Finance Committee, 25 Apr 2000

Meeting date: Tuesday, April 25, 2000

Official Report 224KB pdf

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Budget Process

Item 1 is consideration of the budget process. We are joined by the committee advisers, Brian Ashcroft and Irvine Lapsley, whom we are pleased to welcome. This should be an opportunity for the advisers to introduce themselves formally to the committee—although both have met us on previous occasions—and to suggest ways in which we might oversee the budget process.

I shall ask the advisers to outline how they see their involvement with the committee during stage 1 and to suggest what the committee's role might be in terms of maximising our impact on the budget process. As we know, the budget document has gone out to the other committees, which are already considering their input.

Thank you for welcoming us, convener. At stage 1, the big issue will be determining whether the various plans in "Investing in You" fit together coherently. A major thrust of our work is to consider any presentational issues that need to be examined from a finance angle. There are also many issues tucked in behind that. As I said at a previous meeting, the whole process of budgeting and reporting is at a developmental stage. The committee should consider how the document has been put together, with a view to improving the process.

There are two important issues. First, we must help the committee to get a handle on the projected outcomes and to find out whether there is coherence in the plans. Secondly, we must examine what underpins the plans and see whether we can improve the process, taking note of the fact that it is still very much in a developmental phase.

I broadly agree with that. It is important that the committee gets a handle on what is in "Investing in You" and how that relates to previous spending plans, and on the degree of consistency within "Investing in You". I have seen only the Photostat version, but I can see several problems with the presentation, such as the comparison of level I figures on one page with the summation of level II figures on another page. There are also problems with the presentation of cash and real-terms figures, which should be the same in the base year, but are not.

There are clearly difficulties that the committee must deal with before moving on to the more sophisticated issues that Irvine Lapsley has mentioned, such as consistency, economic efficiency—what money is spent on, whether that spending is appropriate in relation to the objectives and how that relates to desired outcomes—and technical efficiency issues about how objectives are to be achieved. Given the increased spending, those important issues can be associated with cost efficiencies, and the committee may want to get a handle on that.

The presentational issues—what is in the document and whether it is clear and transparent—are crucial. Once that has been dealt with, the basic issues of efficiency and effectiveness can be handled. Some issues that cut across subject areas will arise from that, and the committee may want to take responsibility for considering those. There are also many technical issues that the subject committees may find that they cannot deal with; it will be up to the Finance Committee to push the other committees to deliver on those technical issues. That process has already started with the document that has been circulated, and the committees will report back in May.

That is broadly how I see the situation but, like you, I am learning.

We are all learning, which is part of the excitement of the process, of course.

Andrew Wilson has e-mailed me with the points that he wants to raise about the presentation of the document.

My concerns are reflected in Professor Ashcroft's comments. When we initially got the pre-release version of the document—which I guess was written before the budget changes—I was struck by several points.

First, the document contains less information than "Serving Scotland's Needs" used to—it is far less substantial than even the old departmental report was. Secondly, it is a large step backwards in consistency of presentation of real-terms figures. It breaks down the figures into explicit level II and III figures, which is good, but the way in which real-terms figures are presented is bizarre. If that is a signal of how the Executive sees the budget process, I have very grave concerns about it. Early comments from members of the committee would be useful. My concerns are all detailed in the e-mail that I sent, which I will be happy to copy to other members if that would be useful.

The direct role for this committee will be delayed for some weeks until the subject committees come back with their comments and we can begin to draft the report.

One of the things that we discussed was what role, if any, the committee might have in the deliberations of the other committees. We took the view that we did not want to send out emissaries, as it were. We certainly did not want those of us who are on other committees to have some sort of split responsibility in those committees—that has not been suggested, but we want to keep an eye on the process. How best are we to do that? Will the clerks tell us how we can or should monitor how the other committees are considering the budget? We can study the reports of their meetings, but is there anything else that we should do during that period?

The subject committees have all set their own timetables for considering the budget, and they must all reply to this committee by the end of May. It is for this committee to consider whether it wants to monitor the progress of the subject committees in the intervening period, or whether it is happy to wait to receive considered comments at the end of the period.

