Good afternoon and welcome to the eighth meeting of the Finance Committee in the third session of the Scottish Parliament. I ask everyone to turn off their mobile phones and pagers.
Good afternoon and thank you for giving me the opportunity to present the SPCB's budget proposal for 2008-09. I preface my remarks on the specifics of the budget by explaining what has driven the SPCB's approach to setting the budget. The SPCB is very aware that every pound that we spend should be put to the best possible use. We are determined that the Parliament should continuously examine how it spends the money that comes from the Scottish consolidated fund. Wherever possible, we should minimise our call on that fund.
I will start the questions. The Scottish Parliamentary Corporate Body has stated that it has exercised considerable pressure to restrict the overall increases in budgetary expenditure, and that that has meant that difficult choices have had to be made. What difficult choices have been made in arriving at the final budget?
I tried to highlight some of those choices in my statement. For example, we considered the charges for parliamentary tours. Those tours are subsidised at the moment. We thought that it was right to maintain the subsidy at the current level but to take no action that would allow it to increase. People will have different views on that issue, but we are all keen to ensure that people have access to the parliamentary building.
At a more micro level in the budget, there is a lot of pressure on individual budget heads—for example, training and development. We considered each budget head and put on a lot of pressure. We forced people to justify and explain all the individual budget heads, and we asked ourselves whether expenditures were absolutely necessary. Underlying the big issues for the corporate body has been a series of more detailed discussions. However, we followed the same kind of approach that has, we hope, enabled us to produce a reasonable overall budget.
The submission talks about continuing to examine further options for maximising value. What areas do you expect that to focus on? What timescales do you have in mind for that process?
The timescales are quite pressing. The SPCB is already discussing a number of areas although, as I said, final decisions have not yet been taken. Let me put it this way: there are areas in the Parliament that currently attract subsidies and we are considering ways of reducing those subsidies.
Will part of that consideration relate to this budget process and part of it be a longer-term attempt to find out where more savings can be made?
Yes. Everyone is aware that we are moving into a financial climate that will be different from the one that we experienced over the first eight years of the Parliament. It would be sensible to find ways in which we can minimise our impact on the consolidated fund while we are experiencing those conditions.
I want to concentrate on pay. As we know, the average public sector pay increase this year has been about 2.5 per cent and, over the next three years, the consolidated fund is going to rise by only 1.8 per cent above inflation. Yet, the SPCB projects an overall increase in SPCB staff pay of 5.4 per cent—which is way above what MSPs are getting, I have to say. I have two questions. First, what is the justification for the rise of 5.4 per cent? Secondly, what is the head count now and what will the head count be in the bid year of 2008-09?
I will deal with the first question and Paul Grice will deal with the second.
In the current year, the full-time equivalent head count is 539. Last year, it was 542 and, next year, it will be 545. It has been pretty stable for the past three or four years.
Two or three questions arise from that. We are looking at the overall increase in the wage bill for the Parliament. Given that everyone else's wage bill is constrained, should we not be taking some of the strain? Should there not be some offsetting savings to help to pay for the increase in wages to which people are entitled under the three-year deal? Is the bid year next year the last year of the three-year deal? How much of the 5.4 per cent increase are we locked into under the deal? How much discretion is allowed?
The deal runs out in March 2009. Next summer, we will be looking ahead. In a sense, the last full year is coming up.
On staff-related costs, schedule 3 of your paper says that there is an expected reduction in contractor costs of £82,000. What is the expected total for contractor costs?
We should be able to tell you exactly what that is. Derek Croll might have the figure to hand.
We are forecasting the total to go down from £458,000 to £376,000.
Is that part of an overall action that you are taking to try to reduce the number of contractors that you have working in the Parliament?
Yes. I have always been keen to avoid any notion of masking overall staff pay by masking staff as consultants and contractors. It is a policy to reduce the number of contractors. We use contractors where they have expertise that we do not have. For example, if we were managing a series of works, we would need an industry professional, so we would bring somebody in for a period of time. We are doing a lot of work on business continuity to try to make the Parliament more resilient to all sorts of things that might disrupt business. It is worth bringing in someone with expertise on that. However, over the years, we have gradually reduced the number of contractors in the Parliament and it is my intention to apply downward pressure, so that contractor pay remains a very small proportion of our overall budget. You will see a similar trend for both consultants and contractors.
