Budget Process 2006-07
The next item of business is a debate on motion S2M-3746, in the name of Des McNulty, on behalf of the Finance Committee, on its fifth report in 2005, on stage 2 of the 2006-07 budget process.
I commend the Finance Committee's report to the Parliament. It is a serious, reasoned and carefully written report, which was supported unanimously by members of the committee. The context from which we start is the budget priorities that are set by ministers. The Finance Committee shares the objectives that the Executive has set out in its efficient government initiative.
Committees of the Parliament are expected to fulfil their scrutiny function. If our report is critical at some points, I hope that the committee will be seen as offering constructive criticism. Our recommendations are intended to help to secure improved transparency, increased accountability and greater effectiveness in the delivery of services. The best way of achieving our shared objectives—ensuring value for money and the best possible use of public funds—is through constructive engagement between the committee and the Executive.
The publication date of the committee's report coincided with the annual tartan bollocks award for the most incorrect story to be published in a Scottish newspaper. The lead story in The Herald that day revealed the existence of a £1.5 billion slush fund. Presumably, the story was intended either as a very late entry for this year's award or as a pre-emptive strike for next year's competition. The original letter, which was first circulated three weeks ago, identified the sum held at the Treasury that is not allocated against currently identified needs. On the Wednesday, that figure was said to be £1.5 billion. However, as The Herald acknowledged a few days later, the correct figure—which the letter actually provides—is £220 million. I suppose that we can count the newspaper's article on Saturday, however grudgingly it was written, as a retraction.
The real issue that ought to have been highlighted is not the bogus surplus of funds, but the opposite: the financial pressures to which the Executive is already subject, the limited resources that it has to cover any new contingencies and the extent to which, judging from the pre-budget report, those pressures will intensify. Both the Finance Committee and the Minister for Finance and Public Service Reform are well aware of those pressures. That is why we have focused closely on the efficient government initiative. If, in years to come, there is much reduced growth in the funds available, we will need to find better ways in which to deliver services. In particular, we must do everything possible to reduce waste and unnecessary bureaucracy, securing maximum value for every pound that is spent.
The minister will be aware from our previous reports and from his evidence sessions at the Finance Committee that we were not satisfied with the financial information that was provided on the scale of the efficiency savings that are being pursued by the Executive compared with those that are being pursued for the rest of the United Kingdom; on the specification and monitoring of the stated savings; on the inequity of treatment between local government and central Government; and on the potential impact on council tax. Those four points were identified in last year's report.
We have made progress on the first and second of those issues. Last year's announcement contained a total of £650 million for cash-releasing savings. That figure has now been revised to £812.9 million. That is a significant improvement, although it is still £373 million less than the equivalent UK target. I should make it clear that the Finance Committee is simply reproducing the published figures for the UK Government's targets. They have not been subjected to the close scrutiny that we have applied to the Scottish Executive's stated cash-releasing savings, which are given in table 3 of our report.
It is clear that some Executive departments appear to have contributed less than their equivalents at UK level. It is difficult to see why they could not be required to do more. The most extreme example is possibly that of the Scottish Executive Environment and Rural Affairs Department, which can cough up a mere 0.63 per cent, whereas its equivalent UK department is being asked to deliver savings amounting to 17.4 per cent of its departmental expenditure limit allocation. I find that quite inexplicable.
Aside from that department, it is difficult to make direct comparisons between portfolios in Scotland and departmental budgets at UK level, because responsibilities are shared out in different ways. Some areas appear either to have been overlooked or to have been purposefully excluded. Why, for example, is lifelong learning apparently exempt from having to look for efficiencies, despite its budget being the largest element in the departmental budget? Are there no opportunities for efficiency savings in Scottish's further and higher education sectors? We have 21 separate universities, each with its own separate finance, student registration, human resources, procurement and other functions. Surely there is as much scope for driving forward efficiency savings in that sector as there is in local government.
A further example is housing, which is the largest element of the communities budget. Much of that consists of investment that is channelled through local housing associations. In the small local authority area of West Dunbartonshire, we have 14 separate housing associations, each running its separate housing management and allocation services, dealing with finance, personnel and other issues and procuring maintenance and architectural services. That pattern is replicated throughout Scotland. Surely there must be scope for greater efficiencies through shared services and—whisper it softly—through mergers and rationalisation. If I have understood correctly recent statements by the Minister for Communities about second-stage transfer in Glasgow, however, the outcome that the minister is suggesting would mean increased costs for providing back-office functions across a wider range of organisations.
The Finance Committee's report requests more detail on output-based budget lines and delivery arrangements for the savings that are outlined in the efficiency technical notes. We want Audit Scotland to clarify publicly what it believes to be possible in ensuring the transparency of the process, both now and in the longer term. We also want the Executive to revisit those areas that have not contributed or are not contributing enough.
We want ministers to be radical, determined to drive through greater efficiencies and prepared to face down vested and entrenched interests. In past exchanges when the committee has argued for improved monitoring of savings, the minister responded by arguing that it would be wasteful to employ more bean counters—or perhaps he said button counters—for that purpose. We believe that there are too many bean and button counters in the Executive. Some are in the Finance and Central Services Department, but others are in the burgeoning office of the permanent secretary. There should be a root-and-branch review so that the people and resources that are currently devoted to ticking the boxes that are required for partnership agreement commitments are diverted instead to targeting improvements in service delivery. Ministers and senior departmental civil servants should be required to accept responsibility for increasing efficiency and effectiveness. The use of baselines against which progress can be measured should be integral to the management of change. That should not require the additional bureaucratic systems that were described in evidence to the committee. The committee believes that the Prime Minister's delivery unit provides a good model, and we hope that ministers and the civil service will respond positively to that.
During First Minister's questions last week, Nicola Sturgeon claimed that the Finance Committee agreed with the position that she put forward last year that councils should keep the money that they saved through efficiency measures and use it to keep council tax down. She was wrong. The committee rejected that argument, recognising that local authority budgets should make their contribution to the savings targets that ministers have set. However, relative to others, particularly the Executive, local authorities need to be treated more fairly. A disproportionate share of the cash-releasing savings—which have the most immediate budgetary consequences—is required from local government when less stringent pressure is being placed on Executive departments, non-departmental public bodies and executive agencies. Contrary to what the leader of the Opposition said last week, the committee did not anticipate council tax increases of 6 per cent or more. It would be difficult to justify increases of that magnitude, given what people are already expected to pay.
The committee's key point was about the inequitable treatment of local government and the parameters of the choices that local authorities face. Those choices are: going further with efficiencies; cutting back in some areas of service; or increasing council tax by more than the 2.5 per cent target. We refer to the additional support that is given to local authorities south of the border. Following the pre-budget report, that additional support will cover £800 million, which builds on an extra £1 billion last year, with the aim of holding council tax increases to below 4.9 per cent. If consequentials were to come to Scotland—the minister may be able to enlighten us on that—I hope that consideration would be given to the pressures that local government faces this year. Even more, I hope that the pressures that will be on local government next year will be considered. As I said at the time of the ministerial announcement, the settlement will be extremely tight then.
The Finance Committee had a number of concerns when one of the commissioners appeared before us. We recognise that commissioners must have proper independence, particularly from the Executive, and perhaps an arm's-length relationship with the Parliament. However, that should not be at the expense of proper approval and financial accountability. There can be no blank cheques for anybody in modern Scotland. We need to examine the proliferation of commissioners, inspectors and regulators in Scotland. Every time that we create one of those posts, we deprive ourselves of part of our function and we introduce a new bureaucratic element that we must justify. Are those commissioners always doing the job that was intended? Do their functions overlap with other bodies that were also intended for that function? Is there scope for some kind of future winnowing out of those bodies in Scotland? The committee recommended that the budgetary arrangements should be reviewed with regard to the approval of commissioners' budgets. However, there is also a case for a policy review and reconsideration by the Parliament about how far we can go down that route and whether the extent to which we have already done so should be reviewed.
I commend the committee's report. It is a serious, well-intentioned and committed attempt to improve the government of Scotland, and I hope that the debate will bear that out.
I move,
That the Parliament notes the 5th Report 2005 (Session 2) of the Finance Committee on Stage 2 of the 2006-07 Budget Process (SP Paper 471) and refers the report and its recommendations to the Scottish Executive for consideration.
I read the Finance Committee's report last week with considerable interest. I agree with the convener's assessment: the report is a thoughtful and useful piece of work. This debate, however, is about stage 2 of the budget process. It is part of the annual consultation process leading to next month's budget bill. The focus should be on the Executive's spending plans for next year—2006-07.
The report is largely positive about the budget process, despite the best efforts of some to portray it differently. There are many examples of how we have worked—and are working—with the Finance Committee to enhance the quality of budget documents and the processes that we have to scrutinise them. In particular, I was pleased to note the committee's positive response to the changes that we have made to the budget process this year.
As always, there are areas in which the committee feels that we can improve—that is only to be expected. We continually seek to develop and enhance the way that we work and we are always keen to hear the committee's recommendations. I can assure members that we will do our best to adopt those recommendations whenever possible.
I do not propose to comment on all the recommendations in detail, but I will try to highlight the main areas. We will respond in writing, in detail, before the stage 1 debate in late January.
The report highlights the progress that we have already made to reform our budgetary procedures. The new budget cycle recognises the central importance of the spending review process in setting spending plans. The new, transparent and straightforward cycle aids clarity and allows for greater scrutiny and less repetition for the different committees.
