 Good morning, colleagues, and welcome to the third meeting of the Finance Committee. As is the case with committees, changes in membership take place, and we have experienced some changes since our last meeting. I would like to pay particular tribute to Mike Russell, who did a lot of work to establish this committee as its convener, and Kate Forbes for her robust contributions in our first two meetings. We have, therefore, two new members to replace those who have resigned from the committee. I would like to welcome Bruce Crawford and Mary Toad to the committee formally and give them the opportunity to declare any relevant interests. Bruce, do you have any relevant interests? I have no relevant interests to declare. Mary Toad, do you have any relevant interests? No, I have no relevant interests to declare. Thank you very much and welcome to the committee. The second item that I have to attend to is the choice of a new convener. I would like to make it clear that, under the agreement, the new convener will be a member of the Scottish National Party. With that said, I would like to invite nominations for the post of convener of the Finance Committee. I would like to nominate my friend and colleague, Bruce Crawford MSP, to chair the committee for this session. Thank you very much. Bruce Crawford is formally nominated. Are there any other nominations? If there are no further nominations, it is therefore my pleasure to ask if we are all agreed that Bruce Crawford should be the convener of this committee. Thank you very much. I thank members for their support and say how much I am looking forward to working with members, working with the Cabinet Secretary for Finance and Constitution himself in the coming months. We have a lot of work ahead of us. No doubt there will be some significant challenges that we will have to take on as well. I think that, as you will find as always, I will try to put the integrity of the committee to the fore. Let's go on with the business in hand. The first business in hand is item 3, to decide whether we will take item 5 in private. Are we all agreed that we will take item 5 in private? That is unanimously agreed, thank you very much. We are now going to agenda item 4. It consists of taking evidence from Derek Mackay, MSP, the Cabinet Secretary for Finance and Constitution. Mr Mackay is accompanied by three officials, Alasdair Brown, the Acting Director of Financial Strategy, Scott Mackay, who is the Deputy Director of Financial Program Management and Andrew Watson, who is the Deputy Director for Financial Strategy. Thank you and welcome to all. Cabinet Secretary, I understand that you wish to make an opening statement. Can I ask you to do that now, please? Thank you and good morning. It is a pleasure to be with you and offer my congratulations to you, convener, on your first meeting as convener of the Finance Committee. There is a strong record of co-operation between the Scottish Government and the Finance Committee. As a former member, I am looking forward to strengthening that relationship as we enter a new fiscal environment. As I have said before, the work that we will do together over this parliamentary term will be of real and lasting significance. We need to work together to address challenges in the public finances. The 2015 UK spending review delivered another tight budget settlement. The discretionary resource budget will fall in real terms, and while the capital budget will increase slightly, it remains significantly lower than its peak in 2019. We do not know yet what the impact of the autumn statement will have on those funding totals, but we do know that the chancellor has said that he will use the opportunity to reset economic policy. In terms of the fiscal and constitutional outlook, we are in uncharted territory. The Implementation of the Scotland Act 2016 is clearly going to be a key issue for the Government and the Finance Committee, and there is good ground for us to build upon. Our plans for using the powers in the act were set out in the programme for government that was published just yesterday. The issues presented by the EU referendum will be a key interest to this committee. As well as looking at the strategic perspective for the next five years, we have decisions to take in the short term about this year's budget process. I restate that I believe these to be exceptional circumstances, and I am grateful to the committee for considering these issues. I have raised in the past discussion and I hope that my letter of last week has been helpful in addressing the range of questions that you have had. My priority remains to ensure that the 1718 draft budget reflects as accurately as possible the implications for public spending in Scotland following the EU referendum. The accumulation of risk and uncertainty for the Scottish budget, which will not be resolved until this year's autumn statement is published, leads me to propose holding back the draft budget for clarity. I am also happy to offer to take other steps earlier in the autumn to support the committee's scrutiny ahead of the budget by exploring what additional material the Scottish Government could provide to the committee before publication of the draft budget. It would of course be possible for committees to begin to take evidence from stakeholders on the budget to examine priorities and financial issues in their areas of interest, and I would be happy to support that. I also understand the desire for intense budget scrutiny when published and would be flexible in supporting that also—more frequent meetings, for example. Looking beyond this year's process, I remain very supportive of proposals to establish a joint working group to look at the future of the budget process, and we would be happy to discuss that today, too. I will offer a couple of remarks about the EU referendum as it relates to financial matters. As I set out in my letter of last week, with respect to understanding the impact of the EU referendum outcome, there is no precedent. The EU referendum outcome has created a great deal of uncertainty not just in Scotland and the UK but across Europe as a whole. Whilst the UK Government's confirmation that it will guarantee in the short term some of the elements of the European expenditure, that has helped to an extent—I would like them to go further—particularly with regard to EU structural funds, Scottish Euro development programme projects and European maritime fisheries projects that begin after the autumn statement for whom there is no certainty at this stage, and we are of course engaging with Treasury to find a way forward. We believe that the best immediate course of action for Scotland's economy is to support our businesses, which is why we have announced plans to inject a further £100 million of spending this financial year into a range of capital infrastructure projects, and businesses will also be provided with wider support to help them navigate in these uncertain times. I should confirm that there remains considerable uncertainty around the prospect for the Chancellor's Autumn statement, both in terms of the economic forecasts that the OBR will be developing and the response that the UK Government will take in terms of public finances. I will continue to engage with Treasury to seek clarity about those issues, working where relevant with colleagues from Wales and Northern Ireland, where we are also pursuing and continuing to progress the detailed implementation of the revised fiscal framework. As I said in my letter, I will be happy to keep the committee updated on that as we go forward. I will be happy to take questions on any of those matters. Thank you, cabinet secretary. You mentioned in your opening statement that the Scottish Government—I hope that I get the terminology right here—said that you would produce and publish or prepare to consider producing and publishing additional information that would help the committee with scrutiny of the budget. In that process, would you be happy for your officials and the clerks of the committee to sit down following this discussion? If that is what the committee wants, would you be happy to sit down to your officials to have a discussion with the clerks about what that might contain and what elements might be in that to help the process? Of course, I would. I think that that would