Finance Committee, 14 Dec 1999

Meeting date: Tuesday, December 14, 1999

Official Report 178KB pdf

---

Inquiry Topics

Item 1 is consideration of possible topics for our first inquiry. The clerks have circulated a paper outlining a number of proposals. We can consider other topics, and if anyone has any suggestions, they should make them as soon as possible in the discussion so that we know the range of topics from which we can choose. I note that Keith Raffan and Andrew Wilson have suggestions.

Let us look briefly at the topics suggested in the document, before considering the other suggestions. Do members have any comments on the general text about timing and the criteria that apply? It is fairly straightforward.

We welcome the fact that our proposed change to standing orders, extending the remit of this committee, has been accepted and is soon to be implemented. We sought that change and we have achieved it.

There are three suggested topics in the document: tax-varying powers; quangos; and Treasury functions. The areas that could be covered under those headings are also listed. Are there any comments on those topics? I have a personal preference, but we can come to that in due course.

Our agenda has been tight so far and we should not overburden ourselves, so planning ahead beyond this year would be useful. I therefore suggest that an inquiry into tax-varying powers is one that can wait. The Executive's current position is quite clear, so it would be premature to discuss it at this stage.

Of the three topics listed here, the most attractive is the structural issue of Treasury functions. With proper evidence, that inquiry could be done reasonably quickly. I am not sure that it would be our role to investigate quangos, although it is a tempting topic in many ways. I would not oppose such an inquiry, but I think that we have other priorities under our financial remit.

I have some sympathy with Andrew Wilson's point of view. We have had a clear declaration from the minister on tax-varying powers, and that is something that we could consider in year 3 or year 4. By then, having had a couple of goes at normal budget procedure, we should have a better idea of what is happening.

The quango and Treasury suggestions are interesting. We do not have time to do both inquiries this year. I suspect that we will have to look at quangos during the coming year, but that is something that we may be able to do during the next session. This year, we should stick with the Treasury functions to get a handle on what is happening in that department.

I would like Andrew Wilson and Keith Raffan to tell us what other ideas they have. I agree with what has been said so far—that tax-varying powers are not a priority—but I would like to hear the full range of suggested topics.

I agree with that. I invite Keith and Andrew to outline their suggestions.

One area has cropped up continually in my meetings with health boards and police authorities: efficiency savings and their impact on budgets.

Health boards are being asked to make efficiency savings every year, which means that they are now moving away from non-clinical savings to clinical savings. That is ominous, because it basically amounts to rationing. Yesterday, I visited Fife constabulary, a very impressive police force, 86 per cent of whose budget is spent on manpower. It is now being asked to make savings over the next three years—1 per cent this year, 1.7 per cent next year and 2.5 the year after that—on the remaining 14 per cent of its budget.

The demand for efficiency savings is being made right across the public sector. In trying to get to grips with budgetary matters working up to April and May, I do not agree with Sarah Davidson that the subject committees should consider things first. This committee will have to get a feel for the budget. It would be helpful to conduct a budget-related inquiry over the next few months. Efficiency savings and their impact on public services fall under our remit, although they could also come under the remit of the Audit Committee.

I raised a few matters at our first committee meeting before we fully appreciated the burden of work that we now have to shoulder. We can tie Keith Raffan's suggestion into the wider area of the structure of the funding mechanism. He was right to highlight the point about efficiency savings. The guesstimate is that 50 per cent of the block is spent on wages and salaries. The block increase next year will be 0.5 per cent and average earnings are increasing at 4 per cent, which raises the possibility of severe job losses or a decline in service provision. That is something that the Finance Committee must consider.

Academics as well as politicians are asking questions about the effect on the block of the Barnett formula and the allocation mechanism. An inquiry would give us scope for a rigorous investigation of what is going on. We could use select committee work that has been done at Westminster as a starting point. The Parliament must form a view about that, because some people are developing somewhat ill-informed views about the impact that the Barnett formula is having on the budget, and that is not healthy. Cross-party interests converge on that point, because it is not a question of party politics.

As the convener will be aware, the European Committee will be considering European additionality. Given the reform of structural funding that is currently under way, additionality is a live issue and one that I have mentioned before. That is something that we should consider.

The final issue that I want to raise is the private finance initiative. An inquiry would expose how bad or how good PFI is, would provide a platform for discussing whether reforms could be made and would allow us to question everything from appropriate discount rates to the structure of the deals themselves. The Audit Committee is already asking those questions about one deal, and that has been illuminating. Once that report comes out, the Finance Committee may want to consider some similar questions.

I am glad that I have heard those ideas. We should look at how the Barnett formula works and at the whole context of public sector finances.

