Finance Committee

Meeting date: Tuesday, March 2, 2010

Official Report 404KB pdf

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Subordinate Legislation

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Budget (Scotland) Act 2009 Amendment Order 2010 (Draft)

Good afternoon and welcome to the sixth meeting of the Finance Committee in 2010, in the third session of the Scottish Parliament. I ask all members of the committee and the public to turn off mobile phones and pagers.

Agenda item 1 is to consider the Scottish statutory instrument that provides for the spring revision of the 2009-10 budget. The draft Budget (Scotland) Act 2009 Amendment Order 2010 is subject to affirmative procedure, which means that Parliament must approve the order before it can be made and come into force. A motion in the name of the Cabinet Secretary for Finance and Sustainable Growth, John Swinney, invites the committee to recommend to Parliament that the draft order be approved. Before we come to the debate on the motion under agenda item 2, we will have an evidence session to clarify any technical matters or to allow explanation of detail.

I welcome to the meeting the cabinet secretary, John Swinney MSP, who is accompanied by Alyson Stafford, director of finance, and John Williams, head of finance co-ordination, from the Scottish Government. I invite the cabinet secretary to make an opening statement explaining the order, and I remind him not to move the motion at this point.

The order that is before the committee relates to the final changes to the budget for 2009-10. Today’s budget revision is the last opportunity that we have to amend the budgets for the current financial year, so it includes a number of transfers between budget lines to enable them to be aligned with predicted spend for the rest of the year. It also confirms that our management of the Scottish budget this year has allowed us to invest more money in economic recovery.

The changes that are proposed in the spring budget revision will result in an increase in the approved budget of approximately £59 million from £34.711 billion to £34.77 billion. Table 1.4 on page 5 of the supporting document shows the latest budget that was agreed in the autumn budget revision and the changes that are sought in the spring budget revision.

I would like to draw the committee’s attention to a few of the main points of the spring budget revision. Additional funding of £79 million for the health and wellbeing portfolio is made up of £59.2 million of United Kingdom budget consequentials and £19.6 million of additional annually managed expenditure cover for impairments. The budget consequentials will allow additional capital spend of £31 million on affordable housing, with the balance of £28 million being applied to cover costs that are associated with the flu pandemic. It has also been possible to transfer a further £45 million to help to cover flu pandemic costs. The switching of that budget from the justice portfolio is a result of the release of funds that were previously held in the provision to meet anticipated claims against the Scottish Prison Service.

There is a technical change to the presentation of the Scottish Water cost of capital, which has led to a reduction of about £85 million. That reflects income from the interest payable on loans, which was previously not included in the parliamentary approval. The change allows alignment between the draft budget, the Budget (Scotland) Bill and the consolidated accounts, and has no impact on the resources that are available to Scottish Water or the Scottish Government.

Other significant changes include a transfer of £20 million to provide additional support to the higher education sector and the making available of £10 million of finance and sustainable growth provided funding for the Scottish investment bank. Other adjustments include revisions to AME to reflect revised estimates for national health service and teachers’ pensions, for which provision has increased by £33.1 million, and a reduction in student loan moneys of £13.3 million. Full budget cover for that net increase is provided by Her Majesty’s Treasury.

The committee will recall that with the adoption of international financial reporting standards across central Government, we are required to convert our UK generally accepted accounting-practice-based budget to one that is based on IFRS. The first tranche of the technical adjustments that were agreed with HM Treasury was included in the autumn budget revision. The £44.4 million that is included in the spring budget revision represents what we expect to be the final element of those adjustments for 2009-10. Again, the changes are spending-power neutral. They are largely non-cash adjustments or transfers from resource to capital, to reflect the different treatment of certain transactions under IFRS.

What appears to be a net transfer from within the Scottish block of -£3.2 million reflects the transfer of budget provision to support non-departmental public body capital charges, which relate primarily to VisitScotland. The committee will recall that under current budget arrangements, NDPB budgets must be presented for parliamentary approval in simple cash terms. Details of NDPBs’ non-cash costs are provided in table 1.2 on page 3.

Details of all significant changes in the spring budget revision were sent to the committee by the Scottish Government prior to this meeting. Further information in respect of other items can be supplied, should the committee wish more detail. I would be happy to answer any questions that members might have.

I have questions on some of the details in the budget revision document. Page 19 sets out details of proposed increases for concessionary fares, with separate elements for demand-led increase and smart card costs. Will you say a bit more about each of those items and perhaps give an indication of the spending profile for concessionary fares in the later years? The anecdotal feedback that we get from bus operators is that the spending pressures in the programme are significant and that there is an expectation that demand will continue to increase. It would be interesting to know what the Government’s expectation is.

