Budget (Scotland) Act 2004 Amendment Order 2005 (draft)
Under agenda items 2 and 3, we will consider a draft Scottish statutory instrument that seeks to amend the Budget (Scotland) Act 2004. We have a range of witnesses for the items, whom I invite to come to the table.
Good morning everyone. I am sure that the committee is getting used to the regular procession of budget revisions throughout the year—the summer, autumn and spring revisions. Members will be aware that the revisions are simply a regular piece of Government business, under which we seek parliamentary authorisation for the inevitable changes that have to be made to our spending plans as they arise throughout the financial year.
I point out to members that only they may speak when we get into the second part of the discussion, after the minister has moved the motion. Before we reach that stage, there is an opportunity to ask technical questions to which the minister and his officials may respond.
I fully appreciate your point. There is an understanding in the Executive of the issues that you raise. All the information that is available to me is that that has been considered and that all that can possibly be done is being done to avoid such a disconnection.
I, too, want to talk about water, which is an incredibly difficult issue for us all. It is surprising that, a year ago, we thought that £212 million gross capital expenditure would be the contribution to Scottish Water, but the figure has now fallen to £101 million. Therefore, in the past year there has been a fall of more than 50 per cent in what we expected to be the Executive's contribution to Scottish Water's capital spending.
Two main factors are driving the change between the autumn budget revision and the figures that we now have in the spring budget revision. The first is movements in debtors and creditors, which are a fairly significant factor. Obviously, there are many short-term fluctuations. The turnover is around £1 billion, so we would expect to see significant movement, and I understand that that accounts for around £40 million of the change.
I have two things to say in conclusion, which it would be better to deal with by correspondence. It is encouraging that the minister said that there has been no slippage in Scottish Water's capital programme, but there should be reflection with Scottish Water on whether the net reduction in the requirement from the Finance and Central Services Department from more than £200 million to £100 million makes any difference to its delivery of the investment programme. If things have changed in any way, it would be helpful if we were written to, not least because Ross Finnie's letter to us indicated that progress on investment and programme expenditure would not generally be published. We have gained a helpful piece of information today.
Can the minister give us an indication of what the impact of any reduction in the net budgeting total will be on end-year flexibility? Over the past several years, water has been a big factor in EYF. What is likely to happen this year? Will that impact on interest payments, for example?
We will come back to you on those matters, unless Richard Dennis wants to add anything about that specific point. On what Ms Alexander said, I would want to confirm that the capital investment is unaffected. She rightly spoke about considering whether we would want to continue with the disparity in totals or whether there is a better way of accounting for things.
It is clearly right that borrowing less this year means that future interest payments will be slightly less, and the total of interest payments will also be slightly less.
You might be able to give us some quantification of that.
I cannot do so off the top of my head, but I will see whether we can do so in writing.
You could do so by correspondence.
On Scottish Water, the run rate is £60 million in December. What steps are being taken to ensure value for money? Specifically, how are Scottish Water Solutions Ltd and Scottish Water adhering to competition rules?
That is a matter for Scottish Water. We are reassured that it pays adequate attention to competition rules and complies with other obligations that are placed on it. We have no indication that that is not the case.
Okay; I will take up that issue directly with Scottish Water.
We will answer that through correspondence.
We need to stay on the budget revision—I am anxious that we do not get drawn too far away from it.
I have a couple of questions. The first is about the big increase for winter maintenance in the roads budget, which is in schedule 3.15 on page 59 of the spring budget revision. I am not sure whether that money comes out of the integrated transport fund, although that fund shows a big decrease. I would have thought that the routine and winter maintenance of roads is a fairly predictable item, but it has gone up by about £24 million.
That is nearly a 50 per cent increase.
I will just look up the exact chapter and verse, but I am fairly confident that the Enterprise, Transport and Lifelong Learning Department stores a fairly large amount of the transport budget in the integrated transport fund at the start of the year until it is clear where progress will be made. The figures do not necessarily show an increase in the budget; they simply show how the department allocates the total that was in the integrated transport fund to different projects as we go through the year.
Routine and winter maintenance is not a project; it happens every year.
Yes, but the exact amount that is spent in any one year depends on weather conditions, which determine the amount of maintenance that can physically be done.
That is why I am surprised that the figure has gone up. We have had a fairly mild winter this year.
