Finance Committee, 25 Nov 2003

Meeting date: Tuesday, November 25, 2003

Official Report 179KB pdf

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Cross-cutting Expenditure Review

The second item on the agenda is consideration of a paper by the clerk and the Scottish Parliament information centre on the proposed remit and timetable for the cross-cutting review of economic development. The paper has been prepared following our discussion at a previous meeting and tries to draw together the different strands of suggestions that the committee made. I invite comments from committee members on the paper, and then we will decide whether we want to follow the route that it proposes.

I thank the clerks for the work that they have done in producing the paper, which followed a discussion in which questions were raised about what we are trying to achieve with the inquiry. Unless we have a clear remit and understanding of exactly what we hope to do, we are heading for the rocks. Although the paper gives more suggestions about what we could do, I feel that we could spend an awful lot of time not achieving much.

Some of the key questions in paragraph 3 of the paper have already been dealt with in parliamentary inquiries. For example, the former Enterprise and Lifelong Learning Committee's first major inquiry in the first session of Parliament—Dr Elaine Murray and I were on that committee at that time—considered how

"various bodies involved in supporting economic development, and development linked activity work effectively together",

to quote the paper. Therefore, that point has already been covered by the Enterprise and Lifelong Learning Committee's report on the delivery of local economic development services. That report and others have already considered some of the key questions that the clerks have rightly pointed out, and we would therefore reinvent the wheel if we were to examine them.

That is a specific criticism; my general criticism is that I am not convinced that the committee should spend three months on an inquiry, because I do not think that we will benefit from it. The only part of the remit that seems clear to me is:

"to assess whether individual programmes are contributing to economic development".

Even then, what answers would we get by considering specific programmes? It might be that they contribute in some shape to economic development, but I am not convinced that we would be able to reach specific conclusions.

I am afraid that I do not feel that it would be sensible for the committee to spend three months doing that work. I regret that, but it is the view that I have reached with the benefit of this helpful paper.

I agree to a certain extent with Fergus Ewing, but we are being asked to undertake work in three phases. In phase 1, we would commission research, so the committee would not be involved in any work or use any of its time. It is suggested that, at the end of phase 1, we

"reach a consensus on the scope of the investigation".

At that stage, we could decide whether we want to commit committee members' time to the investigation. There is some merit in at least exploring the matter by commissioning a piece of research, which would last for three months and would not involve any of the committee's time. There is merit in taking the suggestion further.

The Enterprise and Lifelong Learning Committee got rather bogged down in the inquiry to which Fergus Ewing refers, which expanded beyond what we had expected. As I recall, that inquiry examined local economic development and how the local agencies worked together. It is worth making the point that such work has already been done at length, but there are still issues about how we encourage economic development at a national level, which is possibly more within our remit.

I agree with Fergus Ewing that we would end up getting bogged down, thrashing about and throwing all the data around and that we would not be much the wiser at the end of the exercise. I would be keen to change the polarity of the inquiry and put the onus on Scottish Enterprise and Highlands and Islands Enterprise to unravel some of their data, because their recent accounts have become more and more confusing and oblique on how the money is spent. They are moving away from traditional profit and loss accounts and towards spending money under broad titles, such as strengthening communities, and the accounts therefore begin to lose some of their relevance. If we could get some consistent data and ask Scottish Enterprise and HIE to present the element of the overall Scottish Executive budget that they feel has a positive impact on their remits and link that to what they consider to be the major macro outcome targets in their areas of responsibility, we would see the matter with a bit more clarity.

It is important that we bear it in mind that we would have a role only in a cross-cutting context. It is also important that we do not replicate the former Enterprise and Lifelong Learning Committee's activity, and that we do not focus our attention too narrowly on Scottish Enterprise and Highlands and Islands Enterprise as organisations or on the Enterprise, Transport and Lifelong Learning Department's work generally. I thought that we had clear in our minds the idea that a number of strands of expenditure—transport investment, investment in infrastructure, training investment, possibly education investment and certainly the way in which the common agricultural policy and similar policies operate through the system—affect economic development in its broadest sense. I also thought that we had agreed that our objective was to ask the fundamental question whether the way in which that expenditure is organised contributes to economic growth in the best way.

