Budget (Scotland) Act 2005 Amendment Order 2006 (draft)
I begin the first Finance Committee meeting of 2006 by welcoming the minister, his officials, the press and the public. I provide my usual reminder to turn off mobile phones and pagers.
I wish the committee a very good new year. I hope that everyone had an enjoyable recess. It is good to meet again.
I thank George Lyon for his remarks.
I imagine that the reason is the substantial change in the pensions figure. I was not in post when the last budget was drawn up, so I will ask officials to explain further. I imagine that the change is to take account of the actuarial change in pensions provision.
I agree with the minister. The pensions increases of about £510 million account for the largest part of the £610 million increase. If we take that away, the overall provision is comparable to previous years. As the minister said, the largest part of the £610 million increase is due to pensions.
You highlighted two significant budget areas, which were provision for teachers and NHS pensions. Is there the prospect that a similar revalorisation will affect pensions in other areas of the public sector? Is the increase in teachers and NHS pensions a foretaste of further changes that might come about if other groups of employees are affected by the same process?
We are not aware of increases of that magnitude in other pension schemes. The NHS and teachers pensions are the main areas that we look after. The increases in those pensions were funded by HM Treasury increases.
Can you go through what exactly is causing the increase so that the committee is absolutely clear?
I do not profess to be an expert on the matter, but my understanding is that when the actuaries revalued the pension schemes and considered the opening liabilities from the previous year, they realised that there had been an error. When they revalued the liabilities, they had to restate the opening balances of the pension scheme, which meant that there was a shortfall that had to be funded by increased provision from the Treasury.
The £500 million had to be found from the Treasury to deal with shortfall.
Yes.
The minister said that the increase did not necessarily affect the budget that was available.
We give our forecast for annually managed expenditure to the Treasury and it provides us with what we need. The fact that the increase is a non-cash element of the budget means that it does not affect our cash requirement. Therefore, no other areas of the budget suffer as a result of the increased provision that we require for the pension schemes.
Who carries out the actuarial evaluation? Is it done by officials of the Scottish Executive or by Her Majesty's Government?
It is done by Government actuaries. I remember that the Audit Committee examined this subject, and it found that the restated figures resulted from revaluation by Government actuaries.
When an error is identified in the calculation of the opening liabilities, is it communicated to the Scottish Executive so that it can request an increase in AME?
Yes. We were informed when the error was identified so that we could inform the Treasury that we needed extra funds to meet the costs of the pension schemes.
I would like to ask about the environmental protection budget, which is given on page 20 of the autumn budget revision. I am surprised to see that the strategic waste fund is decreasing by £29.9 million and that there is a reduction of almost £9 million in the flood and coast protection budget. Why? The Executive has recycling targets that have to be met this year, but many local authorities are struggling to get anywhere near the target of 25 per cent recycling. Why has there been such a significant reduction in those budget lines? I am surprised, given the recent problems that we have had with flooding, that the flood and coast protection budget is falling.
When the committee met in Elgin, people there mentioned the requirement for flood protection and their difficulties in getting resources. It is, therefore, perhaps surprising that there has been, in effect, an underspend in flood and coast protection.
The information that I have from the Environment and Rural Affairs Department is that there is a transfer to the CUP of £8.9 million for flood and coast protection. Therefore, provision is being made to meet future demand.
Is there an underspend because local authorities have not bid for money from the fund?
There is a clear expectation that that money will be drawn down. Therefore, the £8.9 million transfer is being set aside to be used for flood and coast protection.
Are those demand-led budget lines?
Yes.
Therefore, an explanation for the transfer might be that there has not been an occasion on which the funds have been drawn down.
The funds have not been drawn down as such, but it is probably anticipated that there will be a draw-down, and provision is being made for that.
So, the funds will be available should local authorities come forward for them.
Yes, but the funds have to be drawn down. If you wish, I can get a more detailed explanation of that for the committee.
That would be interesting, because the sums are considerable: £9 million has not been spent, and the revision is to £6.5 million, which is more than 50 per cent.
It is a big amount.
There is a considerable discrepancy between what was bid for and what has been spent.
There has to be demand from local authorities. However, we shall seek further explanation from the Environment and Rural Affairs Department and furnish the committee with it.
It is unlikely that there will be a lack of demand from local authorities. My constituency alone could probably spend all the money that has been put into the CUP—never mind the problems in other members' constituencies. However, we should wait for the explanation.
The department knows that bids are coming in, but there may be slippage in capital programmes for the works that go ahead before money is paid out. Until we get a more thorough explanation from the department, I cannot tell you the details.
You made a significant point about slippage, which seems to be becoming a characteristic of a host of Government programmes. The £29 million that will come out of the strategic waste programme is not as grave as some other transfers. Will that £29 million transfer to the CUP?
