Good afternoon and welcome to the 19th meeting of the Finance Committee in 2010 in the third session of the Scottish Parliament. I ask everyone to turn off their mobile phones and pagers.
First, I want to acknowledge the members’ contributions to what I thought was a helpful debate on the independent budget review report last Thursday and to put on record my thanks to the members of the review for their work. As I am sure members will be relieved to hear, I do not propose to repeat all the points that I made in the debate, but I hope that it will be helpful to highlight some of the key issues that were raised.
Thank you for that statement, cabinet secretary. I now invite members’ questions.
I was interested to note the report’s endorsement of the provisions of the Public Services Reform (Scotland) Act 2010. In the programme of simplification and efficiencies and the approach to scrutiny, is consideration being given to where the functions of different bodies either directly or indirectly overlap?
Whether we are talking about public service delivery or the scrutiny landscape, our objective with simplification is to ensure that duplication is avoided. Frankly, there is nothing worse for public bodies to end up being scrutinised by different bodies on the same questions because of a lack of continuity and cohesion. Over the past few years, we have taken steps to try to improve practice by giving the Accounts Commission the role of managing or organising the scrutiny activity of various bodies to ensure that scrutiny inspections of public authorities are co-ordinated and that the range of questions that need to be asked are asked only once. I think that we are now beginning to see the fruits of that approach.
My first question is brief and factual. I want to understand precisely what you are saying about health spending. Am I right in saying that your commitment is that the health budget for 2011-12 will not be less than the cash health element of the health and wellbeing budget for 2010-11, plus whatever net consequentials arise from the UK Government’s decision to provide protection or real-terms increases to the national health service in England?
First, the health and wellbeing level 2 number will be more comprehensive than expenditure on the health service, as it covers a range of other attributes. That is not the budget line that we will consider at level 2.
The baseline over which you have control is the Scottish health budget.
The baseline over which I have control is the one that is publicly stated, which is the baseline for health spending in Scotland.
In last week’s debate, you touched on the presumption against external recruitment. When did that presumption become active?
In either March or April this year.
Does it apply only to the Scottish Government? Does it extend to the NHS, for example? I presume that it does not extend to local authorities or Government agencies.
It applies within the Scottish Government. Any non-departmental public body that is dependent on the Government for its resources must make its own decisions, within the context of the resources that are available. At this stage, I consider the approach that the Government is taking to be a fairly clear signal and direction to external bodies as to the approach that the Government considers to be appropriate. We may need to revisit the matter by making a firmer ministerial direction in due course.
Since the presumption was introduced, how many times has it been overridden? Do you know how many instances of external recruitment there have been since then?
I do not have the figure to hand today, but I am prepared to explore whether we can provide it to the committee.
In your opening statement, you mentioned that you are pressing the UK Government for greater clarity. In which areas would you like to have more information? When do you hope to gain that extra clarity, prior to receiving the final budget and figures?
A material part of the debate on our budget arrangements has been the proposition that the Government could set out a draft budget in advance of receiving details of the comprehensive spending review. I do not need to rehearse to the committee my view on that proposition. Clearly, there are significant variables in the budget information.
Assuming that more clarity comes from your calls to the UK Government, will you be in a position to update the estimates with which councils and so on are working?
We have made a number of assumptions. Dr Goudie’s paper, which was published in the aftermath of the UK budget in March, and his follow-up analysis, which was published after the UK emergency budget in June, assess the implications of UK decision making for the Scottish budget. If there are changes to those assumptions, we are in a position to restate that information, but we really have to wait for the definitive quality of information that comes from a budget or comprehensive spending review, rather than our best assessment. However, we will consider that point once the information is to hand, if it is forthcoming.
I assume from what you have just said that you assume that Dr Goudie’s direction of travel is correct and you are not questioning his numbers.
That has been my position for several months.
During the debate, much mention has been made of why you cannot produce worst and best-case scenarios that outline your line of thinking. The finance minister in Wales asked each Cabinet member there to go through their budget line by line to identify where possible savings could be made. Has the same thing been done in Scotland? What level of savings have you and your Cabinet colleagues come up with? When are you thinking about letting Parliament know what that is?
