Budget (Scotland) Act 2006 Amendment Order 2006 (draft)
The next item on the agenda is consideration of a draft Scottish statutory instrument that seeks to amend the Budget (Scotland) Act 2006. The committee has before it the draft instrument, budget documents that set out the background to the proposed revision, a note of the main changes from the Executive and a note from the clerk. The clerk's note states that the Subordinate Legislation Committee considered the instrument on 31 October and had nothing to report.
As the committee is aware, this is a regular piece of Government business. Every year, there are two budget revisions. As members will know from previous years, we are required to authorise revisions in the autumn and in the spring, because the detail of our spending plans inevitably changes over time.
According to the budget revision document, £16.4 million is being transferred to Scottish Natural Heritage from Scottish Water's financial provision. How much of that covers arrangements for SNH's new headquarters and how much of it is for other service provision for the organisation?
Scottish Water savings are being used to help to fund the SNH relocation.
So £16.4 million is coming out of the funding allocation that has been placed against Scottish Water. I hasten to add that we are talking not about customers' money but about the Scottish Executive's allocation.
Yes. It does not have an impact on the level of service that Scottish Water provides.
Does the relevant minister have an explanation for why it is appropriate to move a funding allocation from Scottish Water to meet that SNH requirement?
I think that there is one. We can get it to the committee.
Obviously, I could have spent that £16.4 million on relieving development constraints in my constituency without passing it on to anyone else for a share. It seems absurd to pick up the SNH relocation tab using money from Scottish Water's budget when so many of the problems that inhibit economic development in so many of our communities arise from the lack of water and sewerage infrastructure. My constituency is not unique in that respect.
The budget was set before the final sign-off from the regulator and receipt of Scottish Water's capital plans. However, Scottish Water is in no way short of cash to deliver on its plans for this year.
My point is rather that, if Scottish Water had £16.4 million of money—
Available to it.
Yes, thank you convener. If Scottish Water had had the money, it could have used it to speed up its work to address the development constraints in many parts of the country. I could think of a million different projects that the money could have supported without it having to become the primary candidate to pay for the relocation of SNH's headquarters to Inverness.
The point, Mr Swinney, is that Scottish Water is content that it has all the money that it needs to conclude its projects this year.
That might be Scottish Water's position, but the explanation is a bit unpalatable for a member of the Scottish Parliament whose constituency includes communities where new houses cannot be built because of development constraints arising from the lack of water and sewerage infrastructure.
I can say only that Scottish Water believes that it is working at capacity. For instance, if you are saying that Scottish Water will be able to operate only at 94 per cent capacity next year as a result of the transfer, I can assure you that that is not the case.
But we live in the 21st century. If Scottish Water were given a bit of extra flex in its system, it should be able to up its capacity from 100 per cent to 106 per cent. Surely that would help to tackle the serious inhibitor to the Government achieving its central objective of growing the Scottish economy, which is that houses or factories cannot be built where they need to be built in communities throughout the country because of a lack of infrastructure.
I echo Mr Swinney's concerns. As I am sure Elaine Murray will bear out, Dumfries and Galloway has significant problems with the delivery of water and sewerage infrastructure. You are telling us that Scottish Water cannot possibly spend any more money and that it is operating totally at the limit of its ability to hire contractors and progress capital works. That story is different to the one that we get from the company.
Exactly.
I can get more information for the committee from the relevant minister, but that is the information that I have been given.
A number of members wish to come in—I am sure that many of them have rhetorical points to make.
It was £161 million.
I am sorry. I took the CUP figure, which is £136 million, but I should have said £161 million, which is a substantial amount. If there had not been that apparent underspend, how would the process of relocating SNH have been funded?
The money would have been taken from the central unallocated provision, but there is no point in drawing down money from the CUP if an underspend has been produced.
The information relates to the current financial year. Have the final costs of the SNH relocation been met in this financial year? If not, how much money might need to be drawn down from the CUP or another source in the next financial year, to complete the process?
I understand that the final costs have been met.
I think that the total cost of the relocation was about £32 million. Are you saying that that has been met and that half the cost was met from Scottish Water's budget allocation?
