Education Committee, 26 Oct 2005

Meeting date: Wednesday, October 26, 2005

Official Report 251KB pdf

---

Budget Process 2006-07

For the final item, the minister has been joined by Philip Rycroft, the head of the schools group in the Education Department; Colin MacLean, the head of the children, young people and social care group in the Education Department; and Joe Brown, the head of the policy support unit in the Education Department. I invite the minister to make opening remarks on the budget, after which I will open the debate up for questions.

I will be brief, as I am conscious of the time. I have looked at the background papers from past committee meetings to try to identify the committee's interests. I will mention three areas. The first is changes from the draft budget, which members might want to ask about; I will happily try to answer any questions on those changes. If my colleagues and I cannot answer the questions, we will get back to the committee with details on any points that are raised. The second area is the cash-releasing savings that we have identified and the third is the continuing interest that the committee has in tracking expenditure—or finance—that passes from the Executive to local authorities, how that feeds into the system and the impacts. I will be happy to answer questions on any of those areas.

I will first make one or two general points. First, as you know from the overall figures, although at the end of the spending review period we will be administering a budget of something like £4 billion for Scottish education, the vast majority of that goes straight out the door—so to speak—at the beginning of every year to the local authorities. The amount that the Executive manages is a very small part of the total, which bears on points about local authority spending that members might want to pursue.

Secondly, in looking at the efficiency and cash-releasing savings, we have been asked to meet a target of only between £10 million and £11 million tops, which is a tiny sum relative to the £4 billion of expenditure. The reason is that, in the spending review, the Executive exempted education from the normal efficiency measures because we are trying to grow services to increase teacher numbers, to pursue the public-private partnership programmes that we have talked about and so on, in order to make decisive improvements. It was therefore considered appropriate to limit the normal efficiency rules to allow that growth and the establishment of new service levels to take place. I should not say any more at this stage; I will just try to answer any questions.

I want to ask specifically about additional support. In our budget report last year, we expressed slight concern about the lack of transparency in following the figures for investment in additional support needs. I am having the same difficulty this year. As far as I can see from the budget report, the money seems to have gone into the national priorities action fund and is therefore subsumed into a bigger figure. Page 36 of the draft budget 2005-06 has a table that shows the budget for additional support needs. It is not clear whether the budget is increasing—although I am sure that it is—or by how much it is increasing, and what the total increase is.

That budget is increasing. Part of the difficulty is in following the allocation between different budget lines. Perhaps Philip Rycroft can give slightly more detail. We have fed significant sums into the implementation of the Education (Additional Support for Learning) (Scotland) Act 2004, which will come into effect next month. Off the top of my head, I think that some £14 million has gone into supporting the development work around that, which underlies the figures that you see in the budget report.

There have also been some internal transfers between the Education Department and the Health Department so that the health service can provide some of the services that we require of it for additional support. Underlying the budget there is an extra feeding of money into the system, and there are also adjustments in that to the health service.

There is not a great deal that I can add to that. The call for additional funding followed the 2004 act, and funding was set aside for that. That money is now in the system. As the minister said, part of it went to health boards to help them to meet their duties under the act, and part went to authorities in the national priorities action fund to help them to fulfil their duties under the act.

Obviously, the £12.5 million sits alongside other funding in the budget for the national priorities action fund on social justice, inclusion, support for teachers, study support, and additional support for learning. The figure for that stands at £76 million this year. In those other budgets, there are elements that allow local authorities to give additional support for learning.

If it would help in answering Ken Macintosh's question, we could send a note outlining the position if we were to group together all the information. That would not be a problem for us.

That would be very helpful.

There is a line at the end of page 40 of the draft budget 2005-06 that refers to

"supporting children with additional support needs training educational psychologists".

That implies, I imagine, that you are training more educational psychologists. However, it would be interesting to see the figures.

