom. Can you confirm that that is £26.6 billion? That is correct. This is effectively the UK Government's Brexit piggy bank to be smashed open in the event that we hurtle over the cliff in the no-deal Brexit. Essentially, that figure is that that is something that the chancellor could deploy to keep within his fiscal targets and put that into spending. He has chosen to hold it back. He said, first of all, that he was holding it back in the event of a deal, and he said that he may require it in terms of the Brexit catastrophe. In a few areas, I agree with the Treasury on, but there are warnings about a no-deal Brexit that is catastrophic for the UK and the Scottish economy. He may deploy it for that. What we have argued in the Scottish Government is that it would end austerity and deploy that resource now. That would mean real new investment into the economy. In fact, some would go so far and say that, if that was deployed, that would end austerity. That would end austerity if that fiscal headroom was deployed. Instead, it might be used as a bandage to Brexit, or who knows what any new Prime Minister might do. It might use it as some form of bribe to the electorate. Let's say some might want to use it for tax cuts for the richest in society, although Boris Johnson seems to be in reverse gear. However, we have proposed that it be deployed to end austerity and invest in our public services and the people of our country. Indeed. I have noticed that there has been some interest in the committee about a potential £1 billion reconciliation. Looking at what a population share for Scotland would be of that £26.6 billion, it works out about £2.1 billion. What kind of impact would that have? What can it on the Scottish budget? What material change could that make for public services and people in Scotland? Of course, it speaks to the point that I made earlier on, that to discount the block grant, because if that was barnatised as part of the block grant, it might be receiving that resource. It speaks to the very point that I was making earlier, that the limitations upon us are more than just the borrowing power, the drawdown, it is that block grant. Mr Arthur can count. You have obviously indicated that if our share was more than the income tax reconciliation that is required, then you would have that extra resource. That is the kind of impact it could have. We have had on-going austerity over the period from the UK Government, but if it started to deliver that fiscal headroom, then I think it could be positively transformational and undo some of the damage that the UK Government has done over the last number of years, not just for the devolved administrations but also for social security, where there has been particularly punitive and pernicious attacks on some of the most vulnerable in our society, which is why it is perverse to say if that fiscal headroom was to be released. It should not be released for higher-rate taxpayers but deliver better quality public services and it would make a substantial difference to the fiscal position in Scotland. As to the exact amount that Scotland would receive, that depends on how it is spent, of course, by departments that are then barnatised. Would it be fair to say that there have been sort of hypothetical black holes around potential future reconciliation? Is a real black hole in Scotland's budgets being caused by the UK Government austerity holding back this resource? My views on austerity are well recorded and I am consistently sparing with the Conservative members of the committee in that regard. Asterity has subdued the economy. That is why the UK has, among the lowest GDP growth rates in Europe, subdued the economy. It has impacted on services and it has impacted on society and it has made inequality worse as well. Of course, I would welcome if that fiscal headroom was released to positively invest in our country in Scotland. We would get a share of that. Of course, if we get a share of the Northern Ireland bung as well, that would suit Scotland to the tune of £3.3 billion. Do you see how those multi-billion pound figures are stacking up, the fiscal headroom and the contribution that Northern Ireland got? Scotland did not. Those are substantial figures, not tens of millions. Those are billions of pounds that Scotland has lost out on. That adds up to almost half the NHS budget. The final question is about the fiscal framework. One of the key drivers for differences in performance regarding higher earners in the Scottish economy and the UK economy is perhaps more generally the difference in population growth. Ultimately, we are going to be at the mercy of not just population growth but growth and working-age population. Is it fair that that can have such an impact on the money that is made available to Scotland via the fiscal framework when we do not have any powers over immigration to combat the Tory's hostile environment, which can put so many people off wanting to come and work in this country? In terms of the fiscal framework's report specifically, when asked about comparison to OBR UK forecasts, I am speaking from the report on page 43, we are forecasting a weaker economic outlook for Scotland compared to the OBR's forecast for UK. That is primarily because of slow growth in population and productivity in Scotland than the UK. Of course, we do not control population. We would like to. We would like to have more powers around migration because it is having an impact. When you look at the structure of the economy and the structure of the population, a shrinking working-age population and those paying those taxes, of course, there is a disproportionate effect in Scotland. It is materially significant to the Scottish Government's budget. It is impacting our tax revenues and therefore I think that it is a structural issue. Of course, for the fiscal framework, we said that we would revisit the fiscal framework after one full Parliament's worth of evidence and operation. If you look at the levels of reconciliation, some of the factors that are out with our control and some of that new information in terms of average forecast error, and also what might be a structural issue in terms of high-rate taxpayers in deepening inequality in the rest of the UK, deepening inequality, I think that that might be something that we might want to consider earlier, as well as the other concerns that I have raised around VAT and ADT, because it is all adding the complexity and the volatility to a situation that I think that all members are equally concerned about. You raised the fiscal framework yourself, the cabinet secretary. I know that Patrick was interested in that, but was your supplementary to that or was it a separate point? I have two questions, one in Brexit and one in child poverty. In that case, we will go to Patrick. Thank you. Good morning. First of all, just to follow on a little bit and then link it into the longer term issues about the fiscal framework. Notwithstanding the fact that we don't know what the UK Government is going to do, we do know that there is a real chance that the next couple of budgets are going to have to absorb a substantial impact from the result of reconciliation. I share some of the criticisms that have been made about the medium-term strategy, which sets out analysis of why we are where we are but doesn't really say what we're going to do about it. That seems as what a strategy ought to be, but there's also going to be a political strategy associated with that because you're still a minority Government in the run-up to those two potentially very challenging budgets. If you're in a position of trying to figure out how to do stuff that you wouldn't want to do and that none of us would want to do as a result of very challenging circumstances, how are you going to achieve—how are you going to set out a Government approach to achieving wider buy-in for how to respond to those challenges, not just from within the political spectrum but beyond? If this is just a matter of opposition politicians shouting, you failed your homework and you shouting, I'll take no lessons from you, we're not going to get anywhere. How are you going to achieve a wider buy-in to the potentially very challenging decisions that you may find yourself forced to propose to Parliament? I think that Patrick Harvie raises a very fair question. In fairness, it's not just for the finance secretary. I am one of 129 MSPs. I think that all MSPs will have to behave responsibly and carefully consider what our collective priorities are going forward. How do I propose to make headway? One of the areas that I've touched upon is the spending review. If we set out what our policy priorities are—I've mentioned two, child poverty and climate change as examples—we find where the collective priorities are in Parliament so that the parliamentary arithmetic will allow a budget to pass in very challenging circumstances. I don't think that it's fair to say that, as Patrick Harvie did, let's discount the block grant because it's the largest component of the Scottish budget and it will continue to be the largest component of the Scottish budget. I don't think that we can just discount that and then give a scenario planning on everything else. We have outlined a range of scenarios from an upper assumption, lower assumption, in terms of the overall financial envelope that we think will be working within, levels of probability around that. Fundamentally, all those other factors are materially significant to the budget that we'll set. I'll take an inclusive and engaging approach on the budget, as I've always tried to do. I think that if we can agree on priorities, then, even though it will be challenging reconciliations for the reason we've discussed this morning, they're not the only fiscal factors that determine the budget or the overall financial envelope. I do think that the Parliament has to mature as well in recognising—I agree with Patrick Harvie—that it's not just throwing about who's responsible for the fiscal commission forecast because they are responsible for forecast error. We as a Parliament are responsible for passing a budget and I'm responsible for the Government's finances in proposing that budget. I've delivered balanced budgets and intend to continue to do so. When we approach the budget, that will set out our spending priorities and that will set out how we propose to tackle the reconciliations in each year. However, I do think that it will draw attention for all of us to look at further fiscal discipline and making sure that we're getting value for money and that we're also using the borrowing powers and the drawdown in a responsible way. Just briefly, you did also mention the spending review. You are fully committed to that spending review taking place regardless of whether the UK Government does one. If it depends on how much information the UK Government gives us, if it gives us absolutely nothing, it will be very difficult to set out a comprehensive spending review for the Scottish Government that would be credible. It would be more illustrative than a credible spending review. Irrespective of the UK Government's decision about its spending review, the Scottish Government plans to hold a multi-year review of spending. The report goes on to say that it will be determined by the information that the UK Government makes available. What I intend to do in any event, because I think that the right thing to do is to focus on spending commitments, to focus on our priorities and to focus on things like cross-departmental expenditure, focus on outcomes and focus on wellbeing. I want to do all of that in any event, and we might be able to set out multi-year spending on capital. It's my intention to do a spending review, but I'm sure that all members understand that it's easier to do if the UK Government is conducting the equivalent spending review because it influences so many of our numbers. I move on to the longer term future of the fiscal framework. There's a review of that in the coming years. If I understand the process for that right, the work on a report to advise both Governments is probably going to have to begin or at least be framed in the next year, if that work is going to be delivered after the 2021 election. It seems to me that the fiscal framework that was arrived at between the two Governments and some of us expressed concerns about it at the time when it was being presented. It's given Scotland the position of having partial fiscal autonomy for double the uncertainty of having uncertainty coming not from one set of fiscal forecasts but from two, as you said earlier, by two different methodologies and by two different organisations. Any normal Government would have some uncertainty from its set of forecasts, but it would be able to manage that with greater fiscal autonomy. We seem to have half the autonomy for double the risk. Is that something that was got wrong with the fiscal framework? Is that something that needs to be addressed in the way that it's reviewed? I have a lot of sympathy with that analysis. Especially as the person responsible for making it work. As it happened yesterday, I had a meeting with the OECD, who are conducting the review of the functions of the fiscal commission. They'll produce that report, I'm sure, but that'll be made available. Frankly, I think that independence has to be easier than the fiscal framework in terms of how to run a country's finances. It also gives us more levers and powers to be able to deliver a more successful nation. Of course, that was the political agreement of its time. It is complex. There is volatility. There is uncertainty. I think that there are a lot of unforeseen consequences. I don't think that it was predicted that there would have been the Brexit outcome, which is impacting. In terms of some of the procedural and technical issues, again, new information. If you look at the resource borrowing power, it capped at £300 million with an overall borrowing limit. There are good reasons for having parameters in that capacity, but if the average potential forecast error is £500 million a year, it clearly shows how the current parameters of the fiscal framework are increasingly inadequate as new information and as delivery of the Smith agreement unfolds. If you then add into that uncertainty my concerns around VAT, the legal issues