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SP Paper 179 FI/S3/08/R8

7th Report, 2008 (Session 3)

Report on the Scottish Government’s Draft Budget 2009-10

VOLUME 1: FINANCE COMMITTEE REPORT AND EVIDENCE

Remit and membership

Report
Introduction
Structure of report
Summary of conclusions and recommendations
Overall changes to spending plans in Draft Budget 2009-10
Current economic situation
Efficiency savings
Performance monitoring
Linking expenditure to priorities and outcomes
Local government
Budgetary information
International Financial Reporting Standards
Equalities
Alternative spending proposals
Scottish Parliamentary Corporate Body
Audit Scotland

ANNEXE A – EXTRACTS FROM THE MINUTES OF THE FINANCE COMMITTEE

ANNEXE B – BRIEFING PAPERS


Pre-Budget Report 2008: Effects on Scottish Government Budget – paper by Professor David Bell
Draft Budget 2009-10: Overall Strategy and Priorities, paper by Professor David Bell
Guidance to subject committees

ANNEXE C – FINANCE COMMITTEE ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE


23rd Meeting, 2008 (Session 3), 7 October 2008


ORAL EVIDENCE


John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

SUPPLEMENTARY WRITTEN EVIDENCE


John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

26th Meeting, 2008 (Session 3), 10 November 2008


ORAL EVIDENCE


John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

SUPPLEMENTARY WRITTEN EVIDENCE


John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, 18 November 2008
John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, 2 December 2008

27th Meeting, 2007 (Session 3), 18 November 2008


WRITTEN EVIDENCE


Scottish Parliamentary Corporate Body

ORAL EVIDENCE


Scottish Parliamentary Corporate Body

VOLUME 2: REPORTS FROM OTHER COMMITTEES AND THE SCOTTISH COMMISSION FOR PUBLIC AUDIT (SCPA)1

Contents

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: SUBJECT COMMITTEES AND SCPA

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


19th Meeting, 2008 (Session 3), 8 October 2008

ORAL EVIDENCE

Jo Armstrong, Armstrong and Armstrong Limited
Kenneth Low, Research Fellow, the Fraser of Allander Institute, University of Strathclyde
John McLaren, Honorary Research Fellow, University of Glasgow
Ben Thomson, Chairman, Reform Scotland

20th Meeting, 2008 (Session 3), 29 October 2008

ORAL EVIDENCE

Garry Clark, Scottish Chamber of Commerce
Niall Stuart, Scottish Council for Development and Industry
Michael Levack, Scottish Building Federation
Owen Kelly, Scottish Financial Enterprise
John Watt, Grant Thornton UK LLP
Dr Peter Hughes, Scottish Engineering

WRITTEN EVIDENCE

VisitScotland
Highlands and Islands Enterprise
Scottish Enterprise
Scottish Government
Scottish Chamber of Commerce
Scottish Development International

21st Meeting, 2008 (Session 3), 5 November 2008

ORAL EVIDENCE

Philip Riddle, VisitScotland
Jack Perry, Scottish Enterprise
Hugh Hall, Scottish Enterprise
Sandy Cumming, Highlands and Islands Enterprise
Sandy Brady, Highlands and Islands Enterprise
Dr Malcolm Reed, Transport Scotland
David Anderson, Transport Scotland
Guy Houston, Transport Scotland
Geoff Aitkenhead, Scottish Water
Mark McEwen, Scottish Water
Jim Mather MSP, Minister for Enterprise, Energy and Tourism
Wilson Malone, Scottish Government
Fiona Robertson, Scottish Government
Maureen McGeown, Scottish Government

WRITTEN EVIDENCE

Scottish Water
Scottish Engineering

22nd Meeting, 2008 (Session 3), 12 November 2008

SUPPLEMENTARY WRITTEN EVIDENCE

Confederation of British Industry (CBI)
Scottish Government
John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

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

22nd Meeting, 2008 (Session 3), 24 September 2008

ORAL EVIDENCE

Professor Anton Muscatelli, Convener, Universities Scotland
Howard McKenzie, Acting Chief Executive, Association of Scotland's Colleges
Mark Batho, Chief Executive, and Laurence Howells, Director of Learning Policy and Strategy, Scottish Funding Council

WRITTEN EVIDENCE

Association of Scotland's Colleges
Universities Scotland

23rd Meeting, 2008 (Session 3), 1 October 2008

ORAL EVIDENCE

Damien Yeates, Chief Executive, Marie Burns, Director, Skills Interventions, and Linda Ellison, Director, Finance and Corporate Services, Skills Development Scotland

WRITTEN EVIDENCE

Skills Development Scotland

SUPPLEMENTARY WRITTEN EVIDENCE

Skills Development Scotland

24th Meeting, 2008 (Session 3) 8 October 2008

ORAL EVIDENCE

Linda Fabiani MSP, Minister for Europe, External Affairs and Culture
Wendy Wilkinson, Deputy Director, Culture Division
David Seers, Head of Cultural Excellence Team, Culture Division, Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Linda Fabiani MSP, Minister for Europe, External Affairs

25th Meeting, 2008 (Session 3), 29 October 2008

ORAL EVIDENCE

Fiona Hyslop MSP, Cabinet Secretary for Education and Lifelong Learning
Sarah Smith, Director of Children, Young People and Social Care
Andrew Scott, Director of Lifelong Learning
Colin MacLean, Director of Schools, Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Fiona Hyslop MSP, Cabinet Secretary for Education and Lifelong Learning

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


12th Meeting, 2008 (Session 3), 23 September 2008

ORAL EVIDENCE

Yvonne Strachan, Equality Unit, Scottish Government
Dr Marsha Scott, Scottish Women’s Budget Group

WRITTEN EVIDENCE

Scottish Women’s Budget Group

13th Meeting, 2008 (Session 3), Tuesday 30 September 2008

ORAL EVIDENCE

Emma Ritch, Project Manager, Close the Gap
Margaret Gribbon, Head of Employment Department, Digby Brown
Suzi Macpherson, Senior Research Fellow, Employment Research Institute
Muriel Robison, Head of Commission Enforcement, Equality and Human Rights Commission
Anne Meikle, consultant on gender equality issues and member of Occupational Segregation Working Group
Peter Hunter, Regional Organiser - Equal Pay, UNISON

WRITTEN EVIDENCE

UNISON
Anne Meikle

14th Meeting, 2008 (Session 3), Tuesday 7 October 2008

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Scottish Government
Graham Owenson, Team Leader, Local Government Finance, Scottish Government
Yvonne Strachan, Equality Unit, Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Audit Scotland
COSLA
John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Scottish Government

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


24th Meeting (Session 3), 8th October 2008

ORAL EVIDENCE

Philippa Bonella, Director of Information and Communications, ASH Scotland
Theresa Fyffe, Director, Royal College of Nursing Scotland
John Gallacher, Regional Organiser, UNISON Scotland
Dr Andrew Lamb, National Director, British Dental Association Scotland.

SUPPLEMENTARY WRITTEN EVIDENCE

British Dental Association Scotland
Royal College of Nursing Scotland

25th Meeting (Session 3), 29th October 2008

ORAL EVIDENCE

Nicola Sturgeon MSP, Cabinet Secretary for Health and Wellbeing
Dr Kevin Woods, Director-General, Health and Chief Executive, NHS Scotland
John Matheson, Director of Finance, Health Directorates, Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Nicola Sturgeon MSP, Cabinet Secretary for Health and Wellbeing, Scottish Government (30/10/2008)
Nicola Sturgeon MSP, Cabinet Secretary for Health and Wellbeing, Scottish Government (06/11/2008)

OTHER WRITTEN EVIDENCE

Audit Scotland
BMA Scotland
Carers Scotland
SAMH
Scottish Centre for Telehealth
West Lothian Community Health Partnership
West Lothian Council

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


22nd Meeting, 2008 (Session 3) Tuesday 30 September 2008

WRITTEN EVIDENCE

Association of Chief Police Officers in Scotland
Scottish Prison Service
Cabinet Secretary for Justice
Scottish Government Finance Directorate

ORAL EVIDENCE

Mike Ewart, Chief Executive, and Willie Pretswell, Director of Finance and Business Services, Scottish Prison Service
Chief Constable Kevin Mathieson, Chair of ACPOS Information Management Business Area
Doug Cross, Chair of ACPOS Finance Management Business Area, Association of Chief Police Officers in Scotland

SUPPLEMENTARY WRITTEN EVIDENCE

Association of Chief Police Officers in Scotland
Scottish Prison Service

23rd Meeting, 2008 (Session 3) Tuesday 7 October 2008

ORAL EVIDENCE

Fergus Ewing MSP, Minister for Community Safety
Robert Gordon, Director General Justice and Communities
Ruth Ritchie, Team Leader, Finance Justice, Scottish Government; Mike Ewart, Chief Executive, Scottish Prison Service.

