Rural Affairs and Environment Committee, 08 Oct 2008

Meeting date: Wednesday, October 8, 2008

Official Report 244KB pdf

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Budget Process 2009-10

Agenda item 2 is the budget process 2009-10. As ever, I welcome Jan Polley, who is the committee's adviser on the budget process. She has been with us for a few weeks now. I also welcome the Cabinet Secretary for Rural Affairs and the Environment, Richard Wakeford and Ross Scott.

We will go straight to questions. I advise the witnesses that the session will last until roughly 11.20. John Scott would like to kick off.

Good morning, minister. Officials have confirmed that because of the delayed start to the rural development programme, there was a significant shortfall in spending in 2007-08, which was apparently used elsewhere. Will that funding definitely be replaced later in the programme?

Thank you for the question. Yes, that is certainly the case. We intend to ensure that we fulfil our commitment to meet the whole budget across the programme period. As you will be aware, the delay is largely the result of a legacy issue that the Administration inherited. Dealing with it has been quite a juggling act.

Okay. My second question is more of a political question. As you will be aware, European Union spending is falling in real terms, as is Scottish Government spending. At the same time, farm profitability is falling. I know that you had a meeting with supermarkets recently. How would you advise farmers to proceed in the current climate?

Strictly speaking, I am not sure that that is a budget scrutiny question.

It is an important question for the obvious reason that it relates to how we use public money to support our farmers and crofters in the months and years ahead. You mentioned the current climate, which is clearly not something we can predict. We want to use the resources that are available to us to ensure that we support our farmers and crofters—who are, after all, our food producers—and our food sector, and look after our environment.

We want to increase profitability and use the resources that we have to encourage farms to become more viable in the times ahead. The rural development programme has a big role to play in that. As well as providing direct support payments for farmers and crofters, schemes are available under it that are aimed at helping farms to become more profitable businesses in the future. I want to help our rural communities become fit for purpose in the 21st century and cope with all the pressures that that entails, which involves examining food production, thinking about how to tackle climate change and considering ways of reducing input costs and improving profitability.

But you accept that the rural development part of the budget has fared less well, shall we say, than other areas of the budget?

It is certainly the case that we receive less European funding than other countries. That, too, is the result of a legacy issue; the funding that we receive from Europe for the rural development programme is based on our track record of securing rural funding from the EU. Unfortunately, because of the deals that successive United Kingdom Governments have negotiated over the past decade or two, we have been left with probably the lowest ratio of European to central Government funding in the whole of Europe. We are now paying the price.

Are you addressing that at UK Government level? Have you invited the UK Government to tackle the situation?

Yes, I use any opportunity I get to make representations to the UK Government and to the EU about what I perceive to be the unfair deal that Scotland has received. Although we are a largely rural country, we receive one of the lowest levels—if not the lowest level—of funding from Europe in the whole continent. I agree that that is unacceptable but, to an extent, we must be realistic because the next financial perspective in Europe runs from 2013 onwards. As a country, we must build up the best possible case and get the support of the UK Government—if we still require its support by 2013—so that we can secure the best deal in the next financial perspective and change the allocation formulas that have been used until now.

I will take up an issue in which Des McNulty, my predecessor on the committee, took a considerable interest. I do not profess to have the same degree of knowledge of waste management.

There are concerns about whether councils will be able to meet the recycling targets. There is the added stick that they will be fined if they do not meet their landfill targets. The recycling performance of councils has differed; whereas some have done very well, others have done less well. How will you ensure that the weaker councils meet their targets? How will you address the fact that the tougher targets will be more difficult to achieve and therefore more expensive? Will additional funding be made available to enable councils to achieve the hard targets in 2013?

That is a big and important issue. Yesterday I delivered a speech to the annual conference of the waste industry in Scotland and we discussed some of those issues at the question-and-answer session afterwards.

We should look at the bigger picture. Yesterday, we announced the recycling figures for this year, which have risen to 31.7 per cent for household recycling—a 3 per cent increase on last year. We are therefore moving in the right direction towards the 2010 targets and the 2013 targets thereafter. That is an important point to make because we have provided resources to local government. We also have our zero waste fund, which is £154 million over three years.

Elaine Murray makes the good point that we have grasped the low-hanging fruit during the past few years and that as we raise targets, achieving them gets that bit more difficult. It will be a challenge, but we are confident that, given the current trends in councils, we can achieve the 2010 targets.

Elaine Murray talked about weaker councils. The first point to make is that we need the co-operation of Scotland's local authorities if we are to meet our targets. They have the resources to do that. A lot of exciting proposals are currently in the pipeline throughout Scotland's local authorities to improve their recycling levels and divert from landfill. Some local authorities, such as Fife Council, have adopted targets that are even more ambitious than the Scottish Government's. Fife Council wants zero-waste landfill by 2020, whereas the nation's target is 5 per cent by 2025. Some councils are even more ambitious than we are.

We have reached agreement to co-operate with local authorities through the single outcome agreements. They backed our targets enthusiastically. Different councils perform differently. I am not sure what option we have other than to work closely with local authorities, particularly those in some of our cities, to ensure that the Scottish Government gives them the best possible advice and support, and to ensure that best practice is shared—because some local authorities are zooming ahead. Moray Council's figures are the highest in Scotland—44 per cent. It has been said that rural local authorities will find the targets even more challenging, but some rural authorities are way ahead of urban ones.

