Subordinate Legislation
Budget (Scotland) Act 2008 Amendment Order 2008 (Draft)
Good afternoon and welcome to the Finance Committee's 27th meeting in 2008, in the third session of the Scottish Parliament. I ask everyone to turn off their mobile phones and pagers, please.
Agenda item 1 is consideration of the draft Budget (Scotland) Act 2008 Amendment Order 2008, which provides for the autumn revision of the 2008-09 budget. The order is subject to the affirmative procedure, which means that Parliament must approve it before it can come into force.
The motion in the name of the Cabinet Secretary for Finance and Sustainable Growth, John Swinney, invites the committee to recommend to Parliament that the draft order be approved. Before we debate the motion under item 2, we will have an evidence session to clarify any technical matters or to allow explanation of details while officials are at the table. Officials cannot participate in the debate once the motion has been moved.
The Subordinate Legislation Committee considered the draft order and raised a minor point, which the Scottish Government has given a commitment to correct in the spring budget revision. Members have an extract from the Subordinate Legislation Committee's report in their papers.
I welcome to the committee the cabinet secretary, who is accompanied by the head of finance co-ordination in the Scottish Government, John Williams, and Stuart Dickson, who also works in finance co-ordination.
I invite the cabinet secretary to make an opening statement to explain the draft order, if he wishes to do so, and remind him not to move the motion at this point.
Thank you, convener.
The revision is the first of two routine in-year revisions of the budget—the second is the spring budget revision, which will be laid in late January. As in previous years, a pattern of authorising budget revisions in the autumn and spring is required, as the details of our spending plans inevitably change from when budget legislation is passed.
This revision mainly takes account of changes that were detailed in the draft budget. However, as a result of recent events, further changes to the budget are likely over the next few months as we try to help the Scottish people and businesses in Scotland respond positively to the current economic downturn. Those changes will be reflected in the spring budget revision in January.
The proposed changes in the autumn budget revision are largely technical. They will result in an apparent decrease of approximately £216 million in the approved budget, from £31.3167 billion to £31.101 billion. However, that is net of additional funding of £156 million from national insurance contributions, which is treated as income for the purposes of parliamentary control. The overall effect of the change will be that gross expenditure will decrease by £60 million. I will explain the detail of that in a moment. The £156 million increase in national insurance contributions affects only the source of funding; it will not change the total amount of spending that we are able to commit to Scotland this year.
Apart from the national insurance contributions change, the largest revision to the Budget (Scotland) Act 2008 is another technical change—the funding that is required for national health service and teachers' pensions will be reduced by around £100 million. That reduction is the result of a change in actuarial factors, particularly in the discount rate that is applied to future pension scheme liabilities.
If we set aside those technical changes, which amount to £256 million, the budget has, in fact, increased by approximately £40 million as a result of Whitehall transfers, consequentials that were announced in the 2008 budget and increased income from non-domestic rates.
As I discussed with the committee in Ayr last week, we have brought forward £30 million of expenditure in the affordable housing investment programme in 2008-09, with a further £70 million to be brought forward in 2009-10. As well as providing affordable housing, that money is intended to provide additional support to our house building industry during the current economic problems.
The other significant transfers within the Scottish block are mostly due to the realignment of budgets within and between portfolios. They include the transfer of budgets from the enterprise agencies to the newly created Skills Development Scotland and from Communities Scotland to the administration budget, as the agency's functions have been brought into the Scottish Government as part of the simplification of the public sector landscape, and staff are now paid from that budget.
The brief guide to the autumn budget revision that my officials have prepared sets out the background to, and details of, the main proposed changes. As previously detailed, a total of £300 million will be drawn down from our end-year-flexibility balances at Westminster's winter supplementary, as agreed as part of the comprehensive spending review 2007. That will deliver a planned reduction in our published balance of just over £952 million to approximately £650 million. As members will be aware, I have successfully negotiated access to £574 million of the remaining balance over the next two years to supplement our tight CSR settlement.
No further new announcements or initiatives appear in the figures that the committee is scrutinising today. The revisions reflect decisions or announcements that have already been made.
Thank you, cabinet secretary.
Have you managed to make any progress with the United Kingdom Treasury on the fossil fuel levy? Obviously, we are restricted in what we can do with that, given that it affects the departmental expenditure limit.
Monday's forthcoming pre-budget report by the Chancellor of the Exchequer is at the top of everybody's mind. If additional money becomes available as a result of any Barnett consequentials from any announcements on Monday, how quickly do you hope to get it through? Would you be able to spend much of it in the current financial year?
