Budget (Scotland) Act 2015 Amendment Regulations 2016 [Draft]
Our next item of business is to take evidence from the Deputy First Minister on the draft Budget (Scotland) Act 2015 Amendment Regulations 2016. Mr Swinney is joined for this item by Scott Mackay from the Scottish Government. I welcome the witnesses to the meeting and invite Mr Swinney to make an opening statement.
Thank you, convener. The spring budget revision provides the final opportunity to formally amend the Scottish budget for 2015-16. This year’s spring budget revision deals with four types of amendment to the budget. First, there are a few funding changes. Secondly, there are a number of technical adjustments, which have no impact on spending power. Thirdly, there are a small number of Whitehall transfers. Finally, there are some budget-neutral transfers of resources between portfolio budgets, including a modest budget redirection to ensure that we maximise our available budget.
The net impact of all those changes is a decrease of £2 million in the approved budget, from £37,409.6 million to £37,407.6 million. Table 1.1 on page 5 of the supporting document shows the approved budgets following the autumn budget revision and the changes sought in the spring budget revision. The supporting document to the spring budget revision and the brief guide that my officials have prepared provide the background to the net changes.
The first set of changes comprises mainly two deployments of Barnett consequentials—to health, as per the Scottish Government’s commitment to pass on any Barnett consequentials received in respect of changes to the Department of Health’s budget, and to local government following the widespread damage and flooding caused by the storms in December and January. In total, those changes increase the budget by £42.2 million.
The second set of changes comprises a number of technical adjustments to the budget. They are mainly non-cash and therefore budget neutral as they cannot be redeployed to support discretionary spend elsewhere. They have a net negative impact of £115.3 million on the overall aggregate position. It is necessary to reflect those adjustments to ensure that the budget is consistent with the accounting requirements and with the final outturn that will be reported in our annual accounts.
The third change is a reduction of £138.6 million that is required for the NHS and teachers pension schemes. That reflects updated estimates from Her Majesty’s Treasury based on the most recently available factors and scheme information. Again, the change is a technical adjustment to the budget and the required reduction in funding cannot be used to support discretionary spending elsewhere.
The Scottish budget aligns with the accounting requirements under the Government’s financial reporting manual. Accordingly, budget provision is included within the Scottish budget for the financial year to reflect the recognition of relevant health and transport assets in revenue finance infrastructure schemes, in accordance with the accounting requirements. The adjustment to the budget at the spring budget revision is £110.1 million. Other technical adjustments include an increased annually managed expenditure budget to cover provisions; impairments and fair value adjustments; and other non-cash adjustments to the portfolio budgets.
With regard to Whitehall transfers and allocations from the Treasury, there is a net positive impact on the budget of £70.7 million. That includes additional funding of £60 million to meet the costs arising in relation to police and fire pension schemes as a result of the final judgment in the case of Milne v the Government Actuary’s Department.
The final part of the budget revision concerns the transfer of funds within and between portfolios to better align the budgets with profiled spend. As part of the revision process, there are a number of transfers between portfolios that have no impact on overall spending power. The main transfers between portfolios are noted in the SBR supporting document and the guide to the SBR. In line with previous years, there are a number of internal portfolio transfers that have no effect on portfolio totals but ensure that internal budgets are monitored and managed effectively.
As I have mentioned previously, the committee will wish to note that, as part of our robust budget management process and in line with good practice, we have taken the opportunity in the spring budget revision to deploy emerging underspends to ensure that we maximise public expenditure in 2015-16, in particular to support capital investment where possible.
The spring budget revision also reflects the proposed transfer of budget from resource to capital in respect of the Scottish budget, noting that the Scottish budget records capital that scores in the Scottish Government’s consolidated accounts or the accounts of our directly funded bodies. In the context of the Treasury budget, the planned resource to capital transfer is £15.3 million. That switching is managed within the total departmental expenditure limits that are available to the Scottish Government and takes into account the latest profile of the Government’s overall capital programme.
As we approach the financial year end, we will continue to monitor forecast outturn against budget in line with our normal practice and, wherever possible, we will seek to utilise any emerging underspends to ensure that we make optimum use of the resources that are available in 2015-16, and to proactively manage the flexibility that is provided under the budget exchange mechanism that has been agreed between the Treasury and the devolved Administrations.
I confirm that, in line with previous years, I intend to make a statement to Parliament on the provisional outturn in respect of both our Scottish Parliament budget and the HM Treasury budget. The document “A Brief Guide to the 2014-15 Spring Budget Revision”, which has been prepared by my officials, sets out the background to and details of the main changes that are proposed. I hope that members have found it helpful.
Thank you for that brief introduction. As always, there will be a few opening questions from me, and then we will move to questions from colleagues round the table.
My first question is about the carry-over in 2015-16. It was previously indicated that £150 million of 2014-15 carry-forward was to be used as contingency to address the potential need to reclassify non-profit-distributing projects as public sector. Was that required, and have the resources that are available in 2015-16 been affected as a result?
