Finance and Constitution Committee

Meeting date: Wednesday, October 26, 2016

Official Report 545KB pdf

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Subordinate Legislation

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Public Appointments and Public Bodies etc (Scotland) Act 2003 (Treatment of Scottish Fiscal Commission as Specified Authority) Order 2016 [Draft]

Item 3 is consideration of a Scottish statutory instrument relating to appointments to the Scottish Fiscal Commission. Before we come to the motion for which our approval is sought, under agenda item 4, we have an evidence session on the draft order. We are joined by the same witnesses who gave us evidence on LBTT, so without further ado I invite the cabinet secretary to make an opening statement.

You can see that the day job keeps me quite busy, convener.

The purpose of the draft order is to enable Scottish ministers to bring within the remit of the Commissioner for Ethical Standards in Public Life in Scotland appointments to the Scottish Fiscal Commission, which does not yet exist in law, and therefore enable the commissioner to regulate appointments. The role of the commissioner will help to ensure that the appointments process is fair and open and that the successful applicants are appointed on merit.

There are no questions from members.

Item 4 is consideration of the draft order. I invite the cabinet secretary to move motion S5M-01595.

Motion moved,

That the Finance and Constitution Committee recommends that the Public Appointments and Public Bodies etc. (Scotland) Act 2003 (Treatment of Scottish Fiscal Commission as Specified Authority) Order 2016 [draft] be approved.—[Derek Mackay]

Motion agreed to.

The committee will now publish a short report to the Parliament, setting out our decision on the draft order.

I suspend the meeting to allow for a changeover of witnesses.

10:43 Meeting suspended.  

10:44 On resuming—  

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Budget (Scotland) Act 2016 Amendment Regulations 2016 [Draft]

Item 5 is consideration of the Scottish statutory instrument that provides for the 2016-17 autumn budget revision. Before we come to the motion seeking approval at item 6, we will hear evidence on the order. We are joined by the Cabinet Secretary for Finance and the Constitution, Derek Mackay, and by supporting officials from the Scottish Government, Scott Mackay and Ian Storrie. I invite the cabinet secretary to make an opening statement.

The autumn budget revision provides the first of two opportunities to amend formally the Scottish budget for 2016-17. In order to assist the committee with its scrutiny, I have provided a brief guide to the autumn budget revision, which has been prepared by my officials. The guide sets out the background to, and details of, the main changes that are proposed. I hope that committee members have found the guide to be helpful.

Table 1.8 on page 9 of the supporting document shows the approved budgets for the budget bill as realigned to reflect the new portfolio structure that was announced by the First Minister on 18 May 2016.

This year’s autumn budget revision deals with four different types of amendment to the budget. First, there are a few funding changes. Secondly, there are a couple of technical adjustments that will have no impact on spending power. Thirdly, there is a Whitehall transfer and, finally, there are some budget-neutral transfers of resources between portfolio budgets. The net impact of those changes is an increase of £259.4 million in the approved budget.

Table 1.1 on page 4 of the supporting document shows the approved budgets following the changes that are sought in the autumn budget revision. The first set of changes comprises mainly deployments of available resources that are sourced from Barnett consequentials, budget exchange and tax receipts to various portfolios to meet ministerial priorities and to manage outstanding pressures. In total, those changes increase the budget by £151.8 million.

The second set of changes comprises a couple of technical adjustments to the budget. The technical adjustments are non-cash and will be budget neutral because they cannot be redeployed to support discretionary spend elsewhere. They have a net positive impact of £107 million on the total aggregate position. It is necessary to reflect those adjustments to ensure that the budget is consistent with 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 UK Government’s “Financial Reporting Manual 2015-16” and, in accordance with those requirements, budget provision is included within the Scottish budget for the financial year to reflect the recognition of relevant transport assets within revenue finance infrastructure schemes. The adjustment to budget at the autumn budget revision is £157 million.

The other technical adjustment is to reduce the student loans resource accounting and budgeting charge by £50 million in line with forecast requirements, following a change to the UK discount rate.

With regard to Whitehall transfers and allocations from HM Treasury, there is a net positive impact on the budget of £0.6 million from the proceeds of the tampon tax, which will be used to fund women’s charities.

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 previous years, there are a number of internal portfolio transfers that will have no effect on portfolio totals, but will ensure that internal budget lines are monitored and managed effectively. The main transfers between portfolios are noted in the ABR supporting document and the guide to the ABR.

