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We move to agenda item 3. On behalf of the committee, I welcome the Cabinet Secretary for Finance and Sustainable Growth, John Swinney. He is accompanied by Roddy Macdonald, the head of the Scottish Government's local income tax team, and Graham Owenson, the head of the local government finance team. I believe that the cabinet secretary wants to make an opening statement. After that, we will move straight to questions if that is okay.
Thank you, convener. I welcome the opportunity to discuss the Government's draft budget for 2009-10 with the committee and to focus on the issues in which the committee has an interest.
Thank you for those comments, cabinet secretary.
Local government in Scotland is probably extremely well placed to understand the financial framework within which the Government operates. As members of the committee are aware, we operate on a fixed budget. We have a fixed spending review for three years that contains resources that the United Kingdom Government allocates to us and accounts for the overwhelming majority of the resources that we have to deploy. If there were to be any changes within the Government's budget, they would involve taking resources from one policy area to allocate them to another to support the tackling of any spending pressures or other commitments that exist.
COSLA gave me—perhaps not the whole committee—the impression that, if a threshold is passed or a situation gets particularly difficult, local authorities have the right under the concordat to discuss the additional pressures in the expectation that something could be done to address them. I presume that they would not have signed up to anything less.
Any reading of the concordat would confirm your understanding that local government has the facility to raise concerns about financial issues with the Government, as in any normal co-operative, collaborative relationship. At all the bimonthly meetings that we have held with local government in Scotland, we have considered a variety of issues that our local authority partners raise and we will continue to do so.
What is the difference between inflation when you laid out your plans in the spending review and inflation now? Do you accept that there is serious pressure on local government to deliver within the funding that is available to it?
In point of fact, the assumed gross domestic product deflator in the spending review is 2.7 per cent. That runs for the whole three years of the spending review. The most recent inflation figure is just above 5 per cent, but I do not for a moment believe that that will be the figure in 12 or even nine months' time—I do not think that it will be anything like that. I accept that the GDP deflator is an estimate. Today, the rate of inflation is higher than that estimate, but I am pretty certain that, during the course of the spending review, it will be below it.
However, you have no plans to compensate for that difference at the moment.
The great advantage for local authorities is that they are essentially able to manage their resources within the context of the position on actual inflation versus the GDP deflator. If inflation were to reach 1 per cent at some stage during the spending review, I would not be knocking on the door of Scottish local authorities to claw back resources that I have allocated to them. Local authorities are able to manage their resources within the spirit of the concordat. The Government has given greater freedom to local authorities to manage their resources. Some of the hindrances of the old regime have been removed, which maximises local authorities' flexibility.
Was the tough message that you gave to COSLA this morning: "There's sympathy but there's nothing we can do. It's within your own resources"?
My political style is that I do not generally dish out tough messages. I am characterised as a reasonable individual in all my political undertakings, and I hope to be able to deploy that reasonableness with the Local Government and Communities Committee this afternoon.
Would you compromise your relationship with local authorities and the Government if you revealed to the committee further detail about the discussions that took place with COSLA this morning and at previous meetings? Is the scrutiny process compromising your agreement with COSLA?
I would not say that it compromises the process. I am discussing with COSLA issues on which we are working to secure agreement. Ministers are entitled to have some space in which to discuss those issues and we will exercise judgment on when it is appropriate for information to be shared with Parliament, in the spirit of openness for which we are always characterised.
Do you not think that the concordat is harming that openness?
Not in the slightest.
I speak not just on my behalf—other conveners have expressed this—when I say that it is increasingly frustrating trying to get evidence from COSLA and the Scottish Government about their relationship. The committee is interested, as are the public, in charges that may be being levied and the effect on the delivery of services resulting from that relationship. Whether or not we get COSLA representatives here, we are finding it increasingly difficult to get them to go on the record on that. I hope that it will not continue, but your reluctance until now to discuss any of the detail of the serious nature of this morning's meeting perturbs me a little.
Unless I was in a different room for the past 13 minutes, I am not conscious of not having answered any of the committee's questions. I remain happy to answer all your questions. It is important that we take forward our discussions with local authorities and, for that matter, other partners in the business of government in a fashion that allows us space to discuss issues of mutual and relevant interest. A moment ago, I said that—at all times—the Government would come to Parliament with information when it was appropriate to do so.
