Financial Management 2004-05
The first item of business today is a debate on motion S2M-3015, in the name of Tom McCabe, on financial management 2004-05, including provisional outturn figures.
The late John Smith described devolution as a process, not an event, and he was right. Since 1999, more powers have come to Scotland and we have seen our processes and procedures evolve. There is much that we can all be proud of in how far we have come in such a relatively short time. However, as we seek to harness the advantages of devolution, there is still much to do to fulfil our vision of making Scotland the best small country in the world.
It is vital that we regularly review our progress, take time to step away from the day-to-day detail and look at the big picture. That is especially true of our finance and budget processes. Finance is central to everything that we do across the range of public service delivery, including in health, education, justice and transport.
I know that some colleagues feel that the annual budget process has become an endless, repetitive treadmill and that some will have seen the decision to do without stage 1 this year as a welcome break. However, largely because of the Finance Committee's hard work, the process has been evolving quickly over the past few years.
I therefore want to offer today's debate as a chance for us to stand back and assess how far we have come and for all sides to suggest what further steps are needed. There is a great deal of consensus. We all want the budget cycle to drive up efficiency and effectiveness, to improve transparency and to ensure that the Parliament can hold the Executive properly to account.
This is an appropriate time for this debate for two reasons. First, provisional outturn data for the financial year 2004-05 are now available, setting out how much of the budget that was authorised by the Parliament was spent. The details are in the supporting document that has been published to accompany the debate—it also sets out the allocation of resources that are carried forward into this financial year. Secondly, changes to the annual budget bill process have meant that we have had a whole term's break from the budget process. When we return in the autumn, the draft budget will be here to greet us and the process will start again, as I am sure members will be delighted to hear. This is, therefore, a rare opportunity to step back from the relentlessness of the annual budget round.
I want to give a brief overview of the past financial year and offer a few reflections. The financial year began with the Budget (Scotland) Act 2004 receiving royal assent, authorising a budget of £23.8 billion, which is £4,700 for every Scot or £94 million pounds for every working day. The following week saw the publication of the first new-look annual evaluation report, which marked the first step in reforming the annual parliamentary process. It takes greater account of the primacy of the spending review in setting forward spending plans and provides the first detailed report of performance against the targets that were set in the 2002 spending review.
In June, my predecessor Andy Kerr made two important announcements. First, he launched the efficient government initiative. We now aim to deliver £900 million of cash-releasing savings and £600 million of time-releasing efficiencies by 2007-08. All sides will agree that it is vital that we get the best value for the public's money. Efficient government marks a step change in our level of ambition. Secondly, he announced our new net investment rule, which will increase net investment by at least 5 per cent a year for the rest of this parliamentary session. In February, we set out the details of our long-term plan for capital investment in the first-ever infrastructure investment plan for Scotland. Again, all sides will agree that we needed to reverse the decades of underinvestment before devolution.
We welcome attempts to manage the public purse more efficiently. The minister referred to time-releasing savings of £600 million in 2007-08. How do those translate into cash savings? If they do not, they are not savings.
That is a terrible assertion from a party that tries to put forward an image of fiscal responsibility. When we produce time-releasing savings in the public sector, we produce better value for the public by releasing skills and opportunities to deliver better services for the public. I am glad that the Scottish National Party is on board in relation to our attempts to promote fiscal propriety, but it is a pity that, in the endless spending commitments that it announces day after day, it does not give a better example of fiscal propriety.
Last year, which was dominated by the 2004 spending review, was a busy one for the Finance and Central Services Department. The Chancellor of the Exchequer's April 2004 United Kingdom budget had, unusually, brought no consequentials for Scotland. However, it offered a foretaste of the spending review outcome for education. Those numbers were subsequently wrapped into the main UK spending review announcement on 12 July.
In total, the 2004 spending review brought Scotland consequentials that increased our budget by £1.5 billion in 2006-07 and by £2.9 billion in 2007-08. In our spending review announcement in September, we set out our plans for using those resources. We announced that we would increase funding for higher education by 30 per cent, that we would increase spending on transport by 47 per cent, that we would provide more teachers, more and better social housing and record numbers of police and that—for the first time—we would take health spending to more than £10 billion a year.
Full details of our plans came in October's draft budget. The draft budget is the key consultation document for stage 2 of the parliamentary budget process, which is when subject committees have the opportunity to comment on the spending plans for individual portfolios. Just before we broke up for Christmas, we discussed the Finance Committee's stage 2 report and, in January, we came full circle when we introduced the Budget (Scotland) Bill.
Looking back across the 2004-05 financial year, we can see a number of points that are worth highlighting. First, 2004-05 was, we hope, the last year in which the Executive had to find unplanned additional resources for the Scottish Parliament building, with both the summer and spring budget revisions seeing significant increases in the Scottish Parliamentary Corporate Body's budget. Thankfully, we can now move on and it is important that we do so. Members will be aware that we have set a very much smaller reserve for 2005-06 and beyond. That is at least in part because this building has been the most significant call on the reserve since devolution.
Secondly, 2004-05 was a year of continued progress and innovation. The changes that we have made have delivered a better process and the documents that we produce allow the Parliament and others to hold us better to account. That is very much a result of the hard work of the Finance Committee. I want to put on record my gratitude for the way in which the Finance Committee has been willing to work with me in a constructive and open fashion since my appointment as Minister for Finance and Public Service Reform last October—I can see why it took the committee honours at the politician of the year awards.
The reforms to the budget process, the launch of the efficient government programme, the proactive approach of the Finance Committee and the new focus on investment for the long term are all signs of the growing maturity of the approach of the Parliament and the Executive to the handling of finances.
Finally, 2004-05 was once again a year of relative plenty. As the Chancellor of the Exchequer likes to remind us, Britain is currently experiencing the longest period of sustained economic growth since the Act of Union 1707 and we have seen a similarly unprecedented period of growth in public spending across the last four spending reviews. Against that background, I suggest that it is only prudent to plan on the basis of an assumption that the rate of growth of public spending is bound to slow after current plans come to an end in 2007-08.
Both we and the UK Government are already thinking about the 2006 spending review, which will set out detailed spending plans for the period until 2009-10. Given the efforts of the past year, I believe that, as we approach the 2006 spending review, we can be confident that our finances are in good order in terms of the numbers and the key parliamentary and budget processes.
Today's debate—and we purposely wanted a debate—is an opportunity for us to hear the perspectives of others. I know that my colleague Euan Robson will do his best to respond to the views that are expressed; he will comment on the remarks that members make when he speaks later.
Given all that I have said this morning, I believe that we are in a good place. It is both practical and mature to recognise that there will always be points of difference, but the spirit of mutual respect for our roles and recognition of our joint responsibility encourages me to believe that, when the 2006 spending review takes us to the end of the decade, we will be in an even better place—devolution will have matured even more.
I move,
That the Parliament notes the improved financial management of the Scottish Executive, including the latest provisional outturn figures; encourages the Executive to continue its constructive dialogue with the Finance Committee to improve understanding, transparency and scrutiny, and notes the importance of this process to the efficient delivery of commitments outlined in A Partnership for a Better Scotland.
First, in the spirit of the consensus that Mr McCabe mentioned, I should say that I agree with parts of the Executive's motion. Over the years, there has been a largely constructive exchange of views between the Finance Committee and the Executive. Slowly, the amount of information that is available and the transparency of the information on what is done with our money have increased. It is not surprising that that has happened slowly, given the complexity of the subject matter and the vastly increased level of financial scrutiny that the Scottish Parliament was set up to obtain and which it rightly expects.
However, it is still far too common for members of the Finance Committee—dealing as we do with summary budget lines—to be unable to pinpoint the detail of what is going on, even though, often, large sums of money are involved. In an alleged or real crisis, ministers will suddenly produce from nowhere—or from the biscuit tin, as it was described to me by a local authority official at a recent meeting—a large sum of money to deal with an urgent priority, even though none of us knew that the money was available and perhaps not even the minister knew until a civil servant told him about it.
Despite my agreement with parts of the motion, I remain to be convinced that improved financial management has been demonstrated. That is why I lodged my amendment. Before I turn to that, however, I want to comment on the outturn figures. Just under four years ago, in September 2001, the SNP instigated a debate on the publication of the outcome figures for the previous year. We argued that a simple statement by the Executive did not allow us sufficient time to explore all the issues. I think that we were right to make that point.
