Finance Committee, 12 Dec 2006

Meeting date: Tuesday, December 12, 2006

Official Report 240KB pdf

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Legacy Paper

I call the meeting to order and promise that I will do my best to finish as soon as possible. I will say a word by way of background. Arthur Midwinter, the budget adviser, has produced an excellent paper. As ever, he takes a view, so I have no doubt that several of us will want to change elements of the paper.

The adviser's paper goes to the heart of what will be in our legacy paper. As committee members know, we will hold two seminars in February. One will focus on the budgetary process and the other will be on financial memoranda. The adviser's paper will be fundamental to the seminar on the budgetary process. We are discussing the paper now because Arthur Midwinter will not necessarily be able to be with us when we discuss it in February. It would help if the Scottish Parliament information centre took the main insights from the adviser's paper and used it to help us to structure the discussion—perhaps via overheads—when external people participate in the budgetary seminar, because it is important that they focus on the choices. In that respect, the adviser's paper provides an excellent summary and is an excellent thought starter.

I am a wee bit reluctant for us to rehearse today the discussion that will be the subject of a full seminar in February. Arthur Midwinter has been kind enough to agree to take questions on the paper. I throw open the meeting to members to ask questions to clarify or raise anything. We will use the adviser's paper as the basis for an open discussion with others about the budgetary process in February.

Paragraph 24 says:

"the Executive has strategic priorities for the budget, but no strategic targets … Cross-cutting themes such as Sustainable Development or Closing the Opportunity Gap utilise baskets of indicators outwith the budget process".

Do you mean that those baskets of indicators could or should be used? How do they relate to the budget process?

The indicators do not relate to the budget process. Both themes are attached to departments, which is why I do not regard them as cross-cutting themes. For me, a cross-cutting target overarches everything. I have seen about 20 indicators used in a sustainable development document and a similar number on closing the opportunity gap, which the Executive has changed regularly—first under the social justice portfolio and now under the communities portfolio.

The indicators have no direct link to the budget process. They might well be used internally for a department's business plan and its own monitoring of progress but, as far as I can tell, they are not indicators or targets that are used to influence the allocation of resources or to assess performance on spend. The targets that are in the budget are supposed to be able to be linked directly to specific spend.

I would like us to have a good look at those links at the seminars.

Paragraph 28 begins:

"The problem of strategic targets can only be resolved by the Executive adopting strategic priorities which it can reasonably expect to influence through public spending. Economic growth is not in this category."

The assessment that economic growth cannot be influenced through public spending is a little more pessimistic than one I would favour, but we can discuss that at the budgetary seminar.

I will describe what emerges from the paper and take up the point that Mark Ballard made—perhaps SPICe will have the chance to discuss the matter with Arthur Midwinter beforehand. Much of the paper contains factual commentary on what happened in the second parliamentary session. It also makes recommendations. We are not looking for endorsement of recommendations today. We are saying that we should turn into overheads the factual commentary about what has happened and the recommendations. We will have a point-by-point discussion of those recommendations in which other people will participate at the February seminar. That will give the document the authority of being not simply a budget paper from the adviser. Come February, we will or will not make recommendations on several matters.

I have a comment on appendix 1, which contains potential performance indicators for national programmes. One of the indicators for education is school occupancy rates. I know that Audit Scotland uses information on school occupancy rates when it audits councils, but concern has been flagged up to the Education Committee about the use of such information in relation to rural authorities. School occupancy rates in rural areas might appear to be fairly poor, but the alternative is for children to be transported many miles around the countryside. The relevance of the statistics for rural areas has been questioned.

It would still be up to individual councils to take whatever decisions they choose to take, but it would be useful to know the position throughout the country. I stress that the indicators already exist on a small-area basis but that they do not exist for the nation as a whole. There is a huge gap in the system. When the Executive did its own best-value work, it considered how well it advises ministers rather than how well the programmes that it manages do. There is a need for national performance indicators.

There are some important strategic insights buried in the paper. Unlike our budget report, it gives the answer to the question, "How do we get a more strategic approach?" At present, there are four years between the setting of spending targets and four years before we evaluate them. The paper contains some important meat, which is why breaking it down into its constituent components would give the committee a chance to get external buy-in and have real authority for the legacy paper.