We have to work with councils that might be struggling to make progress, and we will continue to do so. Partnership is the way forward. We all recognise that moving towards a zero-waste society is the right way to go and, so far, most local authorities have met the idea with enthusiasm.

During the next spending review, we will have to take into account where we are at that point. We will continue to measure progress very closely. The next big challenge—it is the biggest challenge that we must keep in the forefront of our minds—is to finish putting the infrastructure in place for the 2013 target. We hope to achieve the 2010 targets. The 2013 targets will be the next big challenge.

How will you monitor the progress that councils make during the current comprehensive spending review period? What sort of monitoring of the recycling targets is in place? Will figures be announced annually? What can you do if a council is dragging its feet and not putting in the effort, or, indeed, if it has selected a different way of doing things? In Dumfries and Galloway, the ecodeco plant recycles some material but, because it also produces pellets for incineration and heats the waste, it keeps in some of the plastic that other councils might recycle. It is slightly difficult to reconcile the recycling targets with some of the other approaches that councils are taking.

There are challenges, as there is not a uniform approach across Scotland. Because of our geography and other factors such as dispersal of population, many people think that it is right for us not to have a completely uniform approach—the solution for Highland Council will be different from that for Glasgow City Council. In the revision of the national waste plan that we will launch in the next few months, we will debate the extent to which we should consider a more national approach to meeting targets.

The single outcome agreements that have been negotiated and signed off are the basis of our relationship with local government. The Scottish Environment Protection Agency and our officials are in almost daily contact with many local authorities in Scotland, so we monitor performance rates closely. The information that we get comes directly from SEPA to the Scottish Government, which is responsible for measuring and the production of statistics. I assure the committee that there is close monitoring. We have local government in Scotland—it is the job not of central Government but of local government to decide the locations of recycling centres and so on. We must respect local government's decisions—that is the basis of our single outcome agreements.

Last week, we discussed with officials the power that ministers have to fine local authorities. Members expressed concern that that would mean taking out of budgets resources that would be better deployed on redoubling efforts to achieve targets. Given that you have not touched on the option of fining, I take it that you have ruled it out for the time being, even for councils that are struggling most to meet the targets.

We have suspended, not cancelled, the landfill allowance penalties. We have done so because, in the new spirit of co-operation between the Scottish Government and local government, we think that partnership is the way forward. I was asked about the extent to which we are monitoring the performance of local councils, and I said that we are doing that. The results of such monitoring will influence whether we decide to keep penalties or to do away with them. If we decided not simply to suspend, but to cancel, the penalties, we would need to introduce legislation.

We received representations from a number of local authorities that indicated that they are keen to achieve the targets and have ambitious ideas for new projects that they want to put in place in their communities. We thought that the argument that they should be able to use their resources on such projects, instead of paying central Government several hundred thousand pounds in fines, was persuasive in the short term—that is why we have suspended the penalties. We are keeping the matter under review and are discussing the future of penalties with the Convention of Scottish Local Authorities.

Do you have a timeframe for deciding whether you need to legislate fines out of existence?

I do not have an exact timeframe for that. We are giving local authorities time to come up with projects to improve their performance against the targets.

We are dealing with EU-mandated targets, for which you, rather than local authorities, are answerable to Brussels. If Scotland is unable to meet its obligation because some councils have been slow to achieve their targets, how do you intend to handle that?

You are correct to say that responsibility rests with me rather than with councils. I assure the committee that I am targeting some local authorities that need to make more progress to help us achieve our national targets. I recently had a constructive meeting with Glasgow City Council; my officials have met the council again in the past couple of weeks. We are keen to support those local authorities that are finding it more challenging than others to meet the targets.

A number of exciting projects are in the pipeline in some authorities and it is important that we support their development. For example, Glasgow City Council and other more urban authorities have been running trials with their tenements, which present a challenge for recycling targets compared with other housing developments. I am keen to support those projects. It is important that we give local authorities as much opportunity as possible in that regard.

We keep a zero waste fund centrally. As members will know, the strategic waste fund was transferred to the local government settlement, but the £154 million for the spending review, which is our zero waste fund, is intended to help not only the community sector and national campaigns but local authorities. Much of that resource will be allocated to local authorities to help them with infrastructure projects, which will be crucial in meeting our targets.

I think that we have probably done as much as we can with the waste issue.

I want to ask about efficiency savings, which are obviously as important for the current Government's budget as they were for the previous Government's budget. I hope that the cabinet secretary will correct me if I am wrong, but I was under the impression that an efficiency saving carries on, so that if it is achieved in one year, the new figure becomes a baseline for the next year. I presume that that would mean that it would be more difficult to achieve further efficiency savings. Is my understanding correct?

Yes, that is certainly my understanding, too.

Okay. I am therefore a wee bit concerned because, given that all departments and sub-departments will struggle to an extent to deliver efficiency savings, some departments seem to be considering selling assets to deliver efficiency savings. I can understand how getting rid of an asset, if it is felt that it is not needed, and saving on its running costs would be an efficiency saving, but I am less sure about the validity of counting the capital obtained from the sale as an efficiency saving.

