Good afternoon and welcome to the 17th meeting of the Finance Committee in 2008, in the third session of the Scottish Parliament. I ask everyone, including witnesses and members of the public, to turn off any mobile phones and pagers, as they interfere with the broadcasting system. I have set a good example.
I hope that my written submission speaks for itself, so I will be brief. When the committee asked me to give evidence, it was clear that the subject of its inquiry is not directly the Barnett formula and issues related to that. Nevertheless, as soon as I sat down to compose my submission, I felt that it is impossible to get away from the Barnett formula. That is why my submission takes the form that it does.
My submission sets out my views on the issues. There is scope for the committee to discuss how it interprets the courses of action that are open to it. I try to flag up those options for what I understand to be budgetary scrutiny and to say where the committee might sit. I also make some observations on effectiveness—there are some positives and some challenges for the committee.
The Hansard Society seeks to promote effective parliamentary democracy. In 2006, we produced a report called "The Fiscal Maze: Parliament, Government and Public Money", which considered how Westminster could improve its scrutiny of financial matters. I hope that some of the themes in the report will prove useful to the committee's inquiry.
I welcome Jo Armstrong, who has now arrived. I am giving panel members the opportunity to make a few introductory comments.
I apologise for arriving late. My legs do not carry me quite as fast these days and I missed the train for which I was heading. I will catch my breath.
I will start with a general question. Scotland's budget process has generally been thought to compare well with that of other countries in respect of transparency and the role of Parliament. What is your assessment of how we compare?
The system stacks up pretty well. We must bear in mind that there has been a significant advance since devolution, as there was very little scrutiny of Scottish affairs prior to the creation of the Parliament. Since then, the Finance Committee has enhanced the scrutiny process. It is difficult to get hard comparators, but the Scottish Parliament stacks up well compared with institutions such as the Northern Ireland Assembly, the National Assembly for Wales and Westminster. A deliberate attempt has been made to move to a more inclusive and considered approach to budgetary scrutiny. That is evidenced in the activities of the committee and the Parliament. There is much of which to be proud, but there are issues and there always will be.
I agree with that. You have excellently designed institutions for the budget process of an independent state or a state with substantial fiscal autonomy. Of course, what we have is neither of those, which is why my evidence draws attention to the awkwardnesses of the ambitions that were expressed 10 or 12 years ago by the financial issues advisory group and the consultative steering group. Under devolution as we have it, those ambitions seem to me to be very difficult to realise.
I certainly agree with that. The Scottish Parliament's financial procedures for scrutinising the budget are very effective—certainly compared with those of Westminster. Our report shows that Westminster's consideration of forward expenditure has been weak; in fact, we have pointed out that the Scottish model, which allows committees to scrutinise, engage with the public and take expert evidence at various stages in the process, is much better, and we hoped that Westminster would move towards something approaching Scotland's committee-based approach. However, Parliaments cannot be easily compared, as they are all somewhat different. A Parliament's culture often dictates whether its procedures work. It is not simply a matter of changing procedures sometimes. However, I agree that many routes for scrutiny in the budget process exist in Scotland, and I commend that.
From my time in Westminster, I know exactly what you mean.
I am not comfortable with discussing the comparative benefits or merits of the Scottish Government's position vis-à-vis what happens in other jurisdictions. It is clear that the budget process and scrutiny of the budget have substantially improved in the past 10 years, but the question is how, having reached where we have reached, we can improve things as opposed to just sitting on our laurels and saying that we have a perfect process. There is room for improvement.
We do not have perfection, but we try to get as close to it as we can.
It seems to be agreed that the procedures in Scotland have improved, but have they improved to the point where the public feel more involved in the budget process, to the point where the contest between the Parliament and the Government of the day is more even—it is often uneven—and to the point where budgetary outcomes are manifestly better, rather than simply the bureaucratic process looking better without making a practical impact?
I know that the Parliament tries to provide the opportunity to involve people right across the board, from all areas of society. MSPs and the Government have taken the budget out, but the problem of including the people in the process is hard to crack, because they find public finances difficult to understand. They know about services that are immediately in front of them—they know that their refuse is not being collected or that schools are facing rationalisation or closure—but it is difficult for people to take a global view of public finances. I have seen the Finance Committee, the Parliament, the Government and its predecessors taking issues out on the road, which is admirable, but I do not think that they have quite achieved what they wanted to achieve, because including people in the process is so difficult.
I asked about the evenness of the contest between the Parliament and the Government.
That is the nub of the matter in some ways. MSPs can ask questions, but the Government of the day will do as it sees fit. If the Government has a majority, there will be an uneven contest, but that should not inhibit MSPs from asking the most searching questions.
Can you give an example of a Parliament that has wrested control of the budget from the Government?
