Finance Committee, 21 Feb 2006

Meeting date: Tuesday, February 21, 2006

Official Report 261KB pdf

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Local Authority Single Status Agreement Inquiry

Agenda item 1 is our final evidence session on the costs of the single status agreement. I welcome to our meeting Tom McCabe, the Minister for Finance and Public Service Reform. With him from the Executive's Finance and Central Services Department are David Henderson, who is the head of the local government finance and local funding division, and Graham Owenson, who is the team leader of the local government expenditure and grant distribution branch of that division. As is our normal procedure, I ask the minister to make an opening statement, after which we will ask questions.

Good morning and thank you for inviting us. We very much welcome the committee's inquiry into the local authority single status agreement, which is a serious matter for councils throughout Scotland. The Executive provides much of local government's funding, so we are—as members would expect—keeping a close eye on developments although, as has been said many times, the pay and conditions of local government staff are a matter for each council. The Executive provides funding as part of the annual block grant for the salaries that councils pay their employees, but it is each council's responsibility to decide how that grant is allocated to a variety of headings.

As councils often remind us, they are responsible statutory bodies that have their own financial and legal staff. It is not for the Scottish Executive to run councils' businesses for them. If we tried to do so, I have no doubt that we would be accused of being centralist. If my memory serves me, that accusation has occasionally been made in the past.

As members know, the Executive was not involved in any way in the negotiations between the Convention of Scottish Local Authorities and the trade unions that resulted in the single status pay agreement in 1999. However, when we have been asked, and in all our contact with COSLA and councils, we have made it clear that we expect councils, in implementing the agreement, to acknowledge the importance of striking a balance between what is fair and equitable for the staff whom they employ and what is fair for council tax payers, who ultimately make a substantial contribution to meeting the costs.

Our consistent position has been that it is for councils to manage their affairs, partly by using the substantial funding with which the Executive provides them. There has been much debate—which we will no doubt revisit quite soon—about whether we provide councils with enough money. We believe that we do. As I have said to Parliament, most recently in the debate on the Local Government Finance (Scotland) Order 2006 (SSI 2006/29) on 8 February, we can demonstrate that. In that debate, I said that councils spend about £17 billion a year on services and another £1 billion on capital investment. The Executive's contribution to that is a little over £10 billion. We are providing sufficient funding to councils, so in accordance with that, if councils plan prudently and make sensible efficiencies, they should be able to meet all the commitments that they face.

The council tax levels that most councils set on 9 February suggest that we have the funding levels just about right. The average increase among the 30 councils that have set their council tax rates for 2006-07 is 3.1 per cent. That is the lowest average since devolution and does not sit comfortably with much of the rhetoric that we heard just a few weeks ago in the run-up to the setting of council tax levels.

As members know, following the pressure that we exerted on councils to identify efficiencies, they identified efficiencies of £122 million in 2005-06 and are set to add to that in the years ahead. All that money can be redeployed to meet pressures. As the committee has heard in evidence, councils also have access to very significant reserves.

However, as members will accept, when councils want more money, the Executive is often the first place they go. To be fair, although COSLA has informed us about what is happening in respect of the single status agreement, we have not had a direct unconditional request for additional cash; instead, several councils have asked individually about alternative ways to help them to meet the emerging costs. Councils should have planned prudently to meet what has been in the pipeline for at least five years; I know that some councils have set aside funding in their reserves for that purpose. I accept that the local government settlement for 2007-08 is tighter than that of previous years, but we have said that we will be prepared to re-examine that against the background of performance on efficient government in particular.

I repeat that responsibility for budgeting for equal pay and the single status agreement is properly a matter on which councils should answer in the first instance. However, I will do my best to answer the committee's questions.

As you say, the single status agreement inquiry has been worth while. We have extracted some revealing information—in particular the different estimates that local authorities provided on the costs of the single status agreement and compensation. For example, the estimates from North Lanarkshire Council did not square in any way with the estimates from Glasgow City Council and other councils.

The process has been fragmented: local authorities are moving individually towards agreements on both single status and compensation. Are you concerned that we will end up with wide variations in the agreements, and that further negotiations may be required as the trade unions try to move the least advantaged people up again? Is the present process sensible?

I have a number of concerns. First, the process does not seem to be coherent. From the evidence that the trade unions gave the committee, the process began with a desire for a national agreement, but local authorities felt that that was inappropriate and so instead favoured 32 individual agreements. The process has recently culminated in COSLA, as the representative body, trying to establish a framework that would get close to a national agreement and failing to do so. As you rightly say, convener, we now find wide discrepancies between the estimates from individual councils.

I was, to be frank, stunned by some of the figures in North Lanarkshire Council's evidence to the committee. A remarkable sum of money has been added to its obligations over a period of time—all the more remarkable if we consider that, back in the late 1990s, there was a presumption of cost neutrality in the overall agreement. If a council was to have written to local taxpayers in the late 1990s to say, "We've reached an interesting agreement, but we don't think it'll cost you anything," but six years later that council was to write a second letter to say, "Incidentally, we've revised that and it's now going to cost you something like £60 million," members would understand why those local taxpayers might be concerned.

