Finance Committee, 14 Dec 2004

Meeting date: Tuesday, December 14, 2004

Official Report 302KB pdf

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Transport (Scotland) Bill: Financial Memorandum

The second item on our agenda is further evidence on the Transport (Scotland) Bill. As members will recall, we took evidence on the bill on 23 November from the Convention of Scottish Local Authorities and Strathclyde Passenger Transport. We also took limited evidence from the Executive. We asked the Executive also to write to us, and we agreed to invite officials to appear before us again.

Jonathan Pryce has remained with us from the previous agenda item. With him are Frazer Henderson, the bill team leader, and Claire Dunbar-Jubb, group accountant to the roads policy and group finance division of the Enterprise, Transport and Lifelong Learning Department. Members will have a copy of the letter that the Executive officials sent to us. We heard an opening statement on the bill previously, but does Jonathan Pryce have anything more to say?

No, I am quite happy, thank you. I am grateful for this opportunity to come back to the committee. I hope that our reply has been helpful, and I am happy to take members' questions.

With wide differences across the country, surely you cannot expect a standard system to apply in the central belt, up north and in Jeremy Purvis's Borders area when it comes to transport difficulties and one thing and another. I cannot see how it could possibly be the case that the same input will be sufficient in every area. Surely variation is required across the country.

If you are referring to different levels of resourcing, including staff resourcing, for the partnerships in various parts of the country, you may well be right. Certainly, each region of Scotland is affected by different transport issues. Throughout the process, we have been clear that we are not pushing for a one-size-fits-all approach to be taken. A degree of flexibility is built into the consultation that we are undertaking at the moment, although we are trying to provide a consistent framework that can be applied across the country.

It is quite possible that different levels of resource will be required in different partnership areas. The financial memorandum does not contain a detailed partnership-by-partnership analysis of the resource levels that may be required. At this point, it is difficult to do a finer analysis of which regions might require five staff and which regions might need three or six staff. You have a point, but at the moment we have a broad-brush assessment of what we think is reasonable based on our current level of knowledge. The averages that are included in the financial memorandum are based on those reasonable assessments.

In order to get the levelling out of costs that the Executive seeks, council tax might have to rise more in some regions than in others.

I do not think that the staffing resource at the partnerships will have an impact on council tax levels. At the moment, we are looking at what we outline in model 1 in the consultation paper as a regional transport planning body, which would have a relatively small expenditure on staff. As we make clear in the financial memorandum, at present we provide core funding to the existing voluntary partnerships for that.

You may have been referring to the possible impact on council tax levels of different levels of spending on transport infrastructure and services in different parts of Scotland, but that is a matter on which I cannot speculate. That question is one for the partnerships to consider along with their local authorities. They will need to decide whether, in the first instance, to take on the kind of executive powers that will be needed in order to deliver transport services. It is the sort of question that the 32 local authorities have to take account of at the moment for their local area. Again, no significant impact should occur as a result of the bill.

You seem to expect that additional staff will be required for the additional duty of preparing the regional transport strategies. However, you are making funding available only for the first year. Given that you say in paragraph 143 of the financial memorandum that

"No increased costs for local authorities are anticipated as a consequence of the establishment of Transport Partnerships",

do you expect that the additional staff who are referred to in paragraph 135 will be employed for one year only? If so, will the additional accommodation costs that are referred to in paragraphs 136 and 139 also cease to be incurred at the end of the transitional year?

What we are saying in the financial memorandum is that we do not envisage that there will be significant additional costs in the long term over and above the level of resource that the existing voluntary partnerships have and deploy, even in relation to the monitoring and updating of the regional transport strategies.

As you say, the numbers to which we refer in the financial memorandum are noted only for the first year. They address the additional costs that are involved in the production of the strategies. We are not necessarily saying that five additional staff will be required in each of the partnerships to produce those strategies. Indeed, it is perfectly possible that those strategies will be produced with the support of consultants. Five staff in each of the partnerships might be the long-term staffing for those partnerships. We think that it should be possible to meet the costs of doing that, taking account of the support that the Executive already provides in core costs to voluntary partnerships.

