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I am happy to explore propositions from local government. On the question that the convener asked me about the work on council tax, I am very keen that we make early progress, so that if there is greater flexibility that local authorities can deploy in relation to council tax we can seek to implement that.

Mr Mason put two specific examples to me. I am not sure where power and control lie in relation to fixed-penalty notices—I would have to take that away to check.

I am happy to consider any propositions that might assist local authorities. I recognise the challenge that local authorities face in the current context. We all face those challenges, as Mr Mason rightly says. I have a finite sum to allocate and I have taken a decision to increase taxation—not without controversy. That decision increases the resources at my disposal, which has enabled me, in the round, to increase the budgets available to local authorities by more than £550 million. If we were to increase that any further, we would have to take resources from somewhere else.

I will take that one away, because I cannot quite recall what the arrangements are. I will provide the committee with a response on that.

Our national strategy for economic transformation is a 10-year strategy, so my expectation is that activity will be delivered over that period. I will highlight three distinctive important elements. First, there is the development of entrepreneurship—that is the entrepreneurial people and culture element of the national strategy, which is vital, as it relates to some of the points that you have put on the record about the tech scalers. We have already seen formidable improvements in performance as a consequence of some of those concepts, and the Government is investing to roll those out around the country.

The second element is about the necessity of having productive regions and regional economies in Scotland. As an example of that, I recently viewed an investment that the Government has brokered—along with Highlands and Islands Enterprise, Western Isles Council, the Stornoway Trust and the Stornoway Port Authority—in the construction of a deepwater port in Stornoway, on which remarkable physical progress is being made.

That will open up the opportunity for significant new marine-based activity in the Western Isles. The first tranche of that will involve cruise ships being able to birth in Stornoway harbour, which large cruise ships cannot currently do. I heard about some of the preparatory work to develop more economic opportunities in the Western Isles to accommodate the interest and enthusiasm of visitors who come to the area on cruise ships. We have already seen some of that success demonstrated very effectively in Orkney, for example, where cruise ships can get right into Hatston pier.

That first tranche will significantly boost the economy of the Western Isles. That is before we get anywhere near hydrogen and the ability to develop green hydrogen from the renewable energy footprint that will come from the ScotWind process. That is just one example of one regional policy intervention that the Government is involved in supporting; we are involved in supporting many others around the country.

The third element relates to the development of the necessary skills and capacity to ensure that we can make the most of the changes in the economy that are coming our way. As a consequence of the much better dialogue that now takes place as part of the relationship between our college sector and business, for example, I am confident that our colleges are very attentive to meeting companies’ skills requirements to support the transition, particularly to net zero, and to be able to invest accordingly.

Those three issues of entrepreneurship, regional policy and skills lie at the heart of addressing the productivity challenge that you put to me, convener.

There was quite a lot in there. I will try to work my way through all of it as best I can.

I imagine that payroll costs will increase during the year, because I do not think that the degree to which the public sector head count will fall over the course of the year will be outweighed by the increase in salary costs. I am not going to produce an Excel spreadsheet that gives the modelling behind that, but that is my best assessment of the likely position in relation to Mr Johnson’s question.

Secondly, I have not stipulated a pay policy, for the pragmatic reason that the pay policy that we stipulated last year became pretty meaningless pretty quickly. We are trying to do some further work to establish what the parameters might be when it comes to expressing a pay policy. One of those parameters is that organisations that commit to pay deals have to be able to afford them within the budgets that are set. I would not want the committee to think that there were no parameters with regard to pay. There certainly are such parameters. Affordability is the big parameter when it comes to pay policy, as we navigate our way through what is a volatile climate.

Thirdly, the other big variable is energy costs. Those will be influenced by decisions that the United Kingdom Government takes on the management of energy costs but, in essence, we are saying to public bodies and organisations that they must live with those challenges.

The last area that Mr Johnson asked me about was the £10.50 pay floor. In my view, that will rise to £10.90, as a consequence of the steps that we take.

