Finance and Constitution Committee

Meeting date: Wednesday, November 8, 2017

Official Report 587KB pdf

---

Subordinate Legislation

---

Budget (Scotland) Act 2017 Amendment Regulations 2017 [Draft]

Agenda item 2 is consideration of the Scottish statutory instrument that provides for the 2017 autumn budget revision. Before we come to the motion that seeks our approval of the regulations, we have an evidence-taking session. We are joined by the Cabinet Secretary for Finance and the Constitution, Derek Mackay, who is accompanied by two officials, Bill Stitt and Scott Mackay. I invite the cabinet secretary to make an opening statement.

Thank you, convener, and good morning. The autumn budget revision provides the first of two opportunities to formally amend the Scottish budget for 2017-18. In order to assist the committee with its scrutiny, I provided a brief guide to the autumn budget revision, which sets out the background to and details of the main changes proposed. I hope that the committee has found the guide to be helpful.

This year’s autumn budget revision deals with four types of amendments to the budget. First, there are a couple of funding changes. Secondly, there are a few technical adjustments that have no impact on spending power. Thirdly, there are a couple of Whitehall transfers. Finally, there are some budget-neutral transfers of resources between portfolio budgets.

The net impact of all those changes is an increase in the approved budget of £19 million from £39,300.2 million to £39,319.2 million. Table 1.1 on page 4 of the supporting documents shows the approved budgets following the changes sought in the autumn budget provision. The supporting documents to the autumn budget revision and the brief guide, which was prepared by my officials, provide background on the net changes.

The first set of changes comprises deployment of financial transactions to support the Scottish growth fund offset by a transfer to central resources from the coastal communities fund to be held until required. In total, those changes increase the budget by £7.7 million. The second set of changes comprises a few technical adjustments to the budget. They are non-cash adjustments and therefore budget neutral, as they cannot be redeployed to support discretionary spend elsewhere, and have a net positive impact of £6.3 million on the overall aggregate position. It is necessary to reflect those adjustments to ensure that the budget is consistent with the accounting requirements and with the final outturn that will be reported in our annual accounts.

The Scottish budget aligns with the accounting requirements under the Government financial reporting manual; accordingly, a budget provision is included within the Scottish budget for the financial year to reflect the recognition of relevant assets with revenue finance infrastructure schemes in accordance with the accounting requirements. The adjustment to the budget at this autumn budget revision is £9.9 million.

Other technical adjustments are a transfer of £1 million to the judicial salaries budget, which sits outside the budget that is approved by the Scottish Parliament; a £2 million transfer of non-cash budget from the National Records of Scotland to Historic Environment Scotland; and a couple of minor adjustments to allow Skills Development Scotland and the Risk Management Authority to access cash reserves.

With regard to the Whitehall transfers and allocations from Her Majesty’s Treasury, there is a net positive impact in the budget of £5.2 million in relation to the coastal communities fund and the Edinburgh cultural summit.

The final part of the budget revision concerns the transfer of funds within and between portfolios to better align the budgets with profiled spend. In line with past years, there are a number of internal portfolio transfers that have no effect on portfolio totals but ensure that internal budgets are monitored and managed effectively. The main transfers between portfolios are noted in the supporting documents and the guide.

As we move towards the financial year end we will continue, in line with normal practice, to monitor forecast outturn against budget and wherever possible we will seek to utilise any emerging underspends to ensure that we make optimum use of the resources available in 2017-18 and to proactively manage the flexibility provided under the fiscal framework agreement between HM Treasury and the Scottish Government. I will provide the committee with a mid-year report on revenue and spending to date, alongside the spring budget revision, when published, to improve transparency of the budget management process and the decisions we will take in year, in line with the budget process review group recommendations.

Also, in response to the recommendations of the budget process review group on the transparency of budget information, two new tables have been added to this year’s supporting documents on page 8. The tables show the sources of funding that support the changes I have flagged and the movement of available resources. I hope that members find them useful.

Thank you, cabinet secretary. Neil Bibby has a question.

You mentioned allowing bodies to access cash reserves, and you mentioned Skills Development Scotland and the Risk Management Authority. Can you tell us a bit more about that?

Scott Mackay can expand on that.

