Finance Committee, 19 Dec 2000

Meeting date: Tuesday, December 19, 2000

Official Report 143KB pdf

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Budget Process

The third item on today's agenda is the minister's response to the stage 2 budget report. Members will be aware that the response was made available on the morning of our debate in the Parliament last week. I saw it for the first time only half an hour before the debate started and so was able to make reference only to one of the items in it in my opening remarks. Because the minister has responded to each of the recommendations, it would be useful if we were to go through them in order. Andrew Wilson has indicated that he wants to deal with the question of the reserve. We will deal with that in due course.

I want to deal with the responses to recommendations 1, 2 and 3 together. There is no straightforward solution to the problem of the unavailability of level III figures every second year, when there is a comprehensive spending review. The minister says that he will consider how the process can be improved in future years. The problem is to do with both this committee and the minister. This is a matter of some urgency as, to put it dramatically, the process might break down. The process is not working at the moment and will not work in the second years of any comprehensive spending review, when the level III figures will not be available. The financial issues advisory group did not anticipate that.

That is clearly the case. We must reach an agreement with the Executive on how it is to present the figures. One possibility is that we should invite the Executive to present level III figures on the basis of the available figures prior to the comprehensive spending review and view them as a budget variation.

We are obliged at stage 3 to accept the budget as a whole or to reject it as a whole—we are not allowed to amend it—whereas budget revisions would allow us to debate the variations. That would need to be clarified in relation to standing orders. However, as we are faced with the problem every second year, my suggestion would be one way in which to address the issue. I commend that to the committee as a possibility that we could discuss with the minister.

That is an interesting suggestion. As you say, we will have to check how that sits with standing orders.

In response to recommendation 2, the minister has said that he will come back to us as soon as he can. We would expect that to be fairly soon.

I agree with Richard Simpson. We must consider what we can do to address the process at an earlier stage. If we agree to deal with changes separately from the yes or no budget line, we might instil some sense into the process.

Although the tone of the minister's response is constructive, I do not detect that he is willing to present us with a series of options, which is the kind of debate that we need, rather than one in which we make a point and the minister says yes or no. We must discuss all the options thoroughly. The minister and his team may have thought about options that we have not considered. We must be as open as possible and encourage such debate. If the minister would prefer to send some of his senior civil servants to discuss options and the nitty-gritty of how the process might work, that would be invaluable to the committee. We have never had a full budget process before and everyone must buy into the process and participate in it.

On recommendation 3, the minister still has concerns about separating the capital charges from other parts—

Just a moment, David. We are dealing with recommendations 1 and 2.

I am sorry. I thought that Keith Raffan had suggested that we deal with recommendations 1, 2 and 3 together.

No. We are dealing with recommendations 1 and 2.

I beg your pardon.

I agree with Richard Simpson's point. I put forward other options during the stage 3 debate, one of which was weaker than what Richard suggested. We could get the level III figures for the current year and then get the priorities from the department for a CSR year. I also suggested that the Chancellor of the Exchequer should be approached to announce his spending review just before the Whitsun recess—at the end of May. The minister was rather nervous about that proposal. If we are to participate in finding solutions, it might be better for us to present the minister with options—he could respond to each in turn and we would not be waiting for him to descend from on high with tablets of stone. We would put forward options for comments from the minister.

I would add that to my previous comments. We can do our side if the minister does his—we must both buy into the process.

The response makes it clear that the minister is doing that. We should make any suggestions that might help us to find a way out of the difficulty. Richard Simpson's proposal would give us the opportunity to revisit changes at stage 3.

There seems to be quite a serious difference between the minister and the committee on recommendation 3, which is on capital charges.

Yes. The minister must explain his concerns further. He has made a simplistic comment and I do not fully understand his final sentence:

"I hope your Committee will therefore support me in reinforcing the message that there is a real cost".

