Budget (Scotland) Act 2014 Amendment Order 2014 [Draft]
Item 3 is consideration of the draft order that provides for the 2014-15 autumn budget revision. Before we come to the motion seeking our approval at agenda item 4, we will have an evidence session on the order. I invite the cabinet secretary to make an opening statement explaining the order and remind him not to move the motion at this point.
Thank you, convener. This is the first of two planned routine in-year budget revisions. The second and final revision will be the spring budget revision, which will be laid in the early part of 2015.
As in previous years, a pattern of authorising revisions to the budget in the autumn and in the spring is required, as the detail of our spending plans inevitably changes from when the budget act is approved. The changes that are proposed in the autumn budget revision result in a net increase in the approved budget of £972.9 million, from £35,458.5 million to £36,431.4 million.
The material adjustments to the DEL budget react to the changes that were announced to Parliament at stage 3 of the 2014-15 budget bill on 5 February, the allocation of further additions that were announced to Parliament on 1 April and in-year additions reflecting ministerial decisions. In addition, the autumn budget revision reflects Whitehall transfers and HM Treasury allocations in respect of localised council tax support, the single fraud investigation service, capital funding for the Shetland Islands to support infrastructure development, support for residents of Blanefield with the clean-up of contaminated land and support for the Lockerbie-Syracuse Trust.
It is normal practice for the autumn budget revision to reflect a technical budget adjustment arising from updated assessments of the NHS and teachers’ pension schemes. The latest actuarial assessments—based on the most recent HM Treasury discount rates, increases to employee pension contributions and a reduction in interest on scheme liabilities—record a net overall increase in annually managed expenditure of £901.9 million. I reassure committee members that that technical change to the pension scheme budgets has no adverse impact on other Scottish Government budgets. HM Treasury underwrites the pension liabilities directly through the AME process.
There are a few significant transfers between portfolios which occur annually, primarily between health and education and between justice and health. Those budgets are initially allocated to the portfolio where ministerial responsibility and policy decisions are taken. The budgets are then transferred, in a transparent manner, to the portfolio where the spending occurs at the in-year budget revision. The significant transfers of that nature are the transfer of £50 million from health and wellbeing to further education, for nursing and midwifery training, and the transfer of £30.4 million from justice to health and wellbeing, in respect of drug treatment and prevention.
Members may wish to be reminded that, for the purposes of the Scottish budget, only spending that scores as capital in the Scottish Government’s or direct funded bodies’ annual accounts is shown as capital, which means that capital grants are shown as operating in the document. The full capital picture is shown in table 1.7 of the supporting document.
No further new announcements or initiatives appear in the figures that the committee is scrutinising today—the revisions reflect decisions or announcements that have already been made. The brief guide to the autumn budget revision that my officials have prepared sets out the background to and details of the main changes proposed. I hope that members have found that guide helpful.
As I mentioned, the 2014-15 spring budget revision will be laid before Parliament in early 2015. In line with past years, that budget revision will be informed by on-going in-year budget monitoring. I will update the committee at that point on the planned resource to capital budget transfer for 2014-15. The spring budget revision will include an updated presentation of the Scottish Government’s portfolios as announced by the First Minister on 21 November.
I will be happy to answer any question on the detail of the autumn budget revision.
Thank you for that comprehensive opening statement.
The large technical adjustment of £901.9 million is highly significant and you have explained the requirement for that. Can you give us a wee bit more information on the long-term implications for the Scottish budget if the UK Government, for whatever reason, decides to squeeze the departmental expenditure limit, which could feed through to the Barnett formula?
There is a strategic choice on the manner in which any further fiscal consolidation takes its course. If the UK Government were to apply greater pressure to annually managed expenditure than to DEL, that would have less effect under current arrangements on the resources available to the Scottish Government than if it were the other way round, whereby DEL took pressure and AME did not. That is a balance of judgment that the UK Government has to arrive at in its future financial planning.
You mentioned the significant increase in annually managed expenditure on pension provision. That is essentially a set of technical changes that have affected the scale of the budget. I am happy to talk the committee through a number of those changes that have had an effect.
First, there has been a change to the discount rate that is set by HM Treasury, which is used to calculate the interest costs on pension scheme liabilities. The reduction in the discount rate increases the opening pension liability, so essentially the opening sum of pension liabilities grows by virtue of the change to the discount rate. Secondly, there have been some changes to the interest rate that would be viewed to be utilised as part of the calculation of the pensions liability. Thirdly, there has been an increase in forecast income, which has arisen out of the fact that employees’ pension contributions have increased over the past few years.
