Official Report 846KB pdf
Good morning, and welcome to the 14th meeting in 2025 of the Finance and Public Administration Committee. We have received apologies from Michael Marra, who will not be attending the committee this morning. Ross Greer will participate, but he will not arrive before 10:15, so unfortunately he might not participate in this item.
The first item on our agenda is an evidence session on the Scottish budget process in practice. We are joined this morning by Stephen Boyle, Auditor General for Scotland, and Fiona Diggle, audit manager at Audit Scotland. I welcome you both to the meeting and I invite the Auditor General to make a brief opening statement.
Good morning, convener. I thank you and the committee for your invitation. I welcome the opportunity to speak with the committee as part of your inquiry into the Scottish budget process in practice.
In my response to your call for views, I highlighted a number of reports that I and my predecessor published on the Scottish budget process, together with wider fiscal issues, since the new budget process was introduced in 2017. Many of those reports highlight that the Scottish Government needs to improve its medium-term financial planning to ensure financial and fiscal sustainability in an uncertain world.
Since I submitted my response, we have seen some real-world examples of additional fiscal uncertainty. The international economic context has changed fundamentally as a result of the US Government’s announcement of wide-ranging import tariffs and the impact that that has had on financial markets. We will see what that means for import and export arrangements across the United Kingdom and elsewhere. We think that it is probably too early to make definitive judgments, but it adds another layer of uncertainty to the fiscal arrangements that the UK and Scottish Governments will have to manage.
Looking forward to the publication of the Scottish Government’s medium-term financial strategy and fiscal sustainability delivery plan next month, the current context highlights the importance of planning for a wide range of scenarios and understanding the risks for public funding and spending. In my response to the committee, I set out a number of issues that the Scottish Government should consider as part of its response through those outputs.
Fiona Diggle and I look forward to answering the committee’s questions.
Thank you very much. The first thing that I want to talk about is the significant difference of opinion between you and the Institute for Fiscal Studies. In your submission, you said that
“the Scottish Government should publish its financial and infrastructure medium-term strategies at the earliest opportunity.”
However, in his evidence, David Phillips from the Institute for Fiscal Studies, said that
“the Scottish Parliament has welcomed and indeed pushed for this timing”
which is May 2025,
“as the earliest practical opportunity to publish an MTFS. In my view, this publication date is a mistake. I would have preferred to see the MTFS published after the summer recess, and after the UK government’s multi-year Spending Review (set to be published less than two weeks after the MTFS, on June 11th)”.
Why do you think that the MTFS should be published at the earliest opportunity when the IFS, which, unfortunately, is not giving evidence this morning, so we cannot ask it directly, thinks the opposite?
Our position has been pretty clear for a while, convener. The on-going absence of a medium-term financial strategy is a barrier to effective scrutiny of and transparency around some of the difficult decisions that will have to be made, as I alluded to in my opening remarks. We have said in a number of our reports that the strategy is not just a one-item scenario. It requires multiple detailed, fleshed-out scenarios across the various themes that the Government is committed to delivering. The evidence that the former permanent secretary and his directors general gave to the Public Audit Committee in March set out examples of some of the areas that the Government is planning to include. We are keen to see what comes through next month. It will be pivotal for the Government’s statement of how it intends to carry out medium-term financial planning to support parliamentary scrutiny of its spending plans.
To directly address the point made by the Institute for Fiscal Studies, I respect the institute’s position, but we are keen for the vacuum to be filled. For nearly two years now we have not seen an updated medium-term financial strategy. Over the intervening period, as you have probably seen, something has always been given as a reason not to publish, and I think that it will ever be thus. We now need an updated strategy from which to work, with a clear understanding of when that will be taken forward and what adjustments will be made.
I do not doubt that the committee has a lot of sympathy for that. We pressed for the MTFS and we were disappointed that there was not one last year.
To reflect the point that David Phillips was trying to make, we have waited this long and, if we wait another few weeks, we might be able to get a more robust, more impactful MTFS. That is the position that I think he is taking. He is talking about what happens after the summer but, to me, that seems like a long time. The difficulty is that, if the strategy were to come out after 11 June, there would be difficulties with finding the time to scrutinise it before the autumn.
As I say, I respect the position that the IFS takes on the matter. This is not an entirely contradictory view, but there needs to be clarity about when the documents will be published and about what circumstances may be agreed as leading to a deferral. Whether that is an economic crash, a Scottish Parliament election or a UK general election, it is a matter of having clarity around the process as to why a deferral will be taken. I am sure that the committee will wish to explore further the issue of the UK spending review but, in the round, my position remains unchanged: we think that the document should be published as soon as possible.
Is the Government too easily put off course by events? It has talked about the general election. It seemed understandable to me, noting the advice that was given by the permanent secretary, that the Government should not publish the MTFS. I am not convinced that many of my constituents would have been influenced as to how to vote by the MTFS, to be honest. There is a difference between delaying something because of a general election and still waiting for it a year later. Even if there is an element of flexibility for certain events, should the arrangements be less flexible than they currently appear to be?
There needs to be clarity on what circumstances will lead to a deferral of planned publications and on how long that deferral should last in the event of a delay.
I go back to what I said in my written submission and in response to an earlier question: two years is too long a gap to wait for an updated medium-term financial strategy. I absolutely accept the former permanent secretary’s advice that, as we saw last year, the UK general election would not allow for the publication of a medium-term financial strategy in 2024, but it is necessary to have stronger, more detailed clarity about how the arrangements will be applied in order to develop a shared understanding.