around air departure tax as well, it shows that we need a really engaged UK Government to be able to make the necessary corrections to that. We are trying to abide with the agreement around the fiscal framework review, how it is set out, the timescales for it, but it is clearly proving to be quite challenging. That has been some accommodation to be fair of treasure. Remember the baseline issue? It was a baseline issue around the starting position for income tax. That was a very technical issue, but there are key principles that have been challenged as the fiscal framework operates. I have a great deal of sympathy with what Mr Harvie is saying. It is something that I intend to raise further with the Treasury. We are dealing with a very volatile and uncertain level of risk. It is a fair guess that one of the losing Tory leadership contenders will end up as the next chancellor. Do any of them strike you as people who are up for this discussion in the constructive spirit? I love you to answer that, cabinet secretary, but I want to move on. He has made his point. More than fair enough. Obviously, how the Government takes forward its commitment to tackle child poverty is something that I will be following very closely as other members would expect. Cabinet secretary, while I will be among those folk who will complain very lightly about the limitations of devolution and the fiscal framework and all that, I am sure that it has been a bit of a doug's dinner. I do not know of any country in the world that has any arrangement that is remotely comparable, but the bottom line is that, as a Parliament, we signed up to end child poverty. We introduced statutory targets with very challenging interim targets. I know that, by 2023-24, total public spending will be £183 billion less than it would have been if it remained on a par with 2010-11. The scale of the challenge and where we start from is a challenge that we all share. What I would be interested to know is how we will have a discussion about our priorities, what we can do, what we cannot do, and how we use the powers that we have to maximum effect. How we have a grown-up discussion about what levers we could use better and what additional levers we need so that, as a minimum, we have a more coherent package of powers that will make our life a little bit easier in tackling child poverty. It is a good question, convener. I just want to make sure that I heard correctly the figure in terms of austerity from the UK Government when you make that comparison, as we traditionally do, between investment levels at 2010-11 and to 2023-24, which period of the forecast would be £18.3 billion less than if spending had remained at that 2010-11 level. That is the austerity figure of the reductions. In terms of on-going austerity, it is not just the resources that the Scottish Government has available at our resources. We should bear in mind the wider impact on people in Scotland, because that is materially significant. The benefits freeze, the two-child cap, has an impact as well and the cash freeze and working-age benefits is continuing. Those are UK policies that are absolutely impacting on child poverty and poverty generally. On what we can do about it, I have covered in the MTFS the financial disputes that I have with the UK Government that could address extra resources in that regard. I think that really focusing on the national performance framework, which is about outcomes, not just the inputs, and aligning and calibrating all our efforts around that sense of well-being and the outcomes that we are trying to achieve as a country. Of course, people will then say, well what you spend in those areas is important and judge people by their spending commitments. The spending review itself will also set out the areas where we want to focus on outcomes, and that will include very expressively and explicitly child poverty as one of the focuses. As I engage with Cabinet colleagues on the spending review, I will be asking the Commission what we contribute towards sustainable economic growth, of course, but also child poverty specifically. When we look at the social security powers that we have as well, as we can see over the forecast period, it reaches its peak at £3.5 billion with further volatility as well. However, if we say that we will have a system based on dignity and respect and in some regards, in many regards, we will have more generous payments and equivalent payments for the rest of the UK Government, then we will absolutely be investing in that. Specifically, in relation to child poverty targets, the community secretary will be making a statement at Parliament, but it is certainly a report that looks at the targets around child poverty, the assessment of and what we are going to do further to address that. Of course, we will look at the affordability and the deliverability of social security policies as well. We will look at all policies in the round to address child poverty and recognise that some are financial, some are non-financial, but it will be foremost in our mind as we look at future budgets and the overall spending review if that is of assistance. I am glad that the finance secretary corrected my figures. Moving on to Brexit on a similar theme in terms of powers and options and limitations, we know that the Fiscal Commission has based their work on an orderly Brexit, whatever that is. They also said in evidence last week that the probability of an orderly exit has reduced, but the probability of a no-deal Brexit has increased. From your perspective, what happens and what is the impact on your work if we crash out without a deal? What are you doing? What can you do? What could you do? What thought have you given to where your priorities are? Would increasing borrowing powers help? I know that there has been some discussion and thought from the SFT around other models of finance in terms of the mutual investment model that the Welsh do. You must have in your head some of the priorities over where increasing powers would help. Brexit is certainly a deep concern for us all. Any form of Brexit damages the economy. It leads to lower economic growth, lower GDP, lower earnings and higher unemployment. It will lead to all those things. The SFC report describes it as an orderly Brexit, i.e. some form of deal and transition arrangements, which is why the forecast of social duties is true to say that if there was no Brexit at all, the financial forecast would have been far more positive and in turn that would have been good for our revenues, our economic health and our outcomes. If we have an ideal Brexit, not that the Prime Minister tried and failed, now she has lost her job because she could not get that orderly Brexit through the Westminster Parliament, so it seems little prospect that that orderly Brexit will be delivered. It is politically pertinent to say that unless there is a change of leadership with a change of heart in many of them but it does not look as if any Tory contender will deliver where Theresa May has failed, but who knows? If there is some form of alternative deal, then we would need to analyse that. If there is a prospect of a no-deal Brexit, that is economically catastrophic. That is unemployment soaring from its record low at the moment at 3.3 per cent, record low unemployment to up to 100,000 people made unemployed, business failure, lower exports, GDP, collapsing and the economy going into recession. That would have a significant impact. That is the economic analysis of a no-deal Brexit. All of that has been factored into the Scottish Government's resilience thinking. What am I doing about it specifically? Will as well is preparing as best we can. For finance and the economy, we have contingency plans for the public sector. We have been working across the public and private sector to produce those contingency plans. We have made resources available. We are looking at an economic response in the event of a no-deal Brexit because it is so economically catastrophic working with the banks as well. Access to finance would be an issue and we are looking at business support specifically to try and mitigate the impacts. In truth, no Scottish Government, no Scottish Parliament can totally mitigate the impact of a no-deal Brexit, which feels more likely according to the SFC. I know that I am testing your patience with time here, but those are serious questions that members are asking. Finally, if there was to be a change in fiscal policy by the UK Government either, they can unlock the fiscal headroom, the £26.6 billion to invest in public services or they can use it to put out the fire that will be set if we have a no-deal Brexit. Up to you, UK Government, how do you use those resources? We will have to reset the Scottish budget in that regard. Thank you very much, convener. Just coming back to the Fraser Allander report, which summarises its title of where is the strategy. Specifically, it said, what is striking was the lack of analytical assessment about the economic outlook, the key risks and opportunities that we know that are coming from demographic change, automation and climate change and how that might impact upon the public finances. Does the cabinet secretary think that this is an accurate assessment on his lack of assessment? No, I have said that I understand the Fraser of Allander institute's frustration in not presenting either a full-scale spending review or a mini-budget, but that was not intended to be a full-scale spending review or a mini-budget. It sets the financial parameters, it sets out the forecast, it sets out the projections. There will be a further round of forecasts that will determine the next big fiscal event. That is the Scottish budget. There will be a UK budget. Before that, there might even be two, if there is an emergency budget, but in uncertain times. I have not set out illustrative scenario planning that would be just speculating on a range of possibilities. I have set out the conditions, I have set out the principles that I propose to deploy, the figures within which I am working and I would absolutely defend the document that I have produced and the evidence that I am giving today to show that we are absolutely focused on the financial challenge that we face. That may be, but there is still a lack of assessment around some of the numbers around population and demographics, which I touched on with the fiscal commission last week. The question that I put to them was that population is obviously a combination of birth rates, mortality rates, people leaving and inward migration, but net UK-inward migration numbers remain steady. Does the cabinet secretary think that, even if we stayed in the EU single market, that would completely close the growth gap between the UK and Scotland? Mr Burnett, you are asking very good questions, but part of the challenge here is that we do not control migration. We do not have a policy that can determine how many people can come to Scotland. Working age population, the composition of the tax base is important. The composition of numbers of people who are in that working age population shrinking is the biggest issue for Scotland's economy in terms of tax take. We can do so much about economic performance and attracting people to Scotland, but we do not control migration. The projections are that the population in Scotland can only grow through positive inward migration. Who is it that wants a hostile environment to migration to Scotland and the rest of the United Kingdom? It is the UK Government that wants a hostile environment so that migrants do not come to Scotland and to the UK to contribute financially. The cause of the problem here is not the Scottish Government, it is the UK Government's migration policies. Hostile is quite mean-spirited policies that deter people from coming to the UK. We will only have economic growth if we have a growing population and a growing working age population. We need to do it through migration. I am sure that Mr Burnett is well aware that the biological route will take more than a year or two for working age population profile. I thank him for saying that I ask good questions, but the fundamental point of disagreement is that migration is not the whole solution here. Even if we were remaining part of the EU single market, that would not be the full solution. Although migration might be part of the solution that the cabinet secretary is proposing, the real issue here is that we are not creating the right skills base in Scotland. We are not training our young people as we should be. If we rely purely on migration and have more population here, we are not going to be improving our productivity figures. This was born out with the evidence that was taken from the Scottish Fiscal Commission last week. It is not that. Characterisation bears no relation to the evidence that I have read in the Fiscal Commission's report. I read a quote from the Fiscal Commission's report that spoke about population being the main driver in terms of the GDP forecast. Actually, per head of population, we are reaching convergence with the rest of the United Kingdom. On a per head basis, Scotland does well on GDP growth. In some quarters, we have been outperforming the rest of the United Kingdom. On unemployment, we are outperforming the rest of the United Kingdom. On exports, we are outperforming the rest of the United Kingdom. On foreign direct investment, we are second only to London and the south-east of England. On migration and area, we do not control is the UK Government that is discouraging people to come and work in the UK and by association in Scotland. There is that magnetic appeal to migration going to London and the south-east of England. We have to work harder in Scotland. That is why we wanted a migration approach that was suited to Scotland's economic needs. Who has refused that, the UK Government? In terms of productivity, we have had more progress over productivity over the course of devolution, faster than the rest of the United Kingdom. On wage earnings, we are also picking up growth. To dismiss migration, to dismiss population, it totally dismisses the evidence from the independent forecasters that Mr Burnett has asked me to look to to be informed. On skills base, I point to the economic action plan and the skills plan that we have. We have brought down youth unemployment, we