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Chamber and committees

Finance Committee, 01 Feb 2000

Meeting date: Tuesday, February 1, 2000


Contents


Budget (Scotland) Bill

The Convener:

I formally reconvene the meeting and issue a warm welcome on behalf of the committee to the Minister for Finance and his staff. We move straight to consideration of the Budget (Scotland) Bill. As convener of the committee, it is incumbent on me to move the motion.

I move,

That the Finance Committee consider the Budget (Scotland) Bill at Stage 2 in the order in which the provisions arise in the Bill except that each schedule be considered immediately after the section that introduces it.

The question is, that the motion be agreed to.

Motion agreed to.


Section 1—The Scottish Administration

Does anyone want to comment on section 1? If not, I will put the question.

Section 1 agreed to.


Schedule 1—The Scottish Administration

Does any member want to comment on schedule 1?

Does the minister feel that the budget pays enough attention to development of the economy and of tourism in Scotland?

The Minister for Finance (Mr Jack McConnell):

I believe that the budget provides a good balance between departments, within the limits that exist. The departments that have been identified as deserving of increases above the general rate for all departments—education and health, for example—are the right choices. The departments that have not been allocated such increases have—on balance and given the overall limits available to us—been allocated the appropriate level of resources at this time.

Mr Davidson:

At the beginning of the Parliament, Henry McLeish and the First Minister made speeches in which they indicated that advancement of the economy was the Executive's primary goal. That goal does not appear to be getting additional prioritisation over other segments of the budget. Can we expect to see supplementary estimates in that area coming up during the year?

Mr McConnell:

With respect, I think that that displays a slightly narrow view of public expenditure and how it might be of assistance to the Scottish economy and Scottish business. The investments that are being made in education and public transport and roads are vital for the success of the Scottish economy in the longer term. Making prudent, well-targeted use of existing resources for, for example, the enterprise network and training programmes is only one element of our overall support for the development of the Scottish economy. If we are going to succeed in the modern world, getting our education and transport and distribution right will be fundamental. That is why those areas were prioritised in the original estimates for the budgets for next year, and were also allocated additional resources in the supplementary statement last October.

Dr Simpson:

On the receipts side of the equation, I understand that—under the devolution settlement—the Treasury may seek to retrieve some of the funding from sales of land. Item 5 on health, in the table in schedule 1 of the bill—in which the minister will understand my interest—states that the sale of land, buildings, equipment and property amounts to £4.1 million. Is that the correct amount? Can you explain to me what that is about? It seems to be a fairly modest amount.

The sales that are included in that figure are not major sales—they will, therefore, be included in the Scottish consolidated fund.

Will the major sales come into the consolidated fund?

Mr McConnell:

I am coming to that. The statement of funding policy allows—where the taxpayer has made a substantial investment in public assets in Scotland—for discussions to take place about whether money from a major asset sale should remain in Scotland or whether the UK Treasury should retain some of that. That would, however, benefit Scotland as well. If money from a public investment in Scotland goes back into the UK Treasury, it could be used in UK-wide programmes that would benefit Scotland. There would be discussions about that in Scotland as well as between the Scottish Executive and the Treasury. Those discussions would be reported to Parliament in the normal way.

That is not referred to anywhere in item 5 at the moment. Would major sales of health service land be the subject of a separate report by you to Parliament?

Mr McConnell:

I find it inconceivable that a major asset sale might take place, and that there would be agreement on it between the Scottish Executive and the Treasury on how to dispose of the income from the sale of that land without Parliament being notified.

Andrew Wilson:

I would like to ask a question on a similar topic. In relation to recoverable VAT, under item 3 of schedule 1, will you comment on the type of work that VAT was paid on and the implications for VAT recovery in deals such as the one that has been suggested in Glasgow—and others—to do with private finance?

Mr McConnell:

We pay VAT under the same rules as any other taxpayer. I am not sure what the figure in item 3 refers to specifically, but the rules that apply to the Scottish Executive are not different from those that apply to any other organisation in Scotland, or elsewhere in the UK.