There is a transfer to revenue support grant of community support grants for local authorities. There is a transfer to meet other pressures in the environment group. Once we get a more detailed breakdown of that figure, we will be pleased to follow up on it.
One of my concerns about the strategic waste fund is that local authorities are being asked to bid for resources from the fund. The deadline for such bids has either just passed or is to be reached shortly, and local authorities have had three or four months to do that. However, the Scottish Executive will not tell them whether their bids have been successful until about December 2006, which means that the Executive will sit on the applications for 11 months. Meanwhile, local authorities will start to incur fines because they will not have reached the requisite levels of recycling.
Certainly. My experience of my constituency is that the council has perhaps struggled to get up and running in the past 12 months as many projects as it would like. Officials from the council's finance department have told me that there has been slippage in the council's allocation for this financial year: there have been problems in getting the allocation spent and out the door, which can have an impact on spend.
I want to move on, if that is okay, convener.
A couple of members want to talk about environmental protection, so I will hold your question.
My question is linked and is about a similar situation to that of the strategic waste fund. Under the water services budget, the provision for private supplies has been cut, at a time when the European Union water framework directive is being implemented and we will unearth more and more people with private supplies who have problems with obtaining water and with sewage disposal. That cut is somewhat at odds with policy. In your rural constituency, minister, many people have private supplies; the budget for linking them to the mains water supply is being drastically reduced.
I shall ask the relevant minister about the reasons for that and respond to the committee. I am not in a position to say in detail why he has sought such changes in the budget.
There is a contradiction.
We will try to clarify the point.
I remind members that we are asking technical questions.
I want to return to the pensions issue, if that is okay.
We will deal with environmental protection first, then we will return to pensions—I want to ask about them, too. Does Jim Mather want to ask about environmental protection?
Do water services fall under that heading?
We will finish discussing environmental protection, go on to pensions, then move on. The point that I will pick up on in relation to environmental protection is other pressures in the environment budget, which the minister has mentioned twice. I would be concerned if money was not being spent on capital projects or on processes that were on a timetable, such as the strategic waste fund, because other parts of the budget show a pattern of overspend.
I shall seek further explanation and get back to the committee. Quite a lot of budgets in the Environment and Rural Affairs Department are demand led, so it is quite difficult to predict outturns and whether there is enough cover to meet demand. When I have heard a fuller explanation from the Minister for Environment and Rural Development, I will respond to the committee. Do members have any other questions on that budget?
I seek a wee bit of clarification. Do the increases that the convener mentioned represent overspends or end-year flexibility decisions to give projects additional money? That is not clear from the documentation.
EYF allocations are being added to some portfolio budgets and transfers from the CUP are being made into other budgets. None of the increases is an overspend; the figures are revisions to the budgets to which those organisations work, which are based on their latest forecasts.
Some increases relate to administrative pressures—the figures that I listed all result from a lack of administrative control. The real issues are whether the Environment and Rural Affairs Department has tight enough administrative control over such budgets and whether money for programmes is being spent to cover administrative matters. If that were the case, we would be concerned. There is another issue, but I will let Mark Ballard speak.
Further to that point, under the Environment and Rural Affairs Department budget, schedule 3.4 on fisheries shows that funding for fisheries capital grants is declining by £6.5 million, which is something like a 45 per cent cut. That may well be another example of what the convener said about programme grants. If the minister has no details on that, could he add it to his list for the Minister for Environment and Rural Development?
Yes—I will do that. I also ask committee members to let us know about other points, to which we will respond.
The fisheries capital grants might be an example of a good control at one level, because they should be demand led. We need to get a handle on whether that money does not require to be spent.
We will be pleased to obtain the information and to respond to the committee.
I will return to pensions, and then call Derek Brownlee.
John Nicholson talked about an error. I am interested in understanding precisely what the error was and the extent to which we separate an error, which I assume was a miscalculation, from a change in the actuarial assumptions. We are all aware of the difficulties with which the actuarial profession must deal. It would be useful to have a clear guideline on whether the figure is all due to a calculation error or whether changing assumptions are an aspect, which would have a broader impact, as Des McNulty said.
If the underlying assumptions changed, the actuaries would say that rather than that an error had been made. I am sure that the Audit Committee has worked on that, but we will confirm that an actuarial error rather than a change in the underlying assumptions took place. We will also seek assurance that the increase is a one-off and that it is the only impact in this financial year. Financial impacts might be felt in later years, but we should be able to take them into account in the next budgeting round.
Financial impacts in other years follow, but we require further information. We will move on.
I will return to water services.
Fine.
That is great.