SUPPLEMENTARY WRITTEN EVIDENCE

Minister for Community Safety (8 October 2008)
Minister for Community Safety (3 November 2008)

OTHER WRITTEN EVIDENCE

Lord Advocate

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


24th Meeting 2008 (Session 3) 1 October 2008

WRITTEN EVIDENCE

Scottish Council for Voluntary Organisations

ORAL EVIDENCE

Lucy McTernan, Deputy Chief Executive; Stephen Maxwell, Associate Director, Scottish Council for Voluntary Organisations
Andrew Field, Chief Executive; Dennis Robertson Sullivan, Operations Consultant, Scottish Federation of Housing Associations.

26th Meeting 2008 (Session 3) 29 October 2008

ORAL EVIDENCE

Councillor Rob Murray, Vice-President; Councillor Graeme Morrice, Resources and Capacity Spokesperson; Barbara Lindsay, Strategic Director; Brenda Campbell, Head of Finance, COSLA.

SUPPLEMENTARY WRITTEN EVIDENCE

COSLA

27th Meeting 2008 (Session 3) 5 November 2008

ORAL EVIDENCE

Nicola Sturgeon MSP, Cabinet Secretary for Health and Wellbeing
John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth
Frances Wood, Deputy Director Social Inclusion
Mike Foulis, Director for Housing and Regeneration
Roddy MacDonald, Head of Local Income Tax Team
Graham Owenson, Head of Local Government Finance Team, Scottish Government

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


17th Meeting 2008 (Session 3) Wednesday 1 October 2008

ORAL EVIDENCE

Peter Russell, Rural Director, Scottish Government
John Mason, Environmental Quality Director, Scottish Government
Mike Neilson, Marine Director, Scottish Government
Maggie Gill, Rural and Environment Research and Analysis Director, Scottish Government
Ross Scott, Finance Team Leader, Scottish Government
Paul Snaith, Head of Corporate Services, Forestry Commission Scotland

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Government

18th Meeting 2008 (Session 3) Wednesday 8 October 2008

WRITTEN EVIDENCE

Scottish Government

ORAL EVIDENCE

Richard Lochhead MSP, Cabinet Secretary for Rural Affairs and the Environment
Richard Wakeford, Director General Environment, Scottish Government
Ross Scott, Finance Team Leader, Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Cabinet Secretary for Rural Affairs and the Environment

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


19th Meeting, 2008 (Session 3) 28 October 2008

ORAL EVIDENCE

Professor Jan Bebbington, Department of Accounting and Sustainable Development, University of St Andrews
Dr Craig Mackenzie, Department of Sustainable Enterprise, University of Edinburgh
Roger Levett, Development Consultant, Levett-Therivel
Dave Watson, Scottish Organiser, UNISON
Dr Dan Barlow, Head of Policy, WWF Scotland
Duncan McLaren, Chief Executive, Friends of the Earth Scotland
John Stocks, Manager, Carbon Trust in Scotland

20th Meeting 2008 (Session 3) 4 November 2008

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth
Philip Wright, Deputy Director Climate Change
David Reid, Head of Finance Programme Management
Malcolm Reed, Chief Executive, Transport Scotland
Guy Houston, Director for Finance and Corporate Services, Transport Scotland, Scottish Government

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

8th Meeting, 2008 (Session 3), 5 November 2008

ORAL EVIDENCE

Mr Robert Black, Auditor General for Scotland
Russell Frith, Director of Audit Strategy, Audit Scotland
Diane McGiffen, Director of Corporate Services, Audit Scotland
Richard Gibson, HW Chartered Accountants

WRITTEN EVIDENCE

Audit Scotland Annual Report and Accounts for the year to 31 March 2008 and Auditor’s Report Thereon
External Auditor’s Management Report for year ended 31 March 2008
Letter to Convener from the Auditor General for Scotland
Audit Scotland’s proposal for Autumn Budget Revision 2008-09
Audit Scotland’s Fee Strategy September 2008
Audit Scotland’s Budget Proposal for 2009-10

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:

Jackie Baillie (Deputy Convener)
Derek Brownlee
Joe FitzPatrick
James Kelly
Alex Neil
Jeremy Purvis
Andrew Welsh (Convener)
David Whitton

Committee Clerking Team:

Clerk to the Committee
Susan Duffy

Senior Assistant Clerk
Mark Brough

Assistant Clerk
Allan Campbell

Committee Assistant
Stuart McLean

Report on the Scottish Government’s Draft Budget 2009-10

The Committee reports to the Parliament as follows—

 introduction

Overall process

1. The parliamentary budget process is divided into three stages.  Stage One normally takes place between March and June each year and involves the Scottish Government producing a 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.  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 Government2 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 years and Scottish parliamentary election years there would be no requirement for Stage One scrutiny.

3. The UK Spending Review was delayed until 2007 and, as this was a Scottish parliamentary election year, Stage One could not take place which meant this Stage of the process has not taken place since 2004.  This, and other issues, prompted a resolution agreed by the Parliament that the budget process should be reviewed.  Although the resolution called on the Standards, Procedures and Public Appointments Committee (SPPA Committee) to undertake such a review it was agreed with the SPPA Committee that the Finance Committee should undertake a review in the first instance, because although some aspects of the process (such as the rule setting out that committees should be allowed time to undertake financial scrutiny and the rules governing the passage of the Budget Bill) are contained in Standing Orders, the majority of the detail of the process is contained in the Written Agreement outlined above. It was agreed that once the Finance Committee had reported on its review of the process, the SPPA Committee would then undertake its own review, taking account of the report from the Finance Committee.

4. The Finance Committee is currently undertaking this review and the current process remains in place until the review is completed and implemented.

The Draft Budget 2009-10

5. The majority of the Scottish Budget is comprised of the ‘block’ of money assigned by the UK Government (in this respect, Scotland is treated in the same way as a UK government department).  This is known as the Departmental Expenditure Limit (DEL) and changes to Scotland’s allocated DEL budgets are determined through the Barnett formula.  The DEL accounts for approximately 80% of Scotland’s overall budget. 

6. In November 2007, the Scottish Government published its own Spending Review and Draft Budget 2008-09 document, following on from the UK Spending Review in October 2007.  Therefore, the expenditure plans shown in the Draft Budget 2009-10 which was published on 16 September 2008, are an update of those contained in the previous Draft Budget.

7. However, the economic climate has changed significantly since the publication of the UK Spending Review 2007 - the point at which the DEL element of the Scottish Budget was effectively ‘fixed’ until 2010-11 - and the potential ramifications of this are discussed in the section of the report entitled “Current economic situation”.

Evidence

8. On 7 October 2008, the Committee took evidence from the Cabinet Secretary for Finance and Sustainable Growth on the Scottish Government’s accounts for 2007-08 which show outturn figures for all portfolios and also on Scotland Performs, a website designed to present information on how Scotland is performing against a range of indicators.  The Committee then took further evidence from the Cabinet Secretary on the expenditure plans in the Draft Budget 2009-10 at its meeting in Ayr on 10 November 2008.  In addition, the Committee took evidence from the Scottish Parliamentary Corporate Body (SPCB) on its spending plans on 18 November 2008.  The oral and written evidence associated with these sessions forms Annexe C to this report.

