Efficient Government
The second item on the agenda is consideration of a paper by our budget adviser, Arthur Midwinter. Members will recall that, after our case study visit to Glasgow, we decided to write to all councils, asking them to share their plans for implementing the efficient government programme. We have received responses from 10 councils and Arthur has drafted a paper based on them. We are dealing with the paper today because it would be useful to refer to it in our stage 2 budget report and I think that we should have a brief discussion on it before we begin to draft our report. I will give Arthur Midwinter the opportunity to speak briefly to the paper, after which I will invite contributions from members.
I will run quickly through a few points. From our visits, it was clear that the local authorities in Glasgow and Stirling are pursuing savings packages that are well in excess of the efficiency targets. We began to have concerns about the local government settlement as a whole and about the impact that it might have on services and council tax levels.
You may want to update the committee on the position with regard to the Convention of Scottish Local Authorities, convener. I can say that, while councils were making their responses, the committee received a letter from COSLA advising it that some councils had asked COSLA to respond on their behalf. Those requests have led to some delay.
We have received returns from 10 or 11 councils; the responses contain helpful information. For example, four of the 10 that replied initially focused on the five efficient government work streams of procurement, absence management, asset management, shared support services and streamlining bureaucracy. It is clear from the detail of the submissions that a lot of trimming of mainstream budgets is going on; councils are pursuing savings other than the so-called efficient government savings.
Alarm bells began to ring for us at that point, as what we found was inconsistent with the statements in the budget settlement. One of the joys of having to spend about five hours on a train is that I had time to reread the budget documents. In doing so, I found some interesting statements on the local government settlement. For example, page 162 of the "Draft Budget 2006-07" says that the Executive is
"increasing the revenue grant for local authorities"
by £280 million this year and £478 million next year
"to cover general cost increases and … to provide … additional support in education … a significant increase for care for the elderly … additional investment in the police service … extra resources for roads maintenance … additional provision for environmental programmes".
The list goes on. In fact, one of the targets is to increase the number of teachers to 53,000 for Scotland as a whole. The latest figure shows the total to be just under 50,000, so there will in effect be a 6 per cent increase, which will add significantly to the education budget.
If members skip back to page 154, they will see that table 10.02 includes real-terms figures for local government revenue and capital. The budget line is flat; there is absolutely no increase in real terms in the resources that are going to local authorities. The Executive is tasking councils to deliver considerable expansion of services from a standstill budget. The efficient government exercise is part of the reason for that. Councils have been given a target of saving 3.5 per cent from their departmental expenditure limit, whereas some Executive departments are having to make savings of less than 1 per cent.
One of the problems that the committee has with the issue of efficient government is the notion that it alters the ratio between inputs and outputs. Despite the launch of the efficient government initiative, we have discovered that the Executive had no output baseline to work from. I do not know how it thought that it would show us that efficiency savings were being made.
Apart from in one or two responses, such as those from Highland Council and Aberdeen City Council, few councils mentioned the issue of output measurement. Those two councils noted that they would have to develop an output baseline, but did not say that they had put one in place as yet. The survey confirmed some of the committee's concerns about the efficient government programme.
Before I bring in other members, perhaps I should say that I was at the meeting with Glasgow City Council, which was what gave the impetus for the survey. Arthur Midwinter and I were impressed with the way in which the council's finance department deals with the issues. We were told that the council can identify the component savings that it can achieve through the Gershon-type work streams. The finance department had a significant programme of cost management—as opposed to efficiency controls—that it expected would deliver in excess of £20 million.
The figure is £4 million of efficiency-type savings, as defined in the efficient government plan, but there are approaching £20 million of actual savings, including more than £1 million off the staff budget for education, which is supposed to be exempt.
There is no sense in which we would be remotely critical of that. In fact, we thought that it was an example of good practice and effective management. However, we were interested to find out how other councils in Scotland were engaging in a similar process of cost management. One of the problems is how to square the national efficient government exercise with what is happening at local authority level and seeing the extent to which they interplay. We are looking for some kind of coherence and logic and for appropriate reporting systems, which might be another fertile area for the committee to get into.
Elgin is in for a rare treat this afternoon.
The issue of efficient government seems to be important in terms of council expenditure. The response rate to the committee's request for information seems rather low, which might be because COSLA wants to provide a collective submission. However, the more cynical part of my mind wonders whether, if we were to raise the issue with the minister today, he might say that 22 of the councils clearly do not have problems with the issue. Has there been any progress on COSLA's collective submission?
The five areas of efficient government that the Executive identified seem fine, superficially. However, if individual councils do not have a baseline from which to start, how can the Executive assess whether councils collectively can meet the targets?
I also have a specific question for Arthur Midwinter. You say in your paper:
"Councils which have been subject to Best Value Audits will be ahead of the game".
Are those councils where we would want them to be, regardless of whether they are ahead of the rest of the councils?
I will deal with your first two points and then hand over to Arthur Midwinter for the third.
