Education, Lifelong Learning and Culture Committee, 21 Nov 2007

Meeting date: Wednesday, November 21, 2007

Official Report 212KB pdf

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Budget Process 2008-09

I welcome members to the 10th meeting in this session of the Education, Lifelong Learning and Culture Committee. We are joined by Richard Baker, who is the substitute for Ken Macintosh. I am sure that all members will want to congratulate Ken and Claire on the birth of their baby daughter Isobel at the weekend.

I have one comment before we move to our first agenda item, which is on the budget process for 2008-09. I am sure that members will be aware that the Finance Committee decided yesterday to write to John Swinney to ask for further detailed information about budget headings at level 3. That information is normally provided at the same time as publication of the budget and, without it, scrutiny of the budget is extremely difficult. The Finance Committee agreed unanimously to ask for the information as a matter of urgency. Do members agree to give me permission, as the convener, to write to Fiona Hyslop, to ask her to provide information at level 3 in relation to all education and lifelong learning matters, and to write to Linda Fabiani in relation to culture matters?

Members indicated agreement.

Our first agenda item is evidence on the Scottish Government's draft budget, with regard to skills. I welcome Mark Batho, the head of the Scottish Government's lifelong learning directorate; Donald Henderson, the interim chief executive of skills development Scotland; Linda McDowall, acting senior director of skills and learning at Scottish Enterprise; Alex Paterson, director of the developing skills group with Highlands and Islands Enterprise; and Damien Yates, chief executive of learndirect Scotland. As we have five witnesses before us, I ask that the most appropriate witness respond to each question to allow us to ask as many questions and receive as many answers as possible. I invite one of the witnesses to make some brief opening remarks on behalf of all of you before we move to questions.

If I may, I will take the role of team captain in "University Challenge". I will explain why we have come slightly mob-handed. It was a deliberate decision, because we are talking about the establishment of the new skills body, which will involve a partnership between Highlands and Islands Enterprise, learndirect Scotland, Scottish Enterprise and the Scottish Government. It therefore seemed right that we should all be represented this morning. We all sit on a programme board for the establishment of the new body, which emphasises the level of partnership that is involved.

I am conscious that what the convener said about level 3 figures may put us in a slightly difficult position in speaking about some of the figures. Some of our answers will be that we are not yet in a position to say X, Y or Z. That is because we are in a rapidly developing phase of the project to establish the new body and some complex but positive discussions are taking place on a range of budgets, which are represented today. We will do our best, but if issues arise on which we cannot respond, we give an undertaking to keep the committee fully informed as matters develop.

Thank you for that. We will move straight to questions.

Good morning. In the budget, a number of targets have been set—for instance, for reducing the number of working-age people with severe literacy and numeracy problems and for increasing the number of school leavers who go into training. Where do you think that the money needs to be spent to achieve those targets?

There is a budget line for young people who need more choices and chances—a favoured term to use instead of branding everybody as NEET, or not in education, employment or training—and that line increases. It is integral to the delivery programmes of a range of bodies across the piece; it is not a simple solution. At a local level, the community planning partnerships are engaged in this, with special emphasis on seven areas where there are particular issues. The Scottish Further and Higher Education Funding Council takes the matter seriously and states in its guidance letter that it must be a priority. It will also be fundamental to the new skills body, which has responsibility for the national programmes including, especially for those who need more choices and chances, the get ready for work programme.

The skills strategy, "Skills for Scotland", addresses the need to develop literacy and numeracy both in schools—it is terribly important to get the flow sorted—and in the stock: the 70 per cent of 2020's workforce who are already in work. A £500,000 research exercise has just begun, which aims to get under the headline figure that about one in five of the adult population currently has problems with literacy and numeracy. That figure is based on evidence that is now 10 years old and that used a very small sample. Spending significant resource—as is happening at the moment—on the adult literacy and numeracy refresh will reveal a lot more information about where the problems are and their nature. It will be absolutely within the core role of the new skills body to use that evidence, working with the colleges and schools, to target resource and get better hits on what is undoubtedly a problem. Five hundred thousand pounds of research is not going to reveal that we do not have a problem after all—absolutely not; however, it will help to prioritise spend.

So, you are quite happy that the spend that is identified in the budget is appropriate.

