Local Government and Communities Committee

Meeting date: Wednesday, May 30, 2018

Official Report 649KB pdf

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“Councils’ use of arm’s-length organisations”

Welcome back. We move to agenda item 2. The committee will take evidence from the Accounts Commission on its report, “Councils’ use of arm’s-length organisations”. I welcome once again Graham Sharp, Fraser McKinlay and Ronnie Nicol—I apologise for not giving your full Sunday titles, gentlemen, but you were with us for the previous evidence session. We are also joined by Derek Hoy, auditor for performance audit and best value at Audit Scotland. I thank you all for coming along. Mr Sharp, some opening remarks would be very welcome.

The Accounts Commission welcomes the opportunity to discuss our report with the committee.

Virtually all councils make use of arm’s-length organisations to some degree. Those organisations take many forms including companies, community bodies and charities. They provide a range of services including sports and leisure, museums and theatres, social care and more commercial activities such as property management. Their use has grown over the past 20 years, and we estimate that there are about 130 arm’s-length external organisations in Scotland accounting for annual spend of more than £1.3 billion.

Our report gives an update on councils’ use of ALEOs, building on our earlier work around governance, including our 2011 “How councils work” guidance on the subject.

An ALEO structure might deliver tax benefits. We found that taxation advantages have been a strong driver for charitable ALEOs. Operational benefits of ALEOs include their ability to trade more widely and access new funding or sponsorship. ALEOs might also bring a more commercial or responsive delivery model under a board of directors or trustees.

We report that there is evidence that ALEOs bring benefits to services, and we give examples from sports and leisure and social care, which are two prominent service areas in which ALEOs have been deployed. However, we note that financial pressures remain and that ALEOs bring particular risks that need to be managed.

We found that councils undertake detailed planning and appraisals for ALEOs, but they could do more to involve the public, communities and businesses in that process.

We see improving practice in how councils manage their relationships with and oversee ALEOs. That includes, for example, scrutiny that is proportionate to risk; council committees looking at performance and strategic decisions; and officers taking a stronger role in monitoring finances, risks and governance. That said, issues might still arise over the operation or governance of ALEOs, and we highlight some of those in our report. We emphasise that, regardless of how services are delivered, councils must apply the “Following the Public Pound” code to ensure that safeguards are in place around how they use public money.

We describe the changing context in which ALEOs operate. That includes questions over future taxation benefits to councils following the Scottish Government’s response to the Barclay review, funding pressures and the changing policy environment in areas such as community engagement and health and social care integration. That context means that it is even more important that councils have a strong case for using ALEOs and consider alternatives. Indeed, options appraisal is an important theme in our best-value work in councils. It follows that councils must keep their ALEOs under review to ensure that they continue to meet their intended objectives. We will continue to look at ALEOs in our on-going audit and best-value work in individual councils.

My colleagues and I are again happy to answer questions.

11:45  

Thank you, Mr Sharp—that was helpful.

The report and your opening remarks indicate that ALEOs come in various shapes and sizes, but is there any defining feature of an ALEO? What is an ALEO?

I am tempted to say that the defining feature is that there is no defining feature. They come in all shapes and sizes, and they are employed in different areas of activity. The key element is that they are some form of organisation—a company, a community body, a partnership or a trust—that is separate from the council, that has a separate decision-making body in respect of its operations and strategy and that carries out activities for the council. It may carry out additional activities, but there is a link in its activities to the council’s wish to supply services to its citizens.

Ultimately, it comes down to governance. The strategic plan and the annual report are signed off by a body that is not the full council.

Governance is one aspect. There are also specific structural aspects. The main structural benefit of an ALEO is a tax benefit that accrues only to charitable ALEOs. There is a governance issue and an information-flow issue, but there is also an operational side. As we say in the report, there is an argument that, in specific situations, a focus on specific activities by a group of people who might not necessarily work for the council can bring benefits. There are operational, governance and structural aspects.

In Edinburgh, we have a wholly owned municipal bus company called Lothian Buses. Is that an ALEO?