I would like to ask one of a series of questions that I have put to the deputy minister about how to avoid funding disputes between local authorities over the new act. At present, the school budget generally is allocated on the pupil roll in an education authority. However, is my understanding correct that funding goes to one authority, but if the children move to a school in another authority for their education, the money does not follow them and it is up to the host authority to make adjustments? Can you comment on that? It is a question of fairness, as much as anything else, of how the budget is then spent.

I am conscious that you bring up a case that we are trying to reconcile. What I say should not be taken to apply to that specifically, as I would need to rehearse exactly where we are on that decision. We have to make a decision fairly soon.

Grant-aided expenditure and the distribution of money to local authorities are done on pupil population. That is the main determinant of expenditure, although it is adjusted for factors such as rurality and deprivation. However, pupil population remains the driver.

That said, when we do a census of a school we should pick up new pupils. However, there is a lag time between the movement of pupils and the next census, and that may affect funding. Equally, there is movement the other way, so it is not as stark as it may appear.

If special needs are going into the national priorities action fund, the funding will be done on a different basis from the general allocations.

The national priorities action fund is distributed mainly on a GAE basis, so it is similar to other funds. Paying for pupils who cross borders is an issue. My colleagues discussed that with COSLA last week—or will discuss it this week—to try to bottom out the issue and find a way forward. We are conscious that the issue is of concern to authorities.

Discussions continue about how things have changed as a result of the Education (Additional Support for Learning) (Scotland) Act 2004 and how we can move forward on a basis that is acceptable to everybody. We can let the committee know the outcome of those discussions. We are engaging with COSLA because it has a close interest in the development of those issues.

In the note that you will provide on the 2004 act, will you differentiate the money that is available for administration from the money to deliver the service? During the legislative process, it was said that the £14 million that was being made available was for administration and development aspects, whereas Ken Macintosh is getting at where the money to deliver services will come from and what the pattern of the spend to deliver services will be. The committee is interested in that. Much of the funding will be in GAE, but Philip Rycroft has suggested that some of it will come from elsewhere. Having that information would help us.

We will examine that for the committee and try to make that distinction. I am not sure to what extent we made that distinction in distributing the cash, because we tend to do that with some objectives in mind and with a formula. For example, you are right that emphasis has been placed on establishing the new administrative procedures, but once they are established, resource could become available for more service delivery as the services change. We have also—rightly—had to put money into establishing the new tribunal, to cover the costs of its set-up, training and all that accompanies it.

I will ask one or two questions about the efficient government savings. As I expect that you know, they have been of particular interest to the Finance Committee and the subject of a fair number of robust exchanges between the committee and ministers.

I take on board your point that the efficiency savings that are required in the Education Department are much less than those in many other departments. The cash-releasing efficiency technical notes refer to procurement and purchasing regime improvements for the Scottish Qualifications Authority, but on many other programmes, the notes just say that an inflationary increase will not be made. How confident are you that those efficiency savings will be savings and not cuts and that they will have no impact on front-line services?

I will deal separately with the points about the SQA and the general position, because they are slightly different. We are absolutely confident that the SQA can deliver and is delivering improved efficiencies and we are more than confident that it will meet the target without any impact on its overall service delivery. While we ask it to make those efficiencies, we are also considering its proposal to increase investment in some matters to improve efficiency further and to make further gains in the longer term. The process continues.

The member will remember that the SQA has undergone a period of major transition. In the past few years, it has acquired entirely new senior leadership and the organisation is very different from what it was just a couple of years ago. The organisation is thinking about all sorts of innovative ways to operate, so we are entirely confident. Philip Rycroft can add to that. One of his responsibilities is to sit as an observer on the SQA's board, so he can give more feedback. We are relaxed about the situation.

As for the general approach to cash-releasing savings, you are right that we are telling parts of the department that they will have to live on the resources that they have, using this year as a base point, and that they will not have an inflation increase. That will squeeze people—they will have slightly less discretion than before in their expenditure. However, in almost every case, the baseline this year represents growth on previous years. We have previously increased budgets. Now that growth has taken place, the position must be maintained for a couple of years. The practical effect is of asking people to be a bit more careful and to be a bit tighter, which squeezes a bit of discretion out of the system. Philip Rycroft will add to both those points.