It is not obvious from the figures that the budget has gone up. I am fairly confident that, at the start of the year, the department says, "We can guarantee that we will spend this much on these projects, but we would like to spend this much more." It then collects all the this-much-mores in one place. Nine months into the financial year, it might become clear that one project is running a bit late, so not all the budget for it will be spent, whereas another project is on course and more can be spent. The department then allocates extra provision.
That does not quite answer my question. I accept the answer in relation to changes under other headings, but given the number of years for which we have been doing routine and winter maintenance, one would think that we would have a fairly accurate idea about the figure in a normal winter. I understand that the figure might go up if we had a particularly inclement winter.
I have found the right page in my notes.
That is good.
The answer is a mix of what I said and the fact that because the winter has been relatively mild, as you say, more progress has been made and the backlog of maintenance has been eaten into further than was assumed would happen at the start of the year.
Right. Now I understand: the routine element has gone up. Winter maintenance does not refer to dealing with winter conditions; it means taking advantage of summer-like conditions in the winter.
I confirm that our roads infrastructure is getting better by the day.
I thought that you would say that.
There are some areas in Scotland where that does not necessarily apply.
My other question is about schedule 3.3 on page 98, which shows that the modernising government fund has been reduced by £14 million to £1 million. Perhaps that means that government has been modernised and there is no need for the money.
Again, that is a centrally held fund that is run by the minister's department. Through the year, when he makes awards, resources are transferred to the departments and agencies that have won funding for their projects. Therefore, the £14 million will be reappearing all over the place.
But it will all be to modernise government.
The modernisation is continuing apace.
May I have clarification on a couple of things? One is the reference in schedule 2.1 on page 61 of the budget document to a £48 million transfer from the CUP to health. What is the purpose of that? Further, what is the purpose of the £160 million transfer from capital to revenue, which is noted in schedule 2.2 on page 62? Is the item being transferred or simply the cash? How does that relate to our shared perspective, if you like, on increasing capital as opposed to revenue spend?
I will take your questions in reverse order. At the start of every year, the Health Department sets a capital budget in total. As health boards work through the year, the Health Department considers which elements of investment, maintenance and new procurement have added value and which is non-value-added maintenance work. At the spring budget revision, the department transfers the non-value-added element, which does not score as capital in our terms, across the resource. That is what is going on with the £160 million. The department has got far enough through the year to say that, out of its total capital budget, £160 million is non-value-added. That is the money that moves across.
So it is a disguised contingency.
Yes.
In schedule 3.2 on page 27 of the spring budget revision, headed "Regenerating Communities", there is a line that indicates that Scottish Homes grant in aid increased by more than £17 million. I just wondered what that refers to, since Scottish Homes does not exist any longer and has become Communities Scotland.
I have no knowledge of that other than that my notes tell me that the increase of £17 million in Scottish Homes' grant in aid is being used to meet the costs of redeeming remaining debt.
I think that the committee would welcome a note to give us a bit more detail on that
I have a couple of points for clarification. In schedule 3.1, on page 45, headed, "Student Awards Agency for Scotland", there seems to be a reduction of £14.7 million in "Fees, Grants & Bursaries". Does that reflect a reduction in demand for student places?
There are quite a few changes within that £14.7 million. However, the main element is an adjustment to bring the budget in line with predicted spend. You are probably right that it reflects a reduction in demand, but I would like to confirm that in writing to the clerks.
It would be useful if you could let us know that. My other point for clarification, in which I have a personal interest, is in schedule 3.4 on page 75. When you talk about "Receipts from Scottish Safety Cameras", is the revenue of £8.2 million from speeding cameras?
Yes.
I say rather bitterly that I have contributed to some of that £8.2 million in recent times. Is that figure in line with expectations? If so, why was it not included in the original budget? Furthermore, what receipts do you expect to get next year? Is the figure likely to go up?
I am tempted to say that I am sure that no one will get caught by a speed camera next year.
But is the £8.2 million in line with your expectation?
We are talking about a budget revision, so it is unlikely to be in line with anyone's expectations. [Laughter.]
Okay, then. Looking ahead, do you expect the figure to rise exponentially?
I think that we can deal with that matter when we come to next year's budget.