The Finance Committee has made further suggestions for improvements to the format and presentation of information in the budget documents. For instance, the committee suggests that we should make clearer the spending assumptions on which allocations to national health service boards are made. We note what the committee has said about the way in which we present such information, and we will work with the committee to improve that next year.
Our plans, as set out in "Building a Better Scotland" and in the draft budget, show how each portfolio will deliver against our key cross-cutting themes—growing the economy; sustainable development; closing the opportunity gap; and equality. We support the committee's aim to improve presentation in this area and we will consider how we might best make improvements.
I turn to local government funding and the committee's criticisms of next year's settlement and the possible impact on council tax levels. In all candour, neither the committee nor the members of the press who seem a bit too keen to swallow the stories that are spun to them can have it both ways. On the one hand, some are saying that we are being too hard on local government—some even advocate cutting the efficiency targets for local authorities—but, at the same time, some are saying that we should match United Kingdom efficiency targets. If I sought to match the percentage that is claimed for local government south of the border, I would need to more than double the efficiency targets for local government in Scotland.
Will the minister amplify his views on the way in which Treasury figures can be compared with what we are doing in Scotland—specifically in relation to local government, but more generally too?
I will be happy to try to do that, but I want to prefix my remarks by saying that, since my first day in charge of this portfolio, I have said that we should do whatever suits our circumstances here in Scotland. I repeat that statement today. Doing what suits our circumstances will be the most useful way of making progress.
I have always said that it is wrong to make comparisons between Scottish ministerial portfolios and the portfolios in UK departments, and wrong to make comparisons between specific Scottish and English policy responsibilities. There are inherent differences between the responsibilities.
The Finance Committee's report shows that UK departments are counting local government savings within their own departmental savings, with the result that there is an overlap of £5.6 billion. The cash totals in table 2 in the report come to £21.4 billion. However, if one adds up the individual cash amounts, the total is more than £27 billion. Why is that? Because the percentage figures in the end column are exaggerated because double counting is taking place. The figures are therefore inaccurate. That is one particular example of how simply lifting information from south of the border is worse than useless for us here in Scotland.
From day one, we made it clear that we would count savings that were made in the spending review period 2005-08, whereas some departments south of the border are counting savings for the period 2003-04, which means that they have as much as two additional years' savings to add in to the totals that are being claimed for the current spending review period. All that backs up our argument that it is entirely inappropriate to make such comparisons. We got devolution so that we could concentrate on specifically Scottish circumstances; I just wish that members of the Scottish Parliament and members of the press would remember that before they swallow some of the nonsense that is fed to them.
I invite the minister to address the other point that he made. If no comparison is to be made with the situation south of the border, why is there an efficiency savings target of 3.4 per cent for local authorities, when the efficiency targets for numerous Scottish Executive departments are much smaller than that? If he wants to have a fair comparison, why have local authorities been singled out and why have Government departments not been set more strenuous targets?
I am glad that Mr Swinney recognises that we do not need to compare what we do with what happens south of the border. The straightforward answer to his question is that not every portfolio in the Scottish Executive starts from the same position. We have always said that the budget process is evolving and that we will continue to consider how different portfolios can seek out further efficiencies over the spending review period. We have said until we are blue in the face that we will continue to revise the technical notes to take account of any changes that take place, but some people are determined to ignore what we say.
Much is made in the committee's report of the "comparatively poor"—I stress the word "comparatively"—increase in local government funding and the efficiency savings assumptions, which have been labelled as "unfair". However, I hope that what I have just said puts that assertion into some context.
Over the next two years, the total funding for local government will increase by 3.2 per cent and 2.3 per cent respectively. That represents a cumulative increase of 5.6 per cent over a two-year period, which builds on substantial increases in previous years. In addition, we must take account of the fact that efficient government savings are being generated that can be used to offset any pressures that are experienced this year or next year.
The figures in the committee's report point to a further funding gap because of inflation, but that is a consequence of having three-year settlements. We had to make an assumption about future inflation levels and we used the most accurate predictions that were available at the time. I have said before and will say again that I am prepared to undertake a review of local government funding for 2007-08, but that when the case for any additional money is considered, it must be demonstrated clearly that local government is playing its part in delivering on the efficiency programme. I accept that the rate of inflation is predicted to be higher than we assumed and I will bear that in mind next year.
However, we must remind ourselves that the dominant factor in public sector costs is pay. The Chancellor of the Exchequer has pointed to the need to limit public sector pay increases to 2 per cent in 2006-07 and of course we want local authorities to play their part in meeting that target. If democratically elected local representatives decide to award larger pay increases, it will be for them to justify to their electorate the higher council tax increases that will result from such decisions.
The Executive will continue its constructive dialogue with the Finance Committee to improve understanding, transparency and scrutiny of the budget process. The draft budget for 2006-07 sets out how we will invest taxpayers' money to deliver the commitments that are outlined in "A Partnership for a Better Scotland" and, in so doing, achieve the best results for the people of Scotland.
I thank the clerks to the Finance Committee, our adviser, Professor Arthur Midwinter, the Scottish Parliament information centre and the official report for their support in directing the work of the committee and capturing its value.
Today's debate will re-establish that although the financial management of Scotland is vital, it is being mismanaged. It will establish, too, that that mismanagement creates and exacerbates low growth and the low incomes that are earned in Scotland. The Executive seems to be living in a financial fantasy: the claimed savings do not stand up to audit as there is no tangible way of measuring them.
Once again, the Finance Committee's recommendations on the budget process make important pleas to the Executive but they are in danger of falling on deaf ears. Last year, our unanimous demand for an economic growth target whereby we could measure progress and reclaim some vestige of national economic credibility was denied. This year, our repeated requests for baseline data—especially baselines for outcomes—by which we can objectively measure progress that might be made under the efficient government programme have been subject to procrastination and delay.
Such delay simply further undermines a programme that already lacked credibility. Budget holders privately briefed against the initiative and ministers were unable to confirm that the projected savings were net of redundancy payments, cost of capital and other spend-to-save programmes. The savings lack an overall worthy aim of the sort that might unite all arms of government in common cause. They also lack statistical control whereby progress against baseline outcome data might be monitored and reported on as and when those data finally appear.
On top of that, we see many other problems and deceptions in the financial management of this potentially great country. The recent G8 report indulged in the production of fantasy financial benefits that no minister would be courageous enough to take into a real dragon's den populated by Scottish taxpayers. On Scottish Water, despite a pattern of misinformation, overcharging and borrowing less than is prudent, it is still planned that the process whereby more than 80 per cent of capital expenditure is funded from the current generation of hard-pressed water charge payers will continue unabated. Thirdly, the farce that is "Government Expenditure and Revenue in Scotland 2003-2004"—the GERS report—tells us only that, in this post-McCrone report era, either the economy is mismanaged or the Executive is unwilling to state Scotland's true position for fear of strengthening the Scottish National Party's arguments. Fourthly—
Does the member accept that this year's GERS report was an Office for National Statistics publication, which was verified according to the quality standards of that office?
That means that the report is an even bigger badge of shame on many more chests.
Fourthly, the Executive's failure to provide proper direction, management and funding of local government has made it unable to apply any of the much-vaunted "downward pressure" on council tax levels that the Minister for Finance and Public Service Reform mentioned three times in the chamber on 23 November. That failure means that Scottish taxpayers will be further pressed.
Will the member confirm that the SNP would set this year's council tax increase to 0 per cent, as his leader suggested during First Minister's questions some months ago?
The deputy minister's assertion should be taken with a peck of salt, as should the claim of a 4 per cent increase that he has voiced outwith the chamber.
Given the net effect of those problems—which will mean further pressure on the Scottish taxpayer and fewer opportunities for the currently unemployed, for whom it will become even harder to find well-paid work—today's budget debate is highly relevant to all who live in Scotland. The committee's report exposes a series of lost opportunities that erode our competitiveness and living standards relative to elsewhere. Other nations are not so mismanaged; other nations realise the need to compete and are making progress. That is the powerful and compelling reason why the Executive must close today's debate by saying something new.
We need to hear something new about council tax and the funding of local government. The Executive has no option but to respond positively to the committee's unanimous decision to cast doubt on the effectiveness of the efficient government programme and on the local government finance settlement. Our report demonstrates that, if the Executive insists on its current local government settlement, council tax levels will rise by as much as 6.6 per cent unless there are material cuts in services. Thus, the Executive will force councils to penalise council tax payers, employees and other stakeholders by inflicting drastic cuts in vital public services while increasing council tax levels, thereby reducing national and local competitiveness.
Instead of sticking its head in the sand, the Government should respond positively to the strong unanimous criticism of the Finance Committee. It should deliver increased direction, management and financial support to local authorities rather than simply continue to operate a discredited system that is not only inefficient but which inhibits and discourages growth. The current system is also less than transparent and auditable.
In other words, the Executive must deliver a settlement for councils that averts the current crisis, provides a proper basis for efficiency and growth and does not force councils to produce unhelpful blends of higher council tax and swingeing cuts on local services. The message that the committee has been told repeatedly is that the spend to save that will be needed to achieve the proposed efficiency savings will put the cash flow of local authorities under enormous pressure.
My proposition is that Scotland deserves better and that Scotland will adopt that better way if the Executive will not. I have no hesitation in commending the Finance Committee's report.