External meeting

Introduction

9. The Committee agreed to adopt the practice of the previous Finance Committee of holding regular external meetings across Scotland, in order to gauge the impact of the Scottish Government’s overall expenditure plans at a local level.  This year the Committee held a meeting at the County Buildings in Ayr on 10 November 2008.

10. Before taking evidence from the Cabinet Secretary for Finance and Sustainable Growth, the Committee held two informal workshops with representatives of local organisations, on the topics of economic development (focusing on economic development issues for small towns) and infrastructure and investment (focusing on transport issues), and one workshop with local schools on the process of budget scrutiny.  A list of the local organisations and schools who participated in the workshops can be found below.

11. One MSP from each group then reported back in a formal meeting of the Committee on the key issues raised in the workshops.  In addition, one participant from the economic development workshop was invited to contribute during the formal session.  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.

Infrastructure and investment

12. Participants in the infrastructure and investment workshop focussed on issues around connectivity and transport.  The group agreed on the importance of the rail network and that any opportunity to bring forward completion of the upgrade to the track and signalling between Glasgow and Paisley would be hugely beneficial to the whole of Ayrshire, as it would allow for an increase in both the frequency and capacity of trains.  There was also some discussion around the benefits of upgrading the road network – illustrated by the 25% increase in freight traffic to the port at Troon following the upgrade to the M77. 

13. There were differing views around the benefits or otherwise of the Road Equivalent Tariff (which involves setting ferry fares on the basis of the cost of travelling an equivalent distance by road), although it was noted that the current scheme is only a pilot covering certain routes, and that the pilot will be evaluated before any decision to go ahead with a full roll-out is made.

14. There was also a discussion around the budget process itself, and the importance of taking a longer-term view of infrastructure investment than the three-year spending review cycle.  The group also noted that it was sometimes difficult to link the high level budget priorities to outcomes at a local level.

15. Finally, the group considered the importance of tourism to the local economy and how that was linked with infrastructure investment.  It was felt that more could be done to market Ayrshire as a destination and that perhaps a focus on major projects (for example the Glasgow 2014 Commonwealth Games and the Edinburgh Tram Network) could lead to diminished funding for smaller projects across Scotland.

Economic development

16. The workshop on economic development discussed a range of issues around growth of the economy in Ayrshire.  As with the workshop on infrastructure and investment, the group stressed the crucial role that infrastructure can play in regeneration, and noted that improvements to transport links would be hugely beneficial in aiding economic growth.  There was also a wide-ranging discussion on the possibilities for “upskilling” the local workforce to deal with unemployment, particularly with regard to the tourism sector and whether relevant vocational courses should be offered earlier in the school curriculum.  The group also discussed the importance of having a co-ordinated strategy between the different bodies involved in economic development, and noted that, on occasion, this had possibly been lacking in the past. 

17. Participants then went on to discuss ideas to help the Ayrshire economy.  The group concluded that efforts should be made to encourage businesses to set up in small towns, to aid regeneration.  Mention was also made of the need to improve training to help people upskill and improve their chances of finding work, and to push for more collaborative working between educational institutions and the commercial sector.  The group also stressed the need to have a clear renewable energy strategy and noted that there appeared to be a lack of central direction on this point.  Finally, participants were keen that opportunities for building more affordable housing, perhaps on unused farmland, should be explored.

Workshop with local schools

18. This year the Committee decided to hold a dedicated workshop with local schools, run in conjunction with the Parliament’s Education Outreach team, to introduce pupils to the work of parliamentary committees and to the budget process.  Following short introductory presentations from the outreach team and the committee clerking team on the committee system and the budget process, the three schools had the chance to present and debate their own choice of budget priority.  The Committee was hugely impressed with the pupils’ clear understanding of the complex issues around the budget process and their articulate approach during their debate. 

19. The Committee recommends that this practice is continued in future years, and extends its thanks to the schools that participated and the Education Outreach staff for organising the workshop.  The Committee would also like to thank all of the participants in the economic development and infrastructure and investment workshops and the staff at the County Buildings for their assistance in the organisation of this meeting.

List of workshop participants
Infrastructure and Investment

  • Prestwick Airport
  • Scottish Enterprise Ayrshire
  • North Ayrshire Council
  • Caledonian MacBrayne
  • Ayrshire Chamber of Commerce and Industry
  • Turnberry Hotel
  • South Ayrshire Council – Planning and Transportation Department
  • Associated British Port

Economic Development

  • Ayr College
  • University of the South West of Scotland
  • North Ayrshire Council – Economic Development Services
  • Scottish Rural Property and Business Association
  • Scottish Estates Business Groups
  • RDK Construction Ltd

Schools

  • Belmont Academy
  • Kyle Academy
  • Queen Margaret Academy

Subject committee scrutiny

20. 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.  As is normal practice, the Finance Committee issued guidance to subject committees and this guidance is attached as part of Annexe B to this report.

21. In that guidance, subject committees were asked to comment on the following areas:  changes made to budgets within their remit, efficiency savings within the appropriate portfolio, the presentation of information in the Draft Budget, consideration of equalities and alternative spending proposals.  Some committees did not address all of these issues in their reports.   

22. The report does not contain a separate section on subject committee reports.  Instead, points raised by subject committees are addressed in the relevant sections of the report. 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.

structure of report

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

  • Summary of conclusions and recommendations
  • Overall changes to spending plans in Draft Budget 2009-10
  • Current economic situation
  • Efficiency savings
  • Performance monitoring
  • Linking expenditure to priorities and outcomes
  • Local Government
  • Budgetary information
  • International Financial Reporting Standards
  • Alternative spending proposals
  • Equalities
  • Scottish Parliamentary Corporate Body
  • Audit Scotland.

summary of conclusions and recommendations

Overall Changes to Spending Plans in Draft Budget 2009-10

The Committee recommends that the Scottish Government ensure that, in light of concerns about the nature of efficiency savings (discussed in more detail in the section of ‘Efficiency Savings’), resources are targeted to front-line services and that further clarity around the source, level and phasing of announcements on Clostridium Difficile is required prior to the Stage 1 debate on the Budget Bill.  The Committee also calls on the Scottish Government to consider all approaches to tackling hospital-acquired infections including pilot monitoring of infections on a bed by bed basis (paragraph 34).

Current economic situation

Measures proposed by the Scottish Government

The Committee requests that the Scottish Government demonstrate how this money will be used to maximise the impact on the construction industry and the Scottish economy (paragraph 60).3

On the issue of the Affordable Housing Investment Programme, and capital spend more generally, the Economy, Energy and Tourism Committee suggested that the Finance Committee should recommend to the Scottish Government that it keeps track of the totality of capital expenditure in the public sector.  The Committee invites the Scottish Government to respond to this request from the Economy, Energy and Tourism Committee (paragraph 62).

The Committee believes that alongside the Scottish Government’s six-point plan and the commitment to bring forward infrastructure spending the Scottish Government should consider all available funding models and should ensure Skills Development Scotland is working to identify and fill areas of shortage and that Partnerships Action for Continuing Employment (PACE) teams are adequately resourced to meet any increase in unemployment (paragraph 69).4

The Committee notes the recent announcement of support from the Scottish Government for the National Debt Line; notes the important work undertaken by organisations such as Citizens Advice Bureau and money advice workers in provided advice on money, debt and benefits issues, and credit unions in providing opportunities for savings and low interest loans.  The Committee notes that demand for these services is likely to increase as the recession progresses and calls on the Scottish Government to consider what further support can be given to organisations providing such advice and support to expand capacity (paragraph 70). 