In answer to the first question, yes, my Cabinet colleagues and I are going through every aspect of public expenditure. The public and Parliament would be mightily surprised if we were not doing that, in the current context. Secondly, we continue our discussions and examination of the different options for changing public expenditure. That is an on-going piece of work. Thirdly, I expect to share that information with Parliament when I am in possession of the comprehensive spending review output and then in a position to provide a draft budget to Parliament in November.
We know that you will have to find £1.7 billion of savings in real terms for next year’s budget. In the work that you and your Cabinet colleagues have done so far, have you identified savings at that level?
As I said, the work on that is in progress. We are looking at a range of options. Clearly, it is possible to identify any number of savings, but the question is what the consequences and impact of those savings would be. We will, of course, consider that issue. As I said in my introductory remarks, we will assess the impact of all those proposals against the three major tests of economic and social impact, the impact on equalities and the impact on carbon assessment.
Why do you and your Government still insist that you would prefer council tax to be frozen when evidence from the Convention of Scottish Local Authorities and the IBR group basically states that the council tax freeze is no longer sustainable?
The council tax freeze is important because it provides welcome relief to householders. It has provided welcome relief to householders over the past three years and it will become ever more relevant when they are paying substantially more in tax as a consequence of the UK Government’s decision to increase VAT and make various other changes that will increase their tax bills. As a consequence of all that, and bearing in mind that we will, inevitably, be looking at a very constrained environment on pay policy, the council tax freeze remains desirable to the Government. However, as I said in the debate on Thursday, we are discussing the issue with our local authority partners.
For the sake of clarity, could you outline what your pay policy will be? I am not sure that I fully understand what it is. The IBR paints different scenarios, none of which is good—let us put it that way. Have you a preference among the four scenarios that it outlines?
I said in the debate on Thursday that the Government’s pay policy will be set out at the time of the publication of the draft budget in November. When I became a minister in 2007, there was no pay policy set out for the financial year that had already started. This time, we will be setting out a pay policy significantly in advance of the start of the financial year and earlier than other stages at which I have set out pay policy in the past.
The IBR report states that, even if the most severe of its options were introduced in the first two years and followed by tight pay restraint for the next two years, up to 11,500 jobs could be lost in year 1 and public sector employment would fall by about 29,000 by 2014-15. Do you recognise that figure? Do you think that it will be at that sort of level?
I certainly hope that it is not, but I recognise that there is a relationship between the budget gap that we have to fill, and salary increases, the number of people employed in the public sector and working practices in the public sector. For example, Mr Whitton quoted to me the real-terms gap of £1.7 billion between what we have available in 2010-11 and what we might expect to have available in 2011-12. Those numbers are derived from Dr Goudie’s analysis—I accept that they are very credible. Let us make it slightly simpler and say that it is £1.2 billion in cash terms—the derivation of the figures is exactly the same as Mr Whitton mentioned. Every time there is a pay increase, that is not eroding the £1.2 billion gap; in fact, it is making the gap larger. Every time any more money is paid either in progression, to which in many cases staff are contractually entitled, or in a pay increase, the gap becomes wider, as a consequence of which our search for efficiencies and savings gets bigger.
Your lengthy and detailed answer would seem to point you towards option 3, which is a complete pay freeze and no incrementals either.
It might have sounded like that, but I was just trying to give a helpful and full answer to the committee about some of the issues that we have to wrestle with.
It was just my observation of your reply.
As Mr Whitton knows, I am always interested in his observations. From my point of view, those are some of the dynamics that have to be wrestled with. If there is an opportunity to secure flexibility in the public sector employment force, it might be possible for us to address many of the challenges that we face without a level of head count loss that the Government would not want to bring about.
Mr Whitton, three other members want to come in and I want to be fair to everybody. If I can bring them in now, you can perhaps come back in after they have finished.
Okay, convener.
The way that you described the cash cut and then looked at the pay scenarios was helpful. That is the practical way that I have been thinking about it: how much cash reduction will we require for next year’s budget?