In my maiden speech, I spoke in a debate on a Finance Committee report and within a few weeks, I was propelled on to that committee. I echo the thanks that have been given to those who were involved in the Finance Committee's report on the budget: the clerks, SPICe and the committee's special adviser. I also thank those who eased me into that particularly onerous parliamentary committee.
The Finance Committee's role in scrutinising the Executive's budget is one of the most important of any committee of Parliament. It is also one of the most important roles that Parliament can undertake in relation to the Executive. We must not forget that we are heading towards a budget of £30 billion a year, which is a significant sum in anyone's money. I leave it to others to compare scrutiny of the money that is given to Parliament with scrutiny—sometimes at considerable length—of other matters.
I heard what the minister said about some of the issues around the process parts of the budget. The draft budget is a very weighty document. George Bush once defended his budget by saying, "Of course it's a budget: it's got a lot of numbers in it." In addition to a lot of numbers, this budget has a lot of narrative. It is clear from the committee's recommendations that tying the two together would be the best process improvement that could be made. Therefore, I am grateful to the minister for his words about taking on board the committee's recommendations.
The report also contains a great deal about efficient government. When the Executive proposes meaningful and genuine ways of improving the efficiency of government in whatever area and at whatever level, we will support it. Much has been said in recent weeks about the importance of a consensual approach to politics, so I am sure that the ministers on the front bench are itching to agree on some of the things that I will say. I look forward to that.
Some time ago, the First Minister said:
"I want us to go not just as far as Gershon, but I think in Scotland we can go further."
In the spirit of consensus, I say that he was right. The Executive could go further; indeed, it should. I do not want to misquote Mr McCabe, but I think that he said that it was inappropriate or worse than meaningless to compare efficiency targets across departments. I agree that to compare Scottish Executive departments with departments south of the border is not necessarily to compare like with like, but some measure of international or cross-UK comparison is surely helpful. Rather than dismiss those comparisons, the aim should be to improve them.
Genuine efficiency is often misconstrued. Efficiency is about doing more with the same amount of funding or doing the same amount with less funding. It is very dangerous to equate that with straightforward budget cuts, although I am sure that we will have to consider such cuts in due course, given the tightness of our current financial settlement. I will leave that for another day.
The versions of the efficiency technical notes that have been published so far are undoubtedly welcome, as far as they go. However, as the Finance Committee's report notes, before we can meaningfully measure efficiency, we need to know where we are starting from. I disagree with the new leader of the Conservatives in Westminster who said that it is not where someone comes from but where they are going that is important. When we measure efficiency in government, it is important that we know where we are starting from so that we can assess efficiency. I get the feeling that we are quite a long way from having a robust measurement of efficiency, so I hope that the minister will make progress on measuring it.
Despite what the convener of the Finance Committee said, the most publicly commented-on part of the report was the budget's impact on local government, which is a hugely significant area, as we all know. A great deal of smoke and mirrors are used when we talk about local government finance. We all appreciate that 80 per cent of funding for local government comes from the Executive, but much of it comes with strings attached, which raises issues of accountability at local and national levels. It also makes it far too easy to obscure issues about appropriate levels of council spending and council tax. It is not just the level of funding from the Executive, how councils choose to spend it, or the setting of the council tax that are important; it is also about how much is mandated from the Executive for local councils to spend.
That, of course, is an issue because in his statement on the local government finance settlement, the minister talked about the need for transparency. The committee report does the same. The current set-up makes it all too easy for councils to talk about a squeeze at the same time as ministers are talking about increased funding. I will give an example. Scottish Borders Council has received a £7.5 million rise in funding which, understandably, members of the Executive boast about. However, £5 million of that is soaked up by Executive-imposed commitments, which is a very different scenario from the one we think we are dealing with when such numbers are bandied about. That is not healthy for political debate, nor is it conducive to transparency, so we need to remove some of the smoke and mirrors from local government finance.
Will the member take an intervention?
I do not have time.
The minister mentioned the funding gap, but he talked about the inflation assumption, which is £4 million out of the £80-odd million that is referred to in the settlement. Even if he deals with that, there will still be a significant problem.
The report was a unanimous report from a cross-party committee that has an Executive majority. It would be helpful if the minister was to pay serious heed to its recommendations. I hope very much that he does.
It is surely the mark of a mature body that it allows constructive criticism to be levelled at it; that is the role of the Finance Committee in its relationship with the Scottish Executive. Although I am a relative newcomer to the committee, I am impressed with the rigour that it applies to its examinations despite limited resources—which I define as Professor Arthur Midwinter.
I am surprised and disappointed by the information that has just been given to us by the minister. It looks as if the UK Treasury is prepared to publish information that seems to be designed to mislead rather than to inform, and for the Chancellor of the Exchequer apparently to collude with that massive deception is shocking. I quite agree with the minister in his anger, but I also agree that it is what we do in Scotland that is important.
It is no surprise to me that much attention is, and will be, paid to local government in relation to this year's Scottish Executive budget. Local authorities have been asked to deliver efficiency savings and, at the same time, councils are on track to deliver the single status agreement. They also face major service issues because of changing demographics and they face a major challenge in setting the council tax for the forthcoming year.
However, as Derek Brownlee said, councils have also had their cash doubled in the past seven years. In my local authority, some radical ideas have been proposed for service delivery as the authority prepares to set its budget. There is no doubt that efficiency savings can be achieved without affecting front-line services, but there is a problem in that one-off expenditure must take place in implementing some of the savings. Investment in new technology, more efficient systems and aggregation all take time and all cost money.
If we look at what is happening down south, we see that a great deal of time and attention have been spent on preparation for efficiency savings as part of the Gershon review. Does the member believe that the same has happened here in Scotland? Has enough time and effort been put into preparing for savings?
I can speak with authority only about my local authority. A great deal of effort has gone into considering savings in all parts of Fife Council's operations.
Operation of councils now means that they must think the unthinkable, which is part of everyday life for people in private business. Although I believe that there is some justification for the claim that local authorities are bearing the burden of this year's settlement, their positive reaction in meeting savings requirements can equally be seen as an example to other public service sectors. It is healthy to consider making efficiencies and to move away from the attitude that "It's always been done this way." That should be an example to other parts of government.
As far as the Liberal Democrats are concerned, one of the big issues for the future is local delivery of all public services. There are too many areas where there is duplication of resources with a consequential waste of money. We have seen seven years of increased Scottish Executive budgets and, as a result, many new initiatives such as free personal care for the elderly are now being delivered. There have also been major increases in expenditure on health, education and public transport. Now, after that period of record investment, we are moving into a different economic climate, as the convener of the Finance Committee said. It is not the biblical seven lean years following seven years of plenty, but there is a drive for more output in the public sector as a result of investment.
We are entering a period in which the public and the politicians are looking for a more productive service, so the Finance Committee is quite right to question the different levels of efficiency savings that are laid out in the Executive programme. As I said, there is a perception that local government is the easy touch when it comes to sorting out public expenditure. By highlighting the different levels of efficiency targets, the Finance Committee has drawn attention to the need for all departments to deliver returns on spending.
I am pleased that the Finance Committee will in the coming year examine expenditure by the various commissioners and scrutiny bodies. If we are to be considered to be doing a worthwhile job here at Holyrood, we must ensure that those and all public bodies are accountable.
I look forward to another year of turning over stones under which lurk spending units that dislike the limelight. I support the motion.
I have been on the Finance Committee since last summer. One of the reasons why I joined the committee was to improve my understanding of the budget process, but I have to say that I am even more mystified than I was.
We have a budget that lays out cross-cutting themes including sustainable development—an issue that is close to my heart. The budget document states:
"this Draft Budget explains how each portfolio is putting sustainable development concerns at the heart of public policy."
However, when we challenge the minister and ask how much of the Executive budget is targeted at each of the cross-cutting themes, he cannot tell us. What is the point of having cross-cutting themes in a budget if we cannot relate them to the figures in the budget? At the start of the budget document, table 0.01 lays out the total managed expenditure by portfolio. It shows that total expenditure in this year's budget is £27,389,916,000—a vast sum.
After the budget was published, the Executive decided that it wanted to cut business rates, for which it needed another £280 million. Where did that money come from? According to the minister, it is not in the budget, because the Executive has a special account with the Treasury for that sort of thing. When he was challenged about the contents of that fund, the minister could not say exactly how much it contained, which was extremely handy. The next time I have a scheme that requires a few hundred million pounds to finance it and I am challenged about where it fits into the Scottish Executive budget I can say, "Let's have a look at this Treasury fund."
I turn to efficiency savings. Other members of the Finance Committee have said that local authorities are not being treated the same as other Scottish Executive-funded bodies and that other bodies that are covered by the budget are able to retain their efficiency savings. It is clearly unfair that local government cannot do that. Page 162 of the budget states clearly that the additional revenue from the Scottish Executive for local authorities will ensure protection for all local authority services. The Finance Committee report makes it clear that that is simply not sustainable, despite what the minister says.
When a local authority tells the committee that the efficiency savings that it is expected to make are greater than its total expenditure on back-office staff, it is clear that we are talking not about efficiency savings but about an old-fashioned cuts package. Local authorities have a gap in funding of £84.9 million, even if all the £58.5 million of efficiency savings can be translated directly into cash savings. Something has got to give—either there are cutbacks in services or we will have the 6.6 per cent increase in council tax that is mentioned on page 86 of the Finance Committee report, which is an unpalatable proposal for the people who use those services and pay that council tax.
