Budget (Scotland) Act 2003 Amendment Order 2004 (Draft)
The committee has before it the draft instrument and the budget documents that set out the background to the proposed revision. I inform members that the Subordinate Legislation Committee considered the instrument on 3 February and had nothing to report.
Thank you, convener, for your consideration of stage 2. It has been a helpful process. As I was saying to Mr Ewing just a moment or so ago, the spring budget revision is a regular piece of Government business, but it might be helpful to explain some of the features that will be of interest to the committee.
Just for reference, I think that the most relevant section in the spring budget revision document is schedule 2.2 for each of the departments.
I am still struggling manfully with the national insurance adjustment and the statement that it is exactly offset by the amount of funding that is sought from the Scottish consolidated fund. I have not totally got my head round that. In schedule 3.1 for the Health Department, I can see the adjustment of £830 million, but the fact that the adjustment on the other side does not seem to leap out at me does not convince me that everything is as it should be.
Richard Dennis will be happy to deal with your extremely technical point about where the adjustment leaps out.
A curious quirk of our financial system is that you will not see it leaping out, because when we bring budget bills and revisions to the committee, we are seeking parliamentary authorisation for spending out of the Scottish consolidated fund. With health, we are changing the purely notional split between the money that is coming out of the Scottish consolidated fund and the money that is coming from the national insurance fund. The total budget remains exactly the same, but a portion of the spending is deemed to come from that other source which, technically, the Parliament does not vote on, so it does not appear in our documents. Members will see only the £830 million apparently disappearing from the budget.
Sure. There is a fundamental point on that, which should be borne in mind for future reference. I find the lack of cross-references and an audit trail in the budget revision document a severe miss compared with what one would find in the private sector. The document is difficult to read. Although tables 1.2 and 1.3 provide the headline summaries, they are not adequately cross-referenced to the detailed sections. There is sufficient space in those tables for another column to list the relevant sections and page numbers, which would facilitate easy reading of the document.
We can reflect on Mr Mather's points. I think he will accept that, in some senses, there is no comparison between financing in the private sector and Government financing. Whether that is a good thing or a bad thing is neither here nor there: I used to read business balance sheets and I take the point.
I wonder whether the minister can help me. I am probably misunderstanding what is going on on page 10 of the supporting document, which relates to the Environment and Rural Affairs Department. Under the heading "Rural Development", mention is made of a
I would have to check with the department. That question drills down to a level of detail that, as you rightly observe, is not found in the formal documentation. Richard Dennis is skimming through some pages to see whether he can find a note that would give you a precise answer. If we cannot answer today, we will be more than happy to come back to you.
There is a note at the top of page 11, which says:
You would expect me to say that money is available for any spending priority that ministers consider to be appropriate at the time, within the constraints of the available budget. That could include spending on health, education or whatever. It is not for me to make up policy on the hoof. Much as I might like to do that on occasion, I will not do so this morning.
I am not necessarily expecting you to answer my question, as you are not the minister responsible for the Scottish Prison Service, but I was a little puzzled to see on pages 74 and 69 an apparent reduction of £12.5 million in the SPS's running costs. Over the years, we have had some quite difficult discussions about whether the prison service should be partially privatised and about the use of private prisons. Given the doubt about the figures for the number of people who are likely to be in prison—they seem to have been revised quite substantially—I am quite surprised to see a suggestion that the SPS's running costs have fallen so substantially. Do you have any idea why that is, or should I be asking the Minister for Justice?
Here is a piece of paper that gives me the answer, if I may be forgiven for describing it in that way.
Have we any detail about that investment? Is the investment being made under the private finance initiative?
I do not have that detail with me at the moment, as the matter is not precisely within our portfolio. We will ensure that a response is provided.
The investment will not be PFI, as that would score as resource.
I want to return to the £85 million transfer from Scottish Water to the Health Department. Is the transfer and pay back consistent with what we were told last week about Scottish Water's right to full end-year flexibility within the current period?
The convener will be familiar with the fact that the £85 million is one of the normal allocations and redistributions that take place. The money will be paid back to Scottish Water next year, so there will be no longer-term impact on Scottish Water's programme. My understanding is that—as the committee discussed at great length last week—the reallocation was caused by Scottish Water's need to phase that programme to enable it to get the job done.
Will the minister clarify that the pay back will not necessarily come from the health budget? The minister said a couple of minutes ago that, for next year's budget and for budgets in future years, it will be up to ministers to make an appropriate adjudication between different competing needs. Will the fact that the money has been lent to the Health Department mean that the health budget will necessarily be reduced next year, or will the issue be taken into account in setting all budgets?