be in the spirit of the discussions that we have had. I recognise that members want to pursue and probe the budget issues. I also want that work to be accurate. Therefore, I would support that process by allowing officials to engage as constructively as possible, of course. I have one other area that I would like to explore. You probably know that, cabinet secretary, I am new to this committee. I am trying to improve my understanding of some of the processes. It is my understanding that the Scottish Government publishes a budget before the autumn statement that the Scottish Government would be reliant upon UK macroeconomic data published by the OBR in March in producing tax forecasts for 2017-18, obviously pre-Brexit. Given that, to what extent you think that you will be able to take into account the impact of Brexit on tax forecasts, the important bit of my question is what role will the Scottish Fiscal Commission play in that? Have you had any discussions with the Scottish Fiscal Commission on preparing forecasts without post-Brexit data? I will cover some of that and maybe ask Alasdair to talk more about the engagement with the Fiscal Commission. In terms of our work, in these early days, as we begin to work on our own infrastructure, we are still reliant on OBR to inform UK Government decisions. The Fiscal Commission will provide oversight to our figures before they take up their fuller responsibilities to produce their own forecasts. They are aware of the direction of travel that I wish to take the budget process. We have good constructive discussions around that, but we are all reliant at this stage on the OBR's forecast, which will drive the UK Government's autumn statement, which then informs our budget process. However, Alasdair may want to add to that in terms of the specifics of engagement. I think that you have made the key points, minister, and just to confirm that we are speaking to colleagues in the Scottish Fiscal Commission about the scrutiny and reporting work that they will have to do, as the minister has said on the forecasts that we will produce in respect of 1718 and the timing of that work to ensure that they are ready to respond to whatever eventual timing is decided. Just to make it clear that, with respect to forecasts for 1819 onwards, it will be the Fiscal Commission itself that does that forecasting work, in line with the statutory responsibilities that are set out in the act passed by the Parliament this March. I have a number of members who want to ask questions about timing issues. I will come in a minute to Alex Johnstone to begin that session. However, just to get the picture full before we begin that, I understand your question about what discussions have been going on between the UK Government and the Scottish Government. That will give us a whole picture before we get into—or a bigger picture before we get into the timing issues. Thank you very much, convener. Good morning, cabinet secretary. Is this to explore a wee bit with you about the relationship that you are currently having with your counterpart, the Chancellor? You said in your own remarks that he has already said that he is about to reset economic policy. Is he aware of the impact that the lateness and the delay and the potential change in the autumn statement, the significance of it, is going to have on all of the devolved administrations? I think that that is a very fair question. On taking up the post, I engaged with the previous Chancellor, George Osborne, who indicated that there would be a likely scenario of an emergency budget. That has not transpired, and now everything has been put into the Chancellor's autumn statement. Both the previous Chancellor and the current Chancellor and the engagements that I have had with them have said that there would be adjustment. The new Chancellor has described it as resetting economic policy. I did write to the Chancellor and explained the difficulties that it causes us in not having clarity around our position, and I did try to tease out what the timescales would be for his autumn statement and the contents therein. I have had a reply that I am happy to share with the committee, but it does not actually take the issue forward because I have no further clarity on timescales other than what we already understand through precedent of late November, early December. Nothing of substance as to what might be in the Chancellor's statement, which leaves us in the same position as was before. However, of course, I have expressed the difficulties that that causes this Parliament and the Government to take forward our budget. We are not alone in that. In terms of the other devolved administrations, Northern Ireland, we will not produce a budget pre-autumn statement either. I think that all devolved administrations are pursuing the Chancellor on clarity. I have also looked through the statements and the questions that the Chancellor has made in the House of Commons on questions. It holds his current position that there will be a financial adjustment. It will reset economic policy, but it is giving nothing away. I am sorry, I cannot be more helpful, but I am afraid in this respect that I am in the hands of the Chancellor. Access to the date and the figures that he needs to be fair to that side of it, is he in a position to… To be fair to the Chancellor, he is waiting for forecasts and OBR figures that will drive his calculations and then he and his Government will make the determinations of what they do around tax and spending, which has the clear knock-on consequences for the Scottish budget through spending, Barnett consequentials block grant adjustment and, of course, a relative tax position. He is waiting for the OBR forecasts. He could take fiscal measures before the autumn statement, but he has chosen not to and will leave it all to the autumn statement. I contrast that, I suppose, with the interventions around monetary policy, contrasting with the actions on fiscal policy, which we have no further thoughts from the UK Government on what it proposes to do. If we are speaking in the spirit of being fair to them, they are waiting for that economic data to drive their decisions, but it would be fair to say to the Scottish Government that we need to hold back to see what the implications of that would be. Anilas, do you want to add to that in terms of Chancellor's interventions? I think that the points that you make are right. You referred to the monetary policy intervention, which was quick from the Bank of England, but the Chancellor, as you say, will be waiting for some actual data on which OBR can base its trend forecasts for next year. Can I make one further point? I suppose that it is pertinent. Just to say that I have engaged further with the Chancellor on other matters, and I will continue to pursue the UK Government on this timetable and substance issue because I know how important it is to the committee and to the Government. I think that we have explored the background well enough. Alex, do you want to start off with questions? I have a number of people who will pull in on issues on timing. Thank you very much, convener. I suppose that we are both in an almost impossible situation, but from the committee point of view, we need to scrutinise the budget effectively. We would like to see the process running to a much earlier timescale, but it is becoming increasingly difficult to see how that can be achieved. However, you have made offers and suggestions that there are ways that elements of that can be brought forward and that the committee's work can be carried on in certain ways in an earlier timescale. Could you try to flesh out what the possibilities are and perhaps imagine what that would look like from the committee point of view and how that would compare with a normal scrutiny process? I think that that is a very fair question. I understand that other committee, subject committees, might be looking at their pre-budget scrutiny in any event, so it is for committees to consider what they would like to probe in terms of current budgets, current practice, current priorities and issues around that. I appreciate the difficulty of the committee in wanting to scrutinise a budget, but I do not want to publish a budget that is inaccurate—and I know that it will be inaccurate—and waste committee and Parliament time on