Finance Committee, 06 Feb 2007

Meeting date: Tuesday, February 6, 2007

Official Report 120KB pdf

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Budget (Scotland) (No 4) Bill: Stage 2

As members know, item 3 is the formal part of the budget consideration process. Members have a copy of the bill and a paper by the clerks on procedure. I draw members' attention to two points in the paper: first, only a member of the Scottish Executive can lodge and move an amendment to a budget bill; and secondly, it is not possible to leave out a section or schedule by disagreeing to it, because to do so would require an amendment to be lodged and moved, which could be done only by a member of the Executive. Before we begin the formal procedure, I invite the minister to make explanatory remarks on the bill. I will give members an opportunity to ask questions.

Stage 2 offers the main opportunity for the Finance Committee to scrutinise the detailed numbers in the proposed budget for 2007-08 and, in particular, to consider changes that have been made to the budget plans since publication of the draft budget last September. To assist the committee, I will explain some of the major changes. As would be expected, the figures are largely unchanged from the figures that were published in September. However, to facilitate understanding of differences between the two documents, we have for the first time included a new table—table 1.8—in the supporting document, which reconciles movement in departmental budgets.

Before I turn to the main changes in budgets, it is worth reminding members that the numbers in the budget bill are presented in a form that is rather different from the presentation in the draft budget. The usual differences arise from non-departmental public body resources and cash adjustments, the different presentation of the Scottish Water and national health insurance income budgets and the fact that the draft budget presents budget information by portfolio rather than by department. My officials and I will be happy to answer questions on any aspect that has caught the committee's eye, but I do not think that we will need to spend too much time on those areas.

I will now address the three most noteworthy changes to the figures in the document. First, members will have noticed a significant increase of almost £250 million in the budget for the Finance and Central Services Department. That is largely due to the increase in the revenue support grant that the Minister for Finance and Public Sector Reform announced on 13 December in response to the committee's wish that the local government settlement for 2007-08 be augmented.

Secondly, there is an apparent reduction of almost £60 million in the Education Department's budget. That is due to the payment mechanism for the changing children's services fund and payment for some public-private partnership projects now being made via the revenue support grant for local authorities.

Finally, there is an increase of £19 million in the budget for the NHS and teachers pension schemes. That increase in funding is provided by HM Treasury. It reflects the growth in the pension schemes and the subsequent increases in the cost of the pension service and interest on the scheme liabilities.

The committee might have noted that a few departments have put resources into or withdrawn them from the central unallocated provision for 2007-08. The provision that has been treated in that way is set out in table 1.3 on page 4 of the supporting document. I draw members' attention to the negative figures against the Finance and Central Services Department and administration. They represent a draw-down in the next financial year of resources that are put into the CUP and carried forward from the current financial year.

I hope that members have found my remarks helpful in assisting with their consideration of the Budget (Scotland) (No 4) Bill. We are, of course, willing to listen to any suggestions that the committee has on how we can further improve the transparency of the budget process and the presentation of the information. I and my officials will do our best to answer questions, although we might have to write to the committee on some points, given that the bill covers a wide range of Scottish Executive departments.

Thank you. Table 1.8 is a significant advance that will be welcomed in the next session of Parliament. You commented on some of the lines in it, but what is the reason for the apparent reduction of almost £1.4 billion in the health and community care budget?

That is a direct payment that comes to the health budget from the UK budget. It is national insurance receipts and it comes straight in, outwith the departmental expenditure limit budget.

It is a remarkably high figure for national insurance. It is a significant figure—£1.4 billion out of an £8.8 billion budget. Of course, the cost of staffing in the NHS is significant, but given the magnitude of the figure it would be helpful if you could drop us a note on that.

It is the Scottish health service's share of the take of national insurance in the UK, which is redistributed back to Scotland. We fund most of the health budget, but some of it is funded by the income that we receive from national insurance. We show the Health Department's total expenditure in the draft budget, but when it comes to the bill we have to authorise the Health Department to retain the receipts from the UK. That allows it to fund some of its processes through national insurance receipts.