The problem is that, although we are having a debate, the figures were made available to us only today. Although I thank the Minister for Finance and Public Service Reform for providing me with an advance copy—I congratulate him on producing an explanatory document that is, at first sight, far better than those of previous years—it is still the case that the complexity of the subject matter does not allow a considered debate to be held only minutes after the figures are made available to most members. It would be much better if a debate was held perhaps a fortnight after the figures were published.
I am glad that the member recognises that this is a debate and not a statement. However, I hope that the Parliament will recognise our thinking behind our approach to parliamentary debates. We believe that it is extremely important that the Parliament should be the first body to get the information. If we release information days or weeks before a debate, we may find that it is discussed on certain television programmes or in the columns of newspapers. That would be extremely disrespectful to the Parliament.
I am sure that no one on the SNP benches would ever be guilty of that sin.
On financial management, the brief that the Executive produced for the debate states that there are
"signs of growing maturity of our financial processes".
Although good wine improves with age—I can certainly testify to that—I argue that, regardless of the passage of time, the Scottish Parliament's financial processes will continue to be strictly limited, constrained and shorn of scope for imagination for as long as we exist simply to spend the results of the Chancellor of the Exchequer's beneficence or meanness, as his mood or the UK's financial situation takes him.
It does not take a great deal of imagination simply to spend all the money that one is given. In the early years of the Parliament, the Executive and its back benchers used to make a virtue of telling us by how much the budget had grown in each successive year—indeed, the minister slipped into that tendency this morning. The issue was not how much value was produced or how well it was produced; what mattered was simply the amount of money. That is changing. Despite what the minister said this morning, he thinks that we need to be more efficient, perhaps even parsimonious, in the use of our cash—I hope that I am not putting words into his mouth. However, I argue that that is not enough. We need to be responsible for the revenue side of the equation.
The Scottish budget has grown from about £16 billion in the first year of devolution to the projected £30 billion in 2007-08. Because of changes in accounting practices, transfers of responsibility from London and inflation, we cannot directly compare the figures, but they give a flavour of the huge increase in public spending. Against that background, the Executive has launched its efficient government initiative. A question that cannot be answered now, but to which the Finance Committee will return in the coming months, is to what extent the savings that will be claimed are genuine. With the best will in the world, it will be difficult in many cases to establish the amount of genuine savings. As elections loom, it is inevitable that Executive members will wish to talk up the numbers and that—perish the thought—Opposition members might try to talk them down.
I take one small example to demonstrate the difficulty. Earlier this week, some members of the Finance Committee visited Scottish Natural Heritage. SNH is a small organisation in the overall Scottish context and its target for recurrent savings is £2 million per annum. However, we must consider that against the background of its budget, which will rise during the same period from £61 million to £69 million. In addition, it will be faced with extra net budgetary costs of some £27 million arising from its relocation to the constituency of my friend Fergus Ewing. How do we genuinely separate out the £2 million of savings when everything else is changing? That is a challenging task, to say the least. It will take all the black arts of accountancy to prove the figure. Few organisations operate in a static situation and it is difficult to separate out targeted savings in any meaningful sense when the background is constantly changing. However, I leave that difficulty to one side.
A major question that we need to ask, given the increase in the Executive's budget, is whether some of the results of increased efficiency should be returned to the people who are the source of the revenue—the individual taxpayers, the unincorporated businesses that pay income tax, the council tax payers and the businesses that pay business rates or corporation tax. Nowhere in all that we have heard about the efficient government initiative is there any incentive for individuals and businesses in our country to work more efficiently, to produce more or to grow Scotland's economy, which is still the Executive's prime objective.
The irony of the efficient government project is that, although efficiencies are being delivered either in fact or allegedly, the Government keeps all the money that Gordon Brown gives it and just spends it on something else. Indeed, in the case of many quangos, the body that has made the saving keeps the money and spends it on something else that it fancies. In those circumstances, taxpayers might be forgiven for thinking that they, too, might be due an efficiency dividend. We are meant to believe that the efficiency savings will all be returned to us in the form of more public services, but, in some cases, it is beginning to be arguable that we need not more public services, but better delivery of existing services at less cost.
Is the member saying that the SNP's new tax policy is to cut income tax?
I am sure that the member will not be surprised to hear that the details of our policy—like his party's policy, which I suspect will not be the same as that of the Executive of which his party is a part—will be announced before the next election. He would not be surprised by my remarks if he had heard my comments on the announcement of the council tax allocation and the increase in uniform business rates, when I made the same points.
The matters to which the motion refers—improved financial management, constructive dialogue, understanding, transparency and scrutiny—are all valuable improvements in the process of government. However, even if we achieve them, all that we will do is to continue to spend Scotland's existing wealth more transparently and more efficiently; of themselves, they will generate not a cent or a penny of that wealth. The challenge that the nation faces is not simply to spend as efficiently as possible the consequences of whatever decisions the chancellor in London happens to make, but to generate more of our own wealth, to all our citizens' benefit. That is something that the current constitutional settlement will never allow us to do.
I move amendment S2M-3015.2, to leave out from first "notes" to "figures".
I, too, will begin in consensual mode, which is not too difficult following what Alasdair Morgan said. He gave an impeccable Conservative speech, which promises much for a future coalition.
Does Mr Brocklebank support what I said about constitutional change?
I said that I would begin by being consensual; I will now move gently away from that.
Before the minister's announcement today, the Executive's underspend had never fallen below £394 million. In the spirit of consensus, I thank him for small mercies, because I calculate that end-year flexibility is now down to £281 million, although the Conservatives' view is that much of that sum should have been redistributed to the public in reduced council taxes and business rates. Only yesterday, Scottish industry chiefs launched a campaign to cut business rates to English levels. They are right to claim that the current set-up is indefensible.
We do not argue with the logic that money should not be spent in a financial year just to avoid losing it. It is clear that quick spends are often bad spends, as the public recognise. However, EYF has in a way become the Executive's favoured flexible friend to avoid embarrassing underspends. We are told that EYF makes for efficiencies. However, that does not mean that it has anything to do with efficiencies as outlined in "Building a Better Scotland", which promised efficiency, effectiveness and productivity that would result in £1.7 billion of savings over the three years to 2008.
Before the efficiency savings were announced, Jack McConnell said that we would out-Gershon Gershon in referring to the 3.75 per cent saving that Gershon identified for the rest of the UK. Of course, the situation did not work out that way. As Professor Arthur Midwinter has reported to the Finance Committee, if the Executive had applied the equivalent targets that were set for Whitehall, Scotland's efficiency savings would be £240 million higher. The planned Scottish saving is 2.8 per cent of the departmental expenditure limit, not the 3.75 per cent that is to be achieved under the Whitehall proposals. To be blunt, Jack and Tom have been considerably out-Gershoned by Gershon, and not vice versa.
Unlike Mr Brocklebank, I think that using end-year flexibility is a good idea. To illustrate the member's experience in practice, will he say what proportion of his allowances as a member of the Parliament he expects to spend in the current year? Will he have money left over at the end of the year?
If the member asks whether it is a good idea to allow our members' support allowance to be carried over into the following year, I think that there might well be merit in considering such a scheme.
I move on to the part of today's motion in which the minister claims that the Executive has signed up to improving understanding, transparency and scrutiny and to constructive dialogue with the Finance Committee. Those aims are all laudable, but how well are they working out?
Recently, I was part of a Finance Committee delegation that visited Forth Valley NHS Board and Stirling Council. As we heard from Alasdair Morgan, earlier this week a committee delegation met Scottish Natural Heritage. Our aim was to find out how the Executive's efficiency targets were working on the ground and how transparent the projected savings were. It soon became obvious that bodies were making economies rather than efficiencies. In other words, although bodies would meet their targets, that would not mean that they were more efficient. Where we sought understanding, we found confusion. Where we sought transparency from the Executive, too often we found obfuscation.
For example, from the efficiency technical notes, we understand that about £250 million of savings will be made in the health budget, but Forth Valley NHS Board was unclear about whether savings were being deducted at source from its budgets to be reallocated elsewhere or whether it was expected to find savings and redistribute them internally. Stirling Council and other councils believe that their contributions from the Executive will be cut directly. Professor Midwinter advised the Finance Committee that local government's share of the savings is about 45 per cent.