that. However, what I think could be produced that may be of assistance could include information such as a statement on new portfolio budgets for this financial year. I tell you why that is important, because with the new Government, with the change in portfolios, there has been a realignment of budgets in the current year. I think that that would be useful for the committee to consider. I do not think that it has had that degree of parliamentary exposure, so I think that looking at current budgets and priorities within each portfolio would be of interest following the election of this Government. We could also look at providing information about performance against national outcomes and the contribution that is made by expenditure programmes again in an area that the committee has been interested in in the past. We could provide an update on the fiscal framework along the lines that the committee may be interested in in the current operation and on-going work in the year. I could also suggest if the committee wished further work on the updated economic and financial modelling to provide the committee with analysis to demonstrate the potential impact that changes in economic performance could have on the Scottish budget. There are some ideas from a Government perspective that are substantial items that the financial committee could be interested in. I am fully aware that the cabinet secretary is always willing to speculate, but I can understand why he may not be willing to speculate on elements of the budget before the information is available, certainly in a public context. However, correct me if I am wrong, did I get the impression from your opening statement that you are suggesting that you may be willing to discuss some elements of the budget, perhaps in private with the committee, at a point in time in advance of when you were willing to speak publicly? I think that the budget process has to be transparent, so I think that at the point that I am ready to publish a draft budget, that has to go through that process. What I am trying to do is share as much as I can about what we know about the kind of modelling and information that the committee would find of use. However, there is a separate dialogue that will be my first year of undertaking this with interesting parliamentary arithmetic, which is that political parties are perfectly entitled to bring to me what their demands, interests and priorities are around the budget process. My door is open to that, to have that conversation about what political parties may be interested in. However, in terms of the budget process, I am happy for officials to work with your clerks to be able to produce something that can be scrutinised, but short of a budget, because I do not want to produce a budget that I know will be wrong, and that will be a waste of everyone's energy. As the cabinet secretary is fully aware, the timescale that he is adopting and the timescale for the committee's scrutiny are now at a point where the system is almost dysfunctional, if we go ahead on that basis. Do you think that you can take us forward enough and at what point do you think that you will be able to give us some information that would allow us to properly scrutinise the budget before it is too late? Let me be clear to Mr Johnston. I will not have a draft budget to scrutinise until I have the data that is required from the chancellor's autumn statement. We are trying to do this by agreement, but I cannot produce a budget to be scrutinised without having the relevant knowledge from what the chancellor is about to do in the autumn statement. For all the reasons of great detail that we can go into, but short of that, we can work together to come up with effective scrutiny of the issues that we are facing. There are a number of people who want to come in this area and others who have indicated since we had a discussion earlier, so I will try to get the balance right here. I understand the position, cabinet secretary. I am sure that you will correct me if I am misrepresenting you in any way. Your position is that you have a genuine concern around publishing a budget on the normal timetables because of the variables in the current political process and your nervous about publishing an early budget. You would prefer to wait until after the autumn statement, at which time you will have more information available and, from your point of view, the budget will be more accurate. Do you accept that in any budget process there are iterations in that from you publishing any draft budget, whether it is in October or December, the figures will ultimately change until the final budget is agreed by Parliament? I accept that, in previous years, there have been some changes, but I think that largely there have been consequential increases, but there has been a trend arising from the Chancellor's autumn statement. I do not get a sense that that is what is about to happen in this Chancellor's autumn statement. If you look at all the economic forecasts and the impact, for example, that Brexit will have on the economy and therefore tax receipts and therefore public expenditure, there is consensus around the economic impact and what that leads to. I think that we are in unchartered territory around this. My starting position was to pick up from where the previous Finance Committee had left off. That was my starting position in recognising that the previous Finance Committee had said in its legacy paper that we had to address the fact that the Scottish Parliament's powers had changed from inception. We are no longer just a spending Parliament, we are a tax and spending Parliament. We have not changed the working agreement or processes fully to reflect that. That was my starting position. It then was the issue that we want to be able to make tax decisions that do not encourage the wrong kind of cultural behaviours in terms of how people pay their tax and forestalling and so on. There is that issue of concern as well that has to be addressed. However, the bigger issue is the unknowns of what the Chancellor is about to do from what has happened in Brexit. There is not the precedent of that. It has created such financial uncertainty that it has changed circumstances completely in recognising all of that. The previous Finance Committee's legacy paper on how we need to change our processes and look at timescales so that decisions can be closer to forecast as a sensible approach. Look at the fact that we are now a tax and spending Parliament with the new powers coming our way. We are dependent on forecasts to change all of that and then deal with the uncertainty that has led me to the conclusion that publishing an inaccurate budget would be the wrong thing to do and the starting position of knowing it is about to change. Having such intense scrutiny on a budget that would be subject to so much change because of the variables would be the wrong approach, in my opinion. What would you regard as a material change in the budget? If you produced a draft budget in October and then the autumn statement was produced in late November and you had to update your draft budget to reflect some changes, what would you regard as a material change in the figures to substantially undermine your budget process in the way that you have explained? The sensitivity around potential income tax changes because of how our income tax policy relates to the UK income tax policy could be subject to change. Spending commitments from the UK Government and the spending view could be subject to change and the economic forecasts could be subject to change. We do not know what the impact will be on the block grant adjustment. Those are unknowns. Because they are unknowns, I do not know what the scale of adjustment is going to be. I can quote from a great many people who say that the scale of uncertainty is unknown. I might not be close to Mr Kelly, but even Ruth Davidson, leader of the Conservative Party, just yesterday said, that we know that there will be an impact on the economy because of the EU referendum. We do not know the scale of that, but as the Prime Minister said at the weekend, we should prepare for difficult times ahead. I do not know the scale of financial adjustment that the chancellor may have in mind. However, the economic consensus is that there will be a negative impact