Official Report 291KB pdf
Item 3 is the budget process 2007. This year, the budget scrutiny process is shorter than usual, as this is not a spending review year. and therefore we did not have a stage 1 process in the spring. We got the Executive's budget proposals, which were published in September. That updates the Executive's plans that were set out in the spending review of 2004 and in the draft budget 2005-06. The committee agreed that it would seek oral evidence on the draft budget from the Minister for Environment and Rural Development. To enable that discussion, we have the draft budget 2006-07, a Scottish Parliament information centre paper, a guidance paper from the Finance Committee, and a briefing paper from the Minister for Environment and Rural Development. We have sufficient paperwork to have examined ahead of our scrutiny of the minister this morning. We also have the relevant extracts from the draft budget and the efficiency technical notes, which were a new item to cross our desks this year.
Scottish Executive Finance will do.
Thank you. I invite the minister to make his opening remarks and introduce the budget.
Thank you, convener. It sounds as if you have something of an information overload. Perhaps as a helpful introduction I could, given my professional background, talk for about an hour and a half about statements of standard accounting practice.
Perhaps for five minutes.
Indeed. I used to think that SAP stood for statements of standard accounting practice, but I have since learnt that SAP is a sheep annual premium. That has been quite a serious change to my professional background.
Thank you, minister. We were interested in following up some of last year's scrutiny of the budget. We have said consistently that we find it difficult to track progress on targets and where money goes year on year. We want to pursue those key issues. When we spoke earlier in the year we said that we were keen to track what had happened to the water money—that was raised at our committee meeting in January—and we were keen to know what was happening later in the year on rural development spending. I remember last year's discussion on parking moneys, which was partly because of issues to do with the reform of the common agricultural policy in Europe; it was not clear exactly where money was going. I had hoped that we had made it clear that we were looking for a range of things.
I understand that fully. Unfortunately, we are in a straitjacket in that the Finance Committee states the point at which we look at actuals and the point at which we look at budgets. To be blunt, I have no doubt that this process, which shows budgets for the past few years, is very interesting, but you are really asking about the outcomes. On the format, I am not privy to what goes on in the Finance Committee, but I agree that you would probably have found the process different had you seen the budget going forward and how spending turned out. Unfortunately, that is not the way that the information is presented. That is not a cop out; it is where we are.
None of us feels that the process is perfect, but we have the job of trying to scrutinise—
Indeed. I understand. I just did not want to indicate—
It is just that you raised a few issues and said that you did not know what we were after.
I am grateful for the clarification. I was just saying that I am sympathetic. I am in the straitjacket of how the Finance Committee shows the budget figures.
My question is about the Scottish Water budget. You show an increase in allocation of 10 per cent this year to reverse the downward trend of recent years in Scottish Water's net new borrowing. Do you think that the current budget allocations and borrowing requirements will be sufficient to support Scottish Water's planned investment programme at the end of quality and standards II and the beginning of Q and S III?
Yes. In the process, we expect Scottish Water to draw up its own revenue budget, but of course that is influenced hugely by the extent to which it is engaged in delivering the substantial capital programme. We are committed to keeping Scottish Water in public ownership. Nevertheless, it operates as a monopoly and so it is important that the Water Industry Commission for Scotland scrutinises its performance in terms of economic efficiency to ensure that the consumer, whether domestic or industrial, gets value. Through the process of iterating the figures and presenting a budget to you, I am satisfied that the relevant factors have been scrutinised properly by the board of Scottish Water and the Water Industry Commission.
Are you confident that the scrutiny that the Water Industry Commission has applied—which attempts to benchmark costs against practice in England and Wales—is relevant to the current situation in Scotland? Industry has said that the constraints on development that are imposed by the lack of water and waste water infrastructure are major causes of frustration.
No benchmarking exercise is an attempt at replication and I do not think that the Water Industry Commission is saying that things must be absolutely as they are in North West Water or Northumbrian Water. The commission considers how to approach certain expenditure and control headings and obviously takes into account the different circumstances that obtain in different parts of Scotland. Some bodies will be more comparable than others—those that deliver water in our major cities, for example, will be more comparable than those that deliver water in remoter rural areas. However, I am satisfied that the commission does not take a dogged view on such matters. It has a professional job to carry out and I am sure that it carries out that job.
If that is the case, do you seriously think that the real-terms increases in borrowing requirements are sufficient to meet the real needs of Scottish Water to deliver a programme for which the country is crying out?