I note, for example, that "Efficiency Delivery Plans 2008-11" refers to expected savings for Forestry Commission Scotland:

"We are now planning to sell those assets delivering least against"

Government objectives, and aim

"to sell around £15 million"

depending

"on market conditions".

It seems that the £15 million is to be included as an efficiency saving. Can the cabinet secretary tell me whether that is correct? If it is, is it a valid efficiency saving? It is clearly not something that can be done every year; it can be done only once, because when it is sold it is gone. Can the cabinet secretary also tell me roughly what the assets are and what type of asset is being sold?

First, we must show the public that we want to use public money wisely and as efficiently as possible, hence the fact that we have 2 per cent efficiency savings targets for portfolios across the Scottish Government—the UK Government has 3 per cent efficiency targets. It is important to bear in mind what the starting point is. The targets are challenging. It is challenging for any directorate or organisation to achieve efficiency savings, but we find that our portfolios are making good progress in becoming more efficient.

On Mr Morgan's point about the sale of assets, I guess it depends on how we define efficiency. For example, the Government has a plan to simplify the public sector landscape and have many of our bodies work more closely together. We have a programme in our portfolios called Scotland's environmental and rural services initiative—SEARS—which is about having all our agencies and bodies work much more closely together, and having more of a one-stop shop for our farmers, crofters and land managers to contact the various bodies.

Having a one-stop shop makes sense for clients. It means, for example, that they can go to one building and see the Forestry Commission, Scottish Natural Heritage and the Scottish Environment Protection Agency. To me, that is efficient from the clients' perspective and efficient financially.

I confirm that the sale of assets is an efficiency saving that leads to a much more efficient delivery of our service. It is efficient in a number of ways, not just financially. It is not that selling an asset makes a body more efficient; doing that makes the body more efficient by enabling it to deliver a better service to its clients.

I fully accept that selling something may make you more efficient. I will give another example. The Scottish Fisheries Protection Agency bought a new vessel and two new aircraft and decommissioned its old vessel. We hope that the new one will be less expensive to run because it uses modern technology. I understand counting the lower running cost as a recurring efficiency saving, but the agency also says that selling the old vessel brought in receipts of £1 million. That happens only once, so how can it be carried forward into subsequent years? It cannot, because the £1 million has gone—the agency has got it. How is that an efficiency saving?

The efficiency savings targets are annual targets, so they will be met in different ways each year. The Forestry Commission, which you mentioned, is a good example. You asked whether selling £15 million-worth of forest is an efficiency saving. It is, and the reason is that the Forestry Commission has to review its estate to ensure that it delivers the public benefits that we are after. It chose to sell the least efficient forest and use the £15 million to replant and create more woodland and forest that achieve public benefits. That is an efficient approach to managing the forest estate and a perfectly valid efficiency saving. The Forestry Commission has always sold land, but now it is selling slightly more and reinvesting the money in planting new forests that are more in line with its national outcomes. That is efficient use of the forestry estate.

Am I right that including capital assets in efficiency savings is a change and that they were not included previously? That is a new thing that has been brought about in the past couple of years.

If it is helpful, I will bring in Richard Wakeford, my director general, who oversees the efficiency savings for the whole portfolio.

There is a set of rules that we follow throughout the Government. Obviously, it would be mad to have a different definition of efficient government savings in different portfolios. We are operating consistently, although on a different basis from the UK Government. As the cabinet secretary said, it has higher targets, but it includes various things in its efficient government savings that we do not. The Forestry Commission's sales of assets will deliver more public benefits. The forest that is disposed of provides few public benefits, although it provides commercial benefits. The Forestry Commission is acquiring land for afforestation that is much closer to towns and cities and where people can use it. We are delivering a much greater public benefit with the same cash. That is why that scores as an efficiency measure.

Am I correct that the inclusion of capital receipts in efficiency savings is recent and that they did not use to be included?

I would need to take advice on the precise comparison between the scheme that we operate now and the one that operated previously. I will provide you with a note after the meeting. I would not want to mislead the committee on that.

Yes. I make the point because I am a substitute member of the Finance Committee and I happened to be at a meeting of that committee when the issue was discussed. As I understand it, the inclusion of capital receipts in efficiency savings is recent, so that is why all the departments are doing it.

Ross Scott is from our finance team. He can confirm whether there has been a change from 2008.

For phase 2 of the efficient government programme, which is for 2008 to 2011, capital receipts are counted as efficiency gains. The convener is correct: prior to that, only recurring cash-releasing savings and cash-releasing time savings counted.

The questions remain, minister.

If that is how the Government writes the rules, that is fair enough, but the first point that I made was that, once an efficiency saving has been made, it is locked in and then a new, more challenging target is set for the next round of efficiency savings. It strikes me that that no longer applies under the new definition. The Scottish Fisheries Protection Agency cannot sell a ship every year. Even to stay still and deliver no new efficiencies, the agency will have to find something that it can sell to get £1 million in the second year. Then it has to get more money from that to deliver extra efficiencies. Do you understand the problem that that tends to build in, or am I wrong?