Does the £458,000 include contractor and consultant costs, or are consultant costs a separate line?
Derek Croll can give you the consultant figure.
The £458,000 is just contractor costs. Consultant costs are budgeted at £295,000 next year.
How does that compare with the forecast for the end of this financial year?
It is a reduction of £60,000, or 17 per cent, from the current year.
You will be aware that there is an on-going review of members' allowances. You did not think that it was appropriate to anticipate the outcome of that review. You also wondered whether the allowances review panel might consider deferring implementation of the outcomes of the review until 2009-10. Will you expand on your thinking on that? What thought have you given to how it might impact on future budgets?
The contingency allowance in the budget exists for genuinely unexpected expenditures, but it would be wrong to say that we were not mindful of the fact that a major review was taking place.
Your submission states that you are looking to reduce, and have actively been reducing, running costs. One mechanism to achieve that has been the outsourcing of information technology and maintenance. Are you happy that there has been no reduction in service as a result of that outsourcing?
Yes, I am. The new IT contractor is due to take over at the end of next year. LogicaCMG is a well-respected company, although I am happy to say on record that Wipro Technologies has been very good. Indeed, the way in which it has behaved since realising that it had not won the contract has been exemplary.
Has there been any consideration of increasing the use of open-source software in the Parliament? Some other Parliaments in Europe have reduced costs by using it.
Yes, we have considered that issue. I cannot give you details, but I would be happy to let you have a note about it. Like many companies, we are using licensed Microsoft software for the most part, but our IT department has looked at open-source software and I am happy to provide you with a more detailed note on it.
That is great, thank you.
The submission was clearly set out, and the opening remarks were also helpful. To be fair to Tom McCabe, I would perhaps spin his various conflicts the other way and suggest that he is taking on multiple roles to drive down staff costs.
I do not think that any of our consideration of the overall expenditure will involve a significant reduction in events. Quite the opposite: we are examining ways in which the Parliament can open itself more to outside organisations, whether they are private companies or the various charitable and voluntary organisations that often have a presence here. Anything that we are currently considering will not be against a background of reducing accessibility—it will be the reverse.
Just to be clear, would you envisage more cost sharing for events than has been the case in the past?
Yes. We will also look at how particular organisations—perhaps not a high percentage of the organisations that use the Parliament—could make a different kind of contribution to the costs incurred.
That is reassuring. I hope that this will not appear to be completely at odds with that line of questioning but, against the backdrop of a limited increase overall in the other budgets, there is a rather eye-watering increase of 585 per cent for "Other Projects". Will you set out in a little more detail what is encompassed within that heading and what the explanation is for the increase?
I will ask the chief executive to cover that.
It is an eye-watering figure in percentage terms because it starts from a very low base. There are two reasons for the increase. First, two or three major projects are under way. One concerns security and, in another, we are taking a hard look at our human resources function. Not only are we considering its efficiency, but I am determined to give it a greater member focus. A lot of new members have come in, and I think that they would say that, for all that interest in parliamentary procedure is important, they need to be allowed to get offices up and running. There is a need to refocus that.
What is likely to happen with that budget in future? You say that it has come up from a low base. Is the expectation that, if there were an increase in future years, it would be more incremental?
I expect that budget to be stable. As Tom McCabe said, we are thinking about investing in ideas and decisions now that might generate savings over the next two or three years. In that climate, there simply will not be room. One of the reasons why we have lifted projects out of the line budgets is that we now have a better view of the whole portfolio of projects across the Parliament from the big stuff to the £10,000 for improving a little bit of software somewhere. The idea is to have a much better grip on those. I want to manage them almost in accordance with a pre-set budget to force us to take decisions on priorities. In a sense, it will not be a question of whether we can do that because we will almost have to.
You said that you were taking a hard look at your HR function and that you wanted to make it more member focused. You have an HR change programme in the budget that, from my calculations, will involve spending something in the region of £380,000. What is the justification for spending that amount? I agree with the objective of making the staff more member focused, but what effect are we getting for our £380,000?
Obviously, the process itself costs a certain amount of money. We have to accept that, if we are going to do it, we have to do it properly. There is scope to make the HR function more member focused but there is also a chance to improve the quality of service across the Parliament.