are enhancing the skills agenda, we are doing more around productivity through the national manufacturing institute and we are investing in education so that we have more graduate apprenticeships and more young people are going into positive destinations. I am afraid that characterisation is just a total distortion of the facts, even though the fundamental question is right, which is to look at population as a factor in Scotland's economy. Professor Smith said last week that he spoke about the worry about the skills of native Scots. Does the cabinet secretary share that? No, he did not say that. Will you want to read the quote properly and I will read what I have got from the official report? Obviously, that is not to say that we do not need to worry about the skills of native Scots, of course we do. Does the cabinet secretary share Professor Smith's concern over the skills? What he said is that we need to focus on the skills of Scots. I accept that point, that is why we are investing in the list of measures that I have just listed, but the SFC report, because it relates to the overall economic drivers and it relates to the financial forecast and it relates to GDP, is down to population. That is the difference in the forecast. Simple as that, it is the difference in population and productivity. We are investing in productivity and population we do not control. Are we investing in the education system, in the skills system, in the apprenticeship system? Are we delivering jobs? That is the crucial issue. We can educate people, but are we delivering jobs? Are we creating the jobs? Record low unemployment at 3.3 per cent looks as if we are. By some definitions, that is full employment and we have record high employment right now. The only divergence is coming because the number of higher rate taxpayers in the rest of the United Kingdom, the inequality is deepening because the wage increase is higher for those taxpayers than for others. That is a point of divergence that speaks to an issue around inequality. I think that that is something worthy of consideration. Good morning, cabinet secretary. I am interested in issues around the complexity and potential conflict resolution. In one of the papers that we have, it says that the fiscal framework sets out provisions for a memorandum of understanding between the multiplicity of agencies, OBR, SFC, DWP, HMRC, etc., to support effective operation of the framework. For me, that would appear to be what contributes to the complexity of the fiscal framework. We know that it causes different figures to be projected based on forecasts and estimates. The complexity, I am sure, probably causes conflicts. If it does, how do you resolve them? What could be done to make the framework less complex? Everybody says that it is the first thing out of their mouth, but it is complex. It certainly is complex. At the meeting that I had with OECD yesterday, they will produce their own reports. I do not want to put words into their mouth. You can scrutinise their report once it is published. It is fair to say—and it goes back to the point that Angela Constance or Patrick Harvie was making—that it is about as complex as it gets by way of a system of devolved finance and OECD. I do not think that I have seen anything that is quite as complex as that. However, there we have it. It is a political agreement and there are technical agreements. I think that good relationships are important. When it has come to HMRC, you have taken evidence that we have engaged with HMRC through a service-level agreement. In the technical areas, we try to get as much pragmatic resolution as possible. However, that is a political agreement on what powers would be coming to the Scottish Parliament and the technical issues between officials on how it operates between Treasury and the Scottish Government. We are doing our best to make this political deal work. I think that I have said throughout the course of the morning that, as we look at those figures and the concerns that members would rightly have around the scale of reconciliation and the prospect of that continuing over a cycle of a few years, I increasingly fail when you look at all the issues together that the current parameters are inadequate and that the current agreement needs revisited. The timescale that is set out for that is the end of the Parliament by agreement with the UK and the Scottish Government with the details yet to be arranged, which would go through the Joint Exchequer Committee in any event anyway. However, I do think that we will need an earlier review. I think that the Treasury will need to engage with it earlier because of the complexity that it is imagining, only because of how we are finding it develop and how we are dealing with it issue by issue. Clearly, that complexity is given us much food for thought. The Joint Exchequer Committee governs the implementation and the operation and review of the fiscal framework. Does that process need to be engaged with on a more regular basis or to support a further review? The last meeting with the Chief Secretary of the Treasury, Liz Truss, I do not know who, but the Chief Secretary of the Treasury, once there is a new Prime Minister, potential new chancellor and new ministers, I do not know. However, the discussion that I have had with the current Chief Secretary of the Treasury is that she was looking at reviewing the Joint Exchequer Committee as part of the whole intergovernmental relations. There was a prospector of a review of the Joint Exchequer Committee, but that was a commitment from the current Chief Secretary of the Treasury last time I met her and next time I met her, then we will raise it further. Thank you, convener. Just a couple of questions, cabinet secretary. The document that you published two weeks ago, the Scotland's Fiscal Outlook, that we are discussing this morning, the Scottish Government's medium-term financial strategy, in your forward to this, the fourth paragraph, the final sentence, you say this, in Scotland we have used the limited powers at our disposal to protect key services despite the £2 billion real-term reduction to our block grant since 2010. Is the latter part of that sentence true? Yes. It's not true, is it? It is true. According to Spice and the Fraser of Alander, it's not true. There's not been a £2 billion real terms cut in our block grant since 2010. Our block grant has increased in real terms since 2010. If you will know, why are you publishing a document with an untruth in it? It is true, and this is the periodical debate that Murdo Fraser and I have around if the levels of investment have been sustained at 2010-11 levels, then we wouldn't have lost out on the resources that we have lost out on. It's true to say that over the period of austerity the UK Government has failed Scotland, failed the whole of the UK through that on-going austerity. That statement is untrue. You have made the point in the past—I might disagree with your figures—that it is your limited resource budget that has been reduced. You are saying that the block grant has been reduced. The overall block grant is up. Spice will confirm that and Fraser of Alander will confirm that. Will you take what is documented away and correct it because you are a misleading Parliament? That is untrue. On the contrary, I am happy to give Murdo Fraser more information on how the resource fiscal deal has been reduced in real terms. The respect that it does not refer to resource fiscal deal refers to the block grant. If you had said that the fiscal resource deal had been reduced, you might have a point. You are not making that point. You are saying that the block grant has been reduced. The statement in the document is untrue. Can I ask—I think that this is the first admission—other just since we are on this very important subject that Murdo Fraser has just admitted that the total fiscal resource deal has indeed been reduced? No, if you have checked the official report, you will see that I have followed my comment. I think that you have just conceded that point, Mr Fraser, which is the point that I am making. Now, it should be one person speaking at a time please, one person asking a question, the other answering the question, so we can get back to that format, otherwise I am going to move to Willie Coffey and we are going to end this particular bit of the session. Okay, thank you. I think that I have made my point, convener. There is an untrue statement in this document to Parliament and I think that you need to be more careful. Let me move on because I have a follow-up question to the question that is asked by Tom Arthur on the whole issue of the Scottish budget. What is, under the Barnett formula, the total value of the annual fiscal transfer to Scotland from the rest of the United Kingdom? I am happy if you want to go into those details to turn to officials. I have been taking questions all morning, but if you want to go into specific details, then I will ask officials to cover that. I do not have that specific number to hand, I am afraid, but I am very happy to supply that. Okay. I think that if you check that the annual GRS figure is published by the Scottish Government, that figure is from memory in excess of £10 billion a year, as the fiscal transfer to the Scottish budget from the rest of the United Kingdom. Perhaps the cabinet secretary will recognise that figure. Does the member want to get to the question? I was simply wondering if you knew what your GRS figure said. If we are debating GRS, I am more than happy to do that, but it is something of a sideways step from the medium-term financial strategy. GRS represents the notional estimates of what is raised and what is spent in Scotland. It is true to say that, just as it is the same as the rest of the UK, there has been a notional deficit. Through the growth commission that I was a member of, Mr Fraser is well aware of it, we show how we can address that notional deficit, how we can make different policy choices, how we can grow our economy to reduce that notional deficit, and in the most recent publication of GRS, that notional deficit was down. There are many years that Scotland would have been a better financial position relative to the rest of the United Kingdom, and there years that will not be the case. If we were an independent country, we would not be dealing with the Brexit madness, we would not have had austerity, and we would not have had a severe economic performance. We would be performing, like most small advanced economies around the globe, and that would be growing our economy. That is the conclusion that I take from GRS. It is a current constitutional position that is given us that estimated notional fiscal deficit. I have just one more question, convener, if I have. You said earlier in the session, just as you mentioned Brexit, that you regretted the failure of the Prime Minister to get her orderly Brexit deal through the House of Commons. Do you now regret that SNP members in the House of Commons voted down that orderly Brexit deal? No, I am happy to correct the record if that is what I said. I regret the failure of the Prime Minister, full stop. The Prime Minister has been a failure and she is falling in her own sword. She could not even do that right. In terms of delivering Brexit, it would be better if she delivered the result of Scotland, which of course was to remain within the European Union. The point that I was making is that, looking at all the economic analysis, no deal Brexit is economically catastrophic. If there had been a deal with analysing the economic impact, that would be growth for gone. There is an impact on Scotland's economy. The best economic social outcome for Scotland and for the rest of the United Kingdom is to remain within the European Union. I think that it is just true to say that no replacement Prime Minister looks as if they are going to do any better for the United Kingdom or Scotland and that no new chancellor is going to give us coherent tax policies going from Boris Johnson. Derek, that might be helpful in leading us into our next roundtable discussion, but there is a section in the report that talks about EU funding and programmes. It says there that there are worth about £5 billion to Scotland over the period the 2014-20 period. It is page 16 of the strategy document. Just to ask you, could you set some context, hopefully, for our discussion that is coming up? Where are we with those programmes? We are with substantial amount of money to Scotland. We have had three years to plan for whether those programmes will continue in the way that they are or whatever. What are the current arrangements, as you understand it, with the UK Government about the continuation of the EU programmes? Well, it is true to say that the figure that Mr Coffey gives is right that EU funding is worth over £5 billion to Scotland in this current EU budget round. Of course, that supports jobs and infrastructure, sustains rural communities and provides valuable support to farming and fishing industries, and it delivers research for universities. That is the kind of areas that have benefited from that £5 billion, and we have no certainty over the medium and longer term about what the replacement funding would be from the UK Government. The position of the Scottish Government has been that there should be no financial detriment to Scotland's economy or public finances, as a consequence of the exit of the European Union. However, we have no guarantees from the UK Government and no detail in some of the specific funding streams, and I am sure that all of that will be revisited by the takeover that is happening in the Tory party right now. There have been three years, convener, to try to even set some terms of reference for this looking ahead. For the past three years, the UK Government has been frightening that ferrets in a sack among themselves. There has been no work done on this whatsoever. That is really crucial for the future of Scotland and all of these programmes. Well, the Scottish Government has been trying to do work on it, but it is hard to deliver successor schemes when we do not know what will succeed the existing schemes from the European Union. There are some commitments from some parts of funding, but not specifically what Scotland would receive, which then determines how we could deploy those