Yes. There must be a process and your question is not so much about the figures as about the process as a whole. It is important that ministers should set objectives on behalf of the Parliament for consumers on key criteria such as water quality, sewerage delivery and public health. It is then up to Scottish Water to draw up its business plan for delivering the objectives that the Parliament has set. As that body is a monopoly, it is for the Water Industry Commission to apply performance comparability tests. I do not mean that there should be rigid tests and that Scottish Water's performance must be the same as that of another body, but a reasonable view must be taken about measuring performance in the interests of the domestic and public consumer.
We shall see whether you have done so.
Okay. That topic has had a good going over.
The budget leads into the first phase of Q and S III. What are your priorities in the budget for Q and S III? What projects and outcomes do you want to deliver through the budget?
We have not sought to tell Scottish Water precisely which project in a range of projects it should address first. As you know, we have set objectives for it and we have clearly changed the profile of priorities in order to deal with the supply of new housing, particularly in rural Scotland. That has become a major issue and was part of the huge amount of consultation that was conducted to set the objectives. As you know, a range of statutory objectives had to be met to improve the quality of drinking water and to deal with sewage outfall. We added the issue of nuisance arising from odour, on which we have a clear objective. We have set Scottish Water objectives and indicated the key priorities, but we are not about to micromanage the company.
I listened to the ministerial statement earlier this year so I am aware of the general priorities but, specifically in terms of the budget, what do you want to be front-loaded? You mentioned housing development. Is that a priority within the budget from Q and S III?
If across a five-year period Scottish Water is to deliver on all those priorities—in particular, the top three, which relate to housing, water quality and sewage—it must be able to have live civil engineering projects both for which it is still seeking planning permission and for which there is planning permission and contracts have been laid. That is undoubtedly the most complex aspect of Scottish Water's management. It is not possible to say that in the first year Scottish Water will have nothing other than housing development to deal with, because that would mean that it could not deliver across a five-year period. We have clearly indicated what the top three issues are, but it would not be sensible for us to try to micromanage what is done in a given year.
When Lewis Macdonald came to the committee to discuss the draft budget, we questioned him about the fact that funding for the organic aid scheme was apparently dropping from £8 million to about £2 million. He stated:
That touches on one of the slight difficulties that arise from showing only budget figures and not actual figures, to which the convener referred at the outset. The expenditure never reached £8 million. We had beliefs about changing the nature of the scheme, so the figure was subsequently downgraded part way through the year in which it first appeared. What we now see is the figures as they were presented to the Parliament in the original budget. The figure then came down from £5 million to £2 million.
That is clearly a factor. The other factor is the payment rates that are payable under the OAS and through any stewardship scheme that would run for farmers who have already converted to organic. A higher payment rate for organic farmers, such as applies in England, would restrict the number of farmers who would be able to build into the scheme through the restricted budget—
The only movement would be with the rural stewardship scheme money.
Is there not a danger that, if the payment rates go up but the budget remains the same, you will effectively place organic farming into a niche box? You are consolidating the position of farmers who are already organic but you are not allowing a greater number of farmers to come into a scheme that pays them for the delivery of public goods.
I am not doing that: we have been nowhere near having even to consider adjusting the budget, far less turning down any scheme. If I were to get advice from officials that there had been an upturn in take-up, I would have to consider and take advice on what flexibility there was. We would consider the line through which we commit funds under the rural stewardship scheme. The budget is finite. I do not have any more money from the Finance and Central Services Department. Our allocation of the money between the various headings in table 9.07 reflects our best estimate, based on the demand that there has been in the system for some time for organic aid, although that has changed.
There is concern about competition arising between the different schemes. Because we do not have a final figure for the OAS, it is not clear to us whether there will be a squeeze on organic farming and competition between the other schemes. In essence, are you saying that you believe that there will be enough money in the pot to deliver your targets on organic farming and to get the required conversion rates for arable land and improved grassland?
Yes.
If the OAS and rural stewardship scheme payment rates go up, will there still be enough money in the pot to meet the targets?
Obviously, the budgets are based on the rates as they are.
But if the rates went up, would there be enough money in the pot?
As I said, if we were considering a change of the rates, the most sensible approach would be to think about shifting resources from the rural stewardship scheme into the organic aid scheme. The question is legitimate. On the basis of the objectives and rates that we have set, the budget is adequate to meet the purpose. We can have a perfectly legitimate debate about whether we need to adjust the rates but, with the present rates, the provision in the budget can meet the objectives that we have set.