Pre-Budget Report

On the priorities for the £260m of capital spending that will be brought forward from 2010-11, the Cabinet Secretary stated that he would consider opportunities for investment in housing regeneration, supporting improvements in the further education estate and health service projects.  The Committee suggests that consideration could also be given to assessing whether there are opportunities to extend regeneration activity to support initiatives aimed at improving town centres across Scotland (paragraph 73).

In addition, the Committee notes that, in order to offset the impact of the change to the Department of Health budget on the Scottish Government’s budget, a sum of around £129m would need to arise as an underspend across the Scottish Government each year from 2010-2011.  The Committee notes that the underspend for 2007-08 was £42m (paragraph 81).

In a subsequent letter to the Committee, the Cabinet Secretary stated that as a result of the Chancellor’s PBR announcement, the Scottish Government will be able to bring forward from 2010-11 capital spending of £33m into 2008-09 and £227m into 2009-10, with a corresponding adjustment in 2010-2011 (paragraph 82).

The Committee welcomes the early indications of spending announced and notes that it is consistent with the Scottish Government’s six-point plan for economic recovery.  The Committee calls on the Scottish Government to clarify at the earliest opportunity how this capital acceleration will be split between the Scottish Government and its agencies and local government capital expenditure and calls on the Scottish Government to work with local government to provide assurances that expenditure will be accelerated effectively (paragraph 83). 

Inflation

The Committee welcomes the move towards a national procurement contract believing that it will reduce energy costs across national and local government.  The Committee asks that clarification be provided on the timetable for implementation and details of the savings likely to flow from this exercise (paragraph 88).4

The Committee asks that the Cabinet Secretary outlines the effects of the revised GDP deflators in the PBR, specifically in relation to the efficiency savings targets (paragraph 89).

Efficiency savings

Retention of savings

The Committee will continue to monitor the application of efficiency savings across Scottish Government directorates and NDPBs to ensure that efficiency savings are genuine efficiencies, and are counted as such (paragraph 101).6

Effect of inflation on efficiency savings
The Committee notes the considerable impact of inflation over the last 12 months on public sector budgets, including that of the Scottish Government, and further notes Treasury predictions that inflation is set to fall considerably over the coming months.  While this may have the potential to lighten budgetary pressures, the Committee notes that some of this will be mitigated by the two-year pay deals recently settled by many public bodies.  The Committee recommends that the Cabinet Secretary prepares a report to the Committee if any of the new policy developments cannot be funded and delivered because of the growth in inflation (paragraph 110).

Other issues raised by subject committees

The Committee supports the recommendation from the Rural Affairs and Environment Committee that savings through capital receipts should be recorded separately in the Annual Efficiency Outturn Report (paragraph 114). 

The Committee also asks the Scottish Government to respond to the points raised by the Rural Affairs and Environment Committee, the Local Government and Communities Committee and the Education, Lifelong Learning and Culture Committee in paragraphs 115, 116 and 117 of the report (paragraph 118).

The Justice Committee recommended that the Scottish Government “for the time being, set aside the requirement on the Scottish Prison Service to demonstrate how its efficiency savings are being achieved so that its management and staff resources do not risk being diverted from their most important task of ensuring the safety of the public through the effective discharge of their prisoner-related operational responsibilities (paragraph 119).”7

The Committee does not support this recommendation.  No group should be exempt from reporting on progress being made in relation to efficiency targets (paragraph 120).

Efficiency savings and the budget

The Committee recognises the work ongoing in delivery of the current efficiency programme, but considers that there is a need for further work to be undertaken on the options for spending in the medium to long term and calls on the Scottish Government to bring forward proposals on how these issues might be progressed (paragraph 121).

Performance monitoring

Scotland Performs

The Committee agrees that it is important that issues around the indicators used in Scotland Performs are thoroughly examined and signals its intention to scrutinise Scotland Performs on an on-going basis (paragraph 131).

The Local Government and Communities Committee recommended in its report on the Draft Budget that Single Outcome Agreements (SOAs) should be better integrated with the National Performance Framework (and presumably Scotland Performs).  The Committee intends to examine this relationship as part of its on-going scrutiny of Scotland Performs (paragraph 135).

Linking expenditure to priorities and outcomes

The Committee appreciates the complexity involved in linking budgets to priorities and to outcomes.  However, it believes that the linkage is crucial to enable robust scrutiny of the Scottish Government’s priorities and strategic objectives.  The Committee notes the Cabinet Secretary’s willingness to explore this issue further and recommends that further work should be undertaken in this area and progress reported to the Committee before the start of the next budget round (paragraph 145).

The Committee endorses the recommendation of the Transport, Infrastructure and Climate Change Committee to introduce a climate change commentary to budget documents as soon as is practical (paragraph 147).

The Transport, Infrastructure and Climate Change Committee asks the Finance Committee to consider how carbon assessment could form a statutory part of the Parliament’s consideration of other major expenditure projects.  The Committee believes that the appropriate location and means of assessment of carbon impact through the budget process should be assessed as part of the ongoing scrutiny of the budget process (paragraph 149).

Local Government

Single Outcome Agreements

The Committee notes the role of SOAs in the budget process, agrees to consider further the issues that have been raised around SOAs, but first calls on the Scottish Government to provide further clarity on reporting timescales and monitoring arrangements (paragraph 165).8

In addition, the Committee notes that the financial pressures on councils as a result of inflation and fuel costs are likely to ease in the coming months.  The Committee welcomes the Cabinet Secretary’s commitment to continuing the council tax freeze, but recognises that this is ultimately a decision for each local authority (paragraph 171).9

Non-Domestic Rate Income (Business Rates)

The Committee recognises the potential benefits of tax incremental funding in incentivising local authorities to generate wealth and income in their localities, and will follow with interest its development (paragraph 173).10

The Committee notes the pressures on businesses across Scotland as a result of the recession; welcomes the acceleration in the reduction of business rates reductions for small and medium businesses implemented on 1 April 2008; further welcomes the confirmation that further reductions will be implemented on 1 April 2009 and calls on the Scottish Government to consider what other measures it can undertake to assist businesses across Scotland (paragraph 174).11

Budgetary information

Outturn information

Given the obvious desire for outturn figures, the Committee suggests that subject committees may wish to scrutinise the Scottish Government’s consolidated accounts in future years.  The Committee also asks the Scottish Government to respond to the suggestions made by the Health and Sport Committee and the Rural Affairs and Environment Committee (paragraph 182).

Level 4 figures

The Committee notes the recommendation of the Economy, Energy and Tourism Committee that Level 4 figures be routinely published as part of the budget documents.  The Committee believes that the printed documents should cover detail to Level 3, but that Level 4 figures should be made available on the Scottish Government’s website (paragraph 184).12

Timescale

The Rural Affairs and Environment Committee recommends that consideration should be given to revising the Written Agreement on the Budgeting Process between the Scottish Government and the Finance Committee to include an earlier deadline for publication of budget documents in years when a spending review is not taking place.  The Finance Committee is currently reviewing the budget process and it will include this point in its deliberations (paragraph 186).

Local authority funding
The Rural Affairs and Environment Committee recommends that future budget documents should contain details in the Local Government portfolio chapter of funding given to individual local authorities where this has been transferred from another portfolio during a Spending Review period, together with the basis for such transfers.  The Committee supports this recommendation (paragraph 188). 

International Financial Reporting Standards

The Committee concurs with the view of the Cabinet Secretary for Finance and Sustainable Growth that it is important to have clarity on this issue and recommends that the Scottish Government continues to pursue this issue with the UK Government (paragraph 192).

Equalities

The Committee supports the request from the Equal Opportunities Committee for confirmation of an appropriate mechanism for equality proofing of the budget.  The Committee also requests that the Scottish Government considers a similar mechanism in relation to social justice and reports back to the Finance Committee (paragraph 198).

The Committee reaffirms its previous agreement to take no further action on Single Status at its meeting on 10 June 2008 in response to a request from the Scottish Women’s Budget Group; and notes that it is incumbent on local authorities to make provision for Single Status payments (paragraph 201).

