Finance Committee, 18 Nov 2003

Meeting date: Tuesday, November 18, 2003

Official Report 241KB pdf

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Budget Process 2004-05 (Scottish Commission for Public Audit Submission)

Agenda item 2 is consideration of the Scottish Commission for Public Audit's report on Audit Scotland's budget for 2004-05. Committee members have a note from the clerk and a copy of the commission's report. The reason why the report is before us is that the committee's budget report will refer to it. I have no doubt that committee members will want to raise issues from the commission's report—perhaps particularly the VAT issue that it raises—but I highlight that the commission is content with Audit Scotland's bid and that it is the responsible body on the matter.

I seek some clarity on the nature of the VAT problem. I presume that Audit Scotland does not charge for its services and that the VAT liability is therefore incoming VAT that it cannot set off and reclaim, but it would be good to get absolute clarity on whether that is the case, because the fact that it is not the case with the Westminster equivalent organisation highlights an anomaly that makes the proposition unsustainable. Although I understand the need to make provision for the £1.175 million VAT liability, the committee should put down a marker that it would be reluctant for that money to be handed over to HM Customs and Excise.

There is certainly an argument for clarity. I do not think that the situation is quite as simple as the Westminster body not having to pay VAT and Audit Scotland having to pay it; I think that there is some unevenness within the Westminster system. Greater clarity within the system is certainly needed. As the committee will see from paragraph 10 of the report, the commission suggests that it will

"write urgently to the Minister for Finance and Public Services to draw his attention to the potential implications of the view expressed by HM Customs and Excise"

and write also to the Chancellor of the Exchequer, so clarification is being sought on matters that are of concern not only to us but to the commission.

I am astounded by what I have read in the report. What causes me to be astounded is the fact that the matter has been rumbling on for more than three years, or longer if one assumes that there was some contact before the Public Finance and Accountability (Scotland) Act 2000 was passed. Audit Scotland has sought special status under the Value Added Tax Act 1974 and has sought a response from HM Customs and Excise since early 2000, which is well over three years. I know from my days as an insolvency practitioner that if someone did not pay their VAT bill, they were made bankrupt. In one case that I had, a couple in Fort William was made bankrupt for one week's delay, but it appears that what is sauce for the goose is not sauce for the gander as far as HM Customs and Excise is concerned.

I agree with Jim Mather that we need clarification, but it is obvious from the report that the commission and Audit Scotland are wholly dissatisfied with the lack of a response from HM Customs and Excise. Indeed, the report states that the commission agreed with the Auditor General's opinion that

"officer level exchanges … have run their course",

which seems to me to be the euphemism of the year. We need clarity, but I do not believe for a moment that anyone on the committee could agree the additional amount that the VAT represents, given that, as Jim Mather has said, there is a strong case that the VAT should not be paid. If we agree it, we are slicing off £1.175 million from the Scottish budget. In addition to that, the report does not state the amount of VAT that has been paid since 2000, which is also money that we have lost from the Scottish block because HM Customs and Excise appears wholly incapable of dealing with the matter, even in more than three years.

As far as Audit Scotland's request for an additional £2.6 million is concerned, we should agree the part other than the £1.175 million and defer the request for that £1.175 million until we obtain clarification. It is not enough that the commission write urgently to people—that has been happening for three years. We need to call as a witness the person in charge of HM Customs and Excise to explain why there has been a world record-breaking delay. We might also need to call as a witness the Paymaster General of the United Kingdom to find out how she can have allowed HM Customs and Excise to get away with the breathtaking delay.

The situation is appalling, and I hope that the committee will agree to take evidence from the top person in HM Customs and Excise and the Paymaster General. If we do not do that, we are simply throwing away £1.175 million, and I am sure that, for any Finance Committee member of any party, that would be utterly unacceptable.

If we go down that road, we must be clear about what the consequences will be, because, if we cut Audit Scotland's finances by £1.175 million, it might still be forced to pay that VAT bill, and we would only be reducing the budget that it has to do its work. I would not be particularly happy about going down that road unless I could be sure that it would not impact negatively on Audit Scotland's work.

