Budget (Scotland) Bill
Good morning. I welcome everyone to the Finance Committee's fifth meeting in 2004. I welcome the press and public to the meeting and I ask everyone who is present to ensure that their pagers and mobile phones are switched off.
The first item on our agenda today is the Budget (Scotland) Bill. I welcome Tavish Scott, the Deputy Minister for Finance and Public Services, and Richard Dennis and Richard Wilkins from the Scottish Executive Finance and Central Services Department. This item has been put on the agenda to allow members to ask any questions that they have on the Budget Bill before we move to the more formal proceedings of considering the bill at stage 2, which is our next agenda item.
I welcome Brian Monteith, who has joined us. I understand that Tavish Scott does not intend to make an opening statement, so I open the meeting for members to ask any questions that they have on the documents.
It seems that members have no questions to ask under this item.
I will just leave you to it, convener.
I would not want to disappoint the minister, who has taken the time and trouble to appear at the meeting. He will obviously be aware of the recent coverage of expenditure trends in Scotland since 1997. We have the benefit of a paper from the committee's adviser on the changing patterns and the percentage change in expenditure from 1998 to 2002. On the basis of that analysis, it appears to me that, during that period, expenditure on education increased by 20 per cent, expenditure on health increased by 19 per cent, and expenditure on law and order increased by 23 per cent. However, for culture, media and sport the increase in expenditure was 68 per cent, for housing it was 136 per cent and for other environmental services it was 82 per cent. Of course, the Executive will argue that the rising pattern of expenditure has allowed improvements to be made in each sector, but a fair criticism can be made and I would like to put it to the minister.
The Executive parties have argued at two elections that their priorities are to tackle crime, to improve the national health service and to deliver higher standards in schools, but we see from the analysis in the paper by our adviser that the rises in expenditure in those areas have been the smallest by a considerable degree. There have been much higher levels of expenditure in areas that were not identified as priorities at either of the two Scottish general elections.
The paper is serious and substantial, and it contains considered criticism. I hope that we will receive a response from the minister to what appears to be a departure from the priorities that the Executive has stated, not least at last year's Scottish general election.
Obviously, the item that we are dealing with is the Budget Bill, but I will let the minister answer in whatever way he chooses.
I will do my best to deal with Mr Ewing's point, which I recognise. I understand that the committee will deal with the matter later on; it relates to the report "Government Expenditure & Revenue in Scotland 2001-2002". I hope that Mr Ewing will not immediately bite my head off, but—dare I say it—there are figures, figures and more figures. The answer depends on how the figures are pulled together. My understanding is that your adviser's paper draws numbers direct from the GERS report, which in turn draws numbers from the public expenditure statistical analyses that are produced by the Treasury. Frankly, I think that many things can be done with the figures, and that raises a point about our overall focus on time-series information.
I hope that Mr Ewing will take my point in the spirit that I intend it, as I am trying to make progress with the committee. If I heard Mr Ewing correctly, he mentioned figures that go back to 1997. The committee has made his argument in relation to expenditure at several recent committee meetings, and it has certainly done so when I have appeared before it. In that context, I will work with the committee, both at an official level and through my appearances, to see whether we can find ways to make the information understandable, transparent and as easy to follow as possible. However, I must point out that because of the many changes that have occurred and the different accounting methods—the committee is entirely familiar with those and I recognise its expertise on the matter—things are not straightforward.
We can certainly pool statistics; Richard Wilkins and Richard Dennis could illustrate that in great detail if the committee wanted them to do so. We will read the Official Report of the committee's deliberations on its adviser's paper carefully, but I suspect that it is better for us to focus collectively on what we can do with the time-series data to help both the committee and the Executive to achieve a statistical analysis that is helpful to us all.
I did not mention 1997. The period that I mentioned starts with 1998-99, but my point is the same. As I understand it, the Executive's response to the publicity in The Herald was that it is not accurate to consider spending over a five-year period because the Executive was not in existence for the whole of that period and only two of those years have outturns that we can study. The reply to that, as we have heard from the committee's adviser, is that that should not make a significant difference to the trend because the first years were years of expenditure freezes—that is well known by everybody; we remember the time of prudence.
Given what the minister said about there being figures, figures and other figures—or lies, damned lies and statistics, if one is allowed to utter such a phrase in the Parliament following last week's ruling—I wonder whether it would be helpful for him to have the benefit of the papers that we have. He could let us have a response when he and his advisers have had the opportunity to study the analysis that has been presented to us, and we can come back to the matter at a later date.
