Finance Committee, 25 Apr 2000

Meeting date: Tuesday, April 25, 2000

Official Report 224KB pdf

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Scottish Executive Finance Functions

I welcome the Minister for Finance and Dr Collings. Thank you for coming to talk to us about the finance functions of the Scottish Executive.

Although the item on the agenda relates to the finance functions, your letter, minister, about the budget documents and the agreements between the Executive and the committee on behalf of the Parliament, has been the subject of some discussion. I understand that the clerks have raised the matter and that you have said that you are prepared to discuss that issue with us this morning.

Yes. Having re-read the letter, I would like to clarify one of the points that is not as clear as it might be.

That was the feeling of the committee. Do you have the letter to hand? It might be helpful to begin with that point.

The fourth paragraph of the letter is ambiguous. If the paragraph means that you will formally publish the budget documents at this stage, on this occasion, that would be acceptable. However, the committee would not be very happy if it meant that you would publish them at this stage every year. Could you clarify that point?

Re-reading the letter in advance of this morning's meeting, I was concerned about the phrase "formally publish". That phrase relates specifically to publication of information with what becomes the budget act, when the bill receives royal assent. I assumed—but should perhaps have stated more clearly—that it would be taken for granted that the real-terms annexe would be issued in the Parliament when the bill was published, rather than at the time of royal assent. The documents would be available to the Parliament in the normal way at the time of the publication of the bill, but they would also be published formally, as part of the budget act, for the historical record. I hope that that clarifies the situation.

The bill will be published in January.

Yes.

And you are saying that the figures will be published at the beginning of the process, not just in January.

We are committed to publishing real-terms figures whenever we undertake consultation exercises or statements to the Parliament. We keep trying to do that, although there might be occasions on which it would not be appropriate. When important announcements are made, it is obviously helpful to have such information available.

I understood that the committee's concern was that, when the budget bill was debated and approved in the Parliament, real-terms figures should be published that would—when members finally agreed on a budget for the forthcoming year—allow an adequate comparison to be made. That was the intention behind that sentence, although when I read it this morning—anticipating what you might want to ask me about—I realised that the wording might imply that we would publish the annexe only at the time of royal assent. That is wrong. The annexe would be published before Parliament considered the bill.

That clarifies the situation satisfactorily. Thank you, minister. That enables the agreement to be signed.

We now move on to the finance functions of the Scottish Executive. You will know, minister, that we have taken evidence from many people over the past few weeks. We are glad to have the opportunity to discuss the matter with you now.

I thank Dr Collings for honouring the obligation that he made when he spoke to us some weeks ago. We have received the outcome of the Scottish Executive's organisational review, along with the recommendations. Could you tell us the status of that document, minister? I see that it was published on 21 March. What is its status now? Have you had the time to examine it and to consider the recommendations? Have you come to an opinion? If not, when do you anticipate doing so?

Perhaps I can address those questions with one or two other opening remarks, if that would be acceptable to the committee.

Please do.

As Dr Collings explained, the report that was prepared internally is more detailed, but because it relates to the current work of individuals, it might not be made widely available. That report has been discussed in the department, in the management group and with the trade unions in the Scottish Executive since the middle of March, as is right and proper. We have made no decisions about that report before this morning's meeting and I shall make no decision on the areas in which I have a direct interest—rather than those that are simply management systems matters—before the committee publishes its report. I hope that that clarifies the matter.

I regard this morning's meeting as an opportunity to hear what the committee is asking about, as well as an opportunity to answer questions. I want to say three things about the issues that the committee is considering and to welcome the fact that the committee is considering financial and management functions in the Executive.

First, as members have probably heard me say, throughout the past 11 months I have been keen to enter the post-devolution world with some stability. I was also keen to concentrate on the immediate challenges that were before us, such as passing the Public Finance and Accountability (Scotland) Act 2000 and the Budget (Scotland) Act 2000, and undertaking the interim spending reviews that took place during the course of the year.

It was important that those significant challenges existed and that we reviewed our post-devolution position in a stable atmosphere. We were able to look at the longer-term challenges, some of which have become immediate, such as the provision of information, answering parliamentary questions and dealing with parliamentary debates. In relation to the Scottish budget, all those issues are substantially more transparent than in Westminster. Tackling those challenges was an important starting point for the Executive, and this spring is the right time to review the functions of the department and how it operates and relates to other parts of the organisation.

