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SP Paper 651 FI/S3/11/R7

7th Report, 2011 (Session 3)

Session 3 Legacy Paper

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:

Derek Brownlee
Malcolm Chisholm
Linda Fabiani
Joe Fitzpatrick
Tom McCabe (Deputy Convener)
Jeremy Purvis
Andrew Welsh (Convener)
David Whitton

Committee Clerking Team:

Clerk to the Committee
Jim Johnston

Senior Assistant Clerk
Terry Shevlin

Assistant Clerk
Allan Campbell

Committee Assistant
Jennifer Bell

Session 3 Legacy Paper

The Committee reports to the Parliament as follows—

Introduction

1. The Finance Committee has agreed to publish this legacy paper as a means of identifying some key lessons learned during the current session which will hopefully assist the successor committee in the next session in delivering effective financial scrutiny. In particular, the Committee wishes to emphasise the need to take a longer term and more strategic approach to financial scrutiny in addition to the annual budget process.

2. The introduction of the Budget Strategy Phase (BSP) and the Committee’s recent inquiry work, which are discussed in more detail below, are intended as a useful starting point in delivering this approach.

3. Given these developments the Written Agreement between the Scottish Government and the Finance Committee requires to be updated and this paper also suggests some amendments.

A Longer-Term Approach

4. The next session of the Scottish Parliament is likely to be extremely challenging given the continued pressure on the public finances. It is, therefore, essential that there is effective scrutiny of the Scottish Government’s spending priorities. At the same time it is also essential that the Parliament and Government work together in seeking to develop a more effective use of public finances over the longer-term.

5. Both the introduction of the BSP and the Committee’s recent inquiry work emphasise the need to adopt a more strategic and longer term approach to financial scrutiny outwith the annual budget cycle.

Budget Strategy Phase

6. The aim of the BSP is to replace the previous Stage 1 of the budget process, which had not been carried out since spring 2004. This was, in part, due to the UK spending review being delayed and then coinciding with the 2007 Scottish election. Consequently, in its report on the review of the budget process, the Committee recommended that the timing and objectives of the BSP should remain flexible. The Committee also recommended that the Written Agreement be amended to include the level of information and documentation which the Scottish Government should be required to provide to support the BSP. This documentation should allow for the alignment of budgetary information with appropriate policy statements and performance monitoring material. The Committee agreed that: “it is essential that a strategic budget phase allows scrutiny to be aligned with the policy priorities which the Scottish Government is pursuing through its budget.”

7. The BSP should also allow the Parliament to focus on longer-term strategic issues and should include an examination of the Scottish Government’s performance in delivering its own targets and the concomitant budgetary choices. This will require a greater linkage between expenditure and outcomes than currently exists.

8. The Committee recommends that its successor committee may wish to consider its approach to the BSP early in the new session.

Inquiries

9. The Committee carried out an inquiry on the efficient delivery of public services as part of the BSP in Spring 2010. The remit of the inquiry was: “What preparation should be underway now by the public sector to ensure the efficient delivery of public services within a period of tightening public expenditure?” The Committee emphasised the need to take a longer-term approach to current financial challenges and identified a move towards a more preventative spending as one potential approach. This led to another substantial inquiry being carried out by the Committee in the Autumn of 2010: “To consider and report on how public spending can best be focussed over the longer term on trying to prevent, rather than deal with, negative social outcomes.”

10. Throughout the inquiry the Committee time and time again was presented with evidence supporting the case for preventative spending and especially investment in the Early Years. This body of evidence quickly mounted and became irrefutable. As the Deputy Convener stated in a conference which was held in the Parliament on 4 March to discuss the findings of the inquiry: “It became so apparent to us that investment in early years provision could make such a seismic change to our society in Scotland that it was a big surprise that it had taken so long for the discussion to get this far and that we are still so far away from comprehensive implementation.”1

11. The Committee considers that the current, reactive approach to public spending is unsustainable and that there must be a shift away from reacting to crises to a greater focus on prevention and early intervention. The Committee’s report, which was published in January 2011, demonstrated a clear political consensus for a more preventative approach and investment in the Early Years as one that could deliver clear social and economic benefits across Scotland.

12. There is a need for a sustained political commitment to preventative spending over the longer term and the Committee considers that the next Scottish Parliament and Scottish Government must provide the leadership required to make this shift. The Committee considers that its successor will have a key role to play in this process.

13. The Committee believes that this shift may require a radical overhaul of the way that the Scottish public sector is currently organised and submitted a copy of the report to the Commission on Public Services.