If the research indicates that the scale of the problem is as it is thought to be at the moment, one could name any figure for addressing it. Nevertheless, I think that it is a realistic assessment of what can be done with prioritised resource.

What do you perceive to be the benefits of the merger of Careers Scotland with learndirect Scotland in terms of managerial economies of scale? What important things might happen in the future, which perhaps might not have happened while the two bodies were separate?

It is more than bringing together learndirect Scotland and Careers Scotland. It is essential to remember the other element, which is the skills operations of Highlands and Islands Enterprise and Scottish Enterprise. They are significant bearers of resource and, integrated into a single body, offer the prospect of shifting significantly the overall nature of the provision that is out there.

Tackling specifically the learndirect Scotland and Careers Scotland merger, the first point that I would make is that a lot of people out there, in the consultation that took place before the election, indicated that the merger was a good idea.

The argument goes that there is a lot of similarity—not overlap—of mission and that the work could be better integrated. Learndirect Scotland is directed towards brokerage. It has a helpline, which I understand is busy all hours of the day, that puts people in touch with the places where they can best get the learning that they want. That fits with the role of Careers Scotland, which is to give people a sense of direction. The initial step is to enable someone in secondary 4 or S5, or someone later in life, to see what they could do with their life. The next stage is to find out where they can do the learning that will help them with that. If a single body deals with both those stages, it should improve the tracking across those areas.

I ask Damien Yates, Linda McDowall or Alex Paterson to add to my comments.

I will reflect on the current reach of learndirect Scotland. We take four calls every minute of every working day from people who want to reconnect with learning. We pass them back out to a network of about 500 learning centres, which deliver more detailed programmes that are about helping the person to connect back to learning and to progress from there.

We also manage individual learning accounts, so in total we have more than 300,000 learners reconnecting into learning through that network of learning centres. It is a virtual and brokerage model, which sits well with the work of Careers Scotland, which has a strong face-to-face model. Careers Scotland has well over 1,000 staff who work face to face. There is an opportunity to direct the high-cost, face-to-face services to areas of greatest need and risk, and to offer a more remote service when that is appropriate to the type of people making the inquiries.

Different areas of Scotland have different needs. Are you confident that the new structure will be able to deliver appropriate local skills programmes better than the existing one?

I think so. I come back to the learndirect model. We do not own any products or push anything out; we try to broker the capacity that exists in Scotland to address the challenges that we face. That is a powerful role. Well over 40 per cent of our learning centres are in the areas that rank highest in the Scottish index of multiple deprivation, so we have a close correlation with areas of greatest need, which is where we need to be. Typically, those who are most disaffected by previous learning experiences and who are distant from the labour market find it easier to get support at a local level. We therefore support the new model.

I seek clarification of one issue. On page 114 of the budget document, there is a line for "Careers Scotland Support for Schools-Colleges" up to 2010-11. Given that that goes beyond the merger, can you comment on what that funding is for?

I will perhaps turn to Linda McDowall on that point, but I point to Careers Scotland's involvement in the curriculum for excellence and its work in schools.

So that is what that money is for.

Yes.

Do you anticipate that there will be any redundancies as a result of bringing those bodies into better co-operation and streamlining their work?

At this point, we do not envisage any redundancies, but it will be a matter for the new organisation as it takes shape. I ask Mark Batho to comment on that.

I will answer that point before I come back to the Careers Scotland schools and colleges function.

The current position is that all staff in the organisations that will form the new organisation have been told that at the point of transfer they will retain their jobs and that they are required in the new organisation. A clear signal has been sent out by deliberately not making the voluntary severance arrangements within Scottish Enterprise available to the skills staff.

One can never say that anything is for ever, but the critical approach at this point is that things should not fall over as a result of the structural change. The scene is littered with things that have crashed and burned as a result of attempts to do too much at the point when bodies are merged or restructured. Underpinning all this is the critical thought that the work of Careers Scotland, learndirect Scotland and the skills function of the enterprise network will continue as it is at the moment. The process will evolve over the coming years, as the new board of the new organisation takes up this function and works out how best to deploy its resources, but the process is deliberately cautious at this stage.

I turn to the Careers Scotland resource that is identified in the budget. I confirm that it will form part of the resource of the new skills body. I refer to the £1.2 million that is Careers Scotland support for—I am sorry, I have lost the thread.

