Finance Committee, 25 Feb 2003

Meeting date: Tuesday, February 25, 2003

Official Report 174KB pdf

---

Financial Scrutiny Review

The next item is the financial scrutiny review. There are two papers for the item and Arthur Midwinter is here to answer any questions on the second paper. I invite members to ask any questions or make any points of clarification on the papers.

I have a point to reinforce about the quality of financial memoranda. The committee has made its view clear. The points in the draft report on the financial scrutiny review are well made.

There is concern among the subject committees about the quality of the financial memoranda that are published with bills. The topic is important for the Parliament, not only for the committee. At one stage, there was a move for the committee not to deal with financial memoranda, but it is essential that we do and that we have a proactive relationship with bill teams to ensure that the clerk or the convener gives and exchanges advice.

We need to be robust on financial memoranda in future. Typical examples are the Mental Health (Scotland) Bill and the Homelessness (Scotland) Bill. In their original forms, the financial memoranda for those bills contain staggering inadequacies. The committee will be worth its salt if it can sort that problem out.

I am looking at the proposal for the spending review in paragraph 31 of Arthur Midwinter's paper. Am I right in thinking that you are proposing that, instead of a fairly intensive stage 1 and stage 2 under our three-stage budget process, the bulk of the subject committees' work should take place in March and April, when they would consider the strategy documents, and that the work in September and October, which is currently stage 2, should be a relatively short and snappy review?

The criticism from the financial issues advisory group meeting was that the strategic dimension was not strong enough. As I looked back over the year, it became pretty clear that FIAG reported before we knew about Gordon Brown's reforms and before we knew that there was going to be a spending review system.

We have a two-year budget cycle, but a three-year planning period, because we begin by revisiting the final year of the previous process. I felt that there was a huge overlap between the annual expenditure review, which is really not playing the strategy document role that FIAG envisaged, and the draft budget. FIAG initially thought that the committee would make its detailed recommendations at the draft budget stage, but they are being made in June and July because they need to be made at that point in a spending review year to influence the spending review.

My proposal is an attempt to rationalise the process to bring out a more strategic dimension in line with the committee's experience over the past few years. The beginning of the process should be a strategy document, accompanied by a new performance report to end the previous process. That would be progress.

At the moment, the budget is not dealt with systematically. We have "Building a Better Scotland: Spending Proposals 2003-06: What the money buys", "Closing the Opportunity Gap: Scottish Budget for 2003-2006" and "Building a Sustainable Scotland: Sustainable Development and the Spending Review 2002". None of those is scrutinised—they are only published. Committees go on and use "Building a Better Scotland" as the basis of their discussions of the draft budget, although it does not have level 3 figures. There was a fair degree of confusion this year. The process could be rationalised and focused much more on the choices.

So, in the spending review year, the March/April strategy document would be the primary part of the two-year process and would drive everything else, because it would drive all the discussions.

It would be a combination of the initial information that is currently in "Building a Better Scotland"—produced to lay out the budget strategy with the key priorities highlighted—and the existing plans right down to level 3 for the final year of the current process. We could then focus on the committee's recommendations for change and submit the recommendations, as we did this year. The committee needs to recognise that October is not the time to get recommendations from the subject committees—which is what FIAG wanted—because by that time, it is too late. The draft budget part of the process could be truncated.

As yet, ministers do not explain fully what they have done with the committee's recommendations. The FIAG report suggests that the Executive should do so in the final stage of the process. That ought to be formally recorded in the draft budget; the Executive needs to say, "This is what we have done in response to the committee's recommendations."

We are talking about the need for the Executive to make a simple record of the number of changes that it has made. We are not asking for a word-for-word regurgitation of the changes to a document of some 200 pages.

By September or October, committees will be able to see clearly whether the recommendations have been adopted.

This year, some of the committees are still waiting for an answer. In July, they were told that the matter was being dealt with in the spending review. However, the spending review happened and the documents were published, but they were not scrutinised and we still do not know what happened to around four of the committee's recommendations. The suggested approach would tighten up the process and give it a better focus.

I am looking for the committee to agree broadly to the approach. We can then take the matter forward with officials during dissolution and try to get something for the new committee that both sides would find helpful in the rationalisation of the process. I know that the current ministers are keen to rationalise the process, but the outcome of the election might change that.

I have a number of specific points to make, but before I do so, I have a general point to make about the format. I do not have a problem with it, except to suggest that it should be set in the context of much longer goals. At least once in every parliamentary session, consideration needs to be given to 10-year objectives. That point takes us back to our discussions of about three years ago on the Oregon budget, in which everything was set in the context of 10-year plans. At the moment, I think that 2010 targets are discussed only in respect of health targets, as everything in that area has to be seen in the context of those longer-term targets.