The most startling example is the disparity between North Lanarkshire Council and South Lanarkshire Council, which has reached an agreement whereas other councils have not. Do you share the committee's concern that only one council has reached a single status agreement? What steps can you take to push the other councils to reach agreements as quickly as possible?

It would be instructive to consider the professional advice that was offered to councils up and down Scotland, to find out whether advice that was similar to that which was offered to South Lanarkshire Council was offered to other councils. Chief executives of councils meet regularly through their professional body, so it would be instructive also to know how they discussed the situation. For instance, did they consider what was being done in South Lanarkshire Council? Did they discuss the fact that a growing problem would have to be resolved at some point? Were they—I do not know whether this was the case—simply looking the other way? I do not think any of us knows that, but it would be instructive to know what professional advice was offered.

You say that, at this point, you are not being asked explicitly to foot the bill, but COSLA made a strong case in its evidence to us that it could not meet the costs—neither the costs of compensation nor the predicted costs of single status. You will undoubtedly be asked for more money and those factors will be an element. What can you do to push councils rapidly towards a single national agreement or towards a more structured set of agreements within a single framework?

As the committee knows, individual councils have approached us at different times, and we have asked them to demonstrate what their measures would offer in return for what might be considerable sums. We have asked them how they intend to redesign services and what differences the people who receive those services will see in return for considerable investment.

It is right that people should be paid appropriately. Nobody is arguing otherwise, but it is, to say the least, unfortunate that so much time has passed without equal pay obligations in local government being resolved. The Scottish public would hope and expect that we treat people as well as we can, but the public should get something in return. We have encouraged individual councils to structure and deliver their services more efficiently, and we have asked them how changes will result in better services for the people who use and need those services. We want to assist councils to modernise their practices; but with the modernisation of conditions, the public should be able to discern modernisation in services.

Members of the committee probably share that view. Let me put the question in a harder way. Is it a prerequisite that before local authorities will receive any kind of financial support from the Executive they must reach, with the trade unions, agreements on single status and equal pay that the Executive finds acceptable? Are you concerned that local authorities seem to be moving towards resolving equal pay without any sign of imminent agreement on single status?

The two matters are absolutely interrelated. To do one without the other, and to stop the clock on obligations on back pay, would be madness. There is no point in spending a lot of money now when the clock is still ticking on some obligations and when the single status agreement has not effectively resolved some potential difficulties.

The Scottish Executive will not be attracted to single status schemes that simply give everyone more money. There is supposed to be a job evaluation process but we do not live in a utopia and, as we move towards more equitable conditions, there will be winners and losers in the process. I do not know how many losers have been identified in evidence to the committee. We cannot take the soft option on every occasion. If we were to do so, the costs would be at the top end of the speculative figures that we have heard.

Again, I will put things starkly—I suspect that other committee members will share my view. So far, trade unions and local authorities across Scotland have not been engaged in realistic negotiations. There is no lever that forces that to happen, so how can we induce realism so that problems can be solved?

That is a difficult question and it is at the hub of the issue. Earlier, I wondered about the degree to which Scottish ministers should lay down preconditions and intervene directly. People would criticise us severely if we intervened in what are, in essence, independent corporate bodies. Local authorities are democratically elected and have to be responsible for their decisions. Some of those decisions will be difficult.

You might, however, be severely criticised if you do not intervene and we end up with financial meltdown in local authorities or a collapse of services in some areas. We do not want to wait until we reach the edge of the cliff before there is intervention.

In the run-up to the local government settlement, we heard many claims and much rhetoric and it is difficult to discern what was fact and what was hyperbole. The chief executive of COSLA said in evidence to the committee that councils had already substantially cut services. Where is the evidence that anyone has substantially cut services in Scotland?

Someone else said in evidence that last year was manageable, 2006-07 will be near impossible and the following year even worse. Last year may have been just manageable, but we ended up with an average increase in council tax of 3.1 per cent, which bore no relation to some of the claims that were made, as members know. In the same year, employment in local government increased by nearly 5,000. I accept that some of the increase was in the police and fire services and that it is right to exclude that. However, the increase in the core workforce that councils employ was just under 4,000. In most people's terms, that shows that the settlement was a bit better than "manageable".

There is a considerable difficulty in distinguishing between the hype and the actuality that people face, so we have said sincerely over the past few weeks that we need to try to engender a more mature debate about the issues. As I have said on many occasions, we cannot have a 1970s-style negotiation in which someone asks for a 50 per cent increase in the hope that they will get a 5 per cent increase. That approach does not fit the modern-day situation and will not work. We must identify more clearly the problems so that we can consider what remedies can be used to solve them.