Is the money under this heading for the curriculum for excellence?

That is right. That resource will transfer over as part of the resource to the new body. I ask Linda McDowall to confirm that.

That is fine.

When two bodies are merged, we might expect economies of scale. Will that happen? If so, how much greater will the savings be than those that are showing in the targets for efficiency savings?

Yes, there ought to be economies of scale. Absolutely fundamental to the setting up of any organisation such as this is that it will deliver for the programme spend more results than its constituent parts delivered.

I return to the answer that I gave to Elizabeth Smith, which is that one needs to proceed with caution. We must not try to extract every last ounce of efficiency to the detriment of the continuing delivery of existing programmes. I have had an initial discussion with the interim chair of the organisation who is clear that that needs to be integral to all this.

Complicated arrangements are involved, given the different information technology and human resources systems, the fact that people are housed in different buildings, and the range of different businesses' processes. A critical early function of the board will be to make sense of all of that and to rationalise where appropriate in order to get more effective overall delivery.

One option may well be shared services. At this juncture in the process of change, I cannot commit the body to that, but the Government has been sending out strong signals that it expects shared services to be part of the public sector delivery landscape over time. The number of organisations that are coming together gives us a clear opportunity to put that into practice.

Given the slightly different relationship that HIE has with Careers Scotland, is there a different view at HIE?

No. Like the other organisations around the table, we are committed to working with the Scottish Government to establish the new body. The Careers Scotland function that, up until now was part of the Highlands and Islands Enterprise function, will transfer to become part of the new skills body.

Obviously, in doing that, we want to try to retain much of the good practice that has been developed in the Highlands and Islands and elsewhere, and we want to build on it. One of the earlier questions was on the potential synergies of merging Careers Scotland, learndirect Scotland and so forth. Real opportunities are involved in terms of the different approaches to customer service.

The HIE point of view is that we are working to make the new organisation, of which the Highlands and Islands is an integral part, a success.

The crunch question is how, through the budget setting process, we will recognise the savings that you talk about being made.

The answer is more about the outputs that the organisation should deliver. That will become apparent through its business planning process, which will—of course—be a public process that will include the publication of its business plans. As we work through the establishment process, the budgets going forward will become apparent over the coming weeks. Critically, as I said, the measure of efficiency is what we get for those budgets. Coming back to an earlier point, one would expect that over time the inputs—the running and support costs generally—would be on a falling graph.

Good morning. I want to ask about the set-up costs, which the budget document states will be £16 million in 2008-09. Can you give us a bit more detail on how they were worked out and what they reflect?

The starting point was under the previous Administration with the commissioning and then publication of an initial report by PA Consulting Group on different options for the merger of Careers Scotland and learndirect Scotland. The report came up with a significantly higher figure than £16 million, but the Scottish Executive, as it was then, had discussions with partner organisations on what would actually be required. That process, across all the organisations, reached a figure of around £16 million to deliver, for example, changes in the terms and conditions of staff and to estates and at least interim IT arrangements.

I again emphasise that I see the changes as a continuing process beyond the financial year 2008-09. Certain costs will emerge during that year, which is an inevitable consequence of bringing different organisations and systems together. Over time, however, one would expect the continuing integration to be funded from efficiencies within the organisations, which I mentioned in response to Mr Gibson.

The £16 million is a one-off injection of resource to tackle specific areas. If a reduced sum is required, that will be all well and good, because there are obviously opportunities in the budget process throughout the year to recycle that to other priorities. No one wants to spend the full £16 million if there is no requirement to do so. There are already thoughts that, despite the PA Consulting figure, the £16 million could be quite generous.

I want to be clear. Am I right that the £16 million does not reflect any front-line services?

The expectation is that the front-line services will continue as they stand at the moment. I am talking about integrating the business—its staff, IT, business processes, marketing and communications—to a level that allows it to function effectively.

Right. What are the anticipated on-going running costs of the agency?

That will depend. At the moment, the constituent parts have their own running costs. As there will be a transfer of staff on or around 1 April, those costs are fairly predictable—they will be continuing costs. However, I cannot anticipate the board's decisions on the organisation's future structure.