I have a follow-up question about whether that budget is actually used. You will be aware of the press claims at the weekend that not enough farmers participate in the organic aid scheme and that there is a question mark over whether the Executive's target on the amount of land that is farmed organically will be met. You might not want to answer that now, but instead write to us. The issue comes back to the initial point about setting a budget and then monitoring it against outcomes. We are in a slightly awkward position this year because we do not have the outcomes to measure that. That relates to Mark Ruskell's question about what happens next. We have a set budget and rates; the question is how that will impact on the farming community, whether farmers can take up the scheme and whether the rates are good enough.
I will certainly write to the committee on the issue, which would be sensible.
We would appreciate that, because we have raised the issue before.
We currently support about 68,000 hectares of organic land and around 15,000 or 16,000 hectares are under conversion. I am still reasonably confident on the matter, but the figures do not show movements into and out of the scheme. There has been a lot of movement among hill farmers. If you recall, that was a less contentious issue, as the ground that was being used qualified for organic certification anyway. If it would be helpful, I would be happy to provide more detail in writing on the movement in the organic aid scheme, the current number of hectares that are in the scheme and how that relates to the targets.
It would be useful to know whether you intend to introduce higher payment rates, which would clearly affect the balance between the different schemes and the overall organic aid budget.
I am always happy to provide as much information as possible but, with all due respect, that is a separate issue. If, having got the information, you are not satisfied that we will meet the targets, it is legitimate for you to invite me to change the rates.
Let us do it that way round. Once you give us the information, we will process it and come back to you.
That would be helpful.
I would like to switch the minister's attention to the topic of fisheries, about which we have had enlightening and occasionally even amicable exchanges in the past. My question is in no sense confrontational; it is for information. According to my information, spending on fisheries over the six-year period will drop by around 23 per cent. What are the reasons for that?
Which table are you looking at?
It is table 9.01 in the "Draft Budget 2006-07".
When looking at that line of figures, one has to take account of the fact that in 2002-03 we had the fisheries decommissioning scheme and that in 2005-06 there are to be one-off provisions for aircraft and vessels. Exceptional expenditure is included in those figures, which we have to smooth out across the piece.
Does the £80.6 million for fisheries in 2005-06 take into account fisheries protection vessels?
Yes.
Nonetheless, if we go right through the figures to 2007-08, we see that the final figure is £60.6 million compared with £69.6 million six years earlier. That is a considerable drop in real terms. Are the figures simply a reflection of the fact that the fleet has downsized over that period?
That might be the case. As you know, fisheries is not a wholly supported sector, although, as it is a regulated sector, it requires state aid clearance. Therefore, assistance to that industry is channelled through the financial instrument for fisheries guidance. That budget has not expanded at a European level; it has contracted.
By far the largest elements of the standing fisheries line from year to year is the provision for the Fisheries Research Services and the Scottish Fisheries Protection Agency. Those two agencies take up the bulk of the spending in any year. As the minister said, unlike agriculture, the fisheries sector is not the beneficiary of significant support. The main support has come from the FIFG awards under the European Union fisheries structural fund.
The overall figure declines by £17 million over the six years. That is about 23 per cent down over the period according to my sums.
Which table are you looking at?
I am dealing with two documents—one is the briefing from the Scottish Parliament information centre, which considers fisheries spending, and the other is table 9.01 on the categories of spending.
Table 9.09 is useful because it gives some of the breakdown, which helps to explain further what Mr Dalgetty has just said. It shows the breakdown between the Fisheries Research Services, the Scottish Fisheries Protection Agency, the agency capital charges, the fisheries grants and the other categories. Those capital charges are as they were accounted for in 2002-03. Have you found the table, Ted?
I am getting there.
Your question on the aggregate is legitimate. However, table 9.09 gives a breakdown that shows that the figures for the Fisheries Research Services are not flat and that the figures for the Scottish Fisheries Protection Agency also have capital elements. Note 1 states:
The financial year 2002-03 is not a fair baseline.
Okay.
I was going to kick off on fishing, but I will just pick up from where Ted Brocklebank left off. I presume, if I am reading table 9.09 correctly, that the "Other" line addresses aspects such as support for marketing activities and for increasing the fishing fleet's profitability. I cannot see where else the funding for such schemes would come from, other than perhaps from European grants. The "Other" figures show a long-term decline, down to only £178,000 in 2007-08.
No. There are two sources for the expenditure to which you referred. There is the general issue about moneys that are directed from the industry itself, particularly through the Sea Fish Industry Authority. You will be as familiar as I am with the work that Seafish is doing. You referred to one of its projects, which is the reasonably successful haddock marketing plan.