The Finance Committee heard last week about relocations from the Deputy Minister for Finance, Public Service Reform and Parliamentary Business. I asked him what would happen if a relocation proposal met all the objective criteria, but was inefficient in cost or operational terms. He replied:
"In many instances, we might choose to disregard that element if we thought that there was a justifiable reason for doing so. After all, we need to honour our commitment to relocation and if the policy was driven purely by efficiency and best-value considerations, it might well slow down or stall."—[Official Report, Finance Committee, 13 December 2005; c 3233.]
Imagine that: a Scottish Executive policy that was driven by efficiency or best-value considerations.
There we have it—a budget that starts with a ringing commitment to sustainable development but does not detail what that means in cash terms. It lays out the billions that the Scottish Executive has to spend, but when the Scottish Executive discovers a few weeks later that it has another priority, we discover that that budget does not contain all the finance that is available to ministers to meet those priorities. It forces cuts on local authorities in the name of efficiency while the Executive says that it can put job relocation above any efficiency considerations when it so chooses.
I commend the Finance Committee report—it is a demonstration of what disappointments there are in the budget. The scrutiny process that we have in the Scottish Parliament is commendable and should be reproduced at Westminster. However, the budget shows that, although the Executive might be making progress in terms of sustainable development, transparency and how it applies efficiency savings, there is a long way still to go.
It is a disappointing budget but a commendable report.
I would like to echo something that Mark Ruskell has just said—[Laughter.]
They all look the same.
Sorry, I mean Mark Ballard. I agreed with him that we have a far superior method of scrutiny of the Executive's budget than Westminster has. Therefore, I was disappointed when I heard Donald Gorrie's comments on "Good Morning Scotland", which suggested that the Scottish Parliament is letting down the Scottish people because of the poor way in which it scrutinises the budget. The reality is quite the opposite. I do not know about Norway or wherever, but we scrutinise the budget process much more than Westminster does. That was one of the things that impressed people in Elgin, who had not realised the amount of effort that is put into the process not only by the Finance Committee but by the subject committees. The Finance Committee was particularly impressed by the scrutiny by the Local Government and Transport Committee and the Health Committee. I wanted to put my views on the record because I think that the report that I heard on the radio this morning was misleading.
Obviously, areas of dissent are more interesting than other areas and make for better debates. However, we have to record that the committees feel that ministers have responded to the concerns that have been raised with them in previous years, although the treatment of health and local government compared to Executive departments was an important area of discussions. I regret that the Finance Committee's report was hijacked and misinterpreted at First Minister's question time last week, but that does not detract from the fact that there is anxiety about how every level of government can make the savings that were identified in "Building a Better Scotland" and the associated efficiency technical notes. Reference has been made to the fact that built into the spending review settlement was an efficiency assumption for local government of about 2 per cent over three years from the financial year 2005-06 and that that was intended to exclude pay provision for education, police and fire services.
The Finance Committee's report notes a number of issues of concern. One is that local government and health are funding the majority—more than 90 per cent—of the total reallocated savings. That is not really a surprise because they are, of course, the big spenders, but in terms of cash-releasing savings, local government and health are funding 82 per cent of the savings with only 70 per cent of the budget. It looks as though some of the savings from those areas are being reallocated elsewhere, but there is no mechanism by which we can trace what is saved in those areas and what is spent elsewhere. We are not quite sure how that can be tracked.
Councils and health boards are responsible for setting their own budgets, so there is no mechanism by which we can force them to implement efficiency savings rather than cuts. The baseline reductions by the Executive might be used as an excuse for cuts in services or above-inflation increases in council tax. Tom McCabe might be the guy who gets the blame for not making the efficiency savings, although I am aware that he is engaged in discussions about a modelling exercise that will help councils to save money by working together.
I am also concerned that the requirement for efficiency savings has come when there are significant additional pressures on local government because of equal pay and single status. I will illustrate that with a local example from Dumfries and Galloway. I do not argue that Dumfries and Galloway Council could not be more efficient and I do not think that a single resident of Dumfries and Galloway, including the chief executive of its council, would argue that there is no scope for the council to be more efficient. We see money being wasted when roundabouts are replaced with traffic lights and then changed back, or when road humps or nibbings are taken out and put back. Anecdotally, we hear that there are opportunities for savings.
Dumfries and Galloway Council did reasonably well in the aggregate external finance increases for next year. It got an increase of 3.7 per cent, which is equivalent to almost £9 million more than this year's allocation, and it will get a further £5.6 million in 2007-08. However, if the council was able to keep the 2.4 per cent that was removed at source, it would have another £5 million. That would help, given that it is facing costs of £5 million for equal pay and a recurrent £6 million for single status.
Last week, Dumfries and Galloway Council's education committee considered a programme of £4 million in cuts to education and social services. That programme does not comprise efficiency savings; it includes rationalisation of pre-school provision, reductions in staffing in secondary schools, savings on school meals, savings on continuing professional development of teachers, school closures, closures of rural libraries, reductions in opening times and increases in charges at sports facilities, and a reduction in the spend on care packages for elderly people. Those are not efficiency savings. They are frightening because they cut across the programmes that the Executive is trying to implement, such as higher teacher numbers, continuing professional development, healthy lifestyles and better school meals. The steps that councils are taking are contrary to what the Executive is trying to achieve, but the problem is that the Executive will get the blame. The fact that local government has not been allowed to make efficiency savings and reallocate them will simply add to the pressures that it faces.
I remind ministers that, as a consequence of the chancellor's pre-budget statement, we will get an extra £49 million. That is a small sum compared with the problems, but I hope that the Executive will consider using it to relieve some of the pressures.
As somebody who is not a member of the Finance Committee, I commend it for the focus of its report and its themed approach. It provides an appropriate lens through which to examine the budget and, in particular, the efficient government initiative. At the Education Committee this morning, concern was expressed that the efficient government initiative is reflected in the size of the tiny mince pies that were presented to the committee by the convener. The person who made that comment is also a member of the Finance Committee who knows a thing or two about pies.
I want to link education and finance, as Elaine Murray did eloquently in her speech. Some £4 billion from the public purse is spent on education and 85 per cent of that money is spent by local government. The minister said that Parliament should examine spending priorities, but the Education Committee is left to examine only 15 per cent of the education spend, although a good third goes into the national priorities action fund and we have no bottom-line scrutiny of that fund. It is meant to incentivise Executive priorities, but we cannot assess whether it does. The Education Committee has a limited point of focus.
The councils receive approximately £3.5 billion to spend on education; that money forms a significant part of their budgets. Councils receive 34 per cent of the overall public services budget but they are facing 44 per cent of the efficiency savings. It is interesting that, during the final year of Tory rule, councils received 40 per cent of the total spend. The figure is reducing and will go down to 31 per cent by the end of the spending review period.
At the same time, the Convention of Scottish Local Authorities tells us that councils face additional burdens, many of which come from central Government. Those include fuel costs of £27 million, superannuation costs of £31 million, strategic waste fund costs of £15 million and special needs costs of £18 million. There will also be new burdens in relation to foster care, child protection, care of children with special needs, home care, care homes for the elderly, private sector residential care homes—which will hit the City of Edinburgh Council particularly badly—the central Government funding shortfall for free personal care and the requirements of the Disability Discrimination Act 1995. Not all those burdens come from the Scottish Government—some come from Westminster—but increasing burdens are being put on local authorities at a time when their share of the public spend in Scotland is going down.
One specific concern is about tracking whether the Government's priorities are being addressed. For example, for the second year in a row, the Education Committee has said that there is no way it can track whether councils' spending meets their new obligations on special needs. There is a lack of clarity in tracking investment in additional support needs. Importantly, the Minister for Education and Young People told the Education Committee that education services are exempt from efficiency savings. If so, why does paragraph 74 on page 18 of the Finance Committee's report mention
"advice from an Executive official that Glasgow City council expects to save £19.8m"
and state that
"Although those are described as efficiency improvements by the council they include reduction in education costs of over £1 million"?
The issue is of great concern, because the education spend is a huge chunk of the local government spend. As paragraph 70 of the report states, if education services are exempt, the efficiency savings would have to be made from the remaining £5 billion of grant-aided expenditure, which means that, instead of 3.5 per cent savings, the savings will have to be 6.6 per cent—10 times the savings that some Executive departments will have to achieve.
I want to offer clarification because there seems to be some misunderstanding. The Minister for Education and Young People made it clear that the pay element of the education budget will be exempt in order to allow us to meet our target of increasing the number of teachers in Scotland.
That is exactly my point. The biggest element of education revenue costs is teachers' pay. That leads me on to the Government targets. We know that certain parts of Scotland have problems with education, many of which relate to deprivation; for example, Glasgow City Council, which is cutting its education budget. We should employ more teachers to cut class sizes. The Government says that it will do that by 2007, so why, although record numbers of students are entering teacher training, are the same numbers of teachers not being employed? The number of teachers who register with the General Teaching Council is not the figure that matters—the important number is how many teachers enter classrooms at the chalkface. The Minister for Education and Young People says to councils that they must not use the pressures on local government spend as an excuse not to recruit teachers. Glasgow City Council is moving primary teachers into secondary schools to help with the reading, writing and basic literacy problems, but it should be employing more teachers now. All those issues arise, even before the McCrone contact-time provisions kick in.
We have a real problem. We have been told that education is exempt from the efficiency savings, but the reality on the ground—
I am sorry; I am in my last minute.
Education is a good example of the pressures that are being put on local government. Because education spend on pay is exempt, the rest of the budget is being hit.
