Finance and Constitution Committee

Meeting date: Wednesday, November 14, 2018

Official Report 667KB pdf

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Subordinate Legislation

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Budget (Scotland) Act 2018 Amendment Regulations 2018 [Draft]

The second item on today’s agenda is to consider a Scottish statutory instrument that provides for the 2018 autumn budget revision. Before we come to the motion on approval under agenda item 3, we will have an evidence session on the order. We are joined by Kate Forbes, the Minister for Public Finance and Digital Economy, who is accompanied by Scott Mackay of the Scottish Government. I welcome the minister to the committee for her first appearance before it, and I invite her to make an opening statement.

Thank you very much. It took a promotion to be allowed back on this committee, so it is great to be here.

As the committee will know, the autumn budget revision provides the first of two opportunities to formally amend the Scottish budget for 2018-19. 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 and which sets out the background to and details of the main changes proposed. I hope that the committee has found that document useful.

As members will know, the First Minister announced a restructuring of the Scottish Administration. Table 1.1 of the autumn budget revision supporting document provides a full reconciliation between the former Scottish Government portfolios and the new Scottish Government structure.

This year’s ABR deals with four different types of amendments to the budget: first, a couple of funding changes; secondly, a couple of technical adjustments that have no impact on spending power; thirdly a small number of Whitehall transfers; and, finally, some budget-neutral transfers of resources between portfolio budgets. The net impact of those changes is an increase in the approved budget of £7.3 million to £40,505.9 million. Table 1.2 on page 5 of the supporting document shows the approved portfolio budgets following the changes sought in the ABR.

The supporting document that officials have prepared provides background on the net changes. I will briefly sketch out those changes. The first set includes the deployment of funding across multiple portfolios to cover European Union exit activity, additional funds for the Scottish Futures Trust for the schools for the future initiative, and further funding for raising attainment. In total, those changes increase the budget by £32.1 million.

The second set of changes comprises a small number of technical adjustments to the budget, with a net impact of £31.2 million on the aggregate position. The adjustments are necessary to ensure the budget is consistent with accounting requirements and with the final outturn that will be reported in our annual accounts. The main technical adjustment is the removal from budgets of £31 million of interest and repayments on capital borrowing. Those should be routed directly through the Scottish consolidated fund, rather than through Scottish Government accounts as per legislation set out in the Scotland Act 1998, which states that amounts required for the repayment of principal and payment of interest on sums borrowed are to be charged on the Scottish consolidated fund.

With regard to Whitehall transfers and allocations from Treasury, there is a net positive impact on the budget of £6.5 million in relation to small transfers, which are all listed in the supporting documents.

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

As we move towards the financial year end, we will continue, in line with our normal practice, to monitor forecast outturn against budget and, wherever possible, seek to utilise any emerging underspend to ensure that we make optimum use of the resources available in 2018-19 and to proactively manage the flexibility provided under the fiscal framework agreement between Treasury and the Scottish Government.

I shall provide the committee with a mid-year report on revenue and spending to date alongside the spring budget revision, when published, to improve the transparency of the budget management process and decisions that are taken in year, which is in line with the budget process review group recommendations.

Thank you, minister—that is helpful.

My question does not specifically relate to any of the areas that you have raised. It is on table 1.8a in the budget revision document, which is on funding reconciliations and issues to do with the reserve. I am curious about the Government’s position on the reserve. To what extent is the purpose of the reserve to allow the Government to draw down additional funds for public expenditure, and to what extent is it about a need to build up funds to address any potential shortfall that might arise from tax forecast errors that may emerge? The committee has been interested in the issue of tax forecast errors, so an understanding of the Government’s position on that would be useful to us as part of this exercise.

Table 1.8a is a relatively new addition, and I hope that members found it useful in improving transparency. Of course, the Scotland Act 2016 powers allow the Scottish Government to build up funds when possible. That serves a number of purposes, some of which the convener has set out. They are to address unforeseen budget pressures, to manage the obvious volatility in tax receipts and shortfalls in forecast related to forecast error, and to smooth all types of spending. The Scottish Government has previously made clear that it intends to build up the balance in the reserve over time, as resources allow, in order to have a financial cushion available to it and to prudently manage that underspend across financial years. That is particularly important with greater powers over taxation and the obvious volatility that comes with tax receipts.