I am sure that we will have future exchanges on these issues, because the fish processors and the catching sector say that implementing the recently announced Seafish strategy will require resources. However, there does not seem to be much flexibility in the budget lines in table 9.09.
Our budget is caught, I suppose, in a number of ways. Elements of European structural funding fall particularly within some of the rural schemes, in which they are linked to the allocation of funding to the Highlands and Islands. For that reason—rather than any wish on our part to discriminate—the lowland funds are described separately to allow us to distinguish between schemes that are funded internally and those that are funded externally.
I think that they will qualify under another form of transitional area.
There is a phrase for it, but I cannot remember the phrase.
I think that it is a "statistically affected area".
That is the phrase. I am grateful to you. It does not quite trip off the tongue. What was it again?
The phrase will be recorded in the Official Report.
I can see the shorthand writers panicking.
The phrase that Rob Gibson used was "statistically affected area".
Anyway, we will not go there. The discussion on those issues has not yet progressed because substantial arguments are still to be had, but we are affected by those discussions.
Between 2007 and 2013.
The Berlin ceiling was fixed in 2003. The only problem that we might have is that the 2003 CAP reform included a specific provision that, in the event of a budget line being breached, there would be no argument about whether it should be reduced. Instead, the Commission now has powers to initiate a reduction in European expenditure proportionately across the member states to ensure that the budget does not breach the Berlin ceiling.
I have two brief questions further to that point. First, have you discussed the issue with the Minister for Finance and Public Service Reform? If the outcome of European budgets does not go in Scotland's favour, it is clear that there will be greater demand on some of the budget headings.
Absolutely. The Minister for Finance and Public Service Reform is in regular contact with all ministers, especially those for whose portfolios the settlement of structural funding is an issue. My officials and I attend discussions on structural funding, so we are intimately involved in all those issues. We are conscious of the potential impact on our budget of any change in those arrangements.
Finally, I have a brief question on support for flood prevention. I appreciate that, for obvious reasons, the budget for such funding has increased. Given climate change and recent extreme weather events in Scotland and elsewhere, what flexibility exists to increase that funding drastically if the need arises? There are various campaigns throughout Scotland for flood prevention schemes.
Certainly, if such a problem were to arise before a new spending review, we would have to move funds from one heading to another.
The SPICe paper shows that, by the end of the period 2002-08, planned spending on water will have declined by 40 per cent while planned spending on environment protection will have increased by 386 per cent. Moreover, in 2006-07, you appear to be increasing spending, particularly on flood prevention, by about £19 million. Can you provide more detail on the flood protection proposals that local authorities should be considering? After all, in my constituency, the flooding problem has been caused partly by the condition of the infrastructure, which makes it a matter for Scottish Water. In one area, the problem was solved by Scottish Water replacing pipework and so on. Is there any leeway within the funding for replacing pipework and improving the infrastructure?
As you point out, there are several elements to take into account. Survey work that was done as part of Scottish Water's capital expenditure programme has revealed new pressure points that are giving rise to flooding and its budget contains an allocation for addressing those areas.
In the earlier briefing that the minister gave the committee, he indicated that although we thought that we might have some difficulty in meeting the earlier 2002 target for reducing the number of properties that were at risk of flooding, we were sure that we would catch up and achieve the 2004 target.
Could some of the £19 million increase in 2006-07 and the funding that is identified thereafter be used to replace infrastructure if it helped to tackle an on-going flooding problem?
That is theoretically possible, but it would be subject to Scottish Water's capital allocations in a particular locality. In that respect, we come back to the question that Mark Ruskell rightly asked at the outset about how Scottish Water will manage aspects such as housing development, flooding and other pressing matters in its various projects.
I am curious to know how closely you work with other Executive departments and public services on
It does not. I am disappointed about some of those projects. I work closely on the matter with Malcolm Chisholm and his department. We do not try to second-guess projects and create separate routes for dealing with them. We all want to consider the recent report because, in certain areas, there are concerns about the use of land that was originally designated as open space and should serve that purpose. It is not our intention to fund any arrangement that obviates that. We liaise with Malcolm Chisholm's department on anything that we do in relation to open space development.
I have three questions. First, in table 9.05, the figures for the water environment seem to take a nosedive. Will you explain the reason for that?
The figure goes down from £1.479 million in 2004-05 to £792,000 in 2005-06.
I apologise for the fact that that obvious reduction is not sufficiently explained in the document. Had I taken more care over it, I would have found out the explanation. I would be grateful for an opportunity to provide the committee with information on that.
