Meeting of the Parliament

Meeting date: Tuesday, May 8, 2018

Official Report 859KB pdf

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Budget Process (Written Agreement)

The next item of business is a committee debate on motion S5M-11875, in the name of Bruce Crawford, on a revised written agreement with the Scottish Government on the budget process. I call Bruce Crawford to speak to and move the motion on behalf of the Finance and Constitution Committee. You have five minutes, Mr Crawford.

16:34  

It is my pleasure to speak as the convener of the Finance and Constitution Committee in this important debate on the written agreement between the committee and the Scottish Government on the new budget process.

First, I put on record my thanks to members of the budget process review group for producing such a high-quality report. I pay particular thanks to the clerks of the Finance and Constitution Committee, who, by undertaking their activities assiduously, enabled the whole process to come to a successful conclusion.

The budget process review group’s report marks the biggest overhaul of the budget process since 1999, and the new written agreement is based on its recommendations.

I will provide a little background on the group’s work. It met 11 times between September 2016 and June 2017. It commissioned research and received written and oral evidence from a range of academics, local authorities, economists, public bodies and the voluntary sector. It published its interim report in March 2017 and its final report in June 2017.

During the course of its review, the group considered the effectiveness of the existing budget process; the impact of the fiscal framework; and the effectiveness of multiyear budgeting, medium-term financial planning and outcomes-based scrutiny.

To put all that in context, up until the Scotland Act 2012, the Smith commission and the Scotland Act 2016, the Scottish Government’s annual budget consisted mainly of the allocation of the block grant provided by the UK Government via the Barnett formula. Now, we are in totally different territory, in which around 40 per cent of the Scottish Government’s annual budget comes from taxes agreed to by the Parliament. As we know, an additional 15 per cent of social security spending is being devolved at the moment, and further taxes are due to be devolved in the future.

In the light of those new powers, it is only right that we adopt a new approach to how we scrutinise the Scottish Government’s budget, and the group has come up with an approach that will work well and should stand the test of time. There are four key areas from the group’s final report that I would like to highlight.

First, the group recognised that single-year budgets make it more difficult for devolved public services to adopt medium-term priorities and develop plans to address future challenges, so it recommended that there should be a presumption that the Scottish Government will carry out its spending reviews at around the same time as the equivalent UK spending reviews.

Secondly, the group recommended the introduction of an annual fiscal framework outturn report, to be published each September, which will provide details of the reconciliation between the forecasts for the adjustments to the block grant and the revenues from the devolved taxes. It will include actual outturn figures. Critically, it is the difference between the outturn figures for the block grant adjustments and the outturn figures for the devolved taxes that will determine the final amount of tax revenue that is available to the Scottish Government.

Thirdly—in my view, this is important—the group recommended the introduction of a medium-term financial strategy, which will be published prior to the summer recess each year. It will set out the Scottish Government’s expectations and its broad financial plans and projections for the next five years.

Finally—this is an extremely important recommendation—the group said that the shift towards a much more outcomes-based approach to the scrutiny of public expenditure should be accelerated. Such an approach will provide the means for evaluating the environmental, economic and social outcomes that are achieved by public spending.

It will require significant collaboration between the Government, the Parliament and Scotland’s public bodies to deliver such an ambitious set of recommendations, but perhaps the biggest challenge that we as politicians face will be cultural. We need to move from a position of judging success based on the number of police on the streets or the number of nurses in our national health service to one that involves measuring the sustainable outcomes that are achieved by public spending in Scotland.

I put on record the committee’s appreciation of the constructive engagement that we had with the Cabinet Secretary for Finance and the Constitution and his officials in revising the written agreement. Of course, all of that was helped hugely by the sterling work of the budget process review group. I remind the chamber of the crucial role that the committee’s clerks played in helping to facilitate the process.

On behalf of the Finance and Constitution Committee, I move,

That the Parliament agrees the revised Written Agreement on the budget process between the Scottish Government and the Finance and Constitution Committee.

I call Derek Mackay, for the Government—four minutes please, Mr Mackay.

16:40  

I thank the convener of the Finance and Constitution Committee, its members and the budget process review group experts for their input and engagement that has led to the recommendations that are before us—in fact, to a great deal of improved practice from my point of view as finance secretary. I thank them for moving the budget process along in light of the new powers that the Parliament has. The decisions that we take collectively about public expenditure and, indeed, tax raising, are among the most important that we are responsible for, as they impact on our economy, public services, environment and citizens; therefore this progress is welcome.