I have three clear priorities. First, I want to ensure that the finance or Treasury function of the Executive—whatever we wish to call it—can ensure that resources are targeted on our priorities. Whether the priority is to maintain, expand, improve or change services, or to deal with emergencies, we must ensure that our resources are targeted on the Administration's priorities. That involves, as a sub-priority, dealing with the important issue of taking a cross-cutting approach, which the committee has examined in some detail, and which the Executive is looking at regularly.

Secondly, I take value for money and efficiency seriously, particularly in relation to performance and getting a clearer idea of what we expect for any additional money—or even existing money—that is allocated to particular departments, projects or cross-cutting issues.

Thirdly—and this is, perhaps, the most dramatically changed area as a result of devolution—I am concerned with the provision of accurate information. That helps the process of accountability and transparency. It also provides ministers in particular and others with a level of analysis that allows us to make the best possible decisions in the light of the other two key priorities. That applies internally and externally and it has been the biggest change in the needs that must be served by the department. The creation of a ministerial position—albeit one that moves into other areas of management and responsibilities—has, presumably, put demands on the department. There are rightly, however, also demands from other ministers, committees, the Parliament and the public.

The department and I, as a minister, need to examine seriously how to support efforts to ensure that money is best used in a cross-cutting way. We have already started to look at that as part of the spending review that is taking place between now and July for the year 2001-02 and beyond. That review will look at cross-cutting issues. We have had a detailed discussion on sustainable development, and we recently met the Equal Opportunities Commission and Engender to discuss how to build equal opportunities issues into the budgeting and spending process. We have also had sessions about drugs and I know that at least one member of the committee has a direct interest in that. The Administration must also take a cross-cutting approach to that. We are also examining the social justice report and action plan, which sets out targets, and how to ensure that spending reflects those priorities.

The work of the strategy group, which includes Mr McCabe, Mr Finnie and me, is important. That group must take a cross-cutting approach and, during the next two months, set spending targets and allocate or propose totals as part of the autumn consultation, which will come before Parliament in next year's budget bill and beyond.

I am keen to hear the committee's views and will be delighted to answer questions.

Thank you for those opening remarks.

Over the past few weeks we have heard quite a bit of evidence and, when possible, comparisons have been made between the Scottish Office as was and the newer system that is developing under the Scottish Executive. We have heard from various sources that the Scottish Office was characterised by what has been termed a collegiate style, which was seen as beneficial. Do you think that that style can be maintained by the Scottish Executive, in which Cabinet government operates with the potential to change the way in which people interrelate?

We might be able to maintain that style, but it will have to reform, adapt and develop. The Executive's summary states:

"A model with an intelligent, challenging centre and greater devolution of responsibilities to Departments provides the prospect of ensuring better service".

That appeals to me. It is important to have an intelligent, challenging centre that exists to prompt, to direct and, at times, to check whether money is being spent on the areas for which it was originally intended. In any modern organisation, devolution of financial responsibilities is seen as a successful strategy.

I have not read all the evidence that the committee has taken so far, but I have read some of the submissions. The models that were described by the two private sector organisations and by the local authorities, and the model that we are developing—which combines a strong, challenging centre with departments that have clear responsibilities—are those that will work. The system might need to be developed, adapted and improved as a result of devolution, but it is not so far away from that which operated successfully in the Scottish Office in the past. Before devolution, the system did not lead to substantial overspends or to a lack of joined-up thinking or working. However, in the context of the new arrangements we need to develop and improve that system and to sustain it publicly.

You spoke about having a strong centre and departments with clear responsibilities. As you will know, we took evidence from a senior official in the Treasury, who talked about the silo mentality and what she described as departmentalitis. She went on to say that she did not think that a system of silos would develop unless ministers wanted it—in other words, they could prevent such a system from coming into being. It is nearly a year since the Scottish Executive was established. Is there any evidence that there is a silo mentality, or is there a clear move—particularly in the light of the cost-cutting imperative to which you referred—to prevent that from developing?

I do not think that structures are the solution to all those problems. It is impossible to create an organisational culture simply by having the right structure. Structures can act as barriers, but they do not create opportunities. However, the way in which the Scottish Executive has chosen to work has helped us not to fall in immediately with the Whitehall tradition, which people are working hard to move away from. We have cross-cutting committees, and members of the Cabinet and junior ministers are making an effort to work together on cross-cutting issues, which is important. That is different from the Whitehall experience.