That is the point that I was trying to make to Mr Whitton. The cash gap that has to be found in 2011-12, which is a combination of revenue and capital, does not take into account any increase in salaries, although any such increase will simply add to the gap.
So, it is a very big gap; it is even bigger than we thought it was from the headline figure, and if we add on the protection for health it becomes considerably bigger. I suppose that leads to the discussion, shall we say—or, perhaps, the slight disagreement—that we had in the debate last week about the costed options. That will be the nitty-gritty of the debate over the next few months.
Well, that option would exist, but that is—
Would that be consistent with what you said about passing on the health consequentials? Could you still take 2 per cent off?
As I said, the Government has not come to conclusions about the contents of its efficient government programme. Clearly, there are a range of possibilities that could exist, but in the past it has been the case that the health service has been able to retain efficiency savings that are made and to reinvest them. The Government has added to that for 2011-12 with its commitment to pass on any Barnett consequentials that arise from the decisions of the United Kingdom Government in relation to health south of the border. Clearly, even if we assume that the increase in health spending south of the border is at the gross domestic product deflator rate of 1.8 per cent—[Interruption.]—and that the deflator from south of the border is used, the health service will be required to make efficiencies in its operations to cope with the pressure. A range of interventions will be required to guarantee that we can deploy effective services in the area.
If the consequentials say that you should give a 2 per cent cash increase to health, would it be consistent with the statements that you have made to return 2 per cent of that to the centre as an efficiency saving?
The Government has not come to a conclusion on that point.
So it is not ruled out.
It is neither ruled out nor ruled in.
Okay.
The committee is asking me to give definitive positions when the Government has not come to a definitive position on any of those questions. It will be possible to answer all the questions when the Government comes to the conclusion that it comes to in the course of the budget process.
I suppose that the assumption is—indeed, we are already seeing this—that some of the reductions next year will be made through staff reductions. The Scottish Government and some agencies are already asking for early retirements and suchlike, and are even offering severance packages for people under 50, I understand. In the short run, it seems that that will not save money. How are those packages to be paid for? Can they be paid for out of this year’s budget, or will they have to be paid for out of next year’s budget? It is difficult to understand. Even if it is a spend-to-save policy that might save money in one or two years’ time, it will not save money next year, it appears.
Certain severance packages that are available now are being paid for out of the contents of financial provisions from 2010-11, and that will generate savings for 2011-12. The approaches that have been taken at the Scottish Environment Protection Agency are being paid for out of this year’s financial provisions. There are a number of areas in which voluntary severance activity can be undertaken in that respect.
You have said that the costed options for next year are all in the report, although some of us were a bit sceptical about that. Can you give another couple of examples of costed options for saving money in 2011-12 over and above the efficiency savings?
Perhaps I was at cross-purposes with colleagues in the debate last Thursday, but I can find plenty of tables in the IBR report with numbers for 2011-12, and they give colleagues some choices. I am not for a moment suggesting that the report is the encyclopaedia of all the possible choices that might exist. As Mr Chisholm will know from his experience of public life, there are many other options—the ones that are before us are those that have been examined by the budget review—and there are numbers alongside them. Whether or not the Government chooses to follow those options is a different proposition altogether.
It would be good, before the end of this questioning, to have a couple of examples. The point that I am trying to make is that it would be useful to hear more. You are admitting that you are discussing lots of options with your officials. Most of us do not know what those are, however. The centre for public policy for regions has discussed more detailed financial modelling being necessary, and that is self-evident.
I have commissioned an independent budget review which has, in an open, transparent fashion, given the public debate in Scotland a range of options to pursue. Last week, the committee noted the fact that the independent budget review had highlighted a range of savings that could be made following its conclusions. I have set out the Government’s position in relation to some of those matters, and I have left space for the Government to be persuaded about other particular choices; we will consider others as a consequence of our own dialogue and debate internally within the Government. There is also a space for Parliament—for the committee and for political parties—to formulate their views about where other savings should be made. The Government will, of course, consider those.