The running costs of the organisation are under discussion. They will in part depend on exactly what functions are transferred to the new body and what functions remain with the enterprise networks—that will have implications for the staff. There has already been an indication from ministers that the function of workforce development will remain with the enterprise networks, binding into their core business of developing businesses. That has implications for the exact number of staff that will ultimately transfer to the new body. As such, I cannot currently put a figure on the running costs in 2008-09.

We have no idea of the agency's running costs, but we are asked to approve a budget of £16 million simply to start up the agency. That is not much less than the entire amount for young people who need more choices and chances, which is £19.1 million over the spending review period.

Identifying running costs is an integral part of the programme management arrangements that we are running. I am not clear about whether we will have identified those costs fully by the time that the budget bill is produced, but we will be closer to a definitive figure. If changes occur, opportunities to adjust the budget will be available throughout the year.

As for the £16 million, all the evidence is that structural change has a cost. We employed an external organisation to run the rule over that. That organisation made assumptions that have been stripped out as a result of discussions with partner organisations. On the basis of the PA Consulting Group report, subject to that further scrutiny, the evidence is that the figures are realistic.

Somebody, somewhere has a mobile device that is switched on, which is interfering with the sound system. I remind everyone that all mobile devices should be switched off.

Good morning. I find the budget challenging at the best of times, but when new bodies are being established and different funding lines are involved, it can be doubly so. How much of the overall Scottish Enterprise budget will transfer to the new skills body?

I will give you what is definite first. The entire budget for Careers Scotland will be transferred. All the national programmes, such as the get ready for work initiative and modern apprenticeships, will be transferred. As I have said, the element of skills that the enterprise networks will retain is being discussed. Those discussions are in progress, so I cannot offer information on them.

Broadly, one sets off with those main elements from Highlands and Islands Enterprise and from Scottish Enterprise. Does Linda McDowall or Alex Paterson want to add anything?

It is fair to say that we are still considering the implications for our budget of the comprehensive spending review announcements. We are working closely with partner organisations on helping to establish the new body. We are confident that, as Mark Batho said, we will transfer our budget for Careers Scotland, including the salaries budget. Most of what Careers Scotland spends is on people as part of its role of providing information, advice and guidance. We will definitely transfer the national training programmes budget, which covers modern apprenticeships, skillseekers and the get ready for work and training for work initiatives. As Mark Batho said, we are discussing workforce development and we should reach a conclusion on that fairly soon.

When do you expect those discussions to be completed? If we are to consider the budget and propose any alternatives, we need that information. I return to Mark Batho's introduction. I know that you cannot give us all the answers at the moment, but we, too, have a responsibility to stick to the budget timetable, so it is important that we have as much information as possible, if not everything. When do you expect to have the information about which budgets and how much of them will transfer?

The issue is on the fast track, because it is absolutely appreciated that the budget process is not shiftable, not least because it has been shoved back by the late announcement of the spending review, for reasons that everybody knows.

The budget bill must have lines for the new skills body—that is critical. As I said, there might need to be adjustments at various budget reviews throughout the year, because the picture is continually evolving. The budget bill figure cannot be the definitive, final figure, but it will be our best shot—at the date of publication—on the financial requirements of the new organisation in relation to its programme and running costs.

Individual learning accounts are designed to help low-skilled, low-paid workers to improve their skills and gain qualifications. It appears that there will be a considerable reduction in the budget for ILAs in 2008-09. How will funding for the initiative develop during the next four years?

The challenge is that funding for ILAs is demand driven. The budget lines in the previous spending review have not been fully spent, so we have attempted to anticipate future demand. The marketing exercise that is trying to drive up demand for ILAs will continue, because it is evident that there is a demand and that ILAs hit precisely the targets that you described. Learndirect Scotland administers ILAs, so Damien Yates might comment.

In the previous spending review, two issues probably impacted on annual ILA numbers the most, the first of which was the rigour around applications—members might remember that ILAs were misused. The Scottish Government took the positive decision to maintain the scheme, but many other countries are considering the management of such processes. Access was restricted, but restrictions are loosening as we begin to understand and get better at managing the process. The second issue was the delay in signing off budgets, which had an on-going impact.