The minister is right that we need order, control and discipline. As he said, we must also respect the need for fluidity. However, a lot of macho posturing has gone on in relation to the efficiency improvements, some of which are ill thought out. I do not necessarily blame the minister for that, but I certainly blame his predecessor. We are often told that people are being softened up for change, but I believe that hardening up is taking place. The expected efficiency improvements will not necessarily come through encouraging local government to come up with its own solutions in a well thought out and planned way; instead, as the minister hinted, the improvements could come from a centralisation agenda that would certainly hit home and create efficiencies. That issue may not have been addressed in the Finance Committee report, although we could ponder it in the future.
I congratulate the Finance Committee and its adviser, Professor Arthur Midwinter, on the report. I trust that he has a good break in the sun, which I gather he is going off to do. I notice that the minister is smiling benignly at the adviser.
As has been mentioned, local government is an important part of the budget, so I will consider it in a bit more detail. The minister has been quite revealing. According to everybody, there are new, unfunded burdens on local government of around £180 million, albeit that there could be arguments around the edges of that figure. The Deputy Minister for Finance, Public Service Reform and Parliamentary Business told the committee that there was a standstill income for local government, but the Minister for Finance and Public Service Reform talked a few minutes ago about expanded allocations. A shortfall of around £85 million has been illustrated well in the report. The minister has not answered some questions about that shortfall. If he disagrees with the report, why has he not said where he disagrees? Does he disagree with the additional £178 million spending or the £38.7 million additional aggregate external finance, for example? Does he or does he not agree totally with the report? In what respect does he not agree with what has been said about the £58.5 million efficiency savings that he seems to assume? He has at least given way on the fact that he got his inflation figures wrong as far as local government is concerned.
Let us consider the savings assumptions. Not long ago, I challenged the minister in the chamber to tell us where the efficiency savings in local government will come from. He provides local government with 80 per cent of its cash. Where is the leadership and guidance? Can the minister be more specific?
I know that the Conservatives are determined to centralise everything, but we take the opposite approach. We are determined to allow democratically elected politicians to have local discretion and will therefore not dictate to them exactly what they should decide. We have set meaningful targets and we will set meaningful targets. When the Improvement Service publishes its forthcoming report on the efficiencies that have so far been identified in local government, the member may have cause to retract some of the things that he has just said.
The minister could retract something first, as he misquoted what I have just said. I referred to leadership and guidance, not to direction or centralisation. The minister must not try to spin my words.
It is Christmas time, but it is obvious that the minister will not be Santa Claus for council tax payers this year. Let us misuse the story of the three wise men. The alleged 2.5 per cent target for council tax rises came from the First Minister. The Deputy Minister for Finance, Public Service Reform and Parliamentary Business goes to committees and talks about a 4 per cent rise in council tax, but the Minister for Finance and Public Service Reform has not said what he expects. It would be helpful if he clarified at some point during the day whether he agrees with the First Minister or the Deputy Minister for Finance, Public Service Reform and Parliamentary Business, or whether he has another view.
I will happily clarify matters. As a council leader, and as the Minister for Finance and Public Service Reform, I have always expected councils to exert downward pressure on their tax levels.
I am glad to hear that, but I am not sure that the minister has told us how that will be done.
There will be two years of financial pain in local government—there is no argument about that. What are the options? Should staff be cut? The minister said that there should be pay controls, which is a novel idea from the Labour Party. Should there be cuts in services, council tax increases, efficiency savings or a mix of all four approaches? The minister is dripping out little bits of extra information. Today's hint about pay controls is new. The Convention of Scottish Local Authorities will find that suggestion interesting.
The basis of local government funding must be examined, but I think that the Burt committee was called in too early. We should decide what local government should be responsible for, work out a funding package for it and then leave it to be accountable. The minister is nodding in agreement, but the Burt committee is taking on work in advance of any recommendations about how local government should be dealt with.
I would not call all the unspent millions of pounds a slush fund; it is taxpayers' money that the Treasury has. It is not a slush fund—it belongs to the people. If millions of pounds have not been drawn down and do not appear in the budget, why is the minister not using some of it to soften the hit, particularly on pensioners, some of the working poor and the council tax payer in general when efficiencies are coming through? I am talking about a cushioning effect. I do not mean that money should simply be thrown at councils, which could say, "Thank you very much, minister. We will not make any efficiency savings." However, there needs to be a little bit more creativity. I wonder whether the minister is pursuing a hidden agenda, possibly to force mergers of councils and other public bodies in the name of efficiency. If that is the case, he should be more honest and tell members of the Parliament what he sees as the future of public service delivery, how it should be funded, where efficiencies will come from, what the expectations are and what leadership he and his Executive colleagues might offer.
I am not asking for central control—if any party stands for decentralisation and local decision making, it is the Conservatives. However, I would like at the end of today's debate to hear some of the answers that have not been given to the questions that many speakers in the debate have put to the minister.
In closing, I wish the minister a happy Christmas.
This afternoon I will focus my remarks on that part of the Finance Committee's report that examines the ability of local authorities to meet their obligations and to provide the full range of local services, given the stringent pressures to which they are subject. Mr McNulty mentioned those pressures when he opened the debate. There have been suggestions that there may be a shortfall next year. As other members have highlighted, local authorities are under pressure to consider cutting services, making redundancies or introducing large council tax rises. I hope that we can avoid those measures.
The Scottish Executive appears to suggest that local authorities could balance their books if they achieved certain savings in the way in which they run their operations. An awful lot of the Finance Committee's report is taken up with examining the Executive's efficient government initiative, the robustness of its calculations and the likelihood that the initiative will result in the savings that the Executive predicts.
Local authority spending from the block grant is set at £8.1 billion for the current year and an extra £258 million is available next year. The Executive has also warned local authorities to keep council tax rises to 2.5 per cent and to make more efficiency savings. The Executive is on a collision course with the estimates of COSLA, which suggests that none of that can be done, given the obligations that councils have been asked to fulfil. The minister referred to the fact that COSLA has suggested that council tax will have to rise by 6.6 per cent on average in order to meet those demands.
Like other members, I want to focus on one aspect of the efficient use of funds and one pressure on local authorities' budgets—the settlement of equal pay claims, to which Dr Elaine Murray referred. I hoped that the Scottish Executive would see and support the efficient and just option—the settlement of outstanding claims with some haste. The Executive can surely understand the position in which 50,000 working-class women in Scotland find themselves and recognise both the justice of their cause—equal pay for equal work of equal value—which surely does not need to be debated in this chamber, and the length of time for which those women have been waiting for a settlement. The possibility of progressing matters via employment tribunals has arisen and has concentrated the minds of both unions and employers.
I want to know how the Scottish Executive expects local authorities to settle, when the estimated cost of the equal pay settlement across authorities has been put at as much as £500 million, against a background of an increase in total revenue this year of just £258 million. Is it the case that the Executive does not expect local authorities to settle all equal pay claims this year, but perhaps to stagger them over many years? Is there not a real danger that, if matters progress at that pace, lawyers keen to take cases to employment tribunals on a no-win, no-fee basis will force local authorities' hands, resulting in a bill as much as £200 million greater in the long run?
I confess that I face a real dilemma when confronting the issue. I want working-class women who have long been denied justice to get it as soon as possible; after all, justice delayed is justice denied. For far too long, those women have been fiddled out of what they deserve. It is seven years since local authorities and the unions agreed to implement the settlement, so it is perhaps unfortunate that employers seem to be moving along only because of the emergence of sharp Philadelphia lawyers who bring cases to employment tribunals and take for themselves between 10 and 25 per cent of any award. That means that funds that should go to local authority front-line services are diverted into the hands of oily lawyers.
It is a difficult choice for women. The minister will know that there have been cases in which taking the employment tribunal route has meant women getting a payout of £30,000 or £40,000, as staff in Redcar in Cleveland did. On the other hand, women have received compensation deals of around £9,000. Other members referred to similar deals in Dumfries, Glasgow, Falkirk and elsewhere. Glasgow City Council estimates that the cost of settling the equal pay deal this year will be an extra £70 million on its budget. Elaine Murray spoke about Dumfries and Galloway's £5 million hit and Falkirk has spoken of another £10 million on its wage bill. Yet there is no provision for that in the Scottish Executive's funding to the councils. That puts councils in the position of having to force up council tax bills, make cuts in services or make redundancies.
It is clear that no justice will be achieved for anyone if equal pay settlements are the harbinger of redundancies and job losses. I hope that in his response the minister will attempt to answer those questions and assure us that the full implementation of equal pay deals will proceed as soon as possible—I certainly hope that it will. Or, is the minister saying that it is a matter for local authorities alone and that they must make up their minds about how to proceed? If so, they will be in a position where they have to consider whether they can proceed without increasing council tax bills or making cuts elsewhere.
The Scottish Executive must help to solve that problem; it must provide the funds to make equal pay far more of a priority than it has been. It certainly has to make it a higher priority than giving a bung to businesses, as has been the case in recent months.
I am sorry if I ruffled Elaine Murray's feathers earlier today. If it is any comfort to her, the Finance Committee operates very much better now than it did a few years ago when I was on it. It has made considerable improvements and the ministers—to whom I am not always as gracious as perhaps I should be—have contributed to that. The system has improved a bit.