You have said that
“the planned Fiscal Sustainability Delivery Plan should be fully transparent about the scale of the risks to the affordability of public services and options for how the Scottish Government can manage them.”
What concerns do you have that the plan will not be transparent?
Next month feels really important, with the publication of the medium-term financial strategy and the fiscal sustainability delivery plan. In evidence to the Public Audit Committee, Government officials stated that they would be publishing a public service reform strategy, too. There is lots to go through next month, if all of that is delivered as stated. In our view, it is key to have a clear alignment between those publications.
I have not mentioned the programme for government, which will also be published—
Next week.
Absolutely—on 6 May.
We have no idea what is in it, by the way.
I have used the word a few times, but there is a need for real clarity on how the Government intends to deliver on its objectives. I refer the committee to evidence that was given to the Public Audit Committee, when the director general of the Scottish Exchequer advised that the fiscal sustainability delivery plan would make reference to the sustainability and reform of health and social care in Scotland; the nature of the investment in social security; public service reform arrangements and the Government’s plans for prevention; and clarity on assumptions for the public sector workforce and pay. Those are all the right areas—of course they are. They are the areas that matter. I have no view and do not want to prejudge what might come through in the fiscal sustainability delivery plan, but I keep coming back to the word “alignment”. There is a clear thread between the various documents.
The Fraser of Allander Institute and other organisations have raised concerns about the fiscal sustainability delivery plan not being incorporated directly into the medium-term financial strategy. What is your view on that?
I read the evidence that the committee has taken on that, some of which queried the need for an additional fiscal sustainability delivery plan alongside the medium-term financial strategy.
The fewer, more integrated documents there are, the better, I would have thought.
I will not judge it until I see it. I assume that Government officials really thought through why it is necessary to have a fiscal sustainability delivery plan in addition to a medium-term financial strategy. My position is that I look forward to reading them when they are published next month. The hook that I retain is what I have just outlined from the director general’s evidence about what will be set out in the fiscal sustainability delivery plan. It is a new thing, so I am keen to see how the documents work in practice. I apologise for repeating myself, but it is really about the sense of alignment that must surely come through when they are published.
You touched on the programme for government. Do the budget and the programme for government align strongly enough?
Over the past few years, we have seen some evolution of the budget, notably last year’s budget. For me, the alignment with evidence of impact and delivery is the bit that we have not touched on yet this morning: the evolution of the national performance framework, which the Deputy First Minister is committed to updating. I do not think that we have seen a timescale for when that will come through. There is alignment between the programme for government and the budget, but we also need the tracking through an evidence base of what has been achieved from Government plans and intentions, budget setting and, thereafter, performance reporting. There is still work to be done in those areas.
There is a concern about how the outcomes tie in with what the Government professes to wish to deliver.
The MTFS is a significant part of your submission. You talk about improvements that have been made, such as in quantifying the projected fiscal gap over the medium term. What other significant improvements would you like to see in the medium-term financial strategy?
That is fair, convener. In its 2023 medium-term financial strategy, the Government began to look at some of the drivers around spending. Fiona Diggle might want to say a wee bit more, so I will pass to her in a second. The impacts of pay and workforce are examples of the positive development of the MTFS. We are keen to see that improvement built on in the next iteration of the MTFS, with much more detailed scenarios.
I return to your opening question, convener. There is perhaps never a great time to produce a medium-term financial strategy, but whatever is produced allows for events: there is flexibility and clarity of intent for how the Government plans to deliver on its objectives. I will bring in Fiona to say a wee bit more.
09:45
Good morning. In our report that was published in November, the Auditor General highlighted that the MTFS in 2023 included a three pillars strategy for working towards fiscal sustainability. We found that useful, and it was, broadly, a good direction of travel. However, it did not include specific details about how each area of activity would contribute to fiscal sustainability.
In recent years, across a number of outputs, the Auditor General has highlighted a couple of recommendations on what would improve the MTFS. He highlighted that there should be specific detail about how a projected spending gap might be closed. In the report on workforce in 2023, it was suggested that there could be specific elements on workforce costs, numbers and plans, projected changes in spending as a result of workforce and links between the MTFS and the medium-term financial framework for the health service.
How closely has the Government stuck to the 2023 MTFS?
There have been real challenges for the Government in the intervening period. Fiona mentioned her report from the tail end of last year, and our overall judgment in that was that the Government absolutely continues to deliver a balanced budget.
We have heard routinely that the Scottish Government has had an unqualified opinion on its financial statements for 19 or 20 years in succession, but in doing so—especially in recent years, as a result of some of the economic circumstances that it has been responding to—it has had to continue relying on short-term decisions to deliver fiscal balance.
That is very clear in your document. You raised concerns about that.
We have seen a theme of short-term focus and not moving on to some longer-term decisions. We touched on some of that in January, did we not?
Is that because of the Government’s approach to public sector pay? For example, this morning, the UK Government made it crystal clear that it will not increase its pay offer of an increase of 2.8 per cent to public sector workers. The UK Government has also taken a very strong line in response to the Birmingham strike that has been in the headlines for a number of weeks.