I understand your point that there is only so much that you can sell in order to get huge receipts, but the global target is 2 per cent per year, so that challenge remains in the spending review.

In the current financial climate, is there not a risk that to achieve £15 million in sales you will have to sell off many more Forestry Commission assets than planned? The demand for timber is likely to be very much reduced.

The cost of timber—[Interruption.] [Laughter.]

Sorry, cabinet secretary.

I am sorry; I missed that.

Alasdair Morgan was just making one of his usual comments. He suggested that the timber might be better in the ground than in the bank.

Okay.

Although its cost fluctuates, timber tends to be seen as a long-term investment and therefore in many cases—and in the forests that we are talking about—it is not so susceptible to short-term fluctuations. That said, given the wider economic climate, I take your point on board. We will certainly have to pay very close attention to the issue.

It is also worth noting that Forestry Commission Scotland is responsible for more than 50 per cent of timber. As a result, its role with regard to the state forest is quite significant compared with what happens in other countries, and the £15 million in question is a very small element of the overall estate.

Your response raises a question that I would like to ask before I get to the questions that I originally wanted to ask.

I suppose that my question is similar to Alasdair Morgan's on efficiency savings. If you are selling Forestry Commission land with the timber still on it, the timber is not fully mature. Given that timber reaches its maximum value when it is fully mature and ready to be felled, will such an approach not result in a slight financial loss for the commission somewhere down the line?

I am conscious of my financial expert sitting next to me as I respond to that question.

As we have to pay capital charges on the forest estate, selling off £15 million-worth of forestry will actually result in savings. Of course, that is cancelled out by the fact that we will use that £15 million for replanting, which is more in line with our national outcomes and priorities. The forest estate remains, but it is changing. The £15 million of forest that will be sold will go into the private sector.

I will give that reply some thought.

With regard to the Fisheries Research Services, you say that you plan to get

"Receipts from disposal of research vessel & reduced use of chartered vessels".

Does the loss of the research vessel and the reduction in the use of chartered vessels indicate a reduction in field research? I would be somewhat concerned about such a move, given on-going concerns about fish stocks, global warming, the effects of rising temperature and the effect of possible changes in the acidification of the oceans on the planktonic food base.

Okay. Thanks. [Laughter.] I am trying to find your reference to selling the research vessel.

Bill, could you refer to a specific table?

It is the efficiencies table. [Interruption.] The table is headed:

"EXTRACTS FROM EFFICIENCY DELIVERY PLANS PUBLISHED BY THE SCOTTISH GOVERNMENT".

The clerk will give the cabinet secretary a copy so that he can look at it very quickly.

Good, because my second question refers to the same table.

First, we are collaborating with other agencies and organisations on various research programmes. I can assure members that we are not reducing the level of research in the area that Bill Wilson highlighted.

I believe that we have also bought a new vessel for the Fisheries Research Services. There might be a net loss in the number of vessels, but the funding for research has not been reduced. The research is simply being carried out on a more collaborative basis.

So the field research will remain at the same level?

Yes. We might use different vessels—and we have, as I say, bought new ones—but we are carrying out the same amount of research. It is just that we are collaborating more with others.

In a similar vein, it says in the same table that the Royal Botanic Garden Edinburgh

"will secure co-funding from other research funders".

That obviously refers to something that will happen in the future, but are any current research projects that require funding in danger of being cut as a result? Does that efficiency apply only to funding for future projects?

I will have to ask Maggie Gill, the head of research, to clarify that. When I have done so, I will get back to you. We are investing in the Royal Botanic Garden as opposed to reducing any of the budgets, so I suspect that the reference is to future research programmes. We are investing in the new gateway centre, and the Royal Botanic Garden will go from strength to strength once it is open. The people there are involved in many collaborative research projects globally, because of their outstanding reputation.

The number that leaps out from the table that has been provided by the clerks relates to voluntary modulation. We are talking about savings targets of £35.7 million, rising to £38.1 million and £40.2 million by 2010-11. I recognise that there is a shift from pillar 1 funding to pillar 2 funding, which enables a number of public good projects as a result. However, I would be interested to know what the justification is for putting that down as an efficiency saving, as it seems to be simply a transfer between different budgets.

It recognises that it is not Scottish Government funding, but funding coming from the single farm payment through voluntary modulation, which means that it is just a budgetary issue and can be counted as an efficiency saving.

That is exactly the principle. Previously, the money had very few conditions attached to it and, by applying voluntary modulation and bringing it in through the rural development programme, we can deliver much more targeted public benefits with the same money. That counts as a more efficient use of the available resources and, therefore, contributes to our efficient government programme.

The point is, however, that the single farm payment was made to farmers. Taking money out of payments that were hitherto made to farmers and putting it into pillar 2 funding through voluntary modulation is hardly an efficiency saving on the part of the Government. Rather, it is taking money out of farmers' pockets and putting it into pillar 2.

It is actually delivering the public benefit. There is now a much more specific purchase of public benefits by the Government.

Was the point of the single farm payment ever to deliver public benefit?

I hope so.

A specifically public benefit?

We are now delivering much more specifically targeted public benefits than were being delivered by the single farm payment.

