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You have also talked about how important it would be for the spring budget to reverse some of the reductions in capital allocation. Although many commentators managed to avoid mentioning the reduction in the Scottish Government’s capital allocation—surprise, surprise—the percentage reduction in the housing budget has raised many eyebrows at a time when there is serious pressure on housing demand in Scotland.

That ends stage 2 consideration of the bill. We will move into private session to consider our work programme. I thank you, Deputy First Minister, and your officials for your contributions.

On the issue of not being affordable, you used that argument in relation to not passing on the non-domestic rates consequentials, on which you said that, because of

“a ‘worst case scenario’ UK Government Autumn Statement”,

that money has had to go into public services such as the NHS, although you went on to say that

“the Basic Property Rate for non-domestic properties with a rateable value up to and including £51,000 will be frozen, delivering the lowest such rate in the UK for the sixth year in a row.”

You also talked about how, for businesses in islands and in three very remote communities, rates have been capped at £110,000 per ratepayer, with 100 per cent rates relief.

Have you had any discussions with the UK Government about the VAT threshold? The threshold has been stuck at £85,000 a year since 2017, but cumulative inflation since then has been 32 per cent and the Federation of Small Businesses has said that a significant number—more than a third—of its members are reluctant to grow their businesses because that would take them into the VAT threshold. If the VAT threshold was increased, that would allow local businesses to have more money in their pockets, as opposed to having to pay 20 per cent over and above that threshold.

Is the Scottish Government engaging with the UK Government in order to help small businesses, without having to reduce the income from non-domestic rates at a time when the Scottish Government will already be paying £685 million a year in reliefs from next April and must use the money in other areas of its budget?

In paragraph 46 of our report, we raised the issue that there was

“little evidence of either government seeking to avoid or resolve the anomalies arising from the way their tax and national insurance policies align”.

You responded that you accept that

“the high marginal tax rate from both Income Tax and NICs faced by some taxpayers between the Scottish and UK Higher rate thresholds results from incomplete devolution of tax powers”,

but that the Fraser of Allander Institute has said that

“for the Scottish Government to address this issue ... there would have to be significant increases to Basic and Intermediate rates.”

You further said that the UK Government has refused

“to substantively engage on this matter”,

but that you

“continue to call on the UK Government to have regard to interactions and engagement with devolved policy when setting National Insurance Contributions policy.”

The UK Government would argue that the issue arises because the Scottish Government has chosen to set a different higher rate of tax than the UK Government, so one could argue that it is the Scottish Government that should change. Given the fact that the UK Government is unlikely to change its position, what will the Scottish Government do to try to minimise the marginal rates, whereby people are, in effect, paying a 52 per cent marginal rate on £43,666 a year?

Will local authorities that accept the 5 per cent council tax freeze benefit from having money redistributed from other local authorities that do not accept it? For example, if half the councils accept the freeze and half do not, will those that do not accept it get that money? It would be £70 million if half of them did not accept it. Would that money be given to the local authorities that accept the freeze?

Flexibility is, therefore, important. One of the things that the local authorities in my constituency raise with me directly is inflexibility in teacher numbers. We know some of the politics behind that, but North Ayrshire Council has 1,000 fewer pupils than it had four years ago and now has a ratio of one teacher to 12 children. It says that it is madness to spend additional money on new teachers when it already has more than enough teachers. It would rather spend the money on educational psychologists, support staff and so on, which it cannot afford to do because it is forced to spend the money on teachers.

That issue is also affecting other local authorities across Scotland. The money may be ring fenced for education, but local authorities should surely have the flexibility to decide the appropriate way to spend it locally.

Thank you.

I think that more colleagues will wish to ask about this area, but I will first touch on one aspect, which is covered in paragraph 102 of our report, regarding

“how the Scottish Government has, as intended, prioritised its spending towards supporting the delivery of a fair green and growing economy.”

I was struck by what your response says. At the bottom of page 9, it states:

“The Scottish Budget also commits to exploring future multi-annual funding for employability services, in recognition of the benefits of greater certainty for those planning services and the people accessing support.”

We have called for multiyear funding settlements; I am well aware that the UK Government does not give multiyear settlements. In fact, we had an autumn statement in November, and we will now have a spring statement in March, so I realise that it is not easy to pin those things down, but that area of the Scottish budget almost jumps out as being the one with long-term funding. Why is that not the case in other areas? People in local government have been calling for long-term multiyear funding, which would be more efficient and would allow councils to plan better.

Thank you for that helpful opening statement. I realise that you have to operate within certain timescales. However, given the continued reference, not only in our report but this morning, to the UK Government’s spring statement being on 6 March, it seems to me that it would have been more helpful if our budget had been announced after that date. That would have given the Scottish Government greater opportunity to reflect on what the UK Government was doing. Of course, given that we had already scheduled our budget announcement, it would have been more helpful if the UK Government had announced its spring budget before our stage 3 process.

The main reason for holding this evidence session prior to stage 2 is to go through our report and the responses to it. I will not go through all of those, because I know that six colleagues want to come in on certain areas. However, I will touch on some aspects and other members might wish to build on those.

The first aspect was covered in recommendation 41 of our report, which was on the potential impact on business and the economy of the differential income tax policies in Scotland and the rest of the UK. In your response, you said that

“the move to a five-band system, alongside additional government spending as a result of the policy change, had a relatively negligible impact on the size and growth rate of the economy in the short-term.”

What long-term work is being done on whether those policies will have longer-term impacts, whether they be positive or negative?