I will make three proposals. First, I propose that we endorse Jim Mather's suggestion that provision for the £1.175 million is made at this point—that is the only prudent thing to do. Secondly, we should go back to the Scottish Commission for Public Audit, which is the appropriate part of the constitutional architecture to deal with the matter, saying that we whole-heartedly endorse the action that it proposes to take in paragraph 10 of the report and that it might wish to come back to us at a subsequent stage if it thought that further scrutiny of the kind that Fergus Ewing suggested was appropriate. The commission is in the lead on the matter—I see that it is an all-party committee—but we can certainly offer our services under its direction. Thirdly, in our letter to the commission, we should indicate to it that there might be the opportunity for a subsequent public airing of the matter if it felt that that would be useful once the parties mentioned had been written to.

I will suggest a fourth thing that we should do when we write back. There is a terrible tendency in Scotland—I hope that the committee does not fall into it—for people to blame others for things that they have got wrong. Perhaps we should look at the speck in our own eyes. The speck in our eyes is found in paragraph 13, which is on corporate governance. We should be equally concerned that, apparently, a draft corporate plan for Audit Scotland has only just been produced and that

"As part of this process, the Commission recommends that Audit Scotland seek to develop quantifiable targets in its corporate plan against which performance can be measured."

I was truly astonished that Audit Scotland, the body charged with audit, did not have a corporate plan until this year and still does not have any quantifiable targets. Pots and kettles spring to mind. When we write back endorsing the actions in paragraph 10, we might note our sympathy for the action that the Scottish Commission for Public Audit has taken on corporate governance.

There seemed to be a measure of support for what Wendy Alexander was putting forward, although Fergus Ewing expressed a different view.

I am putting my suggestions on the table. One is that I endorse Jim Mather's suggestion that provision be made for the £1.175 million, because that is prudent, and we should not block it. Secondly, we should write back to the commission and endorse the action that it suggests in paragraph 10. We should indicate to the commission that this is a matter to which we could return if it so wishes, given that it has the constitutional lead role. It appears to me that the commission has taken seriously its statutory responsibilities. Finally, we should welcome in the letter the steps that the commission has taken on corporate governance more generally. They seem to be in keeping with the corporate governance procedures that we are trying to have public bodies in Scotland adopt.

I take that as a formal proposal for debate. I will obviously hear alternative proposals.

I am genuinely trying to suggest something that will command consensus in the committee. I have not ruled out anything that other members have suggested; I simply suggested that we write back to the commission saying that it seems to us that it is taking the right steps and if it needs further assistance from us it should say so. We should try to develop mutual respect between different pieces of the constitutional architecture. That avoids the precipitate action of withholding the provision, which has been suggested, but which I think would be inappropriate at this stage. To some extent, that would be second-guessing the part of the constitutional architecture that has taken a view that provision should be made while the issue is pursued vigorously.

I am taking that as a proposal. If there is consensus on it, that is fine, but if any member wishes to disagree, I am giving them the opportunity to do so.

Paragraph 6 of the paper says:

"the Auditor General stated that he expected that a final decision on VAT would be reached by HM Customs and Excise shortly."

That was a year ago. We have been waiting another year. I did not suggest, as Elaine Murray suggested, that we cut the budget this year. We are not facing the decision whether to make a cut. We are being asked to approve an increase. With great respect to Elaine Murray, I say that that is not what I suggested. Nor did I suggest that we withhold, as Wendy Alexander said, the £1.175 million. I suggested—and the Official Report will bear this out—that we defer consideration of this matter.

I am familiar with the arguments that I meet when I propose this sort of thing, because we have been here before—the arguments might have merit. The arguments are principally that if we do not approve the money now, somehow the workings of Audit Scotland will come grinding to a halt, the workers will not be able to turn up for work and they will not get their wage packets. There is only one problem with that argument: there is absolutely no indication from the Auditor General that that is the case. There is no indication either from him or from the commission that failure to agree on the matter today will cause any prejudice.

I suggest that we defer the matter and invite the Auditor General to indicate whether it is essential that the matter be approved today. There is nothing to indicate that that is critical.

I just want to clarify a technical issue. It is for the Parliament, rather than the Finance Committee, to approve. That is an important distinction.