Is it correct to say that the £385,000 is split between the costs of a new system and the costs of reorganisation? One of my concerns relates to an issue that we discussed earlier—the fact that you are bringing in a team of consultants to run a training programme. I have seen that in other organisations. You seem to be saying that the money is more for systems than for reorganisation.
It is. The figure includes a bit of consultancy spending, which is appropriate. We have tried to do as much as possible in-house, but this is one of the relatively few occasions on which a bit of consultancy expenditure can be justified to provide objectivity. Often people in HR are responsible for providing objective critique to other teams. When HR is subject to review, we need someone with a detached view to challenge it; the head of personnel has been open to that. There is an element of spending on both systems and reorganisation. I would be more than happy to provide the committee with a note giving a more detailed breakdown of the figure, if members would find that useful.
It would be useful.
The line for capital expenditure is estimated at £1.8 million, of which £900,000 is mainly for IT costs. The other £900,000 has been set aside as a contingency fund. Do the IT costs reflect what has been spent in previous years?
No. As I said, an IT refresh in the Parliament will begin in 2008-09. Not all the costs of the refresh will be absorbed in that year, but an allowance has been made to cover the beginning of the process. That is one reason why there is an increase in overall capital expenditure, albeit one of only £0.2 million.
What is the basis of the calculation of £900,000 for capital contingencies?
Basically, we have looked at all the possible calls and taken out 75 to 80 per cent of that expenditure—we have not allowed for all of it. Derek Croll will put more flesh on my answer and give examples of the issues that we have considered in order to build up the total.
Paul Grice has covered most of the ground. There is a list of issues that we have considered as potential grounds for capital expenditure on new system development: for example, changing the allowances systems to cope with new arrangements following the review of allowances. We have provided as a contingency around 50 per cent of the total figure for potential capital expenditure.
There is a separate line of £1.8 million for contingency.
Under the budgetary arrangements, we have to account separately for revenue and capital expenditure.
The figure of £1.8 million includes £0.6 million for genuine emergencies—we hope that we will not have any—and £1.2 million for
It is a value judgment.
Is the figure just based on a percentage?
We go through a detailed process. I invite all parts of the organisation to indicate whether they have projects or demands that they know about but which they cannot guarantee will go ahead—some are close to 95 per cent likely, others are less so. Once we have obtained that information, we and the corporate body make a pragmatic judgment on the percentage of the total figure for which we should provide. That is how we get the figure of £1.2 million, which is about 78 per cent of the total. We could choose to set aside 100 or 50 per cent of the total—it is a judgment call. The corporate body thought that about £1.2 million was the right amount, and I agreed. The other £600,000 is for things that we cannot control, such as being taken to court.
The anticipated income for the next financial year is some 40 per cent down on the anticipated income for this year. The explanatory notes suggest that that reflects actual income from the shop, tours and so on. I do not know what the £2,000 from "Other" sources is; I find it difficult to imagine what could have brought in that sum. Are the shop and the tours not as popular as we expected them to be? Has demand fallen over the years since the building opened?
I am informed that the £2,000 is probably from DVD sales; I would like to be able to say that I knew that before I came to the committee, but I did not. That explains that strange figure.
The anticipated income for this financial year was considerably in excess of what it looks as if we will take. How has the income figure changed since we moved into the building in 2004? Is it increasing or decreasing?
There were specific reasons for last year's figures. Given that it was an election year, the place was closed for a period of time. Paul Grice knows more about trends over the years.
Tom McCabe is right. The shop has proved difficult in terms of its location and layout. We are having a long, hard look at that. We have discussed interim measures with the corporate body, but we are having a big look at the whole of that area. Again, the shop is one of the areas in which we see an opportunity in the longer term to improve what we do and to find ways of reducing overall costs, perhaps by increasing income.
How does income from tours compare with expenditure? You probably recall that, before we moved into the building, the suggestion of charging for tours resulted in a lot of bad publicity along the lines of, "The building belongs to the people, but they will be charged to take a tour." At that time, the tours were supposed to wash their face—the money that came in would be similar to that which went out on tour guides. Is that still the case?
There is a subsidy of around 30 per cent on the tours, which equates to around £65,000.