I want to explore further the points that you made about the relationships between the Executive and local authorities. You said that ministers would be criticised if they were to set conditions and say what they expect single status agreements in local authorities to look like. The convener suggested that ministers could be criticised for not doing that, because there could be a spiralling problem in local authorities. What do you see as being the lessons for the Executive about its relationship with local authorities from the attempt to address this difficult and protracted problem?

One of the lessons for us all is that sometimes we must take hard decisions that are difficult to sustain. Some of us in politics already know that. Some of those hard decisions may relate to the job evaluations that have been under way for a number of years and to the schemes that have been adopted. A previous witness said that 70 job models were considered before one was chosen. As you know from the evidence that the committee has received, the costs of that model are considerable. It was mentioned that another model would have cost £1.4 million, but the model that was eventually adopted will potentially cost considerably more than that.

None of us denies that there are tough decisions to be taken. What is the role of the Scottish Executive in trying to make that happen?

There is a very fine line. We can do our best—as we do—to mentor local government and to encourage it to reach agreements that will strike the balance that I described earlier, which will result in a settlement that is fair and equitable both to the people whom councils employ and to the taxpayers who fund them. The alternative approach would be overzealous intervention from the Scottish Executive. I appreciate from the way in which he asked his question that Mr Swinney is more than aware that, if the Executive takes a much stronger line, we will be exposed to strong criticism and accused of undermining the democratic legitimacy of local government.

Mr McCabe knows that I would not, given my political stance, encourage him to do that.

There is, however, a problem that must be resolved and from the evidence that we have received, it looks to be no closer to resolution today than it was a number of years ago. I am interested in whether the Executive is considering offering arrangements to local authorities subject to certain conditions. I know that the Executive uses that model for the delivery of certain elements of its programmes; local authorities will get funds if they do X or Y. Would the Executive consider such a model to resolve the single status agreement? Is that the subject of negotiation with local authorities?

I would like to broaden the discussion to include our ambitions for public service reform. I am sure that members appreciate that although that is far wider work that is not confined to local government, local government is an important part of public services in Scotland. The direction of travel may be the opposite to that which has been suggested: it may be about collapsing funding streams; moving towards outcome agreements; the Scottish Executive's being less prescriptive and agreeing headline achievements that we want; and allowing local latitude to come up with mechanisms for achieving the aspirations.

I return to a point that I made earlier. An important part of public service reform must relate to the degree of professional accountability that exists. It seems to be strange to me that only one authority in Scotland has managed to resolve the issue. I said earlier that it might be instructive to consider the professional advice that was offered to elected members of that authority and to look at the professional advice that was offered in other authorities. It might also be useful for us to consider the degree of accountability that should exist not only among democratically elected politicians but among very highly paid professionals in the public services and local government. I am not criticising them for the fact that they are well rewarded, but I am convinced that we need to examine how accountable they are for the professional advice that they do or do not offer in certain situations. That may be one way of improving things.

In the final analysis, if the chief executive of a council is being paid in excess of £100,000—in some instances, well in excess of that—or if a director of human resources is being paid in excess of £100,000, they must be professionally accountable for the advice that they offer. There must be some way for us to examine when they have said to elected members that there was a growing problem and what its extent might be, asked what provisions were being made and suggested what hard decisions would be required, whether people like to make them or not. We need to be able to see how those professionals presented a range of options to the democratically elected members of each authority. I am interested in that from the perspective of the Scottish Executive. Public service reform should concentrate on it.

I would like to ask two questions that arise from your previous answer. First, what is the role of the Scottish Executive in creating a culture of professional accountability? Secondly, given that only one local authority has settled and 31 have not, does not the analysis that you have provided suggest that there is significant unease within the Scottish Executive about the professional responsibility and accountability of all but one of the local authorities in Scotland?

I will make two points in response to the questions. First, I have no doubt that we need to find ways of legislating to improve the professional accountability of people who work in local government. Secondly, there is no doubt that there is unease in the Scottish Executive about the fact that one authority was able to reach an agreement but the rest have not.

One argument that has been put to us by COSLA and the unions is that the Executive has funded equal pay and pay modernisation in the health service through agenda for change. How do you respond to that?

I understand that there has, under agenda for change, been no specific allocation for equal pay, but there has been substantial redesign of jobs and responsibilities in the health service, which has been funded. As I said earlier, it is a different matter if we see evidence that, in return for a specific investment, there will be significant redesign that will result in significant increased flexibility across existing grades, and if the public can discern real changes and improvements to the services that they receive as a result of investment. The committee heard some evidence about that from previous witnesses.

If the money that was invested in the health service for agenda for change had simply resulted in the status quo being maintained questions would—legitimately—have been asked. Likewise, questions would need to be asked if the sums that are being quoted in relation to local government were to result simply in maintenance of the status quo.

So there are losers as well as winners under agenda for change, as far as you are aware.

That is my understanding. It depends on how we define losers, of course. Someone who becomes more flexible and has more opportunities to express their professional competence and their commitment to their field is not a loser but a gainer. They will feel more fulfilled as a result.