Yes, I believe that it is.

It has been around for a long time. You mention in your report that, in England, a lot of ALEOs are used for commercial purposes, and you hinted at that in your opening statement. I am digging into history again, but municipal corporations in Scotland used to be involved in a lot of enterprises—for example, there were energy and transport companies. In a sense, nothing is new here, but it seems to me that ALEOs emerged by accident rather than by design. Will you say something about the genesis of the modern ALEO?

As you say, there have always been bodies associated with the provision of services by councils that have been separate from the councils but linked to them. I suppose that ALEOs, as we see them now, emerged in the public eye as a result of some high-profile events and a burst of ALEO growth some years ago. At one point, the tax benefit of charitable ALEOs was quite a strong incentive and the approach was promoted to councils by certain advisers. A number of ALEOs were set up with that strong benefit. There was a growth in ALEOs, plus there were some high-profile events. That is probably why the perception of ALEOs, rather than the ALEO itself, emerged.

You have mentioned that some ALEOs have charitable status, which enables them to attract extra funds. You highlight that in the report, because it is obviously important. You also highlight the Barclay review’s proposal to end ALEOs’ eligibility for charitable relief from non-domestic rates. That proposal is not being implemented but, by offsetting that relief, the Government is placing constraints on any future ability to get it through the creation of ALEOs.

In paragraph 17 of the report, you say:

“Business cases identify NDR relief as a specific benefit provided that the ALEO meets the requirements for charitable status. While NDR relief can bring benefits locally, it offers no net financial gain to the public sector.”

It is true that, as you say,

“it offers no net financial gain”,

so why all the fuss?

The comment on the public sector considers the public sector as a whole. You will appreciate that, from an economic point of view, taxes are not a cost but a transfer within the public sector. Therefore, if we consider the total public sector, a public body saving tax is not a net gain, because its gain is a loss somewhere else.

However, there are different levels to the public sector; so, what from a UK national point of view is no gain and no loss could be a gain or loss to, say, the Scottish Government, and what is no gain and no loss to the Scottish Government might be a gain or loss to a specific local authority. Therefore, if a local authority that is faced with financial pressure can do something in two ways, one of which is through an ALEO and one of which is not, and the only difference, everything else being equal, is that, if it did it through a charitable ALEO, it would save some tax, that would be a saving on costs from its perspective and it would be able to deploy the funds elsewhere. Nevertheless, from a total public sector point of view, there would not be a saving on costs.

Does that not suggest that we should consider regulating ALEOs because, in essence, they are used to gain competitive advantage?

The market mechanism is a perfectly valid way of allocating resources, and, to the extent that a tax benefit to certain players in the market gives them an advantage, it distorts the market mechanism as an allocator of resources. Therefore, that is a valid line of argument.

You also mentioned in your opening remarks that there are questions about the extent to which the public is engaged with and involved in ALEOs. However, you say in your report that public satisfaction with ALEOs is, generally speaking, high. Why is that?

We are looking at different things. We did not find evidence that, when councils consider setting up an ALEO structure, there is good engagement with the public and communities about the different options and about whether to go for an ALEO rather than something else. However, we noted that many ALEOs have good engagement with the public and, as you see, there was evidence of good performance by ALEOs, which would result in public satisfaction. The two things are not inconsistent.

An ALEO in Glasgow—Glasgow Life—made a controversial decision on concessionary swimming. The council agrees a budget for Glasgow Life and the ALEO cuts its cloth accordingly, then produces a business plan. Pensioners used to get free swimming in Glasgow but will now pay £3 for a swim, although pensioners on a low income will pay £1 for a swim. The decision is controversial, and constituents have contacted me about it, taking both sides of the argument as to whether it is the right or the wrong thing to do. The logic appears to be that most pensioners who were taking the free swim were from the higher-income brackets and, when surveyed, said that they probably would not mind paying to swim. Pensioners from lower-income brackets will now pay £1 and other pensioners will pay £3, and the money that is raised will allegedly be used to target groups who might be less likely to use Glasgow Life facilities.