Yes. It was met from the underspend—if there had been no underspend, we would have paid for the relocation by drawing down money from the CUP. As I said, there is no point in doing that if underspends are being produced.
I wanted to be clear about that. Will the £136 million that has been transferred to the CUP from the Scottish Water allocation remain in the CUP, to be drawn down by Scottish Water in future, or might that money go to other budget heads?
The money is for Scottish Water. Scottish Water would be loth to offer the money if it did not think that the money would be available when it needed it.
The net loss from Scottish Water is £16 million; £8 million goes to the Forestry Commission; and nearly £5 million goes to the Scottish Executive Finance and Central Services Department, through transfers. Is all that money Scottish Water money that would otherwise have been spent on infrastructure projects?
Yes, but I stress that we are committed to ensuring that Scottish Water has enough money to meet the commitments that it thinks that it can deliver. The organisation tells us what it thinks it can deliver in a particular financial year and we ensure that it has enough money to do so.
Like other members, I am a bit concerned, not just about SNH but about the underspend in Scottish Water's budget, which means that Scottish Water is still unable to take advantage of the money that is made available to it. During the quality and standards II period, there were significant issues to do with not spending money that was allocated, but I thought that the problem had been addressed and Scottish Water was getting on top of expenditure, particularly given that the minister with responsibility for Scottish Water at that time gave a commitment to address all the problems of planning constraints in the Q and S III period. I appreciate that it is difficult for the minister to answer this, but are we no longer on course in that regard? Perhaps the current minister with responsibility for Scottish Water will write to us about the matter.
Yes. We are committed to giving Scottish Water what it tells us it needs. I hope that the organisation will reach a position in which it is investing and removing development constraints to such a degree that it needs its £136 million from the CUP. We would be more than happy to release that money.
But will Scottish Water be able to get all its £162 million?
Yes.
The figures on page 19 of the autumn budget revision document are interesting. I am looking not just at the release of £161.8 million but at the figure for Scottish Water net new borrowing, which is a mere £21 million. We know from Scottish Water that capital expenditure is running at £500 million a year, so we can conclude that 96p in every £1 of capital expenditure is paid by water charge payers.
I do not determine the charges, nor does the Executive. The regulator determines the charges.
I did not ask whether you determine the charges; I asked whether you agreed that there was prima facie evidence that the Cuthberts are right, given that 96p in every pound of capital expenditure is being paid by current water charge payers.
You are entitled to your view, but it is an awful big leap to say that that is prima facie evidence.
What other sphere of Government, or even of the private sector, would fund major capital expenditure to that extent from current revenue streams?
I cannot answer that off the top of my head because I do not know. I do not have information on every revenue stream in every aspect of Government. I hope you that do not expect me to have that information.
We are probably getting into a—
We are getting diverted a wee bit, but that is not unusual.
In that case, I have one further question. A further £161 million has now been added to the amount of money that is available for Scottish Water to claw back at some point in time. What is the current balance available to Scottish Water?
I will write to you with that figure.
I have a linked question. Does the CUP really operate within a spending review period? If Scottish Water has a significant amount of resource banked in the CUP, will it be able to take that over into the next spending review period, or does it have to increase its spending substantially in the next financial year in order to use the resource that it has in the CUP?
No. The bank does not close at the end of a spending review period, if I can put it that way.
Right. I will move on to a different issue.
The best way to answer that is to say that we are providing the non-cash cover that Scottish Enterprise requires, but that we expect it to live within its budget.
There is also the question of a repayment to the ELL portfolio. The non-cash cover will deal with this financial year if we look at the base budget level. However, as I understand the position, the information that you have given us flags up the fact that there is a repayment to the ELL portfolio of about £30 million, and you have identified that £34 million is being transferred out of Scottish Enterprise into the ELL portfolio under the "other" heading. Has that money been taken from the Scottish Enterprise's projects spend? Where is it going?
Yes—are you referring to future repayments or repayments that have already been made?
I am referring to the repayment in 2006-07 of the 2005-06 figure.
Yes. The £34 million was repaid this year.
What is that money being spent on? If the repayment is being made to the ELL portfolio, where is the money going?
I cannot answer that specifically, but it will be used to address any other pressures that emerge in the ELL portfolio. Perhaps the Minister for Enterprise and Lifelong Learning will be better able to give you an indication of that.
