The next item on our agenda is stage 2 consideration of the Budget (Scotland) (No 5) Bill. Committee members have a note by the clerk with their papers. We are again joined by the Deputy First Minister, John Swinney, who is accompanied for this item by Scott Mackay of the Scottish Government’s finance directorate.
I ask the Deputy First Minister to make an opening statement.
I welcome the Finance Committee’s work during this year’s budget process as reflected in its assessment of the draft budget and thank the committee for its willingness to undertake that scrutiny in the constrained timetable that was created by the timing of the United Kingdom Government’s spending review. As I informed Parliament last week, I will respond in full to the committee’s report in advance of the stage 3 debate. This session of the committee focuses on the content of the budget bill as approved in principle by the Scottish Parliament on 3 February. The Parliament will consider the Scottish rate resolution tomorrow.
As members of the committee are aware, there are a number of differences in the presentation of budget information between the draft budget and the budget bill. To assist the committee, I will explain the main differences with reference to table 1.2 on page 3 of the supporting document. Column H in table 1.2 sets out the draft budget as it is required to be restated for budget bill purposes and columns B to G provide details of the adjustments, including the statutory adjustments that are necessary to fulfil a parliamentary process.
I will highlight one substantive change to the spending plans that are outlined in the draft budget. To ensure that budgets align with the latest available information, there is an adjustment of £141.3 million to the annually managed expenditure budget provision for the teachers and national health service pension schemes. That reduction to the draft budget 2016-17 number reflects Her Majesty’s Treasury’s update to the discount rate applied for post-employment benefits announced in December 2015.
The other adjustments set out are as follows: the exclusion of £148.1 million non-departmental public body non-cash costs that do not require parliamentary approval, which relate mainly to depreciation and impairments in our NDPB community; the exclusion of judicial salaries and Scottish Water loan repayments to the national loans fund and Public Works Loan Board, which again do not require parliamentary approval; and the inclusion of police loan charges to be approved as part of the budget bill. There are technical accounting adjustments to the budget of £129.5 million that reflect differences in the way that HM Treasury budgets for those items and how we are required to account for them under international financial reporting standards-based accounting rules that apply in respect of the Government financial reporting manual. I remind the committee that the budget conversion to an IFRS basis is spending power neutral.
The adjustments to portfolio budgets reflect the requirement that a number of direct-funded and external bodies require separate parliamentary approval. They include the National Records of Scotland, the Forestry Commission, Food Standards Scotland, the Scottish Courts and Tribunals Service, the Office of the Scottish Charity Regulator, the Scottish Housing Regulator, Revenue Scotland and the teachers and NHS pensions schemes. The restatement of specific grants included in the overall 2016-17 local authority settlement remains under the control of the appropriate cabinet secretary with policy responsibility. Full details of all grants treated in that way are included in the summary table on page 41 of the supporting document.
I again make it clear that those are, in essence, technical adjustments and do not change in any way the budget that has so far been scrutinised by this and other committees and approved in principle by the Parliament. I also remind members that, for the purposes of the budget bill, only spending that scores as capital in the Scottish Government’s or direct-funded bodies’ annual accounts is shown as capital. That means that capital grants are shown as operating in the supporting document. The full capital picture is shown in table 1.3 on page 4 of the document.
As I made clear to Parliament last week, I remain committed to an open and constructive approach to the 2016-17 budget process and continue to seek consensus on a budget that will meet the needs of the people in Scotland.
I will happily address any points that the committee has.
I have a couple of questions about process. Cabinet secretary, you said at stage 1 that you would respond formally to our report before stage 3. Should we expect that response this week, next week or the night before? Do you have a plan for roughly when we will get it?
I aim to get it to the committee in a timely fashion for the committee to consider it before stage 3. It would certainly not be the night before, but it might be—
The afternoon before.
We could debate what night-time is, but—
Soon.
Yes, soon. The report will be with you shortly. I will endeavour to get it to the committee no later than the Monday before the stage 3 debate.
My other question relates to page 10 of the bill. I am sure that there is a technical answer to the question, but I would like to know what it is. In schedule 3, “Borrowing by statutory bodies”, paragraph 4 refers to
“Section 42 of the Water Industry (Scotland) Act 2002 (Scottish Water).”
Is this in the bill as opposed to the explanatory document?
Yes. It is in the Budget (Scotland) (No 5) Bill, on page 10.
I wonder whether Ms Baillie could come to my rescue and lend me her copy of the bill. This is the only time that I will invite her to rescue me.
I could do it several times.
That is a caption competition in the making.
I am referring to paragraph 4 of schedule 3, which refers to
“Section 42 of the Water Industry (Scotland) Act 2002 (Scottish Water)”
and shows an amount of £150 million. My understanding was that the net figure in the draft budget showed that there was literally zero being borrowed in the next financial year for Scottish Water. Is the £150 million some kind of maximum if things go wrong, or is the £150 million the plan? Can you explain the difference between that and the figure in the draft budget?
As Mr Brown knows, there are always borrowing transactions—both of borrowing and of repayment—that are undertaken by Scottish Water. The budget bill document contains a neutral position that provides the capacity and capability to undertake borrowing transactions that are necessary to underpin the neutral position.
Thank you.
I turn the cabinet secretary’s attention to schedule 1 on page 7, in which purpose 8 relates to central Government’s grant to local government. The reduction, as I understand it from the Scottish Parliament information centre, is £10.7 billion down to £10.1 billion. In your helpful supporting document for the Budget (Scotland) (No 5) Bill, which was gratefully received, there is a table on page 41, under “Social justice, communities and pensioners’ rights”, in which you show a budget last year of £10.5 billion and this year of £9.9 billion. I am trying to understand why, when you talk about a £350 million cut to local government, that document talks about a £600 million cut to local government. Can you explain what the difference is?
There are three relevant factors. The first relates to an implication of the current spending review period, which will conclude in March of this year. As Jackie Baillie will be aware, the Government came to an agreement with local government over the past four years that capital budgets would not be given to local government in a uniform fashion but would be varied year on year. I think that the term is “reprofiled”. What that essentially means—
Is a cut.
No, it is not. It most definitely is not. It means that in earlier years of the spending review, the amount of capital is reduced and the difference is repaid at later stages, so the capital budget for local government in 2015-16 is inflated beyond its normal trend position because we are paying more in capital, because we paid less in capital in the earlier years of the spending review. The comparative number that Jackie Baillie uses for the start of the analysis for this financial year is a comparatively high figure because the budget was inflated by an additional fund for capital expenditure that, if my memory serves me right, is about £120 million. I will write to the committee with the specific details of all the numbers that I use in this explanation. So, the first thing is that the figure for 2015-16 is inflated by about £120 million, I think, because of capital reprofiling.
11:00The second factor is that I am applying another tranche of that capital reprofiling over the next four years. Local government has been assured by me that it will receive 26 per cent of the capital departmental expenditure limit that is available to the Government over all of the next four years but that it will not come in a uniform, flat line—it will be lower in 2016-17 and it will be much higher in the later years of the spending review. That is the second component of the explanation.
The capital figure is about £150 million lower than it should be in 2016-17, but that capital will be put back in later on in the spending review, as it has been in the previous spending review. That is just to enable me to have more capital flexibility and to ask local government to use some of its capital flexibility, which relates both to reserves and to borrowing, to make up the difference.
The final element is a reduction of £350 million in the resource budget of local government.
Those are the three components that explain the differences in the numbers. If it would be helpful, I will write to the committee swiftly to explain the precise numbers that underpin those elements.
Thank you.
That concludes questions from committee members. We now turn to the formal procedure regarding the bill. There are no amendments to deal with but, under the standing orders, we are obliged to consider each section and schedule of the bill as well as the long title, agreeing to each formally. We will take the sections in order, with schedules being taken immediately after the section that introduces them and the long title being taken last. Fortunately, the standing orders allow us to put a single question when groups of sections or schedules are to be considered consecutively. Unless members disagree, that is what I propose to do.
Convener, I do not know whether this is contrary to what you just said, but I want to record my dissent to section 1(1), which introduces schedule 1. I know that there is no vote on that; it is simply a matter for the record.
We can record that point and still take all the sections together.
Section 1 agreed to.
Schedule 1 agreed to.
Section 2 agreed to.
Schedule 2 agreed to.
Section 3 agreed to.
Schedule 3 agreed to.
Sections 4 to 11 agreed to.
Long title agreed to.
That ends stage 2 consideration of the bill. The bill now proceeds to stage 3, which is scheduled to take place on Wednesday 24 February. As members are aware, only the Scottish Government can lodge amendments at this stage, and we have received a commitment that we will have some information from the cabinet secretary by Monday 22 February.
I thank the cabinet secretary once again and suspend the meeting for two minutes to allow a change of witnesses and a natural break.
11:03 Meeting suspended.Next
Prevention