Local Government and Communities Committee

Meeting date: Wednesday, December 1, 2010

Official Report 535KB pdf

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Draft Budget Scrutiny 2011-12

I reconvene the 29th meeting of the Local Government and Communities Committee. I remind members to turn off all mobile phones and BlackBerrys.

Item 2 is oral evidence on the Scottish Government’s draft budget 2011-12. I welcome the witness panel: John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth; David Henderson, head of the local government division; and Graham Owenson, team leader for local government finance. All are from the Scottish Government.

I invite the cabinet secretary to make any opening remarks that he wishes.

Thank you convener, and good morning. I apologise to the committee for my delayed arrival, which was due to the somewhat challenging weather conditions between here and Perthshire.

I welcome the opportunity to discuss the Government’s draft budget for 2011-12, including the provision that we have made for local government. The context of the budget is of course the scale of the financial challenges that we face, which include the largest reduction in public spending that has been confronted by any Scottish Government in any one financial year.

Over the next four years, the Scottish budget will fall by £3.3 billion in real terms, which is an 11 per cent cut, and our capital budget will fall by £1.2 billion in real terms, or 36 per cent. The largest annual reduction takes place in 2011-12; the Scottish budget is due to reduce next year by £1.8 billion, or 6.3 per cent in real terms. Our capital budget will be hit the hardest; it will fall by more than a quarter.

11:30  

For many of the reasons that are associated with the challenges of the longer-term position, the Government has established the Christie commission, which will review and make recommendations on the delivery of public services in Scotland. The commission will report next September.

I delivered to Parliament on 17 November a balanced budget for 2011-12 that prioritised and protected a number of areas of public expenditure. We set out the protection that the Government would apply to the health service, and we proposed an approach to local government finance that involves a much smaller fall than the average across non-protected areas of the Scottish Government’s budget.

In each of the past three years we have increased local government’s share of the Scottish budget. For 2011-12, we have maintained the 2010-11 share, at 34.5 per cent of the Scottish total. That share equates to a much lower cut than for the rest of the Scottish budget. While the health budget rose slightly, the resource settlement that we have offered local government has been cut by 2.6 per cent in comparison with 2010-11. That compares with an average reduction of 6.4 per cent across all other portfolios.

The Government engaged in substantial discussion with the political group leaders of the Convention of Scottish Local Authorities during the summer and autumn, and we reached an agreement with the COSLA leadership. That is the subject of a joint letter that I issued with the president of COSLA to the leaders of Scotland’s 32 local authorities, which contained the details of the Government’s proposals. That letter has been made available to Parliament; I assume that it is with the committee today, so I will not rehearse the details of the proposal.

Councils have been asked to indicate by 21 December whether they wish to take up the proposals that the Government and COSLA’s political group leaders have set out. We have said in the proposal that if local authorities decide not to participate in the agreement, the alternative is that their budget will reduce not by 2.6 per cent on average but by 6.4 per cent, which is the average across other areas in the Government.

To sum up, we have presented to local authorities an offer that recognises the key role that local government plays in delivering vital public services and that is focused on delivering improved outcomes for the people of Scotland. We recognise the role of local government in supporting economic recovery and promoting economic growth, and we will provide the financial support to enable that to happen. COSLA’s leadership has accepted that the offer represents the best that could be achieved for local government in Scotland and, on that basis, I am happy to answer any questions that the committee has this morning.

Thank you for that opening statement, cabinet secretary. I have some bids from members for specific questions, but I have a couple of general questions on the consequences of your statement for local government and what the Christie commission can achieve.

Do you believe that, in these times in which we are dealing with reduced budgets, there is now an increasing conflict of interest between your position as the purse holder and your position as a spending minister who identifies where large amounts of money will go, which has consequences for various parts of local government?

There is a serious and substantial structural question—which is not for me, but for the First Minister—as to whether any finance minister should have responsibility for any areas of departmental public expenditure. I address it by compartmentalising my actions on the Government’s budget and spending proposals.

When I make recommendations to Cabinet, I make them on a collective basis, having discussed various issues with my colleagues in my capacity as finance secretary and having discussed with senior Government officials some of the challenges that we face in my portfolio area. A large part of that portfolio area is the responsibility for local government, for which the dialogue is not necessarily internal in the Government but with third parties through the Convention of Scottish Local Authorities.

My recommendations to Cabinet are based on a corporate approach that reflects the debate in Cabinet on where our priorities should rest. When it comes to the exercise of my departmental responsibilities, I have a duty to the corporate sense in Cabinet in that I have to accept the conclusions that the Cabinet arrives at, but equally I must be prepared to challenge my own portfolio as relentlessly as I challenge the portfolios of others to ensure that public expenditure is deployed effectively. It is on that basis that I take forward the commitments.

I accept that you raise a legitimate and substantial point about whether, particularly in a time of greater financial challenge, it would be better for the finance minister to be only the finance minister and have no other responsibilities.

Is that just a personal reflection, or is it something that you have discussed with your Cabinet colleagues?

I have not discussed it with my Cabinet colleagues or the First Minister; it is a personal response to your question.

For the next six years, there will be a reducing budget.

You make a fair point, and it is one that should be considered.

Thank you.

Some of the evidence that we have taken, which has been backed up by our recent survey of local authorities, seems to indicate that the movement towards sharing services between local authorities is slow, if it exists at all. Most of them do not seem to have made much effort in that direction. There has been plenty of talk but little action.

