Ie be, a chy nesaf bod i'n gweithio i'r trofn yn 2020 yn y Ffianaswn Pwleidio Llewgrifweith Lithu. Yr ystafell ar y gyfnod oes yn gweithio i os yngyrch fyddion mwy o ddysgu talerau rhesu roes. Fy gyd, mae'n gwneud ar fyddion mwy o ddysgu talerau o ddysgu talerau roes a gweithgrydddoch hwn ar ychydig dwych. Rhyw gyd, sef yr ysgol yw ysgol fyddi wrth gwrs Gwyleidio Llewgrifweith Lithu i enghraife'r ond the impact of Covid-19. We will now turn to the session, and we will hear from two separate panels of witnesses. We are joined remotely from our first session by Councillor Gail McGregor, the resources spokesperson of COSLA, Allen Russell Chair, SIPFA Director of Finance, Linda Somerville, Deputy General Secretary for Policy, Equality and Political Liaison at the Scottish Trade Union Congress. I intend to allow around 75 minutes for this session. Members have received a paper rhaiwyr addysg o ddweud hynny o'r cyd-agorwbeth ac yn fy nghyd-icyn窮au mewn tirion ac ar concerns anghen i'r ffordd i'r cram. Felly, bydd y cyd-agorwbeth yn ôl i'r ffordd i'r yr infoblig ac yn ymgyrch gyda'r cyd-agorwbeth o'r cyd-agorwbeth ymgyrch. Felly, ein cram i'r ffordd i'r ffordd i'r ffordd i'r ffordd i'r cyd-agorwbeth fel y ddechrau i'r cyd-agorwbeth a Bravo swyddi ac gan roi eu grwanae yn gyffredinol ar yr by raising your hand and timing R into the chat function of the BlueJeans software package. We welcome our witnesses to the meeting. We would like to start the session by asking our COSLA CIPFA representatives first of all, but of course Linda Somerville can add her own thoughts as well. In regard to the key points in your submission, you have said that significant levels of investment must not come at the expense of critical services, which local government needs to provide in recovery and tackling poverty and inequality. You talk about the need to have a fair settlement for local government. I am just wondering what you would consider to be fair funding for local government, because obviously the Scottish Government would take the view that fair funding is currently deliverable, so it would be helpful to the committee if you could advise us what you mean by that in detail, particularly in terms of the volume of resources that you believe should be allocated to local government. Gail John to kick off first. Yes, sorry, thank you. Good morning and thank you for inviting me along this morning. I think that you and I have met before on a previous committee and we have probably had very similar conversations. It exposes the on-going complications with local government funding and funding coming from the Scottish Government and our ability to raise our own funding. Obviously, through the past 18 months, there has been a huge spotlight on local government and its function and where we deliver services very critically to our communities. That notwithstanding, we have a vast array of services that we deliver every single year, as you know, and they cut across many different areas. Within that, we also have to deliver on Scottish Government priorities, and their policy priorities are usually in conjunction with COSLA and very good priorities and very good policies, but they do not give an awful lot of flexibility for local government to adapt locally within those policy areas. The key thing is that we need to look at securing our core budgets and enabling us to deliver our core services, which we deliver year on year, but then ensuring that, over and above that, any ring-fenced projects or policies are properly funded and then included going forward into core budgets and ensuring that, as I say, any top-ups are fully funded by government. One of the problems that we have had in recent years is a shift towards more ring-fencing and, again, very good policy areas. Early learning and childcare would be a prime example. The quantum for that was agreed on an actual basis. It was to fully cover the costs of delivery of that particular service, but as time goes on and as that expands and as the core is eroded, it makes it more difficult to continue to deliver at the 1140 phase stage. I think that the key message from local government to Scottish Government is to fund our core, as it should be, and to ensure that all additional policy priorities are fully funded at source and going forward. I think that that would put us on a more stable footing. I suspect that we may talk a bit more about fiscal framework throughout the rest of the session, so I will perhaps just leave that there unless someone wants to come in. Yeah, thanks very much. I mean, what I would like to just add, I suppose, for some context, for the committee is, I suppose, looking at financial settlements over the past number of years. I'm sure that the committee has seen the analysis produced by SPICE and looking at local government settlements and how that's changed since 2013-14 in comparison to the change in resources at a national Scottish Government budget level. That analysis showed a divergence of growth in Scottish Government resources in real terms of 2 per cent over that period, in the contrast for local government of a reduction in real terms of about 2 per cent or so over the same period. What I would say is, as much as that divergence is there, it significantly underplays the level of pressure that has been experienced by councils over that period. What that particular analysis focuses on is the headline figures, which are understandable in terms of SPICE, looking at that particular analysis. However, if we look at the 2021-22 settlement, what's included within the £11 billion or so local government budget was about £1 billion linked to early learning childcare expansion, pupil equity funding, which was passed on to schools, and about £370 million linked to council tax freeze. Those were areas of either expansion in the services and spend that local government was delivering over that period, or the council tax freeze grant linked to a compensation for maintaining a freeze during that period. I think that if we adjust for those areas of the expansion in the services and then compare the position to 2013-14, the real-term reduction in grant is something closer to 12 per cent to 15 per cent over that period. Therefore, that's the level of challenge that councils have had to face during that period. I'm sorry to interrupt you, but because of time limitations and the need to get everyone in, and having three in a panel, I don't want to interrupt your flow too much, but I think that we fully understand the position that you're articulating. The issue is what do we do about it? For example, we've been advised by our financial security unit that real terms increase in budget is likely to be of 2 per cent across the board. Obviously, difficult decisions have to be made in terms of the public finances. For example, if additional resources were provided to local government and we don't know if we're going to get any additional monies with regard to Covid going forward, where should that money come from? Should there be additional taxation? Should there be money shifted from other budgets? If there is additional taxation, how much should it pay? I think that everyone who comes to this committee, a number of witnesses last week, all suggested additional funding for their particular area of interest. However, what we are trying to do is look at a balance. If people are coming saying that there should be additional funding, we really need to know what additional resource is required given the financial situation that we are in. Otherwise, we're really not going to get any further forward. I'll just try to be brief. On the issue of taxation, it's probably not directly a question that I should respond to. I suppose that that's a political judgment on taxation levels and how those might be used to direct additional funding. In terms of the services from local government that have been particularly critical during the Covid response and continue to be so of those areas that have been most challenged and squeezed financially over the past number of years. From a local government perspective, a funding setting that provides the ability to invest in those services and maintain and enhance them are areas that are of particular importance moving forward. However, those services are focused on employment, housing, green space, physical activity, mental health and so on that are all recognised as being critical to supporting health and wellbeing of a nation. Indeed, they are seen and recognised as being very worthwhile in value for my investments that reduce pressures on other areas of the health sector. I think that the ability to direct resources to local government to invest in those services that have been most squeezed have been shown to relieve pressure in other areas of the public sector that are under on-going pressure from the pandemic. From my point of view, being able to view health and wellbeing in a much wider sense is something that should play significantly into future budget considerations. That is something that is very well recognised as paying back significant dividends and returning health and economic benefits that far outweigh the upfront investment. You have talked about restorative pay settlements. You have also talked about the need to massively expand public-owned housing, a street-by-street home retrofitting programme, and a number of other issues, for example the Government's providing good quality unionised jobs. Are there any costings that have gone into that? Obviously, as I mentioned just a few minutes ago, we have significant pressures on the budget. You have obviously talked about taxation, so perhaps you could expand on that in your response. Thanks, convener. I have an opportunity to come along today. I have taken it back to some of the points that Gail made around where we are in terms of local authorities and funding. It is clearly documented the pressures that local authorities have been under, but when we talk about local authorities, we do not just mean the structures of local authorities, we are talking about the people who work in those local authorities and the pressures that there has been on them. That is therefore why we focus quite rightly on the workers and the workforce within those local authorities, and the need to take action there. For us, local councils may have added a shortage in funding for them. That comes through listening to the comments that were made there about the shortage that that might equate to in around 12 to 15 per cent. That correlates to the difference in real-term wages that there has been also lost to local authority workers. Whilst we want to think about what we can do coming out of the pandemic and what new ideas we might need, because I think that what we are talking about here is trying to get some new ideas on the table, rather than just recycling what has been around, we have also got to think what is the actual consequence for those who are working in local government who have taken the strain both during the pandemic and will do, because we are looking at a multi-year-on-year issues that we are still having to deal with. If the health crisis hopefully does resolve itself, the economic crisis on the ground and the stresses of those working to deliver those services within our communities are not going to go away easily. Thinking about some of the different ideas, one of the things that we have looked at in the past—we did some work with the IPPR previously—Scotland wants to think of itself as a fair work nation. How do we take forward the ideas of fair work? How do we embed them throughout our businesses, not just amongst the public sector? Looking at a supplement for employers to pay as a fair work supplement is one of the ways that there could be additional revenue increased. There are some customs for that in the IPPR that we could share with you separately. There are some other ideas about conditionality for public sector funding. What does that mean if companies who are often extractors from some of our public services in terms of what they are delivering could contribute better and contribute more? Thank you for that. Gail, you mentioned the fiscal framework in your response. In part 28 of your submission, you said that the devolution of tax powers to the Scottish Parliament has introduced a higher level of risk and uncertainty around the assumptions required to deliver a budget. Fundamentally, the relative difference in earnings growth in the composition of taxpayers in Scotland compared with the rest of the UK, which is a key feature of the current block grant adjustment mechanism, suggests an unfairness in Scotland's disfavour. How would you rebalance that, given that that is an issue that we are going to be deliberating over in the weeks and months ahead? There is a lot of work on going around the fiscal framework between the relationship between the Scottish Government and local government, but also between the Scottish Government and the UK Government. I would say that, in a lot of ways, our asks of the Scottish Government are very similar to the Scottish Government's asks of the UK Government. I think that the key thing is to try and ensure that we are able to raise as much money through various sources within Scotland to assist our communities. I would say that the work that we are doing around the fiscal framework is to ensure that the package that comes to local government that enables us to spend in our communities can be topped up in a local way. I suppose that examples of that would be things such as planning fees, building control fees, which could be levied a little bit higher in some areas and bringing in some additional income. The whole question of fair funding in Scotland is one that the Scottish Government and local government would be fairly joined up on. We are essentially looking for the same things for the ability to raise additional funding where required and the flexibility to spend where the spend is absolutely needed. As I said, that work will be on-going with both the Scottish Government and the Scottish Government and the UK Government over the coming months. It was put in a bay and it is obviously due to Covid, and that work would probably have been completed by now, but it is a very thorough piece of work that we are all doing. Obviously, we had the transient visitor levy that was going through the passage of Parliament. In the last Parliament, it has not yet been signed off, but it would be another thing that would give local government the ability to raise some income locally. The key message from us is that what we want is essentially the same as what the Scottish Government wants from the UK Government, the flexibility to spend locally and raise locally where we can. However, in the first sentence that I quoted, the devolution of taxpayers of the Scottish Parliament is introduced to a higher level of risk and is set in to the assumptions required to deliver a budget. Surely that would be the same if devolving powers to local authorities more to fundrais. Surely planning and building control fees could actually act as a turn to planning applications and building control plans. Are they not going to bring in significant sums of money for local government? No, they are not going to bring in significant amounts of money, but they are going to give a buffer at local level, as I am sure you, where those are only examples of what we are looking at within the discussions on fiscal framework. Nothing is obviously off the table, everything is on the table at the moment. However, the key message is that if we have a service that is not covering the costs of delivering that basic service and has the ability to raise a little bit more additionally locally, we should have the flexibility to do that in those of the discussions that we have with the Government. Allen may have some examples from the direction of finance team around other areas that we are looking at. Okay, thank you. Allen, do you have any other examples?  