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Education maintenance is an entitlement, so, should an individual apply for it, they must get it regardless of the size of the budget. We do our level best to estimate the likely demand for education maintenance allowance. Historically, the budget line has been underspent, and one of our obligations in our approach to the management of public finances is to follow the guidance that budgets should be taut and realistic. In the circumstances that we are in just now, when I am having to take resources from one area of the Government’s budget to allocate to another—to pay public sector pay claims, for example—and I have to find money to do that across different areas of Government, I have to ensure that there is budget clarity for accountable officers to make it clear that they have the necessary finance to spend. Therefore, if I have £3 million in an education maintenance allowance budget line that I do not think I will require, I can take that away and put it somewhere else, such as to address public sector pay claims, and that will allow me to support accountable officers to fulfil their obligations.

Obviously, we have made a judgment that is based on the best evidence that we have available to us. Should the total cost for education maintenance allowances be greater, I will have to address that financial pressure during the course of the financial year. All the budgets are monitored daily, and the information is provided to me to enable me to make judgments about where it is appropriate for us to reallocate expenditure to meet financial pressures.

However, I stress that the education maintenance allowance is an entitlement, so, if demand outstrips the £22 million that will be retained in the budget, I will have to find the resources to accommodate that. Based on previous years’ experience, that is an appropriate judgment to make.

We are, but we are trying to do so in a way that protects the fundamental values that we believe in and the fundamental elements of our programme for government. Emma Roddick will be familiar with the programme for government that was set out at the beginning of September. It develops the thinking that emerged from the Government’s manifesto for the 2021 election, which was based on, essentially, ensuring that we secure a fairer and a greener future for individuals in our society. Those priorities and those values were reinforced by the Bute house agreement with the Scottish Green Party, which flows into the programme for government.

We are setting the direction, which is about ensuring that we create a fairer society, that we make the transition to net zero and that, in doing so, we create new and sustainable employment opportunities in Scotland. Those are the underpinning values, and the decisions that I am taking are designed to protect that programme as much as possible. Clearly, however, the decisions that I have had to take put significant financial strain on the Scottish Government.

I am grateful to the committee for the opportunity to discuss the emergency budget review and the underlying savings that are of interest to the committee.

As the convener said, on 7 September, I set out to Parliament the hard prioritisation choices that the Government has had to take, with the pressures of inflation placing a significant new burden on our budgets; a burden that was not planned for when the spending review was undertaken by the United Kingdom Government last autumn. People and businesses have been deeply impacted by the cost of living crisis, and the Government has vowed to do everything that we can to mitigate the crisis as far as possible. We must do that while meeting the increased costs of public sector pay and balancing our public finances.

My letter to the Finance and Public Administration Committee highlighted over £500 million in savings and reforecasting that we have had to take forward. The options are challenging, but we must do that in order to move to balance our budget and do everything that we can to help people in need. That is, of course, the harsh reality of having a fixed budget and limited fiscal powers. In addition, the majority of our spend cannot be changed at this stage of the financial year due to contractual and legal commitments. Therefore, there are limited options to make savings.

I should note that the 2022-23 element of our emergency budget review is part of normal financial management practices, with a number of savings arising as a result of natural demand. Formal scrutiny of budget changes will be undertaken through our normal budget revisions process, and impact assessments will, of course, continue to be taken forward as part of the annual budgetary process.

Notwithstanding the financial challenges that we face, the Government remains firmly focused on tackling and reducing child poverty and supporting strong and sustainable growth as part of the national strategy for economic transformation.

Our 2022-23 budget continues to take forward key programmes and policies, such as the increase in the Scottish child payment to £25 per eligible child per week from 14 November, the fuel insecurity fund and widening access to the warmer homes fuel poverty programme.

Finally, I note that I intend to publish the outcome of the emergency budget review in the week beginning 24 October. Further savings are likely to be required to balance the budget. I look forward to this morning’s discussion, and I am very happy to answer questions from the committee.

I do not think that that will be the case, because, as I said to Pam Duncan-Glancy, there remains capacity in our programmes to support individuals and deal with referrals.

Mr Balfour is correct in saying that good progress is being made on narrowing the employability gap among disabled people. That progress has been made in the aftermath of Covid. In addition to that, other existing programmes that remain unaffected by the changes still have capacity to support individuals. I have to concede that, as a consequence of the reduction, the rate of progress in reducing the employability gap might not be as fast as I would like it to be. However, as I set out to the committee, I am faced with some very difficult choices in trying to balance the budget in this financial year. Choices of the type that we are discussing are the ones that remain open to me.