I want to pursue that point further. If I have understood you correctly, you are saying that the cost of the five staff envisaged for each of the transport partnerships is not the only cost of the set-up process; there will be additional consultancy costs for that year. You are then saying that the cost of the five staff for each of the transport partnerships could be an on-going cost. That does not seem to be what the financial memorandum says. I thought that the five staff was a one-off cost. Am I wrong?

At this point, I do not know for certain what precise methodology and staff the partnerships will use for the production of their regional strategies. In the financial memorandum we are saying that we think that it is reasonable to expect five staff to produce the regional strategy in the first year. In the financial memorandum, we did not make an allowance for consultancy costs because we think that it is possible that the five staff could just do it. However, we recognise that the partnerships might choose to make do with fewer staff and spend some of that money on consultants. What is set out in the analysis in the financial memorandum is really a staff-equivalent cost.

But section 7 of the bill contains a requirement to keep the strategy under review and to prepare revisions as required by the ministers. That will fall on the regional partnerships and if funds are not made available beyond the first year, it can be funded only by the local authorities, so that will be an additional burden for the local authorities. Has there been any feeding of that additional cost into, for example, the allocations to local authorities under grant-aided expenditure?

We have not made any additions to the recently announced local government finance settlement in relation to the bill. We have taken the view that the monitoring of the regional strategies and the work that goes with that is not necessarily any more onerous than the work that councils are currently carrying out in their transport planning and joint transport planning. It does not necessarily require any additional funding, so we have not set out any additional funding for that in the financial memorandum.

However, we are not saying that there is no potential for additional funding to reflect an increase in activity on transport. I fully expect that during the next five years we will see quite an increase in activity on transport, arising from the good settlements in the last two spending reviews as much as anything else. Because of the additional overall spend on transport, there will also be additional running costs and the Executive has an open mind on that. We would be prepared to consider an approach from councils or regional partnerships if they were saying that they are doing such good things in the new framework that they can make a case for additional funding.

In his evidence to the committee, the minister seemed to be acknowledging that there is an issue of capacity and deliverability. That seems to reflect what you have said.

I have a follow-up to what we asked last time on prudential borrowing and what you said in reply. Am I right in assuming that before it can qualify for the prudential borrowing facility, any public transport project—regardless of whether it has a capital grant—has to be able to generate enough revenue to pay all its operating costs and, in addition, pay all the loan charges arising from prudential borrowing?

It would be extremely good if a project were able to do that, but it is not a requirement, in that it is possible for the partnership to meet the loan charges from the borrowing through its requisition from its constituent councils. The partnership has an income stream that it can draw on from its constituent authorities that will allow it to meet those charges and to undertake prudential borrowing.

Hang on. If a council, for example, is to undertake a scheme with prudential borrowing, it will have to have a revenue stream to justify its prudential borrowing. I presume that that revenue stream is not the council tax; it must be a revenue stream from the project. Is that correct?

If a council were promoting a project, it would hope that there was sufficient income not only to meet the running costs but to contribute to the on-going debt costs, but that would not be essential. In the local government finance settlement there is an element of revenue support called supported borrowing, which local authorities can use to pay the debt charges of borrowing under the prudential regime. Councils can draw on that element to meet the loan charges of a particular scheme, and it is that same support that regional partnerships could draw on through their councils in supporting a regional project.

There is a danger of two organisations biting the same cherry. How is that co-ordinated? A council might have already borrowed prudentially on the basis of its support from the Executive and then the transport partnership might decide to borrow prudentially and assume that various member councils will have enough spare cash to contribute. There is scope for the borrowing to be less prudential than it should be.

You are absolutely right. There should be no question of either side making assumptions. Regional partnerships should not assume that there will be spare capacity in local authorities. That will be part of the dialogue between the councils and the regional partnership in preparing the regional strategy and the capital investment plan that goes with it, so that councils do not find themselves overstretched.

The committee was concerned about the potential for fraud in relation to concessionary travel. Can you expand on the steps that are being taken to combat that?

Ministers are aware of the issues and of the committee's concerns. There is a range of contractual issues to do with ensuring that there is no fraud, and that what is delivered for the public support is value for money and fairly reflects the amount of public support that has gone in. We are clear that claims for concessionary travel have to be properly scrutinised. We strengthened the guidance for the current financial year, and made it clear that authorities must carry out a rigorous audit before submitting their claims to us and that operators' claims to the councils or the concessionary fares operator must be validated. There is a range of things that councils can do to ensure that what seems to be happening on the buses reflects what the passengers are doing, such as using mystery travellers and collecting random samples.

