Good morning. I welcome the minister, his officials, the press and the public to the third meeting of the Finance Committee in 2006. As usual, I remind people to turn off all mobile phones and pagers. We have received apologies from Wendy Alexander.
Stage 2 is the main opportunity for members to scrutinise the detailed figures in the bill, looking particularly at any changes that have been made since the draft budget was published in September. I direct the committee's attention to some of the more significant items. As would be expected, the figures are largely unchanged from those in the draft budget although, as the committee knows, they are presented in a rather different form. There are the usual small estimating changes that arise from the resource to cash adjustments for non-departmental public bodies and changes that arise from responsibility for programmes moving between portfolios.
The officials accompanying the minister are John Williams and John Nicholson from the Finance and Public Services Department. If I may, I will ask three or four questions for clarification. In schedule 3.2 on page 22 of the supporting document, no budget for 2006-07 is shown for vacant and derelict land or for the urban regeneration companies. Is that because those budgets have been amalgamated into the budgets for the regeneration programmes?
Yes.
That is fine. Schedule 3.4 on page 28 shows the tourism, culture and sport budget. Does that include the £20 million uplift that the Minister for Tourism, Culture and Sport announced the week before last?
No—that uplift is for 2007-08.
Nevertheless, all those budget figures will experience a significant uplift. What is the percentage increase for that portfolio?
Do you want the increase just from 2005-06 to 2006-07?
Yes.
I will come back to you on that.
Schedule 3.8 is the water services budget. Only the quality and standards II overhang is taken into account, so nothing for Q and S III is shown. When will you be in a position to indicate the likely budget expenditure under Q and S III in 2006-07?
I understand that we should see the figures quite soon.
We should see the figures later this month or in February.
Will the numbers contain a balancing figure? If a draw-down for Q and S III is expected from the Scottish Executive's budget, you must have an idea of the likely global figure, even if it is not split up.
As we have said, we should see that figure towards the end of this month—well, we are at the end of the month, so we should see it in the first couple of weeks of February.
In its previous analysis, the committee made a point about the apparent growth in the environment and rural development budget, which is on page 9. Unfortunately, we do not have year-by-year figures in the document that allow us to make comparisons. Could you give us a comparator for the 2006-07 figure, such as the 2005-06 or even the 2004-05 figure?
We can certainly provide that detail. Do you want the figures for every financial year back to 2004?
It would be useful to have two years of back comparison. Many of the figures allow at least a one-year comparison, but the environment and rural development budget figures are simply for one year, which perhaps does not give us purchase on what is happening.
I recall that the draft budget shows the historical figures. One problem with forecasting is that the draw-down of common agricultural policy support, for example, is affected by exchange rate fluctuations. The calculation of such sums is made on a particular day in the financial year.
I have one other question, but I will let other members in.
I add that the rate of growth in the tourism budget is 12 per cent.
When the committee discussed the 2005-06 budget revision document three weeks ago, we highlighted some fairly substantial changes, particularly the revision in the rail budget from £260 million in the original budget down to £212 million, the reduction in the strategic waste fund to £81 million and the reduction in the flood and coast protection budget to £7 million. Will you explain why the figures in the supporting document are those from the original budget and do not appear to take account of the budget revisions?
The money that we discussed when we were considering the autumn budget revision was money that was put into the CUP for future use. That money will not become available until we have gone through the end-year flexibility process by which money is carried forward from one year to the next. We would expect that money to be added back to the budgets in the autumn budget revision.
The first question that I wanted to ask was about the presentation. Why does this document contain the figures from the original budget? Why does it not reflect the fact that the budget has been revised, particularly in the areas that I highlighted? Surely it would be more transparent to show the real expenditure for 2005-06—£212 million—rather than the figure of £216, which, as those who have read the revision document know, is not accurate.
I accept that. The document is presented in the way that it is because we agreed with the committee in the past that we would want to be able to compare original budgets for each year; if it were presented otherwise, we could not compare like with like. If we wait until October of next year, we cannot tell what will happen to the budgets for this year. If we moved last year's budgets to a revised state, we would not be able to make the original comparison that might make the document more useful.