Obviously, we carry out a great deal of discussion with organisations about the formulation of our budget priorities, so that we have a good awareness of the issues. For example, when we were taking decisions about setting out plans for expanding the range of employability services as part of the formulation of our wider programmes, we engaged with a range of organisations so that the Government had knowledge of what was involved in such programmes.

We have strong monitoring information on the capacity of existing programmes that will be untouched by the changes, which shows that there is still adequate capacity in those programmes to enable them to deal with referrals of individuals. In our existing programmes that are untouched by the changes, there remains capacity to support individuals who require employability assistance. On the basis of those assessments, I came to the conclusion that the Government could make the saving and that we would be able to manage the implications, because we still had capacity within our existing programmes.

We considered a combination of those things. In essence, the earlier budget estimates assumed a greater recovery in public transport patronage post-pandemic than has materialised. I again stress that it is an entitlement, so if it translates into more costs, I will have to address the issue in the course of further judgments that are made during this financial year, which would simply add to the pressures that I wrestle with at a different stage in the financial year.

We looked at the comparison between pre-Covid levels, Covid levels and, to use this terminology, Covid recovery levels in order to form the best estimate. I am not going to sit in front of the committee this morning and say that I am 100 per cent confident that we have that absolutely precise. We will continue to monitor it as the year progresses and, if there is a need to put in further financial support, of course, we will do that.

That sums it up in a nutshell. I have a long track record in this Parliament and as a minister. I served for nine years as finance minister and now find myself—very surprisingly—back in the finance area of activity. I have never seen financial strain and pressure like that which I am seeing and wrestling with just now. I do not use those words lightly. I managed through the financial crash and the years of austerity under George Osborne and Danny Alexander. I left the finance brief in 2016 thinking that we had perhaps managed to mitigate the worst of austerity, but that was as nothing compared with what we are now wrestling with.

The fundamental point that Emma Roddick has put to me is that a centre-left Government that believes in progressive values and wishes to secure a fairer and a greener future for our fellow human beings in our community finds that ever more difficult with the agenda that is being pursued. I would actually not accuse the UK Government of being “conservative”, because certain protections of core values are associated with conservatism, but I did not recognise that happening in the financial statement last Friday.

It means that a range of programmes are being funded that, ordinarily, would not have been able to be funded had we not allocated the money in the way that I am allocating priorities today within the Scottish Government’s budget.

On the current financial situation and the issues with which I am wrestling, the Cabinet Secretary for Finance and the Economy, Kate Forbes, and I have written to UK ministers and various Chancellors of the Exchequer. There have been a few in the past few weeks, and we might have more. We have done so to make the case that the effect of inflation has been to erode the value of our budget, and to make an appeal, which I have done with my counterparts from Wales and Northern Ireland, for an uplift in budgets to deal with public sector pay pressures and the pressures of inflation. That is necessary: our budget will not change unless there is a positive change in English public expenditure during our financial year.

Essentially, we have a fixed budget once the tax year starts. I am required by law to set a tax rate, which cannot be changed during the financial year, so tax cannot change. I characterise our powers as cash-management resource borrowing powers. They do not allow us to accumulate a resource borrowing capacity. Therefore, we are, essentially, dependent on any changes to budgets that are made in England.

We have written a series of letters to chancellors and Prime Ministers, but we have received no responses. On Friday, I spoke to the Chief Secretary to the Treasury in the aftermath of the mini budget. The chief secretary made it clear to me then that he is insisting on application of the current comprehensive spending review, which means that there will be no uplift to budgets.

I notice from overnight news information that the chief secretary has now written to—or is in the process of writing to—Whitehall departments to require reductions in expenditure. That is not an encouraging sign for what lies ahead in relation to expenditure in future years.

As I have said to Parliament already, the pay deals that we are having to put in place because of the effect of inflation should be looked at. Members of staff and public servants are concerned about their financial situation, and they want some protection from inflation. I was extensively involved in the local government pay settlement dialogue, and I am glad that we got to a conclusion on that. We estimate that we will have to find, from the public purse, £700 million more for pay than we had anticipated. I am having to make many changes to ensure that we can afford things. The local government pay deal significantly enhances the position for staff on low incomes: there are significant increases—in excess of 10 per cent—in the pay of low-income members of staff, which I very much welcome.

That still does not amount to an awful lot of money for those individuals and it is nothing like what some affluent people will get through the tax cuts that were announced last Friday, but it is welcome progress, nonetheless. Those decisions put financial strain on our budget, and the concerns have been echoed by my counterparts in Wales and Northern Ireland, who operate within exactly the same constraints.