Cross-cutting Expenditure Review
The first item on our agenda is to consider the outcome of the external research that the committee commissioned on economic development. Members will remember that we commissioned research from Peter Wood, and I am pleased to welcome Peter to the committee today. I will invite him to say something about his research for us, and then I will invite members to discuss the issues contained in the research. Members will see from a note from the clerk that we also need to consider whether to embark on a further evidence-taking phase of this inquiry.
It might be helpful to the committee if I were to make a few opening remarks to highlight the principal points arising from the review, which I am sure everyone has read attentively. I was asked, through the Scottish Parliament information centre, to review the evidence on the structure, and on changes in the level and structure, of spending on economic development in Scotland. I interpreted that remit to include expenditure controlled by the Executive as well as expenditure by other bodies.
As I have explained and discussed in the report, for those who have a mind for it, there is no statutory definition of what constitutes spending on economic development. There are quite a number of what we might term boundary issues, on which we might ask, "What do we mean by spending on economic development?" However, I have tried to set out as clear a definition as I can manage in which the primary aim of those elements of spending is to increase or alter the level and structure of economic activity. One could argue that any public expenditure has some effect on the economy—of course it does—but I have interpreted the committee's interest as being in what the spending is intended to achieve. I have therefore sought a definition of economic development spending that is close to that concept. For context, I have also included some analysis of what I call spending that is generally supportive of economic development, and I shall say a little about that.
To cut to the main points, I concluded that, in the year 2003-04, spending by the Executive—I have considered Executive spending first—on activities intended primarily to promote economic development in Scotland amounted to just over £1,300 million. That figure is expressed in the prices of 2002 to enable year-to-year comparison. The largest element of that spending is the budget of Scottish Enterprise, which accounts for just over £400 million of that total. Other important elements of spending are the budget of Highlands and Islands Enterprise, grants given to business—primarily regional selective assistance—and the budget of VisitScotland, as well as various expenditures under the heading of agricultural and rural development, including direct subsidies to livestock production. As I have discussed in the report, we can debate whether subsidies to agricultural production should be included or not, but the analysis is there and people can take their pick, as it were, as far as the numbers are concerned.
On the principal points arising from the analysis, I would like to draw attention to the following. First, of the economic development spend of about £1,300 million, the greater part—more than 60 per cent—is on activities that I would describe as primarily focused on rural areas. That includes rural development expenditure and the agricultural subsidies that I mentioned before. Rural Scotland, according to the definition provided by the Scottish Executive, accounts for 27 per cent of the Scottish population, so I suggest that that is an issue. Is that the right balance?
Secondly, over the life of the Parliament, what I have termed the primary expenditure on economic development has grown less rapidly than have other elements of spending. Over the life of the Parliament, spending on that form of activity has grown in real terms by about 10 per cent, which is a good deal less than the budget as a whole. There are some problems in year-to-year comparisons, especially with the introduction of resource accounting and budgeting, but I do not think that they detract from the basic message. The proportion of the Executive's budget that is spent on economic development activity has actually fallen from about 7.5 per cent to about 5.5 per cent.
If we consider expenditure on economic development that is what I have termed not primarily rural—or, if you prefer, urban—we see that spending on economic development that is more focused on urban Scotland than on rural areas has been flat. Indeed, if we take the 1999-2000 to 2004-05 budget figures, we find that expenditure on economic development in urban Scotland is 5 per cent less in real terms than it was in 1999. That drop is probably an underestimate because of the effects of resource accounting and budgeting. It would appear that we are reducing the amount that we spend on economic development in the urban areas of Scotland.
Those are the interesting features of the report. On the rural dimension, an interesting two-way shift has taken place. There has been a reduction in direct agricultural subsidies, and expenditure under the common agricultural policy has declined quite sharply over the lifetime of the Parliament. That has not really happened by the Parliament's decision; it has just happened. However, that decline has been more than compensated for by increases in other forms of economic development activity in rural areas and by rural economic development projects. The upshot has been that rural Scotland has gained spending rather than lost it over the life of the Parliament.