Alternative spending proposals

The Transport, Infrastructure and Climate Change Committee brought forward an alternative spending proposal which suggested that money should be transferred from one budget line to another.  It suggested that there was a “strong case” for increasing the active travel line in the budget which currently stands at £11m.  It recommends that—

“the Government rexamines this provision and in that context looks carefully at the proposals put forward by Spokes with the support of a number of other environmental organisations and evidence from other witnesses.  The Committee believes that consideration should be given to additional funding for both walking and cycling measures. The Committee does not have enough information about the trunk road budget at this stage to determine whether money could be moved from that budget line as Spokes recommend or whether money could be earmarked from slippage in that budget or the road maintenance budget for active travel which would prevent it being lost to the transport portfolio as has happened in previous years.”13

The Committee notes the evidence from the Cabinet Secretary that set out other sources of funding contributing to active transport apart from the active transport budget line.  The Committee opposes a reduction in the trunk roads budget (paragraph 204).

Scottish Parliamentary Corporate Body

The Committee thanks the SPCB for outlining examples of the choices it has to make when considering its budget.  However, the Committee is of the view that it could help to aid transparency in future years if the SPCB were to spell out some examples of these choices in its budget submission (paragraph 210).

The Committee appreciates the explanation from the SPCB on the use of parliamentary facilities, and welcomes the confirmation that some thought has gone into how to manage the increasing demand for use of the parliamentary facilities.  The Committee would encourage the SPCB to continue monitoring the situation (paragraph 213).

In comparison to the previous year’s budget submission, the Committee is pleased to note that the pattern of large fluctuations present in previous years’ budget bids has been eradicated.  The Committee commends the SPCB for its approach in this regard (paragraph 216).

Audit Scotland

The Scottish Commission for Public Audit has drawn the Parliament’s attention to its observations and recommendations. Taking account of these comments, it recommends that Audit Scotland’s budget proposal be approved. The Finance Committee notes this recommendation (paragraph 220).

overall CHANGES TO SPENDING PLANS in draft budget 2009-10

24. The Draft Budget 2008-09 indicated that the Scottish Government would spend £34.65bn in 2009-10.  This year’s Draft Budget proposes that spending in 2009-10 will be £34.76bn which is an increase of £109.4m over last year’s estimate for the same period.  It also represents an increase of £1.4bn from 2008-09. The Cabinet Secretary stated that the settlement from the UK Treasury represented a real terms increase of 1.6% and that resources have been increased by securing £400m of end-year flexibility from the UK Treasury in 2009-10 and overallocating £100m in the Scottish Government’s own spending plans.14

25. This increased funding provides for the acceleration of the reduction in business rate relief for small businesses and for additional police officers which were measures agreed by the Parliament during the passage of the Budget (Scotland) Bill 2008.  The increase also covers additional climate change measures, changes in NHS resource funding, bus service operators’ grant, Scottish Water capital charges and £40 million to fund the increased costs of free personal care. 

26. Table 1 shows the allocation of Total Managed Expenditure (“TME” which consists of Departmental Expenditure Limits and Annually Managed Expenditure) by portfolio for the period 2008-09 to 2010-11 in real terms (2008-09 prices).  Table 2 shows the same information for Departmental Expenditure Limits.

Table 1 Total Managed Expenditure by Portfolio (real terms)

Table C.1 - Total Managed Expenditure (TME) by portfolio in real terms 2008-09 Budget 2009-10 2010-11   Annual change (%)
Draft Plans   2009-10 2010-11
Budget   Draft Budget Plans
£m £m £m  
Office of the First Minister  
279.2
 
 284.3

288.0
  1.8 1.3
Finance & Sustainable Growth    
5,829.3
 
5,910.7
 
5,896.8
  1.4 -0.2
Health and Wellbeing 11,202.9 11,445.8 11,465.2   2.2 0.2
Education and Lifelong Learning
  2,696.6
2,678.8  2,726.5   -0.7 1.8
Justice  
 1,050.6
1,060.9  1,079.2   1.0 1.7
Rural Affairs & the Environment  
 635.7
635.2 639.0   -0.1 0.6
Administration
265.9
265.8 264.3   0.0 -0.6
Crown Office & Procurator Fiscal
110.2
115.5 114.2   4.8 -1.1
Local Government  
 11,133.8
11,322.7  11,455.9   1.7 1.2
Scottish Parliament and Audit Scotland  
 110.0
110.4 110.5   0.3 0.1
Total Managed Expenditure (real)    33,314.2 33,830.2  34,039.6   1.5 0.6

Table 2 Departmental Expenditure Limit by Portfolio (real terms)

Table C.2 - Departmental Expenditure Limit (DEL) by portfolio in real terms 2008-09 Budget 2009-10 2010-11   Annual change (%)
Draft Plans   2009-10 2010-11
Budget   Draft Budget Plans
£m £m £m  
Office of the First Minister 279.2 284.3 288.0   1.8 1.3
Finance & Sustainable Growth 2,640.3 2,759.3 2,776.8   4.5 0.6
Health and Wellbeing 11,202.9 11,445.8 11,465.2   2.2 0.2
Education and Lifelong Learning 2,572.3 2,557.5 2,608.3   -0.6 2.0
Justice 1,050.6 1,060.9 1,079.2   1.0 1.7
Rural Affairs & the Environment 635.7 635.2 639.0   -0.1 0.6
Administration 265.9 265.8 264.3   0.0 -0.6
Crown Office & Procurator Fiscal 110.2 115.5 114.2   4.8 -1.1
Local Government 9,155.0 9,279.0 9,539.3   1.4 2.8
Scottish Parliament and Audit Scotland 110.0 110.4 110.5   0.3 0.1
Total Departmental Expenditure Limit (real) 28,022.1 28,513.8 28,884.8   1.8 1.3

27. From these figures, it can be seen that DEL is planned to increase by 1.8% in real terms in 2009-10 and by 1.3% in real terms in 2010-11.  The largest real terms percentage increase in 2009-10 will be received by the Crown Office and Procurator Fiscal (+4.8%) followed by the Finance and Sustainable Growth portfolio which increases by 4.5% in real terms and then by the Health and Wellbeing portfolio which increases by 2.2% in real terms.  No portfolios will fall in real terms in both years – Education and Lifelong Learning will fall by 0.6% in 2009-10 and increase by 2.0% in 2010-11; Rural Affairs and the Environment falls by 0.1% in 2009-10 and increases by 0.6% in 2010-11.  The Scottish Government administration budget stands still in 2009-10 and falls by 0.6% in 2010-11.

28. Capital expenditure has been reprofiled in this year’s Draft Budget to fund a £100m increase in the Affordable Housing Investment Programme.  This issue is discussed in more detail in the next section of this report.

29. These figures are based on the UK Treasury’s GDP deflator of 2.75%.15  This deflator is a measure of the movement in prices of UK inputs into the economy (especially of wages and profits) and therefore differs from price inflation (such as the Consumer Price Index (CPI) or Retail Prices Index (RPI)) which relates more specifically to price movements in goods and services for consumption by households. The GDP deflator is set by the UK Treasury.  It should be noted that the deflator is used as a mechanism to forecast growth in real terms, but in each Scottish Government portfolio, different price factors will have a bearing on the cost base, thus affecting the real growth rate during the spending review period.

30. There is obviously a major divergence between the GDP deflator and  current rates of inflation.  At the time of taking evidence on the Draft Budget 2009-10, CPI was 5.2% and RPI was 5%. However, the latest figures published on 18 November 2008 show a reduction in CPI to 4.5% and a reduction in RPI to 4.2%. This and other issues arising as a result of the current financial crisis may have a direct bearing on the Scottish Government’s Draft Budget and are discussed in the next section of the report.

31. Subject committees made a number of comments and recommendations on changes made to budgets within their remits.  While some are highlighted below, the Committee has not sought to consider these in detail and therefore expects that the portfolio-specific recommendations which are made in the committees’ reports will be addressed in individual responses to subject committees by the relevant Scottish Government directorate.