I want to ask about the Government's policy on free school meals, particularly with reference to the evidence that we took and the questions that we considered with COSLA last week. We got assurances from the senior members of COSLA who were present that the 32 local authorities will be able to put forward the Government's proposals and provide free school meals for primaries 1 to 3 by 2010. However, as I am sure you are well aware, a number of local authorities feel that, in the current economic climate—and for other reasons—they do not have the budget to provide the free school meal service that the Government wishes to be implemented. In many ways the service is aspirational, but what sanctions does the Government plan to impose on any local authorities that cannot meet the commitment?
We discussed the issue of sanctions during our consideration of the budget last year. I made it clear that the Government was more interested in pursuing a relationship with local authorities that was focused on the achievement of joint outcomes, to which we could both sign up, and that we wished to work co-operatively to deliver that. The talk about sanctions for not delivering rather presupposes that there will be an inability to deliver that service.
I appreciate that you have reiterated that point—it is an aspiration of the Government for the service to proceed. However, you avoided answering the question about what plans the Government has by way of sanctions on councils if that cannot happen in certain local authority areas.
As I said, it is not a particularly constructive contribution to a relationship in which we are focusing on shared outcomes to discuss the application of sanctions. We are trying to create a very different relationship with local authorities, which will be a complete contrast to the futile and pointless relationship that existed between local authorities and the previous Administration. We heard very little, previously, about there being a constructive relationship; we heard everything about conflict between Government and local authorities. This Scottish Government is trying to create a fundamentally different relationship, and I think that we are succeeding in doing that.
I understand that point absolutely, but are you saying that there would be no sanctions should some local authorities—for good reasons—be unable to fulfil your commitment?
I return to the point that I have just made. I want to have a co-operative and effective relationship between national Government and local government in Scotland. I think that we have created that and that, by focusing on what the concordat contains and concentrating on delivering the concordat's commitments and the shared outcomes of national Government and local government, we can proceed in a particularly productive way.
We took evidence from COSLA last week in relation to existing planned expenditure by local authorities in the context of additional pressures. My recollection of the evidence is that COSLA was pretty clear about free school meals being a pre-planned, existing commitment, which was funded, and that additional pressures included inflation—meaning higher food and fuel prices—revenue that has been lost to local authorities through a lack of planning development, and so on. Is that your understanding? Is the provision of free school meals a pre-planned, existing, funded commitment, rather than an additional pressure on authorities?
The spending review package certainly includes funding for the roll-out of free school meals in August 2010; indeed, it was part of the proposition that was set out to Parliament last November and forms part of the concordat that we have agreed with local authorities. I believe that COSLA representatives confirmed that clearly to the committee at last week's meeting.
They certainly did, and I am glad that you have been able to confirm those comments.
That is my understanding of the approach to financial planning that has been recommended for—and is, I believe, pursued by—local authorities. A number of authorities have made very clear commitments on the shape of their financial planning over the spending review period. For example, some have put on record their intention to freeze the council tax for this parliamentary session on the assumption that the Government will continue to provide the support that it provided in 2008-09 to freeze the council tax. That sensible long-term financial planning would be the norm for Scottish local authorities, and the suggestion that Mr Doris has made fits very comfortably into that approach.
What advice would you give a local authority that had not set in its year 2 budget a budget line for delivering free school meals in year 3?
It is not my business to manage the budgets of individual local authorities. Indeed, it is desirable for me not to do so. Such an approach would undermine the concept implicit in the concordat of individual authorities using the maximum flexibility at their disposal to manage their own affairs. A key element of the concordat was the Government's view that local authorities should be given greater responsibility, have greater flexibility and be empowered to take their own decisions. From the discussions that I have had with local authority leaders in my travels around the country, I believe that they are all enjoying that type of operational environment.
You might not be in a position to comment on that matter, cabinet secretary, but I certainly am. I warn any local authority that frustrates the delivery of free school meals to Scotland's children for party political gain—or, for some, because of poor financial management—that it will pay a heavy price.
That was not a question.
As I commented earlier on an opinion expressed by the convener, I should, in the interests of fairness and decency and just to be even-handed, also comment on Mr Doris's opinion.
I would also urge local authorities to follow the advice—
Come on, Bob. Your previous warning already has council leaders shaking in their boots.
I do not think so.
