Official Report 477KB pdf
Item 2 is our final evidence session on the 2012-13 draft budget and 2011 spending review. I welcome to the meeting the Cabinet Secretary for Infrastructure and Capital Investment, Alex Neil, and his Scottish Government officials: Rachel Gwyon, head of housing: sustainability and innovative finance; Sharon Fairweather, director of finance, Transport Scotland; and Victoria Bruce, policy manager, infrastructure investment policy.
There is no doubt in my mind that investment in infrastructure—and investment in transport in particular—acts as a stimulant to economic growth. Academic evidence has demonstrated that every 1 per cent of gross domestic product invested in infrastructure can generate an additional 0.3 per cent of economic growth per annum. That means that after three years the initial capital investment will have been more or less repaid. Other figures show that, on average, capital spending has two to three times the multiplier impact on the economy, jobs and investment as resource spending.
Those are future projects. Has project delivery appraisal been done to assess how previous schemes have delivered against appraisal forecasts?
Yes. All major projects have a post-project, post-construction appraisal. The example that we usually cite in such evidence sessions is the appraisal that showed the impact of the Stirling-Alloa-Kincardine railway line. However, there are many examples and I would be happy to supply the committee with some of the recent appraisals that have been done on completed projects.
As well as new investment in major capital infrastructure projects, there is always the argument about whether we have got the balance right between investment in new infrastructure projects and investment in maintaining existing assets, which is arguably more consistent with the Government’s prioritisation of preventative spend. Can I have your thoughts on that, please?
The Auditor General for Scotland has produced a number of reports on the importance of maintenance, and we agree with him that maintenance is extremely important. If we do not maintain infrastructure to a certain level, that can cost even more money in the future; for example, major repairs may have to be undertaken because a road has not been properly maintained.
Neil Findlay has a question, which does not flow on from the previous one.
My question is on Scottish Water. The Water Industry Commission for Scotland’s draft determination process identified a requirement of £700 million over five years for Scottish Water, but it appears that it has been allocated £350 million in the budget. How will that gap be bridged?
First, the total investment programme over the regulatory cycle is about £1.7 billion. As Scottish Water has publicly confirmed, the CSR arrangements will not in any way endanger that £1.7 billion figure. We were able, in negotiation with Scottish Water, to reduce our planned financial input to Scottish Water over the CSR period because it was sitting on a very substantial cash reserve, which we are putting to work in terms of investment. In these straitened times when every penny counts, we—Scottish Water and the Cabinet—all agreed that it made more sense to make use of that cash reserve in this period to help fund the investment programme. The investment programme therefore stands at £1.7 billion over the regulatory period.
Does the WICS agree with that?
It does not need to agree to it in that sense. There is a new commissioner and, to the best of my knowledge, he has not commented publicly or privately on the figure.
I would have expected the WICS to comment when its determination of £700 million suddenly became £350 million, because that is a significant gap. When the WICS made that determination, was it unaware that Scottish Water was sitting on such reserves?
You will have to ask the WICS what considerations it took into account.
So you will not comment.
I cannot speak for the WICS. All I know is that the investment programme is intact. As I have explained, there is a slight adjustment to the sources of funding for the investment programme. The point that matters most to everybody is that the investment programme is maintained.
Thank you. I will pursue that with the WICS and see whether it can be persuaded to break its silence.
Some of the capital projects will be paid for by non-profit-distributing models, and the rail network projects will use regulatory asset base funding. What do you estimate to be the pressure on the revenue lines of those projects during the next and subsequent spending reviews? What impact will that pressure have on the revenue of local authorities, for example, and the regional transport partnerships in the future?
First, in general terms and not just in relation to transport but on the budget and CSR, we have taken a conscious decision to transfer more than £700 million of resource into the capital budget, because our overriding objective is sustainable economic growth. As I have outlined, the best way to get economic growth in Scotland is to maximise capital spend. That is why, over the three-year period, we will transfer that £700 million from the resource budget into the capital budget.