32.  The Education, Lifelong Learning and Culture Committee raised concerns that possible changes to the way in which the Individual Learning Accounts (ILAs) budget line is administered may have an impact on the total available for supporting individual learning and called on the Scottish Government to clarify its intentions.  The Committee notes that the Education, Lifelong Learning and Culture Committee remains concerned over the uncertainties surrounding the establishment of Creative Scotland and, in particular, the transition costs and whether or not any such costs will have an impact on budgets currently available for the support of creative activity.  The Committee notes that this will be taken

forward as part of the Public Services Reform Bill and will be considered by the Finance Committee in due course.    

33. The Health and Sport Committee noted that there was extra funding to support the new Clostridium Difficile HEAT target and that this was being found from within the existing budget.  It also noted that the Cabinet Secretary for Health and Wellbeing had made further announcements about countering hospital-acquired infections.  The Committee felt that further clarity around the source, level and phasing to funding to support these announcements was required.

34. The Committee recommends that the Scottish Government ensure that ,in light of concerns about the nature of efficiency savings (discussed in more detail in the section of ‘Efficiency Savings’), resources are targeted to front-line services and that further clarity around the source, level and phasing of announcements on Clostridium Difficile is required prior to the Stage 1 debate on the Budget Bill.  The Committee also calls on the Scottish Government to consider all approaches to tackling hospital-acquired infections including pilot monitoring of infections on a bed by bed basis.

35. The Justice Committee raised concerns over proposed spending on prisons, given the rise in prisoner numbers, and recommended that Ministers should re-examine the budget with the Scottish Prison Service (SPS) to consider whether the planned budget allocation is adequate.  The Committee stated that, should SPS request additional money, Ministers should respond positively. On alternatives to custody, the Committee commented that there appeared to be no plans for further growth in the Community Justice Services budget in 2010-11 and that spending would fall in real terms by March 2011. 

36. A majority of the Transport, Infrastructure and Climate Change Committee raised concerns that there was an absence of expenditure proposals to make a significant contribution to the climate change agenda and the same majority stated that future budgets and certainly the next Spending Review should identify budgetary proposals to complement “the challenging legislative emissions targets that are to be brought forward shortly.”16  The Committee also called on the Scottish Government to consider introducing a new energy scheme, taking into account the motion agreed to by the Parliament on 13 November 2008 which called on the Scottish Government “to consider a comprehensive and fully funded Scotland-wide scheme on this scale [£100m per annum] to provide energy audits, insulation provision and financial support for micro-renewables where appropriate.”17 It also made a number of recommendations with regard to a carbon assessment of future budgets and these are addressed in the section entitled “Linking budgets to priorities and outcomes”.

37. A majority of the Transport, Infrastructure and Climate Change Committee expressed concerns over potential pressures on funding for concessionary fares and called on the Scottish Government to consider evidence emerging from its review of the scheme and adjust the budget provision as necessary.

38. The Economy, Energy and Tourism Committee made a number of recommendations with regard to the current economic climate and the acceleration of capital spending. These two issues are addressed in the next section of this report.

current economic situation

Overview

39. The global economic situation has changed quite significantly since the publication of the 2007 UK Spending Review. Indeed, the economic outlook in both Scotland and the UK has changed substantively since the publication of the Scottish Draft Budget 2009-10. There are two distinct ways in which these developments will affect the Scottish budget and the individual portfolios within it.

40. The first concerns the effect of the rapid growth in energy and commodity prices. The price of metals, food, oil and coal grew rapidly through 2007 and early 2008. This is the reason why inflation has been much higher than the 2.75% forecast by HM Treasury in the 2007 Spending Review. For Scottish Government portfolios, this means that real growth will have been less than was anticipated in last year’s budget. Those portfolios which require large amounts of energy and/or food will have been particularly affected. On the other hand, those portfolios where wage costs form a large part of total spending have been less affected because wage inflation has remained fairly steady and is well below current rates of price inflation.

41. Looking forward, many of the external pressures that have been driving domestic prices upwards have now gone into reverse. The oil price has fallen dramatically and there have also been significant falls in commodity prices and food. As yet, not all of these reductions have been passed to consumers. The Bank of England’s most recent (November 2008) projections for CPI inflation show that, even if output growth recovers in late 2009, price inflation is likely to decline rapidly during the remainder of 2008 and will remain well below its target rate of 2 % until at least 2011. This implies that, because the 2009-10 Scottish Budget assumes an inflation rate of 2.7 per cent, its real value in 2008-09 prices will be greater than initially anticipated and will go some way to offset the higher than expected inflation during 2008-09. Portfolios that use a lot of energy, for example, will find cost pressures easing significantly during 2009-10 so long as they are able to take advantage of current reductions in wholesale energy prices.

42. The second major change in economic conditions is that most of the major economies in the world moved into recession during the second half of 2008. Along with many other European economies, the UK economy has experienced negative growth in the last two quarters, which is the technical definition of recession. There is no reason to believe that the performance of the Scottish economy has deviated significantly from that of the UK as a whole. For Scotland’s public services, one of the immediate implications of this is that there will be more demand for services to support individuals affected by adverse events associated with the downturn in economic activity. These include, for example, advisory services in relation to unemployment, consumer credit and mortgage default. On the other hand, there will be a reduction in demand for other public services, leading to a reduction in charge income. Examples might include income from visits to historic sites or from planning applications. If forecasts of such income are built into budgets, then these are likely to come under strain. Similarly, when budgets are predicated on asset sales, and the value of the underlying asset has fallen, public service budgets will again be stretched.

43. Governments around the world are taking both monetary and fiscal actions to mitigate any social and economic damage caused by the recession. Automatic stabilisers, such as unemployment benefit, will moderate the loss of income to the economy resulting from redundancies. But most governments are considering additional discretionary spending to stimulate demand. This is not possible in Scotland since it has a fixed budget: nevertheless, it may be possible to reallocate demand towards parts of the economy from which recovery may be stimulated or which have been particularly adversely affected by the recession.

44. The UK government may decide to inject an additional fiscal stimulus during 2009-10. If this comprises changes to the tax and benefit system, there will be no direct effect on the Scottish Budget. On the other hand, additional capital or resource spending in non-reserved areas will result in Barnett consequentials, in which case the Scottish Government’s 2009-10 Budget will have to be revised.

Measures proposed by the Scottish Government

45. The Committee concurs with the Cabinet Secretary’s statement that “if we had this discussion [about the budget] six months ago, we would not be dealing with anything like as dramatic a situation as we are now.  We must recognise at the outset that economic conditions have swiftly deteriorated.”18

Affordable Housing Investment Programme

46. One of the main areas highlighted by the Scottish Government as a response to the current economic difficulties was the decision to reprofile capital expenditure to fund a £100m increase in the Affordable Housing Investment Programme.  The Draft Budget states that £30m is to be spent in the current year (2008-09) with a further £70m to be spent in 2009-10 and that £60m of this money will be “committed from national government programmes” and that £40m will come from local government.  The Cabinet Secretary confirmed on 10 November that, to date, £9m of the £30m earmarked for 2008-09 had been allocated and that he expected further allocations to be made “very shortly.”19

47. A full breakdown of the budgets which are being reduced to fund this package is outlined below.  It is intended that these monies will be repaid to the appropriate budget heads from the Affordable Housing Investment Programme budget in 2010-11, at which point the Affordable Housing Investment Programme budget line will be £370m.

2008-09 - £30m is comprised of:20

  • £20m from local government
  • £5m from health capital
  • £5m from Modernising Private Sector Housing

2009-10 - £70m is comprised of:

  • £20m from Local Government
  • £20m from the “Capital Grants for Further Education Colleges” within the Scottish Further and Higher Education Funding Council budget (p65)
  • £11m from Health capital
  • £10m from the Capital Spending budget line within the Scottish Prison Service budget (p72)
  • ·£5m from Modernising Private Sector Housing
  • ·£4m from the Scottish Environment Protection Agency capital budget in the Rural Affairs and Environment portfolio (p91).