We are also trying to learn from the way in which such issues are being tackled in Whitehall. Recently, I met the Chief Secretary to the Treasury, who is responsible for the spending review process in Whitehall. Promoting cross-cutting—rather than simply stopping it falling apart—is integral to that process. We have agreed to keep in regular contact, so that we can learn from what is being done there.

I do not detect any desire on the part of Scottish ministers to move to a departmentalised, defensive system of operation. My constant worry—which should be the worry of any organisation—is that busy people with heavy responsibilities can easily slip into such a system without realising it. That is why we need a strong, challenging centre and a structure that ensures that such a situation will not happen by accident.

Although a strong, challenging centre is obviously very important, it does not have the monopoly on ideas about carrying out the Executive's financial functions. Are mechanisms or structures in place that encourage ideas to come from the bottom up, rather than the top down, and that empower the people at the coal face? I am aware of the invest to save scheme, for example. Are there any other such schemes?

The various challenge funds provide opportunities for agencies, Executive departments and local authorities to suggest new ideas and to be successful if those ideas are the best in a particular area. Although it is important that such a process takes place in any organisation, we must constantly review the balance between the time and effort and the available resources that are involved. I hope that, as part of an organisational culture, members of staff at every level in the Scottish Executive, agencies and other public bodies will feel that they can make such a contribution outwith the structured challenge fund process. Ultimately, it comes down to the culture of the organisation. If people have good ideas about how to make improvements, any organisation should have an environment that allows such ideas to thrive. I hope that ministers will encourage that system rather than restrict it. We must constantly be on our guard so that we do not find ourselves in a situation in which we assume that we have all the answers and that those who work for us have none. Their wealth of experience and their ability to see what is happening on the front line of services is vital in trying to improve those services.

I am aware that the Parliament has been established for only a year, but is there any evidence that the Executive is encouraging such a culture? It was felt that the Scottish Office was a very remote and enclosed organisation. Do you get the impression that the Executive is more accessible? Furthermore, are there any reward systems in place that encourage those who have ideas about saving money and which provide money to allow them to develop such ideas?

I am not aware of any such financial reward schemes—Dr Collings can correct me if I am wrong.

On Mr Macintosh's first point, there is no doubt that the accessibility of the Parliament and ministers has improved relationships and has changed the perception from that of the Scottish Office's remoteness to that of the Executive's more accessible image. However, we must guard against complacency. It would be easy to stop there and to say that that immediate shift—which was always going to happen with devolution—is sufficient. I hope that we are proactive enough to ensure that we build on the relationships that have been formed with the new, increased openness and transparency.

I look to Dr Collings for any further clarification on reward systems.

The reward might be that most people who work in the public sector do so because they believe in what they are doing and care a lot about the sector's outcomes. In the health service, part of somebody's reward for coming up with a good idea would be that they would see improved health care.

I was not thinking of personal incentives—I was thinking about the public sector being able to hold on to and use money that it has saved.

Do you mean rewards for good management?

Yes.

The system of end-year flexibility has helped significantly. People who manage their finances well no longer have that money taken from them. That is a huge cultural shift that has taken place throughout the UK—it is not a result of devolution. Incentives to manage on a long-term basis by rewarding such approaches with flexibility represent a big shift in the organisational culture and we must develop that.

You quoted the Executive's summary and the organisational view of "an intelligent, challenging centre", but a few minutes later you said "a strong, challenging centre". Perhaps that was a Freudian slip. How can you provide a strong, challenging centre when you are a minister without a ministry? Within the Scottish Executive, you do not have the power that the Treasury has in Whitehall. That is where structures count.

That remains to be seen. There is an advantage in being a minister with several ministries. A minister with one department is in a strong position; a minister with two departments and bits of two more can be in an equally strong position if the purpose and direction of the departments is clear and if they achieve the objectives that have been set.

The relationship between the finance department and the purchasing section, the efficiency unit and the department of the principal establishment officer is very close. For example, ministerial meetings on pay policy have been attended by personnel staff from one department and by pay policy staff from another. That does not mean that they are not working closely or that our policy is unclear.

On the central policy work of the Executive, the working relationship between the chief economic adviser and the principal finance officer and others cements the Executive in a way that a single department might not.

The Treasury model is strong and in many respects it works well. However, although the Treasury is seen as the central department at Whitehall, it is still seen as a department, rather than as a set of objectives and themes that must run through the work of all departments.

The Treasury is also seen as the enemy.