Have lessons been learned from elsewhere? Are there mechanisms in place, such as precalculated statistical parameters within which you expect councils to fall?

I confess that I do not know the precise details. However, I am confident that my colleagues who lead on concessionary fares have spoken to people who operate schemes in other parts of the country. I do not know whether there are baseline data that would show when there is an exception when something unexpected happens. I will speak to my colleagues about that.

The scheme involves additional funding of £196 million. Since the Executive does not have the power to administer the scheme, how will that be done? What is the distribution mechanism? Has there ever been an example of an operator not getting the full amount it applied for as a result of a faulty claim or a fraud investigation?

I am sorry to say this but, on the question of distribution, the Minister for Transport will make an announcement on the development of concessionary fares. That will happen before Christmas, probably.

It is scheduled for tomorrow.

You will hear more at that point and it may be that the situation that you are describing is not really an issue.

On the second point, it is probably fairest if I check whether there has been an example of the situation you describe and write to you or get a colleague to write to you with that information. There have been examples in which, following discussion, the paid claim has not been as high as the original claim, but I do not know whether that was the result of fraud.

In that £196 million, what is the breakdown between the continuation of the existing schemes and new provision or development of the scheme? That might be affected by the minister's statement tomorrow, but it would be helpful if the committee could get a clear breakdown. We have asked that question before but have not received a response. Do you think that that information could be made available to us?

I will need to think through exactly what you are asking for. It might not be possible to break down the national element of the scheme from the local elements. We know what is spent on the local scheme at the moment, so you will be able to get information to that extent. If you are asking about how the £196 million breaks down into the extension to the national scheme and additions over and above that, I can tell you that that will become more apparent when announcements on the national scheme are made.

I am interested in how much each specific extension might cost and in how the costs are increasing or changing in the context of experience of the scheme and what the anticipated payments are. Those are the most pertinent issues that I am interested in. If we need to write to you for that information, we can do so, and you would receive the letter after the minister's announcement.

That would be helpful.

I will now move on to what might be seen as a lack of parity of treatment. You have identified a substantial projected increase in the Scottish Executive's transport budget to deal with some of the issues that were referred to earlier. What is not clear to me is what the cost will be of the additional staffing and other resources that will be required by the Scottish Executive, either directly or through the proposed agency, to administer that increased budget and to deliver the projects and programmes. Can you give us any information on that? How many civil servants will be involved? What sort of budgets are we talking about to deliver the transport agency and the various things that are put in place by the bill?

I do not think that I can give any detailed additional information today. I can refer you to what is set out in the draft budget, where there is a line for the transport agency development fund. That is a reflection of anticipated expenditure up to 2007-08, so there is a line there that shows £1.2 million this year, £2.8 million next year and £3.3 million in 2006-07 and 2007-08. That is, at the aggregate level, what we are expecting the additional activity to relate to. That is not necessarily just staff costs for civil servants, of course. It is also for recruiting in professional skills and for funding the resource infrastructure that needs to go with that.

You have identified substantial amounts at the central level. Can you project what additional staffing and overhead resources local government will require to meet its share of the delivery objectives—not just for the five extra staff? How much of that resource will be provided directly through the proposed regional transport partnerships, or by councils, as a consequence of the statutory regional transport plans and of the obligations that you will place on them?

It is difficult for us to project that at the moment. Picking up on something that we discussed a little earlier, we are open to consideration of a case put to us by local government about increased expenditure on delivering for transport. The key is to demonstrate the benefits. We are not proposing, as a result of the legislation, simply to increase the resource just because we have put a framework in place. However, there may be opportunities to increase resource if there is demonstrable delivery going on as a result. If we take specific projects, it is quite common for the additional staffing resource that is required to deliver those projects to be met as part of the project costs. For example, a good proportion of the support that the Executive has provided to date and will provide in the future for the Edinburgh tram proposals, certainly in the early days, will be to fund the staff to do the delivery.