I appreciate what you said in your opening statement on the corporate body's difficult role with regard to its influence on the budget-setting process for commissioners and ombudsmen. I appreciate that that is a difficult balancing act. However, if we look at the detail of what is proposed we see a significant variation in the figures, even when we take into account the different roles of the commissioners and ombudsmen.
It is a combination of those things. The incremental movement of staff through the scales had a bigger impact on the uplift of the wage bill of the Scottish Information Commissioner than on the others.
The difficulty arises in circumstances—such as the ones that you mentioned—in which the SPCB takes a different view from a commissioner or ombudsman but does not want to be seen to direct them or to cross a statutory line. I might be wrong, but when you described that particular instance, you seemed to be careful not to drop any hints as to which body you were talking about. When the corporate body has taken a view and a commissioner or ombudsman has taken a different view, is it reasonable to expect that we should know which one is involved?
It was the ombudsman. I appreciate your acknowledging that I was being careful, but I was not unnecessarily concerned to try to withhold the information. The issues are worthy of wider consideration.
That is helpful.
In the case of Scotland's Commissioner for Children and Young People, the original submission was significantly above the rate of inflation. The SPCB had an exchange of letters and a session with the commissioner and, from memory, the director of finance. Eventually, we managed to use our persuasive powers to convince the commissioner to reduce the bid significantly and bring it in below the rate of inflation. The original bid was the result of a robust zero-based budgeting exercise—I think that those are the words that were used. I think that the point was made at the meeting that such exercises usually result in lower costs, not higher costs.
The same point arises in relation to running costs. It seems that the Scottish Public Services Ombudsman and the Scottish Information Commissioner have been able to reduce their running costs, but the running costs for Scotland's Commissioner for Children and Young People and the Commissioner for Public Appointments in Scotland have significantly increased. What has driven those cost increases?
Perhaps Derek Croll can give specific details about that. I will make a wider point.
The £26,000 increase in running costs for the Commissioner for Public Appointments in Scotland is for a mixture of things—money for the launch of an equal opportunities strategy; £10,000 for attendance at events, seminars and conferences to promote the strategy and raise awareness of the office; and £10,000 for upgrading the website. Sundry printing costs are also involved. An increase in advertising and research lies behind the costs for Scotland's Commissioner for Children and Young People.
Finally, I want to discuss the basis of the Scottish commission for human rights bid. I appreciate—[Interruption.]
The person whose phone is turned on should turn it off, as it is interfering with the microphones.
I appreciate that we are dealing with unknowns to some extent with the Scottish commission for human rights, but how was its budget of £1 million assessed relative to that of other commissioners and ombudsmen? For example, how was the proportion relating to staff-related costs assessed?
The new Scottish commission for human rights is in a slightly different position. The amount was determined by the financial memorandum to the Scottish Commission for Human Rights Act 2006. Of course, the office has not even been set up yet and the Parliament has yet to approve the appointment that it must make. Things are therefore slightly awkward for the corporate body; in reality, there is no one with whom to negotiate. The same happened with the other commissioners. To get things about right, one relies on the act and the work that the Government side did to set things up. I think that the commission will be subject to more detailed scrutiny when it is up and running.
Paul Grice has probably covered everything. The figures in the budget are simply what was in the financial memorandum.
When we looked at some of the budgets last year, or perhaps it was even the year before, the children's commissioner—I stand to be corrected if it was not her—made the argument that, because the financial memorandum had said X, the budget should have said the same. That was a reasonable assumption for the public body to have made. However, I ask you to clarify that that does not mean that you are committed to a budget of £1 million if the service can be delivered in a more cost-effective way.
Absolutely not. As has been said, we have been guided clearly by the material that passed through Parliament. It is part of our role, along with the lead commissioner, to examine ways of delivering the service as cost effectively as possible. I would like to be able to say that there is a history of services being delivered for less than the financial memorandums originally stated, but you and I both know that that would not be true.
Tom McCabe referred to advertising and research in relation to Scotland's Commissioner for Children and Young People. There is an argument that, as awareness increases of the work that such bodies do, and as their effectiveness is demonstrated, running costs and staff costs are likely to increase. Has there been discussion with each of the commissioners and ombudsmen about that risk and how the process can be managed over time?