on the economy, and that will inevitably feed through to the fiscal decisions. It is of good governance and sound approach of the committee to want decisions to be based on the best and most recent estimates. You are running a budget in the range of £30 billion. What figure do you regard as a material change to undermine your budget process? Is that £100 million, £500 million, £1.5 billion? Even with the scale of the Parliament and the Government's budget, of course, to extract or change budget lines to the tune of £100 million is a material change. That is a significant sum and would require readjustment to any budget proposition, of course it would. However, what we do not know is, with all the variables in play, what the scale of change looks like. A change of £100 million that we have seen in previous budget processes is a material change in circumstances. If, with the variable factors that we have, with the income tax position, the spending review position, with the new tax powers that we have, and bear in mind, of course, with our devolved taxes, it is a far more complex position in the levers that we have and the spending commitments that we may choose to make. I do think that a change of £100 million is of material significance, yes. Will you accept that the measure of materiality of 1 per cent in accountancy terms, which some accountants would use, is a reasonable one? Equally, Mr Kelly, will you accept that, when embarking on a process knowing that your budget is wrong and your stamp position is already potentially out by hundreds of millions of pounds, is it a good starting position? Well, I would put it to you that you have got to look at the measure of materiality, and the measure of materiality that I would use is, if it is greater than 1 per cent on your budget. Anyway, moving on, Mr Mackay, just one... Can we get to the last one, because I want to move on to other people as well? Yeah, sure, sure. Briefly then, Mr Mackay, just in terms of budget scrutiny, you said that you were previously a member of the committee, and I know that you were very active in that regard. How important do you think is the role of subject committees and, based on a curtail timetable, how do you feel subject committees can actively engage with the budget in a shortened process? Mr Kelly is right. I value parliamentary scrutiny. I think that it makes for a better process, and I think that that is why the starting position should be to produce something that is well-informed and accurate so that what we are scrutinising is robust. I think that in those exceptional circumstances it would be for committees to look at their programme and say, could they work differently or radically? I am happy to meet more often with committees, make officials available as well, but those are exceptional circumstances. However, I want that period of intense scrutiny to be robust and to be accurate, and therefore if we have to do things differently, I am certainly up for that. We will supplementary in this area, and then we will come to Patrick and then Ivan. Just a very brief follow-up to the question about materiality that Mr Kelly was pursuing. Can you remind us, finance secretary, what was the Scottish Government's underspend in the last financial year? There was, in terms of what we carried forward in different categories. 150 million, and in terms of previous years that was more or less in that ballpark, was it 150 million up or down? Yeah, it was around about half a percent, yeah. So you are used to carrying perhaps 1 per cent of the overall budget forward from the previous year? Well, it has been less than that, but yes. Yeah, okay, thank you. Thanks very much, good morning. Can I just bring you back to the letter that you sent to the committee in June on June 23, in which you set out the range of factors that gave rise to uncertainty, and which leads you to the view that late publication of the budget would be desirable? Is it fair to say that of those range of factors, since the 23rd of June, in fact, in the days after that, the prospect of policy change by the UK Government has become a bigger factor, but that on-reflectant reflection, the other factors that led to some prospect of uncertainty have receded and are likely to be more marginal in terms of their impact on the Scottish budget? I think that that is fair commentary. I, as I tried to describe earlier, was embarking on the journey that the previous finance committee suggested that we embark upon to look again at the working agreement and the practices for scrutinising and determining the budget. Yes, so some of the new powers are coming, so with those new powers coming, I felt that it was certainly worth exploring the new processes going forward, but the game changer, yes, in terms of the levels of uncertainty, has been the vote on Brexit and the economic impact. The thing is, what you wrote in that letter when you were looking at the range of different forms of uncertainty was that I recognised there may be a range of views about the budget timetable and I am very open to discussing them. You looked at the advantages of more parliamentary scrutiny versus the disadvantage of uncertainty. It seems to me that UK Government policy change is always a possibility in the run-up to an autumn budget statement. In every year, it will be a possibility. Should we, as Parliament, be willing to accept the view of government that that possibility is always a reason for late publication of budgets and for subject committees effectively to have the last week of term before Christmas and the first week of term after Christmas as the only opportunities to take evidence on the budget? No, that is not what I am saying. What I am saying to Mr Harvie is that I think that we should look through the working group, and I think that that is a very welcome development, look through the working group for what works for everyone going forward in terms of the new powers that we have, all the forecasts, all the drivers and the proper need for scrutiny. So I think that we need to address all of those factors in the longer term, but for this year we are facing an unprecedented economic challenge because of the Brexit vote. Therefore, I am convinced from all the statements, some of which I have referenced, that there will be a major financial adjustment that will have an inevitable knock-on consequence to the Government's budget, and I think that for this year, in these exceptional circumstances, we should set out in a timescale that follows the Chancellor's Autumn statement. For the longer term, I agree that we need to address all the different issues within that. I think that we all accept that there will be an inevitable knock-on effect on the Scottish Government's budget, but the uncertainty arising from late publication also means an inevitable knock-on effect on all other public bodies in Scotland that the Scottish Government's budget funds. In the absence of a draft budget, it is surely more likely to be drawn to worst-case scenario planning than if there is a budget that sets out a range of possibilities. Can I suggest to you that the bare minimum that is needed is some detailed scenario planning that has been put into the public domain before the draft budget publication and before subject committees are asked to undertake what we are pleased to call pre-budget scrutiny, which therefore is not budget scrutiny. Some detailed scenario planning would allow subject committees and the finance committee to consider what the Government's priorities are in terms of mirroring UK tax rates or in terms of the commitments that we have heard yesterday to £500 million on energy efficiency or £500 million on the growth scheme or other infrastructure investments or anything from that to the baby box. All of our subject committees need to understand what will be the impact of various scenarios that the Scottish Government may face over the coming months and what its reaction is going to be in order to conduct any kind of meaningful scrutiny. Are you able to put that kind of scenario planning into the public domain? On that scenario planning suggestion that Patrick Harvie has put forward, is that something also that could be brought into the discussion between your officials and the clerks about what additional material might be produced for the committee