You could look at it from a more positive angle. Counting that transfer as an efficiency saving means that we do not have to find other efficiency savings in the same budgets, which means that it is a benefit to farmers and crofters.

Are you saying that that process is seen as an easy means of achieving efficiency savings and that levels of voluntary modulation might be the best port of call in that regard?

The issue comes down to the definition of efficiency savings. There is a standard definition, which fits the shift that we are talking about. It is not an overtly political manoeuvre to try to get around a problem. We can write to the committee with the definition of efficiency savings. However, I assure you that the matter that we are talking about is merely a budgetary issue.

Page 1 of the supplementary evidence that your officials have provided talks about the shift of some funding from crofting assistance into the rural development programme. You might not be able to answer my question, but I would be grateful if you could get back to me once you can. The officials have talked about the principal reason for the transfer being the crofting counties agricultural grant's demand-led expenditure requirements, but I would be interested to know what other factors there are. Also, I do not think that the figures reconcile, and it would be useful if the officials could get back to us with more information in that regard.

I am happy to get back to you on those two points. Ross Scott might be able to help in the meantime, though.

I have not seen the paper that is before the committee, but I was involved in the reconciliation work that was done in advance of the paper being produced. There was a degree of movement, such as stud farms being taken out of animal health and CCAGs being put into the business development line within the SRDP. Everything reconciles, and we can show you how it does.

It would be helpful if I could get those details.

We touched on flooding in last year's budget, and your officials confirmed last week that, in last year's budget, you moved £40 million into the local government settlement and retained about £1.7 million at your own hand for flooding. You remain responsible for flooding, but the funding is now in the local government line. Can you confirm that that line will remain unchanged in the local government settlement this year? Will that £40 million for flooding still be there?

The resources that have been transferred as part of the local government settlement are now in the hands of local authorities, and how they use those resources is up to them.

I understand that point.

I am not sure of the point of your question, in that case.

I am trying to confirm whether the £40 million that was transferred in 2008-09 is still in the local government line for 2009-10. Is it part of the local government settlement in the budget that we are considering?

Yes, because the money was transferred on a three-year basis. Effectively, the money is with local government.

As the minister with oversight in this area—the money is no longer in your budget, but you are still responsible for flooding—can you confirm that that money is a static £40 million in the coming budget, having been transferred from this budget? Is it being held as a straight line into next year's budget?

Yes, but it sits within the package of the local government settlement. Determining the overall local government settlement over the three-year period took into account the element of flooding. We have no reason to believe that resources for flooding will not be used by our local authorities for purposes relating to flooding.

But the figure is £40 million. That is the figure that we should be thinking about when we think about flooding. Does the money in the local government settlement remain at £40 million? That is my point, essentially.

I am slightly confused by your question, because you are asking me to define what is within the local government settlement. All I am telling you is how the local government settlement was calculated in the spending review period, and that resource is now with local government.

Indeed—that is one of the questions that underlie all this.

Last week, one of your officials who deals with this area said more or less explicitly that, when you came to the next spending review, the distribution of that £40 million would be the subject of negotiation with COSLA. Part of it is distributed to all authorities but part of it is distributed to meet existing commitments. Presumably, that £40 million must remain visible over the period, so that you can have that discussion with COSLA in two years' time.

Yes, it will. The level of the flooding element in this local government settlement is based on the current plans from local authorities for flood schemes. That means that the negotiation for the next spending period will have to take into account exactly the same situation. As the negotiations begin, we will be speaking to local authorities, via COSLA, about their expectations of the flood schemes that will be required in Scotland and about other factors, such as the Flood Risk Management (Scotland) Bill, which will have to be taken into account for the next spending review.

This committee reported on flooding earlier this year and has talked about the changing climate. It is evident that the likelihood of flooding will increase. Areas of Scotland that have not historically been hit by flooding have been this summer, including Ayrshire, parts of Lanarkshire and Fife, in addition to all the other areas that I could mention. Did you consider telling the local government minister that you want more money put into the local government settlement for the coming year to cover those increasing pressures from flooding? The £40 million could have grown further, to £50 million or £60 million or whatever. Did you consider putting more money into the local government settlement for flooding?

Our conversation should be about the next spending review. I will discuss the matter with my Cabinet colleagues and we will have to consider seriously the predictions for flood events in Scotland in the overall negotiations for the local government settlement, as well as the plans that local government is putting in place to address them. The same situation faces any Government in any spending review. We will have to do what any other Government has to do, which is to consider the need at the time. We are unable to look ahead to future years; we have to deal with this spending review. I cannot offer any more than that at the moment.

Within this spending review—in the coming budget and in the subsequent one, before the next spending review—the £40 million that was transferred this year remains £40 million in the settlement. It remains for this year coming, with £40 million the following year, until the sum is renegotiated with COSLA. That might change in any direction, theoretically, at the next spending review. That £40 million is still there now, though.

Yes. The local government settlement for this spending review will not be changed in that regard, as far as I am aware. The funding for future spending review periods will be negotiated.

You presumably accept—this is true for all sorts of budget headings—that the £40 million will buy slightly less than it would have bought last year, because of the erosion of inflation.

