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Business Bulletin 1999-2011

Minutes of Proceedings 1999-2011

Journal of Parliamentary Proceedings Sessions 1 & 2

Committees Sessions 1, 2 & 3

Annual reports

SP Paper 44 FI/S3/08/R1

1st Report, 2008 (Session 3)

Stage 2 of the 2008-09 Budget Process

CONTENTS

VOLUME 1: FINANCE COMMITTEE REPORT AND EVIDENCE

REMIT AND MEMBERSHIP

THE REPORT

Introduction

Process

Evidence

External meeting

Structure of report

Summary of conclusions and recommendations

National Performance Framework

Performance Monitoring

Reports from Subject Committees

Budgetary Information

Local Government Funding

Efficiency Savings

Sustainability

Equalities

Scottish Parliamentary Corporate Body

Audit Scotland

Overall strategy and priorities

National Performance Framework

Performance Monitoring

Reports from subject committees

Presentation of information

National Performance Framework and Spending Priorities

Efficiency Savings

Timetable for budget scrutiny

Miscellaneous

Budgetary information

Block allocations and further information on funding levels

Capital Spend

Other issues raised by subject committees

Local Government Funding

Ring-fencing

Single Outcome Agreements

Council Tax Freeze

Non-Domestic Rate Income (Business Rates)

Alternative Spending Proposals

Efficiency Savings

Sustainability

Equalities

Scottish Parliamentary Corporate Body

Introduction

Main issues arising from the proposed budget

Parliamentary Commissioners and Ombudsman

Audit Scotland

ANNEXE A – EXTRACTS FROM THE MINUTES OF THE FINANCE COMMITTEE

ANNEXE B – BRIEFING PAPERS

CSR 2007: A Tighter Public Spending Settlement – Paper from the Budget Adviser

Report on the Scottish Budget: Spending Review 2007 – Paper from the Budget Adviser

Interim guidance to subject committees

Guidance to subject committees

Additional information received from the Scottish Government [PDF]

ANNEXE C – FINANCE COMMITTEE ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE

5th Meeting, 2007 (Session 3), 23 October 2007

ORAL EVIDENCE

Bill Howat, Lead Reviewer, Budget Review Group
Bill Hughes, Member, Budget Review Group
Jenny Stewart, Member, Budget Review Group
George Thorley, Member, Budget Review Group

8th Meeting, 2007 (Session 3), 13 November 2007

WRITTEN EVIDENCE

Scottish Parliamentary Corporate Body

ORAL EVIDENCE

Scottish Parliamentary Corporate Body

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Parliamentary Corporate Body

11th Meeting, 2007 (Session 3), 4 December 2007

WRITTEN EVIDENCE

Sustainable Development Commission
Ian Thomson
WWF Scotland
COSLA

ORAL EVIDENCE

Professor Jan Bebbington, Sustainable Development Commission
Maf Smith, Director (Scotland), Sustainable Development Commission
Ian Thomson, Reader, Department of Accounting and Finance, University of Strathclyde
Dr Dan Barlow, Acting Director, WWF Scotland

12th Meeting, 2007 (Session 3), 10 December 2007

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

VOLUME 2: REPORTS FROM OTHER COMMITTEES AND THE SCOTTISH COMMISSION FOR PUBLIC AUDIT1

ANNEXE D – REPORT FROM THE ECONOMY, ENERGY AND TOURISM COMMITTEE
ANNEXE E – REPORT FROM THE EDUCATION, LIFELONG LEARNING AND CULTURE COMMITTEE
ANNEXE F – REPORT FROM THE EQUAL OPPORTUNITIES COMMITTEE
ANNEXE G – REPORT FROM THE HEALTH AND SPORT COMMITTEE
ANNEXE H – REPORT FROM THE JUSTICE COMMITTEE
ANNEXE I – REPORT FROM THE LOCAL GOVERNMENT AND COMMUNITIES COMMITTEE
ANNEXE J – REPORT FROM THE RURAL AFFAIRS AND ENVIRONMENT COMMITTEE
ANNEXE K – REPORT FROM THE TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE
ANNEXE L – REPORT FROM THE SCOTTISH COMMISSION FOR PUBLIC AUDIT

VOLUME 3: ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE: OTHER COMMITTEES AND SCOTTISH COMMISSION FOR PUBLIC AUDIT

Please note that Volume 3 is published on the Scottish Parliament’s website only, at: http://www.scottish.parliament.uk/s3/committees/finance/index.htm

ANNEXE M – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – ECONOMY, ENERGY AND TOURISM COMMITTEE

9th Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

Jack Perry, Chief Executive, Hugh Hall, Chief Financial Officer, and Andrew Downie, Finance Director, Group Operations, Scottish Enterprise;

Sandy Cumming, Chief Executive, Forbes Duthie, Director of Corporate Services, and Sandy Brady, Director of Strategy, Highlands and Islands Enterprise;

Philip Riddle, Chief Executive, and Riddell Graham, Director of Strategy, Partnership and Communications, VisitScotland; and

Councillor Alison Hay, Regeneration and Sustainable Development Spokesperson, James Fowlie, Team Leader, Environment and Regeneration, Barbra Lindsay, Strategic Director, Convention of Scottish Local Authorities, and David Valentine, Head of Economic Development, Angus Council and representative of SOLACE and SLAED.

WRITTEN EVIDENCE

Scottish Enterprise
Highlands and Islands Enterprise
VisitScotland
Cabinet Secretary for Finance and Sustainable Growth

10th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Jim Mather MSP, Minister for Enterprise, Energy and Tourism, Chris McCrone, Finance Team Leader, Finance Directorate, and Graeme Dickson, Director, Enterprise, Energy and Tourism, Scottish Government.

WRITTEN EVIDENCE

Scottish Renewables
Scottish Sustainable Energy Foundation

12th Meeting, 2007 (Session 3), 19 December 2007

WRITTEN EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

ANNEXE N – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – EDUCATION, LIFELONG LEARNING AND CULTURE COMMITTEE

10th Meeting, 2007 (Session 3), 21 November 2007

ORAL EVIDENCE

Mark Batho, Head of Lifelong Learning Directorate, Scottish Government; Donald Henderson, interim Chief Executive, Skills Development Scotland; Linda McDowall, Acting Senior Director of Skills and Learning, Scottish Enterprise; Alex Paterson, Director of the Developing Skills Group, Highlands and Islands Enterprise; and Damien Yates, Chief Executive, Learndirect Scotland

WRITTEN EVIDENCE

Lifelong Learning Directorate, Scottish Government

11th Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

David Caldwell, Director, Universities Scotland
Howard McKenzie, Acting Chief Executive, Association of Scotland's Colleges
Roger McClure, Chief Executive, Scottish Funding Council

WRITTEN EVIDENCE

Universities Scotland
Association of Scotland's Colleges
Scottish Funding Council

12th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

Cllr Isabel Hutton, Education, Children and Young People spokesperson, Jon Harris, Strategic Director, and Robert Nicol, Policy Manager, COSLA

Fiona Hyslop, Cabinet Secretary for Education and Lifelong Learning, Colin MacLean, Director, Children, Young People and Social Care Directorate, Liz Hunter, Director, Schools Directorate, and Mark Batho, Director, Lifelong Learning Directorate, Scottish Government

WRITTEN EVIDENCE

COSLA

List of other written evidence

Save the Children

ANNEXE O – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE –EQUAL OPPORTUNITIES COMMITTEE

5th Meeting, 2007 (Session 3), 6 November 2007

ORAL EVIDENCE

Philippa Bonella, EPBPAG member, Equality and Human Rights Commission
Laura Turney, EPBPAG member, Scottish Government Equality Unit

WRITTEN EVIDENCE

Equality Proofing the Budget and Policy Advisory Group (EPBPAG)

6th Meeting, 2007 (Session 3), 27 November 2007

ORAL EVIDENCE

Muriel Robison, Equality and Human Rights Commission
Calum Guthrie, Scottish Council for Voluntary Organisations;
Morag Gillespie, Scottish Poverty Information Unit; and
Angela O’Hagen, Scottish Women’s Budget Group

WRITTEN EVIDENCE

Scottish Women’s Budget Group

7th Meeting, 2007 (Session 3), 4 December 2007

ORAL EVIDENCE

Stewart Maxwell MSP, Minister for Communities and Sport
Yvonne Strachan, Head of the Equality Unit, Scottish Government

ANNEXE P – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – HEALTH AND SPORT COMMITTEE

5th Meeting 2007 (Session 3), 26 September 2007

WRITTEN EVIDENCE

Budget Review Group

ORAL EVIDENCE

Bill Howat and Jenny Stewart, Budget Review Group

6th Meeting 2007 (Session 3) 3 October 2007

WRITTEN EVIDENCE

Budget Review Group

ORAL EVIDENCE

Bill Howat, Budget Review Group

8th Meeting 2007 (Session 3) 14 November 2007

ORAL EVIDENCE

Scottish Association of Alcohol and Drugs Action Teams
NHS Greater Glasgow and Clyde
Angus Council
Grampian Police
Stocktake of Alcohol and Drugs Actions Teams

9th Meeting 2007 (Session 3) 21 November 2007

ORAL EVIDENCE

Alcohol Focus Scotland
Scottish Drugs Forum
UK Drug Policy Commission
sportscotland

SUPPLEMENTARY WRITTEN EVIDENCE

sportscotland

10th Meeting 2007 (Session 3) 28 November 2007

WRITTEN EVIDENCE

Scottish Government
Professor Matt Sutton, University of Aberdeen

ORAL EVIDENCE

Nicola Sturgeon, Deputy First Minister and Cabinet Secretary for Health and Wellbeing; John Swinney, Cabinet Secretary for Finance and Sustainable Growth; Kenny MacAskill, Cabinet Secretary for Justice, the Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

John Swinney, Cabinet Secretary for Finance and Sustainable Growth, the Scottish Government

11th Meeting 2007 (Session 3) 5 December 2007

ORAL EVIDENCE

Nicola Sturgeon, Deputy First Minister and Cabinet Secretary for Health and Wellbeing, the Scottish Government

OTHER WRITTEN EVIDENCE

Audit Scotland

Overview of the Performance of the NHS in Scotland 20004/05

2006 Financial Performance Overview of the NHS in Scotland

ANNEXE Q – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – JUSTICE COMMITTEE

10th Meeting, 2007 (Session 3), 20 November 2007

ORAL EVIDENCE

Chief Superintendent Clive Murray, National President, Association of Scottish Police Superintendents
Chief Superintendent Iain Gordon, Vice-President, Association of Scottish Police Superintendents
Chief Constable David Strang, Chair of ACPOS Criminal Justice Business Area
Doug Cross, Chair of ACPOS Finance Management Business Area.

WRITTEN EVIDENCE

Association of Scottish Police Superintendents (20.11.07)
Association of Chief Police Officers in Scotland (20.11.07)

SUPPLEMENTARY WRITTEN EVIDENCE

Association of Scottish Police Superintendents (27.11.07)
Association of Chief Police Officers in Scotland (28.11.07)
Scottish Court Service (13.11.07)
Association of Scottish Police Superintendents (29.11.07)

11th Meeting, 2007 (Session 3), 27 November 2007

ORAL EVIDENCE

Joe Grant, General Secretary, Scottish Police Federation
Professor Arthur Midwinter, Financial Consultant to the Scottish Police Federation
Mike Ewart, Chief Executive, Scottish Prison Service
Willie Pretswell, Director of Finance and Business Services, Scottish Prison Service.

WRITTEN EVIDENCE

Scottish Police Federation (27.11.07)
Scottish Police Federation (27.11.07)
Scottish Prison Service (20.11.07)

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Prison Service (17.12.07)
Scottish Police Federation (14.12.07)

12th Meeting, 2007 (Session 3), 4 December 2007

ORAL EVIDENCE

Kenny MacAskill MSP, Cabinet Secretary for Justice
Robert Gordon, Director-General, Justice and Communities, Scottish Government
Alastair Merrill, Deputy Director, Police Powers, Performance and Resources, Scottish Government
Ruth Ritchie, Scottish Government Finance Directorate: Justice

WRITTEN EVIDENCE

Kenny MacAskill MSP, Cabinet Secretary for Justice (28.11.07)
Robert Gordon, Director-General, Justice and Communities, Scottish Government (03.12.07)
Scottish Legal Aid Board (22.11.07)
Crown Office and Procurator Fiscal Service (26.11.07)
Ruth Ritchie, Scottish Government Finance Directorate: Justice (30.11.07)

SUPPLEMENTARY WRITTEN EVIDENCE

Kenny MacAskill MSP, Cabinet Secretary for Justice (07.12.07)
Kenny MacAskill MSP, Cabinet Secretary for Justice (12.12.07)

ANNEXE R – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – LOCAL GOVERNMENT AND COMMUNITIES COMMITTEE

11th Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

Stewart Maxwell MSP, Minister for Communities and Sport, Mike Foulis, Director of Housing and Regeneration, Scottish Government and Mike Palmer, Head of Social Inclusion Division, Scottish Government

WRITTEN EVIDENCE

Public Health and Wellbeing Directorate, Scottish Government

12th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

Cllr Pat Watters, President, COSLA, Rory Mair, Chief Executive, COSLA and Martin Booth, Head of Finance, COSLA

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, David Henderson, Head of Local Government Finance, Scottish Government, Ruth Parsons, Director, Public Service Reform, Scottish Government and Graham Owenson, Local Government Finance Team Leader, Scottish Government

WRITTEN EVIDENCE

COSLA

OTHER WRITTEN EVIDENCE

Child Poverty Action Group in Scotland
Energy Action Scotland
Save the Children
Shelter
Scottish Federation of Housing Associations

ANNEXE S – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – RURAL AFFAIRS AND ENVIRONMENT COMMITTEE

8th Meeting, 2007 (Session 3), 21 November 2007

ORAL EVIDENCE

Richard Wakeford, Director General Environment, Scottish Government
John Mason, Director of Environmental Quality Directorate and Director of Climate Change and Water Industry Directorate, Scottish Government
Maggie Gill, Director of Rural and Environment Research and Analysis Directorate, Scottish Government
David Wilson, Director of Marine Directorate, Scottish Government
Peter Russell, Director of Rural Directorate, Scottish Government
Bob McIntosh, Director, Forestry Commission Scotland, Scottish Government
David Dalgetty, Finance Team Leader (Rural Affairs and Environment), Finance Directorate Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Government Briefing Note

9th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

Richard Lochhead MSP, Cabinet Secretary for Rural Affairs and the Environment,
John Mason, Director of the Environmental Quality Directorate and the Climate Change and Water Industry Directorate, Scottish Government
Ingrid Clayden, Head of the Rural Development Division, Rural Directorate, David Reid, Head of Rural Affairs and Environment Finance, Finance Directorate, Scottish Government.