I said before that the other category of spending that I looked at was what I called activities that support economic development. That is arguably a rather more contentious area, because we are talking about transport spending and spending by the Executive on education. Those items are set out in the report. No doubt we all accept that education spending benefits economic development, but that is not the only purpose of education spending by any means. One can debate the merits of including those areas, but the figures are there for those who wish to see them.
The message is that expenditure in that category—which I have called the secondary category, supporting economic development—has risen a bit more rapidly than the primary support has risen. It has still not risen as rapidly as other elements of Executive spending, but it has risen by more than 22 per cent in real terms over the life of the Parliament. The big increases in proportion of expenditure have been in transport, and especially in non-roads transport. That is where we have seen the greatest growth. The biggest element in that category of support spending is the budget for higher and further education, which has grown particularly slowly over the period since 1999.
The consequence of all of that is that the share of the Scottish budget that is accounted for by support activities has fluctuated a bit, but has actually fallen as a proportion of expenditure, from about 16 per cent to 12 per cent, and it should rise to 14 per cent next year. Spending on activities that support economic development, although it has gone up, has gone up by less than the budget as a whole.
In the paper, I also comment on spending by other bodies. First of all, I considered local authorities, which support economic development in a number of ways. They do some of the same things that bodies such as Scottish Enterprise do, providing business advice and business premises. Spending on that kind of direct support to economic activity is quite modest. We have only the most recent figures, which are for 2001-02, and spending by local authorities in that area amounts to £139 million in that year. That is not a trivial amount by any means, but it is a good deal less than the sum of the spending by the other bodies.
It is more difficult to determine the relevance of spending on support activities. Again, I have taken the view that one could argue that spending on education, transport and many cultural activities by local authorities also supports economic development. Such spending amounted to £4,000 million in 2001-02.
The final element that I included in the analysis is spending by the United Kingdom Government. For that, we relied mainly on data from the "Public Expenditure Statistical Analysis" and, of course, on the famous "Government Expenditure and Revenue in Scotland", which is known for some strange reason as GERS. That analysis, which is set out in the report, indicates that spending by the UK Government—by Whitehall departments, if you like—in 2001-02 on a category that is described in the "Public Expenditure Statistical Analysis" as trade, industry, energy and employment, amounted to £475 million. Most of that was through support to employment measures, especially the new deal. Support subsidies to agriculture, fisheries and forestry, or price support through the CAP, added a large sum—more than £1,000 million. Those are substantial elements of spending, but it is arguable, especially in relation to agricultural subsidies, that their effect on economic development is, in a sense, indirect.
So what is the overall picture? For 2001-02, which is the only year for which data from all sources can be consolidated, a total of £3,000 million was spent in Scotland on supporting economic development. A large part of that—about half—was support for agriculture through agricultural subsidies. If we take out the agricultural subsidies, we are left with spending of about £1,500 million to £1,600 million.
That summarises the main points of my analysis. However, my analysis does not say whether the spending was worth while or justified or what the spending bought or how successful it was. It simply provides an overall picture of the structure of spending and how it has changed in recent years.
I thank Peter Wood for the considerable work that he has put into the paper. It is a useful ground-clearing exercise that will help the committee considerably in framing how we take forward our inquiry.
The agricultural aspect is quite interesting. The paper states:
"60% of this direct spending is accounted for by forms of support to activities which are primarily rural or to rural areas."
However, it also says:
"If CAP support is excluded then the ‘primarily rural' share of economic development spending falls to 35%."
Therefore, that 35 per cent of the spend goes on what is, I think, 27 per cent of the population. The relation between the two figures is much closer once CAP is excluded.