As we move towards the financial year end, we will continue to monitor forecast outturn against budget, in line with our normal practice. Furthermore, we will seek to utilise any emerging underspends wherever possible to ensure that we make optimal use of the resources that are available in 2016-17, and to proactively manage the flexibility that is provided under the budget exchange mechanism that was agreed between HM Treasury and the devolved Administrations.

The material that has been provided by the Government is helpful, but it begs some questions. I have a couple myself, and I know that other members also want to come in.

My first question relates to the interportfolio transfers greater than £5 million—they are noted in annexe B—and, in particular, the transfer of £54 million to the education and skills portfolio from the health, wellbeing and sport portfolio for nursing and midwifery education.

From discussions, my understanding is that such transfers have been happening for a considerable length of time, but for the life of me I cannot understand why. If you could explain to me why the funds are transferred and persuade me that that is the right thing to do with regard to accounting for that expenditure, that would be very helpful.

Okay, convener. I appreciate the point. I suppose that it is really as simple as this: the relevant spend is controlled by one minister or through one portfolio—for example, health. That minister has the budget because they make the policy decision, but the amount is spent elsewhere. An example is how health and education relate to each other. The decision maker can be in one of those areas, but the spend can be made in the other, hence the cross-portfolio transfer. Those are my words. If you want an official interpretation, we can supplement my answer with one.

The minister is absolutely right. The policy decisions and the outcome of those decisions are felt in the budget within the health portfolio and the delivery is funded through the Scottish Further and Higher Education Funding Council, which does not take the policy decisions. It is right that, at the start of the year, the budget is reflected in the area where responsibility for the policy lies.

I will put the matter in my terms, if that is okay. Does it really mean that if the health, wellbeing and sport portfolio sees the need for a greater level of skills for nursing and midwifery, that portfolio area is, in effect, the commissioning agent to the education and lifelong learning organisation to make that happen? Is that the simple way to put that?

Yes.

Now I understand.

Thank you for helping us out, convener.

That is okay. Will you update the committee on block grant adjustment devolved taxes for 2016-17? They do not appear to have been included in the autumn budget revision. When will the final figure for 2016-17 be agreed? Will it be in the spring budget revision, which is due in February?

Will you clarify what aspect of the block grant adjustment you are asking about?

I am asking about the devolved taxes for 2016-17.

We have agreed a block grant adjustment for the year, as set out in the draft budget document. The block grant adjustment will not be revisited until the outturn data are available for the Scottish taxes, which will be after the year end. A correction mechanism is embedded within the fiscal framework, but once we have agreed it at the start of the year, the block grant adjustment is not revisited until that time.

Is there no in-year adjustment?

There is no in-year adjustment to the block grant adjustment, although there may be revisions to the forecast as part of the work through the year as data become available.

Okay. I think that we might come back to you on the issue—not in relation to today's exercise—as I would certainly like a bit more clarity on what that means.

You mentioned funding changes of £151.8 million, which is split between the budget exchange mechanism, Barnett consequentials and tax receipts. Will you detail how that is broken down?

Some of the information on budget exchange and income will have been released before. I have reported in the chamber on that, but I can happily reprovide all the information.

We have covered before, and touched on earlier, the higher-than-forecast income from devolved taxes—LBTT and landfill tax. In terms of carry forward, 0.4 per cent of the total budget was carried forward, which is available to spend. I can give you further information in writing on anything else relating to the Barnett consequentials, if you would like me to do that.

As you will recall, the figure for above-forecast income from devolved taxes was £77 million, which we put into the Scottish cash reserve. If you want a further breakdown, I can certainly provide that, but the position is as I outlined it in the chamber previously.

It would be helpful if you could break down how the £151.8 million splits over the three areas. I appreciate that you do not have the information with you right at this minute.

On tax receipts, you mentioned LBTT. You have spoken about how that money was transferred into a cash reserve and not used for day-to-day funding. How does that work? From the note that we have, it looks as though tax receipts that are part of the £151 million have been used in the revision for day-to-day funding, although you talked about tax receipts being held separately in a cash reserve.

The money will rest in the cash reserve, and it can be drawn down in the next financial year if the revenues from the devolved taxes are not what we require them to be.

Are you saying that part of the £151 million is tax receipts, which have gone to the cash reserve?

I will clarify the exact line, because there is a separate issue to do with the additional dwelling supplement. What I said would happen with the cash reserves is exactly what has happened. Scott Mackay can pick up on your specific point.

In relation to supporting the additional funding, tax receipts that were forecast in relation to the additional dwelling supplement were not applied at budget bill stage. They are part of what has been brought in to support the additional funding allocations that have been made in the autumn budget revision—not the surplus tax receipts from last year, which have gone into the reserve, as Mr Mackay said.