WRITTEN EVIDENCE

Correspondence between the Convener, Clerk and Director General Environment
Second letter from Director General Environment
Real terms data provided by the Scottish Government

10th Meeting, 2007 (Session 3), 19 December 2007

OFFICIAL REPORT

WRITTEN EVIDENCE

Letter from Director General Environment of 5 December
Correspondence between the Convener and the Director General Environment

ANNEXE T – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

12th Meeting, 2007 (Session 3), 27 November 2007

Oral Evidence

Garry Clark (Scottish Chambers of Commerce)
Valerie Davidson (Strathclyde Partnership for Transport - SPT)
Iain Duff (Scottish Council for Development and Industry - SCDI)
Dave Duthie (Highlands and Islands Strategic Transport Partnership HITRANS)
Councillor Alison Hay (Convention of Scottish Local Authorities)
James King (Passenger Focus)
Alex Macaulay (South East of Scotland Transport Partnership - SEStran)
Ron McAulay (Network Rail)
Gerard O'Hanlon (First ScotRail)
Neil Renilson (Transport Edinburgh Ltd)
Marjory Rodger (Confederation of Passenger Transport UK - CPT).

Written evidence

SESTRAN
HITRANS
Strathclyde Partnership for Transport

Supplementary Written Evidence

COSLA

13th Meeting, 2007 (Session 3), 4 December 2007

Oral Evidence

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth; Malcolm Reed, Chief Executive, Transport Scotland;
John Mason, Director of Climate Change and Water Industry Directorate, John Ewing, Director of Transport Directorate
David Reid, Deputy Director of Finance, Scottish Government.

OTHER WRITTEN EVIDENCE

Scottish Association for Public Transport
Freight Transport Association

ANNEXE U – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – SCOTTISH COMMISSION FOR PUBLIC AUDIT

2nd Meeting, 2007 (Session 3), 19 September 2007

ORAL EVIDENCE

Mr Robert Black, Auditor General for Scotland
Russell Frith, Director of Audit Strategy, Audit Scotland

WRITTEN EVIDENCE

Audit Scotland Annual Report and Accounts for the year to 31 March 2007 and Auditor’s Report Thereon
External Auditor’s Management Report for year ended 31 March 2007
Audit Scotland preliminary note on the 2008-09 Autumn Budget Revision
Audit Scotland’s provisional budget estimate for 2008-09

3rd Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

Mr Robert Black, Auditor General for Scotland
Russell Frith, Director of Audit Strategy, Audit Scotland
Diane McGiffen, Director of Corporate Affairs, Audit Scotland

WRITTEN EVIDENCE

Audit Scotland’s Budget Proposal for 2008-09 and Autumn Budget Revision 2007-08
Letter from Audit Scotland (dated 12 October 2007), supplementary to evidence at the SCPA meeting on 19 September 2007
Letter from Audit Scotland (dated 31 October 2007) regarding its international work

SUPPLEMENTARY WRITTEN EVIDENCE

Supplementary evidence on Audit Scotland’s proposed budget – correspondence from the Auditor General for Scotland dated 10 December 2007

Remit and Membership

Remit:

1. The remit of the Finance Committee is to consider and report on-

(a) any report or other document laid before the Parliament by members of the Scottish Executive containing proposals for, or budgets of, public expenditure or proposals for the making of a tax-varying resolution, taking into account any report or recommendations concerning such documents made to them by any other committee with power to consider such documents or any part of them;

(b) any report made by a committee setting out proposals concerning public expenditure;

(c) Budget Bills; and

(d) any other matter relating to or affecting the expenditure of the Scottish Administration or other expenditure payable out of the Scottish Consolidated Fund.

2. The Committee may also consider and, where it sees fit, report to the Parliament on the timetable for the Stages of Budget Bills and on the handling of financial business.

3. In these Rules, "public expenditure" means expenditure of the Scottish Administration, other expenditure payable out of the Scottish Consolidated Fund and any other expenditure met out of taxes, charges and other public revenue.

(Standing Orders of the Scottish Parliament, Rule 6.6)

Membership:

Andrew Welsh (Convener)
Derek Brownlee
Joe FitzPatrick
James Kelly
Liam McArthur
Tom McCabe
Elaine Murray (Deputy Convener)
Alex Neil

Committee Clerking Team:

Clerk to the Committee
Susan Duffy

Senior Assistant Clerk
Mark Brough

Assistant Clerk
Allan Campbell

Committee Assistant
Katie Packer

1st Report, 2008 (Session 3)

Stage 2 of the 2008-09 Budget Process

The Committee reports to the Parliament as follows—

INTRODUCTION

Process

1. The Parliamentary Budget Process is divided into 3 stages. Stage One normally takes place between March and June each year and involves the Scottish Government producing an Annual Evaluation Report which examines progress against previously set targets and sets out provisional spending plans for the year ahead. Stage Two normally takes place between September and December and it is at this point that the Scottish Government publishes its Draft Budget containing firm spending plans for the year ahead and indicative plans for the subsequent two years. Stage Three of the process is the publication of the annual Budget Bill which is the mechanism by which Parliamentary authorisation is sought for the coming financial year.

2. Underpinning this process there is a Written Agreement between the Finance Committee and the Scottish Government which describes the various stages of the Budget Process and sets out dates by which various budget documents need to be published. In 2005, this Agreement was revised so that there would only be a three-stage process in years when there was a UK Spending Review and that, in non-Spending Review and Scottish Parliamentary election years, there would be no requirement for Stage 1 scrutiny. The reason for this change was that experience had shown that changes made in non-Spending Review years tended to be more limited.

3. At the time this agreement was made, it was expected that the next UK Spending Review would take place in 2006. However, this was delayed by the UK Government until 2007 and, with a Scottish Parliamentary election taking place, this meant that Stage 1 of the Process could not be conducted in 2007.

4. In a normal Spending Review year, the UK Government publishes its findings in July, with a Scottish Spending Review document being published in September and a Draft Budget in October. However, the publication of the UK Spending Review was delayed until October this year. Therefore, the Finance Committee and the Cabinet Secretary for Finance and Sustainable Growth agreed that the timetable for scrutiny at Stage Two of the process would need to be amended to ensure that the Committee and subject committees would be able to have a similar scrutiny period to that afforded to them in previous years. In agreeing to this, the Cabinet Secretary undertook to publish the Scottish Government’s Spending Review and Draft Budget within one month of publication of the UK Spending Review.

5. The UK Spending Review was published on 9 October 2007 and the Scottish Spending Review and Draft Budget were published as a single document on 14 November 2007. Subject committees were asked to submit their reports to this Committee by 19 December and this Committee undertook to publish its own report in early January. Normally, there would be a parliamentary debate on the Finance Committee’s report in December, with the annual Budget Bill being published by 20 January (as set out in the Written Agreement) and the Stage 1 debate on the Bill taking place very soon thereafter. Another consequence of the delay in the process this year is that these debates necessarily had to be rationalised as it was recognised that the Scottish Government would have no time to respond to this Committee’s report before the Budget Bill was published and there was little point in having two separate, but very similar debates in close succession. As there is a requirement under Standing Orders to have a Stage 1 debate on the Budget Bill, then in practical terms, this rationalisation meant there would be no separate debate on the Finance Committee’s report and that instead, this would form part of the Stage 1 debate on the Budget Bill.

Evidence

6. Eight parliamentary committees considered the expenditure plans of the Scottish Government portfolios within their remit and reported their findings to the Finance Committee. These reports, together with links to associated oral and written evidence are attached as annexes to this report. Given the delays in this year’s process, the Finance Committee issued interim guidance to subject committees in September with finalised guidance following in early December. Both sets of guidance are attached as part of Annexe B to this report.

7. On 4 December 2007, this Committee took evidence on local government funding from COSLA, which was represented by Councillor Pat Watters, President, Rory Mair, Chief Executive, and Martin Booth, Head of Finance, and on sustainability from Professor Jan Bebbington, Professor of Accounting and Sustainable Development from the University of St Andrews and Vice-Chair of the Sustainable Development Commission; Maf Smith, Director (Scotland) of the Sustainable Development Commission; Ian Thomson, Reader from the Department of Accounting and Finance at the University of Strathclyde Business School; and Dr Dan Barlow, Acting Director of WWF Scotland. The Committee then took evidence from the Cabinet Secretary for Finance and Sustainable Growth at its meeting in Dundee on 10 December 2007. In addition, the Committee took evidence on the Scottish Parliamentary Corporate Body (SPCB) spending plans on 13 November 2007. The oral and written evidence associated with these sessions forms part of Annexe B to this report.

External meeting

8. In the first two Sessions of the Parliament, the Finance Committee held regular external meetings across Scotland in an attempt to gauge the impact of the then Scottish Executive’s overall expenditure plans at a local level. The Session 3 Finance Committee agreed to adopt this practice and held a meeting at Discovery Point in Dundee on 10 December 2007.

9. Before taking evidence from the Cabinet Secretary for Finance and Sustainable Growth, the Committee held three informal workshops with representatives of local organisations. The workshops focused on issues in the overall budget of particular relevance to the local area, namely Education and Skills, Economic Development and Waste Management. A list of the local organisations who participated in the workshops can be found below.

10. One MSP from each group then reported back on the key issues raised in the workshops in a formal meeting of the Committee. Members then drew on the conclusions and recommendations from the workshops during the evidence session with the Cabinet Secretary. The main themes arising from the workshops are summarised below. The Official Report of the meeting, which includes the reports back from the workshops and the evidence session with the Cabinet Secretary, can be found at Annexe C of this report.

Education and Skills

11. The issue of funding for higher education was raised in the Education and Skills workshop. It was noted that the potential removal of the cap on top-up fees in England could result in a divergence of funding between Scottish and English institutions. Coupled with this issue, the point was made that salaries for university staff are negotiated on a UK-wide level, meaning that Scottish universities would potentially have to meet increases from other budgets, which could in turn impact on research funding. Participants did not suggest that top-up fees should be introduced in Scotland, but that the Scottish Government should be mindful of this issue, and particularly the potential impact on research.

Economic Development

12. The Economic Development workshop discussed various factors affecting growth of the economy in Dundee and Tayside, including tourism, the planning system and the need to emphasise spending on research and development. The group identified transport as being potentially the most important driver of economic growth for the area. Participants stressed the importance of fast transport links in attracting jobs to Dundee and to enable Dundee to interact with the rest of Scotland and the UK. It was felt that both the internal and external connectivity of Dundee could definitely be improved, in particular with regard to road and rail links.

Waste Management

13. Participants in the Waste Management workshop raised various issues that could impact on Councils’ ability to meet the targets for reducing the amount of waste sent to landfill, and increasing the amount of waste that is recycled. It was noted that Dundee (in common with other cities) has a high number of high-rise and tenement properties, which made kerbside recycling challenging. The treatment of food waste was also raised as a major issue. The workshop concluded that, if recycling of waste was to improve further, then major investment was needed for vehicles, receptacles for collection, and plant. Alongside this, it was recognised that waste management should be viewed from two sides – both the collection of waste that is produced but also the need to encourage people to produce less waste.

Removal of ring-fencing

14. One over-arching theme that emerged from all three workshops was the issue of the Government’s intention to remove ring-fencing from 43 funds totalling £2 billion (approximately 12 per cent of the total resources for local authorities) and to incorporate that funding into the overall local government settlement.

15. In the Education and Skills workshop, the point was made by the Dundee City Council Education Department that the proposed removal of ring-fencing could be seen as both a threat (as the level of funding the Department receives could go down) but also an opportunity (for example to transfer the large numbers of temporary staff into permanent employment). In addition, there was agreement that it would benefit those involved if the amount of reporting and auditing around funds that will remain ring-fenced could be reduced.

16. There was some concern in the Economic Development workshop over the potential impact of the removal of ring-fencing on economic growth. In light of the plans for a new relationship between central government and local government set out in the Scottish Budget: Spending Review 2007 document and the Concordat2, the group felt that it was important for the Scottish Government to set out its priorities regarding economic growth, not only through the Concordat, but also by defining clear national outcomes.

17. In the Waste Management workshop, discussion on ring-fencing focussed on the Government’s decision to remove ring-fencing from the Strategic Waste Fund. Again, participants were of the view that the decision to remove ring-fencing could be viewed from two perspectives: that its removal would give councils more flexibility to come up with solutions tailored to local problems; but that if ring-fencing was maintained it would provide a strong national focus for waste management.

18. The subject of ring-fencing is discussed later on in this report.

19. The Committee would like to thank everyone who participated in the workshops and also expresses its thanks to the staff of Discovery Point for assisting in the organisation of this meeting.

List of workshop participants

20. The organisations that participated in the workshops are as follows:

Education and Skills

  • University of Dundee
  • Angus College
  • CXR Biosciences
  • Scottish Trades Union Congress
  • Dundee City Council Education Department
  • BioDundee

Economic Development

  • Scottish Enterprise Tayside
  • Dundee Chamber of Commerce & Industry
  • Scottish Trades Union Congress
  • Dundee City Council Economic Development Department
  • Angus Council Economic Development Department
  • Axis-Shield
  • Perth and Kinross Council Economic Development Department

Waste Management

  • Dundee City Council Waste Management
  • Dundee Energy Recycling Limited
  • Scottish Environment Protection Agency
  • Friends of the Earth Scotland
  • Ninewells Hospital
  • Recycling Market Development (REMADE)

structure of REPORT

21. The Committee’s report is structured as follows:

  • Summary of conclusions and recommendations
  • Overall strategy and priorities
  • National Performance Framework
  • Performance Monitoring
  • Reports from subject committees
  • Budgetary information
  • Local Government funding
  • Alternative Spending Proposals
  • Efficiency Savings
  • Sustainability
  • Equalities
  • Scottish Parliamentary Corporate Body
  • Audit Scotland

SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

National Performance Framework

The Committee believes the Scottish Government should where practicable, further elaborate how the Strategic Objectives which support the delivery of the Scottish Government’s purpose are related and what weight will be attached to each. The Scottish Government should also make clear the order of priority given to its objectives and the basis on which this order has been decided (paragraph 37).

Performance Monitoring

The Committee believes that the new National Performance Framework is a step in the right direction but recognises there is still limited evidence linking expenditure to outcomes and this leaves open the question of whether there should be hard, fixed targets or “direction of travel” targets. This is echoed by many subject committees. Regardless of the debate over fixed or direction of travel targets, the Committee recommends that baseline information should be published for all SMART targets. The Committee welcomes the fact that there will be annual reporting on progress against targets. It appreciates the practical difficulties involved, but believes that such progress reports should be published earlier than 2009 if possible. The Committee signals its intention to scrutinise this issue on an on-going basis (paragraph 45).

Reports from Subject Committees

General

The system of all subject committees appointing their own advisers and working with this Committee’s budget adviser appears to have worked well and the Committee recommends this approach be adopted and developed in future years (paragraph 47).