I do. I accept that there are pressures on public finances. I am wrestling with those pressures across the public sector in Scotland, as part of my wider responsibilities as the Cabinet Secretary for Finance and Sustainable Growth. Equally, there are pressures on household and business finances. That is why I am pleased that in the 2008-09 budget, which was enacted with Parliament's support, we were able to freeze the council tax and to reduce business rates for smaller companies. I hope that in this budget process we can secure, with Parliament's support, a continuation and completion of the proposal to reduce business rates for some companies, to remove them for others and to freeze the council tax. We must have an eye on the financial pressures that households will experience as a result of wider economic circumstances.
The figure that has been quoted to enable a council tax freeze to happen is £70 million. Do you consider that sufficient?
I do. If last year I had applied the GDP deflator to the level of council tax income that was generated to compensate for the rise in council tax that did not take place, I should have made available £58 million. I did not—I made available £70 million, so there was a gain for local government. I am not sure what the level of inflation will be in February 2009, when most councils set their council tax levels, but I made the point to the convener that we must make an assumption about the GDP deflator throughout the three-year spending review period. That assumption is arrived at not by me, but by the Chancellor of the Exchequer—I have no power to change the GDP deflator. I have made the assumption that there are adequate resources to allow the council tax to be frozen. As part of the budget, I will make available, subject to Parliament's consent, a further £70 million to freeze the council tax. The £70 million that was available last year is baselined to take account of the fact that authorities have absorbed it into their forward planning.
One of the pressures on local authorities is pay. Over the past 12 months, there has been industrial action. Would it not be sensible for you to address the issue of pay as a priority, instead of financing a council tax freeze?
The overwhelming majority of the individuals who are involved in the industrial action to which you refer are council tax payers, so there will be a reduction in their household outgoings as a consequence of the council tax freeze. That will help individuals. I am aware that there are difficulties relating to public sector pay—I wrestle with those issues in relation to Government staff. However, we are taking the right action to take account of the difficulties in the economy and the pressure to which households are subject as a result of those circumstances.
I was interested in your conversation with Mr Doris about meals. You distinguished between measures that are in the budget and catered for in the spending review, and measures that are genuine extras. The thrust of the conversation was that free school meals are planned for and are therefore included in projected budget allocations. Are the costs of implementing single status and equal pay also included in the budget, or are they extra?
For a considerable time, local authorities have had an obligation to resolve the equal pay and single status issues. That is not a new commitment—it has not just arrived in the current spending review or come out of the Government's programming, but is something that local authorities should plan for. I gave evidence at length on the subject to the Equal Opportunities Committee some weeks ago: I said that it was clear to me that local authorities were not saying to the Government that there was a new pressure on them arising from single status and equal pay issues. The issues have been with them for a considerable time.
The figure of 24 councils, with two others pending, was updated last week by COSLA in its evidence. It said that 26 councils have now implemented single status pay agreements. However, it came out in the subsequent discussion that, although those 26 councils had settled single status agreements, not all of them had resolved all the related equal pay claims and other issues. That is a significant and potentially costly difference.
There will, inevitably, still be costs to resolve because six councils are still working towards a settlement. I understand that the City of Edinburgh Council is one of them.
No—those six councils are still working on single status agreements. I am talking about both single status agreements and all the equal pay claims. There is a difference.
The equal pay claims will be dependent on the extent to which individuals decide to pursue particular grievances about the arrangements that have been put in place. To be fair to local government, that is a pretty difficult factor to quantify because it is individuals who will have to advance the claims. I accept that further costs are likely to arise, but I return to my point that individual local authorities are required to hold—and do hold—reserves to cover some of these pressures. They are obliged to do that as part of their responsible approach to financial management.
You said "some of these pressures". I am trying to get to the bottom of whether the Government regards all or part of the cost of settling equal pay claims as an extra that is outwith the financial settlement in the concordat or whether your position is that all local authorities should have budgeted for that cost. Were grants awarded on the assumption that the matter is all squared off? To what extent is the cost established and to what extent is it an extra? That is what we are trying to get at.
To address the specific point, there is nothing in the concordat about equal pay and single status as an obligation because there was no new obligation to be created. I suppose we could have required all authorities to resolve equal pay and single status claims by a certain date, but we did not. I cannot tell local authorities that they have a duty to do that by a certain date if they have not agreed to that. There is an existing responsibility and obligation on local authorities to resolve equal pay and single status claims that predates the concordat and goes back some years—to 1999, I think.
