Finance Committee

Meeting date: Wednesday, February 19, 2014

Official Report 446KB pdf

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Children and Young People (Scotland) Bill: Financial Memorandum

Our third item of business is to take evidence from the Scottish Government bill team on the supplementary financial memorandum to the Children and Young People (Scotland) Bill, which has been lodged following amendments at stage 2.

I welcome to the meeting Philip Raines, who is acting deputy director, children’s rights and wellbeing division, and Gordon Wales, who is deputy director, finance programme management division. Would either of you like to make a statement before we proceed to questions?

No, we are happy to answer questions on the supplementary financial memorandum. As you know, the stage 3 debate takes place this afternoon, so we will be happy to do anything that we can to clarify the issues that arise from the stage 2 amendments now or, if that is not possible during the oral evidence, afterwards.

Thank you. We will move straight to questions. I will ask the initial ones, after which colleagues will ask theirs. Some of the questions will relate directly to the financial revisions.

As you will know, significant revisions have been made, with the additional costs going from £14.7 million in 2014-15 to £71.7 million. The supplementary FM appears to reflect the costs associated with the expanded provision that was announced on 7 January, but it does not appear to include the additional costs that were outlined in the Minister for Children and Young People’s letter of 12 September, which, as you may recall, mentioned an increase of some £4.2 million. Will you give us a wee explanation of that, please?

Absolutely. The best way to explain it is that the letter of 12 September dealt with funding issues. In a sense, it was to do with how the bill for the early learning and childcare elements of the original financial memorandum—which, of course, have now changed—would be picked up. It did not touch on the costs.

As I recall, the letter of 12 September dealt with two elements: the funding for the vulnerable two-year-olds who were to be included in the extension of hours; and the element of the costs that would arise for the partner provider uprating—the element for which local authorities negotiate funding, for other organisations to provide the early learning and childcare. The letter set out how that would be funded as a result of the budget discussions and negotiations, but it did not touch on the costs. The costs for two-year-olds and for the partner provider uprating should not and would not have changed as a result of that letter. How that would be funded—the division between local government and central Government—is what was addressed as part of that letter.

The letter set out that the extension of provision for the cohort of two-year-olds as set out in the original financial memorandum would be paid for from an additional £4.5 million a year, some of which—the money for 2014-15—would incorporate the early years change fund, which operates up to the end of this financial year.

An additional element would cover the difference—the inflationary uprating, if you will—between the partner provider floor, which is the national figure that was used for calculating the funding between local authorities and private sector providers and which was last set in 2007, and what that figure might look like currently as a result of inflation, which was set out in the original financial memorandum.

11:00

The original financial memorandum set out the childcare costs in 2011-12 prices, but the supplementary FM does not state what price basis is used.

I confirm that the same price basis is used.

It is the same. I also wonder why capital costs have not been included with regard to the planned extension to the policy. The supplementary FM states:

“It is not possible to provide an accurate estimate of the level of infrastructure investment required at this stage.”

That contrasts with the approach taken in the original FM, in which capital costs were included. Why is there a difference of approach?

That is purely down to time. There just was not enough time between the conclusion of the stage 2 amendments and the point at which the supplementary financial memorandum had to be submitted to calculate the capital costs that we recognise there will be. We are in close discussion with the Convention of Scottish Local Authorities and the Association of Directors of Education in Scotland about what those costs will be.

The approach also reflects the fact that the capital costs for the vulnerable group of children will not necessarily be the same as we would expect to be the case for three and four-year-olds. For three and four-year-olds, we are talking about a more universal provision and therefore a different staff to child ratio. We are also perhaps looking at providing more standardised service to those children through early learning and childcare. However, the group of vulnerable two-year-olds covered by the January announcement may have more significant needs, so we will be considering different staff to child ratios, and the capital costs will be quite different.

It will take time to get in the estimates, do the calculations and work through them with COSLA and ADES. Unfortunately, there just was not that time in the window that we had for providing the supplementary FM.

When will those figures be available?

I cannot confirm when they will be available but, because the policy commences in August, the costs will have to be developed very quickly. I can provide additional information to the committee about the timescale and, perhaps as importantly, what those costs will be.

Who will be expected to meet those capital costs?