Ministers have continued to make their representations to the UK Government about the opportunity to deploy the resources from the fossil fuel levy. Those funds sit outside the UK Government's finances, so we are looking not for more Treasury money, but for money that is held in different financial instruments through the Office of Gas and Electricity Markets. Our argument is that there is an opportunity, particularly in the current economic climate, for us to use those resources without putting strain on the UK Government position. So far, we have not secured agreement from the UK Government to use those resources without a consequential reduction in the departmental expenditure limit, but we continue those discussions. I hope that the UK Government may be in a position to agree to our request in due course.
On the pre-budget report, we await the details of the chancellor's statement. We have had no prior notice of it—nor should we have—so we will make a judgment once we see any Barnett consequentials that arise from it. It is difficult to predict whether we will see any that will have an effect on this financial year. Although such consequentials are possible, spending that resource would get more challenging the closer we get to the end of the financial year. However, there is a broad range of capital infrastructure programmes that could be expedited if resources became available. We will make a judgment on that once we see the detail of the chancellor's statement on Monday.
My other question is on the enterprise budget and the redistribution of resources from Scottish Enterprise to Skills Development Scotland. The amount that is being transferred is roughly 35 per cent of the total Scottish Enterprise budget and 21 per cent of the Highlands and Islands Enterprise budget. Does that difference in the percentages reflect the additional all-Scotland responsibilities that Scottish Enterprise carries for the whole network?
That is a factor, but the difference also tends to reflect the actual spend that was deployed by each organisation in this area of activity. We have taken the resources that were being deployed on skills development, training development and careers development by each organisation and combined them into Skills Development Scotland's budget to reflect current practice and current budgets.
The Scottish National Party Government has made much of the fact that it is bringing forward £100 million for affordable housing spending and that local government is going to produce £40 million of that. Did you have any discussions with the Convention of Scottish Local Authorities or any individual local authority before you decided to raid their budgets to do that?
We have to be careful about our language, Mr Whitton. There is no raid involved here. There is a transfer from one financial year to another of resources that are available to be spent. I appreciate the willingness of portfolio budget holders and our colleagues in local authorities to make those resources available so that we can accelerate the affordable housing investment programme. My officials had discussions with local authority officials and I had discussions with the political leadership of COSLA before announcements were made. Those discussions have continued subsequently, so that the detailed arrangements to make the transfers possible are put in place.
Given that you have had those friendly discussions about how local authorities are going to help you with affordable housing spending, is there any information on where that money will come from? What negative impact might there be because you have brought money forward?
The resources that are coming from local government relate largely to capacity to borrow that authorities were not going to utilise. Essentially, they represent a fuller use of borrowing capability. We are using the opportunity created by the provisions that are available to local authorities to enhance expenditure on affordable housing. That is the source of the resources that are available.
You have said on several occasions that you had a very tight settlement from Whitehall this year. Have you had the opportunity to read the Centre for Public Policy for Regions briefing note, which is mentioned in at least one of the newspapers today? Commenting on your budget for this year, the briefing note states that
"The tightness puts a strain on … existing funding"
and suggests that you might have to consider moving
"away from universal to targeted benefits."
Do you have any sympathy with that view?
I have sympathy with one part of it, which is that it is a validation of what I have been saying for a considerable time: this has been a very tight financial settlement. I am grateful to the Centre for Public Policy for Regions for vindicating what I have been telling the Parliament for a considerable time about the scale of the difference in the financial resources that are available to the Scottish Government in this period, compared with the largesse that our predecessors had at their disposal.
Everybody knew that that was going to happen anyway.
I seem to remember that many people in Parliament disputed the analysis that I put to Parliament that this was the tightest settlement since devolution. I seem to remember members of Parliament—I cannot remember whether Mr Whitton was one of them—telling me that I had more money available than Donald Dewar ever had, which is a statistical fact, but it rather ignores the fact that the profile of expenditure increases has slowed up dramatically, compared with expenditure under the eight years of my predecessors.
As well as the 2008-09 budget that the Government is operating to, which has been approved by Parliament and is the subject of this autumn budget revision, there is the draft 2009-10 budget that is before the Parliament and which comprehensively answers the CPPR's questions on the Government's ability to afford certain programmes in the coming years. For example, the budget shows that in 2009-10, far from restricting free personal care for the elderly, the Government is putting £40 million more into that area to take account of the recommendations in Lord Sutherland's recent review.
I am grateful to the CPPR for acknowledging the fact that the Government is operating within a tight financial framework, and I look forward to its view being endorsed across the parliamentary spectrum. That is the context in which we bring forward our budget.
The CPPR points out that, because you have drawn down all your early years funding money, you are not leaving yourself very much room for manoeuvre.
We have planned a draw-down of resources over three years, and have negotiated that with the Treasury. I remind Mr Whitton of the shape of the three-year financial settlement that we received from the UK Government. In year 1, there is a 0.5 per cent increase above inflation; in year 2, a 1.6 per cent increase above inflation; and in year 3, a 2.3 per cent increase above inflation. The increase in the settlement has essentially been back loaded.