The Scottish Government set out an increase of 3 per cent a year for three years, but, because of what has happened in previous years, it seems like the trade unions are looking at that as a floor from which to negotiate. If that proves to be the case and we end up with rises above that—Scotland already pays on average £2,300 more per year for public sector workers than the UK does for their equivalents down south—is there a possibility that we could end up with yet another emergency statement in the autumn?
I will not talk about the specifics of whether there will be an emergency statement. Before he finished his term in the role, the permanent secretary was pretty clear in his evidence that that is not his assumption.
The central role that workforce numbers and pay play in fiscal sustainability is clear. We have made a number of recommendations to that effect, about the need for clarity around spending on staff and what the Government’s plans are for public service reform of the workforce. The minister mentioned the reform of the public body landscape.
During the next few weeks, a lot will come through about what the medium-term financial strategy will cover in relation to the workforce, what the Government’s plans are to reform public services in Scotland to deliver its prevention agenda and how it will deliver that in a planned, affordable way that aligns with its priorities.
Our report at the end of last year said that we had seen clear steps to deliver financial balance through some of the emergency spending controls, but much less clarity about whether that fully aligned with the Government’s pillars and intent for the longer term.
This feels like a very important moment for the Government’s fiscal plans. May 2025 will encapsulate new strategies and plans for public service reform and how those will be taken forward. We will track that through our work.
On the wider budget process and our call for evidence, we asked in question 4 how the MTFS is currently used by parliamentary committees. From your answer, which is quite detailed, it appears that you have completely body-swerved that part of the question.
Forgive me, convener. When we respond to a call for views, we sometimes deploy some licence to address parts of the questions on which we think that we can make an effective contribution.
That is a politician’s answer.
Our silence betrays the fact that we might have nothing additional to support our evidence or that would be useful to the committee. Having said that, a fairly topical example that I have already mentioned a few times is that the Public Audit Committee is taking a strong interest in fiscal sustainability in response to some of our reporting. Indeed, that committee had a very full evidence session with the former permanent secretary and his senior officials in March, in response to our report.
One of the issues for this committee is that we want the committees to have a greater role in the budgets for their areas. From my perspective, I feel that committees sometimes think that budgets are just the job of the Finance and Public Administration Committee. As a result, I do not think that MSPs in the main have as sound a knowledge of the Parliament’s budget and its intricacies as they perhaps should have. That is why we are asking that kind of question.
Fiona Diggle might want to say a bit more about that. I think that there is increased appetite, but there needs to be additional appetite for that, especially as part of the pre-budget scrutiny arrangements across the parliamentary committees. Done properly, the medium-term financial strategy can be an incredibly helpful and powerful tool to support committees’ programmes of work and scrutiny of Government. That space can undoubtedly be developed, and we can think carefully about how we might support that interest through our reporting.
During the past four or five years, in the current parliamentary session, there has been a lot of variation in the MTFSs, so the bases on which committees might review them have varied a lot. As we set out, the 2023 MTFS was a step forward, but the time gap makes scrutiny harder.
It is interesting that committees may be somewhat loth to look at the MTFS and how it affects them. Perhaps we should look at that in the future. I feel that, when the new MSPs come in next year, there should be an element of induction in some of those areas to let them know what we are talking about. There is not much point if only 10 or 20 per cent of the Parliament is debating those issues effectively.
On how effective current public engagement is, you say:
“the Scottish Government has made some progress in making the budget process more transparent over the last four years but is still failing to reach standards considered adequate by international best practice and ... greater budget transparency is needed to realise human rights.”
What country or countries would you say are the gold standard in that regard?
Fiona Diggle might want to say something on that, but I think that you are referring to our work that draws on some of the judgments of the Scottish Human Rights Commission, which compared the openness of the budgetary process with that of more than 100 countries. If we have the detail of those that represent best practice, we will share that with you. The Scottish Government has made some progress with its transparency, but it is not yet reaching adequate standards.
There is a difference between best practice and adequate standards. Describing something as adequate is like saying that it is struggling. Best practice is a different thing altogether—it means that you are trying to be the best. Are you saying that, in Scotland, we are below average in these areas?
For absolute clarity, I note that that part of our submission draws on the judgments of the Scottish Human Rights Commission.
I see that.
The SHRC might be better placed to talk about the distinction between best practice and adequacy.
I will hand over to Fiona Diggle in a second, but what you said is interesting. My sense, based on some of the evidence that Scottish officials have given to parliamentary committees recently, is that they recognise that there is some additional work to do in this area. In particular, they drew attention to some of their equalities assessments, which they might factor into future budget submissions.
We do not have the detail of the open budget survey report to hand, but we can share that with you.
It is worth flagging up that lots of interesting models are being talked about. The committee talked about the Finnish model with Professor David Bell and Professor Mairi Spowage last week, and there has been some discussion about the Dutch model for reviewing value for money between spending reviews, which was mentioned in the National Audit Office report on spending reviews. There are also some interesting examples in the Organisation for Economic Co-operation and Development report and the Scottish Fiscal Commission report. There are lots of interesting examples out there. However, all the points that the SHRC brought out in its report are quite sensible.
I am going to challenge some of them in a minute, to be honest with you.
You are talking about bits and bobs from different countries. There is no real gold standard; there is not one country that does everything. We should not try to emulate anywhere 100 per cent. We cannot do that, because the Scottish Parliament is a devolved body whereas the countries that we are talking about are independent countries with different statuses, apart from anything else. I suppose that we could look at the land or estates or whatever. However, if we are talking about international best practice, it is important to tell us where that international best practice is, so that we can look at it.