We need to approach that through finding savings, but with relative protection for certain areas. You are committed to protecting health care and the universal benefits that you have mentioned. In the debate, you told me off for wanting to protect too much. I was trying to make the point that the concept of relative protection is reasonable. To take this opportunity to correct what you said at the time, I did not say that we should relatively protect the education budget—I said the schools budget. My point was a serious one. If we, collectively as a Parliament, decided that we wanted to protect the schools budget relatively—and it would be only relatively—are there any mechanisms that we could use for doing that under our relationships with local government?
The core of what you ask is about how we construct a relationship with local government. I do not have the exact number in my head, but I would be surprised if, back in the pre-concordat days, the proportion of the Scottish budget for providing school education that was under ministers’ control—the ring-fenced grants that the Government held in the centre and which were not in the local government settlement—was more than about 12 to 15 per cent. One myth is that a degree of control that existed in the past went after the concordat was agreed. I concede that some control existed, but it was not on the scale that Mr Chisholm’s question suggested.
I have a final question on equality issues, which I also raised in the debate. When will you publish the equality and budget advisory group’s report?
I have not considered the publication timescale. I have the report, which is extremely helpful. I had a refreshing discussion with the equality and budget advisory group just a couple of weeks ago. The report contains no issues that would delay publication and, in the light of Mr Chisholm’s question, I will certainly consider publication. The report that the group has produced contributes helpfully to the analysis of the budget’s impact on equalities issues. It is a comprehensive piece of work, for which I thank the group.
You will publish the report in time for it to be part of the budget discussions.
Yes. I will certainly do that.
Good afternoon, cabinet secretary. You said that you would outline the Scottish Government’s position at the quadrilateral meeting. Is the Scottish Government’s position that the devolved budget should grow in real terms next year?
That would be desirable, but I suspect that it would be a bit of a tall order.
Will you argue for such growth?
I will certainly argue with the Chief Secretary to the Treasury that the reductions in public expenditure across the United Kingdom, whose implications will be felt in Scotland, go too far, too fast.
Can I infer from that a negative answer—that you will not argue that the budget should grow next year—or will that be your starting point?
I will argue that the UK Government has taken a set of decisions that are resulting in public expenditure reductions that will go too far, too fast.
Why will you not argue that the budget should grow next year?
I accept that a period of fiscal consolidation must occur. My problem is that the UK Government has taken that position too far.
That answer is helpful. You will argue not that the budget should grow but that the reductions are too quick and too deep. In your judgment, with the advice of Dr Goudie and Ms Stafford, what should the reductions be?
Essentially, the UK Government is presiding over a level of fiscal consolidation of around 2.4 per cent in 2011-12. If you look at the International Monetary Fund’s current output, you will see that its view is that the level of reduction for countries in the developed world should be of the order of around 1.25 per cent. There is a significant contrast between the level of public spending reduction to be applied by the United Kingdom Government, unless there is a change of direction in the comprehensive spending review, and the view that has been taken by the International Monetary Fund, which is generally viewed as authoritative and conservative on some questions.
So, is your judgment that the corollary is that a 1.25 per cent reduction in the Scottish budget would be appropriate?
What I am saying is that, if the UK Government is reducing public expenditure at just short of twice the level that the International Monetary Fund believes is appropriate, that should encourage the UK Government to think again about the scale of the reductions that it proposes to apply.
Is that what you will put forward as the Scottish Government’s position tomorrow?
I will set out a range of points to the Chief Secretary to the Treasury in our discussions tomorrow.
Will that matter be included in those discussions?
Obviously, I have made it clear to the Chief Secretary of the Treasury on previous occasions that I think that the reductions go too far and too fast, and I will continue to maintain that.
Forgive me for not having the figures, but what is 1.25 per cent of your budget?
It is of the order of £300 million of the DEL total.
Okay.
That money is essentially benefits that have been generated as a consequence of the approach that has been taken to procurement through the intervention of the Scottish Futures Trust.
So, it is real money that can be used to offset reductions or spent elsewhere.
Essentially, the money is an identification of the benefits that have been leveraged out of more efficient procurement during 2009-10 by the activities of the Scottish Futures Trust.