I recall a debate on exactly that subject, not this year but last year, in which the corporate body took a keen interest. On the one hand, the corporate body accepted that some commissioners—especially those with an advocacy role—would want to increase awareness; on the other hand, it was live to the fact that that, in turn, could generate more work. There is a balance to be struck and, as Tom McCabe said, it is a fine judgment. The corporate body is live to the issue and recognises that greater awareness is important to the services, including the ombudsmen and the information commissioner, because they have a role to play; however, it is acutely aware that that would generate more business. I suppose that the answer is to find ever more effective and efficient ways of dealing with the cases that are brought to those services.
Everybody is, rightly, aware of the sensitivities involved, but we are also aware of the fact that open-ended public budgets bring with them greater responsibilities for those who operate them. Your comments are well made. We all have a duty to seek the best value for money from public funds.
I have two questions that are on a slightly different subject but in a similar vein. First, I am surprised that ministers' salaries are within the corporate body's budget. Why is that? Surely ministerial salaries should come out of the Scottish Government's allocation, not the corporate body's allocation from the consolidated fund. Is that something for us to examine?
Derek Croll can give you the detail of that. I think that it is an in-and-out exercise rather than a cost to us.
No, we bear the cost. I think that it was part of the statutory provisions.
I do not think that it is too controversial to say that it is a little anomalous on the surface. I think that all the costs you mentioned are included in the corporate body's budget. I will have that double-checked for you, and if I am wrong I will write to you.
Two important points arise. First, with 21 ministers—I think that, at one point, the number reached 22—the ministerial salaries plus national insurance contributions plus pension contributions, leaving aside the severance payments, came to about £1 million. Even with a smaller ministerial team they come to about £750,000, which is a substantial proportion of the MSP line in the budget. The amount involved is not insignificant.
We are looking at parts of the budget that are controlled by other folk. Do you wish to pursue that point, Mr McCabe?
Alex Neil is right to say that it adds to the overall total of the call on the consolidated fund and increases the element over which we do not have any control. However, if control over those costs passed back to the Scottish Government, our call on the Scottish consolidated fund would fall proportionately. In that sense, it is a bit in and out, but if a future First Minister decided to have 25 ministers, anyone who looked at the books would see that we were making an increasingly large call on the consolidated fund. If responsibility were passed back to the Scottish Government, exactly the same amount of money would be spent, but it would simply reduce our call on the funds.
When the press report your accounts, they will just say, "MSPs pay themselves," and according to the budget submission we are paying ourselves £1 million more than we are actually getting.
In the position that I am in now, I can see that that area needs serious reconsideration. [Laughter.]
As the point has been raised, do you wish to give it some more thought and come back to us with your views?
Of course; I can do that.
The corporate body balance sheet shows that, for the year ending 31 March 2007, the level of current assets is roughly £4.4 million and the level of creditors is £17.1 million. The figure for creditors is nearly four times the amount of the current assets, which seems quite high. Also, the level of creditors falls in the 2008-09 projections by more than £7 million to just short of £9.9 million. What is the reason for the high figure for creditors?
The figure for creditors is high at the end of March 2007 because of a number of retentions and accruals on the Holyrood project that are still to be paid. Obviously, that amount disappears during the year.
The level of creditors that you are running at is roughly three times the level of the current assets. Do you expect such a ratio to continue? Are you working to a specific ratio, or have those figures just fallen out of the different financial transactions that you have processed during the year?
The projection is based on experience. It is mainly accruals; there is also a Scottish consolidated fund creditor, which balances out the cash.
The figure for creditors is nearly three times the level of current assets. Are you deliberately running at that level, or is it something that just follows through?
We are not a trading company, so the current assets do not work in the same way as they would for a commercial company. The creditors heading is just accruals—at the end of a month, we account for the cost of things, but we might not pay the money until the following month.
So a large part of that portion of the £9.8 million is accruals, which probably explains why that total runs at a much higher level than the current assets total.
Yes.
We have asked all our questions in a fairly long session. I thank the SPCB witnesses, whose contribution is much appreciated. Do they have any final comments to make?
I thank the committee for the way in which it conducted the session; it is much appreciated.
Meeting suspended.
On resuming—