Just to finish this line of questioning, the crucial thing is that, if equal pay claims go adversely for local authorities, they have no alternative but to stump up because they will have incurred a legal liability in the form of a judgment. It must surely have an impact on areas of discretionary spend if more is taken out of their budgets than they anticipated.
That is a fair analysis. If the equal pay issue does not take the course that authorities assumed, it is possible that they will face greater financial liability. I cannot disagree with that analysis.
Is it not slightly worrying that despite all the previous attempts to get local authorities to get a financial handle on the matter, including when you were a member of the Finance Committee and in the Opposition, we have failed to get any concrete information on the likely costs?
I perhaps now have the benefit of speaking as a minister with a rounded understanding of the issue rather than as an Opposition member. The difficulty is that it is impossible to quantify the issue other than by a set of assumptions. For example, we could say that it will go 5, 10 or 20 per cent wrong, and a number will flow from that, but those are assumptions and estimates.
Do you know which authorities made a 5 per cent assumption, which made a 10 per cent assumption and which made a 20 per cent assumption?
I do not. It is not my business to know that information.
Is it not? Did they not sign up to your concordat on the basis that they thought that their 5 per cent assumption was inadequate? Will they not come back to the Government for more money if their assumption turns out to be wrong?
No—I said that the concordat had no new provision on equal pay and single status.
Exactly. In other words, local authorities signed up on the assumption that their assumption was correct. If their assumption proves to be wrong, it is logical that the basis on which they signed up to the concordat must therefore be false.
That completely misses the point and ignores the fact that local authorities are obliged to be responsible self-governing financial institutions. They must make provision for their existing commitments.
That is very good in theory, but without going into their histories, we have seen with certain councils in Scotland that responsible self-government—
Cabinet secretary, we are going to move on to John Wilson. That has been a good exchange from which people can draw their own conclusions.
I would like to respond to Mr McLetchie.
I cannot win. Go on.
In the interests of even-handedness, I do not want to think that Mr McLetchie will not be favoured with one of my responses to his opinion; it is always a pleasure to do that. Mr McLetchie commented that numerous local authorities have a poor record on such questions.
I said "several", not "numerous".
I apologise if I misquoted or exaggerated Mr McLetchie's comment. We have to keep perspective in this matter. In recent years, in only a very small number of authorities—three in total—have what I consider to be serious questions been raised about financial management since the reorganisation of local government in 1995. It is important that we recognise that the picture that I present of financial responsibility is perhaps evidenced by the fact that such situations are very much the exception and not the rule.
Good afternoon, cabinet secretary. I will follow on from David McLetchie's question. I think that he was trying to get to the point that, although we have agreed that single status has almost been settled with 26 authorities, the consequentials of equal pay are outstanding, as we keep being told by COSLA. It was COSLA that raised the issue about equal pay and single status and said that complications were introduced by the single status agreement. Perhaps you will confirm or deny what we heard earlier this morning—that an estimated £300 million is held in reserve by local authorities in Scotland. Is the cabinet secretary satisfied that those reserves will cover liabilities under the equal pay settlement? If they do not, who will be liable to make up the difference between local authorities' reserves and awards under equal pay?
May I comment? I think John Wilson is mixing figures. The figure that Nicola Sturgeon used this morning related to housing associations' reserves, not those of local authorities.
Sorry. I am trying to understand what reserves are held and what has been calculated in relation to the possible commitments that might arise either through the single status or equal pay settlements that must be achieved. Although I understand that the single status and equal pay arrangements should have been based on the agreement in 1999, the issue now arises that we are in 2008 going into 2009. If the cost of the equal pay settlement is greater than local authorities have budgeted for, who will pick up the tab?
I will try to help John Wilson with some information. The estimated total reserves of local authorities in Scotland, as at the end of financial year 2007-08, was £1.7 billion. That is a significant amount, which is spread across a number of different reserves: general fund reserves, housing reserves, capital funds and insurance funds. Local authorities are anchored by a significant holding of reserves, which relates to my point about financial responsibility.
How have local authorities reported their levels of the efficiency savings that are expected of them? Does the 2 per cent saving apply to all local authority expenditure, or only to the grant element that is received from the Government?
