The next item of business is consideration of motion S4M-10268, in the name of Kenneth Gibson, on a written agreement on the budget process.
14:53
I am pleased to speak on behalf of the Finance Committee in inviting Parliament to note the revised written agreement, between the committee and the Scottish Government, on the budget process.
The revisions that have been made relate to the introduction of the financial powers in the Scotland Act 2012. The two devolved taxes—the land and buildings transaction tax and the Scottish landfill tax—will be included in the draft budget that will be introduced in the autumn. It is intended that the written agreement will be revisited in due course to recognise the introduction of the Scottish rate of income tax. The committee will invite the Parliament to acknowledge any changes in that regard. The written agreement is an important document that sets out the expectations that the committee and the Government should have of each other in scrutinising financial matters.
This debate should be viewed in conjunction with the Standards, Procedures and Public Appointments Committee debate that will immediately follow this one. Without trailing that debate too heavily, I advise members that the small but perfectly formed changes to standing orders that they will be invited to agree will, for the first time, make scrutiny of Government proposals for revenue raising an explicit responsibility of the Finance Committee and Parliament.
I turn to the written agreement. I will set out what the changes mean for parliamentary scrutiny and then say a few words about the information that the Government will provide to Parliament to inform that scrutiny.
The main changes to Parliament’s role in scrutinising the draft budget are set out in paragraphs 14 to 16 of the revised written agreement. Until now, it has been within the Finance Committee’s power to bring forward in its draft budget report a set of alternative spending proposals. Under the revised written agreement, that has been expanded also to include alternative proposals for taxation. If there are no alternative proposals, the committee will be able to make recommendations on the Government’s tax proposals. Subject committees will be able, in their reports to the Finance Committee, to recommend alternative budget proposals for tax and spending.
The extension of the power to both spending and revenue is a significant and welcome development for the committee. The power is designed to ensure that the committee is in a position to make effective use of it—if and when the committee chooses to do so. In recognition of that, from this year on, a significant focus of the Finance Committee’s scrutiny will be on the Scottish Government’s revenue-raising proposals.
As has been the case with spending powers, in suggesting changes to the draft budget proposals that the Scottish Government sets out, the Finance Committee must consider the overall shape of the budget. Any increase in overall spending must therefore be connected with a commensurate increase in tax levels. The written agreement also makes it clear that any recommendation to increase tax levels should identify how the additional funding should be allocated. The obverse is also true, in that any recommendation to decrease tax levels should identify where spending should be reduced.
Any other committee or individual member who wishes to make alternative proposals will be able to do so by lodging amendments to the Finance Committee motion on the draft budget. Any amendments that are lodged to the motion must comply with the balancing requirements in relation to the overall budget that apply to the Finance Committee; suggested increases or decreases in spending must be matched in revenue terms and the amendment should identify where any changes would be reflected in the budget. Although that is a welcome position for Parliament, it would be remiss of me not to point out that such amendments will not automatically guarantee amendment of the budget bill.
Paragraphs 19 to 23 of the revised agreement set out what information the Scottish Government will provide to enable Parliament to carry out its scrutiny. It includes a commentary on expected income, including tax receipt forecasts and the assumptions, rates and thresholds on which they are based. In future years, when information on actual receipts is available, the draft budget commentary will also include outturn figures for the devolved taxes, including figures on any variance between outturn and forecast. The estimates are intended to provide context to the draft budget and to inform Parliament’s scrutiny of it; they are not intended to constrain the Government in making any adjustment to the indicative tax rates and thresholds, prior to Parliament’s scrutiny of the relevant subordinate legislation.
I move,
That the Parliament notes the revised written agreement on the budget process between the Scottish Government and the Finance Committee (SP Paper 554).
14:57
I welcome the debate and the Finance Committee convener’s remarks, and I endorse the proposed changes to the written agreement. The proposals reflect careful consideration by the Government and the committee, and are a consensus view on how we should reflect the impact of the Scotland Act 2012 in our budget process.
The decisions that we take collectively about public expenditure are among the most important for which we are responsible. They impact on our economy, our public services, the environment and our citizens. The procedures that we follow when taking such decisions have served us well since devolution, but we must ensure that they remain robust as the surrounding financial and constitutional context changes. I have experienced at first hand, in opposition and in my time as the finance secretary, the strength of our budgeting arrangements. They support a transparent and consultative approach to decisions about public spending and compare well with practice in other legislatures.