The decision is hugely controversial in Glasgow, and I am unsure where the accountability for the decision sits. Other than Glasgow City Council, who monitors Glasgow Life to make sure that it is delivering the outcomes that it says it is? As a Glasgow MSP, I will be interested to know whether, this time next year, the number of pensioners going swimming has gone down or whether the number of pensioners from more deprived areas who are going swimming has gone up. There seems to be a lack of clarity around what appears to be a policy decision. It is unclear whether it is a politician’s policy decision or a business decision by the ALEO.

That situation is still evolving, so you may not be able to comment on it, but do you have other examples from across the country of what seems to be a blurring of the boundary between a business decision by the ALEO and a policy decision by the local authority? Who measures the outcomes after such decisions have been made?

That illustrates one of our main points about the use of ALEOs. When a local authority sets up an ALEO, it must be very clear about its objectives, and those objectives need to be clearly built into the arrangements that it has with the ALEO. There needs to be a way to monitor progress towards the objectives and a way to hold the ALEO to account for its performance against those objectives.

I do not know the details of the example that you gave. If the objective is to increase the number of pensioners who use the pool, that will lead to one set of behaviours; if the objective is not to charge any pensioner more than a certain amount, that is different. It really depends on how the local authority has set out the objectives and how it is monitoring performance against those objectives.

That will bottom itself out in Glasgow; I will certainly be making representations both to the council administration and Glasgow Life on that, including on how they will track that and be held to account for what other outcomes are and are not achieved. That is a real-time example of ALEOs in action at local level, where the decisions that they make can be controversial.

Does the Accounts Commission have a broad view of whether ALEOs are disengaged from the communities that they serve or are getting it just about right? What can be done to change the situation?

We do not have any evidence that ALEOs are systemically disengaged. An ALEO’s structure must be considered separately from its management. Many issues that might be raised about a service that is provided by an ALEO might equally be raised about the same service in another council area that is not being supplied by an ALEO. It is down to management.

Again, it comes back to this: when a council is considering setting up an ALEO, it must be clear about the purpose and objectives, and the objectives need to be built into the monitoring and performance structures so that the council can be assured that the ALEO operates as it should. That is slightly different from—but not necessarily more difficult than—running a council service internally. Certainly, in terms of public perception of their performance, I do not think that we found any evidence that one is systemically better than the other.

That is the point that I was going to make. One of the tricky things for our team in this work has been whether to ascribe what is happening to the ALEO-ness or otherwise of a service, because it is as possible for a council department to be completely disengaged from its communities as it is for an ALEO. That is the point that Graham Sharp is making.

12:00  

The convener touched on the key point, though, which is that what is important for us is the extent to which Glasgow Life—this would apply to all ALEOs—can explain the rationale for its decisions so that we can then report on the impact of the decision. It is also important that Glasgow City Council, through its governance arrangements, asks the same kind of questions that the convener asked with regard to the difference that the policy change has made.

What we heard from people who work in ALEOs is that they would, potentially, argue the flipside, which is that it is in a way easier for ALEOs to take potentially controversial decisions that they believe to be in the best interests of communities and the service, free from what they might call the politics of a particular situation. So, you pays your money, you takes your choice on that one.

I am not suggesting that Glasgow Life has disengaged; I am just trying to get a picture of the situation across the country. The proof of the pudding will be in the eating—by this time next year, we will have a matrix of what has actually happened in Glasgow with regard to that decision, and we will find out whether it was a good decision in terms of public service or a good decision commercially. That will all bottom itself out. It is just a real-life example that shows how we want to ensure that ALEOs are accountable for their decisions, and that we are measuring the outcomes. I have found that example helpful.

Mr Sharp, exhibit 10 seems to indicate that you are not very keen on councillors being on ALEOs: you give three advantages of having council nominees as board directors and trustees, but you give six disadvantages. Are you suggesting that, on balance, councillors should not serve on ALEOs?