National Performance Framework and Spending Priorities

The Finance Committee believes that, without more information and a firm commitment from the Government and councils regarding continuing investment in RTPs, there is a level of uncertainty now surrounding the future of RTPs.The Finance Committee recommends that the Scottish Government facilitates further discussions with local government to address these concerns (paragraph 54).

The Finance Committee draws attention to the concerns raised by the Education, Lifelong Learning and Culture Committee in relation to both the overall three year funding and within that, the year-to-year funding for higher education (paragraph 55).

The Government has stated that £10 million will be removed from the college capital lines in the budget and given to universities but there is no reference to this in any budget documentation. The Education, Lifelong Learning and Culture Committee also recommended that the Government clarify this point. The Finance Committee accepts the need for clarification (paragraph 56).

The Committee would draw attention to the relevant sections of the Rural Affairs and Environment Committee’s report regarding waste management. There were a number of issues that need to be addressed and specific recommendations for the Scottish Government to consider, namely that future budget documents include:

  • an assessment of progress towards meeting national and EU waste targets; and
  • a detailed breakdown of how the Zero Waste budget has been allocated to specific initiatives (paragraph 57).

The Rural Affairs and Environment Committee recommended that a significant proportion of the Marine Management budget line should be set aside in the first year of the Spending Review to support the fishing industry and the Committee recommends that the Scottish Government should give full consideration to this proposal (paragraph 58).

A number of the subject committees raised concerns about the adequacy of national targets and indicators (paragraphs 52 to 63) and the Committee intends to scrutinise these issues on an ongoing basis and in doing so, will explore the issues raised by subject committees (paragraph 63).

Timetable for budget scrutiny

Committees have raised concerns about the timetable available for scrutiny of the budget process. Following a resolution of the Parliament, there will be a review of the entire budget process and, given its pivotal role in the process and the Written Agreement between the Finance Committee and the Scottish Government, the Committee would intend to take a leading role and a range of issues, including the timetable for budget scrutiny, will undoubtedly form part of any such review. The Committee recognises this will be a fluid process but hopes that significant progress can be made in time for next year’s budget (paragraph 68).

For the immediate future to counteract the timetabling difficulties, the Committee recommends that subject committees give some thought to incorporating specific financial scrutiny into any inquiry work undertaken during the year. In that way, it might then be possible to focus on particular areas of spending and to take evidence prior to the Draft Budget being published. Such evidence-based work could then feed into committee consideration of the Draft Budget (paragraph 70).

Budgetary Information

General

The Committee sought further budgetary information from the Scottish Government which it received. The Committee considers that the Scottish Government should have attached the subsequently produced table of changes as an Annexe to the Draft Budget and recommends that for future years, any such presentational changes should be stated clearly, either in an Annexe or by way of a footnote in the Draft Budget. While the Committee appreciates that the Budget documents had to be put together quickly this year, it also recommends that, having regard to the principle of co-operation and agreement inherent in the Written Agreement between the Finance Committee and the Scottish Government, in future significant changes in presentation should be agreed with the Finance Committee (paragraph 78).

Block allocations and further information on funding levels

In his response to the Finance Committee, the Cabinet Secretary stated that he would be happy to explore improvements to the presentation of health board allocations which would meet and support the Committee’s needs and the Committee intends to pursue this with the Scottish Government (paragraph 80).

The Health and Sport Committee made a number of recommendations for improvements which, although they are primarily an issue for that Committee, could be worthy of consideration. The recommendations are that:

  • the division of the budget between the territorial health boards as a group and the special health boards as a group be included in the draft budget;
  • the calculation of the Arbuthnott Formula be brought forward to the summer so that individual territorial health board allocations can be published in the Draft Budget;
  • the publication of the blue book be brought forward to September so that recentexpenditure and activity trends for health boards can inform the Health and Sport Committee's budget scrutiny, and
  • that individual health board spending plans be incorporated in the Draft Budget (paragraph 81).

The Finance Committee believes that Level 3 budget lines should be split into capital and revenue. On the issue of having a further spending breakdown, the Committee appreciates the difficulties faced by subject committees but if all information required by subject committees beneath Level 4 were provided, then the Draft Budget would become unwieldy. However, where any committee requests such supplementary information, the Finance Committee would expect that the relevant directorate in the Scottish Government should supply it. The Committee will ensure that this issue is covered in future guidance to subject committees (paragraph 91).

The Committee recognises the concerns expressed by all subject committees as a consequence of the changes in the presentation of information in the Draft Budget (paragraphs 82 to 90), particularly:

  • Level 3 budget lines now rolled up into the local government settlement;
  • GAE totals;
  • the distribution of capital grants;
  • the splitting of Level 3 budget lines into capital and revenue.

Adhering to the principles in the Written Agreement of co-operation and agreement to allow effective scrutiny, the Committee invites the Cabinet Secretary to jointly review the presentation of information and to agree with the Committee a way forward for future years, with particular reference to:

  • the presentation of level 3 budget lines;
  • the identification of relevant local authority GAE totals;
  • the relationship between expenditure and Single Outcome Agreements;
  • transitional arrangements to allow comparison to be made between past and future years; and
  • ensuring transparent tracking on expenditure patterns at all levels (paragraph 92).

Capital Spend

The Committee recommends that an estimate of capital spending by the private sector and estimated payments under PPP contracts should be provided in the Draft Budget in future years (paragraph 93)

Other issues raised by subject committees

The Committee notes the concerns about using a GDP deflator to forecast growth and notes that the Atkinson review looked at measuring prices in the public sector and that the Scottish Government is continuing to undertake work in this area. The Committee will monitor developments (paragraph 94).

The Committee agrees with the Economy, Energy and Tourism Committee that allocations should be provided on a cash and real terms basis in future budgets (paragraph 95).

The Committee appreciates that the enterprise network reform is in a transitional phase at the moment but would expect that the relevant budgetary information and figures will be published as soon as this transitional period comes to an end and included in future budget documents (paragraph 96).

Local Government funding

Ring-fencing

The Committee notes the arguments both for and against the reduction in ring-fencing of funds and considers that the key to addressing any remaining concerns lies in the structure and monitoring of Single Outcome Agreements (paragraph 118).

Single Outcome Agreements

The Committee is supportive of Single Outcome Agreements (SOAs) in principle. However, it is crucial that their format and the monitoring arrangements are fit for purpose to ensure they can work on a practical level. The Committee recommends that the Cabinet Secretary clarifies the potential format of SOAs, including the issues to be captured by them and the level of detail they will be expected to provide (paragraph 121).

The Committee seeks clarification on whether there would be any circumstances in which ring-fencing might be reintroduced where a local authority was not meeting the performance targets associated with its Single Outcome Agreement and what those circumstances would be (paragraph 126).

The Committee recommends that the Cabinet Secretary provides full detail on the proposed reporting and review process for SOAs (paragraph 129).

In anticipation of the review process, the Committee makes the following recommendations in relation to the tracking of spend and the monitoring process to ensure that proper scrutiny can take place:

  • As part of its annual reporting process, local authorities should be required to produce a statement explaining any significant changes in expenditure patterns – this would apply to the entire budget and not just to those monies which were previously ring-fenced;
  • Baseline information should be provided for the indicators and targets as they will be applied to local authorities so that progress can be monitored;
  • Local authorities should provide any other information that they see as relevant to monitoring their SOA.
  • To this end, given that local authorities are currently subject to Best Value Reviews conducted by the Accounts Commission and that the new National Performance Framework and SOAs may change current scrutiny arrangements, the Scottish Government should arrange urgent discussions with the Accounts Commission, the Auditor General for Scotland and COSLA to consider how the monitoring and reporting of targets will be carried out under these new arrangements (paragraph 130).
Council tax freeze

The Committee requests clarification on whether the overall figure of £70m to be distributed to local authorities would be adjusted if not all councils agree to the freeze (paragraph 135).

The Committee notes the statements by both the Cabinet Secretary and COSLA over the level of funding provided to fund the council tax freeze and while these apparent disagreements can be viewed as an integral part of any negotiation, it is clear that this will be an ongoing issue (paragraph 139).

Non-Domestic Rate Income (Business Rates)

The Committee appreciates the reasons why research has so far not been carried out on the impact that a reduction in business rates would have on economic growth. However, it signals that it will take an interest in any research which may be carried out in the future (paragraph 146).

Alternative Spending Proposals

The Committee recommends that the Scottish Government bring forward proposals setting out how, over the period covered by the spending review, the level of police recruitment can be increased beyond that currently planned, and what changes will be required to the 2008-09 Budget as a result (paragraph 149).

The Committee recommends that the Scottish Government considers whether there is scope to increase the reductions in business rates applying in 2008-09 beyond those stated in the Spending Review as the first stage of the acceleration of the reductions, and what changes will be required to the 2008-09 Budget as a result3 (paragraph 151).

There were a number of other proposals considered where were not agreed. Full details of these proposals and the votes that took place are contained in Annexe A (as part of the Minutes of the Committee’s meeting on 15 January 2008) (paragraph 152).

Efficiency Savings

The Committee seeks clarification of what proportion of efficiency savings will be deducted at source and from where, and what will be redistributed. The Committee also seeks clarification on whether there are contingency plans should the 2% efficiency savings not be achieved (paragraph 154).

The Committee echoes the concerns of the previous Finance Committee and Audit Scotland that it is vital that robust baseline information is provided and recommends that the Scottish Government collaborates with the relevant public sector bodies to produce such information (paragraph 161).

The Committee also signals its intention to scrutinise on an on-going basis the Scottish Government’s efficiency initiative by examining the first report to be published in March 2008 and any reports made by Audit Scotland (paragraph 162).

Sustainability

With regard to embedding sustainability in policy-making and helping to improve the linkage between strategic objectives, targets and indicators and between them and budget decisions, the Committee will assess and forward to the Scottish Government any suggestions from its witnesses on sustainability. The Committee would recommend that the Scottish Government examines these, together with the relevant Official Report and submissions as part of its work on carbon accounting (paragraph 171).

Equalities

The Committee recognises that the National Performance Framework has just been established and that the Draft Budget reflects this, but would ask the Scottish Government to consider whether, in future years, information and spending allocations with regard to equalities issues can be made more specific in the context of this new framework (paragraph 175).

The Committee concurs with the Equal Opportunities Committee’s recommendation that its membership should be extended to include senior representation from the Finance and Sustainable Growth directorate (paragraph 176).

The Committee is pleased to note that the Equal Opportunities Committee believed that the section on equalities in the final guidance to subject committees was helpful and will take on board its comments for its guidance in future years (paragraph 177).

The Committee notes the Equal Opportunities Committee’s recommendation that the extent to which any subject committee advisers could be asked to brief committees on equal opportunities issues should be considered (paragraph 178).

Scottish Parliamentary Corporate Body

The Committee encourages the SCPB to continue its rigorous approach in relation to the scrutiny of commissioners and ombudsman spending plans, particularly in light of the variations in approaches to certain costs that are apparent between the relevant office-holders (paragraph 195).

Audit Scotland

The Committee notes the Scottish Commission for Public Audit (SCPA) recommendation that Audit Scotland’s budget proposal be approved (paragraph 200).

overall strategy and priorities

22. The background to the Spending Review and Draft Budget was the 2007 UK Comprehensive Spending Review (CSR) published in October 2007. This was a spending review with the lowest percentage growth rate of this decade. Previous reviews had increased public spending more rapidly than the growth rate of the economy as a whole. The UK Government took the view that such increases were no longer feasible, because of the implications for increased taxes and/or borrowing.

23. The 2007 CSR proposes real terms increases in UK public spending of 2.1% in the period 2007-08 to 2010-11. This compares with a 4.2% annual increase in CSR 2004 and a 5.2% annual increase in CSR 2002.

24. The CSR 2007 allocation to the Scottish Government is determined by the Barnett formula. The allocation largely determines the path of public spending in Scotland over the next three years. It shows a cash increase in Scottish Departmental Expenditure Limits (DEL) of £3.7bn from £26.1bn to £29.8bn between 2007-08 and 2010-11.

25. There is disagreement about the percentage increase that this cash increase represents. This arises because there is a debate as to what is the appropriate baseline from which the increase should be measured. Whichever baseline is used, the increase in DEL allocation to Scotland is smaller than the increase to the UK as a whole. The UK Government estimates that the real growth rate of DEL across all UK departments is 2.1%. Its estimate of the real growth rate of DEL in Scotland is 1.8%. The Scottish Government is estimating a real growth rate in DEL of 0.5%.

26. The lower growth rate in Scotland is the result of the "Barnett squeeze", whereby the proportionate increase in DEL allocations is smaller for areas such as Scotland. The implication is that Scotland will not be able to match the overall increases in per capita spending in England between 2008-09 and 2010-11 where public spending per head Scotland is already above the UK average.

27. Against this background, the Scottish Government produced its Spending Review and Draft Budget in November 2007. A number of adjustments have to be made to reconcile some figures in the Scottish Government's proposed budget with those contained in CSR 2007. These include:

  • the addition of depreciation, which is not included in CSR 2007
  • the draw down of £1.5bn of End Year Flexibility (EYF) by the Scottish Government during the course of 2007-08 and the Spending Review period. EYF is the accumulated past underspend on Scottish Executive budgets, that is held by Her Majesty's Treasury. The allocation of EYF to capital and resource spending is not free: a proportion must be spent on capital projects, reflecting the original intention of the funds.

28. Table 1 shows the allocation of Totally Managed Expenditure (which consists of Departmental Expenditure Limits and Annually Managed Expenditure4) by portfolio for the period 2007-08 to 2010-11 in real terms. Table 2 shows the same information for Departmental Expenditure Limits.

