Budget (Scotland) Act 2004 Amendment (No 2) Order 2004 (draft)
It is probably unfair for me to ask Richard Dennis whether he would like to make some opening remarks, but I will do so, just in case there are technical aspects of the budget process that he would like to highlight to us.
It is tempting to say that if the minister were here, I would be fairly confident of knowing at least some of what he was likely to say in his opening statement, but I will pass on that opportunity.
For the record, I note that the committee is considering a Scottish statutory instrument that seeks to amend the Budget (Scotland) Act 2004. The committee also has before it the budget documents that set out the background to the proposed revision.
Could you point us to the particular lines?
The police budget is on page 85 and fire is immediately after that. The Highlands and Islands Enterprise budget is on page 58. A £15 million increase in the budget for central support services and the representatives association is outlined on page 85. On page 86 there is a £1.2 million increase in the budget for miscellaneous fire expenditure.
On the police central Government line, £10 million of the increase is a transfer from the Home Office in respect of costs of the airwave police communication system, which the committee will recollect from previous revisions. The basic premise of airwave is that it will provide all forces in Scotland, England and Wales with a national digital mobile radio communication service.
Is that only the planning costs for the policing of the G8 summit?
It is the cost of planning for the G8. The cost incurred this year is about £5 million.
Are those the only costs? Are all the costs of planning for the summit being met out of the police budget, or can other costs elsewhere in the budget be linked to the summit?
The costs this year are very much for planning and preparations. As you probably know, the deal is that the Treasury will eventually pick up all the additional costs imposed in Scotland. Owing to the need to get planning under way at an early stage, there was a requirement for an advance from the central reserve until the Treasury sends us the cheque.
That reimbursement would include the £5 million for planning costs.
Yes.
When you say costs for planning, do you really mean just the planning of the summit?
Yes. That includes items such as assessing the security at the G8 summit and various other issues that the committee will understand I do not want to be completely explicit about.
I presume that in that case all those costs will be for administrative back-up—for staff, travel and pens and pencils. The expenditure does not put in place anything other than the plan. Is that right?
Yes. As I understand it, that is right.
I was at a recent meeting in Perth at which the chief constable of Tayside discussed with local government representatives and MSPs the implications of the planning. A range of activities was outlined, such as officers visiting places where previous G8 summits had taken place. A fair bit of travel was needed. An officer was in the United States for two or three months to assess what happened last time. Many of these costs must be accounted for by such items. It takes a lot to add up to £5 million though.
You will appreciate that we are not experts on the details and that for reasons of national security we would not set out the details in advance.
We will move on to miscellaneous fire expenditure.
I have an answer in my notes. It tells me that that line is an agreed transfer from fire local authority capital grants to the centre for work that will benefit the entire fire service. My notes tell me that that is for the new dimension programme. I have to say that I have no idea what the new dimension programme is. Perhaps we could come back to the committee on that.
I wondered whether the money was in some way linked to the Fire (Scotland) Bill. The category of miscellaneous fire expenditure is not particularly enlightening. It would be helpful to know what is tied into that.
At least part of the expenditure is for additional equipment that can be held centrally to enable the service to deal with major incidents like the Stockline Plastics factory explosion or terrorist incidents. Certain specialist equipment is needed nationally but not necessarily in each individual fire service.
The line for Highlands and Islands Enterprise on page 58 shows an administration increase of £7 million.
The majority of that is a £4 million increase that is being transferred from savings across the enterprise and lifelong learning budget to provide additional funding support for assistance to businesses. There is also a further £920,000 this year for the broadband connecting communities project, particularly for offering broadband connections to small and medium-sized enterprises in communities in the Western Isles. There is also £872,000 for the Scottish community and householder renewables initiative, which is an advisory service and grants scheme for communities that are interested in developing renewable energy projects.
I just wonder why those provisions are being made in the context of the budget revision.
It is largely because at this stage in the year that department, like every other, will be able to look across its budgets and see where some of its expenditure is slipping and some is being brought forward, and where it is able to release additional provision to bring forward initiatives such as those.
