Item 2 on the agenda is consideration of the financial memorandum to the Tourist Boards (Scotland) Bill, on which we agreed that we would carry out level 2 scrutiny. I welcome John Brown, who is the Executive's head of tourism policy, and invite him to make a brief opening statement, which will be followed by questions.
My opening statement will be very brief. The financial memorandum, which is part of the paperwork that is attached to the bill, sets out the position.
There are a couple of familiar faces here for you, John.
You will recall that the Cabinet decided in March 2004 that it wished to merge the area tourist boards with VisitScotland largely because it wanted to improve the service to tourism businesses. That decision underpinned the Executive's ambition to increase revenues from tourism by 50 per cent over the next decade. The estimate that was made right back at the beginning of how much the process would cost was necessarily an initial estimate, and a budget of £4 million was set, which was increased to £5 million during the first year. I recall giving evidence on that to the Enterprise and Culture Committee in January 2005. Subsequently, the budget was increased to £6.5 million as VisitScotland got into the second year of the transition.
How were the additional costs funded? Were they funded from VisitScotland's budget or did the Executive provide additional contingency funding?
All the funding has come from the Executive and VisitScotland's baseline budget. No money has been diverted from tourism marketing or from any of VisitScotland's other activities to pay for what has been done.
At what stage are the negotiations on harmonising staff terms and conditions? Is the process nearly complete?
It is pretty much complete. It has been a big job. There were about 65 different pay grades and staff levels in the tourist information centre network of about 125 tourist information centres, for example. Those are in the process of being harmonised which, as you can imagine, is a major job for VisitScotland's human resources team. The process is well under way, the unions are being kept fully informed of what is happening and terms and conditions will be finally harmonised during the 2006-07 financial year.
Are there likely to be any additional costs? Do you expect the costs of the merger to increase?
No. We are clear that the costs of bringing about the new integrated tourism network are fully sunk. Some small costs may arise in the normal course of operations this year and in future years, but they will simply be absorbed in the normal course of business.
Any additional costs will be absorbed by VisitScotland.
Yes.
VisitScotland raised one or two concerns in its submission, one of which is that an unintended consequence of abolishing the two network area tourist boards might be that VisitScotland could face an additional annual tax payment of up to £2 million. What is your response to that concern?
We have been discussing the VAT situation with VisitScotland since the inception of the project. In fact, the area tourist boards had managed to negotiate a very good deal with HM Revenue and Customs on VAT. The ending of the ATBs through the statutory instruments that went through Parliament in late 2004 threw that into relief and HM Revenue and Customs began to speak to VisitScotland about it. VisitScotland is negotiating intensively with HM Revenue and Customs, but those negotiations have a long way to run. Although I am not so optimistic as to assume that there will be no additional tax liability, £2 million is the worst-case scenario and I would be extremely surprised if it was anything like that.
Does the Executive have a role in helping VisitScotland in the negotiations to try to reduce its VAT liability?
We will stand pretty close beside VisitScotland as it takes up the issue with the Government department.
VisitScotland also raised the issue of the anticipated pension liability of £7 million.
Again, that is very much the worst-case scenario. In fact, that figure has been rounded up from £6.3 million, which is a financial reporting standard 17 figure. I am not an accountant, but I believe that FRS 17 sets out the accountancy rules for companies to follow in reporting on financial matters in their annual reports and accounts. VisitScotland is pursuing four different options for the treatment of pensions liabilities, at least one of which would result in there being no liability at all. Without being over-optimistic, I think that the preferred option is feasible. VisitScotland is discussing it with pensions people and a firm of actuaries, which it is paying to undertake a complete actuarial review of its pension scheme. I am reasonably optimistic that the outcome on pensions will be that there is no additional liability.
When do you think that the pensions issue might be resolved?
The actuarial review by Hymans Robertson LLP is due to conclude in January 2007. Assuming that the provisions of the bill will come into force at some stage in early 2007, I would expect the review to be done and dusted by then.
VisitScotland has disagreed with the statement in the financial memorandum that local authorities have continued to fund the network tourist boards during 2005-06; it argues that funding to the VisitScotland network—not necessarily the local organisations, which might be funded by local authorities, too—has decreased by £2.1 million. Do you have a comment to make on that?
Sure. The answer to that apparent dichotomy is the difference between total local authority funding and core funding. Local authority core funding to ATBs was sustained into the first year of the transition, which was 2005-06. However, the City of Edinburgh Council and Glasgow City Council previously paid quite large sums of money—£1.5 million in all—to their ATBs and their business tourism convention bureaux. As members might be aware, the convention bureaux have been reorganised in Edinburgh and Glasgow as separate companies. In Edinburgh, the bureau is a joint venture between the City of Edinburgh Council and VisitScotland and in Glasgow the bureau is a stand-alone company that is owned by the city, for which VisitScotland provides funding.
So the money is going to the same place, just by a different route.
Exactly. A small part of the difference is accounted for by projects that were coming to an end anyway.
Can you clarify the composition of the ATBs' overall deficit of £1.7 million?
I do not have a breakdown with me, but I can provide one and will do so as soon as possible after the meeting.
I would be grateful if you could do so. I asked my question because the issue was briefly raised at a committee meeting a few weeks ago, and the following day an article appeared in The Herald about the overspend. It indicated that the area tourist boards in Fife and Perthshire
The figure of £1.7 million is an aggregate of the ATB accounts for 2004-05. I will provide members with a breakdown of the reported aggregate deficit, which was an in-year trading deficit. I take Mr Swinney's point that some ATBs—although by no means all of them—also had cash reserves, which are stated separately in their accounts, just as any company can trade at a loss while having balances in the bank. I will bring out that distinction in the information that I provide.