Table 1 Total Managed Expenditure by Portfolio (Real Terms)

   

 

  2007-08
Budget £m
2008-09
Budget £m
2009-10 Plans £m 2010-11 Plans £m Average
Annual
Real
Growth
The First Minister 266.3 273.3 278.5 282.3 2.0%
Finance and Sustainable Growth 5831 5839.6 5890.9 5856.4 0.1%
Health and Wellbeing 10776.9 10925.8 11132.7 11287.5 1.6%
Education and Lifelong Learning 2518.7 2465.4 2475.1 2496.8 -0.3%
Justice 979.1 1013.9 1030.2 1027.1 1.6%
Rural Affairs and the Environment 529.6 599.7 604.6 601.8 4.3%
Administration 241.4 239.2 237.6 236.6 -0.7%
Crown Office and Procurator Fiscal 100.8 107.3 112.6 111.5 3.4%
Local Government 10651.1 10844.5 11006.1 11094 1.4%
Total Scottish Government 31894.9 32308.9 32768.2 32994 1.1%
Scottish Parliament and Audit Scotland 106.9 107.1 107.6 107.9 0.3%
Total Scottish Government 32001.8 32416.0 32875.8 33101.9 1.1%

Table 2 Departmental Expenditure Limit by Portfolio (Real Terms)

   

 

  2007-08
Budget £m
2008-09
Budget £m
2009-10 Plans £m 2010-11 Plans £m Average
Annual
Real Growth
The First Minister 266.3 273.3 278.5 282.3 2.0%
Finance and Sustainable Growth 2681.8 2729.2 2813.7 2806.5 1.5%
Health and Wellbeing 10776.9 10925.8 11132.7 11287.5 1.6%
Education and Lifelong Learning 2357.6 2344.4 2356.8 2381.4 0.3%
Justice 979.1 1013.9 1030.2 1027.1 1.6%
Rural Affairs and the Environment 529.6 599.7 604.6 601.8 4.3%
Administration 241.4 239.2 237.6 236.6 -0.7%
Crown Office and Procurator Fiscal 100.8 107.3 112.6 111.5 3.4%
Local Government 8783.9 8925.5 9082.8 9223.5 1.6%
Total Scottish Government 26717.4 27158.4 27649.4 27958.2 1.5%
Scottish Parliament and Audit Scotland 106.9 107.1 107.6 107.9 0.3%
Total Scottish Government 26824.3 27265.5 27757.0 28066.0 1.5%

29. he figures in these tables are taken from Annex C of the Spending Review which are based on a GDP deflator of 2.7% (the Treasury GDP deflator for 2008-09 onwards is 2.75%). It should be noted that the deflator is used as a mechanism to forecast growth in general terms, but in each portfolio a different rate of inflation will apply to the cost base, thus affecting the real growth rate during the Spending Review period.

30. There has been some confusion over the estimated growth rates. For example, the Rural Affairs and Environment Committee asked for clarification on the baseline figure for the rural affairs and environment budget as it appeared that this budget was increasing in real terms to a greater degree than was actually the case. Clarification from officials which gave a more meaningful baseline figure showed that the real terms budget increase was less than implied by the figures in the Draft Budget

31. The real growth in Total Managed Expenditure (1.1%) will be less than that of the Scottish economy as a whole over the next three years. Thus, this is the first time this century that GDP has grown faster than the growth in public expenditure.

32. Nevertheless, there will be a real increase in spending in most portfolios during the Spending Review period. One exception is Administration which will shrink by 0.7%, while the resources available to Audit Scotland and the Scottish Parliament will only grow by 0.3% over the period.

33. Other portfolios, including Health and Wellbeing, will grow in real terms much more slowly than they have in recent years. This will require managers to carefully monitor their cost base if they are to keep within budget. Improved service quality will largely have to rely on improved productivity.

NATIONAL PERFORMANCE FRAMEWORK

34. The Spending Review and Draft Budget document sets out a new National Performance Framework. This is based on the outcomes-based model used in Virginia in the United States. The Scottish Government has set out as its over-arching purpose – “to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing economic sustainable growth”. Underneath this overall purpose sit a number of high level or “Purpose” targets, grouped together under the headings of Economic Growth, Productivity, Participation, Population, Solidarity, Cohesion and Sustainability which, according to the Spending Review document, “define the characteristics of the economic growth that we want to see”.

35. In the budget documents, the Scottish Government states that its Economic Strategy is central to the delivery of its overall Purpose and that it sets out how it will work collaboratively with the private, public and third sectors in pursuit of increasing economic growth. The Scottish Government has set an immediate growth target to raise Scotland’s GDP growth rate to the UK level by 2011.

36. There are five Strategic Objectives to support the delivery of the Scottish Government’s purpose. These are to make Scotland “Wealthier and Fairer”; “Smarter”; “Healthier”; “Safer and Stronger” and “Greener”. The Strategic Objectives are in turn supported by 15 National Outcomes which describe the aims of the Scottish Government over a ten year period. These 15 National Outcomes are to be measured by 45 national indicators and targets. Subsequent to the publication of the Spending Review and Draft Budget, the Scottish Government has published a series of technical notes which aim to set out the detail of how each of the purpose targets and the 45 national indicators and targets will be measured. They also provide detail on the sources of data used to monitor progress and specific details of methodology.

37. he Spending Review, Draft Budget and Technical Notes set out objectives, targets and methodology. However, they do not indicate the relative importance of the strategic objectives or discuss how conflicts between the objectives might be resolved. The Committee believes the Scottish Government should, where practicable, further elaborate how the objectives are related and what weight will be attached to each. The Scottish Government should also make clear the order of priority given to its objectives and the basis on which this order has been decided.

PERFORMANCE MONITORING

38. A key part of the new performance management framework is the Single Outcome Agreements which will be agreed between the Scottish Government and local authorities and eventually community planning partnerships. These are discussed in more detail in the “Local Government” section of this report.

39. The previous Finance Committee had consistently raised concerns over performance monitoring systems and targets. It believed that there were too many targets and that a large number of them were process-based. In its Session 2 Legacy Paper, it noted that the previous Executive had strategic priorities for the budget but no strategic targets. It further noted that the Executive’s view on, for example, not having a target for economic growth was that it was impossible to link changes in budgets to changes in economic output, because of the range of intervening variables which could influence the result. Whilst the previous Committee recognised that this highlighted some problems with outcome budgeting, it recommended that there should be a concentration on strategic targets which an administration could expect to influence through public spending. It further recommended that there should be a number of sub-targets for each portfolio under such strategic over-arching targets.

40. The system proposed by the Scottish Government is not unlike that recommended by the previous Finance Committee. This Committee recognises that there will still be a debate over whether public spending can be precisely linked to outcomes, given that factors external to government intervention can have an impact on some (eg, the development of more effective drugs in relation to the outcome “we live longer, healthier lives”). However, this should not prevent the Scottish Government trying to be as rigorous as possible in evaluating the impacts of its own policies.

41. The Committee noted that some of the 45 national indicators and targets by which the national outcomes are to be measured were SMART (specific, measurable, achievable, relevant and timebound) eg, reduce the number of Scottish public bodies by 25% by 2011; reduce to 1.32 million tonnes of waste sent to landfill by 2010 - whereas others were not SMART in that sense eg, improve the quality of healthcare experience and increase the social economy turnover.

42. When questioned about this, the Cabinet Secretary acknowledged that there is a continuing debate over whether, to be effective, targets should be numeric and specific or whether they should instead indicate a “direction of travel”. He went on to say that “hard” targets were more likely to be put in place where, for example, there is an issue over compliance - such as the reduction in the amount of waste sent to landfill. However, he was “persuaded that the fewer such targets the better, because such an approach tends to lead to more enlightened policy making locally, which delivers progress on outcomes”.5

43. The Cabinet Secretary also seemed to suggest that “direction of travel” targets were more likely to be employed when government intervention or policy alone might not address the situation eg, “Reduce the rate of increase in the proportion of children with their Body Mass Index outwith a healthy range by 2018” as opposed to “60% of school children in primary 1 will have no signs of dental disease by 2010”. This again raises the question over whether government spending can always be precisely linked to outcomes. The Cabinet Secretary was also asked how frequently the Scottish Government intended to report to the Parliament on progress against targets and the format such reports would take.

44. The Cabinet Secretary responded that it was his intention to report annually and that the likely format would be based on the technical notes produced to accompany the Spending Review. As set out above, these technical notes set out the methodology to be used in assessing each of the targets and indicators and the Cabinet Secretary suggested that performance could be assessed against the stated methodology. He also indicated that the first such progress report might be published by Autumn 2009, although that was dependent on when the relevant data became available.

45. The Committee believes that the new National Performance Framework is a step in the right direction but recognises there is still limited evidence linking expenditure to outcomes and this leaves open the question of whether there should be hard, fixed targets or direction of travel targets. This is echoed by many subject committees, as outlined in the next section of the report. Regardless of the debate over fixed or direction of travel targets, the Committee recommends that baseline information should be published for all SMART targets. The Committee welcomes the fact that there will be annual reporting on progress against targets. It appreciates the practical difficulties involved, but believes that such progress reports should be published earlier than 2009 if possible. The Committee signals its intention to scrutinise this issue on an on-going basis.

REPORTS FROM SUBJECT COMMITTEES

46. Due to the delay in this year’s process, the Finance Committee issued interim guidance to subject committees in September, followed by final guidance early in December. In its guidance, the Committee recognised that it had always been seen as desirable for subject committees to scrutinise the entire portfolio they effectively “shadow”. However, it also appreciated the difficulties this can cause, particularly when timescales are tight and, therefore, the guidance indicated that committees could concentrate on one or two areas of considerable budgetary significance within the appropriate portfolio. This approach has been adopted by a number of subject committees this year. The Committee also notes the new approach adopted by the Health and Sport Committee, Justice Committee and Local Government and Communities Committee who undertook joint scrutiny of the drugs and alcohol budget, given that it cuts across the remits of all three committees.

47. Another innovation in budget scrutiny this year was that all committees who report to the Finance Committee appointed specialist advisers to help them with the process. Meetings were set up before and after the publication of the Draft Budget between the Finance Committee’s adviser and subject committee advisers to look at common approaches to scrutiny and budgetary information. This appeared to work well and the Committee recommends this approach be adopted and developed in future years.

48. The guidance asked subject committees to address questions in four areas: the presentation of information in the draft budget; the new National Performance Framework; efficiency savings and alternative spending proposals.

49. This Committee will concentrate on these areas in subject committee reports together with any other issues which are within this Committee’s remit. The Scottish Government will provide a corporate response to the Finance Committee’s report (and therefore, to any recommendations that are proposed by the Finance Committee). Any portfolio specific recommendations which are not considered in this report will be addressed in individual responses to subject committees by the relevant Scottish Government directorate.

Presentation of information

50. In its guidance, the Finance Committee asked subject committees to consider the presentation of information in the Draft Budget and to comment on whether the changes in presentation compared to previous budgets have affected their ability to scrutinise the budget or to consider alternative spending proposals.

51. All committees, to varying degrees, raised concerns and questions over the level and type of information provided in the Draft Budget. The majority of the comments concentrated on Level 3 budget lines which were rolled up into the local government settlement and identifiable Grant-Aided Expenditure (GAE) totals. These and other issues raised are covered in the section on “Budgetary Information”.

National Performance Framework and Spending Priorities

52. Subject committees were invited to comment on the adequacy of the targets set for their area of interest and on whether Ministerial priorities have been reflected in spending decisions. Generally, the National Performance Framework was welcomed as a step in the right direction.

53. The Economy, Energy and Tourism Committee recognised that spending across the budget portfolios could contribute to the Scottish Government’s overall purpose of sustainable economic growth. The Committee supports the Scottish Government’s purpose but states that it is too early to say whether this budget will deliver on the Purpose. Additionally, the Committee stated that it did not think the Draft Budget presented any link between expenditure and outcomes and, with 60% of the budget being allocated in block grants to local authorities and health boards, it did not believe it was possible to assess the economic impact of the Draft Budget as a whole.

54. The Transport, Infrastructure and Climate Change Committee heard evidence on the importance of transport investment for the promotion of sustainable economic growth and the majority of the Committee welcomed the Scottish Government’s commitment to proceed with the existing set of major transport projects. That Committee did, however, take evidence on the impact of changes to funding for Regional Transport Partnerships. A key issue raised was the removal of the dedicated budget line from government to finance capital projects of the RTPs, with RTP capital projects henceforth to be met from the general local government settlement. Only the administration costs of the RTPs are to be met directly by the Scottish Government. The Finance Committee believes that, without more information and a firm commitment from the Government and councils regarding continuing investment in RTPs, there is a level of uncertainty now surrounding the future of RTPs. The Finance Committee recommends that the Scottish Government facilitates further discussions with local government to address these concerns.

55. On a casting vote, the Education, Lifelong Learning and Culture Committee said it was not satisfied that the Draft Budget reflected the Scottish Government’s overall Purpose of achieving sustainable economic growth given that the higher education sector plays a key role and a low level of priority had been given to it. Additionally, the Finance Committee draws attention to the concerns raised by the Education, Lifelong Learning and Culture Committee in relation to both the overall three year funding and within that, the year-to-year funding, for higher education.

56. The Education, Lifelong Learning and Culture Committee also said it was very concerned at the lack of clarity of the intention of the Scottish Government to rebalance the 50/50 split of capital funding between the college and university sectors. The Government has stated that £10 million will be removed from the college capital lines in the budget and given to universities but there is no reference to this in any budget documentation. The Committee also recommended that the Government clarify this point. The Finance Committee accepts the need for clarification.

57. The Committee would draw attention to the relevant sections of the Rural Affairs and Environment Committee’s report regarding waste management. There were a number of issues that need to be addressed and specific recommendations for the Scottish Government to consider, namely that future budget documents include:

  • an assessment of progress towards meeting national and EU waste targets; and
  • a detailed breakdown of how the Zero Waste budget has been allocated to specific initiatives.

58. The Rural Affairs and Environment Committee recommended that a significant proportion of the £7m Marine Management budget line (some members of the Committee suggested around £3m) should be set aside in the first year of the Spending Review to support the fishing industry. The Committee recommends that the Scottish Government should give full consideration to this proposal.

59.On the National Performance Framework, the Education, Lifelong Learning and Culture Committee commented that it believed the further and higher education sectors were central to the achievement of many of the national outcomes, but that it was not clear that the indicators proposed were sufficient to track the “international competitiveness of Scotland’s universities, or the quality of provision on both further and higher education.”6 Similarly, while the Committee welcomed the use of the key principles of the Curriculum for Excellence in the national outcomes, it was not clear whether the proposed indicators measured progress against outcomes in the areas of early intervention and reducing inequalities.

60. The Health and Sport Committee was concerned that some health priorities were not adequately reflected in the new National Performance Framework although it was reassured that the fuller range of indicators in the HEAT system for the NHS will continue to be used. However, it did recommend that national outcome indicators for drugs and alcohol misuse should be developed as a matter of urgency. The Committee also noted that if the Health Directorate were to move towards a single outcome agreement model it would wish to see a more generous direct settlement for NHS boards.

61. The Health and Sport Committee also echoed the previous Finance Committee’s concerns about the difficulties in linking spending to priorities and cross-cutting themes. This also links into the debate, mentioned previously, about whether it is possible to link spending to outcomes precisely. The Health and Sport Committee sets out its concerns over cross-cutting scrutiny in the section of its report entitled “Cross-cutting consideration of drugs and alcohol budget”.

62. Like the Education, Lifelong Learning and Culture Committee, the Rural Affairs and Environment Committee was concerned that national targets and indicators were not sufficient to give precise measures on which to be able to rely to ensure services meet national priorities. It also shared the Health and Sport Committee’s concerns about the linkage of resources to priorities and recommended that future budget documents should show closer links between spending plans and the National Performance Framework. It suggested this could include clear indications of where any failure to meet a particular national target or indicator has prompted adjustments to particular budgetary allocations.

63. The Committee intends to scrutinise these issues on an on-going basis and in doing so, will explore the issues raised by subject committees.