The point is that we have entered an entirely new era. Minority government and proportional representation have brought an entirely different kind of politics. The minority Government in Scotland has successfully taken its first budget through Parliament—it is great that that was achieved democratically. In such a context there is scope for change.
On engagement with the public, we have argued for a long time that people understand almost nothing of the financial procedures at Westminster. Anything that helps people to understand what goes on would be welcome. At the most basic level, we must ensure that the terminology to do with the information and procedures is easily accessible, because unless we start from first basics, people will not be able to engage at all.
At one extreme of the spectrum is Westminster, where the budget is nodded through and the Government always gets its money. At the other extreme is a Parliament that can rewrite the budget from top to bottom. Can you give an example of best practice in the operation of checks and balances? Which countries have just about got the balance right?
We found that people's views on that depended on their political views about the relationship between Parliament and Government. As I said, there is a continuum of views. Many people in Westminster advocate the continental European model, in which in essence we can be fairly sure that the Government will get the overall total that it wants but the Parliament can make changes. The Liaison Committee at Westminster recently brought out a report that more or less said that the all-or-nothing view at Westminster—which is more "all" than "nothing", because the Government gets what it wants and the nuclear option, which would be to reject the budget, is never taken—is far too black and white and there should be scope for adjustment at the margins. In that way, if there was a case for spending more on road, rather than on rail, or vice versa, there could be a debate and an opinion of the House about that. That tends to be the middle ground for most Parliaments.
You referred to continental Europe. Were you talking about the European Parliament or about countries such as Italy?
I was not talking about Italy. Scandinavia is often mentioned as an example. I do not claim to be an expert on Scandinavian Parliaments, but it is often said that in Sweden and Denmark the Parliament has some sort of negotiation battle with the Government.
The system in New Zealand is much closer to the Westminster model in terms of getting results, because the winner takes all. I concur with the view that Scandinavian countries have a much more elaborate democratic process of discussion whereby the Parliaments have a level of influence. The Scottish Parliament could aspire to that model. There are issues around how the Scottish Parliament goes about its business and what it seeks to do.
Irrespective of the overall framework within which we operate, more could be done with the current approach. There is a significant imbalance between the Government and the Finance Committee. You are looking at what the Government wants you to see and you have to tease out the bits that you do not yet see, which might be more important. That is why your having a more resourced, independent scrutiny function would help to make the process less imbalanced.
There will not be the same level of public interest in the Scottish budget as there is in the Westminster budget until the Scottish Parliament uses its powers—or the increased powers that it might get—either to take money out of, or put money into people's pockets. At the moment, to a certain extent, we shuffle the cards and do not make the sort of difference that really engages the public interest.
I can tell members a short anecdote that I have learned since I submitted my evidence. I had an extremely interesting morning in the national archives at West Register house. As many will be aware, someone—I believe that they are a Scottish National Party researcher, although I have not met the person—has forced out of the Scotland Office, kicking and screaming, papers on negotiations between the Scottish Office and the Treasury in 1984 about Scotland's block grant. I spent the morning reading those Scottish Office papers, although I have not seen the Treasury papers. I have submitted a freedom of information request for them, so I will perhaps be able to talk about them another time.
Having advisers who notice is an excellent policy.
Taking the budget to the people is important, but we must recognise the difficulties. It is important that there is a lively debate in the Parliament to inform all the commentators—the media and the experts—and through them, the public, but that is difficult to achieve.
Is there a model of such a system that we could look to?
I think that we are in the process of becoming the model. People's desire to have other reference points is fully understandable, but we should aspire to become a model that people look to. We may very well be that model.
We seek to please.
I take Professor Lapsley's point about the development of a brand new independent resource and agree that that would not be desirable from the point of view of sustainability and cost, but I think that slightly more is required than the adoption of a beyond budgeting approach.
At Westminster, as was mentioned, there is a clear distinction between the scrutiny of forward expenditure and the scrutiny of past expenditure. The ex post scrutiny of expenditure is very good compared with the forward scrutiny of expenditure. It fares well compared with the scrutiny in many other countries because people—in particular, MPs—believe that they can make a difference by looking back to see how expenditure turned out in practice. That is crucial in relation to the incentives to do such work and the reasons why people want to do it. The chances of getting anything changed on future plans and budgets are weak, so why would people spend a lot of time trying to do that? A culture has developed whereby, if people want to make a splash with financial scrutiny, they focus on the area in which they are more likely to have an impact.
I can see the distinction between forward spend and past spend. The scrutiny of past spend is audit. The trouble with forward spend is that it is a moving target and it changes in time. The fundamental question is whether the resources that are allocated in budgets match up to the tasks that have been set, as opposed to whether targets were met with the money that has been spent and whether it was spent efficiently. There are different targets in there. How do you sort that out?