In terms of single status, people who were red circled or were losing holiday entitlement might consider themselves losers. Have such things happened within agenda for change or is it based more on flexibility in working practices?

I am not in a position to get into the specifics of agenda for change. That is best left to the Minister for Health and Community Care.

You mentioned alternative ways of meeting costs. One possibility that has been mentioned is that of offsetting costs against capital receipts. What is the Executive's response to that suggestion? Is there anything to prevent local authorities from doing that?

Do you mean offsetting costs against—

Against capital receipts.

To capitalise the outstanding amounts of back pay?

Yes.

Scottish ministers could make that decision, although it would certainly not be in accordance with the golden rule that has been set by the Treasury. As you know, that rule states that capital should be raised only for investment and not to fund current expenditure. The suggestion that you mention would blow that rule wide open. If the costs were funded through the prudential borrowing regime, that would more than double the existing levels of borrowing, given the figures that have been mentioned for outstanding back pay. At that point—this is speculation, of course—the Treasury might express a strong view about the substantial increase in borrowing. It is only fair to point out that, in short course, the Treasury could cap the level of prudential borrowing that is available to local government in Scotland. That has never been done, but it could be done.

Some councils are considering using their balances to fund the equal pay claims. Is there anything to prevent them from selling off excess land or buildings to top up their reserves?

No. It is for councils to consider how to re-establish reserves in the future. Sometimes there are disputes about the level of reserves that are held by councils, but the evidence from COSLA mentioned the figure of £1 billion and said that about a quarter of that is uncommitted. That is not an insubstantial sum. Councils will say, quite rightly, that the remainder of that money is set against specific projects, but we all have choices to make and councils choose to use money in one way or another.

You said that the Scottish Executive is prepared to help local authorities that are changing their practices or streamlining their procedures. Will that professional or financial help go to individual councils who are in financial difficulties or will it be given across the board?

I cannot give any commitments on specific amounts of money, but I will be interested to hear the individual councils' proposals on how to deal with the situation. As councils explain their proposals, we will consider them on an individual basis.

Has the Executive sought legal advice on councils' liability for back payments and on the ways in which councils propose to deal with the situation?

It is for individual councils to seek their own legal advice on that. I work under the strong assumption that no council will pay out more than it needs to. If a council was found to have paid more back pay than was required, its auditors might have a view on that. Each council has its own legal advice and its own legal department and councils can buy in further legal advice as appropriate. We can assume that, when councils quantify their back pay obligation, they will do so against the background of the legal advice that they have received.

You expressed concern about the quality of the professional advice that councils receive and the ways in which they act on it. If there is uncertainty about that, would not it be prudent and sensible for the Executive to ensure that councils are taking the appropriate legal advice and making the correct decisions?

We could spend our lives double-checking on councils or on a range of public service organisations in Scotland, but, ultimately, people are either responsible for their actions or they are not. Scottish councils have substantial legal services departments and access to whatever legal advice is appropriate. Where do we draw the line? As I have said before, when do we stop checking on the checkers? They have their own legal advice.

I appreciate that, but there appear to be significant discrepancies among local authorities. If we benchmark councils against organisations that were transferred from the public sector to the private sector and consider the way in which they have dealt with the single status agreement, some councils' estimates of equal pay liability appear to be far higher than the estimates of those other organisations. Are councils receiving the correct legal and financial advice? Are they acting on it appropriately? What scrutiny processes can be put in place to ensure that people are not choosing soft options or ducking the tough decisions that you mentioned?

I have to say that that is difficult to do. Your inquiry might reveal whether that is taking place. Ultimately, we are talking about individual corporate bodies that are democratically elected and which have the right to make decisions. I am reluctant to establish a regime in which we sit as a shadow over local government in Scotland and double-check every action. That would be neither feasible nor practical.

Let us go down another route, then. The Accounts Commission for Scotland is responsible for overseeing the way in which local authorities operate. It is clear from the answers that we have received so far that the benchmarking process that compares local authorities is not working as well as it could do. Should the Accounts Commission be asked to examine that process? Also, if some local authorities' reserves have been run down to the extent that it appears they have been, is there a risk that those authorities are not satisfying the basic financial requirements for the continuity of the organisation?

As I understand it, Audit Scotland advises local authorities that they should hold 2 per cent balances, but there is no accounting rule that states that they have to do that. If you are saying that there could be a much more proactive regime either from Audit Scotland or for the way in which councils are audited, perhaps there could be.

From my experience of local government, if a strong chief executive felt that councillors were acting ultra vires, they would have made that clear, even though there was a risk to the authority or to services. There would have been no ambiguity. There is concern that we are moving towards a position in which such messages are not being sent or are not being put appropriately. There must be some mechanism for ensuring that authorities do not take financial risks or duck decisions.