I will start with the smart card programme, which is putting in place the technology to automate the transactions in the concessionary travel scheme. The project has been under development since 2005 and it would be fair to say that there has been concern about the development and deployment of the technology. All of us, including my predecessors, would probably have preferred the technology to be in place from day 1, but it was not, and a pretty assiduous process has been required in getting the smart card technology applied across the board in all bus operators.

There has been an increase in the resources that are being allocated because the programme has been slow in development but, as a consequence of efforts in the past 18 months, we have seen a marked improvement in the pace of deployment of the technology. In essence, we are paying to have that application done sooner rather than later. The current position is that 85 per cent of ticket machines are available and we expect 98 per cent to be available by the end of the financial year. There has been a marked upsurge in the pace of the activity recently, which is why we have had to make a further allocation of resources. Obviously, if that had not been done, we would have wanted to make good that resource in the next financial year.

The concessionary fares line includes not only the concessionary fares for senior citizens—I am sorry, I should say for the over-60s—but the various schemes for young people’s concessionary travel. Demand has been increasing over time, although we consider that it has plateaued in recent months and that the financial provision that is in place will be sufficient to tackle the demands on the budget for the programme in the course of this financial year.

In so far as there were any inherent costs in the original allocations to the Scottish Futures Trust relating to the hub programme, the transfer is, with that exception, a transfer of resources to enable the hub programme to be undertaken.

I will move on to slippage. You wrote to the four party spokespeople and, in the attachment to that correspondence, you outlined the lack of slippage in capital programmes, compared with the 2010 budget. Given that there has been slippage in the Scottish Prison Service capital budget, which is being used for the purchase of the Dundee forensic laboratory, and bearing in mind the information regarding trams, what has the overall slippage been? What flexibility do you have in the capital budget?

I thought that the guide that we produced provided a pretty clear exposition of how resources had been allocated in one direction or another. I thought that that would assist the committee but, if more detail is required, I am delighted to provide it.

I appreciate that. I cannot see it, although that does not necessarily mean that it is not there: is there an overall capital amount? Your answer to Malcolm Chisholm regarding the trams and the GARL reallocation—and the indication that you gave regarding the purchasing of land and the M74 completion—did not give the total amount. The figures did not add up.

Yes. Thank you.

The possibility of Bellwin scheme claims is envisaged in the spring budget revision. I have to create the headroom to allow me to spend in that fashion. Without some provision for that, I would face an issue with the local government budget line. I stress that I am considering Bellwin applications, but if I did not have that headroom, I would not have the flexibility to spend, because the local government control total is at its limit.

Just very finally—

It is certainly my plan to be able to spend all of that in the course of the financial year.

Does any of the changes that are being made help you to prepare for the impact of the next three years, in which you forecast budget cuts? Does any change now anticipate what is down the track?

I take a constituency interest in the reduction of £67.9 million in the Scottish Prison Service’s budget. That budget has taken quite a hit. Has the transfer of money out of that budget to other activities contributed to a slowing in the Low Moss prison building programme?

I have a very quick question. Obviously, as one of the constituency members for Dundee, I am pleased that the Scottish Government has decided to forge ahead with the new forensic laboratory, which will secure much-needed public service jobs in Dundee. I should probably declare an interest by putting on record the fact that my partner works for the Scottish Police Services Authority and is looking forward to moving into the new building in the next few weeks. However, I want to ask the cabinet secretary what the thinking was behind the move from leasing to purchase of the new laboratory.

As there are no other questions, we will now move to item 2, which is the formal debate on the motion. I invite the cabinet secretary to move motion S3M-5736. He may make an opening speech if he so wishes.

I have nothing to add, so I will simply move the motion.

I move,

That the Finance Committee recommends that the draft Budget (Scotland) Act 2009 Amendment Order 2010 be approved.

In inviting contributions from members, I remind all members of the time constraints that we face. Does no one wish to speak in the debate?

I invite the cabinet secretary, then, to make any final statement if he so wishes.

Before we start the next item, I will allow a short suspension so that the officials can change over. I thank them again for their attendance.

14:38 Meeting suspended.

14:39

On resuming—

It is the second last item in the first table on page 69.

The key point is that that is the balancing of the items on the line above. In essence, the issue is to do with the contract that the Government has with Oracle, which deals with contracts for public bodies for information technology projects. There is a transactional arrangement. The use of those services is increasing, which is increasing costs on the Government, but there are increasing transactional activities in reclaiming those.

On the implications of that for realisation of the budget savings that are required of the administration budget in 2010-11, the 2010-11 performance will have to be delivered: that is the requirement of the budget.

14:15

You mentioned the £10 million allocation to the Scottish investment bank. There is more detail on that in the budget announcement. In view of where we are in the financial year, does the Government expect that the £10 million will be actively spent or invested in 2009-10?