Yes, but I want to know what that means. You refer to benefits accrued. Is that money that has been spent? Has £111 million been spent in addition to what had already been planned because of the Scottish Futures Trust, or has that money been saved? That would mean that it could be redeployed.
The best way to characterise matters is to say that that is a perfect example of being able to do more for less. Using the resources that we have to achieve more and taking decisions on procurement that will deliver greater value and benefits are substantial objectives in the current public spending environment. That is precisely what the Scottish Futures Trust has done.
So, £111 million more has been spent.
I thought that I had helped the committee with my explanation. It is a perfect example of doing more with less.
I suggest that Jeremy Purvis’s question is in danger of doing less with more, but he may wish to pursue it.
I just wonder where the money is. The cabinet secretary has confirmed that more has been spent.
No. I said that, as a consequence of SFT interventions, more has been achieved with less resource. That is pretty clear.
Okay.
NDPBs are essentially involved in the discussions between my ministerial colleagues and me about the likely budget settlements for all agencies and organisations. In some cases, all their funding—in others, some of it—comes directly from the Government. We must make decisions about the scale of support that we are prepared to make available. That is a material part of the discussions that I undertake with my ministerial colleagues.
Are you prepared to attach any figures to that? If I asked you whether agencies have been asked to identify a 10 per cent reduction for next year, would that be accurate?
We are taking forward a range of discussions about what level of savings we may have to secure, and what the consequences of particular decisions may be. The key point is that all of that material will be carefully assessed before any decisions are taken, to ensure that we are clear about what the impact of any particular changes would be.
Tom McCabe is the only member who has not yet asked any questions.
I apologise for missing the start of your statement, Mr Swinney. I will feel forever deprived, but I will read the Official Report.
I am sure that you have heard it all before. There may have been one or two words that were new.
I heard you say that you think that the Conservative and Liberal Democrat Government is pushing too hard and too fast on reductions in public expenditure. That is a perfectly legitimate position—it was the position of the Labour Party at the general election. However, the other team won; the Conservatives and Liberal Democrats came into power and decided to do what they are doing. Essentially, the decision has been taken.
I do not think that the fact that we face reductions in our budget will come as a surprise to public sector leaders. Just for the sake of completeness, I say in response to Mr McCabe’s remark that the previous Government was planning two thirds of what the present Government is proposing.
Just for completeness, you acknowledge that a period of fiscal tightening is required.
We are all complete now.
I have a lot of sympathy for much of what you say, but there are some pretty big variables involved. It is clear from some of the statements that the Government has made that some people are in for a particularly big shock. You have already said that spending on health will be protected and that the health service will get the consequentials, but Mr Chisholm expanded on the fact that whether health will get those consequentials and be able to carry on as before remains to be seen. That is one big block of Scottish expenditure.
We have made a range of announcements on, and given a number of indications about, the areas on which activity will be concentrated, from which it is clear how the Government intends to proceed. In addition, we have made it clear that a range of interventions will be made, whether on the work of public bodies and ensuring greater integration in some of their activities, or on long-term work that has been under way for some time, such as the work on public procurement, on which we have already notched up significant savings on the basis of the work of our predecessors, and in which it is clear that savings can still be made.
My final question is on the independent budget review report. As the cabinet secretary knows, I am an advocate of restructuring the public sector. The report highlights that somewhere we need to find a space for people to come together and take an objective look at what will be required in the next 15, 20 or 25 years. That is a perfectly sensible suggestion. The review panel would like the political parties in the Parliament to come together and try to find that space but, to be honest, that will be difficult to do. Where is the space in Scotland to allow us to think more about how we sustain public services into the future, given all the challenges, such as those of demography and the fiscal challenges?
The issues that Mr McCabe highlights, which are dealt with in chapter 7 of the independent budget review report, are substantial and legitimate questions. Mr McCabe will know well one of the great myths about some public expenditure reductions of the past. There has been a lot of talk of significant reductions in public expenditure, but none of them in our lifetimes has been of the sustained nature of what lies ahead. It is not just a one-year problem—there will be a sustained period of public expenditure reductions. Therefore, that part of the independent budget review’s report about how we navigate the years ahead is particularly significant.