resources. Our principle has been no detriment. I am not sure that that would be delivered. The current persuasion of those vying for the Tory membership does not seem to be too mindful of Scotland's economic needs. I am not sure that that will be foremost in the Tory Prime Minister's mind in terms of making sure that Scotland gets a fair deal or other devolved administrations get a fair deal, recognising that Scotland did not vote for this mess but will be paying for the financial consequences of it. However, I am sure that there has been work at the UK Government but no decisions in terms of the medium and long term continue to the funding and no detail as to what funding we will receive post exit. I thank our witnesses. I now suspend this meeting for probably around about five minutes before we move to the next item on EU structural funds. The second item on our agenda this morning is to take evidence in a round table format on the funding of EU structural fund priorities in Scotland post Brexit. I welcome our witnesses to the meeting. Before we start the discussion, I want one member from each of our recent structural funds workshop visits to provide a very brief summary about how you felt the sessions went, that we had a session in in Burnett, so Alexander Burnett would just like to give us a quick reflection. As you know yourself, Patrick and I went to Inverness to start by thanking the clerks and the parliamentary outreach team and SPICE for all their assistance in doing that. Particularly all those who attended, I thought it was a very valuable session. We were pleasantly surprised in terms of the volume and depth of information that we received. Probably the first point is that it was to learn that, with or without Brexit, a major overhaul of the funds was due anyway, and so this is a valuable piece of work being done by the committee regardless of other events. In summary of some of the information that we took, there were a lot of negatives over the administration and bureaucracy, much of which we seem to have created ourselves in Scotland, as a lot of this was not replicated elsewhere in other EU countries. There were a lot of positive suggestions over how future programmes and objectives could be improved on, particularly with more inputs from those closer to the delivery aspect of the funds. Finally, most importantly, setting those negative points aside and those suggested improvements, nothing should detract from a huge positive benefit that those types of funds have brought. Thank you Alexander. Adam, you are going to cover how you felt about Paisley and how it worked out. Thank you, convener. Four members went to the Paisley round table, myself, Tom Arthur, Emma Harper and Neil Bibby. As with Alexander's experience of the event in Vanessa, it was really excellent. The range of questions that we were able to explore and the time available gave the committee exactly what it needed to know, particularly looking at people as they were on the ground level who have direct experience, in some cases 35 years of direct experience of applying for and processing structural funds related projects. We talked at length about what structural funds are for, the strengths and limitations of the current sets of schemes, about how they are administered and processed, and about what should replace them, whether the United Kingdom leaves the European Union or not. I think that there was quite a lot of concern around the requirement for match funding, which was a significant break on otherwise valuable projects that could not be applied for because of the requirement for match funding. There was a lot of concern—a very great deal of concern—about the bureaucracy for both applying for and then, once you have the fund claiming it, there are current problems of the way in which that is working or not working in Scotland, which seem to be unique to IT problems that the Scottish Government is responsible for. We will certainly need to look at convenience during the course of this inquiry. There are concerns also about the extent to which structural funds replicate funding that is available in other areas. It seems that one of the problems here is that there are very fashionable issues. There are good reasons why they are fashionable. Skills training for 16 to 19-year-olds would be a good example. Social care for the elderly would be another. There are areas that fall through the gaps, so the range of issues that was covered was featured in our discussions. However, in terms of the way in which the outreach worked, the length of the meeting, the structure of the meeting, and the brief that we had as members from the clerks, the number of people in the room and the range and expertise of the people in the room were excellent. There were three criticisms of the event. The room was too hot, the coffee was too weak and the biscuits were too few. Those are pretty severe criticisms. Thank you, Adam. James Kelly, you are going to cover what happened in Infermin. Sure. Thank you, convener. Murdo Fraser and myself attended the workshop in Infermin, unlike the other workshops that were well run by the clerks and the Parliament outreach staff, and therefore Murdo and I found it very informative. Three kind of themes coming across from the workshop, first of all, in terms of the current funding arrangements, people were positive about the European structural funds and the impact that that had. They felt that it was consistent in terms of policy outcomes from an EU-UK and Scottish Government perspective in terms of helping businesses to create jobs, raising awareness around climate change targets and helping to contribute towards that and also in some communities helping with social inclusion. In terms of the actual process, from a positive point of view, people felt that the aspect of multi-year funding was a good one and they felt that their leader programme worked well in terms of getting funding quickly to those that had applied for grants. However, there was a good deal of frustration around the process and it was felt that it was overly complex. The audit requirements took quite a lot of time and there was an element of duplication in that a lot of groups already had their own audit requirements that they had to satisfy for public money, so there was an element of duplication there. There was quite a big issue around filling out and auditing timesheets in order to be able to claim for staff resources and that resulted in staff allocating all their time to the project that they were working on. A bit like the other workshops, there was criticism around the IT and it was felt as well that the communication within projects and also about projects was poor. Taking all that together, the lessons that I learned in terms of moving forward is that people are keen to see multi-year funding continue. They want to see that allocated at a Scottish level. There has got to be a much simpler process in place in terms of managing the allocation of money and the administration of that. There's also got to be better communication within projects and also making people aware, particularly in rural and other communities of the potential to apply for structured fund money because it wasn't reaching all the places that it could. A very good workshop and some important lessons are coming out from it, Bruce. Okay. Thank you for the members giving us a flavour and some of that feedback. I hope that those who are involved in the roundtable today understand just how deeply we're going into this subject now. Seriously, we're treating it. We now move into that roundtable discussion. This roundtable format is intended to be a free-flowing discussion as much as we can. Those who have been involved before in those discussions will know what I mean. If you want to contribute, just catch the I am myself or Jane or Clark here and we'll make sure that you get into your piece at any particular time. The discussion is going to be based around three themes, allocation of funding, process and administration and outcomes. Just to kick off each session, I'm going to ask one of the MSPs just to introduce it and we can then get into that free-flowing discussion and that exchange of views will be very valuable to the committee. Tom Arthur, you're going to kick off the process. Thank you very much, convener, and good morning and welcome to all our guests. The first area that the committee is interested in exploring is, convener, highlighted is the allocation of funding. With a proposed UK-shared prosperity fund, there is a potential for a tabular asset and to begin again and do something completely new or to mirror existing arrangements should we move to a system of essential administrative fund run by the UK Government. Should we try to replicate what we have at the moment or should we look for new opportunities to be more bespoke, to meet local needs and demands? The committee is keen to hear the views and how funding should be allocated, who should administer it and, importantly, what the criteria should be and what the decision-making process should be. I would like to open it up to guests to contribute. We are keen to hear your views. Okay, Dougal, do you think that there's a man who's ready to give us some thoughts? Okay, I mean, I think that in terms of the administration of funds at the starting point should be the government white paper that says that one of the reasons we're going to repatriate funds is so that we can increase subsidiarity and devolve funding to the devolved nations. It's obvious from that that the funding should be administered at least at the devolved nation level. I think that we've taken a silo approach up to now in Scotland. If you look at a country like Wales or even Latvia, they've looked at all of the European funds together to see how they can work in some sort of harmony to achieve various objectives. We haven't taken that approach in Scotland. It's a bit like the black arts, which is, I think, one of the reasons there's a communication problem. There's a lot of funding available, but if you're a community group or an education group that's got a really good idea, if you don't happen to know about the funding stream that's available to help you to do that, then you might never get that sort of funding, because the way it's handled in Scotland is that if you happen to know stuff about it, you tend not to have a medium to share it. We even found that sitting in the room before we came in here that all of us knew different things about different areas of the funding. I think that that's something that's got to be really important for the future. There's coherence across all of the funds. I don't think that you as a committee should just look at ESIF. You should be looking at the whole range of funding in Europe that's going to be repatriated and what the Scottish share would be and how all of that can be harnessed. I know that your own organisation submitted quite a useful paper. Do you want to reflect on some of that? I would echo quite a lot of what you just said a minute ago. We want to see a more collaborative approach. It's really quite difficult for the third sector to be able to align at a local level when they don't necessarily know all the funds that are available and what's happening at that level. We want to keep the principles of devolution of the fund, but the funding should represent the streams from across the different programmes, not just the structural funds. There should be a sense of the Scottish Government holding accountability, but regional partnerships and regional organisations working together and local community-based organisations having much more access to the funds. At the moment, it's very difficult for community-based organisations and third sector organisations to engage effectively in the processes. Feel free, as I'm the day I went to Susan. I'll pick up on some of the points that Kate had made. For us, there's something interesting about how we get the balance right. Most of the evidence that I've seen is certainly our own position. There seems to be a sense that it would be far more practical and sensible for the Scottish Government to manage the funding. Certainly, from our point of view, in terms of economic development, that would align better with current functions. Then there's also quite a lot of interest in greater community decision making around European funding. The issue for us is how do you get that balance right? On the one hand, if you think about how some of the leader funding, which is obviously not structural funding but the leader funding, is a really important source of economic development support for businesses and rural communities in particular, there's quite a different approach there in terms of the leader action groups and how they develop their strategies compared to elements of structural funding. That's seen as a positive, but on the other hand, if there's too much local decision making, what we have tended to notice happens is that there can be a tendency to duplicate. Everybody wants to come up with their own scheme when there may already be a national programme or service. For us, we think that the balance has to be somewhere between an element of national control by Scottish Government to provide oversight, a strategic framework, but we appreciate that there is a demand for more local input to how funds are spent. Ross? I think that I echo that. There's an opportunity to reset the way in which funds are managed in light of all the experience and frustration and benefit. I think that its form needs to follow functions. We would agree that it makes sense for the Scottish Government to oversee this and for the funds to come on to outcomes but for the funds to be targeted at the outcomes decided at a Scottish level. However, the way in which those funds are then managed should be designed around the benefit that's being sought. That no one-size approach is going to deliver that, so it will be a range of things from a local, a regional and a national approach. It would make sense not to rule out any of those at this stage but to see which would be the best way, in light of the experience that we had, to deliver the benefits that we're seeking. Ross, you'll see quite a range of things that happen from your own organisation. Do you make the point about creating more synergy