I do not imagine that all of it will be spent in the financial year 2009-10, but the Scottish investment bank holds a number of resources in relation to other funds, such as the proof of concept fund and the Scottish Enterprise seed fund, which are clearly not dispensed in any given financial year.

I understand that.

It does not affect the ability to spend.

It just seemed a bit odd because the money was announced last May or June and there was an opportunity to include it in the autumn revision. However, that is perhaps not an essential point.

We have an interest in the capital budget, which will be discussed in another context soon. I have a particular interest in the slippage on the Edinburgh trams project. We do not need to go into all the details for that, but it is clear that part of it is the problems with Bilfinger Berger. We certainly support robust negotiations with that company. There is £53 million slippage on the trams, £20 million on minor rail programmes and the much-discussed £35 million for the Glasgow airport rail link. What have those underspends been spent on? Those three items alone represent more than £100 million.

We have spent the money on a variety of items. Some has been deployed to cover the increased cost in 2009-10 of the M74 because that contract has moved faster than the Government had programmed. That is one of the features of capital programmes: we have projects that go behind schedule, which the Edinburgh trams project clearly is, and projects that go ahead of schedule, which the M74 clearly is.

We have used the opportunity of the resources to acquire land that is essential for the M74, the M80 and the Aberdeen western peripheral route. We have also deployed some of the amount to cover the increase in the cost of the smart card technology that was required. There have been other requirements. Mr Chisholm mentioned the minor rail programmes; some of the resources have been deployed to cover a higher-than-predicted cost of the settlement decision from the Office of Rail Regulation on the rail programme for this financial year.

There is a variety of destinations for the resources that have been deployed.

It is for the running of the hub programme.

In previous budget discussions, the committee discussed the increase in the Scottish Futures Trust consideration and the transfer of the hub programme to the trust. Is that transfer additional to previous ones from the health department?

A transfer is being made to the Scottish Futures Trust in respect of the hub programme. On previous occasions we allocated the budget provision for the operation of the Scottish Futures Trust.

Is that the only transfer from health with regard to the staffing and costs of the hub initiative, or is it an additional transfer?

If I was to give such a list today, it would contain a whole host of different transfers. I am happy to share that information with the committee—I gave some of the major elements to explain where the changes had come. A considerable level of detail is involved.

It goes down to the fact that I allocated £1 million for structural improvements to improve Campbeltown harbour’s ability to cope with the new larger wind turbines that will be going to the Skykon factory, and the allocation of £3.8 million to move the centre for regenerative medicine in Edinburgh to a further stage of development. I am certainly happy to give the committee further detail, if that would help.

It is not that the Government needs to “open” the Bellwin scheme. The scheme is always there. It is a mechanism that is activated in certain circumstances. We consider claims within that. The fact that a local authority says, “We want to make a claim under the Bellwin scheme,” does not mean that the claim will be approved. However, I recognise that exposure to Bellwin claims is likely, which is why I made the provision. I am considering a number of applications and am verifying whether they qualify for assistance under the scheme.

Your final, final question.

I am sorry, convener. Is the additional £2 million a consequential?

No.

There are several examples of our doing that to the extent that we can, given our limited financial flexibility. The investment in the Scottish investment bank contributes to long-term activities, as does the investment in affordable housing. The acquisition of land for the M74, the A80 and the Aberdeen western peripheral route avoids costs that we would have to fund in later years. The budget revision contains several examples of our trying to anticipate the situation, within the limits of our flexibilities.

Another major consideration is end-year flexibility. The view that maximising public expenditure at this stage in the economic cycle is beneficial is supported broadly across the political spectrum. If I were somehow to reserve money for later years—with the exception of the modest steps that I have taken with the Scottish investment bank, affordable housing and land acquisitions for major capital projects—I would be remitting funding that could be deployed on public spending in Scotland to the Treasury for end-year flexibility. I have an agreement with the Treasury to use end-year flexibility up to the end of 2011, but I have no agreement beyond that. In the context of the wider pressures on, and the significant levels of, public debt, I would not be confident that resources that we deployed in end-year flexibility would necessarily be accessible in the fashion that we would want in the years to come.

Spending on pandemic flu and so on totals about £120.5 million. On what has that money been spent?

No. The biggest transfer from the justice portfolio is the sum of £46.5 million that had been reserved for meeting the costs of legal action on slopping out. Essentially, we have been able to release that provision, which has supplied the predominant help with the costs of pandemic flu, although those costs have also been offset through a transfer of resources from firelink.

The Low Moss prison development is now under way—I recently saw the Cabinet Secretary for Justice on television cutting the first turf, if that is the right term—and carries the full support of the capital programme of the justice portfolio.

