Financial Outturn 2007-08
The first item of business is a statement by John Swinney, the Cabinet Secretary for Finance and Sustainable Growth, on the financial outturn for 2007-08. The cabinet secretary will take questions at the end of his 10-minute statement, so there should be no interventions or interruptions during it.
I welcome this opportunity to inform Parliament of the provisional budget outturn for 2007-08.
Although we inherited the 2007-08 budget when we came into office last May, the responsibility for managing it lay firmly with the new Administration—and we have managed it to a level of precision unseen by any previous Administration.
The 2007-08 budget was originally approved on a departmental basis, but we used the opportunity that was afforded by the autumn budget revision last November to formally restate that budget on the basis of the Government's portfolio structure. That reflected the establishment of a smaller and more effective ministerial team and put in place a much more streamlined structure for the Scottish Government, which is better equipped to deliver our policies and priorities.
I also used the autumn budget revision to draw down from HM Treasury more than £600 million in end-year flexibility balances, which was necessary to cover two major additional factors that we inherited from the previous Administration: first, we required resources to meet the bulk of the original budget overcommitment of £220 million; and secondly, we required resources to meet the additional costs of capital expenditure programmes that had been approved by the previous Administration.
In addition to meeting those obligations, I provided additional capital funding of £100 million to support a range of projects in the higher and further education sectors, and funding of £30 million to meet some early policy commitments of the new Government, which included the removal of bridge tolls in February and increased support for Scottish international development projects.
At the second of the routine budget revisions in the spring of this year, I used the opportunity to formalise a number of transfers between budget lines in order to align them with predicted spend for the rest of the year. That was in accordance with normal procedures and the principles of sound financial management. In any given year, there will be fluctuations in budget performance, and this Government—just like our predecessors—has addressed those factors.
As a clear demonstration of that sound financial management, I am delighted to report today that the provisional outturn for 2007-08 is expenditure of £27,367 million against a departmental expenditure limit budget of £27,409 million—an underspend of just £42 million.
The end-year flexibility of £42 million that has been generated by the provisional underspend is by far the lowest total ever recorded by any Scottish Administration. It represents less than 0.2 per cent of our DEL budget, which is equivalent to less than half a day's spending by the Scottish Government. That is in stark contrast to the levels of underspend reported at this time over the past four years: £623 million in 2003-04; £382 million in 2004-05; £139 million in 2005-06; and £135 million in 2006-07. That amounts to an accumulation of £1,279 million in underspends between 2003-04 and 2006-07, which the previous Administration left to languish in HM Treasury's coffers.
The achievement of such a low level of underspending reflects our proactive approach to budget management and our desire to make maximum use of the resources that are available to us. For the first time, the end-year flexibility balance, which is held on account at HM Treasury and is due to appear in its public expenditure 2007-08 provisional outturn publication in July, will have decreased significantly.
The opening balance of Scottish end-year flexibility at HM Treasury of £1,528.6 million, which was published last July, will have fallen by nearly £600 million to around £950 million. This is the first time since 2002-03 that the end-year flexibility balance held by HM Treasury has fallen below £1 billion. I need hardly remind Parliament that that is Scotland's money, which is intended to be used for the benefit and the interests of the people of Scotland. Where the previous Administration failed to make use of those resources, we have already shown that we will not be so tardy in using them for the benefit of the people of Scotland. Not only have we reduced the balance by £600 million during the past financial year, but we have secured access to the vast majority of the remaining balance over the next three years.
The unprecedented agreement that I made with HM Treasury as part of the spending review settlement ensures that we have guaranteed access to £300 million in 2008-09; £400 million in 2009-10; and £174 million in 2010-11. That is a total of £874 million, which has already been factored into our spending plans as outlined in the spending review document that was published last November.
Outturn against the Budget (Scotland) Act 2007 limits will be published in the Scottish Government consolidated accounts and is expected to show an underspend of approximately £216 million, subject to audit. That includes variances of approximately £100 million in capital charges; £21 million resulting from lower demand in student loans; and £21 million in national health service and teachers' pensions. Those variances are outside the departmental expenditure limit and have no impact on the delivery of our policies or the resources that are available to the people of Scotland.