I was trying to say earlier that the impression I got from speaking at length with the people who run the Parliament in Oslo was that the Norwegian Parliament devotes a huge effort to studying the budget in all its committees. Where we fall down here is not in the Finance Committee, which works very hard and is well advised, but in the system of the other committees. If people want evidence of that they should look about them today. The attendance in the chamber this afternoon is as low as it is for a culture debate. I cannot say more than that. The Parliament as a whole does not pay enough attention to the issue.
Chamber attendance is an indicator of people's priorities on the second-last sitting day before Christmas, but if Mr Gorrie were to look through the detail of the appendices to the Finance Committee report, he would be struck, as I was as a member of that committee, by the quality of analysis of the various budget provisions undertaken by subject committees.
As I said, the system has improved, but the Norwegian committees meet several times a week during the weeks coming up to Christmas, which is when that Parliament deals with its budget. The Norwegians really get stuck in and discover how the money is spent and what the outcome is. That is what we collectively fail to do.
We study how much money the Executive puts into A, B and C, but how much good that money does is open to doubt. Anyway, I lay that before members. Perhaps the Finance Committee could write to the Norwegians and get some useful hints to improve its already excellent performance.
The voluntary sector needs to be scrutinised, both by the committee and by ministers. The voluntary sector does not fall neatly into any department or committee. Youth work is dealt with by the Education Committee and the Education Department; care and the elderly come under the health heading; other voluntary organisations are dealt with by either the Communities Committee or the Local Government and Transport Committee. There is no clear focus on how we run the voluntary sector.
The current funding system allocates money every three years rather than every year, but the funding does not continue thereafter. That is extraordinarily foolish and wasteful. The Finance Committee should seriously examine the question whether constantly funding new initiatives that die after three years represents value for money. The Executive seems to expect manna to descend from heaven after three years to feed the organisations. In fact, according to lottery rules and the customs of charities, trusts and so on all over the world, the funding of existing organisations will not be taken on. A new organisation or project has to be invented. As I have said, we fund initiatives for three years and, despite the fact that they do good work, they simply go down the tubes.
I agree that we should forget about the English for the moment and concentrate on what is going on in Scotland. Even allowing for the usual moaning from local government and other organisations on this matter, the facts are that local government expenditure is being cut too much and that such cuts will impact seriously on voluntary organisations. After all, if a council has to make 2.5 per cent cuts across the board, the Education Department will simply say, "Well, we can't cut schools," which means that cuts in non-school-related parts of the budget become 5 per cent, 10 per cent or more. I am sure that those cuts will fall on the voluntary sector and, indeed, people are very worried about funding for important voluntary sector activities such as youth work over the next two or three years. The Finance Committee's report also focuses strongly on the fact that the Executive is not adequately funding equal pay, single status agreements and other such matters.
When lecturing people on Government, I use the cliché that one of its cardinal principles is that money must be wasted correctly. That is how Britain's finances are run, and it is time that we sorted the matter out.
I put on record the appreciation of Finance Committee members who, through the months of rigorous scrutiny of the budget process, received support from Arthur Midwinter and other staff in examining the Executive's budget. Arthur must be earning quite well from the process to be able to go to sunnier climes for a mid-term break. Perhaps only people who have been born and bred in Arbroath understand his desperate attraction to Spain at new year.
I recollect with interest Mark Ballard's opening comments. When I first joined the Finance Committee, I thought that it was going to be a Bermuda triangle for former ministers or a gulag for members—such as John Swinney—who had been temporarily exiled from their party. Unlike Mark Ballard, John Swinney, I and many other members have enjoyed our experience on the committee and our remarkably tight focus on the Executive's budget. I am sure that the process has been as difficult for ministers as it has been for committee members; however, by shining our searchlight on this area, we have strengthened the committee's role and the parliamentary structures, which are markedly better than any, either in Westminster or in equivalent Parliaments across Europe. I know that we could look at certain Norwegian models; however, given our commitment to make savings, I cannot encourage the committee to make any foreign trips just yet—unless we want to accompany Arthur Midwinter on his holidays.
On behalf of the committee and, indeed, members in all parties, I welcome Tom McCabe's comment that by the end of January 2006 the Executive will have issued a clearer and more focused response to the report's key points. We must ensure that we reach a commonality of interest, and I hope that between now and the end of January we have a season of good will that extends to the minister. After all, we all share the common purpose that budgets should be efficient and that services should be excellent.
More important, as Dr Elaine Murray pointed out, we want the budget to enable communities to grow. She identified that, although councils will face a slightly tougher time this year than may have been the case in the years since the creation of the Parliament, their position continues to be markedly better than that of the dark, difficult, and—bluntly—desperate years of the mid 1990s.
Whereas some members remember those days, others are a bit too young to do so. That is the case for Mr Brownlee and perhaps even for the visitor who briefly came to the Parliament yesterday. Given the legacy of the last period of Conservative Government, it sticks in my craw when I hear Conservatives say that they are concerned about local democracy and the funding of local services. It also sticks in my craw when a member of a major Opposition party at UK level is asked in the House of Commons whether he favours tax cuts for the wealthy or supports the level of public investment that the Labour Government is putting in and says that he is not prepared to produce a budget for the next three years—and in fact is interested in some sort of voodoo economics that he calls a flat tax. That is where he is; and that position bears no relation to where the Finance Committee and the Scottish Parliament are on budget scrutiny.
In his contribution on behalf of the committee, Des McNulty touched on three or four of the fundamental areas of the budget. The first is the scale of savings. I welcome the fact that the minister has worked constructively with the committee. We had a couple of rocky evidence-taking sessions, but we have engaged constructively on the issue since that time. The discussions were helpful for all concerned in the process.
Secondly, although it was not one of the original intentions of our scrutiny of the budget process, we uncovered a concern about the expenditure on commissioners and the direction in which commissioners' budgets are going. The issue is one of legitimate concern, not only for those members who have managed to come to the chamber this afternoon, but more widely across the Parliament.
The two principal issues that the committee thought it important to address, and which were difficult to wrestle with, are the equity of treatment between central and local government departments, and council tax increases. We need to explore those areas of concern between today's debate and the end of January, by which time the Executive has said it will respond to our report.
On the issue of council tax increases, my colleague Dr Elaine Murray was quite gentle in the comments that she made about First Minister's question time last week. She said that our report had been "hijacked and misinterpreted". What happened is that a member of the Opposition engaged in what I would call an inelegant example of financial sophistry. Basically, she got it wrong. The report says two things about council tax. It says that we need to look at the pressures on local government in terms of the assumed savings and at how local government can drive efficiencies to deliver the savings that, hopefully, will result in less excessive council tax increases. A figure of between two and six per cent is more than likely to be the average increase across Scotland and some authorities may even come in below that.
Members have the opportunity to use the time between now and the end of January genuinely to influence the direction of the budget, not only the budget for this year, but those for the next couple of years. I welcome the minister's response that he will engage in the review. Fiona Hyslop described our Minister for Finance and Public Service Reform as being softer than Andy Kerr. That is a remarkable criticism; in Lanarkshire, that would be treated as an insult. I hope that he is not so described next year.
I hope that the minister will address those concerns. I also hope that we will all arrive at something that meets the needs of the Parliament, which are efficient budgets and effective services. Hopefully, local government and other agencies will also be treated more equitably in future. I am happy to say that the Labour Party's position is to support the motion.
Today, of course, we are talking about efficient and effective government. However, when one considers the 54 per cent increase in Executive spending over the past five years, the words that immediately come to mind are not "efficiency" and "effectiveness" but "drunken sailors" and "shore leave". The key difference is that, whereas inebriated matelots spend their own money, Executive ministers are spending taxpayers' money.
Every year, each Scot gets 24 per cent more spent on him than his English counterpart does. In financial terms, around £1,500 per annum or £30 per week more is spent on every Scottish man woman and child. On some services, the increases are staggering: 85 per cent more on education in the past five years and 70 per cent more on the massive health budget. However, are our young people better educated? We should ask that in Glasgow's Castlemilk, Edinburgh's Wester Hailes, Aberdeen's Northfield or Dundee's Trottick.
Will the member give way?
No, not at the moment.
Are our people healthier? Are waiting times and waiting lists in Scottish hospitals shorter than they are south of the border? The answer is no and again no.
Are our people healthier? Yes—they are living longer. Are more of our young people graduating than at any time in our history? Yes, they are. If, in the unlikely event that I was tempted to agree with the member, perhaps he would suggest to us by how much he would like to cut the totals.
The minister has answered some aspects of the questions on health and education, but he has not given us a full answer to either question.
In his opening speech, Des McNulty challenged us on whether we can really say that we are getting the maximum value for every pound spent. The Minister for Finance and Public Service Reform has talked toughly about the need for more efficiency in public spending. The reality, according to John Ward of Scottish Enterprise, is that total public expenditure in Scotland is still going up and is approaching 55 per cent of gross domestic product. In comparison, the UK figure is 40 per cent. Only in some of the former communist bloc countries does public spending come anywhere near the percentage that applies in Scotland. Despite Tom McCabe's claims that Scottish local authorities are not being asked to make the same efficiency savings as English councils, there is a huge black hole between what the Executive says authorities should raise in council tax and what it says they should spend.
I have some words of praise for the Finance Committee, on which I had the privilege to serve for two years. I did not hear Donald Gorrie's radio interview, but it seems that the committee system is rightly viewed as one of the jewels in the Parliament's crown. I agree with my colleague Derek Brownlee, who commended the committee for the way in which it has gone about its business of assiduously scrutinising the Executive's expenditure.