We agreed the settlement with COSLA for the three years. Your argument would apply to all expenditure lines in the three-year agreement, not just flooding. At last week's committee meeting, the director of environmental quality spoke about a number of flood schemes that are planned, under way or at various stages of progress right across Scotland's communities, thanks to the generous local government settlement.

I will try to wrap up this area of questioning. The position is that, during this spending review period—and notwithstanding the negotiation with COSLA about the next spending review—if local authorities wish to spend more than £40 million in aggregate in order to meet pressures such as those that arose during the summer, that is a matter for them. Within a spending review period it is local authorities that must pick up the costs of climate change in their areas, as evidenced by flooding, using their own resources. That would be a matter only for local authorities, rather than for both them and the Government.

Thanks to the generous nature of the local government settlement, it is perfectly open to all councils in Scotland to spend their budgets as they see fit. Therefore, it is open to some local authorities to spend greater amounts than they might have envisaged on flood schemes or any other mitigation measures in relation to climate change.

But as minister responsible for flooding, you would not see it as part of your responsibilities to add in money to help local authorities to address changing circumstances within a spending review period.

My responsibility is to ensure that flooding is treated seriously by the Scottish Government. The matter is the subject of negotiation between COSLA and the Scottish Government, and negotiations with COSLA will continue up to the next spending review period.

Leaving aside the points about this being the tightest settlement since devolution and the generosity of the settlement for local government, the cabinet secretary will be aware that the deal with COSLA is on an annual basis. The Government has made it clear that it expects council tax to be frozen for three years. You believe that you have put in enough money for that. As Peter Peacock has pointed out, we know that the flood risk might well change over the next couple of years. Do you accept that individual local authorities or COSLA might come back to you and say that the £40 million that they have for flooding this year and next year is not enough to meet needs? They might say that they cannot sign up to the agreement with the Government unless the figure is increased by £5 million, £10 million or whatever.

I visited the Water of Leith when we launched the Flood Risk Management (Scotland) Bill recently. The community there suffered the devastation of flooding in 2000. It is now 2008 and they are still waiting for their scheme, which is now in the pipeline. I mention that because the context of our conversation is that, if local authorities decide that extra schemes are required, that is a subject not for the current spending review, but the next one.

All the schemes of which we are aware are going ahead or being planned and they will be built either in the current spending review period or in the next few years. Your question really relates to future spending reviews, because it is unrealistic to say that local authorities will come up with new, previously unplanned schemes that have to be funded in the current spending review. We have to be more realistic about the timescales for schemes. Even with our bill, which we hope will speed up the process and not leave communities waiting for nearly a decade to get their schemes, new schemes will be not be planned, given planning permission, commissioned and financed in the current spending review period.

On the wider point about outputs and outcomes and how the committee can adequately scrutinise the budget, several things are apparent from the budget that you are presenting for your department. I am sure that they are true of the budgets for other departments as well.

Your answer to an earlier point was, "Perhaps I should ask local government that." In a sense, that reveals the difficulty that we have. The budget contains references, through the concordat and the single outcome agreements, to waste management, which you mentioned earlier. Some of the single outcome agreements refer to flooding and others do not. I use those two things as examples.

The supplementary evidence that your officials provided following the exchanges about waste management last week clearly states:

"We will continue to monitor progress on an ongoing basis and enter into discussions with COSLA with a view to producing local authority plans that will be put in place to meet the 2010, 2013 and 2020 Landfill Directive target commitments."

I understand why they say that. You have to meet the EU targets that the convener mentioned earlier. That will not be left to local authorities under the single outcome agreements. You are prepared to wield a pretty big stick if necessary.

However, to use flooding as an example, I think that about a third of the single outcome agreements refer to flooding and two thirds do not. How can the committee follow the public pound? Ultimately, you are responsible for flooding policy. It seems that we can follow the public pound through the single outcome agreements in relation to waste, because you will be pretty tough on that, but you will be much less tough on flooding, which the committee regards as a priority because of its inquiry. There are two entirely different approaches.

It is clear that you can direct the Forestry Commission to find £15 million, so you have direct control in that area. You have less direct control over waste management, but you have levers. In relation to flooding, you have even less control. That leads the committee to ask whether the single outcome agreement mechanism allows us adequately to scrutinise you, which is our job, in relation to issues such as flooding and waste management. You can simply say, "It's not a matter for me. It's a matter for local government." Where is the line of accountability that we can follow for outputs and outcomes?

The most important word that you used is outcomes. Judging the success of the single outcome agreements and the Scottish Government's track record is all about outcomes. On flooding, I explained that 16 schemes throughout Scotland are under way—I think that you were given that figure last week. The outcome at the moment is that those schemes are proceeding in some shape or form.

On waste, whether the outcome is to achieve our targets or make good progress towards achieving them—the figure that we announced yesterday is evidence that we are moving towards achieving our 2010 target—it is the job of the committee and the Parliament to judge whether the outcome is being achieved and to hold the Government to account. Local government in Scotland has many responsibilities, and the new relationship between local and central Government is based on trust and mutual respect. We believe that that new relationship will work, but it is up to the Parliament to hold us to account on whether it is working.