The way in which we class contingent liability seems to be somewhat confusing. Even though it is clear that local authorities knew that their obligation to meet the single status agreement would grow year on year, it seems that there is no accounting obligation on them to make provision for that. I will ask Graham Owenson to deal with your point in more detail.

There is a duty on local government to follow proper accounting practice, which needs to be fulfilled in three regards. First, the local authority has a present obligation, legal or constructive, as a result of a past event. Secondly, it is probable that a transfer of economic benefit—in other words, a cost—will be required to settle the obligation. Thirdly, it should be possible to make a reliable estimate of the amount of the obligation. It is probably the third of those conditions that has not been satisfied. Until now, local authorities have been noting in their accounts that there is a contingent liability, without setting aside a specific sum to meet it. To date, auditors have accepted that.

I want to pick up on that point. As I recall, although the accounting standard in question is not new, it has certainly changed within the past five or six years. Are you aware of whether, if the previous standard had applied, the situation would have been substantially different or are we discussing a question of semantics?

I am sorry, but I am not aware of the previous accounting practice.

It would be useful to understand whether there has been a change of policy from a technical, accounting perspective. My understanding is that there has not been.

On a more general level, at what point did the Executive first become aware that equal pay in local government was becoming a problem? Is there a date on which the issue first raised its head?

I could not give you a specific date, as I was not directly involved when that took place. Given that local authorities struck an agreement in 1999, if no progress had been made one or two years later, people would have regarded that as an emerging difficulty. However, I am not aware that in 2002, for example, a great deal of noise was being made in the system about the potential impacts of equal pay and single status.

In the evidence that we got from COSLA or the trade unions—I forget which—there was some ambiguity about when equal pay was first raised as an issue that would have to be resolved. There was uncertainty about whether that happened in 1999. Can we be confident that equal pay and the sums that we are hearing about now in the media had not been brought to the Executive's attention by 1999 or 2000?

I do not want to be disingenuous by suggesting that the Executive was operating in a vacuum and was not aware of what was going on in the external environment, but I have already said that, to date, we have received no formal requests through COSLA for additional resources to meet equal pay obligations.

Mr Owenson made the point that the accounting standard may not have been fulfilled by local authorities. Whose responsibility is it to insist that that accounting standard is met?

I do not think that I said that the accounting standard may not have been fulfilled; I simply said that local authorities scored equal pay as a contingent liability in their 2004-05 accounts and that their auditor, the Accounts Commission, had accepted that.

That goes to the nub of the problem. Local authorities scored equal pay as a contingent liability, without placing a figure against it. I am not a professional accountant, but I find it surprising that such practice is acceptable. The general public probably find it strange that even though local authorities knew that there was a growing obligation that they had to meet, they did not feel that they had to quantify the extent of that obligation year on year. In my view, that is a strange way to operate.

I do not want our exchange to turn into a chartered accountancy seminar, which some folk might be interested in, but—

I would fail you miserably in that regard.

Exactly. I am more interested in the fact that the situation has been developing for years. The convener went through a series of questions with COSLA, from which we learned that although agreement was sought in 2002 and 2004, none was reached. Here we are in 2006 and we do not seem to be any closer to reaching agreement than we were at either of those previous junctures. Who is intervening to bring matters to a head?

From what Mr McCabe has said today, ministers are understandably not happy at all about the fact that the issue remains unresolved. I assume that the Accounts Commission's building is crammed full of highly paid accountants, who sign off local authority accounts that do not include the full contingent liabilities. The situation goes on merrily, but council tax payers will wonder who takes the decisions. We are talking not only about fancily paid chief executives or directors of human resources; fancily paid Accounts Commission staff and fancily paid civil servants are involved, too. Who will resolve matters on behalf of council tax payers? Who will take the situation by the scruff of the neck and say that they will fix it?

It is often tempting to take things by the scruff of the neck, but—

I do not think that you need any lessons in taking things by the scruff of the neck.

Sometimes it is unrewarding to do so, judging by some of the remarks that are made to me in parliamentary debates.

I never make such remarks.

Mr Swinney's point is well made. Quite frankly, our system is flawed. Perhaps Parliament and the Executive must ask whether we have the right balance between local accountability and more ministerial control. That will be an interesting debate, as people vent their frustrations. I have talked about the need for professional accountability and the way in which professionals should be obliged to offer advice to people who ultimately take the decisions. I repeat that Mr Swinney's point is well made. There is no doubt that there are flaws in our system.

I will give a comparable example that troubles me. In the community that I represent, local authorities must frequently reassess their school estates. In particular, they must examine rural primary schools, because it costs more money to educate children in those schools than it does to educate children in the town primary schools in my constituency. At the insistence of organisations such as Audit Scotland, local authorities continually re-examine the future of rural primary schools because it costs more to educate a child in a school such as Kilry primary school than it does to educate a child in a town primary school in Forfar. If the Accounts Commission can force local authorities to adopt what it considers to be the best practice of re-examining their school estates regularly—far too regularly for my liking—from where does the impetus come on equal pay?