That is certainly true. One must ask whether it is right to say that spending on CAP primarily benefits rural areas, as it might provide benefits to the wider community. That is a controversial issue, but you are quite correct that if we remove the CAP element from the equation—either on the ground that there is debate about where the benefit falls, or that CAP spending does not reflect decisions about economic development priorities but is driven by other considerations—the proportion of the remaining economic development budget that goes to rural areas falls to 35 per cent. That is certainly closer to, although still a little above, the rural areas' share of population.
The bar graph in figure 3.1, which is entitled "Economic Development Spend 2003-04 £m (2002 prices)", is slightly difficult to understand. "Fisheries" is listed, but it is difficult to see which bar represents fisheries on the monochrome copy that I have.
Those of us who have access to the colour version will find it clearer to understand. I apologise for that. The fisheries column is the fourth one from the right.
It is the smallest.
It is slightly greater than the VisitScotland column.
Fisheries is actually the third-smallest column.
The data for figure 3.1 are provided in the tables at the back of the paper.
How might the committee move forward in determining how much flexibility the Executive has over the figures? That question probably goes to the heart of the issue, if we accept the argument that growth in both primary spending on economic development and support spending—which is a useful distinction—has been slower than other spending growth. For example, CAP spending is fairly committed, so spending growth on that is to some extent out of the hands of the Scottish Executive. Similarly, higher education spending is fairly determined by how much demand there is for student support. It is also determined by other factors, such as the fact that Executive policy has not aimed for growth in the higher education sector because we are already considerably ahead of England in that area. In several areas, expenditure is committed such that there is limited flexibility to adjust spending growth. I know that this may be problematic, but could some methodology be found that would provide us with figures for the flexibility of spending?
That is an important point. You are quite right that the interesting policy issue is whether one could change things and whether one should. Let us start by considering whether policies could be changed. Certain expenditure patterns reflect what we might call demand factors. One reason why expenditure on regional selective assistance has fallen is that there has been a lack of inward investment projects to support. Of course, what you said about CAP is absolutely right.
The answer to your question is not especially complicated. It would be quite possible to deconstruct the tables to examine the extent to which each category of spending was flexible and the extent to which there was scope to change that spending in the budget. To give an immediate answer off the top of my head, the budgets of Scottish Enterprise, Highlands and Islands Enterprise and VisitScotland could obviously be changed substantially by policy decisions. I think that the same is true of rural development spending other than that which is directly connected to agricultural subsidies. On the other side of the equation, it would be hard for the Executive to change the large amounts of spending, such as CAP, that it does not control.
I am not sure that I entirely agree with you about higher and further education spending. I stand ready to be corrected, but I think that the Executive could decide to increase or reduce spending in that arena in various ways. However, even in areas where policy can be exerted, spending patterns cannot be thrown instantly into reverse by turning a tap, because commitments are made for years ahead.
An interesting further area for analysis would be to consider where the scope exists to shift the balance of spending—assuming that one wanted to do that. There may be prior questions about whether the balance is right, but I accept that what you say is true, especially in the agricultural sphere. However, even without the use of an elaborate analysis, it is possible to identify from the documentation which individual spending streams could be shifted and which could not. Perhaps I should have done this, but one can envisage a table or pie chart in which the spending was usefully broken down into what we might call the flexible elements and the inflexible elements.
I have two further questions, which are perhaps connected. First, what impact do the different policy areas of spend have on the private sector? What are the drivers of and hindrances to growth? It might be worth having a more evidence-based discussion on what has worked in the past by connecting that with what a devolved Government can do within its own sphere. Perhaps we need comparative data, whether that be from Europe or from historical examples. Have you any advice on where the committee should look if we were to go down that route?
Secondly, economic development success stories in Scotland have inevitably involved the private sector, which has invested more or become more vibrant either in partnership with Government or because it has been stimulated by the work of Government. Is there a way of indicating in which policy areas growth in spending has been matched by private sector growth? Could that be shown for rural areas? The committee has consistently received evidence that there is low investment and low capital spend in the private sector in Scotland.