I think that there are a range of areas that have been discussed and looked at in relation to areas such as applying bill control fees. For very large developments in applications, there can be a disconnect between the cost of dealing with that and the fees that are associated with it. In looking at what is the potential basket of local leavers that councils could have at their disposal moving forward. Transient visitor tax was one that was previously on the table, but it is also exploring and examining how and what the future of non-domestic rates could look like at the moment that it operates on a national basis. However, another area that was on the table for discussion about how that could potentially be reviewed in the future as part of an increase in the leavers available to councils at a local level to support local priorities. Okay, thank you. Linda, the STC has said that it believes in progressively increasing the overall tax take of central and local government. How far do you wish to advance this? Have you looked at what the behavioural impact would be? For example, about 30 per cent of income tax is paid by about 1 per cent of taxpayers. What would be the impact on those if, for example, higher tax levels were significantly higher than south of the border elsewhere, given that capital is often mobile? One of the things that we have talked about is looking at blanket tax cuts that there are just now for businesses and saying that we do not think that that is an efficient way for tax at the moment in terms of creating jobs and promoting fair work. That is one of the things that we would want to look at and that we think that the committee should take forward in terms of, again, coming back, all of the talk around job creation that we need to think about is in terms of our fair work framework. We have to put it in that context, so completely blanket tax cuts that there are for businesses through rates relief we do not think is an efficient way that we would like to see things done just now. We also know that some of the tax incentives that there are for businesses do not always change business behaviour either. Again, we would like to think that there could be other ways that that could change. In terms of changing the progressive tax rates, we think also that there needs to be more thought about about wealth taxis when we look at how we want to compare what we can do by raising our own revenues. If we are thinking about having not just a post-Covid recovery but potentially dealing with a huge investment that we are going to need going forward if we want to move towards a net zero nation, we have to think about how we can raise and tax those businesses that there is and indeed income tax through wealth taxis to pay for that because there has to be some significant change in how we structure our economy if we are going to take forward the particularly huge crisis that there is around climate crisis. We have an opportunity now to begin with this budget and indeed successive budgets from now to begin to set the direction that we want to take for that. That is why we think that it is important that we need to look at increasing tax and indeed considering wealth tax as well as business taxis. What would be the impact on behaviour of those increasing taxes if we looked at that? Obviously, if someone in Scotland is faced with a significantly higher tax burden than elsewhere, they might just decide to operate their business from somewhere else and then we do not get their income tax. That is the question that I was asking. There have been studies into behaviour and I am just wondering at what level you think is the optimum. I do not have an amount for an actual level in terms of the optimum, but in terms of studies around it, we have found even more recently that the IMF is saying that they think that there is less risk and actually more benefit in terms of putting forward higher taxis. I think that the debate around behaviours is changing and that is something that we should consider. I would like to follow on from some of the things that have been said by Gil Mcgregor about the level of funding for local authority. In the last budget submission that you created, COSLA stated that there was a £500 million shortfall after the budget revisions as the budget went through. Is that the case? I would be interested in knowing what the consequences were, given what you were saying about the difficulties that local authorities have in delivering core statutory services, even the basis of the current funding. Secondly, given that budget process was just midway through the pandemic, and given that many of the services that councils provide are fundamental safety net services, what would your current assessment be of the increases in demand and the current shortfall that local governments are facing? Last year's budget was particularly challenging. We had Barnett consequentials that did flow to Scotland and were able to plug a fair amount of the gap that we were finding in local government. That might be ties in with the convener's question, but one of the big pressures that we did have within the financial year was loss of income. It did expose how much councils generate through income through community facilities and other services that are delivered by councils. The loss of income was very significant. The additional funding that came from Covid helped to plug some of that gap, but not all of it. Obviously, looking at our workforce, 70 per cent of our budget is on our workforce. We were not in a position to be able to furlough staff. We had to continue to pay them absolutely rightly. The staff that continued to work on the front line delivered a tremendous job, but that is an on-going pressure for local government through the Covid pandemic. In real terms, what we have had to continue to do is business as usual with everything else over and above. The shortfall that we have seen has been even more exacerbated by having single-year budgets and not having the stability of multi-year budgets where you can move things around ever so slightly. Obviously, like the rest of the public sector, we need to manage our risk, and the ability to manage that risk has really been pressured over the past 19 months. We are certainly not out of the woods. We are going to be huge contributors to economic recovery and recovery in our communities. If we are starting off from a financially lower base than normal, that is going to exacerbate things even further. I think that Alun might have some examples. Just before you move on, I am just wondering if you can just identify any particular consequences. Are there any particular areas of provision that you think are particularly exposed or have particularly suffered because of their funding shortfall? I think that Alun will probably be in a better position to answer that, because, obviously, he will have modelling from various councils. Thank you, Gail. What I would say is that I would circle back slightly to some of the opening remarks that I was making in relation to the squeeze on government grant coming to local government. With that, there has obviously been, throughout the period, conditionality, directing funding to social care, and conditions linked to, for example, education and teacher numbers. Those two areas represent, broadly, the two thirds of councils' budgets. The other areas of council services that support communities, employability, transport infrastructure, etc. are the service areas that have had to shoulder the burden of managing those particular financial challenges. Those are the areas that have suffered the most during that period, and the services that support communities across those areas. The most critical, in many respects, during the response during the Covid pandemic to support our communities in most of our most disadvantaged communities that have suffered disproportionately during the Covid pandemic. During the Covid pandemic, the funding that has been provided to the Government has certainly helped to allow councils to bolster those services during that period. I think that it is recognised that the demands in relation to supporting our communities moving forward and, as we move beyond the pandemic, are not going to go away. Many of the problems that a life has shown on and has been experienced will continue. Individuals in those communities will have significant demands and needs from local authorities. From that perspective, it is the areas that present significant challenges for councils and the areas that have been under the most squeeze over the past three years. I also want to pick up on the point about the level of ring-fence funding that you are now receiving. In particular, Gail, you highlighted on the 11-40-hour commitment something that we all agree with. Can I ask you for a bit of detail on that and to clarify that? Are you saying that the level of funding that you are getting is not sufficient or is likely not to be sufficient in years to come? Is the implication of that that local authorities are having to top up the funding for 11-40 hours in order to deliver it? Early learning childcare was an example. It is a very good example to use. As I said before, we started with a roll-out, so the initial £500 was delivered and then it expanded and expanded, and every time there is a ring-fenced expansion, additional funding comes for that ring-fence, but we already have now 500 hours of early learning and childcare in the core. As the core continues to road over time, if there is a 2 per cent cut to the core budget within councils, that is chipping into the 500-hour delivery that we were doing three or four years ago. The additionality that comes over and above to expand and take us to the 11-40 is very welcome, but as it becomes core funding, it begins to reduce. There has to be an absolute commitment, in my view, that our base budget is maintained and that anything that is ring-fenced over and above that, such as very good policy areas and good policy priorities, has to continue to be fully funded and become ultimately baselines. Early learning and childcare has been a good example but a very difficult one. We are going into discussions around our budget for next year, for early learning and childcare, and continuing into years ahead. One of the difficulties that we have is that we have not had a normal year of 11-40 delivery and, obviously, that has been exacerbated by Covid. It may look as if we have had more funding for that area than we actually require, but we have not had a normal year. We need to ensure that, if we are to continue to deliver 11-40, we have that funding going forward. It is not just the large bits of money, such as the ELC, period poverty and other examples, but we have funding that is coming for that. It needs to be maintained at that level. Within that, there also becomes huge reporting mechanisms. For early learning and childcare, that is absolutely right and should be done, but, commensurately, for smaller ring-fence pots, the scrutiny and the monitoring of that is disproportionate. That takes up a massive amount of resource in councils as well, so there is always an additional cost and an additional pressure to any ring-fence thing. I am sure that the rest of the committee would find helpful if there was any data around that. One would expect if that was the case to see the proportion of total funding shrink for things that are not ring-fenced and so on. If there was any analysis such as that, or that brings out that detail, I think that we would find it very useful. Just in the interests of time, I would like to move on. We are, of course—I should remind the committee of my register of interest in that—that I am a member of the trade union, Azdor. We are all very aware that the furlough scheme is coming to an end at the end of this month, but we seem to be seeing quite contradictory data out there. We see low levels or reducing levels of unemployment in recent months, but we also know that there are less jobs in the economy than there were pre-pandemic. We also know that, in the latest set of numbers, there are over 100,000 people in Scotland still on furlough. Does the STUC believe that enough is being done to ensure that there are jobs for people coming off furlough or to address any imbalances in the labour market that we may be about to encounter in the autumn? Thanks. No, we think that there are a number of areas where we could make significant changes in the labour market at this time. Because of the pandemic, we have done some research—again, I can make it available to the committee—about some of the structural changes in the labour market, where we have seen a shift in a variety of areas due to the contraction in a number of the sectors and an expansion in other sectors. There has been an increase in jobs in some sectors, but they tend to be around logistics, distribution, delivery services. Areas where their work is not quality work and, as often, people are underemployed by that. I mean that they do not get the number of hours that they might need to make up the wage that they would need from the work. There are potentially quite a lot of shifts that we have still to see within the labour market. Obviously, hospitality was the accommodation food and hospitality was the area that was most used by the furlough scheme, and much of that has opened up again. However, again, not to the full amount, there is also an implication around the additional concerns that there has been about Brexit on staffing in those areas. I think that the changes that there are to come in the labour market are still to see how that will materialise with the end of furlough. What we do know is that the workers who were lower paid were more likely to end up on furlough, but young people were more likely to end up on furlough. That women, particularly those in lower-paid jobs and working part-time were more likely to end up on furlough, as were black and minority ethnic workers. We have a variety of inequalities in the labour market that have been exposed by that as well. That is also part of the reason why we think that that budget and the budgets beyond that do have an opportunity, although there is a cost absolutely, but some of that would be returned through income tax anyway in terms of increased wages. That budget does have an opportunity to begin to address some of those concerns about in-work poverty and low-pay by taking forward increases in public sector pay, because many of the workers that I have just outlined are directly employed through the public sector. Can I ask what public policy interventions you would like to see? I take your point about the public sector, but a significant number of people, if not most of those in furlough, are employed by the private sector. What interventions would you like to see? Is this about skills and retraining? Is this about jobs guarantee schemes? What interventions would the STEC like to see in terms of preserving private sector employment? I think that there is probably more can be done around youth guarantees and youth training schemes. I think that investment in further education is required. I think that in further education, we have already seen some universities saying that they are looking to only ensure that some of their skills base is based around their local economy. There is work that needs to be done around that in terms of the investment in aligning our skills. I think that the other work is about conditionality for those in receipt of the public funding that are in the private sector. There is more that we can do around ensuring that fair work principles, for example, the payment of the real living wage, could