The procedures that we follow when taking such decisions are key to ensuring that they are robust and transparent and are set within an appropriate and sound financial and constitutional context. As finance secretary, I have experienced at first hand the strength of the budgeting arrangements and I have a great deal of confidence in the recommendations, particularly those on transparency, the consultative approach and the sense of responsibility reflecting the scale of the challenges that we have. Our practices compare very well with those of other legislatures and will continue to do so.

The budget process, as detailed in the written agreement, strikes an effective balance between the respective roles of the Government and the Parliament. The process reflects the importance of our committee structure, with some innovations that will allow for detailed scrutiny, pre-budget engagement and a longer-term approach, in terms of multiyear budgeting reflecting the spending reviews of the UK Government.

It is right that we have reflected on all that and that we will update the written agreement in the most substantial way since the Parliament’s creation, while staying true to the original principles and priorities. There will be greater engagement from civic Scotland and citizens in the development of public finances. However, there is also a burden of responsibility on all parties, particularly those in Opposition, with regard to the enhanced powers, the longer-term view and the update to the written agreement.

The budget process review group focused on the new financial powers from the Scotland Act 2012 and the Scotland Act 2016, which led to the recommendations. We have been able to begin some of the work, which has been welcomed by the Finance and Constitution Committee in particular. However, it is clear that the recommendations will require everyone’s participation, including the Government’s in setting out the medium-term financial outlook before the end of May, and then producing further reports, such as the new fiscal framework outturn statement in September.

As the updated written agreement makes clear, the subject committees will be in a position to put forward their views on the budget prior to firm spending proposals being published, through constructive dialogue with ministers, public bodies and other stakeholders; I look forward to that further innovation. Under the revised process, committees will write to ministers at least six weeks prior to the publication of the budget, setting out their views on the delivery and funding of existing policy priorities, on any proposed changes and, crucially, on how they should be funded—something that I will be particularly interested in. Those views should take into account the longer-term perspective on devolved public finances in Scotland. There will be more debate time before stage 1, including the involvement of committee conveners. As I said, the timing and the rhythm will fit in with the UK spending review context.

This year, 2018, will mark the first year of the new process and I look forward to working with the Finance and Constitution Committee and colleagues across the chamber through this year’s budget process. I commend to the Parliament the proposed updates to the written agreement.

I am sorry, but I have to be very tight with time. I call Murdo Fraser to open for the Conservatives—four minutes, please, Mr Fraser.

16:44  

The revised written agreement between the Scottish Parliament and the Scottish Government is, as we have heard, the latest stage in the budget process review. The final report of the budget process review group was produced in June last year and it had some very helpful recommendations about how we improve budget scrutiny in this Parliament. The written agreement seeks to implement some of those recommendations and contains proposals for changes to standing orders to facilitate that.

One of the primary reasons behind the need to revisit our budget process was the changing timescale for analysis of the budget. As members will know, it was previously the case that the draft budget would be produced in September, well in advance of final budget votes, which would take place in February the following year. That gave all committees in Parliament ample opportunity to take evidence on a draft budget and then produce their reports. Those would be submitted to the Finance and Constitution Committee, which would then produce its own report for debate in the chamber.

That timescale started to change with the growing importance, from the perspective of the UK Treasury, of the autumn budget statement, which tended to occur as late as mid-November. The importance of the UK spring budget as an event therefore diminished. That process was formalised last year when, for the first time, the UK’s budget was presented in November. This year, the spring budget statement became more of an update on the economy and public finances.

From a UK perspective, the change makes perfect sense. There never was much logic in a budget being produced in March, with the start of the financial year just a few weeks later on 6 April. Having budget decisions taken and announced in November allows much more time both for parliamentary scrutiny and for proper consideration of the issues prior to the start of the next financial year.

However, that cements the challenges that this Parliament faces, in that we are now tied to budgets in mid-December, with just a few short weeks allowed for committee and parliamentary scrutiny. One of the key recommendations of the budget process review group, which is documented in the revised written agreement, is the need for a

“full year approach to budget scrutiny”.