That brings us to the nub of the issue. At the opening of our discussion, the convener suggested that the paper was a ground-clearing or baseline exercise, but the fundamental questions—which, happily, I was not asked to answer—are what we get for the spending and whether the spending is effective.
You are right to say that almost all economic development activity is in some way concerned with trying to make business or the private sector—however one wants to define that—behave in a different way by investing more, expanding more and so forth. Therefore, it is right to ask what we are getting for that spending. The analysis that I have produced breaks the spending structure into blocks and invites us to consider them one by one. We can see where the big bucks are going and ask ourselves what we get from them.
My personal opinion—in today's evidence, I am giving my personal view more than anything else—is that there are questions to be considered. Scotland has had a 20 or 25-year experiment with certain approaches to economic development, originally through the Scottish Development Agency and latterly through Scottish Enterprise. It has been some time since there was a fundamental review of that, so it is worth asking what that approach is achieving. On paper at least, we seem to be spending large amounts of money in supporting rural areas, so we need to ask what payback we are getting from that and whether that spending is transforming the rural economy.
I do not purport to have the answers to those questions, but the analysis that I have provided can help to point us to areas that the committee might want to consider, such as questions about what we are procuring from that spending. Those will lead on to further questions. If, as we said, economic development spending has been pretty flat over the life of the Parliament, is that right? Should the spending have gone up? Should it have been cut back and restructured? Those are the fundamental questions; my analysis merely sets out the blocks of spending that the committee might want to consider.
Linking back to your earlier point, I think that it would be sensible to ask that question most about the areas in which the Executive has the flexibility to change spending. Considering where we can change spending and what we get from it leads logically to the question whether the money could have been spent differently or better.
I presume that investment in water infrastructure is important for economic development. In table 1, is borrowing consent for Scottish Water included within "SERAD Rural Development"?
No, I decided to exclude Scottish Water's capital expenditure. I could have included it in the tables, but if I had done so, it would have been categorised as support spending rather than primary spending. The figures for Scottish Water's capital expenditure are available if one wished to include them.
Perhaps that highlights how difficult it is to put figures on everything that contributes to economic development. It could be argued that some health expenditure contributes to economic development because preventive measures keep the work force healthier than it would otherwise be.
The difficulty of carrying out an analysis such as this is indicated by how you have broadened the scope to include spending that supports economic development. I was certainly pleased to see that the analysis includes spending on things such as tourism, which is obviously an important industry in Scotland.
Is the item "Agricultural and Biological Science" purely the support for the Scottish agriculture and biological research institutes?
Yes. It includes support for one or two other minor bodies, but it is principally the SABRIs.
Is that support counted as contributing to rural development?
I treated it as rural development.
Depending on the type of research that is being carried out, that spending could arguably be beneficial to other sectors.
I am interested in the data that you have produced, which are very comprehensive and useful. Has anyone ever compared Scottish economic development spending with what is happening in Northern Ireland, Wales and the English regions to give us a feel for where we rank in terms of implementing policy and spending money?
Not as far as I am aware. The data are certainly available, so such a comparison could be done.
I am sorry for hesitating, but casting my mind back I recall that some seven years ago I was involved in an exercise that examined comparative spending levels of local government in England, Wales and Scotland. Northern Ireland was not included. That was an interesting analysis so, in principle, such an analysis could be done for economic development spending.
Some guidance is provided by the "Public Expenditure Statistical Analysis", which includes some pretty broad-brush figures for large categories of spending in Scotland, the English regions and Wales. For example, the analysis that I have produced refers to the category "Trade, Industry, Energy and Employment", which is a line that appears in PESA. It is very aggregated, as it is not broken down to the same level as the Scottish figures; however, there is that kind of comparison. I imagine that, with enough effort, that spending could be disaggregated in the same way. I am not aware of that having been done, other than in the PESA tables, but somebody out there who I do not know about may be working away on it.