The 2 per cent efficiency saving relates to the old aggregated external finance element, for which the baseline was set in 2007-08. It would be 2 per cent in year 1, 4 per cent in year 2 and 6 per cent in year 3. That is only a component of total local authority expenditure, which will be of the order of £8 billion—is that correct?
The total local government gross expenditure will be of the order of £19 billion or £20 billion.
Will the efficiency savings apply to only about £8 billion?
They will apply to £8.7 billion.
I asked about this issue last week. Local authorities get £11.1 billion in grant from the Government, and on top of that they raise perhaps another £2 billion in council tax—if my numbers are roughly correct—along with other revenues for charges and so on, so that they are spending—I think Mr Owenson said—£19 billion or £20 billion. Why, then, do the efficiency savings not apply to the totality of expenditure? You are talking about efficiency in spending programmes, so if those total £20 billion, why do you not want 2 per cent per annum efficiency savings for the totality of the programme?
We are applying the 2 per cent efficiency target to the dedicated Government grant aspect, and arriving at a calculation to ensure that local authorities are given a fixed target that they have to achieve. They operate in a climate in which they have to maximise the efficiency and the value within their expenditure, and they have other opportunities to do that through their other sources of finance.
I find that slightly odd. I would think that one would want efficiency in relation to the expenditure on a programme to be measured by reference to the totality of the spend on a programme, not by reference to how much of it is funded by one bit of a grant. That seems to be a slightly odd way round.
I am, in essence, explaining our mechanism for arriving at an efficiency savings target. I work on the assumption that local authorities are working to ensure efficiency across the totality of their expenditure. As a consequence, they have the ability to deliver those efficiency savings across a much larger range of items of expenditure than would be the case under the mechanism for calculating the target.
What is the difference between the £11 billion in grant, which I think is the totality of the funding, and the £8.7 billion that you mentioned? What does that figure represent? Why is the target 2 per cent of £8.7 billion rather than, shall we say, 1.6 per cent of £11.1 billion? What is the logic of that? Considering the expenditure as a whole, why is the figure not 1 per cent of £20 billion, if that is the total expenditure? I am not clear why a percentage of the £8.7 billion is the basis for the target.
In essence, we have applied a 2 per cent efficiency saving target to the core aggregate external finance support that the Government gives to local authorities. There is another tranche of expenditure that was formerly ring-fenced grants, but which is now deployed to local authorities. We have taken the baseline from the start of the spending review and allocated that money to local authorities, but without calculating an efficiency savings target that is based on that amount. That is how we arrive at a sum of money that is to be delivered by local authorities as their contribution to the efficient government programme. One could argue that that approach provides a much greater opportunity for local authorities to manage the financial pressures that they are under, because the efficiency targets are perhaps of a different order to those in other areas of the public service.
In essence, the figure is presentational. You choose to say that the target is 2 per cent efficiency savings per annum on £8.7 billion, but equally you could have a lower percentage target if you had chosen a different base, such as the total amount of grant or the total expenditure. The figure of 2 per cent is presentational—it is just for the purpose of arriving at a number and presenting a target. You could have applied another figure to achieve the same result, depending on the expenditure on which you chose to base the target.
I have set out the mechanism for calculating a target. The target must then be delivered and it must be evidenced that it has been delivered. Therefore, the target has a purpose and role in that respect. The reason why there are many aspects to which efficiency savings cannot be applied is that we cannot be absolutely certain that those items of income will be generated by individual authorities. If we applied a target across the board, there might be a tail-off in income in some areas, which would cause financial difficulties for local authorities.
I did not suggest that the efficiency saving target should be applied to an income source; I was talking about applying it to expenditure.
Some of the expenditure will be anchored by an assumption on income. Sometimes, those assumptions may prove to be not valid.
The target is for 2 per cent efficiency savings across the board, which in the past 12 months some local authorities have found to be difficult. There have been staff reductions and increased charges for services. Do you intend to review the programme to make it more appropriate for local authorities?
Last Friday, I published the efficiency outturn report for the financial year 2007-08, which shows that the target for local government was to deliver cash-releasing savings of £327 million and that local government in fact delivered cash-releasing savings of £468 million. A feature of almost all the efficient government reports under both the current and previous Administrations—last Friday's report is the only one that we have published—has been that local government has contributed more significantly than was required.
