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Let me say two things about that. If we applied that approach across the board, you would not see any more folk coming into the NHS, social care or Social Security Scotland, which is still expanding its services. I was imparting to you that there needs to be a recognition that there are still some areas of growth. That does not mean that all areas of the public sector will grow—I will come to the figures for the core civil service in a second—but it does mean that a more nuanced approach is required to recognise that there are some areas, in social care, the health service and Social Security Scotland, that need to continue to grow.

On a point of agreement, if I can be helpful, part of the constraint on costs going forward is because the workforce in the public sector, regardless of which part, needs to be affordable. We cannot afford a workforce that there is not the money for, and that is a key element. Civil service numbers dropped marginally over the last reporting period, and workforce recruitment controls are in place across the civil service. There is a recognition that areas where there are new developments and policy areas may need to be treated differently from other parts of the core civil service. If you are asking me, bluntly, whether the size of the workforce will need to reduce over time, the answer is yes, it will. However, within that, there will still be areas where it does not reduce, for the reasons that I have just set out.

First, that is part of the discipline. At my very core, I absolutely want to make sure that we get maximum value for the public purse from every pound that we spend. On a point of absolute fact, when we talk about the overrun of costs in Ferguson’s or anywhere else, which I have made very clear is not acceptable, let us not make out that that money is baselined into budgets and has to be there as part of the resource budget. You cannot compare project spend with the resource budget that pays the wages: the two things are very different. I am not saying that the overrun in costs is acceptable, but let us not conflate the two, because they are very different things.

If I was sitting here as the Welsh finance minister, I would say to you that the problems in Wales are, if anything, even greater than the problems in Scotland, not because the Welsh Government has been profligate with the money that it spends or has made mistakes, but because it does not have the necessary levers at its disposal to deal with the headwinds of rampant inflation and economic shocks, all of which impact on budgets. We do not have the levers in Wales, Scotland or Northern Ireland to deal with the headwinds. In Scotland, we have some additional levers at our disposal, which the Welsh and Northern Irish do not have, to help us balance our budget, even though that is proving to be extremely challenging this year.

If the ministers from Wales and Northern Ireland were sitting here now, they would tell you that the prospect of being able to balance budgets is getting increasingly difficult. They have told the Treasury that over and over again. There is an issue, and it has been brought into stark contrast by all the headwinds that we have discussed. To date, that has not been heeded or listened to. This year will, I think, expose very clearly some of the limitations of those levers.

From Scotland’s perspective, as I said, we have levers at our disposal, thankfully, that Wales and Northern Ireland do not have. We will have to use those levers, and we will use them, but it is becoming increasingly difficult—because of those headwinds and the limited levers that we have—to do the thing that we are legally required to do, and that is to balance our budget. I cannot put any gloss on it. Those are the same messages that were put to the Treasury, sitting in a room not dissimilar to this, by our Welsh and Northern Irish colleagues.

The national strategy for economic transformation—NSET—is still the right economic plan. It was developed with business and with the key sectors that we have referred to. It absolutely focuses on the areas with the strongest opportunity for growth. We then have decisions to make about where we put that public investment, because, as you have just said, we cannot put it everywhere. So, we have to be strategic in how we utilise public funds in order to lever in private investment. That is the key. NSET set out some of the priorities, and that was followed up by some of the investments. You referred to one—the £15 million for entrepreneurs—but there were many others as well.

We should, absolutely, continue to listen. For example, we will be talking to the investor panel. The First Minister has met the investor panel on two or three occasions to discuss where there is an appetite to come and invest in Scotland. Clearly, there is an appetite, but we have to make sure that that can land, because investors obviously want a return for their investment. The Government’s role there is to reduce risk, to incentivise, to show leadership and to provide seedcorn investment for private investment to follow. A lot of discussions are going on in that space.

I will just mention income tax. I am sure that we will get into some of this later in the session. Recent evidence from the tax receipts that are coming through the system is that income tax performance is improving and we are outperforming the rest of the UK. There is cause for optimism that more revenues are being generated through the tax system. There are a whole range of reasons for that, including the post-pandemic recovery and many others. I will be happy to get into that at some point, but I do not want to leave the impression that we are not seeing progress there; we are, but we always need to do more.

Your first point, about the transparency of mitigation, is important. There are obvious areas of mitigation around discretionary housing payments and the Scottish welfare fund, but there are also probably more discreet areas of mitigation in areas where we have to support spend because of decisions being made elsewhere.

We decided to uprate our welfare supports in line with inflation, because we recognise that, in a cost of living crisis, it would be incredibly difficult to see real-terms cuts to benefits support, and all of those issues come at a cost. There may be ways of giving more transparency to that growing mitigation. Of course, in this place, there are often calls for us to mitigate further and further, but that becomes very difficult on a fixed budget.

I will ask Alison to come in on the transparency point in a bit more detail. Your letter contained a point about the in-year execution and the actual outturn. It is fair to say that we manage some difficult in-year pressures. We are managing them at the moment and trying to get a balanced budget. We have to balance our budget, of course. We have done so every year, but it is very challenging with the levers that we have. Incidentally, it is not just us saying that; the Welsh and the Northern Irish are probably, if anything, in a more difficult situation, because they do not have some of the levers that we have.

That is an on-going process. It is difficult: you set a budget, but, quite quickly, get into a situation where you immediately have to look at in-year savings because of all the pressures and headwinds. Following the money through all of that can be complex. It is not an easy process. There is work going on?Alison may be able to reference it?that might bring more transparency to the process.