The underspend of £42 million represents our headline underspend figure and measures our performance in managing the Scottish block of public expenditure. However, in announcing and celebrating that achievement, we recognise that there is no room for complacency. The efficient and effective management of our budget remains a key characteristic of the Government.
We are pursuing our programme of investment in the future of Scotland, despite the lowest increase in the United Kingdom spending settlement for Scotland since devolution. Parliament will recall that, over the next three years, funding will grow at an average of only 1.4 per cent per year, compared with an annual average increase of 4.3 per cent over the three years of the spending review 2004.
We will pursue our programme by continuing to govern with a sharp focus on delivering the maximum value for the taxpayer and the maximum impact on the Government's purpose. The outturn position that was achieved in 2007-08 provides ample evidence that we are fulfilling our promise to the people of Scotland to act wisely in the Scottish interest.
We will also govern to ensure that we retain in Scotland, for use in developing the Scottish economy and public services, as much of our resources as we can.
It remains a key objective to ensure that we maximise the use of the resources that are available to us and avoid any suggestion of a return to the bad old days of leaving languishing at Westminster £1.5 billion of budget that is intended to benefit the people of Scotland.
This Scottish Government has managed, and intends to continue to manage, the budget effectively in the best interests of the people of Scotland. However, it is becoming clear that we will have to overcome significant obstacles put in our way by the financial arrangements under which we operate and the actions of the UK Government.
We have been denied around £120 million of consequentials arising from the £1.2 billion of additional funding that has been given to HM Prison Service in England and Wales as a result of the Carter review.
Lord Sutherland said in his report published in April that it was "clearly contrary to equity" that people in Scottish care homes were denied attendance allowance while those in care homes elsewhere in the UK received it, and he called for the restoration of £30 million a year to the Scottish budget.
The continued suspension of the council tax benefit mechanism remains contrary to the spirit of "Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly: Statement of Funding Policy" and is estimated to deny Scotland approximately £100 million per annum of funding to which we are properly entitled.
We need to be sure of a fairer deal on issues such as animal disease after the lessons of last year's impact on Scottish budgets of foot-and-mouth disease in the south of England. In that situation, policy is devolved to us but budgets are retained by Whitehall and spent at its discretion.
I intend to continue to pursue those and other issues with the UK Government to ensure that Scotland gets its fair share of funding and that its people are treated equitably.
The Government has today announced a level of underspend that is the lowest ever achieved by any Scottish Administration. It bears testimony to our sound and prudent financial management and demonstrates our intention to use all the resources that are available for the benefit of the people of Scotland.
The cabinet secretary will now take questions on issues that were raised in his statement. We have around 20 minutes for such questions, after which we must move to the next item of business.
I remind all members that contributions should be made through the chair, which means that members should refer to other members by name or title.
I thank the cabinet secretary for the advance sight of the breakfast edition of his statement.
Underspend in the Scottish Executive budget has, of course, been on a downward trend for some time. It would be churlish not to congratulate the cabinet secretary on continuing that trend.
Recent practice has been for finance ministers to report the full underspend, not just the DEL underspend, in order to avoid any suggestion of hiding any of it. In this case, that would be £216 million rather than £42 million. Does the cabinet secretary accept that that sum demonstrates a rather more modest improvement? Is that why he has reverted to using the DEL figures? Can he explain why, on previous occasions, he believed that the higher figure was the important one but, on this occasion, he argues that the lower figure of £42 million should be the headline?
Given that the cabinet secretary has allocated allowed EYF draw-down in his spending plans—indeed, he has made a virtue of that—can he explain what measures he has taken to allow for contingency and flexibility by way of reserves, central unallocated provision or money that is available under any other heading? How will he deal with the unforeseen?
The cabinet secretary referred to proactive budget management. What plans does he have for routine autumn budget revisions this year?
I thank Mr Gray for the generous remarks at the start of his contribution. He correctly records the fact that I have reported the underspend of £42 million on the basis of the DEL figures. That is consistent with the declaration of underspend that has been put to Parliament by my predecessors throughout the period of the existence of the Scottish Parliament. In my statement, I recorded an underspend against the Budget (Scotland) Act 2007 limits of £216 million. As Mr Gray knows, the difference between that figure and the DEL figure is that the budget act provision includes annually managed expenditure over which the Government has no control. The provision that I think is the appropriate indicator of performance is the DEL budget, for which the Government has full responsibility. Of course, that is also the approach that was taken by my predecessors.