We have heard from a number of witnesses and experts, among whom there was a consensus that small-scale capital schemes, such as trunk road improvements, bypasses, cycling and walking infrastructure, and park-and-ride facilities, for example, often provide excellent value for money. Such schemes also have significant economic impact, given that local Scottish contractors tend to be used for the work. The committee acknowledges that capital funds are limited, but if more capital funding were to become available in the spending review period would the cabinet secretary be willing and able to prioritise smaller, shovel-ready schemes?
I will answer that in a number of ways.
We are clearly looking for economic impact from any capital that becomes available, and we hope that we will get a plan B in due course. We saw that, when President Obama tried to find shovel-ready schemes in the United States, there was a dearth of them. Can you assure me that there has not been a slowdown in the activity to progress projects—those in the strategic transport projects review, for example—through the various planning and statutory processes that they have to go through? If we were in a position to invest in shovel-ready schemes, would there be enough of them to take up the work quickly?
We already have a number of shovel-ready schemes that we could start tomorrow morning. Indeed, when I was going through my ministerial box last night, I approved a list of new projects that we want to make shovel ready for whenever the money becomes available.
Does that include the Maybole bypass?
You will just have to wait for the announcement, Adam. [Laughter.] I am too long in the tooth to be caught out by that.
Although I fully accept the difficulties that you face in the capital budget, questions remain about your priorities. Sticking with the transport budget at this stage, I share the concerns that were expressed last week about the budget’s climate change dimension. Given that, at a recent event, you acknowledged that as part of your ministerial brief you were responsible for up to 50 per cent of Scotland’s emissions, you clearly have a weighty responsibility to take action with regard to our climate change objectives. There were many proposals in the report on proposals and policies but, notwithstanding the difficulties that you have described, it seems perverse for support for sustainable and active travel, which I imagine is the main budget line relevant to this discussion, to be cut very significantly next year. I believe that it goes up the following year but is then cut again.
The Halbeath park-and-ride and Glasgow fastlink will contribute greatly to reducing carbon emissions in Scotland. I accept that, at first glance, the spending review might—in relation, at least, to transport—give the impression that we are not giving climate change measures the importance that we should be giving them. However, I assure you that we are doing so. For example, we are looking at whether adjustments can be made to the bus service operators grant to encourage the use of low carbon emission buses among operators. We still have work to do in that regard but, in the budgets that have been identified, we are keen to build in and indeed mainstream climate change measures instead of simply seeing them as a separate budget line. After all, if we are to achieve anything like a 42 per cent reduction in carbon emissions, we will have to mainstream climate change considerations in everything that we do. I agree that the climate change-oriented elements of the budget might give the wrong impression; instead, you have to look at our mainstream investment programmes.
I do not know where to begin with that reply. It is a well-known fact that the more roads you build, the more cars that use them, so it is a bit facile to suggest that you are meeting your climate change objectives by building more motorways. Indeed, I have never heard such a claim before. Nice try, cabinet secretary, but I do not think that only the Green party will find such a statement incredible.
It is generally accepted that if you reduce congestion, you reduce carbon emissions.
Not if there are more cars on the road.
Well, that is a separate issue.
My specific question was about a very limited budget line. Once again, all the examples of small projects that you highlighted are roads. I have nothing against the Maybole bypass but the point is that, with regard to cycling—and I guess that the walking infrastructure is also relevant—not only is this budget line important to climate change considerations, but it is one of the few budget lines in the transport budget that is relevant to the preventative spending theme.
The refrain that I hear from everyone who wants more money spent is, “This is just a small percentage of your total budget.” Of course, when all the small percentages are added up, they come to a big percentage.
I knew that you were going to say that. The point is that it is not only health and climate change that are involved. As Adam Ingram said, cycling and walking infrastructure is typically built by small civil engineering contractors and local authorities, which is good from an economic point of view. I never argue for more money for everything. I would always tell you where the money should come from.
I disagree with your suggestion that our transport budget is not making a significant contribution to our climate change targets. Our investment in rail is a good example of the way in which it is doing so. The contract that I referred to earlier for new hybrid ferries is one of the ways in which we are mainstreaming our climate change targets. The emissions savings from the use of that kind of ferry are substantial. That is how we are trying to do it.