As Des McNulty outlined, the budget process is neither transparent nor straightforward. Budget documents continue to fail to set out sources of income and there are no accurate comparable data beyond the three years covered in each document. It is clear from the subject committees' reports that accessing information on the Executive's handling of its three cross-cutting themes of economic growth, equal opportunity and sustainable development is still a major problem. As Mark Ballard pointed out, Tom McCabe admitted to the Finance Committee that he could not state how much was spent on those themes.
To my mind, the minister has not coherently explained this afternoon why the Executive's cash savings still proportionately fall significantly below those that have been achieved for the rest of the UK. According to Audit Scotland, and as Jim Mather and others have highlighted, there has been a lack of baseline information. That means that the Executive cannot demonstrate that growth in front-line services has been delivered as a direct result of specific savings or that efficiency gains have been brought about at all. The Finance Committee is right to be concerned that, at this advanced stage of the process, the key information is still not available. The message is clear: we seem to be spending more and more, yet there appears to be no system for judging whether we are getting value for money. That is at a time when, as Andrew Arbuckle and others pointed out, we are moving into a new and more difficult financial climate.
The Scottish Conservatives make no apologies for again spelling out our spending priorities. They would include the privatisation of Scottish Water. We would scrap the education maintenance allowance. We would scale back Scottish Enterprise. We believe that the Executive should restore the uniform business rate now—not in April 2007, conveniently just before the Scottish parliamentary elections—to improve business competitiveness.
David Davidson was right to ask the minister where he envisaged councils would make savings. We agree with the Finance Committee that too much pressure is being placed on councils to meet their share of efficiency savings, which, proportionately, is significantly higher than that for Executive departments. Surely nobody but Tom McCabe actually believes that council tax rises next year will be only around 2.5 per cent. We believe it to be vital that councils do not simply go for the easier option and cut services, rather than making them more efficient.
We return to the core dilemma: how do councils work out whether they have made efficiencies or improved front-line services when the Minister for Finance and Public Service Reform seems totally confused about how he will measure that? We commend the Finance Committee's report.
Like Ted Brocklebank, I find it difficult to escape my history on the Finance Committee. I suspect that, once on the committee, we never really get away from it.
The first issue that I wish to raise, out of genuine curiosity, concerns the finance that is available to Scottish ministers and the extent to which information about it is available to members of the Parliament. The committee's convener touched on the point during his opening speech. Successive finance ministers and Finance Committee conveners have congratulated each other, as well as committee members, on how open the Executive is with its finances and on how much better the system of scrutiny is now than it was hitherto.
However, the committee's meeting at Elgin on 7 November shone a light on an area that had not been much explored before. It emerged in questioning that a substantial sum of money for ministers' use lies available in the Treasury. The minister's letter gave the figure of £500 million—Mr McNulty mentioned another figure. That sum was in addition to the other unspent moneys from the end-year flexibility and the central unallocated provision. There is a debate to be had on whether that money should have been either spent or not raised through taxation in the first place, but that is not the issue that I want to examine. My point is that there has to be a clearer and easier way to let members know whether and where such money exists. It is not to found in the budget documents, the EYF or the CUP—even when one penetrates to the Scottish consolidated fund, one cannot find it.
I am sure that the information is somewhere in some Treasury document, but it is difficult to find unless people know where it is. Mr Lyon is about to tell me.
The information is on the worldwide web and it is also published every July in the Treasury outturn report. In 2001-02, the figure was £669 million and, in 2002-03, it was £880 million—the 2003-04 figure is also shown. That does not support the allegation that there was a big draw-down.
It is very difficult for people to find those figures unless they know that they are there. Moreover, when people log on to the Treasury website, they find it difficult to navigate down to, or even find, that document.
We will have to get the member an assistant who has keyboard skills so that he can tap into the worldwide web.
The minister is doing himself and the committee a disservice. I am fairly familiar with these things, but I find it difficult to get such information. What does that say about the availability of the information to the average member of the Parliament? Given that the Executive says that it is committed to openness, things should open and available; they should not be available only if someone happens to ask the right question. The system is like a computer game: players have to penetrate through to level 11 before they get the information. That is not satisfactory.
The minister said that we should not compare our efficiency savings with those of departments south of the border. It is a pity that the First Minister's first reaction was to make that comparison, by saying that we should go further than Gershon. It is also a pity that changes in our budget are determined directly by comparisons, through the Barnett formula, with changes in the budgets of departments south of the border. In defending different efficiency targets for different departments, the First Minister also said that not all departments have the same starting point. I agree. Equally, not all local authorities have the same starting point, but they all—efficient, inefficient or halfway in-between—have to meet the same efficiency target.
There are many concerns about the efficient government programme, particularly, but not exclusively, its impact on local government. Having served on the Finance Committee off and on for some time, I was struck—as I am sure any dispassionate observer would be—by the fact that the committee's stage 2 report this year was the most frank and critical of any stage 2 report that I have yet read. It is riddled with statements such as
"This appears difficult to reconcile"
and
"the Committee is unpersuaded of the argument advanced by the Executive".
In the context of the non-contentious language that committees normally use in their reports, this report is genuinely hard hitting.
I will briefly comment on the part of the report that deals with education and on the remarks made by the Minister for Education and Young People. The Minister for Finance and Public Service Reform talked about pay rates. Will he clarify what he meant? Is he talking about pay rates or about the pay bill? Given the large proportion of council expenditure that is spent on education, does he mean that councils' total efficiency savings will have to be found from the education budget, or is he saying that the savings will come from other council departments?
The Finance Committee is right to say that the consequences of ministerial decisions on efficient government for local councils will lead to a balancing act. On the one hand, council tax may increase by more than 2.5 per cent—despite the promise that has been trumpeted so often—and, on the other hand, services may be cut. A third option would be to find further efficiency savings. No one can yet know what will happen, but no one except the Minister for Finance and Public Service Reform and the First Minister believes that the figure will be 2.5 per cent.
Whatever the figure finally is, it will have to be taken in the context of what has happened since Labour came to power in 1997. Over that period, council tax has risen by 55 per cent for every council tax payer—and that is before we take into account the figure for next year. The rise has been 55 per cent over a period in which the consumer prices index has gone up by less than a quarter of that—13 per cent.
In an earlier speech on efficient government, I asked where the efficient government dividend was for the taxpayer and what it amounted to. The answer, given the local government settlement, is not just that it does not amount to a bean; in the topsy-turvy world of the Government, efficiency savings in local government mean fewer services and higher taxes. I defy the deputy minister to challenge that statement when he sums up.
I welcome the opportunity to respond to what has been a constructive debate with some excellent contributions from around the chamber. The debate is about how the devolved Government intends to invest the £29.2 billion of resources in 2006-07 to build a better Scotland. That is a step change in the level of resources since devolution in 1999. The responses in today's debate and in the Finance Committee's report have largely been constructive. As my colleague Tom McCabe said, we will respond to the report in January. However, I intend to respond now to a number of the concerns that have been raised by the report and in today's debate.
Alasdair Morgan asked about education. I can confirm that the answer to his question is the pay bill. I can also confirm, on the particular issue that Fiona Hyslop raised, that there are separate budget lines for the funding of extra teacher provision in local authorities. Those lines are separate from the baseline budgets that we are discussing today; they are listed in a separate table in the budget document.
The Finance Committee's report appears to criticise us on one hand for not making the same levels of efficiency savings as English departments will make and on the other hand for being too hard on local authorities. If we were to ask local authorities in Scotland to make savings that were comparable with those of their English counterparts, local authorities in Scotland would be required to find even greater efficiency savings than those for which we are currently asking. The required savings would approximately double. I am sure that that was not the Finance Committee's intention.
The committee also attempts to compare efficiency savings in the UK and in Scotland. We believe that it is extremely difficult to carry out a like-for-like comparison between UK departments and Scottish departments. If we add up the figures in the first column of table 2 in the committee's report—the cash figures for efficiency targets—the total is £27 billion. However, the total shown in the table is £21 billion. The reason appears to be that savings under the local government heading are also shown under the headings for individual departments, such as the Department for Education and Skills and the Department for Environment, Food and Rural Affairs. That renders the percentage figures shown in column 3 relatively meaningless, unless we can separate out the double counting.
There is another difficulty in trying to make comparisons. The Home Office efficiency technical note states that the baseline—
Will the minister take an intervention?
Certainly.
I wonder whether the minister will reflect on two points in connection with table 2. First, the difference that he is highlighting is accounted for in footnote 9 at the bottom of the page. To suggest that there is somehow a gap is therefore rather misleading. Secondly, does he accept that the figure of £21.48 billion is the figure that delivers the efficiency saving of 7.4 per cent? He is presenting a misleading picture of the message of table 2. Whichever way we look at things, UK departments are saving more than Scottish Executive departments.
I am trying to explain to Mr Swinney that the percentages allocated to each department are wrong. Adding the savings gives a total of £27 billion but the total given on the bottom line is £21 million. The extrapolation of the percentages does not work. We would need to strip out the extra money shown under each department heading before calculating the percentages. That does not seem to have been done.
I really think that the minister should read footnote 9 at the bottom of the page, which deals fully with his point. His suggestion that the committee does not reflect in its report the situation that he has described is a bogus claim.
I am trying to say that it is not possible to make a like-for-like comparison, because the efficiency targets have been allocated twice—once under the headings of individual departments and once under the local government heading.