The figure for 2007-08 was an indicative spend, which does not reflect actual spend. The budgets for the coming period reflect activity measured against demand. There is an additional budget line of nearly £20 million, which is for low-paid, low-skilled workers. As the convener said, the upskilling of people who are in work but perhaps in poverty represents a huge opportunity. As we go forward there is an opportunity to widen the bands and target a much wider group of people. We can be clear about who we are trying to support.

As Mark Batho said, 70 per cent of the 2015 workforce are in work now. The majority of current skills programmes are aimed at labour market entry point. We do an awful lot to support people to get jobs, but once they are in employment, support for upskilling is for a range of reasons more challenging. The additional £20 million will be aimed at people who are in work. We will have to reflect on the salary levels that allow people to access support and on the value amount.

A number of proposals will be considered and implemented during the coming year, which will improve the process and widen access. I cannot comment on pending announcements but I am aware that there are on-going discussions that reflect more of what is sought in the context of support for priority groups of people who are in work.

If we are serious about ensuring that we have a skilled workforce, which is the only way our country can compete with other countries, we need to ensure that our workforce takes advantage of opportunities to upskill. Should there be a reduction in funding for ILAs? If there are issues to do with take-up, perhaps we should invest in improving take-up instead of reducing the budget.

That is a good question. Again, I reflect on the fairly strict access measures that were put in place to militate against the issues that arose previously with the ILA programme. I do not sense that there is a reduction in the overall balance of the budget; I think that there is a net increase over the piece, given the additional £20 million for low-paid, low-skilled people. That was not a discrete budget in the previous ILA round.

The skills strategy that the Government launched earlier in the year asks for a step change in skills development. Can you point the committee to a headline figure in the budget that shows the overall growth in skills investment?

There is the figure that Damien Yates has just mentioned, which comprises £3.9 million, £7.9 million and £7.9 million for work on developing the skills strategy. There is also the resource that is going into schools, directed through the local government settlement.

It is important to emphasise the cradle-to-grave nature of skills and of the skills strategy. One cannot point simply to one of the interventions and say, "That's it." The schools budget is important, as is the development of the curriculum for excellence. The enhancement of university and college budgets—I know it is controversial—which is 2 per cent above real terms, is a contributor to the skills budget. Add to that the £20 million across the three years for specific development of the skills strategy and the establishment of the new body, and that amounts, in the view of ministers—obviously I reflect the view of ministers when I say this—to a significant move towards that step change in skills.

It is not just about investing in the supply side of skills. Running through the skills strategy is the thought, which has been endorsed by a range of people throughout the United Kingdom and more broadly, that the accumulation of skills is only part of the issue—as Lord Leitch's UK skills inquiry identified—and that it is also about the utilisation of skills. It is about getting employers and other organisations, including public sector employers, to make better use of the quantum of skills that we have in the Scottish workforce, which is much higher than in the rest of the UK, for example.

That is not a direct answer, as I am not pointing to a single figure, but I think that a single figure would not give the whole picture.

How much has been transferred to schools?

I am sorry, but I cannot answer that. We can provide information on that, but I do not deal with schools; nor does anyone here.

You mentioned two key areas. The first was what we have just heard about with regard to developing the skills strategy and the second was transfer to schools. I thought that you would know how much has been transferred out of your area. One would have thought that you might have kept a note of that.

There is no transfer out of my area into schools. I am talking in terms of the overall schools budget having to be regarded as being part of the contribution to the development of skills.

I am just reading the notes regarding "other lifelong learning", on page 114 of the budget document. Note 2 states:

"Part of this budget has been transferred to local government".

Is that the schools-colleges bit?

It is for the determined to succeed programme.

Right. That is the £19.4 million. I can speak definitively on that. A ring-fenced sum of £19.4 million has been transferred into grant-aided expenditure to allow continuation of the determined to succeed programme, while £2.8 million is retained within central Government for the same purpose. Because determined to succeed is delivered entirely within a local government context by schools, it seems appropriate for it to form part of the transfer of the whole schools budget.

That is helpful. Am I correct in saying that the funding for 2009-10 and 2010-11 is not ring fenced?

I am sorry, but I cannot remember. I do not want to give false information, so I will write to you about the exact arrangements, if that is okay.

It would be helpful if you could clarify how long the ring fencing will last.

You said that there is a 2 per cent increase in funding for universities, but the universities have told us that next year's funding has actually been cut by 0.5 per cent in real terms. It would be helpful if you could clarify those figures.

