Correspondence
Item 6 relates to an e-mail that I received from Jim and Margaret Cuthbert—I believe that it has been copied to all members of the committee. It concerns an issue with which we dealt during our inquiry into Scottish Water. I am conscious that there have been some changes to the committee's membership since our inquiry, so I have put the item on the agenda to see whether members think that we should do anything further on the matter.
It might be useful if I say something about the correspondence. The Cuthberts' e-mail says that, because the majority of committee members placed a great deal of weight on the letter from the Treasury, the committee should reconsider its conclusions.
I have two points. First, I do not think that the letter from the Treasury was particularly significant. It was certainly not as significant as the Cuthberts imply. The evidence that the committee considered closely was given by Professor Arthur Midwinter, the Executive and other experts.
Secondly, the inquiry is closed. It related to a previous accounting period and a new regime is now in place for Scottish Water. The inference that the Cuthberts draw from the Treasury letter overstates its significance. The letter does not say that the Executive adopted a wrong practice; it simply defines the protocols in terms of Treasury and Executive responsibility. My inclination is to suggest that we note the e-mail from the Cuthberts. I am sure that Jim Mather will want to say something.
I will not disappoint you on that, convener. The Treasury letter is significant. Sadly, Arthur Midwinter was wrong on this occasion. Against an absolute battery of facts from the Cuthberts, he defended the line more by assertion than fact. You might consider the subject to be closed, but the question remains whether we were given enough information at the time to clarify the position. There is also the question whether there is a need for a third-party arbiter to come to a conclusion on the matter.
The key issue is the response from Conrad Smewing of the Treasury, which categorically deals with the suggestion that the Treasury endorses the Scottish Executive's approach to setting the resource accounting and budgeting limit for Scottish Water—we have that in black and white. The Executive used the Treasury endorsement and rebutted the Cuthbert hypothesis purely by assertion.
The correspondence from the Cuthberts puts the committee in an interesting position. The subsequent passage of time has produced data that are publicly available in the Scottish Water accounts and that very much endorse the Cuthberts' position and the position of the minority report. Over the three-year period, a simple calculation shows that the amount of borrowing that was there to be had was at least £350 million more than took place. Furthermore, a calculation of the end-year flexibility reports for those years shows that Scottish Water did not take up the sum of £374 million. Surely people can get their heads around that. Douglas Millican gave me a schedule that shows that, in 2002-03, 86 per cent of Scottish Water infrastructure was paid for by charges. In 2003-04, the figure was 90 per cent and, in 2004-05, it was 84 per cent.
There is a clear role for Audit Scotland in all of this. Given the way in which the issue was presented to the committee at the time, the good people around the table today might like to take the opportunity to change their mind on the issue.
Let me make it clear. We will not draw different conclusions from those that we drew from the evidence at the time; it is not open to us to reopen an inquiry that is concluded.
Secondly, if an issue that arises out of the correspondence relates to the period between 2002 and 2006, it is possible that the Audit Committee might address it. However, as far as I can see, there is no locus for the Finance Committee to go down the route that is being suggested.
Thirdly, I remain fairly sure that committee members reflected on the balance of evidence that we took at the time and that they reached their judgment on a proper basis. Any implication that the committee did not look at all the information at the time is unfair. We looked closely and seriously at all the evidence and we did so in the context of an extended process.
I am sure that Arthur Midwinter's strong belief is that he was not wrong at the time. No doubt he could provide us with chapter and verse, but that would simply serve to prolong the debate. I propose that we note the correspondence from the Cuthberts and leave the matter there. Is that agreed?
Could we have Arthur Midwinter reiterate the situation as he sees it fairly briefly, given what has allegedly come to light in the new letter from the Cuthberts?
I do not think that it is fair to Arthur Midwinter or to others to go through that process. The Cuthberts wish to pursue the arguments. If there is an argument to pursue, it is not an argument with the committee; it is an argument with the Executive. The argument can be addressed, if that is appropriate, through the audit route if the Accounts Commission for Scotland or Audit Scotland wishes to take up the matter. I do not think that it is an issue for us. I propose that we simply note the correspondence.