As the cabinet secretary has just said, that will require subject committees to take a new approach to the way in which they scrutinise the budget. In particular, it will require committees, in advance of the draft budget being published, to consider budget issues and make recommendations. While that is a welcome and indeed necessary approach, I have concerns about how it will operate in practice. The challenge for very busy committees in particular is to find adequate time in their work programmes to ensure that that is done properly. That is an issue of which the Conveners Group in particular needs to be very conscious.

I very much welcome the proposal that budget scrutiny should be output and outcome focused. Too often in the Parliament, we spend our time debating inputs: how much money we are spending, how many nurses we are employing and how many police officers there are, rather than considering outputs and outcomes. There is not always a direct link between what goes in at one end and what comes out at the other. Indeed, there is some evidence to suggest that, on occasion, lower inputs can lead to greater outcomes. That particular shift is therefore welcome.

The other recommendation that I will mention, which I think is something that we need to progress, is the notion of an annual finance bill. With the devolution of greater tax powers, we are finding that more and more tweaks to tax legislation require to be made. Rather than doing that on an ad hoc basis, it surely makes sense to provide a single legislative vehicle on an annual basis for revenue-related changes. As the review group has pointed out, that could also help to raise public understanding and awareness of the budget.

The agreement is welcome. It implements some important and serious recommendations. The proposed changes to standing orders are required to implement the recommendations, and I commend them to the Parliament.

16:48  

I echo the words of the convener of the Finance and Constitution Committee, Bruce Crawford, in thanking members of the budget process review group for the substantial amount of work that they carried out in bringing forward the changes to the written agreement. The measures are fundamental to the budget process and will bring about substantial change.

The changes are very much necessary, and there are two reasons for that. First, regarding the budget timetable in recent years, as Murdo Fraser has outlined, there has been an increasing tendency at Westminster to prioritise the statement later in the year, culminating in the formalisation of the November statement as being the budget statement. For recent budgets in the Scottish Parliament, the amount of time that we have had to scrutinise the budget, running from mid-December to mid-February, has been constrained, whereas previously the budget would have been published in September. That requires another look at how we deal with the budget in order to provide the proper scrutiny and opportunity.

The second reason why the changes are important relates to the substantial tax changes that have been made. As Bruce Crawford pointed out, 40 per cent of the money in the budget is now raised directly by the Scottish Parliament. We need to have much more focus on that. Some tax revenues are included in the budget by way of forecasting, and that amount will continue to expand when VAT is allocated into the budget in 2019. There is a big forecasting, reconciliation and adjustment process, because forecast figures will ultimately never be totally accurate and a process that keeps up with that is needed.

From that point of view, the mechanisms that the budget process review group has put forward in relation to a multi-year focus and tying in with the publication of the spending review are very important. Whether people are budgeting in a public sector organisation, a private company or the Scottish Government, it makes great sense to do so over a longer period of time instead of simply focusing on one year. The multi-year focus is really important.

It is also important to have appropriate scrutiny and to look at outcomes and outputs, as other members have said. Some people think that it is just a case of agreeing the budget lines and allocating £10 million to one line and £30 million to another. The budget holders, in particular, celebrate the allocation of money to their budgets, but we do not do our constituents a proper service if we do not scrutinise how the money is spent and what it delivers. From that point of view, the new focus on outcomes and outputs is very welcome.

The cabinet secretary said that there will be a lot more debate time. I look forward to the opportunity to hold him to account on his proposals. There is a big job for committees to do in building the process into their work programme. It will give committees more power, and I hope that they take up the opportunity that there will be.

I very much welcome the new written agreement and the work of the budget process review group, which focuses on how the money that goes into the budget delivers on the challenges that we, in Parliament, want to deliver on in order to achieve the Parliament’s objectives.

16:52  

I echo the comments of other members—particularly those who have praised the work of the budget process review group and the construction of the new agreement.

I do not want to repeat points that have already been made, but the focus on multi-year budgeting is certainly a welcome return to the longer-term perspective. That used to be the norm in the Scottish Parliament, but we have moved away from that, and returning to it is important. I hope that the fact that that is expressed in not only a statement of Parliament but an agreement with the Government indicates that there will be a return to normal practice.