As ministers have set out, all additional costs for local authorities arising from the Children and Young People (Scotland) Bill will be picked up by the Scottish Government. The understanding—COSLA understands this—is that, although we do not know exactly what the costs will be, those additional costs will fall to the Scottish Government, as is the case with all the other early learning and childcare costs.

Thank you very much. I am keen to let in colleagues, but I have one or two wee other issues that I want to ask about.

The first is about the amendment to eligibility for continuing care. Table 13 of the supplementary FM estimates the costs of that to be £9.3 million by 2019-20. Concern has been raised that there is a wide variation in the costs of the different types of care and that they have not been provided for

“because no sensitivity analysis has been presented.”

You will be aware that local government is suggesting that the costs may be almost twice as much as the estimated £3,142; indeed, some local authorities estimate the cost to be £6,000. Will you talk us through that issue?

There are two separate points, and I will take them in the order in which you raised them.

In order to calculate the costs for those staying in care, we need to know what type of care they will be in. As you mentioned, table 13 sets out the costs, but table 10 sets out the estimated share for the type of care. The table 10 figures are taken from the official looked-after children statistics. We have used the most up-to-date statistics—I think those are the 2011-12 figures—which show where kids left care from.

We have not looked at what those variations might be because the statistics have remained relatively stable over the years. We have no sense that the policy that we are pursuing would lead to a shift in the proportions. A sensitivity analysis would make sense if we had good reason or evidence to believe that the figures had shifted significantly either historically or over recent time, or if the policy was likely to lead to a significant shift in the proportions of children in the different types of care.

If anything, our sense from anecdotal evidence is that the use of residential care—the most expensive element—is probably reducing, so by using the historical figures we may well have made an underestimate of the number of children in other types of care. However, we must use the firm figures. That is why we used those proportions and applied them as assumptions.

Your second point was about what might be called the unit cost. For the record, paragraph 101 of the original financial memorandum set out the figure of £3,142. As with all such calculations, we must take evidence and take a view on how to make them up. One of the components that was perhaps the most difficult to get a consensus on was travel costs.

I saw in the Scottish Parliament information centre briefing that COSLA has cited a figure of £6,000 per person. That arose largely from COSLA discussions with some local authorities that felt that travel costs would be much more significant and therefore what would be provided for every care leaver might be significantly more than we estimate.

As we said before, we feel that the higher figure for travel costs does not represent an average across local authorities. It represents the higher end of the figures, which will undoubtedly apply in some rural areas, such as Argyll and Bute and the Highlands, but which will not necessarily be the costs in places that are not as large or where travel is easier, such as Glasgow. We have taken the average cost as £3,142.

The short answer is that we used exactly the same estimates and the same assumptions for the supplementary financial memorandum as we used for the original calculations to produce the original financial memorandum.

The point, which you have addressed, was that some local authorities considered £6,000 to be a more realistic figure. Will the additional costs that local authorities incur for geographic and other reasons be taken into account in funding?

I hope so. Such costs are worked out at a global level. A distribution mechanism will be needed for the funding that goes to local authorities; that applies as much to the aftercare and continuing care elements as it does to early learning and childcare. There are well-understood and well-established mechanisms and governance arrangements for that. I believe that a distribution group that COSLA operates will work with the Scottish Government on how best to deal with that.

I will make one more point before handing over to the deputy convener.

When we took evidence previously, we had concerns about partner providers. We understand that

“It is entirely the responsibility of Local Authorities to decide what they pay partner providers”,

but some of us were somewhat concerned about that, given that some local authorities might not be as generous as others. It was interesting that you touched on partner providers. The Scottish Government has announced that it will provide an extra £800,000. Is there any guarantee that that will be used as it is supposed to be?

If you are asking whether we have placed conditions on and ring fenced the use of that money, the committee will understand that that is not how our relationship operates.

That is what I thought.

The answer to your question has two parts. We are not treating the funding differently from other similar types of funding; we expect local authorities to meet their obligations and to get the adequate additional provision that they should get from partner providers, which is a matter for them. However, there is a clear role for us in setting out expectations in national guidance.

We have not taken a statutory role, which will remain the case, but we have a role in relation to how the funding provision should operate. The issue is sensitive and should properly be addressed as part of guidance. In developing that guidance, we will deal with providers. We need to bring the National Day Nurseries Association closely into the discussions on developing the guidance. I believe that that work has started and will continue.