At least one of our witnesses—I cannot remember who—suggested that a stick would have to be taken to authorities before they began to deliver anything in shared services. Have you given any thought to the problem? Indeed, do you think that it is a problem that is using up public resources unnecessarily?

I accept that progress on shared services has been slower than would have been desirable, but there are examples of shared services around the country and local authorities have co-operated in a number of different areas. For example, in the procurement agenda, with the establishment of Scotland Excel, a good and effective shared service has been put in place for the procurement of different products and services used by local government.

In a number of different parts of the country, very good developmental work has been undertaken on the concept of shared services. The west of Scotland local authorities commissioned Sir John Arbuthnott to do good work in analysing where the opportunities lie, and Sir John’s work was robust and substantial. What has been lacking is real impetus to take forward Sir John’s recommendations. Equally, some joint work has been undertaken by neighbouring authorities in the east of Scotland. It has addressed the theory of delivering shared services but not necessarily the practice.

I suppose that the question that follows from that is: why has there not been as much progress as we might have envisaged? I suspect that that is largely to do with the fact that there has been no financial incentive because budgets have continued to increase. As the convener highlighted in his opening question, there will be a sustained period of reductions in public expenditure. Many of the opportunities to deliver savings through shared services will become an awful lot more obvious and it will become more essential to pursue them. In that context, we should expect there to be a greater move towards shared services.

I have one supplementary question. As you said in your opening remarks, it could be argued that the settlement to local authorities is more generous than it is to other departments in the Government—although local authorities will obviously not say that. To the extent that there is some truth in that, do you think that it reduces the incentive for them to move more quickly to make the savings that you are talking about?

I do not think so, for this reason. Mr Morgan is right—the reduction in the revenue budget for local government is 2.6 per cent while for most other areas of Government, excluding health, it is 6.4 per cent; statistically, therefore, the local government settlement is more generous than has been offered in other areas of Government—but local government is wrestling with a number of increased demands on its services. The burden—no, that is the wrong word—the implications of demography and the consequent requirements for services to be delivered for individuals in society increase the commitments that are required from local authorities. Therefore, although the cash provision may be reducing at a less significant rate than it is in other areas of the public sector, the demands on local government for the provision of essential services continue to increase significantly. In that context, the local authority community still has the incentive and impetus that is required to address the issues of shared services that Mr Morgan has raised.

Good morning, cabinet secretary. We all acknowledge that the single biggest cost to local authorities is the pay bill for the workforce, and a number of issues have arisen in how local authorities will manage that. When you made your announcement last week, you stated that there would be a public sector pay freeze, except for the £250 extra for those who earn under £21,000, and that you want to introduce a living wage of £7.15. How do you think those aims will play out for local authority employees?

I am pretty sure that I made the point in my statement that local authorities are responsible for their own pay settlements. The pay policy that I set out applies to a broad range of public sector organisations, but it expressly does not apply to local authorities, which are responsible for their own pay settlements. Clearly, it is a matter for local government to decide exactly what to do in pay settlements.

Local government negotiates separate deals with its own trade unions. It works with the Government in some areas, particularly in relation to teachers, police services and fire services, but it is really up to local government to decide, having heard what I have had to say, its view on pay policy. I have no ability to mandate local authorities to follow a particular direction.

I understand that you are not in a position to mandate local authorities’ pay policy, but do you have a view on it?

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The thinking that has gone into the Government’s pay policy has at its heart the acceptance of the view, expressed by the independent budget review, that there is a direct relationship between what happens to the pay bill and what happens to head count. In my approach to pay policy, I have tried to do all that I can to protect head count. I do not come from the ideological position that thinks that the size of the public sector needs to be reduced—that is not my view of the world—but I have to balance the budget. I accept the IBR view that if we do not constrain pay we will have to go to head count. I want to avoid that at all possible costs. There will clearly be real pressure on pay to protect head count in the local government approach. I think we have seen that in the local government pay settlements and in the Government’s settlement.

The other feature of pay policy, which I have deployed throughout my term in office, is to do as much as I possibly can to assist low-paid individuals. For example, in the Scottish Government the lowest paid member of staff is now paid 25 per cent more than the national minimum wage whereas when we came to office those individuals were paid 5 per cent more than the national minimum wage. That has happened because over the past three years we have taken sustained action to try to improve the position of low-paid staff. That is reflected in the pay arrangements that I have put in place with the minimum commitment to a £250 increase for staff who earn less than £21,000 a year and the commitment to the national living wage.

I suppose that what I am saying in short is that the characteristic of the Government’s pay policy, which I am obliging certain public sector bodies to follow and encouraging public sector bodies where I do not have absolute control over the process to follow, is an approach that is designed to protect head count and support those on low incomes. I think that those are quite important principles that I would encourage others to follow.

The head count is where I want to go next. The committee sent a questionnaire to local authorities about their planning for the budget. One of the questions was about how to manage staff. I think that almost all the responses—which was 18 or 19 out of the 32—foresaw a reduction in their head count but said that they would manage that through freezing of vacancies or voluntary severance. What is your view of compulsory redundancy? Many authorities have said that they do not want to do it, some have said that they foresee it and others have said that it would be a last resort.

My view—as set out in the budget statement—is that the Government has acknowledged the significant value to the development of our approach to efficiency of having a no compulsory redundancies arrangement for the past three years. It has helped us to develop good working practices and staff participation in the efficiency agenda, which has been very welcome. We want to continue that approach, although I have flagged up the fact that for us to be able to do that we need to capture flexibilities within the workforce. I will be working extremely hard to ensure that that is the case.