Although the Whitehall model presents some benefits in terms of the combination of economic and financial functions, the separation between the Treasury and the Cabinet Office is not one of them. That is not the case in Scotland—I have employment establishment and civil service responsibilities as well as financial functions. We must see how well that works in practice and we must adapt and develop it as we go along. However, we must ensure that the political and management objectives are clear. If those are not clear, it will not matter what the ministerial or departmental structure is—it will not work.

When he gave evidence, Dr Collings—in a rather dramatic, throwaway remark—said that he thought that the Executive had been more accountable in the past six months than its equivalent had been in the past 30 years. It was as if the Executive had been given a shock for which it was not prepared. To what extent has that hit the departments? How are you making the departments more accountable?

There is no doubt about that. Accountability was one of the key objectives of establishing devolution in Scotland. It is one of the areas in which devolution is working most significantly. It is a big challenge; it is not always going to work smoothly. We are learning and developing and meeting the challenge all the time, particularly in the provision of information.

How?

During the next two or three years, we will learn constantly about, for example, the presentation of budget information, real-terms figures and consultative information—we should learn from every exercise that involves those. As a team of ministers, we should also learn—privately as well as publicly—about cross-cutting budgets, analyses, statistics, financial information, the accuracy of accounts and about how to use historical comparative information and perhaps even financial projections. We need to learn how to build those factors into our spending review process.

We will learn as we go along. We are no longer in a situation where financial decisions are made by a small number of ministers—largely because decisions were made about spending across the whole of UK—and then debated in a fairly antagonistic and unproductive manner in a House of Commons committee. We are now in a situation where the process is much more open-ended and long term and, as a result, more productive. I believe strongly that the £17 billion or so of public money that is spent by the Executive and the Parliament will, as a result of the scrutiny brought about by devolution, be spent much better in five years' time than it is today.

I want to tease out a few more things. The minister talked about end-year flexibility, which I think is excellent, because it means that departments will not have to rush to spend their money. However, what about the other side of that? There still seem to be a lot of perverse incentives in the system. Is there a mechanism for examining all the elements of what is happening inside a department that might be perverse? I can give any number of examples, if the minister would like. What about invest to save? How is that managed within the departments? How does the minister insist on that, so that efficiency is driven not by some rather blunt efficiency savings mechanism, but by mechanisms that are much more precise to each department?

Those issues are a fundamental part of the spending review in which ministers are involved. The spending strategy group set up by the Cabinet has a number of objectives, one of which is to examine how we can invest now for long-term savings, which is right and proper. We have also built that in as a fundamental objective of the modernising government fund, which is an amalgamation of the capital modernisation fund and invest to save to fit the Scottish context. That is a clear objective. We have yet to see how it will work in practice.

On end-year flexibility, we have tried to strike an appropriate balance, which can be reviewed from year to year, between managers keeping resources that are saved during a 12-month period for the next financial year and the centre having the option of pooling and refocusing some of those resources if they are no longer required. In this financial year, departments will automatically retain 75 per cent of all end-year flexibility money and 25 per cent will be returned to the central pool. It may well then go back to the department, but there is an obligation on the centre to review the use of that money to ensure that it is targeted at priorities, which may be cross-cutting, to ensure that there is a joined-up effort.

We now have the opportunity to do that. Once we have operated the system for two years, we will have to review whether that was the right balance to strike, given the amount of money that is available—last year it was about £300 million; this year the final sum has yet to be determined. We will need to review the situation in the light of the figures as the years go by.

That is a good example. You cited the ratio 75:25. However, if you are going to focus on outcomes and the use of targets for each department, a global ratio of 75:25 may be inappropriate. If a department is not meeting the targets that you have set, should you not say, "Well, we will look at how you have met those targets and, depending on that, if we think that you have not used your funds appropriately, we will pull more of it back"?

If the original target was important to ministers or to the Parliament, as part of the continuing discussions with ministers, the department would have to reconsider the way in which it was using its resources to meet that target. That would not necessarily be a case of penalising the department and saying, "Because you did not spend that money in a way that led to the target being achieved, we will take the money back from you and you will never achieve the target." Perhaps we would have to find another solution. That process of discussion would involve the finance department and the Minister for Finance, as well as the First Minister and the Executive secretariat, in their role of monitoring the programme for government.

Meeting targets in the programme for government is a fundamental part of our spending review for the latter two years of the Administration. We must ensure that, beyond the comprehensive spending review, resources will not constitute a barrier to the achievement of targets, and that, where possible, resources are used to achieve targets that may otherwise be difficult to achieve.

