Finance Committee, 01 Feb 2005

Meeting date: Tuesday, February 1, 2005

Official Report 233KB pdf

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Budget Process 2005-06

Agenda item 2 is consideration of the Executive's response to our report on stage 2 of the budget process. I am pleased that the Deputy Minister for Finance and Public Service Reform, Tavish Scott, is here to answer members' questions on the response. He will also remain for our stage 2 consideration of the Budget (Scotland) (No 2) Bill. With the deputy minister are Richard Dennis, the finance co-ordination team leader and Iain Dewar, from the efficient government team, in the Finance and Central Services Department of the Scottish Executive. I wish that the Executive could find shorter names for its divisions and sub-divisions.

We have the minister's response in front of us, so the sensible way to proceed is to invite members to pose any questions that they have.

I will go first, rather than let the minister go away empty-handed.

With reference to the Executive's response to point 4 on the target for economic growth, the committee accepts that many factors that influence economic growth are not within the gift of the Executive, but it strikes me that those factors also affect other countries—in particular the rest of the United Kingdom. Therefore, although those factors might preclude the Executive from setting a target for economic growth per se, surely it would be possible to set a target relative to our closest comparators.

We have been down this particular avenue a number of times. I would be happy to consider any suggestion that the committee might make if it were possible to define the comparators and what comparisons were being made. The committee is all too familiar with the fact that we have held to the view—I suspect that it is a commonly-held view—that when we are not directly responsible for all the external pressures that apply, a target might be a blunt instrument that would not necessarily achieve anything in terms of economic growth and the strength of our domestic economy. However, if the committee—in particular Mr Morgan—has specific comparative suggestions, we will be more than happy to consider them.

There is not necessarily an easy solution, but the problem is that if there is no solution we are left with a situation in which there is no measure by which we can judge whether expenditure on the Executive's main political target—economic growth—is successful, which would be the case even if we were to cross the other hurdle that we will face later in the meeting, when we try to work out which expenditure is targeted at economic growth. Even if we can do that, we would not have a clue whether that expenditure is successful.

I am sure that Mr Morgan will agree that on the devolved areas for which we have responsibility—education, transport or any other particular expenditure programme—we have set targets and objectives and that he, the committee and other portfolio committees rightly hold the Government accountable on those. I argue that in that sense there are checks and balances and that there is appropriate scrutiny of the Government's expenditure levels in order to create the conditions within which the Scottish economy can prosper. Parliament rightly holds Government to account for such expenditure. That is how we have dealt with portfolio expenditure. I accept Mr Morgan's point about the lack of a central big number at the top of that, but because of external factors we are not convinced that that is achievable or possible. We have discussed these matters before, so I will not repeat all the slightly academic arguments again. I say again that we will be more than happy to consider any suggestions that are made.

When we took evidence from Dr Goudie in our economic growth inquiry, I took it from his comments and from some of the documentation that we had seen previously that the Executive was in the process of considering some comparative measures of performance in economic development. That is little more than a step and a jump from where the committee wants to go. There is not necessarily a huge distance between us on the matter. If you are saying that you are happy to engage in a dialogue with the committee to see how we could provide an appropriate mechanism for considering comparative performance as a benchmark, the committee might be content with that suggestion. We would certainly welcome an opportunity to have that discussion with you.

I am happy to do that. I do not see any point in having a sterile or negative political argument; I would rather have a positive one in which we looked for an agreed basis for such comparators. We might not reach agreement, but there is certainly some merit in pursuing the matter.

The committee is also familiar with the fact—because ministers have mentioned it and spoken about it in finance debates over the years—that the Executive has an overall objective in relation to the top quartile of gross domestic product performance. We will continue to pursue that objective. We are happy to consider comparators that would be meaningful to all of us.

What is important from my point of view is how we close the gap between an aspirational objective, which as you say is to move to the first GDP quartile, and the mechanism for moving in that direction. That might be a useful subject for debate.