Coming from the position that I occupy, I am of the opinion that Northern Ireland, Wales, the English regions and Scotland are the only places on the planet that are trying to achieve economic development with this subset of tools at their disposal. I do not want you to comment on that, Peter. However, given the excellent baseplate that you have given us, which is very workmanlike and solid, what outcomes do you think that we should be looking for in order to monitor the effectiveness of the spend?
That brings us back to a point that I made before. It seems to me that this is a good starting point—I presume that this is where the committee wants to go—to ask questions about what we achieve for this level of spending. I do not want to focus on any one part of it, as one could ask the question of any element. However, let us take the development agencies, for example. As I have said before, they have various targets and reporting requirements, which appear in Scottish budget documents and the annual reports of the organisations. Nevertheless, one could ask some interesting questions.
You mentioned the tools that we use. We have adopted certain approaches to economic development for perhaps a decade or more. How has our overall economic performance over that time measured up relative to comparators in other regions? Where have the successes been? What things have been less successful? Should we devote more or fewer of our resources to those activities? Should we spend the money on something else—for example, higher or further education? I am not for a minute suggesting that those are easy questions to answer—they are big questions about getting the right balance of spending. How does focusing heavily on economic development support activity or business support activity compare with, say, investing more heavily in education or infrastructure, for example? Such are the fundamental questions that might lie in the background, although one needs to try to bring them down to more workable questions.
There is a balance to be struck in the kind of structure and spending that we have, between urban versus rural and between economic development support versus education versus support for research and technology. Those areas are worthy of investigation, although one would need to try to frame more detailed, manageable questions within that agenda. Drawing a comparison with other regions could be useful, too.
I do not know whether you noticed the comments of Nicholas Crafts at the latest Allander series lecture. He suggested that, if we had the same life expectancy levels as the rest of the UK, at 2001 levels that would have meant a 21.3 per cent increase in gross domestic product performance for Scotland. What does that say to you about the noble experiment in which we have been involved for the past 20 years?
That is a leading question. Taking us back to a wider question, it emphasises the fact that the success of the economy is affected by considerations other than the kind of inducements that we give to business. Ultimately, the performance of the economy depends on the level and productivity of the resources—human and otherwise—of which the economy disposes. Have the activities in which we have engaged increased the productive potential of the Scottish economy and made its people and businesses more productive, as opposed to just transferring money around, boosting one corner at the expense of another? Fundamentally, economic growth depends on the scale and productivity of resources and an interesting question is how far we have focused on increasing the human intellectual and physical capital of Scotland through those activities.
The report is a fascinating piece of work. It exposes some of the dark corners that we have not looked into, including the balance between urban and rural Scotland and the parts thereof on which we are concentrating the spend. I have two minor data points, one point on the analysis and one point on the next steps to make.
I see that the report includes all agriculture research expenditure, including spending on the Scottish agriculture and biological research institutes. It should probably also include expenditure on the office of the chief economic adviser and the economists in the Scottish Executive. I realise that that spend is quite small, but it is missing and I note that for future reference. Similarly, you have included a footnote about how you have calculated the local government spend—which includes expenditure on education, culture and leisure and recreation—and how difficult it is to break that spend down. I take it from that that planning is not included, which is admirable in the circumstances and given the question whether planning is promoting development. Those are tiny data points.
Figure 3.1, which shows the primary expenditure, is hugely helpful, but I wonder whether you could circulate to committee members at another stage the same table minus the CAP figure. We could probably do the analysis ourselves, but we do not have the spreadsheets. It seems to me that the CAP spend is the only part of the expenditure that is not properly at the discretion of the Scottish Executive, although every other element is. To be fair to the Executive, the proper comparison is that there has been, in real terms, a 41 per cent increase in expenditure overall and a 19 per cent increase, if we take the CAP figure out of the equation—rather than a 10 per cent increase—in primary economic development expenditure. That is an incredibly useful baseline for the further work that we will do.