The global sum that the cabinet secretary has given does not answer my question. Within that global sum, some authorities will have found it more difficult than others to achieve the efficiency savings. I expect that local authorities will find it more difficult year on year to meet the target, so let me ask the question again. Do you have any intention of reviewing the target?
I do not have any intention of reviewing it. I accept that efficiency savings are a challenge. A target set at a flat rate of 2 per cent can be more challenging for authorities that took the lead earlier in the process to make their operations more efficient. Those authorities may be doing more. I appreciate that that presents a challenge, but I certainly have no intention of changing the efficiency assumptions.
For the record, I want to ask about the £70 million of additional support for the council tax freeze. We have heard your position on that, but in evidence to us last week the councils said that they would need to discuss their response. Have they had that discussion? Are you aware of that response? Have the local authorities made any representations that the £70 million will be insufficient for their needs at this time?
The COSLA leadership has certainly recounted to me discussions within local government about the wider financial situation. COSLA has raised with me the funding pressures that local government faces. Clearly, the decision on whether a council freezes its council tax is entirely a matter for that council. I will continue to make available resources to fund the council tax freeze during the period of the spending review, but it is for each individual authority to decide whether it wishes to implement that.
The council tax freeze was made possible only by the generous financial settlement that you provided last year. Without that, you would not have had that success across the country. However, local authorities are now saying that a council tax freeze will be more difficult. You have your clear view. Are you aware whether local authorities are taking the view that £70 million is insufficient? Have discussions begun on what a realistic figure might be? Have you had any representations that the £70 million is insufficient?
As I said a moment ago, I discussed with the COSLA leadership this morning its perspective on funding pressures. Clearly, council tax levels and collection levels are part of that equation. As I said earlier, over the course of the current three-year spending review we will find that inflation will be dramatically different from the 2.7 per cent GDP deflator that was assumed in the budget. For a while this year, inflation has been slightly higher than 2.7 per cent, but for a great deal of next year it will be dramatically lower. Local authorities need to consider their position within that. I will make available to local authorities £70 million to freeze the council tax. I consider that to be adequate for the purpose.
We understand your view, which you have made clear. I just wanted to examine whether formal representations have been made to you that the amount that is being made available for an on-going freeze in council tax is insufficient. Has that been raised as a single issue rather than, for example, food price inflation?
Local authorities have raised a wide variety of different questions including about food price rises, fuel price rises and the ageing population.
We are trying to deal with things that are in the public domain. You announced that the council tax freeze would happen and immediately local government sources said that there was an issue about whether there was sufficient funding for it to happen. If it is not an issue with local government, that is fine.
I have said to the committee as clearly as I possibly can that local government has raised a variety of issues with me about the financial situation. I am in the course of taking forward discussions with local authorities on all those points.
How will the Scottish Futures Trust contribute to improving local government's situation? In particular, how will the timetable for the Scottish Futures Trust develop?
The Scottish Futures Trust is now operational and its chairman, Sir Angus Grossart, has been in office for some time. It will shortly progress the appointment of a chief executive and appointments will shortly be made to its board. A debate on the trust will be held in Parliament next Thursday, and I will take part to set out the progress that we are making.
You mentioned greater efficiency. I take it that you are thinking, at least in part, of comparisons with public-private partnerships. What additional efficiency do you believe there will be compared with PPP?
A number of elements lie at the heart of the Scottish Futures Trust. First, there is the aggregation of contracts. Under the existing capital arrangements, projects are procured authority by authority, body by body and area by area, so the ability to maximise efficiency in obtaining capital or in designing projects is dissipated between individual authorities. It strikes me that there is an opportunity to leverage more value from the aggregation of projects and to ensure that effective project management disciplines are available right across the country, rather than having to be constructed in one part of the country without any transfer of expertise when a project has been completed in another part of the country. There is a great advantage to be secured there.
Do you expect that capital funding under the SFT will be totally off balance sheet?
That is a difficult question for me to answer at this stage, Dr Allan, because we await further guidance from the chancellor on how capital investment will be treated when the UK adopts the international financial reporting standards, which, according to the most recent announcement by the chancellor, we expect to be implemented from 1 April 2009. Our understanding is that, with the acceptance of those accounting standards, it is likely that a large number of PFI projects—actually, probably all of them—will come on balance sheet. There will be consequential implications for the working operations of the Scottish Futures Trust, and once we see the detail of the arrangements we will examine exactly what those implications are.