I will investigate why he needs an extra £2 million. I cannot give you the information now, but there seems to be a substantial increase in his budget.
I ask for your support on another issue. On 30 November, in this very room, I put it to Sir Ian Byatt that he should meet members to discuss our concerns about the running of Scottish Water. I have now sent him five e-mails and two letters. I received one acknowledgement from a junior member of staff, but I have not had a meeting with him, so my sanctioning the £2 million is somewhat pie in the sky. Do you agree that Sir Ian Byatt should meet me?
I am not sure that that is a technical question.
It is political.
It is a very technical question from where I am sitting.
Given the terms in which Mr Mather has portrayed the matter, I am sure that Sir Ian Byatt will be keen to meet him. He might also want to meet the Executive to discuss the issue. As I recall, when the water industry commissioner was the single person who ran the water industry, Audit Scotland raised some concerns about its financial management. Clearly, I will seek further information about the £2 million.
I would like to ask about the £7 million for the transitional reduction scheme.
Unfortunately, our information tells us the sources of the funding rather than what it is for. Again, I am afraid that we will have to get back to you in writing on that.
When one ploughs these things, some things stick out fairly obviously. I would have hoped that the officials would be in a position to respond to some of our questions. That is not a criticism, but if these sessions are to be useful, we require answers to questions here and now rather than at a future stage. However, that information would be useful.
Concessionary fares are mentioned on page 60, which shows a fairly substantial increase in smartcard applications and in the concessionary fares national scheme. Why are the figures so out of kilter?
The £21 million increase is made up of separate elements. Half of the £6.1 million total increase for smartcards comes from last year's end-year flexibility, and the remainder is additional funding for the smartcards from programme expenditure that, again, was found from the previous year's EYF.
It is troubling that there is a 200 per cent increase for smartcard applications. The operators would have been familiar with the technology and link-ups that are required, so why is the figure so off the prediction? It seems such a strange figure.
As the funding came from EYF, the suggestion is that it was supposed to have been spent last year. It is possible that the scheme that was supposed to get off the ground last year has taken longer than expected, and the applications are now being processed in this rather than last financial year. The budget is merely being shifted from one year to the next rather than the allocation being supplemented.
Is that the case for the concessionary fares increase, which is 150 per cent?
The concessionary fares increase is down to additional section 70 support for local authorities to claim on existing schemes as per the 2002 spending agreement with the Convention of Scottish Local Authorities. It is not clear whether that is EYF.
I presumed that the increase was to do with demand being greater than expected. That is my hunch, but clarity would be helpful.
It is not clear whether it is EYF or funding that has been taken from the CUP or elsewhere. Unfortunately, I cannot give you any more information.
Picking up where Frank McAveety left off, I hear what you say about some of the funding being EYF, but I am uncertain why that has not been identified in the budget. I think that Frank McAveety's point is that the smartcard application budget is now £9.1 million and the concessionary fares national scheme budget is £25 million, although in the original budget the figures were £3 million and £10 million respectively. I cannot understand why that has not been highlighted. Is that news about the developing cost of the scheme, or was it always envisaged that that would be the cost of the scheme?
If we take the smartcards, the point that I was trying to make is that the original budget for 2005-06 was £3 million, but a further £6 million was to have been spent in 2004-05. If that is now happening this year, obviously the budget must be supplemented. The plan was always to spend £3 million in 2005-06, but we must now also deal with what we did not manage to achieve in the previous year.
Why was that not highlighted in the 2005-06 budget?
Because the provision was to carry it forward as EYF, and we cannot put EYF in the original budget, which is set before the end of the previous financial year. The budget for 2005-06 would have been set in January 2005.
So that funding is slippage from 2004-05 that has been brought into 2005-06.
That appears to be the explanation that is given here.
In a sense, you have answered my question, so I will let you go.
I am more worried about the national scheme. I understand that spending on smartcards might be deferred and that funding might be spent in the year subsequent to when it was initially intended. However, when the announcements on the concessionary fares national scheme were made, the minister at the time, Nicol Stephen, was unable to provide a proper costing for the scheme and we ended up with a range of costs. Now we have a significant increase of £15 million in this financial year, and that is before the scheme is introduced.
Are the explanations for the £15 million and the £6.1 million the same? Is the £15 million expenditure that was envisaged for the previous year but that has slipped and is now being spent in this financial year?
The explanation does not make that clear. It is claimed that it is additional support, but it is not clear whether it is additional support from the previous or the current year.
There seem to be major transfers and changes of funding in the overall transport budget, including a £48 million cut for rail services in Scotland, which is mentioned in schedule 3.10 on page 57, and a £71 million cut in the integrated transport fund, which is highlighted on page 61. The major decrease in capital spending on motorways is more than matched by an increase in operating costs.