I recall that, when we discussed this matter initially, it was suggested that members of this committee could act as rapporteurs for each subject committee during that intervening period. However, that would probably burden committee members with too much work. Another suggestion was that, after 31 May, once we had received submissions from the committees, a member from each committee—a rapporteur from their side, so to speak—could elaborate on or clarify the surveys that they had completed. Those two ideas might be worth reconsidering. Perhaps we should monitor the committees until the end of May, particularly as this is the first time for the process.

I agree with Keith Raffan. I worry that, if we just leave the committees to get on with it and to turn up with a final report, that final report might not be in a form that we can use readily without going back to the committees. We ought to be involved with the subject committees, at least at the preliminary stages of producing a report, so that there is some general uniformity in the way in which information flows back to us.

We are dependent on the work that those committees do and the detail that they go into, and we must try to pull all that together in a fair and responsible manner. It is therefore important that we are seen not as the enemy or as another set of arbitrators, but as providing support to help those committees to do their work as efficiently as possible. We should try to pull things together at an early stage, rather than leaving everything until the last minute and having a mad scramble.

You make a fair point about playing a supportive role. That is certainly what we intend to do and that is how it should be. However, I am less sure about our taking a proactive role in formally monitoring the committees. Let us not forget the fact that we have given the committees a pretty clear steer on the areas on which we want them to comment. They are not restricted to commenting only on those areas; they can go further if they want. However, our advice gives them a basis for their consideration of the budget.

Sarah Davidson has reminded me that the clerks from all the committees will be meeting regularly throughout the process to try to pull together the considerations of their various committees. The Scottish Parliament information centre will also have some input, so it is not as though the process will be running in a compartmentalised way.

Will we, via the clerks, be able to get interim reports so that we can look at them as we go along?

I shall come back to that point later, but I know that John Swinney would like to comment—he has direct experience of such matters from the Enterprise and Lifelong Learning Committee.

I support the comments that you have made, convener. I find it hard to see how all the subject committees can do as David Davidson has suggested and produce material in a standard format. The committees will all consider the budget allocations in their areas from their perspective—one committee may be pleased with the allocations and another may think that the Government is not allocating enough resources to deliver on a certain policy priority. Those judgments have been teed up for the other committees by the input of the Finance Committee.

The Finance Committee can help at this stage by stripping out some of the common issues—presentation, for example, which was raised by Brian Ashcroft. When, before the recess, the Enterprise and Lifelong Learning Committee looked at the material that was relevant to it—although I admit that the material was a Photostat, it was pre-budget and there were typographical errors—we could get nothing to add up for the level II and level III figures. On issues such as that, which are common to all committees, this committee can help, but each committee is better left to raise its own concerns in its own policy area. There has been a lot of guidance. I had some guidance during the recess from Kate MacLean and from you, convener, on wider, equal opportunities issues. Those are the kind of things that each committee has to chew over. However, if there are issues of process that apply across the board, the Finance Committee can undoubtedly keep the other committees informed.

On David's point, I think that it would be unrealistic to expect to receive progress reports from the clerks. We want to co-ordinate the work of the committees. If I may speak for Sarah Davidson, our clerk, we must ensure that the committees are focusing properly, as the budget process intends.

I do not dispute that. We can give a lot of help.

I do not think that it would be helpful for each member of this committee to take responsibility for another committee. People would end up tucked into different committees, whereas we have to keep an overall view. If we give the right guidance to other committees and their clerks, that should be sufficient.

Let us be absolutely and brutally honest: we know the system better than the other committees do.

If the committees come back and say that there is not enough level I spending in their area, that would be a matter for us. We would need to have fairly close communication with them to discuss the matter. At level II and below, it would be a matter for them. It is surely their responsibility to work out what they are doing. Our responsibility is to consider whether the global targets are being met.

The cross-cutting issues are of the greatest concern. An example is expenditure on tackling drug abuse—which of the subject committees will consider how to draw the different elements together? The Social Inclusion, Housing and Voluntary Sector Committee is considering drugs, but only one aspect of the issue; it is not necessarily the lead committee on that subject. We will have problems with issues of that sort.