End-year flexibility was £300 million last year. Is there any indication of how much you expect it to be for the coming year? Is there a continuing record? You mentioned that 75 per cent is being retained within departments. Do you have any indication of which department tends to generate the global sum? Do you have any idea where end-year flexibility tends to be most marked?

It would be too early to speculate on the precise figure for the coming year, and it would be wrong of me to give you a wide range of estimates. As soon as we have that information, we will make it available to the committee and the Parliament in an appropriate form.

There can be variations from department to department. The health department has operated a system—with health boards—over a longer period than other departments have, which has allowed it to retain some end-year flexibility. There is a tradition of such practice in that department. In other areas, such as local government revenue finance, end-year flexibility is less of an issue. In local authority capital, for example, there can be dramatic changes from one year to the next, depending on how much has been taken up by authorities. A flexible way of dealing with that, year on year, must be found.

The situation is different in different departments, and we must determine—over a period of three years, perhaps—where any patterns develop before we speculate whether there are difficulties in any particular departments. At the end of that period, if departments are consistently underspending or meeting their targets, I hope that we will look into that. It is not necessarily true that, if a department is underspending annually, the money is no longer required, although that is a possibility. It may be that the money is being well managed over a period of more than 12 months. Likewise, it is not necessarily true that a department that is spending up to its limit every year requires all that money. In either case, we must examine the trends.

I want to ask about the quality of information. Various people from the private sector and elsewhere gave evidence to the committee, talking about the way in which they had been able to change and improve their decision making partly through devolving much of the financial decision making. Underpinning that was a massive improvement in the quality of information, built on modern financial information systems.

We also heard from Gill Noble from the Treasury, who said that the quality of information on which the Treasury based its decision making had improved recently, but that previously it was extremely poor. What is the quality of the information that you are using as the basis for financial decisions? Paragraph 11 of the Executive summary seems to indicate that a major overhaul of the financial information systems that the Scottish Executive is using is required.

I am not an expert on the technicalities of these matters and I would not want to interfere with those who are—except to give them a lot of support. The systems that are currently in place are providing accurate information, in a way that was appropriate at the time that they were created. However, from the feedback that I am now receiving, it is clear that they need to be radically updated—partly because information technology and systems move on and are constantly being improved, but partly to deal with resource accounting and budgeting changes and the demand for regular information to service this committee, ministers and the new political arrangements.

I am also keen for us to examine the way in which budget spending is monitored within and across departments and across the Executive as a whole. The information that is available via the accounting and IT systems will be fundamental to that. It is eight years since I ran a budget management process in a local authority, but a number of Scotland's local authorities have regular budget monitoring systems in place. Given the arrangements that we now have—the committee system, the Parliament and the public consultation that is required—we can learn something from local government. I note that the committee took some evidence from local authorities as part of its inquiry, and I will be interested to read what the committee has to say about that evidence in its report.

The Executive's buzz term, used by every minister at every opportunity, is "cross-cutting". Have you identified any failures in, or tensions arising from, trying to implement that? If, for example, two ministers have an interest in a subject but the money is coming out of one pot, tensions can arise regarding who gets what for which bit. Can you say something about how such disputes are settled and where the discipline comes in?

You might want me to give you some examples of that, but you would not expect me to do so. However, I am not aware of any such instances. That is the result partly of the fact that the budgets under which we have been operating over the past 12 months were in the main set before devolution. Even the budget for the coming year—although it was debated in the Parliament and scrutinised by ministers—was set largely in advance.

There was probably a time when finance ministers meant something slightly different when they talked about cross-cutting. However, ensuring a cross-cutting approach—or, as I prefer to say, a joined-up approach—to spending money must be part of the review of future-years spending in which we are currently involved. I see that also as being very much part of the public consultation exercise. I think that the best ideas for joined-up spending, or more efficient spending as a result of joining up what we do, sometimes come from the public, who see the money being spent, rather than from us.

I am not aware of ministers having difficulty joining up what they are doing. However, there are a number of fundamental issues, of which drugs is the example most often cited. Another is how the combination of local authority expenditure and health board and trust expenditure relates to provision of care for the elderly. The Executive's ability to take a joined-up approach to that spending will be tested in the months and years ahead—that is part of the process in which we are now involved. It was relatively easy to join up those decisions in the days when they were all made by the Secretary of State for Scotland. However, individual ministers now have their own external contact points, consultations and processes to go through in order to ensure that that joined-up approach continues and improves. That is a significant political challenge, which everyone is up for.