None of the cuts means an inability to deliver what is supposed to be delivered by the transport portfolio. A large part of the changes to the roads budget that you highlighted—almost £27 million—relate to M74 land acquisition and are dependent on the outcome of the court case on the public local inquiry into that issue. That money has been reprofiled until the end of the court case, when it will be possible to buy the land. It will wait in the CUP until the court case has concluded.
What about the changes to the budgets for motorways and trunk roads?
The largest part of those changes are accounted for by the £27 million that relates to M74 land acquisition.
There are also changes of £28 million for bridge strengthening and £38 million in roads improvements.
The change to the bridge strengthening budget is an accounting change. The classification of bridge strengthening has been changed. It is now classed as an operating cost, rather than a capital cost. All that is happening is that £28 million is moving from the capital budget to the operating budget. The money is not coming out of bridge strengthening.
What about roads improvements?
The changes to the roads improvements budget are largely of the same type. The net effect is an increase, rather than a decrease, in the budget for roads improvements. The budget is increasing by between £12 million and £13 million.
Is part of that money coming out of the rail services budget, as listed on page 45?
It may be. The rail money is not required until next year, or whenever the contractual obligations are complete. The object of the CUP is to allow portfolios to manage pressures between years. The transport portfolio may have chosen to use part of its money for this year to deal with road pressures, with a view to using other money that is in the CUP next year to deal with rail pressures.
If I understand the transport programme correctly, that does not make sense. A number of significant road projects, as well as rail projects, are on the go. It does not make sense to say that money for rail that does not need to be spent this year can be spent on roads and brought back from the roads budget next year.
There may be an excess in the rail budget this year because the transport portfolio does not have to pay out on track access and so on, because the contractual obligations have not been concluded. However, if provision in the CUP is set aside for road projects, instead of moving provision from rail to the CUP in order to move provision from the CUP to roads, resources can be moved from rail to roads, to be spent this year, and what was badged as provision for roads in the CUP can be rebadged as provision for rail, or vice versa, for the following year.
Having been a member of the committee for some time, I notice that there is a pattern of making commitments to spend money on rail and not following through on them. We find that there is an underspend on the rail budget, whereas there seems to be a persistent overspend on the roads budget. There is a budgeting issue in respect of the management of rail expenditure versus the management of roads expenditure.
I can only assume that there was an expectation that the current negotiations on contractual obligations would be concluded sooner. The budget was in place for what the transport portfolio planned to spend, but it turns out that that has not been possible.
I am again seeking an explanation that you may not be able to provide at this point. There were initial projections for the cost of land acquisition in connection with the M74, which you say have been revised but are being held in limbo until the outcome of the court case. Will you be able to give us a report on the land acquisition process and the associated costs at some point?
We can seek that information from the Minister for Transport and Telecommunications and try to furnish the committee with it.
That would be helpful.
I was hopeful that the £28 million for bridge strengthening was for the first phase of the Forth bridge improvement.
Are you referring to the change in the budget for routine and winter maintenance?
Yes—the increase of £11 million.
It is additional funding to address a backlog on trunk road network routine and winter maintenance. The money was not allocated during the spending review period.
I have one straightforward question about schedules 3.4 and 3.5 of the enterprise budget. There is a total increase of about £18 million. I appreciate that that is not significant in percentage terms but, given all the talk about efficiencies in Scottish Enterprise, what is the underlying rationale for it?
Several increases make up the change to Scottish Enterprise's budget. The largest ones involve the take-up of end-year flexibility to allow work on the Finnieston bridge to be undertaken—that is capital expenditure—and a transfer from the Environment and Rural Affairs Department for the reimbursement of capital costs incurred by Scottish Enterprise in providing assistance to Landcatch Natural Selection, a smart science aquaculture company. Money has been added to the small business start-up fund. There is also additional budget cover for the West Lothian action plan. The new futures fund and the Scottish co-operative development agency have received additional funds from end-year flexibility and other sources in the enterprise budget. The change to the budget of Highlands and Islands Enterprise is accounted for by capital end-year flexibility that has been taken up to provide additional support for the Inverness medicentre and Western Isles Enterprise's connected communities broadband service.
So there is no interaction between the changes and any efficiency-type activity that Scottish Enterprise is undertaking.
No.
I have a question about schedule 3.3 of the budget for finance and central services, on page 105. There is an increase of £1.3 million in the budget for marketing development. What precisely is meant by marketing development?
The marketing development budget is used for expenditure by the Health Department on the smoking legislation campaign, for example.
