Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, March 11, 2021

Official Report 617KB pdf

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Public Finances (Implications of Covid-19)

Item 2 is on tracking the implications of Covid-19 on Scotland’s public finances. I welcome our witnesses from Audit Scotland: Stephen Boyle, the Auditor General for Scotland; Mark Taylor, audit director for audit services; and Fiona Diggle, audit manager for performance and best value. I understand that the Auditor General will make a brief opening statement.

Good morning, everybody. When I spoke to the committee in August 2020 about the implications of Covid-19 for Scotland’s public finances, it was difficult for any of us to foresee the direction of the pandemic. We are, of course, continuing to see the public health and economic impacts. Covid-19 remains the biggest fiscal and policy challenge that the Scottish Government has faced in the past two decades of devolution. There are increasing pressures on public revenues and spending, and the Scottish budget is subject to ever more volatility, uncertainty and complexity. It will remain challenging to match spending to the available funding in the coming years. That will need to be done in a way that minimises the disruption to individuals, public bodies and services and ensures value for money for public funds.

Covid-19 continues to affect Scotland’s most vulnerable citizens disproportionately, and it will widen inequalities. The way in which the Scottish Government and public bodies respond to that challenge will be a significant issue in the years to come.

In our briefing paper, “Covid-19: Tracking the implications of Covid-19 on Scotland’s public finances”, we give an update on the impact of Covid-19 on Scotland’s public finances. We present the sources of funding for the budget, and our analysis of the spending announcements to the end of December 2020. We also analyse the emerging risks to the Scottish Government’s management of the Scottish budget and to the performance of public services. Finally, we outline how public audit is responding to those matters. It is the second paper in a series, and we will continue to track the impact of the pandemic on the public finances.

The pace and volume of announcements mean that some of the numbers in our paper have been superseded since its publication. We will do our best to capture any changes in our answers. I am joined by Mark Taylor and Fiona Diggle, and we will, between us, look to answer—[Inaudible.]

Thank you, Auditor General—we lost your audio right at the end, but we caught the vast majority of what you said. I am sure that broadcasting will keep an eye on that.

I ask Colin Beattie to open the questioning.

Auditor General, it is clear that Covid-19 has brought enormous challenges. Contingency planning will be a key element of how we get out of the current situation. Is it clear what the Scottish Government is doing in that regard as we move out of the pandemic—we hope—into a post-Covid world? Is the Government already tackling those challenges adequately?

I agree with you on the importance of contingency planning and, in the context of the paper that we are discussing today, the importance of scenario and financial planning as it relates to the volatility of the circumstances that we are facing. That is absolutely vital. One of the key points that we make in the paper is that effective budget management that allows for all the scenarios, and for volatility, is essential.

In our paper, we refer to the medium-term financial strategy, which is welcome. With regard to allowing for different scenarios, we make the point that there is still scope to go somewhat further with the medium-term financial strategy to allow connections to be made with the outcomes that are achieved as a result of public spending. There is some progress on that, but there is still scope to go further.

Which areas of contingency planning do you consider most critical for you to pick up on?

It is essential that we track through from where public spending has been most directly focused during the pandemic. We sought to analyse some of that in our paper, in particular in exhibit 5, in which we analyse where public money has been spent during the pandemic. That will inevitably be an area of focus.

At present, it is difficult to be entirely forward looking, in that the areas of focus for spending activity during the pandemic may not be where Government priorities are as we emerge from it. Priorities change, as do the responses associated with them.

It matters that contingency planning in the round is effective, and that it allows the effective delivery of public services to continue and enables the Government to have the flexibility that it needs in order to respond to events.

As we discussed with the committee previously, it is clear that the volatility—[Inaudible.]—that we do not know whether the pandemic is a once-in-a-century event, or whether there will be many more—[Inaudible.] We therefore need flexibility and adequate planning—as you suggest—all the more.

We know that some areas are definitely under pressure—for example, there are difficulties with addressing backlogs in the national health service, in local government and in the courts. We cannot simply pick up from where we were before—we are significantly behind as a result of the pandemic. Are you satisfied that the Government’s contingency planning will address that?

It is probably too early to give you that level of assurance. As you say, there are known issues, as Covid has meant that the delivery of public services has changed fundamentally. You mentioned—and we touch on in our paper—some of the impacts on the justice sector, such as the backlog in the courts. At a recent meeting with the committee—you may be considering this later in today’s meeting—we spoke about the backlog in our NHS and what that has meant for waiting times and so forth. The issues are known and understood. The question of what needs to happen will be on the radar of Government and public services at the point when they are able, as part of the on-going delivery of services during the pandemic, to think about what the future looks like. That will involve thinking about whether we return to the normality that we have known, or whether we reimagine how public services can be delivered. All the scenarios need to be captured in the planning that public bodies are doing.