The provision was required to deal with the issues arising from the reclassification issue. We have managed that and deployed that money. Budgets in 2015-16 have not been affected adversely as a consequence.
Table 1.7 on page 10 of the spring budget revision document provides a complete picture of capital spending, but the table does not allow us to establish a picture of resource to capital transfer by portfolio. Which resource budgets have been reduced to accommodate capital increases? What changes have taken place since the draft budget 2015-16 was set out?
Resource to capital transfers take place within portfolios as they attempt to most effectively use the spend that is allocated to them to meet their resource and capital priorities and requirements. Essentially, I monitor and manage that to ensure that the process is undertaken effectively by portfolios.
Last year’s brief guide to the spring budget revision contained further details on the emerging underspends, but no such details are provided in this year’s brief guide. Why is that?
We have taken steps to reallocate money in situations in which we see emerging underspends within the changes that are visible in the spring budget revision document. We remain in quite a fluid situation for the remainder of the financial year, so that position is likely to change between now and the end of the month. I will be actively managing that in order to maximise the utilisation of resources for current and future priorities.
How is that different from the previous year, when the details were included?
The details will be shown in the further documentation that is available as part of the spring budget revision documents.
I would just add that we do not have the same level of emerging understand that we had in previous years.
What level are we talking about?
Currently, we are forecasting only a small underspend at the end of the year.
I know, but what does “small” mean?
That is something that we will keep under management. I am wrestling with a variety of issues that will have to be addressed between now and the end of the financial year.
I cannot imagine that, in previous years, we indicated the level of anticipated underspend at this stage. We can be clear with the committee about the parameters, but we will manage the situation carefully right up to the end of the financial year.
We will get that in the June outturn figures.
Yes.
There is a £30 million transfer from Whitehall to the Student Awards Agency for Scotland in respect of loans, but it appears not to be mentioned in the supporting document or on page 24 of the brief guide.
That is a non-cash budget that sits within annually managed expenditure. Essentially, what is required is for account to be taken of changes to the economic factors that underpin the assessment of student loans. Provision has to be made for proper accounting for those factors.
I have a final question on the justice portfolio. The table on page 38 shows that £12.7 million is being released in emerging planned underspend from the Scottish Prison Service to support priorities. Can you tell us a wee bit about what those priorities are?
There will be a variety of issues that have to be addressed within the justice portfolio. Some of them might relate to issues around the provision of services, issues in connection with pension provision, the wider pressures that are experienced in the portfolio and so on. We have simply allocated resources to ensure that we can meet those requirements.
Thank you for that. Do colleagues have any questions?
In the health budget, there is a
“Re-phasing of budget for the National Sports Centre”
of £7.8 million in the operating budget, which has been taken from the sport budget. Why has that been moved from sport to health?
Essentially, the sport budget sits within the overall health and wellbeing portfolio budget. There was no requirement for that level of expenditure to be undertaken in 2015-16, but it will be required in 2016-17. We are simply making provision for that resource to be utilised in this financial year on other priorities. The commitment for the national sports centre will be put in place for 2016-17. It is just a timing issue.
The centre’s budget now sits under health.
Yes, but only to provide a timing bridge for the resources to be used in 2016-17.
Could it not just have stayed in the sport budget?
I try to minimise underspends in any given financial year where I can possibly do that. We are required by the agreements that we have in place with the Treasury to maintain our spending as close to required as possible, so we try to deploy our resources to avoid emerging underspends across portfolios.
Under the education and lifelong learning heading, £3.8 million is transferred from health to the Scottish Further and Higher Education Funding Council in respect of nurse education. Intuitively, we would think that that money would sit within the funding council’s budget. Why was it originally included in the health budget?
A host of transfers have happened historically, and nurse education is a good example. The money is provided for in the health budget and it is transferred into the lifelong learning budget in year.
It is a characteristic of budgets over time. Such things can always be changed—indeed, I change them from time to time. However, to go back to our conversation under the previous agenda item, I note that making changes can sometimes make it difficult for the Finance Committee to make like-for-like comparisons of budget developments. It has always been like that.
Under the justice heading, we see the deployment of £2.6 million and £1.8 million underspends to support the costs of domestic abuse and mobile communications systems respectively. Is that £2.6 million for domestic abuse just for in-year resourcing?
Yes.
Lastly, under the infrastructure, investment and cities heading, ferry services sees a reclassification from indirect to direct capital. Will you talk me through that?
That will relate to the treatment of the capital expenditure and whether it sits on the capital asset register of the Government or that of the subsidiary company, which is Caledonian Maritime Assets Ltd. I suspect that the reclassification is to do with new ferry purchasing. We will have made the purchase, but the capital asset will be sitting not on our asset register but on that of one of our subsidiaries. That relates to the accountancy rules that underpin the presentation of the budget.
Thank you.
As there are no further questions, is there anything else that you want to add, Deputy First Minister?
I have nothing to add.
We have concluded our questions on the spring budget revision. We therefore move to item 4, which is the debate on motion S4M-15433.
Motion moved,
That the Finance Committee recommends that the Budget (Scotland) Act 2015 Amendment Regulations 2016 [draft] be approved.—[John Swinney.]