Those are the three factors that have driven most of the dynamic of the change on the pension scheme liabilities. I would caution the committee against viewing those as a direct cash issue. Rather, they are an assessment of liabilities, which has changed as a consequence of the changes that the UK Government has made to the methodologies.
Thank you.
The committee stated in its report on the draft budget for 2013-14 that it would
“welcome greater clarity in future draft budget documents in the presentation of proposals for resource to capital switches including reporting on the progress made in achieving these transfers.”
The Scottish Government responded:
“We propose it is most appropriate to report on these aspects as part of the in-year revisions and the outturn report.”
However, the autumn budget revision does not cover the 2014-15 plans for resource to capital transfers. Is it your intention to present those in the spring budget revision?
I will certainly give consideration to that point. As we discussed in the previous evidence session, we constantly monitor the issue of borrowing. Similarly, we continue to monitor capital requirements during the year, so we are constantly reviewing the mechanisms that can support our capital programme.
I will certainly endeavour to report on those questions at the spring budget revision. The monitoring of all the issues that are inherent in the calculation of the resource to capital transfers will remain active in the interim.
In your opening statement, you talked about the transfer of some £50 million from health and wellbeing to education and lifelong learning for nursing and midwifery education and the transfer of £30.4 million from justice to health and wellbeing for drug treatment and prevention. A transfer from health and wellbeing to education and lifelong learning for nursing and midwifery education has been in the ABR in each year since 2008-09. Given that that is a recurrent transfer, why has it not been incorporated into the draft budget plans at the outset of the budget process every year?
That is essentially because, in the interests of transparency, we are trying to maintain a clear line of accountability to where the policy decisions are taken. For example, judgments about midwifery education are taken in the health portfolio, so the policy responsibility rests in that portfolio, and the resource is transferred to another portfolio to be delivered. We believe that establishing that degree of clarity on the policy-making responsibility assists members of the public in looking at where the responsibility for decision making sits.
Do you not think that it seems confusing? For seven years in a row, those budgets have consistently shifted from one portfolio into another. Surely that adds to rather than diminishes the public’s confusion. It also distorts the budget headings in the draft budget to an extent, as people would consider that there is more in one particular budget portfolio than there is in reality when it comes to delivering the spend.
We can look at those things in different ways, convener. The key point for me is that the current arrangement recognises where policy responsibility rests. Essentially, it enables decisions to be taken on that basis and those decisions to be clearly understood by members of the public.
Perhaps we will have to agree to disagree on that particular issue.
On education and lifelong learning, why is additional funding of £5.1 million required for the curriculum for excellence as well as additional funding of £5 million for the one-plus-two languages policy and an extra £2 million for supply teachers’ pay? Will those funds be ring fenced for the stated purposes?
The transfer for the curriculum for excellence reflects our commitment to give further funding to local authorities to support the implementation of the new national qualifications. Some of that is to do with more time for teachers in schools to play their part in delivering the new qualifications and some of it is to deliver school-level events to improve parents’ understanding of the new qualifications. There is also support for young people to learn two languages, which is part of one of the other transfers.
Through the machinery of the Scottish negotiating committee for teachers, we came to an agreement that the Government would make a contribution to pay for an enhancement of the pay and conditions of supply teachers.
All those commitments were given to local government for specific purposes. Some of them are more directly attributable or required than others. The enhancement to supply teachers’ pay is very direct, so it does not require a ring fence. The others will have been added to the local government settlement with particular purposes in mind.
Thank you. I now open out the session to colleagues round the table.
15:30
Believe it or not, the convener has covered the four areas that I was going to ask about, but I will manage supplementary questions on all four.
On the pensions, will the increase of nearly £1 billion feed through into subsequent years, or is it not a consequence of the adjustment?
Essentially, it is largely a calculation of the theoretical pension liability that is driving those changes. I am loth to tell Mr Chisholm what will happen in a subsequent year, because I seem to remember being here a couple of years ago and describing a £900 million change as extraordinary in size, and here we have another one. As we know, public sector pensions have been put through a greater degree of scrutiny by the UK Government in recent years, and we are now seeing the products of that.
It sounds as if it probably will feed through. You said that it is not a cash issue, and I merely make the comment, which you may want to respond to, that in all the heated controversy about what proportion of the budget is covered under the Smith proposals it seems ludicrous to include something like pensions as part of the Scottish budget, given that that element is not in the same order as the DEL budget or other elements of the AME budget.