Given that Professor Midwinter sets out in his paper that we can shift only a small amount every year, we have to look to long-term goals to achieve a major strategic shift. I suggest that somewhere in the document, we should say that a strategic overview should be taken of the whole process and that, ideally, it should happen at an early stage of every parliamentary session.

Before Richard Simpson returned to the meeting, we were having all sorts of problems with the long-term goals. We were looking at them and asking how we could monitor how they were to be achieved. We felt that a number of health goals could not be identified in the budget and that we could not see where the money was coming from that would contribute to those long-term goals.

My instinct is that we should think about that point in relation to either the strategy document or the performance report. I would like to have time to think about it and to talk it through with Executive officials. Part of the difficulty relates to the performance information that we receive. We do not get the outturn figures until about two years after the budget has closed. The most relevant social indicators that are used are also about two years old. I need to think about that point.

My other point relates to paragraph 30 of our draft report and to the question of targets. Not only are the annual targets not meaningful against long-term strategic objectives, but they are often beyond the scope of the Executive department, agency or local authority to achieve.

One example is the target for the reduction in violent crime. It might be a perfectly appropriate Executive target, but it is counter-productive to set it as a police target. When I was Deputy Minister for Justice, I tried to change it. If we really wanted to meet a target for reducing violent crime, the way to do it would be not to arrest people for carrying offensive weapons—that measure would reduce the figures for violent crime overnight. What we should be saying is that we want to arrest many more people for carrying offensive weapons. If that leads to a rise in the numbers for violent crime, as it has done, that is entirely appropriate. To do so would prevent the spurious debates that we can have in the Parliament about violent crime.

Agreed.

It was pretty clear from the feedback on the outcome budgeting exercise that a number of professions, including the police and the prison service, were worried about the use of such targets, because they would be held accountable for something that they could not control.

There are process targets that are entirely appropriate, and there are some quality targets that are appropriate. I wanted to have a bit in paragraph 30 saying something like, "Targets should be meaningful. Too often they do not fall within the operational control of the Executive department or agency, and we recommend that there should be a review by subject committees of targets as part of the budget scrutiny." At some point, there should be a review of the whole basis of targeting, and subject committees should really take that on board.

Of course, that depends on political parties taking an objective analysis of the outcomes of those targets, rather than using it as a method for criticism.

That is right. If the targets are meaningful, that should prevent some of the spurious debates that we have been having. I can see Mr Davidson nodding; I hope that he will say "Yes," loudly.

All I am saying is that I am defining that as scrutiny.

I have one suggested change to paragraph 24, on written guidance on announcements, which says:

"We welcome the clarity that this will bring."

That is still aspirational. I suggest that we change that to recommend that our successor committee should repeat the analysis contained in the annexe to ensure that the clarity anticipated by those new guidelines is actually achieved. Maybe I am being cynical.

No, no. In the spirit of optimism I shall accept that change.

I have a question for Arthur Midwinter. In looking at the review of how the process works, do you intend to do any work with representatives of the subject committees, whether through their advisers or through their clerking teams, on where they want to feed in and what they want? If that is done, a collective view could be given before you speak to the Executive.

At the moment, I have been asked to do a review document, rather than to think about the mechanics of how we would do it. The only clear message that we got from the committees was a worry about overload, as they felt that they were getting too much information and detail. A year ago, when I was first appointed, I had a collective meeting with the clerks and conveners of the different committees, and I suggest that we should probably do that again. The Executive is keen to have a discussion about it to find a way that meets the objectives of the committees and those of the Executive, but it would make sense to have those collective meetings before we meet the Executive.

My point is that we have had written agreements with ministers in the past about procedures, and I find it a bit strange that we can come to an agreement without those who have to play the game having a say in the rules, the timing or the work load. It is important that we tidy that up.

Our feeling was that, at the moment, we have a remit at official level to go away and start discussions, but we must then bring them back to this committee and to ministers in the first instance. We also felt that we would need to get that buy-in from the subject committees; the forum for doing that would be the Conveners Group, and we would do that before we sought to finalise a new system.

We could talk them through the papers.

The first thing that we must do is to seek agreement on the draft report on the financial scrutiny review. It is not quite the same as a normal report, as it does not contain a great number of recommendations. It is more of a commentary on the work that we have done. Are members quite happy to accept the report?

Members indicated agreement.

The second paper is the one from Arthur Midwinter on suggested changes to the current budget process. Are members quite happy to go along with the suggestions in that paper and allow further work to be done?

Members indicated agreement.

Arthur, do you have any further comments before we sign off the report?

No, not at this time. I have been pleased with the response that we have had from the Executive on previous attempts to improve the process, and I am sure that it will continue to behave in a positive way.