I do not have the exact figures in front of me, but I believe that there would be a small real-terms cut if one did not take into account the spread across the three-year spending review period of the £50 million of additional capital that was previously announced. An additional £100 million has been announced, £50 million of which is for colleges and £50 million for higher education institutions.

But in revenue terms there has been a real-terms cut.

Yes.

You made an interesting comment about the need to balance bringing more people into the skills category and upskilling existing workers. You said that there will be a step change in skills, but do you think that a greater proportion of budget spend will be directed at ensuring employers can use existing resources better or at widening access to skills?

Again, I cannot anticipate what the interim board will decide will be the new skills body's priorities. However, the skills strategy clearly signals that skills utilisation and encouragement of employer demand are critical to driving up productivity. One would expect the body to pay due attention to that.

In response to Richard Baker, you said that there was a 50:50 split with regard to the £100 million of additional money that had been announced. I had understood that the split was £40 million and £60 million. Will you clarify that?

Initially, the allocation in the year 2007-08 was 60 per cent to colleges and 40 per cent to higher education institutions. However, at the time, the clear message to both sectors was that the allocation would be rebalanced over the three years of the spending review so that, by the time we reached 2010-11, the overall split would be 50:50.

That clarifies the point. You were talking about percentages and I was talking about money.

I was also seeking clarification on that point. If only £20 million of the £60 million for colleges and the whole £40 million for higher education institutions are going to be allocated formulaically, how does the split come to 50:50?

That is because a continuing capital baseline runs through both sectors over the spending review period. The intention is that, by adding the £100 million to the capital baselines for higher and further education, we will by 2010-11 split the overall allocation 50:50.

Forgive me, convener, but, according to the figures, capital grants for further education colleges is to go up from £87.9 million this year to £97.5 million in 2010-11 and from £85 million this year to £95.2 million in 2010-11 for higher education institutions. Effectively, that is exactly the same increase for both sectors. How are you going to rebalance the £20 million that goes to colleges and the remainder for higher education institutions? It is just a straight increase for both sectors, so how will that balance out?

I will undertake to ask the funding council that question and get back to you. The allocation of resources is, statutorily, its responsibility and I will ensure that the committee gets clear information about how that unwinds.

The principle is clearly acknowledged: by the end of the spending review period, the £100 million will end up split half and half between the college and the university sectors. It was on that basis that Universities Scotland said that it was content with that initial allocation. The allocation was front loaded because the colleges currently have a lot of projects that are easy to get money into—and spent—quickly.

I do not want to give a definitive answer about how the figures in the budget document will unwind, but I can undertake to address the point.

I am sure that some of the questions will be put to the funding council when its representatives come before the committee next week.

The budget includes £1.9 million in 2008-09 for workforce plus, which includes sharing knowledge and data on workless client groups. How will the combined skills agency utilise that knowledge and those data in determining its strategic priorities?

You would need to ask the new organisation that question. I do not want to anticipate how it will take forward its work across what will be a very broad front. However, I can say that ministers have signalled clearly that they expect that work to be integrated ever more closely with the work of Jobcentre Plus, so that employability and employment can be more closely linked. The cabinet secretary has been having discussions with her Whitehall counterparts around that sort of territory.

That will be a question for us to address later, in that case.

Much of the skills agenda will be delivered by local authorities. In ensuring that national priorities are met, will the outcome agreements with the local authorities be more effective than ring fencing of moneys?

I do not think that I can venture an opinion on that from where I sit as the director of the Lifelong Learning Directorate.

Do you have any thoughts on the matter?

The effectiveness of outcome agreements could appropriately be raised with the minister.

On engagement of local government in the skills process, the cabinet secretary has indicated that she expects local partners to be a critical part of the overall delivery of skills and that she expects the skills body to establish local arrangements as an early priority. I cannot conceive that local government would not be a part of that process.

Earlier, you said that the determined to succeed programme funding would be ring fenced for one year before becoming part of the GAE—

No—I said that I knew that it was being ring fenced for one year and that I was going to write to Mr Purvis about the position in years 2 and 3.

Okay. I was going to ask whether that should become part of the agreement. Do you think that is what will happen or do you not know at this moment?

I do not know at this moment.