It is not a question of the health budget being reduced. As I hope I explained, a reprofiling of the expenditure under the health budget is being sought because of particular demands now that were forecast in November last year. The prudent course of action that is being sought is to bring forward the health expenditure that would have been available next year in order to help manage particular pressures at this time. Having been able to manage those pressures thanks to this additional finance, the health budget will obviously not have the same call on that money later in the year, because it will already have spent it. The budget revision allows a profiling of health expenditure that is helpful to the health budget against those pressures. Our presumption is that the money would be paid back from the health budget, but it is not the case that health expenditure will be cut. I would avoid using those emotive terms.
Will we get clarification about what kinds of health expenditure can be brought forward in that way? I presume that such items of expenditure must of their nature be non-recurring, if the financial requirements are to be met in the way the minister has outlined.
The advice that I have received is that there were some particular pressures relating to waiting times and NHS boards. The moneys that we suggest are able to be moved will help tackle the particular problems at this time. If the suggested profile of expenditure occurs and the Health Department is permitted to bring forward that expenditure, that will help its overall balance of expenditure throughout the course of the next year. It appears that it would be helpful to make the expenditure at this time to deal with those particular pressures.
I can understand why that would be helpful, but my question relates to issues of reprofiling and reborrowing in the health budget. Will the minister clarify whether the type of expenditure that is being brought forward is the kind of expenditure that is capable of being reprofiled? I suppose that is what I am trying to get at.
I have been given that assurance. To some degree I have to go on trust, but health colleagues have given us a clear illustration of what they will spend the money on and how that will be allocated. That justification has been put forward.
It would be helpful to get more information from the Health Department on that.
I want to follow up on that same point. Does the £85 million come from Scottish Water's cash or borrowing capacity? Perhaps officials will be able to clarify that.
I do not know that off the top of my head.
The money comes from Scottish Water's borrowing capacity. In effect, we are talking about a transfer of departmental expenditure limit. As the committee will know better than me, what scores in DEL for Scottish Water is net borrowing.
Obviously, Scottish Water will be able to use that borrowing capacity as part of its £600 million borrowing limit. Of course, Scottish Water might incur slightly higher interest charges because interest rates are now rising, but that is obviously a movement over which the Executive cannot have any influence.
I want to pursue the two strands of the points that the convener and Wendy Alexander have made. In essence, has Scottish Water lent the NHS a dollop of cash?
It is for the Government to decide in which departments allocations will take place. It was for ministers to agree the choice of allocations. The health budget faced some pressures and finance ministers were asked to respond to them. One can choose whatever language one likes, but that is how the process works. I hope that, in fairness, Mr Ewing will accept that the process works in that way across all departments every year. This is not a particularly unique situation.
Well, yes and no, minister. The big difference is that Scottish Water is funded not by the taxpayer but by borrowings and charges. Either the water rate payer is subsidising the NHS or the lenders are—
That is not true.
I do not think that that is right.
Let me deal with that briefly. The binding control is the departmental expenditure limit. For Scottish Water, that means its limit on net borrowing.
I wish I could say that I found that answer illuminating. Mr Dennis must be one of the people who understand the Schleswig-Holstein question. His answer does not, however, detract from my point that Scottish Water is not funded by expenditure under the Scottish block but by borrowings and charges.
I do not have an exact breakdown of the £85 million. If the committee is interested in that, we can provide it. I hope that members will accept that there is always a balance to be struck. If we did not accept that principle, we would need to provide very detailed information for all the adjustments in every budget revision order. However, if Mr Ewing is asking for a breakdown specifically of that £85 million, we will be happy to provide it.
That will be helpful, as these are important matters. In particular, I am interested to know whether the proposed expenditure to tackle waiting times will be spent strictly in accordance with a proper assessment of clinical need.
I have a question about capital. We have touched on Scottish Water and health, but when EYF money is not, in effect, classified as EYF money but as internal transfers as a result of a separate deal, it is difficult to get to grips with why that has happened and how it is put in such revisions. Things are quite clear in the tables; however, with regard to the inquiry into Scottish Water, a different kind of transfer is involved because there seems to be an agreement among ministers that the money will be available at a later date. I would be interested to know whether such deals are typical across the Executive. Are such deals done by correspondence, for example?
The process invariably involves formal meetings. That is because—as I am sure Mr Purvis will accept—pressures emerge in some areas and slippages inevitably occur in other areas as the year progresses. There are always balancing and competing requirements—pluses and minuses, as it were. Normally, expenditure—particularly the scale of expenditure—would be subject first to correspondence and then to a ministerial meeting.