The United Kingdom Government has moved a certain distance with the institution of the spending review. The spending review is now well embedded and likely to be continued by Governments of any party. However, from the point of view of democratic accountability, a huge drawback is that the spending review lies entirely within Government business. It still involves—and I think that it always has involved—bilateral meetings between the Treasury and the spending departments, at which the Treasury tells the departments what their limits are.
You are leading us down complex paths.
It would be helpful for the committee if Mr Brazier could circulate notes on the scrutiny unit and the proposal for a parliamentary finance office at Westminster.
That is an excellent question. Before I answer it, I will go back a stage. As other witnesses have suggested, the current system is complex. The addition of borrowing powers and tax-raising powers would put us on to a different level. At present, issues arise over the nature of the information that we act on, and people find those issues abstract and difficult. We have to ask how we can make Government accounts more accessible to everyone. That is a real problem, and it is one that exercises minds in the Treasury at the moment.
Can you give us examples of accounts that are accessible in the way that you would like them to be?
We face the problem that accounts are determined by the Treasury, which has the most powerful voice in the land. If accounts are to change, the Treasury must be interested in changing them. It has some inclination to move in that direction.
I agree absolutely. In my written evidence, I say that grown-up budgeting must involve the revenue side as well as the expenditure side. The first principle of fiscal federalism is that a decision to spend a marginal pound implies a decision to tax a marginal pound. Similarly, reducing spending implies reducing taxation.
Accessibility is dependent on the system that is implemented. At Westminster, much scrutiny of tax raising is carried out by the Treasury Select Committee, which takes evidence on various matters and considers the pre-budget report, which is now a fixture on the Westminster scene. Much of what the Chancellor of the Exchequer intends to say in the budget appears three or four months beforehand: budget secrecy has often gone, which gives the Treasury Select Committee the chance to carry out serious scrutiny before the budget.
The resources that would be required if tax raising and borrowing were added to the devolved powers would primarily depend on how those matters were dealt with in the Scottish Government's central finance resource function. No department in the Scottish Government performs the challenge function that the Treasury performs within Whitehall. One would hope that, if revenue-raising and borrowing capacity were added, a challenge function would be established to ask why it was necessary to raise taxes to fund a programme and why funds from other areas were not being reallocated for it. To some extent, the resources that the committee would need would depend on whether that existed.
Indeed. We must concentrate on what is practical and within our powers and—we hope—improve things.
Jo Armstrong mentioned that some of the baseline statistics are impenetrable, and there are sometimes apparent discrepancies in some of the figures with which we are presented. However, as we heard in evidence last week, it is often difficult to interpret the policy intentions behind commitments, and it is difficult to establish in the budget process what the precise outcomes are that we are trying to match with budgetary resources. It would be helpful to know whether any additional resources that Parliament could deploy would ever be able to cut through that problem and whether other Parliaments are more successful in getting to the bottom of policy intention than we have been until now.
A lot of information that currently exists would help to reduce the lack of clarity, for example the level 4 data, which are what ministers see and civil servants work towards. If nothing else, it would be worth making those data available in order to increase transparency and to reduce the belief that budgets were being cut or that changes are not justified. It has been stated that that would make the budget documents much more unwieldy and much more difficult to deal with, but in these days of information technology systems, it is not difficult to make such information available. If it were to be made available, it would be incumbent on the people who scrutinise it to say whether budgets had been cut or increased. It would be easy to follow through on that. Making the data available would not require significantly more work on the Government's side because the information already exists.
What, given the concordat, is the role of scrutiny in respect of local government?
That is properly a matter for the Local Government and Communities Committee, which looks after local government.
Local government is a major budget item.
Indeed. Local government is a devolved major budget item, and local authorities have struck an historic agreement on council taxes and the release from ring fencing, so there is an issue. I suggest that the natural place for that to fall would be during ex post scrutiny of how the arrangements work out in process. Will councils actually deliver on outcomes for the moneys that they receive and the additional flexibility that they have? That would be an obvious way for scrutiny to proceed.
Do you want to comment on that, Professor McLean?
I have nothing to add to that.
Local government is quite a large chunk of the Scottish budget and it is important in terms of delivery of some economic targets. The Finance Committee must perform some scrutiny of the single outcome agreements—of how the 32 different versions are going to aggregate up to the delivery of the aggregate economic targets that the Government has set itself. I recognise the need—the wish—either to devolve responsibility to another committee or to allow scrutiny to be carried out through local government's own Accounts Commission reviews. However, it is important that a third of the budget for the delivery of economic targets be scrutinised at this level.
Earlier, Jo Armstrong spoke about the importance of having a strategy, about how the allocation of funding should tie in with that strategy and about how that could be checked. Taking a wee step back from that process, looking at the longer-term planning of the budget and how that strategy could be brought together, what measures could be taken that would better inform the process of setting policy priorities to define the strategy?
