Finance Committee, 05 Sep 2000

Meeting date: Tuesday, September 5, 2000

Official Report 128KB pdf

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Budget Process

Agenda item 5 is on the budget process. Paper FI/00/20/9 is the appropriate one for this matter. It provides an overview.

As members will be aware, the subject committees' stage 2 reports should be with us by the end of October. The aim is to have a debate around the beginning of December, but there has been a further development. When members arrived today, they should have received copies of a letter to me, dated 1 September, from the Minister for Finance. It explains how the comprehensive spending review moneys that apply to Scotland will be slotted into the process.

Members will be aware that the Minister for Finance is to make his announcement to the Parliament on 20 September. Given that committees will not receive the details of that announcement, which they will have to slot into their considerations, before 20 September, it may be difficult for them to meet the deadline of the end of October.

This issue affects not just this committee but the budget process as a whole, because a similar situation will arise every two years. Callum, will CSR announcements normally be made at the same time as they were made this year—at the beginning of July?

The past two comprehensive reviews have been announced in the summer, around July.

If that is the case, the CSR will always have an impact on stage 2 of our budget process. We need to give some consideration to that and to how it will affect us. We have a year to get through the process, but it is neatly divided into segments. That means that if part of it slips it is extremely difficult to pick up the lost time. Have members had an opportunity to read the letter? Perhaps I should allow you to do so, because it is almost three pages long.

Timing was an issue that we discussed in February. This is a problem that is going to arise all the time and I cannot see a solution to it, given the fact that the cycles of the two Parliaments are different. The UK budget comes out a month or so after our budget and alters it. Then, just as we are getting stuck into the committee stage, we have the CSR once every two years. That throws everything out of sync and renders our initial inquiry work, although not entirely worthless, less useful than it otherwise could have been. It is difficult for us to come up with a solution off the top of our heads.

We do not have to do that here; we can use our autumn review of the budget process to consider the problem.

It needs detailed consideration.

I agree with Andrew Wilson that it is difficult to think of a solution because of the tightness of the timetable.

You are right to say that this will be an on-going problem. For that reason we must deal with it as part of the process; we cannot just say that it is happening this year but is unlikely to happen again, because it may well happen again.

It seems to me that our work has not been undermined, to the extent that in our previous report we concentrated on process. That was absolutely crucial. However, we will have to say to the Executive that in future budget processes, apart from presenting the budget to us, it should indicate on a departmental basis any additional priorities that it might have, were additional money to become available. That would allow us to examine the situation. It would also begin to address unidentified need.

If we are really in an open process, we must recognise that there will always be unidentified need. If departments had to indicate their additional priorities, we could avoid the situation that may arise every time there is a comprehensive spending review, with everyone putting forward their favourite little scheme in a rush, so that we can spend the money in the year in which it happens to arrive. That is a major problem, particularly in areas such as health. The result is that unwise expenditure can occur, because things have been rushed. We must recognise that this is an on-going problem and revisit our view of the budget process, so that we can build the CSR into that.

We can do that in our review.

Obviously, there is a lack of co-ordination between Westminster and us, which will cause problems. I am not sure that our budget timetable, particularly stages 2 and 3, could not be revised marginally. Clearly there is a difficulty if the minister cannot give us figures to level 2 until 20 September. The autumn recess also gets in the way, as the end of October is not long after that. Instead of having the stage 2 debate at the beginning of December, we may be looking to have it in mid-December or in the week before Christmas. That might be a way of giving the committees extra leeway.

I think that the minister is planning to come back with his final budget, which we cannot amend—we can only propose an entire alternative budget—in the second week of January. Perhaps we could also look for some leeway there, even if it is only a week or 10 days. I know that that is only tinkering, but it might help a bit. It would certainly relieve the pressure on committees. I am worried about the way in which the committees went about scrutinising the budget this year. Obviously, this was the first year and one cannot expect too much. However, we need all committees to take a much more methodical and uniform approach where possible.

Would it be helpful to get an indication from the financial issues advisory group—a sub-group of the consultative steering group that played an influential part in this process—of what consideration it gave to the UK cycle? At the time its report was published, I, along with others, said that the group did not appear to have considered the issue. It would be interesting to hear the views of FIAG members, given that they thought up the budget process.

Do you mean that we should examine the FIAG report to see whether this issue is mentioned? That group does not exist any more.

I know, but former members of FIAG could be approached for their views on the matter. I understand that the group is no longer formally constituted, but there is no reason why we should not approach former members.

I am very supportive of that idea. We may want at the same time to put a number of other questions to them, based on our initial experience.

We could make that part of our autumn review. We can come back to that in a minute.

Keith Raffan has suggested that all we may need to do is put things back by two weeks. However, as Richard Simpson said, there is a requirement on the Executive to be rather clearer about what it is doing at different levels. As well as dealing with the timetable, we will need its input to assist us in coming to a view about what we need. I have scanned the minister's letter, and I presume that it offers us a meeting.