to help to undertake appropriate scrutiny in as much transparency as can be achieved? I recognise the issues that committee members are wrestling with. I will try and produce as much as possible that helps that along. It would have to be very responsible scenario planning because people are watching Scotland with these new powers, our fiscal responsibility and the projections that we make. I want to do things that support our message and our economic credibility as well. I think that it would have to be very responsible scenario planning, but I would want to inform that so that if the UK Government takes certain actions, what does that mean for our budget and our budget process? I will make some other comments on what Mr Harvie has asked as well. I entirely appreciate the impact in agencies and organisations and partners financially supported by the Scottish Government on their figures, but I go back to the point that I want that to be an accurate reflection of our budget position. It goes back to Mr Kelly's point about material change. It is not as simple as you would think just to take out a few hundred million pounds from the Government's budget. That is a significant and very sensitive approach and issues that are in play there. There is a statement of the Government's intent around the manifesto that we want to deliver. The First Minister's programme for government just yesterday. Mr Harvie makes an interesting point about our tax position, wanting to know what we would do to mirror the UK's tax position. Exactly. Yes, well, but therein lies a key point. How can you mirror a tax position if you do not know what the tax position is? I suspect that there will be change in the Chancellor's autumn statement. It is a very fair point because with income tax powers and with the block grant adjustment, the decisions that we take around income tax do not just raise revenue, but also relative to what the rest of the UK Government does, could lose revenue. Therefore, it is entirely interlinked with what the UK Government chooses to do. However, the spirit of the question is, am I willing to produce as much as I can towards scenario planning? Yes, but it will have to be responsible to ensure that it does not then open up all the difficulties with producing inaccurate information that I am trying to avoid with an inaccurate budget. I would just like to suggest on the record that it would assist not just this committee but all our colleagues on subject committees if the cabinet secretary was able to say in the very near future what the timescale for the publication of that kind of scenario planning will be to allow them to build that scrutiny into their work plans. The cabinet secretary has heard the point. I am trying to get everybody in, but we have still got time. Ivan McKee, I said that I would come to you next. Ash Denham and then I will come to Adam. Thanks, convener. Cabinet secretary, I have been thinking about this for the last few weeks and trying to understand that. You can help me with that. I am relating it back to my experience in business, so forgive me if I take a wee candidate to her. In the business environment, clearly, you have to set budgets, you have to deal with uncertainty, that is the nature of the beast, things happen and you get on with the process. Clearly, there are situations that you get into, and I have been in them myself, on many occasions, where you know something is coming along. I know and if you want to call it that, it is substantial enough that you have to do something differently. Very often, I have seen companies push back their year-ends, etc., and I am able to understand the nature of that situation, be it a merger or an acquisition or some major change in the customer environment or something like that. Those situations do happen. I suppose that part of my question is to understand which side of the line do you see this on. Is it business as usual or is a known unknown there of such magnitude to mix metaphors? We can sail forward and we will deal with choppy water, but if we know that there is an iceberg there, it does not make sense to carry on his business as usual until we can see a bit more clearly what the scalping scale of that is. Just following on from some other comments that have been made about committees, when I sit on the health and sport committee, which I understand is the biggest spender. Frankly, the idea of spending two or three sessions over the autumn when gauging in what you might call fantasy budgets until we get some real numbers does not fill me with inspiration. Rather than waiting to see what we are going to talk about rather than waste time going round the houses on something that will waste the time. I do not know whether you might be clarifying in terms of the scalping scale and scope of that. What are those scenarios that you feel based on the evidence that we are looking at? I miss the key raises a valid point, but I have to say that if I knew how big the uncertainty was, it would not be uncertainty. It is difficult to answer that. There are so many variables and so much uncertainty in play. It is hard to pin down the scale. Even the Chancellor concedes that he is unwilling to make decisions before he has the OBR figures. If he is unwilling to make decisions on an autumn statement, how can I be expected to produce an entire budget without that starting position from the Chancellor in terms of the change that is now expected to be caused from the Brexit vote and the economic turbulence? That is notwithstanding the fact. I do not think that we should lose sight of this, that your previous committee said that we had to address the issue of forecasts and being a different kind of Parliament than the one that was created when the FIAG principles were established. Good morning. I would like to explore what is happening on this issue in other parts of the UK. You have touched on this a little bit already. In Northern Ireland, they had been planning to produce a multi-year budget, but just in the last couple of days, they have changed that position. They have now decided to do a one-year budget. The finance minister has been quoted as saying that the budget cannot be put together until the Chancellor Philip Hammond's autumn statement, because of its likely knock-on consequences for the Stormlock grant. I think that I am right in saying that the Welsh have also had to make adjustments to their budget. A budget delay here would not be unique to Scotland. That is absolutely correct. The difference between Scotland and the other devolved administration is that we have more powers. We have more variables because of the fiscal framework, the agreement and the block grant adjustment. We have even more uncertainty than those other devolved administrations. It could be argued, but you are right to say that the Northern Ireland administration and I have engaged with their finance minister will not be preceding pre-Autumn's statement for very sensible reasons. Wales may choose a different course. It may have different issues at play. It may will want to pursue a budget and have the Tory Government reopen that and then have someone to point to if they have to do that. However, it is certainly Northern Ireland for the reasons that are similar to our own, but we have extra variables as well. It is not proceeding as you described. I think that that shows the consensus around not making any rash decisions before the autumn statement. Clearly, what we are talking about here—and it is not the first time that we have talked about it since the election—is a trade-off between two different values, both of which are in the public interest. The first is the value of accurate budget forecasts and accurate draft budgets. We have heard you say quite a lot about the importance of accuracy this morning, but the second, which I know that you also believe in as passionately as I do, is the public good in effective and robust parliamentary scrutiny. What you are asking the committee to agree to—so far as I understand it, correct me if I am wrong—is to privilege the accuracy of draft budgets and of forecasts over the public good of effective and robust parliamentary scrutiny. I just want to understand a little bit more on the record about exactly what kind of cut into effective parliamentary scrutiny you are asking for. You