I accept that. Your point about the CUP is that the next budget revision should reflect the issues to do with track access grants and local authority draw-down.
Yes.
Does the Government intend to lodge any amendments to the Budget (Scotland) (No 3) Bill at stage 3—unless you plan to spring something on us during today's meeting—to revise the local authority settlement?
Some amendments could be lodged at stage 3.
Can you share with us what those amendments are likely to be?
They will mostly be textual. Several issues have arisen that we need to amend the bill to reflect, but the changes will be textual rather than substantive. I know what you are driving at, but the Executive has no intention of lodging amendments in relation to local government finance.
So there are no proposals for changes at stage 3.
No, there is no such proposal.
Given that, what balances does the Government believe that local authorities have at their disposal for use either in meeting the burdens of equal pay or in closing the financial gap that the committee identified in the funding settlement?
In evidence to the committee last week, Rory Mair said that the Convention of Scottish Local Authorities estimated that about 25 per cent of the £1 billion in the balances was general reserve moneys. The Executive has always stated that it believed that some moneys were available in the balances that could be used to meet pressures, but we have never put a figure on it.
Do you accept the figure that the local authority representatives gave the committee in evidence, which was that the amount that is available might be close to 25 per cent of £1 billion?
That is COSLA's position. The Executive has always argued that some of the balances should be available to meet local authorities' financial pressures.
Is the amount that is available in the balances to relieve local authorities' financial pressures of the order that local authorities think it is?
It is for local authorities to make those decisions. I do not have in-depth knowledge about how every local authority will spend its balances. For instance, I know that my local authority stated that its balances can be used to relieve some of the cost pressures that it is under, and there are figures in the budget to demonstrate that. However, I cannot predict what the figure will be across the piece.
Is it acceptable for the management of public finances that ministers can say that local authorities should use balances to fund their shortfalls and commitments yet be unable to tell the Finance Committee what they think those balances are? Does that make for prudent financial management?
As I said, it is for local authorities to decide how to use and accrue their balances. The Parliament is not in any position to make those decisions for them.
The point that I am driving at is that the Scottish Executive provides the lion's share of local authority funding and you and Mr McCabe have made it clear that local authorities should use balances to make up the funding shortfall that arises from equal pay claims and the shortfall in local authority funding that the committee has identified. Therefore it is reasonable to expect the Government to have some idea of what sum of money the local authorities are in a position to use, bearing in mind the fact that, on repeated occasions in the Parliament, ministers have leant on the information that £1 billion is available in reserves.
We have stated the facts about what the balances were at April 2005 and the Convention of Scottish Local Authorities confirmed that when it gave evidence to the committee. Our position has always been that local government should be able to use some of those balances, but we are not going to say to local authorities that they should use a certain amount. That is a decision for them. All that we have done is to highlight the fact that there are balances available to them.
Last week, a representative of Fife Council told us that, once it removes all the components of its reserves that it cannot transfer to offset the liabilities that we are discussing—for example, amounts that it must retain for insurance purposes and the housing revenue account—the council has an unallocated balance of £15 million, but its estimate of its equal pay obligations is £40 million. I am not arguing that the Government must fill that funding gap; I am arguing that the Government is trying to suggest that local authorities have greater balances at their disposal to fund the short-term delivery of public services than they do, given that they must retain those balances if they are to satisfy their equal pay obligations.
That is not a correct analysis at all. We have highlighted the fact that balances are available. We have been engaged in discussions with COSLA about the financial pressures that local authorities face and we intend to continue to have such discussions. As you know, we have stated that we are willing to consider the funding for 2007-08 in the light of some of the current discussions. We are happy to engage with COSLA and to examine closely the financial pressures that local authorities face. Those discussions are continuing.
If those discussions are continuing, what prospect is there of an amendment to the 2006-07 local authority settlement?
As I made clear earlier, there is no such proposal at the moment.
Mr McCabe wrote to the president of the Convention of Scottish Local Authorities on 24 January. After making a comment about the level of balances that local authorities have, he said in his letter:
As I said earlier, we have highlighted the facts on balances. Ultimately, it is for local authorities to decide how they use those balances. We are in discussion with COSLA on the financial pressures that local authorities face and will continue to discuss those with COSLA.