On transport, which we are dealing with at the moment, the generous estimate has been made that the draft budget for 2012-13 provides at most 6 per cent of the funding for transport measures that is required by the report on proposals and policies.
One of the line items in the budget is the start next year of spending the £50 million transport fund, which is one of five £50 million funds arising from the savings in the Forth replacement crossing contract. That sum is very much geared, in terms of freight and encouraging the use of low-carbon vehicles, to the climate change agenda. We have indicated the general intention of the transport fund, but we have not allocated it yet to particular projects. If the committee had views on that and thought perhaps that some of the fund should be used for cycling and walking, I would obviously be prepared to listen to what the committee had to say. We are singing from the same hymn sheet on what we would like to get done in that regard.
Jamie Hepburn is next.
The area that I wanted to question the cabinet secretary on has already been usefully explored by Malcolm Chisholm.
I wonder whether it is right always to lump cycling and walking together. My experience is that two distinct groups are involved. People will tell you that cycling has had a lot of money spent on it, but ensuring safer streets and that pavements are not totally uneven and are suitable for walking on, including walking to work, is perhaps more important for more people.
I was thinking that when I was doing my 3-mile run this morning. [Laughter.]
The cabinet secretary touched on the Scottish futures fund and the £6.5 million for next year’s budget. My understanding is that that is split between transport and housing. Can you tell us a little more about how that will be allocated?
The background to that is that there was a £250 million saving on the Forth replacement crossing contract. We made a manifesto commitment to have five funds of £50 million. One is the warm homes fund and another is the transport fund, which is very much directed at climate change—primarily at a reduction in carbon emissions. We want to use it so that it also contributes to our fuel poverty targets, because the two targets are not contradictory. I have not yet allocated in detail either the money in the warm homes fund or the money in the transport fund. I await the committee’s report before I take final decisions on how the funds will be allocated.
We have received evidence on the importance of the modal shift from road to rail. At the end of the previous session of Parliament, there was some reinstatement of the freight facilities grant, which had been cut in the previous year’s budget. Will you make a commitment to the freight facilities grant or a replacement scheme?
We have made a number of awards under the freight facilities grant, and my intention is to continue to make that funding available because it clearly encourages a modal shift, helps us reach our climate change targets and is beneficial to the overall transport strategy.
The budget that is allocated to the grant has been significantly reduced. What impact will that have on the number and scale of grants that can be awarded?
The budget, like every other budget, was subject to the reduction in available resources. There was also an issue to do with demand—the number of qualifying credible applications has not been high. Sharon Fairweather will give more detail.
We have awarded 34 freight grants. About £65 million has been allocated in Scotland, which is having a significant impact. As Alex Neil said, we have not had enough applications in recent years to enable us to spend the budget. We will look to use some of the new Scottish futures fund so that we can continue to invest in the area. We continue to work with the freight industry in a number of ways to support the move to rail.
Are you saying that if an appropriate application was made to you for a modal shift project you would consider it, and that it would not be ruled out because you have used up your funding allocation?
We would definitely consider the application.
Does the same apply in relation to water-borne freight?
I think it does; I think that no distinction is made.
In future years the Scottish futures fund will increase sharply. You will spend £59.5 million during the spending review period.
That money will be spent between transport and housing.
Right. How will you make the split?
As I said, there are five funds, of which three come under my umbrella: the funds for housing, warm homes and transport. Because we have not made detailed allocations, for the purposes of next year we have agreed to split down the middle the £6.5 million that is available. We are also doing a lot of work on the longer-term use of the funds, so by the time I come back to you next year we will have more detailed plans on how we will use the £50 million for transport and the £50 million for housing during the next four or five years.
There is consensus among our witnesses that the concessionary bus fares policy is worth while, but most witnesses agree that the policy in its current form is not equitable or financially sustainable in the current financial climate. The budget will increase from £185 million to £192 million. Given that the scheme was most recently reviewed three years after its introduction in 2006, are you willing to consider a refresh of the scheme?