On forward budget activity, the Government has not made provision in the 2008-09 budget for contingency. We recognised the tightness of the financial settlement and realised that it was important that we allocate resources fully to maximise effective spend. In the course of any year, underspends emerge in particular programmes. Part of the routine financial management over the year will be to identify those resources timeously and ensure that they are allocated appropriately to deal with any pressures that emerge.
I expect to come to Parliament with autumn budget revisions. That would be the normal way of ensuring that our financial programmes are properly aligned with the expectations of Parliament. I will give due notice to Parliament of those provisions at the appropriate time. Of course, I will appear before the Finance Committee to address any issues that arise from that.
I thank the cabinet secretary for advance sight of the statement.
I will pick up on the points that were just raised about flexibility and dealing with the unforeseen. Given that the balance at the Treasury is being reduced quite significantly and the overall level of underspend is falling as well, does that not mean that, if the unforeseen were to arise late on in the financial year, after the Government had taken all reasonable steps to reduce underspend across all portfolios, there is a greater risk than previously that the unforeseen might have, shall we say, unforeseen consequences? What measures is the Government taking to ensure that, if something arises late on in the financial year, the consequences for the Scottish budget are not extremely serious?
Mr Brownlee seems to be terribly concerned this morning by the unforeseen. We always monitor issues that arise, and we are already monitoring various factors in the budget to identify where potential pressures might arise in the period ahead.
We have a significant budget—today, I have announced figures that relate to our 2007-08 budget, which totalled over £27 billion. Within that budget, we have flexibility that will allow us to adapt to challenging circumstances that might emerge. The situation is routinely monitored with that in mind by me, the permanent secretary, the strategic board and the Cabinet. We will take appropriate decisions to guarantee that we are able to support the programmes that the Government has announced.
I thank the cabinet secretary for advance sight of his statement, which will be, we presume, the last before the summer recess.
Rather than the unforeseen, which Mr Brownlee mentioned, I want to ask Mr Swinney about a number of foreseeable issues that he will have to deal with.
Yesterday, the governor of the Bank of England said that rising food and energy prices could push UK inflation above 4 per cent. Further, interest rates are set to rise and the credit and financial squeeze is a reality, as anyone will find out if they talk to any of the one in six householders across the country who fear losing their jobs. Those factors are foreseeable—they are commentators' assessments of what is happening. Given that today is Mr Swinney's last statement before the summer recess, does he agree that he could have used this opportunity to consider some of the wider economic influences that the Government and the country face?
Further, why was there no comment in Mr Swinney's statement on how he is going to fund capital projects such as the new Forth bridge? He promised to make such a statement to Parliament before the summer recess. Why, too, was there no mention of pay policy, which is a significant part of overall Government expenditure? Is his policy still that there will be no redundancies in the public sector?
Finally, why was there no mention of the "Government Expenditure and Revenue in Scotland" report—the famous GERS? We are told that the press—not Parliament—will receive that tomorrow. Possibly, Mr Swinney could confirm when the rest of us—that is, MSPs—will see that particular paper. Is it still a "dodgy dossier", to use his words? Will the authors, who are, of course, now Mr Swinney's civil servants, alter the report in light of Mr Swinney's comment in 2007 that
"the authors have once again admitted that it says nothing about how Scotland would fare with the benefits of independence"?
What are the authors to do this time, and when will we hear about it in the Parliament?
On a number of occasions in the past few weeks, I have commented extensively to Parliament—over the complaints of many, I suspect—about the wider economic circumstances. The governor of the Bank of England set out some very real issues and challenges. That is precisely why the Government remains committed to its agenda of reducing the costs of business, to ensure that we protect Scottish business and support it to weather what will undoubtedly be a difficult climate. I look forward to Mr Scott's support in that process.
On capital projects, the Government published its infrastructure investment plan in March. We set out our capital allocations in the spending review document in November, and all of that detail was approved by the Parliament in the Budget (Scotland) Act 2008 in February. We have in no way deviated from those plans. We will make a statement to Parliament about the replacement Forth crossing during 2008, which is precisely what we said we would do. Mr Scott will hear that statement when it is ready to be delivered.