You said that you would be doing periodic follow-up reports on the situation. How frequently will those be published?

They will be produced regularly. I hesitate to put a precise number on it, because we are in the throes of finalising our work programme in consultation with colleagues, after we receive feedback from the committee and others in the Parliament. Nevertheless, we anticipate that reports will be published at regular intervals—two to three times—over the year, so that public audit plays its part in supporting public understanding and parliamentary scrutiny of spending. We will continue to do that through a series of reports on what we have termed “following the pandemic pound”. We will make judgments about how money has been spent and, as you suggested, report on what that means for the future delivery of public services across our public bodies. There will be regular outputs from Audit Scotland during this year and beyond.

Thank you, Auditor General. Our successor committee will be following up on that area after the election, and I am sure that it will be anxious to ensure that those reports are included in its work schedule, so any indication of frequency would obviously be helpful.

Auditor General, I have two questions. First, I want to follow up on the United Kingdom National Audit Office report, “Investigation into government procurement during the COVID-19 pandemic”, on the money that has been wasted as a result of the lack of preparedness for the Covid pandemic. The NAO noted that £12 billion was spent on sourcing emergency personal protective equipment, and that, if preparations had been made and PPE had been stored, the cost would have been £2 billion, not £12 billion. On that item alone, therefore, £10 billion of UK taxpayers’ money was wasted as a result of incompetence in not preparing for a pandemic. What is the equivalent figure for spending in Scotland, not just on PPE but on associated items?

You may recall that in our NHS overview report, which we have discussed with the committee in the past few weeks, we similarly commented on the circumstances around the Scottish Government’s preparedness in terms of pandemic planning. We also drew attention to the scope for more preparedness, in particular in a couple of areas that emerged prominently during the pandemic. One was PPE, and the other was about the extent to which our care homes were prepared for a pandemic.

What we did not do—we spoke in that report about our intention to do this—was examine the detail of what has been spent on the contracts. We signalled that the Scottish Government had used the provisions in emergency regulations to source contracts more quickly and directly than it would otherwise have done through typical tendering arrangements. We are in the process of doing that work, and we will report publicly, through two different routes. One will be a report on the use of PPE, following on from the NHS overview report, and the second will be an audit of NHS National Services Scotland.

We will report on that during 2021, so I do not have a figure for you yet that would enable a comparison to be drawn between the amounts that Scotland spent and what it has subsequently spent, and any value-for-money judgment to be made in that regard. We will follow through on that and report on it publicly during the year.

Why is it that the UK National Audit Office could give us a figure six weeks ago, but Audit Scotland cannot give us a figure for Scotland yet?

We are in the process of doing that work—

The NAO must have done that work, so why have you not done it already?

Forgive me, Mr Neil—we are in the process of doing that work, and we will report on it as soon as we are able to. You can rest assured that we want to do that. We are prioritising—

That does not answer my question. The UK National Audit Office has done the calculations on £12 billion-worth of PPE in that timescale. The timescales for securing PPE and so on were the same north and south of the border. Why has your office not yet produced an equivalent figure for Scotland?

We will be producing a figure, Mr Neil, and we will report—

That does not answer the question. Why have you not done it?

We are in the midst of doing it, and we will be reporting on it as soon as we are able to. I recognise the timescale on which the NAO has produced its work. We are doing the work, and we will be reporting as soon as we are able to. You can rest assured that it is a very important matter for us. It is a continuation of the work that we have already been doing on PPE through the NHS overview report, and we will be reporting in two further ways: through a report on PPE, and through the audit of NHS National Services Scotland. We recognise that it is important—

When will you be in a position to tell taxpayers in Scotland what the equivalent figure is for Scotland?

We will be doing that during the spring and into the summer, through two separate outputs. We will report on that as quickly as we are able to.

I do not find it very satisfactory that the UK NAO was able to come up with a figure so quickly, and yet it will be six, or possibly nine, months after that before Audit Scotland gives us an equivalent figure. Surely you should be moving much faster than that.

09:15  

We typically like to base our work on all the evidence, and form judgments in reporting thereon. It may be an option for us to undertake a complementary audit output, as we have done in the paper that we are discussing today. I will take away what you have said and discuss whether there is any scope to accelerate that work and go further on the timescale, and come back to the committee on that. You can rest assured that I recognise the importance of that issue, and we are looking to do the work as quickly as possible.

