Economy, Energy and Tourism Committee, 25 Mar 2009

Meeting date: Wednesday, March 25, 2009

Official Report 256KB pdf

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Budget Process 2009-10

The final item is to consider the response from the Government's chief economic adviser and director-general economy—a rather unfortunate title in the current situation—to the recommendations in our report on the draft budget for 2009-10. Do members want to follow up on any of his responses?

I was taken aback by the poor quality of some of the responses. I did not expect to agree with all of them, but I was surprised that some responses did not even attempt to address the points that we had made. In the response to recommendation 1, the blank refusal to provide level 4 figures in the future is very disappointing.

The point behind recommendation 1, which seems to have been misunderstood, was not that level 4 figures should be routinely published but that they should be provided as a matter of routine to the relevant committee. Those are two different things.

Otherwise, we will just ask for level 4 figures every year and the Government will provide them. That delays us by a couple of weeks in a process for which we have only a month or two.

The fact that we are considering the Government's response weeks after the budget process has finished is an indication of the consequences of such delays.

I want to make three specific points. It does not help that the paragraphs are not numbered—

The recommendations are numbered.

First, on recommendation 7 in relation to the totality of capital spend, the response rightly refers to the infrastructure investment plan. However, what is planned and what is delivered are not entirely the same thing, especially for infrastructure. We should write back and say that the Government should not only keep the totality of public expenditure "under review", but consider the case for a retrospective look. Given that we will have completed the financial year 2008-09 as of next week, there might be merit in writing back to ask what has been delivered against the plan. As well as scoping what infrastructure investment is planned over the three years, the process should include a formalised look back, as the financial year closes, to consider what has been delivered. That should cover all capital spend, irrespective of whether it involves the non-profit distributing model, conventional funding or public-private partnerships.

Secondly, on the response to recommendation 9, I want to make a point that I have made previously. The response states:

"Building Regulations brought in last year give Scotland the most demanding building standards in the UK in terms of … energy efficiency measures. … All Registered Social Landlords (RSLs) have … Plans in place to meet the Scottish Housing Quality Standard for their existing stock—including energy efficiency standards—by 2015."

I do not recognise that in the investment plans for councils. It would be great if someone could take a look at that.

Thirdly, in the response to recommendation 11, which was about bringing forward capital spend, I note in passing that no mention is made of the health service, although it accounts for a third of the Scottish budget. I am not sure that we necessarily want to write back about that.

Health service spend is not mentioned probably because we did not ask about it.

The part of the response to recommendation 11 that interests me is the paragraph on local authorities, which states:

"Local authorities are already examining where they can accelerate their expenditure on capital projects by £10m in 2008-09 and £90m in 2009-10. Discussions are ongoing with COSLA on this. Further details will be confirmed in due course."

I suggest that we ask for itemisation of those projects. We agreed our report in the last week in November and we are now a couple of days off the start of the new financial year. Has agreement been reached on the £90 million and, if so, what are the projects?

We should ask especially about the £10 million of capital projects for the financial year that is up.

Exactly. The current financial year is almost gone.

I was slightly surprised that one month away from the end of the financial year—the letter is dated 24 February—discussions were still on-going about that £10 million of capital spending. That seems a bit strange to me.

Exactly. We should ask for an itemisation of those projects.

Perhaps the response was written somewhat before then.

Do members want to raise any other points?

The least satisfactory of all the responses is the response to recommendation 12, which was about the Scottish Futures Trust and the bringing forward of early investment. Among a number of extraordinary omissions, the response fails to comment on the long delay in establishing the Scottish Futures Trust that had been the cause of the committee's concern. The business case that it describes was published with no detail, and the proposition that the Scottish Futures Trust should not be a direct funder of projects is a complete change of policy from when the trust was first proposed.

Throughout the description that follows that, there are statements that are simply factually inaccurate. At the top of the second page of the discussion about the Scottish Futures Trust, the hub initiative is described as being managed by the trust, but the paper fails to mention the fact that the initiative is a public-private partnership project that was established under the previous Administration. It seems bizarre that the Government's explanation is so incomplete.

Further down that page, we are told that the SFT has

"started to use the Non Profit Distributing (NPD) model".

I know that model only too well because it has been used in my local authority area. It was established under the previous Administration with funding that was provided in 2002. Again, the description of the SFT's role is entirely misleading. It appears to suggest that the non-profit distributing model and the Falkirk and Aberdeen schools projects that it funds are outcomes of the SFT whereas, in fact, they are outcomes of decisions that were made a number of years ago.

That section of the paper fails to describe the situation accurately or to respond in any positive way to the committee's recommendations on capital projects.

I have one additional comment on that section. It says:

"This is all within an enormous programme of infrastructure projects signed off including … the Forth Replacement crossing".

I do not think that anyone believes that the Forth replacement crossing has been signed off. Nobody yet knows how it will be funded, so how can it possibly be signed off? I suspect that that list includes one or two other projects to which the Government has committed but that are not signed off. Clearly, the funding mechanism must be in place before projects can be signed off. I wonder whether the language is acceptable in that respect.

We could go on. I think that the response to recommendation 3, in which we sought updates from the accountable officers of the enterprise networks, is another misunderstanding. It is not a response to that recommendation but simply says that the accountable officers report to ministers. We hope that they would, but our recommendation was that they should also report to the committee. There is no evidence that that has been understood, far less addressed, in the response.

We wanted a six-monthly update because the operating plans of Scottish Enterprise and Highlands and Islands Enterprise rely quite heavily on asset sales. I forget the exact figures, but it was something like £40 million this year for SE and probably about half that for HIE. We were concerned that they were not likely to get market value—or, at least, previous market value—because it is harder to sell property and to get the values that one might want for it. We were also concerned that that would have a big impact on their operating plans.

The Government does not want to do a fixed-point, six-monthly report, but I presume from the response that there is something that it can give us periodically so that we can examine how asset sales are going. We should ask for something, otherwise we will just examine it again under next year's budget.

It is not for a Scottish Government official or minister to say what the committee can and cannot ask for from bodies that it is responsible for overseeing. If the committee wishes to ask Scottish Enterprise and Highlands and Islands Enterprise for a six-monthly update, it will do so irrespective of what Dr Goudie has said in his response. If members agree, we will make that point, too.

The pensions issue is discussed at length. It is worth noting that the Finance Committee is considering the impact of the economic downturn on the finances of public bodies. Pensions will be a key part of that, so it might be worth drawing to that committee's attention our concern about the downturn's impact on pension funds in the public sector and the difficulties that it may cause local authorities and other bodies that have funded schemes in the coming years. For example, the additional costs to the Strathclyde pension fund might be substantial and would have to be covered by increases in council tax or cuts in services.

Although we do not particularly need to do anything in response to this, it is worth noting that Jim Mather gave us evidence that the advice of the Council of Economic Advisers was not available to him as it was above his pay grade, but Dr Goudie directly rebuts that and says that the minister is indeed

"party to the advice given by the Council of Economic Advisers."

We can pursue that the next time we talk to the minister.

It is an interesting issue. Why does the minister not know that he is party to a decision?

Do members agree that I should write to the minister to ask for clarification on the points that have been raised and indicate that, if we do not get a satisfactory response this time from him or Dr Goudie, we may wish to take further evidence on some matters?

Members indicated agreement.

I thank members for attending and for their useful contributions. That concludes today's meeting.

Meeting closed at 12:16.