We will let you do that. The figures for 2003-04 and 2005-06 are similar, but there is a blip in 2004-05. Something obviously happens in 2004-05 that pushes up the budget. It would be helpful if you would provide further information on that.
We will give you a detailed note on that.
With the radical reform of the CAP and its impact on agriculture, the committee is concerned that there is a need—which is perhaps difficult to meet—for advice and information for farmers and others in the agriculture and agriculture-dependent industries. SPICe has identified a trend whereby funding for agricultural science seems to decline gradually, in real terms. Are you confident that there is enough funding to meet the need for more advice and support for farmers, who are coping with a difficult financial landscape as a result of the CAP reforms?
There are two separate answers to that. Not all advice on the CAP and farmers' business decisions is funded from the budget. Increasingly, farmers are not just using the traditional route of the Scottish Agricultural College—although that continues to be the predominant source of advice—but are drawing on other, private sources. They have perhaps done so in anticipation of the development of the CAP and as a response to the need for a greater source of business advice that was identified in the agricultural strategy.
That will be £10 for the charity box.
On the question of funding for agricultural science, we are trying to get the organisations within each heading into a position in which they can sustain themselves. That has meant that they have had to develop much closer relationships with some of our mainstream universities. As a consequence, that has reduced some of our financial requirements and made them more sustainable. Some of them are small and lack critical mass in certain specifics—not just people but sciences as well. The drive towards them having better relationships with universities while retaining their independence has an impact on finance but a greater impact on sustaining the service that they provide.
Table 9.05 shows that more is being spent on noise and air-quality action. I am glad about that, because noise is one of the pollutants of which there is not much awareness. Light pollution is similar. Noise and light pollution have an impact on people and we are perhaps not doing enough to tackle those problems. That is more of a comment than a question.
A few minutes ago, Elaine Smith talked about a flooding issue. You will be aware of a couple of schemes that have been delayed through the planning process, one of which is in my constituency. I am concerned that, if it takes a long time to pursue a flood prevention scheme, that will have an impact on residents and businesses. There is also an issue about costs because, as inflation accrues, a project becomes more expensive. Further, through the planning process, the Executive can amend the council's original scheme, which could mean that the end scheme is likely to be more expensive. Presumably, the increased budget allocation will accommodate schemes that become more expensive because of the delay in timescale or because the Executive has suggested that the scheme be amended.
I could not give a precise answer without knowing more about the details—
I am talking at the level of principle to avoid getting involved with individual cases.
The principle is that, in increasing the budget, we have recognised the fact that the number of applications and the need for them has increased dramatically and that, if the schemes are to do the job that they are supposed to do, they will have to be complex and will require additional resources. As we hold most of the necessary funds, the allocation of that resource is a matter for discussion between local authorities and the Executive. I can think of examples—although I cannot bring to mind an example in your constituency—in which the consequence of increased complexity and timing has resulted in an increased grant award. I would be reluctant to say that that would happen in every case, of course.
In the case that I am talking about, there have been delays due to the planning system. There have also been added complexities because the Executive has amended the final scheme, which will make it more expensive. I assume that the Executive will allocate extra resources to meet the increased cost of the project. I would be happy to write to you with further details.
As I say, such assistance is part of our intention but, without knowing further details, I would be reluctant to say that that would happen in the case that you are talking about.
I will write to you on that point.
If I remember rightly, that relates to a switch of capital. I think that the capital provisions were changed for the sake of consistency. There was a reallocation of expenditure.
Is the switch to do with new policy requirements—
No, it is a technical fix.
The matter is explained in the notes in the budget document. The issue is to do with costs of capital charge and switches between the two budgets.
There is a suggestion in table 9.10 that the Forestry Commission's budget is increasing as a result of issues relating to policy, regulation and administration. I would like to tease out what those issues are, because I note that Forest Enterprise is losing money.
The switch is technical, but there are other issues, such as the Forestry Commission's woods in and around towns initiative; that is a policy issue in relation to which we have increased spending.
Is the £3.4 million for policy, regulation and administration mostly to do with countryside around towns?
The significant increase in the Forestry Commission's policy, regulation and administration line between 2006-07 and 2007-08 is to do with the woods in and around towns initiative.
Thanks. If we had another half hour we could ask you more questions, but I will stop us now as that is probably enough for everybody for today.
We will take agenda item 4, on stage 1 of the Animal Health and Welfare (Scotland) Bill, in private.
Meeting continued in private until 13:03.