In response, we have used end-year flexibility to draw down £400 million in year 1; £300 million in year 2; and £174 million in year 3. Our approach reflects and balances out the profile of the funding that the UK Government has allocated to us.
I want to pursue the issue of housing investment. Last week, when the committee met in Ayr, you told us that the £20 million that will come from local authorities this financial year was
"borrowing capacity that local authorities did not propose to use."—[Official Report, Finance Committee, 10 November 2008; c 797.]
You have confirmed as much this afternoon.
However, the previous week, Nicola Sturgeon told the Local Government and Communities Committee that COSLA would ensure that its £20 million contribution would be made as a result of
"its ability to use identified slippage on capital projects".
Finally, according to the autumn budget revision document, the money will come from the revenue support grant. Surely all three cannot be the same thing.
The references to the revenue support grant and the ability to borrow are essentially the same thing—they are part of the same equation. I do not know the direct source of the remark that Mr Purvis has attributed to the Deputy First Minister, but the point is that some elements of the draw-down of resources to accelerate the affordable housing investment programme will come from slippage in other areas of the Government's capital programme. The money will come not from local authority capability alone but from other areas of Government.
I appreciate that you will not have the document to hand, but I can tell you that I was quoting from column 1317 of the Official Report of the 5 November meeting of the Local Government and Communities Committee. Referring to COSLA, the Cabinet Secretary for Health and Wellbeing said:
"It finally agreed that contribution of £40 million on 24 October and it spoke to the committee about its ability to use identified slippage on capital projects to ensure that it can make the contribution."—[Official Report, Local Government and Communities Committee, 5 November 2008; c 1317.]
However, the first table on page 38 of the autumn budget revision document suggests that this year's £20 million contribution will come from revenue support grant.
If you are telling the committee that revenue support grant is the same as borrowing consent, I will acknowledge the point. If that is the case, however, we should seek more information from the Government about that, because I am not sure that, to a local authority, borrowing consent is necessarily the same as revenue support grant.
The money cannot be both slippage on local government capital projects and money that is being taken away from revenue support grant to local government—it simply cannot be the same money, can it?
As I said to you a moment ago, it is all part of the same equation. Revenue support grant will support some elements of local authority expenditure and programmes, and so will borrowing. It is all part of the parcel of local authority funding.
Slippage in capital expenditure could easily be described as a need to borrow less—it is the other side of the same coin. Why on earth would one borrow if one did not require the money for a capital programme? The point that I am trying to make is that the different classifications are part of the overall local authority financial settlement.
So the Government will know which local authorities have that slippage and are not borrowing, and therefore which authorities that resource is no longer available to in the current financial year.
The Government will have held discussions with COSLA and the relevant local authorities to ensure that the resources are in place to support the expenditure that is attributed to them in the autumn budget revision and in the Government's budget for 2009-10.
With regard to the revenue support grant money, it would be helpful to have more information from the Government on whether that is unused consent-to-borrow money. Your statement was very clear, but COSLA's view is less clear that the money comes from slippage in the capital projects.
Given that Mr Purvis has raised a very specific point, perhaps the cabinet secretary could reply to the committee in writing.
I would be more than happy to do that, convener. It is clear from what I have said that I am happy to give further details to the committee.
Housing associations and local government are now looking at and submitting applications for the affordable housing investment programme. They need the security of knowing that the sum of money that the Government has promised is there.
We have just moved into different territory. Mr Purvis has now questioned whether the money will be available to support the propositions that the Government has put forward. That is a fundamentally different question—I do not need to reply to the committee in writing to confirm that the Government will have that money available: £30 million in 2008-09, and £70 million in 2009-10. Any local authority or registered social landlord that is waiting for certainty can be assured from what I have just said that that is absolutely the case.
I have a question on Skills Development Scotland. On page 47 of the autumn budget revision document, the figure for Skills Development Scotland is £194.7 million. Can you explain the difference between that and the figure of £176.3 million that was in the budget for 2008-09 and the draft budget for 2009-10? Does the figure of £176.3 million include the set-up costs, as the £194.7 million does?
Yes.
So it will not be on-going revenue for Skills Development Scotland.
If my memory serves me correctly, specific budget provision was stated in the 2008-09 approved budget for one-off set-up costs in relation to Skills Development Scotland.
Over how many years does that provision allow for the set-up costs to be spent? Does it all have to be spent within the current financial year?
If it was provided in the 2008-09 budget, it will have to be spent in 2008-09.
As there are no further questions, we move on to item 2, which is the debate on the motion. The officials may remain at the table with the cabinet secretary, but they will not be able to speak on the record. I invite the cabinet secretary formally to move motion S3M-2764.