Why is that the case, given that the advertising budget is highlighted separately? In headline terms, there is a reduction in the advertising budget, which one might welcome. However, the expenditure to which you refer sounds like almost the same thing, just under a different heading.
It seems to be similar. You are correct to say that the decrease in the advertising budget is matched by an equivalent increase in the marketing development budget.
It is more than matched.
Yes. Resources from the advertising budget have been moved to the marketing development budget. Other money has also been added to that budget. I can check the definitions of advertising and marketing development.
It would be useful for us to know in what way marketing development differs from advertising. Superficially, they sound like much the same thing.
I refer to page 58, schedule 3.11, which takes the minister into familiar territory regarding ferries. Is the additional money available for independent piers and harbours grants and Caledonian MacBrayne piers and harbours grants planned to have a beneficial effect on fares?
My understanding is that the funding is for investment in new piers and harbours, such as the second linkspan at Oban. A new building has just been completed at Oban, a new linkspan is being drawn up for Wemyss Bay and there are improvements at Kennacraig. That is what the budget lines are for. Some moneys are drawn down by local authorities and some are spent directly by CalMac, depending on ownership.
I understand that useful point of clarification. Last night I was at a meeting in Dunoon with your colleague Alan Reid, where Councillor Dick Walsh was talking about Argyll and Bute Council's review of its prudential borrowing and its plan for a reduction in the subsidy for piers and harbours, which it was said last night would be more than marginal and would materially increase costs.
Does that mean that the council is proposing above-inflation increases in harbour dues, or increased fares—
It is looking for increased dues. In essence, because the subsidy is being reduced, the dues will go up.
The council did the same two years ago on ferry fares, which resulted in a 20 per cent increase in fares for Argyll and Bute Council ferry services, about which you will recall there was some disquiet.
Exactly. I am just flagging up the fact that the disquiet might well reoccur.
Yes, that is correct. It was a joint venture between us and Northern Ireland.
Why is the figure in the budget £700,000? Why is that still required, if no one has come forward to run the service?
That will be confirmed only at 3 o'clock this afternoon with the closing of the tender process. We are not in a position to say anything about that until it happens. A notional figure had to be put in the budget in case there was a successful tender.
In schedule 2.2 of the Health Department budget there is a capital-to-revenue transfer of £118 million. Is there an explanation for that? You might be aware that the decreasing level of capital spend has been of concern to the committee.
Although there is a decrease, the money is still being spent on the same things, but, from an accountant's perspective, it is referred to as non-value-added capital. When the budget was set originally, it was anticipated that it would all be spent on true capital. The department is still spending it on the things that it intended to spend it on, but it is classed in the accounts as resource rather than capital. That is why we are having to adjust the budgets to match the accounts.
Is that fairly common? It seems a little bit strange to have a change in definition of the magnitude of £118 million, which is a lot of money.
Every year at the autumn budget revision, we are required to reclassify a portion of the health budget. This is the last year in which that must happen because, in the previous spending review, the budgets from 2006-07 onwards were set correctly. It is a correction of a previous problem.
I refer to the tourism, culture and sport budget on page 40. Concern has been expressed about what appear to be higher operating costs. Can you confirm whether the additional £7 million for VisitScotland and the £4 million for Historic Scotland are EYF decisions?
The £7 million for VisitScotland is almost entirely a transfer from the Enterprise, Transport and Lifelong Learning Department, to increase marketing quality assurance for VisitScotland. The Historic Scotland increase is an increase in receipts, which has allowed it to increase the budget.
So it is income.
Yes.
On page 39, on school buildings, there is a shortfall or reduction of £250,000. Is that related to a lack of uptake of public-private partnership projects?
It is a transfer to the Gaelic in education grants to assist local authorities with increased funding requirements associated with that initiative.
So it is for expansion of Gaelic-medium education services.
I take the minister to page 37, which is on teachers. There seems to be a £14 million reduction in teacher funding. In an environment of reducing class sizes, increasing teacher numbers and the McCrone agreement, that seems worthy of question.
The largest part of it is the transfer that the minister highlighted in his opening statement to the Enterprise, Transport and Lifelong Learning Department for postgraduate certificates in education. It is money for teachers that is going into the training of teachers rather than to pay for existing teachers. It is a transfer in that direction of £11.7 million.
So, in effect, it is an £11 million transfer to expand teacher training.
Yes.
So it is consistent with what the Government is doing.
The £9 million transfer is a transfer to the Finance and Central Services Department CUP to be reprofiled into next year's expenditure. It is planned to be used in a future financial year, rather than in this financial year.
What is driving that process?
Demand. It is open to organisations to bid for the money to assist with efficient government projects.
Is that indicative that there will be latency in the release of the efficiencies?
I do not think that that necessarily follows.