I am sure that Ted Brocklebank's comments on efficiency are interesting, but when will he address his amendment?
The debate is about not only EYF, but the efficiency of government and making savings. I hope that we will come to that.
The problem is that we still do not know whether the assumed savings that are being requested will have an impact on jobs and services. Are health services being treated the same as councils? If not, why not?
Is the Conservative party saying that it does not want efficiencies to have any impact on jobs?
No—we are absolutely not saying that. We look for real efficiencies and we want services to be maintained. The problem is that different rules seem to apply to health boards and councils. I hope that the minister or the deputy minister will explain that to us.
The message to the Finance Committee in Stirling and this week was clear: we were told that major savings could be achieved only at the cost of jobs. Against those savings would have to be balanced the cost of redundancies and a potential drop in services. However, Tom McCabe remains reluctant to put a figure on the number of jobs that are to go in Scotland, despite Gershon's clear statement about the likely job cuts south of the border.
As Alasdair Morgan said, the committee's SNH visit was particularly interesting. As we heard, SNH has been asked to make £2 million of efficiency savings from its annual budget of £61 million. However, that budget will approach £70 million by the end of 2008, when the £2 million of savings will kick in. SNH will not hand back that £2 million; it will reallocate the money in its overall budget. Of its 750 full-time employee roll, SNH thinks that it will be able to make job cuts. How many? Perhaps as many as 12 a year over three years, which is a total of 36. Does that mean that in three years' time SNH will employ only 714 full-time staff? No, because SNH claims that the services that it is asked to deliver might have changed by then, so the number of jobs might have to rise.
Will Mr Brocklebank give way?
I will not, because I have given way four times.
That is the situation at SNH when its enforced relocation and rehousing in Inverness will cost taxpayers £27 million, even after SNH's properties in Edinburgh and Inverness are sold. Because fewer than 40 of the current headquarters staff of 268 will move north, there will be recruitment costs to find another 200 staff who are willing to work in the Highland capital. Of course, none of those costs is included in SNH's efficiency equation; the costs are to be picked up by the Executive. The efficiency savings of £2 million, which the taxpayer was never going to see in any case, will therefore be offset by a bill getting on for £30 million to move the agency to Inverness. Against that background, how can we have any confidence in the Executive's ability to improve efficiency?
Since 1999, spending on administration has increased by £50 million. The number of Scottish Executive staff has increased by 1,057 and the number of other civil servants has increased by 556. Moreover, an additional £137 million has been spent on quangos. If the Executive is serious about cutting the scale and the cost of Scottish government, a total change in culture is required. We must move away from the target culture of intervention and interference towards the creation of an attractive environment for business in Scotland by reducing the burden of tax and cutting red tape. In the process, not only would we create the dynamic and competitive economy that we are striving towards, but Jack McConnell would no longer have to worry about whether he would meet his immigration targets—people would flock back and newcomers would flock into the new, self-confident, efficient Scotland.
I move amendment S2M-3015.1, to leave out from "improved" to end and insert:
"latest provisional outturn figures; encourages the Scottish Executive to continue its constructive dialogue with the Finance Committee to improve understanding, transparency and scrutiny; further notes the importance of this process to the efficient delivery of commitments outlined in A Partnership for a Better Scotland, and is disappointed, however, that, despite earlier assurances by the Executive, its efficiency drive falls substantially short of the Gershon savings instigated in Whitehall."
The motion and the minister's words provide evidence that the Scottish economy is heading in the right direction. They also point to a path along which there will be improved scrutiny and transparency in the Scottish budget process.
Although I may be a recent addition to the Finance Committee and it is physically impossible to pat oneself on the back, I am impressed with the rigour and thoroughness of the scrutiny process. At the same time, I recognise that the creation of transparency is an evolving process.
I warn the minister that, despite his complimentary words about the Finance Committee, on any of his future visits to the committee questioning will be no less robust.
I do not think that any member of the Finance Committee would disagree with the sentiment in the motion that "constructive dialogue" between the Executive and the Finance Committee is crucial to improving the budget process and the monitoring of it.
I am personally sorry that, in their amendment, the Tories did not support the wider spirit of the motion, apart from one small specific reference to the work of the Finance Committee. Instead, they appear to have decided to concentrate on cross-border sniping. I point out to Ted Brocklebank that the underspend is little more than 1 per cent of the total expenditure of Scotland; any businessman would be happy to accept such a figure as a minor deviation from his budget.
I hope that I was not the only member in the chamber to observe a few rays of supportive comment from the SNP. Either there is a slow realisation in that party that the coalition budget is delivering, or perhaps it was just a reflection of the sunny weather.
Yesterday, I listened to a frequent visitor to Scotland say on the radio that he was beginning to notice major improvements in this country. For those of us who remember the dictum, "To see oursels as others see us," that was quite a point. Some people—I look at the Opposition—take great delight in knocking the achievements of the Executive without seeming to realise that such negativity also affects Scotland.
One of the achievements of the Executive has been to lose the uniform business rate that our businesses enjoyed in the past. Today, the member's party will elect a new leader, and I understand that both candidates are committed to restoring the uniform business rate. Does he believe that that will bring about a change in the Executive's standpoint in the short term?
Mr Gallie will have to wait for this afternoon's announcement. The new leader will take it from there.
The visitor who spoke on the radio yesterday made a remark about the amount of new building work that was being carried out. I suppose that he saw some of the new schools that are being built or some of the transportation improvements that are now being delivered. There were no specifics in what he said, but that endorsement that the old country is beginning to throw off its old clothes and dress itself for the 21st century with new attitudes is vindication that the Executive coalition's spending programme is on the right track.
That was the view of a financial layman, but a similar endorsement of the improved performance of the Scottish economy came on Monday in a report issued by the world-rated accountants Ernst & Young. The report pointed to the closing of the growth gap through increased economic activity in Scotland.
There is recognition that this country is on the move. There is no doubt that the high level of investment that is going into public sector infrastructure is pushing against the top level that the country can afford. One public agency, Scottish Water, is already on record as stating that although further projects are needed, they could not be carried out efficiently at present.
I want to check with the member whether the euphoria about the Ernst & Young Scottish ITEM—independent treasury economic model—Club's report that the gap will be closed to 0.7 per cent is justified, given that the average has been 0.5 per cent. There is no improvement.
I mentioned the SNP's general negativity about any improvement. We have just heard a splendid example of that.
Concerns are being raised about the level of public sector spending. However, unless the investment is made now, we cannot raise our educational standards; unless our hospitals receive increased levels of cash, our health record will not improve; and unless we invest in transportation infrastructure, we cannot hope to attract businesses to, and keep businesses in, Scotland.
I agree with the Minister for Finance and Public Service Reform when he cautioned that there might be a slowing down of public expenditure in the coming years. By that time, Scotland should have better infrastructure, and it will be up to the country and its businessmen and businesswomen to make use of it.
There is still more to do. The lack of major investment in the second half of the 20th century cannot be cured overnight. That is why public agencies such as Scottish Water are now working to the limit—in Scottish Water's case, to upgrade water supplies and sewage disposal.
The commitment to grow the economy was made by the Liberal Democrats at the 2003 election. I am pleased to see those policies come through in the coalition and to support the motion.
We now come to the open debate. I will be able to call all the members who wish to speak. I suggest speeches of about seven or eight minutes.
There is much to welcome in the provisional outturn figures that the Minister for Finance and Public Service Reform has published. This is the best performance and clearest information that we have seen in a budget report since devolution. I pay tribute to the minister, who has worked closely with the Finance Committee over the past nine months, and to Richard Dennis and the finance co-ordination team. Together, we have made very substantial progress in improving financial information and financial management in Scotland. The minister was entirely right to highlight in his speech the progress that has been made in recent years.
The reduction in the level of expenditure slippage from £641 million last year to £281 million is a marked improvement in financial performance. It means that the Executive has both targeted and managed its resources better. I congratulate the Minister for Finance and Public Service Reform on securing such a substantial improvement.
There are good signs that this is not a one-off improvement, but the continuation of a pattern. For example, the figures show that slippage in the capital programme has reduced from £256 million in 2002-03 to £177 million in 2003-04 and to £140 million this year. The Finance Committee has argued consistently for increases in capital allocations to promote economic growth. We are pleased both with the reduction in slippage and that the slippage that remains has been fully reallocated to portfolios.