be done through conditionality, and that will therefore have an impact on our local economies and those that are in receipt of that additional wage. If I could start with the COSLA SIPFA paper, I was interested in paragraph 22. It talks about the Scottish child payment. It says that it is an example of an intervention that addresses a symptom of poverty but not the cause. There has been quite a lot of support for the Scottish child payment and even for doubling it and quadrupling it. How could we use that money better, or if that is what you are saying? I do not think that anybody disputes the principle behind the £10 payment. We have seen a lot of payments during the Covid period, which has helped to top up low-income families and people who are very vulnerable. Within our submission, the sense that we feel is that simply giving people money is not going to fully assist them. It might help to get them over a hump that particular week or that particular month, but we need to get to the root cause of the inequality and ensure that that particular family absolutely has the support in place within the households, within the school and other services to ensure a better outcome. Money is a stick-and-plaster, and it is a very helpful stick-and-plaster, but it does not get to the root cause of the inequality. Obviously, when we are looking at health and wellbeing and supporting families, there are links with quality of housing, through education, through employment and ensuring that families are assisted with services that will help to enrich their lives. The key message is that, although it is beneficial in the short term to perhaps give families additional income, it is not necessarily getting them the key support that they require. Again, through Covid, what we did find, because we know our communities and we know where to find people and how to assist them, was that a single mum who required a free school meal being taken to our house because mum was shielding. Those are interventions that can really help a family on a day-to-day basis that do not necessarily need to involve cash, and it is about giving that holistic, entire family approach to the services that we deliver. I could maybe just press you on that one. If a family is short of food or can't afford to eat their house, cash is pretty helpful, isn't it? Yes, absolutely. That is what I am saying. It is useful in the short term, but what is possibly more useful is ensuring that people in that family are empowered and assisted into better employment and encouraging them to utilise other services within their communities that can assist them and empower them, essentially. I think that the key message from me is that we need to be giving support to families and to parents and to households to ensure that they can absolutely make the very best of their lives and have the best chances in life, rather than always just giving a sticking plaster for a month or a year. Okay, thanks. I can move on to another topic. There is a theme in your paper about flexibility, and that has been mentioned already this morning. I think that the problem that we have in the Scottish Parliament is that if there is flexibility and say that Orkney does one thing and Glasgow does something else, then immediately we are accused of a postcode lottery, even though it is local decision making. Can you comment on that or give us any advice about how we tackle that problem? I think that the needs of communities across Scotland have 32 different local authorities in areas with very different needs, as you will be aware. Cut across all services, whether it be social care, education or employability, we will have 32 very different models of what is required in that local authority. I have a huge sympathy with parliamentarians who get accused of postcode lotteries within policy, but the fundamental issue is that decisions need to be made locally to ensure that that particular local community gets exactly what it needs. As I said, the needs of central Glasgow will be very different from Selkirk. That is a fundamental premise of local government, is that we know our communities and we can deliver a more bespoke service, whatever that may be, by taking into consideration local needs and understanding your communities. My next question is to all three witnesses. The whole question of council tax and where we are going with that. I think that the point has been made by both your papers that we have been planning to replace council tax for quite a long time. Do you think that we should be adapting council tax, should we be replacing it or what should we be replacing it with? Why do not I start with the STUC this time? The failures of the council tax are well documented. There are a number of options for different tax schemes and looking at council tax across the board. We have an opportunity, as I said, to think about the different options that there are for how we can raise revenue locally and to think about the different ways that we can change so that we can align both our policies and the aspirations that we have with what we need to do in terms of bringing in funding. I do not have any more to see on that at the moment. I have a specific comment on that. A very good question. We did have a cross-party working group in Parliament, which was co-chaired by myself and Ms Forbes for about 18 months. It was looking at a replacement for council tax, and we have made some really good progress with that. We are beginning to drill it down to a number of options that could be taken forward through parliamentary process. Unfortunately, due to Covid, that work has stopped. It has not been picked back up, but the premise is that we are looking at a replacement for council tax. We need to identify something that is much fairer and more progressive, and that work will continue. I would hope in good spirit that the work will continue between local government and Scottish government to co-produce any replacement. In the meantime, we would be looking to ensure that any decisions around council tax can be made locally, as to any rises or freezes. That is a long held principle of COSLA that we should be able to determine what council tax levels are set at a local level. On to the fiscal framework idea more, and perhaps for Mr Russell. When I was a councillor, we had the prudential framework for borrowing, which I thought was quite a good idea, because councils should borrow what they could afford. There was no arbitrary limit. Is that something that is still working for local authorities, and do you think that that could work at the Scottish level as well? I concur with your views. The prudential regime has been a very important change in introduction to local government since 2004. It has been absolutely key to councils being able to take forward a much higher level of investment in capital infrastructure than otherwise would have been possible. I can certainly see from the national government's perspective the attractiveness in considering a scheme of that nature operating at a national level. Potentially, I am sure that the Scottish Government wants to have those discussions with the UK Government in relation to the future fiscal framework that is operating nationally. Obviously, with a scheme of the nature of the prudential framework, the key is about greater flexibility for investment, but it has been able to very clearly demonstrate that over the long term the affordability and sustainability of such investment in borrowing is demonstrated and taken into account. Therefore, it requires a long-term view of the costs of meeting that borrowing investment to be taken into account. From a local government perspective, it is one of the critical aspects that allows local government to invest in an affordable and sustainable manner. A couple of questions for Gail and Alan. In the first instance, this one is probably for Gail. Your paper makes what sends an entirely sensible point around the advantage if they review the UK fiscal framework where to include consideration of the local government fiscal framework that is being developed, but that begs a question of sequencing. In the first instance, I apologise if this is information that is already in the public domain and I should know it already, but what timescale are you currently working towards with development of the local government fiscal framework? We have been doing a lot of work around fiscal framework for probably about two years now and, unfortunately, Covid has put the stoppers on that as well. We convened a cross-party working group within COSLA in the past few months, which has been meeting regularly and looking at the different strands that we need to pull together in and around what fiscal framework could look like. We will be reporting to leaders on that at the end of September. Obviously, we will take discussions to the Scottish Government on that. I am aware that the Scottish Government discussions around a UK fiscal framework are on-going at the moment. I believe that there will be an independent report on that towards the end of the year and then a review into next year, so I would hope that we will be able to dovetail with that. Within our fiscal framework ideas, what we are looking at is some low-hanging fruit that we could achieve in the short term, and then some medium-term and longer-term strategy planning into the longer term. That would look at things such as council tax replacements. The initial work that we would hope to have done in the next 12 months would require changes in the legislation and would need to go through the parliamentary process. We are probably looking at a five-year process for that. The work that has been done so far is purely internal to COSLA, the cross-party discussions that you have mentioned, or have any interim discussions with the Scottish Government taken place at this point? I mean continual discussions with Ms Forbes, and usually very jovial and very constructive. We have had initial discussions around the fiscal framework. As I said, we did start this work about two years ago, and Government are essentially signed up to working with us to create a fiscal framework for local Government. I have to say that a lot of our asks of the Scottish Government are very similar to that of the UK Government, so I hope that we can work constructively across-party and with Government to achieve a better fiscal framework. My next question is on local Government reserves. It might be best directed to Alan in the first instance. I wonder if council reserves have been disproportionately drawn down since the last set of numbers that I saw was the 2019-20 Audit Scotland paper. Your submission this morning fairly makes the point about the disproportionate impact of the pandemic for communities and individuals and families who are already disadvantaged, particularly those who are socioeconomically disadvantaged. Has that resulted in the need for local authorities to draw down from their reserves being disproportionate to those local authorities who have higher rates of socioeconomic deprivation? Certainly, prior to the pandemic, there were a number of councils, councils of crumb during key stress. There were a number of councils beginning to rely on reserves as part of addressing their own going balance of their budget. In your right, at that particular point of time Audit Scotland has shown an increased interest in monitoring the position of individual local authorities to what scale they were getting to the point where sustainability was becoming an increasing concern. During the pandemic, as we have moved from last financial year into this financial year, there has been an increase in reserves, but that has been linked to grants from the Scottish Government and Covid-related grants being provided quite significantly in the closing months of the financial year. I think that I could speak on behalf of all my colleagues across the country that a clear expectation is that those Covid-related reserves will be in a plan to be fully deployed over the course of this year and next as the recovery from Covid is taken forward by councils. I would expect that that reserves position will be significantly depleted as we move through the course of this financial year. Audit Scotland will once again continue to monitor very closely what the underlying and allocative reserve position is of local authorities and to what extent that is coming under pressure in order to balance budgets. That is certainly a very early warning that a council is starting to experience much greater French difficulties for where there is a reliance on reserves to support on-going expenditure, as I am sure all the committee appreciates. You can only visit reserves once they are not recurring the resources and therefore it is not an area that a council would want to rely on in order to support core services moving forward. One brief final question. There are 45 million allocated to local authorities—I cannot remember exactly when—but earlier this year, in the previous financial year, specifically for bringing additional resources into schools, additional teachers, support staff etc for Covid. There has since been quite a lot of political debate around teachers on temporary contracts and the need to move those teaching staff on to permanent contracts. Has that 45 million been—have you had any indication that it will be baselined into local government settlement going forward? It is hard to see how you can move folk who were funded from that one off-pot and were therefore on a temporary contract on to permanent contracts unless that money is baselined into the settlement. Certainly there has been confirmation of what was temporary funding to support teachers' employment confirmation from the Government. That would be mainline moving into next financial year, certainly from my point of view. A demonstration of somewhere that it is important to see how does that flow in and how is that baselined into the local government settlement. It is very clearly identified as being specifically to support the investment in teachers that has been made over that period of time, allowing councils to look at permanent contracts for additional teachers that have been taken on. Again, it has been very clear that that is individual identified in the settlement and not consolidated into what is happening to the core grant for local government moving forward, so that there is that transparency of that particular funding stream being baselined and an understanding of how that relates to what is happening to the core grant as we move between the two financial years. That is all from me, convener. Thank you very much, Michelle, to be followed by Liz. Okay, thank you, convener. Good morning to you all. My first question follows on from what we have been talking about thus far, i the recognition of the whole fiscal landscape. It is probably slightly technical, but I am generally interested in the so-called service concession approach. A quote from your submission, this is not merely an accounting exercise, it has genuine implications for funding local government services into the future, and you highlight some of the opportunities that you see in terms of investing in assets, delivering in net zero and so on. My question is perhaps a coralli of that. If that is the opportunities, what are the risks of the service concession approach? My second question off the back of that is given the Scottish Government's review. Is your concerns about that review the fact that it exists or the timescales, i you would like to see a clear outcome sooner rather than later? Suspect is probably for Alan initially and perhaps Gail might like to come in. I was just waiting for the mute to come off. Certainly, in terms of the service concession, it is obviously a link to education PPP contracts that were