Of course, the Scottish Government cannot overspend its budget, so it is prudent to manage the budget over a number of years, which has been endorsed by the Auditor General for Scotland.

10:45  

The bottom line in the table is that £197.7 million is available for future deployment. Is at least part of that, and perhaps a significant part, the money that the Government is going to put away for a potential rainy day? Is that the intent of that future deployment cash?

Indeed. The sum that is available for future deployment can be carried forward, but obviously those figures will be seen more clearly when the Scottish Government publishes its draft budget on 12 December.

Good morning, minister. I want to ask about one of the internal transfers that feature in the order. There is a transfer of £58 million from the health and sport budget to the education and skills budget in respect of nursery and midwifery education. Similar transfers have recurred annually in the accounts since I think 2008-09. Given that the transfer appears in the accounts every year, would it not make more sense just to have the money as permanently part of the education and skills budget rather than the health budget? I raised the issue at this time last year with the cabinet secretary when he was sitting where you are now, minister. He said that I had made a valid point, but I see that nothing has changed, so perhaps it is time to reconsider.

It is a very valid point. I recognise that the committee has asked the question a number of times. In my preparation for this committee appearance, it is one that I asked, too. It is obviously an annual transfer.

I have a few quick points in response. The money is initially allocated to the ministerial portfolio where the policy decisions are taken and where there is ministerial responsibility, and it is then transferred to the portfolio where the spending occurs. Any changes to policy would impact on the health budget and savings would come to that budget. That is the way that it has been done for years, and again this year, which ensures consistency and transparency. Where there are policy changes or savings, those flow to the health budget but, of course, it is education’s responsibility to deploy the money through the Scottish Further and Higher Education Funding Council.

It is a valid point. I have asked the same question and am satisfied that the approach is the best way of doing it to ensure transparency and consistency, because the money is allocated initially to the portfolio minister who is responsible, who is Jeane Freeman as Cabinet Secretary for Health and Sport.

Despite everything that you have said about transparency, would it not be more transparent to present the money as part of the education and skills budget? Your way of presenting it in effect shows the health and sport budget as substantially higher, to the tune of nearly £60 million, than the actual spend at the year end. We know that it happens annually. Would it not improve transparency if you were to change the way this is presented?

I take that point. The important point is to ensure that we are completely up front and transparent, particularly when it comes to the autumn and spring budget revisions, on where the lines are, where responsibility lies and where spending actually happens. If there are additional points on ways in which we can improve transparency, I would be very happy to consider those.

The way that it has been done for years has happened for years because, so long as there is transparency over the budget revision, and so long as the committee and others can see where responsibility lies and where spending happens, that meets the requirement for transparency.

I have a supplementary question. I think that it is actually quite transparent to see that the £58 million goes from health and sport to education. I probably should declare that I am a nurse. The transfer allows us to see that the money is specifically spent on education for nurses and midwifery, rather than going somewhere else within the education portfolio.

It comes back to the point about the importance of the budget revision, and the importance of my officials and me providing the committee with as much information as possible so that it can track the changes. I accept that the question will probably be raised every year, and we may sound a bit like a broken record, but it means that the committee has full sight on internal transfers, which, at the end of the day, are budget neutral.

Because of assiduous people such as Murdo Fraser, it is probably the most transparent bit of the whole Scottish Government budget, because we ask the question every year. If I have it right, the transfer is about ensuring the outcomes for health. In effect, it provides a mechanism for the health department to get the money spent in the area that it thinks is needed to deliver the required number of nurses and midwives.

Absolutely. It goes back to my point that changes in the policy would have an impact on health. Where there might be savings in the policy, that would have an impact on health. That is why it is a health line and is then moved during the year.

James Kelly has a question on a slightly different issue.

It is again to do with transfers, but this time from the social security and older people budget to the communities and local government budget. There are three transfers, coming to about £102 million. Will you give a bit more detail on that?

Yes. Is that the £37.9 million, the £12.1 million and the £5 million?

There is £52.1 million in relation to the bedroom tax, £37.9 million for the Scottish welfare fund and £12.1 million in mitigation and welfare reforms.