A briefing.

I recommend that you meet him on behalf of the committee and report back to our next meeting on how he thinks that he can assist the process.

I did not read that part of the letter as meaning that I should have a meeting with the minister, but that the committee should receive a briefing. We should seek to enable all members to participate in that, as it would be helpful.

To respond to Keith Raffan's point, this is not simply about finding two weeks. Members will recall that many, if not all, of the subject committees were uneasy about the difficulty that they faced in fitting stage 1 consideration of the budget into their schedule. They will have begun to examine their schedule for the autumn and will have put time aside late this month and in October for stage 2 consideration. We cannot simply ask them whether they can allow it to run on into November, because that will have an impact on their inquiries and any legislation that they are required to scrutinise. We could decide today to put things back by two weeks, but that would have an impact on the other committees. I suspect that that would not be popular. We must bear in mind the knock-on effects of anything that we recommend.

Convener, you misunderstood me. I am trying to give the committees more time and flexibility—whether they take advantage of that is up to them. At the moment I do not think that there is a problem with stage 1. Committees may have encountered difficulties because this was the first time that they had experienced the process and because they had not prepared far enough in advance to scrutinise the budget. They will be in a better position next year. I am trying to give them more flexibility, not less.

I accept that. The point that I am making is that they may not have that flexibility in their work programmes for November onwards, which they may already have set. I do not have information on that, but I suspect that that is the position.

I recall suggesting during the past year that we should divide our labours to assist the committees. The committee decided that that was not the way to go, but we may have to review that. We may have to meet the committees to assist them with the process. Perhaps you could discuss that with the other committee conveners.

Yes. [Interruption.] I am being reminded that a paper on the budget process will be put before the conveners liaison committee next week, and these points could be fed into that paper.

I do not think that we can do anything else at the moment about the timing, with which the committees and we are stuck. We must consider this problem for the future, to try to find some way out of it, although I agree with Andrew Wilson that that will be difficult. Perhaps Callum Thomson could ask the other clerks what flexibility exists and how rigid the committees' work programmes are.

We may well divide the committee into groups when considering the budget process and subject committees. The paper that has been sent to members also suggested that approach for our autumn review. The four groups suggested are listed at the top of page 3, and members will note that the paper also suggests a new approach that Callum Thomson and I discussed last week. The first three subjects should be dealt with during the first part of the process, from the end of this month until the beginning of November. Thereafter, we would move into part 4—rather than stage 4, which is an unfortunate term—because we would then benefit from the committees' views about stage 2 of the budget process. Do members have comments on those proposals, which seem to be a sensible way of dividing the work and maximising our effectiveness?

I would like some elaboration of the four soundbite headings.

The style of the paper came from the comments that we made in our report.

I am clear about that.

The aims and objectives arose from how the proposals contained in the departmental reports met the stated departmental aims and objectives. The committees commented on those issues during stage 1 and the figures are an evaluation of how those issues stood up. On figures, we will consider real terms, current spending versus capital spending and resource account budgeting, on which the Minister for Finance offers us a briefing in his letter of 1 September.

The last point in the minister's letter is about end-year flexibility, and he asks for the committee's view on whether that should be included in the figures. I assumed that we would give that view.

Why are we discussing the mechanics of the process, which are less of a priority?

It is proposed that the whole committee will feed in what we receive from the subject committees on their consideration of stage 2 of the process. The paper suggests that the clerks should bring proposals to our next meeting on 19 September, when we will be able to decide which members are interested in particular areas. It would be helpful if members came to the next meeting with an idea in their minds as to who will go where, although we will have to find some balance, as it may not be possible to accommodate everyone's first choice.

It is inevitable that these areas are not entirely separate or discrete. Certain aspects of the aims and objectives will impact on the style of our approach. Personally, I have some doubts about the usefulness of the deliberations of a sub-group of the Finance Committee on style. However, I suppose that it may be possible to produce some general thoughts or guidance for others to use as guidelines.

On the presentation of figures, I am not sure whether I understand the point made in Mr McConnell's letter. He says that, in presenting the figures for the current year, he will exclude end-year flexibility. I take it that he is talking about his statement on 20 September.

Yes.

In other words, although I thought that we would consider end-year flexibility properly in our autumn review, the minister wants an answer today, as his statement will be made in about two weeks' time. Am I misreading his letter? He says that he will keep to his 20 September deadline, when he will present level 2 figures and that he will not include end-year flexibility because, apart from anything else, we said that that would cause difficulty. I thought that we would return to that issue in our autumn review, but the minister needs an answer from us today, as we will not meet before then.