Why else would the money not be being drawn down?
I do not think that there is any correlation between the two.
You are saying that the savings are flowing through and yet the money is not being drawn down.
That is the case. We are putting it aside for next year. I do not think that that relates to whether we are able to deliver efficiency savings, because—
So people are making the savings but they are not claiming the money. That sounds like an inconsistent position.
As I understand from some of the bids that are coming in, the bids are for specific projects where there needs to be extra up-front funding to allow the efficiencies to take place. That is what the fund is there to try to help. Bids come in on a regular basis. I do not think that it is necessarily linked into—
If the Government is allocating £10 million for an efficient government fund in the financial year 2005-06, given that we are having such a big push on efficient government, with ministers making statements that it is a central part of the funding arrangements of a number of aspects of Government just now, I find it a bit odd that the process is not working sufficiently efficiently to ensure that the spend can be undertaken when it has been budgeted and profiled for.
The first point to make is that this is year 1 of the efficient government programme, so the budget would be allocated and set for this first year. Secondly, it does not necessarily follow that every project to make efficiency savings needs up-front funding or needs to bid for that—
I quite understand your point that this is up-front funding—spend to save—but my concern is that if you are allocating a budget of £10 million for efficient government projects and that is not being spent in this financial year, there must be slippage in the efficient government programme. There can be no other explanation.
That does not necessarily follow.
If the Government has planned to spend £10 million on efficient government projects in the current financial year, but then plans to spend £200,000—I am afraid that my mental arithmetic is not such that I can give the percentage that is involved right away, but I will work it out—that suggests that the Government programme is not up and running, that the Government is not considering projects timeously and that it cannot deliver the spend that it predicted that it would be able to spend at the start of the financial year. A slippage in the efficient government programme is suggested.
I return to my original point. Up-front funding is not necessarily needed to achieve efficiencies. One does not beget the other.
My point is that if the Government decides to spend £10 million on efficient government projects in its budget, its being unable to spend that money when it had planned to do so will indicate a slippage in the efficient government programme. My point is not that the money must be spent to guarantee efficiency, but that there could be even more efficiency if the money was spent timeously. There is slippage in the programme.
As I said, I do not necessarily agree with your logic.
My logic is pretty sound.
I think that you are arguing that money must be spent to make the efficiency savings.
No, I am not. You are misinterpreting what I am saying.
We are getting into a debate.
Perhaps we are. I suspect that your hopes for a five-minute debate have just haemorrhaged, convener.
I do not have details about that matter, but I will get back to you with a detailed explanation.
International relations probably covers a wider canvas than the international aid budget, but the numbers that I am comparing look relatively similar. I would be grateful if you could clarify matters for us.
The figures will include money for promoting Scotland abroad as well as direct aid money.
I want to discuss the justice section of the budget revision. From schedule 3.1 on page 78, it appears that the legal aid budget may be overshooting by £14.5 million. Can you give any explanation for the 10 per cent increase?
As you know, the legal aid fund is demand led. The fund is under pressure as a result of a large increase in the volume of criminal cases. Money has been transferred from savings elsewhere in the justice budget and assistance has been received from the centre to ensure that there is enough provision to cover costs.
The legal aid budget is indeed demand led. However, is the point being reached at which corrective action must be taken every year to deal with its demand-led nature? Must we consider that matter and whether better controls can be put in place to deal with an area in which there is persistent overspending?
This is not the first time that the budget has had to be supplemented in such a way. We may have to consider how the budgets are set in the next spending review.
If there were evidence that a budget has consistently been unable to meet the demands that arise each year, we would have to consider reprofiling it in the future.
That is one option. Another option is to look at how to manage the demand more.
That is an alternative mechanism.
Different approaches can be taken.
Those apparent increases are due to a change in the mechanism. The moneys previously came to the police through the local authority revenue support grant, but they now come through the police grant under the Justice Department. There has been a transfer from the FCSD to the Justice Department because of the change in the way in which the grant is paid out. That appears to be as a result of a decision to stop reclaiming police forces' contributions from the police grant and to pay the full grant through grant-aided expenditure rather than through revenue support grant. The figure reflects the transfer in how the grant is being paid rather than an increase in what is required.
Schedule 3.11, on page 88, deals with the Accountant in Bankruptcy. When that body was relocated, it was argued that relocation would result in greater efficiency and a more even spread of such organisations across Scotland. Why does the budget revision propose an increase in expenditure of approximately 20 per cent?
There are two elements. Part of the increase is to help the Accountant in Bankruptcy to implement a new information technology system, which was delayed until after relocation. Also, a specific relocation budget was not allocated at the time of the relocation, so a budget from elsewhere has been allocated to cover the relocation costs, which will be repaid in future.