You have read the Official Report of previous committee meetings. We have discussed water with the Deputy Minister for Environment and Rural Development and you have read our exchange on the risk on the investment programme. What role do finance ministers have when it is clear that there has been quite substantial slippage in an investment programme and there are well-argued risks to an investment programme in the future? I do not think that we have any idea of the monetary value that is being put on such risks to manage them. Are you confident that such things will not happen again?
I have two things to say in response to your questions. First, I will be interested in the committee's findings and deliberations on Scottish Water, in its inquiry.
I am anxious that members keep close to their time limits.
I was going to ask a quick question about water, but at your request, convener, I will not do so. However, I have another two quick questions.
Do you have a page reference? Page 51 shows that the global connections budget is unchanged at £22 million.
The table on page 50 has a figure of around minus £12 million in the operating costs of global connections.
We will write to you on that matter, too. Again, a level of detail—
I would be surprised if the budget for global connections was greater than £12.5 million. I am trying to find out whether that budget has been scrapped.
I will not try to guess. We will provide information to you on that matter, too.
If members look across the columns, they will see that there is a remaining budget of around £87 million after the change, so that budget has certainly not been scrapped.
I would be grateful for more details about what has happened there. I would also be grateful for an explanation about the great piece of language that is used on the health side. A figure of £138 million is given for
A wide range of maintenance work on capital assets takes place, which effectively maintains those assets in their current state and does not add to their value. If, for example, the carpet in the chamber was changed every year, that would in some sense be investment in the asset, but it would not change its value. Such maintenance work scores as resource rather than capital. The exact balance in health trusts of so-called value-added maintenance and non-value-added maintenance is determined in-year. The trusts start off with a high number and transfer in-year when they know what the actual split will be.
I have a quick observation. The issue is similar to the issue that has bedevilled the committee's discussions on water. We are talking about renewals—
That is exactly the point that I was going to make. It will be interesting to compare what the officials from that department said with what we have just heard. I think that we would be happy if what has been said is entirely consistent.
I have a number of related questions.
I will let Elaine Murray in and then I will come back to you.
I am probably being stupid, but I want to understand the £85 million that will go from Scottish Water to the Health Department. That figure is borrowing consent and is in alignment with what we heard last week. However, when the money goes to the Health Department, it is no longer borrowing consent, but seems to be revenue.
That is right.
So there is basically a transfer from a capital borrowing consent to revenue. How does that work?
The binding control on the Executive's budget from the Treasury is the departmental expenditure limit. Both resource and borrowing consents score equally in respect of that currency.
I am not sure that I completely understand that.
If Scottish Water's borrowing was increasing and the Scottish Executive decided to fund that increase by cutting Executive staff, those staff costs would be genuine cash payments that would come through the system, but they score exactly the same as borrowing consent in DEL. Therefore, the Treasury does not mind if we spend money in one way or the other.
If I did not use my mortgage, for example, I suppose that I could use the cash and give it to somebody else. The mechanism seems to be peculiar in transferring money from capital into revenue almost by sleight of hand and I feel slightly uncomfortable about that.
Richard Dennis is explaining that how the money is viewed by the Treasury and therefore how it is viewed in Government finance terms is the same. That might be curious, if I may put things in that way, but that is how the Treasury views expenditure. As Richard Dennis says, it does not mind as long as the money is within the DEL.
I have a specific question about schedule 2.2 on page 44, which deals with the Enterprise, Transport and Lifelong Learning Department's budget. There is a reduction in the operating cash that is available to Caledonian MacBrayne and an increase in capital. It is strange that there is a reduction in the revenue that is available to Caledonian MacBrayne, given that its most lucrative route—the Gourock to Dunoon route—has just gone through a prolonged programme that resulted in pretty strong revenue loss and a long-term customer loss, as customers migrated to other services. Given that the revenue hit is real, existing and in the pipeline for the long term, why is Caledonian MacBrayne being asked to take such a hit in the cash that is available to it?
Are you talking about the three transfers of costs for capital and depreciation?
Yes.
We have recently moved from a fully cash system to a system that covers both cash and non-cash items. When there are changes to the rules about how non-cash scores, we do not allow budgets to take those windfalls. Changes in how we score public corporations meant that the costs of capital and depreciation provision for Caledonian MacBrayne were higher than we needed, for example. We surrender such windfalls back into the centre for ministers to decide how they should be used.
