Finance Committee, 19 Nov 2001

Meeting date: Monday, November 19, 2001

Official Report 432KB pdf

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Budget (Scotland) Act 2001 (Amendment) Order 2001 (SSI 2001/draft)

We reconvene for the last part of the meeting. Agenda item 5 concerns the Budget (Scotland) Act 2001 (Amendment) Order (SSI 2001/draft). I invite the minister to make an opening statement and remind him to move the motion at the end of his statement. I am informed that, under standing orders, the debate can last no more than 90 minutes and I intend to keep within that time.

Thank you for the opportunity to give evidence on the autumn budget revisions. As I am sure members are aware, the autumn budget revisions are the means by which the Executive seeks parliamentary authority for the various changes in expenditure in the current year.

The budget revisions include changes in expenditure to meet the Government's priorities, for example: the spending allocations from the 2001 budget that were announced on 28 June and which were discussed earlier today; the allocation of EYF that was announced on 28 September; and access to the Whitehall reserve. Technical changes relating to basic in-year management are also covered. An example is the transfers between votes in the Scottish Executive and in other UK Government departments.

The major elements of change in the autumn revisions are made up of: the take-up of EYF of £718 million; budget 2001 additions amounting to £200 million; and £5.6 million of Treasury reserve claims covering forestry and flood and coast consequentials.

I turn briefly to end-year flexibility. EYF was introduced to improve the effectiveness of public spending and to stop the end-of-year spending spree that took place prior to devolution. The money involved is not lost; spend is simply delayed until the next financial year. The full amount of underspend will be used on the things we said it would be spent on.

As we have discussed, the total underspend was £718 million, or 4 per cent of the 2000-01 budget. Of last year's underspend, about £250 million was due to slippage in capital projects; £90 million was carried forward to finance the Glasgow stock transfer scheme; £65 million was planned to carry forward before the McCrone settlement; and £55 million was retained by health boards, which allows them 1 per cent flexibility from year to year and lets them use their discretion to improve services. Taken together, those figures account for £450 million of the total underspend. The remainder amounts to the equivalent of five days' spending by the Executive.

EYF was used to deliver the Executive's key priorities. For example, in health, £75 million went to wiping out NHS trust deficits and £11 million was taken up to meet the pressures on winter beds. In addition, £102 million of EYF included a variety of costs in education—£48.6 million for teachers' pay settlement costs, £5 million for schools PPP, £5 million for adaptations to school accommodation for disruptive pupils, £10 million for school sports facilities, £10 million for school ethos projects and £10 million for school justice projects.

EYF is not simply a mechanism that ensures that the Executive's key spending priorities are met; it also rewards bodies for their financial prudence. The Executive's determination to reward rigour in financial stewardship is evident in its allocation of an extra £2 million from EYF to Dumfries and Galloway Health Board because of its prudent management of its finances. Richard Simpson touched on that earlier.

A monitoring system has been put in place, under which we will receive quarterly outturn reports. Those will ensure that underspends are anticipated and reduced in the future. When excessive underspends are forecast, ministers will consider reallocating spend and presenting proposals for that to the Finance Committee for consideration.

I welcome questions from members of the Finance Committee and any comments that they have on the information that we are presenting. I will try to provide detailed answers where possible, but given the level of detail involved, I may want to provide some answers in writing, if that is acceptable to the committee. I commend the order to the committee.

I move,

That the Finance Committee recommends that the draft Budget (Scotland) Act 2001 (Amendment) Order 2001 be approved.

The documents that accompanied the Budget (Scotland) Act 2001, to which this is an amendment, contained a summary. That was not provided this year. It would be helpful if we could have such a summary in future.

The main change that the Budget (Scotland) Act 2001 (Amendment) Order 2001 makes relates to the formation of the finance and central services department. Is the decrease in the budget for the development department due entirely to the transfer of functions set out in the order to the new finance and central services department?

I ask members, where possible, to refer me to the relevant page of the document so that I can be clear what their question relates to.

My question relates to the transfer of funds from the development department. Is the decrease in the department's budget due solely to the transfer of powers to the new finance and central services department?

That is substantively correct. There may be other marginal factors, but the decrease in the development department's budget relates mainly to changes in the structure of departments within the Executive.

What is the rationale for the establishment of a finance and central services department? In what way will its functions differ from those of the finance group?

The restructuring is designed to give a much clearer profile to the work and purpose of the finance function within the Executive. For some time we have believed that, in the context of devolution and of the expectations that the public has of the Parliament and of the Executive, we must ensure that the resources available to us are marshalled carefully and prudently. We must also ensure that the shape of our budget matches as closely as possible the shape of our policy commitments and priorities. We want to send a clear signal that we are very serious about the way in which we manage our finances and about the way in which finance, as a central function, relates to the departments of the Executive. One of the clearest ways in which to send such a signal is to establish finance, together with central services, as a department in its own right. That gives finance appropriate status within the Executive and sends a clear signal to the outside world.

Attendant on those structural changes, we have taken a number of initiatives that relate to the way in which we conduct the budgeting process. We have also put in place additional structures that will allow us to examine budgets and areas of expenditure more closely. The most important of those is the best value and budget review group, which meets in the Executive on an on-going basis.

I must admit that I found some of the documents with which we are dealing difficult to follow.

I have two specific questions. The first relates to paragraph 2(3) on page 1 of the order, which suggests that you have reduced local authorities' capital expenditure—I presume that that means capital expenditure limits—by a marginal percentage.