Given the level of interest in such relocations and the significance of the proposed budget increase, we need a more detailed analysis of what is happening to staffing costs and so on rather than simply a line in the budget revision. I appreciate that IT might account for one aspect of the increase, but we are aware of issues elsewhere. We need more information about that.
Do you want an explanation only for that one-off increase or do you want a look ahead at how things will unfold once the relocation has been completed and the new cost regime is in place?
The more comprehensive the report, the better. Obviously, it would be useful to the committee to have more information on the issue, especially given that the committee will shortly deal with the Bankruptcy and Diligence etc (Scotland) Bill. It would be helpful to receive an early explanation of what is going on.
I have another brief question on the Justice Department budget. I note on page 80 that the Scottish Prison Service's direct running costs have reduced by £13.2 million but that its other current expenditure has increased by £8.4 million. What is the explanation for those changes?
The decrease in direct running costs follows on from the SPS's general efficiency programme, which has allowed it to free up about £12 million of extra resources. The service plans to reinvest those resources in capital projects, so a large part of that £13 million forms part of the increase in the budget for capital projects. Additional funding has been taken from the CUP and from end-year flexibility from last year to supplement the capital programme for the prison estate strategy.
My other point was about the increase in other current expenditure. Why has that budget line increased by £8.4 million?
That increase is also connected with the prison modernisation contracts, as there are additional current costs associated with the capital works. I believe that the increase reflects the need to rehouse prisoners in temporary accommodation while the capital works are on-going. That involves employing extra staff and so on to look after the prisoners. That is part of the reason for the increases in both the current costs and the capital programme.
Page 105 shows a decrease in the budget line for the office of the chief statistician. I am one of the tribe who favour Peter Drucker's line, "If you can't measure it, you can't manage it." As I recollect, the budget line for the chief statistician has also decreased in previous years. Why has that budget decreased by more than 50 per cent?
As the work that the office of the chief statistician is undertaking is on population and international passenger surveys, that money has been transferred to the Enterprise, Transport and Lifelong Learning Department and to the General Register Office for Scotland so that it sits within the budget of the department for which the work is being done rather than within the FCSD budget.
You are saying that the office of the chief statistician of Scotland has a budget that is half as much as the increment that we have put to Scottish Water for the Water Industry Commission for Scotland to be formed. The office of the chief statistician has a budget of £1 million.
What John Nicholson is saying is that the work is still being undertaken but that it has been rebadged under the relevant department in which the work is carried out.
I take issue with the term "the work". Some work is being undertaken, but there are still huge gaps in the data that Scotland produces. The data are not up to international standards. We do not produce gross national product data and our health data are way behind the data that are produced elsewhere. How can you justify the continuing contraction in the budget of the chief statistician?
It is not a contraction. The £1 million that is coming out of the budget is still being spent by the chief statistician on statistical work, but the work is being undertaken in other Scottish Executive departments. The budget is still £2 million. The £944,000 is for the work that is being undertaken in the FCSD.
Okay. It still seems parsimonious to me. Thank you.
I have a question about Audit Scotland, which is covered towards the end of the document, on page 123. Audit Scotland received what was proportionately a very large increase in the previous financial year. We scrutinised that pretty diligently and expressed some concern about it. The revised budget is just over £8 million. Do you want to comment on that? A significant element of the increase is due to take-up of EYF.
You are correct. The largest part of the increase is due to take-up of EYF, but we do not have an explanation of what the additional funding is expected to achieve, I am afraid.
Executive ministers cannot answer for Audit Scotland's—
The committee might want to write to Audit Scotland to ask for a more detailed explanation.
Or the Scottish Commission for Public Audit, which oversees Audit Scotland's budget.
The only thing that I would add is that the majority of the EYF that is being taken up is capital. I believe that Audit Scotland is refurbishing one of its properties in George Street at the moment. That might be the reason why it needs the extra funding.
Do members wish to raise any other questions of detail?
I have two brief questions. Page 105 shows a reduction of £900,000 in the budget for the Improvement Service. Can you explain that? Is it a carry-over?
Yes.
The service is not improving things quickly enough.
Certainly. The largest part of the additional funding is the G8 policing costs of £75 million. There are also some smaller amounts, such as the funding that relates to the Napier judgment for prisons.
It also includes funding for the public sector energy programme and additional resources to meet increased demand for the legal aid programme, as outlined in the original statement.
So that is new money, unlike the other lines in table 1.5, including EYF and net Whitehall transfers.
The net Whitehall transfers comprise additional money that comes from Whitehall departments, but you are right to say that the additional funding is new money for portfolios.
The net Whitehall transfers obviously include a big sum for pensions, but what else is in there?