If money is given to local authorities and there are outcome agreements but local authorities choose to spend the money on things other than national priorities, what ability, if any, does the Scottish Government have to recover that money?

That is a question you need to address to Mr Swinney.

Would efficiency savings in the public sector constrain the ability of public sector employers to meet the aspirations of the skills strategy?

The short answer is no. There is a clear expectation that the establishment of the skills body will deliver efficiencies in itself. Efficiency is not about reducing services; it is about getting more bang for your buck's investment in public sector organisations. If a drive for efficiency is causing a reduction in the service that a particular organisation is giving, that is not an efficiency saving.

Will the fact that people will be working more closely together in the new organisation mean that a better service can be delivered and that we will get more bangs for our buck? Will it mean that we can deliver better outcomes for people who need to be upskilled through the skills strategy?

Ministers will be setting very demanding requirements for the body. If it does not deliver, the board will be answerable. The answer to the question is that, if, three years from now, ministers see that the body is doing only what its constituent bodies are doing at the moment—albeit that that is being done well—that would not be an outcome that they would accept. Actually, I would put a shorter timescale on that process than three years, but three years will do for now.

How will the tighter budget for universities affect the building of a highly skilled workforce?

Ministers have indicated that they are clear that the settlement is adequate to continue to fund high-class universities.

What negotiations had taken place with universities in advance of the funding settlement being decided? Since the announcement of the funding settlement, institutions have put forward the view that it might limit their activity; for example, a freeze in student numbers has been mooted. To what extent were those issues taken into account?

Ministers had Universities Scotland's bid document and, of course, discussions always take place between Universities Scotland and ourselves.

On a freeze in student numbers, my first reaction when I read that headline was, "I thought we had been in a capped system for the past four or five years anyway." I equate that with a student-numbers freeze. Within the settlement, there is not provision for growth. That is a continuation of the policy that has pertained for a number of years.

So there is no intention to grow student numbers in the settlement. Is the policy now to freeze student numbers for the duration of the spending review?

In the end, that is a matter for the funding council, as it works under the guidance letter that we will send out in the coming weeks. I am not going to make Government policy here but I can say that, plainly, it is a tight settlement and tight settlements do not help with regard to growing student numbers. The point that I was making is that we are setting off from a position in which there has been capped provision for the past four or five years.

Bearing in mind the Government's wider stated aims in its economic strategy, are you happy that that policy is compatible with the ambition to create a more highly skilled workforce?

I can only quote what our ministers have been saying on that issue.

It is not clear what impact the allocation for student support will have on the young person's bursary. Do you have any further details on whether that bursary will increase over the period of the spending review?

Can I respond in writing to that question as well?

Yes. That would be useful.

It would be helpful, Mr Batho, if you could write to me as convener to ensure that all the committee's members are furnished with that information when it becomes available.

I know that you cannot comment on Government policy and that it would be totally inappropriate to ask you to do that, but I will ask you about comments that Universities Scotland made at a previous committee meeting and about comments from groups such as the Confederation of British Industry that have been in the press recently. There is concern about whether, given the tight spending settlement for universities, we will be able to articulate the skills of the university graduate population that is about to come out into the world of work with the needs of the business community. Perhaps it is a question more for Scottish Enterprise. Would you care to comment on that?

Addressing what is taught in universities and how it is taught does not need to be about money at all. It is about appropriate dialogue between business and universities, using language that both understand. I emphasise that point, because it can be challenging for business to articulate its concerns in language that universities can associate with what they provide and how they provide it. Indeed, it can be quite intimidating for the small business sector in particular to engage with the university sector.

There is a lot of scope for dialogue between the university sector and employers to be facilitated by Government—it is part of the skills strategy. We need to ensure that the teaching of history, philosophy or physics also imbues students with the kind of skills that they need in the workplace. I am not saying that the system should turn out endless numbers of students who are honed and can hit the ground running in a particular business, although there is an element of that—there is quite a lot of vocational provision in universities, such as in law, medicine and allied health professions. The message that often comes out is that there is a need for people who have the capacity to learn in the right way once they arrive in business. That is why Lloyds TSB recruits physicists.

Another concern is about funding for university research. English universities are pulling in a fee per student and, with the absence of a level playing field in that regard, there is a slight concern that developments in research—especially in medical sciences and some areas of technology—might suffer a little. I know that you cannot comment on policy, but have you had any representations on the matter from groups from which you have taken evidence in your inquiries?