All those component justifications of the £7 million increase sounded much more like direct expenditure than administrative expenditure. Could you clarify that?
Are you talking about Highlands and Islands Enterprise?
Yes. The schedule on page 58 shows that we are talking about an extra £7 million for administration.
If I can, I shall write to the committee with full details of that. As we understand it, that increase has been made because Highlands and Islands Enterprise, as a non-departmental public body providing advisory services, employs staff to provide business advice and those costs score as administration expenditure.
That leads me on to a more general point. I recall from the last time that I was able to look at a normal set of HIE accounts that it was pretty clear that administration was running at just short of 20 per cent of the operational costs. What we now have is a report on HIE's expenditure under the categories of growing business, global connections, learning and skills, and strengthening communities, which makes the expenditure an utterly closed book for me. I understand where the money is being spent, but I have no indication of performance or of how we can benchmark performance against other places, or even against Scottish Enterprise, which also adopts the same fairly obscure mechanism for reporting.
That is really about how Scottish Enterprise and Highlands and Islands Enterprise report in their own accounts, rather than about the budget revision document.
Sure, but it is a function of the Executive to allow HIE to report in that fashion.
There is some more detail in the draft budget, which uses the same level 3s as are set out in the autumn budget revision and which gives the equivalent figures under the same categorisation for past years for both bodies. I am not sure whether that will help you in tying that in with the accounts. I must confess that I have not looked at them.
I think that the key point for me is that the figures rather disguise the administrative overhead component of the accounts, so it does not really allow us any proper indication of how much of the expenditure is impacting directly at client level on people who are active in the local economy.
As opposed to central services.
Yes.
I am sure that we can offer the committee further details.
I want to ask first about the reduction of £16 million in pensions in agricultural and biological sciences. Is there an explanation for that? Are fewer people retiring than were expected to or has somewhere that was expected to close not closed?
I am fairly certain that it is a result of the uncertain status of particular organisations as we await the final decision from the Treasury about how to classify them under national accounts. I have just been handed a folder—it is always good to have some back-up when we are making things up. At the start of the year we expected to receive the final decision on the classification of the bodies, so the provision was put in. The decision has not been made, so the provision is not needed this year. I will give the committee some idea of why that is. If they are classified as being within the departmental accounting boundary, in effect resource accounting and budgeting charges will be connected to the pension scoring or accounts; we have no provision for them if they are classified as outside the departmental accounting boundary. Ever since devolution we have been waiting for the Treasury to determine which way it would like us to classify them. Formal decisions on classification rest with the Office for National Statistics on the basis of the case put to it by the Treasury. I suspect that you will see the provision coming in every year and disappearing at about this stage every year until we get the decision.
I want to move on to the communities budget.
I seek clarification. Tables 3.1 to 3.5 are the only ones that do not say that they are expressed in thousands. Is that just an omission?
Yes.
I refer to page 33 of the budget revision document. For the antisocial behaviour initiative there is a reduction of £23.7 million, which is 86 per cent of the budget. What is the explanation for that?
My colleague is pointing out that the money has been transferred to the Finance and Central Services Department budget, because the resources will be paid out through the revenue support grant mechanism. There is no change to the budget; there is just a change in the payment mechanism.
Are you saying that the money will go straight to local authorities?
Yes.
One of the concerns about the antisocial behaviour initiative is the slow rate of take-up by local authorities. Is the money being allocated on a per capita basis, on a deprivation basis or according to how many initiatives on antisocial behaviour are mounted?
I am afraid that I will have to come back to the committee on that. I suspect that we are talking about agreed funding for specific projects and have just changed the payment mechanism. Rather than our making a specific one-off allocation to each local authority, the money has been moved into the RSG, with a commitment to spend a certain amount of money on a certain number of projects. I will confirm that for the committee.
We would be interested in the underlying funding formula arrangements that pertain to the mechanism that is used.