Local authorities have never committed to there being no compulsory redundancies. Equally, however, I am led to believe that local authorities have never deployed compulsory redundancies, either. On the committee’s questionnaire, I suppose that detailed responses would have been predicated on the financial settlement—I assume that the questionnaire was issued before the financial settlement was known—and on other things that local government would not have known at that time. An example is where we are heading on pay policy: the Government has significant involvement with local government on teachers pay. We have now set out our position on that.

In all my discussions with local government, I have detected absolutely no enthusiasm, desire or priority to deploy compulsory redundancies. Local government is determined to manage the workforce. I think that it sees, as I do, the value of having a motivated workforce in working with other public authorities in trying best to manage a difficult financial situation. Local government’s approach is helped by the level of financial settlement that has been offered and by the willingness to find ways in which the workforce can be configured to a size and level that is appropriate to the financial circumstances.

Mary Mulligan made the point that most local authorities expect their head count to reduce. On previous occasions before the committee, I have said that my expectation is that the public sector workforce will be smaller at the end of the period than it is today. I return to the point that I made earlier: my view is not ideologically that that is a great thing, but that it is an inevitable consequence of the spending pressures that we face. From all my dialogue with local government, my sense is that authorities want to avoid compulsory redundancies if possible. Certainly, as I outlined in my parliamentary statement on the budget, I have given a commitment that I will encourage all public authorities to take the same approach that the Government proposes to take on compulsory redundancies. To that effect, weather permitting, I will see the Convention of Scottish Local Authorities and the Scottish Trades Union Congress tomorrow to take forward the discussion that I made clear to Parliament I would be having.

Clearly, there is a cost of severance, whether it is voluntary or compulsory. Do you have any plans for capitalising on the cost? Will you offer assistance in that regard?

We have been able to offer assistance to local authorities on the capitalisation of some costs in relation to equal pay, but not in relation to severance—

We have done so with severance as well.

We have done that with severance. Essentially, those initiatives are a product of our dialogue with Her Majesty’s Treasury. The UK Government is taking much the same spending approach as we are. I remain open to local government in terms of bringing forward capitalisation initiatives that would assist in managing the problem. As I said, the challenge is applicable to the United Kingdom Government as much as it is to ourselves and the Scottish local authorities.

We read yesterday, in a report from another committee, about increments remaining in place for teachers, fire fighters and police, who will not suffer a wage freeze. Given the situation with redundancies, is it not extremely unfair that low-paid local government workers will subsidise an increase for fire fighters, police and teachers? That is the inevitable consequence.

I am not sure that I quite understand the point. If it is about progression, the Government pay policy assumes that progression will continue to be paid. That is based on the fact—with which the convener will be very familiar—that there is in almost all, if not all, circumstances a contractual entitlement to progression. Essentially, progression is wrapped up in the employment rights of the individual. Paying progression and paying a basic award increase are not two peas in the same pod; they are fundamentally different. We have a contractual obligation to pay progression. That applies just as much to lower-paid staff as it does to any other staff. If I understand your point correctly, convener, you are encouraging me to stop progression at the higher end in order to provide additional support at the lower end, or something like that.

I imagine that progression in local government careers applies more to white-collar staff than to the manual grades, given that they are pretty much fixed at the lower end. However, costs in salaries equals job losses. At the same time, we have a pay freeze, and those at the bottom of the scale are not being offered the £250 or part thereof in compensation.

I return to my point to Mary Mulligan about the local government settlement. Local government pay policy is a matter for local authorities. We must be careful about where we go with questions about individuals’ employment rights. Interfering with and interrupting contractual entitlements will get us into very difficult territory. We must also ensure that we take proper account of our equalities duties and obligations.

If we stand back from that and consider a progression payment to somebody who earns, say, £40,000 compared with that for somebody who earns £20,000, we will find that the numbers are likely to be very different in cash terms. Of course, there will also be people at the top of their salary scale who will be entitled to no progression payment. There are a number of difficulties in trying to pursue the approach that the convener mentions.

I accept that there will be some difficulties with equalities provision and the law, but the law does not apply differently to the health service and local government. Therefore, the same problems would apply to the health service, which will be given, for instance, support in provision of the wage freeze plus the £250. That will apply to people for whom you are directly or indirectly responsible.

On a wider point, I accept that the local authorities and their employees negotiate agreements, and that it is within the remit and powers of local authorities to negotiate agreements. However, the same applies to the council tax. You have taken a policy decision and have put in place an encouraging mechanism to ensure that you implement the Government’s policy with regard to the council tax. If the Government’s policy is to have fairness at the heart of the budget, and equalities and protecting the low paid are important to it, how will you use the same level of encouragement to ensure that the very lowest paid people in local government do not suffer disproportionately with respect to pay?

I have done the most constructive thing that I can do; I have given local government a settlement that, relatively speaking, is much better than most areas of the Scottish Government have received. Local authorities have at their disposal the largest sum of money that I can possibly allocate in the spending round so that they can properly and effectively remunerate their staff and address the issues that you have raised relating to people with low incomes.

The second thing that I can do is enable local authorities to exercise a broader range of flexibilities to ensure that their resources can go as far as they can. Essentially, that drove my decision in 2007 to relax ring fencing in order to provide greater flexibility at local level.

Those two things will help local government to address the point that you have raised, convener.

Does that mean that you are not prepared to do any more about pay for the lowest paid in local government, other than have a meeting with Pat Watters or the STUC? How can you implement a Government policy that protects the lowest paid?