My point is simple. The argument against my proposal is that it would cause havoc and chaos, but there is nothing in the paper to suggest that that would happen if we deferred the matter today only quoad the £1.175 million—Audit Scotland can have the rest of the £2.6 million that it needs for this year. It seems to me that there is no foundation for arguing against my proposal on the basis that it would cause prejudice.

I turn to the main thrust of Wendy Alexander's proposal. She argued that my colleague Jim Mather suggested that the provision be made. We can all read the Official Report later and see what was said, but my understanding is that Jim Mather stated repeatedly that clarification was required. That would be obtained by deferring the matter quoad the £1.175 million.

I hope that members agree that it is fair that I should be able to respond to all the arguments that were made, as that seems to be a requirement of natural justice. There is an argument that if we do not go ahead with the precise provision today, somehow we would be in error. I do not accept that argument. I have no objection to the rest of Wendy Alexander's proposals—they are fair enough—but nearly four years' delay is long enough.

My suggestion is that we defer the matter and write to the Auditor General asking for specific clarification as to whether there is a time limit within which the £1.175 million is required or whether we can have more time to investigate the matter properly. We should also write to HM Customs and Excise to express our extreme displeasure at the delay; we should ask for an immediate explanation of that delay and an indication of when the decision will be taken. We should also ask it for a reply within seven days—the same amount of time that it gives people to pay their VAT bills—and we should reconvene to consider the matter next week.

Anything less than that seems tantamount to our throwing away £1.175 million. There is no suggestion in the paper that we cannot save that money. It might be the case that, by the actions of the committee, we save £1.175 million. That may or may not be the case but, as long as the possibility exists, it would surely be irresponsible of us to approve the £1.175 million today. I hope that members agree that there is merit in my argument that we defer the matter until we have the facts that I have indicated are necessary.

I seek clarification from the clerk of what we can do before we decide, because that is not clear from the note.

The Scottish Commission for Public Audit is under a duty to report its findings to Parliament, which is what it has done with this report. Under the terms of the Public Finance and Accountability (Scotland) Act 2000, it must ask Parliament to approve Audit Scotland's bid. However, the committee has a role in scrutinising the report and the committee's views are reflected in the budget report, which will be submitted to Parliament. There is always a paragraph—or a few paragraphs in this case—on the committee's views on the commission's report.

Does that mean that we should make the recommendations that Wendy Alexander or Fergus Ewing suggested in the report, rather than take action ourselves?

The committee is at liberty to make whatever recommendations it wants in its report, but it is ultimately for Parliament to approve Audit Scotland's bid.

In deferring—as Fergus Ewing describes it—we would be asking to overturn the recommendations of the all-party Scottish Commission for Public Audit without even discussing the matter with it. If we defer, we are in effect opposing the recommendation that the £1.175 million provision be made. Fergus Ewing seems to be making a suggestion about what should happen if the liability does not arise, but that is clearly a matter for a subsequent day.

In no dictionary that I have read does "defer" mean "oppose".

You are rejecting the report of the all-party SCPA, which recommends that the provision be made.

Do you mind if I reply, convener, or is everyone going to be allowed to jump in?

You may respond, Fergus.

To defer does not mean to oppose. To defer means to postpone consideration. It might be that, after we have considered the matter further, we accept and agree to the recommendations. Wendy Alexander's second point strengthens my case. She says that we have not even discussed the matter with the SCPA. Let me add, therefore, another suggestion. Let us discuss the matter with the SCPA and explore the reasoning further. Once we have had that discussion, we can agree or disagree to the recommendations. We can hardly be faulted for expressing a view that we would like to have further information, especially when it is patently clear that we need it. Everybody accepts that. People are urging that the committee make a decision without having seen that information. That would be a mistake.

I do not think that the committee is required to make a decision in quite the way that Fergus Ewing is describing. The issue is that the report comes from the SCPA. The Parliament makes the decision in that regard. Our interest is in the context of our scrutiny of the overall budget. What should emerge from our process are specific recommendations in our budget report.

Wendy Alexander's suggestion is entirely consistent with that approach. Fergus Ewing's suggestion implies that we have a decision-making role that, in practice, we do not have. However, as Wendy Alexander says, should the SCPA decide to ask further questions, we might have a role in that, if we are invited to have one.