signed some time ago. I suppose to try and keep it as simple as possible for the committee and not get technical. The underlying repayment associated with the asset is so that the schools involved have been tied to the service concession. In most cases, that was a 25 to 30-year contract. What that particular issue has been looking at is the opportunity to make accounting adjustments that would allow the cost of those school assets to be recognised and effectively run through council revenue budgets over the life of the assets. The schools involved will have a useful life of somewhere between 40 to 50 years, so a much, much longer period. Where we find ourselves is the existing arrangement is effectively repaying the cost of those assets over a much shorter period of time. The opportunity exists to correct that particular anomaly and create a first instance adjustment that would free up resources, depending on how long contracts have been running, but there is a significant potential amount of initial resources that could be directed towards further investment in part of supporting the economic recovery and also smoothing the future costs of paying for those assets over the remaining life, which could be anywhere up to 30 years, depending on where the particular contract is. It is a life cycle, so that is a particular opportunity. It does not cost any cash if that makes sense. The cash payments would still run to the contractors over their original contract period, but it is how it is accounted for over the long term in many respects. It is an opportunity that is, in some respects, a free good and aligns the spreading of the costs of those assets over the life of the asset in a way that is fairer to the different generations that will enjoy them. In addition to that, that has led into a wider capital review and the approach that is used for capital accounting for local government and the existing arrangements that are used to account for capital investment in local government. I suppose that there is a question from the Government about the use of what is called statutory mitigation that operates within the local government sector. The present local government complies fully with accounting standards and how we manage and treat our assets and how we depreciate those over the life of the assets. What local government also has is what is called a statutory fritting as well, in addition to the accounting position that allows councils to manage the funding of those assets over their life in a way that is used on a newty basis, which is very similar to a domestic mortgage, which allows a flat, constant annual cost to be spread over the life of the asset. At the moment, that review is looking at whether the statutory mitigation should continue. I think that local governments view in terms of the progress that has been achieved today and that there is no real case to change that at present. It still fulfills a very important objective of spreading the funding costs and being fair to different generations and the generations of council taxpayers in spreading that cost in an equal way. I am sorry to interrupt you. You have given a very clear description of what this is about, but you used the term anomaly. To draw you back to my question, I mean what you have described sounds clear to me and I understand what you are talking about. What I am trying to drive out is are there any risks to the Scottish Government of enabling the service concession approach? You have been very clear about there being no additional costs. What I am just trying to explore is are there any additional risks that you have identified? I am certainly not aware of those. I think that I am going back very briefly to the reference to the prudential regime that underpins capital investment and local authorities. That would be completely reflective of how we treat all the other assets that we invest in over their lives. I am not aware of any significant or any change in risks that that would present at a national level. Mindful of the finance committee's reputation for being the most exciting committee, I am going to take it up a level. It is really a question for all three of you. One of the questions that everyone has been asked to submit on is, how should the Scottish Government budget address the different impacts of the pandemic across and it lists a number of categories, age, income and so on? If you were to answer that question again and say how should the Scottish Government budget address the impact on women specifically within their budget given the concerns that have been highlighted around key workers and so on. So I suspect that you might want to come in here first Linda, but if you were to answer the Scottish budget addressing specifically the concerns for women going forward, I would be interested in your thoughts on that. I think that it reflects what we have put in our submission on the STUC's long-held policy about thinking about trying to address the gender pay gap. It is well documented again by other organisations and ourselves that if you put money into women's pockets through wages for women and workers or through the social security system, that is going to be paid back out into the local economy. There are benefits there for everyone in terms of addressing in-work poverty, child poverty and indeed value in women's work. We would be looking really for, because the majority of our key workers are women, we would again just be coming back to saying that we need to think about pay increases within our public sector. Okay, so I suppose that begs the obvious question that if it were pay cases in there, what would you seek to cut to support those pay increases? Well, I think that that's going to be again why I said earlier we need to think about different ideas about what, how do we actually use the particular point that we're at in post Covid, hopefully health-wise, moving forward to get some new ideas on the table and whether and say how can we raise revenue in different ways. I don't have a tax expert, I don't have all the details on that, but we need to think about how both local authorities and indeed the Scottish Government itself can both make use of its current devolved powers but also look for increasing borrowing powers so that we can actually increase that. The only other things that we've talked about already are about how some of the business rate relief is potentially not the best use of public funding. Okay, thank you, and I suppose just to close this out, Gail, I don't know if you want to come in and answer my question, i.e. how should the Scottish Government address issues for women specifically? I think that I probably don't have a huge amount to add from what Linda's said. I think an awful lot of what Linda's covered would cut across local government as well. Being on our view, I think the key thing for me is we know that women are employed in lower-paid jobs. We know that those jobs often don't have the same career pathway opportunities. We know that there are issues around things like social care care at home where we have recruitment and retention issues, and there are predominantly women, but I suppose that the key thing within local government is ensuring that we can give the opportunities to female employees in the way that Linda's identified. Also, cutting across into our communities and what we deliver for women in our communities around domestic abuse, period poverty, empowering them within the home and giving them better life chances, it all comes back to having good key local community services and ensuring that we are identifying people who require that support. I suppose that working in conjunction with the Scottish Government to continue to deliver policy areas and priorities through the national performance framework that will be of benefit to women and all of our communities, not just women. I thought that you wanted Alan to speak as well. Sorry, Alan. I don't know if you want to come in. No. That's fine. List to be followed by Douglas. Thank you, convener. Councillor McGregor, you said in an answer to Mr Greer that when it came to the fiscal framework you were hopeful that both yourselves and the Scottish Government would be working towards a better fiscal framework than the current one. If you had three top priorities as to what would make it better, could you put on the record what they would be? On the record, a fair core budget enables us to deliver our core revenues to services. Certainty around multi-year funding would be a key priority. I suppose that capital has been a huge issue. Historically our capital sat around about 27 per cent of the capital budget. It has reduced to about 13 per cent. Now, with climate change targets, economic recovery out of Covid, capital is going to be absolutely pivotal to economic recovery. For us, we need to see the security of a stable core budget that does cover core costs, ensuring that the room-frents costs that we spoke about earlier are absolutely covered and then getting back into a pattern where we have a much fairer cut of the capital pie as well. That would help our communities immeasurably. You are going to tell me that you would like to have more money in order to do these things. Do you feel that there are structures that should be changed that would allow what you describe as a fairer spend? Do you think that there are structural changes that are required? I think that we need to have greater trust between local government and Scottish Government that when they give us funding to deliver something that we are going to go on and deliver that. I think that there has been a historic breakdown in trust. This is why we have ended up with a number of benefits pockets. Going forward, that relationship is definitely improving and the relationship between local government, cross-party and opposition parties in Parliament as well. Those discussions are much more constructive. Fundamentally, it comes down to the position of trust that they give us sufficient budgets to deliver on the key priorities that are within the national performance framework and within government policy. Then they let us get on with the job without overly onerous monitoring and reporting as well. We obviously have to monitor and report, but it is reaching the onerous stage now. I agree with you about trust. I think that that is very important. Can I just press you a little bit more on whether you think that there should be structural changes that will make the fiscal framework easier for yourselves? I want to turn to Alan, because he deals with the structural elements more than me. Can I just clarify, when you are referring to structural changes, when you are talking about structural changes in the financial framework, are structural changes? I think that, to be honest, a guild has touched on many of the issues that I can cover. We touched on it slightly earlier about the beginning to explore what other flexibilities locally can be made available to local government as part of a wider fiscal framework in terms of greater levers that would be available at a local level as part of local decision making and how local government is financed. I touched on it briefly earlier about exploring in particular opportunities in relation to non-domestic rates. The current structure is managed and affected at a national level with what opportunities that could increase flexibility in that respect to respond to local needs could be explored further. That would not necessarily involve, for example, devolving NDR to a local level in full, but there could be opportunities to explore what greater flexibilities could be introduced to allow councils to respond to particular local priorities in relation to, for example, regeneration or, indeed, other approaches to funding local services. I think that, lastly, Gail Pipsonant about the structure and use of ring fence funds and whether a greater and more beneficial approach would be to focus on outcomes as opposed to controlling inputs. That is very helpful, Mr Russell. Just in relation to the question that Mr Mason raised earlier about whether it is better for local government, more effective for local government and perhaps more efficient for local government to respond to local needs, do you feel that the increased flexibility that you are asking for would make that more possible and therefore that local government should better respond to local needs rather than to national priorities? In many respects, there is often agreement about what the national priorities are. As an observation from my point of view, whether achieving national policy outcomes, whether the approach that is employed at a local level needs to be the same and what is best deployed in one local community can be different to what is required. Indeed, maybe co-produce for local communities elsewhere in the country. The ability to have greater flexibility to develop with local communities and what the local solutions that will best work in that local area is something that I think could lead, ultimately in the longer term, to better outcomes and achievement of national policy objectives. Can I just be clear that, broadly speaking, the 32 local authorities across Scotland are accepting what the national priorities are policy-wise? What you are asking for is that there is much greater flexibility about how local councils address those. Is that correct? I think that many of the national performance framework policy outcomes are reflected and shared at a local level by councils in terms of key outcomes. What I am saying is that whether the approach to allow local authorities at a local level to design how best to achieve that could prevent better long-term outcomes. I refer the committee to my entry in the register of interests, where I am still a member of Aberdeen City Council and a member of COSLA. Let's go back to the question that Michelle asked about the capital concession regulations. It sounded like there was no—well, there didn't seem to be a risk to the Scottish Government by granting that, so I'm just trying to dig down a bit deeper why it wouldn't be allowed. I presume that local councils could borrow more if that was allowed. I'll turn to Alan. He's the expert on this, Douglas. Thanks for waiting again for the mute to come off. I apologise for trying to get too technical earlier, but in really, I suppose, straightforward terms, there would be no change in the payments that councils would make to the contractors. I suppose that this is a focus on the accounting arrangements and how those costs are ultimately spread over the life of the assets through councils revenue accounts. There would be no direct implications on payments going to contractors, there would be no requirement for councils to borrow for how those costs are ultimately accounted for through revenue budgets over the long term. From a cash flow perspective, there is no change. This is about how those costs are ultimately spread throughout the life of the asset and aligning how those costs are accounted for to the much longer life of the asset as opposed to the contract length, which is much, much shorter. No fundamental change in how payments are made is about how those payments are accounted for over the long term life of the asset. Would that mean that councils could borrow more because the debt is spread out over a longer term? Certainly, to regularise that position in terms of where we find ourselves, there would be the creation of a degree of financial correction and therefore a headroom that could be reinvested by councils. Over the longer term, you are absolutely correct, there would be a beneficial impact to council revenue budgets that could ultimately support an alternative investment in the direction of those resources over that period of time. On both counts, yes, there would be a benefit