I have watched the SQA from close quarters for over three years and I have seen that organisation transform the management of the resource at its disposal in many areas, such as procurement. However, the big issue for an organisation of that size is head count. I am absolutely confident that the SQA is making great strides towards achieving the efficiency savings targets and I hope that it will go well beyond them.

As regards the budgets under my direct control in central Government expenditure, the objectives have not changed and the partnership agreement remains. We have to think about ways of achieving efficiencies and making best use of the money at our disposal. We daily make many decisions about how we can use that money most effectively to get the information that we require and the support that we need to help authorities to deliver on their commitments, which have not changed, with the sum of money that has stayed at cash.

You mentioned that a large part of the education budget is devolved to local government. Local government is also subject to efficiency savings that have been removed from council budgets rather than their being saved from those budgets and spent elsewhere.

There is a third tier in that we have different levels of devolved school management in different councils from Clackmannanshire, which controls 50 per cent of the education budget—for which I must accept some responsibility having been the convener of education services at the time that the decision was made—to South Ayrshire, which controls 90 per cent of its education budget. That introduces an extra tier of problems. If some of those efficiency savings are passed down to school level, how can we ensure that those budgets are not cut? I am sure that the minister remembers from his time in councils that when efficiency savings are required from departments, there is often shroud waving rather than serious savings as people try to avoid the impact of savings.

I have at least two thoughts about that. We have made a commitment to move to further devolved school management about which we will make announcements in the next few weeks—I cannot remember exactly when, but it will be before Christmas. I looked at the report and the charts about devolved school management that the committee received and part of the difficulty is that we do not know what 60 per cent or 90 per cent refers to—it depends where we start counting from in the first place. We are trying to reconcile that by moving to a position that control is devolved unless it is reserved, which is rather like the devolution settlement. We might find practically that what is represented in the report as 60 per cent or 40 per cent or whatever the figure is turns out to be similar amounts because councils count from a different baseline. We have to be careful about those figures.

That said, we know in which direction we are moving; we want more devolution of spending. We are committed to ensuring that schools receive a three-year budget so that there is no annualised passing down of efficiencies to school level without some time horizon to allow proper planning by head teachers. One purpose of our efforts is to get more stability into school planning and to allow head teachers the time to do it properly.

You raised an interesting point about efficiency savings at council level for which there is different practice throughout Scotland. In the past few days, officials have made it clear to directors of education in councils that in the previous spending review, the Executive exempted education from efficiency gains specifically because we seek to grow teacher numbers, as well as to make other investments. That is our position. Councils that make decisions to apply efficiency savings to education run counter to the tide of the Executive.

You pointed out that about £4 billion goes directly to local government on education spend. We get to scrutinise the remaining £400 million, which is a mere tenth of that. Of that, 40 per cent is in what I would call the slush fund of the national priorities action fund. That means that, in our budget scrutiny, we look at 6 per cent of the overall budget spend on education. It might be helpful if in future we could get a breakdown of the national priorities action fund, because the lack of information on it looks a bit suspicious. That would give us some idea about the direction in which the Executive wants to go with its initiatives.

On the wider issue of the £4 billion, how do you ensure that local government's spending of that money reflects the Executive's budget priorities, not just on education, but more generally? That is something that we need to reflect on, given that we are accountable for where Scotland's taxpayers' money goes.

Your comment about the national priorities action fund being a slush fund was very unfair. In my council days, when I was a finance convener, I had an official slush fund—it was for clearing the roads in winter. I was allowed to have a slush fund, which operated highly successfully. The national priorities action fund, the total budget for which is short of £200 million, is an important part of how we drive and incentivise change in certain areas, such as curriculum development and additional support for learning. We will happily give you a breakdown of what that money gets spent on to support our policy objectives. There is not a problem with that.