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I have mentioned what action we have taken to support that, but there has also been a good willingness on the part of the trade unions and COSLA to discuss workforce issues with the Government. I welcome that, and there is a good prospect that we will be able to achieve a great deal. The issues that we will discuss in that process will be beneficial for local government employees, and especially for low-paid employees. That is a very constructive way in which to proceed.

I do not think that such co-operation was evident last week, but that might have been a particularly difficult meeting. Is the purpose of your meetings with COSLA and the STUC to discuss the wage freeze and the £250 or are they to discuss wider implementation of the living wage?

They are to discuss my commitment to encourage all areas of the public sector to agree to the approach that the Government is taking on compulsory redundancies. The primary focus of the discussions is to ensure that there is dialogue round the table with the Government, local authorities and trade unions about how we can get to a point where all areas of the public sector are prepared to sign up to the Government’s approach on avoiding compulsory redundancies. The discussions are also an opportunity for us to pursue some of the issues that I responded to Mary Mulligan about, in relation to how we can take forward an agenda that maximises head count. That will be a fundamental part of the discussions.

So, how we might broaden the impact of the living wage into areas that are not already covered, and protection for low-paid workers who earn less than £21,000 are not on the agenda with the STUC and COSLA.

I am happy to discuss those issues. Some local authorities have already gone for the living wage proposals, such as West Dunbartonshire Council and Glasgow City Council. I am certainly happy to discuss those issues with the relevant bodies.

However, the Government has no plans to discuss those issues with the STUC or COSLA.

I have discussed the issues—

Either you have plans or you do not.

I discussed the issues with the STUC over the summer, and out of that dialogue has emerged the Government’s approach on pay policy. I am happy to continue those discussions and to identify what further steps we can take in that respect.

But it is up to them to raise the issues with you.

No. I am saying that I have had that discussion with the STUC already. As I said, some local authorities have gone for the living wage proposal, and I remain happy to continue that dialogue.

So, you have had those discussions with the STUC with regard to local authority pay and the protection of workers who are paid less than £21,000.

The STUC has been keen to ensure that dialogue on head count, salary and all the other issues are not just with Government but with all areas of the public sector. I have given a commitment to try to ensure that that is brought about, and that is why we are having a discussion with COSLA.

Are the numbers available for those who earn less than £21,000, who will benefit from the £250 payment, and the numbers who would benefit from the £7.50 living wage?

It is £7.15.

I am sorry—I got carried away and gave them another increase.

Just slightly, convener.

I do not have the numbers in front of me, but they are available, so I will write to you with them.

That is fine. It is commendable that the Scottish Government and, indeed, local authorities do whatever they can to maintain jobs in our communities, but we had different evidence last week from the voluntary sector. Despite your view, we heard from Mr Beveridge that job protection schemes are never a good idea and that they are a block and a barrier to fundamental change. That view, which has been expressed in both written and oral evidence to the committee, completely contradicts what you have said. You have said in evidence today that you believe that that kind of agreement allows you to make the change that is necessary in redesigning public services.

There are some substantial points of difference between that view and what I am saying. First, I have said to some committees—I am pretty sure that I have said it to the Local Government and Communities Committee—that I expect the level of public sector employment to fall. That does not sound like job protection to me. Secondly, the Government is committed to giving a guarantee that there will be no compulsory redundancies, but we need to achieve flexibility within the workforce. That means change to enable us to maintain the head count. That does not strike me as an impediment or a barrier to change and redevelopment in public services. The whole approach that we are taking with the Christie commission acknowledges that there will have to be fundamental change in the way that public services are delivered.

I would not want to say that anything that I am setting out to the committee today shows anything other than a determination to maximise employment; however, that employment will involve a certain amount of change in how people have to exercise their responsibilities.

We have heard in written evidence and from the survey of local authorities that that position cannot be maintained. What we heard from Unison last week was not disputed by the Society of Local Authority Chief Executives and Senior Managers or by COSLA representatives—that up to 40,000 jobs are going from local authorities over the next few years.

We have to be careful with such predictions, convener. As I said to Mary Mulligan, some of the predictions in your questionnaire feedback would have been supplied by local government without knowledge of what the local government settlement was going to be. We have seen all sorts of number being bandied around. The priority for me is to encourage the public sector to attach a premium to maintaining employment in the public sector, which is the approach that we are taking.

Is that not difficult with the one-year budget? Workforce planning is difficult in those circumstances. We do not expect the budgets to be bigger in the future to allow us to retain and employ more people.

I return to my point about flexibility. Public services do not stand still; they are being reformed and reconfigured all the time. There are good examples all over the country of employees working with public authorities finding better ways of delivering services. The local authorities provide support to many more individuals in their homes than they ever did before because new ways of working have been constructed to enable that to happen. The key point is that the process of public sector reform remains relentless in ensuring that we can deliver public services that meet public expectations in a difficult financial climate. That is exactly what we all face.

I am sure that we will come back to the Christie commission, efficiencies and shared services, et cetera.

The convener has talked about the policy of there being no compulsory redundancies. At our meeting last week, the representative from the voluntary sector wondered whether one of the unintended consequences of that might be that, in order to retain staff, local authorities may outsource fewer jobs and, instead, retain the jobs within themselves. There are always unintended knock-ons whenever these things are done.

I want to ask you about the Christie commission, which you mentioned in your opening statement, to clarify a couple of things. First, when do you expect the Christie commission to report? Secondly, will the Christie commission look just at local authorities, or will it look at police, fire services and health boards? How wide will the review go?