I am sorry. Maybe I am not getting this. Funding changes of £151 million are detailed over a number of lines. In your explanation for the funding changes, you are saying that the figure includes tax receipts. Where are the tax receipts? Are they in the table, or are they in the cash reserve?

There are two different elements to the tax receipts. There are the surplus tax receipts over and above what was forecast in 2015-16, which have been put in the cash reserve. In terms of sources of funds that have been applied to the £151 million, forecast tax receipts in respect of the additional dwelling supplement were set out in the draft budget but were not applied as we moved through the budget bill process, and they are part of what has supported the additional funding. That is part of the overall forecast receipts for 2016-17, rather than the surplus tax receipts—

If those receipts were set out in the draft budget, how come they are being produced as additional funding now? Are you saying that they were included in a note in the draft budget but were not applied—

They were not applied as part of the funding. The legislation in that regard had not been passed, at that point. There was an indication that it would come forward and there was an estimate of the additional revenues that were expected to be generated, but because the legislation had not come forward, the forecast receipts were not applied at that point.

So, the receipts were not included in the overall total in the draft budget.

The ADS came after the budget bill, hence the provision now.

Okay. When you provide clarification and a breakdown of the funding changes in relation to tax receipts, it might be helpful also to provide an explanation of that—even it is just for my benefit.

You make a helpful point. I think that we all recognise that tax and spend is now far more complex and that there have been some changes over the year. You make a fair point about the information that is given to Parliament about how everything interrelates, so we can produce a summary, if that would be of assistance.

Thank you.

I am trying to understand what has been happening with the strategic forum. I remember from my days of convening the Economy, Energy and Tourism Committee that the committee took quite a bit of interest in the body, which was, if I recall, set up to try to deliver efficiency savings across a range of public sector bodies.

According to annex A in our briefing note, the strategic forum appears to have had a spending increase of £11.7 million, but according to annex B there has been a transfer of £5.4 million from the culture, tourism and external affairs portfolio to the economy, jobs and fair work portfolio. I am not quite sure what is going on. Can you explain that, cabinet secretary?

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It is right to say that there are strategic forum savings. All public sector organisations are expected to be more efficient and to co-operate and collaborate to achieve savings. That has been going on. Scott Mackay can give you details of the exact budget line transfers.

The transfer from culture represents the contribution from VisitScotland to the strategic forum savings. There was an in-built target in setting the budget to embed the efficiency challenge, and the contribution flows from each of the organisations over the course of the year in order to support the generality of funding across different portfolios.

How does that relate to what looks like an additional spend of £11.7 million?

Sorry, the additional spend of £11.7 million—

Annex A shows strategic forum additional spend of £11.7 million.

If you want, we can get back to you in writing to give you the detail on that.

Perhaps, cabinet secretary, if you stuck to the day job, you might have more time to look at such issues.

If you want to ask questions, that is absolutely fine. If you want detail, we can give it to you line by line.

I have a small question on the numbers in the budget bill, and I might want to explore something else, as well.

The numbers that we have for the baby box are for 2016-17. Obviously, the baby box pilot starts in the new year, but it will go out to only 1 per cent or 2 per cent of the country, and will not be rolled out fully until the summer, as I understand it. Given that, why is that spend in this year’s budget? Should it not be in next year’s budget?

I think that we have described how we will be rolling out the baby box from pilot to implementation. Obviously, that means some spend in the current year and further spend in future years.

Yes—but I imagine that it would be a smaller number than £6 million for the first year.

The numbers are simply based on forecasting.

So, clearly, if it does not happen, the figures just roll into the next year.

Yes, but I think that we have begun to outline how we will implement the policy.

This might not be the best place to ask this, but I have a question about the performance framework.

That is probably not an issue that is involved in this particular discussion, Ivan.

Okay. No problem.

As there are no further questions, we will move to item 6, which involves consideration of the motion on the order. I invite the cabinet secretary to move motion S5M-01839.

Motion moved,

That the Finance and Constitution Committee recommends that the Budget (Scotland) Act 2016 Amendment Regulations 2016 [draft] be approved.—[Derek Mackay]

Motion agreed to.

The committee will now publish a short report to Parliament setting out our decision on the order.

I thank the cabinet secretary and the officials for attending.

As agreed at the start of the meeting, we will take the next item of business in private. At our next meeting, we will take evidence on public finances and economic performance, as we start our pre-budget scrutiny.

11:03 Meeting continued in private until 11:22.