There is a fundamental tension on local authority funds generally. I understand the point that Fiona Hyslop makes; indeed, we share some of the frustrations that the committee may have. Once the money flows from us to the local authorities, we want it to be spent on education, but local decision making means that it is subject to all sorts of other pressures. There is a tension between the principle that we should distribute cash to local authorities on an unhypothecated basis, which is quite proper, and their exercising of discretion about how they spend it locally. Although that practice has a long tradition in this country, at times it creates tensions between the Executive and local authorities because they may have different objectives. We keep the working of that relationship under constant review. Our use of outcome agreements with local authorities on the nature of their spending of the extra cash that we give is becoming more common. We want to have some guarantee that money is being spent in ways in which we want it to be spent, although we do not seek to fetter the ability of local authorities to exercise discretion at local level.

There are a number of ways of ensuring accountability and the Finance Committee's report is one of them. Every council is subject to audit by Audit Scotland. In addition, councils' own auditors will report on their financial performance from time to time. Authorities are inspected as education authorities more frequently, because of the new powers that education inspectors got a few years ago. Their performance, which is measured against national priorities and so on, is revealed in the course of those inspections and action is taken when necessary. There are also inspections of individual schools and particular topics.

Beyond that, there is the performance improvement framework that we put in place with the Standards in Scotland's Schools etc Act 2000, as a result of which local authorities set targets for themselves on improving performance in a variety of ways. We monitor that closely and I think that a report on that performance is published every third year, which means that there is access to information on how education resources are being spent locally.

With the next round of new spending on growing teacher numbers we are moving into new territory with the local authorities. We have specific targets that we have made clear to Parliament. We intend to meet them, but we require local authorities to play their part in that. We are involved in fruitful discussions with local authorities and COSLA about how we distribute that cash. We have not concluded those discussions, as they are highly complex, but we are close to concluding them. We are making it clear to local authority leaders that, if we are to meet our targets, we must get assurances that the money that we give for extra teachers goes to extra teachers. That takes us into the territory of having explicit outcome agreements with local authorities on teacher numbers in their areas. There is little point in our providing extra cash for teachers if teachers are being taken out of the system at local level. So, the impact of our discussions with the local authorities is not only to lock in the new money for new teachers but to lock in the existing cash for teachers as well.

As I said, we are moving into new territory. In due course, the Executive and the committee will get more of a handle on how some of the resource—indeed, it is a big part of the resource—is flowing to councils. It gives us more scope to look at the matter. I am also keen to do things not in a rigid way, but in a way that gives councils the proper discretion that they have at the local level to exercise their choices at the same time as meeting the overall targets that we set. We are working that out with COSLA at the moment.

Thank you. We can reflect on that in our report. Briefly, I have a question on the PPP budget line of £100 million for 2007-08. I am aware of the delay in that spend on that budget line. Do you expect that to be the peak position?

I am sorry, I missed the point.

The PPP spend of £100 million is obviously a significant spend. Is that figure likely to be the peak or do you expect it to continue at that level?

The original estimates for PPP were built into the 2002 spending review or thereabouts. The figures are estimates of requirements; the cash flow is slightly different, however. In the current spending review period, although we have grown the figure up to £100 million, it still has a bit further to go to accommodate the full peak of spending before it levels off. The number of years in which that will happen is still to be determined, because the rate at which projects start determines the rate of the spend. That said, we have made more than sufficient provision for that in the current budget round.

I have one brief and rather obvious question. How can investment in policy areas be measured in terms of success against stated targets?

The opening pages in the education section of the budget document set out our objectives and targets. Beyond that, as I indicated through our performance improvement mechanisms, we have the specific sets of targets that local authorities set themselves to improve performance, and we can measure against the outcomes achieved with relative ease. As I indicated, the inspection process helps to illuminate what is being achieved at the local level as well as what is not being achieved and any deficiencies to which we need to apply ourselves. Mechanisms are in place to ensure that we monitor outcomes. In fact, we are increasingly focused on outcomes to ensure that we achieve not just our teacher number targets but all the other outcomes that relate to attainment and so on.