Table 1.8 on page 9 helpfully sets out figures for capital spending and net investment. However, although the figure for public-private partnership spend is obviously fixed—after all, such obligations are fixed—the figures for the other four categories of capital spend are down from those in the autumn budget revision. Perhaps we should discuss this question with the Finance Committee's adviser, but I wonder whether the Executive would consider presenting a summary table that shows movements in net capital spend not only from the autumn revision but from the beginning of the year. For example, the table shows that, since the autumn budget revision, there has been a decrease in direct capital spend of £94 million—or about 8 or 9 per cent—and a decrease of more than 10 per cent in the much smaller figure for capital grants to the private sector. Adding into those figures the £60 million reduction in direct capital spend on water that we have discussed would give us a 15 per cent fall in overall direct capital spend since the budget was presented last year. Such a decrease is significant.
The committee will not find this response very helpful, but the most major factor in that fall is reclassification of certain elements of transport spend. We are spending the same amount of money on the same projects; however, our accountants, who had previously told us that we could score that expenditure as capital, are now telling us that we have to score it as resource.
But none of the resource elements has increased; in fact, the table shows that they have all fallen. That worries me.
Perhaps the table is not presented in the most helpful fashion. The capital and resource banners at the top of table 1.8 show how things score in our accounts. The first four columns show items that score as capital in the Treasury's books; the item in the fifth column, PPP, does not score as capital. However, the rest of the budget—the other £23 billion—scores as resource in the Treasury's books. As a result, some items of transport spending have moved from the first four columns in table 1.8 out to the bit that is not shown in the table. I apologise if our presentation of the table is not quite right. Perhaps I will get together with Arthur Midwinter and the clerks to find out how we can present the figures more clearly.
But moving those figures into the resource budget means that that money is not capital investment. We are still left with the significant issue of capital spend being down in each of the first four columns of table 1.8 and the largest spend—direct capital spend—being down by about 15 per cent over the year. Given the committee's interest in getting the balance of capital spend right in this spending review—after all, we all know that spending will be tighter in years to come—I am just not convinced that this is a matter of presentation. It might be helpful if the minister could comment directly on why the spend is slipping. Is it simply slippage in the delivery of projects that are still planned, or are substantive policy decisions being made about projects that will not go ahead?
I suspect that one relevant issue is land acquisition in relation to future transport projects. One transport project might be distorting the facts.
I suspect that the case is the former rather than the latter, but I will consider the matter and I will perhaps write to the committee with a more detailed explanation. The question is important, because it is in the Executive's interest to have that capital balance right, for the reasons that have just been outlined.
Page 15 of the spring budget revision deals with rural development and shows that cash has come out of spending on the organic aid scheme and the farm business development scheme. Both those schemes were intended to make agriculture more diverse, so we seem to be travelling a little in reverse. I notice in particular that the 2004-05 organic aid budget is less than was spent in 2003-04. The policy is to develop organic schemes, but it does not seem to have been taken up.
That is just an estimate of the reduction in demand for those schemes.
I return to the capital spending and net investment table. I understand that, in effect, PPP converts a capital commitment to a revenue cost. Does the inclusion of PPP in a table on capital give us a true and fair view? The asset value that is being acquired through the payments, which I presume are annual, could be considerably different. Do you have no plans to open that up and to give us a clearer view of the assets that payment of the material sum of £378 million puts at our disposal?
Mr Mather is right. As the footnotes say, the numbers that are given in the last column of table 1.8 are estimated payments under PPP contracts. They do not represent the direct capital equivalent, but we provide the capital equivalent in table 0.06 of the draft budget 2004-05, which the clerks might want to send to the member.
The issue is presentational. As a revenue item, it does not belong in the table.
We made a request about that.
The inclusion of PPP was the result of a request from the committee. The intention was to have a clear picture overall of how much was being spent on capital according to our definition of capital, which creates an asset, rather than the Treasury definition.
We will have to blame Mr Ewing for that.
So you are employing the absentee rule.
The request even predates Mr Ewing.
As we are talking about Mr Ewing, perhaps I should ask Iain Leitch and Derek Croll what the Presiding Officer's letter means in cash terms.
It means absolutely nothing. The situation has no cash effect.
Members have no more technical questions.
Motion moved,
That the Finance Committee recommends that the draft Budget (Scotland) Act 2004 Amendment Order 2005 be approved.—[Mr Tom McCabe.]
Motion agreed to.
We are now required to report to Parliament. As such reports are usually very brief, I propose that we seek to agree the text of our report by e-mail correspondence. Are members content with that suggestion?
Members indicated agreement.
I thank the minister and his officials for coming along.
Meeting suspended.
On resuming—