Unfortunately I do not have a copy of the order to hand. Talk me through it.

You have cut local authorities' capital expenditure limits from almost £650 million to about £646 million. Why?

I have another specific question, which follows on from the point that the convener made about the development department's budget.

It may be advisable to hold that question. Mr Palmer is still looking for the point.

I am not following the usual procedure of going through the budget documents department by department. There is no indication that there are sufficient questions to do that, so I will take individual questions. Will you indicate the reference if you expect the minister or Mr Palmer to respond?

It is on page 77 of "Scotland's Budget Documents 2001-02", under the heading "Other Transport". It seems to me that significant changes have been made in the moneys that are available to the British Waterways Board. Its budget has almost tripled, from a little over £700,000 to £2.2 million. I notice no particular explanation for that. Also, the liquid petroleum gas grants have been slashed by a substantial sum of money. Will the minister give us an idea of what those figures are about?

Those are rather specific questions. It would be reasonable for the minister to write to the committee with the answers.

I think that I can answer one of them.

I will be impressed if you can.

There has been a substantial switch in the budget for programmes under the "Other Transport" heading. The most significant element of that relates to the British Waterways Board. That focuses on arrears for a work and safety programme. It is nothing particularly momentous. It simply reflects the fact that we are shifting the money into the right place to ensure that the British Waterways Board is able to continue to develop that work and safety programme. If Brian Adam wants more information on that, I will be more than happy to write.

What was the second point?

Why are you cutting the capital expenditure of local authorities?

I am sorry; that was the first question.

The second point that Brian Adam made about page 77 concerned the liquid petroleum gas grants.

It is on the next line on the same page.

We can anticipate a written response on that.

I think you will have to.

That is fine. There was a previous question on local authority capital expenditure.

Mr Adam stumped us with the question on local authority capital expenditure. Again, we will have to dig the information out and write to the committee. The variation does not look enormous. I wonder whether it is an administrative or bureaucratic figure. We will need to double check that and come back to the committee.

I have two questions that relate to page four of the order rather than to the budget documents. I will wait until the minister finds the page.

There is a substantial increase in item (a)—"Scottish Administration". Have savings from elsewhere been included in that figure or is the increase a straight increase in the costs of operation? Is it a net figure? There are two questions: have you saved any money anywhere and how much extra are you spending to do the job?

My information gives a range of heads of expenditure that fall within the line for "Scottish Administration". They imply transfers in and out. There is, for example, a transfer of £199,000 to the Cabinet Office to fund fast-stream recruitment. That is a net loss from the budget. There is also an £18,000 capital transfer from Her Majesty's Treasury for poverty analysis and tax and benefit models for Scotland. A range of such ancillary heads of expenditure imply net transfers in and out. The figure is not made of any one of those.

Are there no figures for what we have lost and where we are increasing our spending?

We could probably try to total that up and write to you with the information.

That is fine.

The figure simply reflects movements in the underlying budgets. It will show, for instance, that if we intend to spend the £718 million, we need to increase the capital—

It is a snapshot in time.

It is.

My other point concerns the Forestry Commission. I raised the point with the previous Minister for Finance. There is disquiet in the forestry sector, particularly among private growers, that market aid to produce wood seems to be given through the Executive budget to the Forestry Commission. That disadvantages the sector. Can the minister give us a figure for how much goes to the Forestry Commission to subsidise its forestry operation, as opposed to its other activities, so that we have clarity on the matter?

We do not have that information to hand but I am happy to write to you on that.

That is kind. Thank you.

I have two points, one of which I hope is a trivial one. The order refers to the Budget (Scotland) Act 2001, but I notice that page 3 of the budget documents refers to the Budget (Scotland) (No 2) Act 2001. I take it that that is a typo and that there is not an act that we do not know about.

Yes.

The Official Report will indicate that that is a typo.

I notice that on page 33 of the budget documents, there is an increase in pension provision of about £2 million for the various agricultural science institutes. I think the minister will have heard Dr Simpson refer to evidence taken this morning from Dumfries and Galloway Health Board that it needed to find £1 million for extra superannuation provision. Is there a particular problem with the undervaluing of many pension funds that may lead to significant extra expenditure on the part of the Executive?

Not that I am aware of. I am not sure that we have ever carried out a pension-specific piece of work throughout Executive departments. I am not aware even anecdotally that there is a significant problem that will cause problems for the Executive budgets.

Other than the graphics you referred to earlier.

But I do not think that is quite what Mr Morgan means. I see your point, though.

That would be a contributory factor, too.

The minister will be pleased to know that there are no further questions.

The question is, that motion S1M-2423, in the name of Angus MacKay, be agreed to.

Motion agreed to.

That the Finance Committee recommends that the draft Budget (Scotland) Act 2001 (Amendment) Order 2001 be approved.

That concludes today's business. I thank the minister, Mr Palmer and the other finance and central services department officials who have been with us.

That completes a marathon session for the Finance Committee. Members will be delighted at my reminder that we reconvene at 10 o'clock tomorrow morning in the Scottish Parliament chamber for our PFI/PPP inquiry.

Before I close the meeting, I thank everybody who has been involved in a successful visit to Kirkcudbright. That includes all the Parliament staff, including the official report and everybody who has put together this visit and helped us with sound. We could not have done it without all those contributions, which are very much appreciated.

I have no doubt that we will hear about the replacement of Dumfries and Galloway's curtains at some stage.

Meeting closed at 16:27.