You mentioned input from the public through consultation. I have no idea what sort of figures you will hold back in reserves and so on, or how you will approach that matter. The press would certainly like to know about that, and I suspect that this committee would like to know just how much input public consultation will have in the process, although I appreciate that that is only one aspect of it.

However, when you have in hand a cross-cutting project, or a drive to do something, who is the final arbiter? Who decides whether one idea is better than another? Stalemates within departments can be destructive for those who work there, as there is nothing worse than having ministerial fall-outs, with staff torn between doing their duty to the public and looking after their minister. Such situations happen in all businesses, but what mechanisms have you put in place—if it is your responsibility to do so—to iron out those little hiccups and to come out with decisions? What form of discipline has the Executive agreed as to how its members will operate when working out those programmes? A lot of ministerial comment is made on various aspects of the programmes, sometimes in advance of initiatives. However, when one links that back, one realises that there are tensions in putting together a budget, which makes it difficult for the staff to co-ordinate what they do. Moreover, staff must set up performance indicators and be able to measure the outcomes. Could you say something on that issue?

That is one reason for having a strong financial policy section, which helps to support the process. At the moment, these decisions—or potential choices—are resolved between ministers in discussions that involve me. In most cases, it is possible to find a resolution, but if a resolution is not possible, decisions are made ultimately by the First Minister or by the Cabinet, depending on the seriousness of the decision. At that stage, I would give advice if the matter had a financial implication.

That system is working well, at the level at which those discussions have taken place so far, and it will work well in the months ahead. I do not want to downplay the fact that there is considerable good will among ministers to make the system work. There is a desire to work in a way that allows a strong Cabinet style of government and a co-operative style among ministers that makes best use of public money. That is partly because last summer people were not dropped into existing ministries that had a history, a tradition and a strength, so they were not immediately faced with the task of defending the ministry against all comers.

That defensive mentality is probably less prevalent in Whitehall than it was 15 or 20 years ago but, to some extent, it exists in local government, of which a number of people around this table have experience. Local government has a strong committee and council decision-making system, rather than a Cabinet or ministerial system, but one can find local government committee chairs taking that approach of defending the department at all costs. It takes a strong centre and a co-operative culture, which I think we have, to beat that mentality.

Finally, I would like to ask how the Executive will account, to this committee for example, for the spending programmes and for the delivery of a cross-cutting budget item. Where will we be able to see on-going reports on such items? Some projects may be long-term and may drift from the budget of one year into that of the next. What mechanisms will you set up for us to monitor them?

We have already agreed mechanisms that will involve regular reporting of budget monitoring and of information. One of the reasons for the review system is to achieve that. There might be some cross-cutting areas in which one parliamentary committee has a lead responsibility, and that may be the place for providing regular reports.

I imagine that, rather than agreeing a system to apply across the board, this committee might want to identify particular areas of cross-cutting activity from time to time. The committee might want to see a couple of reports a year on something to check how things are going before moving on to something else. Such a targeted approach might be better than an across-the-board approach applicable to everything. I am certainly happy to co-operate in such discussions at all times.

I am much reassured, minister.

I do not want to labour David Davidson's point, but this cross-cutting thing is important. You said, minister, that, if there were tensions, you would not speak about them. Well, let me. On the cross-cutting ministerial group on drugs, there are clearly tensions between the three ministers—the Minister for Health and Community Care, the Minister for Communities and the Minister for Children and Education—and the convener of the cross-cutting ministerial committee, the Deputy Minister for Justice, whose emphasis is on enforcement, whereas that of the others is on treatment and education. I have spoken to them all. Those tensions have not yet been resolved. You talk about co-operative government, minister, but there are bound to be tensions when people are taking markedly different approaches.

I do not think that that is necessarily the case. Debate, the exchange of views and the bringing together of different responsibilities, is a vital part of political decision making and of government. That is why there are ministerial committees rather than groups of appointed individuals, who have individual responsibility for a cross-cutting area but who go off and do their own thing.

I do not think that there is any evidence, publicly or privately, that the ministers with their various responsibilities for drug-related matters are unable to reach conclusions that will produce a comprehensive action plan to tackle both enforcement and prevention. I am quite convinced that, when final packages are produced on that area of activity, the Executive will be seen to be investing in both sides.

I would like to change tack and deal with the whole area of economic advice. When Dr Andrew Goudie came to speak to us—

Just a second. We are trying to avoid cross-cutting from subject to subject. I call Richard Simpson.