Andrew Wilson:

Would VAT be recoverable if transactions were to take place within the public sector? Would it be irrecoverable if the agency or department were to contract services from outwith the public sector? In other words, would such VAT be levied and be payable?

Mr McConnell:

I am not a tax expert, so I will consult advisers on that question.

It is suggested that we answer that point in writing. It does not necessarily relate to the authorisation of those figures, but it is an important point, on which I will be happy to correspond with the committee after I have spoken to expert advisers.

On a matter that is perhaps more germane to today's meeting, and which follows on from last week's debate, could you comment on the implications for the enterprise and lifelong learning budget of the announcement on student finance?

Mr McConnell:

Those figures are based on the assumption that any new expenditure on student financial support—such as that which was announced last week, or that will follow the consultation and discussions that take place following the statement—is contained within the budgeted figures for the enterprise and lifelong learning department. If, at any stage, those overall totals have to be amended, they will come before the committee and Parliament and be subject to the supplementary estimates procedure. Our working assumption is that the overall totals will not need to be changed. If they do, whatever adjustments that must be made in the departmental level 2 figures to ensure that we can pay for that additional student financial support will be reported next year in the supplementary estimates booklet.

Mr Raffan:

Although I strongly welcome the increase in spending on education as a result of the partnership agreement, I would like to take up Mr Davidson's point about the enterprise budget. You will be aware of the analysis in the quarterly review of autumn 1999 of the Fraser of Allander Institute for Research on the Scottish Economy, which expressed concern about the reduction in the enterprise budget. This relates to the fact—on which Mr McLeish did not elaborate in his statement last week—that the generous tuition fees package will have to be financed from somewhere. Government has to be realistic about spending commitments, as one cannot simply pick the money off trees. Mr McLeish implied that the tuition fees package could result in painful—I believe that he used that word—cuts in the enterprise budget. I realise that that is a level 2 matter, but will you comment on when we can expect some more details on that?

Secondly, I am concerned—as the minister must be—about the current situation of some health boards and the situation that they will be in next year. Tayside Health Board has been allocated a specific amount of money—£175,000—to tackle drugs misuse, but has significant problems regarding its deficit, which will probably rise to £12 million for the current year. The money that was allocated to tackle drugs misuse is not being used for that purpose, but is being set against that deficit. That is worrying, and I understand that similar things are happening in other health board areas. Can you assure us that money that is allocated for specific purposes will be spent on those purposes?

Mr McConnell:

As I said about the enterprise and lifelong learning department budget as a whole—and on the enterprise companies budget in particular—we must have regard to present circumstances. There is an urgent need in Scotland to prioritise new investment in education and in health and I strongly believe—as do my ministerial colleagues—that transport should be an additional priority. The spending statement made in October reflected transport's rise up the Executive's agenda since the original comprehensive spending review.

The enterprise and lifelong learning budget is influenced by other factors, such as the substantial investment in the new deal in Scotland, additional money for training from the new deal and from other sources and the year-on-year uptake of resources for new and major inward investments in Scotland.

That budget, as it is outlined for next year, is balanced in comparison to the budgets of other departments. It is important that that money is well used and I know that ministers are interested in that—as is the Enterprise and Lifelong Learning Committee, which recently produced a report that talked about the duplication of expenditure and the need to rationalise that. Between them, they will ensure that the money is put to good use.

The substantial increase in health funding next year and beyond is designed to include not only the financially challenging increases in drugs budgets, but the cost of pay awards in the health service. We are agreeing overall totals today, and I would not want to comment on individual board allocations—this is neither the time nor the place. Our working assumption is that the budget guarantees a level of resources that should allow for those developments. The health department will have an interest in the way in which the boards use that money, but that is more a matter for it than for me at this stage.

Mr Ingram:

I would like to ask a couple of questions on expenditure on housing and local government. On Thursday, during the stage 1 debate on the bill, you referred to Glasgow City Council's housing debt. You mentioned the sum of £900 million, although the Exchequer costs would be only about £68 million per annum. That aside, ministers are on record as saying that a deal is in place for writing off Glasgow's debt, if a wholesale stock transfer is successfully completed. Can you tell us whether the figure in the schedule contains a sum that is set aside for that purpose?