Efficiency Savings

64. The guidance asked subject committees for their views and comments on plans for making efficiencies within the appropriate portfolio. Overall, those committees who responded implied that the savings target of 2% was challenging, that there were differing views on the target but that they appreciated the commitment of various bodies to work achieve those savings.

Timetable for budget scrutiny

65. Some of the subject committees were concerned about the limited timescale available to take evidence, consider alternative spending proposals and produce their reports. While the process was delayed this year, the amount of time available to subject committees was comparable to previous Spending Review years when the Draft Budget was published in October with subject committees being asked to report to the Finance Committee by mid-November. However, this year’s process has highlighted that the time available is tight for scrutiny and for evidence-taking and consideration of alternative spending plans.

66. The Committee appreciates the many difficulties faced by subject committees in trying to ensure they have sufficient time to carry out thorough scrutiny. However, aside from the problems this year, the crux of the matter is that the annual Budget Bill must be approved and enacted before the start of the new financial year and, under normal circumstances, the Finance Committee needs to report to the Parliament in December to allow time for the Scottish Government to consider the Committee’s recommendations and publish its response before Stage 1 consideration of the Budget Bill.

67. It could be argued that if the Finance Committee were to report to the Parliament in January, as it has done this year through necessity, this would build in significantly more time for subject committee scrutiny. However, as the opening section of this report notes, this would mean that the Scottish Government would not be able to respond to the Committee’s report in time for Stage 1 of the Budget Bill. This delay in the response has been inevitable this year but the Committee would argue that this is not an ideal situation.

68. Following a resolution of the Parliament, the Standards, Procedures and Public Appointments Committee has agreed that a review of the budget process will be included in its work programme. Given its pivotal role in the process and the Written Agreement between the Finance Committee and the Scottish Government, the Committee would intend to take a leading role and a range of issues, including the timetable for budget scrutiny, will undoubtedly form part of any such review. The Committee recognises this will be a fluid process but hopes that significant progress can be made in time for next year’s budget.

69. In its legacy paper the previous Finance Committee suggested that subject committees might wish to give some thought to incorporating specific financial scrutiny into any inquiry work undertaken during the year. In that way, it might then be possible to focus on particular areas of spending and to take evidence prior to the Draft Budget being published. Such evidence-based work could then feed into committee consideration of the Draft Budget.

70. The Committee appreciates that, because of the election, it would not have been possible for subject committees to undertake this type of work this year. However, it recommends this be done in the future.

Miscellaneous

71. The Local Government and Communities Committee raised concerns about whether assumptions about the cost of implementing the Single Status Agreement were made in the local government settlement. It also raised the issue of the accounting change suggested by the International Finance Reporting Interpretations Committee Report in relation to PPP/PFI projects and the potential impact on the ability of local authorities to fund capital projects, and recommended that the Finance Committee should monitor this issue. The Finance Committee is undertaking an inquiry into the methods of funding capital projects and this issue will no doubt be examined during the Committee’s consideration.

72. A majority of the Economy, Energy and Tourism Committee, in light of concerns over the budgetary information available to it with regard to the Enterprise Networks and the transfer of funds to the new skills agency and local authorities, recommended to the Finance Committee and the Scottish Government that time should be set aside for a debate on a further report from the Economy, Energy and Tourism Committee on the issue. This is primarily a matter for the Economy, Energy and Tourism Committee to take forward.

BUDGETARY INFORMATION

73. Aside from the fact that the Spending Review and Draft Budget have been published as one document (which is as a result of time constraints), the information in the Draft Budget has been presented differently to previous Draft Budgets. The main difference is that the figures are now presented on a Directorate-General basis rather than on the previous Departmental basis, reflecting the revised structure within the Scottish Government.

74. Draft Budgets have always recorded expenditure at different levels – Level 1 is portfolio expenditure (eg, Education), Level 2 is at sub-portfolio level (eg, Student Awards Agency) and Level 3 records expenditure in greater detail (eg, Grants and bursaries and HMIE). Annexe A of the Spending Review/Draft Budget document provides a reconciliation between 2007-08 and 2008-09 at Level 1 and Annexe B provides comparative figures back to 2002-03, again at Level 1.

75. There are some other differences apart from the change to Directorates-General. The main ones are:

  • that spending has not been specifically identified as Level 2 and Level 3;
  • a new section in each chapter entitled “Budget changes”;
  • some budget lines have been transferred into local government and there are no longer tables showing Grant-Aided Expenditure (GAE) to local authorities within specific portfolios;
  • a number of capital grants have been rolled up into the local government settlement for distribution to local authorities.

76. Due to the fact that some budget lines had been transferred into local government and some Level 3 information appeared to be different to that in the 2007-08 Draft Budget, the Committee wrote to the Cabinet Secretary seeking further clarity around these issues. The Committee also sought further information on block allocations to health boards, capital spending and real terms data. The response from the Cabinet Secretary is attached at Annexe B.

77. Apart from the Level 3 budget lines which were rolled up into the local government settlement, there are over 160 Level 3 lines which, according to the response, have been merged, renamed or dropped in the 2008-09 Draft Budget. There are varying reasons for the changes – some simply a name change and others due to restructuring, eg Scottish Enterprise where it is argued that the previous Level 3 information is not relevant.

78. These changes in the presentation of figures have meant that reading across to previous years has been challenging, particularly for subject committees, and had indeed led to a perception that some budget lines had simply disappeared. The Committee considers that the Scottish Government should have attached this table of changes as an Annexe to the Draft Budget and recommends that for future years, any such presentational changes should be stated clearly, either in an Annexe or by way of a footnote in the Draft Budget. While the Committee appreciates that the Budget documents had to be put together quickly this year, it also recommends that, having regard to the principle of co-operation and agreement inherent in the Written Agreement between the Finance Committee and the Scottish Government, in future significant changes in presentation should be agreed with the Finance Committee.

Block allocations and further information on funding levels

79. The previous Finance Committee had consistently raised the issue about the problems of tracking the spend within the block allocation given to health boards. The previous Executive had promised to look at possible improvements to the presentation of NHS board allocations but there is a lack of detail in this area in this Draft Budget. This concern was echoed by the Health and Sport Committee in its report.

80. In his response to the Finance Committee, the Cabinet Secretary stated that he would be happy to explore improvements in this area which would meet and support the Committee’s needs, and the Committee intends to pursue this with the Scottish Government.

81. The Health and Sport Committee made a number of recommendations for improvements which, although they are primarily an issue for that Committee, could be worthy of consideration. The recommendations are that:

  • the division of the budget between the territorial health boards as a group and the special health boards as a group be included in the draft budget;
  • the calculation of the Arbuthnott Formula be brought forward to the summer so that individual territorial health board allocations can be published in the Draft Budget;
  • the publication of the blue book be brought forward to September so that recentexpenditure and activity trends for health boards can inform the Health and Sport Committee's budget scrutiny, and
  • that individual health board spending plans be incorporated in the Draft Budget.

82. The main concern from subject committees was over the provision of Level 3 budget lines and identifiable Grant-Aided Expenditure (GAE) totals. As explained above, a number of Level 3 budget lines have been rolled up into the local government settlement as a result of the Concordat between the Scottish Government and local government and the reduction in ring-fenced funds.

83. GAE is a basis for calculating the distribution of the Scottish Government’s grant to local government through the core local government finance settlement. Therefore, it is not a budget but previously it was included in the Draft Budget for each portfolio.

84. Subject committees raised some concerns that expenditure transferred to local authorities could not be tracked and that this meant comparisons could not be made with previous years’ spend.

85. The Justice Committee and Education, Lifelong Learning and Culture Committee recommended that all Level 3 budget lines and the relevant local authority GAE totals should be restored to the Draft Budget for next year and that indicative spending allocations to specific grants now in the local government block also be published in the Draft Budget. The Local Government and Communities Committee asked for budget data and GAE allocations to be produced on the same basis as was previously the case.

86. The Health and Sport Committee and Economy, Energy and Tourism Committee made similar recommendations, although they did not appear to be calling for restoration. The Health and Sport Committee recommended that the relevant Level 3 budget lines and relevant GAE totals be identified in the Draft Budget. The Economy, Energy and Tourism Committee asked for disaggregated data on budget line expenditure in future budgets, both in cash and real terms, including information on local authority GAEs and specific grants relevant to achieving sustainable economic growth. The Rural Affairs and Environment Committee said it expected future budget documents to include details of the relevant GAE totals for local authorities and the distribution methods used for revenue and capital together with information about their progress towards meeting any targets set in their Single Outcome Agreements.

87. The Transport, Infrastructure and Climate Change Committee asks for a statement before publication of next year’s budget on how each Regional Transport Partnership has been funded and delivered. It also seeks detailed financial data on spending by local authorities on transport in previous years.

88. The Committee is also conscious that a number of capital grants have been rolled up into the local government settlement for distribution to local authorities but there is no indication of how the distribution of those monies to local authorities has been arrived at.

89. The Local Government and Communities Committee made two recommendations with regard to additional information on two areas of funding. Firstly, it is seeking information as to whether the Barnett consequentials from the UK Comprehensive Spending Review announcements for disabled children in England and Wales form part of the grant settlement to local government in Scotland and if so, to ascertain where the funds are located and how their use will be monitored through Single Outcome Agreements.

90. Secondly, it is seeking information as to what funds have been put into the local government budget lines in respect of Kinship Care.

91. The Rural Affairs and Environment Committee asked that in future budget documents, the Rural Development Contracts budget lines be accompanied by forecasts of this spending breakdown between individual programmes. It also requested that the split between capital and revenue within Level 3 budgets be shown. This Committee notes that such individual programmes would constitute Level 4 expenditure and expenditure at this level has never been shown in budget documents, neither have Level 3 lines been split into capital and revenue. The Committee believes that Level 3 budget lines should be split into capital and revenue. On the issue of having a further spending breakdown, the Committee appreciates the difficulties faced by subject committees but if all information required by subject committees beneath Level 4 were provided, then the Draft Budget would become unwieldy. However, where any committee requests such supplementary information, the Finance Committee would expect that the relevant directorate in the Scottish Government should supply it. The Committee will ensure that this issue is covered in future guidance to subject committees.

92. The Committee recognises the concerns expressed by all subject committees as a consequence of the changes in the presentation of information in the Draft Budget, particularly:

  • Level 3 budget lines now rolled up into the local government settlement;

  • GAE totals;

  • the distribution of capital grants;

  • the splitting of Level 3 budget lines into capital and revenue.

Adhering to the principles in the Written Agreement of co-operation and agreement to allow effective scrutiny, the Committee invites the Cabinet Secretary to jointly review the presentation of information and to agree with the Committee a way forward for future years, with particular reference to:

  • the presentation of level 3 budget lines;

  • the identification of relevant local authority GAE totals;

  • the relationship between expenditure and Single Outcome Agreements;

  • transitional arrangements to allow comparison to be made between past and future years; and

  • ensuring transparent tracking on expenditure patterns at all levels.

Capital Spend

93. In terms of capital spend, the previous Draft Budget gave details of the DEL capital budget, an estimate of capital spending by the private sector and estimated payments under PPP contracts, and the Committee requested a table of total capital spend including resource grants funding capital projects such as PPP. The Cabinet Secretary’s response provided tables showing an estimate of the capital spending by the private sector and estimated payments under PPP contracts. The Committee recommends that this information is provided in the Draft Budget in future years.

Other issues raised by subject committees

94. In the “Overall Strategy and Priorities” section, it was noted that the GDP deflator is used as a mechanism to forecast growth in general terms, but in each portfolio a different rate of inflation will apply to the cost base, thus affecting the real growth rate during the Spending Review period. The Health Committee comments that the GDP deflator is not a good reflection of NHS inflation and therefore recommends that sector-specific deflators be published in the Draft Budget if they inform portfolio spending plans. The Committee notes that the Atkinson review looked at measuring prices in the public sector and that the Scottish Government is continuing to undertake work in this area. The Committee will monitor developments.

95. On a related matter, previous budget documents showed Level 1 and Level 2 spending in actual and real terms. This year’s Draft Budget did not give real terms figures. Real terms information was subsequently provided by the Cabinet Secretary for Finance and Sustainable Growth. The Economy, Energy and Tourism Committee has asked that allocations are provided on a cash and real terms basis in future budgets. The Committee agrees with this recommendation.

96. The Economy, Energy and Tourism Committee expressed concern that the Draft Budget provided only total budgets for Scottish Enterprise, Highlands and Islands Enterprise and Visit Scotland and did not include detail on their strategic spending plans. It requested disaggregated data as the Draft Budget had done in previous years. Additionally, the Committee expressed its disappointment that the budget did not take into account the reform of the enterprise networks. The Committee appreciates that the enterprise network reform is in a transition phase at the moment but would expect that the relevant budgetary information and figures will be published as soon as this transitional period comes to an end and included in future Draft Budgets.

LOCAL GOVERNMENT FUNDING

97. One of the main issues arising from this year’s Spending Review is the relationship between local and central government. The period preceding the publication of the Spending Review was marked by a negotiation between the Scottish Government and COSLA regarding the settlement for local government. The result of these negotiations was the publication of a “Concordat” between the Scottish Government and local government.

98. According to the Spending Review document, the Scottish Government’s aim in this ‘new relationship’ is to allow it to “set the direction of policy and the over-arching outcomes that the public sector in Scotland will be expected to achieve. Where local authorities and their partners, including the third sector, show they can deliver, the Scottish Government will stand back from micro-managing that delivery, thus reducing bureaucracy and freeing up local authorities and their partners to get on with the job.”7

99. The agreed Concordat sets out the level of funding for local authorities over the Spending Review period totalling £34.7 billion (this is split into £11.1 billion, £11.6 billion and £12.0 billion). This includes the Scottish Government’s estimate of non domestic rates income (NDRI) over the three-year period and the funds to be made available for freezing council tax.

100. Local government representatives gave their reaction to this level of funding in evidence to the Local Government and Communities Committee. The Chief Executive of COSLA stated:

“We had a range of figures from £10.8 billion to £11.5 billion and we have received £11.14 billion so the overall settlement is very tight for us. The range of pressures from aspects such as the single status agreement which was difficult to cost for exactly the reasons the president gave and demographics which have an impact on all our services is difficult to cost. We told the Government that we would be able to cope if we got closer to £11.5 billion. The further we are from that figure the more likely we are to hit a difficulty in the three years.”8

101. However, the President of COSLA went on to express satisfaction with the settlement as negotiated, stating:

"If you are asking whether the current settlement is the best that we could get I would say – and as the chief executive indicated – that we do not think that it is the best financial settlement but in the circumstances of a tight settlement we believe that it is the best that we could have negotiated.”9

103. In his statement on the Local Government Finance Settlement, the Cabinet Secretary announced additional funding of £37 million in 2008-09, £34 million in 2009-10 and £34 million in 2010-11. This relates mainly to additional specific grant funding, police loan charge support and funding from the Department of Work and Pensions for supported employment.10 As detailed in the previous section, the Scottish Government has set out a new Performance Framework. Under the Concordat, local authorities will be expected to operate within this framework by contributing to the achievement of the Scottish Government’s main purpose of increasing sustainable economic growth and, within that, to achieving the high level targets and national outcomes.