There is certainly no linkage. As you know, the supporting people budget is in AME, so in effect the Treasury gives us what the budget requires. The latest forecast said that this year we will spend an extra £31 million on the supporting people programme, so the Treasury has given us an extra £31 million. There is a reduction of £10 million in expenditure on the child care and employment scheme but, again, that is because of a change in payment mechanism. That money will now go out through RSG, which is a simple way to get money to local authorities with clearly defined accounting procedures. In many cases it is simpler to use that method than to set up new arrangements for each individual scheme.
My understanding is that the child care and employment scheme is a specifically targeted scheme and not one that cuts across all authorities. There are a couple of pilots in place.
That would not necessarily rule out our choosing to use RSG as the mechanism for payments to an individual local authority, because the RSG for that authority could be adjusted. I suspect that it is just an easy way to get payments into local authority bank accounts.
I am not convinced. Could you give us a bit more information on that? First, I would like to be able to track whether the money is going towards meeting specific projects that have been put in place. Secondly, has there has been a delay in the take-up of the resource? If it is being funnelled through local authorities relatively late in the day, that would cause local authorities problems with rational planning. Thirdly, has there been a policy change? Are you moving away from an Executive-directed allocation towards a more generalised formula-based allocation to local authorities? I am not clear which of those three scenarios applies, so I would be grateful for any information that you can give us on that.
We will check up and come back to you.
On that point, the figure that the convener referred to was the AME supporting people grant, but there is also a significant element for supporting people—an increase of almost £5 million—under departmental expenditure limits. What is the difference between the two?
The committee might think I am being a one-trick pony, but that is some money that is coming out of RSG. It has been decided that that payment mechanism is no longer appropriate, so the money is now going through the supporting people channel. Again, it is simply a transfer of payment mechanism and not a transfer of resources. I do not have a note of exactly which element of supporting people it is linked to.
The parameters of supporting people are decided by the Treasury—the argument about that is going on at the moment. What exactly is the DEL element for and what does it cover?
Essentially, it is a top-up that is provided by the Scottish ministers. You will have seen that in the draft budget we have given you two runs of numbers on supporting people: those in the main table and those in the supplementary footnote. The numbers in the main table are the AME numbers, but the Minister for Communities has decided to top up that expenditure from his own resources and those numbers are shown below the table.
Is the DEL top-up related to the AME figure? Are the figures proportional or totally independent? Would there be a definite consequence for our budget if the Treasury decided to increase or decrease the amount of money that it puts in?
No. A separate decision would be made by ministers on whether they wanted to reduce the impact of a cut or claw back the impact of an increase.
I know that announcements are projected on supporting people, but it would be helpful for the committee to get a note from finance officials on exactly what happened in relation to supporting people on a year-by-year basis, so that we can see the Treasury funding, the Scottish Executive funding and the mixture of things that seem to be happening in between. From our point of view, that would aid clarity.
In the schools budget, there is a reduction of £20 million in expenditure on teachers and an increase of £24.5 million in expenditure on schools. That is on page 41 of the autumn budget revision document.
Yes. That comprises a number of separate elements. I am afraid that, again, the main ones are transfers to RSG with respect to the teachers' induction scheme and the quality improvement officer and educational psychologist placements. Together, those account for about £14 million of the expenditure. A transfer to the Enterprise, Transport and Lifelong Learning Department to fund extra places on the postgraduate certificate of education scheme takes up just under £9 million and £2.5 million, which I think is the remainder, will go elsewhere in the Education Department—to the new educational developments division—to meet the costs of the Scottish schools digital network.
I want to ask about Scottish Water's capital, which is covered in schedule 3.8 on page 22. A reduction of £60 million is shown. Did you anticipate that that was going to happen?
I think that you will be able to see that that cross-refers to the establishment of the central unallocated provision arrangements, which are covered in the tables on pages 4 and 5. In reality, that is not a reduction in the borrowing consent for Scottish Water but a reduction in the forecast of what borrowing it will use this year.