I will add one other issue to the discussion before I bring in Wendy Alexander. You said that you do not have control over many of the issues that are involved, which is obviously true in the context of the role of the UK Government and of external factors that are not affected by Government. Is there dialogue between the Scottish Executive and your Westminster counterparts about setting forecasts and expectations in relation to economic growth, and about how such expectations might be met? Is there a process of informal or formal dialogue about how you can work together to deliver stronger economic growth for Scotland?

There is normal contact at official and ministerial levels on economic development and growth in general, which is an on-going and very live process—we would not expect it to be otherwise. Obviously, in the context of the spending review in the summer, for example, we take decisions about strategic long-term investments, such as the significant increases in higher education spending, in transport spending and in tackling health. Those decisions are taken by us. Although there needs to be dialogue and engagement at official and ministerial levels, the portfolio choices that we make are ultimately matters for us, so we must make judgments as best we can.

I was trying to make the point that dialogue between the Executive and the UK Government geared towards economic growth might be beneficial in promoting awareness of the choices that ministers might make and the consequences of choices that the UK Government might make.

Indeed. That process is on-going.

I approach the issue from a slightly different viewpoint. It is known that I am less interested in targets than I am in forecasting. The minister invited the committee to suggest a constructive way forward.

The Executive recently committed itself to drawing up a long-term financial model, which will be hugely valuable, given that we are currently in a difficult position because we look only three years ahead, although we make policy commitments for 10 or 20 years ahead. The long-term financial model will try to forecast spending. It strikes me as being a little odd that the Executive, which probably employs more economists than does any other institution in Scotland, does not try to forecast what will happen on the macroeconomic scale. There have been three private forecasts, which I think were joined by a fourth in December.

I presume that we want our spending patterns to be to some extent countercyclical. We therefore need a deep understanding of what is happening in the Scottish economy. Although the Scottish economy is highly integrated into the UK economy, we know that the different composition of the Scottish economy, which was demonstrated in the period 2000-2002 in relation to electronics, has led to a different growth profile in Scotland. The Executive might want its spending patterns to reflect blips that affect Scotland differently from the rest of the UK. The Executive has committed itself to producing a long-term spending model and it is certainly the pattern for Governments in other jurisdictions—small nations or regions—to forecast expected growth in their economies. Such an approach might have allowed a focus on, for example, the downturn in electronics, which was well known to microeconomists in the Executive but could have been considered throughout the Executive in the context of the implications for the forthcoming spending review. Currently, any dialogue that is based on the differential composition of the Scottish economy is entirely dependent on the three private organisations—I think that they have been joined by a fourth—that forecast the Scottish economy.

Has the Executive—in close concert with the Treasury and no doubt making use of the Treasury's model—considered complementing its long-term financial model with a long-term economic model of the Scottish economy that would have some short-term forecasting capacity? Such an approach is very different from using targets, which I do not regard as being particularly wise. I cannot understand why we moved to targets without first attempting to forecast accurately.

I have a lot of sympathy for that argument. Perhaps all that I can say now is that there are discussions on the issue and that I can come back to Wendy Alexander with more detail.

Sure—that would be excellent.

Wendy Alexander is also right to pick up on the convener's point, which is that we can draw on the Treasury's experience. The discussions that are taking place in that context are more at official level than at ministerial level—I have not yet found many economists at ministerial level, which is probably a good thing. There is considerable room for examining the matter. We need to see both sides of the equation; it seems eminently sensible that we should do so. I am sorry that I cannot give a more precise answer.

The matter will be included in the dialogue. The committee would welcome a written response.

It would be very helpful if the minister could write to us about the matter in due course.

I will bring in Elaine Murray.

I wanted to raise a different issue.

In that case I will bring in Alasdair Morgan first.

Even if we had forecasts about the growth of the Scottish economy, what flexibility in Government expenditure would there be? Our total expenditure is very much constrained by the Barnett formula. Even though we might want to spend in a cycle that was different from that of the UK economy, the totality of our spend is pretty well determined for us—unless the central unallocated provision will take a much larger proportion of the budget than I am aware of.