I have two or three quick questions that I was not given the chance to ask previously. We are clear that you will not give us a budget until November, but will there be costed options in that budget for what you are going to do, given that you and your Cabinet colleagues have spent a considerable amount of time going through your budgets line by line?
I will publish a budget, as I have done on three previous occasions, that will define exactly how public expenditure will be spent so that it will all add up to the total at the end. If that is what Mr Whitton means by “costed”, the answer is yes.
I kind of meant that we would not get any unforeseen surprises at stage 2 of the budget, but we can let that go.
My goodness, that would be novel. I could become the first finance minister to come to the Finance Committee with an amendment to the budget at stage 2. I do not think that anyone has done that before. The reason why I am undertaking discussions with other parties is to try to find agreement about how we proceed and to have an agreed budget proposition that comes to Parliament in November.
You have told us about things that you do not want to cut, but one or two issues are still up in the air. For the avoidance of doubt, what is your position on free prescriptions, given that it is one of the costed options in the review report, at table 5.9? If we were to increase prescription charges to the 2010 levels that are applicable in England, that would save £32 million.
I do not know whether Mr Whitton proposes to go through a list of all the remaining options.
So, you have no position on prescription charges.
Let the minister speak.
Yes—if I could just finish.
In the interests of pursuing that debate, you have told us that you have carried out a survey of the budget, and you have told us what you will not cut, but you have not told us what you will cut. As the Cabinet Secretary for Finance and Sustainable Growth, should you not lead the way in that debate? It is all very well saying, “I am not going to cut this and I am not going to cut that. I don’t accept this and I don’t accept that”, but what do you accept in the review report?
I am at a loss to understand how little Mr Whitton pays attention to my lengthy speeches in Parliament. I thought that I had made the position absolutely clear. In previous years, I have been criticised for bringing to Parliament a budget that did not do enough to take into account the perspectives of the other parties in Parliament.
The cabinet secretary is well aware that, in previous years, the Labour Party has taken part in those discussions in an open and frank way, and we look forward to doing so again. However, when the IBR report came out, you were very quick to say what you would not accept but not so quick to say what you would accept. That is my point.
I am creating the space for everyone to have their say in a fashion that will help us to come to some consensus about the difficult choices that lie ahead.
Jeremy Purvis can ask a very quick final question.
Can the question be in a couple of parts, since the cabinet secretary has created so much space?
I said that you could have a very quick question.
Part of the IBR recommendations was about reforms; I am looking at one example. There are almost 30 pensions administration centres throughout Scotland, and I know that the cabinet secretary knows the Scottish Public Pensions Agency in Tweedbank in my constituency because he has visited it. It is hugely efficient and impressive and it contributes considerably to the local economy. I think that there are 230 staff there.
I think that it represents an opportunity. Mr Purvis is absolutely correct in his assessment of the Scottish Public Pensions Agency, which is in my opinion an efficient and productive organisation that is well staffed and well led and has the capability—and even some capacity, as things stand at the moment—to undertake some of the pensions administration services that are currently undertaken by other bodies.
I am grateful for that.
I have had the opportunity to examine the circular in detail, and I think that it is pretty clear that it is about a change to the process of deciding capital budgets of health boards; it is not about allocating budgets to health boards. The title of annex C, to which Mr Purvis has just referred, is “Illustrative Allocation of £150m via Formula”.
Can I just—
I think that the cabinet secretary has made his point clear.
So, no health board should be preparing its capital programmes for next year or the year after on the basis of this circular. Is that correct?
What health boards should be doing is preparing their capital programmes based on the methodology and processes that are in the document.
I think, Mr Purvis—
Your clarification that no health board should be using these figures is helpful.
Convener, I am afraid that I must ask you to give me the opportunity to protect the position of the Government at this point.
You have had that opportunity.
I will take the opportunity to do so every time something inappropriate is inferred.
You have made that perfectly clear.
No. I am fine, thank you.
I thank the cabinet secretary and his officials for their attendance and I thank the cabinet secretary for his responses.
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