We could have a lengthy procedural debate on the matter, but I suggest that the issues are relatively simple. Either we accept Wendy Alexander's proposal, relating to the recommendations that we contribute to the budget process and the SCPA, or we decide to engage in a process of scrutiny, which is what Fergus Ewing is suggesting that we do. However, I am not entirely sure of the locus of the committee in that regard. There is a clear separation of views. It might be appropriate simply to vote on Wendy Alexander's suggestion.

I do not agree with Fergus Ewing but his suggestion—that we take evidence before we produce a report that we can put before Parliament—is as competent as Wendy Alexander's.

We are short on comparative data from previous years. We do not know whether there has been a VAT retention in previous years or whether there is a reservoir of VAT that could be clawed back. Similarly, we do not have the full details of a precedent at a UK level that would illuminate the matter.

Having listened to the clerk, I am not totally clear about the powers that we have in this regard. I share the view that the best thing to do might be to defer a decision on the matter until such time as we have enough information—which might come from a meeting with the SCPA—to enable us to understand fully the implications of our decision.

I accept the wisdom of Wendy Alexander's recommendation, but it implies that a horse has gone through a gate and that we are talking about what will happen in years to come. I would like to be a bit clearer about what role we have at the moment and I think that that can come only through further discussion.

My understanding, from the clerks' note, is that the report has already gone to Parliament and that, therefore, we cannot stop it going to Parliament or somehow allow it to go to Parliament. We can only make a recommendation in respect of how Parliament should deal with the report. What is the time scale?

The time scale, in relation to the committee, is set by the requirement to produce our budget report. We probably have a couple of weeks before we reach the final stage of approving our budget submission.

In the note that is attached to the report, we are asked to note the observations and recommendations. Before we make a decision, could the clerks clarify what avenues are open to us?

Although the SCPA would be at liberty to lodge a motion asking that Parliament approve its report and Audit Scotland's bid, an informal mechanism has evolved whereby the Finance Committee can put recommendations in its report approving what the SCPA has put in front of Parliament.

When the Finance Committee submits its report to Parliament, the motion of the debate that is held asks the Parliament to agree to what is in the committee's report. If the committee still had concerns about Audit Scotland's bid, that could be reflected in the committee's motion. However, that would not prevent the SCPA from lodging a motion asking that Audit Scotland's bid be approved.

I agree with Wendy Alexander's proposition.

I would prefer it if we deferred matters for a fortnight, as there are so many unanswered questions that I cannot imagine that anyone would want to hand back the £1.175 million. However, if we are to have a vote, the proposal to defer should, logically, come before a proposal to pay the £1.175 million. My proposal should come first; Wendy Alexander's should come second. If the proposal to pay the money now is agreed to, members—including Mr Brocklebank, who has expressed support for my broad position—will not have the option of deferring the question of whether the payment should be approved.

What are we deferring, Fergus? The payment of the £1.175 million, which is what you suggested at first, or the consideration of the report, which is what you now appear to be saying? I am happy to bow to you on the procedural matter of which proposal comes first, but I would like to know what we are deferring.

There is no dubiety. The conclusion of the report asks us to

"recommend that Audit Scotland's bid for a budget of £7.105m for the year 2004/05 should be approved by the Parliament."

I am suggesting that we approve the sum equivalent to £2.6 million less £1.175 million and defer for a fortnight the approval of the payment of the £1.175 million until such time as all the issues that we have raised in this debate are clarified.

Is that competent? I was not aware that we had the power to defer any payment.

I am not sure that the deferment of paying the money is competent.

My understanding is that we will put something in our budget report to Parliament and that an element of our report will be on Audit Scotland. Wendy Alexander is clearly suggesting, first, that we are concerned about the issue. However, the SCPA has scrutinised the matter and we have written to the commission about it.

The second aspect of Wendy Alexander's suggestion is eminently sensible. If the commission believes that the payment should go ahead, I do not think that it is competent for us to stop that payment. We may wish to put a comment in our budget report to the effect that it should be deferred. However, Fergus Ewing is not being clear as to whether we are deciding that today.