14. A number of key issues emerged during the conference which the Committee recommends should inform the debate on preventative spending in the next session of the Parliament:

  • We need to recognise that preventative spending is not top of the political agenda so we need to make this approach irresistible to politicians;
  • The Parliament’s committees are ideally suited to driving the preventative spending agenda forward on a continuing, cross-party basis;
  • We need consensus, political will and more concerted central direction;
  • The debate on preventative spending needs to be much wider than just Early Years and health and social care;
  • The debate should be people focussed and not always about money and structures;
  • The main focus should be on outcomes.

15. The Committee recommends to its successor that it has a key role in ensuring that the shift towards preventative spending and investment in the Early Years continues to move up the political agenda over the next session.

16. The Committee recommends that the scrutiny of preventative spending should be integral to the annual budget process and that the guidance issued to subject committees should invite them to scrutinise the Scottish Government’s progress in moving towards a more preventative approach to public spending.

17. While the primary role of the Committee remains to ensure effective scrutiny of the annual budget the Committee also emphasises the need to take a longer-term approach outwith the annual budget cycle and recommends that its successor committee may wish to develop this approach.

18. The Committee recognises the advantages which it has in being able to take a cross-cutting approach to its inquiry work and recommends that its successor committee may wish to continue to adopt this approach especially in relation to the ongoing debate on the need to radically restructure the Scottish public sector.

Subject Committees

19. In its legacy paper, the Conveners Group made similar points to those made by the Health and Sport Committee in its report on the 2011-12 Draft Budget, that the timetable for budget scrutiny is insufficient for subject committees to undertake detailed work on the Draft Budget. The Finance Committee considered timetabling issues as part of its review of the budget process and noted that the tight timescale is determined by the need to have the annual Budget Bill passed and enacted before the start of the next financial year. The Committee did, however, make some recommendations as a means of alleviating timetabling pressures and these can be found at paragraphs 69-78 of the report on the review. The BSP is also intended to alleviate some of the timing pressures faced by subject committees.

20. The recommendations also included the proposal (also raised in the Session 2 Committee’s legacy paper) that committees should aim to build an element of financial scrutiny into their inquiry work.

21. This approach has been used successfully by a number of committees in Session 3 (most notably the Local Government and Communities Committee) and the Committee recommends to its successor that this is highlighted in guidance to subject committees early in the next session, and that it asks subject committees to keep the Committee informed of any financial scrutiny they are undertaking.

The Written Agreement

22. The Written Agreement between the Scottish Government and the Finance Committee has not been updated since 2005. Given the introduction of the BSP and the emphasis on preventative spending it requires to be updated. The following paragraphs contain a series of specific recommendations for changes to the Written Agreement.

23. However, the Committee also recommends that a wider review of the Agreement may be a useful exercise for the new Committee to undertake as one of its first items of business.

Preventative spending

24. The previous section of this report outlined the Committee’s proposals for moving towards a longer-term and preventative approach to public spending.

25. The Committee therefore recommends that the Written Agreement is amended to require the Scottish Government to include an assessment under each portfolio heading in the Draft Budget of the progress that is being made towards a more preventative approach. Given the cross-cutting nature of preventative spending and that relevant spending decisions in one portfolio may affect another portfolio, the Scottish Government should also provide a separate analysis of progress being made across all areas of spending.

Performance Reporting

26. The Committee in its legacy paper at the end of the second session expressed its concern that “the Executive is not subject to robust performance scrutiny.” The Committee recommended that the incoming Committee should continue to pursue the issue with the Executive “in order to ensure that targets are effectively scrutinised.”

27. Following the 2007 election the new government introduced a new approach to performance monitoring as part of its 2007 Spending Review in which it stated: “We are moving the whole of government to an outcomes-focused approach to performance. This means that we will be judged – as we should be – on the results that we achieve.”

28. In June 2008 the government launched the Scotland Performs2 website which provides a regularly updated snapshot of the government’s performance in relation to the national outcomes, indicators and targets.

29. In its report on the 2010-11 Draft Budget the Committee stated that: “The Committee considers that the dynamic public information provided by Scotland Performs, while very welcome, is not the same as a formal report to the Parliament which can form the basis for future budget scrutiny. The Committee, therefore, recommends that the Scottish Government considers urgently and reports to it on the performance information it will provide to support the budget process.”

30. The Auditor General for Scotland (AGS) in his report on Scotland’s Public Finances, published in November 2009, stated that: “Financial outturn information linked to activity levels and performance information should be a major resource of information to assist the Parliament in scrutinising future budget proposals but this does not happen systematically at present.” The report adds that delivering many of the outcomes of the National Performance Framework (NPF) will be long term and their achievement depends on the year-on-year delivery of services. Therefore, national indicators and targets need to be supported by good information on the cost, activity and performance of services. The AGS recommended that: “Good performance monitoring and reporting of accessibility, quality and costs of key public services would better support the Parliamentary scrutiny process.”

