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I'm trying to scale a layer (smaller) and the scale tool correctly resizes the image but the alpha (checker board) does not scale with it.

It creates a new floating selection (transformation) layer and I don't know what this is!

I have then tried to Image->Fit_Canvas_To_Layers but that doesn't change anything.

Not sure how to re-scale my image and alpha together.

The alpha isn't part of the image, it is only a pattern drawn to show transparency. So it isn't scaled. The only thing that counts is the layer boundary.

You get a "floating selection" if you have a selection before using the Tool. If you just want to scale the whole layer, remove the selection (Select>None).

Why would you want to scale "alpha" ?

If you want a bigger checkerboard background, make a pattern.