All models are different and all countries are different, but there are lots of rich ideas that can be drawn upon. We can provide more information on the OBS report.
I said that I was going to challenge some things. The SHRC report recommends making budget publications available in an accessible, simplified format and in different languages with the participation of existing civil society groups. I understand what that means, but how would it work and what languages should the publications be available in? Who is going to want to read the Scottish budget in Hungarian, Urdu, Swahili or Spanish, for example? Surely that is just nonsense. Let us be honest: everybody in the country bar a small minority is pretty fluent in English, and I think that those who are not will have other priorities before reading the Scottish budget documents.
I do not know that that is the case, actually. If the Government wants genuine participatory budgeting and engagement, and if English is not someone’s first language—I am drawing on the work of the SHRC—why would it not want to do that if it means taking relatively small steps?
Are they relatively small steps? It may be that only half a dozen people would read the document in those languages, and it would cost a huge amount—probably thousands of pounds—to translate it into one other language, never mind more. Do we know many languages are being proposed?
That is perhaps a—
It is just an empty statement, is it not? It means nothing unless the recommendations say what the languages are, how many there should be and what the cost implications would be. I find it frustrating when I read things like that, to be honest. It is almost a throwaway line rather than a serious policy intent.
I can understand your frustration, but the intent is reasonable, in my view. You made a comment earlier that some of your fellow members of the Parliament take the view that budgeting and budget scrutiny are matters only for the Finance and Public Administration Committee. If we extrapolate that outside the Parliament and you want people to be engaged in spending decisions—the national performance framework, by extension, is about how Scotland performs, and the Scottish Government’s ambition is that people are engaged in the process—some steps might need to be taken.
Forgive me, but I do not have insight into what the translation costs would be or what usage there would be of a translated Scottish budget document. The SHRC might be able to offer the committee more insight into that. However, I do not think that making small, reasonable adjustments should be a barrier.
I agree. I just do not think that they are particularly small, reasonable or appropriate.
You also say that the SHRC proposed that a citizen’s version of each key document should be published. What does that mean?
10:00
It means a document that is more accessible and understandable.
In what way? How can you make the budget document more accessible?
We get this challenge a lot—for example, when it comes to annual accounts.
As an example, the Scottish Fiscal Commission’s stuff is written in straightforward, plain English, with lots of explanations at the end of all the acronyms. How would you improve on that, if you feel that it is something that should be improved?
That is something that we have been working on at Audit Scotland. We now produce easy-read versions of our reports, which have simple, limited text with some diagrams and explanations to make them as accessible to as many people as possible.
There are communication standards around this, which, as Fiona mentioned, we have tried to adopt in our publications and on our website.
Do you feel that the Government is not meeting those standards?
It is for the Government to confirm that. It is to a degree inevitable that, with a medium-term financial strategy—as I said, none of us has seen a fiscal sustainability delivery plan yet, with the first one coming next month—there will be an assumption that the documents will be very technical and will be produced for only a small number of people, but if you are to encapsulate the ambition of having the populace engaged in the Parliament’s activities, making small, reasonable changes feels an appropriate thing to do.
I think that everybody wants the populace to be more engaged. We would like, on occasion, the people who gather in the public gallery at meetings of this committee to be more than just the people who will be giving evidence next or a couple of students who wander in and, five minutes later, decide to wander out again. We would all like more engagement, but it is about being realistic, practical and pragmatic.
The first group of people who need to be au fait with all the documents are probably elected representatives in this Parliament, in the UK Parliament and in local authorities, as well as the people in the third sector who deal with these issues. Sometimes, it can be quite unrealistic to talk about public buy-in, because people have priorities other than to look through a 140-page draft budget document and a 90-page sustainability document. Life really is too short for most people to do that.
I recognise all of that. I sympathise with the SHRC’s position because there will be clear responsibilities on public bodies to make documents accessible and available in easy-read formats and to ensure that their websites comply, with things being translated as necessary. Those responsibilities should not be barriers to making the process more open or removing some of the actual or perceived blockages or barriers to engagement.
Okay. I open up the session to colleagues around the table.
I may go over some of the ground that the convener has already been over. The assumption is that it is a good thing to have a medium-term financial strategy and plans for the future. For example, the Scottish Fiscal Commission and the Office for Budget Responsibility look 50 years ahead. As has been said, we must balance the budget every year, but unexpected issues can come up. An example is the UK Government giving public sector workers a higher pay increase, which we must follow. Are you convinced that there is value in having a five-year plan?
Yes, I am—absolutely. I accept that there will be events, as you say, Mr Mason. There might be fiscal challenges, economic shocks, unanticipated elections or budget challenges—you name it. In my opening remarks, I alluded to the impact that tariffs might cause. However, rather than such events being a reason not to produce a medium-term financial strategy, for me, they reinforce why that is all the more necessary—and not just a financial strategy that involves a broad-brush recognition of scenarios, but one that will be useful in practice.
We might have spoken about this when I was last at the committee. The public sector in Scotland will be employing people for decades and there are public sector pension commitments that will last for decades. Notwithstanding some of the public service reform, the assets that we use will still need to be owned, managed and maintained into the future. Setting that out clearly provides transparency and supports effective decision making and scrutiny. I recognise the argument for why we should not have medium-term financial planning, but it is not as solid as the reasons to have it.