Councils need to consider carefully why they would put a councillor on an ALEO board, because there are clearly disadvantages to a councillor being on an ALEO board: specifically, their ability to contribute to discussion of the monitoring, funding and performance of the ALEO is limited.

It depends why a council wants a councillor on the board. Is it for them to contribute to the board? If that is the reason, there are other ways of doing that: the council could put an independent person on the board, for example.

Is the reason for putting a councillor on an ALEO board to monitor what the ALEO does? If so, that is probably not going to work terribly well because of the constraints involved. There are other ways of monitoring that are probably more robust, including writing monitoring into the documentation when the council sets up the ALEO, and including the contractual arrangements between the council and the ALEO in that monitoring.

Is having a councillor on the board about giving local people a voice in the ALEO that operates in their area? That might be a good idea, but there are other ways of doing that. For example, there could be representatives from that local community on the board.

What we are saying is that councils need to think very carefully about why a councillor is going on an ALEO board. A council might put councillors on the board to keep an eye generally on what is going on, but then find that they are constrained from doing what the council had in mind.

There might also be a conflict of interests if the councillor seems to be serving the interests of the council or their political party as opposed to serving the needs of the ALEO in delivery of its services.

Certainly, people who serve on ALEOs need training in order to know what their obligations are in serving as a trustee or a director of the company. Generally, their obligations are to the organisation and not to any other; they cannot serve as a representative of another organisation but must serve only that organisation as a board member or trustee.

However, the position is not straightforward. We investigated a case some years ago in which councillors were sitting on the board of an ALEO that was in financial difficulties. The council was the main funder and continued to fund the ALEO because it did not know about the financial difficulties. The councillors on the ALEO’s board could not say anything about the financial difficulties because they were constrained by their duties as directors of the company, which I believe was explained to them by the company’s lawyers.

Councillors would not want to find themselves in that sort of situation. The way round that is to be clear about what is expected from councillors on an ALEO board and, in terms of information and monitoring, to ensure that there are proper contractual or other legal arrangements for that, as opposed to relying on councillors on the board for it, because they cannot perform that function.

I am hearing loud and clear that there seems to be no great enthusiasm for councillors being on ALEOs.

Has the Accounts Commission done any work that suggests that there is a difference in outcomes or service delivery between ALEOs with councillors on them and those without? Do councillors prove to assist, in general, or are they a drag on performance? In the figures that you have presented to the committee you have mentioned Fife Council seeing a 50 per cent reduction in its costs and a 50 per cent increase in uptake in sports and leisure. You have also illustrated how effectively Lothian Buses is delivering, and there are the examples of High Life Highland and the co-operation between ALEO initiatives on wider social and community benefits such as with Edinburgh Leisure and Leisure and Culture Dundee. Has the councillors’ presence had any impact—good or bad—on overall delivery?

There are two points to make on that. One is about whether we have done any work on correlation between councillor presence and ALEO performance. I imagine that we have not. Then there is the attribution of cause, in that if a councillor is on a board the question is then whether that in itself is the reason for superior performance.

Do councillors make an ALEO work more efficiently and effectively and help it to deliver or are they a drag on its performance?

To be clear, I was saying not that councillors should not be on boards, but that councils need to be very clear about why their councillors are there. The historical straightforward reaction—“Well, we want some of our people on the board so that we know what’s happening”—is not a reason for having councillors on boards. However, there might be other quite legitimate reasons for doing so.

Following on from that, if an ALEO does not have councillors on the board, the council still needs to be able to scrutinise and direct it in some way. How do we achieve a proper level of scrutiny?

Again, that goes back to being clear about the objectives, how they will be monitored, how performance will be measured and what the consequences of lack of performance will be for an ALEO. That all has to be established in a proper arrangement when the ALEO is set up, after which it needs to be monitored. In our report, we have quoted examples in which monitoring has improved, with council officers looking at ALEOs in respect of risk and amounts of funding. A council needs a structure for monitoring performance that depends on how many ALEOs it has.