The easiest way in which to demonstrate that message in any sector of the Executive's activities would be to spell it out in real terms of hard cash. People will then know that they are sitting on an asset called money—they may not see it going past their desk, but they will know that they are responsible for it.

We are very much in the business of getting across the real costs. The first part of that paragraph is in line with what Peter Collings said at our meeting in Aberdeen. It is clear that we have not impressed our view on the minister strongly enough. We must do that.

If members read the Official Report of the stage 2 debate, they will see that Angus MacKay said that we should separate out capital charges to improve the impact on the decision-making process of departments. He said that he had understood the point and that it was fair. He agreed with the point in general, although not in relation to small amounts, for reasons that he did not state.

The minister does not seem to be against separating the capital charges. He said:

"It is a question of where and how we set out information, rather than whether we release that information."—[Official Report, 13 December 2000; Vol 9, c 927.]

I am not sure whether the Executive has a firm position. We should be firm because we have not heard a strong argument against separating capital charges.

We need to clarify the minister's position in respect of the comments in the debate and in the letter.

I have a rather minor point. In response to recommendation 3, the minister says that

"it would be helpful for Subject Committees to consider, on the basis of that table, whether they require additional information from Departments."

He is devolving the responsibility away from the Finance Committee to subject committees. We should establish the principle and then tell the subject committees what we have established. Otherwise we will end up with a hotch-potch of committees doing different things.

I remember the reply to Andrew Wilson's point in the debate. The minister seemed to be thinking along the same lines as the committee, unlike his officials in the previous statement. We should take that as our starting point and write back to say that we welcome his response during the stage 2 debate and that we would like further explanation of what he means and whether that will be reflected in documentation from now on. We should assume that the minister agrees with us and ask him how that will be reflected, rather than ask him whether he agrees with us.

We are in a similar position in respect of recommendation 4. It seems that the minister is not persuaded that there should be separation. However, given the comments that Andrew Wilson has just quoted, it seems that we should clarify the position. Callum Thomson will take up some of the points in a letter to the minister.

Recommendation 5 has been accepted. The message on recommendation 6 appears to have got across, but we will keep an eye on it.

I have some points on recommendation 7. The minister's comments in the debate, together with those in his response to the recommendations, leave me extremely confused. When asked the source of the reserve, the minister suggested that it was end-year flexibility. It is just not possible for that to be the source of the reserve. Each budget year is set out showing the total budget for each year, part of which is the year reserve. End-year flexibility would require the figures for one year to go down and those for the next year to go up. We should offer the minister the opportunity to reflect on whether end-year flexibility really is the source of the reserve. End-year flexibility provides one explanation of where a reserve might come from, but not a pre-planned reserve. The minister's answer cannot be the whole truth.

I am not sure that that is the case. The average end-year flexibility is £350 million. Under last year's agreement, 25 per cent of that is held centrally and 75 per cent goes back. In any given year, a quarter of £300-odd million will be available as end-year flexibility. There should not be a problem if the Executive chooses to put £18 million of that into a reserve.

My point is that if that were end-year flexibility, it would not show up in the total budget for every year. The budget in year one might be £15 billion. That would reduce by the amount of end-year flexibility, which would pass forward into the second year. However, the response suggests a reserve that is set in advance of end-year flexibility being worked out. End-year flexibility will affect the total budget for any one year, but here the total budget is set out and includes the reserve.

The figures for the reserve are £18 million in the first year and £53 million in each of the subsequent years. The question was how those figures could be the same—it did not take account of whether any of the reserve was used. I can see the £18 million being rolled forward into the £53 million, but the figure should not remain stable at £53 million in the next year.

That was another question that was answered at the Aberdeen meeting. The answer was that the reserve was a flow not a stop. That implies that the reserve is £18 million plus £53 million plus £53 million. That would show up on a balance sheet. However, my point is separate from that. The reserve cannot, by definition, come from end-year flexibility. It can be sourced from that—it is roughly equivalent to what end-year flexibility might be—but it cannot be budgeted as such.

