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It is difficult. I recorded my concern this time last year, in advance of the budget, because the UK spending review in 2020 gave only the financial transactions budget for this coming year. That means it is difficult to plan beyond that. The budget gave us a 66 per cent reduction in FTs, which we have had to manage through quite rigorous prioritisation. You will have seen the consequential headlines, where we have not been able to fund things because of a very limited pool of FTs.

It might be helpful to say that the majority of FT consequentials used to come from the UK Government’s help-to-buy scheme, and that is expected to continue into next year. That might mean that we will continue to get consequentials from the FTs, but that will not be confirmed until 27 October this year, in the UK Government’s budget. A 66 per cent reduction is quite a substantial reduction to manage in one year. Our FTs have previously been used to fund the Scottish National Investment Bank and our housing programme, as well as some of the financial support that is provided to the enterprise agencies. It was tough to manage that substantial decline in one year, and we will have to wait and see what the UK Government does with FTs in its budget on 27 October.

It is right to say that that was a direct response to the tourism task force, on which a lot of industry leaders were represented. The £25 million was for phase 1 of the tourism recovery programme. It provided support for reskilling, retraining and marketing campaigns to try to increase footfall. It had a number of different elements that recognised that tourism and hospitality businesses more widely had been particularly hard hit.

It is clear that labour shortages have been among the biggest challenges that those businesses have faced in recent months. The industry was perhaps among the first industries to be hit by labour shortages. In conjunction with it, the Scottish Government launched a recruitment campaign that ran over the summer months, from 5 July to 18 August, with financial support from us, to try to bring more people into the industry.

We have implemented phase 1 with £25 million, but we have been working alongside the tourism task force to consider what phase 2 of the support will be.

On the latter point, as of a fortnight or so ago, there is provision online with the details of the R100 north lot so that households can understand when and how they will be connected. I am happy to share the link with the committee. The contact details might already have been shared with ³ÉÈË¿ìÊÖ, because my team regularly informs members of progress. I recommend that, for feedback, you use the contact details that are already being used to inform ³ÉÈË¿ìÊÖ of progress.

I assume that your reference to a review means a review of the overall contract rather than of individuals’ positions. That process is almost iterative and on-going. I have regular conversations with Openreach, which we continue to push to go as far as possible where there has been public sector spend and where it might be able to go further on commercial links. I am also in conversation with the UK Government about getting a share of the £1.2 billion that I referred to. In that sense, the review is on-going. We have a baseline, which is in the contract but, if I can push it further, I absolutely will do so.

This is probably not much consolation, but I assure the member that my constituents are as agitated and exercised as his probably are about whether they will get broadband. I hear about the issue regularly in surgeries, and I heard about it in the recent election campaign.

Thank you for that question. I agree that the bank needs to be operationally independent.

On the two specific questions, as agreed during the passage of the bill, setting an overall target rate of return too soon could risk the target not being met and I think it is important that we recognise the bank’s role when it comes to long-term capital investment. I am, however, keeping that position under review. A meaningful target will be agreed or set once there is a sufficient level of activity on which we can report. I am happy to keep the committee updated on that point.

The bank will obviously seek a commercial return on every investment that it makes. The actual amount will vary depending on the risks and the types of investments. You have already seen, in the last year or so, the varying nature of the investments that have been made. The bank is required to deliver social, economic and environmental returns, as well as financial returns, from the investments that it makes and that needs to be weighed up.

On the more specific point about the bank’s pay framework, clearly the bank’s board is ultimately responsible for the assessment criteria, appraisal and payments made under the bank’s pay framework. It operates within our public sector pay policy, with exceptions and adaptions as approved by ministers in June last year. The framework must reflect the fact that the bank operates in the financial services sector but is also a public body and it is modelled to align with the approaches taken in other UK development banks. There will be no annual financial target-based bonuses within the bank. The chief executive and other staff will instead have access to long-term incentive schemes linked to the delivery of missions and objective-based targets. That ensures that an element of pay is linked to the bank achieving its public service mission without the creation of a bonus culture. That remains my position.

I am happy to bring in Colin Cook on that, because he does a lot of work in that space. Various recovery proposals have been submitted, and we are looking at the best way to support phase 2 over the next two years. That is a longer-term approach. Phase 1 was about the immediate challenges, but phase 2 will look more broadly. Does Colin Cook want to speak more about that?

In some areas, we have seen a swift resolution, even if it is a temporary one. Last week, there were a number of discussions on the challenges with CO2, which, to give credit where it is due, have been resolved temporarily so that there has not been a reduction in our CO2 supply. However, there are still live issues with energy costs, which I think will continue to have an impact on prices, supplies and the ability to deliver to customers. Those issues have not been ultimately resolved.

We have seen a swift resolution of some issues. They are challenging issues, so I do not want to be overly critical. However, I am much more critical on labour market shortages, because they are resolvable. They are within the gift of the UK Government but, too often, an ideological position rather than anything else has prevented a swift resolution. Last week, there was an emotive comment by a Polish lorry driver on the radio, when he said that European citizens have felt unwelcome for a number of years and that you cannot just turn on the taps now and assume that they will come flooding back. We are seeing shortages right across the board, including in care homes, hospitality, tourism and manufacturing. Those have been exacerbated by the pandemic, but there is no doubt—I think that everybody is pretty much agreed about this—that the shortages have been significantly exacerbated by an immigration policy that has reduced the number of EU citizens working in this country.