Given our past criticism of the management of Scottish Water's borrowing facility, it is encouraging to see that slippage in that budget in 2004-05 is only £18 million. That is excellent progress. On the other hand, I have to say that the £87 million underspend in transport is disappointing—especially in a budget of £122 million. The Finance Committee has appointed me as its reporter to investigate the transport budget. I will examine rigorously each major commitment, the financial models involved, the timescales and perhaps what contributions are coming in from non-Executive sources to those important projects, because such contributions are important tests of whether projects are viable and should be given priority.
The decision to retain £84 million in the central contingency fund is sound finance, given that we expect budgets to be tighter after the 2006 spending review. I hoped that the significant reduction in underspending would underline the folly of the argument that was put forward last year, in particular by Brian Monteith, who said that EYF money should be used for short-term tax cuts. It is clear that the Executive is managing spending growth much better than it did in earlier years. As the minister said, EYF is intended to bring stability and effectiveness to financial management, so it would be entirely inappropriate to divert it to tax sweeteners that are sustainable only in the short term. Therefore, it is particularly disappointing to hear Alasdair Morgan take the stance that Brian Monteith took last year. Alasdair Morgan's position is entirely contrary to the belief of the Finance Committee and Scottish business that the Parliament should give primacy to capital spending.
Does the member accept that spending an underspend on tax cuts is entirely different from spending efficiency savings on tax cuts?
I accept that. It is interesting that both Alasdair Morgan and Ted Brocklebank concentrated on efficiency rather than EYF. Perhaps that is because the EYF and financial management figures represent such a positive management story for the minister and the Executive.
I make a couple of important points to Alasdair Morgan. It is a bit hypocritical of a party that in Inverness welcomes the relocation of SNH to take a different stance on the matter in Edinburgh. The SNP should say the same thing in different parts of Scotland. I would be more tolerant of the SNP's economic stance if it did not pretend to be a business party in some debates and a spending party in others. The reality of the SNP's constitutional position requires the party to adopt the stance that was taken by prominent SNP representatives in the 1980s, who said that if independence left them with tattie peelings, that is what they would eat. The SNP pretends that Scotland can achieve independence at no financial cost, but there would be a very substantial financial cost and there is a black hole in the party's calculations.
The SNP consistently tries to deny it, but that black hole is apparent in the sums. Jim Mather is fond of producing spreadsheets, but all his spreadsheets point him down the old bog road.
Does Des McNulty, who is the convener of the Finance Committee, think that it was an efficiency to move SNH from Edinburgh to Inverness at a cost to the taxpayer of £30 million, in return for savings of perhaps £2 million over three years?
That is an interesting and questionable proposition. Perhaps the improvements to the relocation policy that the committee suggested will ensure that the benefits and costs of relocation are properly scrutinised in future.
I return to a slightly more consensual position. I am sure that my colleagues on the committee applaud the clarity of the document that we are considering today. Ted Brocklebank might demur a little, but the principles that underline EYF, the improved presentation of financial information and perhaps in particular the new annex, which explains shortfalls, will greatly assist us not just in understanding the current position but in conducting the more detailed scrutiny that will take place in the autumn. The committee appreciates the minister's comments on its proactive approach and values its good working relationship with officials in the Finance and Central Services Department. However, I emphasise that the committee will continue to be willing and able to criticise when that is necessary.
I note that the Executive is already considering the 2006 spending review. The Finance Committee is also considering the matter; our clerks and advisers are working on background papers for committee members to consider during the summer recess. The deliberations on the priorities for SR 2006 will be greatly assisted by the greater stability in financial management that is reflected in the information that is before the Parliament and by the changes in presentation and process that were agreed with ministers. EYF is an important innovation and has fostered such improvements. Today's story is good news for the Parliament, the Finance Committee and the minister. There are signs of definite improvement and I welcome the opportunity to debate the improvements and highlight the fact that they were achieved through consensus, good work and a rigorous approach, which must continue.
The motion's title begins, "Financial Management", which is a much wider topic than the matter of whether we manage to reduce the underspend. Des McNulty said that the Executive should be congratulated on the reduction in "expenditure slippage", which I think was a newly-crafted phrase. However, what counts is not as much what we spend as what we get. The efficient management of large amounts of money is what matters and that is the main topic for the debate.
I want to address transport, which is in my portfolio, and to use two examples to demonstrate that the Executive has failed to use its substantial resources effectively. First, let us consider the intended repurchase of the Inverness airport terminal private finance initiative. The PFI was approved by the Labour Government in 1998 and the terminal cost £9.6 million. A £3 million grant was awarded and Noble and Company Ltd, the merchant bank, provided the remaining capital of around £6 million. This week, Nicol Stephen announced in Inverness that the PFI contract would be bought out. We do not know the buy-back price, but we expect it to be around £25 million. The merchant bank that currently owns the PFI has already received nearly £9 million, which means that under the PFI investment by the Labour Government—it was initiated by the Conservatives; I will not leave them out—a private sector merchant bank invested £6 million and eight years later the current owners will receive a return of £34 million, £35 million or £36 million. That represents a 600 per cent return in eight years. Can any member who supports PFI, whatever their perverse ideological reasons for doing so, justify that deal?
The Scottish Executive tried to buy out the PFI contract a couple of years ago and I am informed that at that time a lower price was agreed, but the negotiations were not completed. The precise reasons for that remain cloaked in official secrecy—it is helpful to be able to argue for commercial confidentiality when one needs to cover up one's economic incompetence. However, there is an opportunity cost of around £20 million, because that amount of money would have been available if Inverness airport terminal had been built through conventional procurement by the Government. In effect, £20 million has been wasted.
Secondly, let us consider the M74 extension. I am an ardent supporter of the project, which is necessary for the economy of central Scotland and Glasgow and will reduce fatalities. Indeed, the number of fatal road accidents in Glasgow has fallen from 141 in 1967, before motorways were built, to 13 in 2003. The economic arguments for the project are compelling. Of course, the Executive likes to indulge in its favourite weakness of premature congratulation. I know that Mr McCabe does not believe Executive press releases, but I remind him that a press release from the Minister for Transport and Planning on 11 October 2001 was entitled, "M74 extension to begin". However, in 2005 there are no obvious signs that a yard of concrete has been laid. The Executive likes to make premature announcements; it also likes to hold public inquiries that cost £1 million when it has already made up its mind before the first word of evidence is heard.
What is happening now is far more serious, which brings me to my main point. The Executive has not followed a prudent management policy in its procurement programme. Its particular failing was identified by a witness who gave evidence on behalf of the civil engineering sector to the Local Government and Transport Committee on 9 November 2004. Neil Johnstone of the Institution of Civil Engineers said:
"The existence in the programme of several substantial or chunky projects presents challenges for programme management. One way to deal with that would be to have flexible responses ready to deal with hiatuses in the delivery of any project. That could be achieved by creating a preparation pool of projects".—[Official Report, Local Government and Transport Committee, 9 November 2004; c 1385.]
Delays can occur in projects for all sorts of reasons. If the Government is to fulfil its role of ensuring a steady stream of work for the civil engineering sector, it has to have a prepared pool of projects that can fill any hiatuses.
What has happened with the M74? I have here a confidential document from the Scottish Executive Enterprise, Transport and Lifelong Learning Department on the Scottish motorway and trunk road programme at February 2005. The only major project for 2006-07 was to have been the M74; that was the only A-category project of more than £150 million. B-category projects are valued at £100 million to £150 million, and there are no B-category projects in the programme. Instead of having work of a value of up to £500 million to do, the construction sector is suddenly without that work.
What has been the major problem in the construction sector over the past decades? Boom and bust. What has prevented the construction sector from bringing back apprenticeships and creating stability in employment? It was the boom-and-bust economy, to which the incompetence of successive Governments in failing to create a preparation pool contributed.
Scotland, second only to Denmark, has the highest percentage of its people in employment. Employment is higher than it has been at any time in our history. Mr Ewing speaks of a boom-and-bust situation, implying that people are being thrown on the scrap heap and that human capital is not being properly used in Scotland. However, we have more people in work than we have had at any time in our history. How does he square that circle?