I will take them one by one. The £52 million is a transfer to meet a manifesto commitment to fully mitigate the bedroom tax. That is clear. The £37.9 million relates to the Scottish welfare fund, which was established in April 2013 after the United Kingdom Government’s decision to abolish two elements of the social fund—community care grants and crisis loans. The powers and funding were devolved to the other Administrations within the UK. It was at each Administration’s discretion whether to continue to have a fund and how it would be administered. That is a transfer to local government to fund the delivery. Last but not least, the £12.1 million is to provide funding to local authorities for non-bedroom tax discretionary housing payments. DHPs are administered by the local authorities and are obviously a key element of the wider mitigation of UK welfare reform.

Are they one-off transfers for this year or will the budget line continue in future years?

I was not in this role last year, but my understanding is that this is not the only year. It is a regular transfer. This is the same challenge as I mentioned previously. The ministerial responsibility and impact lie with the social security and older people budget line, but delivery is through local government.

You will be aware that, in the upcoming budget, there will be a big focus on local government funding, as there has been in all budgets in recent years. How will you ensure transparency in the allocations? One of the key issues will be baselining back to last year’s local government settlement, so we do not want any misunderstanding about the figures before we get into the political discussion. How will you ensure transparency on the figures in relation to the allocations?

It is a valid point. I hope that this discussion is improving the transparency around where budget lines will be shown on 12 December and through the budget stages and then in the budget revision. Because ministerial responsibility for those budgets lies with the Cabinet Secretary for Social Security and Older People, the lines will be included in her budget allocation. Obviously, because deployment is through local government, revisions will happen throughout the year.

Scott Mackay wants to come in.

I just want to say that a couple of tables were added in the budget document last year to try to add a bit of clarity on the overall local government position. Forthcoming transfers form part of that and we will certainly try to maintain that improved clarity on the totality of the local government settlement in the forthcoming budget document.

It is important that we all have a consistent understanding of the figures before we get into any further discussion.

There is going to be further discussion of local government? My goodness.

I seek clarification on the technical transfer of £31.2 million, which as I understand it is to cover interest on and repayments of loans. Can you confirm that the overall effect of that is cost neutral in the budget? At first sight, someone might think, “Oh, no, we’re losing £31 million,” but that money surely would always have to have been set aside at some point. Is this simply an accounting manoeuvre to put the money in the correct place in the accounts?

I can assure you that those technical adjustments are budget neutral. 2017-18 was the first year that the Scottish Government actually undertook cash borrowing from the national loans fund. Previously, it was a notional borrowing arrangement agreed with Her Majesty’s Treasury.

The Scotland Act 1998 explicitly states that the amount that is required for repayment of principal and interest should be charged on the Scottish consolidated fund, so it needs to be removed from the Scottish budgets and administered centrally, and it is reported through the Scottish consolidated fund accounts. Those details will be shown in the budget supporting document. I recognise that this is a first, so we will ensure that any documentation that is published with the budget transparently reports that.

So that will be clearly indicated in the consolidated fund account in future.

Yes.

Good morning, minister. In terms of internal transfers, there is movement to the higher education student support budget totalling £28.2 million. How will that money be spent? There is also £16.8 million for the widening access fund, for additional places. How many places might that fund provide?

The widening access fund started in 2013-14 as part of a four-year phased approach to increase student numbers. It has now reached a steady state and the transfer is agreed based on the total places each year. The transfer covers fees and bursaries for 8,200 places in total.

Can you provide a breakdown of which institutions benefit from the transfer?

I do not have the breakdown to hand, but I know that £16.8 million from the SFC budget funds additional student places for widening access. I can provide the member with more of a breakdown if he is interested.

That would be helpful. Thank you.

As there are no more questions, we move to agenda item 3, which is consideration of the motion on the order. I invite the minister to move motion S5M-14433.

Motion moved,

That the Finance and Constitution Committee recommends that the Budget (Scotland) Act 2018 Amendment Regulations 2018 [draft] be approved.—[Kate Forbes]

Motion agreed to.

The committee will publish a short report to Parliament setting out our decision on the order. I thank everyone and close this meeting.

Meeting closed at 11:00.