104. The Concordat includes a specific set of commitments where “the Scottish Government and local government will each do what is required to ensure delivery of key government policy and programmes”11. These include:

  • Freezing council tax rates in each local authority at 2007-08 levels.

  • Making an additional 1,000 police officers available in communities. The Concordat states that £54m has been allocated to this and that funding “will be transferred from the local government settlement to the Justice portfolio shortly”

  • Introducing the Small Business Bonus Scheme from April 2008 with full implementation in 2010-11. This scheme will reduce the rates burden for businesses with rateable values below £15,000 (this is further detailed in paragraph 140 of this report). The Concordat states that this has been factored into the NDRI settlement outlined above although the cost of introducing the scheme is not made explicit in the Concordat.

  • Having a range of educational policy outcomes including reducing class sizes in P1 to P3 to a maximum of 18

  • Expanding pre-school provision and making substantial progress towards a 50% increase in pre-school entitlement for 3 and 4 year olds

  • Extending entitlement to free school meals to all primary and secondary pupils of families in receipt of maximum child tax credit and maximum working tax credit from August 2009

  • Making progress towards delivering 10,000 extra respite weeks per annum at home and in care homes

  • Providing allowances to kinship carers of ‘looked after children’ to treat them on an equivalent basis to foster carers

  • Improving care home quality through care home fees and the quality framework

  • Increasing current standard free personal care payment levels in line with inflation from April 2008.
105. In addition, the Concordat sets out that:
  • Single Outcome Agreements will be introduced for every local authority based on an agreed set of national outcomes. The Concordat sets out seven high level targets, 15 ‘national outcomes’ and 45 indicators which will form the basis of Single Outcome Agreements. The targets, outcomes and indicators which are termed the ‘national performance framework’ are detailed in Annex A of the Concordat.

  • Local authorities will be able to retain the efficiency savings they make within their budgets as opposed to these being top-sliced from the local authority settlement. The Spending Review sets efficiency savings of 2% per annum across the public sector including local government. Assuming that local authorities achieve 2% savings on the TME monies they receive, this would result in £658.9m in savings which local government would be able to allocate to budgets (2008-09: £216.9m; 2009-10: £220.1m; 2010-11: £221.9m).

  • The level of ring-fenced funding is reduced. The Concordat states that the level of ring-fencing will reduce from £2.7bn in 2007-08 to £0.5bn in 2008-09 (excluding the Police grant) with the intention that this will reduce to £0.3bn of ring-fenced funds remaining by 2010-11 (again excluding the Police grant). The Concordat identifies 43 ring-fenced grants which have been removed and placed into the local government settlement.

  • Funding for the Improvement Service will be transferred from the Scottish Government to local government. The Concordat states that this has been included in the local government settlement although the funding levels provided are not stated. The Draft Budget for 2007-08 allocated £1.256m in funding for the Improvement Service in 2007-08.

106. The Committee examined a number of themes from the Concordat in more detail.

Ring-fencing

107. The Committee recognises that there are differing views over whether monies allocated to local authorities should be ring-fenced or not, and essentially this is a much wider debate concerning democracy and accountability. Therefore, the Committee is not seeking to enter into the wider, philosophical debate but will concentrate on what is presented in the budget documents with regard to the removal of ring-fencing.

108. According to the Cabinet Secretary, approximately 12% of the total resources for local authorities have had ring-fencing removed, meaning that 10 per cent of resources will continue to be ring-fenced, leaving 78 per cent which was never ring-fenced.12 The Cabinet Secretary also confirmed that any local authority which would have received ring-fenced money in the coming year will still receive that money, albeit that it will not be ring-fenced.13

109. Aside from the general debate over ring-fencing, arguments and concerns have been advanced both for and against the situation as presented in the Draft Budget. As stated above, some 43 grants have had ring-fencing removed. In evidence to the Committee, Rory Mair, Chief Executive of COSLA, welcomed the removal of ring-fencing, arguing that it would reduce unnecessary bureaucracy, and stating that:

“Our major difficulty with those funds was not what the money was being spent on, but that we got a specific dollop of money with which we had to do a specific thing and then we have to report on it separately from all our other resources. Therefore, we had to produce 50 separate reports for money that represented less than a quarter of our budget.”14

110. However, concerns have been expressed that such flexibility could mean that support for certain groups, such as vulnerable people, could be lost because the monies for areas covered by, for example, the Supporting People Grant and Violence Against Women Fund will become part of the general local authority budget.

111. Rory Mair from COSLA responded to this point by stating that:

“We wanted to get rid of ring fencing not because we did not want to spend the money on subjects for which it was ring fenced, but because we did not want the money to be separate from the rest of our budget…”15

112. However, concerns were raised that, even with these reassurances, without ring-fencing there would in effect be no guarantee of funding should local authorities decide for whatever reason that other areas of spend should take priority. In addition, the Transport, Infrastructure and Climate Change Committee raised concerns that the loss of ring-fencing for RTP capital projects could affect regional transport delivery. The Rural Affairs and Environment Committee raised similar issues with regard to waste management (echoing comments made by participants in the waste management workshop at the Finance Committee’s external meeting).

113. Concerns were also raised about the distribution of previously ring-fenced monies rolled up into the settlement and whether distribution would be made on a different basis to that used previously when local authorities were required to bid for the funds concerned (ie, that monies would be allocated on the basis of population rather than need.) The Rural Affairs and Environment Committee said in its report that it had concerns over how large-scale strategic flood management schemes would be funded under these arrangements and, together with the fact the none of the 45 national indicators and targets are specific on the issue of flooding, was so concerned that it invited the Scottish Government to reconsider making this change in funding policy at this time.

114. When asked about the particular issue of the allocation of monies for flooding, the Cabinet Secretary stated that “There will be a number of instances in which allocations will be made on the basis of need. The flood prevention budget line is a good example of that. Work will be done in individual localities. Once that work is complete, the money will no longer be needed there, so it can be reallocated to other areas. The issue forms part of the distribution discussions that we have undertaken with local authorities over the past few weeks, to determine how best to proceed. That information will be the substance of the statement that I will make to Parliament on Thursday.”16

117. In his statement to the Parliament on the Local Government Finance Settlement, the Cabinet Secretary stated that “funding that was previously earmarked through local government, for deprivation, victims of domestic violence, mental health, homelessness and supporting people, or for any of the previously ring-fenced grants which are now rolled up such as for flooding will still be allocated to the same councils in the same way and according to the same practice as before.”17

118. The Committee sought clarification on the Cabinet Secretary’s statement to Parliament that funding “for any of the previously ring-fenced grants which are now rolled up such as flooding will still be allocated to the same councils in the same way and according to the same practice as before”, and the Scottish Government’s intention to roll up these grants and distribute the money to councils for their discretionary use as part of a single capital grant, given that a number of these capital grants are currently distributed on the basis of a bidding process and specific Ministerial decisions. The Committee welcomes the clarification from the Scottish Government that the position with regard to previously ring-fenced grants that have now been rolled up is that they have, as far as possible, continued to be allocated in the same way. Where a distribution mechanism was previously used, this mechanism stays the same. Where a grant was distributed on the basis of a bidding process, the grant has either been (i) distributed based on a new mechanism agreed with COSLA, (ii) distributed based on bids already committed to during the settlement eg, Flood Prevention Grant, or (iii) has not yet been distributed until a mechanism can be agreed with local government through COSLA.

117. The Cabinet Secretary said that it had been agreed with COSLA that it was important to ensure stability and that was the reason why the existing methodology would be maintained. However, he did not rule out further work to “refine and improve the distribution mechanism – for example, when more reliable or more appropriate data sources can be used”.18

118. The Committee notes the arguments both for and against the reduction in ring fencing of funds and considers that the key to addressing any remaining concerns lies in the structure and monitoring of Single Outcome Agreements, which is discussed in more detail in the next section of the report.

Single Outcome Agreements

119. Local authorities will be expected to contribute to the delivery of the Scottish Government’s strategic objectives, outcomes, indicators and targets. Therefore, Single Outcome Agreements (SOAs) will be negotiated and agreed between the Government and each local authority, covering the national outcomes but also local outcomes to take account of local priorities. As stated by the Cabinet Secretary:

“The Government has a set of national outcomes that it is aiming to achieve right across the country and some authorities will contribute more to some outcomes than to others. The single outcome agreement must be tailored to suit the contribution and involvement of individual local authorities.”19

120. The Cabinet Secretary confirmed that he was working to ensure that SOAs would be in place with every local authority by the start of the next financial year in April 2008. In addition, he signalled his intention to develop further SOAs with Community Planning Partnerships in 2008-09. He confirmed that local authorities will be required to report annually to the Scottish Government on progress towards meeting their SOAs, and that there was in place a mechanism to monitor progress on advancing the issues contained in the Concordat which involves bi-monthly meetings between him, the Cabinet Secretary for Education and Lifelong Learning and the leadership of COSLA.

121. Local authorities are being given the flexibility to spend their budgets as they wish, but concerns have been raised over how the Scottish Government can ensure that local authorities are indeed contributing to delivery of national outcomes. The Committee appreciates that much of what is being proposed is designed to eliminate bureaucracy from local government and this is to be welcomed. The Committee is supportive of SOAs in principle. However, it is crucial that their format and the monitoring arrangements are fit for purpose to ensure they can work on a practical level. The Committee recommends that the Cabinet Secretary clarifies the potential format of SOAs, including the issues to be captured by them and the level of detail they will be expected to provide.

122. The Committee notes the Cabinet Secretary’s statement that:

“The Government must be certain that, in the round of the outcome agreements that we sign with 32 local authorities, we have adequate participation and input to support the delivery of the Government’s objectives and priorities. The outcome agreements will be tailored to reflect individual circumstances, but they must also add up to the right amount of capacity, impetus and direction to deliver right across the Government’s priorities, which are set out in Chapter 8 of the spending review document.”20

123. It should be noted that SOAs will relate to the entirety of local authority budgets and not merely to funds that were previously ring-fenced. However, the concerns surrounding the removal of ring-fencing are similar in nature to those which are raised in relation to how the Scottish Government will be able to ensure that local government is contributing to the delivery of the Government’s priorities. Another concern that has been raised is that a consequence of giving flexibility to local authorities is that they may have local priorities which are at odds with national priorities and, therefore, tension could be created. In turn, this has led to questions over what central government will do if local government is not achieving the necessary targets.

124. When questioned on this issue, the Cabinet Secretary stated that SOAs will have to be compatible with the framework which has been agreed as part of the Concordat and that these agreements will have to be negotiated with and signed off by the Scottish Government.

125. The Cabinet Secretary for Education and Lifelong Learning went further and, in answer to similar questions posed by the Education, Lifelong Learning and Culture Committee, said:

“If an authority decided not to pursue or not to deliver on the specified set of commitments, we would not be able to reach a single outcome agreement with it and it would not benefit from the end of ring fencing or be able to keep its efficiency savings, as it would not be signing up to the deal and package that has been agreed. Authorities cannot pick and choose. The concordat identifies six specified commitments and reflects the national outcomes that have been agreed. If local authorities do not want to accept the deal, that is a matter for them, but the deal is a package.”21

126. Therefore, the question arises as to what would happen on a practical level to any local authorities which did not sign up to an SOA and how their individual funding allocation would be recalculated. In addition, it is not yet clear what will happen if local authorities do not adhere to the targets to which they have signed up. In its report, the Local Government and Communities Committee asked whether there would be any circumstances in which ring-fencing might be reintroduced where a local authority was not meeting the performance targets associated with its Single Outcome Agreement and what those circumstances would be. The Committee seeks clarification on these points.

127. There is an argument that under this new framework it could be difficult to track changes in expenditure patterns and that detrimental changes could, therefore, take place before corrective action is able to be taken. The Cabinet Secretary acknowledged that the way in which key services are protected under the local government formula is a big issue and stated that:

“We must accept that we need to examine carefully all the relevant indicators to guarantee that we track performance properly.”22

128. Therefore, it appears that ensuring the new framework achieves the Scottish Government’s stated objectives hinges on the appropriateness and robustness of SOAs and the way in which they will be monitored with regard to progress in achieving targets and indicators.

129. The Committee notes the Cabinet Secretary’s statement that local authorities will have to report on an annual basis on the SOAs that have been agreed. However, he did not give any detail about the likely content and construction of such reports and how these annual reviews would be conducted. The Committee therefore recommends that the Cabinet Secretary provides full detail on the proposed reporting and review process for SOAs.In anticipation of the review process, the Committee makes the following recommendations in relation to the tracking of spend and the monitoring process to ensure that proper scrutiny can take place:

  • As part of its annual reporting process, local authorities should be required to produce a statement explaining any significant changes in expenditure patterns – this would apply to the entire budget and not just to those monies which were previously ring-fenced;
  • Baseline information should be provided for the indicators and targets as they will be applied to local authorities so that progress can be monitored;
  • Local authorities should provide any other information that they see as relevant to monitoring their SOA.
  • To this end, given that local authorities are currently subject to Best Value Reviews conducted by the Accounts Commission and that the new National Performance Framework and SOAs may change current scrutiny arrangements, the Scottish Government should arrange urgent discussions with the Accounts Commission, the Auditor General for Scotland and COSLA to consider how the monitoring and reporting of targets will be carried out under these new arrangements.