that could help support councils, for example, invest to a greater extent and help support economic recovery. Last question around that. Do we have any idea how much that would mean to local councils if this change was made? It depends very much on the individual contract associated with the council, how old that contract is, but it could vary, for example, anywhere from £20 million at an individual council level up to, for example, figures of about £60 or £70 million, so it can have a very significant effect through correcting that particular position. Other question that I had was in your submission. You talked about the establishment of a new national care service, and what you say is that it is a distraction from recovery that will take resource time and capacity away from service delivery at the time that we would wish to see a significant investment. I guess the question is what has caused us alternative? Is it just more money to local government? No, absolutely not. I think that COSLA is absolutely fully behind the Feeley report. We looked at the recommendations and there is an acknowledgement that there does need to be change and that we need to look at how services are delivered, no question of that. I think that the national care consultation has broadened that scope significantly and is now jeopardising local delivery and what is absolutely at the heart of what we do. I think that what we are trying to avoid is a very bureaucratic, lengthy process to deliver better outcomes to people. We know that we can deliver better outcomes to people now this year, within the next 12 months, rather than going through a convoluted, bureaucratic other tier of governance in creating a national care service and a very costly one. Linda will agree with me that what we need to be doing is looking at recruitment and retention within social care and care at home. We need to be offering better job opportunities. Some local authority areas have intervened and offered higher wage rates. Those are all areas that we can look at now if there is additional funding and can begin to make real differences to people in the communities. We know our communities. We know what our individuals within the communities need. We all have the same goal. We want to ensure that our clients and people using services are getting the absolute best service possible, but I am not convinced that a very lengthy five-year process with a lot of bureaucracy involved is going to deliver that outcome. We could be having discussions around that to speed that up and ensure that it empyro a workforce. First of all, in terms of paragraph 13 of the COSLA submission, place-based inclusive approaches are needed is the heading. You say in my quote, councils will look to use well-established place-based approaches bringing buildings back into use in town centres and improving the wider public realm to support and working with communities to make places more livable. Does COSLA believe that the Scottish Government should introduce compulsory sales orders in this Parliament? I do not think that COSLA has a view on that, but I will double-check and come back to you. Okay. What about Alan Seatville? Sorry, chair. You just stopped off just as you asked the question there. Could you possibly repeat it from yourself? Yes, it is just to see whether or not Seatville believes that the Scottish Government should introduce compulsory sales orders in this Parliament in terms of trying to improve your ability to deliver place-based approaches. I think that just touching what Gail said, it is not something that my section is considered, but I think that anything in terms of a policy context that supports regeneration and bringing back into use empty properties is something that is important to the recovery of communities and town centres. I would not at this point provide any more comment on that, unfortunately. Okay, thanks. I will move on to something that we have discussed. I am really looking to try to find out where the balance should be struck in terms of local flexibility. As you know, the Scottish Government in 2007 abolished some 60 ring-fenced funds from the previous Labour-Lib Dem administration, which was now fondly looked back on as a historic concordat of November 2007. The idea was that local flexibility would indeed be restored across local government, but the issue, of course, for the Scottish ministers was that they would allocate funding for specific pots, for example, teacher numbers, and local authorities would decide, because of local flexibility, that they would not spend it on teacher numbers. The parties that decided not to increase teacher numbers in specific areas were parliamentary colleagues who would then attack the Scottish Government for a failure to deliver its manifesto commitment to increase teacher numbers. So, the Scottish ministers obviously thought, well, you know, we are damned if we do it, we are damned if we don't. So, how do we actually balance that? Because Scottish ministers don't want to really be in a position whereby they are providing additional funding for specific areas of manifesto commitment and policy, and yet they are being criticised for not delivering it, but if they don't have the flexibility, they are being criticised that way. So, how do we balance that out? Is there a way to balance that? I think that it is a very difficult balance, and I think that Lizzie alluded to this earlier on. It comes down to a fundamental of trust, and I understand what you are saying about the historic concordat. I am not sure that we want to go back to creating a new concordat at this stage, but what we need to be looking at is the outcome measures instead of the inputs. What we have found in recent years is that we have some fairly high-level, costly announcements about policy at the top end without enough discussion about how it is going to be implemented on the ground first. Within that building of trust between local government and Scottish Government, we need to be more involved in policy development. When they think about bringing new policies forward, we should be engaged right on day one in how that particular policy could assist our communities, how it would be delivered, how we can assist in the delivery of that. I think that we have come a long way in better departmental working between COSLA and Scottish Government and individual councils. We need to continue that. When Scottish Government looks at developing policies such as their 100-day commitments, which we completely understand and, politically, that is absolutely in our gift to do, the first thing that they should be doing is picking up the phone to us and saying, right, we want to do this, how can you facilitate it, how can we develop this policy so that it absolutely gets the right outcome, and it is not just about putting money in at the front end. That is what I would hope to continue to work with ministers on. In terms of the 100-day commitments, you said that the SNP manifesto tends to favour universalism. You say that you are going to criticise that and talk about the need to target more specifically. There has always been an argument between targeting and universalism. You keep going to put on universal credit, you have got the NHS as a universal service, pensions, for example, concession affairs as a universal service. The argument is in terms of having a national care service as bureaucracy, but surely some of the issues about having a target approach are that it increases bureaucracy itself. Obviously, people have to administer that. I remember when I was a council, a huge resource that was spent on administering grants, for example. There is bureaucracy and stigma, but there is also buying. People who pay universal taxes mean that they also have an opportunity to gain from the taxes that they contribute to the services that are provided on a wider basis. I am just wondering where you feel that the balance should be between targeting and universalism. It is a really difficult one to strike, but where does Causa believe that that should be? I look into me again, convener. Again, I think that an awful lot of the policies that are coming through the 100-day commitments are policies that councils were delivering on for many, many years. Through successive budget cuts, particular hard political decisions have had to be made locally, and some of those services—music tuition would be a prime example—have had to be taken through budget savings. I think that there is a frustration that the Government then, down the line, ring fences a new policy around music tuition as an example, instead of just giving us sufficient funding over the piece to enable us to continue to deliver these things locally. For me, targeting resource is absolutely fine, but if it is simply to do something that we were already doing but had to cut because of budget cuts, that makes it very difficult for councils because it makes it look as if councils have taken away the wrong service when we did not. There is a really difficult balance around things such as delivering tablets and laptops and devices to school children. Absolutely brilliant policy. Some of our councils were doing that anyway, and those particular councils do not get the financial benefit of a new policy commitment that comes out through the 100-days, as Scottish Borders would be an example. They had a brilliant scheme that delivered iPads to all the pupils, which was fantastic through Covid, but now that we have this overarching universal system, they will not benefit from that. I think that my key message would be to give a sufficient core budget to deliver sufficient core services and then let us get on locally in discussion with the Government on the delivery of those. There is another way to look at that to encourage innovation. If local authorities have introduced such innovations, then that should be looked at specifically in their settlement. Obviously, there is a funding formula as we all know, but should there be some recognition? We would not want to have a situation where, if councils decided to spend something on a project, they would necessarily get fully funded by the national government, otherwise they could just spend money whatever they wanted, and the national government would be left with the bill. Is there any mechanism in which innovation should perhaps be more recognised so that councils that are being more innovative and bringing in new ideas should perhaps be rewarded for that in some way? That would be an idea, but I do not think that it exists at the moment. Maybe that is a discussion that I need to have with the Cabinet Secretary. I think that we all probably do actually to be perfectly honest with you. Lastly to yourself, Linda, what is your view, what is the STC's view, I should say, on targeting it versus universalism, if you want to put it in that way? Generally, we would think that the local authority should be fully funded to deliver the services that they need to deliver. Locally, although there are some issues around the education sector, we generally think that the services that there are should be, as I say, up to local authorities to meet the needs of their region, depending on what the factors are around that. It is clear that local authorities and workers and local authorities have carried us through the past 18 months for us to look forward and to hire our best supported, not just in post-COVID recovery but in resilience in our communities. What do we want to do for resilience? We have to build that resilience in by thinking that we strengthen both the workforce and the services that they deliver into our communities. We would look to say that that is really where we should be thinking about targeting is to make sure that we have that resilience by investment, by public sector investment, going forward. It is one of the things that we would look for in what the committee was looking for, a fair and equal recovery, and we think that that has to be a key part of it. How can the Scottish Government fully fund, for example, local government, if it is not fully funded through the block grant? I suppose that there are political decisions to be made, although we appreciate that the NHS has had a lot of priority around the health crisis that we have had. We also think that there are other ways that the Government can look to trying to fund the public sector, and that is one of the things that we have asked to be considered. Thank you very much. I want to thank all of our witnesses. We have ran over time, so we will have a break now until 11.15. We now turn to our second panel of witnesses on Scotland's public finances and the impact of Covid-19. We are joined for this session by David Isar, Senior Knowledge Exchange Fellow, Fraser Valander Institute, Susan Murray, director of David Hulman Institute and Ray Perman Fellow, Royal Society of Edinburgh. I intend to allow up to 90 minutes for this session, and members have received written submissions from each of our witnesses. I would like to welcome everyone to the meeting, and a particular word welcome for coming here in person, which is greatly appreciated by the committee. I would like to start the session by asking something of the David Hulman Institute, in fact, which is item 3. What you have said in your submission is that, at a time of multiple challenges and tight public finances, hard choices are almost certainly going to involve choosing to stop spending money on services or initiatives that are achieving public good and are valued by the recipients of stakeholders in order to start or increase spending on other areas that are now judged higher priority. For many of the witnesses that we have had, it has been like drawing teeth to try to get them to say where they should disinvest. Everyone has come to us and said that we require additional funding in our areas, and we have already explained that in real terms we may only have a 2 per cent increase in budget, but all our witnesses appear to feel that that should be specifically targeted at their sector. I am hoping, Susan, that you will help, and indeed other colleagues will be able to also contribute some ideas as to where disinvestment can take place, because if we are going to spend money more effectively and deliver better outcomes, we need to actually take that forward. Do you have any examples that you can share with the committee? So, nothing hard to start with then. I had a feeling that you might ask this. Thank you for inviting me here today, by the way. I noticed in the previous evidence sessions that this was an area that no one was talking about, and I think that it is because it is really difficult and it is controversial. It is controversial because if you are taking money away from something, some people are not going to be happy. The point at which we started looking at it from a different point of view last year was how do you enable more people to take more action to make their own lives and other people's lives better? We started talking to all sorts of people all over Scotland from all different backgrounds. Really interesting things came out, and out of the conversations by bringing people together that would not normally meet, those conversations led to actions themselves. It does not directly answer your question, but that was where we started because we did not start with Government. We did not start by looking at Government policy because I am not trying to lobby for anything particular. I do not come with a think tank that has a particular ideology and I am not trying to push any particular thing. We were just really interested in action and how might you get more people to do more things. That was where we started. Then we looked at things that might be getting in the way of it. The reason we focused on multi-year budgets—I know that you have