Finance Committee

Meeting date: Monday, November 5, 2012

Official Report 470KB pdf

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Subordinate Legislation

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Budget (Scotland) Act 2012 Amendment Order 2012 [Draft]

I reconvene this afternoon’s meeting of the Finance Committee. Item 3 is to consider the Scottish statutory instrument that provides for the 2012-13 autumn budget revision. The draft order is subject to affirmative procedure, which means that the Parliament must approve it before it can be made and come into force. We have a motion in the name of the cabinet secretary, John Swinney, inviting the committee to recommend to the Parliament that the draft order be approved. Before we come to the debate on the motion under item 4, we will have an evidence session for members to clarify any technical matters or to ask for explanation of detail.

I therefore welcome once again John Swinney MSP, the Cabinet Secretary for Finance, Employment and Sustainable Growth. On this occasion, he is accompanied by Mr Terry Holmes from the Scottish Government. I invite the cabinet secretary to make an opening statement to explain the draft order.

This is the first of two planned, routine revisions to the budget that occur year on year. The second and final revision will be the spring budget revision, which will be laid before the Parliament in late January and might reflect further deployment of available resources. Decisions will be informed by our in-year monitoring, which will take place during the next two months.

As in previous years, the pattern of authorising revisions to the budget in autumn and spring is required as the detail of our spending plans changes from when the budget act is approved. The changes that are proposed in this autumn budget revision result from an increase in the approved budget of £168.7 million, from £33,570 million to £33,739 million.

The material additions to budgeted expenditure in the budget act reflect the funding changes that were announced at stage 3 of the Budget (Scotland) Bill 2012 on 8 February, the impact of the announcement on 27 June 2012 of additional measures to support economic growth, and further subsequent changes as outlined to the Parliament at the draft budget 2013-14 statement on 20 September 2012. It is normal practice for the autumn budget revision to reflect the impact of the annual valuation reports from the NHS and teachers’ schemes actuary in the Government Actuary’s Department. The impact of the reports that were received in June 2012 is a net decrease in the budget that is required for NHS and teachers’ pensions of £52.2 million in annually managed expenditure.

The significant transfers within the overall budget are mostly due to the realignment of budgets within and between portfolios, including a net transfer of £62.2 million from health to further education for nursery and midwifery training, and £30.2 million from justice to health for drug treatment and prevention. A few significant transfers between portfolios occur annually, primarily between health and education, and between justice and health. Those budgets are initially allocated to the portfolio within which the policy lies and are then transferred to the portfolio within which the spending occurs at the in-year budget revisions.

The revisions also reflect the transfers of the responsibilities of the former parliamentary business and government strategy portfolio to the infrastructure, investment and cities portfolio following the restructuring of the Cabinet in September.

Members may wish to be reminded that, for the purposes of the budget bill, only spending that scores as capital in the Scottish Government’s annual accounts, or the annual accounts of direct funded bodies, is shown as capital. That means that capital grants are shown as operating expenditure in the supporting document. The full capital picture is shown in table 1.7 of that 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 has been prepared by my officials sets out the background to, and details of, the main changes proposed. I hope that the committee found that helpful.

Thank you, cabinet secretary. I will open the questioning, and colleagues can indicate if they wish to come in subsequently.

The 2012-13 budget included a planned carry-forward from 2011-12, but it is not clear whether the Scottish Government has any planned carry-forward from this year into the 2013-14 budget.

The 2013-14 budget is predicated on a carry-forward from 2012-13. The number will be reported to the Treasury in due course, but I would expect it to be in excess of £100 million, which the Government set out as part of the spending review.

With regard to the transfer from health and wellbeing of £56.1 million in respect of “nursing and midwifery education”, similar transfers have taken place in ABRs in previous years. If that is a recurrent transfer, why is it not incorporated in the education and lifelong learning draft budget from the outset?

Essentially, that comes from the point that I made in my opening statement that budgets are initially allocated to the portfolio in which the policy area lies and are then transferred to the portfolio in which the spending occurs. I can see the point that the convener is driving at, but in the interests of trying to maintain some degree of linkage to the purpose and intent of the expenditure—which, in this case, is essentially in the policy area of health although it is deployed by another policy area—we have established that as a point of budget protocol. That will happen in a number of areas, such as the example from the justice portfolio that I cited earlier. We have to go for one or the other—I suppose that it could be this way or it could be the other way around—and we have simply argued for this approach for consistency’s sake. To provide a credible like-for-like comparison at budget times, having a consistent like-for-like basis helps to aid the transparency of the process, if that is not stretching things a bit.

In the education and lifelong learning portfolio, £11.4 million is identified as “Additional funding for student support”, but it is not clear whether that represents an on-going commitment to increased support or a one-off addition.

As part of the agreement that was reached on the budget in February this year, I agreed that we would increase the budget for student support to maintain that budget at the level that was set in 2011-12. The ABR is required to change the funding position for 2012-13 because that was not included in the Budget (Scotland) Act 2012 that the Parliament approved in February, as it was not part of my original proposition. In the draft budget that we have just discussed, that £11.4 million has been put into the main budget provision for 2013-14. Therefore, for the purposes of that financial year, there will be no need to cover the issue in an autumn budget revision because it will be part of the bill that I will bring to the Parliament.

I have just one final point before I open the discussion to members. In the infrastructure, investment and cities portfolio, there is a £20 million transfer—this was mentioned in our previous session—for “Transfer of funding from Forth Replacement Crossing budget contingency to housing”. That is given on page 57 of the supporting document. However, while the sum is classified as capital on that page, it appears as an operating budget on page 64. Can you clear up why that is?