The Scottish Futures Trust is like the view outside: it has been surrounded by a mist for a while and we are only starting to see some of the details. I am glad to hear you say that the SFT is operational, but it sounds like it will not start to deliver until next year. It would be helpful if you outlined to the committee some of the details of how it will operate. In particular, over the coming years, it will have to work in conjunction with public-private partnerships for major projects that are already in place. How will the SFT's success be benchmarked and compared against that of PPP projects?
I point out gently to Mr Tolson that, when the previous Administration came to office, it took two years to get any investment of that type under way, so the Government is working well within the dilatory pace at which the previous Administration got its school building programme off the ground. Anyone who wishes to check that should do so, because it is a matter of parliamentary record.
However gently or otherwise the cabinet secretary explains that point to me, I do not think that I am alone in feeling that the issue has been shrouded in a mist for quite a while. Many members and many local authorities in Scotland have felt that. Even COSLA—his partner in the concordat—feels that there is no great clarity on the detail of how the Scottish Futures Trust will operate. It is important that we have more detail from the Government. I look forward to that happening, but there is not enough information on the trust's operation or the comparisons between it and public-private partnerships.
In the interests of cross-party unity, I should respond to Mr Tolson's opinion. Those matters have been set out to the Parliament on a number of occasions and will continue to be set out in the debate next Thursday.
Last week, we took evidence from Councillor Graeme Morrice, who is the chair of the COSLA executive group that deals with infrastructure investment. He was puzzled about what was happening, could not explain to the committee what was likely to happen, and suggested—as did his colleagues and officials, I think—that Scottish Government officials had difficulties in following the process and explaining the changing situation.
Scottish Government officials should have no difficulty whatever in explaining the position.
They certainly did when they tried to explain it to your COSLA colleagues last week.
I find that a strange proposition, convener. I have personally attended a meeting with Councillor Morrice and others, including Scottish Government officials, which was an entirely constructive occasion. I understand that Sir Angus Grossart met representatives of COSLA only yesterday. I spoke to him yesterday and he said that they had had a very constructive discussion.
Well, at last week's meeting, Brenda Campbell, a COSLA representative, said of the Scottish Futures Trust:
That is an opinion that has been expressed. I can only report to the committee that I have attended at least one meeting—it may have been two meetings—with COSLA on the Scottish Futures Trust, which was very constructive. There was a further discussion of the matter yesterday, and we will continue that dialogue.
I could also quote the chief executive of the Scottish Building Federation, who described the same lack of clarity and delay in progress, which he claims will affect any potential savings. I am sure that you have read those comments.
I follow the debate avidly, convener. Your helpful intervention allows me to put two things on the record once again. First, a £3.5 billion capital programme is being undertaken around the country through traditional procurement methods. If the committee were interested, I could name the schools and roads that are being constructed and the very significant amounts of money that are being spent on them. I know that the convener is the greatest supporter of the Government's capital programme.
Perhaps you could help me with this, as I do not understand it.
I have you on message already, convener.
You said again that the £3.5 billion is additional to what will be generated through the Scottish Futures Trust, which puzzles me. How can you say that that money is additional while, at the same time, saying that you cannot tell me whether it is on or off balance sheet? If it is not on balance sheet, we are back to the question of where we find adequate money, which becomes part of the £3.5 billion. How do we square that one?
That is why I make the point that we require clarity from the Chancellor of the Exchequer about how the implementation of the international financial reporting standards will be deployed.
You outlined that you suspect that the new rules will mean that everything is on balance sheet. I ask you to help me here, because I am genuinely trying to understand. If the Scottish Futures Trust is to generate additional funding, but it will not be on the books, how will we get a figure for the funding of our schools and hospitals in the future? How will we get that if the money is all off balance sheet? How much more do you need to find on top of the £3.5 billion?
There will always be a requirement for more capital expenditure than any Government can possibly afford—that is a given. On a daily basis, there is always an appetite for more transport, school and hospital improvements, and that will go on ad infinitum. The question is how we can maximise the value of the investments that we make. My point about PFI is that we have paid too much money for many of the assets that we now have. The Scottish Futures Trust must work to secure greater value from that investment.
Why do we need the SFT if the money is all on balance sheet?