31. In its report on the 2011-12 Draft Budget the Committee noted its regret at “the lack of any information within the Draft Budget linking an evaluation of government performance over the period of the previous spending review with its policy priorities for Draft Budget 2011-12 and intends to address this issue in its legacy paper.”

32. In its response the Scottish Government stated that the NPF: “provides a link, or common alignment between reporting on policy progress and financial reporting. Within the draft budget document itself, each portfolio chapter sets out a clear explanation of what has been delivered in the period since 2007. However, the Scottish Government will be happy to engage with the committee on how we might build on the approach taken to date – and to reflect in due course on its legacy paper – as we move forward.”

33. The Committee notes the views of the Scottish Government in relation to Scotland Performs but again states that this does not constitute a formal report to the Parliament. The Committee recommends to its successor committee that it seeks to amend the Written Agreement to include details of the level of performance information which the Scottish Government will report to the Parliament in order to support both the annual budget process and the BSP. In particular, the effectiveness of the BSP will largely depend on the level and quality of the information provided by the Scottish Government. More work is, therefore, required by the government in providing the linkage between performance and expenditure and the Committee recommends that the revised Written Agreement should reflect this.

Level 4 information

34. In its report on the 2011-12 Draft Budget, the Committee also recommended that the provision of level 4 information be included in a revised Written Agreement.

35. The Committee recommends that its successor take this forward.

Contingent Liabilities

36. The Committee has considered a number of contingent liabilities in the current session. On two occasions the Committee has been asked by the Scottish Government to consider these in private session. However, there is no mention of taking evidence on a contingent liability in private session within the Written Agreement. Indeed, the Committee notes that the section on contingent liabilities is rather brief and the process for dealing with contingent liabilities could be set out in greater detail.

37. The Committee recommends to its successor committee that the section on contingent liabilities in the Written Agreement is reviewed and expanded including setting out the agreed criteria by which the Scottish Government may ask the Committee to take evidence on a contingent liability in private.

Other issues

Financial Scrutiny Unit

38. A significant innovation arising from the review of the budget process is the introduction of the Financial Scrutiny Unit (FSU). The FSU was established as a parliamentary budget resource capable of providing independent advice and support to MSPs on budgetary trends and issues, undertaking independent costing of specific spending proposals (whether proposals from the Scottish Government or others) and providing research on all aspects of public finances as they affect the Scottish Government or Parliament.

39. The Committee welcomes the introduction of the FSU and recommends that its successor committee may wish to invite the FSU early in the new session to provide an update on its progress in providing the level of support identified by the Committee in paragraphs 108-114 of its report on the review of the budget process.

Budget Adviser

40. The Committee recognises the invaluable contribution which the Budget Adviser, Professor David Bell, has made to its work over the current session and thanks him for his analysis and advice.

41. The Committee recommends that its successor committee considers appointing a Budget Adviser.

Financial Memorandums

42. The Session 2 Finance Committee developed a three-level system of scrutiny for Financial Memorandums. The Session 3 Committee agreed to adopt this system and believes that it has worked well.

43. The Committee recommends that its successor consider adopting the system for its own work on Financial Memorandums.

Post-legislative scrutiny

44. In its legacy paper, the Conveners Group recommends that current committees should identify areas of work which would benefit from post-legislative scrutiny. The Committee was the lead committee on the Public Services Reform (Scotland) Bill in this session. The Committee would expect that key elements of the Bill considered by other committees at Stage 1, including the establishment of new scrutiny bodies for Health and for Social Care and Social work, would be considered by those committees from a post-legislative point of view if they consider that to be appropriate. However, the Finance Committee took a lead role in scrutinising the order-making powers in the Bill which are intended to be a key tool of the Government’s public sector reform programme.

45. Given the importance of the debate on radically restructuring the Scottish public sector, referred to elsewhere in this legacy paper, the Committee recommends that its successor ensures regular monitoring on the use of these powers by the new Administration, and of the wider programme for public sector reform.

Evidence from the Chief Secretary to the Treasury

46. Since the 2010 UK election, the Committee has taken evidence from the Chief Secretary to the Treasury on two separate occasions.

47. The Committee welcomes this development, and recommends that its successor look to continue to invite the Chief Secretary to give evidence at appropriate points in the next session

External meetings on the Draft Budget

48. The Committee decided to continue the practice of the Finance Committee in Sessions 1 and 2 of holding an external meeting each year to gauge the impact of the budget on local areas. This year the Committee has been to Dundee, Ayr and Glasgow. Unfortunately, due to the adverse weather in December 2010, the Committee’s planned meeting in Carnoustie had to be cancelled. As well as the formal evidence session with the Cabinet Secretary, the Committee has found its workshops with local organisations and schools to be extremely useful and considers this to be an essential part of the Committee’s public engagement work.

49. The Committee recommends to its successor that it consider continuing this practice.


Footnotes: