Budget (Scotland) Act 2014 Amendment Order 2015 [Draft]
The next item of business is evidence from the Cabinet Secretary for Finance, Constitution and Economy on the Budget (Scotland) Act 2014 Amendment Order 2015.
The cabinet secretary is joined by Scottish Government officials Joe Welsh and Martin Bolt. I welcome our witnesses to the meeting and invite the cabinet secretary to make an opening statement.
The spring budget revision provides the final opportunity to amend formally the Scottish budget for 2014-15. This year’s revision deals with three types of amendments to the budget. First, it deals with a number of technical adjustments that have no impact on spending power; secondly, it deals with a small number of Whitehall transfers; and, thirdly, it deals with budget-neutral transfers of resources between portfolio budgets, including a modest budget redirection to ensure that we maximise our available budget. The net impact of all the changes is an increase of £475.1 million in the approved budget, from £36,431.4 million to £36,906.5 million.
Table 1.2 on page 6 of the supporting document—“Scotland’s Budget Documents: The 2014-15 Spring Budget Revision to the Budget (Scotland) Act for the year ending 31 March 2015”—shows the approved budgets following the autumn budget revision as realigned to reflect the new portfolio structure that the First Minister announced on 21 November 2014 and the changes that are sought in the spring budget revision.
The supporting document and the brief guide prepared by my officials provide background on the net changes.
The first set of changes comprises a number of technical adjustments to the budget. The technical adjustments are mainly non cash and budget neutral and have a net positive impact of £452.2 million. It is necessary to reflect the adjustments to ensure that the budget is consistent with accounting requirements and the final outturn that will be reported in our annual accounts.
In my letter of 2 February to the Finance Committee, I provided information on the Scottish Government’s response to updates to relevant Eurostat technical guidance on accounting, applied from September 2014 in relation to non-profit-distributing hub projects.
In the interests of clarity, I advise members that the contingency arrangements that I have agreed with Her Majesty’s Treasury do not impact on the spring budget revision, as those relate to HM Treasury budgeting at a UK level. That should not be confused with the routine Scottish budget adjustments that are made each year in relation to revenue financed projects.
12:00The Scottish budget aligns with the accounting requirements under the Government’s financial reporting manual. Accordingly, budget provision is included within the Scottish budget for the financial year to reflect the recognition of relevant health and transport assets within revenue finance infrastructure schemes in accordance with the accounting requirements. In numerical terms, that is the most significant technical adjustment at the spring budget revision, with an adjustment to the budget of £253.4 million. With regard to Whitehall transfers and allocations from HM Treasury, there is a net positive impact on the budget of £22.9 million.
The final part of the budget revision concerns the transfer of funds within and between portfolios to better align the budgets with profiled spend. There are a number of internal transfers as part of the revision process that have no impact on overall spending power. The main transfers between portfolios are noted in the spring budget revision supporting document and the guide to the SBR. In line with past years, there are a number of internal portfolio transfers that have no effect on portfolio totals but which ensure that internal budgets are monitored effectively.
As I have said previously, the committee will wish to note that as part of our robust budget management process and in line with good practice, we have taken the opportunity at the spring budget revision to deploy emerging underspends to ensure that we maximise public expenditure in 2014-15, in particular to support capital investment where possible.
The spring budget revision records the deployment of some £115 million of redirected budget, which represents around 0.4 per cent of the fiscal departmental expenditure limit budget. Details are provided at annex C of the brief guide prepared by my officials.
The spring budget revision also reflects the proposed transfer of budget from resource to capital in respect of the Scottish budget. Members should note that the Scottish budget records capital that scores in the Scottish Government’s consolidated accounts or the accounts of our directly funded bodies. In the context of our HM Treasury budget, the planned resource-to-capital transfer is £190 million. The switching is managed within the total DEL available to the Scottish Government. That approach takes into account the latest profile of the Government’s overall capital programme.
As in previous years, once we have provisional outturn figures, it is my intention to write to the Finance Committee with a table setting out the actual resource-to-capital transfers by portfolio and programme in a similar format to the table that was provided in my letter of July 2014 in respect of financial year 2013-14.
As we approach the financial year end, we will continue, in line with our normal practice, to monitor forecast outturn against budget and wherever possible we will seek to utilise any emerging underspends to ensure that we make optimum use of the resources available in 2014-15 and that we proactively manage the flexibility provided under the budget exchange mechanism agreed between HM Treasury and the devolved Administrations.
I confirm that, in line with past years, it is my intention to make a statement to Parliament on provisional outturn in respect of both our Scottish Parliament budget and Her Majesty’s Treasury budget.
The brief guide prepared by my officials sets out the background and details of the main changes that are proposed. I look forward to discussing the issues with the committee.
Thank you very much, cabinet secretary. I will ask a few questions and then open up the session to questions from other committee members.
The autumn statement 2013, the UK budget 2014 and the autumn statement 2014 allocated an additional £158 million to the Scottish budget. The 2014-15 budget bill allocated £90 million in Barnett consequentials, and in the autumn budget revision another £53.3 million of Barnett consequentials was allocated. Therefore about £15 million in Barnett consequentials appears to be unallocated. Has that been carried over into 2015-16 using the budget exchange mechanism?
It is correct that there are remaining consequentials totalling £15 million that have not been put into budget measures so far. We intend to carry those forward. Of that £15 million, £13 million will be allocated to support the delivery of free school meals in 2015-16—that was part of our long-term planning for that policy. After those provisions are taken into account, £2 million will remain unallocated.
Are any other funds being carried over? If so, have they been allocated?
I expect there to be a budget underspend of the order of £140 million to £150 million. That has been factored into the spending plans for 2015-16.
Thank you.
You said a lot about the technical transfers. The brief guide says that they
“are essentially budget neutral and do not provide additional spending power for the Scottish Government.”
What is the word “essentially” doing in there? If you say that the transfers are “essentially budget neutral”, there is an implication that they are not quite budget neutral. Can you clarify whether they are completely budget neutral?
In the overall statement that I just made to the committee, I made the point that there was essentially a net positive impact on the budget of £22.9 million. In every other respect, all the other transfers are budget neutral.
They do not have any practical significance.
No.
Okay; I just wanted to clarify that.
What resource budgets have fallen to accommodate the capital increases, and what changes have taken place since the plans were set out in the draft budget for 2015-16?
Our expectation is that the resource-to-capital transfer will be of the order of £190 million this year. At the draft budget stage, our plan was for the transfer to be £120 million. Essentially, what we are doing is working the totality of the budget available to us to ensure that we can fulfil a broad range of capital investments across the country.
Some investments will be affected by timing, such that we are able to make more progress on particular projects than we envisaged when the budget was set in 2014-15. We are trying to find the headroom within the budget to enable us to undertake more capital investment work in 2014-15 than we had previously planned. That will be a product of operational decisions within the capital programme. Therefore, where we find opportunities to undertake more activity, we will try to establish the funding mechanism to do that. One of the options available to us is to undertake a greater resource-to-capital transfer than was planned.
Do you have specific details on that?
I can provide the committee with a range of areas where we will do that. Also, we will formally write to the committee once we have reached the end of the financial year, when it will become clear whether we have in fact undertaken all the transfer activity that I have suggested will be undertaken.
Table 3 in our the committee’s briefing from the financial scrutiny unit shows the sources of emerging underspends. What are some of the reasons for those underspends? They cover quite a significant area of the infrastructure, investment and cities portfolio, but the education and lifelong learning portfolio also has a £13.4 million underspend, the Scottish Prison Service has a £12.3 million underspend and the Scottish Parliamentary Corporate Body has a £1.5 million underspend. Can you talk us through some of the underspends? Will the money be restored to those budgets in the future?
I can go through some of the underspends.
On rail services, we have identified a number of savings through a combination of a reduction in forecast inflation and the published control period price list, which is relevant to Network Rail access charges. We estimate what we think is likely to be required in terms of budget provision when we set the draft budget, but of course we do not have to hand the detail of how the costs will crystallise. That means that, later on, we can reallocate to support other provisions.
On Scottish Water—we have gone through this territory before in committee—the infrastructure programme will change its shape and character, depending on particular projects that are taken forward. Essentially, the Government will have to provide a net funding requirement. We expect that net funding requirement to reduce voted loans to £106.6 million, which will remove a requirement for £40 million of borrowing by Scottish Water.
On motorways and trunk roads, there are in-year savings from the Queensferry crossing, which is continuing to make very visible progress and is delivering savings because of low inflation. The project is taking its course—I think that I have gone through this with the committee before—but the contract is structured such that there is a fixed price for the whole project, with a contingency element running alongside that, which is for variables that are outwith the contractor’s control. That contingency is accessed only if there is a proven need to access it. When it is not needed, it comes back to the Government, and that is what we are gathering back.
With regard to the Scottish Further and Higher Education Funding Council, there are savings because of changes to the timescale for the delivery of certain programmes that the funding council is taking forward, as a consequence of some of the activity around carbon reduction and other projects.
In the Scottish Prison Service, the savings have come from changes to the costs of energy supply and energy usage, court custody contracts coming in at a lower price than was anticipated, and improvements in estates maintenance, which is being delivered more efficiently.
The Scottish Parliament Corporate Body has been able to release £1.5 million of savings. That is not a budget that I control, but such savings are always welcome when they come.
Will any of those funds be restored to those budgets, or will they be put into other things?
The funds are reallocated to meet other provisions in the 2014-15 budget. However, if, for example, a project has not happened this year but will happen the following year, we will restore the budget accordingly.
Excellent. Thank you for that clarification, cabinet secretary, which I sought in a more ham-fisted way than you put your eloquent reply.
I have one further question on infrastructure, investment and cities. There are four proposed reductions, totalling £74.1 million, in the rail services budget. One reduction involves a £23 million transfer to ferry services for contract commitments. Can you tell us a wee bit about that?
I have shared the origins of the saving with the committee. The lower price inflation on contracts and the changes in Network Rail access charges have been the source of that particular change.
The transfer into the ferries budget takes account of additional budget cover that we are putting in place to support and sustain ferry commitments. Of course, ferries are vital for many communities around the country—not least for Arran in your own constituency, convener. The transfer is designed to provide the support that is necessary for our essential ferry services.
Thank you for that. Members are keen to ask questions now.
Cabinet secretary, the Scottish Water saving is £43.5 million less than was anticipated for 2014-15. Does that impact at all on what you will need to lend to Scottish Water over the longer term, or is that likely to pop up in future years?
Is “pop up” a technical term?
They were the first words that came into my head.
They make the point, Mr Brown. Yes, that will pop up at a later stage.
You referred to your 2 February letter to this committee. I just want to double-check that I heard you right. Did you basically say that nothing from your letter is actually captured in the spring budget revision document?
That is correct.
You have explained some of the underspends quite clearly. Do you encourage any departments to underspend?
Yes.
Okay.
12:15
I do so for two reasons. First, I have to underspend. I defy anyone to believe that it would be possible to spend precisely the amount of money that is allocated to us in any given financial year. The arrangement that we have with the UK Government allows us to carry forward a very small proportion of our budget. The numbers used to be ingrained—around £150 million of resource and around £40 million of capital can be carried forward. I think that we are talking about roughly 0.6 per cent of our resource departmental expenditure limit budget.
That is a sensible arrangement, because it means that we have to plan to balance our budget. I think that it would be very risky to plan to hit it on the nail. The arrangement that we have with the UK Government that allows us to carry forward a modest underspend without any loss to the Scottish public purse enables us to manage the process in an orderly fashion, and I am entirely satisfied with it.
Secondly, different things happen during the year, when I have to find resources for particular priorities. It helps to have portfolios that can identify savings and are prepared to offer them for deployment elsewhere. It is one of the strengths of the Administration that portfolios are obliged to offer such resources to my office for consideration of whether they can be deployed within the portfolio or on corporate priorities.
I refer to page 65 of the supporting document. In answer to the convener, you said that there was a bit of an underspend in rail services, which was partly due to a reduction in inflation. You gave a couple of other reasons. The table on page 65 shows that the original budget for rail services was £842.8 million. Following the autumn budget revision and the spring budget revision, the actual budget will be £757.4 million, which is quite a drop from the original budget. Is all of that explained by inflation and other reasons, or are services being affected or projects delayed?
It is explained by a combination of a reduction in the level of inflation that was forecast and the published control period price list relevant to the Network Rail access charges.
That explains the whole difference—okay.
Schedule 3.4 on page 68 of the same document includes the heading “Technical budget adjustment in respect of Transport revenue financed infrastructure projects”. It is described as a technical adjustment, but I want to dwell on it because of the size of it—£201.8 million. Can you give a bit more detail on that?
Yes. It is a technical adjustment in connection with the provision for the Aberdeen western peripheral route and the M8, M73 and M74 improvement projects. The figure for the AWPR is £66.7 million, and the figure for the M8, M73 and M74 projects is £135.1 million.
That has arisen as a result of our response to a point that Audit Scotland raised with us. Previously, when a project that was revenue financed was completed, we would have used what is called ODEL—outside DEL—which is a provision to recognise that in our asset base. Audit Scotland indicated to us that it thought that we should show that piece by piece as the construction proceeds. Therefore, the figure that you see represents our response to that point from Audit Scotland. It will not be the case that a complete number crystallises on those projects at a later stage; it will be an incremental process.
I am grateful for that—thank you.
On the same page, there is an emerging planned underspend of £17.8 million. In response to the convener’s question, you suggested that that was down to inflation and savings from the Queensferry crossing. I am just looking for a bit more explanation. According to the spring budget revision in the table just below the one I mentioned, the Queensferry crossing has a figure of £250.2 million attached to it. When I looked at the draft budget, that figure was £241 million for the financial year 2014-15. On the face of it, £9 million more is being spent on the Queensferry crossing than is shown in the draft budget. How does that work out at an underspend?
We might have to write to the committee about all the transactions in the spring budget revision. I suspect that there might well be an issue about how much of what we show in that crystallises on to our balance sheet. I think that I had better write to the committee on the detail of that question. Other elements of funding might also form part of the equation so, for completeness, I will give the committee all that detail.
Okay. On page 75 of the revision document, there are two entries on schedule 3.11, and I am looking at the top two lines under the heading “Summary of proposed changes”, which are:
“Transfers from portfolios to support corporate procurement functions
Deployment of emerging/planned underspend to support corporate procurement functions”.
The figures are £6.2 million and £12.4 million respectively. I am just seeking an explanation of what is meant by transferring to support corporate procurement functions.
That is essentially crystallising in one place the Government’s activity to operate a shared service for the delivery of procurement activities across the public sector. That is us identifying in one place the budget that is required to ensure that we operate a shared procurement service across the public sector.
Thank you.
On page 37, under the heading “Justice”, there is a line for the on-going legal case on annually managed expenditure provision. We have notes that say that that is something to do with pensions. I realise that, as it is an on-going legal case, you probably cannot say very much about it, but it seems to be quite a large amount for a legal case. Can you say anything about it?
I cannot say an awful lot. It is an issue in relation to the provision of pensions, which is the subject of a case involving the Government Actuary’s Department. The Treasury has advised us that we should make AME provision so that it is available should it be required, and we have done so.
I accept that; thank you.
I will happily share more information with the committee when I am in a position to do so.
That is great.
My other questions are about the Whitehall transfers allocation from HM Treasury, which is not a huge amount. The £22.9 million that you referred to earlier is made up of some relatively small amounts. Is there negotiation with you or individual departments on the process of that, or is it just something that is decided and you are told about?
Essentially, UK departments will make a number of points from time to time and I can give the committee a flavour of some of them.
The one that I am most interested in, although it is quite small, is the G8. Is that £0.8 million really the cost? How was that decided?
That reflects the final outstanding costs in relation to mutual aid and the agreement that was reached at the G8 summit in Northern Ireland in 2013. I assume that it will involve a transfer to us for the support that we provided from our resources to assist with security at the summit.
Right—I had not clicked that it was the Northern Ireland summit.
Yes. It will be the cost of Police Scotland’s contribution towards the combined security operation for the G8 summit in Northern Ireland.
Do we send them a bill, or do they just give us a figure? Perhaps you do not know that off the top of your head.
The resources that were deployed, and what we will be paid for, will have been agreed.
Okay—thank you.
I have a question on the education and lifelong learning budget. On page 25, the transfer from health of £2.3 million is specified as being
“in relation to Calman Report”.
Can you give us some more details of what that means?
That is the additional cost of extra medical students in Scottish medical schools, resulting from commitments to implement the Calman report.
That is helpful—thank you.
Finally, we have discussed the underspend in the SFC budget already—there is a total net reduction of £19.5 million. Is that all for deferred projects? In addition, there is a transfer to the learning budget of £9.9 million. Why has the decision been made to transfer money to the learning budget from the SFC budget?
As a result of the agenda that we are now pursuing with regard to implementing some aspects of the Wood report, there is a need to ensure that we take a focused approach to how we use our resources to support the cohort of young people in that age bracket. The funding council will be involved in supporting projects in some areas that will take forward some of the work that is envisaged in the Wood report. Some of the lines will be blurred in terms of where the resources should come from.
There will be other aspects of the SFC underspend on which we will have to make good in later years. For example, there is an underspend on the Rosslyn centre project—we have agreed to fund it but we have not been presented with the financial requirements at this stage.
On the transfer to the learning budget, there has been a deliberate decision to transfer funds from universities or colleges—I guess we do not know which—to other aspects of learning provision and providers in relation to the Wood report.
It is simply about trying to ensure that the agenda is able to take its course with appropriate support.
Thank you.
We have now exhausted questions from the committee. We move to item 4, which is the debate on motion S4M-12552. I invite the cabinet secretary to move the motion.
Motion moved,
That the Finance Committee recommends that the Budget (Scotland) Act 2014 Amendment Order 2015 [draft] be approved.—[John Swinney.]
Motion agreed to.
We will have a short suspension to change witnesses before agenda item 5.
12:28 Meeting suspended.
12:29 On resuming—
Scottish Landfill Tax (Administration) Amendment Regulations 2015 [Draft]
Scottish Landfill Tax (Exemption Certificates) Order 2015 [Draft]
Our next item of business is to take evidence from the Cabinet Secretary for Finance, Constitution and Economy on two statutory instruments relating to the Scottish landfill tax.
The cabinet secretary is joined for this item by David Kerrouchi and John St Clair of the Scottish Government. I invite the cabinet secretary to make an opening statement explaining both instruments.
The Scottish Landfill Tax (Administration) Amendment Regulations 2015 primarily utilise powers in section 15 of the Landfill Tax (Scotland) Act 2014, which relate to how material disposed of is weighed. Scottish landfill tax will be chargeable by the weight and type of material disposed of. The instrument sets out that a weighbridge must be used to weigh disposals, if a working one is available on site. That will help to ensure the accuracy of tax returns and that the Scottish landfill tax is applied fairly and equitably across all sites.
Failure to use a weighbridge may result in a penalty for an inaccurate return under section 182 of the Revenue Scotland and Tax Powers Act 2014. Alternative arrangements will be made available on application to Revenue Scotland for weighbridge breakdowns or when an alternative weighbridge is not available in close proximity to the landfill site.
The remaining amendments address drafting recommendations that have been identified by the Delegated Powers and Law Reform Committee and help to provide clarity on the role of approved bodies in relation to the communities fund.
The second landfill tax instrument for the committee’s consideration today is the Scottish Landfill Tax (Exemption Certificates) Order 2015. The instrument stems from powers in section 11 of the Landfill Tax (Scotland) Act 2014, which allow for the Scottish ministers to vary what is categorised as a taxable disposal, what is not a taxable disposal and what is exempt.
The order provides Revenue Scotland with the ability to grant authorities that exercise removal powers under the Environmental Protection Act 1990 and similar legislation with an exemption certificate. That applies to any landfill tax liability that may arise from the clear-up of a site following an unauthorised disposal—for example, in cases of illegal dumping and fly-tipping. The exemption applies to the subsequent correct disposal by the authority.
The Scottish Government envisages that the exemption will be used by authorities that are unable to recover their costs from the responsible person who made the original unauthorised disposal, and where landfill is the only practical destination for the material. The instrument will prevent local authorities from being penalised financially for the remediation of sites, which would divert resources from other core services.
The proposal was consulted on last year, and 96 per cent of those who responded to the question were in favour of the Scottish Government providing an exemption of that nature in order to facilitate the speedy remediation of sites.
As no members have any questions, we move to item 6, which is the debate on the motions. I invite the cabinet secretary to move motions S4M-12550 and S4M-12551.
Motions moved,
That the Finance Committee recommends that the Scottish Landfill Tax (Administration) Amendment Regulations 2015 [draft] be approved.
That the Finance Committee recommends that the Scottish Landfill Tax (Exemption Certificates) Order 2015 [draft] be approved.—[John Swinney.]
Motions agreed to.
I thank the cabinet secretary and his officials.
Meeting closed at 12:32.Previous
United Kingdom Budget