However, it is part of our budget overall.
Yes, but it is a bit misleading. Anyway, that argument will obviously continue, but not today.
You are going to tell us about resource to capital transfer at the spring budget revision, but in the draft budget you estimated that there will be a £165 million resource to capital transfer. Is that still the order that we are talking about or has there been significant change?
I think that it will be something of that order.
It is interesting that the transfers from one budget head to another have been going on for six or seven years. I hear what you say about that, and there are lots of different ways of looking at the issue, but the observation has been made that some of those examples might seem to inflate the health budget. However, I would like to pick up on the example that goes the other way round. The transfer from justice to health and wellbeing in respect of drug treatment and prevention is £30 million. I suppose that it is a bit of an old hobby-horse of mine, but would one logical conclusion not be to ask why drug treatment and prevention is not in the health budget in the first place? Is that the issue that you are raising?
The simple reason is that policy responsibility for drugs sits within the justice portfolio.
I suppose that that is the point that I am making. I know that it is not your decision, but I have always thought that it was a bizarre decision made in 1999.
I am happy to explore those questions if they are causing the committee concern. The principle that is applied is one driven by policy responsibility.
I understand the rationale for it.
You said that supply teachers’ pay does not require a ring fence, but what is to prevent a local authority from just spending that £2 million on something else? I know that there are problems with supply teachers’ pay, because I have been approached about it.
That is for an enhancement to supply teachers’ pay and conditions. In theory, Mr Chisholm, you have a point. Local authorities may not have a requirement for supply teachers, but it is pretty commonplace that—
Has it been renegotiated?
Yes—it is a renegotiation. I suppose that Mr Chisholm’s point is valid if a local authority decides to take the money and not have any supply teaching, but that is an unlikely combination.
That is fine—thanks.
The additional funding sources for 2014-15 seem to be £57.9 million, according to the Scottish Parliament information centre paper. It is classed as £53.3 million of Barnett consequentials from UK fiscal events and £4.6 million that is described as a budget exchange mechanism underspend from 2013-14. I have not checked out the figure, but for some reason I thought that the underspend was a bit bigger than that. I just wonder where the £4.6 million figure comes from.
I suspect that that is probably the difference between the planned budget exchange carryover and what actually materialised. It is just the marginal difference between the planned amount that we factored into our arrangements and what actually materialised.
You said that the spring budget revision will have different portfolios, which I guess will be based on announcements from last week. Is there much re-engineering to do, or is it a fairly straightforward piece of work?
There will be some re-engineering. The portfolio that Roseanna Cunningham holds as Cabinet Secretary for Fair Work, Skills and Training is a development of the portfolio that Angela Constance previously held. Sport issues will go back into the health and wellbeing portfolio, and Mr Neil’s portfolio is essentially a new creation that will take housing and regeneration out of infrastructure, investment and cities, and will take on some of the responsibilities that I formerly held. The local government budget was always in a separate chapter and under a separate budget heading, but third-sector budgets have gone into Mr Neil’s portfolio as well.
On page 80 of the budget revision, in tiny writing, there is a transfer into local government from education and lifelong learning for education and childcare capital costs. The sum involved is £23.5 million—you will see it towards the bottom of the first table. In the papers that I have read, that is described as an initial investment for capital for early years. Is that the final amount for 2014-15 or do you think that there will be more? There will obviously be some for 2015-16, but an update on that would be helpful.
The total capital sum has been agreed with local government for early learning and childcare capital costs. I cannot recall whether there is any more going in in 2014-15 or whether some of it is going in in 2015-16—I would have to confirm that. As part of the budget agreement this year, we reached agreement with local government on the costs of free school meals and childcare, so all of that is done and accounted for, but I cannot recall whether there is more to be paid in 2014-15 than is shown in that document. I will confirm that and get back to the committee.
That is all—thank you.
That concludes questions from the committee.
Item 4 is the debate on the motion. I invite the cabinet secretary formally to move motion S4M-11716.
Motion moved,
That the Finance Committee recommends that the Budget (Scotland) Act 2014 Amendment Order 2014 [draft] be approved.—[John Swinney.]
Motion agreed to.
The committee will now publish a short report to the Parliament, setting out its decision on the order. I thank everyone who came along today, both those who participated in the workshops and those who came along to attend our evidence session, not least the Deputy First Minister and members of the committee.
Meeting closed at 15:38.Previous
Draft Budget Scrutiny 2015-16