The budget process, as detailed in the written agreement, strikes an effective balance between the respective roles of Government and Parliament. The process reflects the importance of our committee structure and provides scope for detailed scrutiny and debate with stakeholders. Over time, the Scottish Government and the Finance Committee have worked together to refine the written agreement to reflect changing circumstances and to support effective parliamentary process. We have worked to pursue shared interests in effective presentation of the budget document, and have changed the emphasis of the document to include an increasing focus on the achievement of better outcomes for our citizens, and on the need for strategic consideration of the content and development of the public finances.
The implementation of the Scotland Act 2012 requires us to make further changes to the written agreement. With effect from 2015-16, the Scotland Act 2012 will devolve responsibility for landfill tax and stamp duty land tax, as well as the power to borrow to support capital investment. We welcome those developments while noting that, together, devolved taxes and capital borrowing will represent a relatively modest 2.5 to 3 per cent of devolved expenditure.
As the updated written agreement makes clear, the Government will set out its proposals for the bands and rates of the two taxes in the draft budget 2015-16, which is due to be published in October. We will also provide a commentary on the income that we expect the taxes to generate and the forecasts that underpin our plans. To support parliamentary and wider scrutiny of the draft budget, we are establishing the Scottish fiscal commission, which will provide an independent commentary on the Government’s tax receipt forecasts.
The written agreement also makes it clear that committees and individual members have the scope to advance their own tax proposals—provided that they form part of a balanced budget proposition—while reserving legislative responsibility for setting tax rates and thresholds to the Government. Through that approach, we can support effective public scrutiny and debate while delivering reasonable certainty in the budget process, which is necessary for effective planning of public expenditure and helps taxpayers’ preparations.
We will also, building on the material that was presented in last year’s document, set out in the draft budget further information about capital borrowing, which will all form part of the Government’s integrated capital plan to stimulate and improve the performance of the Scottish economy.
The agreement, looking further ahead, notes that additional changes will be needed in due course to reflect the introduction from 2016-17 of the Scottish rate of income tax. Of course, the Government will engage closely with the committee in the formulation of all amendments and revisions to the agreement that are required to facilitate implementation of proper scrutiny of arrangements for the Scottish rate of income tax.
Of course, I stand ready to work with Parliament to consider the implications for our processes of a positive vote for change in the referendum later this year.
I look forward to working with the Finance Committee, and colleagues across the chamber, through this year’s budget process, and I commend to Parliament the proposed updates to the written agreement.
15:02
Labour members also endorse the written agreement between the committee and the Cabinet Secretary for Finance, Employment and Sustainable Growth. We record our thanks to the Finance Committee for the work that it has done in achieving that agreed and consensual document. As the convener made clear, the agreement clarifies, improves and expands some elements of the budget scrutiny process, and it clarifies the budget strategy phase, which takes place in spending review years.
The agreement also includes what I guess is a recommitment to the provision of level 4 figures for scrutiny. The amount of information with which committees have been provided has been a continuing problem, but there is a clear commitment in the agreement to provide greater detail than is found in level 3 figures, which is good.
As the convener and the cabinet secretary described, the agreement outlines how the scrutiny process will deal with the new powers that the Scottish Government and Parliament are taking, which are mostly on raising finance through the land and buildings transaction tax, the landfill tax and the capacity to borrow. That is all welcome, as is the broadening of the opportunities that committees have to influence budget decisions and to propose their own amendments. It seems that that will also improve the scrutiny process.
However, I am afraid that I cannot let the matter pass without noting the irony that, having reached a consensual agreement, the Scottish Government immediately invokes paragraph 12:
“Where the Scottish Government believes that it may not be able to meet the 20 September deadline”—
that is, the deadline for publication of the draft budget—
“the Scottish Ministers will consult the Finance Committee on a revised timescale”.
Of course, that has been necessary this year as a result of the change to our recess because of the referendum on September 18, and the committee has, indeed, dealt with that with the cabinet secretary.
We have often argued that the referendum process has stopped important decisions being taken and that it has delayed scrutiny of the normal governance of this country. Late publication of the draft budget is a classic example of that, because the late publication of the draft budget potentially squeezes the amount of time that Parliament and committees have.
Of course, it is clear that the draft budget could not have been published at the usual time; it would have fallen in recess, which would not have been appropriate. The simple question is this: why not publish the budget early rather than late? The cabinet secretary must surely already be working on next year’s budget. On past occasions, he has published indicative figures, so there will be some idea available of the basis on which he is calculating next year’s budget.
That rather begs the questions what the Scottish Government is hiding and what difficult spending decisions have been pushed back beyond the referendum. No doubt the cabinet secretary will feel that that is an unjust accusation. If he does, the simple solution would have been for him to have published early, rather than late.