I thank the minister for what has been a marathon, but very useful session on the various topics we have discussed today.

Before we go, we have to have a quick think about any issues that we need to put into our budget report. I hope that the item will not take too long.

The Finance Committee has put six specific questions to us and asked us to comment on them in our report. If members have other issues that they want to include in the report, they should raise them. I will quickly go through the questions; if any member has a comment, I ask them to make it as we go along. As we have only one shot at the report that we have to make to the Finance Committee, it is important that we try to clear up any issues at this stage.

The first question is whether the committee is satisfied with the responses from ministers to its recommendations for the 2005-06 budget. Are there any comments on that?

Members indicated disagreement.

We move on to the second question, which is whether the committee wishes to raise any matter regarding the changes to spending plans referred to in the "New resources" section?

I think that this is where we should comment on additional support for learning and service needs in particular.

Okay. That is fine.

I have a quick question on the realism of the efficiency savings.

We may come to that under one of the other questions.

Okay.

I am just running through the six key questions. If any member has a point that they want to raise that is not covered by the Finance Committee questions, we will then return to those points.

The Finance Committee's third question is:

"Does the Committee wish to recommend any specific changes to programme budgets within the portfolio? If so, which programmes should be increased and why, and which programmes should be reduced to fund such changes?"

I would make the comment that we have very little locus to do that. There is £4 billion of local government spend and 40 per cent of the remaining spend is in one budget line at level 3. We have very little room for manoeuvre.

It might be helpful to get a few more details about the national priorities action fund.

The minister indicated that he will provide us with a breakdown of how the funding will be spent. We will highlight that in our report if we do not receive the information in due course.

The fourth question is:

"Is the Committee content with the Statement of Priorities set out in its portfolio chapter?"

The minister said that the Executive has made it clear to local authorities that it wants much of the education budget to be exempt from efficiency savings. An issue remains about how the Executive can monitor progress in local government. That has been unclear. What powers do ministers have should local authorities not adhere to the Executive's priorities, for example if they do not exempt education from efficiency savings?

There is a general issue there about how priorities can be delivered if local authorities do not make such savings.

The fifth question is:

"Does the Committee have any comments to make regarding the cross-cutting issues set out in its portfolio?"

We could ask how any future developments arising from our discussions with Tavish Scott on transport issues and education, for example, are illustrated in the budget lines for both the Education Department and the Enterprise, Transport and Lifelong Learning Department.

The final question is:

"Is the Committee content with the efficiency proposals identified for its portfolio? Are there projects to promote efficiency that the Committee would like to see considered by the Executive?"

You had a point on efficiency savings, James.

I would like to explore whether the efficiency savings are realistic.

I think that we have covered the point about devolved school management. There is a general issue as to whether efficiencies should be at the administrative level, within councils, as opposed to at the delivery level, in schools.

Another issue is whether the requirements stemming from the McCrone settlement have been followed through in the budget. I imagine that the answer is yes.

The Executive would say yes to that. There is a budget line for additional funding going in from McCrone. We are getting a report on McCrone some time in the new year. That will be the time to raise that issue.

We should still refer to that in our report.

There is a further general point. We did not explore this with the minister this time round, but it applies across the board. It is about how each department is contributing to cross-cutting priorities, including economic growth. We do not have ministerial evidence on the subject, but there is a genuine issue about how that is monitored and how outcomes are assessed under the different portfolios.

There is a general issue there about where in the parliamentary system we can deal with that. Which committee is responsible?

Ultimately, it is the Finance Committee.

I thank members very much for attending—and missing their lunch. I remind the committee that the commissioner for children and young people will be in this very committee room at 6 o'clock this evening. Members will be able to attend at least part of that event. Our next meeting, which is next week, will be back at the normal time.

Meeting closed at 13:28.