That is a technical adjustment, which is about the source of cash for these bodies. It will not affect the bodies’ overall spending—it is just the split in cash that they will utilise across the year between what they receive from the Scottish Government and what they use from their reserves. Because they are accessing the reserves, we are reducing the amount of funding that we are providing them but the overall spend in the year will be the same.

In the list of portfolio transfers, a sum of £55 million—a substantial sum—for midwifery education is being transferred from health and sport to education and skills. That transfer has appeared in the autumn budget revision in every year since 2008-09. Given that the transfer is happening annually, would it not make more sense for the sum to be incorporated into the education and skills budget when you publish your draft budget for the year rather than an annual revision being done in the autumn of every year?

Mr Fraser makes a valid point. He is correct in saying that there has been a practice that a portfolio that ultimately has responsibility can determine that resource, and can be a beneficiary if there are savings in that line as well. That has been the position in terms of the line. A portfolio with responsibility is transferring to another portfolio. That is certainly a significant example, but it has been consistent with that in previous years.

At the start of the financial year, there might not be absolutely clarity on what that figure will be and as it is developed over time there is the certainty that allows me to bring it to the autumn budget revision. There could be a process in which it was all transferred into another portfolio, but in essence it is continuing the practice—it is not exclusive to that line—whereby the portfolio with responsibility makes a determination.

The point behind my question is that by doing it in this way you are inflating the size of the health budget and deflating the size of the education and skills budget when your draft budget is produced. For the purposes of clarity and transparency, would it be better to permanently put the spending in the education and skills budget?

I understand the analysis, but there is a principle around the portfolio with responsibility essentially commissioning that from another portfolio. Of course, cross-portfolio transactions work both ways as well. However, that has been the established practice and I am being consistent by following it. There can be an overall budget realignment, but there are many budget lines for which the principle applies that the portfolio with responsibility transfers the resource to another portfolio, and ultimately health would be the beneficiary of any savings in this line, if there were any.

In the list of technical adjustments, there are two changes in relation to international financial reporting standards requirements and bringing them in line with the Scottish year-end budget. The figures are £4.9 million for prisons and £5.5 million for motorway and trunk roads. Can you give us a bit of background on those changes?

Scott Mackay will come in on that.

This is about differences in the way that certain examples of these contracts are treated against Treasury budgets and disclosed in accounts. In the Scottish budget we need to approve an allocation that aligns with that accounting treatment, so we need to make these technical adjustments. As Mr Mackay said in his opening statement, the changes do not increase our spending power. They are about the way in which the accounting requirements mean that we need to show these contracts in our accounts.

Why has the change been made now? Why could it not be reflected when the budget was drawn up?

Because in-year adjustments reflect the movements on these contracts; the figures are not precisely clear at the draft budget period. As you are aware, at the budget bill technical adjustments are shown that are in line with this; these are in-year movements against those contracts in the accounting disclosure.

Does that mean that the values in the contracts have increased in the course of the year?

It can be a movement in the asset values that is reflected in the accounts.

In the prisons example, where the figure was £4.9 million, are you saying that there has been an increase in asset values linked to prison infrastructure projects?

It is an adjustment to the carrying value in the accounts. Obviously, that varies over time. That asset will be depreciated across the year. The net carrying value in the accounts will change and that adjustment can reflect that.

What was the adjustment? Is it an adjustment because the asset value has increased, or an adjustment because of depreciation policy or because the depreciation value has changed?

I am sorry; bear with me a second.

Take your time. It is quite a detailed question. If you cannot find it just now, it is okay if you write to us.

11:15  

It is not a point that would be leaked to the Opposition in an order, but I am keen to understand why the values have increased. We are talking about £10 million, which is a reasonable sum of money.

It is important to be clear that it is not a change in the underlying contract. The actual payments from the prison service to the contractor are not changing as a result of these adjustments. It is purely about the accounting disclosure.

I understand what you are saying—it is to do with change in the accounting disclosure, and that is what was said in the order. However, I am still not clear what it was.

Perhaps you could write to us and let us know what the outcome is. It was right to ask that question.

As there are no further questions, we move to agenda item 3, which is consideration of the motion.

Motion moved,

That the Finance and Constitution Committee recommends that the Budget (Scotland) Act 2017 Amendment Regulations 2017 [draft] be approved.—[Derek Mackay]

Motion agreed to.

The committee will provide a short report to the Parliament setting out our decision on the order. I thank the committee and the cabinet secretary.

Meeting closed at 11:17.