Essentially, the approach was driven by value-for-money considerations. Purchase of the building was assessed over the defined period of a finance lease as providing a comparatively better proposition for the public purse. Obviously, such an approach also satisfies the interests and requirements of the Dundee economy, where there has been a clear appetite to attract public sector employment. Our ability to deliver that for the city of Dundee has been welcomed.

The committee will formally communicate its decision to the Parliament by way of a short report, which will provide a link to the Official Report of today’s meeting. Are members content with that approach?

Members indicated agreement.

Page 69 sets out a proposed increase in administration costs of £1.8 million, which is offset by increased income. What is the underlying reason behind the increase? Perhaps more important, given the reduction in the same administration line in the 2010-11 budget, will the increase in 2009-10 make it more difficult for the Government to achieve the savings in 2010-11 that have been talked about?

I ask Mr Brownlee to give me the reference again.

I have a question about the £30 million for housing. The Barnett consequentials were first announced a year ago at the time of the Westminster budget, so why was that item not in the autumn budget revision?

I simply sought the available opportunity for me to advance the provision for that figure. We had announced that it was coming forward: deploying it in the spring budget revisions is simply a technical process.

Good afternoon. I will start with a technical question. I understand that “A Brief Guide to the 2009-10 Spring Budget Revision” has been prepared by the Scottish Government—it is a Government document with which the committee has been presented. I looked at the bullet points under the headings for “Health and Wellbeing” and “Finance and Sustainable Growth” in the guide, but found no reference to the Scottish Futures Trust. However, I think that I am right in saying that, on page 17 of the spring budget revision document, there is a transfer of £1.3 million from the health department to the Scottish Futures Trust. What is that?

Staying with health, am I right in saying that the transfer from justice was the slopping-out money, and that that formed the provision for the flu pandemic, in effect?

That is correct.

There are also the UK consequentials. If we take the two amounts together, the total is £73.3 million. Has that money been spent?

Yes.

I do not have that number added up in front of me but, as I explained to Mr Chisholm, there are projects that go ahead of schedule, which we must meet, and there are projects that go behind schedule. It is a case of making judgments in-year in order to utilise the available resources. The objective of the management of resources in-year is to minimise the resources that are not fully utilised for the purposes of our expenditure programme, in particular the capital programme. That is the approach that we have taken in the course of this financial year.

Is there a total in the spring budget revision for the overall reallocation of the capital?

You are committed to publishing every item over £25,000, are you not? That will have to be the means of providing that information.

That will be done by routine transaction. The Government will do that in a seamless fashion.

I have a final question, convener, if I may ask it. I notice that there is additional funding of £2.2 million for the Bellwin scheme. Has it been agreed with local government that the Bellwin scheme will be open for applications, given the severe weather over the new year?

It is not true, therefore, that the Government said to the Convention of Scottish Local Authorities that Bellwin is not the scheme for the additional cost of the severe weather.

The Government has made provision for the additional costs of the severe weather, which is to be allocated to all local authorities. I announced that, if my memory serves me correctly—

In the local government debate.

Of what?

Is the £2.2 million for the Bellwin scheme a Barnett consequential?

I want to return to the capital slippage, cabinet secretary. Have you spent all of the capital slippage on other things?

Okey-dokes.

The exception is that, clearly, I have to settle the budget with enough flexibility to cover the end-year flexibility that I have told Parliament I will be required to put into the Treasury to allow me to avoid any implications on the 2010-11 budget of the reduction in the Department of Health capital baseline of £129 million. On that basis, I need to send an EYF contribution of approximately £40 million to the Treasury to ensure that we have enough EYF stock to avoid any impact from the reduction in the Department of Health capital baseline.

Obviously, I also need to ensure that we have sufficient budget cover in the event that any accounting adjustments are required after the close of the financial year and before the settlement of the accounts, which will probably be by the end of September.

With those two caveats, my answer is yes—I intend to spend all the slippage.

So, I am right in thinking that roughly half the slippage is being set aside for end-year flexibility—that £40 million of the £100-plus million is being sent to the Treasury.

14:30

No. I put the figures in the document only to make it clear that I must consider such matters in my budget management. I look to ensure that we manage within the budget totals that we have throughout the Government. That is a requirement of our Administration.

Some of the spending was on equipping us with what I might call the infrastructure to deal with pandemic flu, such as face-masks, antibiotic drugs, other equipment that is required and storage arrangements. A large proportion was spent on the vaccine and its delivery, the primary care response that has been required and the support that NHS 24 has been required to provide, to deal with an increase in the volume of activity. That is a summary of what the money was spent on.

The final question will be from Joe FitzPatrick.

I have no further comments, convener.

Motion agreed to,

That the Finance Committee recommends that the draft Budget (Scotland) Act 2009 Amendment Order 2010 be approved.