Can you spell out the difference that it could have made if we had had better and more frequent medium-term financial strategies in the past few years? You mentioned capital projects and workforce planning. Where might it have made a difference to those things, as well as to other aspects in the future? There are many capital projects—we want to build more houses and dual the A9—but we will not know what the capital budget is, so can we plan ahead?
If you will allow me to, I will make a distinction between capital and revenue. First, the Scottish Government does not intend to set out its infrastructure investment plans for capital until after the UK spending review. At the risk of contradicting my response to the convener’s line of questioning, I note that it is reasonable for that to be the clearly stated plan. I say that because, in recent years, the capital budget has contracted, which the committee will be familiar with. However, although there can be a level of uncertainty when prioritising capital investment, that is not a reason not to do medium-term capital planning, for the reasons that we have discussed.
Secondly, on revenue, over many years, our reports have talked about the unsustainability of public spending in Scotland and the need for reform in how public services are delivered. Some examples of how the Scottish Government has responded to the challenges have already been alluded to, including emergency budget arrangements and spending decisions. Some of the detail of how the fiscal balance has been delivered each year has been a consequence of the lack of clarity around whether some of the decisions that were made were aligned with priorities, or whether some budgets were underspent that could have been amended more easily during the course of the year. The Government did not take a step back to set out what its response would be in the event of fiscal challenges. In recent years, there has been good evidence of how the Government has responded to shocks, but its response has not been aligned with the thinking around a longer-term plan for reform and sustainability.
I still wonder whether it is possible to plan ahead. Does there need to be more political will in order to do that? For example, the plan for pay was to have a 3 per cent increase for one year with a 9 per cent increase over three years, yet I believe that, within a month or two of that decision, the national health service was offered a 4.25 per cent increase for this year. Are you saying that the Government should somehow be more tied in to the longer-term plan? That would mean that the Government would just say no to a short-term pay increase demand and that that would be that, even if there were strikes.
Decisions about the pay award will be political decisions for the Government. If the base assumption changes, we would expect there to be an alternative assumption, with plans B, C and D. Typically, pay is baked in if it is not accompanied by reform arrangements, but if it consumes a larger proportion of the budget, we would want to see a plan for what would be deprioritised instead. We do not have that level of detail in order to be able to effectively scrutinise how those decisions align with the Government’s spending pillars.
I remain optimistic that, on the basis of what we have already heard, we will begin to see more detail on that next month. However, at the moment, it feels as though those types of decisions are being made without there being longer-term clarity.
As has been raised—and we will probably raise it in our next session as well—if you lay out a number of scenarios A, B, C and D, the media will go for the absolute worst of them. If we said that, if teachers get a pay increase, class sizes will have to increase to compensate, that would immediately become the headline. Politically, is it realistic to lay out options, some of which would be pretty unpalatable?
I appreciate that the Minister for Public Finance is joining the committee later this morning. The Government has stated that it plans to reform public services in order to align them with its pillars and to support a preventative approach in public service delivery. It has also stated that it intends—to use the Government’s phrase, not mine—to right size the public service workforce. The detail of that has not been provided yet. Of course, there will be a response to it—we have seen that in the use of the Scottish Fiscal Commission’s work. The SFC has set out some of the downside scenarios, which involve a gap of up to £2 billion, but it has provided clarity, understanding and the ability to scrutinise and challenge. A fear of how that information might be interpreted should not be a barrier. If anything, a virtue could be made of the fact that it provides real transparency about the scale of the decisions that still need to be made.
Okay. On a slightly different subject, you are a bit sceptical about the committees doing year-round work if they do not have enough information from the Government to do it. Can you expand on that? I am keen on the idea that the committees do work throughout the year in relation to the budget. For example, the Education, Children and Young People Committee has been looking at the situation at Dundee university, which has become quite a challenge. I see that as part of that committee’s budget work—it is not coming from the Government, it is coming from the circumstances and the situation around funding for universities. Do you not think that it is possible for the committees to do a lot of their budget work regardless of whether they get information from the Government?
Yes, absolutely. To be clear, it is an important feature of the work of committees across the Parliament that they consider progress against spending and look not only towards next year but years into the future and perhaps over the duration of the parliamentary term. That should be embedded as part of their work programme. There is no disagreement from me on that point.
Fair enough. The convener touched on the capacity of MSPs and committees. We have had the problem that committees seem to leave it to the Finance and Public Administration Committee to look after the budget. Do you think that we should be trying to change that scenario? If so, do you have any suggestions for how we can get the committees to look more at the finances?
You should be looking to engage members from across the Parliament on matters of finance. If anything, I see a parallel with the Public Audit Committee—some members who are not on the Public Audit Committee are not terribly engaged with some of our work and our audit reports. We think that those reports are relevant, as they are an extension of the work on how public money has been spent and whether it has delivered as intended.
Through the work of the Finance and Public Administration Committee, the Scottish Parliamentary Corporate Body and Audit Scotland, we are very happy to play our part in that engagement. It might be optimistic to think that we will achieve it in this parliamentary term, but there is an opportunity in the next session for this committee and the Parliament itself to be clear about their ambition for the scrutiny of budget work and the roles that are to be played on that across the Parliament. Audit Scotland is keen to play a part in any induction arrangements that you may offer to new members when they join the Parliament next year.
Thank you.
Good morning, Mr Boyle, and welcome to the committee.