I think that all committee members are aware that there is no ring fencing, but I wondered whether, through COSLA and others, you have had any kind of gentleman’s agreement that the money would be put where it is supposed to be put. Obviously, in some cases the partner providers are concerned about their own survival, let alone viability. It must be deeply frustrating if we are providing additional money and the local authorities decide not to put it into those areas. Is there any sort of quid pro quo, in which the Scottish Government, in discussions with local authorities, says, “We’ll give you additional money; we know it’s not in tablets of stone that it’ll go into this but we expect an understanding that that’s where it will be spent”?

I am not aware of such discussions. To be honest, it is the sort of question that is probably best answered by COSLA. At the end of the day, the local authorities and COSLA are the ones that need to account for how they are fulfilling their obligations and relationships with the partners who are doing the provision.

Thank you for that. I now pass over to John Mason.

I want to follow up one of the areas that the convener touched on, which was the capital costs. I was a little uneasy with the questions, I mean the answers—obviously I was happy with the questions. [Laughter.]

The supplementary financial memorandum states:

“Capital costs have not been explicitly estimated.”

My understanding is that they have not been estimated at all, so the word “explicitly” does not really mean anything. Is that correct?

I would say that internal calculations are going on and that the work is being taken forward. People clearly cannot be resting on their laurels in going forward. However, if it is “explicitly” in the sense in which we would be happy to share those estimates and costs formally because they have reached the point where we can verify them, I would say that that is not the case. The work is under way, though—it has to be under way.

I am relatively new—I have been here for only three years—and I do not remember a situation in which we were looking at a financial memorandum in the morning, we did not have the figures and the bill was due to be approved in the afternoon. Maybe that is common—I do not know.

We are sitting here with a figure of nil. We know that it will be something but we have no idea what. Could you give us even a range of figures that we might be talking about?

No. I would not go as far as that.

So will it be under £100 million—

Sorry. I have just said that I would not go as far as that.

You would not say that it is under £100 million.

I would not say anything at all. I cannot provide those estimates or figures, I am afraid.

And—

All I can say is that we have shared our working and calculations with COSLA. We are working closely with COSLA, and concerns have not been raised about the capital costs from the people who are going to be the providers.

COSLA is not going to raise any concerns if the Government is going to pay for it, is it? That is fairly clear.

Effectively, the figure of nil has been put in. Okay, there is a note saying that nil will not be the figure—

No. I think that there is a difference between putting in no figure and saying a figure of nil. A figure of nil suggests that we think there is no cost. That is clearly not the case. We are just saying that, at this stage, we are not in a position to be able to offer estimates. That is not the same as zero.

Well, I would argue that that is just semantics. However, I take your point that there is a slight difference between not having a figure and having a figure of nil. I just want to say publicly that I find it very unsatisfactory that we are being asked to approve this supplementary financial memorandum and we have not been given even a range of figures.

The convener and deputy convener have raised most of my queries. You are not in a position to tell us the figure—I hear that. When you talked about the likely cost, I think that you said that the per head cost would be different from the assumptions made per head for three and four-year-olds.

Yes.

Without wanting to put words in your mouth, does different mean higher or lower? The impression that I got is that it is probably higher per head because there are more specialised things needed and so on. Would it be fair to assume that the cost is likely to be higher per head as opposed to lower?

Yes, it is indeed. I believe that one of the paragraphs in the original financial memorandum sets out the staff cost ratio where that arose. The staff cost ratio is 5:1.

I am asking not so much about the staff costs as about the capital costs.

11:15

I am sorry—that is different from the unit costs.

As for the capital costs, it is difficult to say because a lot really depends on how the services are provided for vulnerable children. It is a question of knowing what capacity is out there and how different local authorities have tackled the issue. I would imagine that, if we were dealing with higher staff cost ratios and we perhaps needed a different set of provisions, the capital requirements could be different. However, I am not in a position to say in what way they would be different.

Just to be clear on the point—

I am sorry—I misunderstood what you meant. As far as capital costs are concerned, I am afraid that I am not in a position to be able to say whether the per child cost as worked out would be higher or lower than what we used in the financial memorandum, which related to three and four-year-olds.

So when you talked about the costs being higher, you were talking about the staffing costs per head.

Yes.

And you do not know about the capital costs.

That is true.

Thank you.