As well as acknowledging the shortened timescale, which will produce challenges for parliamentary committees, we must acknowledge that the Scottish budget is now a fundamentally different kind of exercise. It is not merely the expression of a spending Government; it needs to capture the political tensions as well as the opportunities of a Government that has taxation and spending powers in areas that have developed and that will, I hope, continue to develop in respect of the scope that those powers can be exercised within.

That also creates challenges for parliamentary committees, which have specific, narrow remits. In budget scrutiny in the past, committees were encouraged—indeed, required—to produce proposals that were relevant only to their own remit. A range of spending alternatives may come forward from parliamentary committees that can be matched only by taxation policies. There may be a cross-party agreement on certain additional spending priorities or alternative spending priorities, but no agreement on how they should be funded. Therefore, it is important that committees are able to express themselves on both the spending and the taxation aspects of the budget. It should not be the case that the taxation aspects of the Scottish budget can be commented on only by the Finance and Constitution Committee. All committees will have to take part in that process—in a collegiate way, if at all possible—rather than those issues being seen purely within the terms of formal committee remits.

I have made the case in the past, and I will make it again one more time on this occasion, that it is not only the Scottish Government’s proposals that require to be fairly and democratically scrutinised in public and on the record. That scrutiny, particularly in periods of minority Government, needs to be brought to bear on Opposition party proposals as well, and that aspect has not yet been captured. It may be that we have to feel our way towards a means of ensuring that Opposition party proposals are also subject to fair, democratic scrutiny on the record as part of our budget process.

16:55  

It is my pleasure to close the debate as the deputy convener of the Finance and Constitution Committee. I, too, thank the members of the budget process review group for all their work and for coming up with wide-ranging and important recommendations that will ensure that we have a budget process that is truly fit for purpose in the light of the Parliament’s new and increased tax-raising—or, indeed, tax-lowering—powers.

Under the agreement, the Scottish Government will provide a long-term perspective on the sustainability of the public finances, and parliamentary committees will, as we have heard, have the opportunity—which we all hope that they will take—to influence the formulation of Government spending plans.

It is worth reiterating the four core objectives of the new budget process, as recommended by the group. The first is:

“To have a greater influence”

on the part of the Parliament

“on the formulation of the Scottish Government’s budget proposals”.

The second is:

“To improve transparency and raise public understanding and awareness of the budget”.

The third is:

“To respond effectively to new fiscal and wider policy challenges”.

The fourth is:

“To lead to better outputs and outcomes as measured”,

as we have heard,

“against benchmarks and stated objectives.”

We are here because the Parliament’s fiscal powers have grown significantly through the Scotland Act 2012 and the Scotland Act 2016. As the convener said in his opening remarks, those acts have generated the biggest overhaul in the budget process since the creation of this Parliament in 1999. It is clear that the increased fiscal powers that have been devolved to Scotland significantly empower ministers, but MSPs must also be significantly empowered to hold ministers to account, and the fourth recommendation is designed to achieve that.

The optimum time for the Parliament’s committees to influence the budgets is when the priorities are being set, because any later than that is too late for effective parliamentary scrutiny. The agreement is important in managing that effective parliamentary scrutiny and not squeezing the time that is available for budget scrutiny in the way that Murdo Fraser and others have described, and it is why the Scottish Government’s commitment to publish annually a medium-term financial strategy is welcome.

The other element that I will highlight—it has been highlighted by a number of members, including James Kelly—is the importance of outcomes-based scrutiny. That is a piece of jargon that it is easy to switch off from; it is a horrible phrase. However, it is important because it provides a means for MSPs to evaluate the economic and social outcomes that are being achieved by public spending. That has been underplayed in budget processes since the Parliament was created, in 1999, and we can no longer afford that luxury. Outcomes-based scrutiny involves bringing together financial and performance information so that the impact of spending decisions can be better understood by all of us, including those whom we represent.

We are entering a new period of devolution in which our Parliament is responsible for raising much of the revenue to fund our public services. That requires us all—the Government and the Opposition—to rise to the challenge of using the new powers wisely and to manage the inevitable risks with a pragmatic and reasonable approach. I echo Bruce Crawford’s view that our biggest challenge in managing the change is cultural. The outcomes-based scrutiny approach will allow us to evaluate the economic and social outcomes that are being achieved by public spending, which is critical. As politicians, we must all concentrate on how we make the best use of our public finances to deliver better public services for us all. I therefore support the motion in Bruce Crawford’s name.