The issue is difficult to explore, but the fact that something is not easy does not mean that we should not do it. The way in which the suggestion has been put together, with a technical exercise taking place in the first instance to identify the parameters of what we want to consider—that is, the relevant expenditure—and perhaps some comparative work taking place on how the strands of expenditure work elsewhere, would give us a basis for further clarification of what exactly we want to emerge from the second phase of the work.

That was the impetus that underlay our intention and that is what I see us doing.

I understand that, but the situation is awash with anomalies. We are told that economic development is the top priority, but, as we have seen from the other report today, we have the anomaly that came through at the Motherwell meeting of relatively less money's being spent on economic development. There is the further anomaly, which I raised in a written question, that we have no target for economic growth in Scotland. Our remit is ill-defined to start off with and that makes it difficult to conduct a proper cross-cutting inquiry.

The clerks have done a remarkable job to pull together our previous discussion on this issue. What Jim Mather said is addressed fully in the proposed remit, which is excellent. The proposed way of conducting the inquiry is also very good. If we are going to appoint an adviser to do the phase 1 work for us, we will need to sharpen up a few areas, because it could be a colossal piece of work. Having said that, the work that Ross Burnside has done gives us a good steer and I am happy to endorse the paper.

There is consensus that phase 1 will be valuable in explaining to us in rather more detail the way that we might be going. I am not totally convinced that the committee has either the time or, even with the help of Professor Midwinter and others, the expertise to carry out the six months' analysis that is recommended. I would like to reserve judgment on that until we consider what is suggested in phase 1.

As others have said, we will have the opportunity to reflect on the issues that emerge from phase 1. It would be a mistake to continue to try to do everything after phase 1. Given that we have the right to consider issues in a cross-cutting way, we will have the opportunity to consider a number of discrete issues that might emerge. We are looking at areas in which there are high levels of expenditure, but they are not particularly growth supporting. Questions need answered around that. We should review at the end of phase 1 whether those areas have become apparent in the technical exercise, which will not involve the committee in much work; the experts will have a mandate to produce something useful. Other than the Executive, no part of the institutional architecture in Scotland would be in a position to commission such a desk exercise; everybody else has a remit for just a piece of the action.

After we have the benefit of the research that members have said should be commissioned, I wonder whether we will be any further forward. I tend to think that we will probably not be. I also tend to think that it is fairly obvious whether public expenditure contributes solely, partly or not at all to economic development. There might be grey areas, but if we consider health expenditure, for example, it is possible to construct a case that if people are healed more quickly, that enables them to get back to having an economically productive life. That is a serious point. I am not sure how, if we get evidence to support that point, we will be any further forward.

Be that as it may, it would be imprudent of us to spend money, which I presume we would do, to commission research when it seems that there is uncertainty among members as to whether that exercise would be useful. Kate Maclean, Ted Brocklebank, Jim Mather and I have, to a greater or lesser extent, expressed reservations about it. Not for the first time, I am perhaps at one end of that. Given that we have such reservations, is it really prudent of us to authorise expenditure on research? I for one must say no, because I take the view that we should not be wasting money.

On the other hand—this is where I display my desire to be consensual—if members feel that there is potential benefit, as Wendy Alexander and Kate Maclean have argued, in obtaining information from the key bodies and players, such as Scottish Enterprise, which Jim Mather mentioned, is there anything to prevent us from writing to them with the paper that has been produced and, taking into account members' comments, asking them for their views? Do we need to go to the expense of appointing an expensive adviser to conduct research that members have already accepted might not lead anywhere?

The first three of the bullet points in paragraph 3 of the paper cover legitimate areas in which we have identified lack of information. The first bullet point covers an issue that has been highlighted as an area of concern, particularly by economists and business people. I do not think that there is sufficient clarity about the pattern of capital and resource expenditure. We have heard different answers from the Executive on categorisation and there have been shifts in the way in which capital has been put forward. It would be valuable to the committee to examine how the pattern of expenditure has changed over time since the Scottish Executive was established. Obtaining information about the strategies and allocative criteria that were used in the areas that affect economic development would be a valuable technical exercise. It would also be valuable to get technical advice or pointers towards how we deal with the points in the second set of three bullet points in paragraph 3. I do not think that we would get that from a written trawl to Scottish Enterprise or other related bodies.