There is significant increased activity in the south-east region, much of which is being carried out by Transport Initiatives Edinburgh Ltd. Where there is a project that has made its case and secured support, there is the resource to enable that project to be delivered. We will continue to take that approach. That said, I should point out that one source of such funding is the £35 million per annum that has been written into spending plans from 2006-07 onwards for regional transport partnership capital projects.

I am struggling with the two opposing views that seem to be emerging, the first of which is that the process is relatively cost-neutral for local government. I find that hard to accept, because the proposed legislation will place on local authorities some very clear responsibilities and duties that will not be systematically funded.

The second aspect is the bill's content, which seeks to make quite significant changes to local authority structures. At one level, the changes do not appear to have been given a complete cost-benefit analysis in order to find out whether they are necessary to deliver the required outcomes. I suppose that I am testing the matter at both ends. Are you properly costing these changes? Are they indeed necessary to deliver significant outcomes?

The bill's proposals are driven by our belief that the existing structure of 32 local councils makes it very difficult to deliver significant regional projects and that the framework is necessary to deliver the significant outcomes that you mentioned.

But you are prepared to put in only very limited, one-off resources to deliver the change.

We are prepared only to put in transitional resources upfront to get the framework up and running. The proof of the pudding will then be in the eating. If regional transport partnerships devise good regional transport strategies that make strong cases for projects, they should be able to access some of the increased Scottish Executive spend on transport that will be available through the spending review as well as any additional resource that they might need for staffing in order to deliver those good strategies. However, we are not going to spend considerable sums of money on staffing up a structure without any proof that it will deliver.

Given the Minister for Transport's earlier comments, are you saying that the partnerships' other on-going running costs will be charged against specific projects that are successful via a STAG appraisal?

Yes, that is one of the options that is available to partnerships. Indeed, that reflects the current situation with projects in different parts of the country.

I know that it is one of the available options. Given that the other option is to fund things through council tax, are you saying that it is the most likely option?

It is the most likely option in the short term. As the partnerships start up and find their feet, they will be funded on a project basis. As their expertise builds, there might be a stronger case for increasing the level of core funding that we already provide to existing partnerships.

You are committing to a major policy change in order to deliver a more ambitious transport programme. Indeed, that is what the minister said and what the bill is supposed to be about. Our difficulty is that although such a major non-statutory change will significantly increase central Government staffing and other resource costs, you seem to be in denial about the impact on local government beyond the transitional year.

We are not saying that there is no impact on local government. I emphasise that it is inevitable that an increase in transport activity and project delivery at local government level will lead to additional spending by local government. There will therefore be scope for local government to secure the necessary resources from the Executive. If the Executive is going to fund the projects, it will be prepared to provide those resources. There is no comparison with what the Executive is doing. We are not funding ourselves in relation to specific projects; we are having to skill up to monitor the delivery of the existing major projects and ensure that they run smoothly, even though, except in the case of trunk roads, we are not the primary delivery agent.

The correspondence that we have from the Executive states:

"The Bill proposes that the net expenses of a regional transport partnership, that is any expenses which are not met from other sources … will be met by its constituent councils."

However, it also says:

"The financial memorandum also provides a clear statement that the Scottish Executive will continue to provide existing funding in support of the core costs of the partnerships."

You cannot have your cake and eat it. You cannot have it both ways, so which way is it? Are the councils or the Executive providing the on-going funding?

We just asked that question. Do you have anything to add to the answer?

There is an element of both. The Executive is providing core running costs and it will continue to do so. The second statement to which you referred is about the running costs of the planning body—the new statutory regional partnerships. The first statement is about the overall global costs of a partnership that, for example, takes on the operation of transport services on behalf of the councils. If subsidised bus services were provided at regional level rather than at council level, the council would still get the support for subsidised buses through the local government finance settlement. The regional partnership would then access those resources through requisition from the constituent councils. The first statement that you quoted is very much about the overall running costs of the partnership, including service delivery. The second statement is about what we have just discussed, which is the core running costs of the partnerships to enable them to prepare a regional strategy and monitor and deliver it in future.

We might need technical clarification of points, but we will seek it in writing. I thank Jonathan Pryce and his colleagues for coming along to give evidence.