I am just trying to think it through. The strategy was announced by the Government. The concept of producing a strategy is ideal. The production of targets within it is, equally, to be lauded. However, the problem that we in the CPPR have with it is that it is not clear what the links are between the priorities and the spend—between the targets and what is required to achieve them. For example, subject to the downturn not being so dramatic that it effectively renders all forecasts null and void, we will need a step change in the economy to deliver the growth target that has been set. The growth target is eminently laudable and we should aim to achieve it, but it is not clear how it is going to be delivered from the Government's end, through its spending plans. That information must exist within the Government, and it would be useful—necessary, even—for it to be produced and for delivery to be monitored regularly. Whether that would happen annually or triennially would depend on the nature of the targets.
When we considered how Parliament and its committees could make more of an impact by pursuing inquiries, trying to balance out the different competing demands, and so on, we always came back to the fact that it is about trying to take politics out of what are essentially political decisions about how money is going to be spent. Trying to pursue dispassionate and high-minded scrutiny of decisions about what money should be spent on what might sometimes end up crashing two different disciplines together. Sometimes, a committee will be able to find consensus on an issue or conduct an inquiry that concludes that something is a pressing need, but at other times it might run up against entirely political considerations, with different parties wanting to do entirely different things with the money that the Government has to spend. That is the balance that must be struck.
The process of setting high-level strategies and intermediate targets and relating them to expenditure outcomes is imperfect. It is not a neat, linear process or mechanical, by any means. It involves a huge amount of political judgment, which is necessary in a democratic society, and decisions about strategic priorities that are, rightly, aspirational. That might not connect easily with underlying targets and expenditure.
That is a useful reminder of the complexity of what we are dealing with. I remember that the planning, programming and budgeting system and zero-based budgeting were meant to take the politics out of everything. Evidently, that did not work.
At the United Kingdom level, the growth intentions of the Government are monitored. Rather ostentatiously, with each pre-budget report, the Treasury includes a document from the National Audit Office on the realism of the financial projections, since the projection for growth determines the projection for future tax revenue, which in turn determines how much you can spend. I leave it to others to judge whether the inclusion of that document makes the Treasury's forecasts more credible than they would otherwise be.
In a sense, the UK is an open system, whereas devolved Scotland is a closed system. I would think that, in a closed system, we should be able to get to the heart of budgeting and follow changes through the budget process. The fact that we have a finite budget should make it easier to get the challenge function going.
It is not an entirely closed system, since, presumably, you have to make projections about tax receipts from those taxes that the Scottish Parliament ultimately controls. However, I concede that it is much more closed than the UK's system.
We should look beyond the financial terms and bear in mind the impact of service quality on citizens, as we mentioned earlier. In those terms, the idea that we have a closed system in which it is relatively easy to monitor those impacts is wrong—it is difficult to do so. Budgetary interventions might not achieve what you want them to. We should not think that the fact that we have precise numbers before us means that we are dealing with a precise and mechanical process. The reality is much more subtle and complex than that.
I agree that the process is not linear and that it is much more complex than any of us can imagine. However, there is merit in those who are seeking to spend public funds indicating what they think the outcome is likely to be and what they are aiming to achieve, so that that can be monitored. It is difficult to say exactly what is going to happen, but, if you spend money, you should be able to say what you hope to achieve. If things go awry because of factors that are outwith your control, that is a legitimate reason for not achieving your aim. However, it would be wrong to say, "We can't measure and monitor the system, so don't ask us to." We can ask for a justification for the allocation of funding and then monitor it.
I agree. We push quite strongly the adoption of a culture of explanation and justification.
Everyone is in favour of transparency—that is beyond challenge—but we must understand what underlies the transparency.
Getting transparency can be difficult.
The one point that I will make is that although it is entirely fitting and appropriate that the Finance Committee challenges the Government's budget, it is important that the challenge does not consist only of those two parties coming together. If the budget review is viewed by other members of the Parliament as an abstract, oblique and strange dialogue that is going on between committee members and colleagues in the Scottish Government, we are failing.
I would like to illustrate the opacity of the present regime. As I have said, and as members well know, Scottish Government DEL is a function of what is spent in England on functions that are comparable to those that are devolved to this Parliament, yet nobody has an opportunity to challenge the decisions—some of which involve billions of pounds—that lead to that.
I thank all our panel members. You have brought home to us the reality that our deliberations in this committee have an effect on the real world, and that we all have a responsibility to the public, whom the Parliament serves. I thank you for your insights and your suggestions, which are appreciated and will be of assistance to the committee. We will take a short break to allow our panellists to leave.
Meeting suspended.
On resuming—