The short answer to your first question is that that is why we have an advisory council. I do not think that there is any doubt that there are some difficult choices to be made. We need only look at our inboxes, as constituency and regional ³ÉÈË¿ìÊÖ, to know that there are differences of opinion about what we should do and what we should prioritise.

At the end of the day, we have to base our response on the consultation and on the advisory council’s debates and deliberations in order to come to a position and ultimately to prioritise for the long term. We have seen internationally that countries that decide on their agenda and stick to it for a longer period see returns and changes. That is what we are keen to do.

On the financial position, the Audit Scotland report highlights one of the challenges for us. In my role as finance secretary over the past year, I have seen the United Kingdom Government distinguishing less and less between Covid funding and non-Covid funding—for good reason. With a lot of our support, it is challenging to distinguish what has become business as usual and what has become specific business support.

I refer you to the recent announcement of £25 million for ventilation. In a sense, that is very specifically Covid related, but businesses have had to adapt what they are doing, which has become business as usual. I certainly want to be as transparent as possible. With the recent publication of the autumn budget revision, we are updating the budget with the most recent information on consequential funding. We will continue to be transparent about the funding that comes to us.

A difficulty is that, this year, we do not have a budget guarantee. Last year, when the UK Government announced funding, it did so alongside a guarantee that the money would not reduce. This year, our funding will be confirmed only at the main supplementary estimate, which usually happens in February. Therefore, until February, we are dealing with estimates. That is not a complaint; it is just a fact. The figures can go up or down, and we need to make sure that, in formally updating the budget, what we put in the budget revision is based on as much fact as possible, rather than on estimates, so that it aids the Parliament’s scrutiny of our budget position.

Audit Scotland’s report reflects on what has been a challenging budget situation—not in terms of the money that we have but in relation to keeping track of what the UK Government has announced, the figures that are still estimates and the money that has been confirmed as fact.

That is a good question; it is something in which I am taking an active interest. You will be familiar with the limits under our procurement rules and procurement law in relation to local content, for example. I would value the committee’s views on how we might better use procurement to embed resilience in respect of things like procuring local content. There are limits to what we can do, under procurement law.

I will take a step back from procurement to look at the wider point. If our country has learned anything from the past two years it is, first, just how resilient our businesses are already and, secondly, how important it is to build on businesses’ strengths to ensure that we become more resilient.

As you can imagine, writing a 10-year strategy is hugely challenging because we do not know what challenges might be around the corner. We certainly did not foresee the pandemic and, I think, some challenges that we are currently facing were not foreseen by the UK Government. Building in resilience is important.

I also recognise that we are exposed to forces that are outwith the Scottish Government’s control. I have already referred to labour shortages on which urgent action needs to be taken; the problem could be solved with a fair degree of ease if steps were taken on visas and immigration policy. I think that the UK Government has accepted that in with its most recent announcement on HGV drivers. The question is whether that is too little too late; it should have been done more quickly.

All those things will be considered very carefully in the run-up to publication of the budget. The enterprise agencies—you also mentioned VisitScotland; there are a number of other public bodies that have important roles to play in economic development—need support. They need the right support because often the best support that they can provide to businesses is wraparound guidance and advice. For a business that is trying to get into an export market, Scottish Enterprise and Scottish Development International have the skills and resources to help it. Often businesses need guidance and advice more than they need financial support, although we need to make sure that financial support is available. Jamie Halcro Johnston talked about resilience and developing supply chains; it will be important to ensure that they are dealing with mitigating the people and skills shortages.

This year we have invested a combined total of £347.8 million in our enterprise agencies, which was an uplift of almost 17 per cent. That reflects the need to support businesses. One of the challenges that we will face in next year’s budget is a significant reduction in financial transactions funding. Some of the support that we have previously given to enterprise agencies was in the form of financial transactions, which have allowed enterprise agencies to provide the right kind of support to businesses that were looking not necessarily for grants but for short-term financial support. The UK Government is moving away from providing FTs because of changes to its housing-supply programme. That means that our spending power will decrease, so we will need to look at other ways of providing funding, through a very challenging budget.

There is a big question about FTs in this year’s budget. As I said, the UK Government appears to be committed to continuing the help-to-buy scheme, which gives us an element of reassurance that FTs will continue to some degree. We also expect the UK Government to publish its multiyear spending review on 27 October, which will give us a sense of what is to come over the next three to four years.

This year, we prioritised the SNIB, and the two priorities for our funding were business support—primarily through the SNIB but also some support for Scottish Enterprise—and our housing programme. In short, if we do not fund our housing programme and the SNIB through FTs, we have to do it through capital, and capital is also in short supply—largely because we cannot borrow substantial capital—so I would much rather use FTs. The short answer is that we will continue to prioritise FTs for the SNIB.

Our commitment to capitalising the SNIB—[Inaudible.]—remains undiminished. How I do that is a headache for me in collaboration with the UK Government, but that commitment to ensuring that the SNIB has the funding it needs is undiminished. I hope that this year’s budget proves that commitment. We have been unwavering in ensuring that the SNIB has the support it needs to do its job.