The Christie commission has a wide remit to consider all aspects of public services. It is not just a local government review—to think that would be entirely to misconstrue the remit of the commission, which will be very broad. The remit has been published. I assume that it has been supplied to the committee, but if it has not I will ensure that that is done. We expect the Christie commission to report in June 2011.

We do not know what the commission will recommend. Do you anticipate that some of its recommendations will require primary legislation, or is it expected to recommend that whoever is finance minister simply uses budgets differently? What will you be fleet enough of foot to achieve via different budget lines, and what will take time to achieve?

I am sure that you appreciate that it is difficult for me to surmise what the commission will recommend. Anything that requires legislative change takes more time than something that just requires budget flexibility. Service redesign can be undertaken in a reasonable timescale but still takes time. No doubt a range of measures can be taken forward over the short term, but some measures will require to be taken forward over the medium term.

The point of the Government’s commitment to the Christie commission is that we acknowledge that we face a number of years of financial challenge, so the recommendations and proposals that emerge from the commission will be fundamental to informing the medium-term debate. I do not think that we will need to take all the actions immediately, because there will be a period over which we will have to realign and redeploy public expenditure to meet the much-diminished public spending envelope.

The commission’s short timescale might constrain its ability to consult widely. How important is it to consult trade unions not just at Scottish Trades Union Congress level but at individual union level, to get workforce views on service redesign? When local authorities consider service redesign they often come up with their conclusions first and inform the workforce afterwards. I hope that the culture of the Christie commission will be such that it has a worker-first attitude to considering service redesign, because sometimes the best ideas for structural change come from the shop floor.

I agree absolutely with your final remark. There are excellent examples of service design, including in my constituency, where employees in the local authority or the health and education sectors have come up with good initiatives, which did not have to wait for a senior manager with a clipboard to come along and decide on. The more such initiatives we have the better, and the more we will have a basis for redesigning public services. There should be every opportunity for the Christie commission to be able to capture such material and input in its dialogue with wider Scotland.

If you are returned to Government next year, will you regard the commission’s recommendations as binding? Would another finance minister do so?

The question of recommendations being binding is a difficult one. We would not set up the commission if we were not going to take seriously the recommendations that emerge, as we did with a substantial proportion of the independent budget review panel’s recommendations.

Such organisations are set up to do a job of work but not to do the Government’s job; the Government must decide on certain things. The commissions undertake their analyses, from which the Government takes its conclusions.

The committee has often considered the effectiveness or otherwise of community planning partnerships. There is anecdotal evidence that CPPs work better in some parts of the country than they do in others. For example, I think that Glasgow has community planning partners and gets something like £45 million, which is now rolled up into the local government settlement. Will the Christie commission look at CPPs and their responsibilities and consider how effectively they work and whether they need to be incorporated on a more statutory basis? More important, will it consider how effectively they use money at local level to support communities?

12:15

Those are all substantial issues for the Christie commission to consider. I think that I have said to the committee before that community planning partnerships hold many of the keys to resolving some of the institutional barriers to working in various areas of the public sector, which I was being asked about by the Finance Committee yesterday. I would be the first to acknowledge that institutional barriers still exist and that we do not have the co-operation and collaboration across public sector boundaries that we should have. Community planning partnerships have been enabled by the Scottish Government to deliver as much of that as possible, so I look to them to do that.

You made the point that commissions and review bodies do not do the job of Government. Why does Government not simply do what is required? We have had the Howat review and the independent budget review and we now have the Christie commission. Why do you not do it yourself?

As a point of fact, I never commissioned the Howat report—that is not one of mine, although I think that I published it.

The independent budget review and the Christie commission are designed to encourage the widest possible dialogue about particular options and opportunities. They exist to engage a wide audience and gather information, which will be used in the Government’s decision making. That is a pretty well-worn path by which Government goes about its business—listening to people, discussing with people and coming to conclusions.

Consumer Focus, SOLACE and others have said that they are incredulous about the possibility that the Christie commission—the remit of which I note that you have added to this morning—can produce a redesign of the public sector by June next year, which is a short period of time. Do you believe that it can do that?

Yes.

And have all the engagement? For example, it has not notified this committee that its representatives are available to come to speak to us or given us an indication of its remit—

As I have said, the remit is publicly available.

I have got it here.

I thought that you said that you did not have the remit.

I have the remit, but it might be a good idea to get Campbell Christie along to the committee, given that he has all of this responsibility.

I am absolutely certain that Mr Christie would accept an invitation from the committee to attend a meeting.

I have read the three-page remit, which is why I tend to support Consumer Focus and SOLACE when they say that they are incredulous about the idea that the commission can come up with a redesign in that timescale, given Alasdair Morgan’s earlier point about the lack of pace in change.

Does that not suggest that there needs to be some real impetus? Is that not Mr Morgan’s point? If you say, “Right, we’ll give it 18 months,” it will take 18 months. However, why do we not just get on with it? That is my view of the world—let us get on with it.

Yes. Not convinced.

I am sorry, but I have not seen the remit, so I do not know whether it covers this point. Can you tell us who, apart from Mr Christie, are members of the commission?

I cannot give a complete list just now, but the membership includes Councillor Watters from the Convention of Scottish Local Authorities; Alison Elliot, the chair of the Scottish Council for Voluntary Organisations and the former Moderator of the General Assembly of the Church of Scotland; Ruth Wishart; Jim McColl; and Alex Linkston, the former chief executive of West Lothian Council, who has recently retired. That is not all of the members, but it is a reasonable cross-section. I will ensure that the committee is furnished with all the names immediately.