Although I accept that we need further clarification on that point, I am not sure that I accept Andrew Wilson's argument.

I draw members' attention to the sentence in the response to recommendation 7, on the allocations that the Cabinet will approve, which reads:

"We will inform the Finance Committee and Parliament of any such decision."

The sums involved are not insubstantial, whether they are a flow or a standing amount. There are two types of allocation that might arise from the reserve. The first might be emergency allocation, the amount of which is covered by the Public Finance and Accountability (Scotland) Act 2000, which states the level at which the Executive must gain approval from Parliament before going ahead. Simply to inform the Finance Committee of decisions, without any consultation on how the reserve should be spent, is not adequate. We need more than to be informed—there should be discussion. That is not to say that the Executive does not have the right to make the decision, but there should be discussion with the Finance Committee before a decision is taken.

The minister was asked many questions on end-year flexibility both in Aberdeen and in the Parliament. End-year flexibility means that if any money that a department is voted for a programme is not spent, there is no need for a breakneck rush for wallpaper by the end of March, as happened in the past. That means that the only money that can end up in the reserve is money that was never voted in the first place or that was not needed to complete a particular project, so it is pulled back into the centre. All that money must be trailed and we must be told.

The muddy water that is being created by the comments on the source of the reserve will not be cleared unless we have a commitment from the minister that, as spending programmes are cut short—perhaps for perfectly good reasons—we will be told where the money goes. Everything that goes into the reserve must be labelled—its source and its spend. We must do that during the year.

End-year flexibility is about programmes being delivered over time, without the arbitrary barrier of the end of the financial year. End-year flexibility does not mean that an Administration will suddenly produce money out of thin air to do with as it sees fit—the money must come from somewhere. We need in-year audit statements on that, although not on a daily basis. We must press that point to ensure absolute clarity about what is meant by the reserve.

The second paragraph of the response to recommendation 7 invites departments to make requests for additional funding. If money for additional funding is available, subject to Cabinet approval, and the departments are stretched—as they usually are—it is inconceivable that there will not be regular bids for the reserve. That has not happened hitherto.

Perhaps we should take evidence on the subject—either formally or informally—from Mr MacKay's civil servants. All members of the committee have concerns about this. The Parliament as a whole would benefit from having a better understanding of it. I am still not entirely clear about the difference between when one can apply to the Scottish reserve for funds and when one can apply to the Treasury reserve or to a departmental reserve. When money is made available by a Government department in England and Wales, is there a borrowed allocation for Scotland? I imagine that an exchange of letters on the subject could go on for months—rather like the one about real-terms figures—without resolving the issue. If someone like Peter Collings came to give evidence to the committee, we could answer all the questions, or at least find out what difficulties lay ahead.

Do members feel that it would be useful to receive a briefing, as Kenneth Macintosh suggests?

Members indicated agreement.

We can consider that as part of our programme for the new year.

Recommendation 8 concerns the relationship between the UK reserve and the Scottish reserve. The minister has accepted recommendation 9, which relates to cross-cutting initiatives.

To an extent, it is up to us to make specific proposals or requests—perhaps requests would be more appropriate. I know that the cross-party group in the Scottish Parliament on drug misuse has sent an all-party letter, asking for a breakdown of spending on drug misuse, so that it can have an idea of what proportion of money is spent on enforcement as opposed to on treatment and rehabilitation. It is up to us to identify specific areas, such as rural development and transport, on which we would like information.

In his response, the minister simply states:

"I would be happy to consider how we might be able to present more information on cross-cutting spending".

Perhaps we need to give him a little push in the right direction.

That would mean our preparing proposals to put to the minister for consideration, rather than simply leaving things vague.

In our stage 2 report, committees identified some cross-cutting areas. We could start with that group of four or five.

Yes.

