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Maggie Chapman has referred to our commitment to strengthen conditionality further. There are specific targets. For example, we have committed to introduce by summer 2022 a requirement on public sector grant recipients to pay at least the living wage to all employees and to provide appropriate channels for effective workers’ voices, such as trade union recognition. We need to strengthen our commitment to conditionality through engagement with the unions, businesses and other stakeholders. The effectiveness of the approach relies on its proportionality and on ensuring that we can measure real benefits from it.

When we associate conditionality with outcomes, there is a real danger that businesses will not be able to deliver. For example, if we were to say—I know that you are not suggesting this—that a business can get a grant only if it commits to creating 10 new jobs in its first year, that might be the wrong metric for it, and it would probably lead to an unsuccessful outcome.

I think that paying the real living wage should be a given—that that should almost be a non-starter and a basic expectation. Members will have seen in the discussions about green ports or free ports quite recently where the real living wage has proven to be really difficult to deliver in collaboration with the UK Government. We could not come to a compromise on the notion that businesses should be paying at least the real living wage. That means that we have taken our own approach and that the UK Government will do its thing.

In short, we have a number of levers to try to deliver that, and conditionality is a key part of trying to ensure that we embed fair work across the country.

I engage with the trade unions on that very topic. Richard Lochhead leads on the work and, obviously, he has regular dialogue with the Fair Work Convention.

On the fair work first approach, we have to think of different ways of doing things because we do not have employment powers. That means using a lot more of the softer approaches, but we intend to launch a consultation in the coming weeks on what a leading fair work nation would look like in order to align with the aims of a just transition to a wellbeing economy. That consultation, which will invite responses from anybody who chooses to respond, will be a very wide one, and it will inform a review of our existing fair work priorities, particularly in the context of Covid’s impact on the labour market.

There will be a formal consultation and simultaneous extensive engagement with trade unions on a one-to-one basis. Richard Lochhead, the First Minister and I are active participants in that work.

That is an important question. Whether we are looking at our economic strategy for 10 years down the line or at next week and at businesses that are struggling, we will not have succeeded if not all of Scotland can benefit and contribute. I strongly dispute the notion that we have succeeded if some of our urban centres are contributing and driving economic growth and our numbers nationally look good. That is the UK model, which depends on London and the south-east to fire the cylinders. We need to do it differently in Scotland.

At the risk of alienating some of the urban ���˿��� here, I will say that rural areas are often the most entrepreneurial. They provide great opportunities when it comes to pioneering solutions. You will have seen that in our commitment to helping some of our islands become carbon neutral before anywhere else. There is an opportunity to do that, but it will all be just rhetoric and we will not achieve it unless we build the infrastructure and ensure that the measures in the “Skills Action Plan for Rural Scotland” are in place with financial support.

In short, first, it is important that we are reskilling, upskilling and providing opportunities to communities in rural Scotland, and the skills action plan does that. Secondly, it is important to make sure that there are opportunities for rural entrepreneurs, and we have the rural entrepreneur fund for that. Thirdly, it is important that we invest in infrastructure and, in that regard, we have the infrastructure investment plan, which looks at investment over the long term—the next few decades—in rural hospitals, schools and roads. Together, those provide opportunities for rural Scotland.

On the Scottish National Investment Bank, the member will know that, for very good reason, it is operationally independent of ministers and therefore takes its own decisions. The less political involvement there is in the bank’s decisions, the better.

There has been progress in the sense that we continue to engage on an on-going basis with the UK Government. Obviously the fiscal framework is due for review in 2022, and that will be preceded by an independent report that will be presented to both Governments by the end of this year.

The committee will agree that the framework has been subject to some quite unprecedented stress testing, and we would not have anticipated the pressures that have been put on it when it was originally agreed in 2016. There is some disagreement on this, but my view is that the review should be quite broad in scope and that the report on it should consider not only the operation of the framework but how it can be improved.