I am certainly happy to deal with the matter in the way that Mr Ewing suggests. I will illustrate one of the difficulties that I hope he accepts that we have with the figures. The figure for culture, media and sport for 1997-98 excludes most spending in those areas by local authorities—I am sure that the committee accepts that such expenditure exists—yet the figure for 2001-02 includes local authority spending. My understanding is that a like-for-like comparison would show an increase of 10 to 15 per cent rather than 123 per cent, which is the figure that is given. I do not use that example to denigrate the comparisons that Mr Ewing made; I am showing simply that the situation is not straightforward. It would help us if we could reflect on the paper, which we have only just seen, and respond to the committee later.
We have an agenda item on the adviser's report, so we will discuss it more when we reach that item.
I will raise a general point that relates to section 3 of the bill, which is on cash authorisations from the Scottish consolidated fund. The authorisations cover £21 billion for the Scottish Administration; £9 million for the Food Standards Agency; £49 million for the forestry commissioners; and £88 million for the Scottish Parliamentary Corporate Body to pay for the thing down the road. Those are all large sums of money.
I have made my general point in debates, but I say with respect to the minister that it has not had a response—perhaps that was simply an oversight. To be fair, and in the interests of accuracy, I say that the Conservatives, too, have mentioned the point. It is felt strongly that we are not securing value for money from public services. That can be illustrated in several ways—I have sought to do that in debates—by reference to examples, such as the spending of hundreds of thousands of pounds on hedgehogs or on luxury cars for all sorts of public servants who could perhaps pay for such cars themselves.
Anyone can come up with examples, but my concern—and the relevant question—is what controls are in place to ensure that spending decisions, whether by departments, agencies or quangos, are made with due regard to securing value for money and avoiding wasteful expenditure. Are the existing controls—if there are any—adequate? Does a strong case not exist for intervention to prevent many decisions—some examples of which I gave—that the public increasingly regard as wholly unjustified and indicative of an approach to the expenditure of public money that is veering out of control?
I am interested in how Mr Ewing links that to the bill, but I invite the minister to respond to his comments.
I agree with Mr Ewing that it is always possible to pick out one or two examples, whether they involve a mammal or anything else, to illustrate a point. I hope that Mr Ewing and the rest of the committee accept that we always drive for value for money in all expenditure by the core Scottish Executive and by all the agencies and other related bodies.
The judgment to which Mr Ewing alludes is about the extent to which a finance minister should micromanage that £21 billion of expenditure. I hope that Mr Ewing accepts that even with 24 hours in the day, it would be curious for finance ministers to involve themselves in every organisation and department and in every bit of management to the extent that he described. The mammal example could suggest that ministers—whether a finance minister or the appropriate portfolio minister—should be involved in the day-to-day management decisions of the body to which Mr Ewing alluded.
I hope that Mr Ewing accepts that that argument involves a balance. All levels of public administration have a management structure. One can criticise or support that, but the principle surely is that we devolve decision making on budgets to line managers who are charged with delivering value for money in their budgetary year against stated overall political perspectives and priorities. If Mr Ewing wants to write to me or present evidence about what he sees as serious failings on budget items, we and the portfolio ministers concerned will of course be happy to examine that.
The overall principle of driving for value for money is clear. I suggest to the committee that that will become ever more important, simply because of the tighter spending restrictions that are likely to apply in the future because of the overall situation in the country, about which anyone who reads the financial papers will know. Such restrictions will also drive the process.
I spent five years as a local councillor and I well remember the strictures caused by cuts that previous Administrations imposed and what they meant for local government, which several committee members who served in local government will well know about. I am familiar with how that works, but the argument involves a balance about the extent to which ministers should micromanage departments and non-departmental public bodies. We must live with that balance and make it clearer that, at the centre—if that is at the core of Mr Ewing's argument—we expect every pound to be spent as efficiently and effectively as possible in pursuit of the Administration's priorities.
My question is actually about the bill. Section 4 refers to contingency payments from the consolidated fund. The documents that I have do not show what is in the contingency fund, how it is varied and what payments have been made from it.
I will let Richard Dennis deal with that, if that is okay.
Richard Dennis (Scottish Executive Finance and Central Services Department):
Section 4 deals with what happens when an item of expenditure arises for which we have yet to seek parliamentary approval and for which there is no time to seek parliamentary approval. The Minister for Finance and Public Services has a standing power to advance up to £50 million without coming to Parliament first, provided that he does so as soon as possible after making the advance. That prevents delay in vital expenditure that must be made day to day before we can make a revision.
The bill does not cover the reserve, because the reserve is not voted. We return to the Parliament to seek authority to spend money when we know what it will be spent on. Money that is drawn down from the reserve appears in the autumn and spring revisions during the year.
Details of the numbers in the bill are set out in the draft budget from September, which members may remember. That document shows that we plan a contingency fund of £58.37 million for 2004-05.
That is reported annually. When payments are made, how are they reported to Parliament? Is a report laid in the Scottish Parliament information centre?