It is crucial that the council ensures that the ALEOs are doing what they were set up to do, and if the council does not have someone on the ALEO’s board, it just needs to do that in a different way. I come back to the point that a councillor on the board can do a number of things, but he or she cannot represent the council and report back to it on what is happening, because such actions are constrained and need to be done through the proper legally valid channels.

I add that there is a fine line between the scrutiny and the direction that Mr Simpson mentioned. Certainly in the case of charitable ALEOs, the Office of the Scottish Charity Regulator would be concerned about a council directing a charity board to do stuff. That is another example in which demarcation is important. As far as following the public pound is concerned, it is absolutely legitimate for councils to scrutinise best value, performance and so on. However, the point of bodies being at arm’s length is that councils would generally not direct them to do stuff. That is why, as Graham Sharp said, setting that up as part of their purpose right at the outset is hugely important.

We have mentioned a couple of examples in the Borders. The council has established a strategic governance group. It does not have councillors on the care ALEO board, but it has a board of councillors whose job is to monitor the ALEO’s performance. There are ways of managing such things.

A leisure trust, for example, could take a purely commercial decision to allow only certain sports to use leisure centres because those sports bring in more money. However, that may not be the best decision for the health of the council area and the council may take a different view. How could a council influence an ALEO in such a situation?

That would, in the first place, be down to the agreement between the council and the ALEO about exactly what services the ALEO has to provide and how those services are defined and monitored.

I also comment in passing that a leisure centre could be run directly by the council that also has the dilemma of whether to provide a service that might be better for the community as a whole, or to make more money so the service can keep going. It might not be just ALEOs that have to make such decisions.

The report states that, in some areas, 25 out of our 32 councils use ALEOs. They are particularly used in the culture and leisure sectors and you have itemised why that might be the case. For some councils, the initial benefit came from tax relief. What impact would the potential tax reform have? What would that mean for ALEOs?

As Mr Wightman mentioned, the Barclay review focuses on the damaging effect on competition and, in effect, the market mechanism of a tax subsidy. The Government has gone some way towards dealing with that issue in the provisions that it is bringing forward.

As I understand it, new ALEOs will not benefit from any tax break. About half of ALEOs are charitable organisations, and the change would affect charitable ALEOs. The question would be whether the marginal tax benefit was the critical issue in making the decision to set up that ALEO. In some cases that will be the situation—we are already aware of one case in which the council is looking at another way of providing the service.

The change will definitely affect how many new ALEOs there will be to some extent, but what the impact on existing ALEOs will be is unclear. I do not know to what extent they can expand their activities without penalty. Clearly, in the ordinary course of business, you would expect them to expand their activities. It is unclear, generally, how such a provision would work, so I am not able to give a view on any impact.

Given the changing environment, what risk assessments, governance and scrutiny should ALEOs consider?

Under the previous agenda item, we made the point that, these days, tomorrow is different from yesterday. Councils need to look regularly at why they use an ALEO and whether it still makes sense to do so. The tax change is an environmental change that would result in such a review taking place of the use of charitable ALEOs.

There are quite a few changes taking place with ALEOs. Some services are coming back in house. As part of our budget scrutiny this year, we are looking at workforce planning, which you highlighted in our previous discussion as being one of the big challenges. To what extent do ALEOs provide a useful mechanism to plan workforces? Arguably, they are more flexible; on the other hand, it can be difficult to plan a workforce when it is not your workforce. I am talking about the council planning the delivery of services. On balance, are ALEOs good, bad or indifferent when it comes to planning workforces?

12:15  

I am afraid that I am going to give you an answer in the same vein as before. ALEOs are varied, and the answer to whether they would be a good or bad thing is situation specific. It will depend on their size and the sort of work that they do.

An ALEO will be more flexible in its terms, which might be a good thing, as it might be able to attract people that the council could not. On the other hand, there is clearly a barrier in relation to total employment and council planning. It is not necessarily as easy to get a handle on the future employment in ALEOs if we consider the matter as a whole. Therefore, if an ALEO is undertaking a high-employment activity, the council might have to work round that to plan its workforce overall.