Of course that is true, but I am sure that Mr Morgan is not arguing that we should cut expenditure. We need to consider carefully where the argument goes; it is about considering the disciplines that are on us in financial terms. For example, we will soon publish the capital investment plan using the model and providing the practical document that the committee has been asking for for some time. The plan will illustrate the balance between capital and revenue over 10 years across portfolios such as transport. It is important to have that consideration vis-à-vis capital and revenue and it is important that we do that transparently and in a way that illustrates that we are investing for the long term, particularly in capital terms. I suspect that we all share that objective.

Up and down Scotland, people are awaiting the decisions of their local authorities on next year's council tax. In its response to the committee's report on stage 2 of the 2005-06 budget process, the Executive says that it

"sees no reason for any council tax levels to rise above 2.5% for 2006-07 and 2007-08."

The submission continues:

"For the coming year, we expect councils to keep rises as low as possible".

Does that mean that you think that it would be acceptable for this year's council taxes to increase by above the inflation rate?

No. Again, I do not want to repeat the formulations that Tom McCabe and other ministers have used in previous weeks, but we hope and trust that local government, given the considerable resources that are available to it—in excess of £10 billion by 2006-07—can keep council tax increases to a minimum. Obviously, those are matters for the judgment and consideration of local authorities, but we very much hope that authorities will take an extremely responsible and prudent approach on the matter.

Local authorities are putting the counter-argument that although they have received a lot of additional money, much of it has been accounted for by the duties that have been imposed on them by legislation that Parliament has passed. I have the definite impression from councillors and officials in local authorities that they do not think that they will be able to hold council tax rises down to the rate of inflation this year. That causes concern, particularly for people who are just above the council-tax benefit level, who will probably be the hardest hit. Is the Executive considering the consequences of above-inflation increases in council tax for people at that income level and taking them into account in its wider review of local government finance?

The Executive is not doing that; that is why we set up an independent inquiry. However, Elaine Murray's point is fair in the sense that the inquiry will give the committee an opportunity to take evidence on that. Obviously, there will always be a cut-off point in whatever level Government policy pitches benefits, and therefore there will be some people who do not benefit from them. The independent inquiry was established last year and has just called for evidence, which will include those points.

I cannot add much to what I said on Elaine Murray's other point, because these are matters for local government. I honestly do not think that it is any finance minister's job to second-guess what local authorities will want to do. I accept the point about legislation that has been passed by Parliament—we all take responsibility for that. In the two years during which I have done my current job, we have discussed the relationship between central and local government a number of times. I guess that it is a live and on-going relationship, given the point that has been made.

The minister, Tom McCabe, acknowledged that the settlement is tight, particularly in the later years of the spending review, and he said that there would be discussions with local government about it. Can you give any indication of what discussions have taken place so far, what discussions are intended and when the process might reach a conclusion?

I cannot give any detail on that today but, as the committee knows, we regularly meet the Convention of Scottish Local Authorities, which is the umbrella body for local government throughout the country. We have formal meetings throughout the calendar year; that matter will undoubtedly be a standing item on those meetings' agendas. I suspect that COSLA will choose to make sure that its view is made known publicly and that we will all hear it regularly. The committee can be assured that those discussions will take place. It is appropriate that local government make known its views, both as individual councils and collectively. Like you, convener, I was a councillor and I do not remember any year in which we did not make representations on the overall settlement.

The difference this year is that the Executive appears to acknowledge that there is a particular problem. We are interested in monitoring how it proposes to resolve the issue.

The minister says in his response that

"The Spending Review 2004 settlement for local government is robust".

I have been reading Mr Humphry's book on the use of language, so I wonder whether the minister can tell us what "robust" means?

Which Mr Humphrys is that, Mr Morgan?

Just tell us what Mr McCabe means by "robust".

I agree with Mr McCabe that the settlement is robust. Maybe I can—

What does "robust" mean?