The arrangements for the review require joint agreement between the two Governments. We have not been able to achieve that to date, but I will discuss the next steps with the Chief Secretary to the Treasury in the coming weeks. My goal is to get agreement and ensure that we meet the timetable, and I would really welcome the committee’s support in continuing to make the case to the UK Government for a broad-ranging review that is in line with the predecessors’ report on the fiscal framework. I hope that we can work together to achieve a meaningful review instead of just ticking the review box.

I will work constructively with the UK Government on every issue of importance to the people of Scotland. On business and other support, the difficulty that we face right now is, to put it bluntly, a complete lack of clarity about what is happening. One example that has a direct impact on local areas is green ports and freeports—and I am saying this just down the road from the Port of Cromarty Firth—and our problem in that respect is not a lack of constructive engagement but the fact that we are just not getting a solution or any resolution. We, like the Welsh and Northern Irish, had been hoping for a resolution of the issue in the March budget, but it did not come. The same applies to the levelling up agenda and any funding that might come through that.

The issue is less to do with constructive engagement and nearly everything to do with a lack of clarity. A newspaper headline last week, I think, suggested that we had rejected millions of pounds, which was news to me. For the most part, there is just a complete lack of clarity or engagement. Indeed, if you have engaged with any local authorities, you will know that they find engaging with the levelling up agenda to be a bit of lottery. They do not know whether they will get money or even what the precise process is. I will engage constructively, but it helps to know precisely what is happening and not to get pulled in at the eleventh hour.

I think that there are three issues in that regard. The first is the lack of clarity, which I mentioned. The lack of clarity on how some schemes are operating or will operate, and on how communities, local government and others will access them, is extremely unhelpful. Even before I get into the territory of saying that the UK Government should not interfere in devolved areas, there is the fact that we are faced with trying to prioritise a lot of infrastructure projects, such as hospitals and roads, which are important to communities, as I have already said.

The lack of clarity means that some of these communities and local authorities do not know whether they will secure capital funding through these alternative routes. I can think of an example with transport infrastructure in my local authority area: the local authority is considering going after the levelling up funding and it is also lobbying us for funding. What do I do? Do I allocate that funding, not knowing whether it will get funding from an alternative source, but knowing that, if it does get funding from an alternative source, that money could be used for another community? That lack of clarity is making our financial decision-making process extremely convoluted, and it is not giving communities and local government the certainty that they need.

The other element of that lack of clarity is about fairness. Again, when it comes to local government, the point about fairness is right at the heart of the methodology. I cannot announce any schemes or funds without COSLA, telling me, rightly, that the money should be shared equally across local authority areas. If one local authority area is getting substantial additional funding through the levelling up fund, and the others are not, do I use the funding that I have to compensate the others, or do I still share it equally? Will those local authorities that have not secured funding be content with that?

The second issue, which is really important, is that, right now, it will not, in any shape or form, compensate for the loss of EU funding. The assumption that it will is totally flawed. I am speaking to you now from the Highlands—an area that has benefited disproportionately from EU funding because of its rurality, deprivation levels and transport distances. Levelling up funding and shared prosperity funding will not compensate for the loss of that EU funding. The additional complex routes to funding, where it is, in essence, a lottery, will make that even worse.

The third point is that I do not believe that that funding will be additional. In the last budget, the UK chancellor talked at length about the additional capital spend on infrastructure across the UK and, in the same breath, announced a budget for Scotland that saw our capital budget cut by 5 per cent. I posed the question—well, my counterpart in Wales posed the question—to the Chief Secretary to the Treasury, of whether all that capital will be additional or whether we will see a net decrease in our budget as it is redeployed to alternative routes. The silence has been deafening, but what we saw in last year’s capital budget was that the increase in UK-wide spend saw a decrease in the Scottish Government’s capital budget. That means that that money will be spent on pet projects or whatever the UK Government chooses to prioritise. There is an actual tangible impact on our capital budget, which we spend on schools, hospitals and roads.