So it is evidence of further delay in the capital programme.
It is evidence of Scottish Water needing to borrow less this year. I could not comment on whether that will lead on to a delay in the capital programme; that does not necessarily follow.
I understand that it is outwith your remit to comment on that, but it looks as if there is an inability to consume capital at the rate that was intended. What worries me is that, out there in the marketplace, a supply and demand issue might be affecting the ability of the engineering community to take up that money. That is exacerbated by the fact that the spend is now going through Scottish Water Solutions Ltd. As that company is a bit close to home, the process might not be entirely competitive. In that climate, I worry about us getting value for money with the planned £1.8 billion capital spend, which is a significant amount in the context of a Scottish budget of between £25 and £30 billion. Will the Executive be taking any steps to explore that?
I know that the committee has heard recently from the Minister for Environment and Rural Development on such matters. I am not sure that I am briefed to add anything to what he told the committee. I am happy to take the question away and to get a report sent to the committee, if that would be helpful.
From the committee's standpoint, there must be a concern that, while Scottish Water's low take-up of capital continues, things could be happening in the marketplace that would not be in the best interests of the Scottish Water consumer and charge payer.
I will take a slightly different tack on the same issue. I had understood that the rate of spend on water infrastructure had reached the necessary plateau, even though, historically, there was a gap. However, in response to Jim Mather's question, you said that the money did not need to be spent, because forecasts on Scottish Water's revenue had not been fulfilled.
I am not sure that that is quite what I said. The numbers that are included in the budget act and its revisions represent the Executive's borrowing permission to Scottish Water. It appears from the table that, at the start of the year, the maximum that the organisation was allowed to borrow was about £300 million. As we now know that it will not need at least £60 million of that amount, we followed the principle that we should be taut and realistic and felt that it was right for us to take the sum out of what we are asking the Parliament to approve for the year. That decision does not necessarily have implications for either the rate of investment or Scottish Water's overall programme. Members will recall from discussions on the organisation's underspend that, in the previous financial year, it carried out a significant amount of work that did not hit our books until this financial year. It is possible that the same thing might be happening this financial year, which would mean that it would deliver the required run rate; however, I will have to come back to the committee on that matter, because we do not have any detailed briefing that we can comment on.
Jim Mather and I would be interested to find out how much of the underspend is due to an inability to meet capital investment targets and how much is due to the revenue realities exceeding the forecasts.
I wonder whether Richard Dennis can explain two further items, the first of which relates to pensions. Given that pension payments are usually quite predictable, why are we seeing a 20 per cent increase in health service pension payments, which amounts to something like £198 million, and a 4 per cent increase in teachers' pension payments, which comes to £42.5 million?
The simple answer is that we are still working through the full implications of financial reporting standard 17. The figures in the budget represent provision for future liabilities rather than pension payments. Both my colleagues are flitting frantically through the document so that we can give you a more complex answer.
I am referring to page 105.
I am afraid that the only detail we can give is that the figures represent a revised estimate of the payment provision for liabilities associated with those two pension funds. I recollect that it has something to do with changes in how FRS 17 is interpreted, but I will need to come back to the committee to explain exactly what is going on.
Will you also explain in some detail the £47 million increase for the Scottish Prison Service?
Which page are you referring to?
I am referring to page 84 of the autumn budget revision.
That £47 million is an additional relief made up of resources that have been drawn partly from across the justice programme and partly from the central reserve to continue the modernisation of the prison estate as a result of the Napier judgment. That programme includes providing new prison house blocks and the first of the new prisons and meeting the costs of the package of measures that was announced on 12 May in response to Lord Bonomy's judgment.
I want to probe that further. The figure is not mentioned in these documents, but I recall that there was a potential overhead contingency of about £130 million to address the number of cases that might arise as a result of the Bonomy judgment. Where would that figure appear?