are saying that you will not produce a draft budget until after the autumn statement. I asked you in June how long it would take you to produce a draft budget after the autumn statement, and the answer from you and your officials was at least three weeks. If the autumn statement is at the end of November or beginning of December, as we expect, given the Christmas recess, we are not expecting to see a draft budget until the new year. I also asked you in June whether we could elongate the other end of the process so that we would have more time into the spring to consider the draft budget. The answer is that we really cannot do that for various reasons that we cannot shift. You are asking us, as I understand it, to consider the entirety of the draft budget and budget from the initial publication of the draft to the passing of the budget bill in a matter of about seven or eight weeks from early January until late February. That is helpful. It is not just Mr Tomkins who has been thinking about the budget process for the last few weeks and months. It has obviously been playing on all of our minds. There is to give much more certainty. The one man who could give us much more certainty in all of this would be the chancellor. If the chancellor laid out that Scotland's budget would be untouched and that they were going to do nothing different to what they had said they would do, an income tax would have far more clarity, so that could be resolved at the stroke of a pen by the chancellor in terms of material impact on Scotland's budget. That said, I have a different view on what effective scrutiny looks like in that respect. I think that a credible budget is far more worse scrutinising than a budget that is inaccurate. That is why effective scrutiny, as Mr Tomkins describes it, would be a credible, accurate budget based on the most recent forecast and decision from the UK Government following the autumn statement. In terms of options, I support property and proper parliamentary scrutiny. I think that the Parliament and its committees should work with us constructively to think differently about what happens in that period of draft publication right through the processes of the Parliament. Could committees meet more frequently? Could they have additional settings? Could they call ministers? There are different things that we could do if that is the will of Parliament. It is not just about the length of time, but about what effective scrutiny looks like during that period of publication. I explored the extension at the other side of the budget process, but that was incredibly difficult because of the stakeholders and the partners that are relying on the budget and the legislative process within Parliament, Royal Assent and so on. There are serious issues why you would not want to extend it at the other end of the process, but we should be radical as to what we could look at beyond publication of a draft budget. I committed to producing a budget as quickly as possible after the Chancellor's autumn statement. The timing for his statement is not in my gift, but we would work incredibly hard to achieve that three-week period. That was also because we would rely on some of the work from the Scottish Fiscal Commission. That is really important to have that as part of the process. Three weeks would be challenging, but that is what I would try to do to ensure that the draft budget is published before Christmas. Merry Christmas, everyone, but I would commit to that. I go back to the Northern Ireland point, which is not proposing to produce as far as I understand it before Christmas, so it will be into the new year. I am saying that I will do it as swiftly as we possibly can, which I have set a target three weeks after the Chancellor's autumn statement. That is challenging. Reading across from the consociational arrangements of the Northern Ireland Assembly where there is no Government in opposition to the arrangements that we have here in the Scottish Parliament where we have minority Government and clearly Government in opposition is dangerous. One can overstretch that. Our independent adviser working with SPICE has advised us, Cabinet Secretary, that the changes to the Scottish budget that are likely to have to be made after the autumn statement are—and those are the words that have been used in the documentation that I think is on the committee's website—relatively minor, marginal and limited. That is why James Kelly and others have been talking with you about exactly what kind of changes that we are talking about. Our advice, the committee's advice, is that the changes that you would need to make post the autumn statement are relatively minor, marginal and limited, and yet you are asking for a massive curtailment of parliamentary time in terms of the extent of the period available for this Parliament to scrutinise your draft budget and the subsequent budget. It seems to me that, again, if you are thinking about trade-offs and you are thinking about not only the likelihood of the risk of inaccuracy, but also the magnitude of the harm that will be done to Scottish democracy by this Parliament not being able to scrutinise your budget proposals effectively, that you are asking for something that is perhaps going a little further than is necessary. I disagree on two points. First of all, any adjustments would be minor or easy. I do not know if you have got greater or anyone has greater insight into what the Chancellor is about to do than the Chancellor. Therefore, I think that it is very difficult for any spectator to say that what I will do will be minor or easy. If the Chancellor cannot produce his autumn statement without the OBR forecast, how can I be expected to produce an entire Scottish budget in that form? I do not think that it will be minor or easy. I think that the Scottish budget is very complex. Even more complex now with the new powers and the interplay with the UK Government decisions is very complex. I am sure that all members of the committee would understand. I take a different view on effective scrutiny. I think that effective scrutiny is best served by having the best up-to-date position and knowing far more than we know pre-autumn statement. What the committee will be asked to study is a more accurate, credible document and proposition from which we negotiate with the parliamentary arithmetic and is scrutinised. I am happy for that to be even more intensively scrutinised than has been the case in the past in light of circumstances. However, I do again, so I think that it would be wrong to publish pre-autumn statement. I suppose that we just have a difference in opinion on that, but I do not think that it is undermining Parliament to want to present the best that I have. Parliaments do with budget scrutiny, and they have said that the ideal seems to be that parliaments are enabled to scrutinise budgets for a period of between three and four months, and that is what happens in places such as Canada and Denmark and all sorts of other good places. To make sure that I do understand this, you are asking us to agree to a timetable that is less than half of what the OECD has recognised as best practice. Mr Tom, I think that I will need to check whether the OECD studied independent nations or devolved administrations within those arrangements. I am happy to check that point, but you are right that the United Kingdom Westminster Parliament has, if not the worst, parliamentary scrutiny of the budget process. It is not something that I would want to emulate, but I think that we have to get the balance right in Scotland. That is exactly why I want to support the working group so that we can co-design the best possible system for the future, but we are in unprecedented circumstances for this financial year. Mr Harvie mentioned earlier that some of the financial commitments that were made in the programme for government yesterday are 100 million in capital projects, 4 billion in infrastructure, and next year 3 billion plan for housing over this Parliament, 500 million for energy efficiency over the next three years, 90 million over the next year for broadband, 3.5 million for new innovation hubs, biggest ever R&D grant, half a billion Scottish growth fund, attainment fund, 250 million each year from the NHS to social care partnerships, protecting police revenue