I welcome our witnesses from the Scottish Executive: Ian Walford, director of corporate development; Dr Ingrid Clayden, director of personnel and pay; Paul Gray, director of information technology; Graham Owenson, head of division finance administration and pay policy; Paul Rhodes, head of accommodation division; and Joanna Young, head of expenditure policy.
The witnesses round the table are responsible for the lion's share of the budget. Following our last meeting in October, when we considered the draft budget document, we have made several changes to the layout of the chapter on the administrative budget. We have looked at the disaggregation of the budget and tried to make it more informative. In general, it follows the layout of the information that we use in the accounts. There is now a clear link between the budget and the accounts that was not there before.
Do you want us to describe what we do and how it relates to the budget?
I was looking for an overview of your role and scope of activity in the budget process. It would be interesting to get a view on the management issues attached to expenditure policy.
A part of the chapter relates to the administration budget, which is the cost of supporting the Executive. It reflects the costs of civil servants, accommodation and information technology. By its nature a number of different people's budgets are reflected within the overall administration budget. Graham Owenson and I have the overview of the budget and we report to the management group, which is the overall overseer of the budget. The management group is chaired by the permanent secretary, so it has a management dimension, which takes it slightly away from the direct ministerial involvement that there is for the other chapters. There is not much more to say. We are here to respond to any questions that the committee has about the size of the budget, what it does and what it delivers.
Do any members have specific questions?
What sort of time scale difficulties do you have? Can you explain why it seems to take such a long time to get level 3 figures out? We just want to get access to them. What difficulties do you face, as the people who are grinding away to produce the goods?
Are you asking about the difficulty in getting level 3 figures out for this budget document?
At any time, within the work that you do.
It takes time to get final figures for outturn in the past year. We are still putting that together. It will be some time before we can report exact figures, although we have an idea of the outturn statements. There are constraints on that through the accounting system. It is a matter of getting the IT right to ensure that we can carve the cake up in a reasonable way and give a more informative view of our budget. There are no real constraints. The IT is now in place, so we can get this sort of information out of our budgeting systems fairly easily.
As the IT is now in place, what difficulties would you have in producing in-year reports, perhaps every six months, on how the roll-out of different programmes is running?
We would not have difficulties in doing that. We can and do monitor at that level.
Separate discussions are going on about how much information will come back to the committee at regular intervals. We should not necessarily invent a different system for this part of the budget.
I will ask about the project management of the introduction of the IT system. I know that you are now in a new phase of examining IT systems. How is that going? Is the system now completely on course for successful operation?
Are you talking about the accounting system?
The Oracle Financials system.
Yes. The Scottish Executive accounting system—SEAS—has had some early teething problems. Those are settling down as we get into the new financial year. Processes are in place to ensure that all payments are going out the door and everything is being accounted for centrally. There were some early teething problems, but all payments are now being made on time.
Are you saying that the problems have all been rectified and resolved?
The resources are now there to rectify them. The past problems that we had with the system have been identified and are being addressed.
I have a question about project management of those kinds of IT issues. What lessons have you learned about budget management and operational management from that process?
One thing that we do on all major projects is to carry out a project evaluation review to feed in the lessons that have been learned. One lesson that we have learned from recent major projects is that a more detailed assessment of risk and the contingencies that are needed to address the risks is a crucial component of any project. Work is going on throughout the Executive on risk assessment and putting appropriate contingencies in place, not only for IT projects but generally.
Will you produce a review or analysis of the project management system for IT change within the Scottish Executive? Is that a matter that the Finance Committee might be able to have a look at in due course?
We update our guidance to project managers regularly. That is endorsed by the Scottish Executive information systems steering group, which meets regularly. I see no difficulty in giving the Finance Committee sight of the latest version of the guidance, if it would find that helpful.
It would be interesting to see the guidance.
I have a question about the figures that are in the draft budget for 2003-04 and beyond. Clearly, the figures are significantly out of date, in the light of the budget at Westminster last week. What mechanisms do you go through to produce the revision to the draft budget that will be necessary to reflect the decisions consequent on the chancellor's decisions?
Budget consequentials will be considered in the course of the spending review 2002. The draft budget document is the start of that process. Serious considerations will take place internally in discussions involving ministers, departments and officials. That process will carry on over the summer and final decisions will be made sometime in the autumn, probably in September. The administration budget will be considered in the same way as any other departmental programme budget is considered, and the implications for health and education will be taken into account.
What is the differential in the work load that is involved in producing the budgets in a year when there are significant budgetary changes?
It is large.
Are you saying that you will have problems in meeting what you think would be a reasonable time scale?
That issue cuts across the whole of the Executive. The spending review process that ministers have set out is a challenging and demanding one, but it is a mechanism for ensuring that future resources are aligned to priorities. The process is resource intensive for officials and ministers throughout the organisation and a lot of work will be going into it during the next few months. That is part of the business of government and of making those sorts of decisions. It is necessary to get information together, to submit proposals, to justify proposals and then to have a process of negotiation and debate before the final decisions are made. The figures for 2003-04 across the piece will inevitably be subject to some change when the spending review announcements are made, which will be by 20 September to fit in with the rest of the budgetary cycle.