Because we must get more value out of the existing commitments to PFI contracts. They have been procured—
So the SFT will be like the national health service excellence group: it will not raise or borrow money, challenge for money or manage projects.
It certainly has the potential to raise and borrow money—of course it does.
Then it would be Sir Angus Grossart running the schools.
The SFT has a role to perform, on the Government's behalf, in working with different partners to take forward the capital investment agenda. We have asked the SFT to concentrate its efforts on that role.
I want to clarify something in that respect. If the SFT borrows money to fund a project, the revenue cost of that borrowing will effectively have to be serviced by the Government giving money annually to the SFT. That will be in addition to the pre-existing commitments that you have identified. Is that right?
That is correct, but there is also the opportunity for us to secure more value from the public investment that has been made in many projects already.
But we already have those commitments. We must pay for deals that have been done, which will have on-going revenue implications for a number of years. You have been critical of them, which is fair enough, but whether you criticise them or not, they exist and we must pay for them. They are not going to be renegotiated or reduced. What headroom exists that can be exploited in the revenue sense to fund further capital projects through, say, the vehicle of your SFT?
That is where the judgment has to be made on what can be afforded in revenue flows to support other activities. We have to arrive at that material judgment once we identify the projects that can be taken forward and the level of finance that can be allocated to support them.
But that is essentially for the next spending review period rather than the current one. Is that right?
I suspect that it will have implications for this spending review into the bargain.
In the next again year.
Yes—certainly not in 2009-10.
So it is a matter for 2010-11—the last year of the spending review period—and subsequent years. Effectively, we have still to determine what the headroom is. That will have implications for total capital spending.
At the successful meeting yesterday, did Sir Angus Grossart tell people that, in effect, there will be no extra money for many of the projects with which they would like to proceed? Is that what you mean?
Not in the slightest.
Where will the money come from?
We are in the process of establishing the Scottish Futures Trust. The Government is in the process of setting out how the trust will operate and how any future revenue flows will be deployed to support investments in the years to come.
Can you explain some figures that you gave us a minute ago? You mentioned the figure of £540 million, rising to £1 billion, for the Government's commitment to paying out for PFI and PPP projects that it has inherited from its predecessors. At what point in the future will the annual figure start to come down?
If my memory serves me correctly, it will start to come down in about 2020 or 2022.
No further questions, your honour.
I would like to get some more facts and figures on the record. What was the level of funding through PPP over the past three years?
Are you asking about the size of capital expenditure?
Yes.
I cannot give you that figure off the top of my head, but I will write to the committee on the matter.
That will be helpful. What do you expect funding through the Scottish Futures Trust to be over the next three years?
That is part of the operational development of the trust, which we will set out to Parliament in due course.
Do you have an idea of when that will happen?
There will be a debate on the SFT next week. Further details will be set out during the development of the trust.
You raised the issue of traditional funding mechanisms. Yesterday, I noticed that the City of Edinburgh Council has concerns about capital funding, partly because of reduced receipts, especially from land. Are you witnessing that problem throughout Scotland? Are you addressing the matter with COSLA?
There is no doubt that in the current environment, where property values are under pressure, the volume and significance of capital receipts will be an issue. We will explore the matter with COSLA, which has raised it with me.
In the past couple of months, cabinet secretaries have spent time going around the country to sign off single outcome agreements with local authorities. What is your experience of the development of those agreements, which are a departure from previous methods of engagement with local authorities? Was the process adequate, or could it be improved? In evidence to the committee, voluntary organisations indicated that, in the first round of single outcome agreements, they felt excluded from the process. Should local authorities encourage greater participation in the process by other bodies?
Local authorities were encouraged to involve a variety of partners—principally, other public sector bodies—in the formulation of single outcome agreements. They were also encouraged to involve the voluntary sector in all discussions. I accept that the extent to which that happened varied in different parts of the country, but in some areas there was extremely good engagement with the voluntary sector. Some of the work that we have established between COSLA, the Government and the Scottish Council for Voluntary Organisations is designed to encourage a dialogue and to involve voluntary sector organisations in the formulation of single outcome agreements. We want them to play a key part in the design of initiatives and services at local level, so that the input and impact of the voluntary sector is maximised.
We have reached the end of the session. I thank the cabinet secretary and his team for giving evidence to us.
Meeting closed at 13:25.
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