It is a case of swings and roundabouts. Perhaps Fraser McKinlay will want to add something.

The answer is that it depends. I know that that is not terribly helpful, but it does.

That brings us back to our core point on the matter, which is the central importance of purpose. It is necessary to be clear about why an ALEO is being set up. A council being clear about what it wants to achieve will help it to decide, through a good and effective options appraisal, what the best vehicle for delivery is. In a funny way, the decisions on the Barclay review mean that, if anything, councils will have to think harder about that. In the past, it has been too easy for them to say, “We get a tax break if we set up an ALEO, so let’s do that.”

To be honest, in many places, we have not seen terribly much by way of different ways of delivering services. It is just that the leisure services have continued to function as was, but have been getting tax relief. We are encouraging councils to think more creatively about what they are trying to achieve and the best way of delivering it. They will then get to a decision about whether some kind of ALEO might be the best option for that. At that point, workforce issues would be critical to the decision that the councils take.

Have you found any evidence of better and more effective engagement with social enterprises, for example, through delivering services with ALEOs?

We have not specifically come across that with social enterprises. Nothing that we came across springs to mind.

Typically, social enterprises are involved in delivering contracted services. Has the use of ALEOs made much difference to that?

Not that we have seen.

I apologise for going back to the previous report, “Local government in Scotland: Challenges and performance 2018”. At paragraph 41, it says:

“Our analysis by council over the period 2011–2017 suggests that some councils have relied more heavily than others on staff reductions to make savings … However, because we are unable to track staff moving to arm’s-length external organisations (ALEOs), it is difficult to draw clear conclusions about changing workforce numbers nationally.”

Why do we not know how many workers there are in ALEOs? Surely to goodness it is just audited and there is an outturn that we can analyse and scrutinise. We are trying to get our heads around the efficacy and benefit of ALEOs but we are also considering workforce planning in the round.

To backtrack slightly, when I look at future local government workforce planning, I want to see the people who are employed directly by the local authority, those who are employed by local authority ALEOs and those who are contracted by the local authority, including third sector and private organisations in the care sector, for example. Do we have a best guess for how many staff are employed in ALEOs?

That is a fair point on the total workforce.

We are not in the business of guessing, as I am sure you know. We draw our workforce information from returns that are made and, at the moment, the areas that you mentioned that would be interesting are not included in them. It is simply a matter of our sources. It is not to say that there would be no way of uncovering numbers for ALEOs in particular local authority areas, but they are not routinely gathered as part of the workforce returns.

Whose job is it to decide what is routinely gathered?

I presume that it is the job of the people who ask for those returns, which includes the Scottish Government, for local government workforce returns.

So the Scottish Government could specify more granular detail on the workforce that is employed directly by local authorities, employed through ALEOs and contracted from elsewhere.

It could do that. It is more of a question for the Government, but my guess is that some of the definitional issues would be complex because I am not sure where we would draw the line. Councils contract in, and have service relationships with, a huge number of public, private and voluntary organisations.

What if we stick to ALEOs? I apologise for trying to widen it out.

On ALEOs, we come back to the definitional issues. For example, do we include Lothian Buses? Do we include the people who work for the Scottish Event Campus, which is a wholly owned company of Glasgow City Council? Where do we draw the line? The figures that we referred to earlier, which we get from the staffing watch, are specifically for people who are employed by councils.

There is a slightly separate issue. It is quite tricky to understand the size of the local government workforce as you just described it. However, to come back to the earlier conversation, councils should, on a service-delivery basis, include ALEOs and other organisations when they try to figure out the future for the relevant service and the workforce that they have at their disposal. Therefore, we expect individual councils to have that level of detailed information.

Are there best practice guidelines for local authorities on workforce planning in relation to that? Who would scrutinise that? It might be the committee—I do not know.