Motion moved,
That the Finance Committee recommends that the draft Budget (Scotland) Act 2008 Amendment Order 2008 be approved.—[John Swinney.]
I invite contributions to the debate from members. I should point out that, under standing orders, the debate cannot last longer than 90 minutes.
I will make this point briefly, as it is on the same housing point that we have already discussed. It is not purely a budgetary issue. As I understand it, COSLA might well have volunteered £20 million, and the cabinet secretary has made a commitment today that that £20 million—on top of the £9 million that has already been allocated—is guaranteed to be used for affordable housing under the affordable housing investment programme. What consequences might that have for other parts of the capital budget for this financial year?
It is still not clear in my mind whether that money is from local authorities not receiving the revenue support grant that they would otherwise have received, or whether it is money that authorities are not able to borrow during this financial year, although they might have borrowed money for associated spend on housing. The situation is confusing. I have spoken to representatives of housing associations in my constituency this week, and they are not clear about the source of the funding or the consequences.
Those concerns remain for me. The cabinet secretary has offered to clarify the situation in writing, and I am sure that that will be gratefully received by housing associations.
This is an interesting set of circumstances, given the global economic downturn and its impact on the revision that is before us. Other members have already covered the point that EYF has been substantially allocated over the next few years, giving the Government very little wriggle room. However, third-party income of £200 million is forecast. Is that forecast kept under constant monitoring and revision? Given the economic climate, I suggest that the forecast is a reach too far, considering the likely amount of income to be generated.
A problem may also arise because of the success of Government officials: they are getting better at managing their budgets, so there are fewer underspends to reallocate. The cabinet secretary has estimated that there will be an underspend of £100 million this year, but is that still likely? I seek reassurances that, given the current economic climate and its likely impact on the Scottish budget, there will be opportunities to keep the figures under review.
I invite the cabinet secretary to wind up the debate.
I say to Jeremy Purvis that I will happily provide details to the committee in writing, with any further clarification that is required. However, I repeat—this addresses the very essence of the issue—the Government's commitment that an additional £30 million of support will be available through investment in affordable housing this financial year. If a housing association is concerned about where that money will come from, all I can do is ask it to understand that the Government is giving a commitment that the resource will be available. The resource has been negotiated with local authorities and with other areas of Government, taking into account the contributions that those other areas are able to make to the provision. The resource is available.
I know that the Deputy First Minister and the Minister for Communities and Sport are considering applications for projects. They have already approved a range of projects that have taken their course, and further decisions will be made in due course. The Government has a clear agenda of action to boost investment in affordable housing, which will have a beneficial effect on the strain in the housing sector that has been caused by the private housing market difficulties. The Government is determined to pursue this opportunity to tackle the challenge of affordable housing in Scotland, which is why we have made the resource available. I confirm that housing associations and local authorities will be involved in the process of taking forward investment in affordable housing.
Jackie Baillie raised significant points about the financial management of the budget, and I take those issues very seriously. The current economic climate raises many challenges for public finances, and the pattern of requirements for public finance is changing. As she and committee members know, the Government allocated significant European structural fund and social fund resources over the summer to support employability projects in a range of different areas, including, if my memory serves me right, the West Dunbartonshire area. The demands on those employability projects will be significant as we see the inevitable increase in unemployment during the next few months.
We are in a dynamic environment and I assure the committee that the Government regularly monitors and considers budget issues. I regularly monitor financial information from all portfolios, and it is the subject of frequent discussion between me and the permanent secretary as the principal accountable officer. All aspects of our finances, whether they are sources of income or demands on programmes, are kept under review.
Of course, we inherited an overallocation in the budget of £240 million, which the Government has already reduced. In 2008-09, the overallocation was only £100 million, and we will reduce that figure over the spending review period. That is an essential element of ensuring that the Government spends the resources that are available to us. If we underspend, resources end up being locked away and cannot be spent on Scottish public services unless I can secure some further flexibility from the Treasury on the use of underspends. That is not a desirable position for us to be in. Of course, I will continue to negotiate on behalf of the Scottish Government, but it represents a limit on our financial flexibility.
I assure the committee that those questions are kept under regular review and consideration. If there are any changes to the position, I can update the committee when I come back to discuss the spring budget revisions.
I thank the cabinet secretary for winding up the debate.
Motion agreed to.
That the Finance Committee recommends that the draft Budget (Scotland) Act 2008 Amendment Order 2008 be approved.
The committee will communicate its decision to Parliament by way of a short report. The Parliament will then be asked to consider a motion on the instrument next week. Are members content for our report to be circulated and agreed by e-mail?
Members indicated agreement.
Meeting suspended.
On resuming—