We have talked about trying to be transparent and to put complex data and reports into more simplified language. You called for greater transparency in relation to budgetary information, to improve the effectiveness of the budget process. What would that greater transparency look like to a layman and how would you bring it about?
10:15
Good morning, Mr Hoy. I will start, and then I will bring in Fiona to provide a bit more detail.
I go back to the discussion that we have had about the medium-term financial strategy, in which I am keen to see a level of detail that supports scrutiny, as well as more detailed scenarios. The Government has an opportunity with the documents that it intends to publish next month. As I mentioned in response to the convener, I am looking for there to be alignment between, and transparency in, the MTFS, the fiscal sustainability delivery plan and the public service reform strategy, all of which it is intended will be published next month. Those documents should be aligned and should provide clarity on how the Government will address the big challenges.
As we have heard from Government officials, the issues of health and social care reform and the investment that the Government intends to make in social security arrangements and wider public service reform, along with the significant issues that exist in relation to pay and the workforce, are fundamental to the delivery of the Scottish budget and the sustainability of public services for the rest of the decade. How the Government will address those issues must be set out with real clarity.
There should also be a link with the outcomes and services that the Government hopes the spending will achieve.
In your submission—I think that you have also made this point elsewhere—you said:
“the Scottish Government does not know where it can flex its budget easily to accommodate short-term fluctuations or longer-term commitments. A better understanding of its cost base would help develop its Spending Reviews”.
When I ran a private sector business, I had a detailed understanding of the cost base, because every pound spent unnecessarily was a pound less in profit. Why would the Government not have a detailed understanding of its cost base?
That is the judgment that we reached. In our publication in November, we set out that the Scottish Government was not clear enough about where there was flexibility in its spending plans that might enable it to address an event such as an economic shock. We found that the Government appeared to take a more opportunistic approach to reducing spending on certain areas of the approved budget than it did on others. We would expect the Government, rather than doing that, to provide clarity on which spending programmes are variable. It should set out publicly which areas of spending it would step back from in order to deliver fiscal balance.
I think that the Government recognised the need for that in some of the evidence that it gave to the Public Audit Committee, and we are looking to see what will come next. We want to find out which are the areas of variable expenditure and whether a suitable level of transparency accompanies that.
Would an example of that be the fact that, when the Government faced a shortfall in the recent budget, it took a scythe to housing and employability schemes, even though addressing those two areas is vital in eradicating poverty? Is that an example of the knee-jerk response that you are talking about?
The other high-profile example is that some expenditure on mental health services was identified as an area from which funding could be taken to deliver fiscal balance.
We are unclear about whether those were areas in which the Government intended to reduce spending before the shock happened or whether those budgets were, for a variety of reasons, being underspent and were available to be used to deliver fiscal balance. Our recommendation was designed to address the need for upstream clarity.
Pejoratively, I would say that the Government makes it up as it goes along.
You have called for the medium-term financial strategy to have a greater focus on how the funding gap will be closed. If the Government does not focus on that, where will we end up in two, five or 10 years’ time?
In recent years, we have seen emergency interventions such as spending controls being used to deliver financial balance. As the Government has rightly pointed out, it has delivered financial balance every year. That has been more challenging in some years than in others. I think that the Government accepts that it needs to do work—it is doing work on public service reform, the strategy on which is awaited—so that it does not find itself in the position of having to make such interventions mid-year in order to deliver financial balance.
The reality, Mr Hoy, is that it will get harder without a clear programme of reform around workforce, the adoption of technology to deliver the preventative approach and clarity about how Scotland’s public services will use their estate. We generally have an increment-based model of public services. Some people have called for a zero-based budgeting approach to public services. We do not quite get into that area, but it is about how public services will be reformed on a planned basis to deliver fiscal balance from one year to the next and into the medium term.
You have warned in reports about the long-term sustainability of the Scottish public finances, as have other bodies in front of this and other committees. However, some of the underlying trends—largely in the public sector workforce and social security—and recent experiences do not suggest that the Government is taking them seriously. For example, since 2016, there has been a 71 per cent rise in the civil service workforce. The number of senior civil servants at grades C1, C2 and C3 has tripled.
Those are recent trends, and there is no sign that the Scottish Government is turning the ship around. It says that it has had great success in reducing the size of the contingent workforce, but they seem to be leaving through the back door and potentially coming in through the front door as full-time civil servants. Is the Government taking those warnings seriously, or is it simply discounting them and saying that you are all wrong and that it is on a sustainable path?
Next month’s publications are important in providing clarity on the medium-term direction of travel for not just Scotland’s public finances but service delivery models. As the permanent secretary advised the Public Audit Committee, there will be a public service reform strategy next month. The success of that will relate to alignment. There is a flow-through from the top-level medium-term financial strategy to the detailed scenarios and how it connects to the fiscal sustainability delivery plan and then to detail of plans to reform public services.
I do not doubt that that will be challenging and complicated, but, to go back to your previous question, if Scotland does not do that, it will become harder to deliver public services with the models that we have. Indeed, we touched on some of the figures that you mention, Mr Hoy, in our briefing report on Scotland’s public service workforce from a couple of years ago in relation to growth and the need for a plan around how the civil service will operate in the future.
Has any mandarin or senior minister explained to you why Scotland now needs three times more senior civil servants than it needed in 2016?