I am sure that you realise that it does not look very good that we can get a UK figure in January or February—I cannot remember exactly when it was—and yet we have to wait until July, August, September or October before we get an equivalent figure for Scotland.

I have a similar question on the cost of catching up with the backlog. Unavoidably, a huge backlog of operations, other procedures, appointments and all the rest of it has built up in the NHS in Scotland. For example, it is almost impossible for people with chronic pain to get the injections that they need. That brings an additional cost, because those people are attending accident and emergency departments, which they would not have to do if they were getting their injections as usual. I do not understand why, at this stage in the pandemic, those injections are not available. Are you looking at the cost of catching up with the backlog, and casting a critical eye over areas and health boards that should, by now, be delivering certain services and yet are utterly failing to do so?

Yes—absolutely. That builds on the conversation that we had with the committee about our NHS overview report—[Inaudible.]—later on this morning. A key focus of our work is remobilisation, and the implications for the NHS in Scotland of pausing its waiting times improvement plan. We will focus on what that means for the future, in terms of the cost of future delivery and of catching up on the backlog, which will undoubtedly involve significant sums of money, and what that means for the patient experience. All that is part of our plan, and we will report on it as part of our work programme during 2021.

That is very good. I will pick up on your last point about patient experience. I recognise that, as auditors, your primary focus is the money, but value for money is also an issue. A lot of people are currently very concerned about, for example, a lack of adequate access in some areas to general practitioner services. They do not understand why that should be the case, as it is not as if GPs in Scotland are heavily involved in the vaccination programme. I have already mentioned the dire problems that patients with chronic pain are facing in places such as Lanarkshire, where they are not able to get simple regular infusions and injections. That has resulted in a terrible experience for them, and additional costs for the health service.

When you are doing your work, will you please talk to patients and patient groups, and the cross-party group on chronic pain, to get their feedback on the human cost, as well as the financial cost, to the health service and to others?

I am very happy to make that commitment, Mr Neil. I have had some conversations with the committee already about the fact that—as you will have seen in our plans for our work programme—inequalities and access to services are key areas of our work, through all our reporting.

I am mindful of the committee’s feedback to the consultation on our work programme with regard to regional inequalities in access to services. Both those points will be captured in our reporting, and we will be happy to engage with the chronic pain group that you mentioned, and with other interest groups, in order to build those aspects into our understanding so that we have a rounded picture of what remobilisation of the NHS will begin to look like.

I am sure that groups that represent cancer patients and others will also want to talk to you. That is much appreciated—thank you.

To go back to Alex Neil’s questions about excess costs and the fact that a report was done on that down south, you are aware that this parliamentary session is coming to an end and that the committee has only one more meeting, so is it not possible for you to give the committee an indicative figure within the next couple of weeks?

I would hesitate to be definitive on that. I will look to see whether we have the information and numbers. We are conscious that the evidence supports our numbers. If we are able to do that, we will, but I do not want to give the committee a false expectation, so I will take that away and speak to my colleagues after the meeting to see how our work is progressing before we come back on that publicly.

That would be appreciated.

A huge amount of Barnett consequentials have flowed to Scotland, and the chancellor announced extra in the budget. Have you been able to track that money—to follow the consequentials—to see whether it has been spent where it was meant to be spent and, indeed, whether it has been spent at all?

I will ask Fiona Diggle to say a bit about the scale of the Barnett consequentials, recognising the fact that, as I referenced in my introductory remarks, it is a fast-moving and volatile picture. That has been the case over the year, given the sheer number of announcements and the complexity of the money that has already been announced. However, through the paper, we have sought to follow the money and to track what it meant for the timing of the UK budget, the Scottish budget and the spring budget revision. I will ask Fiona to say what our understanding is about the number of Barnett consequentials and the Scottish Government’s commitment with regard to what has been spent and what will be carried forward to next year.

The spring budget revision, which came out just after our publication, highlighted that £8.6 billion of Barnett consequentials for this year have been allocated. A further £1.1 million for 2020-21 was released later in the year, and that has been moved forward into the 2021-22 budget.

Therefore, that is a total of £9.7 billion in Barnett consequentials.

Yes, that is right.

How much of that has been allocated or spent?

The spring budget revision confirmed how much had been allocated and the final budget for the year.

What I am trying to get at is how much of the £9.7 billion that is coming or has come to Scotland—it probably has not all come yet—has been spent or allocated? We know that it is here, but has it been spent?

The budget revision showed us what has been allocated to different budget lines, but we do not yet have a complete figure for what has been spent.

Basically, we do not know how much of that £9.7 billion has been spent—or, rather, to take the figure of £8.6 billion from before the budget, we do not know what has happened to all that money. Is that correct?