In a sense, I am taking a different view from Fergus Ewing. There is valuable information that we would want to get, irrespective of whether we decided to progress with phase 2 as it is constituted. The first exercise would be valuable and we could define how far and in what way we wished to proceed. I argue strongly that getting someone to do the work as opposed to simply writing off for the information would be a better mechanism.

I look on the suggested approach as a part-time exercise in clutching at straws, which will be very expensive. Will we be able to balance A against B and say that it was worth while? I doubt it.

We might be letting the custodians of the data off the hook. Three months ago, we took to the Holyrood team a schedule that added, cross-added, reconciled, and showed variances and the team came back to us today with data that are yet another exercise in obfuscation. We could be letting the Scottish Executive and the enterprise agencies off the hook. They are the custodians of the data, which they know intimately. They can present those data cohesively, reconcile them and show them consistently. That is the double six that the committee needs to throw first before it can make decisions to move on. Unless we have the data as a firm base on which to build a deep understanding, we have nothing.

I am not sure that Scottish Enterprise is the custodian of the data. It would be able to produce figures for matters that are labelled specifically as relating to economic development, but I am not sure that that is the information that we wanted when we started discussing the exercise. Scottish Enterprise would have a vested interest in the way that it presented the information. If the committee agrees to proceed, there would be merit in agreeing to phase 1 to get the information that we need to determine whether there would be any point in proceeding to phase 2 of the inquiry.

I accept what members are saying about paying for an adviser, but we would not have to pay out astronomical amounts of money for that. We will not know whether there is merit in going ahead with the rest of the exercise until we get the independent research, so I suggest that we go ahead with phase 1. I think that we should just agree today to commission research, instead of asking Scottish Enterprise for information, getting its response and then deciding to commission research.

It would be a big mistake to limit ourselves to consideration of less than 5 per cent of the budget, which is what is nominally devoted to economic development and growth, as Ross Burnside has laid out. Frankly, the easy option would be to examine the £371 million a year that goes to Scottish Enterprise, given that at least one other committee should be doing that on a full-time basis. We should wrestle with the fact that, although we have an Executive that says that its number 1 priority is growth, we have no identification of the expenditure that is associated with that. That will not be easy, but it is the sort of cross-cutting task that we are charged with.

I wish that HIE and Scottish Enterprise were the custodians of the data on the other 95 per cent of the budget, because non-departmental government bodies often have to have a higher degree of transparency for their governance and financial arrangements than do other, less-transparent parts of the Executive. From our consideration of the budget, we know that we do not have trend data on all the budgets and therefore, by implication, that we not do not have trend data on the 95 per cent of the budget that is not specifically dedicated through the enterprise agencies' budget.

The proposed exercise is legitimate because, although we examined a budget that said that growth was the number 1 priority, we struggled to identify what expenditure in the budget was growth supporting. All that we are being asked to do in the proposed exercise is to employ a little bit of expert help to examine the area in more depth. I feel that that will at least mean that, in four years, we will be able to look back and say that we tried to identify what expenditure was growth supporting and to examine areas in which it might have been more or less growth supporting.

Fergus Ewing has pointed out some of the difficulties in identifying what is, and what is not, growth supporting, but it is possible to reach a view on those parts of health expenditure, for example, that could be helpful and those parts that are extraneous. As I recall, none of the health service budget will be under consideration in the limited way in which Ross Burnside has defined the exercise. It is right that that is the case. Although there has been some attempt to limit the scope of our ambition, even in pursuing the proposed exercise we will encourage the Executive to produce the time-series data that we seek and to have more internal rigour in identifying how expenditure is supporting growth.

For that reason, it would be very much in keeping with the overall stewardship of the budget with which we are charged to have a specialist adviser for three months to carry out a piece of work that will allow us to revisit the issue of what supports, and what does not support, growth in a more conceptual and analytical framework.