Nonetheless, this side of the chamber welcomes the new framework. Once again, we record our thanks to the committee and the cabinet secretary for reaching agreement on it.
15:06
The motion that is before us asks us to note
“the revised written agreement on the budget process between the Scottish Government and the Finance Committee”.
The Conservatives will certainly do that now and at decision time.
The Scotland Act 2012 brings some significant changes to the Scottish Parliament, the Scottish Government and, most important, the budget process. We will have to look at the Scottish Government’s specific forecasts for the land and buildings transaction tax, which is a new tax, and for the landfill tax, which is more of a replacement tax. For the first time, we will have to seriously examine the rates and the bands for those taxes, which will have an impact on a number of companies, businesses and voters across Scotland.
We will have to consider carefully the Scottish fiscal commission report. It will, of course, report on those two devolved taxes, but it will also report—for the first time—on business rates. That will give us the opportunity to examine carefully the Government’s forecast for business rates.
We will also have to consider carefully the borrowing plans that are laid out by the Scottish Government and—this is extremely important—the block grant adjustment mechanism and the effect of that mechanism on the budget for the financial year ahead.
There is a huge amount of work for Parliament, and for the Finance Committee in particular, in considering this year’s budget and every budget after that.
It is worth dwelling on how we got here for the 2015-16 budget; it is a good example of a committee doing its job and challenging assertions that have been made by Government so that Parliament ends up in a better place. When the Government wrote to the Finance Committee, it suggested that the budget should be published by mid-November 2014, which would have given the Finance Committee about six weeks in which to scrutinise the Scottish budget. That would be a tough ask in any year, but when we add in all the elements that I referred to earlier—the landfill tax, LBTT, borrowing and block grant adjustment—we can see that it would have been unachievable for Parliament to have scrutinised the budget in that length of time.
The Finance Committee, in the guise of the convener, wrote to the Government saying very clearly that we did not think that mid-November was acceptable and that we could not see any reason why the budget could not be published as soon as possible after Parliament recommences after the referendum. Several months later, the Scottish Government responded, offering a compromise publication date of 30 October. Again, my view and the view of the committee was that that would not give Parliament enough time to scrutinise the 2015-16 budget—especially because of the complex issues that we would be considering for the first time. The committee wrote back, stressing that we did not think that 30 October was acceptable and saying that we could not see any reason why the Scottish Government would want to delay publication any longer than the first week or two after we come back following the referendum, and that it should certainly want to publish before the first part of the October recess.
Eventually, in March this year, the Scottish Government wrote back and accepted the committee’s recommendation. So, there were five items of correspondence over a four-month period. Ultimately, I think it is an example of the Finance Committee doing its job. We will get the best possible scrutiny of the budget, rather than what was proposed, which would have given us only a small number of weeks and was clearly not enough to do the job that we were being asked to do.
Many thanks. We will now have a short open debate. Jamie Hepburn has four minutes or so.
15:10
When Iain Gray pontificates about hiding things, I cannot help but reflect on the fact that his party has established a cuts commission that will not report until after the referendum.
I turn to the matter at hand. The agreement is important because it will allow Parliament to scrutinise the Government’s budget proposals in a transparent and open manner. It is clear that we will from time to time need to update the agreement in the light of new developments. The Scotland Act 2012 and the devolution of landfill tax and stamp duty land tax, as it was, and which will be known in the future as land and buildings transaction tax, are instances of that.
We know that Parliament is putting in place measures to take forward devolution of those powers by passing the Landfill Tax (Scotland) Bill and the Land and Buildings Transaction Tax (Scotland) Bill. We are getting on with the Revenue Scotland and Tax Powers Bill and of course the Government is putting in place arrangements to establish an independent fiscal commission, which will further enhance and aid parliamentary budget scrutiny.
It is correct to update the written agreement to reflect the new reality. Indeed, the agreement states:
“In respect of the two devolved taxes, the Draft Budget will include a commentary on the expected income, including tax receipt forecasts and the assumptions, rates and thresholds on which they are based. The commentary will also reflect the views of the Scottish Fiscal Commission on the level of receipts.”
All the work that we are undertaking as a Parliament will be reflected in the new agreement.
I turn to another important consequence of the Scotland Act 2012—the block grant adjustment. That is also reflected in the written agreement, to which Mr Brown referred. Paragraph 23 of the agreement states:
“The Scottish Government will provide information about the calculation of adjustments to the Scottish block grant carried out by HM Treasury.”
The UK Government command paper, which informed this Parliament’s and the Westminster Parliament’s consideration of the Scotland Act 2012, said:
“When the smaller taxes are devolved, currently planned to be April 2015, there will be a one-off reduction which will then be deducted from the block grant for all future years”.