48. Concerns were raised over whether there would be an impact on the capital programmes of those areas from which money had been transferred to the Affordable Housing Investment Programme, in particular further education institutions and local authorities. The Cabinet Secretary stated that as a consequence of discussions with colleges and universities, the Scottish Further and Higher Education Funding Council identified an element of capital that could be reallocated to projects that “can get off the ground more quickly than other planned projects.”  He added that colleges and universities operate within a financial control cycle that is different to central government and that “the mismatch in that timetable gives us some flexibility to accelerate resources that are not fully committed, and we have taken advantage of that.”21

49. With regard to local authorities, the Cabinet Secretary explained that money was not being taken from a capital allocation but was related to local authorities’ borrowing capacity where consent was already available but had not been utilised and that this capacity will now be used.  The Cabinet Secretary confirmed that the money would be used for affordable housing only.22 

50. In subsequent correspondence, the Cabinet Secretary clarified that the £20m in 2008-09 and 2009-10 was being brought forward from the General Capital Grant budget (rather than the Revenue Support Grant as was stated in the Autumn Budget Revision) and the money would be returned to that budget in 2010-11.

51. The letter went on to say that the Scottish Government—

“considered the whole local government funding equation in bringing forward this proposal, including both direct government support and local government’s own borrowing capacity.  If the slippage in local authority capital programmes, which reports earlier this year had indicated would occur, is not as much as had been suggested then the resources that local government would have to find for that could be met from a fuller use of the additional borrowing capability which they have.  This, in turn, would be largely offset by a reduced borrowing requirement in 2010-11 when the £40m is returned to the General Capital Grant budget from the Affordable Housing Investment Programme.”23

52. The Cabinet Secretary was asked in evidence what would happen in areas where there is no local authority housing.  He replied that it was his understanding that the affordable housing programme would be delivered predominantly by registered social landlords (RSLs), although it might contain some local authority provision.  The Cabinet Secretary subsequently wrote to the Committee stating that the £1.5bn Affordable Housing Investment Programme is allocated mainly to RSLs (approximately 70% of the programme is spend on helping RSLs to meet demand for new social housing for rent, on average subsidising just over two-thirds of the construction costs of each new housing unit). The Cabinet Secretary confirmed that the £9m of housing monies already allocated is being directed at projects which help relieve housing shortfalls and homelessness pressures in line with local authority local housing strategies.

53. It was noted that, as the Scottish Government operates within a fixed budget, expenditure cannot be increased without there being consequential decreases in another part of the budget. Instead, resources can only be shifted between budgets.  Therefore, the question was raised as to whether the net effect of accelerating and reprofiling capital spend would be that substantive issues would remain the same, with the adverse impact merely being delayed.

54. The Cabinet Secretary responded that—

“The Government hopes and believes that by accelerating affordable housing investment, for example, we can try to stem some of the losses in the construction sector.  By 2010-11, there may be some recovery in private sector activity that allows construction activity to fill some of those gaps in the programme.” 24

55. This concern was echoed by the Economy, Energy and Tourism Committee in its report where it stated that the Committee was concerned that “the short-term effect of this investment may be reduced by the temporary transfer of capital spending and seeks reassurance on whether the funds will be returned to the same budget lines in future years.”25

56. The Committee notes the six-point plan published by the Scottish Government on 14 October 2008; and recognises that this is produced within the context of the Scottish Government operating on a fixed budget, which means that increases in spending in one area must consequently be accompanied by decreases in other areas.  The Committee also recognises that the Scottish Government does not currently have the ability to borrow.  The Committee notes the dispute between the Scottish and UK Governments over the correct application of the Barnett formula with regard to prisons expenditure in England and Wales as a result of the Carter review.26

57. As stated above, the Cabinet Secretary confirmed that £9m of the £30m earmarked for Affordable Housing in 2008-09 had been allocated with the remainder of the allocations to be made “very shortly”.  A further allocation of £9m was announced by the Deputy First Minister on 27 November 2008.  In a letter to the Committee, the Cabinet Secretary stated that the allocation of the remaining £12m will be announced in December, following discussion with individual local authorities.27A further £70m will be allocated in 2009-10. No decisions have yet been taken on the allocation of this funding. The Economy, Energy and Tourism Committee raised concerns that in evidence to it the Minister was unable to provide greater clarity on the Scottish Government’s proposals, particularly in relation to a timeline for delivering on the commitment.

58. The Local Government and Communities Committee recommended that, in future draft budgets, the Scottish Government should make available more detailed information on the Affordable Housing Investment Programme and the outputs it will provide.

59. In its report, the Economy, Energy and Tourism Committee recommended that that Scottish Government should review whether a proportion of the money in the Affordable Housing Investment Programme should be targeted at energy efficiency measures.

60. The Committee requests that the Scottish Government demonstrate how this money will be used to maximise the impact on the construction industry and the Scottish economy.28

61. On this issue and capital spend more generally, the Economy, Energy and Tourism Committee also suggested that the Finance Committee should recommend to the Scottish Government that it keeps track of the totality of capital expenditure in the public sector.

62. The Committee invites the Scottish Government to respond to the request from the Economy, Energy and Tourism Committee.

Plans for supporting the economy

63. The Cabinet Secretary stated that, “as the Scottish Government saw the difficulties emerging over the summer, we formulated a series of interventions that were designed to assist key elements of the economy.”29  In addition to the reshaping of the capital programme outlined above, the Cabinet Secretary stated that, “the Government has made various other policy interventions to assist in that process [of supporting economic recovery].”30  This has been referred to as the ‘six-point plan’.

64. The Economy, Energy and Tourism Committee states in its report that, “the Scottish Government did not provide any significant additional detail on almost all of the spending plans linked to the six-point economic plan announced in mid-October other than that related to the affordable housing investment plan”31 and recommended that information should be provided as soon as possible.

65. The Cabinet Secretary was asked by this Committee to clarify which resources had been realigned within the Draft Budget to fund these policy interventions, in addition to the £100m Affordable Housing Investment Programme.  The Cabinet Secretary responded that the Scottish Government was taking steps to accelerate the distribution of European structural funds and that £180m from those funds had already been allocated as part of the 2007-2012 programme.  Further it was intended to bring forward a “large share” of the remaining £385 million to support capital plans.  The Cabinet Secretary also cited work with government agencies such as Scottish Enterprise which he stated is “reshaping some of its activity to ensure that it doubles the size of the Scottish manufacturing advisory service to provide the type of assistance that companies in the manufacturing sector will appreciate in the current economic climate.”32

66. The Cabinet Secretary was asked to provide a full breakdown of the realignment of the resources to match the Scottish Government’s plan for economic recovery (although the Committee recognises that this may in due course be influenced by Barnett consequentials).  The Committee received a response from the Cabinet Secretary which stated—

“the key capital spending change which has been announced to date is the £100m of the Affordable Housing Investment Programme which has been brought forward from 2010-2011 to 2008-09 and 2009-10.  The Scottish Government is currently reviewing the need for further acceleration or re-profiling of the budget in 2008-09.  If any changes to the budget are proposed for 2008-09 they will be re-profiled at the Spring Budget Revision when there will be an opportunity for them to be scrutinised by the Parliament.

New spending may be announced as part of the 6-point plan, but the plan concentrates on how the timing and focus of agreed spending can be adjusted to support the economy.  The budget consultation process for 2009-10 allow for views to be fed into the detailed proposals which will then be finalised for the Budget Bill…any Barnett consequentials resulting from the forthcoming Chancellor’s Pre-Budget Report announcement would also influence any decisions we make.”