Let us consider the factual information on local authority balances that we heard last week: Fife Council has £15 million of unallocated reserves; North Lanarkshire Council has £10.8 million; and Glasgow City Council has none because it has used them all to meet equal pay claims. Moreover, because of the funding pressures that it is under, Glasgow City Council is unlikely to be able to deliver a council tax increase below inflation. That strikes me as adequate financial information to suggest that at stage 3 an amendment should be made to the local government settlement. Can I invite the minister to reflect on that before stage 3?
I will reflect on the matter. Although there is no proposal to do what Mr Swinney suggests, we will reflect on the views that he has put forward.
A propos of that, the Minister for Finance and Public Service Reform, Mr McCabe, will be before the committee in several weeks' time. By that time, budgetary decisions will be made by councils and we will be further forward on these issues.
I note that the amount for educational maintenance allowances will be substantially increased. When the scheme began, it was for one cohort and was to be extended to others. Does the increase reflect the roll-out to a wider age group?
I will have to return with an explanation for that figure.
In schedule 3.1, on schools, the teachers budget has doubled from £54 million in this financial year to £108 million for the following financial year. What is the explanation for the increase?
There was a similar transfer in the autumn revision. The money is used for teaching assistants and is delivered through a specific grant, which was formerly called the national priorities action fund and is now called the excellence fund for schools. It is simply being transferred from one to the other.
Will the excellence fund also be increased?
The increase in the excellence fund is the other side of the reduction in the allocation for teachers. The budget will be moved to the excellence fund.
However, the budget for teachers is increasing from £54 million in 2005-06 to £108 million in 2006-07.
I apologise. I was explaining a change between the draft budget and the budget bill.
I am not complaining about it. Spending double the money on teachers is a good thing.
Some of the increase in the budget reflects our commitment to increasing the number of teachers to 53,000. I am not sure whether that is the whole explanation for this figure. We will clarify that matter for Dr Murray.
In schedule 3.1, on administration, I note that the costs of the investigation into the building of Holyrood are set at zero for 2005-06 and 2006-07. Why is that?
That is because the Fraser inquiry has completed its work. I am not sure why that budget line is still shown.
That intrigues me. Is there any contingent liability running into 2007-08?
I will have to check that.
On 4 January, on BBC Radio 4's "Today" programme, the First Minister was asked about the Government's calculation of the excess of Government expenditure over Government revenue vis-à-vis Scotland. What steps are being taken in the budget to address that issue?
The budget in Scotland is still rising as a result of the Barnett formula. Those who benefit from the increases, such as nurses, teachers and schools, will be grateful for that.
Therefore, is the gap getting wider? The First Minister said that he would bring pressures to bear so as to close that gap. What provisions are contained in the budget to close the gap?
The budget is continuing to rise as a result of the Barnett formula. The figures that are contained in "Government Expenditure and Revenue in Scotland" show that there is a gap between them. However, as the Scottish National Party does not accept GERS, how we can measure the gap?
You have properly expressed my caveat. I am referring you to the First Minister's comment.
The minister managed the script very well.
Exactly. The First Minister managed to dig a hole for himself and I am looking to see whether the minister and his finance colleagues are helping to fill it in.
I am sure that you will get the chance to put your question to the First Minister.
I will in due course. In the absence of a revenue-earning component in the budget, what long-term plans do you have to make the document more informative for us and the general public? I suggest a change that would achieve that. If for pretty much every line item in the budget we had a statement of the planned outcome and the actual outcome, shown on a rolling basis—one key outcome for each item—would that not provide a fairer, more straightforward representation for the Scottish people? Would that not give "a true and fair view", which is what the accountants always look for?
The draft budget document contains a significant number of targets and commitments that the Executive has laid down. They all reflect the partnership for government agreement between the two coalition parties.
For any specific item, such as pupil support and inclusion, we do not have a firm figure indicating how effective the spending is anticipated to be and how effective it has been over time.