Mr McConnell:

I might be wrong, but I do not believe that those figures contain an amount of money that relates specifically to the Glasgow transfer. The sums of money mentioned reflect the level of housing expenditure in the public sector in Scotland, and money for new housing partnerships that will be scheduled over the next two years. Given the time scale for the Glasgow project, I am not sure how much of that money might be committed to the Glasgow housing partnership this year or the year after. That will be a matter for the Minister for Communities and Glasgow City Council to discuss, when they determine how much new housing partnership money needs to be allocated to Glasgow in the short term or the medium term.

So, no sum has been set aside for that? No deal has been done?

Mr McConnell:

A sum has not been set aside that would be available for expenditure elsewhere if it were not used in Glasgow. There is a budget for new housing partnerships that makes some assumptions about the scale of the new housing partnerships that might develop in Scotland. However, that budget is not allocated to specific potential new partnerships in Glasgow or elsewhere.

Mr Ingram:

I seek clarification on a more technical point. Perhaps the officials can help to answer this one. Why are local authorities' housing borrowing consents included in the expenditure figures, when that borrowing is not paid back through general taxation, but by the rent payer?

Mr McConnell:

Those are the rules under which we operate. The total budget for the Scottish Executive includes local authority capital borrowing and housing borrowing. Those factors are reflected in the totals. It was agreed, during the passage of the Public Finance and Accountability (Scotland) Bill, that these figures should be included in budget bills each year. Given that they make up a substantial part of the Executive's total budget, it is right and proper that the Parliament exert some control over what the Executive agrees in that field. That is why the figures are included.

I have a question about borrowing consents in general. What criteria are used for setting borrowing consents, and how much influence do you have over that process?

In housing or in general services?

In local authority capital expenditure.

Mr McConnell:

In general services capital expenditure, a formula for distribution is agreed with the Convention of Scottish Local Authorities, which produces the annual figures. I would be happy to provide details of that in correspondence. In fact, I may have answered or be about to answer some parliamentary questions on that very subject.

Mr Davidson:

I am a bit concerned—as are others in Scotland—about the adequacy of funding for the police services, particularly in view of the capping of the general budget for the justice department. Many police forces are experiencing difficulties, not least because local authorities find it difficult to supply them with their proportion of the funding. Forces are finding it hard to maintain their numbers at a time when, to be competitive and to make positions attractive, they are bringing in new entrants at a much higher grade than before. That indicates that they are under pressure to keep numbers up, as fewer young people are applying for positions in some—though not all—areas than was the case previously. Do you feel that the budget that you have set adequately addresses the demands that have been submitted—argued demands, rather than just wish lists—by the various police authorities in Scotland, particularly in view of the huge expenditure requirement for the new communications system that is being discussed?

Mr McConnell:

Like all MSPs and MPs, I would like to see more police officers on the streets of my constituency and of every other constituency in Scotland. However, every budget has to be balanced against other departmental budgets. Within the overall sums that we have at our disposal, we have to make judgments about where to increase resources, by how much and for what purpose. The figures that are set out in the Budget (Scotland) Bill would ensure that existing police numbers are maintained and allow some funding for pay increases, which is obviously a big issue for local government. The figures also include new investment in things such as the drugs enforcement agency. In the spring it will be for the Parliament to debate whether, taking into account other departmental budgets, the right priority has been given to the police forces. Police forces across Scotland are making a strong effort to ensure that expenditure is more targeted than it was in the past and that efficiencies are built into the system. That is a good approach, and I hope that we will continue to pursue it in all areas.

Do you expect the balance between the number of support staff and police officers to continue to change?