I do not agree with Jim Mather when he says that the Scottish Executive is the custodian of the data, because the evidence that we took on the budget process made it clear that the Executive is coping with four different sets of accounting systems and does not really know what the trends have been. Furthermore, I think that the evidence that was given to the Enterprise and Culture Committee showed that the Minister for Enterprise and Lifelong Learning was not able to specify how much was spent on economic development. Therefore, there would be merit in pursuing the proposed exercise.

Given the role and cross-cutting objective of the Finance Committee, it is important that we do not just take at face value whatever information the Executive decides that it wishes to give us on such matters and that we have a role in scrutinising the way in which the Executive presents its data. It would be worth while to commission research from an independent person.

I will restate what I am looking for. I want Scottish Enterprise and HIE to unravel their data and to present them consistently. I am also keen for that element of the Scottish Executive budget that helps overall economic development to be presented consistently over time, in a time series. Once we have those data, we will have a basis for moving forward. The old adage is, "If you can't measure it, you can't manage it." If one cannot measure the relevant expenditure, one certainly cannot give any advice and guidance on how the management of that expenditure might be changed.

One of the objectives of the first phase might be to identify the questions that we need to ask and to find out where the precise data are that we are looking for. Even if we follow the logic of what Jim Mather said, there would be considerable merit in at least carrying out the first phase of the exercise so that we would be in a better position to progress matters.

I concede that, but we are constantly running up against the buffer that the time-series data that we desire is not available. It would be interesting to understand where the blockage and the sensitivities are. I think that members would be willing to demonstrate considerable give and take to get such data consistently, which would mean that we would be able to see the trend without trying to make facile points. Let us have a statement of the trend and let us work forward from there.

I will try to sum up where I think we are. As Fergus Ewing said, at one pole is the suggestion that the proposed exercise might not be the best use of our time—that is the view that Fergus Ewing and John Swinburne are putting forward. I think that other members are moving towards the view that the first phase of the exercise might be useful in getting technical work done that would, at the very least, allow us to explore the data more effectively than we have been able to do until now; beyond that, it might help us to map out some of the questions that we might want to consider further in the second phase of the inquiry.

More members seemed to be speaking in favour of the second approach than the first. If we were to adopt that approach, we would need to ask the clerks to give us a remit for an adviser, which we would need to agree at a subsequent meeting—probably our meeting on 9 December. On the basis that the majority of members seemed to share that view, do we agree that the clerks be asked to bring back to us a proposal that we can consider on 9 December? That is based on the assumption that we are in broad agreement that we want to opt for the phase 1 approach, as mapped out in the paper.

I understand that some members have spoken in favour of opting for the phase 1 approach, but there are a couple of points that emerge from that, particularly if the proposal is that we should now frame the remit for an adviser.

Kate Maclean, in particular, envisaged that it was possible that we could have phase 1 and get the responses in, but could then decide to do nothing further. If that were to happen, we would be in the position of having appointed an adviser, spent the money and decided not to do anything further. I ask the convener to find out—not at the moment—whether there is a precedent for that. In my view, if that were to happen, we would be made to look extremely foolish. We would look ridiculous if we paid for an adviser and then did not hold an inquiry.

I will clarify what I said. I said that we should commission research, which would not necessitate appointing an adviser for a given length of time—although we would want to appoint someone to do that research.

Regardless of how much money was involved in any such appointment, my view is that, if we were not to go on to hold an inquiry, we would look rather foolish. However, that is not a view that is shared by every other member of the committee—perhaps not for the first time.

I would like to suggest an alternative. Could not Professor Midwinter consider the remit for such an inquiry and assist us in preparing a paper on the remit? That would enable us to revisit the issue with the benefit of his advice. After all, Professor Midwinter is the standing adviser to the committee. I hope that that would be within the purview of his appointment and his role.

Arthur Midwinter is the standing adviser specifically on the budget; that is what his expertise and his function relate to. If we agree that we want research to be undertaken, the clerks will be able to identify all possible routes for that research and to come back to us with recommendations about what might be the best route for us to take. However, that is a matter for a different day.

Having identified the particular concern in the budget about support for economic growth and development and, bearing in mind the various concerns that have been raised repeatedly with the committee and the previous Finance Committee about economic development and growth and the barriers to them in Scotland, the committee should not send out the signal that it does not even want to undertake research to get to first base.