I have not had that direct conversation, but it speaks to some of the points that have been raised this morning. Scotland’s public sector workforce per capita is, in general, larger than that in the rest of the UK, and it is typically paid more. Based on potential UK Government decisions and how they would interact with Barnett consequentials, that will result in Scotland having to make alternative decisions around tax or spending to deliver fiscal balance. The publications next month will be looking for that clarity.
Super. Thanks very much.
As is the nature of these things, many of the questions that I was going to ask have been covered, so I will just pick up on a couple of points.
Let us go back to the question about how effective current political engagement is. I know that there has been a discussion about that already, but I would like to gently challenge you on why you chose to refer to the Scottish Human Rights Commission’s contribution instead of giving your own view as the Auditor General. Does that mean that you do not have a view, or is it that you just could not think of anything?
As I mentioned, if we do not think that we have something to add to a call for views, we will leave a particular section blank. Our assessment of the Scottish Human Rights Commission’s contribution was that it was a rounded assessment and contribution and that there were reasonable parallels to some of our own judgments and reports in recent times about the need for transparency, particularly around the Scottish budget and the need to link it to the national performance framework.
We are in the third or fourth iteration of the national performance framework, but it has still not quite had the impact or traction that was originally envisaged in setting out how public services are being delivered. Part of that is about people being engaged—not just electorally, but through having a real sense of how public spending has delivered for them.
Our assessment was that the commission provided a reasonable suite of views, which we would not look to deviate from or present as our own.
A lot of this has been covered, but—I do not want to put words in your mouth—you view the national performance framework as the most accessible way in which ordinary members of the public can grasp the thematics of this and what that means for them. Is that correct?
If it is done properly, yes. There is a gap, though.
I agree. I ask that question because one of the challenges is the complexity of the fiscal framework. I try to explain it to people. They ask a straight question and I desperately try not to sound like a politician by saying, “It depends.” I then need to explain in a simple way why it depends, by which point I have inevitably lost them. I would like to hear your comments on that.
The Scottish Fiscal Commission is doing considerably more work now, and it is welcome to point out the issues with the UK’s fiscal sustainability. If you understand anything about the fiscal framework, you will understand that there is a critical dependency on the UK’s fiscal sustainability. What thought have you given to that? If you understand the fiscal framework and fiscal sustainability, you will understand that you cannot have one without the other. I appreciate that you provide the audit and that that is different—I get that—but I would like to hear some reflections on what consideration you are giving to the wider economic environment.
I am very happy to comment on that. I do not disagree with what you have set out, Ms Thomson, especially with regard to the fiscal framework. People ask me about it and I say that it is complicated.
I suspect that that is a better explanation than mine.
I appreciate that we are now in the second iteration of the fiscal framework between the two Governments, and I accept that, by necessity, some of it will be technical and complicated. You have not asked about this directly, but, to get to the question of whether we can make it understandable for people, that is a challenge to which we have to rise.
To bridge into your second question, you are right in saying that there is clearly a connection between the UK’s economic situation and the Scottish Government’s performance and income expenditure. We are thinking very carefully about that. Towards the end of this year, we will produce our report on Scotland’s tax and fiscal sustainability, which will build on some of the reporting that we did at the end of last year.
I also refer the committee to the annual report that I produce on the operation of Scottish income tax to support the Public Audit Committee’s scrutiny of the National Audit Office’s audit of the tax. That is the tail end of how these matters operate. In the most recent report, which we produced in January, we sought to bring some insight to the application of the fiscal framework and the application of tax policy in Scotland. Again, we are drawing on the work of colleagues in the Scottish Fiscal Commission on the economic performance gap and some of those factors. We approach that from an audit perspective, and our next report on how that tax is operating will be at the end of this year.
I notice that the Scottish Fiscal Commission has slightly rephrased its terminology, probably to recognise that critical dependency.
Let us return to the question that Craig Hoy asked about people having a better understanding of the Scottish Government’s cost base. Does the Government have an understanding of its cost base? To go back to the point that John Mason made earlier, it is politically unpalatable to reflect an understanding of that cost base, so it probably seems better to keep schtum. Are you just being kind by saying that the Government does not have an understanding of its cost base?
10:30
That goes back to the scenarios. If an intervention is required, it needs to be based on an alignment between Government priorities rather than on which budgets are being underspent, for whatever reasons. I do not think that we have seen enough evidence that that is the case yet. Decisions to deliver financial balance in challenging periods have been made on the basis of budgets being underspent rather than the Government setting out that it intended to deprioritise a particular area of policy implementation.
Okay. I have a final question to finish off this topic. We have covered the gamut of all the various documents. It is incredibly complex and difficult to align all of those. We also have the UK spending review, as you correctly commented. Based on your experience thus far, how confident are you that, particularly with future projections in these really challenging times, things can be brought into line with the clarity and purpose that we are all seeking?
I will reserve judgment. In recent times, we have seen fluctuation in the depth, content and quality of medium-term financial strategies in particular. However, I still believe that it is essential that, if Government intends to produce a suite of reports about how it will deliver public services and fiscal sustainability, there needs to be a clear thread between them. Without that, you are left wondering why the Government should bother producing a stand-alone report if that does do not interact with its spending intentions, how it will respond to challenging circumstances and, ultimately, what it is delivering through the national performance framework.