We certainly have many more people on invalidity benefit than we have had before. It all depends on how statistics are measured. I was addressing specific points on the lack of the creation of a preparation pool and on the lack of a sound approach to managing procurement contracts. The minister has not responded to those points and neither has the Minister for Transport.
I see that Mr Purvis is going to try to enlighten me. Here is his chance.
Did Mr Ewing hear the announcement of the next stage of the Dalkeith bypass? The bypass will serve people in the Borders; it is perhaps one of the projects in preparation to which he refers, and it will be delivered before the M74 project. Is that not a perfect example of what he says is lacking?
No, it is not. The M74 project involves three contracts with a total value of around £500 million. If Jeremy Purvis wants to study the document, I will give it to him later. In it, he will see that the planned programme does not contain enough projects of sufficient size to fill the gaps.
Did I make up the Dalkeith project?
Projects are being brought forward but it will be interesting to see details on the timing. There are not enough projects because the Executive has not prepared its work properly and is not running public finances properly. The Executive presents ideas as plans but they are not plans at all because the details have not been thought through.
Whether it is the SNH relocation—a decision that was taken for purely political reasons—the concessionary travel scheme that was announced in December 2004 but for which the details had not been worked out, or the lack of a preparation pool, it seems to me that the Executive has failed to heed the basic lesson that it should have learned from a gentleman who lived in a house just across the road from this building. That gentleman bequeathed to the world the process of rational analysis as the means of governing. His name was Adam Smith. Instead of applying sound management to the expenditure of the public purse, the Executive is far more concerned about tomorrow's headlines, premature announcements and political hits. As long as that is the case, the Scottish public will be rightly sceptical about what we get for the increase in expenditure about which we have heard this morning.
I have been in this Parliament for six years and, although I could claim to be a stranger to this particular debate, I am no stranger to sound financial management and the wider economic issues. I make no apology for wanting to widen the discussion on the economic aspects.
The Scottish Executive's spending power is almost totally bound up in United Kingdom economic factors. We cannot avoid that. In the recent general election, it was sad that economic issues did not really come to the fore. Many people will have imagined that Gordon Brown has created some kind of economic miracle.
Will the member give way?
I will give way later but not right at the moment.
The economy that Gordon Brown inherited in 1997 has served him very well indeed. Tony Blair boasted of that inheritance in Amsterdam in 1997; he said that it had put Britain top of the European economic league. Unfortunately, Gordon at first embraced prudence, then divorced prudence. That will catch up on him and, sadly, the Scottish Executive will not be able to avoid the consequences. The impact of changes at UK level could well affect the Scottish Executive budget in the future.
As far as I can see, the Chancellor of the Exchequer has two options. One is to put constraints on public expenditure. Such constraints will hit Scottish Executive budgets because reduced amounts will come through the funding channels. The other option is tax rises. Either of those options will be bad for the Scottish economy.
To meet the objectives in "A Smart, Successful Scotland", or to live up to Jack McConnell's and Tom McCabe's new slogan about Scotland being the best small country in the world, we will need investment. We will also need lower taxation if businesses and industry—what is left of it—are to succeed in future.
Alasdair Morgan said that our block grant is set to rise to something like £28 billion by 2008. Therefore, the grant will have almost doubled in the eight years since Labour came to power. Expenditure will have doubled but, as Fergus Ewing suggests, we must ask how that ties in with the public's perception of the services that are being provided.
In part, this debate is about wise management of the finances that are available to the Scottish Executive. I am sure that some members will question that management, perhaps in other debates when we are discussing services.
At which point in the economic cycle would the member like us to return to black Wednesday, when we saw the inglorious sight of a chancellor dancing in and out of the Treasury and announcing yet more hikes in interest rates as our economic reputation crashed and burned?
I would hate to return to black Wednesday and I would hate to return to the conditions that led to all-party support, right across the chamber of the House of Commons, for our move into the exchange rate mechanism—a move that I never felt would be to our advantage. That is one reason why I have continually opposed UK entry to the euro. Perhaps the minister will accept that the Tory Government made a mistake in moving into the ERM having listened to Labour, Liberal and nationalist voices. However, we got out of the ERM and, thereafter, the Tory Government did indeed enhance the country's economy—so much so that Mr Blair was able to boast in Amsterdam about Britain's strong economy. Therefore, there will be no overall apology from me about the Tory Government's policies.
The fact is that, if the UK Government were to cut back on public expenditure, the Scottish block grant would fall. Perhaps that is one of the reasons that the minister uses to justify ensuring that the Government has an underspend year after year.
Scotland is fully committed to the UK Government's efforts to meet the Gershon targets. However, although Jack McConnell wants not just to accept Gershon but to go further than that, there has been little evidence of progress on that front to date. The Minister for Finance and Public Service Reform promised a streamlined Government that would employ fewer people overall. Once again, much of the evidence shows that the reverse is happening: after falling for seven consecutive years up until 2001, the figures for public sector employment have risen significantly in the years since then. Unfortunately, I do not have the figures for 2004, but perhaps the minister will tell us about them.
Sadly, while public sector figures have gone up, we have seen the reverse trend in the figures for private sector employment. Although they moved upwards in the same seven years to 2001, they have gone downwards ever since. The Government may claim credit for the gain in employment, but the fact is that it has been in the public sector and at a cost to the public purse, which suggests that the wealth creators in our society are not being given the opportunity to create wealth. The minister boasts about the employment figures, but we must also take on board Fergus Ewing's worthwhile point about the number of people on invalidity benefit.
My next point might be seen as coming from somewhat of an obtuse angle. Recently, I read a Convention of Scottish Local Authorities publication that set out the massive advantages that Glasgow has gained from the influx of asylum seekers into the city. However, if we analyse that, we see that the only gains that Glasgow has made are from the additional public expenditure that has come through the benefits system. Once again, if the overall economic position is studied, the negative effect is clearly seen.
I promised earlier that I would give Des McNulty an opportunity to intervene.
It seems a long time ago. I intervened because I wanted to point out to Phil Gallie that the vast majority of people to whom I spoke during the election campaign told me that the economy was a significant issue for them. The reason why Labour won such a considerable victory is that people think that Gordon Brown's stewardship of the economy and the Labour Government have been highly successful.
I accept Phil Gallie's point that the Conservative party made considerable mistakes in the 1980s and the 1990s, as a result of which the Labour Government was given a positive trajectory on which to move into Government. The Labour Government's considerable achievement has been to maintain and develop that trajectory of prosperity to such an extent that Britain is seen as the economic miracle of Europe—
I call Phil Gallie.
I hope that the Conservatives will learn from that that—
I do not want a speech. I say to Des McNulty that the turnaround in the country's economy dates back to the 1980s, when hard decisions had to be taken to change the direction of British industry. The processes that the Conservative Government introduced have been followed worldwide since then, so much so that we have seen a rise in the overall global economy. The solutions to the problems that the Conservative Government faced in the 1980s gave rise to the successes of the 1990s, on which Mr Brown has lived since 1997. Perhaps that justifies the steps that we took at the time.
I say also to Des McNulty that the people whom he believed when they told him on their doorstep that they thought that the economy was in good hands will not feel quite so good once the effects of the cutbacks in public expenditure and increases in taxation come into being. Time and again in the Parliament, members have complained about the personal debt problems that individuals face. The issue will return to haunt us. Issues such as that might change the feel-good factor to which Des McNulty referred in his intervention.
The current underspend could be put to better use. It could be used to address the uniform business rate to which I referred in my intervention on Andrew Arbuckle. The fact is that by bringing down business rates, we will improve the employment position—I am talking about the real employment that the wealth creators of our country generate. Indeed, when the new Liberal Democrat leader is elected and takes on the role of Deputy First Minister, I hope that he will make that point in Cabinet, so that we can get Jack McConnell to backtrack on the folly of a few years ago when he got rid of the uniform business rate.
Like Phil Gallie, I am not a member of the Finance Committee. I come to the debate from the perspective of my position on the Enterprise and Culture Committee and as a constituency MSP. I recognise that the efficient spending and management of Government finances in Scotland are important across all budget headings to deliver the health, social, cultural and—most important—enterprise improvements that the Government wants to see.
Budgeting is an inexact science. In fact, if someone were to show me a budget head that has come in consistently spot on year after year, I would be able to show the chamber either someone who is so conservative that nothing good will ever come out of their work or someone who is fiddling the books. Of course, if a budget head comes in wildly under or over estimate, we also know that there are problems.