The presentation of the information in that fashion has a rather pernicious character, if I may put it so bluntly. I would appreciate clarification as soon as possible for the sake of individuals who, in my opinion, served the tourism industry in Perthshire extremely proficiently. I have less information about Fife, but I am sure that the service provided there was also very good.
I am keen to return to the issue of the cost of the merger. Has there been an analysis of the overspend—the difference between the original estimate of £4 million and the actual figure of £7.4 million—to explain how it accumulated?
I can tell you what the transition funding paid for—in other words, we can account for the money that has been spent.
While that was happening, was VisitScotland aware that the Executive would bail it out? You said earlier that additional money came from the Executive. Was VisitScotland aware when it was shelling out that additional cash—going over the £4 million and moving toward the £7.4 million—that additional money would be forthcoming from the Scottish Executive?
VisitScotland was doing what the Executive asked it to do. The project was promulgated by the Executive and was the result of the Cabinet decision in March 2004 and the subsequent parliamentary statement. The Executive decided to merge the ATBs with VisitScotland to create an integrated tourism network. At that stage, with VisitScotland we made our best estimate, which developed as the project proceeded. During 2004-05, the project was led by the Executive. The Minister for Tourism, Culture and Sport chaired the steering group that oversaw the implementation of the project and I chaired the progress group, which met twice weekly to consider more workaday issues. We worked closely with VisitScotland throughout the process. At the start, we knew that the initial estimate was just that. As the work progressed, other factors arose. The area tourist boards said that we needed to do this or that and, when costs arose from that work, they had to be budgeted for.
In essence, you are saying that the actual cost and the budget evolved simultaneously—in other words, there was no budget.
There was no clear view at the outset of what the eventual cost of the transition would be. However, we worked closely with VisitScotland as the budget position developed.
Last week, Ronald MacDonald of the University of Glasgow produced a paper on Scotland's economic management. One of the key points that he made was that, if there is a permanent bail-out, the possibility of spending wisely evaporates. How would you address that comment?
The term "permanent bail-out" would be an inaccurate way of describing what happened. We embarked on a two-year process, with an initial view of how much it would cost, which developed as the project proceeded in its first year, under Executive leadership. We put in money from the Executive's spend-to-save project. We should remember that the investment will come back to us through long-run savings. The two years of the project are now over and the savings have started to come through; indeed, they are earlier and greater than was initially anticipated.
Would you do anything differently if you had to carry out the project again?
I have thought about that question often. We and VisitScotland realised at the time that, as the minister said to Parliament a year ago, in May 2005, there were lessons to be learned from the implementation of the project about better communications. Of course, better communications cost money. However, the structure, the way in which we tackled the implementation and the project methodology all worked well. I know that my minister's view is that the integration of 15 separate cultures and organisations into one organisation that is still there doing its best for Scottish tourism has been a success.
I should declare an interest because I was a member of the Cabinet when the process started.
No. I can assure the committee that the costs of transition are now over with. The network has been built, and the staff belong to one organisation. The tourism businesses that receive services from the new network are getting them for less than before. That is quite an important point. The customers—the tourism businesses—that are benefiting from the work of the new network are paying less than they did, in aggregate ATB membership fees, for roughly the same services. That is an example of the efficiencies that are coming through as a result of the integration of the network.
The second point that you made in response to Jim Mather's questions was about the communications strategy and how to get information out on what changes are meant to be about. I am concerned that the VisitScotland submission to the committee would give anyone who is coming to the issue fresh an alarmist view, whether in relation to VAT and pension liabilities, the contribution by local authorities or the information provided about ATB deficits. The agency that has been charged with making the change seems to be shooting itself in both the foot and the head in its remarkable submission to the committee. Has anything been done behind the scenes to resolve the issue? The submission could work against the very positive message that you tried to get across in your response to my first question. Is anyone sorting it out? The situation is frustrating.
There will be contact this week between the chief executive of VisitScotland and my minister about the wording that VisitScotland chose to use in its written evidence to the committee.
I want to follow up the point about the wording and take up a point that was raised by Dr Elaine Murray earlier.
What can I say about local authority funding? Local authority budgets are clearly under pressure, as are those of most organisations. I have a detailed local authority by local authority breakdown of which local authorities are considering or have signalled reductions in the current financial year compared with what they paid VisitScotland last year. Although VisitScotland has signalled how things might work out, we are still very early in the financial year. In fact, one or two authorities have not yet finally agreed their contribution for 2005-06, so there is a bit of work to be done yet on the numbers for 2006-07. Although there will undoubtedly be downward pressure, COSLA's general view is that local authorities will sustain the funding to the tourism industry because they recognise its value to their areas.
Given the uncertainty that you have highlighted, if the downward pressure to which VisitScotland points is realised, will the result be a cut in VisitScotland expenditure or an increase in central Government funding to make up any deficits that are caused by a cut in local authority funding? In other words, will the permanent bail-out to which Jim Mather alluded continue or will there be a cut in VisitScotland expenditure?
The VisitScotland baseline budget was set as a result of the spending review 2004 and it is what it is. Indeed, the Scottish Parliament information centre briefing on the bill that members received sets out the budget. You can see that it includes a line of Executive funding—that is our budget for VisitScotland up to 2007-08. We will talk to VisitScotland if it encounters drops in local authority contributions but, at the moment, there is no commitment to making up any fall in such funding. However, I emphasise that we are only just into the new financial year and a lot of water has still to flow under that bridge.
On behalf of the committee, I thank you very much for coming and answering our questions. We will prepare a report on the financial memorandum, which I anticipate will be published in a couple of weeks.