I understand your point about waste management, which you are obviously monitoring closely for reasons that I completely understand. However, let us consider the £40 million to deal with flooding. You can identify 16 flooding schemes, but there was a general distribution of money to local authorities for preparatory work to deal with local flooding issues and so on as part of the settlement. Is that money being spent on dealing with those issues? Does that concern you? Is it a matter of interest for you?

It is of huge interest to us. We have close relationships with all of Scotland's 32 local authorities and all the areas that are relevant to our portfolios. I meet local authority representatives and receive regular reports on the progress that has been made on all the issues that my portfolio covers. In many cases, the Government's progress depends on our partnership with local authorities and other agencies, but a close relationship with them exists. Scotland is a small country, and we depend on such a close relationship to achieve things.

Sure, but you will appreciate that roughly a third of councils have specified flooding outcomes and two thirds, which also received cash from the Government to address flooding, have not. Are the latter councils spending any of that money on flooding? It is your responsibility to ensure that communities and local authorities are protected. Under the system that now operates, is work being done to address flooding issues in the two thirds of authorities that have not specified flooding outcomes?

We are aware that work is going on from the evidence on the progress that is being made with the flood schemes. Two relationships are involved: that between the Scottish Government and COSLA and that between COSLA and the local authorities. Individual local government settlements have been made, and where we are is the result of those relationships. The cash allocations to individual local authorities for which flooding was an issue took into account the resources that were needed to tackle flooding, and the evidence shows that that money has been used for that purpose because schemes are being planned and many are going ahead.

Would it be possible to provide more insight into expenditure on that in future budget rounds? I am not talking about expenditure on the big schemes, which is easily monitored; rather, I am talking about the general distribution of money and what local authorities are doing in general to protect their communities against flooding. The big schemes are obvious, but other things are happening throughout the country, because communities are beginning to face pressures as a result of climate change that they did not face before. Could you give us more insight into what the single outcome agreements mean in real terms for services to tackle flooding and other services?

The member has repeated an important point that Liam McArthur made about many communities in Scotland becoming more aware of the threat of flooding in their areas. Perhaps single outcome agreements in future years will reflect that awareness. Councils for which addressing flooding is a priority have mentioned that in their single outcome agreements. We would expect that of Moray Council and other councils that have flooding high on their agendas. The situation may change in the future if flooding becomes an issue for more councils.

The Flood Risk Management (Scotland) Bill has been published. If it is passed, the information that you are rightly looking for will have to be produced for the whole of Scotland, all communities and all local councils, and there will be a national flood plan and local plans for each catchment area in Scotland. Therefore, there will be information for the committee to scrutinise, and there will no doubt be a big debate when the funding needed for all the measures that must be taken in the next few years becomes obvious. Such information will be available thanks to the bill and the European directive on flood risk management.

In some council areas where there have been significant flooding problems, those are not mentioned in single outcome agreements—partly, I suspect, because massive investment has already gone in. The local authorities concerned may not have registered the issue because they think that their situation is now fairly robust. The matter is not necessarily as clear cut as it seems, even in hindsight.

Under the heading "Water Quality", there is a cut in the budget for "Private Water". What is the reason for that?

I will have to get back to the committee on that point. We are dealing with private water grants, an element of which is demand led.

One issue in rural housing is access to water and sewerage services. When you get back to us, will you let us know what discussions have taken place with housing associations on that point? It seems that demand for grants should be greater.

That is a fair point. I am happy to look into the matter and to get back to the committee on it.

The cabinet secretary will be back before us to give evidence in our inquiry into affordable rural housing. That will be another opportunity for members to raise such issues, which have been raised throughout the inquiry. He will need to know the answer to Rhoda Grant's question at that meeting.

Funding for new entrants is buried somewhere in a funding line. Am I right in thinking that it is included in the rural development programme?

In the SRDP, £10 million is allocated to new entrants. The first successful applications to the programme were made in the first assessment round, which took place in August. More assessment rounds will take place this month and in December. At that point, following the first set of assessment rounds, we will reflect on the state of the programme. We will profile the fund in line with demand.

So there is £10 million for this year, and subsequent funding will depend on demand.

Yes. We have guaranteed that in the budget for the first year of the rural development programme there will be £10 million for new entrants. We have had to amend the programme. Members will recall that we were up against the clock to get the programme to Brussels after we were elected, so we had to submit a very raw scheme—just so that we had a scheme in place—that we could subsequently amend.

So there will be £10 million this year, and subsequent funding will depend on demand.

Yes.

I was going to ask a different question, but I understood that funding for the scheme was £10 million over seven years. Are you telling us that it is £10 million in the first year and that further funds for new entrants will be available thereafter?

No. If we divide funding for the six-year programme by six, the figure works out at £X million per year. We are saying clearly that it will be profiled in line with demand. It is not the case that there is £1.5 million this year—the £10 million will be reprofiled over subsequent years, in line with demand. If £10 million-worth of applications were to be submitted in the first three months, the money to fund them would be there. That will not happen, so the £10 million will be reprofiled in line with demand.

So there is a maximum of £10 million.

When the money runs out, it runs out.

At this stage, it is £10 million. However, we have said all along that we will reflect on demand, as we could do more.