Motion agreed to.
I suspend the meeting briefly to allow a changeover of officials.
12:30 Meeting suspended.Scottish Landfill Tax (Qualifying Material) Order 2016 (SSI 2016/93)
Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2016 (SSI 2016/94)
Our next item of business is to take evidence from the Deputy First Minister on two more pieces of subordinate legislation, this time in relation to the Landfill Tax (Scotland) Act 2014. Mr Swinney is joined for this item by David Kerrouchi and John St Clair of the Scottish Government. I welcome our witnesses to the meeting and invite Mr Swinney to make an opening statement.
The Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2016 specifies the standard rate and lower rate for Scottish landfill tax, as I set out in the draft budget. These proposed rates ensure that the tax burden increases in line with inflation and match the planned UK landfill tax rates for 2016-17, as provided in the Finance Act 2015.
In setting these rates, I am acting to avoid any potential for waste tourism through material differences between the tax rates north and south of the border, while providing appropriate financial incentives to support delivery of our ambitious waste targets, including our zero waste goal that no more than 5 per cent of total waste should go to landfill by 2025.
The Scottish Government forecasts that we will generate revenue of £133 million from Scottish landfill tax in 2016-17. That full-year forecast has again been endorsed as reasonable by the independent Scottish Fiscal Commission.
The Scottish Landfill Tax (Qualifying Material) Order 2016 sets out material that qualifies at the lower rate and the qualifying conditions that have to be met. The lower rate of tax recognises that there is a relatively low level of environmental impact associated with the landfilling of certain wastes that are less active or polluting in the environment. The order replicates the Scottish Landfill Tax (Qualifying Material) Order 2015 and adds a testing requirement for fine waste particles, often referred to as waste fines, to help ensure that the lower rate of Scottish landfill tax is applied consistently and equitably across industry.
The Scottish Government consulted on a testing regime at the end of last year, following calls from industry that the Scottish Government should consider such a measure. Feedback from the waste industry illustrated a feeling that the current system is open to interpretation, with the potential that landfill operators, waste carriers and producers would seek to gain competitive advantage by interpreting the guidance in a liberal way. The inconsistent way in which landfill operators were applying the lower rate of tax was felt to be driving down prices at the expense of more advantageous treatment options further up the waste hierarchy.
The majority of respondents were of the view that the introduction of a statutory testing regime would help to provide certainty and create a level playing field, with the application of the lower tax rate on fine waste residues being placed on a more scientific footing. The establishment of a testing regime will help Scotland to continue to benefit from the important role that landfill tax has played in driving waste away from landfill and will create the stable policy landscape that is needed to underpin long-term investment decisions on infrastructure and collection systems.
The measures will also ensure that the main testing parameters will be broadly similar to those in the rest of the UK. It will be for Revenue Scotland to determine, in its guidance, the frequency of testing and sample-taking procedures required.
The test will not be the only determining factor. In accordance with Revenue Scotland guidance, visual inspections and waste acceptance criteria checks will also be required to ensure that the material that is being disposed of consists of qualifying material, as listed in the schedule to the order.
I recognise that the change in the order will require industry to procure relevant equipment or arrange for appropriate contracts to be put in place. I therefore propose that the order comes into effect on 1 October 2016, so that the waste and secondary resources sector can put the necessary arrangements in place for the testing of waste fines.
On the rates that have been chosen, I take the point that we did not want waste tourism—that was discussed during the passage of the Landfill Tax (Scotland) Bill. Is it the intention that we will always match the UK rates?
What has been in our minds as we implement the new regime is to avoid any potential for waste tourism. However, we have to make judgments that are appropriate to the circumstances in Scotland and, as ministers, we reserve the right to set an appropriate rate annually.
Is there any risk that the UK Government might change its rates at short notice or, on this issue, does it tend to give more notice?
The UK Government tends to set the rates annually. However, as we discussed just yesterday in the chamber in relation to the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill, the UK Government has some flexibility, and we can be vulnerable to short-term changes that can emerge.
What will be the cost to local authorities of the uplift? Has the cabinet secretary done work on that?
I do not think that I have a discrete number in front of me, but I will endeavour to provide an estimate to the committee.
We move to the debate on motion S4M-15815.
Motion moved,
That the Finance Committee recommends that The Scottish Landfill Tax (Qualifying Material) Order 2016 be approved.—[John Swinney.]
Motion agreed to.
We move to the debate on motion S4M-15816.
Motion moved,
That the Finance Committee recommends that The Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2016 be approved.—[John Swinney.]
Motion agreed to.
That ends the public part of the meeting. I thank everyone for their attendance. This has been the final public meeting in the session, so I thank everyone who has given evidence to the committee over the five years in which I have been convener and the myriad members of all parties and none who have contributed as committee members. I thank the Deputy First Minister, who has appeared at the committee more than most of its members. It would be inappropriate if I did not also thank our clerks and the official report, who have done sterling work over the past five years.
12:37 Meeting continued in private until 12:53.Previous
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