What is the procedure for identifying a windfall? Who identifies it?
When it is a question of classification change, it is automatically a windfall. That is when we have made provision within our budget for an item that we are told we no longer need to make provision for. An estimate being too high or too low will often come up when the accounts are done.
Does that tend to be agreed between the Executive and, for example, Caledonian MacBrayne?
Yes.
It is an agreed position.
Yes.
Is the minister comfortable with the revised figure in the spring budget document for the "Ending Fuel Poverty" budget, which relates to the excellent central heating programme that is theoretically in force? Is he happy that he has put enough financial weight behind the wheel to ensure that there will be fewer winter-related deaths?
I certainly agree with Mr Swinburne that the central heating policy is excellent. I am sure that it is making a substantial difference in all our areas. I hope that Mr Swinburne accepts that it is for the portfolio minister to judge how much money should be in the central heating programme budget. If she thinks that there are additional pressures or good arguments for enhancing the budget, she would choose either to make an alteration within her overall budget or to call on the centre for funds. Given the central heating scheme's success and the representations from all parties in Parliament about it, I am sure that the matter is under active consideration within the department.
That is good, but you mentioned the scheme's success. In theory, the scheme is perfectly successful, but its implementation, particularly its speed, is imperfect. We have a worse record than Siberia has on winter-related deaths and we must act on that a bit more sharply. I am not satisfied that enough financial weight is being put behind the programme to implement it fully.
All I can do is to bring Mr Swinburne's comments to the attention of the portfolio minister. Mr Swinburne may be referring in particular to the performance of Eaga Partnership Ltd. I am sure that all members will have had constituency and regional issues raised with them about its performance, but we have encouraged it to do much better. I believe that the Executive is making real progress on fuel poverty and I contrast that with what has happened in the past. The Executive takes fuel poverty very seriously indeed and is determined to deal with it. More money is being put into it than has happened in the past, including into imaginative schemes such as the central heating programme. That is a matter of public record. We should take comfort from having such an initiative in an important policy area.
In the revised budget, the adjustment is a transfer towards the central heating programme. At my surgery yesterday, somebody told me what an excellent service they had received.
I seek clarification of which budget line will meet the costs of relocating Scottish Natural Heritage to Inverness, assuming that ministers confirm that decision once the process of considering advice and proposals from SNH has been completed. My understanding is that the target date for moving is not until 2005, so I assume that no allowance has been made for additional costs in the year 2004-05. Assuming that the relocation goes ahead, and setting aside the disagreement between the Executive and the union about the likely net costs—whether it will be £7 million, £12 million or £22 million—I ask whether the relocation costs will be met from the "National Heritage" budget, which is described on page 7 of the 2004-05 budget document as being a total of £65 million. If not, will the relocation costs be met from another budget line?
I am trying to think of the best way to express a reply to that. The formal position is that the Scottish Executive will meet the costs of relocation, which will come from the Environment and Rural Affairs Department budget. We would need to provide you with a formal response on the level of funding and how it will break down. It is certainly the case that the Executive will provide the funding to ensure that the relocation concludes successfully.
Arthur Midwinter has two or three technical questions.
I listened with great interest to the comments about the water transfer. I have read evidence from officials and others in the past couple of weeks that somehow contradicted my understanding of how the expenditure control works in practice. I am trying to produce a briefing paper for the committee on the operation of EYF and capital spending in water, which is significantly different from departmental programmes because we are dealing with a public corporation.
I push you towards a question, Arthur.
I am pushing towards a question. The first one relates to the £85 million, which is the third major transfer from water that the committee has heard about in the past three years. From my figures, the amount is something over £400 million. Is the Deputy Minister for Finance and Public Services at all concerned about the scale of that slippage? It is roughly a quarter of the annual EYF, which is a very big amount.
If I may say so, I tried to hint at my concern about that matter in response to Mr Purvis's question. Professor Midwinter is right to illustrate the recurring nature of the situation and that is why I will be genuinely interested to see the committee's report on Scottish Water. Finance ministers will read the report with close interest. We have concerns about any area in which such issues recur.
One of the decisions that we made last week was that I would write to the relevant minister with further questions about water, so it might be appropriate to leave questions on that issue to be asked in that way, if that would be helpful.
It would also be helpful if a finance view could be put to us on the evidence that was received last week about the £600 million.
I suggest that the best way to deal with the matter might be through correspondence. I want to ensure that we are addressing the point in the right way to the correct minister.
Allan Wilson gave an undertaking last week when he said:
I agree with Allan Wilson on that point and, indeed, on many matters. I am happy to come back to the committee on those issues.