That would be useful. Do you know whether the STUC is represented on the commission?

I think that an invitation has been sent to the STUC, and that the STUC is confirming its participation.

Does the remit that has been provided to the members of the commission give them parameters within which they should work, with regard to what you think the financial situation will be, or have they been given a blank sheet of paper?

This gets to the nub of the debate that we had in the chamber last Thursday, regarding the question of four-year budgets. The Cabinet considered the issue yesterday, and I wrote to the convener of the Finance Committee to say that the Government will give its response to the debate shortly. If the committee will forgive me, the Government is still considering the detail of that question.

The UK Government has given us departmental expenditure limits in resource and capital expenditure and annually managed expenditure for the financial years up to 2014-15. Those figures are subject to change, but that information is published and available. Obviously, I would be happy to interrogate that for the Christie commission.

The view that I expressed in last Thursday’s debate, and which I have maintained throughout this discussion, is that, if we set definitive budgets up to 2014-15, they might become obstacles to tackling the way in which budgets are deployed. Patricia Ferguson will appreciate, from her own experience, the possessiveness that particular areas of the public sector can sometimes attach to budgets.

Allowing as much freedom as possible to consider how the global sum of money—which will be of the order of £28 billion or £29 billion—can be deployed most effectively to meet the expectations and ambitions of Scotland is a better way of proceeding than delineating exactly how the money is to be parcelled out. However, as I said, the Government is considering the debate that the Parliament had on Thursday, and I will shortly reply in full to the convener of the Finance Committee on that question.

I take your point, but it would be difficult for the commission not to pay attention to the likely financial situation.

We have heard evidence that redesigning public services is not without its challenges, not only in terms of the logistics of doing so but in terms of the budgets that might be allocated, because change seldom happens without there being some investment of funds. Have you factored in that aspect, or will you just have to wait and see what the situation is like once the commission reports?

I do not subscribe to the view that you get change only if you spend money. There are plenty of examples of services being redesigned and outcomes being improved while money is saved. If we accept the premise that we get redesign only by spending money, we will have to accept that redesign cannot be delivered in the forthcoming period—it just cannot be done.

In this year’s budget, in relation to health and social care and early years activity through the voluntary sector, we have taken steps to identify sums of money through which we can support the development of new models that will fundamentally save public expenditure. The change fund within the health and social care field is designed to get us to a position in which we do not have to spend as much money on acute services as we are currently spending because we can redeploy expenditure into community care and deliver better outcomes.

There will be instances in which we can deploy funds, but there will be numerous other instances in which we will simply have to ensure that the money is spent more effectively.

I accept entirely that it is not always a case of investing money to achieve change, but the cabinet secretary gave an example in which money is being invested to achieve long-term change.

I accept that.

We will not be able to reduce acute spending in the health service until we sort out many of the problems at the other end.

Equally, we can make other policy interventions to reduce burdens on the health service. The good work that the previous Administration did on the smoking ban undoubtedly and immediately reduced demands on the health service because of the improvement in passive smoking levels for members of the public. There are plenty of good, tangible examples of policy interventions to change fundamentally the burdens on public expenditure and we have to identify more of them.

I accept that the change fund on health and social care is an example of our having identified resources to enable change to happen. However, I refer to some of the questions that Mr Morgan has raised about shared services. When I became a minister in 2007, there was a modernising government fund of about £100 million to support such activity, and I regret to say that I did not see much evidence of it.

I am sure that there is some; I can remember one or two examples at least.

When will the commission first meet?

I had better not say that that has already happened, but I think that it might have met. I will confirm that detail to the committee in case I gave you incorrect information.

Will you give us an indication of the wider engagement that you hope will take place? Much of the commission’s work will consider outcomes and priorities from, I presume, a consumer’s point of view rather than a trade union or business point of view.

A central hallmark of the Government’s agenda over the past three and a half years has been to concentrate on improving outcomes for the people of Scotland. That is the focus that we have given to the Christie commission, the destination of which is an improvement in outcomes for people in a diminished financial envelope. We have to find the mechanisms to get to that point, which is the core of the Christie commission’s remit.

As I said, I expect the commission to formulate its approach to wider engagement, and I am sure that that will be a comprehensive process.

You mentioned the £100 million for the change fund and the disappointing evidence that it was not successful enough.

It was the modernising government fund.

The local government settlements in the past couple of years have focused on outcomes. Has there been an analysis of that that the Christie commission can consider to find out where we have fallen down and where money that has been made available for certain outcomes has produced results similar to those of the modernising government fund?

The Government has the national performance framework, which is reported on regularly on an as-live basis on the Scotland performs website. That identifies the areas in which the Government thinks that it has tangible measures to determine whether we are making progress towards achieving the national outcomes. That is all publicly available and, obviously, the Christie commission will be able to consider that information and determine whether sufficient progress has been made in all those areas to meet public expectations.

In your discussions with the commission, are you steering it in the direction of areas in which progress has been made or in which there has been insufficient progress?

We will certainly provide the Christie commission with any information that it requires to ensure that it can fulfil the remit that we have given it.

Will the commission consider how we can measure the outcomes?

It will, yes.

To switch the topic, you announced in your statement that you are going to increase non-domestic rates for large retail properties. Can you tell us a bit more about exactly how that net will be drawn?

12:30

I will shortly set out the approach that we are taking. The initiative will be driven by the rateable value of particular properties in the retail sector and will apply a supplementary business rate level to the business rates that have been paid to date. That will focus on ensuring that we raise revenue by increasing business rates for large retailers.