Mr McConnell:

I think that I am in touch with public opinion on this, as well as doing the right thing financially. We should strive constantly to ensure that those who are employed as police officers across Scotland are involved directly in the preservation of law and order. When administrative and other functions can be carried out more cheaply, efficiently and expertly by people who are not police officers but are properly trained in those functions, that should happen. That applies not only to the police but to every area of public expenditure and public employment. Given the scrutiny to which public expenditure in Scotland will be subjected by this Parliament and the Executive, that trend can only accelerate.

Andrew Wilson:

I want to return to the issue of the health budget, which came up at an earlier stage in the process. The cash-terms increase that you have outlined is about 3.7 per cent; the latest estimated increase in average earnings for the year to which that refers is 4.7 per cent. What are the implications of an increase in the budget that is lower than that of average earnings for the pay of people in the health service and for cuts in the number of employees in the service? At an earlier meeting, Richard Simpson raised the point that the drugs budget rises at about 6 to 8 per cent. The same point applies here: if the cash that is going into the budget does not keep pace with the inflation of earnings or prices, what is being cut?

Mr McConnell:

I do not have detailed figures on the precise increases that will be incurred as a result of the recent pay settlement and outstanding pay settlements in the national health service or on the drugs bill for next year. It is safe to assume that the figures and the real-terms increases in relation to health departments account for both those escalating costs. They also build in the absolute necessity to continue to strive for new efficiencies. It would be wrong of us not to make that expectation clear.

It will be for the managers in the health service to strike the right balance between increased pay for those who work in the service and efficiencies in terms of staff and the use and range of drugs and equipment. Managers in the public and private sector must continually strive to strike that balance. That is why we have given them some leeway as a result of the real-terms increase in the budget. That increase should allow the balance to be struck.

Andrew Wilson:

That is a fair way of constructing the answer but—to repeat my point bluntly—the amount of money that is going in will not meet an increase in the pay of people currently employed in the health service that keeps pace with average earnings. The only response that you have given is efficiency savings, which must mean fewer people working in the health service or less money going into front-line services.

Mr McConnell:

That is a strange definition of efficiency. By their nature, efficiency savings are those that can be made without detriment to front-line services. Moreover, they do not necessarily mean a reduction in overall levels of employment. The objective that we should be setting ourselves is to improve the outcomes of the health service, the services that are delivered and the quality of the Scottish nation's health; we should not simply operate from figures that do not in themselves show the quality of health provision and care and the quality of individual and public health.

The points that you make are valid considerations for those who are responsible for the health budget, who will be aware of those factors when they draw up the individual budgets for next year. They will take into account the health board allocations that were announced by the Minister for Health and Community Care recently. It is important that we recognise the need in all public organisations to strive for those efficiency savings that are clearly possible year on year and which allow us to fund improved developments, even where we are already providing real-terms increases.

Andrew Wilson:

Everyone agrees that we must continue to pursue better service delivery. However, we cannot square that with cash increases—particularly when they are promoted as substantial real-terms increases—that are not keeping pace with the costs of the services that are meant to be delivered. We cannot continue to squeeze more and more out of an organisation that has very little fat left in it.

On the wider question of health spending, the convener notified you by mail before the meeting about the Prime Minister's recent announcement of real-terms increases that are about 3.4 per cent higher than what you have announced for this year. What are the implications of that announcement for this budget? Do you regard our current share of per capita UK health spending as fair and equitable?

Mr McConnell:

The Prime Minister's announcement looked further into the future. It would be good news for Scotland, because we could pursue the availability of the real-terms increases that have been available this year for next year and the year after.

I want to make it clear to the committee that the way in which we allocate those resources in Scotland will be for us in Scotland to decide. If the health budget for England increases by £20 per head in 2003-04, it will be for this Parliament and this Executive to decide whether the increase in Scotland is £15, £25 or £20. The money will be there for a £20 increase, but it will be up to us to decide how it is actually spent and whether a higher or lower increase is required. In some areas of Scottish public expenditure, account may be taken of the substantially higher current expenditure per head than is the case south of the border.

We will wait and see what the Prime Minister and Chancellor of the Exchequer specifically propose this summer in the public expenditure announcements for the years ahead. We will then make our own decisions about how the money is spent, rather than automatically follow the UK decisions.