If you are saying to me that we should have a long, hard think about the things that we measure through the audit process and about our funding of an organisation such as Audit Scotland to examine critically the actions of the public service as a whole, not just local government, I agree that there is a case for that.

I want to pursue my example. Local authorities are pressurised by Audit Scotland to examine the fact that education might cost £400 more per pupil in a rural primary school than it would cost in a town primary school, but hundreds of millions of pounds in contingent liabilities on equal pay are not even making it on to the balance sheet. That seems to be an absurd position for us to be in.

Let us say that we reach a point at which all the equal pay agreements are concluded. Bodies such as Audit Scotland might ask why in some authorities 10 per cent of people are red circled and in other authorities 40 per cent are red circled. They might ask why in some authorities some people had their grading changed over a period of time whereas in other authorities there was almost no net effect. Those would be legitimate questions. However, that is a consequence of having 32 individual agreements.

It is okay to be wise with the benefit of hindsight. The evidence from the trade unions was that they favoured having more of a national agreement right at the start of the process. If I understood it correctly, the evidence from the local authorities was that they favoured having more of an individual settlement locally, but, apart from the one example that we mentioned, they have subsequently not provided those settlements.

Am I correct in saying that you did not try to facilitate a national agreement? You took no stance on the issue.

We are a bit past that. If you are asking for my opinion, it seems to me that, perhaps a few years too late and pretty substantially down the line, when COSLA tried to establish a framework agreement in the recent past, it was heading in the right direction. However, it failed to do that.

Local authorities will have a tight financial settlement next year. There are pressures on single status, legal pressures relating to equal pay compensation and potential problems with debt administration fees. You said that COSLA has still to put in a request to discuss certain matters. Are all things on the table for discussion or would you exclude any topics and expect local authorities to meet certain costs on their own?

COSLA is free to make requests in relation to any subject that it feels is appropriate, but how I might respond is another question altogether. I have indicated how I might respond with regard to single status. We would want to see what we would get from the investment, how services were redesigned and how the flexibilities were increased, all of which I have mentioned previously. It is not for me to say that certain things are above discussion, because I do not think that that would ever be the case.

I have acknowledged publicly that next year's settlement is tight. Our ability to address that situation has been constrained by the delay of a year in the spending review. I have made that clear a number of times in the chamber and to local authorities. I do not want to harp on about that too much, but we need to put some of the claims that have been made into context. Given some of the rhetoric of the past few months, in comparison with what transpired when council tax levels were set, it is difficult to separate fiction from reality in some of the claims that have been made.

Trade unions and local authorities have given the committee a number of figures on equal pay compensation. Do you have a notional figure about which you think it might be more reasonable for people to talk turkey behind the scenes?

No. It is impossible for us to produce such a figure, because we are not involved in the minutiae of the 31 individual discussions that are taking place.

If I have picked this up wrongly, perhaps you could assist me. Did you say that you thought there might be potential for considering legislation to deal with—

Professional accountability?

Yes.

Yes.

Could you expand on what you mean by that and how it would be developed?

We need to try to formulate legislation that puts clearer obligations on some of the professionals who serve not just local government, but public service in general. There has to be a degree of accountability, which would necessitate those professionals being able to demonstrate clearly how they provided advice—whether such advice was taken is a different matter altogether. People need to have such an obligation on them.

I will give you an example. Say we found ourselves in what I would think was a much improved situation whereby we had a far higher preponderance of outcome agreements between the Executive and local government, and a council was minded to take an action that militated against the achievement of a particular outcome agreement. It would be incumbent on the individual service director and chief executive to offer the council advice that it needed to stop there and not take such action, because an agreement had been reached on particular outcomes. I think that there should be an obligation on people to ensure that that happens. We have to make that obligation clearer than it is at the moment.

Would that apply across the public sector?

I am here to talk about local government single status, but local government is a good example to use, because it is such a significant part of the public service. However, sometimes it is unfair to use that example, because it gives the impression that some of the problems exist only in local government. That is not the case; the problems exist more widely. Local government is such a prominent feature of Scottish life that it is the easy example to use.

Could the impulse have come from a building project that perhaps exceeded its costs extensively and in which the advice that was given to senior decision makers was not as accurate as it could have been?

That project was the subject of another inquiry, which in itself cost a considerable sum of money and produced its own report. I think that lessons have been learned from that—I hope that they have been. The Executive has certainly done its best to learn the lessons emanating from the recommendations that were made.

Given that we are on that trajectory, would it not be more instructive to use that example in public debate? It is probably the better example of lessons that need to be learned about probity in the advice that senior decision makers receive.

There is no denying that it is a high-profile example. The difficulty is that, although it would be easy to focus on that example, thousands of projects throughout Scotland are under way and we have little way of knowing whether they are good value for money or whether the cost of producing them is fair and equitable.

You said that you thought that the system was flawed. What specific flaws are there and what remedial action should be taken to overcome them?