Let us turn to modulation. Table 2 shows that the Scottish Government plans to spend, in real terms, £166 million, £161 million and £156 million of DEL in the spending review period on the SRDP and administration. That will be supplemented with EU income of £56 million, £62 million and £62 million, which is made up of EU funding and modulated payments that are top-sliced from direct payments. From the information with which the committee has been provided, it is not clear how much of the EU income is provided by the EU as match funding and how much comes from the modulated funding. Is the figure for modulated funding rising or falling? I am asking how much of the EU funding is from modulated funding and how much of it—

For the SRDP?

Yes.

Approximately 70 per cent of it comes from the Scottish Government and—if I remember correctly—only a small percentage is EU funding. I will get the figures sent to you, if you are happy with that.

Can I make a general point? The programme was originally designed to start in 2007 but there were delays in getting European approval, for various reasons. What we put into the budget is an indicative line that is constant through the programme. When we were negotiating the programme, we planned to work on the basis on which funding was made available to the previous Government, whereby we carried money forward into the central unallocated provision and drew down from it as we needed. We are not able to do that now, because of the Treasury requirements to work in a different way, so it is slightly more difficult to explain the budgeting and where the funds are coming from.

If it would help the committee, I will provide a detailed note of what that looks like. Much of it depends on spending that is coming through as a result of so-called legacy schemes—grants that were granted in the past and are coming through, and commitments that have been made but which people are not now picking up on, for one reason or another. We are therefore facing an underspend for a number of reasons. In the previous year, we had an underspend because we did not have a scheme that we were able to deliver on because Europe had not approved it. This year, we have an underspend for a similar reason, in that grants that we are awarding now will not result in payments being made until the next financial year. We are working on a complicated profile, which is made much more difficult because we can no longer carry forward an underspend from year to year as we did in the past. We must now find more creative ways of ensuring that we spend the programme in full, which is what the cabinet secretary committed to very early in the current session.

Right. I would be grateful if you could let us have a paper on the matter, explaining it in simple terms. Like you, I understand that the issue is complicated.

I do not think that I could simplify it, but I will provide a paper on it.

He can provide us with the information; it is up to us to understand it.

I seek clarification of the SEPA line. I have read the Official Report, and the matter was touched on last week. I would like to see whether my understanding of it is correct.

On page 97 of the draft budget document, in table 6.07, SEPA has a budget line of £49.5 million, £35.2 million and £44.3 million. From last week's discussion, I gather that the current year's budget was increased by some £8.1 million for new property up in Aberdeen. Next year, we will also see a lending of £4 million to the affordable housing budget. However, there is still a difference of £14.3 million between the two years—that is a decrease of £2.2 million. The plans for the next year show an increase of some £9.1 million, of which I presume that £4 million is being paid back from the affordable housing budget. So, there is an increase of £5.3 million there.

In real terms, the SEPA budget decreases by £3.2 million and then increases by £2.9 million. What is the explanation for that variation over the period, given SEPA's statutory responsibilities and the role that it plays in waste management, in preventing flooding, and so on?

I am struggling to find the exact figures at the moment.

I am sorry to interrupt, but someone has a mobile phone or another machine switched on—I can hear it coming through the microphone. Please check.

We explained last week that there was a misunderstanding around the contribution to the affordable housing project. As you rightly say, SEPA has an £8.1 million capital line this year for the new office in Aberdeen, but the turf has not yet been cut, so it has a potential underspend this year. The intention was to take £4 million of that underspend this year and put it into the affordable housing project—the funding will come back into the portfolio in 2010-11. The misunderstanding arose because the £4 million was taken off SEPA next year and not this year. We are committed to providing the capital for its office project and we will rephase the £8.1 million capital to meet the needs of that project. In theory, the line should read £49.5 million, £39.2 million and £40.3 million. The £4 million adjustment between 2009-10 and 2010-11 should not be in that line.

The line is higher in 2008-09 because of the capital investment, which is not shown in subsequent years. As I said, we are prepared to rephase the capital to provide the office in Aberdeen.

I am reminded why it is important for ministers to have their officials with them at these meetings.

John Scott has a question. It really will be the last question.

Yes, it is.

I want to ask again about the effect that currency fluctuations might have on modulation and the modulated payments that you receive; the issue is certainly germane in the current financial climate. Can you add to your letter an explanation of how currency fluctuations will be dealt with and of the effect that they will have on the amount of money that you will be able to distribute in Scotland?

We can certainly do that.

The committee will be aware that currency fluctuations meant that the single farm payments increased in value by £50 million. Given other factors at this time, that is a piece of good news for farmers.

Exchange rates can go up.

The payments increased in value because the single farm payment, which comes in euros from Europe to our Exchequer, is determined on 30 September; that led to us receiving £50 million more, which is a bit of good news. We will elaborate on the issue in the letter.

I thank the cabinet secretary and his officials. You are now free to go. We will see you in a few weeks when you come to speak to us about affordable rural housing.

Yes. At some point, I will come to speak about fishing, too.

Thank you.

Someone still has a machine switched on that is interfering with the sound system. Can folk who have their BlackBerrys sitting right next to their microphones take them away? They should be switched off.