There are three basic programmes: concessionary fares, the bus service operators grant, and direct response transport. We think that we need to expand DRT to achieve our policy objectives. We will consider all that in the round and we hope to make announcements reasonably soon. I am not today in a position to go into more detail.
I am sure that my constituents will be glad to hear that.
That is part of the discussion in our review. As I said to Malcolm Chisholm, the funding that is available for the BSOG could be used more effectively to achieve our policy objectives.
Concerns have been expressed about the relatively high average age of Caledonian MacBrayne’s ferries. The cabinet secretary’s announcement last week was welcome, but could there be additional capital funding if large vessels need to be replaced during the spending review period? Have you been talking to CalMac about exploring ways of raising capital funds?
As members know, Caledonian Maritime Assets Ltd is the sister company of CalMac. I have met the leading people in CMAL to talk about the future investment programme for ferries. This is a good example of a situation in which, if we as a Government had borrowing powers, we would be doing more now than we are allowed to under the current constraints. I acknowledge the ageing profile of the ferry fleet, and we are in detailed discussions with CMAL and others on how to make progress. Ideally, I would like a major investment programme over the next five to 10 years to renew the ferry fleet. However, at the moment money is very limited. If Westminster saw sense—which would be highly unusual—and gave us borrowing powers for a higher amount at an earlier date, we would be able to do much more, much quicker.
Witnesses and members of the committee have expressed general concerns about the details of the budget document. For example, exactly which projects will benefit from the £750 million of additional spending? Also, people have expressed concern about the details of the funding for cycling and walking—although I acknowledge that you will send us more information on the cross-portfolio budgets. In the future, will the budget be presented in a way that is easier to read, thereby ensuring greater transparency and easier scrutiny?
The presentation of the budget is the responsibility of Mr Swinney; I am sure that he will take into account any comments that are made by this committee or the Finance Committee. I presume that your report will go to the Finance Committee, which will then make recommendations to Mr Swinney and other ministers. I will pass on your comments to Mr Swinney, convener.
Thank you. We move now to housing.
The budget appears to give a clear signal to the housing sector that the Government no longer regards social housing as a priority. One important and credible housing provider told me recently that no coherent programme exists for affordable or social housing that can be planned and driven forward over the next few years. Your party’s manifesto made a commitment to build 6,000 socially rented homes a year. I have recently met Shelter, which advises me that only 1,550 such houses can be built with the current allocation. How do you answer the concerns of stakeholders about the disproportionately high cut in the social housing budget?
Shelter has said that we would require something like £630 million over the three years of the comprehensive spending review, in order to achieve our target. We are only £10 million short of that according to the published figures—not a substantial amount over the three years, according to Shelter’s calculations.
Similar comments were made in the public arena when we took evidence from the housing providers.
They need to wake up and smell the coffee. What matters is how many houses we are building, and we are building a record number. You need only look at the average build over the period for which the Parliament has existed, particularly over the first eight years. The year before we came to power, six council houses were built in Scotland, all of them in Shetland. As we speak, 1,600 councils houses are under construction. People need to look at the facts: the fact is that councils were previously given no subsidy to build and are now getting £30,000 per house. We will have 5,000 new council houses in Scotland over the next five years.
I am sure that providers would appreciate an invitation to meet you and smell your coffee. You promised 6,000 social rented houses at the election, so was that commitment a mistake?
I think—
That is a very direct question—was it a mistake?
I am answering the direct question. We said that the Government’s commitment was to complete 6,000 affordable new houses every year. The vast bulk of those will be built by housing associations and will be social rented housing. However, the bit that does not go to the social rented sector is equally beneficial to that sector. That is what matters.
I have to pursue this. The commitment was for 6,000 social rented houses; is it now for affordable houses?
I have said that the commitment is for 6,000 affordable new homes to be completed every year.
Thank you for that clarity.
I have said that in the chamber, as well.
The SFHA has said that the £40,000 subsidy
The £40,000 is a benchmark. We have always said that we would give communities that could not build the houses for £40,000—particularly those in remote rural areas and island communities—the subsidy that they need to make it happen. Let us be clear about that.