Let me take you back to the budget for environmental protection. The autumn budget revision document shows that the proposed budget for the strategic waste fund is £71.3 million. In the draft budget for 2007-08, the strategic waste fund budget is shown in table 1.05 to be £120 million for 2006-07. Can you explain the discrepancy between those two figures?
I think that £24 million is going to the central unallocated provision because a number of projects did not come to fruition as quickly as had been expected.
But the gap is between £120 million and about £71 million, which is about £49 million if my school arithmetic has not let me down. That is more than £24 million. I just want to know why there is such a difference.
I think that there is an explanation for it. We will get back to you in writing on that.
If you would. There is a policy point that comes out of that. I see that there is a transfer to the central unallocated provision of £24 million. At the Environment and Rural Development Committee, I questioned the Deputy Minister for Environment and Rural Development about the fact that applications to the strategic waste fund from local authorities to improve their waste handling capability in order to meet targets and avoid EU fines for not reaching levels of recycling—such fines would have to be paid for out of council taxpayers' revenue in years to come—were being slowed up by the Executive's performance. The minister vigorously denied that. I was told that I had got the wrong end of the stick and had been misinformed by local authorities. However, £24 million is going to the central unallocated provision from the strategic waste fund budget, despite the fact that I was told that the Executive was on top of the situation. Can you shed some light on that?
There are a couple of aspects to that. First, as I said earlier, we are making substantial progress towards meeting our original target of recycling 25 per cent of our waste. The last audit of that, last autumn, showed that we are not far away from 25 per cent, although we are not there yet. We are also confident that we are on track to reach the target of 30 per cent by 2008.
Let me give you an example—I appreciate that it is only one example, but it may be illustrative of a trend. Perth and Kinross Council, which covers part of my constituency, has a very good record on recycling. It has reached and has exceeded the 25 per cent target. However, for the authority to avoid fines in respect of its own individual performance—not national performance—it must improve its ability to handle waste. Perth and Kinross Council's bid under the strategic waste fund was submitted to the Executive in January 2006, yet the council was advised that the earliest that it could expect to receive a response from the Executive was November 2006. I cite that as an example of the kind of lethargy that we tend to find with the Executive. We are told halfway through the year that there is no issue and that we are all getting wound up about nothing; then £24 million haemorrhages into the CUP that should be spent on some of those projects.
It is not for me to doubt what you say, but I seldom come across situations that are as black and white as that. Nevertheless, I give you a commitment to pass on the situation that you have just relayed to the relevant minister.
I would appreciate that.
I will ask him to give you a very specific reply to the questions that you have raised. I hope that, if there are other circumstances that affect that situation, you will be big enough to recognise them.
Oh, you know I will be.
I will move us on to ferry services in Scotland. The figure that we have been given shows a budget increase of £21.1 million—£11.6 million for operating costs and £9.5 million for capital costs—most of which is the outcome of the tendering exercise. Various statements were made by the Minister for Transport and Telecommunications at the time of the tendering exercise, which was precipitated by the need to adhere to a European directive, which was largely on the need to increase value for money and provide some kind of a market. I suspect that the funding total of £21.1 million means that the amount that the ferry service is costing us has gone up by 60 or 70 per cent. Is that correct? Are we paying far more for the ferry services than we paid previously as a result of the requirement to tender? Is that a one-off cost or is it part of a resource cost that might continue year on year? If so, is there any way of separating the one-off cost and the year-on-year costs?
First, it is a reflection of the full cost to the Executive of the NorthLink Ferries services. Secondly, I think that it is a one-off cost. The wider question of how much more it is costing us to fund ferries is one for the Minister for Transport. It is recognised that the ferry system in Scotland is pretty expensive. If members want to pass comment on the future financing of it, they are free to do so.
Is the additional money primarily for NorthLink Ferries or is it also for Caledonian MacBrayne?
The additional funding is for NorthLink Ferries and the capital is for the two new CalMac boats.
I understood that the £9.5 million capital funding was to do with the creation of the new asset-owning company that will be based in Port Glasgow.
