Budget Process 2005-06
Agenda item 3 is consideration of a paper by our budget adviser on the recently published annual evaluation report. Members will be aware that the new AER is in a revised format and Arthur Midwinter's paper takes us through the contents.
The paper is clear and provides a good overview of the issues that have been raised. We have benefited from Arthur Midwinter doing the job for several years because we can see continuity and some progress. If he would like to comment on his paper, he should do so now.
Professor Arthur Midwinter (Adviser):
The format of the paper is broadly in line with the discussions that we have had with the Minister for Finance and Public Services and the Deputy Minister for Finance and Public Services. The introduction discusses strategy, the middle section considers performance against targets and the third section updates spending plans. The only issue that was discussed on which we have not been able to make real progress is the financial reporting aspect of performance reporting. Given that the first financial year of the current spending review period has only just ended, outturn data are not available in time for this stage in the process. It would be helpful for me to continue to have discussions with officials about how we can factor in an element of financial reporting, if the committee is agreeable.
I will comment briefly on the sections on strategy and targets. This year's process is very different from the previous framework, in which there were five functional priorities and three cross-cutting priorities. The Executive has highlighted what it calls four key challenges. On the basis of the document, it is seeking to consult us and the public on the priorities for spending. Although I was pleased to see that there are fewer challenges—if the challenges are equivalent to priorities—I still did not find the statement of priorities very clear, especially as, according to the report, the challenges
"are not competing priorities, but interlinked objectives".
Given that there is a growing but shrinking cake and that there will be competition for resources, I regard that as a naive statement. Sustainability is included as a cross-cutting theme.
My concern about the framework as it stands is that it would be possible for a department to defend almost any spending proposal against one of the four key challenges. I am not sure that that is a particularly helpful way of clarifying one's priorities. On the basis of the document, it will be difficult for committees to audit spending to ensure that priorities are being met. It is possible to use economic growth as a strategic criterion for considering spending on services, as one can judge whether they contribute to it, but I have difficulty with most of the other challenges.
I also have concerns about the cross-cutting priorities. Have closing the opportunity gap and equal opportunities been downgraded as priorities? In the document as presented they are tucked away as a sub-theme under "Stronger, safer communities", rather than being cross-cutting priorities in their own right. From the AER, we cannot tell whether that is a major change. We should press the minister on that issue when he appears before the committee.
The press release suggested that 90 per cent of targets had been met or were on course for being met. However, it should be clear to members who have read the report that in some cases the Executive is simply on course for delivering data, as opposed to meeting targets. Although the priorities have been changed, the main problem that we faced in the previous document—that of linking priorities directly to resources and outcomes—remains. Roughly a third of targets are administrative and I am not sure that they need to be in the document. I do not regard targets such as delivering a best-value regime or a review of local government finance as central to the budget process.
Members will note that there is a change in the spending plans. Spending is about £1.5 billion higher than was indicated in the document that we received six months ago. The bulk of the increase is in annually managed expenditure. The single biggest item concerns the Scottish Public Pensions Agency. There is higher growth in AME, which has boosted the total. The increase has not taken place in areas where the Executive has much discretion.
My one concern about the document is that over the three-year period that we are considering there has been a minor fall in capital spending as a share of total expenditure. I am conscious of that because I have been working on a report on capital spending for the committee. The fall in capital spending seems to contrast with the drive from the United Kingdom Treasury to increase the proportion of public spending that is used for investment, as opposed to current services.
Thank you very much. Before we discuss the paper, I point out to members that next week we will take evidence from the minister on the 2004 spending review and that there will be further evidence sessions on 4 and 11 May with the witnesses that the committee identified. On 25 May, at the conclusion of our evidence taking on this matter, we will take further evidence from the minister. As this subject will clearly dominate our work over the next month, members will have an opportunity to pursue certain matters in depth and detail.
First, I thank the convener for helpfully setting out in his letter of 1 April the various outstanding issues from stage 1 of the budget and the performance monitoring processes. We are still waiting for a response from the Executive.