Those are my three primary concerns: first, the convoluted process and lack of clarity are undermining the certainty with which we can make plans, leading to increased unfairness across Scotland; secondly, it is no compensation for EU funding; and thirdly, there will be an equal and opposite decrease in the Scottish Government’s budget, which goes directly on hospitals, roads and so on.

Trying to ensure that we have sufficient budget for commitments is clearly an issue that dominates my attention. Social security is no different. We must try to ensure that we are cutting the cake of funding in a way that is fair.

I do not think that anybody could disagree that, as we emerge from the pandemic, some individuals and sections of society have been more exposed to its impact than others. Inequalities have been exacerbated.

Just as my job is to try to help businesses through this tumultuous time and give them the support that they need, in the same spirit, helping families through is one of the reasons why we wanted to help local government to freeze council tax and ensure that there was more money in people’s pockets. Clearly, the social security system must help people who need help, when they need it, with a view to helping them to get back on their feet or at least to tackling child poverty.

It is not a concern, in that it is important to do, but we ultimately need to ensure that the funding is in place. When it comes to the budget—I am sure that I will be in front of the committee again in the not-too-distant future to talk about it—we have choices about what to prioritise. We cannot create new money, so what do we prioritise within the budget that we have?

I regularly engage with the UK Government, and I firmly believe that one of the most powerful levers that we have when it comes to economic recovery is capital investment in infrastructure. It creates jobs, it supports businesses and it is good for our local communities. It is a triple win as far as I am concerned.

Our primary source of funding is the UK Government. That is the primary means by which I am trying to secure additional capital, and capital is now one of the areas of greatest risk when we look at the future, because of the unionisation of spend under the United Kingdom Internal Market Act 2020. It is an area on which I continue to press for additional security and certainty, with a plea that we invest in infrastructure over the coming years as a way of recovering well and recovering better.

Yes and no, but the most important ingredient is the UK Government’s spending review. Last year, as I said, we proceeded with a capital spending review even though we did not have a capital spending review from the UK Government. There is a lot of inherent risk in that, because the UK Government is our primary source of funding.

When it comes to our own resource spending review, we are undertaking internal work right now to develop a sustainable, multiyear financial plan. I know that it is of great importance to local government as well as other bodies, including the NHS, to be able to plan on a multiyear basis, instead of lurching from year to year. For example, third sector organisations often want multiyear commitments from local authorities and cannot get them.

That internal work is on-going. We have not taken a final view on a publication timeline, because so much depends on whether the UK Government publishes its own comprehensive spending review in the autumn. Once we have more clarity on that, I will fulfil our commitment to set out a framework in advance of a spending review and to engage with the committee, as well as stakeholders more widely, to inform that final document.

Yes—those matters are always a concern, in the sense that they are among the many variables that we are dealing with as we try to manage our budget. I have said already that this year’s budget feels extremely challenging, because there is the need to remobilise our services, and there is the need to deal with the on-going Covid implications. There are a number of multiyear pay deals being negotiated, and we are also dealing with what is probably a more challenging outlook of funding from the UK Government, which will, we hope, publish a multiyear comprehensive spending review.

The biggest impact of inflation lies in trying to understand what our costs will be and whether there is sufficient budget to deal with those costs. This is not to sound like a broken record, but I have limited powers to increase capacity when it is needed. For example, if inflation was to rise considerably, meaning that our budget does not go as far as it needs to go, I cannot suddenly increase it. To take our capital budget and the affordable housing programme that Kenny Gibson talked about at the outset, trying to budget for that and trying to understand what the costs will be is where I am most challenged. The UK Government or any Government around the world that is dealing with fluctuating costs of that sort can make the appropriate changes either to borrowing or to other areas, but all that I can do is to cut the cake differently; I cannot increase the size of the cake to deal with increased costs.

When it comes to pay deals, workforces will be looking for adequate recompense for their labours, and there will be inflationary implications. Inflation is a very important reference for pay negotiations. If UK Government pay is flatter, we obviously do not get additional consequentials from that either.

I am sorry that that was a very long and waffly answer, but there are quite a few ways in which inflation has an impact. We are monitoring the matter carefully.