May I put the matter in context? We made conscious spending review decisions in relation to substantial increases in higher education spending, in long-term transport spending and in tackling some particular challenges in health. Mr Morgan may correct me if I am wrong, but I did not notice any great dissent from that long-term investment and the strategic overview of where we want to take expenditure patterns during the period of the spending review. That inevitably meant that, after a considerable period of substantial growth in local government spending since 1999, local government got a tighter settlement in the current spending review than in previous ones. I simply suggest that, in the context of overall spending, the Government made a conscious decision to invest strongly in the longer term, particularly in those three areas. I accept that it is a tight settlement in terms of local government.

Right. So that is what "robust" means.

I do not think that Scotland is short of people who can testify to Tom McCabe's robustness.

I make no apologies for going back to targets and forecasts. The discussions with the Westminster Government to which you referred in an earlier answer did not sound too protracted. Have you discussed the absence of targets and forecasts with the UK Government, given the implication that it is easy for competitor nations to construe the matter and to decide that we are not serious about economic growth? Equally, that thought could start to percolate through to the minds of inward investors, young Scots and potential immigrants, who might think that we are not serious, given that we do not have a forecast for economic growth.

I am not convinced that the groups that Mr Mather mentions are hugely influenced by what we might say about a particular number at a particular point in time during a particular parliamentary year. Based on the evidence that I have seen and the feedback from ministerial colleagues who have just come back from China, where they were promoting Scottish business interests, I argue that our overall approach and the environment that we seek to create, within the powers of the Government in Scotland, are moving in the right direction.

Mr Mather will have to forgive me, but I cannot set out exactly what is discussed vis-à-vis the issues between Edinburgh and London, but he can be assured that they are discussed.

The point that I am keen to register is that, given the nature of the powers that are dispensed across the two legislatures, the Executive and Westminster have a joint and several responsibility to step up to the plate on the matter. Inward investors, young Scots and potential immigrants all work on the basis of enlightened self-interest and seek the best return for themselves, but we have an Achilles' heel: our economic management is a bit of an own goal because we do not have a forecast. We are sitting here with no powers on tax, no powers to save and no powers to borrow. We are talking up a deficit, and on top of that we have no forecast. That situation will rot in people's minds unless we do something about it. Will you seriously consider talking to your colleagues at Westminster with the objective of coming up with a joint target and a joint forecast for economic growth in Scotland?

I have said what I have said on the issue. I will not go back over it, and I will not add to it and then be picked off in terms of wordings. We have on-going discussions and we will continue to participate in those in the appropriate way. I can only respect and reflect on the devolution settlement. We have the powers that we have, and they are laid out in the Scotland Act 1998. From one political perspective we could want more and from another political perspective we could want less, but we are where we are and we will take matters forward as effectively as we can within that context.

On effectiveness, and to look at the matter from a different angle, in what way is that compatible with the demographic challenges that we face and the need to reverse population decline? How can we create a feedback loop to allow forward planning to meet the changing economic climate if we do not have a forecast to give us some indication of what we anticipate will happen in Scotland in the future?

I said in response to Wendy Alexander's question that we will look at the particular long-term point in relation to forecasting, but we make the best judgments that we can, in policy terms, on attracting new people to Scotland and encouraging expatriate Scots back to Scotland. Mr Mather will be familiar with the programmes that we run in relation to those matters across various portfolios—I will not run through them again this morning. If it would be helpful, we can put together a list or a briefing note on them, but they are on the public record and together they add up to a concrete platform of initiatives, programmes and policies to deal with the issues.

My final question is, can you name one other country or organisation that sets and trumpets a top priority yet does not have a forecast or a target for it?

These are political games and I am not going to get into them.

It is a managerial game.

Given the fears that have been expressed by a number of members of the committee about the problems that are likely to be caused by the proposed grant support levels, has the Executive done any work to examine the impact of council tax on households that have low fixed incomes but are above the rebate threshold?