effectively between the funds that currently exist? Is that the experience of SNH? I think very much so that both our approach in managing this fund and the experience of applicants to our strategic interventions within the regional development fund, the challenge in accessing and identifying other potential sources of funding. It seems as though most applicants are having to conduct that exercise independently and reaching different answers and often being unaware of funds that other similar groups elsewhere in the country are managing to access. I very much recognise the complexity of what we've got that currently isn't helpful. It's not just the European funds, it's alignment to funds such as the growth deal money or the funds that are going to be managed under the national infrastructure commission and the Scottish futures fund. They all have a related function, but at the moment it appears to be more fragmented than it needs to be, and it's fragmented in a way that's unhelpful in delivering the benefits. For us—I'm from the Equality and Human Rights Commission—the main concern is around ensuring that there is no regression in terms of equality in human rights and the funding that this receives. We've recently published a report looking at this, and as part of that research, we interviewed various stakeholders across Great Britain. Again, some of the things that came from those stakeholders were things that have already been mentioned, so the importance of long-term funding, but also the importance of having the funding and the decisions devolved to an appropriate local level. We do think there is a space or the importance of a UK-wide strategy with very broad priorities, but that you also have local priorities, so that might be Scottish priorities, but also more priorities that are based on the local communities that the funding goes to and that really targets the needs of marginalised groups, but also people with and who share protected characteristics. I'm sure that you want to give your confusion. I mean, this will build on what Nora has said. I think for us the starting point for this is it's about people and communities. This is a really important resource, a stable resource, over a period of seven years, where we can have, as James quite rightly pointed out, something that's slightly more independent from the immediate policy requirements of any level of government. It's a really important resource for people that are supported by the third sector and others. It's really important that we keep that resource, we replace it, we make sure that there is an allocation that comes through to replace that specifically and directly. I think that the key point that I would like to make is that there isn't actually a Brexit dividend, as far as I could tell. The Institute of Fiscal Studies and others have all outlined that there isn't going to be money coming back because Brexit itself is going to be a net cost. As a result of that, what that means in terms of allocation is that it's going to be a top slice from existing resources at a UK level, including the Scottish Block Grant. If that is the case, then any money that is coming through, that is pooled at a UK level, will be at the expense of other resources. On a default level, if there is no UK-based replacement such as a shared prosperity fund, then if the UK Government decides to spend it on a devolved priority such as health, then it would get barneted across to the Scottish Block Grant. If it decides to keep a central fund, then we would push for a shared allocation of that. We would be very keen for a fair share of that to come through to Scotland as well. The key point for me for us is that any resources that are replacing the function of the European funds needs to be fully accountable to the Scottish Parliament. That is the starting point for us. The reason for that is coherence, policy coherence and alignment with all the existing policy areas that closely relate to the kind of function that we are currently seeing with the leader and ESF and others in Scotland right now. From that, can I just ask others what their views are on the size of the pot that it should be and on the timescale that that? Currently, it is seven years, taking on point in the long-term funding, and I want to make sure that others have the chance to contribute about what they feel about the scale of what will be available and on what term those programmes should be enabled to be spent. Do you have any thoughts on that? I think that the scale of funding, obviously, we should be seeking the funding that is required for the challenge and the benefits that we are trying to seek. We would all argue for more funds to deliver more benefits. I do not think that there is much that we can offer to the debate that is going to happen at the national and UK level. On the longevity of the funding, I think that it is critical to delivering benefits, the experience that from the current scheme is critical that we seek to provide security to applicants and the longevity of funding in order to deliver benefits. There is a real risk in moving to a more annualised approach to the efficiency of the process and the confidence that applicants have in applying and their ability to deliver the benefits. Maintaining the longevity of the commitment of funding would be critical to delivering the benefits. In terms of the scale of the funding, it is one of the reasons that I made the plea that we should not just focus on the structural funds. If the UK Government is going to repatriate all of the money that it contributes to all of the European programmes, any of the devolved nations that it should be doing is pushing for a proportionate share that is not less than the population share of that amount, which is why, in my own paper, I have listed all those other programmes that we need to look at and make sure that we get our share. There is no point in going lately. My concern is that the poor performance and structural funds could undermine that argument because it would be easy enough to say, when you have been getting this much money, you are going to give about a fifth of it back because of the way that you have been managing it, so do you need it anyway? I think that we need to be very careful about that. I agree with you, but in terms of longevity, to keep analysing it is not a way to do it. I think that maybe something like five, seven years, where you can set longer-term objectives and give projects some sort of security that they are going to get to the end of the things that they have planned. It would be good. I think that longevity is important, but so is responsiveness and flexibility and agility when conditions change. I think that we need a programme that does not lock us into a situation. For example, unemployment is low just now, but in a post-Brexit world we do not know what that is going to be and we do not know what the impact is. We have to make sure that the programmes are flexible and respond to what are the changing conditions. Not particularly helpful, but that is another question for us where there is a difficult balance to be struck. I take the point about the importance of longevity, because from a customer point of view, the end-users of the service, we know that it takes a really long time to build up awareness among a small business community about a scheme that might be available. Often, it might end just as people are starting to understand that that scheme is available, so we understand that point about longevity. Similarly, we have made a criticism about how we offer business support, whether it is European-funded or core funding. Historically, we have been terrible at being agile enough to respond to economic situations. I remember after the recessions and some of the discussions that happened around how to repurpose European funding. It was a long and painful process to turn around a product that would be available to businesses to support the rapid change in economic circumstances. We need to be able to have a framework that enables us to make a change to respond to what businesses need more quickly. I think that it would be fair to say that there is a broad degree of consensus among contributors that those funds should be administered from Scotland. Are there any particular views on how those repatriated funds should be devolved from the UK Government to the respective nations? What formulas should be used—population share, Barnett and needs-based formula? Are there any particular views on how the UK Government itself should administer that pot of money to the devolved nations? I think that the current way in which the European Union allocates it has got a mix of approaches in it. It has taken into account things such as GDP as well as needs. The fairest approach that we have outlined would be a population-based at the core. There might be some adjustments on top of that, as has been suggested by others. However, a population-based at the core would be helpful because that could apply equally to a centralised pot—a Treasury fund, which is a UK-shared prosperity fund. 8.4 per cent of that would be a population-based share for Scotland. It would also, by default, equally apply if there is no centralised pot. It is all defaulted to using the existing system, which would be a Barnett formula, assuming that it is not redirected at tax cuts or anything like that. That population-based should be at the core of any allocation formula. However, once it comes to Scotland—I think that the key thing here—and that goes with the allocation is that the Scottish Government is administering the funds as a managing authority as they are right now. The accountability should run directly to the Scottish Parliament and solely to the Scottish Parliament for how those funds are used. At the moment, it can be a little bit loose. There can be accountability that takes place to the European Commission, to the UK Government and to the... That situation is not very good for transparency. It is not very good for participation and openness in how the resource is delivered. Having the Scottish Parliament having the key role of being the accountable body will bring a lot more trust into the way that it is allocated. Do you think that I know that Murdo wants to make a point as well? I would just endorse your comments about the Parliament being ultimately responsible. I think that the decision to take the management of structural funds in-house into government was a poor decision. I have been pretty trenchant in my criticism of the way that the programmes run in my paper. It has really got to come to the Parliament. The way that it is going now is that there is almost like a siege mentality in the department that is running it. There is no partnership anymore. That was one of the things that Scotland was praised for about a decade ago. The partnership working was the model that was presented all over Europe because of the way that Scotland went about managing funds. That has gone now. The people who manage the funds are not partners anymore. Do you feel like the tax inspectors are going to look at you or something? They are not there to help you. They may think that they are, but they do not. I think that the Parliament has got to take control of it other than a Government department. Murdo. It is like the old saying, I am from the Government and I am here to help you. Yes, that is actually what you are saying. That was not the point that I was going to make. Let us go back to Rashir's point about the allocation of funds. You said that you wanted a population based. I just wonder if you do not think that we would put a cap on the amount of money that would come to Scotland. Historically, we have done better than our population share from structure funds, so we are based on populations that do not mean that we can end up losing out. We addressed that in our briefing. For us, better targeting and alignment of funding to the people and communities that our sector supports is so much more important than having slightly less money than we currently have through European funding. At the end of the day, you can have a system where more money or the same money comes to Scotland, but the way that it is allocated means that less money comes to people and communities, so we would rather flip that over the other way around. I will relate you to that. However, I want to answer why should it be based on population rather than need. If the purpose of shared prosperity fund or structural funds or whatever you want to call them is to address need in areas of multiple deprivation, which is certainly what we heard in our group in Renfrewshire and Paisley, then why should it have anything to do with the number of people who happen to live in a nation or region of the United Kingdom? Why should it not be focused on need? I think that we advocated a combination of a needs-based approach based on the priorities around what we wanted to tackle. I will start with the end in mind on what was the equalities kind of thing that we wanted to make sure in terms of a smarter, greener, safer Scotland, but also fully funding rather than match funding, because that has been a nightmare in terms of the allocation and the underspend because people cannot work out where that matches that they get from somewhere else in advance of a project is just creating a huge amount of barrier. People are going around trying to search for the match funding, making sure that it is clean match funding, that the organisation, they almost have to do an audit of who they collaborate with in order to put the package together. I think that it is if you can have fully funded, needs-based, and we proposed Barnett plus 10 per cent, so we wanted, but we did debate other options. I think that the most important thing is that it goes to the people that need it and we cannot afford to send money back to the EU when we have people that really need the money. To reiterate what Kate said, we have not specifically looked at the kind of formula that should be used, but for us it is about ensuring that it reaches the people who need it the most. It reaches marginalised groups that, like you said, a lot of the stakeholders we talked to mentioned the issue around finding match funding and the sort of administrative burden that is linked to the current funding that is