There is always concern because there is no doubt that the Scottish system is in competition with the system in other parts of the United Kingdom and internationally—of course it is. It sets off from a strong base, because it gets about 11 per cent of research council grants for 9 per cent of the population at the moment. It has been punching above its weight in that territory for quite a long time and there is concern that that should be maintained. That will be part of the continuing dialogue and I am sure that the issue will be raised when Universities Scotland meets the cabinet secretary tomorrow.

We have seen some of the cabinet secretary's comments on university funding. She and the First Minister said that half the request had been met. Are you able to give details of how the Scottish Government has come to that?

Yes. The headline figure that Universities Scotland has used is a real-terms increase over baseline of £168 million in year three—2010-11—but the bid was also about getting to that point in 2008-09 and 2009-10.

On a cash basis rather than a real-terms basis, the total amount across three years that Universities Scotland sought in its bid was £526 million. The settlement is exactly half that in cash across the three years.

And in real terms?

In real terms it is less than that, because of inflation. I do not have the figure with me, but that is where the 50 per cent figure derives from. The settlement is 50 per cent of the cash that Universities Scotland was seeking.

You have included within that the £50 million for—

Capital.

For the next financial year.

It is across the piece. The £50 million is taken into the calculation.

As I see it, you have already added the capital funding to the figure. Within the £263.2 million, which I understand is your figure, you have already included the capital grant for higher education institutions.

The £50 million?

No, no.

There are two capital figures. One is the baseline for the three years and the other is the £50 million that will be applied to higher education as capital across the three years out of the £100 million.

Plus you have added the £87.4 million, £94.7 million and £95.2 million capital grants for higher education institutions.

Those are the two elements of capital that I was talking about. That is the baseline continued through and increased.

Forgive me. You have added together the capital grants for the three years and the one-off £50 million.

Yes.

We heard that it is not actually a one-off £50 million, but you think that it will balance out over the piece, including the capital grants, about which you will write to me to explain.

The line of three years that you quoted will be enhanced by a total of £50 million across the three years.

Where?

We need to write to you about the mechanisms for that, but a commitment was given that, across the three years, the £100 million that was announced a few weeks ago to be delivered from the end-year flexibility resource that came up from the Treasury will, across the piece, be distributed to universities and colleges on a 50:50 basis. The issue arose a few minutes ago. I need to speak to the funding council about the mechanisms, but the principle is as I stated it. To help you get through the figures, I need to describe how the funding will actually be delivered.

You say that you met half the bid. I think that it is acceptable to analyse that. The circular on the £100 million from the funding council is clear about the £40 million. It divided up the figure using the formula that every university knows is likely to result in £40 million. I do not know where the additional £10 million will come from, unless it is the £10 million in the budget document for increased capital. If that is the £10 million, you have double counted.

I will respond to you. I am clear that there is no double counting, but I am afraid that I am unable to fight through the thicket today without my talking to the funding council.

I appreciate that. I think you said that the matter is over and above the funding council, but we will wait until you get back to us. I am concerned that there could well be a significant amount of double counting.

I will register the point.

There may well be a point to pursue with the funding council when it is here next week, Mr Purvis.

I thought that the £100 million that was announced was for 2007-08. Is that right?

Yes. Technically, it was allocated as an in-year resource. The reality is that capital is spread over projects over long periods. The funding council has the capacity to carry forward underspends or whatever. In announcing the money, the cabinet secretary made it clear that she regards it as a forerunner to further resource going into the college and university sector during the spending review period. Technically, it is not spending review resource, but in practical terms it is additional resource for the universities and colleges in the period to 31 March 2011.

In accounting terms, however, it would be in this year's budget line and not that of 2008 to 2011.

Exactly, yes.

When you clarify the figures, will you clarify a further point? I think I am right to say that the universities requested a baseline increase of 15 per cent, which was a big ask. In real terms, I think that the increase is only 2.9 per cent. Will you clarify that?

Yes.

That concludes our questions. Thank you for your attendance. We look forward to receiving clarification on the points that we raised.

We will get back to you quickly.

That would be helpful.

Meeting suspended.

On resuming—