I make the link between paragraphs 24 and 30, which cover strategic priorities, strategic targets and the need for commitment to continuous improvement. When I consider those in the context of the performance indicators in appendix 1, I am left with the impression, which was partly formed by our earlier conversation with Rob Wishart, that the measures that we have for managing the performance of Scotland plc are short of what we would have if we were running a business. A business would have its finger on the pulse of turnover, net profit, market share, profit per employee and so on. I am coming to the conclusion that Government revenues, growth, population, life expectancy and the birth rate are measures that would, at a macro level, give us a feel for how effective Government policy is. They would allow us to monitor what is happening in Scotland.

This point might be too concerned with process to be discussed at today's meeting, but it relates to Elaine Murray's point on the performance indicators in appendix 1 and whether we want to go with them. Members will recall that we had a good session with Michael Barber from the Prime Minister's delivery unit in the Cabinet Office, who came to talk to us about how the delivery unit got the number of indicators down to fewer than 20 for the whole Government. He made the case that it was preferable to have a small number of indicators. In structuring the day, it might be helpful to have someone from the delivery unit tell us whether, three years on, they have stuck with fewer than 20, whether they are the same 20, and what the advantage is of having 20 rather than 64 or 128. We should revisit that issue with the authority of the whole committee.

That would be most welcome. A key issue is the fact that, when we engage with thinkers on the issue of strategic targets, we find that there are now deep misgivings about arbitrary numeric targets in any timeframe because people will make huge efforts to distort things by diverting budgetary allocations or doing whatever else they can to make the number. Modern thinking is that we should say, "This is an important measure. We seek to improve it incrementally over time and keep the process under statistical control."

I agree. The list of indicators in appendix 1 is simply illustrative. It is not a preferred list. I was asked to examine what was available. Also, because I was aware that today would be my last meeting with you on a budget matter, I wanted to put on the record my view of the budget process. You are at liberty to accept or not accept any part of it. I just wanted to leave something with you. There will be no more budget meetings in the current session because there will be no annual evaluation report in March.

I have sticky difficulties with economic growth because it is quite clear that the researchers whom we commissioned were not able to draw direct links between spending on particular areas and economic growth. Instead, we got a general statement to the effect that if money is spent on health and education, there will be a better prospect of economic growth. The budget process is supposed to link spending directly to outputs. I feel that the committee has not heard any evidence that economic growth, as it is measured, is suitable as a target for the budget, if the Executive cannot identify how much of its spending is linked to achieving that target.

I have some sympathy with that. Of all the people with whom I have engaged in this debate, Graham Leicester, formerly of the Scottish Council Foundation, produced the most interesting feedback. He said that, at the end of the day, when everything is distilled and evaporated off, the only two measures that are really important in terms of knowing how well a country is doing are its population's demographic breakdown and life expectancy relative to those of its neighbours.

In paragraph 21, Arthur Midwinter comments:

"Linking resources to results … remains problematic because of the range of internal and external factors which influence outcomes.

I can accept that analysis, but I find it a terribly pessimistic view of what we can do to manage a process that leads to improved performance and effectiveness of spending. The committee has to kick that around and decide what we want to say about it. If we just keep on spending the money without knowing whether it is making the slightest difference, that becomes a problem.

I agree. The helpful thing is that Arthur Midwinter has, as ever, given us a view. He has provided us with a template that we need to test against external bodies and other interested parties at our budget scrutiny seminar in February. If there is an opportunity for SPICe and Arthur to liaise briefly in advance of that seminar, about the part that is history and the part that is recommendations, that would give our legacy paper considerable authority in that area. Arthur, we are enormously grateful to you.

I have been working with a council for the past year, trying to deliver a similar process. We asked the departments that were making bids for resources to say precisely how the spending would affect the service and the impact that it would have, where they could say so, and that became a target. Where the link was less direct and they were unable to say what the impact would be, we asked them to flag up a potential benefit, but the only ones that we are prepared to keep in the document are the ones that we can measure. That is how we dealt with the situation at local authority level.

There is a debate to be had about how spending is allocated, how we assess its effectiveness and how we try to generate more benefit from that expenditure.

The good news is that Arthur Midwinter will be back long before we sign off our final legacy paper. If we have our budget seminar in February, when we can discuss some of the finer points about how far we want to go, I would at least like us to have the option of resolving the matter at our meeting on 6 March, which is the final meeting that Arthur will attend. I would like to have him with us when we finally sign off the legacy paper, because I would like to get the nuance of some of that groundbreaking stuff right.

On that note, I wish all committee members a happy Christmas break. I will see you again on 8 January. Some members will be joining us for lunch in the members' dining room on Thursday, with the clerks and members of SPICe. We have so many debates next week that we thought we should have our Christmas lunch this week.

Meeting closed at 12:14.