The Government has published its pay policy, and I can confirm to members that this Government will not preside over any compulsory redundancies in the programmes that we take forward.
Mr Scott will be aware that GERS is a product of the statistical teams in the Scottish Government and does not involve oversight from ministers. I understand that it will be published tomorrow. I cannot recall there ever having been a ministerial statement to Parliament about GERS. All that I can say is that, if that approach was good enough for Mr Scott over the past eight years, it is good enough for me.
We come to questions from back-bench members. As always, time is limited, so I beg members to keep questions brief and to ask one question per member.
I congratulate the Cabinet Secretary for Finance and Sustainable Growth on having a very sustainable budget. The record low underspend figures are highly commendable. Significant progress has clearly been made with regard to the balances that are held at Westminster but, by my calculations, £76 million of Scotland's money will still be "languishing"—as the cabinet secretary put it—in the Treasury for a further three years. What further steps will he take to try to retrieve that important money for Scotland?
Mr Adam will be aware that, as part of the spending review arrangements, I secured an agreement with the Treasury for a three-year allocation of draw-down from end-year flexibility, which will be used to support the delivery of public services in Scotland over the next three years. Part of the terms of that agreement was that any further end-year flexibility that arose during that period would be held on account and released only in exceptional circumstances. In such circumstances, we would make appropriate representations to the Treasury. However, the arrangement that we have secured to have access to £874 million of Scottish resources held at the Treasury allows us to invest that money in supporting Scotland's public services over the next three years.
I note from the attachment to the cabinet secretary's statement that there is an underspend of £22 million in education and lifelong learning, which comes at a time when there is a requirement to reduce class sizes, find jobs for probationary teachers and build schools that are fit for purpose. Will the cabinet secretary explain the reason for the underspend in the face of those major policy challenges?
One of the remaining challenges with regard to the Scottish Government's budget arrangements is that we are required to provide the Finance Committee with a reconciliation of budgets on a portfolio-by-portfolio basis. As a member of that committee, Mr Kelly will be aware of that. That means, essentially, that we do not have the opportunity at advanced stages in the financial year to reallocate expenditure to take into account the fact that some programmes may have emerging underspends at that level. We are now down at those levels. We have a global figure of £42 million and a very tight management level in relation to the effectiveness of public expenditure allocations.
What has emerged in the Government's handling of the budget is a focus on ensuring that we leverage out as many resources as possible. We have allocated more resources to education during the past financial year. The Cabinet Secretary for Education and Lifelong Learning was able to announce resources for the higher and further education community; to put in place resources to assist with capital allocations for school building; and to allocate more resources to increase the number of teachers in employment. A number of steps have been taken to ensure that more resources are available in education, and the Government is delighted with the impact that that has had on work to achieve its priorities.
The people of Scotland have already benefited from the £600 million of underspend that the cabinet secretary has managed to recover from the UK Treasury. In response to Brian Adam, the cabinet secretary said that he has negotiated the draw-down of more money over the next three years. How does he intend to ensure that we do not get into the situation again in which Scotland's money languishes in London instead of being used to benefit the people of Scotland?
Mr FitzPatrick's point is important, as most members will acknowledge. My response is to ensure that we have the maximum ability to use the resources at our disposal for the benefit of the people of Scotland. I have put in place arrangements to ensure that the planning of end-year changes in the Scottish Government's budget can be done in a fashion that allows us—subject, of course, to the consent of Parliament—to manage within the Scottish block the fluctuations in expenditure between portfolios to guarantee that we maximise the effectiveness of our expenditure.
We have recorded an underspend of £42 million this year. Frankly, I do not think that we could have got that figure any lower, although we will, of course, try to do that in the years to come, in order to maximise the effectiveness of our end-year spend. We will work to ensure that there is a willingness among portfolios to transfer resources to appropriate programmes—subject, as I said, to the consent of Parliament—in order to guarantee that we maximise the end-year expenditure of resources that are available to the Scottish Government.