Being responsible for a budget is much more likely to lead to knives in the back than the pats on the back to which Andrew Arbuckle referred. That is my experience from the political jobs that I have done in the past; I expect that it is no different for other members.
I congratulate the Executive on the measures that it has taken and on its quick reaction to the proposals of not only the Finance Committee but the Enterprise and Culture Committee. I welcome the activities and actions that form the background to the debate. I am thinking of measures such as the net investment rule to increase capital spend by at least 5 per cent in each year and the infrastructure investment plan. I am sorry that Fergus Ewing has left the chamber, because I wanted to say to him that the infrastructure investment plan will allow business for the first time to gain the stability that it needs to plan its workforce and the financing of major capital projects.
Efficient government is much derided in the chamber. Nevertheless, given the investment that has gone into Government infrastructure over the past few years, particularly since 1999 in Scotland, surely efficient government is only right and proper. If we do not see some benefit from the investment that has been made in connectivity, broadband and information technology, there would be something wrong with Government planning.
Will the member tell the chamber what the net increase in the value of Government infrastructure has been since the establishment of the Scottish Parliament?
I am sure that that figure is available to the member and that the Scottish Parliament information centre will provide it if he asks.
The 2004 spending review will invest £85 billion in Scotland over the next few years to deliver on the priorities in the partnership agreement. The longer two-year timescale to which the minister referred gives the opportunity to provide better information and better planning, and a far better opportunity to make changes in a reasoned manner. Many people have spoken about Government making decisions quickly—particularly on spending—but those decisions being bad decisions. The two-year timeframe, as well as all the other measures, including five-year budgets for local authorities, will ensure that the changes that are made are considered changes.
I agree with the member. Does she agree that we need to roll that process out further down, because far too many bodies, for example those that depend on council funding, know only one year in advance what their budget is? We need councils, other grant-giving bodies and central Government to roll out a two-year forward look.
If the member had heard many of the comments that I have made in my previous life, he would know that I entirely agree with him. There are now good examples of three-year partnership agreements being made, particularly where the Executive has delivered funding across public sector bodies, for example for some of the social care budgets.
I am pleased that the SNP agrees with the strategy. As Shona Robison said to conference:
"The days of the wish list in the SNP are over".
In "Building a Nation", Kenny MacAskill said:
"Politics is about hard choices … difficult decisions need to be made … the SNP cannot simply be in favour of everything and against nothing. Nor can it call for ever greater expenditure from a limited budget."
I am sure that everyone in the chamber agrees with him. Nevertheless, my briefing goes on to detail in 17 pages SNP members' calls for additional spending. I lost the will to live as I read them. We have calls for increased spending on roads, health, justice and local authorities, but no sense that there is any appreciation among SNP members of how, cumulatively, the policies would be implemented or paid for by the Scottish public. If that is what independence would mean for Scottish taxpayers, it is no wonder that they consistently fail to vote for it.
Is the member trying to tell me—because she is clearly drawing comparisons—that none of the Labour members of this Parliament ever calls for any expenditure that is outside the budget? I am sure that their constituents would be interested in that.
No. While I have been pleased to praise the Executive, it is not entirely off the hook because, although much has been done, there is much more to do. If we are to meet my aspirations and those of other members in the chamber for increased spending in certain areas, we need to examine the overall management of the budget.
I ask Parliament to support me in calling for increased powers for ministers, which I do not often do. Either the First Minister or the Minister for Finance and Public Service Reform should have the power to oblige officials in Executive departments to co-operate with one another, to collaborate on the more efficient use of their budgets and, more important, to report back to ministers on how they do that. Ted Brocklebank asked for a move away from a culture of intervention and interference. On this issue, I am calling for more intervention and more interference.
I support the motion in the name of the Minister for Finance and Public Service Reform.
I support the Executive's motion. I was delighted to hear Mr Gallie tell the tale of the weak Mrs Thatcher who gave way not only to the liberal voices in her Cabinet in the late 1980s, but to the consensus in the chamber among the tartan Tories. Of course, the only thing that separates them is the issue of independence but, as Mr Brocklebank has said that there could well be a coalition between the SNP and the Conservatives, I am sure that Mr Fraser can sort that out. [Interruption.] There will be a new leader, perhaps slightly later than 3 o'clock this afternoon.
It is good to hear that, as soon as I leave the Finance Committee, the Government decides to shorten the budget process. Thanks.
Alasdair Morgan tells us that it does not take much imagination to spend money, but the SNP has singularly failed to have any imagination; it has not put forward a single alternative budget. While we have an opportunity to analyse the Scottish Executive's record on financial management—
Threadbare.
I hear "threadbare" coming from the SNP benches. Perhaps that is the alternative budget from the SNP.
We have had a further opportunity to analyse the Executive's record on financial management, but of course there is no means of questioning the SNP or the Conservatives on the matter. I remind the chamber of what Jim Mather said in the last budget debate:
"In the short term, the SNP would pursue radically different spending plans that would create a more competitive Scotland".—[Official Report, 27 January 2005; c 14041.]
To date, we have not seen any of those plans.
Will the member give way?
I give way to Stewart Stevenson. Perhaps he has some "radically different spending plans" for us.
No, I merely want to ask the member whether he can confirm—as he appears to be doing—that our finance spokespeople will have access to officials and to all the many numbers that we are not given. If that happens and we work with officials, as we want to do, we can prepare for Government and deliver a budget that will truly deliver for Scotland.
Mr Morgan told us that it does not take much imagination to spend the money, but it takes even more imagination to imagine the SNP preparing for and being in Government.
The SNP stated in the most recent general election that Scotland could secure a $600 billion income windfall from 28 billion barrels of oil. However, if that is predicated on its plan to have 10 per cent corporation tax, the cost of a barrel of oil would have to be $180, not the average of $55 this year or $10 five years ago. The SNP proposition would build structural instability into our financial affairs. The SNP wants to copy Norway, but denies the fact that Scotland's most recent economic growth is greater than Norway's and that Norway's oil fund is paid into only when it has a budget surplus. As Mr McNulty said, there is a deficit in the Scottish budget.
Why is it sensible to have a debate into which the member throws fantasy figures? My party has never proposed a 10 per cent corporation tax rate. In the election we proposed a 20 per cent corporation tax rate.
Mr Mather indicated that the Scottish economy needed a sprinkle of magic dust. [Interruption.] I am sorry; it was "fairy dust". As Mr Mather endeavours to get his figures right, I want to quote him correctly.
Let us move on to another area in which Mr Mather has had difficulties, and that is the population. The population is relevant to debates about the economy and our budget. It is right that we focus on utilising our best economic asset—our people—because we need a budget to deliver public services for our people. In one memorable debate, Mr Mather said that he did not trust the figures of the registrar general for Scotland because they were Scottish Government figures. Finally, Mr Mather admitted yesterday that the population in Scotland is growing, but when it comes to trusting Government figures he turns to the UK Government Actuary's Department. Thank goodness for the UK Government, Jim. Last night, he said that the figures show that there will be a decline in the Scottish population by 2073. My Auntie Irene could probably make accurate predictions for 2073, but it seems as if Mr Mather seeks to extend his game of nationalistic ambition—his slogan will be not that we will be in heaven in 2007, but that we will be free by 2073.
Mr Brocklebank wants us to go beyond Gershon. At the outset of the efficient government review in Scotland, I stated that it was right that the Scottish Executive's approach, unlike that of Whitehall, was not predicated on job losses, but Mr Brocklebank seems to think that it should be. However, he will not tell us how many jobs should go—he got close, but he got cold feet.
Will the member give way?
I am sure that Mr Gallie would agree that it is unlike the Tories to shy away from job losses. I am sorry, Mr Gallie, but I do not have time to give way.
The member has plenty time.
As I have plenty time and as I enjoy Mr Gallie's interventions, I will give way.
When Mr Purvis criticises the Tories for talking about job loss targets, that ignores the fact that Mr McConnell and Mr McCabe are on record as having done something similar. Does Mr Purvis accept that, as they are his partners in the Executive, he has some responsibility for their words?
Mr Gallie is wrong that the Executive has stated that there is a job loss target in Scotland. The Executive has ensured that the efficient government programme is much wider than that.