If that liability were recognised, it would already appear in the Justice Department's books and budgets. As I am fairly sure that we have not yet made that provision, that money will probably be found from central resources, which means the main reserve, any share of EYF or any additional consequentials that we receive. Furthermore, under the new arrangements, we could borrow the money from central unallocated provision.
But you have substantially reduced that provision to less than £20 million.
Yes, we have reduced the contingency fund.
Has there been any comparison with the potential liability south of the border? I presume that the same issues with slopping out exist south of the border and that mechanisms have been identified there to ease the legal liability or to deal with the financial risk of such cases.
I believe that England and Wales are considerably ahead of us in ending slopping out, although I will have to check that and confirm it for the committee. The situation there is not similar to ours.
An outline of the associated financial risk would be helpful, otherwise we will have to drift around between different budget documents to follow the situation.
Page 68 of the autumn budget revision shows that the cost of capital for roads has been increased by about £55 million. Is that simply covered by the footnotes on page 125 of the draft budget document?
Roads are the one element for which the cost of capital remains in annually managed expenditure because it is so difficult to forecast. The road network is valued at replacement cost, as if we had to build it all again from scratch. The increase in value has been driven by the increase in construction costs because of price inflation in the construction industry.
I tried to calculate the increase, given that you are spending only X amount on new roads and that the cost of capital increase is 3.5 per cent, but I did not quite arrive at the figure of around £55 million. However, you say that you work out the figure on the basis of the cost of building the whole existing network again tomorrow.
Yes.
That is an interesting prospect.
I want to return briefly to administration and operating costs. I am sure that there are perfectly legitimate reasons for this, but why have administration costs for the Scottish Parliamentary Corporate Body increased by £8.5 million? That figure is on page 120 of the autumn budget revision document.
Technically, it is not for us but for the SPCB to answer that question. The committee must approve its budget separately. However, I can attempt an explanation.
Since the SPCB has to clear its budget with you, you can probably provide technical clarification.
To be honest, the SPCB does not have to clear its budget with us—it gets what it asks for and what the committee approved when it considered the budget on, I think, 5 October. We simply have to put that budget through the books.
The SPCB must give you some information.
Yes. I am fairly sure that the majority of the increase is to do with the costs of the various ombudspeople for whom the SPCB is taking responsibility. There is also a slight increase for the costs of parliamentary salaries and expenses.
Are you talking about the various commissioners, such as the commissioner for children and young people in Scotland and the Scottish information commissioner?
Yes.
We have dealt with that issue before.
There are also pension issues.
The transport portfolio is fairly fortunate because the wide range of major projects that are in progress allows for a bit of chopping and changing. Any potential underspends that emerge this year are likely to be used if the report of the inquiry on the M74 extension is produced and if the vesting declaration is made in time to purchase extra land for that work. Large chunks of what would be future years' spending will be brought forward for that programme and the money for programmes that are delayed will be reversed. In effect, the Enterprise, Transport and Lifelong Learning Department can run an arrangement similar to the CUP, but purely within the department.
One of the problems for the committee is that the process is not especially visible or transparent if it all takes place entirely within the budget and we cannot see the allocation from one source to another. I presume that it might be slightly more transparent if it went through the CUP process. Do you have any views on that?
Transfers between the individual level 2s and level 3s are itemised in the budget revision document. The question is whether you have the right level 2s and level 3s to provide you and, perhaps even more important, the Local Government and Transport Committee, with the information that you want to track.
I would be interested in the cost of land that has been purchased, land acquisition and land assembly in relation to the M74 and the way in which that project has shifted over the past two or three years and will shift until the whole package is in place. I used to be on the Transport and the Environment Committee and I know that it is quite difficult to get that information. If there is a drift between one year and the next in big transport projects—I am talking about projects that will take three, four or five years, or sometimes more, to complete—would it be appropriate to list the projects over the three or four-year period in a way that would enable us to see how the drawn-down resources are being used and to track the changes that are taking place?