You made the useful observation that 61 per cent of the spend is in rural Scotland, whereas only 27 per cent of the population lives there. To avoid being accused of being anti-rural, I should add that one further level of analysis seems to be important: what percentage of the rural population are we spending the money on? If we add up everyone who is either employed by the agriculture and fishing sectors or benefits directly through those sectors' contribution to the Scottish economy, we are talking about a pretty residual percentage of the population.
Glancing at figure 3.1, I note that the rural expenditure that is concentrated on fishing and forestry comes to about £750 million, whereas the rest—which is spent on the rest of the rural economy and which affects, let us say, the other 95 per cent of people in rural areas—comes to only about £250 million. That perhaps ties in with the issue that you raised about the balance of spending in rural areas. Knowing how much of that £750 million that is spent on rural Scotland is going to what percentage of the population in those areas might help us to think through that issue, which has received little exposure in the public debate so far.
Finally, in your recommendation 2.6, concerning what we do next, you point out that some subsidies could be seen to reduce national output. The issue is whether we can justify concentrating two thirds of the rural spend on less than 5 per cent of the rural economy. Your thoughts on how we might pursue that issue would be helpful. In your introduction, you mention the need to look at outputs and impacts in the context of whether the intended effect is being achieved. Your thoughts on how the committee could explore that further would be helpful.
I was nodding away but, for the record, I confirm that the figures on economic development spending by local authorities relate only to economic development activities—they do not include planning spending, which is a much larger sum. Nevertheless, I am sure that you could find a planner who would say that all that they do is support economic development.
I note your point about the research side. I did not include administrative expenditure for the Executive under economic research, but it might be possible to extract that information. I will certainly produce a table minus CAP expenditure and pass it on to the clerk.
The issue around agriculture spending in rural Scotland is important. To say that the spending is being directed at the very small percentage of the population who are employed directly in agriculture is a little misleading. It is arguable that chunks of the rural economy that are not agricultural depend on the existence of the agricultural communities that they service and support. One would want to look at that question.
Moving on from that pedantic point, I think that there is an agenda for an interesting question: what is the changing structure of the rural economy and how much of that change and development depends on agriculture? Over the long term, we have seen buoyant population numbers and employment growth in some areas of rural Scotland. The extent to which that has been to do with the health of the agriculture sector is an interesting matter—I leave it at that.
I am reminded of a conversation that I got into many years ago. We had been reviewing the Forestry Commission on behalf of the National Audit Office. A Forestry Commission economist was arguing that the commission was absolutely vital to the rural economy and that, if it was not allowed to carry on expanding, the rural economy would be in a bad way. However, we pointed out that, in the Highlands and Islands, over a period in which the level of forestry employment had fallen, employment in the rest of the economy had grown quite rapidly.
I am not making a particular point about forestry now; I am just saying that it is interesting to pose certain questions. We could ask where the wellsprings of growth have been in the economy, which sectors are expanding, how dependent that is on agriculture and whether we are focusing resources in areas where the potential for growth exists. I only raise those questions; I do not presume that there is an answer to them.
Over the past few years, there has been a reduction in spending through the CAP, with spending on other forms of rural development. What the other rural development spending has been on and how far it has been about restructuring the rural economy are interesting questions. The changing structure of rural spending and how well it is attuned to the changing structure of the rural economy is an area that would merit further investigation. That is how I suggest that we look at the issue.
Finally, the relationship between inputs and outputs is phenomenally difficult. One can approach the issue in two ways. There is an argument for what I call the broad, strategic look, which asks where we have been spending, how the structure of the Scottish economy has changed over the past 20 years, what data we have for that, how much of the growth can be related back to where we have focused our economic development effort and to what extent that growth has come from other sources. The other approach is to look in detail at some of the programmes and agencies and seek a fundamental review—which we should have, from time to time—of what we get from spending in those areas, whether it be economic development spend or support for tourism and other programmes.