So effectively you are going to look at the current rateable value of retail properties and anything over a certain level will see an increase. Is that correct?

That is right.

Have you any idea how much revenue you hope to raise?

I expect to raise about £30 million.

It seems to be a little bit discriminatory within the retail sector, and compared with other sectors of the economy, to pick out one particular set of businesses for special treatment. Are there any legislative barriers to that? How will the measure get through Parliament? Will it be in a statutory instrument?

A draft statutory instrument will set out the details, and we will publish it shortly. The legislative hurdle will be getting Parliament to agree to it.

On the question of how the initiative is focused, I arrived at the judgment that, despite the economic challenges that we face, the large retail sector is still performing extremely well. There is an opportunity for us to capture additional revenue. The budget that I have to balance arises from a combination of limited opportunities to raise revenue and the need to reduce public expenditure. This measure will raise additional revenue, and it can be sustained by a sector that is performing well, despite the economic difficulties that we are facing.

You can understand why the sector might feel a bit aggrieved. It is performing well, delivering profits and money for the Exchequer—albeit not your Exchequer—through corporation tax, and creating employment, but it is being faced with an increased tax burden, whereas a manufacturing business in the industrial estate next to the retail park, which might be doing equally well, is not being faced with a similar burden because its rateable value has a different basis.

We can always compare sectors, but business rates in total for most of the retailers that we are talking about will account for about 2 per cent of turnover. We are talking about a cost that is at the periphery of the cost base of many of the organisations.

Bob Doris has a supplementary question on that point.

I have a brief point. I listened with interest to the questions and answers. I support the tax increase, but will it be applied to individual units’ business rates or will it be aggregated across the local authority area? I am conscious that large supermarkets such as Tesco open a 24-hour superstore and then open a network of small Tesco Metros—they use their economies of scale to come into local high streets and decimate other stores. This tax has the potential to rebalance that competitiveness for small businesses in local communities, so I am keen for it to be aggregated across the retail footprint of individual companies rather than individual stores.

It must be driven by the rateable value of individual sites. If we establish a threshold at which the supplementary business rate is charged, it must relate to individual properties.

I understand that businesses that have two or three stores qualify for the small business bonus scheme only on an aggregated basis. Am I wrong about that? I am happy to be corrected.

There is a maximum threshold under the small business bonus scheme. If a company has a number of properties and their combined rateable value exceeds that threshold, it does not qualify for the scheme. That is important, because the scheme is what it says on the tin—it is for small businesses. If a business has a chain of stores, it is not exactly a small business. The proposals for the retail sector are based on a threshold of individual rateable values for individual properties.

The aggregation principle has been conceded in relation to the small business bonus scheme, because we add up the rateable value of multiple stores. I do not think that you would say that a Tesco Metro is a small local business.

No, but we are looking at the issue from the wrong end of the telescope. The small business bonus scheme is about exempting people from payment; the retail sector scheme is about getting people to pay more. If we aggregated, we would get them to pay even more, which would be difficult to rationalise.

You mentioned that you hope to raise £30 million. When do you expect that money to be available to the Scottish Government?

During 2011-12. It is part of the assumption on non-domestic rates income that I have made in the budget.

What discussion has taken place with the retail sector on the issue?

The sector has asked for dialogue with me about it. I will certainly take that forward.

Has any calculation been made of how the scheme might influence investment decisions in Scotland by the retail sector?

Business rates account for about 2 per cent of the turnover of large retailers, which is a peripheral sum of money in total. I am talking about a small increase for retailers. In my judgment, it will have no negative investment implications.

So the Scottish Government made a calculation before it looked at the proposal and decided that it would not influence investment decisions unduly, would not impact on construction jobs in the building of stores and would not impact on food prices for Scottish customers.

In my judgment, the measure is sustainable. I will discuss it with Parliament and with the sector.

I am sure that you discussed all of the issues before you announced the measure. I am looking for the workings behind your decision.

I have considered all of the issues that you have raised.

Fine.

I am conscious of the fact that Mr Swinney is not the housing minister, but what is his response to statements by the likes of Shelter and the Chartered Institute of Housing in Scotland about the cut in the housing budget, which they suggest is disproportionate to cuts elsewhere in the budget?

Mary Mulligan may have to forgive me on some of the detail; I will do my best, but I may have to caveat what I say.

We understand that.

I will check the details and reply to the committee if I get any of them wrong.

If my recollection is correct, the reduction in the housing budget is in line with the overall reduction in the Scottish Government’s capital budget which, between 2010-11 and 2011-2012, is about 26 per cent. My recollection is that the reduction in the housing budget is at that level.

I understand the worries about capital expenditure; I totally share them. Over the past couple of years, we have seen the effectiveness of expenditure on housing, particularly given the collapse of the private housing market. We had the ability to supplement that market by increasing the available resources for affordable housing developments. I completely accept the argument. Notwithstanding that, the capital budget has gone down by 25 per cent, and I cannot avoid the fact that there will be negative implications in some areas.

Cabinet secretary, the budget figures that you have in front of you indicate a 19 per cent reduction in the housing budget, but you said the reduction was about 26 per cent. If you take account of the £120 million that was accelerated, the reduction is over 30 per cent, which is more than the cut in capital expenditure.

You referred to the impact on jobs and sustainability in the construction industry. Will you reconsider this budget line, given the impact of its reduction on jobs?

After a quick mental calculation, I think that my numbers are correct, but we will come back to the committee on them, just to be absolutely certain.