available. Another thing that actually one of the stakeholders brought up, a Scottish stakeholder during the research, was that if, for example, it comes to a hard Brexit, you will actually see an increase in marginalised groups, you will see an increase in the people who will require that type of funding, so that is probably something to take into account when you think about allocation as well, that the need that is there right now might change depending on how Brexit goes. Can I just clarify that? That is a very interesting perspective given the organisation that you represent. From an equality and human rights perspective, you would not have an argument against the formula being needs-based. Like I said, we have not looked at that specifically. We have not looked at the formula. What we have looked at is the funding that is available for equality and human rights issues at the moment and ensuring that that stays in place. Now, the formula that you use across the UK, like Roshir has pointed out, it might actually be that there is a different formula that allocates less money to Scotland, but if it is used in a different way, it might reach more people, so we do not have a position on that per se. Right. We are really beginning to drill down into the process and administration area, so James, since we are into that territory anyway, do you want to formally get us into the discussion? Sure. This section looks at process and administration. One of the things that surprised me at the Denferman workshop was how cumbersome and complex the process and administration of applying, allocating and managing the funds was. Obviously, this is public money, so there needs to be a method of monitoring and accountability around that. That has got to be balanced up against an audit process and compliance process that is not too complex and not duplicating work in other areas. The question is how do we learn lessons from the process that we have been using previously, where there is an element of criticism and frustration with it and putting in place a new streamline process that speeds up the allocation of money getting to local groups quicker but also ensures that there is transparency around how that money has been managed? The good news is that there is a huge amount of literature and research now available to show what a good funding programme would look like learning from a lot of lessons in the past, so that is not going to be a problem. We can certainly share some of that with the committee afterwards. The current system is very bureaucratically burdensome. It is definitely shared by everyone that I have ever spoken to that uses European resources or European funding, except when there is an intermediary that provides a grant scheme to try to take that burden away. As you can imagine, with 27 other countries involved in the European Commission, that is why we have got that burden system in place. Without that, of course, we will not need to do that quite in the same way. The one opportunity that we have here is to reduce the burden, the administrative requirements and to make it much more open, transparent and streamlined. The information on how to do that is definitely available, which we can share with you. I think that many of the respondents have been very critical of the way that this has been handled, but on the other hand, it is not restricted to some of the programmes that are managed in Scotland. The UK seems to take a gold-plating approach to things and makes things a little bit more burdensome than the other elsewhere. There are lots of examples of good practice out there, and I think that they should be looking at those now. There are good examples of good practice from the past that we could look at and fine-tune them so that we could use them. I hope that there is still a legacy of some knowledge of previous iterations of the programme that seems to be managed in a more streamlined, more transparent and less cumbersome fashion that we can learn from. As I cited earlier, there are good examples in Wales, good examples in Latvia, where we can go and look at what they are doing. I understand that the UK Government and the Scottish Government have been looking at what is happening in Switzerland because Switzerland is worth this bilateral thing. I would urge you not just to look at that, because if you speak to the Swiss Government, they will tell you that it is great. If you go and speak to the Swiss institutions, they will give you a different picture. It is not as complicated as the things that we are trying to do. There are examples, and we should learn from those. We have argued for a third sector governing body, managing agent body and representing the third sector. Why? It could be based on some of the previous partnership approaches that we have had in Scotland, where we have people who know the sector, who are working with the sector and who are supporting the capacity building in the sector. All the technical assistance that used to support partnership working in the past has been removed from the current programmes and replaced by an audit and compliance regime, which is incredibly difficult, and passes the burden of cash flow and underwriting a lot of the activity by the third sector, who ultimately does not get paid for it, because it has become so complex to actually draw down the funding. We would argue for more collaborative approaches and that real sense of the managing of the funding being a collaborative, transparent, open decision making process. Ross, just to echo that. The burden and complexity of European funding is well known and something that we must try to move away from while maintaining rigor and transparency. We must not throw the baby out with the bathwater. On that, the other elements of how the funds are administered, I think that it is this issue about the importance of advice and support and capacity building, which can get lost and needs to be part of the thinking about any future scheme, that in order to deliver the benefits, you need those elements as well. It is not just the money, and often they are overlooked or they come in last minute. As Kate said, in the sector that we work in, some of that advice capacity has been lost and it is to the detriment of what we have been trying to achieve. I think that there are also choices about administering about challenge funds and co-production. There are things where you are looking to be more innovative and there is not a established expertise where a challenge fund approach might be more appropriate to generate some innovation and new ideas, but where you are seeking to fund and support well-established aims and organisations with capacity and a track record, a co-production approach would be much more appropriate. In the particular areas that we are working in, based on the experience that we have thus far, it would have been better to go down a co-production route, but we have gone down a challenge fund route because of the design of the scheme. That is something that we have learned from. It is another element of the choices about how a scheme is administered and choosing the right design of a scheme to deliver the aims that you want. Challenge fund or co-production is one element of that. It certainly was a theme that came through in Inverness that, if we are starting with a clean sheet of paper, assuming that there is going to be a sort of fund, whatever that might look like, wherever it is distributed, why do we need to even look to what other European countries are doing in terms of the way that they manage funds and avoid duplication? Why don't we just use the current Scottish Government funding models when they fund bodies for other purposes, which, from what I understand, were not as cumbersome and we would streamline the process, but that might have been a view just from the islands. Is it possible to do it that way? That is certainly a doctor comment in my paper that there is a lighter touch taken to managing a whole lot of other public funds and why is that not applied to those funds. Although I said that we could learn from experience and I think that we can learn from the experience elsewhere, unfortunately, the way that it has been presented for years and years here is not learning from experience. It is the bogeymen that will come and get us if we do it this way. There is always a big body somewhere that gets blamed for the rule that is in place, when in actual fact it is a self-imposed rule from within here. As long as learning from experience does not get turned around and subverted to be some excuse for not having transparency. In your experience, the way that the Scottish Government manages its own programmes that are tied currently to the commission in terms of the rules that we follow, is that a process that is more or less bureaucratic? Is it a process that allows for that co-production that we are talking about in terms of how the funds are distributed? The leader programme has been excellent. It has been very much a bottom-up lead approach, pioneered in the public Ireland and then replicated elsewhere. In Scotland, there has been a very good version of that, which has worked very well and has a lot of trust in it. That is not an ESF programme, but I know that it is still within the remit of the committee here. There are things that we can learn from that. The key thing is that we definitely do not want to replicate the current way in which the managing authority in Scotland is running the structural funds and the methods that are used there. However, there are other funds that the Scottish Government runs and others run, which can be a good example there. One of the key points that I would raise is that we have an excellent national performance framework, and I said that in our Scottish national outcomes now, let's use that to frame it. There is always an opportunity to do things differently and to learn from experience. I am also interested in learning the lessons from the 2014 to 2020 set of programmes. I am also aware that there were earlier programmes. My memory is somewhat rusty, but I think that there were some issues there that led to change that is reflected in the current programme. It is important that we are learning all the lessons from our own past, as well as the best international practice, if we want to put it that way. On how all of this hangs together, we have delivery bodies, lead agencies and the management authority, which is currently the Scottish Government. I am not necessarily arguing against this, but if the Scottish Parliament, as opposed to the Government, was the ultimate accountable body, how then does that work with, say, a third sector broader partnership body? Because the Parliament can hold the Government to account and be very specific and pressing. However, how would Parliament hold organisations external to this place to account, bearing in mind that as well as stripping out bureaucracy and dealing with the needless bogeymen, there is also a need for some level of scrutiny and accountability for what, at the end of the day, will be public money? Who would scrutinise what the Parliament does? The voters. Angela's question. Dugel. Dugel. I mean, it might not be the correct answer, but we're going to have a body that manages this funding in some way. We've got plenty of examples of how different bodies can run things, so one way you can do it is you could, that body could be accountable to the Parliament for what it does. You can entrust it to meet certain standards and then you can call it to account after that. You don't have to bring every single project in and ask them what they're doing. That body can be responsible for doing that. I mean, the funding council does it, with all the funding for the colleges and the universities, so can't you use a similar sort of model for that? I must not suggest that the funding council is a model, but I mean. Yeah, I mean, actually I'm less anxious about this than maybe it might be of it, because I think that if the Scottish Parliament is the ultimate accountable body, rather than the European Commission or whatever it might be, then even if it's within the Scottish Government, it's fine. It will still work, because you'll be able to scrutinise that fully. I think that we've been quite clear that third sector alongside others should be trusted to be able to run funds themselves. Of course, that would be then commissioned by the Scottish Government. Of course it would be, and there are already examples of that, where a third sector runs funds that are commissioned by the Scottish Government. However, the key thing is that, when it comes to scrutiny, the route through is going to be through the Scottish Government, it's going to be to the Scottish Parliament, it's not going to be through the Scottish Government to the European Commission or to some other body or that, and all sorts of muddiness in terms of who's accountable. Having a really clear sense of accountability to the Scottish Parliament frees us up to be able to bring in resources and lots of agencies that then have a clear route in through the Scottish Government to the Scottish Parliament. Emily, if we'll come back to Doug Oat, and then Kate. That's just our chance for a fight. We'll have a model at the minute for the Erasmus Plus programme, where the managing authority is the Department for Education in the UK Government, but the management of the programme is devolved to run under contract with the British Council on the Chorus. All of the decisions about running the programme on an operational day-to-day basis and all of the verification and all of the audit procedures are handled by that agency, but they report to the Government Department, who then reports to Parliament. We could take the same approach here. I was actually going to echo a very similar model, and for many years we ran those kinds of models. If you go right back to the beginning of structural funds in Scotland, we had partnership organisations that directly reported and were accountable to the Government here, but they had a real professional expertise in supporting partners and managing the funds. Nora? Just talking about monitoring and evaluation of funds, one thing that we found with our research was that the data available on equalities was very weak when it comes to Scotland, and there was