I understand that we have issued a pro forma of sorts to the committees, which now have to report back to us. I assume that we will have enough time to interpret those reports, so that we can, if we want to, call committee members or conveners to answer questions on their reports. If there is nothing controversial, that could be done by letter. However, if we need to question committee members directly so that they can explain their concerns, does our timetable allow us enough time to do that? I think that it does, but I cannot remember the dates that we had agreed.

If every committee had to come before us, that would be very difficult. However, there is some time available in early June.

I presume that it would be possible for us to get copies of the extracts of the Official Report that cover each committee's discussion of the budget. That would be helpful for us and for the special advisers. I am not sure that I agree with Rhoda Grant: I think that it might be helpful to have a liaison person with each committee, which could be arranged by you, convener, and the clerk. Getting extracts of the Official Report would help us to monitor budget discussions, and would allow us to check that everything was on track. If anything was way off beam, we would quickly notice.

From a logistics point of view, it would be difficult to do anything other than get feedback from clerks on what is going on in other committees. Over the next month or so, until we get reports back, I suggest that the committee, using the advice of our advisers, should make its views known on "Investing in You", indicating where we think it does well and where we think that there is room for improvement. That is a way in which we can make a decent contribution to the process at an early stage. Our comments would perhaps be taken note of for next year's report.

Brian, you mentioned the presentation of the document. Can you expand on that?

I think that, instead of this committee writing a report at the end of the process, the process should be on-going, allowing committees and clerks to question the Executive to get some feedback and to find out whether our concerns are justified.

There are some obvious points to make about the presentation. For example, level I figures should stack up with the aggregations of level II and level III, which does not happen at the moment in several areas.

That just seems bizarre.

I repeat that I am speaking about the Photostat, not the published document, which I have yet to look at.

To give another example, the base year figures, when deflated to real terms, should be the same as the cash figures. However, in many cases—the figures for the Crown Office, rural affairs and transport, for example—they are not, and the differences are significant. Those are basic things, which could in part be a result of typos, but the numbers should be consistent from the presentation in level I through to the level II and level III figures for individual subject areas. It should all add up.

Another point to make on presentation is that there are some areas of spend that do not fall within subject committee areas. Information needs to be given about those areas of spend.

We also need some comparison between what has happened previously and what is happening now. For example, how does the way in which national health service staff pensions and teachers' pensions are treated now compare with the way in which they were treated previously? From a fairly superficial run-through of the document, I cannot find that out. When figures are moved around and are put into subject areas, as has been done in the document, we are no longer comparing like with like when we consider the figures for previous years. There has to be a way of comparing like with like, and if information is not available to allow that, an explanation should be given.

This question may be unfair, but I will ask it anyway. It has been suggested—specifically by Andrew Wilson—that the current presentation is a step back from previous presentations. Do either of the witnesses think that that is the case? If it is the case, is it because good intentions have gone wrong or because there was no intention to move forward? The Minister for Finance gave us fairly firm commitments, which we accepted. I understood that the intention was to be much more forthcoming.

I would not generalise in that way. There are improvements in the presentation and it has some advantages—for example, in the expression of its objectives, in the inclusion of some indicators and in the clarity of the language. However, there are still problems of presentation, in the consistency of the numbers and in terms of this committee and the subject committees being able to understand what is going on. There is considerable room for improvement. We operate in a world of incremental improvements, and improvements have been made. However, we should not rest on our laurels.

The numbers should all articulate. Any aggregation of numbers should reconcile with the base numbers. That is absolutely fundamental; it is not a presentational matter, it is a substantive matter. Any deviation from that should not happen—end of story.

As for the presentation and the way in which documents are put together, a number of criteria should apply. This is a comprehensive document, and accessibility is an issue. In some ways, the test of this document will be how well the subject committees perform. If they can follow it and—despite not being experts on finance—ask really good questions about it, the document has done its job. That is a pragmatic but useful test of the document.

That goes beyond the committees. The document was launched last week as a public consultation document, so the wider public are expected to be able to respond to it.