I am not aware of any. We have set up an independent inquiry to allow such work to be done in an independent and extra-Government fashion, which has considerable merit. I am sure that Sir Peter Burt's committee will be interested in the area to which the member refers, among others.

Do you accept that, given the reservations that you have heard and the things that COSLA and various local authorities have said, there could be real problems?

If Mr Brocklebank is asking me to accept a hypothetical situation in relation to council tax increases, I will not go there. Council tax changes and increases are a matter for local government. We will deal with the matter once councils have set their taxation rates, which they will do in the coming weeks.

The Equal Opportunities Committee recommended that the Executive develop national performance targets in relation to equality. In its response, the Executive said that it would consider what more it might be able to do to draw together information on what public bodies are doing to promote equality. What else do you think might be done to promote equality?

Richard Dennis may be able to respond to Mr Brocklebank's question in greater detail. However, as our response to the committee's report says, we would be happy to work with this committee and the Equal Opportunities Committee on the issue. I argue that we have made considerable progress in the area.

The Executive tried to point out that many of the organisations in which the Equal Opportunities Committee would like targets to be set and further measures to be taken are not strictly within the Executive's control. However, we can write to those organisations and collate information. We can ask bodies such as local authorities what steps they are taking to meet their best-value duties in the area. Once we have collated that information, we can give it to the committee. That is rather different from the Executive specifically setting a target for bodies such as local authorities to promote equality. That is the distinction that we tried to draw.

In our report, we made the point that there was an apparent loss of momentum with the pilot studies on equality proofing. Will that issue be addressed? Will you ensure that the pilot studies are taken forward and that other studies are considered?

We are in discussion with the Equal Opportunities Committee about how best to pick up the momentum.

There is clearly an issue of how council tax impacts on households with low, fixed incomes. If we are engaging in relative comparisons, it would be helpful for us to know when the review of council tax concludes and whether everything depends on its observations. Are there actions that could be taken at the moment to assess impacts of the sort that I have described?

It would also be useful for colleagues around the table to engage in a political debate about the issue. It would be interesting to see the scale of increases in council tax in the last two or three years of the previous Government. A number of us experienced those increases, which took place at the same time as reductions in services and staff. It would be interesting to see what changes have taken place in staff numbers in local government since 1997 and the way in which council tax figures are arrived at. We could then have an honest debate about whether the level of expenditure is right, without intruding on the rights of councils to determine the level of council tax and to take the consequences of their decisions at the ballot box, one way or the other.

What work has been done on such issues, especially in relation to fixed-income households? I refer to people who have a basic state pension and a works pension and are above the threshold for council tax benefit. A substantial section of the community falls into that category. Is the review team considering that issue specifically? Is it just an add-on or will it be analysed in detail?

The issue that Mr McAveety raises is not a detailed part of the independent inquiry's remit, for the simple reason that we did not include such detail within the remit. As the then Minister for Finance and Public Services, Andy Kerr, explained when we announced the establishment of the independent inquiry, the terms of the remit were broad in order to provide an opportunity for such issues to be raised. We do not expect the independent inquiry to report until the summer of 2006. I take Mr McAveety's point that that is a long time for those who are in the financial position that he describes. There is nothing to prevent individual MSPs or the Scottish Executive from taking up the issue, through the benefits system or in other ways.

I also take the point that we need to have a reflective debate about the previous situation. Those of us who were formerly in local government will be familiar with the points that Mr McAveety makes. I am sure that we will have that debate on Thursday, when we consider the Local Government Finance (Scotland) Order 2005. It will be important for us to set out some comparative statistics, so that people do not think that this is a dreadful day, compared with past settlements.

I am sorry that the electronics have not yet caught up with the physical reality that I am here.

I was surprised to see in paragraph 11 of the Executive's response a criticism of local authorities, which suggests that they should improve their council tax collection rates. Council tax is notoriously difficult to collect. People inconveniently move house; other people inconveniently die. As a councillor, I know that considerable efforts go into collecting council tax. Why did the Executive take that pop at local authorities?