The largest part is the £507 million for pensions. There is additional funding of about £14 million for common agricultural policy funding—again, that is AME funding—and £4 million for the transfer of the Strategic Rail Authority's responsibilities from down south.
Where would any Barnett consequentials show up?
We have not had any Barnett consequentials for the current year.
Thank you. Where does the additional funding come from?
The additional funding comes from the central reserve. In this case, the money that has gone into the CUP has been reissued at the moment for other portfolios and it will be repaid at the end of the year with money that we have available at the Treasury, which we have discussed before at length.
That is the holding account stuff.
Yes.
As there are no further questions of detail, we now move to the debate on motion S2M-3763. When the debate is finished, I will put the question on the motion, which is that the Finance Committee recommends that the draft Budget (Scotland) Act 2005 Amendment Order 2006 be approved. We will find out the committee's view on that. As I said, the maximum time that is available for debate is 90 minutes—we will take 11.16 as the start of the process. I invite the minister to speak to and move the motion.
I move,
That was a short speech. Do members have any comments?
I will lift up the gauntlet and try to sustain the debate for 90 minutes.
Just to take away some of the minister's time, Elaine Murray wishes to make a contribution.
I echo some of the concerns that have been raised about the strategic waste fund and about flood prevention, but we must await a more detailed explanation from the responsible minister before we can take our concerns further.
I echo Elaine Murray's point. It seems somewhat ironic that 21 agencies and NDPBs, the Administration and the Parliament are all proposing higher operating costs in a climate of efficient government. It makes the aspirations and the rhetoric look a bit weak.
I want to emphasise the concerns that have been raised by Jim Mather, John Swinney and the convener. When we look at such things as the integrated waste fund and fisheries capital grants, we are faced with a situation in which there is strong demand for investment in recycling facilities—there is a lot of concern in fishing communities about their need for support to make the transition to a sustainable economy—but where there are major cuts in some of the demand-led funding lines.
Most of what we have seen today is relatively technical and most budget line items seem, on the face of it, pretty reasonable so far as they go. They are all heading in the same direction. My overall comment on this and on the entire budget process—the first one that I have been through—is to amplify what Jim Mather said. He asked what the people of Scotland could expect for an extra £70 million. The bigger question that I suggest is pertinent is this: what are we getting for the £26 billion-odd relative to what we got for the £16 billion or whatever it was back in 1999? None of the budget documents seems to deal with the strategic aspect of what the significant expansion in public spending has delivered.
Before I sum up on behalf of the committee, does either of the two members who have not spoken want to say anything?
I will make a few comments, initially picking up on the point that Derek Brownlee just made. It is probably not reasonable to expect the process of scrutinising budget revisions to provide the kind of strategic overview that he suggests. Over the course of the year or of the spending review period, the Finance Committee considers the strategic questions and what we get for the money. That is something that the committee will be doing vigorously next year and the year after.
I have a supplemental point to build on what Derek Brownlee said, which was absolutely right. We have agreed in the past that, when we consider the budget in totality, we should have time-series data that show the major outcomes by department, so that we have our finger on the pulse of what is happening, what progress is being made and what value Scotland is accruing from increasing spend.
I give the minister the opportunity to respond to the committee's debate.
First, I assure the committee that we will respond in detail to some of the questions on which we could not give detailed information today. On most subjects, we managed to furnish the committee with the relevant explanations for changes. As Derek Brownlee said, the revision is relatively technical. It represents prudent management of our budget and gives us the opportunity to spot where money needs to be reallocated during the financial year.
I am not sure whether it is appropriate.
Yes.
The strategic waste fund is designed to support local authorities so that they can achieve higher recycling targets. Several local authorities already have comparatively high levels of recycling—say 20 to 25 per cent. To get higher percentages than that, they need investment through the strategic waste fund. There is no other way for them. They have made all the easy hits and they now require to make the big hits. They have put in bids to be scrutinised by the Government. My point is that while those bids are sitting with the Executive—they are going to be scrutinised for 11 months—local authorities will not reach the levels of recycling that are required by European directive and will start to face financial penalties that will have to be paid by council tax payers.
I note the point that you make. It would be interesting to see the detailed information about which local authorities have not drawn down the funds. Clearly, the money has not been drawn down in particular areas so there might be an obvious correlation between those authorities that are not improving quickly enough and those that have not drawn down the budget; I will not know until I get the information.
Thank you. No amendments have been lodged and all that remains for me to do is to put the question on the motion.
Motion agreed to.
That the Finance Committee recommends that the draft Budget (Scotland) Act 2005 Amendment Order 2006 be approved.
I thank the minister and his officials for coming along.
Members indicated agreement.