I do not think that there is enough codification of the responsibility on professionals in the public service; that is a strong flaw, to which I have just alluded. Another example is the contradiction between calls for a more centralist, interventionist role for the Scottish Executive and the local accountability that should exist. We need to do more to clarify the right balance.

To what extent would legislation create overheads, reduce professional continuity in individual local authorities and increase the checking on the checkers to which you are averse at the moment?

I do not think that it would do any of those things. In my experience, irrespective of the function that people perform, whether in highly responsible professional jobs or other activities, they like to know the parameters within which they work. The more that we try to codify that, the more we will produce professionals who are confident in the exercise of their duties.

On striking the balance that you mentioned between centralisation and local autonomy, what is wrong with what works elsewhere in other jurisdictions: the process of genuine quality programmes, whereby people set worthy aims; involve all their stakeholders; get the process under statistical control with the focus on outcomes, which allows benchmarking; and draw help from outside, given that it is hard to see the wood for the trees when we focus on individual trees?

It would be worth while to set in train a process that is replicable and similar throughout many local authorities and thereby to initiate a process of perpetual improvement that goes beyond what we have in efficient government, which to me is essentially a heavy focus on e-procurement. That may well defeat your own top priority of economic growth for Scotland, if e-procurement results in more orders being placed outside Scotland. What is stopping you moving towards a genuine process of quality programmes? Even Scottish Enterprise, with its focus on lean management, now advocates such a process.

I do not want to comment on Scottish Enterprise because I am not entirely aware of its proposals. I would be surprised if anyone is aware of them at the moment, although I know the generalities to which you refer about Scottish Enterprise.

In short, nothing is stopping us considering public service reform in Scotland. I mentioned the prospect of moving towards a more outcome-focused relationship between the Executive and local government. That does not need to be constrained to local government. However, I do not underestimate the difficulties of actually moving from where we are now to such a position. Nothing is stopping us looking at the possibilities for collapsing the wide variety of funding streams that make their way to local government. Neither is there anything stopping us considering how feasible it is to ask for the constant monitoring and reports that we ask for from local government and the burden that that places upon it. There is nothing stopping us having an examination of regulation and inspection in Scotland; I hope that we will have some proposals on that in the near future. We must consider how proportionate that is without diminishing some of the very important regulation that has to take place in sensitive services.

As I previously informed the committee, last summer I spent some time speaking to a wide variety of professionals from a range of disciplines across the Scottish public sector. The one point that they made strongly and consistently was that they felt burdened by the amount of professional officers' time that is spent on monitoring and reporting to the Scottish Executive. They claimed that if they could find a way of lifting that burden, professional officers would be much more objectively and positively focused on improving and developing services. Nothing is stopping us examining that.

Over the coming months, interesting discussions will be had on that subject. I hope that it is an area in which every member who has an interest, irrespective of political complexion, is prepared to play a part. I hope that those professionals who are involved in the public service will also enthusiastically play their part. From the private discussions that I had with professionals last summer, I got every indication that they are more than happy to engage actively in that discussion. The majority of people in public service are in it for the right reasons and are committed to what they do. They want a working environment in which the shackles that they feel are on them are removed to allow them to better express themselves in the interests of the public service. We intend to travel in that direction, but how quickly we move along that road will be up for discussion.

Would it not be helpful for some firm timeframes to be laid down, stating when the process will be expected to begin? Do you agree that there is a need for an early milestone to be laid down, stating when and how changes will be introduced? How much time and effort would it take to map that out? The advantage would be that people would have more confidence that a concrete mechanism was in train.

We will begin that process when we publish the white paper on public service reform in the near future. I hope that that will be the basis and the start of a discussion process across Scotland. I understand your desire for timescales and milestones. I am also aware, however, that by setting too many milestones, particularly with administrative arrangements for local government, the charge can easily be made that the outcome has been pre-determined.

Some people have expressed the view that there is an almost secret plan for the future shape of local government. There is not. Undoubtedly when discussions take place, suggestions will be made to the Executive about how local services could be better organised, not only in local government but in economic development, the health service and non-departmental public bodies.

Could a much more open plan be introduced that would suggest that the Executive is enthusiastic about local government and other arms of government moving towards the best practice that has worked in other jurisdictions and industry?

I hope that reference to best practice that has worked in other jurisdictions will form the basis of the input from local government to the discussion document that we will launch in the near future. I hope that that is exactly how local government will look at the matter. I have said previously that one of the drawbacks in Scotland is that perhaps we do not learn as much as we could from best practice; we prefer to reinvent the wheel rather than to pay attention to what has clearly worked in other areas.

I am interested in your comments about the responsibilities of senior public servants. The minister and committee members are on fixed-term contracts—if the electorate do not like us or our parties they can kick us out. Is there a case for senior public servants in local and central Government being on fixed-term contracts that are dependent on responsibility and success?