That is right. In our paper, we highlight some areas of spend that the Scottish Government was able to provide figures for on health, and we refer to transport and business spending figures that are publicly available. On that overall picture, the problem has been getting financial information pulled together centrally from a wide range of sources. It is important that that information is tracked and reported publicly for Parliament and the public.

It is vital. If that money has come to the Scottish Government, we need to know that it has been used for the purpose that it was meant for and that it has not been stashed away somewhere.

The Scottish Government will be reporting on what it has spent in its consolidated accounts, which are audited each year by us. Those accounts will be the complete record of the £8.6 billion of Barnett consequentials. As you rightly pointed out, Mr Simpson, it has been agreed by both Governments that £1.1 billion of those consequentials from the UK Government will be carried forward into the 2021-22 budget.

As Fiona Diggle noted, this is in effect a kind of live reporting, but the numbers have not yet been audited. We capture in the paper aspects of what we know has been spent, but the definitive picture of what the final number is will come in two stages. One is when the Cabinet Secretary for Finance reports to Parliament on the outturn numbers during the summer, and the second is when we complete our audit of the consolidated accounts in the autumn. That will be the definitive record of the total number that was spent; we will be beginning to report on how well that money was spent. During the 2021 calendar year, we will begin to be definitive about where all the money has gone and how well it was spent.

Mark Taylor would like to add something.

The Auditor General has broadly covered the point that I was going to make, but I will add a bit of colour, if I may.

As everybody on the committee understands, the challenge here is that this has been a moving target as we have gone through the year. What we are able to say is what has been committed—the money that has been earmarked and passed on to bodies, which are then spending or administrating that money. What is more difficult is to get the aggregate amount of how much has been spent by each of those bodies. You will see, from the exhibits in the report, the range of public bodies involved. That is a process that culminates in the preparation of the accounts. As the Auditor General said, that will give us definitive and audited figures.

It is also about recognising the challenge that the Government faces in pulling the overarching picture together, given the information flow back from all the bodies that are spending that money through time, and additions through time. We have done what we can in the report to give a sense of that, but we have to recognise the scale of the challenge. What is fundamentally important, of course, is that money gets to the places that it is needed and that the Government has assigned it to as quickly as possible. We will be able to pick up on that in the course of our continuing work.

I suppose that my final question is to ask when we will know what has happened to the money.

It goes back to those two stages, Mr Simpson. We will know what the outturn is when the Cabinet Secretary for Finance reports to Parliament in the summer. We will come in when we have audited those numbers. As Mark Taylor said, that will take place on a wide range of public bodies. Exhibit 6 in the paper begins to illustrate just how many public bodies are involved in the spending of Covid moneys. There will be an accumulation of reporting through individual bodies, but most important for this committee’s interest will be the audited numbers through the consolidated accounts of the Scottish Government. Those two stages feel like the milestones to look out for when it comes to how much has been spent and how well it has been spent.

Regarding the previous line of questioning, I support the Auditor General for not issuing numbers when he is not happy that he has done all the work on those numbers, even if there is still a wish to get figures out quickly.

Auditor General, the report highlights that information on actual spend is limited. What concerns does that represent with regard to monitoring and auditing public spending? Are appropriate monitoring systems in place? Can you explain how the money goes from the Scottish Government’s coffers to wherever it is meant to go? Is it straight out of the Government’s bank account, or is it more complicated than that?

09:30  

I will do my best, Mr Bowman. I might ask Mark Taylor and Fiona McQueen to contribute as they see fit.

It is complicated. The flow of funds is not what we have typically been used to—[Inaudible.]—the distribution of moneys outside public bodies. I will try to illustrate that. Some of the money that we looked to capture in the report was spent by public bodies, but significant amounts were spent on supporting individuals and businesses through grant arrangements, particularly in the early stages of the pandemic. Much of the money was distributed through local authorities or the enterprise agencies. We will audit that through the individual annual audits of the organisations and, to comment on how well the money has been spent, in a series of performance audit reports. As Mark Taylor said, it has been a moving target, particularly as the year progressed.

There are some important safeguards, including monthly reporting through individual bodies, which you will be familiar with from management accounting, progress against grants, spend targets and so forth. It is important that bodies do that monitoring and that the Government tracks what money is spent as it distributes funds to public bodies around the system.

Does the Scottish Government regard the money as spent when it pays it to an agency, or does it say that it is spent when the agency says that it has passed the money on to somebody else?