We have not yet seen a written submission from COSLA, but it has asked to meet me—24 November has been set as the date. I hope that it will be able to give us more comprehensive information by that point.
You mentioned baselines. We have to be quite careful on that issue. In the past, Frank McAveety and I have been involved in budget exercises in large local authorities—perhaps other members have, too. We have had to deal with detailed submissions from departments. There is no doubt that councils have baselines for previous expenditure. They will be making submissions that will be tested severely at departmental level, because directors of departments will want to ensure that the axe does not descend too heavily in their area. I suppose that that is a general reality of budgets in complex organisations.
Councils will have a baseline for expenditure, as well as one for the services that they provide. However, the real issue is whether they have a baseline that allows for the kinds of efficient government measures that we are trying to impose throughout Scotland. The minister will have a response to that. His response in the past was that it does not make sense for him to specify what efficiencies individual councils should be making—that is something that they will know better than he does. He has opposed setting a cost ceiling or a percentage reduction to control the management of efficiencies by councils.
The Finance Committee will be interested in whether there is logic and coherence in the way in which individual councils across Scotland are managing their efficiencies. We will also be interested in how the different treatment of local authorities relative to other budgetary areas can be justified or explained. The minister has an answer to that, but we might want to ask whether the volumes of savings are justified. That relates to the local government settlement for the next financial year and the year after that. We will want to know whether the financial pressures being applied are purely an efficiency exercise or whether the cost controls are a way of offloading central Government budget reductions on to local government.
If two councils have the same financial set-up but one of them has done more to implement efficiency savings—which might then have fed through into its council tax levels—that council will have less scope to make efficiency savings than the council that has done less.
We are in danger of losing sight of the central purpose of the drive for efficient government. The purpose is not to reduce public expenditure but to ensure that more public expenditure reaches front-line services.
As Arthur Midwinter has pointed out, page 162 of the draft budget says that the Executive has increased the grant to local authorities by £280 million to cover a pretty long and expensive list of commitments, but the table on page 154—which shows what is basically a static local authority budget, net of the efficient government provisions—leaves us wondering where the injection into front-line services is.
Derek Brownlee has raised crucial issues about the baseline. How can we judge whether there has been a beneficial impact on front-line services? That is difficult. How can we be sure that it is not just that budgets have been reduced? How can we know whether local authorities are doing more with less money? The one and only test of what the Government is doing is whether front-line services are being enhanced.
There is an element of artificiality about the draft budget. In a business context, you might talk about getting people out of administration and on to the shop floor, but you would take things a step further and have a worthy aim that people could understand. For example, you might aim at maximising turnover or net profits. If you lack a worthy aim and a means of auditing it, you are at a major disadvantage.
That is why I would like the draft budget to set a target of maximising the number of working-age people in employment. We would then know that we were making the cake bigger. We would have more taxpayers and healthier folk who were better able to look after themselves. We would have fewer people dependent on the state. We would square the circle. Without such an aim, the savings are going to be—as I have said frequently—what the minister says they are.
John Swinney referred to Arthur Midwinter's point about the information on pages 154 and 162. I am concerned about the penultimate item on the list on page 162:
"protection for all services already being provided".
That is very broad.
In paragraph 6 of his report, Arthur Midwinter points out that Aberdeenshire Council feels that the efficiency savings that it is required to make are about the same as the cost of its back-office services. In paragraph 9, he points out that Falkirk Council will have difficulties because of the cap on council tax as well as its need to meet efficiency targets.
I am concerned about how a general statement such as
"protection for all services already being provided"
in the budget document relates to the evidence that we have been getting from councils about their ability to meet the targets purely from efficiency savings. Highland Council states:
"it is highly unlikely that efficiency savings alone will be sufficient to close the gap. Other measures to limit and reduce expenditure will be necessary."
It is difficult to reconcile that with the idea of "protection for all services".
I find this interesting. As Derek Brownlee has said, responses have been received from only 10 of the 32 councils. However, those 10 form a fairly representative group. I am struck by the difference between the way in which the exercise is carried out for arm's-length bodies such as health boards and councils and how it is done within Executive departments. There are significant differences and we do not know whether the statements that are made in efficiency technical notes on how the Executive will find its efficiency savings will be achieved. Time will tell whether the Executive can do what it says it will. Departments have clearly been instructed to concentrate on efficiency savings.
The councils, on the other hand, are doing a classic cuts exercise, which is no different from the cuts exercises that went on in the past. I was involved in local government at a time when we were under severe restrictions. At that time, a fair amount of shroud waving went on, particularly when representatives of all the departments were brought together. They would try to outbid each other on who had had the worst cuts and were saying, "The axe isn't going to fall on my department, thank you very much." We do not know whether the same exercise that was undertaken in the Executive departments would be possible in councils. The Executive does not have the authority to impose it either on councils or on health boards.
One of the interesting issues goes back to what we have been saying about devolution having been imposed on existing institutional structures. There seems to be little evidence of councils looking beyond their current structures to identify or deliver efficiency savings.