asked quite a lot of questions about that in previous sessions—is that there seemed to be a thing that was getting in the way. When you come back to the fiscal framework—although I am sitting next to David Isa, who is an expert on the intricacies, so I do not want to talk about the intricacies, but the multi-year budget thing is a real sticking point. I know that it has come up in the conversations with the third sector, but if I can give you an example that shows how it is across all sectors, I think that sometimes it is easier dealing with an example. If you look at peatlands, peatlands are uncontroversial in the sense that we understand why we need to restore them. Scottish Government money is going into restoration. From 2012, that was going in on an annual cycle. The period in which you can restore peat is limited in Scotland due to the bird nesting season and the weather. Each year you would have annual budgets decided, you would issue the contracts and everything would be limited and squashed in under pressure. Then you would have to do that all again the next year. The businesses that were doing that were saying that we are finding this really difficult because we cannot invest in machinery, we cannot scale up, we know that we need to restore more peat, but we cannot train the staff because we cannot guarantee that that money is coming. You had that knock-on effect from the single-year budgeting into jobs and investment in productivity. Those things knocked on. Last year, the Scottish Government had committed to a 10-year programme of peatland restoration. You have a choice there that they have made that long-term commitment, so hopefully more peatlands can be restored. However, if you are going to think about it a different way, where the really tough choices lay and not in that multi-year settlement or the single year or one or the other, it is how do you make the choices longer term? If we were going to talk to the young people, and we did in this work, they would say that climate change trumps everything. The climate change decision in there would be the really difficult choice is to stop degrading peat in the first place. We are not restoring peat anywhere near as fast as we are degrading in Scotland, so if you are going to really do preventative spend, the tough decision would be whether or not you do something about the degradation of peat. That is controversial because there are loads of interests involved in that, and they have strong lobbies. However, how would the Parliament deal with that if the ultimate decision was to prioritise the outcome of climate change? Who is going to make that tough decision? It is an interesting example because it is also very geographically specific. It is not going to affect the agenda, for example. It is going to be a one that might affect others some people disproportionately, and if you are then looking to invest elsewhere, they might not necessarily gain proportionally. David, what is your view on that? Where would you suggest that we look to disinvest if we are not going to spend or invest however you want to to phrase it in more effective outcomes for Scotland? I agree with the premise of the question. The outlook for the Scottish Government's resource budget at the moment in 2022-23-24 is slightly less positive, less generous than the outlook just before the start of the pandemic. Although the UK Government clearly has announced lots of additional spending last year and this year to deal with the immediate impacts of the pandemic, in the longer term it has made cuts to planned departmental spending at UK level to address the fact that the size of the economy and therefore the ability of the economy to raise revenue is smaller now than it was pre-pandemic. The outlook for the resource budget at the moment is no better than it was pre-pandemic, even though the public sector is now going to have to be dealing with the legacy impacts of Covid-19 and various other policy commitments that have been made in the last year or so. It is a really big challenge. I think that it is no surprise that Governments do not ever like to be very explicit about where they are making savings or where they are disinvesting. I think that there is a first stage before we even get to the sort of how we do this. There is a first stage, which is that Governments are getting better at recognising and being explicit about where they are disinvesting. Generally, what happens is that they shave budgets here and there, move things around and try and give the impression that we are not disinvesting from anything. It becomes very hard looking at budget documents to work out where that disinvestment is happening, let alone what the outcomes of that or the justification of that has been. I think that there is a first step about being much more transparent about where those decisions are being made and what the outcomes of that disinvestment will be. Two things. First of all, Governments could use a wee bit of sleight of hand by, for example, not increasing budgets by the rate of inflation but sticking them out at cash levels. For example, which is a reduction in real terms. I thought that you would be a bit more heroic and give us an example as indeed Susan did. Ray, I am sure, is about to. It is very difficult. Those things tend to only emerge over the course of time. A classic example is local government. We know that local government's share of total resource spending in Scotland has fallen since the financial crisis. We know that that has happened, but where has the disinvestment happened and what are the outcomes? That is the crucial bit. What are the outcomes of that being? That is a really difficult thing to find evidence on. It is very difficult to get the Government to provide evidence of that in advance and it is very difficult to find any evaluation of what the impacts have been of that ex-post, if you like. I am just wondering if you had been asking those questions at the start of the industrial revolution. If anybody had said, you know, we really actually need to get rid of some of those clays deals and start, you know, building some, you know, some combine harvesters or something like that. I am hoping that we will have an answer from yourself, Ray, on that in terms of disinvestment. We have got to produce a report with recommendations to Government. It is one thing to say that we need to invest more in preventive spend and we need to disinvest in areas that are not where the outcomes are not great. We are really looking to organisations such as RSC, Dewcham Institute and Fraser Valander to give us some examples, so I wonder if you have any. I did not come with a list of cuts, but it has been an interesting exercise to do, if you want to invite me back. David's analysis, as always, is exactly right. Government does not usually stop funding midstream, yet cheese pairs cut away and you end up with a number of legacy projects, none of which is achieving the original aims because their budgets are being run down over time. The only example I can give you from the recent past of where funding was precipitately withdrawn is in the arts, where Creative Scotland some years ago, if you remember, decided to change that policy and concentrate on a smaller number of projects, which meant that a number of sacred cows had to be slaughtered, and that caused a huge political row. You can understand why Government is very reluctant to do that, but I think that the point that we were trying to make in our evidence is that those are, as everybody knows, very uncertain terms. The uncertainty is layered, the pandemic is not over, it could come back in a very vicious way, which causes huge amounts of unplanned spending. You have other things, climate change, which Susan mentioned, unpredictable weather events could bring up unplanned spending, inflation we know about, we do not yet know what the Chancellor is planning in October, but there may be surprises for the Scottish Government in that. Hard choice is going to have to be made, and in the year to come there will be big spending to catching up on backlogs in health, for example, in the care service, in social work, in education, which will take up the vast majority of the Scottish Government budget. The flexibility that the Government has to spend on other things is going to be severely limited, and there are going to have to be some unpleasant political choices made at that time. David, in terms of your submission, you have said that what constitutes a fair and equal recovery as a somewhat subjective question. What does that mean to the Fraser Alder Institute? I think that I was answering a specific question that was asked by the committee about addressing the need for a fair and equal recovery from the Covid crisis. The point that we would make is that clearly the pandemic has accentuated a lot of the existing inequalities in society, but in a very multidimensional way. We have seen an increase in inequality of employment access, an increase in inequality of income, wealth and health. We suspect that there will be an increase in inequality of educational outcomes. Even conceptualising what would we mean exactly by a fair and equal recovery becomes quite difficult when there are all those different dimensions to it. Even within one of those dimensions, there are many different ways that you might want to think about what is fair, what is equal. We talk a lot about differences between different groups in terms of the outcomes that have been experienced during the pandemic. That is a useful way of thinking about things. Sometimes differences between sectors, differences between a young and old ethnic group or whatever, but of course there are differences within all of those groups as well. How would you conceptualise a target that incorporates all of these concerns is really difficult to think about. It would be interesting to see what the Government comes up with in relation to that in terms of how it frames its approach to recovery from the pandemic. Okay, thanks and briefly Ray and then Susan on that question, because it's quite fundamental to what we're trying to achieve here. Are we talking now about the underlying economy and the weediness of the Scottish economy? I noticed in the evidence from the finance, the cabinet secretary for finance, that she promised a paper which would have, as she I think said, a laser-like focus on growing the economy. That would be very welcome because in our view the Government policy towards growing the economy in Scotland has not been laser-like at all in the last few years. In fact, it's been quite confused, sometimes very dispersed and very bureaucratic. If that is coming in that paper, we'll be very interested to read it. Again, as I go back to the point, there will be huge cause on Government money next year. Being able to fund a new economic initiative aimed at growing the economy is going to be a very brave political choice when you have health, social care and education all clamouring for more funds. The underlying problem with the Scottish economy is long established, it's deep-seated, it's going to need a lot of new thinking and possibly quite a lot of investment, but it's not something that can be done quickly and it's not something that's going to be done during a pandemic. Your response before I let Susan in, you've said that ASC believes that spending priority will be to support the economy through investing in early-stage companies, spin-outs and startups, which are crucial to job creation, and I certainly would agree with that. What mechanisms do you feel could be used through the budget settlement to enable that to happen? We supported the creation of the Scottish National Investment Bank because we thought it was going to have that laser-like focus on growing the economy, and yet it's been given a number of missions, very important missions, huge missions, decarbonising the economy, dealing with an ageing workforce, investing in growth companies and improving productivity, but there are three gigantic missions to accomplish, and yet its budget is not adequate to do that, and there's a proliferation of agencies responsible now for the economy. When I was on the board of Scottish Enterprise a decade or so ago, the budget was something like 630 million, and now it's sort of half that, and that money is still being spent, but it's being spent by the National Investment Bank, it's being spent by the South of Scotland Development Agency, it's being spent elsewhere, and I feel that we have lost focus and we have lost impetus in trying to find the things that will improve productivity, will improve the prosperity of the country and will eradicate some of the problems that feed through into the amount of money that the Scottish Government has to spend every year. Go back to the question, which was specifically about fairness, but the focus of the call for evidence was about the 2022 budget. For me, I'm really inspired by John Carnican of the Violence Reduction Unit, and he uses a phrase frequently that Arthur Ash quoted, which is, start where you are, use what you have and do what you can. On those time frames, what can I do? The thing that I did this year was I upgraded my Kickstarter, so I'm not quite sure in terms of fairness why the Kickstarter is at 25 hours, so DWP initiative, but could in Scotland, could we encourage more leaders to upgrade those Kickstarter to be full-time roles? 35 hours would help the tax take. We've got a track record of creative employment policies like that, so we've slightly misquoted David Humphreys' evidence in the SPICE report. We haven't recommended doing another Community Jobs Scotland. What we've said is that we've got a track record of Scotland of doing things creatively with employment, because at the time of Community Jobs Scotland starting, we had never done anything like that before, and it's proven to help young people into jobs. What if every Kickstarter in Scotland was upgraded to 35 hours or leaders? Even 50 per cent of those was encouraged. That would help the tax take. It would help those young people get a foothold in those careers. Are there other things like that that we could do in the short term that would really mean that young people had a start in careers that they might not have otherwise? Unless there's a policy of four days a week across the board of Scotland, which I don't think there is, 25 hours isn't quite enough for people to survive on financially. There's things like that. Can we think about fairness in a different way in the things that might be at our disposal to use? That was one example. The other thing that you've brought up previously in another session was the SPICIA score on the business base. I'm really interested in the growth of unregistered businesses in Scotland. It's not something that we've had a chance to work on. However, what if we looked at how we got more unregistered businesses that weren't currently employing people to employ people? I just don't think that there's a laser-like focus on that at the moment, but I don't think either. It's probably a question that Michelle is about to ask me, so I'll come in. I was really shocked on the people that are able to access capital to grow businesses in Scotland. If you're a female or from a different type of background, you're much less able to access that capital. That's something that for me isn't fair at the moment, and we have to do more on that. However, I also don't know if it's actually something that the Government can do. I think that it's something that the Government can encourage, but we need all the people in positions of power to go, hang on a minute, that are we funding the best businesses or are we just funding businesses that are like the ones that we've got experience of? That's a bigger challenge. Yes, culture change is always a difficult