As Gershon estimated a net reduction of 70,600 jobs in United Kingdom civil service jobs, I would welcome a comment from the Conservatives on their target for job losses in our civil service.
Will the member take an intervention?
Not at the moment—I need to conclude my remarks.
Given the Conservatives' excoriating attack on the efficient government programme, it was a little odd that Mr Monteith and Mr Letwin adopted the then efficiency savings target of £745 million as part of their proposed cash savings to allow tax cuts in Scotland. The fundamental error was not to have read the Executive's proposals, which stated clearly that any efficiency gains would be retained directly for front-line services. Mr Brocklebank and Mr Morgan both want us to give money back to taxpayers; they say that there are differences between efficiency gains, general tax cuts and end-year flexibility, but I do not think that there are differences. All taxpayers' money should be managed efficiently and effectively, no matter which category it is in. There is no concept of free money.
I recently invited the chair of the minister's oversight group for the efficient government review, John McLelland, to visit the Borders to see a project through which local agencies are taking the lead: the new sheriff court in Peebles. The building is owned by the council, but it hosts the sheriff court and is to host a police station. The project is an example of effective and efficient use of taxpayers' money. As that example shows, the idea is not necessarily to provide tax cuts, but to deliver better services for the taxes that we pay. That is the ambition in today's announcement and in the Scottish Executive's budgeting, which is why, year after year, when the SNP and the Conservatives present no alternatives, Executive budgets will gain support in the country.
I welcome the debate on financial management. I am pleased that we have moved away from the largely synthetic fury about end-year flexibility, although Ted Brocklebank did a Brian Monteith and argued against the entire notion of end-year flexibility with his suggestion that all underspends should be returned in the form of tax cuts. That proposal is entirely ridiculous, because people want the money that they give Government to spend on their behalf to be spent well and efficiently; they do not want underspends to be given back in tax cuts, whether in the uniform business rate or income tax.
For the record, what is the Green party's policy on the uniform business rate?
As the member knows, the Green party believes in a system of land value taxation, which is a new idea for taxing all properties in Scotland. In Pennsylvania, the shift from a rating system to a system of land value taxation has led to economic regeneration because the new system provides a sensible incentive for properties to be filled, unlike the business rate system, which provides no such incentive. Murdo Fraser would be wise to consider the proposals for land value taxation, which are attracting increasing support from across the political spectrum as being a sensible way to tax and to provide proper incentives for wise use of natural resources such as land.
As I said, the debate has been more about efficient government than about end-year flexibility, which I welcome. However, in debating efficient government we should not talk about out-Gershoning Gershon nor should we have an artificial debate about particular targets. Rather than arbitrary figures, we should talk about maximising efficiency. We should not get tied up in trying to prove whether we are better at cutting or better at efficiency than other countries are; we should maximise efficiency rather than stick to arbitrary figures. I am sure that the issue will come up a lot in the Finance Committee, of which I have just become a member in place of John Swinburne. I look forward to many fruitful discussions on efficiency.
The debate is a welcome opportunity to discuss financial management. I ask the Executive again what progress it has made on the pledge that the First Minister made almost three and a half years ago that all spending would be assessed for its impact on sustainability. From where I stand, many of the Executive's recent spending decisions seem to bear no relation whatever to sustainability and sustainable development objectives. Plans to develop air routes and build motorways are hard to reconcile with the Executive's claim that there is a green thread to its governing. In that light, I share Des McNulty's concerns about transport spending and the figures that we have just received on it. Transport has by far the largest underspend of any portfolio, at about 7.5 per cent of total spending. From the details, it is clear that the underspend is due mainly to slippage in the M74 road building project—it accounts for £43 million out of the £93 million total underspend on transport.
I never thought that I would say this, but I agreed with many of Fergus Ewing's comments on the M74 extension. His comments on the Executive's premature celebration were well made, as were his points about the Executive opening a public inquiry when it had already made up its mind what the outcome should be. The report of the public inquiry showed that there was no economic, environmental or social case for the M74 extension.
I will give way to Fergus Ewing.
I will spoil the newly emergent consensus by asking Mr Ballard whether he accepts that part of the reason for the 12-month slippage in the M74 project is the threatened court action by Friends of the Earth Scotland and JAM74—joint action against the M74. Does he support that court action and, if so, how does he square that with his new commitment to maximise efficiency given that, by his actions, he causes further slippage, delays and underspends?
I welcome the court action by communities in Glasgow, represented by JAM74 and Friends of the Earth Scotland because the reporter's comments show that there is no case for the project.
Will the member give way?
No; I must move away from the M74. I look forward to future Finance Committee debates on the issue. The way in which to maximise efficiency is to get rid of the M74 and invest in public transport in Glasgow instead. That would provide an efficient and environmentally sustainable transport system for Glasgow and would be efficient spending of Government revenue. I look forward to hearing Des McNulty's report on transport spending, including the Scottish Executive's clarification of public transport spending targets, especially the oft-repeated claim that 70 per cent of the transport budget is spent on public transport. One of the issues with the budget process is the way that capital and depreciation costs are not factored into the transport budget. The figure for public transport spending does not include the proposal for the M74. That is why we need much clearer analysis of the large amounts of money that go into capital and depreciation, in terms of what we are really spending on transport infrastructure.
If we are to move towards efficient and effective analysis of spending, we need to acknowledge the growing consensus that efficient and accountable financial management is unlikely to result from a system whereby the Executive spends the money but is not permitted to raise it. As Alasdair Morgan said, spending what is, in effect, a handout from the Treasury is quite easy, but real financial management will come when we have more financial autonomy in Scotland.
We need to address the fiscal imbalance. Only then will Scottish ministers be fully accountable to Scottish taxpayers and only then will the full responsibility for Scottish financial management rest in Scotland, where it belongs.
I thank the minister for his kind words about the Finance Committee. He is clearly a man who enjoys a vigorous argument. I am sure that there will be more vigorous debates in the future.
I welcome the changes in the budget process that have been made in the past year, and I welcome ministers' acceptance of the Finance Committee's recommendation to establish a biennial cycle so that in years in which there is no spending review we do not have stage 1 of the budget process. That has freed up a fair amount of time for the Finance Committee, and for other committees to scrutinise spending on their remits more closely. It has enabled the Finance Committee to initiate its in-depth and on-going inquiry into the efficient government initiative, and the Education Committee aims to include financial interrogation in its forthcoming inquiry into early years education. In time, it might enable committees to suggest alternatives for budget expenditure, which we have not been particularly good at doing in the past. More committees are appointing financial advisers, which means that Parliament as a whole is gaining a base of independent advice, so we should be able to improve the quality of scrutiny of the budget in future years. I hope that that will help the Executive to continue with its improvements in financial management.
I agree with the Executive motion; there has been improvement. It is a little churlish of those who have lodged amendments to try to delete that statement, because it is clear that there has been improvement in financial management and a fall in underspend, which we should welcome. The Scottish Executive's departments have reduced their underspend by 67 per cent since last year to £183 million. The Executive as a whole underspends only 1.2 per cent of its budget, which compares well with the European Parliament and with Westminster. We need to say that the Scottish Executive is doing well.
As members have said, the arm's-length bodies have not done quite so well. Their underspend is down by 23 per cent, but it is still more than it was two years ago. Last year the underspend was reduced significantly by an overspend in national health service and teachers' pensions. As Des McNulty said, we need to highlight and welcome the improvement in Scottish Water's performance, because in previous years it exercised the Finance Committee and Parliament that Scottish Water was unable to meet its expenditure allowances. The fact that it has brought its underspend down to only £18 million this year should be welcomed.
Of the total £281 million that has not been spent across Executive departments and arm's-length bodies, 86 per cent is money that could not be spent on capital programmes in one year and is therefore being carried forward to other years. That leaves only about £40 million to be redistributed, which is a really small amount of money. Alasdair Morgan, who is not here at the moment, suggested that we hand that money back to taxpayers, but that would not make a great deal of difference. That is an example of the Executive's managing its finances more efficiently.