The minister has said that he wants councils to consider arrangements under which they could, say, provide human resources or information technology services for two or three of their neighbours. Councils could be more creative and innovative in how they make procurement and back-office savings. The current situation is that no council or group of councils appears to be taking that agenda forward. They are instead seeking to make efficiency savings within their existing structures. One part of the minister's plan does not, on the face of it, appear to be advancing very far, as Elaine Murray and I have said. There is still a traditional system of making reductions, but there is no innovation.
The other issue is whether the cost estimate for what the minister expects to make from efficiency savings is reasonable. On what basis has the figure been arrived at? It was simply announced. It is up to the Finance Committee to ask whether it can be achieved under the terms that the minister has advanced. If it cannot be achieved under those terms—in other words, with no reduction in services—what are the implications for services? That is an issue not just for us, but presumably for the scrutiny process at local government level. Councils have a role to play here.
As a Fife councillor who has seen the preliminary proposals for next year's council budget, I do not think that the council can have read the bullet point on page 162 of the draft budget to which Mark Ballard referred. Some of the proposals that have been made involve cutting services.
I wish to take up the issue that you raised, convener, about the minister encouraging public sector bodies to co-operate on parts of their structures—for example, human resources and property maintenance. Those issues are common to all councils; they are critical not just to each council's own interests. I know from my involvement in Fife Council that one of the main handicaps is that there is not the same pressure on health boards or local enterprise companies to co-operate with one another in that way. Some knocking together of heads is needed, because local authorities cannot do the work on their own. Somebody has to get everyone around the table and say, "If you co-operate, you could strip out quite a lot of costs. For example, you could have a common human resources department." However, that is not happening. Fife and Dumfries and Galloway would be ideal areas for pilots, because the councils in those areas have coterminous boundaries with many other public service providers.
I agree with Andrew Arbuckle's comments, but in the transport workshop this morning we heard concern that the room for innovation is being squeezed out by the focus on efficiency gains above all else. We all want service provision to be more innovative, but if people are focusing on how to squeeze half a million pounds out of a tight budget, there will not be much room for long-term thinking and innovation.
Andrew Arbuckle said that Dumfries and Galloway Council's boundaries are coterminous with those of other organisations. Perhaps one of the reasons why the council has not responded is that it is considering, with the health board, whether there are ways in which it can make efficiency savings. It has certainly indicated in conversations with me that it is prepared to consider how it can co-operate with other bodies to achieve savings.
We should ask the minister what he will do if councils go down the road of cuts or council tax increases rather than efficiency savings—or, indeed, if health boards go down the road of cuts rather than efficiency savings. What can the minister do about that and what would he be prepared to do?
In relation to local authorities, the horse has bolted. The financial settlement has been made net of the efficiency savings and local authorities have to balance the books. There is no way in which the minister is going to tolerate—
The minister is clear about what he expects. There are to be efficiency savings, not cuts in services or increases of more than 2.5 per cent in council tax. However, what will he do if that does not transpire? What control and authority does he have?
As a last resort, he has capping powers.
That would go down well.
Bring back rate capping.
I do not think so.
On the point about best value, councils now have a duty to pursue continuous improvement in their activities. The best-value audit is quite rigorous compared with previous audit regimes. In almost every case, councils were criticised in the first round for not developing robust performance management frameworks. In the second round, more councils put the time in to develop such frameworks and the councils that did so are further ahead of the game than those that have not done that work yet. That raises a question about the output baseline. The councils that have been best-value audited are more likely to have considered the matter in depth. I think that Stirling Council told us that it put 1,000 man days into the best-value audit, so it is a rigorous exercise.
A phrase was used this morning that I used to use in speaking to my students. Jim Mather talked about the unintended consequences of efficiency gains. Jim, did I hear you say that SEPA is considering increasing charges as a result of the efficiency savings? Increases in charges are not supposed to be part of the regime.
That seems to be the case.
According to the detailed framework, such increases are not supposed to count as an efficiency gain.
That is in the nature of unintended consequences.
So the increase is not a direct efficiency saving but it is happening because of the knock-on effect.
Yes.
It is an unanticipated unintended consequence. I am getting lost.
The law of unintended consequences often operates like that.
We come back to the question of how we determine the consequences of efficiency savings. We constantly return to the need for a bit more certainty about what has driven what. We have already been around the houses on that with the minister and I am sure that we will return to the matter, because the uncertainty does not allow for a robust framework. We come back to Jim Mather's comment that the efficiency savings will be what the minister says they are.
The work that we have done has cast a lot of light on the matter and it has shifted the terms of trade quite a bit. There will be further opportunities to raise the issues with ministers, whose evidence will feed into our budget report. I thank Arthur Midwinter for his paper.
I remind members that we are due to start the afternoon session at 1.35 pm. However, I ask them to come back five minutes earlier so that we can discuss lines of questioning before the Minister for Finance and Public Service Reform comes in. Those members of the public who wish to return to hear the minister being quizzed are welcome to do so.
Meeting suspended.
On resuming—