My last question is about the push towards mid-market rent. Has any evaluation of the market for that been done? What safeguards have been built in for individuals and providers?
What sort of safeguards do you mean?
I mean safeguards to ensure that people can afford the rent, and to protect future rental income.
Every housing project, whether mid-market or otherwise, is about viability for the delivery agent—the housing association or council, which must ensure that its housing revenue account is viable—and the people who will rent the houses. As you know, each housing association and council is responsible for its own rent level. We have not gone, and will not go, down the road that the Government down south has taken of setting in London rents for the whole country. We have left that to each council and housing association. We do not in any way try to dictate to them the level of rent.
What can you say about safeguards for the tenants?
The housing associations and councils decide rent policy. Obviously, they have to design rent policy that meets their tenants’ needs, and they must set rents that tenants can pay. As you know, a high proportion of people in council housing and housing association houses are on housing benefit; rent levels across the board in Scotland are well within housing-benefit levels.
If we move to mid-market rent, there is a real danger of trapping people in poverty.
It is not a market rent, but it is called the mid-market rent. Those terms get bandied about. What is called the mid-market rent is equivalent to between 85 per cent and 90 per cent of housing benefit. Therefore, it is actually a form of social rent. It is a slightly more expensive social rent, but it is still a social rent, in essence. I think that I am right in saying—I will have to check this out—that the level of rent arrears in the mid-market sector is substantially lower than that in the social rented sector.
Neil Findlay has covered much of what I was going to ask, so I will ask about the allocation or distribution of housing money. Hitherto, that has been done in two parts: the City of Edinburgh Council and Glasgow City Council are the two authorities that manage development funding and get their funding through the local government line. Are there any plans to alter that arrangement?
As you know, TMDF has two elements, which were all part of the deal way back in 2002, when Glasgow Housing Association was set up. The TMDF mechanism is part of the local government settlement. One element allows Glasgow City Council and the City of Edinburgh Council to allocate Scottish Government funding to housing associations in their areas, within the broad parameters that are set nationally. The second element is GHA funding, which is gradually coming to the end of its life.
A way of dealing with the problem that you could consider would be to give more TMDF money to Edinburgh. The serious concern is that Edinburgh and Glasgow will not take cuts that are as drastic as the cuts for the rest of Scotland, so the fear is that you will make the cut to Edinburgh and Glasgow the same as that everywhere else, which would reduce the overall housing budget. Of course, the £250 million is included in the £600 million plus that is quoted as your overall figure for the three years.
TMDF is skewed to Glasgow because legal commitments, which remain, were made to Glasgow Housing Association. We must look at the non-legally committed element of the budget, about which we are talking to COSLA. The discussion’s objective is to ensure that whatever mechanism—be it TMDF or whatever—is used, we end up with a fair allocation between authorities.
Do you not have to distribute money on the basis of housing need rather than doing what COSLA tells you?
That is absolutely our approach. For example, to be considered for approval under the innovation and investment fund, a project has to be consistent with the local authority’s housing strategy and with its investment plan. We build that into everything that we do. The Scottish Government on principle does not fund anything that contradicts, undermines or is inconsistent with local housing strategies as devised by local authorities.
Are you giving us a guarantee that the overall housing budget will not be cut as a result of your discussion with COSLA?
The TMDF element will not be cut—that will be for housing. The discussion is about how we allocate it.
If local authorities do not manage development funding, how can they get money for managing development funding?
We are not saying that Glasgow City Council and the City of Edinburgh Council would not manage their share of the budget. To be frank, Edinburgh’s share is fair. The problem is the skewing of the figures in relation to GHA. However we proceed, we must end up with a fair allocation of the total money that is available for housing—including TMDF—in the whole country, which includes Glasgow and Edinburgh. The mechanics of distribution might change.
I presume that you decided the TMDF allocations to Edinburgh and Glasgow on the basis that they were fair shares—otherwise, you would not have awarded that amount of money, even in the local government line.
