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There are two roads that we could go down. We could increase ministerial decision making over what local government spends its money on and increase ring fencing, or we could give local authorities more fiscal flexibility in deciding whether to spend more money on ASN teachers or other areas that they see as being priorities. We are at a crossroads, and those are the two routes.

My view is that giving local authorities more flexibility in their budgets will allow them to set the priorities for their local areas. Local authorities might well want to prioritise ASN teachers. However, we cannot have it both ways. In Parliament, we quite often hear calls for local government to have more flexibility in its funding, but there are then calls for ministers to be held to account for, for example, the number of ASN teachers or staff in each local authority area. We have to agree some fundamental principles, which will be set out in the partnership agreement and the fiscal framework.

On the overall local government settlement, I do not want to diminish the challenges that local authorities face, but we have to recognise that we have increased the resources that are available to local government in 2023-24 by more than £793 million. That represents a real-terms increase of £376 million, or 3 per cent. However, inflation and pay deals are impacting on local government in the same way as they are impacting on the Scottish Government, so we included £100 million in the budget to help local authorities with the pay deal for teachers.

It is not easy to wrestle with those things. There is no easy answer—if there was, it would have been done. We are at a crossroads, and my view is that giving local authorities more financial flexibility in how they spend and raise their money is a better road to go down than increasing ring fencing and Government direction.

I will maybe ask my officials to come in on that. The NDR is a hugely important and core part of local government funding, so we need to make sure that it continues to bring in much-needed resourcing. We have a strong package of reliefs, which is worth an estimated £749 million in 2023-24. Of course, there will be an important balance to strike on where we go with NDR in the future. That is why a consultative group has been brought together, under Tom Arthur, to look at how we go forward with NDR.

I assume that the 10 per cent increase is related to growth. Is that something that we should get back to the committee on?

As I said earlier, the lens that each programme will be examined through is the lens of the core missions. Do our programmes reduce poverty? Do they help to grow the economy in a sustainable way? Do they help us to reach net zero? Do they sustain the public finances? There will inevitably be a bit of political oversight of some of that. We will work through all of that.

On business taxes—you spoke about NDR—I mentioned the sub-group that is looking at NDR, which Tom Arthur is chairing. I guess that there is an opportunity to look at whether the supports are the right supports. Are there supports that need to be more focused? What does the business community itself feel and want as regards the priorities? Not everything is a priority and not everything can be agreed, so we need to get a sense of what the key priorities are and what delivers from the point of view of sustaining small businesses, which are the bedrock of the Scottish economy, and our key sectors.

All of that will be worked through. As I said, one of the key asks from business has been around maintaining the lowest poundage in the UK, which has been an important support for business.

At the end of this process, we need to reach a position that is balanced, that delivers on all those key objectives and that is affordable. Some quite challenging decisions will have to be taken. There are many asks of Government, from every stakeholder and every part of society. We need to land that in a space that is fair and consistent, and that achieves the objectives that we have set out.

There are also issues with regard to the use of the reserve and so on. We do not envisage air departure tax being part of the discussions. The issue of VAT and assignment has been around for some time, and a lot of work has been done on some of the challenges with assignment.

I would describe assignment as very challenging. Where assignments have no direct relationship to Scotland’s economic performance, we are really looking at a kind of statistical exercise, and that has inherent risks. We would be very loth to take all the risks without having any of the policy levers, so those discussions are on-going.

To be fair, the UK Government recognises the complexity of the issue and the risks. Therefore, we are trying to find a way forward that does not provide just another area of difficulty, and I am hopeful that we can get some agreement on that.

I will ask officials to come in on the pilot.

It is fair to say that pay negotiations are quite often not just about pay; other elements relating to terms and conditions will be brought in. The four-day week has become far more of a live issue, not least because people’s ways of working have changed. Many more people work from home. I go back to Michelle Thomson’s point about productivity. It is not just the public sector that is looking at the issue; some private businesses are looking at it, too. Essentially, if staff can maintain or improve their productivity over four days rather than five, why not give that flexibility to them? The issue is current, a lot of employers are considering it and there is the public sector pilot. Does Alison Cumming want to give an update on that?

The leadership role sits with each cabinet secretary to look at all the programmes in their area, check them against the core missions and consider how far they go in delivering the objectives. We then look collectively at all that and think about what the picture tells us and what decisions we should make in the light of the challenging financial outlook and the need to reduce poverty, deliver on net zero, have sustainable public services and ensure that our economy is as vibrant as possible. We need to work through all that, with the initial phase being the leadership role that each cabinet secretary applies to it.

We are still in discussions with His Majesty’s Treasury about a suitable date for publication of the report. As it was jointly commissioned, we will obviously need to agree jointly the publication date, but we are committed to publishing it. There is no question about that—it is just a matter of when.

We are in the foothills of those negotiations; they are imminent, and we have been having correspondence backwards and forwards to try to shape the discussion. I am keen to be as open as I can, but I am mindful that the negotiation is quite tricky. We have our asks, and the UK Government will no doubt have its asks, too. However, I give a commitment that I will try to provide the committee with as much information on the detail as quickly as I can.

In 2022, the Scottish economy grew by 4.9 per cent compared to 4.1 per cent in the UK. The latest ONS data—it is not just the SFC that says this—show that earnings are growing faster in Scotland than they are in any other part of the UK. I think that the annual growth to April for median earnings was 9 per cent in Scotland and the next highest was 8 per cent.

Scottish earnings are forecast to grow faster than those in the rest of the UK. As you mentioned, the SFC forecasts that average earnings will grow by 4.6 per cent this year, compared to the OBR’s forecast of 4.1 per cent for the UK. The SFC will have done a lot of detailed analysis of the Scottish economy, and we should have confidence in its forecasts.

Let us look at the tax data. I keep coming back to that because it is hard evidence—it is what we know. The provisional in-year pay-as-you-earn tax data for the first 11 months of 2022-23 suggest that growth in Scottish PAYE income tax receipts has outperformed that in the rest of the UK. That is not a forecast; it is actual evidence.

We are not being complacent—we have to keep an eye on the situation—but there is cause for some optimism.

Of course, but any forecasts always have an element of risk and caution. The HMRC data show a trend in actual, here-and-now evidence that gives us some cause for optimism that the forecasts will show that trend continuing. However, we cannot be complacent.

NRS and Scottish Water were set the same challenge as other public bodies—that of ensuring that they can live within their budgets, which are under strain. They therefore need to drive their own efficiencies and consume their own smoke, if you like. However, they also need to improve outcomes, and that is quite a challenge.

Scottish Water has carried out a huge programme of efficiency and reform. NRS is similarly focused on digital opportunities. They were not forced to do that, but they have had the leadership in their organisations to recognise the need to do that. We need to make sure that that work progresses at that pace, not at the pace of the slowest. There is an organisation that brings together the leadership of all the public bodies, and work is being done to share that best practice and to ask, “How did they do it? What did they do? How can we do it?”

Public bodies know that there is no option, given the financial outlook, other than to make sure that they get on with the reform that they need to do. It might look a bit different in each organisation, but some of the principles are the same, and that work needs to be done at pace.

Ultimately, ministers will have responsibility for oversight to make sure that that happens at pace. I have talked in bilateral meetings with my colleagues about the need for pace here. Ministers are aware of the need to ensure that every organisation gets to the point of being as efficient and productive as it can be and having the best outcomes for the people it serves.