I regard both the historic level of spending on the health service in Scotland in comparison with elsewhere in the UK, and the fact that the new devolution settlement guarantees a per capita increase, or decrease, in Scotland equivalent to the ones in England or—depending on the spending programme—in England and Wales, as very fair to us.

Given that you regard per capita spending in Scotland of about 20 per cent higher than the UK average as fair today, minister, why is it fair that that share will fall over the next four years to a much lower level?

Mr McConnell:

The share of increases and decreases will not fall. We will get exactly the same increases and decreases per head in health—and in other programmes—as our colleagues in England or, depending on the programme, in England and Wales. That is right and proper. The challenge that faces us as a nation is to ensure that we take into account the historically higher level of public expenditure on health and on other programmes in Scotland, which has to an extent underpinned the nature of life in Scotland.

As we strive to improve individual and public health in Scotland, we do so in the knowledge that Scotland's bad health record has led to that higher cost and expenditure over the years. I would hope that, if our health programmes are successful and our efforts to increase preventive health and public health education in Scotland improve so that we generate a much better health profile across the population, we will release, with an equivalent share per head across the UK, more resources than are available south of the border. I am prepared to face that challenge, and I am sure that most members of the Parliament are, too.

Mr Raffan:

I accept the minister's general points about NHS expenditure in Scotland, particularly in relation to what happens south of the border. The health service in Scotland is under huge pressure, however. I have in front of me a written answer from the Minister for Health and Community Care, dated 30 September. I understand that she is updating the figures in a written answer over the next few days.

Back in September, nine acute NHS trusts were forecasting year-end deficit. Some of the deficits were substantial. I know of one case in which the deficits have greatly increased, as the new written answer is likely to show.

That is the kind of pressure that the trusts and the services are under. I am worried that, while we are falling back on the perhaps unfortunate phrase "efficiency savings", the trusts in my constituency are telling me that they have cut the administrative costs to the bone and now use the ominous phrase "clinical savings"—rationing and cutting down the volume of work.

I agree that the standard of health care in many cases may have been not just higher than south of the border but, in Tayside, significantly higher than the Scottish average. However, I am worried that the standard will come down.

My second point relates to efficiency savings in the police forces. I mentioned to the minister earlier that I had spoken to the police again, so I will not go into the details of the example. Police forces have told me that they are being asked to make efficiency savings on what amounts to 15 per cent of their budgets, with pay making up 85 per cent of their budgets. You are asking for high efficiency savings—more than 2 per cent, in the case of Fife constabulary—on just 15 per cent of the force budget. Forces will have difficulty achieving that.

Mr McConnell:

Sometimes, such discussions with public agencies in Scotland depend on the starting point. I have certainly held discussions with senior police officers in recent months, which may have had a different starting point from Keith Raffan's, given my day-to-day responsibilities. We spoke about how better use could be made of police officers' time in Fife. Other public authorities should take their responsibilities a bit more seriously.

It is important that we examine the individual budget headings and that we continually review whether the existing level of resources meets needs. We all know that we cannot always meet demands, but we should ensure that we are meeting needs and providing the levels of core service that are so necessary.

It is also important that, across the public sector in Scotland—across all departments, all local authority spending and national spending—we strive to generate efficiencies in the way in which we operate, as such efficiencies could release significant savings for new challenges in the future. That is why the Executive has made it clear that not only will we keep reviewing individual budgets and considering individual areas, but we must modernise the way in which we run government in Scotland across the piece, both locally and nationally. I do not think that it would take long for most members of the public in Scotland to identify possible areas of saving in the work of public bodies in their town, city or country area, if we were to ask them to. We should all start from that premise, as well as considering difficulties with current budgets.

George Lyon:

On the expenditure of the rural affairs department, the Minister for Rural Affairs negotiated a package of an extra £40 million in October to help many of our hard-pressed rural industries, particularly the agriculture industry. Is that money noted in the expenditure guideline before us, or will it appear in another supplementary estimate later in the year?