budgets in new terms, 100 million extra over the next time on a partner. I presume that they are all going to be in your budget because you will be in trouble if they weren't. Can we expect, as a committee, any further information on spending commitments if you are not producing a budget before you do so? Can we expect any further spending announcements? I think that it is a very fair question that Mr Bibby is right to ask, and I thank him for just outlining just some of the highlights from yesterday's programme for government. If even the Labour Party members are proud and listening to the proposed direction of travel from this, the Government then we are doing not too bad, as we say in the west of Scotland. In terms of the question, if you take one significant issue such as the Scottish growth scheme, I have immediately engaged with the committee on that by writing to the convener so that that can be discussed in terms of how we take that forward in the detail. The Government is entitled and indeed expected to, in its programme for government, outline how we will deliver our manifesto commitments, and that's what we are doing. Of course, the programme for government is interlinked with the budget that I would propose. Naturally, as I referenced earlier, members have a role to play in that as well, we will have to get a budget passed for the Government to be able to deliver its manifesto and its programme for government. That is the matter of parliamentary arithmetic, but I will continue to work constructively with the committee to share information on proposals, propositions and any budgetary matters that you might be interested in, as well as the existing infrastructure in the Parliament, such as the revisions to the budgets, which are twice yearly, and the various financial and fiscal orders that will have to undertake, as well as the new orders that will be required as part of the new powers from the Scotland Act 2016. In terms of the amount of detail that you have given so far, there is obviously an argument that you could go further in terms of giving more detail. Ivan McKee was asking about the health budget and the one to gauge in fantasy budgets, and health being the largest spending committee. You have given a manifesto commitment to protect the NHS budget, if surely that is going to be maintained in your budget. You don't need to give us all the details, but if the biggest spending commitment in the budget is health, and you have given a commitment to protecting that spending, surely we could see a lot more detail on what the NHS budget is going to be doing over the next year? I think that you will be aware, Mr Bibby, of the detail around the NHS commitment. Indeed, all the commitments in the manifesto, I am sure that you have read it from cover to cover, but in the NHS that is right. There was agreement about real-terms protection passing on consequentials and, overall, an above inflation increase of £500 million by the end of the parms. That is the kind of thing that we have committed to in the manifesto. In terms of budget delivery, that is the kind of policy that I would pursue. For example, if you are going to follow through in that commitment to protect the NHS budget and the next budget, there is no reason why we need to see a delay in scrutiny of what the NHS budget is going to look like? What I am outlining is the manifesto commitment on protection and health that this Government intends to deliver. What I cannot present to you now, for all the reasons that we have explored this morning, is the Government's draft budget, but we still intend to deliver that manifesto commitment. Maureen Watt. Good morning. I am very new to this committee, so I am struggling a little bit to understand the issue of delay in the draft budget. It seems to me very clear that there has been a hugely significant event over the summer, which is likely to have a very big impact on finances. It seems to me very clear that you need accurate figures in order to do your budget. It seems to me that the figures that are in March are very likely to be superseded very soon by new figures, more accurate. I have looked at the last five years where there was not very much variance. I would say that we are more likely to be in the sort of situation where that will be in 2008, where there was a huge change over the course of the summer. The figures came out in March and were vastly different by November. I will just look at the situation. In the UK spring budget in 2008, the prediction for income tax receipts was to grow by 6.8 per cent. In November, when the forecast came out, there was a fall of income tax receipts down by 3.5 per cent. There was a 10.3 per cent change between March and November. I suspect that that is the situation that we are in at the moment. I am just wondering if you have any confidence in the likelihood of there being that, if you have any idea of the likely scale of change that is going to come from March to November this year? I think that characterisation of the issue was pretty accurate from a member that thinks that they have not grasped the issue. I thought that that was probably better than my notes to express it anyway, but I think that the point around the last few years has been relative economic stability compared to the current position around Brexit and compared to the financial crash. I cannot put a range on the scale of financial adjustment that might be undertaken, but we are in the area of substantial, because of the range of variables, substantial adjustment as opposed to a bit of tweaking here or there, but that commentary on adjustments over the last few years has been largely through a period of relative economic stability, in which Barnett consequentials were on the increase, but set in the context of real-terms reductions to the Scottish Government's budget, which has been the case since about looking at the period from 2010 on figures of real-terms reductions. That real-terms reduction, by all accounts, is likely to continue. I am understanding that that change has already been signalled. The outgoing chancellor said that there would be a punishment budget. The current chancellor said that he is going to reset the economy, so we have been told that there are likely to be big changes coming. I would like to say that the previous chancellor warned that there would be an emergency budget, and he made comments based on Treasury modelling and others on impact from Brexit. The new chancellor has said that he will reset fiscal policy, whatever that means. That could mean something substantial, but it is in his gift. If he is looking at the economic forecast, and I am sure that I know that he is, but he is waiting for the OBR to conclude his position and then determine which economic and fiscal levers to pull, but his interventions thus far have simply been where he has responsibility to react to the Bank of England's monetary interventions rather than fiscal interventions. That is coming in the autumn statement. Cabinet Secretary, one of the things that has been exercising me since about 10 o'clock when I became the convener is the fact that you and I are both former council leaders. I am sure that there will be other people who have been councillors who have done other things in their lives when the public service budget matters greatly to them in terms of how they go about their job. I mentioned to others in private before we began that one of my concerns is that, if we produce a budget at this stage, which turns out to be inaccurate and has got a level variance at 200 million or more, the impact on other organisations out in Scotland could be significant. However, if we produce a budget in October from my experience, if that was to happen, then council leaders all across Scotland would begin to scenario plan on that budget and begin to build some certainties into the organisation about what they might do, but, of course, the potential is that that might change significantly. From your experience, how turbulent you think that could be, not just for local authorities but for all the other non-departmental public bodies that the Scottish Government is responsible for? It is not just about this committee, it is not just about the Government, it is also about how wider Scotland deals with the issue of the budget. I remember being a