Council Tax Freeze

131. The one commitment in the Concordat for which additional funds are being made available is the freezing of council tax. The Scottish Government is providing a fund of £70m for the coming financial year which will be distributed among local authorities. The agreement reached with COSLA over the distribution is that local authorities will receive a proportion of the £70m which reflects the proportion of total council tax income that a specific local authority would be expected to generate. Martin Booth from COSLA stated that the calculation “is based on a percentage of the band D assessment, taking into account COSLA’s view of inflation at the time”.23

132. The Cabinet Secretary stated that “if a local authority raises 4 per cent of the total council tax that is raised in Scotland, it will get 4 per cent of the £70m”.24 The following table shows the potential council tax freeze allocations for 2008-11. This is still the subject of consultation and therefore, could be subject to change before the Local Government Finance Order is laid which will confirm the allocations. Once the Order is agreed, the allocations will be fixed for the Spending Review period25:





Local Authority
2008-09 % of total 2009-10 % of total 2010-11

% of total

Aberdeen City 3.300 4.7 6.600 4.7 9.899

4.7

Aberdeenshire 3.533 5.0 7.065 5.0 10.598

5.0

Angus 1.392 2.0 2.783 2.0 4.175

2.0

Argyll & Bute 1.414 2.0 2.827 2.0 4.241

2.0

Clackmannanshire 0.648 0.9 1.297 0.9 1.945

0.9

Dumfries & Galloway 1.866 2.7 3.732 2.7 5.598

2.7

Dundee City 1.762 2.5 3.523 2.5 5.285

2.5

East Ayrshire 1.471 2.1 2.941 2.1 4.412

2.1

East Dunbartonshire 1.651 2.4 3.302 2.4 4.953

2.4

East Lothian 1.363 1.9 2.726 1.9 4.089

1.9

East Renfrewshire 1.388 2.0 2.777 2.0 4.165

2.0

Edinburgh, City of 6.898 9.9 13.795 9.9 20.693

9.9

Eilean Siar 0.294 0.4 0.588 0.4 0.882

0.4

Falkirk 1.831 2.6 3.662 2.6 5.494

2.6

Fife 4.690 6.7 9.380 6.7 14.071

6.7

Glasgow City 7.783 11.1 15.567 11.1 23.350

11.1

Highland 3.235 4.6 6.471 4.6 9.706

4.6

Inverclyde 1.041 1.5 2.081 1.5 3.122

1.5

Midlothian 1.107 1.6 2.214 1.6 3.321

1.6

Moray 1.142 1.6 2.283 1.6 3.425

1.6

North Ayrshire 1.733 2.5 3.466 2.5 5.199

2.5

North Lanarkshire 3.672 5.2 7.344 5.2 11.015

5.2

Orkney Islands 0.231 0.3 0.462 0.3 0.693

0.3

Perth & Kinross 2.154 3.1 4.308 3.1 6.461

3.1

Renfrewshire 2.366 3.4 4.731 3.4 7.097

3.4

Scottish Borders 1.524 2.2 3.049 2.2 4.573

2.2

Shetland Islands 0.256 0.4 0.512 0.4 0.769

0.4

South Ayrshire 1.664 2.4 3.327 2.4 4.991

2.4

South Lanarkshire 3.922 5.6 7.843 5.6 11.765

5.6

Stirling 1.373 2.0 2.745 2.0 4.118

2.0

West Dunbartonshire 1.208 1.7 2.416 1.7 3.624

1.7

West Lothian 2.091 3.0 4.181 3.0 6.272

3.0

Scotland 70.00 100.0 140.00 100.000 210.00

100.0

133. The Cabinet Secretary further explained that the £70m fund will not be available up-front to local authorities in the local government settlement and that, when the local government finance order is published, that £70m will be kept in reserve. Once local authorities have decided whether or not to freeze council tax, then a subsequent order will be laid and additional resources will be made available to local authorities who have decided to freeze their council tax.

134. Therefore, it appears that no additional resources will be made available to councils who do not freeze their council tax. It could be argued that this runs contrary to the notion that local authorities are being given flexibility to spend funds as they see fit. The counter argument is that if councils do not freeze their council tax then there is no requirement for additional funds to be made available.

135. It is presumed that the figure of £70m has been calculated on the basis of all 32 local authorities freezing their council tax. However, the Committee requests clarification on whether the overall figure would be adjusted if not all councils agree to a freeze.

136. The Committee appreciates that there are differing views on freezing council tax. One argument is that those in higher council tax bands will benefit most from a freeze in terms of the change in their weekly household income and that therefore this will benefit higher earners who tend to live in more expensive properties. A counter argument is that the council tax accounts for a more significant proportion of the income of low earners and therefore a council tax freeze will be of most benefit to those on low incomes. The Committee notes the arguments.

137. In terms of how the freeze will be funded, money has also been set aside in years 2 and 3 of the Spending Review period to enable councils to freeze council tax. COSLA has said that it views the council tax freeze commitment as being for one year, given that councils have to set their council tax rates on an annual basis. When the Cabinet Secretary was asked whether he was confident that the amounts he had set aside for years 2 and 3 would be sufficient, or whether the figures would require to be revisited based on experience in the first year, he replied that, “I am confident that they are robust estimates. If I was being arithmetically precise, I would not allocate as much as £70 million to the council tax freeze in year 1; the amount would be about £10 million or £11 million lower than that.”26

138. The Committee presumes that the Cabinet Secretary is saying that he has in fact over-estimated the amount required in year 1. However, COSLA stated that the issue will need to be renegotiated next year and that “we are not saying that the £70 million will be enough next year”27 - therefore implying that £70 million cannot be seen as an over-estimation.

139. While these apparent disagreements can be viewed as an integral part of any negotiation, it is clear that this will be an ongoing issue. Non-Domestic Rate Income (Business Rates)The Scottish Government has proposed the introduction of a Small Business Bonus Scheme from April 2008. This will progressively reduce the rates for businesses with properties whose combined rateable value is £15,000 or less. The amount of rates relief provided will depend on rateable values. This is shown in the table below:

Proposed Business Rate Rate Relief Scheme

graph

141. The expected reduction in non domestic rate income has already been factored into the overall settlement for local authorities. The Draft Budget aims to deliver the scheme in full by April 2010 or earlier if resources allow. The Parliament also resolved on 21 November to prioritise the acceleration of the full implementation if additional resources become available.

142. The Economy, Energy and Tourism Committee outlined in its report that “expenditure on the small business rates scheme in 2008-09 will be a net additional cost of £37 million, followed by £89 million in 2009-10 and £139 million in 2010-11. This compares to an allocation in 2007-08 of £24 million to the existing Small Business Rate Relief scheme.” In written evidence to the committee, the Cabinet Secretary “provided evidence that under the Small Business Bonus Scheme, businesses with properties with a rateable value of £15,000 or less will make an average saving of £308 in 2008-09, £724 in 2009-10 and £1,002 in 2010-11”.28

143. Questions were raised over whether there was objective evidence or research which would demonstrate the impact that the business reduction would have on economic growth.

144. The Cabinet Secretary stated that the Scottish Government believes that the reduction in small business rates will “provide a competitive advantage…and that providing that competitive advantage will contribute to economic growth.”29On the question of whether any research had been carried out, he responded that:

“The Government has not commissioned any particular research or consultancy resource to identify whether the cut in business rates will be a factor in that growth….My defence for not commissioning a piece of research or a consultancy report on the issue is that, on a number of occasions, other Governments – including the United Kingdom Government and the Scottish Executive in the past – have reduced business rates in the belief that that contributes to economic growth. The Scottish Government has taken the view that there is an opportunity to intensify that process.”30

146. The Committee appreciates the reasons why research has so far not been carried out. However, it signals that it will take an interest in any research which may be carried out in the future.

ALTERNATIVE SPENDING PROPOSALS

147. The Committee notes the concerns raised by both the Justice and Local Government and Communities Committees in relation to the adequacy of the proposed levels of police recruitment. The Committee notes that the Local Government and Communities Committee proposed recruiting an extra 500 police officers over the period of the spending review in addition to those currently planned, and that the Justice Committee proposed that there be 1,000 additional officers serving in 2011 compared with 2007.

148. Neither of these proposals recommended where the additional resource necessary to fund them should come from. The Committee notes that the Government has allocated £13.5m for 2008/9 for the recruitment, retention and redeployment of police, and that included within that figure is the recruitment of an additional 150 police officers.

149. The Committee recommends that the Scottish Government bring forward proposals setting out how, over the period covered by the spending review, the level of police recruitment can be increased beyond that currently planned, and what changes will be required to the 2008-09 Budget as a result.

147. The Committee notes, and welcomes, the business rates reductions for small business detailed in the spending review. The Committee also welcomes the decision of Parliament on November 21st to prioritise the acceleration of implementation of the business rates reductions if additional resources become available.

151. The Committee recommends that the Scottish Government considers whether there is scope to increase the reductions applying in 2008-09 beyond those stated in the Spending Review as the first stage of the acceleration of the reductions, and what changes will be required to the 2008-09 Budget as a result31.

152. There were a number of other proposals considered where were not agreed. Full details of these proposals and the votes that took place are contained in Annexe A (as part of the Minutes of the Committee’s meeting on 15 January 2008).

EFFICIENCY SAVINGS

153. The Scottish Government has set an efficiency target of 2% of the 2007-08 budget cash-releasing savings across-the-board (as opposed to a mixture of cash and time-releasing), with details of its plans due to be published in March 2008. Local government has been told that it can keep all of its efficiency savings and that “this represents special treatment for local government. All other parts of the public sector will have an element of their efficiency savings deducted at source”.32 This represents a reversal of the previous Executive’s Efficient Government Initiative where local authority efficiency savings were deducted at source with other departments being allowed to reinvest any savings which they made.

154. When asked about the decision to allow local government to retain its efficiency savings while other departments cannot, the Cabinet Secretary responded that “other portfolios will be able to retain a significant proportion of their efficiency savings and a smaller proportion of these savings will be redistributed as part of the general allocation of resources that the Government undertakes.”33 In its report, the Health and Sport Committee stated that the Cabinet Secretary for Health and Wellbeing had emphasized that NHS boards would be able to retain their efficiency savings. The Committee seeks clarification of what this is likely to mean in practice in terms of what proportion of savings will be deducted at source and from where, and what will be redistributed. The Committee also seeks clarification on whether there are contingency plans should the 2% efficiency savings not be achieved.

155. The previous Finance Committee consistently supported the principles and objectives of the Efficient Government initiative, whilst expressing reservations about the scale of the planned efficiency savings, the absence of baseline data to measure real efficiency gains and whether net savings had been made.

57. While the detail on how efficiency targets will be met (presumably by way of something similar to the previous Efficiency Technical Notes) will not be published until March 2008, making it difficult to come to a judgement on whether the target is realistic or not, the Committee is of the view that achieving 2% cash-releasing efficiency savings across-the-board year on year will be challenging. However, local authorities were asked whether they believed that a 2% efficiency target was realistic for them, particularly given the level of efficiency savings they had made in the past. Rory Mair of COSLA responded that:

“I believe that most councils are saying that they probably can achieve a 2 per cent saving over the next three-year period. Forgetting about any target that the Government sets, many councils will have built that saving in simply to make their books balance according to their own workings.”34

158. The Local Government and Communities Committee reported that “COSLA accepted that they did not think that these efficiency savings could be achieved without there being some reduction in jobs over the period of time”. COSLA did not mention this concern in evidence to this Committee. This Committee also notes the Scottish Government’s commitment to there being no compulsory redundancies.

159. When asked about the lack of baseline information in the past, he stated:

“One of the difficulties in the last round of the efficient government initiative was simply gearing up to measuring efficiencies accurately. We did not have all the input data on the baselines. It was difficult to separate efficiencies from savings. I think that we have cracked that problem now – councils have a clear idea of their baseline costs.”35

160. The Committee welcomes this reassurance from COSLA that they will now have this baseline information, which is a pre-requisite for monitoring whether or not efficiency savings have been achieved and whether a growth in frontline services has been delivered as a direct result of specific savings. The Cabinet Secretary also signalled that the work the Scottish Government brings forward may clarify some of the data issues which have troubled this and the previous Finance Committee.

161. This Committee echoes the concerns of the previous Finance Committee and Audit Scotland that it is vital that robust baseline information is provided and recommends that the Scottish Government collaborates with the relevant public sector bodies to produce such information.

162. The Committee also signals its intention to scrutinise on an on-going basis the Scottish Government’s efficiency initiative by examining the first report to be published in March 2008 and any reports made by Audit Scotland.

SUSTAINABILITY

163. The Scottish Government’s overarching purpose is to “create a more successful country with opportunities for all of Scotland to flourish through increasing sustainable economic growth”. Sustainability also features in the five strategic objectives and specifically in the “Sustainability” purpose target with two specific targets of reducing emissions over the period to 2011 and to reduce emissions by 80 per cent by 2050.

164. The Committee took evidence from experts in the field of sustainability to assess the sustainability implications of the Draft Budget. All witnesses said that there was much to be welcomed in the Spending Review and Draft Budget, particularly in terms of the outcomes that seek to deliver on climate change. However, some concerns were raised about whether a precise linkage could be made between outcomes, targets and budgetary allocations and also what would happen if one objective were to come into conflict with another.

165. According to Dr Dan Barlow of WWF Scotland:

“Part of sustainable development is identifying options for achieving both objectives in a win-win manner, for example through energy efficiency measures whereby we could cut our climate emissions and footprint and reduce fuel poverty. The budget does not necessarily provide a framework that will enable us to consider the impact of one spending commitment against the impact of another spending commitment, or to assess whether it has been managed appropriately so that the net outcome will take us further towards sustainable development.”36

166. The experts were asked whether anything could be done which would give assurances that progress toward sustainable development could be accurately measured.

167. One suggestion was the use of carbon accounting in relation to the targets that have been set. When asked whether there were any countries already using carbon accounting, Professor Jan Bebbington responded that there is anecdotal evidence that the New Zealand Government is making some progress towards this, whereby they can make “a fairly good guesstimate on whether a decision will increase or decrease carbon and on what basis”.37

168. In addition, Professor Bebbington stated that data will need to be assembled for the proposed Climate Change Bill to have an evidence base on which to make commitments. She further stated that:

“The plea would be to take that data set and incorporate it more systematically into these activities because, at that point, you will start to get the robustness. That deals with only one aspect of sustainable development, but if that aspect is not solved, many of the other aspects become academic.”38

169. The Cabinet Secretary was asked how advanced the Scottish Government is in applying a carbon accounting to decisions on policy options and he responded that

:“The best description for carbon accounting is that it is work in progress. A team under the director general environment’s portfolio is examining the construction of such an assessment framework…Work is under way to put in place that system, which will be shared with Parliament when it is complete.”39

170. The Committee was extremely interested in the ideas put forward by the witnesses on sustainability which would seek to embed sustainability in policy-making and help to improve the linkage between strategic objectives, targets and indicators and between them and budget decisions. The witnesses were asked if it would be possible to put in writing some suggestions that could be made to the Scottish Government to ensure such links can be made in future budgets. The witnesses agreed that it should be possible to put together such a piece of work and the Committee is very grateful to them.

171. The Committee will assess and forward any such suggestions to the Scottish Government and would recommend that it examines these, together with the relevant Official Report and submissions as part of its work on carbon accounting.

EQUALITIES

172. The Equal Opportunities Committee submitted a report to this Committee with its views on how equality issues are treated within the Draft Budget and the budget process itself. The Equal Opportunities Committee states that there is limited presentation of equality in the Draft Budget and, therefore, it is concerned about “the recognition of the crucial function of the budget process in supporting an overall commitment to mainstreaming”.40

173. It therefore makes various recommendations regarding mainstreaming and use of outcomes and also recommends that for future scrutiny purposes each portfolio chapter in the Draft Budget should:

  • draw upon existing data and evidence to highlight the priority areas (the Committee would expect at least two or three significant examples) with reference to promoting equality;
  • outline key measures and subsequent budgetary allocations intended to promote equality within the identified priority area and how Equality Impact Assessments had been conducted with reference to these key measures and budget allocations; and
  • outline specific policies and subsequent budgetary allocation under a heading of ‘tackling significant inequalities’ (i.e. the Scottish Government’s own stated national outcome).