I, too, commend the report, which I find fascinating. I want to pursue the allocation of the fisheries spend, which is detailed in figure 3.1 on page 9—the graph showing economic development. The amount that is shown as economic development spend attributable to fisheries looks to be around £50 million. Is that correct?
That is correct for 2004-05.
Would I be correct in saying that most of that money is accounted for by the decommissioning scheme?
That is quite true. A large part of it is accounted for by vessel decommissioning. A certain amount of fisheries research is included, but vessel decommissioning has been the major spending activity in that category.
I just wanted to confirm that because, whatever the fishing industry is, it is not a subsidy junkie. Over the years, fishermen have, by and large, received zero subsidies—certainly, zero for fish. It seems slightly odd to include decommissioning as a category of economic development, as the money is being paid not to grow and develop the economy but to restrict capacity and to reduce the effort of the fishing fleet. I wonder whether the case can be made for erasing the lion's share of that £50 million as a category of economic development spend.
If money that is spent is intended to change the structure of economic activity, it is in pursuit of economic development objectives. I agree that it does not subsidise continued fishing activity. We have presented the data so that people can extract the relevant items that they wish to. We set the data out in that way because of the ambiguities and uncertainties or differences of opinion about where the boundaries lie. We can cut the cake in several ways. I am happy to provide further tables if members wish to have them to allow them to extract spending strands. That will shift some of the percentages one way or another.
Equally, we could argue about whether UK Government spending on one economic development category that I have used, which includes some new deal spending, is really promoting economic development or is just spending on a social welfare programme. There are ambiguities.
Similar considerations apply to agriculture payments. Do they really support economic development activity or do they just cushion the blows of changing circumstances? The point about vessel decommissioning is valid. Whether to include it in economic development spending is a matter of judgment. It is the major item in the fisheries category.
We need to draw the discussion to a close, but Jeremy Purvis has one last question.
My question follows the point that Wendy Alexander made. It is worth recording that more people live in Scotland's towns with populations of between 2,000 and 20,000 than live in Scotland's cities, so the number of people who were affected in a catch-all consideration of the impact of rural issues would not be small.
You offered to provide a wee bit more data, Peter, which may well be useful. Section 4 of your report deals with local authorities. Much of the economic stimulus in local circumstances is driven by local agencies; for example, table 4.1 touches on local government spending on economic development. Given that local authorities' road spend and tourism spend, for example, link directly to categories of support for economic development, it might be useful to know whether you have mapped increases in local authority spend over the same period as that used for the Scottish Executive. That would allow us to judge whether the spending growth pattern on those matters for local authorities was the same as that for the Scottish Executive.
I do not have the data for local authorities for as long a period as for the Scottish Executive—I have only three years' data for Scottish local government spending. We could provide information, but it would cover a shorter period.
The urban-rural split is interesting and returns us to the point that Wendy Alexander made. Even definitions of the terms "urban" and "rural" are a little arbitrary. Areas that we term rural can have sharp differences. Closer analysis of that structure is needed.
As you know, when we commissioned the report, it was intended to inform the forthcoming spending review, but the committee's work load is such that we will be unable to consider it in detail until after the spending review. Nevertheless, I will give you the opportunity to comment on the overall balance of what is emerging.
Since the Parliament has existed, overall spending has increased by 41 per cent, direct spending on primary economic development has increased by 19 per cent if CAP is not included or 10 per cent if it is and spending on support for economic development has increased by 22 per cent. Those are stark figures.
Do you have observations that will guide the committee's deliberations in the coming weeks about whether those figures should raise concerns in the context of the spending review? The Finance Committee is the only committee of the Parliament that has the remit to look across aggregate spending totals and to reach a view about overall balance. You have provided some wonderful trend data for the past six years and your thoughts about how those data should inform our consideration of the forthcoming spending review would be very much appreciated.
