The next item is evidence from the Scottish Government's bill team on the financial memorandum to the Public Services Reform (Scotland) Bill. I remind the committee that, although other committees are considering the policy of certain areas of the bill at stage 1, the Finance Committee is responsible for examining the entire financial memorandum.
Thank you, convener. I will be very brief.
Just to give us a flavour of what actually happened in relation to the bodies, what consultation took place with the Scottish Commission for the Regulation of Care and the Social Work Inspection Agency, for example?
There was no formal consultation in relation to the provisions around the new social care and social work improvement Scotland body. Much of the impetus for the changes and the creation of the new bodies came from the Government's response to the Crerar review, on which there was extensive consultation and engagement over an extended period. The decision to incorporate the provisions for that new body in the Public Services Reform (Scotland) Bill was made towards the end of last year. We had a very short timescale in which to develop the provisions; and we had, in effect, to draw the care commission and SWIA, and the other bodies, directly into the work on developing the legislation. They were closely involved in that work, and in testing the proposals and the propositions. A number of the bodies also provided secondees to the team, who have worked directly with us since then and continue to engage with us as the work progresses.
I want to concentrate on the aspects of the financial memorandum that relate to creative Scotland. As members recall, the memorandum to the original Creative Scotland Bill was an area of concern for the Finance Committee.
As Mr Kelly suggests, the financial memorandum sets out a range of estimates for each component of the costs that make up the overall transition cost. In line with parliamentary procedures, we have offered a maximum cost as well as a best estimate.
One of my concerns about the financial memorandum relates to the fact that the costs for voluntary early severance, which you have just referred to, range from £0.5 million to £1.5 million, which is a difference of £1 million. Is the midpoint of that range based on your assumption that 30 staff will be released?
Yes. The estimates assume that the head count will fall by 30. The cost of those 30—if that is what the figure turns out to be—will depend on the individual situations of those members of staff; for example, their salaries, how long they have to go until retirement, their individual terms and conditions and so on. As a result, there could be a lot of variation per head. For the purposes of the best estimate and the maximum, we have made certain assumptions about the average costs per member of staff and multiplied them. However, the eventual costs will depend on the staff concerned.
So I would be right in saying that, at the upper end of the costs for 30 staff, you are talking about write-off costs of £50,000 per staff member.
I do not have not those figures in front of me.
I am basing that on £1.5 million being divided by 30, which is obviously £50,000. That seems to be quite high. Maybe you can give the committee some clarification on that in writing.
Yes—I am happy to write to the committee. I emphasise, though, that the figure that was quoted assumes that all 30 staff who leave the organisation will take voluntary early severance or retirement. Obviously, we expect that staff will be reduced by other means, either through redeployment within the organisation or elsewhere in the public sector. Voluntary early severance or retirement is therefore very much the last resort.
Even so, my concern remains that a cost of £50,000 per staff member is on the high side. I want to go to another aspect of staff costs in the financial memorandum, which states that there would be a £166,000 one-off cost for pension costs—staff who left with voluntary early severance payments would have their pension contributions met right up until retirement age. Would that mean that someone of my age, which is 45, who was retiring from Scottish Screen would get another 20 years of pension contributions?
The conditions that would apply in respect of individual members of staff would depend on their serving conditions.
It says in the financial memorandum:
What the financial memorandum is not saying is that those are the conditions that would apply to a particular departure. It is saying that, if those terms and conditions were required in respect of individual members of staff, that is the estimated average cost. What we are not saying to the committee is that the terms and conditions that actually apply in respect of individual members of staff would lead to an augmentation like that.
Are you saying that that arrangement in relation to pension costs will be judged on a case-by-case basis?
I am saying that the arrangements governing a particular release will need to be discussed with the trade unions, if a scheme is brought forward by the existing employers. They have made certain assumptions about the sort of scheme that might be in force, based on the terms and conditions that apply at the moment, but that is not to say that that is the arrangement that will be reached with the unions.
So, there is an assumption that the scenario might be that full pension contributions are made. I put it to you, in that case, that it is perhaps not the best use of £166,000 of public money at this time to pay what could be 20 years and more of pension contributions for individuals who leave.
I suggest that we are looking for a technical answer; otherwise we may verge on a political situation, which would be more for the minister. However, do you wish to respond?