Before I come to Arthur Midwinter's helpful report, I want to put on record one other minor comment about the budget process. It is a shame that the long-term trend data are not available for committees, which this week are beginning their budget considerations in advance of the spending review. Indeed, the Education Committee is starting that process tomorrow. I just want to note that; after all, we can do nothing about the situation.
Given that the Executive has not made that data available in time for the committees' budget considerations and in light of the amount of effort that has gone into the process and the fact that the budget document is quite transient—although I should say that the AER is a huge step forward—it might be helpful if we could find a way of making the examination of long-term capital spend more systematic and less of a one-off exercise for the Executive. Indeed, we could wrap that up with the issues that we will alert the minister to next week and to which we will return in a month's time.
I am going to be slightly more upbeat than Arthur Midwinter was about the AER. At the start of the year, we decided this year to worry about what we are spending and next year to think about how the money is being spent. We have made considerable progress in that, for example, we will receive some trend data. Moreover, we now have five given priorities, even though they have generated 164 targets, most of which are organisational. That is progress. That said, Arthur Midwinter is right to highlight in paragraphs 7, 8 and 10 of his report certain questions for the minister such as how the priorities work in practice and how they are translated into any one spending decision.
That is all good news. However, I want to flag up an issue that I would like Arthur Midwinter to come back to us on at the end of the process and which should shape our questioning of the minister and the witnesses. If we are starting to get a handle on priorities and spending, we now need to probe the question whether resources are being used efficiently and to assess the costs that are being incurred and the service outputs that we are receiving. That links not just to the question whether the targets are appropriate, but to the efficiency of service delivery, which is a matter that committee conveners have always wanted to pursue.
As Arthur Midwinter has pointed out, the most disappointing aspect of the AER is that only one of the 16 targets that have been set for the Finance and Central Services Department, which is responsible for the efficient use of resources, deals even vaguely with the issue of improving the efficiency of resource allocation. Indeed, even that target simply says to us, "Isn't best value such a good idea?" As a minister who once had stewardship of best value, I have never really thought that it has stood the test of time as a means of delivering productivity improvements in the public sector. As a result, I wonder whether we can use our evidence sessions to bottom out the question of what we are doing to improve public sector efficiency in Scotland and who is responsible for that. When Tavish Scott wrote to us in November, he said that a unit in the Finance and Central Services Department had that responsibility.
At the end of the process, we need to consider how the committee will turn its attention to that area. After all, the House of Commons Public Accounts Select Committee has led on whether it is better to deliver efficiency through targets or through introducing contestability into those services. The Treasury, the Office for National Statistics and the dedicated Atkinson review are all considering the matter. I cannot see much of that activity taking place in Scotland.
I would like those issues to dominate some of our questioning in the next month, with a view to the budget adviser advising us in June on how the committee should turn its attention to those matters on a more extended timescale next year. The issues are complex and difficult. It is a matter not just of aggregating targets, but of seeing how we can examine the efficiency of the public sector on an on-going basis. In the next month we should seek ministers' views on how they are addressing that, and we should schedule some time in June to think about how we might pursue the matter in the following year.
The paper is useful. The four priorities reflect the headlines in the partnership agreement, so I can understand why they have been shown in that way but, equally, showing them in that way makes it more difficult to follow how the finance is allocated within the broad headlines. That is an important point to make to the Executive. I agree that we should look for more information from the Executive.
I was interested by Professor Midwinter's analysis of the types of performance targets—which of them are organisational and which of them reflect outcomes. I was shocked to find that, under finance and public services, there are 16 organisational targets and no outcomes. We may want to put that point to ministers. I realise that the targets are one third, one third and one third overall. Environment and rural development, on the other hand, has 10 outcomes, six organisational targets and one output. There seems to be an imbalance between the different parts of the Executive in the identification of outcomes.
Another pernickety point is on paragraph 11, which states that some health improvement targets have been met, but that that could
"simply reflect improvements in lifestyle."
It could be argued that the Scottish Executive plays a part in influencing people's lifestyles, by means of the actions that are taken on substance abuse, physical activity or healthier eating. It would be difficult to say that the Executive has no role in those areas.