I accept that there are difficulties with council tax collection. However, it cannot be in the interests of any of us, whether we are in local government or in central Government, to have collection rates that are not maximised. It is important that Government sets out the objectives that all politicians should share of maximising collection. That applies to council tax as well as to national taxation. Local government leaders recognise that it is in local government's interests to maximise collection rates. We have not had a pop at local government, but we always seek to point out that it is in the interests of both central Government and local government to ensure that council tax collection is maximised.

It will not surprise the deputy minister that I want to return to the issue of efficiency, which is dealt with in paragraphs 15 and 16 of the Executive's response. Paragraph 15 is somewhat encouraging, but paragraph 16 is somewhat discouraging.

Paragraph 15 commits the Executive to have discussions with the Finance Committee about how best to report progress. That is an encouraging response. Given that some of the efficiency savings are meant to commence in eight weeks' time, it would be helpful if the Executive could have an early discussion with the committee's budget adviser and then write to us.

Paragraph 16 is less encouraging. We asked

"that, in order to provide transparency in the Draft Budget 2005-06, the Executive should provide a complete list of the savings items per portfolio",

so that we could have a full picture over the spending review period. The Executive's response refers to the technical efficiency notes.

I want to put on the table an issue for discussion between the Executive and the committee. At the moment, the Executive is committed to £582 million of cash-releasing savings over three years. It has indicated an intention to find another £300 million of non-cash-releasing savings and a potential further £600 million over the same three-year period. That produces a total of £900 million of potential savings, on which we have not a single line of detail.

I accept that it takes time for that detail to be worked out and that some of it will become apparent in the technical efficiency notes. However, given that £900 million is double the cost of the Parliament building, it would be a great shame if one had to scuttle through 20 different technical efficiency notes—one for each portfolio—to discover the composition of the guaranteed £300 million and potential further £600 million in savings.

The Executive has indicated an aspiration for a further £900 million to be found over three years starting eight weeks from now, and, given what I will call the confusion, rather than lack of transparency, surrounding the issue in the past, it is appropriate for the Executive to agree a process of reporting to the committee and the Parliament on the composition of that saving.

I do not dissent from the desire to agree a process. I was at an efficient government seminar in Inverness yesterday and one of the chief constables present was at pains to tell me that he wanted us to ensure that we built up the savings from the smallest detail upwards. I was at pains to make the point that this and other parliamentary committees, never mind Audit Scotland, would closely scrutinise all the figures. That requirement is understood in the public sector. I do not want to incur Wendy Alexander's wrath, but there will be an awful lot of detail in the technical notes. The chief constable was able to demonstrate to me what cash and non-cash savings he would be able to make. That is exactly what we want and I suspect that that is what the committee wants, albeit that it will come in a heck of a lot of detail.

I have had the opportunity to look at some of the technical efficiency notes from departments elsewhere. Those notes run to 150 pages and, given that the departments have different approaches, it is vital that the Finance and Central Services Department should clarify precisely where the £582 million saving to which we have committed and the £300 million and possible further £600 million savings will come from. I will leave that point on the table.

You might be aware that I had a helpful written answer from the Minister for Finance and Public Service Reform, in which he indicated that Audit Scotland would review the technical efficiency notes in advance of their publication. However, we have a slightly different formulation in the Executive's response. In all scrutiny, there are two dimensions. Will Audit Scotland sign off the process in advance and be involved as appropriate in scrutinising it? That is precisely the question that we asked the Minister for Finance and Public Service Reform and on which he wrote to us. As the technical efficiency notes will be complicated, validation by Audit Scotland at the outset would give many who are involved in the process a high level of comfort. It will be an enormous job for Audit Scotland, but that is the statutory responsibility that we give it.

I will let Iain Dewar respond to that, but I am sure that the Minister for Finance and Public Service Reform and I have not said two different things in two different places.