Just to clarify the issue a little more, I should point out that the Scottish Government has given a clear commitment to meet the capital costs of the bill’s provisions. I think that Mr Raines has made that pretty clear. I am not going to ask for a specific figure because Mr Raines has quite fairly set out why that is not available at this time.

Given the early work, the on-going work and the calculations that are under way, are you able to give a commitment that the Scottish Government can meet these costs and that this policy is not going to bankrupt the nation?

It will not. The number of additional two-year-olds we are talking about falls well within the scope of all this. In that sense, it is not significantly different from what was done for three and four-year-olds.

The Scottish Government has made it very clear that the additional costs as a whole, including the capital costs, arising from early learning and childcare for local authorities will be met. That commitment remains.

Again, can you clarify that a burden will not be placed on any other part of the public sector to meet these costs and that the Scottish Government will meet them?

Yes.

Thank you.

When the original financial memorandum came before the committee, members raised a number of concerns about the estimates and assumptions that it contained. I do not know what other committee members think, but I certainly have not been assured by the answers that have been given in response to our report on that financial memorandum.

As John Mason has said, here we are on the morning of stage 3 of the bill, discussing additional costs and the additional funds that have been introduced into the financial memorandum. Could these additional costs and the mechanism by which they were scrutinised have come at a later date when the figures were available so that we could have had greater clarity about them? Do they have to be included in today’s proceedings?

I am not sure why this evidence session was scheduled for today, so I am afraid that I cannot comment on that.

The costs in the supplementary financial memorandum arise largely from the stage 2 amendments and the announcements that were made barely six weeks ago in January. Obviously the time for making calculations has been shortened and accelerated, and we provided the supplementary financial memorandum as quickly as possible after the conclusion of stage 2.

Clearly we cannot put out a supplementary financial memorandum until stage 2 is completed. As soon as it was completed, we carried out some quite intensive work in an accelerated way to enable the committee to consider the costs as quickly as possible.

So it would have been possible for the committee not to have discussed this issue today. It could have waited until the bill had been passed and then a supplementary memorandum in which we could actually see the figures could have been put before the committee.

No—

This morning we are discussing an addition to the financial memorandum that is based on stage 2 amendments. You say that you had only six weeks to carry out this work, but can you tell us what happens in other circumstances? After all, we do not come back with supplementary financial memoranda every time a bill is amended at stage 2, so why are we doing it today?

I draw your attention to paragraph 3 of the briefing that you have received. It refers to rule 9.7.8B of standing orders, which basically sets out how to deal with what happens at stage 2. When changes are made to a bill, it makes sense for Parliament to be able to consider their cost implications.

Rule 9.7.8B also sets out a timescale from the completion of stage 2—after all, you cannot tell people what the bill is going to cost until stage 2 is completed—for producing our formal estimate of those costs. We met those timescales, produced the document as quickly as possible and provided it to Parliament.

Beyond that, the consideration of the supplementary financial memorandum by the committee is an internal matter for yourselves, as is the scheduling of today’s evidence session. The document was produced within the existing timescales as set out by Parliament and according to the understood process for putting bills together. You might be asking wider and deeper questions that I cannot answer because they are to do with parliamentary process.

It is partly to do with that, but the other problem is that, whatever the timeframe might be, you have told us that you do not actually have the costs that the stage 2 amendments will incur. Why are we discussing this issue when, first of all, the timescale does not allow for the amendments to be properly scrutinised and, secondly, you cannot tell us whether the costs are up or down or what the capital costs will be? We are just expected to accept this supplementary financial memorandum and go into this afternoon’s debate no wiser about the changes that are being made.

I want to make it clear that we have provided the costs for everything else except the capital costs. Admittedly, the capital costs are quite complex and we are not in a position to provide that information so, in that respect, what you say is true. However, I do not think that it is fair to say that we have not provided costs.

We have provided quite a lot of costs; indeed, we have easily provided the lion’s share of costs. The ratio of the capital costs in the original financial memorandum to the total costs of early learning and childcare was, although significant, perhaps not the most significant element. I think that the revenue element was probably more significant.

But what was significant about the earlier financial memorandum was that we had major concerns about the costings involved and there has been no attempt to amend, change or clarify them.

That is not true. On 28 October, we wrote to the Education and Culture Committee to respond in detail to a number of the issues that your committee raised in your report. We have responded on those points, but whether you are satisfied with our responses is another issue.

That is the point that I made earlier: the answers certainly did not satisfy me.