It will be a combination of those things. When the money is distributed by the Scottish Government to public bodies, some say that the money has been distributed. Allocation of the money does not equate to it being spent—that is an important distinction. In the paper, we try to capture that that is not unexpected, to an extent. It is inevitable that there is a difference between the total allocation and the total spend, due to the rate of uptake of the allocation of the funds, whether through businesses or programmes that are anticipated to straddle more than one financial year. Perhaps Fiona McQueen or Mark Taylor will talk to what we understand about how that has been recorded by individual public bodies.

I will develop the point that the Auditor General touched on. It depends on the type of funding. The £8.6 billion commitment that we have talked about is broadly a budgeting commitment: the funds have been earmarked and provided for particular initiatives. The extent to which that gets booked as spent, if you like, depends on the nature of the initiatives and the money.

I will give a couple of examples. When additional money is provided to local government through the funding package, the money counts as Government expenditure at the point that it is given; local government goes on to spend it according to its own plans. If money is earmarked for the health service, it is not until the health service has spent the money that the expenditure is recognised. As you know, the accounts are the vehicle for pulling the assessment and information together.

On the broader point, as part of the spring budget revision process, the Government has done an assessment of the expenditure that it expects to incur across the range of its spending programmes. It is not that the Government does not have any information about it, but the Government’s assessment is based on the best information that it has available. It is only once we see the accounts that we will know how much of the money has been spent and in what areas.

We need to start at the top of the tree in the Scottish Government in regard to how this was set up. If we were looking at another organisation, it would have an agency agreement or a contract on how money was spent and reported. Has the Scottish Government gone through how it can control this and ensure that the money that it has to report on is properly recorded and reported?

You are quite right. There is an onus on there being an understanding of the roles and responsibilities—[Inaudible.]—parties when money is—[Inaudible.].

[Inaudible.]—importance of the control environment and the governance arrangements—[Inaudible.]. We are in the process of doing exactly that through our work, and we will report back publicly to the successor committee on the arrangements that have been put in place to ensure that money has been spent.

As we touch on in our paper, there is a likelihood, given the pace at which money has been spent, that it will not all have been spent as originally anticipated. It is right to recognise that. We will continue to report on how money has been spent but, as I say, given the pace at which money was being passed out and spent, particularly at the height of the pandemic, there is a possibility that not all of it will have been spent well or as originally intended.

Will some of that money have gone outside the envelope of the Scottish Government accounts? Would whole public sector accounts help to ensure that all of that is captured?

It will be no surprise to the committee to hear that I am very supportive of that. It feels like it is an essential component of the Scottish Government’s public financial reporting to have a complete picture across all public bodies, not just those within the Scottish Government accounting boundary, but particularly—and as you indicate—where local government spending forms part of it. That complete picture of assets and liabilities would be part of the fabric of annual financial reporting. As the committee knows, we are extremely keen for progress to be made on that as soon as possible.

Whole public sector accounts are something that we will push.

Good morning, panel. I want to follow up on Bill Bowman’s line of questioning. Auditor General, the Convention of Scottish Local Authorities is not here to speak for itself this morning, but I wanted to quote a short passage from a recent press release that came to us regarding Covid spend. It said:

“COSLA welcomes the £259m non-recurring funding to address COVID pressures next year and the commitment to pass on additional loss of income consequentials. Our ask is that additional COVID money is passed to Local Government with no strings, no reporting, and no questions about the value of essential services provided every day by councils.”

What is your opinion as to what that statement means? How do you work with the Accounts Commission to ensure that the money is tracked, as you were describing earlier?

I will take your questions in reverse order. We work extremely closely with the Accounts Commission. The programme of work that I am referring to as following the pandemic pound goes across public audit in Scotland. Audit Scotland is carrying out work on behalf of me and the Accounts Commission to get a complete picture of how the Covid moneys have been spent, regardless of the status of the public body. We have been working very closely with the commission, and I am happy to confirm that.

On the wider point about COSLA’s request, I had not seen that quote but, if I heard you rightly, it talked about “no strings, no reporting” on how the money is spent, suggesting that it is for councils to make that determination. I think that it is for the Scottish Government and local government to continue that conversation. Public reporting and transparency are captured alongside that and they are not an impediment, particularly at the height of the pandemic, to getting money to deliver services to individuals and businesses.

The basis of this morning’s conversation, and a theme of our paper, is that there is a real need for aggregated reporting and transparency of that money. As far as “no strings, no reporting” is concerned, that will ultimately be a decision for the Government and local government to make together. We would support having clear, line-of-sight transparency, with an ability to make value-for-money judgments at the right time about this significant public investment.

If no one else has questions for the Auditor General and his team on the report, I will now suspend the meeting to allow for a changeover of witnesses for the next agenda item.

09:39 Meeting suspended.  

09:43 On resuming—