Could you update us on e-procurement? I gather that a serious amount of money has gone out from the budget and you are looking to purchase an e-procurement system. How is that going? Is it on track and is it delivering the savings that you anticipated when the programme started, or will it do so if it is not running yet?
The e-procurement project is on track. We have been successful in encouraging a number of organisations outside the Scottish Executive to join in the programme. The savings will take some time to deliver, because they will accrue from improved efficiency in procurement in organisations, and, later, from the opportunity to aggregate procurements across parts of the public sector. Internal efficiencies should accrue before the benefits of aggregated procurement are felt.
Who is ultimately accountable for the system's development? What incentives are being offered to likely participants?
On accountability, the e-procurement programme has a project board. I am a member of that board, which is chaired by the principal finance officer. Other members include people from outside the Scottish Executive and representatives of the supplier of the e-procurement system. The main incentives to joining are the internal efficiency and overall procurement savings that we regard as achievable by adopting the system. The assessment of the savings is based on experience elsewhere. We have not drawn it up in the abstract.
I will provide some background to my question. I have the impression that the incentive for area tourist boards to join in with the e-commerce system that is being promoted in the latest public-private partnership, with Etourism Ltd, is that if the ATBs do not join, their funding will be reduced. Is such a threat likely to be made towards local authorities and health boards? Is any compulsion likely, given your investigations so far?
I can answer those questions in part. I will hand over to my finance colleagues for the other parts. I understand that a sum of money will be top-sliced to encourage health trusts to participate in the initiative. I do not have information about top-slicing money from local authorities.
No decision has been taken on top-slicing local authority budgets to encourage local authorities to participate in the initiative. Several have expressed interest. As far as I know, discussions continue with the others.
That is helpful.
How does staff pay reform feed into the budget? Will you say something about the new pension arrangements?
I cannot yet talk about the new civil service pension arrangements that will be introduced.
Do the new pension arrangements carry any financial implications?
I am unaware of any implications.
I presume that you can talk about pay reform.
I am not sure what you want to know about the costs of pay reform.
What new structures are being adopted? The budget contains a breakdown table of the numbers of people who are involved in various sections of the civil service. The three-year pay deal to cover the period from August 2000 to July 2003 is in place and may have had implications for staff costs. Will you expand on those issues?
We introduced a new pay system in August 2000. It was designed primarily to improve the performance of the Scottish Executive and, in doing so, to reward staff for their contribution. Key problems that we addressed included a minimum wage for our most junior staff in band A1 and bringing their salaries up to a reasonable level largely for Edinburgh, as most of our staff work in Edinburgh. We also dealt with recruitment and retention difficulties that we faced with other staff in the Edinburgh market.
I was not a member of the committee when Dr Clayden told us last year that churn—staff moves and turnover—was high in the Executive, at about 30 per cent. Does the figure remain as high as that? Are you beginning to overcome the problems that are associated with that figure?
Churn in the Executive remains high. In part, that is because we continue to recruit staff, which leads inevitably to some change. The rate has slowed since I gave evidence to the committee last year, but we continue to feel that we must take some action and we are about to embark on a programme of work to try to stabilise the organisation more.
The target for sickness absence next year is six and a half days. How does that target compare with the rate in similar administrative organisations?
In comparison with 24 other Government departments, we are the sixth lowest for sick leave.
How about the private sector? I know that nothing exactly comparable exists in the private sector, but do you have a feel for the sickness absence rate in largely office-based organisations such as insurance companies, of which Edinburgh is full?
I have no information on that.
Neither have I.
In setting the Executive's targets, do you consider what non-civil service organisations are achieving?
We have not done that so far. Perhaps we ought to obtain a comparator with the big insurance companies in Edinburgh, for example.
The Executive is very keen on obtaining comparators from the private sector and approaching it for everything else, so I am surprised that it is not doing that for sickness absence figures. The estimated average absence for last year was 7.7 days and your target is 6.5 days. What steps are being taken to reach that target and have you any hope of reaching it? If you do reach it, what will have helped you to do so?
Yes, we still hope to reach that target. Progress has been slower than we would have liked, partly because the absence management procedures that we have been developing are not yet in place. We intend to put them in place from 1 June. We believe that they will improve the reporting of sickness absence. They will introduce, as a fundamental activity, return-to-work interviews of people who have been on sick leave. That will obviously raise the profile of sickness absence and sickness absence management. We hope that we will gain a better understanding of what lies behind the problem.
On the issues of absence and recruitment—where there seems to be a problem—is there any interaction when the Executive or the Parliament requires particular things to be done or particular information to be supplied? How do you try to get the message across that a particular requirement cannot sensibly be met with the number of staff that you have without staff leaving or sickness absence rising? What is happening because of the pressures that are being put on you? Do civil servants automatically say, "Yes, we'll go away and do what you ask," or is there resistance, with people saying, "No, we cannot sensibly do that"?
My colleague Ian Walford will add to this in a moment, but we are considering various possibilities for working in different ways—working smarter rather than just working harder and doing more. We will put ourselves in an untenable position if we carry on trying to do everything that is asked of us, as we have been doing until now.