data available for Wales and England through DWP that we could use. If you look at our report, we have very nice maps of Wales and England, where we go into more information on the beneficiaries of the funds and what protected characteristics benefited the most from it, but we couldn't do that for Scotland because the information wasn't available. While the stakeholders that we talked to stress the importance of addressing the administrative burden that currently exists, there is also an argument to be made for focusing on collecting and monitoring the right sort of data. Obviously, protected characteristics are key to that. Susan? Just a really quick point. We can only comment from a business user perspective on the funds that benefit businesses, but one concern that we have is that, if we are starting from a blank sheet of paper to say that there is a new agency set up or whatever to manage the funds, we don't lose sight of a lot of the lessons that we are learning at the moment about how we currently manage funding and programmes to business. On the negative side, there has recently been an inquiry into business support in Scotland. There are issues around how we manage a national framework project that is delivered locally. There are issues around how we do that, effectively in terms of understanding who is accountable for that, if things don't go the way that we all expect them to. I would be keen that whoever has a role managing this understands those lessons that have been learned in other areas of Scottish Government activity. On a plus side, for example, on the back of the Enterprise and Skills review, I understand that Scottish Enterprise is completely revamping how it delivers grants to businesses and they have put a lot of thought into how they would get the process to work from a business approaching to actual grant award. That knowledge, all of the work that has gone into how we would make that work, we would want to make sure that that was carried over to however the funds are deployed in future. That is very useful. Bruce, I wonder if I could just come in on that point that Nora raised there about poor data on certain issues. For a number of years, I have tried, as a member of the Parliament and my sure colleagues do, to find out things about your constituency that you represent in Scotland. You very rarely get information and data pertaining to local authorities and so on and so forth, but you very rarely get information relating to your own community, which the Parliament elects us to come to represent. Is there a job of work to be done? Do you think to start to collect data on a constituency basis or a regional basis in Scotland so that we can properly reflect the outcomes that we will be interested in achieving? Emma, you have a question before I come back to the body. Funding is really complex, so I have interest in common agricultural policy. Currently, it is Scottish Government manages, but there are going to be future changes. We have major differences in Scotland with 85 per cent less favour areas, but there is pillar 1 and pillar 2. It is all very complicated. It might be a question for Douglas Ross to answer. Where would we propose that we manage funding for the rural farmers and the food producers in Scotland? That is a big question. We have a couple of minutes to reflect on what Willie Cedd or Emma Cedd said, so is there only one to pick up in any of that? Ross, on Emma's point, there is a whole separate body of work happening in Government, with various organisations like ourselves and lots of reports being gathered led by other ministers. I am happy to catch up with you afterwards to explain how we are trying to contribute to that as part of that complicated picture that you have set out. Douglas Ross said that the organisation that I worked for a number of years ago submitted information to various Government departments about how a Scottish national funding aid could be set up, could be administered, could be run. Anyone who had an idea or from any sector could come along to that agency and find out what levels of support would be available and what programmes would be appropriate. At the moment, it is a guessing game and we need to get away from that so that people who need the money or can use it useful, they can get it. Funding for rural and enterprise economy. We have not been terribly great at seeing the rural economy as part of the economy and enterprise funding. There might be notwithstanding all of the positives about leader, but there may well be an opportunity to bring that funding a bit more closer to existing economic development and enterprise approaches. Is there a better coherence and alignment rather than it setting off to one side? Nora, what do you want to do? My point was more about the data collection. When it comes to the projects that are funded by EU funding, they will have different reaches in terms of what areas they cover. It is more about collecting that data and creating a system that properly shares that. That makes it easier for organisations and for parliamentarians to access it and to see who are the beneficiaries and who are the people in the local community and where those needs are that are supposed to be met. I am going to move on to outcomes. Patrick, I am sorry, as usual with the person who is in the last seat of the situation, usually finds that a lot of the area has already been covered, and we have been covering some issues around outcomes already. When we get about 10 minutes around outcomes, we will see who we get to. I think that it is inevitable that there is some overlap between the different themes that we are talking about, but I have been asked to kick off the discussion on issues around how to achieve flexibility in the way that the funds or replacement funds are managed to achieve the best outcomes for Scotland. I think that, certainly in the discussion in Inverness, I am not sure whether that happened in the other workshops, there were some people who were looking at what we know, the limited amount that we know about the UK shared prosperity funds remit, saying to tackle inequalities between communities by raising productivity, especially in those parts of the UK whose economies are farthest behind. Some people were concerned that that focus on productivity, while important, might close down the opportunity to address social or environmental purposes, perhaps some of the human rights issues that were mentioned earlier, or inequality within communities, as opposed to between communities. There is also the point that Rashir made about the SCVO submission, if I can bring it up, mentions the national performance framework and the Scottish national outcomes, which people might have views about whether they are correctly framed or not, but they have achieved some degree of consistency over time and they have tended not to become political footballs too much. Is that the right approach for how we frame the outcomes that we are looking to achieve and how do we make sure that Scotland has the ability to set that framing rather than being constrained by the way that the UK fund is given a remit? Or are there other approaches? Rashir mentioned you, so maybe you would like to reflect on that first. Yes, I think that the national performance framework is the right framework. The reason for that is quite simple. The iteration of the national performance framework and the national outcomes is specifically backed and linked to the sustainable development goals, which is probably the closest thing that we currently have to a strategy for a more positive planet than given everything else that is happening around the world. It is absolutely the right kind of focus. Within that, we have got human rights aspects and equality aspects covered. We have got the link to responsibility to tackling climate change. That is a really good framework for us to use, because it has a lot of trust from a whole range of sectors, from people, and it has also got an international credibility because it is now integrated with the sustainable development goals. In the last letter reflecting that, is that the right model? If it is not, what else could we use? Ross? As a public body, that is the model that we follow and work to. It is a very helpful framework for us in deciding on our priorities. I was thinking that, in terms of delivering outcomes, whatever the framework that you are working towards, there are a couple of options about how to achieve that. There is the option that is in the current system of having horizontal themes that, where you want all the money to be spent and delivered in a way that complies with some common principles—whether that is fairness, equality, human rights, sustainability, inclusiveness—it would be the phrase at the moment in terms of economic, inclusive and sustainable economic growth. There is the option to design a scheme where those are fundamental principles within it that all the money needs to demonstrate that it complies with that, or that it is not having a contrary effect to those aims. Above that, you have targeted funds that want to deliver specific outcomes. It is important to remember the relevance of both to those in delivering the framework of policy outcomes that you are trying to achieve through the money. They both have a role. There is a certain coherence about all that, in terms of who we are. Do you have a different view to that, or are there any other ways that we could be achieving the outcomes for our country that we want to? We just emphasised the comparison between what is being discussed here and the limited amount that we know about the UK plans, the remit around productivity and inequality between communities. Does that give enough flexibility? It is obviously not too late to try and influence the detail of that when it is designed, but does that give enough flexibility, or do we need to try and encourage a broader approach? Pick up on that. We need to encourage a broader approach. I think that that could become quite narrowly defined over time. I think that the national outcomes are great. I think that they are ones that people have bought into a smart, sustainable future. However, I think that we cannot forget the needs of communities and young people, in particular, from my point of view, who are very frightened about the future in terms of Brexit. They really need to think that the services that are being designed put them at the centre, as well as thinking about just the programme requirements and needs. It does need to have a sense that the beneficiaries, the people at the centre of this in the communities, their satisfaction with the whole system, is taken into account and actually drives the system, as well. Nora, I saw you nodding your head there. Do you want to...? Yes. One thing that we found is that it is particularly difficult for smaller organisations, sort of underground organisations to apply for funding because of the administrative burden and other things that we already mentioned. I think that what Kate said makes a lot of sense that, if you take that into account, it becomes easier for organisations that are a bit smaller and that maybe previously thought that this was not an area that they could get involved with, that they would engage with that more, and that you reach more marginalised groups and people with or who share protected characteristics through that. There is a general consensus on that in terms of what I am hearing around the table. Does anybody else want to make any particular points that have not been raised today that you want to make sure that you get on the record before I bring this very useful session, which is slightly shorter than we expected, but I think that we have a lot of information from you, a lot of very good information in a short space of time and given us a good idea of the sort of architecture on the map that we are going to need to deal with in the future? I am very grateful to all our witnesses sincerely for coming along this morning. Obviously, that will help to draw together for a report that you will produce sometime in the autumn. I hope that you will see some of your input reflected in that report. In the meantime, I suspend the meeting to allow the change of witnesses. The third item on our agenda this morning is to take evidence on the additional dwelling supplement from Kate Forbes, the Minister for Public Finance and the Digital Economy. Kate Forbes joined this morning by Scottish Government official Ewan Cameron Nielsen, so I welcome our witnesses to the meeting. I invite the minister, if she so wishes, to make an opening statement. I know that you are here to quiz me, but I am very interested in what the committee's question is when it comes to ADS. Looking back in terms of its introduction, committee members will be aware that it was partly in response to the UK Government's decision to introduce that higher rate of SDLT. We introduced it in response to that because of the obvious impact it would have on the housing market and on BGAs. However, although it has generally been successful in terms of raising revenue, I recognise that various concerns have been raised over the course of the past few years, particularly in regard to specific individual cases. Two points to make about those calls for changes—many of which I am quite sympathetic to—is that, first, it highlights the need to think more generally about how we make changes to devolve taxes in future. Secondly, in terms of the changes that are called for, how we balance individual specific situations with the potential for unintended consequences in a very complex tax? The committee did hear from a number of concerns, including a useful paper from The Law Society, and there were other issues beyond that in relation to the operation of ADS and house buyers who were not intended to be subject to the tax having to pay it, but they were unable to reclaim through the due process that is available to others. Do you think that that is the case? What would the Government intend to do about it? When it comes to that particular example, one of the challenges that I think came through to the committee when they took evidence was the evidence base—the challenge around the evidence base. Our main source of evidence is through Revenue Scotland, and they take evidence that is only applicable to