So, by implication, there is no material change from the autumn.

No. We spend the same—

It is simply a restatement.

Yes.

I am checking the footnote, but it does not state that. The table is useful, but it might be helpful if, in the future, you could point out which changes are material and which are associated with such restatements. That information might be elsewhere in the document.

It is, but we might need to make it clearer. In paragraphs 3 and 4 on page 1 we try to set out the main changes, but it might be better to put that information next to the table.

A footnote to the table would be helpful.

I am anxious to move on, although I am the one who has asked questions. Are there any other questions before we move on to the formal proceedings?

The information on the environment and rural affairs budget on page 17 shows gross expenditure on water services of £314.4 million in 2006-07, but I am aware that there was a repayment of £161.8 million that was not taken up by Scottish Water. Do you believe that the document gives a true and fair picture, given that the numbers have been adjusted during the year?

The bill tries to provide a comparison of the starting budget in 2006-07 and the starting budget in 2007-08. There were lots of changes to all budgets during 2006-07, but we would be comparing different points in the two years if we picked a point in the current financial year to compare with the—

So what do you consider to be actual—the starting position or what we finish with?

The figure for 2006-07 was in last year's bill at this time last year.

So the figure was deemed to be more appropriate to use, compared with what was actually spent.

We have not yet reached the end of the financial year, so we cannot compare what has been spent. We do that through the accounts.

In that case, a comparison could be made involving the money that is currently committed to be spent.

Options are available to do that, but a spring budget revision will follow the autumn budget revision and the figures could change again. Therefore, we would pick an arbitrary point in the middle of the year rather than a final or a starting point. We thought that the most appropriate approach would be to compare the budgets at the same point in the year. However, if the committee thinks that another approach would be more appropriate, we will certainly listen to its suggestions.

It is important to point out that the Scottish Executive acts as Scottish Water's banker. Therefore, we are in some ways at the mercy of its ability to draw down and deliver the capital works that it has planned. Any delays must be reflected in adjustments that are made to how much it has drawn down from the Executive. The important point to note is that that money is still available for Scottish Water to draw down when the capital plans come back on track. It may look like Scottish Water has not drawn down money in the first place, but money will still be available for the capital plans in its four-year plan.

I hear what is being said and understand that, from your standpoint, it seems to be logical to compare the starting budget in 2006-07 with the starting budget in 2007-08. However, anyone who arrives at the matter cold and discovers what has happened will be concerned that such an approach does not show a true and fair view of matters. Perhaps a comment should be made that there has been a change in that the 2006-07 figure was a starting point, but it no longer gives a true and fair view.

I do not disagree, but we should consider the number of changes that are involved. We are talking about one body that is mentioned in the document. If what has been suggested had to be done for every department, the document would become unwieldy again.

I understand the argument about causes and effects, but what I have described would be an appropriate way ahead. The current document does not give a true and fair view of what is happening.

You would get a much better picture of the movements of, and the reasons behind, the different figures if you considered outturn figures for the year rather than the budget. At some stage, the committee may want to reflect on whether considering outturn figures for the financial year might be of value.

That is a helpful suggestion. We may discuss that in the seminar on the budget process.

We now turn to the formal proceedings for stage 2 of the bill. Although no amendments have been lodged, we are obliged under standing orders to agree to each section and schedule of the bill and to the long title. We will consider the sections in order, but we will consider the schedules immediately after the section that introduces them and we will consider the long title last. Fortunately, standing orders allow us to put a single question on groups of sections or schedules that fall consecutively and I propose to do that, unless members disagree.

Section 1 agreed to.

Schedules 1 and 2 agreed to.

Section 2 agreed to.

Schedules 3 and 4 agreed to.

Sections 3 to 5 agreed to.

Schedule 5 agreed to.

Sections 6 to 10 agreed to.

Long title agreed to.

That ends stage 2 of the Budget (Scotland) (No 4) Bill. I say goodbye to members of the press, as there will now be a discussion in private. Others will join us or remain with us for the seminar on the budget process.

Meeting closed at 10:59.