I return to the proposal that we ask the clerks to identify a research remit on the basis that we agree to proceed with phase 1. We will have the opportunity to tinker around the edges, but I seek agreement in principle to go down that road.

Do we need to move to a vote on that?

Would it not be sensible to make a decision when we see the paper that sets out the remit? At the moment, if we agree that research be carried out, we have no idea about the amount of money to which we would be committing ourselves. By definition, I could not support that step and I propose that we move to a vote. I am happy to do that if you wish, convener—

Just for clarity—

Can I just finish, please? An alternative would be to revisit the matter when we have the benefit of the paper and, presumably, advice from the clerk about the level of expenditure to which we would be committing ourselves. I assume that the convener agrees that we should not make an open-ended, blank-cheque commitment. Therefore, would it be sensible to revisit the matter when we have the remit?

You are not new to the Parliament and you know perfectly well that, when it comes to commissioning research, the matter would need to return to the committee in terms of any financial—

My understanding is that the convener is asking the committee to agree that the clerks draw up a paper to suggest how we should proceed with phase 1. We are not being asked to agree anything other than that.

In essence, that is it.

There is a clear description in the paper of what phase 1 would involve. The bottom line is that we are looking not just for a public finance expert, but for somebody who has expertise in economics and regional economics to try to establish what part of the budget supports economic development. Such people are incredibly few and far between. Frankly, it is dishonestly naive—and we should all know better—to think that we will find one of Britain's top two or three experts who is prepared to carry out this volume of work between January and March if we pussyfoot around endlessly before we even attempt to locate or appoint that individual. We are getting close to obstructionism.

We have had a lengthy discussion and the paper gives a clear description of what that person needs to do—a piece of desk research—but the quality of what emerges will be rooted in the quality of the individual. We are highly unlikely to find someone to give a significant proportion of their time between January and March if we do not begin to seek them before the middle of December. None of us operates according to that sort of work programme and it is naive to expect that we will find one of Britain's best to operate on that basis. Let us not dress up obstructionism as concern for sums of money that are relatively small compared with the significance of the task that we are trying to carry out.

That is a fair point.

I am worried about inviting anyone to try to reinvent the wheel and make a cohesive report when they will have no direct access to, or feel for, the data over time.

People from Scottish Enterprise, HIE and Eddie Frizzell's department could pull together as a team to produce a schedule that showed us over time a consistent spending pattern and how those three agencies—Scottish Enterprise, HIE and the Scottish Executive—relate to money that is spent to develop the economy. We would then have a pattern to build on so that we could start to make more sensible judgments.

When we consider the money that is spent by the Scottish Executive, will we include the money that is spent on rural development, agriculture and fisheries? Such fundamental conceptual issues that need to be solved were flagged up in Ross Burnside's paper. It is wrong to suggest that someone in Eddie Frizzell's department should try to resolve those issues, because they are not responsible for spend on rural development, agriculture, fisheries and tourism. The matter needs to be considered by an outside third party.

I hope that the Executive will be co-operative in providing data and there is no doubt that Professor Midwinter's forensic knowledge of the current budget will be helpful to somebody who tries to bring a conceptual framework to the part of the spending that supports growth. However, it is not the committee's place to tell the adviser how to meet the remit as laid out in the bullet points.

The first priority is to see whether, within incredibly short time scales, we can find people who are experts in growth-supporting expenditure. There is an entire academic tradition of regional economics. We have to leave it to the clerks how they go about the task. The good news is that the work will not consume vast amounts of committee time. However, I caution against micromanaging the exact disposition of our advisers, an external adviser and indeed, Executive officials; it is not commensurate with the role and responsibility of the committee to say which official we will ask to do a certain piece of work.

We have to reach a conclusion. The consensus in the committee—Fergus Ewing and perhaps John Swinburne excepted—is that we need to develop the suggestions about phase 1 of the inquiry and try to shape those into a research remit that would come before the committee. We then need to identify individuals who might be in a position to undertake the research. I hope that we will receive a proposal from the clerks at our meeting two weeks from today and we can decide on that day whether to commission the research. In principle, we seek to agree to take those suggestions further. Is that agreed?

Members indicated agreement.

Meeting continued in private until 12:12.