If the existing employers wish to make a case to the Government to run a scheme, they will need to present a full business case to do so, which will need to demonstrate value for money. The point that Mr Kelly is making would therefore be examined at that time.
I will push the point about the range of costs for creative Scotland. The estimated costs for business and information technology systems go from £300,000 to £600,000. Will you give the committee an example of what the assumptions would be on the lower cost of £300,000 and on the higher cost of £600,000?
The bare minimum would be arrangements that allowed the IT systems of the existing organisations to communicate with each other so that e-mail could flow from one to the other and so that their financial systems were compatible. There are questions about whether that is the best way to start an organisation, and Creative Scotland 2009 Ltd—the limited company that ministers set up to manage the transition—is examining whether that is the best approach or a slightly more sophisticated solution might be found. It might take the view that that would be for the non-departmental public body to assess and tackle when it comes into being.
I am tempted to stay on creative Scotland, but I will move on to the care commission. I hear from the witnesses that there has been involvement, consultation and close working on the financial memorandum, but we have before us a range of concerns that the care commission and SWIA expressed. Was there such close working?
The easy answer is that the care commission's evidence was written for it by an official who is now on part-time secondment to the project team.
Will that be reflected in any changes to your financial memorandum?
It has been reflected in changes in approach to the project and in the continuing progress in developing business models for the new bodies. The concerns that the seconded official raises with us are addressed as the work goes forward.
But the financial memorandum will stay as it is.
The financial memorandum will stay as it is because it explains the provisions in the bill, not the absolute detail of how the bodies would operate.
As I understand it, a lot of experienced staff might leave SWIA rather than become part of social care and social work improvement Scotland. Should any SWIA staff decide not to transfer to the new organisation, will the same generous package as seems to be the case with Scottish Screen—in the case of a 45-year-old, an enhancement of 20 years' pension contributions funded by the public purse—be on offer?
I was doing the calculation as we discussed the issue and, yes, the figures in the financial memorandum for social care and social work improvement Scotland are broadly the same.
Now would be a good time to be working in those organisations.
The decision on whether to have a voluntary scheme must in both cases be based on a business case. It is suggested that a number of people who work in SWIA might choose to get jobs elsewhere in the Scottish Government, which would be a bare choice and would have no implication. That is separate from a decision to go for a voluntary package if there is one.
You are right to cost it. I am simply acknowledging that a person could leave, take the enhancement and get another job somewhere else. I am keen to be clear about what the package involves.
One of the concerns for the Social Work Inspection Agency is the potential loss of staff before the new body is established, in which case the voluntary severance package is not relevant.
So, the package will come into force if staff choose to wait.
Yes—if the organisation chooses to have a scheme.
That is interesting.
Paragraph 527 of the financial memorandum explains that in respect of the terms and conditions that currently apply. It sets out the way in which a job evaluation would conventionally be undertaken and the likely cost of such an exercise, based on the experience of similar-scale exercises.
You used a broad band of 3 to 5 per cent, but you will acknowledge that there are cases in which the percentage increase will be higher. The care commission has expressed concern that each 1 per cent increase could mean the addition of £285,000 to the pay bill each year. How robust are the assumptions underlying that 3 to 5 per cent range, given that there have been higher-percentage settlements before?
The care commission's evidence also acknowledges that the figures are reasonably robust and plausible. The figures could be substantially higher, but they could be lower. It is a question of taking a view on whether the assumptions that were made in the exercise are reasonable. We take the view that they are.
Do you think that there is no risk associated with the figures and, therefore, no need for a contingency?
That is why we have offered the range within the methodology. There is a risk associated with a number of the figures because of the way and the timescale in which they had to be put together. Therefore, we have offered a range in order to be realistic and reasonable about the assumptions and the risks.
I have a final question on harmonisation. I understand that you cannot fully outline the harmonisation costs until you have been through each individual case, but what attempt has been made to identify where existing SWIA staff and Her Majesty's Inspectorate of Education staff are currently placed on pay scales? Our understanding from the care commission's submission is that that work has not yet been undertaken, although it is something that you, as the paymaster, should know.