We consider general workforce planning through the best value work. There is statutory and other guidance for councils about how to manage their people. The Care Inspectorate and other bodies would have a strong view about how social care workforces are planned. It is likewise for Education Scotland. We are interested in the overall approach to workforce planning and individual inspectorates are interested in individual service areas.

I am sorry to be Glasgow-centric again, but I am a Glasgow MSP. The new administration in Glasgow has said that it will bring Cordia back into direct local authority control. There is a gradual process for doing that. There is also a cash cost of doing it, partly because the process is administrative and bureaucratic and partly because of the terms and conditions of Cordia staff, who are often low-paid female workers. The salary and conditions for the equivalent staff who are directly employed by the local authority are better, so there is a cost of bringing a predominantly female, low-paid workforce under direct council control.

Has the Accounts Commission considered whether one of the reasons for having ALEOs might be to pay workers less and put them on poorer conditions?

We cover that in the report. I think that there was a legal case that Cordia staff could compare themselves with council staff, although that would not cover absolutely everything, including pension arrangements. It is up to councils to ensure that ALEOs apply appropriate employment policies and we did not find that there was any systematic issue with ALEOs employing people on much less. Is that fair, Derek?

Yes, across the piece, the evidence suggests that councils are trying to maintain terms and conditions for staff when they transfer over to ALEOs. In the majority of cases that we examined, that was the situation.

I fully accept that it is a complex debate, because it depends what grading system we use and what equivalences we apply between the local authority and the ALEOs. I know that it is not straightforward, but, when the announcement about bringing Cordia back into local authority control was made, I noted that there was a cost to doing that and that some of that cost was going into staff wages, although I welcome the fact that staff wages were being uplifted.

There is a new process for budget scrutiny in the committee and the Parliament as a whole. We are trying to get a better understanding not only of the inputs—how much money the council gets from the Scottish Government, fees, charges and council tax—but of how to provide better outcomes for the constituents whom we all serve. ALEOs are significant employers even though we do not know how many people they employ. Although those people are not directly employed by local authorities, such as Glasgow City Council, many ALEOs are, in effect, subsidised by their local authorities. Therefore, in reality, council tax and Government money is being used to subsidise ALEOs.

We have our budget scrutiny ahead of us. How do you suggest that we follow the public pound to ensure that ALEOs are properly resourced to do the jobs that we all like them to do? I ask you to put definitions to one side, Mr McKinlay. I am not talking about the SEC, for example, but care services and leisure services. Back in the olden days, we would just say “core council services”.

As we say in the report, the evidence that we have seen is that ALEOs are providing a good quality of service in a number of areas and, indeed, that their financial return for councils has been good in a number of cases. You said that councils are subsidising ALEOs, but we quote some cases in which, in fact, the funding that the councils provide to the ALEOs to deliver a service that the council would otherwise wish to provide has reduced over time, so the council is getting a benefit from the fact that the ALEO is able to generate other income.

I would not look at the matter in terms of subsidy. I would think about it in terms of what services the council looks for the ALEO to provide, what amount of funding is being devoted to those services and what the quality of those services is.

We are really committed to supporting all committees in the new budget process, so perhaps we can pick up the conversation with the clerks and see whether we can provide anything that would help the committee to get a bit of clarity on the matter. I am more than happy to engage in that conversation, as we are doing with other committees, as you go through the new approach to scrutinising the budget.

That would be helpful.

On Mr Sharp’s response in relation to subsidy, I almost bought into another narrative when I used the term. I get the idea that councils use their funds to deliver services and that ALEOs are part of that service delivery mechanism. If they can do that more efficiently, that is fantastic, but that does not make it a subsidy. It just means that councils are spending the money to provide those various services. That gives me a bit of clarity for developing some budget scrutiny.

I thank all the witnesses from whom we heard over the two evidence-taking sessions, which were helpful for us. We look forward to developing that relationship further to aid us in our budget scrutiny.

We move to agenda item 3, which is consideration of evidence and which we agreed to take in private.

12:27 Meeting continued in private until 12:41.