I am not a lawyer, but I think that the concept of a fixed-term contract is much more obscure than it used to be. My local government experience of moving employees to fixed-term contracts is that employment law means that it is not simply the case that the employer can dispense with a person if they are not happy with them at the end of the contract. There must be a systematic measurement that justifies such action; otherwise employers can find themselves in industrial tribunals. The concept of the fixed-term contract has perhaps been diminished as employment law has developed.

I will take us back to single status agreements, which are the focus of our inquiry. You have agreed that it is imperative that back pay and compensation be linked to single status agreements' being put in place. Is it appropriate to set a clear timetable for local authorities to secure agreement on single status? I accept that the negotiation process is complex, but surely the matter cannot be left any longer. A timetable must be set for agreement and implementation.

First, I am not sure what the mechanism would be for the Executive to set such a timetable; I do not think that powers to do that are at our disposal.

I am reluctant to set timescales because we may end up with the worst possible scenario in respect of cost. If authorities have a deadline to meet, they might go for the softest option. The range that has been mentioned is between £300 million and £560 million. If a deadline were set, the cost could end up being £560 million because people would go to the top of the range in order to meet the deadline, which makes me reluctant to move along that road. I accept that the matter requires further consideration by the Executive and further discussion between the Executive and the Convention of Scottish Local Authorities.

We have mentioned a few times that the initial aspiration of the trade unions way back in the late 1990s was a national agreement, but that did not find favour. Five or six years later, we find that COSLA, which at that time wanted individual agreements, is trying to establish a framework agreement. That suggests to me that there is perhaps a case for a rethink in order that we can produce an approach that will enable a more comprehensive view of the situation to be taken, although I have no concrete ideas about how to do that.

The sums that are involved are considerable. The estimates that have been made for compensation and the costs of single status agreements are very large.

I will pick up on John Swinney's point that we cannot all stand aside and hope that somehow the situation resolves itself. There must be a catalytic process that leads to a resolution. Perhaps setting a timetable is not the right approach, but how will you force the parties that are involved into a realistic framework of negotiation that will ensure that we move out of the situation that we have been in for the past six or seven years?

I do not have a definitive answer to that question, but I refer members to my earlier comment that, when individual local authorities have made representations to us, we have explained to them how we would like things to develop when the considerable sums of money are invested in their local situations. We want increased flexibility and job redesign, and we want people to feel that their services are being delivered in an improved and more comprehensive way. Perhaps as individual examples of good practice materialise, other councils will consider whether they, too, should operate in similar ways.

That will sometimes involve difficult decisions. However, there are very good reasons for that. We do not live in a utopia, but we want to ensure that people's terms and conditions are appropriate and that they are treated as they should be. If that gives rise to consequences or costs, we encourage local authorities to live up to them.

Let me put the question another way. The single status agreements might well be agreed throughout Scotland as you suggest, but they might not all be agreed at the same time. Indeed, any agreement might require an extended period. The potential cost to the Scottish Executive, council tax payers and service users will be immense and, as a result, local authorities might be forced into making choices that are more unpalatable than those which they currently face. Are not you concerned that unless the matter is resolved quickly, the hard choices that we face at the moment will be replaced by much harder choices in the years to come?

That goes without saying. Time is important and the sooner we can resolve the matter, the better. I would not dream of saying that I could resolve things by waving a magic wand, and you would not believe me if I did.

As I understand it, you have powers to make resources available to local authorities under certain conditions. I am not saying that you would write a blank cheque—indeed, you tell us all the time that you do not give local authorities blank cheques—but could you set out certain conditions under which local authorities would within a given timescale have to resolve various single status agreement issues, including cost neutrality, which seems to me to be a reasonable proposition? After all, you said only a moment ago that if the situation goes on and on, costs will rise and control over the situation will diminish.

Your new-found centralising tendencies fit you very well, Mr Swinney. I am glad to see that you are with me on this.

We are managing to discuss this matter in a civilised way—indeed, even I have managed to behave myself. However, I am not arguing for more centralisation. What I am saying is that you are clearly able to make available to local authorities resources that come with strings attached.

That is essentially what I have been saying. As individual local authorities—

But you do not appear to be able to do the same with single status agreements.

As individual local authorities have made their representations to the Scottish Executive, we have explained to them how we would like their situations to be resolved. If their proposals address the aspects to which I have alluded, I will consider them case by case.

Is the current arrangement of a national framework with local agreements consistent with such an approach, or do we have to think again about the ways in which local authorities are going about the process?

At the very least, the current situation justifies reconsideration of the approach that is being taken. I hope that when local authorities reflect on the situation in which they find themselves, they will be prepared at least to reconsider their own approaches.

To be fair, I have to say that that involves more than just local authorities: it also involves the trade unions being prepared genuinely to negotiate to find the compromises that will allow a solution to be found. The problem does not lie only at the door of employers. The responsibility is shared with those with whom they negotiate.

That brings us to the end of item 1. I thank the minister for responding to our questions.