Yes. That work had not been undertaken when the financial memorandum was put together, which is why it presents a range of costs. The care commission made that point to us at the time, and made it again in its evidence. The assessment was made on the basis of the extremes of the pay scales. Since the financial memorandum was put together, however, we have worked through all the staff and have arrived at a much more robust figure, which reduces the figure of £738,000 to about £350,000. It has been worked through at that level of detail.
I want to go back to voluntary early severance. I think you have answered the question, but I ask it for the sake of clarity. Can you confirm that voluntary early severance will not be a first option and that the first option will be redeployment of staff, with some staff leaving through normal retirement?
VES certainly would not be the first option. There will be natural wastage and redeployment. We now have a redeployment unit in the Scottish Government, the purpose of which is to consider the scope for moving staff from an area in which they do not have a post to elsewhere. A range of activity is being undertaken to ensure that voluntary early severance is at the end of the list, as it were.
If there is any further information that our witnesses wish to give us on the matter, I ask them please to do so in writing. We have dealt with some complex technical matters. If you wish to submit additional evidence, please do so.
Let us return to creative Scotland and the loss of the Scottish Arts Council's charitable status. The financial memorandum says that that is
The minister takes the view that it is not a transition cost. The charitable status of any public body is up for review at any time—Scottish Screen has already lost its charitable status. The provision that ministers have made gives Scottish Screen extra money to cover that loss. They would consider doing likewise for creative Scotland, if necessary, but they want to see how things pan out. It will be for creative Scotland, the NDPB, to decide whether it wishes to apply for charitable status. If it does, it will have to make the case to the Office of the Scottish Charity Regulator, as well as to HM Revenue and Customs in respect of tax charitable status.
My question was answered by your reference to the gap that would result from the loss of charitable status. The Government has estimated the cost of any gap that arises between the point at which the Scottish Arts Council is dissolved—when, the Government states, charitable status will definitely be lost—and the point at which OSCR decides whether the new body can become a charity. However, at this stage the Government is not saying that it will cover that cost. Who will pay the £546,000?
The Government will look to the organisation to cover what it is able to cover. We are making the point that charitable status is not the be-all and end-all. The costs that we have included in the financial memorandum include elements such as the loss of charitable discounts for procurement. The Government is of the view that there are other ways of securing discounts for procurement that may be equivalent to those arising from charitable status.
The Government, however, has not, said that it will cover the gap. That is not stated in the financial memorandum.
That is right.
If the Government will not cover the gap, will it be covered from grant in aid to the new body?
I am not in a position to give you any further information at the moment.
Could you come back to the committee with such information? We are talking about £546,000, which is not much less than an entire year's efficiency savings. The direct funding from which that would be taken would otherwise have been used to fund creative bodies.
Yes. The figure appears in table 12, the financial summary for creative Scotland, in the line entitled "CS Transition project & team for 2007/08 & 2008/09". The cost that is given is £672,060.
Is that included in the figure of £3.104 million in the summary of financial implications?
Yes.
Was it funded from grant in aid, without any Government cover?
It was funded from efficiencies that the existing organisations had identified.
The financial memorandum states that the bodies will inherit the efficiency savings of £1.824 million that are required in the current financial year. Were the 2007-08 and 2008-09 costs included in the efficiency outturns that had already been established, or were they counted separately?
They were not an additional efficiency requirement for those organisations; I cannot tell you which particular initiatives they offered against their efficiency target.
But it can be guaranteed that the money was not from grant in aid for creative bodies.
Absolutely. The organisations are clear that that money did not come from grants to bodies.
Following on from Mr FitzPatrick's point about how creative Scotland will make the estimated savings, I think that I heard that redeployment is, in effect, the first call. My question is perhaps one for the Scottish Government finance directorate: how is the redeployment of staff captured as a saving for a particular body? If 30 staff are redeployed from creative Scotland and a potential saving is highlighted, but those staff are now in another body where they are not necessarily replacing people who have gone—we would have no idea whether that is the case—how is that captured in the costs of other bodies? Is there a mechanism to track that?
If 10 surplus staff in creative Scotland are redeployed elsewhere in the public sector, I think that we would say that that is a genuine saving for creative Scotland. We would not need to track those individuals, because they would be moving into posts elsewhere in the public sector that are funded by other means.