council leader and having to revisit budgets mid-year as a consequence of the downturn. That was a difficult process naturally. That is why I want the best possible certainty as you embark on the budget process. Many councils will be working on it at the moment. They will be modelling scenarios and engagements that I have had with COSLA and, indeed, other local authorities. I have been able to share as much as I know about the UK spending decisions in timetabling, and I think that they will be modelling on a range of scenarios. They will also have looked at the commitments of the Scottish Government as well from the manifestos, so I think that they will be preparing, but they would far prefer a credible draft budget that is accurate than the one that is inaccurate, because it is incredibly difficult to then go back and unpick portfolio budgets and potentially a settlement to local government to unpick that. Parliament is primacy because Parliament will vote on the budget and either approve it or not. It is that parliamentary arithmetic that is important. Therefore, local government will have to watch carefully what Parliament chooses to do. However, in any discussions and negotiations that I have with local government, they will want that degree of accuracy and certainty, which I can only give post-Autumn statement. I know that Murdo wanted to ask a question that is not directly related to the discussion that has been having, but it was related to the budget to do with the growth scheme issue. Do you want to deal with it now, Murdo? Thank you, convener. In relation to that, you have mentioned a couple of times this morning finance secretary, the Scottish growth scheme, which was announced yesterday in the programme for government to which you wrote to the convener about yesterday in more detail. It is a substantial and significant measure in the Scottish Government's programme yesterday to promote the economy. Indeed, it is probably the most significant economic measure that amounts to £0.5 billion of loan guarantees. It is also on the front page of a number of the newspapers this morning. Clearly, the Scottish Government has been promoting that as a key part of its programme to support the economy. You say in your letter that that will require Treasury support because it requires additional AME budget cover. What discussions have you had with the Treasury about whether or not the support will be forthcoming? I had no conversations with the committee on that specifically before bringing it to Parliament. We have given Parliament the courtesy of knowing first, but I have written to the chief secretary to the Treasury at the same time as writing to the finance convener. I hope that the UK Treasury will be co-operative around that, because it has no financial call upon UK Government. However, if delivered, as Murdo Fraser pointed out, it will have great assistance to the business community in Scotland and will be managed by the Scottish Government, and we will engage with businesses as well as the committee on the operation of the scheme. With respect to the cabinet secretary, is this a responsible way in which to proceed? Because this is clearly the centrepiece of the programme for government in terms of its economic support. It announced with great fanfare yesterday, and it now appears that it has had no discussions at all with the Treasury after whether or not this will have their support. Surely, you should not have had a conversation with them or, at least your officials, have a conversation in advance with the Treasury to try and understand whether the support would be forthcoming before announcing it with such fanfare. I am sure that the UK Government, with its alleged support for the business community, will want to support the Scottish Government to deliver such a scheme. Should we not come to Parliament to engage with Scottish parliamentarians on such matters? I have to say that Murdo Fraser is well aware that the UK Government often makes decisions that impact Scotland and our budget and our businesses without engaging with the Scottish Government first. I could list examples where that has been the case, such as the apprenticeship levy or other levy. It is the case that the Government of Scotland can pursue our policy objectives. I welcome the fact that Murdo Fraser believes that it is the centrepiece of the programme for government. That is good commentary, because it is a significant intervention to support our economy at this time. I think that it shows innovative thinking on the part of this Government and how we will use the strength of our balance sheet to support Scotland's economy. I ask all members of the committee and all political parties to support us in pursuing this and progressing it. I see no good reason why the UK Government will not want to proceed with this and support us on this. In fact, I would not be surprised if they copy it. One more question. Cabinet Secretary, you just spent the last hour telling us that your hands are tied in terms of publishing a budget and making any financial decisions in relation to the Scottish budget because you are waiting on information from the UK Treasury. Now you have just told us that you can go ahead and gleefully publish an ambitious scheme that may or may not be of great benefit to the economy, but I have had no conversation with the Treasury at all before doing so. Can you not see the clear contradiction in what is said in this letter and what you have been telling us for the last hour? If Murdo Fraser wants to appreciate and understand the detail of how that will actually work in terms of the strength of our... That was on my question with respect, Cabinet Secretary. Well, it is actually. If you want to understand the detail of how that actually works, it is not the same as setting out a budget proposition because of the detail of how that will work within the annually managed expenditure limits. It is a different context, but I suspect that the Conservatives will back that particular measure. I think that if the UK Treasury has any sense, they will support it. Do you not respect Parliament, Mr Fraser? Again, following up on the announcement of this scheme, I do not have the First Minister's statement in front of me at the moment, but if I recall correctly, both before and after the scheme was announced, the First Minister was using the language of inclusive growth, fair work, decent terms and conditions for people. Those kind of issues came up. There has been a range of ways in which the Scottish Government has tried to give encouragement, but the discussions at the economy committee in the last session showed that there was a degree of reluctance to build in real incentives. Can the cabinet secretary tell us how that scheme will promote, for example, the real living wage, low wage ratios, decent terms and conditions, employ ownership of businesses? How will that scheme be used to help to build a fair and inclusive economy rather than just any kind of business goes? I think that that is a very helpful point to make, and that is partly why I have written to the committee convener. Primarily because of the working agreement, and that is how the guarantee scheme is operating around the £1 million limit at the moment. I think that we need to explore how our scheme would work in terms of a revised working agreement, and I am more than happy to engage on those issues as we construct the scheme to take forward in dialogue with business and the committee with treasurer support. Those could be issues that we could consider. Mr Harvie is absolutely right that we have taken forward many of the principles and practices that we would encourage such as the living wage, so I am happy to have that dialogue as we construct the fine detail of the scheme. The committee will consider the issues that were raised during the evidence session in regard to the timetable for scrutiny of the 2017-18 budget and the budget review later in the meeting. My clerks will be in touch with your officials on those matters, particularly on the issue that you raised at the beginning and others explored with you on how we can get additional material that is transparent and accountable as possible around the scenario of planning issues that Patrick Harvie mentioned. I hope that those discussions can prove to be fruitful.