The report is useful, and the analysis is worth while. It is good to have a collated view of outputs, outcomes and organisational targets. I am concerned, however, that there are no quantified macro-targets on growth, population, the productivity of Scotland and so on, which is disappointing. I am struck by the fact that Professor Midwinter has the same aspiration with regard to efficiency as Wendy Alexander. Would it be possible to get a reaction from ministers to the excellent paper that was produced by Nicholas Crafts at the Allander series of lectures, which provoked a deal of thought in my mind?
On the paper and AER, if we drill down within a given department and carry out an analysis, I would classify fewer targets as outcomes. I would shift a few into the outputs category. There are people with budgets who are looking to spend them, and that will happen. What is depressing about some of the targets is that specific measurable qualities and hard numbers are much more prevalent in outputs and organisational matters, and are very much less prevalent in outcomes. In fact, they are almost totally absent in outcomes, and they are totally absent in macro-outcomes. That makes Scotland look somewhat amateurish in the way we run our Government.
Are there any points in the three contributions that have been made to which Arthur Midwinter wishes to respond?
Yes. I have a response for each member.
Wendy Alexander raised the issue of where we put the time-series data. I have got the capital data from the Executive, and the time-series data for total expenditure will fit into the draft report that I am working on. I will come back to you to suggest that the Executive might consider using "Building a Better Scotland: Spending Proposals 2003-06: What the money buys", which is the equivalent of the UK spending review document; all the data, which goes back about 40 years, is at the back of that document. The BABS document would be a suitable place, because that is the start of the process.
I should have a look at the paper by Professor Crafts in the light of what Jim Mather said and see where the efficiency arguments are.
Elaine Murray expressed a worry about the imbalance between finance and other departments. I suspect that the answer might be that finance allocates the block grant to local government and it has tended to say that education outcomes are a matter for the Education Department and so on. That is not a holistic approach. We and the Local Government and Transport Committee have hammered the objectives that the Finance and Central Services Department produces for two or three years, but it continues to use them. This time, it would be useful if we could nail the minister on how he uses them. It seems to me that they are just a statement to say, "We will fulfil our activities and deliver our policies". It has always been assumed that the subject committees should examine specific services that are provided by local government—the Local Government and Transport Committee examines the transport element of the budget, the Education Committee examines the schools element, and so on—but that does not work well in practice.
The Finance Committee has repeatedly raised the point that the way in which the Executive has been held accountable for local government and health expenditure is not satisfactory either to us or to the relevant subject committees. There is an accountability deficit, which the Executive has recognised. We should pursue the Executive on that issue in some depth and detail. It is not for the Executive to tell local government in detail how to work; it seems to me that the Executive has a responsibility to set an accountability framework within which local government is expected to work, and a performance assessment framework. That applies to health, too, and we should pursue that issue explicitly with the minister.
Between them, local government and health account for 60 to 70 per cent of the budget, so we must try to resolve the matter. Jim Mather's notion of macro-targets is probably similar to my idea of creating composite indices that could be used in same way as the area deprivation index or the health needs index, in which we use several indicators to get one measure on which to make progress. There is a big gap in the document, in that we have a strategy but no strategic targets.
Are members content with the process that is outlined in the paper? It will certainly inform our questioning of ministers. Does Professor Midwinter seek any further guidance from the committee?
Not at this stage. I have started going round the other committees with the guidance—I have been to the Equal Opportunities Committee this morning and I will go to the Health Committee this afternoon—to ensure that they fully understand the issues on which we seek their feedback. I am quite happy with where we are just now.
This has been a useful discussion, and the clerks can use it to work up an outline of questions for the minister for next week. Obviously, members will want to pursue their own lines of inquiry, and the discussion has given us a taster of the issues.
Do we know whether the minister will present the time-series data next week? I know that they are close to being ready.
We can ask whether that would be possible. The data would be useful to members, especially if we could have a copy of them in advance of any presentation so that we have an opportunity to assimilate the information.
I crave the committee's indulgence; as our witnesses are here for the agenda item on the School Education (Ministerial Powers and Independent Schools) (Scotland) Bill, do members agree to take item 5 before item 4?
Members indicated agreement.