An attempt has been made to make "Investing in You" accessible, through the small accompanying document. There is detail for people to probe. The Executive is moving along the right lines, with resource accounting, performance indicators—as Brian Ashcroft mentioned—and analysis of policy on spend.

However, articulation should be buttoned down; there should be no discrepancies between figures. It may be useful, as Andrew Wilson suggested, to make general comments to the Executive on the merits of the document—not only on numbers that may not reconcile but on the general quality of the document and on what we think may happen, bearing in mind the pragmatic test of the document that I suggested.

It is disturbing if our two expert professors are having difficulty with the document, as that leads to concerns about how the public will feel about it. It would be helpful if Professor Ashcroft and Professor Lapsley could prepare some notes for our next meeting—although this may be too short notice. The basic point concerns the aggregation, but other points have been made.

Everything that I have said so far has been based on the Photostat.

I appreciate that.

Yes, that point has been taken.

Numbers should add up—that is absolutely basic. The professors may want to mention other points. We could ask the Executive why it has presented the document in this way and what it intends to do about it.

I have another concern, which relates to the treatment of capital, especially as resource accounting and budgeting will come on stream this year. I do not feel that there is enough clarity—in the Photostat, at least—on capital expenditure. I would have thought that steps could have been taken to give more indication of what is capital spend and what is current spend, especially as that is the way in which things will eventually be presented—together with depreciation—when there is resource accounting and budgeting.

Why do you think that some of the figures do not add up and do not reconcile between levels I, II and III? Has it anything to do with the financial systems that are being used to produce these figures and documents? Are they now inadequate?

On occasion, level II may not add up to level I because of typographical errors. There may also be omissions—things that are included in level I figures but not discussed under level II headings. When that happens, numbers will not add up, but I am not sure why that has happened.

I am not clear why there is a discrepancy between real-terms and cash figures for the base year. It may be due to aggregation problems at level III. However, as Irvine Lapsley said, the figures should all add up; if they do not, there is a problem.

Professors, I think that that has been sorted in the final document.

Please avoid having a dialogue. I do not want to stretch this discussion out much further.

If the figures do not add up in the final draft, we should write to the minister as soon as possible and take up some of the points that we have raised.

Having listened to the discussion, I think that it would be helpful if, at the end of stage 1, we were to carry out a report not only on stage 1 but on the process itself and how it could be improved and refined for next year. The report could include a section on the document, but would also cover how the committees have worked. We could put that report to the Executive; that would be particularly valuable in the first year.

Could the witnesses put some thoughts down on paper and get them to Sarah Davidson within the next week?

Yes.

That would be helpful. Thank you.

Would it be useful if members also pass their points to Sarah?

Yes. If you want to develop the points that you made earlier, you could let Sarah have them; that applies to any member who wishes to make further comment.

I will take two further brief points, then we must move on.

I want to draw the professors' attention to the document that we will discuss later in the meeting, which relates to the written agreements with the Scottish Executive. The point about capital expenditure, which Professor Ashcroft mentioned, is covered in paragraph 6. The witnesses do not seem to have that document.

We asked specifically for capital expenditure to be identified in budget documents, and although this is not, strictly, a budget document, it should identify capital expenditure. Perhaps it would be worth while for the witnesses to check that. We have said what we think should be in the documents and how they should be presented. The points that we have raised today are those that we wanted to have been addressed in the written agreements with the Executive in the first place. It would be disappointing if they are not. Perhaps you can consider that.

We will do so if we can obtain a copy of the document.

You are at the disadvantage of not having the document, but a copy will be made available to you.

I assume that we will discuss the matter later, but the letter that we received from the Minister for Finance—about when he will make available the real-terms as opposed to the cash-terms figures—is not clear. We do not know from the letter if we will get those figures for the first time only after royal assent—I presume that that is not the case, and we would not accept that.

We will come to that when we reach agenda item 5, but I agree: I too found the letter ambiguous. We will wish to deal with that.

It was extremely ambiguous.

If there are no further comments, we will proceed to the next item. Thank you, Professor Ashcroft and Professor Lapsley—we will see you again.

Members will be aware that the Minister for Finance will be with us at 12.00, so we must press on with the other agenda items.