It all comes back to the point that I made in my opening statement that funding scores as capital only if the asset emerges on the balance sheet of the Government or a directly funded body. As that £20 million will score on the balance sheet of registered social landlords, I imagine that it will have to appear as operating expenditure for the purposes of this legislative process. We have to wrestle with the fact that numbers are presented on different bases for different accounting purposes, and the Budget (Scotland) Bill and the autumn budget revision form part of a sequence that takes us to the annual accounts, which are regulated by one set of rules. The issue that you have raised, for completely understandable reasons, is regulated by the Treasury’s management of our public finances. Unfortunately, the two things are not the same.

I realise that you mentioned the issue in your opening statement, but I wanted it to be clarified in relation to a specific example to ensure that those who are following these proceedings know what sort of things we are talking about.

I open the questioning to committee members.

With regard to the money from the Forth crossing project, I suspect that, given the evidence that we have received, no one will object to £20 million going into housing. However, is the spending of that £20 million from the contingency fund absolutely risk free? Are there any circumstances in which it could be clawed back?

It is risk free. Under the Forth replacement crossing contract, there is a fixed price for almost everything, with the exception of some wider inflation issues. Everything is measured by specific indices. As the contract takes its course over the five years of its deployment, we will pass certain points of no return. At such points, either some contingency will be used because an index has taken us away from the expected fixed price and the cost has increased, or the possibility of that money being used as contingency will have passed.

Each stage of the contract has an allocation for contingency that is adequate to cope with any variability that might conceivably emerge at that stage, and we will regularly monitor the situation to determine whether more resources in that category could be used in a different way.

Under the heading “Budget Analysis” on page 70 of the autumn budget revision document, “Scottish Government staff costs” amount to £162.1 million. However, on page 137 of the draft budget document, the same line for 2012-13 is £139.9 million. Why is the figure in the draft budget different from the figure in the autumn budget revision?

16:00

I believe that there is a difference in presentation that I have been round the houses about before. The figure you highlight does not take into account income to the Government; as a result, it is a gross not a net figure. Is that correct?

Yes.

The figure is gross, not net, and I can furnish the committee with details of the calculation.

If we call it £140 million rather than £139.9 million, that gives a difference of £22 million. There is a line called “retained income-admin” of £16.5 million, but I do not know if it is the correct line. If it is, there is still a difference. Will you address that point also?

We will come back to the committee with a detailed breakdown. I suspect that there might also be some accounting for further severance packages, which will reduce our long-term administrative costs although they must be shown as a cost at some stage. I will clarify that in writing.

We now have the deputy convener and accountant, John Mason.

I am sorry to interrupt, convener, but I would like to put a little more on the record, which might help to reconcile the numbers. Inflating the figures are income and the extra costs of severance, and there is also an annual transfer from Marine Scotland that arises out of some of the costs and arrangements of the amalgamation of the Scottish Fisheries Protection Agency and Fisheries Research Services. We will set that out clearly to committee.

Convener, could I just raise a final point for the cabinet secretary to clarify?

I have been trying to get information from the Government on that £4.4 million from Marine Scotland, and the information that I have been given is that the lion’s share is for accommodation as opposed to staff. Could that be clarified when you write to us, cabinet secretary?

We will go through all that.

I want to follow up on a point that the cabinet secretary made. It might just be because it is late in the day, but I am not clear about the switch of £56.1 million from health to education. If I understand it, the cabinet secretary said that the policy lies within health but the spending lies within education and lifelong learning, so the money has been approved in one area but is switched to the other to be spent. I do not understand why there have to be two places. Can the policy and the spending not be in the same ministry, or does it not work that way?

The spending on the health in education part will be done through educational institutions that are part of the responsibilities of the Cabinet Secretary for Education and Lifelong Learning.

Is health therefore unusual in that the training is done under a different cabinet secretary? I am trying to think of another similar area—I suppose that teachers are all trained under the education portfolio.

I am just thinking about what happens if something goes wrong. If there is an overspend, for example, are we clear about who is responsible for that?

We are very clear about who is responsible for it—there is no doubt about that.

This is a very important point that gets to the nub of the role of accountable officers. The purpose of the budgetary architecture is to make it absolutely clear where responsibility for financial control lies. Mr Mason is asking whether we have money floating around, and I assure Mr Mason and the committee that that is not the case. The purpose of the autumn budget revision is to nail down in statute who is responsible for the control of each element of public expenditure so that there is no doubt whatsoever about where responsibility lies.

If there was an overspend or something happened in nursing or midwifery education, because the money has switched to the education and lifelong learning side it would be the responsibility of the education secretary.

Correct.

There are no further questions from the committee so we move to the debate on the motion. I invite the cabinet secretary to move the motion.

Motion moved,

That the Finance Committee recommends that the Budget (Scotland) Act 2012 Amendment Order 2012 [draft] be approved.—[John Swinney.]

Motion agreed to.

The committee will now communicate its decision to Parliament by way of a short report that provides a link to the Official Report for the debate. Are members content with that approach?

Members indicated agreement.

As that was the last item on our agenda, I thank everyone who came along today: those who participated in the workshops, those who came to witness our evidence session, all members and the cabinet secretary. We have enjoyed our time in Hawick.

Before we go, I will say a fond farewell to Lucy Scharbert, who is moving onwards and upwards to work in the legislation team. Sadly, this is her final Finance Committee meeting, so on behalf of the committee I wish her all the best in her future endeavours in the Parliament.

Meeting closed at 16:06.