No.
Is sanction sought?
If a spending minister writes to Mr Scott or Mr Kerr to say that £5 million is needed for this, that or the other and the finance ministers eventually agree, before they can spend that money from the contingency fund, they need to come back to Parliament in the autumn, spring or summer revision to seek Parliament's approval for that extra expenditure for the portfolio budget. When we talk about the spring revision, members will see an advance to Scottish Opera of £4 million from this year's contingency fund. That is how the process operates.
I am interested in paragraphs 7 and 8 of the introduction to the spring budget revision, which concern national insurance contributions. I struggle to understand the dynamic whereby national insurance increases are offset exactly by reductions in the funding that is sought from the Scottish consolidated fund. Will you talk me through that?
Mr Mather is right about the exact balance of those figures, which implies no impact on Health Department spending. In essence, a process takes place that involves a balance of national insurance income and funding from the consolidated fund.
I will be blunt about the manner in which the forecasting was done, which is the essence of your question. We made a low estimate of national insurance contributions in line with there being a small increase in the level of contributions from last year, but the actual increase was much higher. As I have stated, there is no effect on the overall health budget; all that happens if national insurance income is higher than expected is that there is a balancing reduction in the resources that are sought from the Scottish consolidated fund. The money available for patient care in Scotland is not affected. As your question infers, this is to do with forecasting. The forecast was low and we therefore had to adjust the resources being sought from the consolidated fund when the actual increase became clear later on.
Jim Mather is disappearing into the spring revision, which we have not yet got to on the agenda. I suggest that we hold that back until we get to that point.
Fine, but there is more.
Yes. I will come back to you on the issue.
I will ask a couple of questions. One is about payments of sums accruing to former members of the Scottish Transport Group pension scheme. I would like more information about where we are on that. I know that a mechanism has been put in place to ensure that people are paid. Will the money remain in the Scottish Executive's budget until such sums can be paid? Can you give us any further information about how the matter is being handled and the rate at which payments are currently being made?
We may have to write to you on that question, unless Richard Dennis can provide more information.
I am fairly sure that the answer to the first question is yes, but we will have to write to you with the answer to the second question and when we do we will confirm the answer to the first one.
On the same topic, I recall that one of the rules that was applied to the distribution of the funds to the beneficiaries was that if a qualifying Scottish Transport Group pensioner had died, the payment to a surviving spouse would be only 50 per cent of what the pensioner would have received on survivance at the qualifying date. The qualifying date was fixed, which had the consequence that some widows and widowers received the full payment and others received half of it. I have some constituency examples of—if you like—winners and losers.
When the matter came before the Public Petitions Committee for a mini inquiry, the minister responsible stated that if it transpired that more money was left than had been anticipated and that extra money was required over the outturn amount needed to meet the commitments under the rules of the scheme, that additional money might be reapplied for the benefit of those who would lose out under the 50 per cent decision.
I do not expect the minister to answer now but, given that the Finance and Central Services Department is looking into the general issue, could we perhaps have a statement on that? Specifically, how much money has been paid out and is there any surplus left? If so, will the surplus be redistributed to beneficiaries—entitled groups—and if so how? If not, will that surplus or any part of it be taken from the pensioners and handed over to the Government? I hope that that latter instance will not occur, if there is the capability to make up the 50 per cent payment to the full amount.
I am sorry to go on at such length and I do not expect a reply now. The issue is of real importance to many widows and widowers of bus drivers, bus conductors and seamen throughout Scotland. The payments involved are not a great amount in comparison with the sort of handout that, for example, Mr Davies might get from the BBC.
It is not for me to comment on the latter point, but we will reflect on the points that Mr Ewing has made in the Official Report and we will put as much as we can into the formal response to the committee.
It might be useful to get clarification about where you are in that process.
My other question is about the aftermath of the foot-and-mouth outbreak. Clearly a transfer of payments is taking place from Westminster to the Scottish Executive to meet outstanding costs associated with payments to farmers and so on. Is it possible to get a statement that clarifies how much money has been used in that way over a period of time, so that in a sense there is a closing of accounts in terms of accruals and payouts?
Again, we would be happy to write to the committee with those details. My recollection is that there was some internal Executive expenditure in relation to both tourist boards and the local authorities concerned. As you rightly point out, other moneys relate to some of the agricultural measures that were put in place at the time. We will put the details in our formal response.
Professor Arthur Midwinter (Adviser):
I have some points of clarification that relate to the question that Mr Ewing asked earlier.
I noticed that the definition of culture, media and sport had changed over the five years, but I thought that it was such a small element of the total that it would not really affect the arguments.
I have a number of questions for the minister. First, I make the observation that it is refreshing to hear an SNP member of the Parliament challenging the minister on the basis of GERS data and the minister responding by questioning the data. That is a role reversal from the usual position.