I was going to mention the Barnett formula as my second point. Unless we could break it down into a series of reports on different elements, it would be a fairly major inquiry. Sooner or later we will have to consider it, if only because of the convergence in terms of spending per head in Scotland and in England. That will put pressures on the Scottish block and the Scottish budget. Whether we like it or not, that is not an issue that we can evade, however much it stirs up public opinion down south. I refrained from mentioning it, however, because I thought that we would be working to a tight schedule between January and Easter. Until we get into our stride, I think that it would be better to concentrate on something else.

The question of Treasury functions is a structural question that we could look at quite quickly. There is a wealth of work out there for us to tap into, so it should not take too long. The question of the Barnett formula and structural funding is one that we can take our time with, over a period of several months, before writing a final report.

Politically—from the Parliament's perspective and forgetting party—we should put on record the negative influence that the Barnett formula is having on our budget. There is massive misunderstanding about that. There is no argument about relative levels of spending in one or two areas, but there is an argument about where it is going. It would be useful for us to take charge of that argument and the way in which it is informed, because there is a risk that the Barnett formula will be used to beat the Parliament over the head. That is of no use to anyone. I suggest that we take our time with bigger inquiries, such as that on PFI, and deal with others, such as that on Treasury functions, more quickly.

We do not have to bring the inquiries to a conclusion before we get into the meat of next year's budget. Andrew's suggestion—that we opt for a short sharp inquiry that we can complete before then, but set the wheels in motion on one that may take us through the summer and into next year—is a good one.

As experienced Westminster operators, convener, can you and Keith Raffan offer some guidance on how long such inquiries take there?

They tend to be short and sharp, taking place over a period of about three months.

Some notorious inquiries have gone on for 12 to 18 months, so that by the time people come to draft the report, they have forgotten the evidence that they originally took. There are a number of advantages, particularly until the committee settles down, in doing a short, sharp inquiry as a practice run. It would need to be on something that was not too complex and on which we could produce a solid piece of work.

These are all topics of interest. If we want to have a short, sharp inquiry to start with, Treasury functions would be an appropriate subject. The topic that is labelled here as quangos relates to creative modelling, which, no doubt, the finance department will want to do over the next year. There will be a lot of pressures as to how things are delivered, and there will be debates about enterprise systems and so on. Our second inquiry might, therefore, be on quangos. We could conduct the PFI inquiry in parallel with consideration of the budget next year.

There seems to be general consensus that Treasury functions would be a good starting point.

I want to make a brief point about quangos. The Minister for Finance has announced that the Executive will be going out to consultation on quangos—he talked about it on "Newsnight Scotland". If we were to carry out an inquiry on that topic, it would be appropriate to wait until the consultation process had been completed.

We should ask the clerks to get moving on Treasury functions, as we would look to complete that inquiry in the first quarter, before the budget reaches us.

In addition, could we have a longer-term timetable indicating where the other issues will fit in? Perhaps we could discuss that at our first meeting in the new year.

We could identify a topic for the longer term now and invite the clerks to do some preliminary work and report back to us after the recess. A number of topics have been proposed: efficiency savings, European additionality, PFI and the Barnett formula. All four are substantial subjects, particularly the last three.

The clerk is suggesting that, rather than our making a decision now, the clerks could supply us with suggested headings for topics, as they have in the paper that we are considering today. We could give the matter some thought and make a decision at an early meeting after the festive recess.

I suggest that we select a topic to be dealt with first and, perhaps, the next topic for an inquiry. To pin ourselves down on all the inquiries that we intend to carry out over the next two years might not be sensible.

I was not suggesting that. I was simply seeking to identify the next topic for an inquiry. We have two or three choices. There may not be any great benefit in making that decision today, if we can have more information on which to base the decision at our first or second meeting after the recess. Is that acceptable?

I have one brief point. It is important that we do consecutive inquiries. I sit on another committee, in which we are conducting parallel inquiries. I do not think that that is a good method of working. Supposedly, we are doing a briefing on one issue and an inquiry on another, but I find it very confusing to be switching from subject to subject from week to week.

I am on the same committee, so I know what you are talking about. I agree that we should avoid that, if possible.

I wonder whether any of the topics would lend themselves to a rapporteur, rather than an inquiry. Could we not at least begin a preliminary investigation on, for example, European additionality, by appointing a rapporteur?

That is a particularly appropriate subject for a rapporteur, given the history of the post. Again, we can take suggestions and further information from the clerks when we meet again after the recess.

I am sure that we will have a volunteer.

I am not sure that we are allowed to discuss that today, given that British MEPs are boycotting the opening of the new Strasbourg Parliament.

Not all of them.

The major parties are.

If there are no further comments on item 1, we will move to item 2. I remind the press and public that we have decided that this part of the agenda will be dealt with in private session. However, we undertake to give people fair warning of the minister's appearance, which cannot, in any case, take place before 11.30 am. If you would not mind leaving us now, we will consider the lines of questioning that we want to pursue. The outcome of our deliberations will be fully available to you in due course.

Meeting continued in private.

The meeting resumed in public.