I should say that Peter Wood will be giving evidence on these matters as a witness, so we might have a more extended opportunity to seek his views then.
I am happy to leave that question until then. However, he might want to give us a taster now of what he might say.
I was about to say that I would like to have notice of such a question. I want to be careful about how I respond at the moment, because I do not want to say anything too silly.
Striking the right balance with public spending on schools, hospitals, roads and all the rest is not an entirely technical question; indeed, it is fundamentally a matter for political debate and discussion. However, whether by design or not, it appears that a set of priorities has emerged over the life of the Parliament that has meant substantial increases in areas of what might be termed social spending and slower rates of increase in activities that are primarily intended to support the economy's development. We have to ask whether such a balance is right.
I am perhaps straying away from the core topic, but I think that, where large injections have been diverted into an area of spending, one must always ask about its absorbent capacity and whether we can be sure that the extra spending is translating into output. For example, supporting information in previous Scottish Executive budget documents gave rise to such questions in the sphere of health. However, that is as far as I can safely go at the moment.
On behalf of the committee, I thank Peter Wood for his work and for answering our questions this morning. Indeed, as a result of our questions, we might need one or two other bits of data.
Members will see that, in points 3 and 4 in the cover paper that was issued for this item, we are invited to decide whether we wish to take the process forward. The paper states:
"It is suggested that this second phase would assess whether the bodies involved in economic development are making optimum use of their allocations. It would seek to assess whether … the relevant spending programmes are based on realistic financial assumptions, deliver outcomes and are organised and presented in a format which promotes transparency."
Questions about the balance of spending probably tie in with that matter.
In light of Wendy Alexander's comment that we should not embark on any inquiry without first appointing an adviser, it is also suggested that the committee should consider appointing such an adviser to make progress on this matter. Given our work load between April and June, I propose that we use that period to work out the inquiry's remit and appoint the adviser. Indeed, perhaps we should couple both aspects to allow the adviser to contribute to the process of working out the remit. We will then take written evidence over the summer and look to take oral evidence when we come back from recess in September. Are members content with the proposal? Obviously, we will produce a detailed paper that sets out how we can take the matter forward.
Peter Wood's report is excellent and answers many of the questions that needed to be answered. I remain sceptical about what specifically will be achieved by embarking on such an inquiry. In particular, the report illustrates the difficulty of deciding what spending falls within the category of economic development. That argument was echoed today by Dr Elaine Murray, who pointed out that, although health spending plainly does not fall within the category of economic development, it could in some circumstances be said to contribute to that area.
We are embarking on a search for a crock of gold at the end of a rainbow and our time could be more usefully spent on a whole host of other matters that are more directly related to economic growth and other subjects under our purview. I state that for the record, although I do not expect my view to command majority support.
I take the exact opposite view to Fergus Ewing, on the basis that some intriguing information has been thrown up today, not least by him.
We are considering the fishing industry and trying to work out whether a £58 million decommissioning scheme can in any way contribute to what is thought to be economic development, particularly when the bulk of the money has gone to the banks and the people are worse off than they were before they decommissioned.
I would like to explore such issues, particularly on the rural side. I find it alarming that 61 per cent of spending is going on 27 per cent of the population, although that spend figure is lower if CAP is taken out. It would be interesting to go deeper into that and to try to find out a little more about what we are dealing with.
It might also be interesting to know the extent to which the relative stability of population in rural areas is a result of the fact that local authority employment is highest in those areas. The fact that those areas employ more and more civil servants and local government officials can hardly be seen as a great incentive to the local economy. I want a little bit more information on that.
I suggest that we reflect on what we have got from Peter Wood's work and that we come back—perhaps not at the first meeting after the recess, but possibly the second—with some information about how to proceed and suggestions for an adviser. I propose that we do not establish the final remit for the second phase until three or four weeks after that. I am seeking agreement that we launch that process. Are we agreed?
Members indicated agreement.
Good. I thank Peter Wood very much for his contribution.