To be fair, the document is a summary document that just gives the numbers. At an earlier stage we get a much fuller document that does many of the things that you mention and enables us to scrutinise matters in depth. It is perhaps not fair to suggest that such information should be in a summary document.
I am informed by officials that the committee asked us to cut down the amount of information in the document to make it easier to scrutinise.
Nevertheless, in the long term there is a need to know that Scotland is not flying blind—when I read the document I get the feeling that it is.
I am sure that the Finance Committee will deliberate on the matter. We have always responded to any requests from the committee to improve the scrutiny of the budget.
A number of the tables in the supporting document indicate an increase this year in the income that has been retained. Is there a reason for that? For example, the table on page 11 indicates that retained income for rural development has gone up by £1 million. Another example is affordable housing on page 21.
The reason why retained income for affordable housing increased from last year is that last year the Development Department did not establish what its income stream would be until the autumn budget revision and the figure was amended at that stage. This year, the department is in a better position to predict what it thinks its income will be and has therefore got its budget in for that at the start of the year.
That is a major change. What is the reason for the £1 million change in retained income for rural development? Is it marginal?
It is marginal, but we will get an explanation to you if you so wish.
Mr Swinney mentioned local government surpluses. I thought that we should see what the Government says its balances are. With the convener's permission, I point out that my local authority, Fife Council, which Mr Swinney mentioned, faces a shortfall. However, one of the lines in last year's budget for Fife Council was unused or surplus assets. Those are not sports grounds, community halls or anything of value to the local authority; they are £30 million-worth of spare plots of land and redundant buildings.
I have two further questions. First, on page 41, a figure of £109 million is given for concessionary fares. How does that square with the expected concessionary fares budget that Nicol Stephen announced about 12 months ago, when he was Minister for Transport?
Obviously, that figure reflects the introduction of the new national concessionary fares scheme throughout Scotland.
So it is a part-year figure.
Do you mean the £109 million?
This is the first year in which we have had the full funding for the scheme in the budget at the start of the year. That is the reason for the significant increase.
But the range that Mr Stephen mentioned was between £158 million and £160-odd million—I cannot remember the exact amount.
I imagine that that was an estimate of the take-up in the first year. However, I will get back to the committee to confirm that. As you probably remember, the then Minister for Transport asked MSPs to encourage as many people as possible to register for the new national scheme. I imagine that there will be a tale about the speed of take-up of the national scheme once it is operational, which may be reflected. We will confirm that for the committee.
You will remember that you had a considerable in-year budget adjustment on concessionary fares, which is where my question comes from.
As I recall from the draft budget document, the figure when the contract was let was about £13 million, but I would need to confirm that in writing. As a result of the failure of the contract, increases in the subsidy have been required to keep the ferries sailing until the contract is relet. The subsidy has increased significantly, but the final figure for the year will not be known until the ferry tendering process is complete and the new contract allocated.
It would be useful for the committee to have a review of the way in which the actual costs have changed in relation to the projected costs in the past three or four years so that we have a clear basis for understanding the budget projections for next year and subsequent years.
We will go back to before the contract was let. As I recall, the subsidy figure reduced when the contract was let but, when the contract failed, the figure increased to reflect the extra subsidy that was required to keep the ferries going. We will give the committee a detailed response on that.
If members are happy that the questioning process is finished, we will move to the formal proceedings on the bill. We have no amendments to deal with but, under the standing orders, we are obliged to consider each section and schedule of the bill and the long title and agree to each formally. We will take the sections in order, with the schedules being taken immediately after the section that introduces them. The long title will be taken last. Fortunately, the standing orders allow us to put a single question where groups of sections or schedules fall to be considered consecutively. I propose to do that, unless members disagree.
Section 1 agreed to.
Schedules 1 and 2 agreed to.
Section 2 agreed to.
Schedules 3 and 4 agreed to.
Sections 3 to 5 agreed to.
Schedule 5 agreed to.
Sections 6 to 10 agreed to.
Long title agreed to.
That ends stage 2 consideration of the bill. I thank the minister and his officials for coming and for dealing with our questions.
Meeting suspended.
On resuming—