174. In previous budget documents, each portfolio had to set out what it was contributing to the then Executive’s cross-cutting themes (including equality). However, this has been replaced by the Scottish Government’s National Performance Framework and each Chapter in the Scottish Budget is asked to set out to which strategic objective it contributes and how it will contribute. Whilst “Equality” is not a strategic objective in itself, one of the national outcomes is to have “tackled the significant inequalities in Scottish society”. Therefore, rather than necessarily seeking to replicate the format of previous documents, we need to take account of the new National Performance Framework.

175. Some of the recommendations of the Equal Opportunities Committee also reflect the debate mentioned earlier in this report about whether spending can be precisely linked to outcomes. The Committee recognises that the National Performance Framework has just been established and that the Draft Budget reflects this, but would ask the Scottish Government to consider whether, in future years, information and spending allocations with regard to equalities issues can be made more specific in the context of this new framework.

176. The Finance Committee notes the importance of the Equality Proofing the Budget and Policy Advisory Group in helping to mainstream equality into policies and budgets, and therefore concurs with the Equal Opportunities Committee’s recommendation that its membership should be extended to include senior representation from the Finance and Sustainable Growth directorate.

177. On the budget process itself, the Equal Opportunities Committee asks the Finance Committee to consider how its future guidance to subject committees could better reflect the Scottish Parliament’s commitment to mainstreaming and the cross-cutting nature of equal opportunities and equality in the budget process. The Committee is pleased to note that the Equal Opportunities Committee believed that the section on equalities in its final guidance to subject committees was helpful and will take on board these comments for its guidance in future years.A final recommendation is that the Finance Committee considers the extent to which any subject committee advisers could be asked to brief committees on equal opportunities issues and this is noted by the Committee for the future.

SCOTTISH PARLIAMENTARY CORPORATE BODY

Introduction

179. The expenditure of the Scottish Parliamentary Corporate Body (SPCB) represents a prior call on the Scottish Consolidated Fund. The proposed budget is not subject to control by the Scottish Government and so the Committee considers it separately as part of the budget process. At its meeting on 13 November 2007, the Committee took evidence on the SPCB’s spending plans for 2008-09 from Tom McCabe MSP, member of the SPCB with portfolio responsibility for finance, Paul Grice, Clerk/Chief Executive, and Derek Croll, Head of Financial Resources for the SPCB.

180. The budget proposal submitted by the SPCB and associated information is attached as part of Annexe C as is supplementary written evidence on a number of points. The total budget requested by the SPCB is £101.0 million, an increase of £2.8 million (2.8%) over the budget for 2007-08. This comprises £26.1 million provision for capital charges, £73.1 million net revenue expenditure and £1.8 million capital.

Main issues arising from the proposed budget

181. The Committee noted the SPCB’s statement that its proposal is the result of exercising considerable pressure to restrict the overall increases in budgeted expenditure across all lines, and that this has required difficult choices to be made in order to deliver its management plan while producing a budget with no real terms increase. As well as general budgetary discipline, specific attention has been given to some areas of the Parliament’s operation.

182. The SPCB stated that it had already agreed closure of the building to the public in the February recess, allowing significant savings to be made by taking a different approach to planned maintenance. Subsequently, the SPCB announced on 19 December that it planned to close the building on Sundays from 10 February 2008 and that this move would save in the region of £250,000. The budget bid submitted to the Finance Committee did not include this potential saving.

183. The submission also states that reductions in running costs (down 14.4% compared to the 2007-08 budget) have been achieved through tendering exercises for outsourced contracts such as IT support. The Committee welcomes the SPCB’s assurance that savings which may arise from the use of open-source software will also continue to be examined.

184. A number of other cost areas were considered in evidence, and the Committee notes the SPCB’s statement that it approaches such consideration with the aim of balancing efficient use of resources with the need to ensure that the Parliament remains appropriately accessible. Projected income is down by 40.8% and the Committee notes that consideration is currently being given to improvements in the shop, and that there will be a longer-term examination of tours now that visitor numbers have stabilised. The Committee further notes that the SPCB is also “pursuing some avenues that could produce very considerable savings indeed” 41 and anticipates considering the effects of these on the budget in future.

185. The Committee considered a number of areas in the budget that appeared to be subject to cost pressures. The ‘other projects’ budget had increased by 585%, from £113,000 to £775,000. This was explained as largely the result of a one-off accounting exercise to strip project expenditure out of individual budget lines and centralise it in one line in order to be able to manage costs and decide on priorities. While there are two or three major projects currently under way, the SPCB assured the Committee that it is currently “thinking about investing in ideas and decisions now that might generate savings over the next two or three years”42 and that the proposed increase for 2008-09 does not indicate a general upward trend in project expenditure.

186. The Committee sought further detail on the costs of particular projects. A review of the SPCB’s human resources function accounts for approximately half of the ‘other projects’ budget. This includes provision for the cost of the review process (including consultant input) and a new computerised system, that are intended to improve the member-focus of the service and provide more dynamic staffing data. Achieving a system suitable for the future has required a significant initial investment.

187. Separate from the ‘other projects’ line, a provision of £1.7 million revenue funding has been made for a specific set of projects to improve perimeter security following a review in conjunction with the security services. The SPCB stated that, when this non-recurring security expenditure is removed (balanced to some extent by the fact that the election-related expenditure in 2007-08 is not required in 2008-09), the increase on the previous year’s budget falls to 2.1%.

188. The budget provides for an overall increase in SPCB staff pay of 5.4%. This includes a 4.5% across-the-board increase to basic pay, which implements the second year of a three-year pay settlement tied to the annual rate of inflation at April each year. The SPCB explained that the remaining 0.9% provides for projected movement of staff through incremental pay scales, which is limited by the fact that the great majority of staff are at the top of the scales. Future staff turnover will, therefore, exert a downwards influence on overall pay.43 The Committee noted that 2008-09 is the last year of the current agreement and any lessons arising from it will inform the remit for the next agreement.

189. The Committee notes some uncertainty surrounding the SPCB’s budget arising from the current review of Members’ Allowances. The SPCB stated that it did not consider it appropriate to anticipate the outcome of the review and, therefore, based this year’s budget bid on the current schemes. It emphasised that, if the Review Panel recommends additional resources and does not defer implementation of any new arrangements until the next financial year, consideration would need to be given to funding arrangements and that the SPCB could seek supplementary funding if necessary, presumably by way of an in-year budget revision.

190. The Allowances Review highlights the fact that the budget submission has to make provision for a number of costs that are not directly controllable by the SPCB. As well as Members’ Allowances for staff and offices (which are set by Parliamentary resolution), the SPCB makes provision for Members’ Pay (which is set by reference to MPs at Westminster). This limits the SPCB’s ability to manage budgetary pressures.

191. The Committee particularly noted that the SPCB budget also includes provision for ministerial salaries – which encompasses severance payments as well as national insurance and pension contributions. These funds amount to a substantial proportion of the MSP line in the SPCB’s budget, whereas control over the number of ministers and their appointment or severance are matters for the First Minister. The SPCB provided further explanation on the background to this budget responsibility lying with the SPCB.44

192. Provision has also been made for capital contingencies of £900,000 and revenue contingencies of £0.6 million for emergencies and £1.2 million for “unexpected or unquantified new cost pressures”.45 This total contingency of £2.7 million amounts to 3.6% of the total proposed revenue and capital expenditure. The SPCB explained that these figures are a matter of judgement after appropriate analysis of the risks.

Parliamentary Commissioners and Ombudsman

193. Proposed expenditure for 2008-09 on the offices of the Scottish Public Services Ombudsman and various commissioners is £7.7 million (2.6% above the 2007-08 budget), or more than 10% of the overall SPCB budget excluding capital charges. The SPCB stated that it had approached budget discussions with the office-holders with a presumption that increases should be no greater than the rate of inflation, although pay settlements and increments meant that non-staff costs had to be contained well below inflation in order to achieve this.

194. Last year, the Committee noted some significant fluctuations in various office-holders’ budgets. This pattern has been repeated in the proposals for 2008-09, with variations in the movements of both staff costs and running costs. Some office-holders have maintained figures at no increase or a below inflation increase, while others have increased more significantly. For example, the Scottish Public Services Ombudsman and Scottish Information Commissioner’s running costs have decreased by 9% and 7.3% respectively. However, the running costs for the Children’s Commissioner have increased by 6.8% and the running costs for the Commissioner for Public Appointments appear to have increased by 89%. Also, the Ombudsman’s staff costs have increased by 7.8% and the Information Commissioner’s by 8.2%.

195. The Committee notes the explanations for these movements, and the fact that the SPCB had challenged assumptions behind some bids.The Committee acknowledges and welcomes the SPCB’s approach to these budgets, which has continued to attempt to balance a robust scrutiny and challenge of budget assumptions with recognising and respecting the operational independence of the various office-holders. The Committee encourages the SPCB to continue with this rigorous approach, particularly in light of the variations in approaches to certain costs that are apparent between the different office-holders.

196. The budget also includes £1 million as provision for the new Scottish Commission for Human Rights. The Committee notes that this is an estimate which was contained in the Financial Memorandum to the Bill which established the Commission. The Committee welcomes the SPCB’s assurance that the budget of the Commission “will be subject to more detailed scrutiny when it is up and running”46 and that £1 million will not automatically be allocated if the service can be delivered in a more cost-effective way.

AUDIT SCOTLAND

197. The Public Finance and Accountability Act 2000 provides for the Scottish Commission for Public Audit (SCPA) to examine Audit Scotland’s spending proposals and report to the Parliament. Audit Scotland’s total resource requirement (the net amount it requires after taking account of fees it receives from audited bodies) represents a prior call on the Scottish Consolidated Fund in the same way as the budget for the SPCB. While recognising the primacy of the SCPA’s role in scrutinising Audit Scotland, the Finance Committee has overall responsibility for scrutinising all expenditure paid out of the Scottish Consolidated Fund and therefore considers the SCPA’s scrutiny and takes account of it in this report.

198. The SCPA’s report is attached as Annexe L. This shows that Audit Scotland’s total resource requirement for 2008-09 is £7.25 million, representing a 2.0% increase on last year’s proposal.

199. In its report the SCPA has highlighted a number of issues. Some of the main ones are that the SCPA has:

  • acknowledged Audit Scotland’s key role in holding organisations to account for their use of public resources, and the way its business has developed significantly to assist the improvement process in local government;
  • commended Audit Scotland on its international work supporting good governance, particularly in developing countries and emerging democracies;
  • sought further clarification on Audit Scotland’s approach to planned efficiency savings, and whether it can meet a 2% efficiency target;
  • made a number of observations on the way in which Audit Scotland’s business cycle and approach to fee income influence its funding requirements, and recommended that Audit Scotland examines thoroughly what it would require to organise its flow of funds in such a way as to minimise its perceived reliance on the use of end-year flexibility;
  • recognised previous work by Audit Scotland to improve presentation of budgetary information, and requested further improvements to allow comparisons of budget lines with previous and projected out-turns.
200. The SCPA has drawn the Parliament’s attention to its observations and recommendations and, on the basis that Audit Scotland will address the points raised, recommends that Audit Scotland’s budget proposal be approved. The Finance Committee notes this recommendation.
Footnotes:

1 Volume 2 contains the reports and relevant extracts from the Minutes from other parliamentary committees and the Scottish Commission for Public Audit

2 The Concordat between the Scottish Government and local government is available on the Scottish Government’s website, at:

http://www.scotland.gov.uk/Resource/Doc/923/0054147.pdf

3 This proposal was agreed to on division: For: 4, Against: 0, Abstentions: 4

4 Annually Managed Expenditure (AME) is that expenditure that is not precisely predictable within the spending review period. Important examples for Scotland include teachers and NHS pension schemes, which together cost around £2 billion per year.

5 Swinney, Official Report, 10 December 2007, Col 237

6 Education, Lifelong Learning and Culture Committee: Report on the Budget Process 2008-09

7 Scottish Government: Scottish Budget Scottish Spending Review 2007

8 Mair, Official Report, Local Government and Communities Committee, 5 December 2007, Col 333

9 Watters, Official Report, Local Government and Communities Committee, 5 December 2007, Col 334

10 Swinney, Official Report, Meeting of the Parliament, 13 December 2007, Col 4458

11 Concordat between the Scottish Government and COSLA

12 Swinney, Official Report, 10 December 2007, Cols 227 and 228

13 Swinney, Official Report, 10 December 2007, Col 228

14 Mair, Official Report, 4 December 2007, Col 188

15 Mair, Official Report, 4 December 2007, Col 187

16 Swinney, Official Report, 10 December 2007, Col 225

17 Swinney, Official Report, Meeting of the Parliament, 13 December 2007, Col 4460

18 Swinney, Official Report, Meeting of the Parliament, 13 December 2007, Col 4460

19 Swinney, Official Report, 10 December 2007, Col 221

20 Swinney, Official Report, 10 December 2007, Col 221

21 Hyslop, Official Report, Education, Lifelong Learning and Culture Committee, 5 December 2007, Col 472

22 Swinney, Official Report, Meeting of the Parliament, 13 December 2007, Col 4516

23 Booth, Official Report, 4 December 2007, Col 180

24 Swinney, Official Report, 10 December 2007, Col 214

25 Sourced from the Local Government Finance Circular No.6/2007

26 Swinney, Official Report, 10 December 2007, Col 219

27 Watters, Official Report, 4 December 2007, Col 180

28 Economy, Energy and Tourism Committee: Report on Stage 2 of the 2008-09 Budget Process

29 Swinney, Official Report, 10 December 2007, Col 231

30 Swinney, Official Report, 10 December 2007, Cols 231 and 232

31 This proposal was agreed to on division: For: 4, Against: 0, Abstentions: 4

32 Concordat between the Scottish Government and COSLA

33 Swinney, Official Report, 10 December 2007, Col 230

34 Mair, Official Report, 4 December 2007, Col 182

35 Mair, Official Report, 4 December 2007, Col 182

36 Barlow, Official Report, 4 December 2007, Col 153

37 Bebbington, Official Report, 4 December 2007, Col 158

38 Bebbington, Official Report, 4 December 2007, Col 158

39 Swinney, Official Report, 10 December 2007, Col 236

40 Equal Opportunities Committee: Report on Stage 2 of the Budget Process 2008-09

41 McCabe, Official Report, 13 November 2007, Column 111

42 Grice, Official Report, 13 November 2007, Column 117

43 Grice, Official Report, 13 November 2007, Column 113

44 Supplementary written submission

45 SPCB written submission, annex to letter dated 8 November 2007

46 Column 124