challenge. Just one more question for me, because I want to let colleagues in. Ray, it's your own report. You've said that the Royal Society of Edinburgh is concerned that new initiatives from the UK Government, including the shared prosperity fund, a levelling up fund and community renewal fund, will bypass the devolved administration, so I'm just wondering if you can elaborate on what concerns you have on that? That is in the context of the upcoming negotiations for the refreshing or renewing of the fiscal framework. We feel that there are a number of things that could be done that would improve the position for Scotland, not necessarily at the expense of any other part of the UK, but that the relationship between the devolved Governments generally, not just as Scotland and the UK Government, has deteriorated. It seems to us that there is a conscious political decision to undermine the devolution settlement by making direct interventions, particularly in Scotland, but I think in the other devolved nations too. We list some of them in that and we've seen another one since then with the NIC increase. That is not a good basis on which to go into negotiations, which will depend on give and take on both sides and goodwill on both sides. It's incumbent on the UK Government to do something about that, but Scotland could help by raising those points in a constructive way and seeing if there's a way in which we can get back to a more stable footing. Susan, David, would you like to comment on that particular issue? Well, I agree with everything that Ray has just said. The question of intergovernmental relations is really important and there's no doubt that those relations seem to have deteriorated recently and that is going to pose and is posing a number of challenges when it comes to the renegotiation of the fiscal framework, but also the arrangements for the replacement to EU legacy funds. Nothing new to add. I think that a lot of witnesses have covered that already. Okay. I shall move on to committee members then. There's one particular area that I'm pretty sure is going to be focused on very quickly, but it's Ross to be followed by Liz. Thanks, convener. The discussion so far on the difficult choices that need to be made is focused very much on what to cut or disinvest from. There are other ways that Government and Parliament can make difficult choices and that's about how we raise additional revenue and who we raise it from and how we raise it, so I can ask a pretty open-ended question of what revenue-raising opportunities do you see? I recognise that they create a separate set of challenges from those presented by simply reducing budgets, but what revenue-raising opportunities are there for us over the next couple of years? I'll start then. The first thing to say is that, effectively, the Government is already committed to real terms increases in income tax over the next few years by freezing income tax thresholds in cash terms. From a budgetary perspective, in a way, what this is doing is mirroring the UK Government's position, so it's maintaining the existing gap between income tax policy and it's maintaining roughly the existing revenue impact of the slightly different Scottish income tax policy relative to the UK position. What that means is that it's clearly you could increase income tax rates further if you wanted to, but I think you've got to recognise that the existing position, in effect, is already a real terms increase in the burden of income tax over the next few years via the freezing of the thresholds. It's a political question about whether you want to seek further revenues through income tax, either by increasing one of the rates or by cutting a threshold in cash terms. The basic message is that, if you're interested in revenue-raising, it's broad-based tax increases that get you the biggest impacts.  Income tax is, of course, the major tax that you'd want to look at in terms of revenue-raising if you were wanting to raise significant revenues. I think the scope for raising substantial additional revenues from the existing devolved taxes is probably much more limited. One interesting caveat to that this year temporary reliefs for non-domestic rates for businesses in the retail hospitality and leisure sectors are costing around £1 billion for this year, slightly less than £1 billion. There's a significant source. We don't expect that that will be rolled forward into next year, but there's scope to look at some of those reliefs in the longer term as well as a source of revenue. Linda Somerville from the STC mentioned their position that there's a need to tax, not just income but wealth as well. Councilor McGregor mentioned other local revenue-raising opportunities, such as transit and visitor levy, being an example from the last session that was derailed by Covid, but there's still a broad appetite to move in that direction. Are there any other, if we're talking a moment ago, of creative policy solutions that have been adopted in Scotland last year, are there other creative solutions that can be found at a local level for revenue-raising purposes? I'll answer that in a fairly negative and random out way. Firstly, politically, I think that the UK Government has taken away the opportunity to raise tax rates in Scotland. It would be very difficult for the Scottish Government to raise any tax rates substantially during a pandemic with the economy not yet back to its pre-pandemic level, given that the UK Government has already raised taxes on individuals and on employers. That's a fact, and it would be very difficult politically, I think, to do that. The other point that I would like to make is that, as a matter of principle, it would be good for the Scottish Government to be able to raise more of its own revenue independently. I think that that would promote good government if more of the, a bigger proportion of the amount of money spent in Scotland by the Scottish Government was raised in Scotland. However, we have to accept that that introduces an element of risk. There is a huge element of risk in forecasting Government revenues already from the devolved taxes, particularly incumbent tax. We are seeing some of that now at the moment. I would suggest that currently the Scottish Government would not want to take on unnecessary extra risk. It may be desirable to go for more devolved taxes, but perhaps now is not the time to do it. David. Just to pick up on your follow-up question, I think, of course, taxes do things other than raise revenue. We use them to achieve redistribution and to incentivise behavioural changes. I think that some of the taxes that you mentioned or hinted at tourism visitor levy, potentially workplace parking levy, are examples of taxes that probably fall mainly into that category of incentivising behavioural change. That may be a good reason to do them. Some of those taxes may raise revenues that are reasonably significant for some local authorities, but I do not think that those revenues, particularly in the immediate post-pandemic time, are not going to be significant revenue raises for Scotland as a whole. That is all from me, convener. One of the things that is very interesting, notwithstanding what you have said about the need to improve intergovernmental relations between Holyrood and Westminster, which I think is crucial. What we have to wrestle with in this committee is what the fiscal framework should look like going into the future. I am dealing with the very sensible remarks that you made about inspiring growth and making sure that the Scottish economy is doing things as well as we possibly could be. In that context, in relation to some of the comments that you made in your papers, what would you like to see improved in the fiscal framework when it is renegotiated in the next few months? If we look back to the original negotiations in 2016 over the fiscal framework, if you remember that far back, the negotiations got bogged down on quite a small technical point over whether the treasurer's preferred methodology for calculating the block grant adjustment was preferable to the one proposed by the Scottish Government. I remember that very well because I was actually in Susan's job at that time. I was director of the David Hume Institute, and the day that that all came to a head, we were hosting a meeting in which the First Minister was supposed to be the speaker. At the time that she was supposed to arrive, she was on the telephone to George Osborne, who was the UK Chancellor, hammering out a compromise that enabled the fiscal framework to go into being. She turned up late and we forgave her for that. However, George Osborne said that we will accept the Scottish calculation, but in five years' time we are going to negotiate it. That has been delayed because of the pandemic, but it comes up next year. When you look back, the difference that those two methodologies would have made is relatively insignificant compared to the much bigger problems of forecasting, for example. That is not a reflection on the Scottish Fiscal Commission because nobody has a perfect record in forecasting revenues, but those forecasting errors are quite substantial. There should be some recognition about the practical difficulties of using those forecasts and reconciling those forecasts in the next fiscal framework. There are a couple of ways that could be done. There is an outstanding amount still to be reconciled, which is going to fall on the budget next year. It could be that the Scottish Government asked for time to pay that. That would be a reasonable request. In Treasury terms, it is a tiny amount, but it would make a substantial difference to Scotland. The second thing is overborrowing powers. The ability to borrow to deal with annual fluctuations is pretty limited. The Cardiff University submission to the committee said that when you compare it to the Welsh fiscal framework, it is relatively lower. It is something that David will correct me, but 300 million a year is less than 1 per cent of the Scottish budget. It is not a lot to be able to handle fluctuations year on year, particularly in a time when, as we have said before, there is so much unpredictability. What we should be looking for for the next fiscal framework is some flexibility, some ability to acknowledge that we live in uncertain terms and enable us to get through that with as little disruption as possible. Can I just probe a little bit further on the question about forecasts? We had an interesting discussion when the Scottish Fiscal Commission was in front of us in OBR 2. Do you feel that one of the issues that is detrimental to Scotland is the timescale difference about when different forecasts are being presented? Therefore, it is difficult for the Scottish Government to be able to play out what is a national UK level against what is Scottish data. Is there a problem about the timescales and the methodologies that are being used? David is much more expert than this sort of thing than I am, but I would say yes. We have just had the forecasts from the Scottish Fiscal Commission, but we will not get the comparable forecasts from the OBR for some weeks yet. We cannot compare them together. There are differences both in methodology, but there are also differences in the quality of the data, which is used to there is work that can be done on that, but forecasting is inherently difficult. Unfortunately, there are always errors. Those errors may only be one or two percent, but they lead to gigantic amounts of money. We have to acknowledge that that is always going to be an art rather than a science and try to find ways in which we can mitigate the effects of that particularly in one particular year. Mr Eiser, do you feel that this is a very substantial problem in terms of the fiscal framework or do you think that we can get round this problem? I certainly think that there are some areas where the limitations of the existing fiscal framework are very apparent and Ray has explained those very clearly. On the forecast error borrowing powers, there is one argument to say that we have only had three years of income tax outturn data. Just because in one of those three years the reconciliation exceeded the existing borrowing limit, it does not necessarily mean that that is indicative of how frequently those reconciliation will exceed those existing borrowing limits. On the other hand, the current expectation is that those borrowing limits will be enough when we have full devolution of the social security powers that are coming on stream and the assignment of VAT. There is a very obvious or strong case for saying that those limits on forecast error borrowing are insufficient. Similarly, the drawdown limits and the cap on the Scotland reserve are clearly not particularly generous either in the context of the old budget exchange limits or, as Ray said, in the context of the limits that the Welsh Government has relative to the level of devolution that has happened there. Again, that is an area where it seems to me that the limitations are pretty clear and you would hope that the Governments could quite quickly agree at very least that those existing constraints need to be addressed. Quite how far you raise those existing limits is of course a different question that the Governments will need to discuss and negotiate. Then there are some issues that the Scottish Government clearly wants to raise as part of the fiscal framework renegotiation. Possibly the case for including in the fiscal framework negotiation is a bit harder to make. Those include questions around the scope for further tax devolution. Is a fiscal framework review the best place to have those discussions? Given that that review will probably be between the two Governments effectively behind closed doors, is that question of wider devolution one for a more open, deliberative process? I suspect so. Between those two extremes, there are things like the extent to which the Scottish Government should have additional borrowing powers—for example, the ability to borrow to fund discretionary resource spending—that is a bit more of a grey area. The UK Government may say that that represents a new fiscal power and that it should not be part of the fiscal framework discussion. The Scottish Government may say that this is a tool by which we can address existing volatility associated with the existing devolution settlement. There are on-going disagreements and debates on exactly what the scope of the review should include. Thank you for that. My final question is about—for a minute, if we can take out the constitutional politics about the fiscal framework, which I know is very difficult, but if we can focus on what is the best economic outcome from the fiscal framework's re-negotiations, we have identified that we could have better inter-governmental relations. We have had talked about improving the forecasting. We have just identified some aspects where we could perhaps deal better with the exogenous shocks that have hit us, notwithstanding some of the risks that are involved with it. Is there anything else in the re-negotiations that would help the growth perspective and the economic efficiency of Scotland that would be helpful in the re-negotiations? Can I jump in on that and connect with the last question? I think that one of the fundamental limitations of the fiscal framework at the moment is that so few people really understand it. If we are going to go back to the principles of good tax policy, one of those is simple simplification. If we were going to use that principle in the fiscal framework, we would say, we will make it so that more people can engage with it and understand it. It is not just the likes of David, Mary or Graham that really understand the detail, because that stops people being able to engage with it. It is so incredibly complicated at the