Yes, but my point is that the financial memorandum presents the bill as having net savings to the Government, but we do not know whether that is the case, because if much of the net saving is predicated on the redeployment of staff, we have no idea whether they will fill vacant or additional posts in other quangos. How can we know that there is a net saving to the Government as a result of the bill?
In terms of the bill, redeployments of staff are clearly savings. Looking at the broader picture, I do not think that any public sector organisation is currently in the position of taking on staff that it does not need and cannot fund. The presumption is that redeployment is by far the most cost-effective way of handling the situation, because it involves matching a vacancy with somebody who is available and who would otherwise have to be offered voluntary terms, which would cost money. We see redeployment as being by some way more cost effective than voluntary severance.
My point is that we do not know that, because nothing in the bill or the financial memorandum says that any staff who are redeployed will be redeployed to a vacant post. We therefore simply do not know and cannot track whether that is the case. When the financial memorandum says that
It is a bit of a theological question, because across Government people have budgets to employ staff to carry out activities and the purpose of redeployment is to move surplus staff in one place to where there is a need for staff. We are relatively comfortable that, if staff are redeployed elsewhere, that represents a genuine saving in that the objectives of creative Scotland, SCSWIS or whatever are being delivered at a lower cost.
I think that we have taken that as far as we can. If you wish to add to what you have given us, you can take another look at the questions that Jeremy Purvis posed and correspond with us.
Did I understand Mr Rankin correctly when he said that the person who had written the care commission's submission, Mr Wiseman, is now part of his project team?
He is on part-time secondment to the team.
That is an interesting appointment to have made. Was Mr Wiseman recruited before or after you saw his submission?
I think that it was before.
Maybe you would not have chosen him after you read the submission.
Do you have a question?
Yes. I have questions on Mr Wiseman's submission. I want to return to the harmonisation costs. The care commission had some fairly harsh words. The commission notes that savings of £1.8 million have been identified but goes on to say:
On harmonisation?
Yes.
Yes.
On page 21, the care commission submission talks about job comparison and job evaluation exercises in the care commission, HMIE and SWIA and says:
A significant flaw has been addressed.
Which was?
The refinement—the exercise to look at all the staff, rather than try to take the extremes. Given that the process is not absolute in any case, it does not give you an absolute answer. You have to conduct the process to get the absolute correct answer. This was about an estimate as to how the process could be conducted, what it would tell you and what the figures might begin to look like, hence the significant ranges that are presented.
If my understanding of this is correct, all the grades seem to have gone up, rather than down. Where harmonisation between jobs was taking place, you have gone for the higher salary, as opposed to the lower one.
No. I do not think that that is the case. I can give you a technical detailed answer in writing if you want one.
Yes, I think that we do want one.
Could you also send us the details of the work that has now been done that you mentioned earlier?
Sure. I am happy to do that.
The care commission submission goes on about the gradings of inspectors within SWIA and HMIE and how they compare to gradings of care commission staff. A care commission person on grade 10—whatever that is—would be a manager who is responsible for 100 staff and a budget of about £5 million. That does not seem to be the same as a person on grade C2—again, whatever that is—so it would be helpful to have some indication of what the grades are.
The care commission's inspectors—its officers—are responsible for substantial budgets, regions and substantial numbers of staff. Their task is very much a logistical, management task. In HMIE and SWIA, the inspectors are often on significantly higher salaries, but their skills, expertise and responsibilities are essentially professional and involve having an understanding of education and social work and applying that to the inspection and evaluation of education or social work services. That is where the difference lies. The challenge in the development of the body will be in reconciling those two significantly different types of activity into one organisation that will have to create structures where the professional roles are absorbed and retained and the significant management responsibilities are maintained, given the scale of the care commission's responsibilities.
I understand that. The care commission also questioned whether shared services will contribute to the achievement of 5.5 per cent efficiency savings. Are you confident that those savings can be achieved?
Yes, I am pretty confident that they can be achieved. In the financial memorandum we said that for some bodies such savings could be achieved through
You think that 5.5 per cent is modest. Have you been set new targets, which are less modest?
The financial memorandum addresses needs in relation to the delivery of the provisions in the bill, and the 5.5 per cent estimate belongs in that context. The budget process raises other issues and poses other challenges for existing bodies and in due course will do so for the new bodies.