During the debates that took place on Scottish tourism, public spending figures for other countries were quoted, but only one or two lines of spend were identified in Scotland. That is nonsense. If we are going to make international comparisons, we need to know what all the public pots have contributed to a particular sector. That would give confidence to people in the private sector who participate in the industry, because they would know what the Government was doing for them through the public purse. When no figures are available, debates can lose their way and nonsensical comments can end up being made.

It is not just a question of tracking the money that is spent in the budget; it is a question of tracking outcomes, although that may be more a matter for the Audit Committee. There is no doubt that the Executive allocates money in certain ways. I know of one health board in which specific amounts were ring-fenced for drug misuse. It took nine months for the board to allocate the funds because of issues to do with dual diagnosis. The board was perfectly entitled to act in the way that it did, but one wonders whether it used the money strictly for the purpose for which it was intended.

We will ask the clerks to come up with some proposals that we can present to the minister in a letter.

The minister has accepted recommendation 10 on targets. The issue with regard to recommendation 11, on mainstreaming equality, is how quickly things begin to happen. Next year we need to measure the extent to which the information that we have requested is made available. The subject committees will also do that. The working group to which the minister refers is now up and running; we hope that it will have an effect quickly.

We do not have anything to add to the minister's comments on recommendations 12, 13 and 14, which are fairly straightforward. The minister has accepted a number of our recommendations. However, we still need to reinforce some points.

The fourth item on our agenda relates to stage 3 of this year's budget process. We do not yet have confirmation of the timing of the stage 1 debate on the budget bill, but we understand that the bill is likely to be introduced on 19 January.

I have been asked to consider the amount of time that will be available for the stage 1 debate. It has been suggested that an hour and a half might be sufficient. I do not know how members view that. Last week's debate of two and a half hours seemed a bit stretched. At the end of the day, the Parliamentary Bureau will make a decision about the length of the debate. However, the Deputy Minister for Finance and Local Government asked what I felt about it. I said that I would not give an opinion without consulting members of the committee. My main fear is that we end up with budget debates always being limited to an hour and a half. There is room for flexibility. I welcome members' views.

Are you talking about the stage 3 debate?

I was referring to the stage 1 debate on the budget bill, which is stage 3 of the budget process. I am sorry if I gave rise to any confusion.

I agree that it was daft to spend two and a half hours on the stage 2 debate, when there were a number of more contentious issues for the Parliament to discuss. However, we should not put ourselves in the position of not having enough time in future debates. Last week, we did not need a long debate because the committee had discussed the issues in depth and had come to a committee view on them. There were a few disagreements, but most members agreed on every point in the report. In addition, other members were not aware of all the issues that had been raised by the committee. Despite the point that Keith Raffan made, we were discussing the budget process, rather than the budget figures. Perhaps we should indicate two and half weeks ahead of debates, informally through the convener or formally to the bureau, either that we are agreed and that a debate of only one and half hours is needed, or that we are in serious disagreement and that a debate of two and half hours will be necessary. That would mean the decision being deferred until just before the debate, when the convener could make representations about how much time we needed.

Given that the recess is imminent, I am not sure how long we have to inform the bureau of our position on the forthcoming debate, but I take the member's point.

We were debating stage 2 of the budget process, rather than stage 2 of the budget bill, but I do not want to get into an argument about that. One and a half hours is probably adequate for the stage 1 debate on the bill, as we cannot amend it at that stage—we can either accept it or throw it out. It is clear that we will accept it.

It is important to establish with the Executive that there should be longer debates on stage 1 and stage 2 of the budget. This is not just about us. We may have explored the issues in depth, but the subject committees also come strongly into play at both stages. We hope that they will have an increasing role at stage 2 if they get level III figures. Members and conveners of those committees should have an opportunity to contribute to the stage 1 and stage 2 debates. It is crucial that we establish that those should be longer debates.

That is a fair point. We will indicate that we are prepared for the stage 1 debate on the bill to last an hour and a half.