Footnotes:

1 Volume 2 contains the reports and relevant extracts from the Minutes from other parliamentary committees and the SCPA.

2 Scottish Parliament Finance Committee. Written Agreement on the Budgeting Process between the Scottish Government and the Finance Committee.  Available at: http://www.scottish.parliament.uk/business/committees/finance/Written%20Agreement%20between%20FC%20and%20Exec%20at%2022.6.05.pdf [Accessed 4 December 2008]

3 This paragraph was proposed by Jeremy Purvis and was agreed to by division.  The result was: For 5 (Derek Brownlee, Joe FitzPatrick, Alex Neil, Jeremy Purvis and Andrew Welsh) Against 0, Abstentions 3 (Jackie Baillie, James Kelly and David Whitton).  An alternative paragraph was proposed by James Kelly as follows – “The Committee notes that the Government has so far only confirmed £18m of its proposed £100m on affordable housing, the bulk of which has been spent on land acquisition and site starts.  The Committee recommends that the Scottish Government should use the money to begin building work urgently, which will be a far more effective GDP enhancing measure.”  This proposal was disagreed to by division.  The result was: For 3 (Jackie Baillie, James Kelly and David Whitton), Against 4 (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Abstentions 1 (Jeremy Purvis).

4 A proposal was made by Jeremy Purvis to insert the following after paragraph 69 - “The Committee is deeply concerned that the budget is 1% different from that proposed in the Spending Review 2007 published before the economic downturn.  This is an insufficient response to the economic situation in this budget year.”  This was disagreed to on a casting vote.  The result was: For 4 (Jackie Baillie, James Kelly, Jeremy Purvis and David Whitton) Against 4 (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Abstentions 0.

5 This paragraph was proposed by James Kelly and was agreed to by division.  The result was: For  7 (Jackie Baillie, Derek Brownlee, Joe FitzPatrick, James Kelly, Alex Neil, Andrew Welsh and David Whitton) Against 1 (Jeremy Purvis), Abstentions 0.

6 A proposal was made by James Kelly to insert the following at the end of this section – “The Committee requires clarification on what specific budget lines have been reduced and which have increased in the budget.  The Committee recommends that the Cabinet Secretary clarifies how specific savings are being reallocated and provides the Committee with a statement of output baselines for each Efficiency Delivery Plan, including the NHS and local government, so that efficiency gains can be rigorously monitored.”  The proposal was disagreed to on a casting vote.  The result was: For 4 (Jackie Baillie, James Kelly, Jeremy Purvis and David Whitton), Against (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Abstentions 0.

7 Scottish Parliament Justice Committee. Report on the Scottish Government’s Draft Budget 2009-10

8 This paragraph was proposed by Joe FitzPatrick and was agreed to by division. The result was: For 5 (Derek Brownlee, Joe FitzPatrick, Alex Neil, Jeremy Purvis and Andrew Welsh), Against 1 (David Whitton), Abstentions 1 (Jackie Baillie).  The following alternative paragraph was proposed by James Kelly - “The Committee is clear that a lack of transparency results from the Scottish Government’s failure to cost the set of specific commitments in the Concordat.  Parliament should not be asked to approve budget plans which lack costings, and the Committee recommends that the Cabinet Secretary provides costings of the new spending commitments in the Concordat to Parliament prior to the Budget  Bill.”  This proposal was disagreed to on a casting vote.  The result was: For 4 (Jackie Baillie, James Kelly, Jeremy Purvis and David Whitton), Against 4 (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Abstentions 0.

9 This paragraph was proposed by Joe FitzPatrick and was agreed to by division. The result was: For 4 (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Against 1 (Jeremy Purvis), Abstentions 3 (Jackie Baillie, James Kelly and David Whitton).

10 This paragraph was proposed by Joe FitzPatrick and was agreed to by division.  The result was: For 5 (Derek Brownlee, Joe FitzPatrick, Alex Neil, Jeremy Purvis and Andrew Welsh), Against 0, Abstentions 1 (David Whitton).

11 This paragraph was proposed by Derek Brownlee and was agreed to on a casting vote.  The result was: For 4 (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Against 4 (Jackie Baillie, James Kelly, Jeremy Purvis and David Whitton), Abstentions 0.  It was proposed by Jeremy Purvis that the following be inserted at the end of this paragraph - “but in so doing, carries out an objective assessment on the direct economic impact of such measures.” This proposal was disagreed to on a casting vote. The result was: For 4 (Jackie Baillie, James Kelly, Jeremy Purvis and David Whitton), Against 4 (Derek Brownlee, Joe FitzPatrick, Alex Neil and Andrew Welsh), Abstentions 0.

12 This paragraph was proposed by Derek Brownlee and was agreed to by division.  The result was: For 6 (Jackie Baillie, Derek Brownlee, James Kelly, Jeremy Purvis, Andrew Welsh and David Whitton), Against 0, Abstentions 2 (Joe FitzPatrick and Alex Neil).

13 Scottish Parliament Transport, Infrastructure and Climate Change Committee. Report to the Finance Committee on the Draft Budget 2009-10

14 Scottish Parliament Finance Committee.  Official Report, 10 November 2008, Col 787.

15 The deflator used in the Scottish Government’s Spending Review 2007 was 2.7%.

16 Scottish Parliament Transport, Infrastructure and Climate Change Committee. Report on the Scottish Government’s Draft Budget 2009-10

17 S3M-2864 Sarah Boyack: Energy efficiency, as amended by S3M-2864.1 (Patrick Harvie).

18 Scottish Parliament Finance Committee. Official Report, 10 November 2008, Col 789.

19 Scottish Parliament Finance Committee. Official Report, 10 November 2008, Col 798.

20 Where no page number from the Draft budget is quoted, this information is not contained in the document and was derived from communication between SPICe researchers and Scottish Government officials.

21 Scottish Parliament Finance Committee. Official Report, 10 November 2008, Col 796.

22 Scottish Parliament Finance Committee. Official Report, 10 November 2008, col 797.

23 Scottish Government.  Letter from the Cabinet Secretary for Finance and Sustainable Growth to the Convener of the Finance Committee dated 27 November 2008.  Available at:

http://www.scottish.parliament.uk/s3/committees/finance/reports-08/fir08-06.htm#b [Accessed 3 December 2008]

24 Scottish Parliament Finance Committee. Official Report, 10 November 2008, Col 792.

25 Scottish Parliament Economy, Energy and Tourism Committee. Report on the Scottish Government’s Draft Budget 2009-10

26 Lord Carter’s Review of Prisons: Securing the future: Proposals for the efficient and sustainable use of custody in England and Wales.  Available at: http://www.justice.gov.uk/docs/securing-future.pdf [Accessed 4 December 2008]

27 Scottish Government. Letter dated 2 December 2008 from the Cabinet Secretary for Finance and Sustainable Growth to the Convener of the Finance Committee.

28 This paragraph was proposed by Jeremy Purvis and was agreed to by division.  The result was: For 5 (Derek Brownlee, Joe FitzPatrick, Alex Neil, Jeremy Purvis and Andrew Welsh), Against 0, Abstentions 3 (Jackie Baillie, James Kelly and David Whitton).  An alternative paragraph was proposed by James Kelly as follows – “The Committee notes that the Government has so far only confirmed £18m of its proposed £100m on affordable housing, the bulk of which has been spent on land acquisition and site starts.  The Committee recommends that the Scottish Government should use the money to begin building work urgently, which will be a far more effective GDP enhancing measure.”  This proposal was disagreed to by division.  The result was: For 3 (Jackie Baillie, James Kelly and David Whitton), Against 4 (Derek Brownlee, Joe PitzPatrick, Alex Neil and Andrew Welsh), Abstentions 1 (Jeremy Purvis).

29 Scottish Parliament Finance Committee. Official Report, 10 November, Col 789.

30 Scottish Parliament Finance Committee. Official Report, 10 November, Col 789.

31 Scottish Parliament Economy, Energy and Tourism Committee. Report on the Scottish Government’s Draft Budget 2009-10

32 Scottish Parliament Finance Committee. Official Report, 10 November 2008, Col 791.