But it is not fair to say that we have not responded. We responded in great detail to the comments that were made and which were passed to us by the Education and Culture Committee.

Just to provide some clarification, I point out that the supplementary financial memorandum was published on 31 January. As there was a recess, we did not really have an opportunity to discuss or take evidence on it before today. I decided that it would be more appropriate to take the item today instead of a week after stage 3 so that we could get as much clarification as possible about the available information. As Mr Raines has pointed out, information has been provided except on the capital issue.

It is very unusual to have a supplementary financial memorandum and it is only happening now because of the scale of the amendments. Rule 9.7.8B of standing orders states:

“If a Bill is amended at Stage 2 so as to substantially alter any of the costs set out in the Financial Memorandum that accompanied the Bill on introduction, the member in charge shall lodge with the Clerk, not later than the end of the second week before the week on which Stage 3 is due to start, a revised or supplementary Financial Memorandum.”

That is what has happened.

That said, I want to raise with Mr Raines an issue with regard to rule 9.3.2 of standing orders, which states:

“A Bill shall on introduction be accompanied by a Financial Memorandum which shall set out the best estimates of the administrative, compliance and other costs to which the provisions of the Bill would give rise, best estimates of the timescales over which such costs would be expected to arise, and an indication of the margins of uncertainty in such estimates.”

The committee’s concern is that it has received no real estimates of the capital costs. There are not even any margins of uncertainty; we do not have anything that says, for example, that the costs might be between £10 million and £50 million, £20 million and £100 million, or whatever. That is what the committee is frustrated about.

Standing orders make it clear that we really need that information so that even if we go into this afternoon’s debate not knowing everything—and you have explained to us why that is the case—we have at least a ballpark figure, for want of a better phrase. Do you not agree? It is clear in standing orders.

That would be the interpretation of that rule—

I do not think that it needs to be interpreted—it is pretty straightforward. I have just read out the rule in standing orders word for word, and it talks about

“an indication of the margins of uncertainty”.

The real issue is that there are no parameters with regard to the capital costs.

I do not think that we were in a position to provide those margins within the timescale that we had to produce the supplementary financial memorandum. As you know, it was provided by 31 January, a couple of weeks after the announcement was made. It is now 19 February, and work on this issue has progressed. I apologise for not being in a position to be able to provide an oral update about those parameters, but I imagine that they are beginning to emerge. If we cannot provide those margins of uncertainty, we cannot address the question.

We will have to deliberate further on the matter, but I have one further question on a different issue that I hope you will be able to answer.

The supplementary financial memorandum contains a significant section on individual kinship care costs for guardians. Paragraph 36 says:

“Overall, there were no additional net costs in relation to kinship care in the original Financial Memorandum. This remains the case with these amendments”.

I note, however, that paragraph 35 states:

“In response to concerns about a perceived lack of detail in this Part of the Bill, Scottish Ministers agreed to make amendments at Stage 2 to provide for a clear, core eligibility test for kinship care assistance on the face of the Bill”.

I find it counterintuitive that there are no additional costs whatever. Can you talk us through why that might be the case?

The methodology that was applied to the calculation of the additional cohort that might be eligible for kinship care was also applied to this element. As you will know from the original financial memorandum and our evidence to the committee, our view is that this policy will lead to avoided costs or, in effect, net savings.

These particular numbers—which, as I have said, were produced using the same methodology—are set out in table 14, which sets out the gross costs, and table 15, which sets out the avoided costs. As the avoided costs are larger than the gross costs, our view is that, as with the original methodology for calculating kinship care in the financial memorandum, the provision will not lead to additional costs.

Because of the £3,000 margin between tables 14 and 15.

Yes. It is the same principle that was applied in the original financial memorandum.

I just wanted to get that clarification on the record.

As my colleagues do not seem to have any further questions, do you wish to make any further points or comments?

No, except to say that as the further work, particularly on capital costs, is carried out we will be very keen and happy to provide that additional information at a suitable date for the committee, to enable you to carry out your rightful role of scrutinising the costs as they emerge.

I am pretty sure that I am speaking on behalf of the committee when I say that we would very much appreciate the opportunity to take evidence once the figures are available.

Thank you very much for answering our questions; your responses were appreciated. As we are moving into private session, I ask our witnesses, the public and the official reporters to leave the meeting.

11:28 Meeting continued in private until 11:54.