On the previous point about end-year flexibility, I struggle to understand why this issue is such a puzzle. It is obvious that we should see outturn versus the spending that is planned for this year. If we do not have last year's outturn figures, we should get an indication of the figures that are being brought forward. It will not be informative if we get information about only the spending that is planned in both years and if end-year flexibility is up in the air. We must have both pieces of information: we need to know what was spent last year and what spending is planned for this year, as well as what was not spent last year and therefore brought forward. I cannot understand why we have such difficulty with that.

The minister refers to our report on the difficulties with end-year flexibility. Off the top of my head, I cannot remember what we said about that.

The problem arises from the fact that there is a risk of double counting. It is important that the Executive is able to demonstrate to us precisely what it proposes to use the one-off, end-year flexibility funds for and that it ensures that that flexibility is not subsumed twice within the budget, as that would appear to demonstrate massive growth this year and would deflate figures in future years.

The minister's view that he should exclude end-year flexibility is acceptable, but he should give us a note with his statement of what end-year flexibility is being used for at level 3 in each department. Therefore, although he will confine himself to level 2 for his statement on 20 September, if practical it would be helpful to receive a level 3 statement for end-year flexibility, which should be separate from the other figures. That will keep the figures precise and will allow a clear understanding of the position.

The only downside to that approach is that while it would allow understanding, it would not allow us to see what will be spent this year, as excluding end-year flexibility could mean that up to £300 million or £400 million might not be included in the figures. That does not help us, as we will not be able to see what is being spent in each subject area.

No. If end-year flexibility is budgeted for separately, with an indication of what it will be spent on and when it is to be spent, we will have that information. The problem is that we will have to deal with this process every year, and it is important that we are able to see what happens with end-year flexibility money.

That is a good suggestion. As far as I am aware, not all end-year flexibility money has been allocated yet.

That is why I would like to know about it.

I imagine that the Executive knows the totals now, but within those specific totals it will have information about only some of the end-year flexibility money. For example, there was another health announcement just the other day, but only half the health spending has been announced.

Richard, are you suggesting that we should ask for that level 3 information to be made available on 20 September?

We should accept the minister's suggestion that end-year flexibility should be recorded separately, but we should know what it is being used for by now, and we should ask for that information.

So we should ask for as much information as is available up to 20 September?

Yes, if that is possible.

That is a good point, and is another example of the issue raised by Dr Simpson about end-year flexibility not being used on priorities and being spent on pet projects rather than on mainstream funding.

I thought that we had gone into this issue during our evidence session with the minister and some of his advisers. The committee asked for a clear statement of the rollovers and targets and for a further report when those rollovers had been spent. That would have allowed us to know at some point during the following year whether an overrun had not been used and to find out why and whether that money had been diverted to some other priority. I thought that we had asked for that information already, and I got the impression that the minister and his advisers were prepared to consider that request. Perhaps my memory has gone, but I recall that we did ask for that. We were in committee room 2, if I remember rightly.

Your memory may not have gone; you may be the only one of us with a good memory—I do not know—but judging from the faces around the table, no one else recalls that specific point.

I do recall it a bit.

Thank you, Keith.

I had to rake my memory. Monitoring is one thing, but we certainly do not want to do anything to discourage end-year flexibility or rollovers.

There is no question of discouraging that—we welcome it—but we want to have the maximum amount of information. The suggestion is that we ask for as much information as is available, separated out. As well as that, there will be the statement on 20 September.

On the autumn review, are members happy for the clerk to come to us with suggestions on 19 September and for us to move forward on that basis?

I made a point about slippage. You said that we could not do anything about the dates for the committee at the end of October. I think the clerk was going to find out what the position was.

Callum Thomson will speak to his opposite numbers on the other subject committees to find out whether they have any flexibility within their work programmes and will come back to us at our next meeting.

That would be helpful.

Regarding the memo from Jack McConnell, can we get an informal briefing from Peter Collings's team soon, because there is an awful lot in the document that I need to have explained.

I was going to leave that until we reach item 6, when we will talk about our future programme.

My other question on the memo is on page 2, paragraph 2. Obviously quite a lot of the consequentials arise from comparable expenditure and what we are allowed to apply the multiplier to, which takes us back to the question of when we will examine the Barnett formula in detail. It would be useful to inquire of the minister to what extent the 70 per cent of transport consequentials apply. What is the other 30 per cent? My understanding in this area of dispute has always been that it was down to London Transport, which for some reason was viewed as a UK service, of benefit to people in Caithness as well as to people in Islington, which struck me as odd. It would be useful to have an explanation of whether the 30 per cent is not comparable expenditure in Scotland.

We can write to the Minister for Finance to ask for clarification of that.

Are there any other comments on the various items that we have considered under agenda item 5? If not, we move to agenda item 6, which, as we agreed at the start of the meeting, will be taken in private.

Meeting continued in private until 11:17.