I am sure that the bill team has followed with enlightened interest the evidence that we have received from various witnesses. The scrutiny bodies have come up quite a lot, and commissioners have told us that their organisations should not be covered by the powers that the bill will confer on ministers. Have you factored into your thinking the possibility that part 2 might have to be dropped altogether?
I will keep to a technical answer to that question. The financial memorandum does not include estimates of savings that might arise from the use of the enabling power. Such matters would be addressed in the explanatory material that would be provided for each case that came forward. Therefore the issue does not affect the financial memorandum.
When the convener asked about the care commission's view that there has not been enough consultation, Mr Rankin used the expression "short timescale", and I think that he used it later in his evidence as well. The Crerar review was debated in the Parliament following its publication in November 2007, which is almost two years ago. Can you explain what you mean by "short timescale"? The bill is not an emergency bill, and we have to get it right, so it concerns me that people are saying that there has been a short timescale.
The Crerar review was debated in the autumn of 2007. The Government was developing its response a few months before that, and it continued to do so subsequently. It consulted a wide range of stakeholders through a number of action groups that looked at the groups of issues that Crerar raised and what could be done about them. They considered how things could be made more proportionate and particularly how we could reduce the burden of scrutiny on local authorities. That took a number of months and it led the Government to start to consider how we could rationalise the scrutiny bodies and simplify the landscape. That work was undertaken in the middle of last year. A number of options were identified and the Cabinet decided in—I think—November that the rationalisation that is now being developed should go ahead.
On a different topic, the financial memorandum includes minimum costs, maximum costs and best-estimate costs for health care improvement Scotland, SCSWIS and creative Scotland. How scientific or otherwise are the best estimates? In some cases, they seem to be a simple midpoint, but in others that is clearly not the case. Can you give me any background on how the best estimates were reached?
For the care and social work bodies, the best estimates tend to be the midpoint between the top and the bottom. If there are others that are not midpoints—I am struggling to spot them—it will be because there is more detailed information that tends us in one direction or the other.
Would that be the same for creative Scotland?
In the case of creative Scotland, we attempted on a case-by-case basis to consider the most likely outcome for each of the component costs, and that is our best estimate.
We have had a long and detailed session. Do you have many more questions?
Just one final question, if that is okay.
Okay.
Thank you, convener. My final question is on creative Scotland. I ask for a technical answer as opposed to a political one. As a Parliament, we are faced with tougher budgets as we go forward. I do not want to dwell on minutiae, but it jumped out at me that £25,000 is being set aside for the cost of recruiting a chief executive. How was that figure arrived at?
The figure suggested itself as a likely cost based on similar exercises that have been conducted recently for the recruitment of chief executives of other bodies. It is based on past experience.
I have been promised two very short questions.
I will be brief. My question is also about creative Scotland. I refer to the section in the financial memorandum entitled "Loss of Scottish Arts Council charitable status". For confirmation, is it correct that the £546,000 that we discussed before is an annual figure?
Yes.
So we could include that as an additional cost of the bill in table 12. Further on, the financial memorandum states:
I think that ministers will take the line that the loss of charitable status is not a result of the bill.
I think that we are going to speak to the minister.
Yes.
I shall ask the minister about that.
You will get your chance next week.
For the record, are you saying that the loss of charitable status as a result of the Scottish Arts Council being dissolved is not the result of the bill?
Ministers are aware that the charitable status of any public body could be reviewed at any time. We have already seen that with Scottish Screen, as I have said. Hypothetically, the Scottish Arts Council might be next.
I want to make a correction. I am anxious about the recess, which is next week. The next meeting is on 27 October, when members will get a chance to speak to the minister.
I have a brief question. Last week, we received evidence from the Scottish Public Services Ombudsman, who confirmed that the proposed amendments on complaints handling that are outlined in the cabinet secretary's letter to the committee could result in the complaints that his office deals with rising by up to a third. Those provisions are not in the bill at the moment and are therefore not covered by the financial memorandum. Obviously, you know what is in the minister's mind. Have you done any work on the cost implications of those amendments and on the impact on the SPSO in particular?
We should write to you about that. We are discussing the issue with the ombudsman, but I cannot give an answer to your question now.
An answer will be forthcoming.
Meeting suspended.
On resuming—