There is a difference between means testing and targeting, so let me take them in turn. We are looking in great detail at what the options are in relation to targeting. The Scottish child payment, which has lifted 90,000 children out of poverty, could not have been afforded on a universal basis. That measure was targeted to help us to meet the targets that were set out in the child poverty legislation. We had to look at measures and take a credible path to meeting those targets. The Scottish child payment is a lever that could only have been a targeted measure.

There may be other areas of policy and existing spend that, if money were no object, there would probably be a good argument for continuing to provide on a universal basis. However, when money is really tight, how do you deliver services that will make a difference? Let us look at the options on the childcare offer. Some aspects of that offer will work for everyone, but how do we make sure that it really works for those parents who face blockages in getting into employment, being able to take additional hours or finding better-paid employment? Clearly, childcare is one of the big levers there. We are having a lot of discussions about what our childcare offer will look like in future.

When it comes to means testing, that is a different discussion, which involves discussing whether there are areas of public spend in which services are currently free but that might have to change. That is more complex, because a whole system would have to be set up for that. Prescription charges are a good example. I will not get into a long discussion about that, because I sat through all the committee discussions when those debates took place back in the day. The argument was made that we could have a means-tested system in which we exempted people with chronic conditions. However, the long list of chronic conditions grew even longer and reached a tipping point where the number of people who would have had to pay—those who did not have a long-term condition and were not below a certain income threshold—was so small that setting up and administering the system for them to pay became uneconomical. We constantly need to look at whether that is still the case, but that was the fundamental argument at that time. Value for money, purpose and impact all need to be looked at, but our focus is definitely on better targeting.

Let me tell you about the programme that is under way. We have a programme that will support public bodies to work together to achieve improvements in property data for strategic planning. There will be location-based reviews, with support to set short, medium and longer-term property key performance indicators and actions, and support to work across silos and organisational boundaries. The first governance meetings of the advisory board and programme delivery board took place this month, with very positive responses. Further stakeholder engagement is due to take place next month. The first meeting of the public sector property forum is on 19 October, and the senior stakeholder group, which is chaired by Tom Arthur, is due to meet on 26 October, so we will be really getting in and about some of the opportunities, with people working in a different way.

We also need to think about the net zero decarbonisation of buildings. It will be difficult for some buildings to meet those energy efficiency standards, so it makes absolute sense for all those reasons to work through one single estate strategy.

That will not happen a week on Tuesday; it will take a number of years to get to the optimum point. However, I have no doubt that that will drive cost savings and help with our net zero ambitions. All those are definitely worth while, and I am happy to keep the committee updated on the progress of the board.

It will impact on this budget, but it might not be the full, all-singing, all-dancing product of the fiscal framework. The work that is being done on the fiscal framework will impact on how we have discussions with local government about the budget, but areas will still be worked through beyond this budget. We will have quite a different discussion with local government about this budget than we have had in previous years, but the development of the fiscal framework will be an iterative process.

Your first question was about the Verity house agreement. A lot of the negotiation with the Scottish Government on the fiscal framework is being led by COSLA on behalf of local government. In the midst of that, COSLA has been working with trade unions to resolve some of their pay disputes. COSLA is quite a small organisation, and we ask a lot of it. COSLA being pulled in different directions is not a new issue; we need to understand that. That said, increasing the pace to conclude the fiscal framework discussions is a key priority for us both. All I am saying is that there has been an impact from COSLA having to deal with other matters, and we will work to conclude as much as we can to help with the budget process this year.

On the second area, yes, all those issues are part of the wicked problems with which the Scottish Government is wrestling. It is not just about the gap in finance and revenues that is projected through the MTFS, because layered on to that are the pay deals, which, owing to inflation, have exacerbated that situation. As I said, I do not resent a penny of it, but spending £0.5 billion more on pay than was budgeted for will clearly have an impact.

On top of that, we have targets for child poverty and climate change, both of which are statutory targets and key priorities for budget spend. Trying to navigate all that means that we have to be more targeted and will have to prioritise within the collective spending envelope. That work was done over the summer, and we continue to look at what we might have to do differently or stop doing. That is not necessarily comfortable territory, but it is the territory that we are undoubtedly in. We have to make sure that the key priorities receive the funding, and we need to continue to be clear about that. We have said this over and over again. I am not sure whether everybody understands the severity of the finances. Sometimes that may not be the case, but those are the difficult decisions that we will have to make.

I have talked about some of the levers that we have, but there are constraints on those levers, given some of the discussions that we have had about potential behavioural change and the limitations of our tax levers. It is a set of wicked problems, and there are no magic answers that no one has thought about before that we can pull out of the sky. The levers are the levers, and, at the end of the process, we will make our proposition and say, “These are the best decisions that, we think, can be made, given the constraints and the financial outlook”. If others think differently, they are always welcome to come to us with different propositions, as long as they tell us where the funding is to come from.

I could respond by saying that recent debates around whether a certain railway is going to end up in Manchester at a cost overrun of over £100 billion—

A £100 billion overspend on a railway that is now not going to go to Manchester just shows that all Governments have challenges with infrastructure projects. It is not an issue unique to the Scottish Government.

We have been clear, and Neil Gray has been clear, to the Ferguson’s management team—in which, of course, there have been leadership changes in recent times—about the requirement to constrain costs, the requirement to deliver on the timescales set out and the fact that not doing so does not do the reputation of Ferguson’s any good at a time when, clearly, that is important for future contracts and the future of the yard. I want to see a good, positive future for that yard, because I want shipbuilding to be retained in Scotland, so it is really important that we make progress there.

The point that I made to Michael Marra was that one of the reasons for the cost overrun is the same reason why many infrastructure projects have had cost overruns, which is construction inflation running at 25 per cent at the height of last summer. That is not to make excuses; it is to give some context as to why some of the costs are overrunning. There are other complexities at Ferguson’s that the committee will be well aware of.