Since devolution—and even before that—we have been considering how to change and improve continuously. Obviously, devolution brought a large increase in the amount of work—with the Parliament and the increased number of ministers, parliamentary questions and items of correspondence. That happened alongside the civil service reform programme at Whitehall.
There is a constant debate about civil service reform. Does the Executive plan to draw together some of the lessons of the first years of devolution and to consider their implications for the civil service? Would it be useful to have such discussions in parliamentary committees? Such discussions would come within the Finance Committee's remit and they might be of interest to other committees as well. What has been the impact of devolution on the administration of the Scottish Executive? It would be interesting to hear views from inside the organisation. I leave that thought with you.
We are confident that the target is realistic. We engaged consultants to help us to investigate the organisation of services and we involved the trade union side fully throughout the review process and in the agreement to introduce a business improvement programme. The trade union side and the consultants are also satisfied that the target is achievable.
I note that you will dispose of five buildings over a four or five-year period. How much of the £2.1 million will that account for?
None.
So those savings are still to come.
Those savings were all accounted for in the previous spending review. We planned to give up those buildings and incorporated those savings in our finances over that period.
I note on the same page that staffing has gone up by 20 per cent over four years. Could you explain that difference? Were you previously under-staffed because not enough people were around when you planned to take on staff? Is there a particular reason for the increased work load in pressure areas that could account for the rise in recruitment?
It is fair to say that there has been pressure right across the Executive. There have been hot spots during those four years, but there has been a general increase in activity—in legislative work, in parliamentary questions, in green folders, and in all the bread-and-butter work of the organisation. There has also been a general increase in new policy development. I would not like to point to one part of the Executive and say that it has been under more pressure than any other.
Let me refine the question. As you inherited many of the Scottish Office's functions, you will have known the recruitment requirements—the number of bodies needed—to deal with the bread-and-butter issues. Can you highlight the areas in which the number of staff has increased since the Parliament came into being?
Since July 1999, 232 consultation papers have been published—that is a large increase on previous years. There is now 60 per cent more correspondence—ministerial correspondence and correspondence from the public—than there was pre-devolution. Six times as many parliamentary questions are now asked. There have been 22 Executive bills compared with one or two a year pre-devolution. That will give members an indication of the amount of extra work that devolution has generated for the Executive.
I will add a general comment. With parliamentary devolution came a wholesale change in the way in which Government in Scotland worked, including closer working with external partners, such as the voluntary sector, local authorities and health boards, and direct involvement with what happens on the ground. Ian Walford mentioned the increase in the number of consultations. There was more of a sea change in the way in which Government in Scotland worked than was anticipated.
That bears out the point that I made earlier. It would be useful to have a numerical breakdown of the way in which the work has changed and qualitative information of the kind that you have just given. That would allow us to form a sense of how the Executive has altered the administrative way of working in the context of devolution, as opposed to the difference in policy issues, which is better dealt with elsewhere.
The target for energy usage has gone down from 211kWh a square metre to 209kWh a square metre. I have no idea whether that is good or bad, because I do not know how it compares with the figures for other organisations. Does either figure compare well with office energy usage elsewhere? It strikes me that a reduction from 211 to 209 is remarkably precise. I know that that is inevitable when numbers are involved, but how does the Executive hope to reduce energy usage by what is in effect 1 per cent?
Our bills tell us how much energy we have used and we know how many square metres of building we have.
So do I.
The actual figure has a lot of decimal points after it, which we have cut out. As part of our general environmental objectives, we have an energy improvement programme, the "Greening Government" policy statement and an environmental management system in Victoria Quay. Such procedures are intended to identify areas in which changes can be made that will assist in meeting targets. We work out what we think we can achieve and turn that into a target. The overall UK Government target for Government departments is a 1 per cent a year reduction in energy usage, but we chose a slightly tougher target for the first three years. We are considering how to proceed in the future.
I want to return to the first part of my question. Edinburgh is full of office blocks. How do Government office blocks compare with the other ones?
The benchmarking with which we are involved is solely with UK Government departments. Previously, the data were reported to the Environmental Audit Committee at Westminster and were pooled with other Government department data. Our data fared pretty well there.
I wonder whether it is possible to consider the revenue costs in isolation. If the target is a 1 per cent saving in revenue costs, but making that saving costs an enormous amount in capital expenditure, reaching the target still costs money. Nowadays, all sorts of white goods have an energy rating but, given the lifetime costs, one does not save much by choosing those that have lower running costs. Does the Executive analyse whether there will be lifetime savings from capital investment that provides significant reductions in revenue costs?
Yes, particularly when the consultants suggest that we spend money on the way in which a building works, for example on a new boiler. Such improvements are assessed against the likely savings over their lifetime. Not all IT changes are related solely to electricity usage, but energy savings can be part of the benefits of using a different type of system. The energy savings from the IT changes that I mentioned were not a principal reason for the changes. The payback period is a factor when we are considering energy-related investments.
That concludes the evidence session. I thank the witnesses for their evidence, which will fit into our consideration of the budget.