It is to meet the cost of the purchase of two new boats. I take it that they will come under the auspices of that asset-owning company. I am not entirely up to speed with all the details, but I assume that they would have to come under the auspices of that company.
What I am not clear about is why that needs to be in the autumn budget review. I presume that the planning for that was done in advance, early in the year. You are talking about a very substantial increase in that budget line coming through in the autumn budget review.
I am not entirely sure about the reasons for that. I think that it was connected to the fact that the tenders had not been returned. If we were to reveal a sum of money—even an indicative sum—in a budget, that might be seen as in some way subverting an on-going tendering process.
I have one other question on ferries. A parliamentary group was recently in Northern Ireland, where we saw evidence of European money being made available to facilitate and promote cross-border co-operation between Northern Ireland and the Republic of Ireland. The view was that that funding could be extended to include Scotland and that it would be seemly to make efforts to get the money increased—I understand that €200 million is currently available for cross-border co-operation between Northern Ireland and the Republic of Ireland—and thereafter to make applications to facilitate economic connections between Northern Ireland and Scotland. One example of such a connection might be ferry services. Is the Scottish Executive Finance and Central Services Department prepared to engage in that process and to seek that objective?
We indicated as much in answer to a question in Parliament last week.
Jim Mather might know more about this than any of us but, as far as I understand the situation, the Campbeltown to Ballycastle ferry does not operate.
It does not operate.
So why are we spending £700,000 on it?
The money is on the table for a potential operator to come in. I should also point out the typing error in the document. The correct spelling is not Campbelton but Campbeltown.
That is drawing down a wee bit too much, Mr Mather. Nevertheless, it is something of which we will take cognisance.
It is an area of extreme sensitivity, so it had to be mentioned.
I shall do my best to answer your question, convener. The answer is that the budget is not spent each year. As everyone knows, there has been some difficulty in generating interest in that ferry route, but the budget exists and we wait for interest to manifest itself.
Can it be kept on indefinitely as something that is awaiting interest? That is how it has been for a considerable time.
I do my best to answer many questions, but that one is beyond me. I would have to come back to you on that.
I am sure that George Lyon will know. Send him back into the field.
I am surprised to see that there does not appear to be any provision in the autumn revision—maybe I have missed it—for the reduction in business rates that the Government proposes for this financial year.
It is in the bill, Mr Swinney.
The bill?
The budget bill.
The budget bill?
It is now an act.
You must remember that we discussed the matter this time last year, when the criticism was that it was not in the draft budget. We said that the policy decision had been taken and that provision would be made in the Budget (Scotland) Bill. Provision was made in the bill, which was passed.
I would like to ask about concessionary fares, the budget for which will increase by nearly £80 million, according to the information on page 44. That is accompanied by a transfer from your department to the Enterprise, Transport and Lifelong Learning Department. Will you clarify the rationale for the increase? Is it a consequence of increased demand? How much of it is part of a unit-cost increase to the operators?
It is not an increase—I think it is just a transfer. The document indicates that the budget has transferred because there are now different responsibilities for that budget. It is just a matter of putting the budget in the right place. The local government moneys, as part of grant-aided expenditure, have now been transferred to Transport Scotland, which is running the concessionary scheme.
The costs of the concessionary scheme itself have increased, have they not?
They may have increased overall, but that is not in the figures in the document.
On page 47, the line for other transport grants to local authorities shows increased funding of £8.4 million for the Forth Estuary Transport Authority. That is not enough to build another crossing, but what is it for?
It is for the A8000. Sadly, it is not enough to build another crossing.
There are no further questions from members, so I invite the minister to move motion S2M-5039.
Motion moved,
That the Finance Committee recommends that the Draft Budget (Scotland) Act 2006 Amendment Order 2006 be approved.—[Mr Tom McCabe.]
Motion agreed to.
We are required to report our decision to Parliament. As such reports are usually brief, I propose that we seek to agree the text of our report by e-mail. Do members agree?
Members indicated agreement.
I thank the minister and his officials for coming along to answer our questions. I also thank Crichton campus for the hospitality that we have been offered and for allowing us to hold our meeting here today. I thank members of the public who managed to last the course and everyone else who has come along to today's well-attended and helpful meeting.
Meeting closed at 16:16.
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Budget Process 2007-08