The third aspect of Wendy Alexander's suggestion—on the way in which Audit Scotland operates—will be the most important for us in the long term. We are talking about £1 million out of a total Scottish budget of £22,000 million.

Fergus Ewing is suggesting that, procedurally, we should deal with his proposal for deferment first. I have no difficulty with that.

Again, I ask for clarification. Is the suggestion that we do not make a decision today about what we put in our budget report and that we come back in a fortnight after having contacted whomever Fergus Ewing wishes us to contact? Alternatively, is the suggestion that we recommend in our report that the payment of the £1.175 million be deferred?

Fergus Ewing will have to clarify that.

I have not addressed, so far, the issue of what should or should not be in our budget report, because we have not heard evidence to allow us to reach conclusions. I would have thought it self-evident that we need to take evidence before producing the report and I am amazed that Jeremy Purvis thinks that I am advocating that we should reach a conclusion on the report when he patently accepts that we do not have all the information necessary to reach such a conclusion. I am simply suggesting—and I repeat this for the umpteenth time—that we defer approval today of authorisation of the £1.175 million. Paragraph 14 of the SCPA's report specifically invites us to indicate that a payment be approved. I am suggesting that we do not do that.

But—

May I just finish? Because paragraph 14 invites us to approve something, by definition we must have the power not to do so, otherwise there would be no point whatever in this discussion.

Once again, I suggest that we defer approval of authorisation of the £1.175 million and that we revisit the matter in 14 days' time when we have all the facts in front of us. If we do not do that, members will, in my opinion, be voting to throw away £1.175 million.

Convener, I do not often raise points of order but I think that this is a point of order. We are not being asked to approve the report. The report has gone to Parliament and it is for Parliament to approve it. All that we can do is make a comment in our budget report. This discussion is completely bogus. A report has been produced by five members of the Scottish Parliament. As Wendy Alexander says, those members come from across the parties. Not one of them is a poodle of the Executive or a poodle of the Exchequer. They are all perfectly capable of standing up for themselves. They are perfectly competent. They have put together a report to Parliament—not to us, but to Parliament. The onus of approving or not approving that report does not fall to us. It falls to us to make a comment in our budget report.

I think that you are correct in saying that it is not our job to approve the SCPA's recommendation or not to approve it. It is Parliament's job to approve it. Fergus Ewing's proposal is that we defer the process. Wendy Alexander's proposal is that we make some recommendations to the commission and that we offer the commission our support. That is the difference between the two proposals.

We could carry on discussing how many angels can dance on the head of a pin, but I suggest that we vote on Fergus Ewing's proposal for a deferment. If that fails, we will vote on Wendy Alexander's proposal.

The proposal is, that we accept Fergus Ewing's suggestion of a deferment. Are we agreed?

No.

There will be a division.

For

Brocklebank, Mr Ted (Mid Scotland and Fife) (Con)
Ewing, Fergus (Inverness East, Nairn and Lochaber) (SNP)
Mather, Jim (Highlands and Islands) (SNP)

Against

Alexander, Ms Wendy (Paisley North) (Lab)
Maclean, Kate (Dundee West) (Lab)
McNulty, Des (Clydebank and Milngavie) (Lab)
Murray, Dr Elaine (Dumfries) (Lab)
Purvis, Jeremy (Tweeddale, Ettrick and Lauderdale) (LD)

The result of the division is: For 3, Against 5, Abstentions 0. Fergus Ewing's proposal falls.

The next question is, that Wendy Alexander's proposal be agreed to. Are we agreed?

No.

There will be a division.

For

Alexander, Ms Wendy (Paisley North) (Lab)
Maclean, Kate (Dundee West) (Lab)
McNulty, Des (Clydebank and Milngavie) (Lab)
Murray, Dr Elaine (Dumfries) (Lab)
Purvis, Jeremy (Tweeddale, Ettrick and Lauderdale) (LD)

Abstentions

Brocklebank, Mr Ted (Mid Scotland and Fife) (Con)
Ewing, Fergus (Inverness East, Nairn and Lochaber) (SNP)

The result of the division is: For 5, Against 0, Abstentions 2. The proposal is agreed to.

That was rather tortuous.