That would be possible. Whether committees would find that more useful and where the line would be drawn between what is a major scheme and what is not are matters for you and the Local Government and Transport Committee to decide. You will see that this autumn's budget revision clearly shows £41 million of end-year flexibility being drawn down specifically for the M74. At the moment, that money is going into the motorways and trunk roads programme. If the committee thinks that an M74 level 2 is what it would like to see, I am sure that we can discuss that.
If we are talking about projects of the scale of, for example, the M74 or the Aberdeen ring road, which run into hundreds of millions of pounds, it would be strange if the Finance Committee could not track and seek an explanation for significant shifts in expenditure each year—whether something was being brought forward or put back. The changes are significant. Perhaps we can return to that issue when we consider the capital plan, which you will publish relatively soon.
I am revealing a constituency interest, but I am keen to explore some of the changes in another transport heading on page 67 of the budget revision. There is a pretty massive reduction in activity in relation to ferries. Ferry services consultant fees have been reduced by some £655,000. Can you tell us anything about why that has happened and what that is?
I am afraid that I will have to get back to you on that in writing. I suspect that it is to do with the fact that the ferries contract has been relet, so that the need for consultancy advice has been reduced. The Caledonian MacBrayne restructuring plans are also further advanced. I will check and get back to you on that.
Perhaps there has been a delay in the tendering process.
That is possible, although you can see how the need for consultants' advice on an exercise such as that would be greater in some years than in others.
And "Campbelton to Ballycastle Ferry Services" has been reinstated—£700,000 has been reallocated to that project. Campbeltown has been misspelled.
Apologies for that. Yes, that is an increase in the provision.
It has been reinstated, as it had been removed the last time.
Yes.
I suggest that we now suspend the meeting until 3 o'clock to give the minister time to arrive and to give his officials a couple of minutes to whisper in his ear if they want to do so.
Meeting suspended.
On resuming—
I reconvene the meeting now that we have been joined by the Deputy Minister for Finance and Public Service Reform, who was delayed.
I apologise for being so late. It might be unfair to pile all my apologies on the doorstep of British Airways, but the knock-on effect of BA's technical problem at 7 o'clock this morning is that I have been able to arrive here only now.
As the minister mentioned, we have already had an exchange in which we received technical clarification. Unless members have any further questions of a technical nature, I will invite the minister to move the motion.
Motion moved,
That the Finance Committee recommends that the draft Budget (Scotland) Act 2004 Amendment (No. 2) Order 2004 be approved.—[Tavish Scott.]
We now begin the debate. Do members wish to raise any points?
I was interested to hear the minister say that there will be increases in transport spending. One issue that came through from this morning's discussions is directly related to transport in various aspects. There was a feeling among a number of the workshop participants—
Let me interrupt Ted Brocklebank, as I think that he is moving on to the next agenda item. Do members have any other points?
There was one other point—I resisted asking Richard Dennis about it because it is more of a policy issue. The analysis that the committee has received shows that about £70 million of the additional funds will go towards increased administration and operating costs. How does that square with the Executive's expectations of efficiency savings across departments?
As we all know, the efficient government review is due shortly. I do not know whether parliamentary time has yet been allocated for the announcement, but I think that Tom McCabe said at last week's Finance Committee meeting that he was negotiating with the Minister for Parliamentary Business to secure a slot. It would probably be remiss of me to get into the area that Elaine Murray raises, because it is an important part of the efficient government review. Of course, there is a timing issue, because the order relates to the year in question, whereas the efficient government review will relate to the period of the spending review. The £70 million would refer to the current financial year. I would give the committee the detail behind the figure if I had it at my fingertips—the right table is no doubt among all the papers that are in front of me—but we will provide the information in writing.
We have requested information on a number of other matters, which Richard Dennis has agreed to provide.
Motion agreed to.
That the Finance Committee recommends that the draft Budget (Scotland) Act 2004 Amendment (No. 2) Order 2004 be approved.
We are required to report to Parliament. Such reports are normally very brief, so I propose that we agree the text of the report by e-mail. Are members content with that suggestion?
Members indicated agreement.
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