There is a Micawberesque aspect to the way in which Mr Swinney is presenting this. What would the overspend be in the current account if the draw-down from the Treasury were excluded? That is the real figure—the amount that you are spending over your annual income. Can you confirm Brian Adam's point that £76 million will be all that is left in the Treasury by April 2011 for contributions to major infrastructure projects such as the Aberdeen western peripheral route and the lower Forth crossing, all of which will have to be funded from your revenue income? Are we storing up huge problems for the future? Are you, in effect, making Scotland bankrupt?
I am certainly not, Mr McNulty. I asked members to address other members through the chair. Somebody of your experience should know how to do that.
That was a scurrilous allegation to level at you of all people, Presiding Officer. The only thing that was bankrupt with regard to that question was the intellectual bankruptcy of Mr McNulty's proposition.
The previous Administration negotiated with the Treasury the level of draw-down that was anticipated in the financial year 2007-08. Had I not drawn down, I would not have been able to support the capital programmes that were initiated by the previous Administration, which Mr McNulty supported. Those programmes, which were all committed and which I inherited, would have had to stop.
The Government has ploughed on with capital programmes, much to the irritation of members such as Mr McNulty and Mr McAveety—they are horrified that we are going ahead with the M74 extension and other such projects. The draw-down was essential to ensure that we met the infrastructure commitments that the previous Administration made and the revenue budget overcommitment of £220 million that we inherited. We have secured a three-year agreement—which my predecessors were unable to do—that allows us to factor amounts into our spending review proposals for the next three years. Parliament has, of course, approved the first part of that in the 2008-09 budget.
Mr McNulty is not technically correct about the level of underspend that is likely to be at the Treasury in 2011. I imagine that we will contribute further underspend at the close of the financial year in 2008-09 and 2009-10. The number will be larger by 2011 than Mr McNulty's rather crude calculation suggests. We will aim to ensure that, in the process, we maximise the impact of the public expenditure in benefiting the people of Scotland.
Having £1.279 billion at Her Majesty's Treasury is probably not in Scotland's best interests, but neither is having zero pounds and zero pence. In the interests of flexibility and being able to cope with the unforeseen, what is the appropriate balance to have at HM Treasury?
Mr Brown's question takes us into ground that I am delighted to enter, with regard to the appropriate level of financial responsibility for this Parliament to retain. It is perfectly rational to have resources held in reserve if we can have access to them at appropriate times. However, there is a difficulty: the previous Administration found that it had a mounting set of resources held at the Treasury that—unlike under the arrangement that we have now secured—it was unable to access and deploy for the benefit of the people of Scotland.
It is obvious that if the Parliament had wider financial powers and financial responsibility, we would be able to manage our finances much more effectively and comprehensively than is possible within the limitations of the responsibilities that we have. Of course, that is an aspiration of members on the Government benches; I am not sure where Mr Brown sits on the spectrum, but I know him to be an aspirational young man so I am sure that he wants the Parliament to have more such powers.
In the context of the credit crunch crisis, my colleague Vince Cable has suggested that some people in the financial services sector appear intent on nationalising debt while continuing to privatise profit. I listened to the cabinet secretary's statement and the comments of some of his party's back benchers and it is hard not to conclude that the cabinet secretary and the Government are hell-bent on privatising blame and nationalising self-congratulation.
Does the cabinet secretary acknowledge that, although any underspend is welcome given reports of crisis meetings of the Scottish Government strategic board in January, at which civil servants prevented ministers from overspending on the budget, in light of the dodgy accounting on the Scottish futures trust, the lack of detail on planned efficiency savings and the various references to "smoothing" and "illustrative figures" in relation to the SNP's budget, there is likely to be considerable scepticism about the detail of the cabinet secretary's statement?
That was a cheery contribution from the Liberal Democrats. My goodness, Mr McArthur must have been up all night crafting his soundbites.
I reassure the member that the Government has recorded an underspend of £42 million. I would have thought that that would have provided an opportunity for Mr McArthur to demonstrate some of the grace that Mr Gray showed when he congratulated the Government on its performance. Instead, as usual, Mr McArthur reverted to type and whinged from the sidelines.
We must conclude questions on the cabinet secretary's statement—we are already into the time for the next debate. I apologise to members whom I am unable to call.