I want to return to the matter of targets and outcomes. It was suggested to us in some of our evidence that a fairly low-key approach is being taken to target setting. Is that the case? Could you develop that a bit, and could you explain how you are setting targets? Can you indicate what your role might be in ensuring that the targets are stretching?

Some of the health targets, if we follow the natural trend for certain illnesses, will be reached without doing anything and we might not know why things are changing. How do you ensure that your targets are realistic on one hand, but will stretch the departments to use their money in the most effective way on the other hand?

There are examples in each chapter of "Making it work together: A programme for government" which show challenging targets. There are also targets that will be achieved this year or next year, or which can be considered likely to be achieved in two years' time. That is a right and proper mix of targets.

We must ensure that there are no barriers in the way of those targets being met, and whatever we do collectively as a ministerial team should help ensure that the targets that we have already published are achieved. The post-devolution role of the finance department—and, to some extent, of some of the other officials for whom I am responsible—in setting targets and in helping other departments to achieve them is still being developed. That, again, is right and proper.

I do not think that a successful organisation can create and impose targets at the centre in a short space of time and expect the whole organisation to have bought into achieving those targets. Through this review process of the finance function, through the publication of our programme for government document and the spending review that is examining that carefully and through the other efforts that the Executive has made to modernise the civil service, I hope that we will create an organisational culture in which the organisation has bought into the targets that we set and people at all levels see that they have a stake in achieving those targets. That is the best form of public or private sector organisation in the world today, and that is the kind of organisation that we should try to establish.

I have two points on targeting and monitoring. In your discussions with the departments, are they saying to you that if they had a certain amount of money, it would specifically affect the outcomes? If so, could you be confident that that would be the case?

We received some evidence on the role that public service agreements play within Whitehall departments such as the Treasury. The Scottish Office had begun to move down that road before the Scottish Executive came into being. Is the Scottish Executive, in the matters for which you have responsibility, up to speed on public service agreements, so that there is no less accountability in monitoring performance in Scotland than there is at the UK level?

What existed in Scotland before devolution was one public service agreement for the department of Scotland. One of the reasons that we set up this Parliament was to change that style of government. The spending review process that we are involved in at the moment will lead to changes in departmental spends and departmental budgets, based on a clear agreement of the outcomes that are expected. Whether we call them public service agreements or have an organisational management version of our own remains to be seen. Additional expenditure, or expenditure that moves around the organisation, will be moved on the basis of a clear agreement about where it is going to be spent.

My point follows on from the one that Elaine Thomson made about quality of information. Dr Andrew Goudie has set up the economic advice unit, or whatever it is called, from scratch. I think that five people work with him. A lot of the statistical information that you are working on is on a UK basis and has not been broken down on a Scottish basis. When Dr Goudie gave evidence with Dr Collings, it seemed to me that that department is doing a lot of elementary statistical work, so it is completely overwhelmed. This point has been made again and again by academic economists such as Professor Jeremy Peat, who has talked about the quality of economic information on which the Executive is working. Do you not see that making policy without having that basic information is a major drawback, and that it is important to gather it as soon as possible?

My perception of the situation in the recent past was that while a number of organisations within the Executive may have statistics to hand or use statistical analysis to provide an input into policy making, it has not always been collated at the centre. Even when statistics have been produced at the centre, they have not always been collated, matched and used. The work that has been undertaken by Andrew Goudie and others in recent months to pull together the new volumes of statistics has been a useful starting point. The fact that they will discuss them with what might be called the statistics community of Scotland to improve that provision further is again a good development.

As in so many other areas, such as our budget consultation documents, the provision of financial information and improving the joined-up development of policy in the Executive and with local government and other agencies, I believe that as a result of devolution we will improve the statistical information available because we will have a better understanding of what information we need. Our job at the moment is to use to better effect that which is already available. That is a responsibility that we, as ministers, should take seriously, in policy making and in budget decisions, not just in the course of this spending review but in our on-going work and, to some extent, in our discussions with local authorities.

I am sure that the committee is acutely aware that nearly 40 per cent of our budget goes straight to local authorities, which deliver many of the most important front-line services in Scotland; therefore authorities' policy making, with or without a relationship with the Executive, is also fundamental. Any statistics that we are producing or that they are preparing at a local level have to be combined to best effect—that is another challenge that we face. Those are all on-going challenges that nobody is holding back from and that everybody should be involved in trying to achieve.