The position was agreed as part of the local government settlement. At the time of producing the budget, we agreed with COSLA that the issue had to be revisited after the overall budget figures were agreed. We identified at the time of the comprehensive spending review that the issue needed to be addressed, but we decided that we could do that once the global figures were agreed.
Should those decisions not be based on an analysis of housing need and a consideration of which local authorities are in greatest need of money—to go back to Neil Findlay’s point—for social rented housing?
That is what we are basing our decisions on, but need has various elements. As you know, every local authority carries out a need and demand assessment and their strategies are based on the results. Sometimes the need is a result of the sheer shortage of housing. In Glasgow, a larger element is the need for regeneration due to the backlog of unfit housing in the city. Glasgow has carried out a need and demand analysis, on which its strategy is based. We allocate money on the basis of strategy that reflects need and demand.
It is hard for me to see how that will be changed by a discussion with COSLA. Surely central Government has a view; I do not know whether you have a formula, but you must have weighted indicators that suggest that a certain amount of money has to go to each area.
It is not about lobbying. We have inherited the TMDF arrangement. Because of the way in which the overall housing budget is moving in the local government settlement, if there is no change to the current TMDF settlement it will mean that Glasgow, instead of getting an average of 27 per cent of the total Scottish social housing budget as it has in the past few years, could end up with close to 50 per cent. That would clearly not be fair.
For the Official Report, I ask the cabinet secretary to tell us what TMDF stands for.
It is the transfer of the management of development funding.
Thank you. We heard from the existing home alliance about the increase in spending on energy efficiency and fuel poverty this year in comparison with last year, although the spend still falls short of what it has been in previous years. In its submission to the committee, the alliance said:
I will make two substantive points. First, over the three-year period of the comprehensive spending review, the total spend on our fuel poverty programmes—including the energy efficiency measures that fall under Mr Swinney’s responsibility—is about £0.25 billion. The vast bulk of that comprises our flagship programmes, the energy assistance package and the universal home insulation programme.
The next-generation digital fund is designed to accelerate the roll-out of broadband across Scotland. What plans does the Government have for the allocation of funding from that fund and what impact is the fund likely to have?
The total funding that has been identified for investment in superfast broadband over the next three years or so is £143 million. That includes the £68 million that we have had from the UK Government, which was way below the figure that we should have got, plus the £50 million next-generation digital fund that we have created and £25 million from European structural funds. Adding that up, £143 million will be available. The £10 million that has already been committed for the Highlands and Islands must be deducted from that, so there is about £133 million still to allocate. Early in the new year, if not sooner, we will publish our action plan for rolling out the money and the criteria that we will use to do that.
We have to watch this space, I suppose. We have heard about the oversubscription of the innovation and investment fund among housing associations. You say that about £133 million is available through the next-generation digital fund, which is a substantial amount, but we face a great challenge in rolling out broadband, so we can imagine that the fund will also be very well subscribed. If there is a shortfall—although I hesitate to use that term—and there are more applications than available funding, how will you seek to leverage in other funding?
It is estimated that in the Highlands and Islands alone it could cost £300 million to ensure that everyone has access to superfast broadband, although I am not in a position to say whether that figure is accurate. There is clearly a huge demand for that kind of broadband and we need to do what we can in that respect.
You have referred a couple of times to the situation in the Highlands and Islands and there is a tendency to look at the issue from the perspective of the pressing need for broadband access in rural Scotland. Although I accept that such need exists, we had a presentation from Ofcom that suggested that broadband take-up rates are higher in rural areas than they are in urban areas. That might not entirely be down to infrastructure. I know that, in the northern part of urban Cumbernauld in my constituency, access to broadband is poor. Are you able to assure the committee that the fund will be available to the whole of Scotland, not just its rural areas?
There will be a heavy emphasis on rural Scotland because I imagine that private investment will not be made in those areas. That said, our policy objective is to make superfast broadband available throughout the whole of Scotland and, obviously, we will do whatever we need to do to achieve that aim.
That is a good place on which to end my questions.
It certainly is.