Another difficulty in making comparisons is that the Home Office efficiency technical note states that the baseline for calculating savings in England and Wales can be 2003-04, whereas the baseline in Scotland is 2005. That means that an extra two years of savings can be added to the figures for the rest of the UK. That is not the case in Scotland, where only savings that are made on the baseline year of 2005 count. To do a proper comparison, it would be necessary to separate out the devolved and reserved aspects of each department. In other words, it is simply not possible to make a like-for-like comparison.
The committee sought clarity on the 1 per cent per annum local efficiency savings that are expected of national health service boards. I can confirm that there was never any question of 1 per cent being deducted from the allocation to existing plans.
On local government, although I acknowledge that next year's settlement is challenging, I think that it is fair. There have been record increases in funding over recent years. By the end of the current spending review period, core funding to local government through AEF will have increased by 55 per cent since 1999. However, dialogue on the three-year settlement, including the concerns about funding for 2007-08, will continue with COSLA and individual councils. When consideration is given to the allocation of any additional money, it must be demonstrated clearly that councils are playing their part in delivering efficiencies and we will examine closely whether a report from the Improvement Service provides that evidence. I have no doubt that local government can meet and go beyond the targets that the Executive has set for it.
Will the minister give way?
I am just getting to my finale.
The debate is on the Executive's spending proposals and the £29.2 billion budget that we have set for 2006-07. Once again, no amendments to the draft budget have been proposed, so I will assume that all parties fully support the plans that have been published in the draft budget, which cover every area of life in Scotland, from growing the economy and delivering excellent public services to supporting stronger, safer communities and developing a confident and democratic Scotland. Everyone will benefit, especially those who are in greatest need of our support. By using our resources wisely and productively for the long term, we will get the best value for every pound that we spend. We will deliver on the priorities of the people of Scotland by investing in the things that really will build a better Scotland.
It is my pleasure to close the debate on behalf of the Finance Committee. In doing so, I echo the remarks of a number of my committee colleagues in paying tribute to the first-class support that we receive from our clerks and from the committee adviser, Professor Arthur Midwinter. As someone who has convened parliamentary committees in the past, I express my belief—without in any way wishing to sound ingratiating—that the committee's work is greatly assisted by the approach that Des McNulty takes to convening its proceedings, which allows us to cover highly complex material extremely thoroughly and to produce reports that are as strong and coherent as the one that we are debating this afternoon.
The starting point for the debate is paragraph 37 of the committee's report, which refers back to the budget process in 2005-06. Last year, the committee raised four specific concerns about the Executive's proposals. First, it was worried about the scale of the efficiency savings that the Executive was pursuing relative to the scale of those that were being sought in the rest of the UK. We have chewed over that issue at length. I think that the committee is saying not that the Executive must deliver levels of savings that are identical to those that are being aimed for south of the border, but that it must be a great deal more ambitious than it has been and must live up to the rhetoric of the First Minister, who told us that he intended to outclass what had been achieved through the Gershon review.
The committee's second criticism was a general concern about the monitoring and delivery of stated savings. In the formidable amount of time that we spent this year examining that issue, we listened carefully to Audit Scotland's reflections, a fair assessment of which is that little progress has been made. Audit Scotland has a number of remaining concerns about the Executive's ability to monitor the delivery of the stated savings. The committee echoes those concerns but—despite the Executive's activity in this area—I have not seen much action to address that issue.
The third criticism was the disproportionate share of cash-releasing savings that are sought from local government. That point has been discussed and debated in the course of this afternoon's debate. The fourth criticism was about the potential impact that that will have on council tax levels.
Thus, at least three of the four areas of criticism in last year's report are returned to in this year's report, which tells the Government that it must do more to address our fundamental concerns. Given that much of the debate hinges on the extent to which the Government constructively engages in the issues that are raised in the committee's report, it is inappropriate for Mr Lyon to claim that the committee's lack of an alternative proposition means that everybody is signed up to every dot and comma of the draft budget.
That was the implication. However, I refer Mr Lyon to the committee's recommendation in paragraph 96, which gives a strong message about the points on which the committee wishes the Government to reflect and on which the Government should address our fundamental concerns.
At the beginning of my speech, I recognised the committee's serious and constructive criticisms. We have tried to respond to them and we will respond to them further in the course of debate. I did not try to portray the report as providing universal support for every aspect of the budget. I set out how the committee clearly supports the draft budget in its entirety, but I well recognise that the committee has criticisms of individual aspects of the budget.
I welcome the deputy minister's remarks and over the course of the next few months I look forward to seeing changes in the budget that reflect the concerns that have been raised.
On the efficient government programme, we all agree that government must become more efficient, but substantial issues must be addressed if we are to make progress. First, the Government must respond in a much more substantial and meaningful way to Audit Scotland's concerns about the ability to track and monitor savings. Every time that the committee raised that point with Mr McCabe, he translated our concern as, "My goodness, you want us to employ more bean counters." With the greatest of respect, I suggest that such a response is not worthy of a minister when he is responding to a significant criticism about the ability to monitor the effectiveness of a programme. As my colleague Jim Mather said during committee proceedings, we are being asked to accept performance on efficiency savings simply because that is what the minister asks us to do. In my view, that is not the substantial authentication that the Parliament should require.
As Frank McAveety, Elaine Murray and Derek Brownlee pointed out, the efficient government programme will have an inequitable impact on local authorities. My point is not that the Government is asking local authorities to deliver too much under the programme but that, if local government can be expected to deliver such levels of savings, we should be able to demand similar levels of savings from various Government departments. There are numerous examples of areas in which we should expect the Government to look harder at how its own departments are to deliver in that context.
I believe that Government and local government can deliver their work more efficiently, but I was struck by the briefing from Perth and Kinross Council—one of the local authorities in the area that I represent—which shares a lot of its service delivery with other local authorities. The perspective of Perth and Kinross Council was that the financial benefits and efficiency gains are likely to come in three to four years' time, but that the costs for the local authority may increase in the short term as it invests in the necessary infrastructure, techniques and staff to achieve those savings. That highlights once more the difficulties that could result from the local government finance settlement in the course of the next financial year.
My colleague Fiona Hyslop said that she felt that the whole initiative had been poorly prepared by the Scottish Executive. That is an accurate reflection: the Minister for Finance and Public Service Reform has been landed with a programme that was developed in far too much of a hurry without careful Government preparation, which means that we could not ensure that the concerns that have been raised by the Finance Committee and Audit Scotland are addressed. The Government could have used the past 12 months a great deal more effectively to reflect on those points and to strengthen the framework within which the efficient government programme was to be monitored.
A great deal has been said about the local government settlement. I note that during the debate the Government made no attempt to put forward an alternative to or a critique of the information in the Finance Committee's report about the funding shortfall of £84.9 million. Had there been some fundamental weakness in the committee's findings, I am sure that we would have heard about it in the debate. If the Government's silence is acceptance that there is a fundamental shortfall, that raises important choices for local authorities: either they will have to increase council tax by 6.6 per cent on average or they will have to deliver some of the crude cuts in programmes that Elaine Murray highlighted in her speech.
The concerns that Elaine Murray expressed are of the type on which representations have been made to me by Angus Council and Perth and Kinross Council in my constituency. Donald Gorrie made valid points about the impact that cuts could have on the voluntary sector. We all go to briefings by organisations in our constituencies, such as the Perth and Kinross Association of Voluntary Services, to be told the same thing: voluntary organisations feel that they are the soft touch, yet, crucially, they deliver some of the most immediate, day-to-day services on which our constituents depend and which the Government's programme is designed to target and support.
Elaine Murray made one of the most substantial points of the debate when she said that it was ironic that, if the way in which the local government settlement pans out results in either crude cuts in budget programmes or in large increases in council tax, that would be a policy conclusion and a policy impact that would be bad for the people that the Government is trying hardest to support. That is the danger of the funding settlement.
The member spells out stark choices between cuts to programmes or increases in council tax. However, the real choice is between efficiency and council tax increases. Is he honestly saying that he does not believe that councils cannot meet the efficiency targets—or even go beyond them?
I am saying that there is no dispute over the £84.9 million shortfall that is cited in paragraph 85 of the committee's report, including £58.5 million in efficiency savings that the Government has already extracted. To close that funding shortfall, we must countenance either an increase in council tax of 6.6 per cent or significant cuts in individual programmes. That is the choice.
There may be other efficiencies to be made. However, Elaine Murray made the point that cuts to services in education and social work of the sort that she has been briefed about by Dumfries and Galloway Council, and which I am being briefed about by councils in my constituency, will affect the most vulnerable in our community. The Government must take cognisance of the situation to inform its response to the committee's report. The minister talked about the importance of downward pressure on council tax. I have to say that there is not much evidence of such pressure—council tax has increased by 55 per cent since this Government came to office.
I would like to make a brief comment on what I consider to be a significant area of the report: the role of commissioners. There has been a reticence on the part of the Scottish Parliamentary Corporate Body to exercise influence over the budgets of commissioners for fear of undermining their independence. We have to clarify for the SPCB exactly what Parliament wants it to do to take accountability into consideration.
On behalf of the committee, and in the most reasonable fashion, I close by encouraging those on the Government front bench to reflect on paragraph 96 of the report. It identifies the inequitable treatment of local authorities compared with Government departments. The Finance Committee asks the Government to explain the basis on which it has imposed baseline cash reductions in health and local government. It encourages the Government to look at the consequentials of the pre-budget report and to deliver a funding settlement that allows us to protect vital local services and not damage them—and today many members of the Finance Committee have given an account of their fears of such damage.