I do not think that I have much to add to what I said to the committee when I was here last time round, which was that we have made provision in the budget for a range of measures in relation to the national care service, not least of which is the increase in social care payment rates, which accounts for a substantial part of the journey that we are trying to undertake with the national care service in terms of increasing remuneration for social care staff so that that career is a more attractive proposition.

Specific details about the delivery of the national care service will be linked directly to the financial memorandum that will come to the committee in due course. It will set out some of the further detailed planning that is undertaken in that respect.

We must be conscious of the fact that inflation will affect capital projects in different ways. For example, any capital project that requires raw material inputs will face significant challenges because of all the implications for supply chains and costs that there have been as a consequence of the aftermath of Covid and the disruption of the conflict in Ukraine. Other aspects of capital expenditure, such as the moves to net zero that you highlight, convener, and investments in research activity, are less susceptible to the erosion of value as a consequence of inflation.

I make the point to the committee that we are having to ask portfolios, in making portfolio allocations, to make prudential judgments about the timing and progress of projects, based on what value they can achieve as a consequence. There will be projects the cost estimates for which are increasing very significantly, so it is not prudential to proceed with them just now. In a few months’ time, it might be possible to secure a more competitive price for those projects through the deployment of capital expenditure at that time, because the inflationary pressure has receded to an extent.

The best way to characterise what we are doing is to say that, rather than reprioritising, we are asking portfolios, in aligning their commitments, to have due regard to the inflationary climate. Maybe we are just using different words, convener.

In my budget statement, I identified four factors before I got on to the detail. On one of them, I said:

“the significant increases in input prices and energy costs mean that our capital budget will be unable to deliver as much as would have been judged possible just a few months ago. The Government will keep these factors under constant review as we take forward the capital programme.”—[Official Report, 15 December 2022; c 64.]

That, in essence, is what I have just said that we are doing. We are conscious of the corrosive effect of inflation and are trying to make the most appropriate and prudential judgments about when we should deploy particular projects, having regard to the inflationary pressures.

I will happily do that.

There is a substantive issue there. To be clear, it would be wrong for the Government to traipse in and say, “This is what’s going to happen.” I do not think that that would go very well, to be honest.

However, if you look at other propositions, you see that local authorities have come together in quite intense collaboration on some of the city deal and growth deal propositions. At economic strategy and development levels, local authorities are working together much more intensely than they have done in the past. That throws up significant opportunities for authorities to work closely together, rationalise, reduce costs and make sure that they have more.

Nobody should lose their council boundaries. The Government is clear that we are not having a local government reorganisation but seeking collaboration between councils. I think that I am correct to say that, in Mr Lumsden’s neck of the woods, Aberdeenshire Council’s headquarters are within the boundaries of Aberdeen City Council. I know that a lot of joint working happens, but it would be quite a good thing if it happened a bit more intensely.

There is scope for that and I would simply encourage it. However, I do not think that it would help if the man from the ministry turned up being helpful.

The point on which I am happy to agree with Mr Johnson is that there is a whole host of inherent pressures in the budget.

To go back to the starting point of Mr Johnson’s questions in this section, he made a point about the degree of risk that is inherent in the budget. I have to accept that there is a significant amount of risk, because we are living in volatile times in relation to inflation, the implications of inflation on employment costs, energy prices and the cost of procuring materials, although the latter is getting better now. Earlier this year, that was at its most acute, sharp and difficult, but it is getting better now that some supply chains—or their alternatives, due to disruption related to Ukraine—are beginning to settle down. However, we still face significant risks, and, of course, it could all change dramatically.

I do not have one off the top of my head, but I could provide that to the committee. It will be a much larger proportion than it ever used to be in the past, because of the presence and prevalence of social security expenditure. It will also include aspects of concessionary travel, education maintenance allowances, agricultural payments, rail subsidy schemes and a number of other things. We can provide the committee with our best estimate of that.