their requirement to collect taxes. When it comes to the impact, for example, on the private rented sector, which faces a whole host of different pressures, private rented sectors remain pretty steady at 15 per cent. If you look at the SFC's evidence, they suggest that any foregone revenue is being replaced by the policy objective, which is to encourage first-time buyers into the market. When it comes to supporting the bill-to-rent sector, we have that exemption, which was called for in the committee's stage 1 report, to ensure that there is an exemption about six properties or more. However, our general analysis of the private rented sector, bill-to-rent and housing market more generally, is that it remains strong. There was one specific item that the committee received in evidence from one individual, which Murdo has had a particular interest in Murdo. I know that that is the issue that you want to raise with the minister, but please feel free to do so. I will. Thank you, community. Good morning, minister. In terms of the round table, you could probably group the two different areas of issues that we raised. There were issues that were raised around what people would call the distortion effects of the tax. That was in relation to the issue that you talked about at the private rented sector, which is one kind of basket of issues to be looked at. However, there was another range of issues that were around what you might say were anomalies with the tax. There was one specific anomaly that came up. Members of the committee remember that the Lands and Buildings Action Tax Amendment, Scotland Act 2016 that the Scottish Government introduced to deal with a specific anomaly that had been introduced, which I think that people all recognise was not an intended consequence of the original legislation, where if there was a couple who had bought a property in joint names where it turned out, the previous property that they occupied had only had one name on the title. They were not able to reclaim ADS and therefore were facing a penalty, and that was not in the spirit of the original legislation and that was cured. Now, what has come to light is that there is another anomaly as a risen, which is similar but slightly different circumstance, where you have a couple who are living at separate addresses who buy a property together in joint names, and where only one of them has previously owned a property, they cannot then reclaim. That has the consequence that people who are, for example, not living together but then get married and move into a joint property that they own jointly are being penalised. I am assuming that that is not an intended consequence of the Government. I am attending that the Government has never had to penalise people in that situation. I wonder if, first of all, you recognise that that is an issue and secondly, have you got any steps planned to try and deal with it? In terms of evidence looking at those inconsistencies, we look at a range of different things, including my correspondence, where those issues have been raised in the past. A number of the issues that were raised at the round table and that get raised with me in legislate correspondence, I am very sympathetic to. We start from that position, then how do we fix it? The main difference between the amendment that was already taken through to change the unintended anomaly last time and this one in particular, that one changed cases where two people lived together already but where only one of them was on the title and went on to buy a property together. However, it is now possible to point to a single property and deem that both buyers have disposed of their previous main residence when that was sold. The reason I say that is that there is a test in the legislation that is about identifying a main residence that is then replaced. That change was quite a minor change and although there are similarities with the anomaly that you are talking about, it goes right to the heart of the purpose of this legislation, which is where you can identify a main residence that is then a secondary residence to a new main residence. In that particular example, I am sympathetic to the individuals who find themselves caught up in it. However, if we were to make changes, it would undermine the main purpose of the legislation, which is where somebody has an additional dwelling. I understand that it means that if somebody in any scenario—there is a whole range of different scenarios that you could look to to illustrate that—where two people, one person is renting, one person is owning, two people are owning—either way, there is a previous residence and then they have another new residence and therefore it is an additional dwelling. We were going to make changes to the legislation and I would be open if the committee were to provide evidence of where they think that this is a problem and how to resolve it. However, it would be a far more significant change to the main test in the additional dwelling supplement legislation than the previous amendment that was made. It might sound like a cop-out, but it is just to make the point that you had revenue Scotland before you, and they talk about having over 70 worked examples in their guidelines to try and advise and support people when it comes to identifying whether they are not eligible for ADS. Making changes makes it more complicated. Where we need to make changes, we should make changes, but I want to know first of all how extensive the problem is before making changes, and secondly, be very careful that we are not taking away the main test in all of that, which opens it up to tax avoidance. That is a very helpful answer, and I do appreciate just on the final point that you make about the extent of the problem. I recognise that there might be a very few isolated examples of what we are talking about, but I think that you would appreciate it. For the individuals involved, it may represent a significant additional cost that they were not anticipating. The previous example that I brought led to the 2016 act, among other cases, but it was one couple that I was aware of who ended up with an additional tax bill of £13,000. For a young couple, it was a huge additional burden. Although I appreciate that there might be a very small number of people impacted by that, for those individuals, that is a very substantial issue. I think that that is actually to reflect on that, but my question, I suppose, is that we have talked on the committee quite a bit about whether it would be appropriate to introduce an annual finance act as a means of sweeping up some of those issues on an annualised basis, instead of having to rely on new primary legislation every year, or on a ad hoc basis to try to address those issues. I wonder if you get any more thoughts about whether that would be a sensible way to take those issues forward. You will know that our consultation on the future of devolved taxes closed just last week, so we are analysing responses to that. I am very sympathetic to the idea of mopping up changes on an annual basis, but I think that it needs to be taken forward closely with the finance committee and the Parliament. Obviously, there is always a tension between scrutiny and efficiency with any of those changes. If you look at the way in which the UK Government has been able to improve and amend the higher-rate additional dwelling element of SDLT, you can see a number of different changes that it has been able to make. We have not made that one amendment, which, although expedited, still had to go through three stages and still had considerable number of amendments at stage 2 and stage 3. I suggest that our legislative timetable does not allow for multiple amendments of that kind. I will look forward to your report, but I think that there will probably be consensus on where we could make changes to ADS to improve it. The question would be about process. ADS illustrates the need for a means to mop up changes that are required and that are minor that everybody agrees on, which does not absorb unnecessary time. That is quite useful. We could call that an annual tax bill or an annual care and maintenance bill, which would be effectively the same thing. However, from a committee perspective and from a Government perspective, although some of those changes might be minor and considered by some to be necessary, the potential for unintended consequences would be something that I am assuming that the Government would bear very much in mind if that bill was subject to significant amendment, for instance. Yes. With all of that, I go back to that point about weighing up scrutiny and efficiency with those changes. You would want the changes to be of the kind that are frequently raised with me and with yourselves by stakeholders that appear to be quite obvious and that improve the tax. That is why I started off by talking about the introduction of ADS, which again illustrates the point that I am able to sit here and defend ADS, and I think that it is a good idea. However, policy preferences aside, our hand was forced into doing something because of the UK Government's introduction of the higher rate additional dwelling because of the impact on the market and the impact on the BGA. Therefore, it was a very expedited process to introduce ADS in the first place. Again, that illustrates that we are responding to external forces and it would be far better to do that well first time, but if you are required to move quickly to be able to make it easier to amend and improve at a later date. Alex Rowley. Thank you, convener. Members, to my register of interest around construction, I was picking up on a point that you mentioned about some of the data in. You said that Revenue Scotland can only discuss or only deliberate the positive sales that happen that come through. However, this is more about sales that do not happen and it impacts on other aspects, LBTT and other aspects of the sector. I appreciate that it is very complex to try to collect such data, but to say that because the revenue figure has remained constant, that means that everything is all right. Is that not a false conclusion that misses out on what kind of potential of the sector could be? Is that to get your view on how we might go about collecting such better data or a recognition that this is an issue of the sector faces? When you look at the complexity of the sector and how data is coming into it and its impact on our economy, is this part of a wider problem? I can answer the question on data and the question on the sector more generally. When it comes to Revenue Scotland, which you may have explained, we rely on the data that it collects. In the case of ADS, that is a one-page form, and it asks for very limited information that I can supply to the committee if there is interest. It does not ask the questions that we might be more interested in in terms of qualitative data around what the property is being used for. Is it being used for a holiday home? Is it used for a bitelet? We cannot demand, necessarily, through Revenue Scotland's business to decide what information it asks. Consistently, I have asked stakeholders for evidence. At the moment, a lot of the evidence, which I do not say this to undermine it, is very anecdotal in nature. That is fine because there are individuals who are in difficult circumstances. However, if you are going to make a significant change that could have unintended consequences and open up issues around tax avoidance, you want to know that it is an extensive problem and it is not just on the periphery. That kind of evidence from stakeholders is of significant value. To an extent, we have to depend on that as much as we depend on the quantitative data from Revenue Scotland. On the impact on the housing market more generally. I cannot claim any success in the housing market or, first-time buyers, proportion of the housing market is down to ADS. We cannot say that ADS is single-handedly responsible for any challenges. That comes through again in SFC data and responses from stakeholders. I said to the committee that, in January, we were taking forward the changes to LBTT. Stakeholders regularly tell me that wider economic considerations are far more likely to be a factor in their decision-making. If you look at the overall figures—as I said, private rented sector is just one example—that it remains a steady 15 per cent. When it comes to the SME market, which I am interested in how we better support the SME house building market, there are probably better ways of supporting that market than necessarily through ADS, although that is a consideration. For example, at the moment, we have different conditions for SME applicants for housing support when it comes to the building Scotland fund, so there is a lower threshold for project size in terms of getting support. That is probably a better, more flexible way of ensuring a thriving SME house building market than necessarily tweaking ADS. Is there a case to simplify the information that is available to the public on this so that they do not feel that they have to walk in the door of a lawyer's office in order to discover the consequences of what they are about to do in parts of the house? For example, surely we could offer some kind of simplification or helpful advice to assist them in their decision making before they embark on those transactions? That goes to the heart of the entire debate of how we ensure that it is nuanced sufficiently for specific individual circumstances, while reducing the complexity at the same time. It is a complex task because it takes into account personal circumstances rather than just transactional values, etc. I know that revenue Scotland tries hard when it comes to worked examples, but, with more than 70 worked examples, it is incredibly complicated. If you look at the figures for indication to reclaim ADS, those are more heartening, so you can obviously register your inclination to reclaim ADS, and there is advice at that point, particularly through revenue Scotland, if you are going to reclaim. However, if there are ways to simplify it, I would be delighted to hear how we simplify it. No devs has indicated that they want to take part in this, minister, so I can thank you very much for coming along and giving us evidence this morning. I will close this public part of the meeting.