There is no doubt that the affordable housing sector provides us with a significant and beneficial opportunity to support construction employment, as do a range of other areas of activity. Essentially, the budget strikes a balance between supporting economic activity through maintenance and capital activity. We need to bear it in mind that this and the previous United Kingdom Government dramatically reduced capital budgets. I am happy to consider any representations on the question. We have set out the balance of our capital programme. If there are alternative views, the Government will, of course, be happy to consider them.

I appreciate that you may not have the information to hand, cabinet secretary, but it would be useful for the committee to know the level of development funding for Edinburgh and Glasgow. I know that that is treated separately—in fact, it is part of the local government settlement—but do you have the figures for next year?

We do not have the numbers with us, but we will communicate them to the committee.

I am grateful for that.

My final question is on the energy assistance package. Last week saw publication of the “Progress Report on the Scottish Fuel Poverty Statement 2002”, which showed an increase in the number of households across Scotland that suffer from fuel poverty. In fact, 770,000 households—a third of Scotland’s total—are now in that band and yet £21 million is being taken out of the budget. That is a 21 per cent reduction. Is the time when fuel poverty is increasing the time to reduce the budget?

12:45

I acknowledge the issue that Mary Mulligan raises, and the Government will remain open to dialogue on such questions, but I simply point out that if we are to increase resources in some areas, we have to take them away from somewhere else.

I have a general question on housing and regeneration, and an additional question on equality issues.

You struck a balance and reduced the capital monies available, and you decided on major infrastructure projects that would go ahead. Did you consider the sustaining of jobs in local economies when you struck that balance? You decided that, at this particular time, it was better to go ahead with large projects on which you would spend X amount of money and produce X amount of jobs. Why did you decide to do that, as opposed to spending a similar amount on housing, which would tick all the boxes for social benefits, jobs in the construction industry, and apprenticeships? Did you examine what measures would have the greatest impact in terms of sustaining jobs in the Scottish economy?

That kind of analysis runs through all the work that the Government undertakes on the theme of economic recovery, and it has been an essential part of the judgments that we have made since the summer of 2008. We have tried to reconstruct our budget to address the collapse of the private housing market. Over the past two years or so, we have taken a set of decisions on the theme of economic recovery.

For this budget, another set of issues arose. We have asked what the correct judgments would be to ensure the strategic development of the Scottish economy. A principal issue has been the Forth replacement crossing. On the information and advice that has been made available to me, the correct judgment is that we should pursue the construction of the Forth replacement crossing. Without the replacement, we jeopardise the possibility of having a usable crossing. Losing that crossing would lead to significant negative impacts on the Scottish economy. Indeed, the unusability of the Forth crossing was why I was so late this morning.

We have had to consider the additional strategic priorities that we have to fulfil. We have tried to address the question of what to do with the diminished capital budget—reduced by 25 per cent in one year. The reduction will move towards 36 per cent over the course of the spending review period.

Does the same principle apply to the new Southern general hospital, or to any other projects, such as the bypass? Did you calculate that, if you spent X million pounds on particular projects, it would be good for the Scottish economy? But what about local economies? We have seen social advantages, construction jobs and apprenticeships spread right across Scotland by programmes to build houses, but many people would argue that most of the current spend will focus on Fife. Those people would debate with you, at least, about how that will impact on the wider Scottish economy.

It is beyond peradventure that our being unable to fulfil our commitments on the Forth replacement crossing would have a negative impact on the Scottish economy. In the capital programme—

And the Southern general hospital?

We have carefully considered the huge impact of the Southern general hospital on construction employment in all the surrounding parts of the west of Scotland, and in Scotland in general. In our capital programme, a range of different interventions will provide economic benefits in all parts of the country. It has been one of our priorities to ensure that our public spending—resource spending and capital spending—has been allocated in a fashion that is beneficial to local economies.

We have corresponded on the equalities issue and the disproportionate impact that the current situation with budgets will have on communities, such as mine, that are still recovering from the previous recession and in which an above average number of people are on low pay, an above average number are unemployed and an above average number work in the public sector because we have lost all the manufacturing industry. The blanket approach will harm us significantly in house building, regeneration and benefits and through cutbacks in the public sector. What provision can be made to ensure that communities such as mine do not slip back in the progress that they have made over the past four or five years?

You will be aware that an equality impact assessment is carried out on the budget. I am happy to engage in dialogue about that assessment.

There are a range of different measures in the Government’s budget, including support to meet the training needs of individuals, support for educational opportunities, the approach to affordable housing and the steps that we are taking in relation to the core local government settlement. The local government settlement is being reduced by 2.6 per cent rather than 6.4 per cent, which will have a consequential beneficial effect on the Inverclyde area that you represent, convener. All those factors show how the Government is taking forward an agenda that is designed to avoid the negative economic consequences that, I agree, were experienced in the 1980s and from which many communities have yet to recover.

Some recently published research about local authorities shows that Inverclyde has areas that are in the most deprived 20 per cent in the UK, as do Dundee, Dumbarton and other local authority areas. Does that give the Scottish Government pause to reflect and work with those communities in addition to providing the equalities statement, given the fact that we recognise that those communities are more vulnerable?

The Government’s interventions and programmes do exactly that. You used the word “blanket”, but the Government’s programmes are not deployed on a blanket basis; they are deployed where they respond to need. Need underpins the entire local government distribution formula into the bargain.

We have had questions and answers on that in the past, as well. That is another issue that needs to be resolved in local government.

There are no further questions. I thank the cabinet secretary and his officials for their time.

12:53 Meeting continued in private until 12:58.