I have always been of the view—as are most academic researchers—that the spending data for the identifiable expenditure are pretty robust. It is in the public domain that Professor Gavin McCrone, who used to be in charge of these things, has said that. I was not wholly convinced by the arguments that the minister made about differing accounting systems, mainly because I had always been under the impression that GERS dealt with actual expenditure rather than estimated expenditure, which is why there is a two-year lag.
Are we seeking technical clarification from the minister?
My point is related to that. I certainly would not accept that there have been major changes in the definition of education, health, roads and transport, and housing—the big spending programmes—which is the point that the minister was trying to make. It would be helpful if, in writing back to the committee, the minister could clarify for us whether GERS is based on actuals and, secondly, whether it is based on Treasury definitions, as it is drawn from the public expenditure statistical analyses, in which case many of the changes that take place within the Executive's budget will still be recorded within the categories that the Treasury has set.
We will be happy to come back to Professor Midwinter on all those points. The first that I knew of the matter was when I read about it in The Herald yesterday. The committee is considering today the papers that are on its agenda. There is only so much that we can do when we are meant to be formally presenting evidence on the Budget Bill and on the spring revision order. I apologise to Professor Midwinter for not having full answers to all his detailed questions, but we will come back on the detailed points that he has raised as quickly as we can.
Thank you. That would be helpful.
Jeremy Purvis has a question. Is it on the budget bill?
It is. It struck me, when we were talking about the contingency, that housing association residents in my constituency who were affected by floods last year were told that they would not get any money out of the Bellwin scheme because it did not apply—the cost is nearly £1 million and almost 50 people are still decanted. I am sure that they will be delighted to hear that £4 million out of the contingency fund is going to Scottish Opera. What is the basis on which such decisions are made?
I am sure that Mr Purvis will be familiar with the Bellwin formula in relation to the constituency case that he mentions. The Bellwin formula operates by paying a percentage of claims made by a local authority in relation to natural disasters, natural events and particular circumstances that are beyond the wit of man to plan for, such as flooding. It is a process by which the local authority makes an initial application to the Executive and then follows it up with a detailed case, which is judged against a set of criteria. I do not have the criteria with me, but we could obviously provide them to Mr Purvis if that would be helpful. It is a formula that has existed for many years. I hate to think who Mr Bellwin was.
Lord Bellwin.
Indeed. No doubt it was a distinguished gentleman who came up with the criteria. We shall certainly provide that information for Mr Purvis, but that is the system. To be fair, there is not much comparison between a scheme that is based on an application by a local authority to the Executive in those specific circumstances and the funding of Scottish Opera through the contingency fund, which is done on the basis of a ministerial application to finance ministers.
I would like to move on to the second item on the agenda, which is formal consideration of the Budget (Scotland) Bill at stage 2.
Could I raise one point before we move on?
All right.
I apologise for being late, minister. I recall from when I was a minister that the worst thing was controversy that blew up in the press 24 hours before one's committee appearance, so I do not want to press you on any of the details of that. However, I would like to invite your comments on the paper that came to the committee this morning from the committee adviser, Professor Arthur Midwinter, which says:
"the Executive has stated that it was not accurate to look at spending over a 5 year period, as the Executive was not in existence for 2 of those years."
I do not wish you to comment on that now, but that seems to me to be a dangerous statement. If that is indeed the Executive's position, it represents a step backward from what has been the central thrust of the Finance Committee over the past year, which is to try to achieve long-term trend data. Will the Executive reaffirm—not necessarily now, but afterwards—that it is willing to provide long-term trend data? If that statement does indeed represent the position, it supersedes what was said in the stage 2 budget report.
Much more worryingly, it suggests that it is not the Treasury's job to tell us how much we were spending five years ago, but nor is it the Executive's job. That would put Scotland in the invidious position, under a nominally federal arrangement, of not knowing how much was spent five or six years ago and how much is spent now. It is simple, factual spending data. Although we do not have a sovereign state in Scotland, we have a federal state and in these circumstances, particularly when—as officials will know—there have been extensive discussions with the Office for National Statistics in the past week about how we ensure the quality of statistics relating to Scotland, we need to set a good example by ensuring that we have comprehensive statistics in Scotland.
I do not expect a full response now, but I assume that that statement was a slip of the tongue and does not supersede the discussions that were held and the commitments that were made in stage 2 of the budget report.
The minister had already partly responded to that question at the outset.
My apologies.
The point has been made, however, and the committee's view is pretty firmly that we are looking for trend data and that we want to use trend data as a basis for analysis. The minister will be asked to respond to the issues that are raised in the paper, and there will be a chance later in the meeting to discuss the matter in more detail.