moment. When you listen to the previous evidence sessions, the fact that one number can go up, which might look good but mean that less money comes, it seems crazy. There is no chance of anyone non-specialist understanding it, and that feels like a massive barrier. I am struggling to zero in precisely where my follow-up questions be, because there have been so many interesting topics raised so far by the panel. That is a good problem to have. Can I start by examining the issues around inequality, which I think we are alluded to by the Fraser Valand Institute and its submission? It strikes me that we have just got unemployment data out today. It shows that unemployment is down, but the number of jobs in the economy is still below pre-pandemic levels, which is confirming what is going on before. With furlough coming to an end, we need to be careful not to put ourselves in a position of false security thinking that labour shortages means that there are no problems. In fact, we could have both problems, labour shortages and joblessness. Is that a correct assessment of a real risk? If so, how stubborn a problem could that be? Are there sufficient public policy measures in the programme for government to deal with joblessness and labour shortages in the economy? That is exactly the right assessment. There was always the risk at the start of the pandemic that the pandemic would create what economists sometimes call structural change. As a result of the pandemic, there are big changes in what we consume, how we work and where we consume. Those all affect labour demand in the economy. The big unknown was how readily would the economy be able to reallocate labour from sectors that have seen relative decline to sectors that have seen relative growth in demand. The good news is that, since the start of the year, the overall outlook has actually improved a lot. At the start of this year, forecasters would see unemployment of 7 per cent by now. Each month, the unemployment figures come in and they are a lot more positive than people were thinking. Having said that, as you rightly pointed out, we have got latest data imply about 120,000 people in Scotland on furlough split roughly half and half between partially and fully. We do not quite know yet exactly how things will play out at the end of the month as the furlough scheme unwinds. That is, of course, on top of roughly the same number of people who are unemployed in Scotland at the moment. There is still the potential for even those aggregate numbers to look a lot worse or somewhat worse in a month or two. The real challenge that creates for the Government is needing to be very flexible and nimble in how it responds to that. That combines with the other challenge, which is that employability as a policy area is messily distributed between the two layers of government. There are some real challenges here, but I think that your assessment is that we have on the one hand some real risks around the potential for unemployment to pick up further. At the same time as we have shortages in some sectors, that is exactly the challenge. It was always the risk in labour market terms that the pandemic was going to create. We really are in uncharted waters. We have never been in a situation before where the economy effectively stopped for a period and then took a long time to get back to its pre-term pandemic levels. We are nowhere near that yet. We do not know what is going to happen in a month's time when furlough scheme ends and a number of other support for self-employed, for example, comes to an end. I would agree entirely with David that what the Government has to do is try and be flexible and deal with that situation as it comes. In the end, it comes down to investment in education at all levels in school education, which has fallen back in universities that provide so much innovation in the Scottish economy, but then the bit that has always forgotten, further education, which is vital in trying to get people into the job vacancies that are rising. We have not only very low unemployment, but we have very high levels of job vacancies, and we need to find a way of matching those much more closely. The good news is that the economy has a lot of slack to catch up, so there is the potential to do a lot better there, but it is very difficult to predict how soon the economy will get back. I know that the SFC has been quite optimistic about that, but I think that they would be the first to say that their forecasts have a number of caveats to them. Lots of things have been mentioned. We have not talked about demography and migration, and it has got to be critical because we have relied on that in Scotland to fill skills gaps for a long time. It feels like Scotland is still viewed positively in the world and that people still want to come here, but we were looking at Professor Mike Anderson's analysis of demography a few months ago. I was fascinated by the fact that Scotland, for the first time in the past few years, has got net migration in from the rest of the UK, and that might potentially be a way to look at skills if we have to, because we are not going to be able to train all the people fast enough for the things that we need to do now. I would like to move on and follow up on some of the discussion about the operation of the fiscal framework. If we look at what happened from the 2019-20 budget, there were tax proposals in there that should have raised £500 million in addition. What ended up happening because of the block grant adjustment and the operation of the fiscal framework is that only £148 million of additional funds came to the Scottish Government. My understanding of that is essentially that we did not do as good a job in Scotland of growing the number of tax payers and growing their ability to pay tax—how much money they are. Is that the right analysis? What does that tell us about the policies pursued in Scotland in terms of growing the tax base and growing earnings? What does it tell us about the ability of the Scottish Government to use that big fiscal lever that it has? Does it tell us that it is not an effect of the lever because ultimately it cannot remember my first year in university economics about the elasticity of demand and the tax rate? Is it telling us that people switch their behaviours when we alter the tax rates in Scotland? I will go to David Izer first, but it is very interesting hearing from the other panellists. Yes, you are right. This is a complex issue. I will go back to that point earlier about the complexity of the fiscal framework. It is complex in a way because there are two baselines on which you can assess the change that has taken place. On the one hand, Scottish income tax revenues are about £500 million higher as a result of the tax policy in Scotland than it would have been if the policy that prevails in the rest of the UK had been applied in Scotland. The policy on that basis raises £500 million. However, if you say how much better off is the Scottish budget compared to the position that it would face if income tax had not been devolved at all, then the Scottish budget is only £150 million better off. What that reflects is the fact that, as you say, the income tax base grew relatively more slowly in Scotland, and because income tax has now devolved, Scotland is not getting a share of the relatively faster growth in our UK income tax revenues. Scotland has not been shortchanged in the sense that it has still got a full £500 million increase in its revenues as a result of the tax policy that it has implemented, but it is no longer just getting that increase in revenues from Scottish taxpayers, and it is not getting a share of the faster growth in income tax revenues from the rest of the UK. That poses a couple of questions. Why did we get that result? We do not know exactly yet, but I do know that the Scottish Government and HMRC is doing some pretty in-depth work looking at those questions. My sense is that this is, to a large extent, going to be a legacy of things that were happening in the offshore sector that have a disproportionate impact on the Scottish economy and Scottish income growth relative to the rest of the UK. If that is the explanation, is it fair that we have the fiscal framework that is in effect seeing that the Scottish Government exposed to the implications of effectively global economic shock in oil prices, but one that happens to have a disproportionate effect on Scotland relative to the rest of the UK? That is the trickier question to think about. That depends on what you think a union is about and what happens in a union when you have got tax devolution, but that is the question that the Governments will have to get to grips with when they review the fiscal framework. I will move on, but I am happy for other panellists to come back to any of those issues. If we are looking at what we should have laser focus on, it strikes me as I was alluding to that, that we should have laser focus on growing the number of taxpayers, but I critically try to grow the amount of income that each Scottish taxpayer has, because that benefits the Scottish Exchequer, benefits the individuals and, ultimately, should lead to tackling the productivity issues that we have. However, if we are coming back to Mr Reperman's comments about the levels that we are spending on enterprise support, we are not spending anything like £600 million any more, as was under Scottish Enterprise alone. We are spending about £530 million, so we are spending less despite having created the Scottish National Investment Bank. The question is that we need to be mission led, we need to have that focus. Should it be as simple as purely on productivity, which will then have those impacts on earnings? If it is not that, what should the mission of the Scottish National Investment Bank and other enterprise agencies be? How do we enhance that laser focus? If you look at the mission of the British Business Bank, it is admirably clear that you can express it in one paragraph. If you look at the missions of the Scottish National Investment Bank, they take considerably longer than that. Sometimes those missions will gel together, decarbonising the economy and improving productivity. You can think of ways in which those two can be in alignment, but sometimes they will be in opposition to each other and sometimes they will both be valid, but they will have competing claims for the budget of the Scottish National Investment Bank. It is not laser-like focus, however desirable and whatever the impact on the Scottish economy those missions will have. Raising productivity is the search for the philosopher's stone. When you do the numbers, you see that, if we could raise productivity from 1 per cent to 2 per cent, all our problems would be over. However, people have been trying to do that for the last 50 years, and it is very difficult. It is going to be terrifically difficult with the decline of the North Sea industry, particularly around Aberdeen and that area. There are some companies with very high productivity. If we lose those skills and companies, if they go elsewhere, it will be a loss to the Scottish economy. There are things that we can do in trying to encourage companies to look for opportunities outside the North Sea that would benefit the Scottish economy. However, the other thing that the Scottish Government or any Government can do to try and improve productivity over time is education and training. When you look at how the Government can influence productivity, it comes down to infrastructure, education and training. In the end, it has to be the private sector that delivers the productivity. I wonder whether Susan and David agree that we need to enhance focus or both prioritise enterprise support and increase focus. Is that a proposition? I quite like to join up your last question. You asked about laser-like focus. For me, it is how do you increase the number of taxpayers and how do you get them paying more taxes back to your question? You mentioned earlier fairness. We have not talked about in-work poverty. That is an immediate way. If you can get more people to earn more money so that they are not living in poverty, that saves a massive bit of the budget. There are huge amounts of money going in there to support people who are in jobs. I am not sure that we know at this point in time if the national insurance rise is going to lead to less numbers of employees because it is disincentivised employers taking on additional staff because they have got a bigger cost. If that means more contractors, what does that mean for the Scottish budget? Ideally, we want more PAYE to get the Scottish tax take up. If that is what we want, how do we get it? Higher wages, more hours and all those things that you have mentioned in your question. However, that is not in the control of the Scottish Government. That is every business owner. How do we get that sense of if we want more resilience in a system, then taking on staff is a really good way to do it? If you have people who are in insecure work, they are much less able to cope with shocks. That means that when there is a shock, such as Covid, it is going to hit them more harshly. That is what we have seen in the data, is that people who are less able to cope have had to spend more resources and the ones who are already with more resources have been able to consolidate and are now spending on nice things. Any final thoughts before I… Not really. I think this highlights the huge challenges in making policy decisions when all policies have some impact on potentially raising productivity and income growth, but all policies also have an impact on inequality and distributions. Sometimes there will be policies that do more of one and less of the others. There will be policies that contribute to one and maybe counteract the impacts of another. It is incredibly complicated and difficult stuff. We should not pretend that any of that is easy, but we need to get better at scrutinising the Government's justification for its different policy choices and how it will impact on those sorts of outcomes. John Finch-Ew, to be followed by Michelle. Thank you, convener. To build on what Liz Smith and Daniel Johnson are saying about the fiscal framework, is there a fundamental problem? The points come up that we are comparing ourselves with the rest of the UK and if we cannot grow as fast as the rest of the UK, we are disadvantaged. The rest of the UK is dominated by London and the south-east. The figures seem to show that we can compete very well with the midlands or the north-west or any other part of the UK, Wales, Northern Ireland, but we struggle to compete with London and the south-east. Is that a fundamental problem that we need to tackle? You are absolutely right. If you look at the regions of the UK, including the devolved nations, but also the economic regions of England, and ONS has only done that once in recent years, you see that Scotland is not dissimilar to the majority of other regions at all. The outliers are London, the south-east and the eastern region around Cambridge. The UK is producing the bulk of the growth in the UK economy. To a certain extent, we are dependent on that growth rate. That might suggest that we should try and get a different relationship so that we are not competing so much with that sector. That is where the complexity of the physical framework becomes really quite difficult. As far as most of the Scottish budget still comes in the block grant, the block grant is not determined by relative growth rates. The block grant is determined by population share. To that extent, Scotland does pretty well and is insulated from the differences in growth that you were talking about. It is where we have devolved taxes that we run into problems with differential results. I think that it is in everybody's interest to g