Some of that money is in the supplementary estimates for this financial year, which we will discuss later, and some is in these figures for the next financial year.

Dr Simpson:

How will you deal with the Accounts Commission reports on our public services? The latest report on health dealt with drug prescribing; the commission identified £56 million of savings, of which £21 million could be realised rapidly by good and effective management of drug costs. That is just one of the commission's reports. The other report that interested me dealt with collections by local authorities, where revenue streams could be improved by better collection. We seem to be much worse than England and Wales in terms of overall collection. Do you have any comments on the principle of those good reports by the Accounts Commission?

Mr McConnell:

I referred earlier to the draft report of the Enterprise and Lifelong Learning Committee, which talks about duplication of services and a need to rationalise and target resources more effectively across the enterprise network of local authorities and other agencies. I am sure that many people around this table share my view that the increased, regular scrutiny that comes from having a Parliament and an Executive operating in Scotland and examining these budgets and the operation of government in Scotland will result in increased attention being paid to the areas mentioned by Dr Simpson. Such attention is already being paid to council tax collection and I am sure that it will be paid to health by the Minister for Health and Community Care and the Health and Community Care Committee. I am absolutely certain that attention will be paid to expenditure on the enterprise network, and I hope that that will also happen in other areas. This committee has my assurance that, as Minister for Finance, I will not let up the pressure on any of those issues.

Mr Davidson:

In a recent speech in the chamber, minister, you talked about a new procurement body to deal with purchasing. We all agree with the idea of looking for savings to fund front-line services. Have you included a figure in this budget for expected outcomes in savings? Is there a general deflator for efficiency?

Assumptions are made about efficiency savings under different budget headings. There are as yet no assumptions in this budget that relate to the work of the procurement and supervisory board.

Have you used any figure?

Mr McConnell:

There are different assumptions in different budgets, such as the health budget and the local government budget. The assumptions relate to things such as employee costs. There is no across-the-board assumption of targeted or—in this case—untargeted efficiency savings. However, I am certain that that is the kind of thing that we will examine in the spending review—which I announced last week—that looks forward to the period after the comprehensive spending review in 2002-03.

I look forward to hearing more from you on that.

Andrew Wilson:

Minister, could you tell us your target for efficiency savings in the health budget? Having done some rough and ready reckoning with the figures just now, and taking on board Keith Raffan's point about labour costs in the health budget, I think that savings of at least £50 million would have to be found just to ensure that the budget stands still. If the health service has to find such savings after receiving an increase of 3.7 per cent—which you described as substantial—the situation is grave.

Mr McConnell:

I have enough experience of questions such as that one to know not to make an immediate response. I hesitate to repeat myself, but I think that there is a clear understanding that, although the real-terms increase in the health budget for last year allows for the increases in pay and in the drugs budget, it assumes that the budgets will be managed and that managers will have to generate efficiencies to cover increased costs. That will not be the case for every health board, it will not be the same for every aspect of the health budget and it will not be the same in the health budget as it is elsewhere in the Scottish Executive.

Historically, the assumptions about each department have been based on that department's circumstances. A debate that should be held during the next few years—I am sure that ministers and committees will discuss it—is whether we need to set more general targets for efficiency savings across the whole Scottish budget. A move to that sort of system would need a lot of thought and knowledge.

The departments have projected their likely cost increases and efficiencies during the three-year period of the CSR. They have received real-terms increases to cover the balance. That gives us balanced budgets across the whole of schedule 1. I hope that the committee can support that.

Schedule 1 agreed to.


Schedule 2

Receipts of the Scottish Administration applicable without individual limit

I would like some clarification about the fact that receipts are applicable without individual limit. Does that mean that all receipts received under each of the categories are retained?

It means that the limits that have been established are the overall-amount figures at the end of each part of the schedule, not that each type of receipt has an individual limit.

Schedule 2 agreed to.

Section 2 agreed to.

Schedules 3 and 4 agreed to.

Sections 3 and 4 agreed to.

Schedule 5 agreed to.

Sections 5 to 8 agreed to.

Long title agreed to.