I was not a member of the committee when it discussed the matter, nor did I read all the reports of the debates. I confess, too, that I have not read all the e-mails in the correspondence. When I got to
"RAB expenditure = O + (I + y) + (D + y) + C - (R +2y)",
I was reminded of my former maths professor saying "It is obvious that", when what followed was anything but obvious.
I have read the letter from the Treasury, which is very carefully worded, as one would expect a letter from the Treasury to be. However, I felt a wee frisson of concern about why the specific wording had been chosen. I wonder whether we could simply copy that letter to the Audit Committee and say, "This is what we've got. Do with it what you will." The matter is clearly no longer in our remit, given that it relates to the past and our inquiry is finished. We could pass the letter to the Audit Committee, which can decide whether it wants to consider the matter.
We can certainly make the Audit Committee aware of the position. I do not think that it is for us to reopen inquiries that are completed or to deal with matters that, from our point of view, are time bound. That is not our role.
The issue was enormously complex and two key things have happened since we finished our inquiry. We have received correspondence from the Treasury that—undoubtedly, to my mind—has had an effect, essentially diminishing the potency of its earlier statement. More important, we are now getting audit data from Scottish Water that support the Cuthberts' assertion.
To be fair, I do not think that the data do that. Moreover, if they are audit data, they are a matter for the Audit Committee, not for the Finance Committee.
I will try to be helpful. The letter that we received on 24 February 2004, which was sent from Mark Parkinson at the Treasury to David Reid at the Scottish Executive, confirmed that, in the Treasury's view, the Scottish Executive had followed normal accounting treatment. I am happy to acknowledge that I believed—perhaps erroneously—that that statement covered both elements; I believed that it covered the accounting to the Treasury, in terms of departmental expenditure limits, and that it was a judgment on the Scottish Executive's policy and control arrangements for Scottish Water. The clarification that has come from the Treasury says definitively that the ambiguous statement covered the latter but made no comment on the former. When I read the letter, I believed that the statement covered both those elements, but it transpires that it did not.
Nevertheless, the convener is right to say that that was not the sole dimension of our considerations and that it is not a basis for reopening the inquiry. On reading the papers before I came to the committee today, I reached exactly the same conclusion as the convener: the matter is not for the Finance Committee. The issue that is raised is whether the Scottish Executive's policy and control arrangements for Scottish Water in that period were accurate. That is an independent, free-standing issue and it is for the Audit Committee to decide whether it merits further investigation. I have no doubt that a variety of individuals here will want to pass comment on the issue to the Audit Committee. However, if we wrote collectively to the Audit Committee, that would imply a judgment that we simply cannot make.
We should simply say that committee members believed that the Treasury's letter covered both elements but that it now appears that it did not. The matter is for the Audit Committee and individuals should take it to the Audit Committee. This discussion will be in the Official Report for anyone who wants to read it. It would be wrong for the Finance Committee to approach the Audit Committee on the matter. Our noting the letter is not dismissing it, but anything more than our noting it would be an attempt to prejudge an issue that we considered some time ago and reached a conclusion on. Committees do that all the time and other committees can look at those decisions if they need to do so.
If I were the Cuthberts, I would feel vindicated to receive such correspondence from the Treasury. However, that does not mean that the committee should do more than note the correspondence. In the open, democratic and transparent world in which we live, people can approach the Audit Committee, if they wish, and argue whether there is something worth looking at. It is not for the Finance Committee to do that.
Okay. I again propose that we note the correspondence and view it as an audit matter that the Audit Committee can address, should it wish to do so.
We move to item 7, which is our revised submission to the Public Administration Select Committee. The item is to be taken in private, so the press and public—if there are any—should leave us.
Meeting continued in private until 12:29.