The efficient government plan identifies £745 million of cash-releasing savings and contains aspirations for £900 million of cash-releasing savings, which we believe that we can deliver. The plan goes on to say that we will not commit to making £900 million of cash-releasing savings until we are certain that that can be done. We are keen to ensure that the technical notes are robust. Therefore, we need time to get them right and to involve Audit Scotland, which will assist in ensuring that the technical notes are up to the task. It is better for us to take our time and to get things right.

I presume that the question-and-answer session in Inverness that you were at yesterday was different from the one that the First Minister was at.

I beg your pardon?

That question is not for you, Iain.

On the efficiency savings, the committee expressed some concern about the way in which local government was treated. You responded by saying that a blanket efficiency saving of 2 per cent was presumed because local government is autonomous and makes its own decisions about efficiency savings. Therefore, I was a little bit surprised that, at the end of your response to recommendation 14, you say:

"we have identified other opportunities for savings where local government can retain the money realised."

The implication in that phrase is that the Executive is somehow determining some of the savings for local government. I do not expect any announcement before March, when the technical notes will be published, but will you confirm whether the notes will include some aspect of local government savings and whether you will advise local government on how to achieve some of those savings?

Many local authorities are already heavily involved in e-procurement and will be able to demonstrate significant savings because of it. We take the view that, if any such saving exceeds 2 per cent, local government should be able to plough that money back into front-line services. In addition, local government is now considering 22 separate areas, such as procurement and asset management—many more were mentioned yesterday when I was speaking at the efficient government seminar in Inverness. I suspect that there will be many ideas for measures that individual authorities can take and for collective, Scotland-wide or regional measures—which will be of interest to Elaine Murray, given her constituency—that will not only lead to savings and demonstrable improvements in back-office functions, but be ploughed back into front-line services. That is how we envisage the process, but we will not prescribe it. We will definitely play a role in supporting such local government initiatives—for example, through the improvement service, which Colin Mair heads up. I ask Iain Dewar to respond to the point about the technical notes.

There will be a technical note for each efficient government project, which will describe how each project will be measured and monitored and how the efficiency savings will be delivered. The local government saving of £325 million is made up of an efficiency assumption that has been factored into the spending plans for the next three years. However, the last sentence of the paragraph to which Elaine Murray referred illustrates the point that we have identified areas in which local authorities can make efficiency savings, retain the money and direct it as they see fit to front-line activities.

How will local authorities be informed of those opportunities? Will the Minister for Finance and Public Service Reform write to their chief executives to advise them of the opportunities?

No, the approach is collaborative. We will certainly not tell local government that it must make its savings in those areas, as that would be entirely the wrong approach. We seek to ensure that the separate areas of efficiency can be built up individually and collectively, regionally and throughout Scotland, and we will support local government in building them up.

I am anxious to wrap this agenda item up, but Jim Mather has a brief final question.

It is a tidying-up question. When I asked the Minister for Finance and Public Service Reform whether the efficiency savings were net of redundancy, information technology and other capital equipment costs, I was not sure that I got a clear answer. Will you confirm that the efficiency savings are net of IT costs, possible redundancy costs and other capital equipment costs?

No, I do not think that they are net of such figures.

Are they savings, then? If there is a cost to be set against them, can they properly be called savings?

Mr Mather, with his business background, will understand that we have to invest to pull some of the projects together and progress them so that they can achieve savings, which is why we have set up an efficient government fund. That is a good business practice about which business people tell me all the time.

Absolutely. However, a business has to confront a bank and has to prove that the project is cash positive; we have to approach taxpayers and tell them that the project is cash positive. What is the net impact?

We will not know that until the efficient government fund—which I am sure the committee will properly scrutinise—is allocated to the authorities that have applied to it and until those authorities' plans over the period of the efficient government programme can be demonstrated in the terms that Mr Mather describes.

Will we, at some point, see a statement that sets out the savings, the cost and the net savings?

Absolutely.

Will the net savings be a lesser number?

Mr Mather is familiar with the overall numbers, which are what we will seek to deliver.