Let us be clear. We are going to have an exchange of correspondence with you on those matters, so that we get a finance view.
Yes. However, it would be helpful if you could write to us with precisely what you are looking for.
Indeed, and speedily given the pressing need for us to complete our report. I know that we are going to discuss at the end of the meeting whether to consider in private at our next meeting the draft report on Scottish Water. However, as there are one or two outstanding policy issues arising that the committee should consider, I suggest that, after the minister has left, the committee should take a couple of minutes to consider how it is going to tie up the loose ends, before moving on to the next item.
I suggest that we might leave that until after we have taken evidence on the Fire Sprinklers in Residential Premises (Scotland) Bill, as our witnesses have been waiting for some time.
Fair enough.
Are there any other questions?
I had questions that were an attempt to get a finance view on some of the issues, but you might want to leave them until later.
Is there any reason why we should not proceed? The Executive has shown a preference for giving evidence rather than writing, so we should take it at its word. The Executive has made the call and has said that it wants to deal with these matters in evidence to the committee, rather than in writing. I would find that uncomfortable, but it is a choice that the Executive appears to have made.
Last week, the committee was advised about the new borrowing requirement being agreed for the water industry and about the fact that it is 100 per cent EYF. Can you confirm that that 100 per cent does not apply to the total budget, but applies only to the amount that is agreed between the water industry commissioner and the water industry—the £600 million?
Despite what Wendy Alexander said, I do not know the answer to that off the top of my head. My responsibility does not include interrelationships between the WIC and Scottish Water, which is what the committee is looking at. If you have detailed questions on the Finance and Central Services Department's take on what is going on in relation to these issues, we will do our best to answer them in writing. If you seek an oral session with us, we will be happy to help with that as well.
Okay. The best route is to deal with this in correspondence. We will get more certain answers in that way.
With respect, officials said last week that they wanted the Official Report to be the way in which they told the committee how they accounted for water. I am uncomfortable if, one week, one group of officials says, "Sorry, we don't want to write. We want to do it in testimony to the committee," and the next week another group says, "Sorry, we'd prefer to write rather than talk." I do not mind which method is used, but officials should not be allowed to pick and choose from week to week. Given the fact that the preference that the Executive stated in relation to water was for oral evidence, it might be helpful if the finance officials were given the opportunity to clarify. If they do not know and do not wish to clarify, that is fine. However, the Executive has stated a preference for letting the record speak for itself rather than writing. It is not unreasonable to ask for a consistency of approach on the one topic, rather than an approach that changes from week to week.
We are not the experts and we have not gone into this in great detail. However, end-year flexibility is a system that works on DEL. I think that that is probably all that Arthur Midwinter needs to hear on that.
One of the problems that we ran into last week was the fact that we got an oral statement that went into great detail and it was difficult for members to take the information fully on board. Further information on these water issues is coming to us from the Executive. When we meet this afternoon, the reporters and I will begin to gather together all the information that we have and try to make sense of it. We will then bring things back to the committee next week. We will need to seek further written clarification from both the Minister for Environment and Rural Development and the Minister for Finance and Public Services at an early stage, as there are some outstanding issues that we need to clarify. I undertake to do that with the reporters. We are meeting this afternoon and will come back to the committee next week with the information that we have managed to get.
Given the points that were raised last week and the need—verging almost on a craving—to have proper, clear and analytical responses on paper, I want to say on the record that that need is still unanswered.
I think that we can deal with that point in the way that I have suggested.
Does that mean that the finance adviser will not be able to ask finance officials about factual issues that might lead to clear information for the reporters when they meet this afternoon? When will that opportunity arise again?
To be fair, we are dealing with the draft Budget (Scotland) Act 2003 Amendment Order 2004, which is why the minister is with us today. It is fair that we should deal with issues that relate specifically to the order in front of us; however, that is no impediment to the committee's pursuing this minister and other ministers on factual information on any issue. Obviously, Scottish Water would be one such issue.
If it would help the committee, Richard Dennis and Richard Wilkins would be very happy to meet Arthur Midwinter directly after this meeting.
That would be helpful.
Motion agreed to.
That the Finance Committee recommends that the draft Budget (Scotland) Act 2003 Amendment Order 2004 be approved.
We are now required to report to Parliament. Such reports are normally very brief and we are about to go into a week's recess, so I propose that we seek to agree the text of our report by e-mail correspondence. Are members content with that proposal?
Members indicated agreement.
I thank the minister for his attendance this morning.
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