Last week, we had some very interesting conversations with the OBR about some of the challenges that forecasters are facing. I suspect that we might have similar discussions with the Scottish Fiscal Commission in the evidence session this morning. I raise that because the OBR expressed considerable frustration about the recent spring statement, as its projections on welfare spending were based on policy commitments that the UK Government had made but that were no longer the case. The statement made short-term and late adjustments, creating considerable frustration and difficulties for the OBR. In Scotland, the Scottish Fiscal Commission expressed its concerns that the mitigation of the two-child cap came very late in the day.
I know that you cannot comment on policy or on whether the right policy is in place, but do you think that Governments making very late announcements is creating genuine challenges and difficulties for forecasters and, therefore, for people like yourself, who are having to audit what is happening? Is that causing greater difficulty?
That is probably not the easiest area for me to get into, but recognising and respecting the evidence that you heard from the OBR and, indeed, the Scottish Fiscal Commission’s view on that, I think that, in the round, it speaks to some of the judgments that we have been making about transparency and the need for clarity around when things will be published and when publications will be produced in the event that something else happens. For example, if there is an economic shock or an election, we need to know what the delay period for things will be. In that way, everybody will know the rules of the game, as it were; forecasters will have the information; and auditors like me will be clear about when documents will be produced. All of that additional transparency would certainly help, Ms Smith.
There have been issues when short-term planning has taken over from longer-term planning. As you rightly said, that tends to happen in difficult economic circumstances, because quick adjustments are having to be made, particularly if something happens internationally. Sometimes, an exogenous shock affects the UK. Do you feel that that is an issue? When we look at the transparency of this, is having to make adjustments on a short-term basis very quickly creating some challenges for medium-term and longer-term financial planning?
As I mentioned to Mr Hoy, we saw examples in which the Scottish Government had to intervene. As the committee knows, the Government has no choice other than to deliver financial balance, given how devolved finances and the UK Government operate. The Scottish Government has some mechanisms that it can deploy through the fiscal framework to borrow for economic shocks, but those are generally fairly limited.
In that context, it goes back to—as is set out in our submission—the need for a clear direction of travel for sustainability in public service reform, including scenarios that allow for events in the medium term and a really detailed scenario for how, in the event of a particular shock, the Government would respond in-year to identify priorities and areas to be deprioritised. We are optimistic that we will see that clarity next month.
That is very helpful. Thank you.
I have another couple of questions.
Last week, Professor David Bell said that further improvements can be made, including to provide clarity around regular in-year transfers in the Scottish budget. When we look at the spring and autumn revisions, my colleagues and I often raise the issue that, every year, we get the same transfer of resources from one budget line to another. We have speculated about the reason for that, but what is your view?
Fiona Diggle might want to come in as well.
I think that there is a need for transparency when there is a transfer from one budget line to another, including through setting out the reason for it, and the ability to track performance against the original budget. I was an accountant earlier in my career, and, in the organisations that I was in, the budget remained the budget and performance against the original budget was reported. In a parliamentary context, that might or might not be appropriate, but that approach provided real clarity, because you could see what was spent against the original budget line. However, I recognise that spring and autumn budget revisions are part of the fabric of how public spending operates, so, if a mechanism needs to be found to track changes more clearly, I am sympathetic to that.
In your evidence earlier, you raised the issue of technology. You talked about reform and how technology can help to reduce costs for the Scottish Government. On page 55 of the Scottish Fiscal Commission’s sustainability document, on health, the SFC assumes that healthcare costs will increase by 1 per cent every year for the next half century, and it talks about the Baumol effect, due to healthcare being labour intensive, and long-term conditions. It also says that 0.13 percentage points of that cumulative increase in annual spend over 50 years—which is clearly a lot—
“captures the effect of technological advancements on healthcare costs.”
The SFC also says:
“Developments in medical devices, techniques, and procedures tend to push up costs, or where costs are reduced, can result in the expansion of treatments.”
Therefore, is it the case that technology does not always deliver the savings that one might look for?
Yes—that is a very reasonable statement to make.
The SFC witnesses are sitting right behind you, so I am glad that you are saying that.
It is about getting a level of clarity, but, as you go much further out, you can only make assumptions. There is a pressing need for public service reform, and the Government has stated that one part of its public service reform is greater use of technology, whether that is artificial intelligence or machine learning. However, the accompanying detail is important. It should be a case not of making general statements that technology will provide a way to reduce the cost base or to change how public services are delivered, but of looking to see what can be done and when.
Are there any examples that the Scottish Government can copy? Last year, we visited Estonia and looked at the incredible X-Road system, for example. Is there anything that you would recommend?
The last time that I was at the committee, Registers of Scotland was on the panel. That organisation, together with Disclosure Scotland and many other public sector organisations in Scotland, is adopting technology to fundamentally change traditional models of public service delivery.
Your point, I think, is that, when it comes to the adoption of technology, although there are a number of factors related to the quality of service delivery and the ease with which the public can access the service, at some point real consideration must be given to what that means for the model internally in delivering the service. For example, we might need to consider whether we still need a building. Is it still being used? We might need to ask whether we need as many people or whether we need a different skill set to deliver the service. It is that level of thinking and planning in the round that we are looking to see with the adoption of technology.
Thank you very much. Are there any final points that you feel we have not touched on or that you would like to make to the committee before we wind up the session?
Not from me, convener. Thank you very much for your invitation to come along this morning.
Thank you very much for your evidence. I will make sure that I speak to Kate Forbes and demand that she produce a Gaelic translation of the budget next year, if she is not too busy.
We will have a five-minute break before the next session.
10:40 Meeting suspended.