Following on from that, I have one brief point regarding access to economic advice. For many years, a panel of external economic advisers—renowned academic economists from across Scotland—met on an ad hoc basis, once a month at most, to advise the secretary of state. Gavin McCrone was a leading figure back then. Does that panel still exist? Has it been transferred over to the First Minister, or is it still with the secretary of state?

I could not be certain, but I do not think that an arrangement has been set up, post-devolution. You would have to ask Mr McLeish or the First Minister about the arrangements that have been established. The process of involving people from outwith the Executive has been extensive in the past 12 months. A number of different temporary review groups have been established, which are considering different economic sectors or economic developments.

The appointment of Andrew Goudie has been a new internal development that, to some extent, has moved us into a new era of internal advice that was not there in the past. As that settles down, presumably those with responsibility in such matters will consider what other advice they need from external sources.

What research has been done to evaluate the costs of overlap in service delivery?

The work of the spending review group, and our discussions with the Convention of Scottish Local Authorities about agreed outcomes and better joined-up spending between local and central government, will be driven partly by efforts to end duplication of such expenditure. It is the spending strategy review group's job to ensure that, at the end of the day, the budgets that we produce take account of value for money, efficiency and effective spending, as well as priorities for any new expenditure.

Overlap is mentioned in general discussion of various aspects of public service at the moment, and I wondered how early you would grasp that nettle before you get into yet another year's budget process in which you are still supporting overlap, albeit—I do not doubt—unwittingly in many cases. I am thinking of your economic adviser's role, in considering areas where, by reducing overlap, we could be more efficient.

Are you making particular reference to the areas of economic development activity that were referred to by the Enterprise and Lifelong Learning Committee—

That is only part of it.

To some extent, there is a responsibility in individual departments. It is always easy to talk about duplication, waste, overlap and a lack of joined-up effort—I do it as much as anyone else—but it is much harder to identify them. Once they have been identified, they can be dealt with easily. Identifying such areas is one aspect of the process; it is not just a discussion between ministers, or between ministers and COSLA, but is a responsibility of a joined-up budget process, involving all the committees of the Parliament. It is also part of the public consultation process. Sometimes, the best people to identify such overlaps are the public who use the services and who observe from the outside the way in which we work. That is one of the reasons why I take the public consultation exercise so seriously. Those views are critical in allowing us to challenge what we do on a regular basis.

Would it be fair to say that that is currently a priority?

For me, that is an area that will always be a priority, amongst others.

I will quote you on that, minister.

Can I assume from your answer to my question about the panel of economic advisers—you said that I should ask Mr McLeish—that you regard Mr McLeish as the lead minister in driving forward the Scottish economy and that your role is that of a chief secretary rather than a chancellor?

My understanding is that the panel has not met since the devolved arrangements came into effect. I could be wrong about that. Given that the panel was previously the responsibility of the secretary of state, I imagine that the responsibility now lies with the First Minister. As you know, primarily—

Can you answer my question about Mr McLeish?

I am giving an answer. Because that was a wider area of economic and financial advice, rather than straightforward industrial advice, it might be a case that the First Minister would want to clarify. I presume that the Parliament clerks decide who answers the questions.

It is clear from your earlier answer that you see Mr McLeish as the lead minister in driving forward the Scottish economy and that you take a role similar to that of a chief secretary.

Yes. In terms of economic policy, enterprise policy and so on, it is clear that the ministerial responsibility lies with Mr McLeish in the same way that, in London, responsibility lies with Mr Byers rather than with Mr Brown.

I noticed that the Executive summary says that

"A Whitehall model is not considered to be desirable, although some features of it appear ‘inevitable'."

I will not ask whether you agree with that. Does the idea of a ministry of finance appeal to you? What about a Treasury model that would involve resource allocation and economic analysis? Is that an attractive way to develop the finance functions of the Scottish Executive?

The arrangement that has been put in place, whereby the finance spending management functions have been connected in a ministerial sense with responsibilities for management—personnel, civil service and so on—is a better model for us. In Scotland, the combination of ministerial responsibilities for economic development, industry, enterprise, and higher education is appropriate in the present circumstances. The link between the future of enterprise and economic development in Scotland and our research and higher education institutions is fundamental. That my remit includes internal and financial management responsibilities presents an ideal combination, which is working well in practice.

I thank the minister and Dr Collings for giving us their time. We expect to finish our report by the end of next month and we will send the minister a copy as soon as possible.

Meeting closed at 13:09.