In its most recent report on implementation of the Scotland Act 2012, the UK Government reported a change in that position; it now wants to reduce the block grant baseline and to adjust the Barnett formula. That could involve an adjustment year by year, and not just the one-off adjustment that was expected by this Parliament, and by the Westminster Parliament, when we agreed the Scotland Act 2012.
David Gauke, the Exchequer Secretary to the Treasury, told the Finance Committee last week that it would be a one-off adjustment because it was being agreed on a one-off basis, one time, and that the Barnett formula was not being changed, merely “updated”. I posit that that is just semantics; the UK Government seems to be clearly shifting the goalposts away from what Parliament agreed when we agreed to the Scotland Act 2012.
This is an important matter for the agreement that we are debating today; the block grant adjustment will be an important part of Parliament’s budget scrutiny. I hope that the Westminster Government will play fairer than it seems to be playing at the moment in agreeing this matter with the Scottish Government. I think it is important for this Parliament to emphasise that it should be agreed soon because it will affect this coming budget process. It is important that that message comes out of this debate.
I commend the agreement and welcome the approach that has been taken by the Scottish Government in working with the Finance Committee to put the agreement in place, because it is very important for this Parliament that such an agreement be put in place to ensure that we can thoroughly scrutinise the coming budget and future budgets.
That concludes the open part of the debate. John Mason will wind up on behalf of the Finance Committee. You have four minutes or so.
15:14
Thank you, Presiding Officer. You were absolutely right when you said that it would be a short open debate. I have never seen an open debate completely filled by Mr Hepburn before.
About time, too.
I have to say that I am pleased to be able to close the debate on the revised written agreement between the Finance Committee and the Scottish Government on the budget process.
In his opening speech, the convener set out what the revised written agreement means in terms of expectations on the Parliament and the Government. That having been explained, I will say a little bit about what it means for scrutiny of the draft budget in practice and how we can move forward our approach to financial scrutiny.
In our report on the draft budget 2014-15, the Finance Committee agreed to adopt four principles of financial scrutiny: affordability, prioritisation, value for money and budget processes. Those principles provide a framework for the budget process that recognises distinct roles for the Finance Committee and subject committees. The issues of prioritisation and value for money will be for subject committees to pursue in their scrutiny, in which they will look at the decisions that the Scottish Government makes in directing its resources, and at how effectively public services spend that money to achieve outcomes. Questions of affordability and budget processes will be for the Finance Committee to consider. It will ask whether the appropriate balance has been struck between revenue and expenditure and it will ask about integration of service planning and performance budgeting.
The written agreement already recognises an element of the budget processes principle, with the draft budget including an overall assessment of the progress that is being made towards a more preventative approach to public spending. The principle of affordability will provide us with a new challenge when scrutinising the use of the financial powers in the Scotland Act 2012, including the Government’s revenue forecasts, the commentary that will be provided on those forecasts, details of any planned borrowing, and information about calculation of the adjustment to the Scottish block grant to take account of expected revenue levels.
This year, the Finance Committee intends to use its call for evidence to focus on the revenues that might be raised by the land and buildings transaction tax, and will seek views on the impact of the rates and thresholds that the Government sets for that tax. In doing so, the committee may have regard to the likely impact on the property market and the wider economy of the level at which the taxes are set. Undertaking that scrutiny at the earliest opportunity should ensure that we start to develop the experience that will be necessary to fully scrutinise revenue decisions in future years.
When debating the committee’s report on the draft budget 2014-15, the cabinet secretary challenged the committees that were involved in budget scrutiny to tell him how the Government could improve the linkage between expenditure and performance, as measured through the national performance framework—a framework that has, it has to be said, been widely welcomed. I am confident that the scrutiny framework that we now have in place will enable committees to respond to that challenge positively and constructively.
I realise that this has not been the most confrontational or contentious of debates, but one or two interesting points have been made along the way—by Iain Gray, for example, in relation to the timetable. It must be accepted that there had to be a change of timetable this year; broadly speaking, the committee was in agreement on that. Gavin Brown gave a positive report about how the cabinet secretary had moved on his initial proposed timetable.
I say, as an accountant, to Iain Gray that we have to have some sympathy for staff. It is all very well saying that the cabinet secretary could publish the budget somewhat earlier, but that would have practical implications.
The revised written agreement marks a clear transition in the approach to financial scrutiny and the role that the committees of Parliament have in holding the Government to account for its budget decisions. I and other members of the Finance Committee are very much looking forward to scrutinising the forthcoming draft budget.