I agree with what has been said about transport. I hate to rain on Nicol Stephen's parade on what is probably an exciting day for him, but the performance of the transport department is lamentable compared to that of other departments, with £93 million of slippage. I will not talk about the M74, but I will use an example that is more local to me: the A75. In September 2003, Mr Brownlee's predecessor was told in a written answer that one of the seven projects to improve the A75 was to start in the winter of 2003-04, four were to start in 2004 and two were to start in 2006. On 27 February 2004, I was told that one was to start in 2004-05, three were to start in 2005-06 and two were to start in 2006-07. At the beginning of this year, Alasdair Morgan was advised that four of the remaining six projects were to start in 2005-06 and the final two were to start in 2006-07.
Since then, I have learned from correspondence with the Minister for Transport that the work on the Hardgrove to Kinmount stretch in my constituency—the cost of which had increased between 2004 and 2005 from £6 million to £9 million—will now not start for another two years. That sort of thing causes a great deal of frustration to communities and to elected representatives. We have a similar problem on the A7, on which a commitment was made two years ago—of which Mr Robson will be aware, because we welcomed it at the time—to upgrade approximately 3km of the A7 at Auchenrivock, but we still do not know when the work will commence. I have lodged another question, so perhaps I will elicit that information. It is frustrating when we see such projects slipping: we need to do better.
I turn to the amendments from the Tories and the SNP. Ted Brocklebank might want to do better than Gershon, but we have heard evidence in the Finance Committee that part of the reason why there are different approaches in the Scottish Executive and at Westminster is that we do not have the great big departments such as the Ministry of Defence and the Department for Work and Pensions, which can make large job cuts. When the Tories and their coalition partners in the SNP, and maybe even the Greens, because there was a wee bit of agreement there, come into office in 2007—ha ha—what jobs will be lost? They cannot discuss Gershon and not tell us how many jobs they would cut. How many jobs will they cut?
I remind Dr Murray of two things. First, we did not introduce the Gershon argument; it was introduced by the First Minister, who boasted that we in Scotland were going to out-Gershon Gershon. Secondly, she asks us how many jobs we would cut. She should ask Tom McCabe the same question, because he is yet to put a figure on the number of jobs that he will cut.
The Executive has indicated that a small number of jobs might be lost, but Mr McCabe has never come to the Finance Committee and said that he was going to do the same as Gershon. Ted Brocklebank needs to answer the question.
There is interesting agreement between the SNP and the Tories now that they want to give money back. It is interesting to hear the SNP calling for reduced public expenditure, which makes a pleasant change from its normal long list of spending commitments. Given that Mr Morgan wants to give the money back, is he suggesting that the slippage from the A75 projects should not be spent on the A75 in Dumfries and Galloway, but should be handed back to the business rates payer and the council tax payer? Is he really suggesting that the money be handed back and will he stand up in Dumfries and Galloway and say that the A75 improvements are not going to take place?
I start by commenting on the Executive's excuse for the late arrival of the information to support the debate. Apparently, the Executive is worried about issues being debated in the press before they are debated in Parliament. Given that the Executive has more leaks than a kitchen colander, that is a bit of a cheek. We should first have had a statement and supporting information and then been given time to digest it and ask questions before the debate. I hope that the Executive will take cognisance of that in the future.
There has been a lot of talk today based on figures, efficiency and managing money, but there has not been much discussion about people and what their reaction might be to the information that has been published today, given that some people have had to have food parcels distributed by the Salvation Army because of the messing up of the tax credit system by the Labour Party at Westminster. People will ask why we do not have the power or the autonomy to prevent such destitution, why we do not have the flexibility to alleviate it and why it is up to the Sally Army to alleviate it.
On specific budgets, perhaps there is a wee bit of reluctance to take the fizz out of Jim Wallace's retirement party today. The underspend in the transport budget has rightly been focused on, but the next worst underspend has been by the Enterprise and Lifelong Learning Department. Scottish Enterprise has 10 directors, each of whom earns £100,000 a year. We must ask them serious questions about what they have done to earn that money. Perhaps it is time for that money to be used to boost the economy and workers' terms and conditions by helping to reduce the working week to 35 hours. Perhaps using it for such things would be more effective in creating jobs than the 10 directors of Scottish Enterprise seem to be, with their £100,000 a year each.
Given the needs—and, in some cases, the destitution—of families, many people out there will be aghast at the figures. Apparently, one reason for the underspend in the enterprise and lifelong learning budget is that fewer loans than expected have been paid out. However, students must take on one, two or three jobs to take them above the breadline despite the underspend in that budget, which is shameful.
NHS workers and teachers will be aghast to discover that £39 million has not been spent on pensions. Public sector workers have been threatened with having to work until they drop—until they are at least 65 or 70; indeed, it has been predicted that they will have to work until they are 75—and they will rightly be shocked to discover that £39 million could have been in their pension funds, but is not. That they must consider strike action to protect their pensions is disgraceful. Why should they? Will the £39 million be diverted to their pension funds to prevent them from having to work until they drop dead?
Does Carolyn Leckie have any understanding at all of how public sector pensions work?
Absolutely. I am a contributor to a public sector pension scheme and I have negotiated public sector pensions. I know all the conditions and can go into intricate detail on the NHS superannuation scheme if Des McNulty wants me to do so. I think that everybody else would be bored by that, but if he wants to meet me outside the chamber for coffee, I will tell him how things work. Obviously, he does not know how things work.
Nursery nurses will be utterly aghast because there has been a £16 million underspend in the education budget. The total cost of settling the nursery nurses' dispute completely on their terms, having met every demand that they made in the national dispute, would have been £22 million. They achieved gains as a result of the dispute, but they received nowhere near that figure and there appears to have been enough room in that budget to have saved nursery nurses the hardship that occurred as a result of 11 weeks of all-out strike action, and to have saved children the hardship of missing out on their early years education. The Executive claims that it supports and values nursery nurses, but why did it sit on £16 million in the education budget when the dispute could have been resolved and the drop in morale among nursery nurses and the 11-week strike avoided? That is a disgrace and a shame. Nursery nurses will certainly be aghast.
The M74 has been referred to. It is astonishing that Fergus Ewing thinks that the protesters, by opposing a clearly wasteful project—the M74 reporter found it be to be wasteful—are somehow to blame for a transport budget deficit. The M74 plans should be scrapped and the money should be diverted. That money should be spent on public transport. Spend the money on trains, spend the money on infrastructure and spend the money on buses. It is disgraceful that the money is sitting there when the M74 is clearly a flawed project. The money could be better spent.
It is also depressing that on the Tory benches, the Scottish National Party benches, the Labour benches and the Lib Dem benches—across the chamber, apart from the Scottish Socialist Party and the Greens—there is consensus that we should out-Thatcher Thatcher. To propose tax cuts in the context of what is happening in our current economy is to propose even greater cuts than there were under Thatcher. In fact, for eight years under Thatcher the higher rate of income tax and corporation tax were much higher. What the SNP is actually telling us today is that Thatcher did not go far enough and that it wants to go even further. That is an absolute disgrace.
It is interesting that Jeremy Purvis was prepared to claim that the Executive has pledged that there will be no job losses as a result of its efficient government plans. I ask the minister to confirm that it has made that commitment, because I would be delighted if members could send out the message that there will be no job losses.
The SNP's mantra is that there should be tax cuts, but there are many opportunities to make a difference to people's lives with the money that is available to spend, despite there being a block grant and our not having the autonomy to introduce better progressive taxation across the board. Some £46 million of the underspend could be spent on scrapping prescription charges and £173 million could be spent on free school meals. Why do we not talk about the positive pro-health measures for which the money could be used? Why is the mantra that there should be tax cuts repeated? That brings shame on Parliament.
I start by making a simple point. There is a clear difference between being efficient in spending money and spending money efficiently. The Executive is to be commended for being more efficient in spending money—maybe—but whether it is spending money efficiently is another question altogether.
Last year, there was an underspend of £515 million and the figures for this year that we have just been given indicate that there will be a possible £183 million underspend. However, that tells us zip about the core issues that are involved in spending Government money.
I am absolutely delighted that we have been joined by a good sprinkling of people in the public gallery for what would normally be a geeks' debate full of technical discussions and so on. However, I will not disappoint: later in my speech I will bring new information and understanding to ministers and others.
One or two things in the document that was embargoed until 9.15 this morning spring off the pages; I refer, for example, to demand-led charges under the health heading. I am not talking about big money, but am interested in what the words suggest. As a result of lower-than-anticipated expenditure on demand-led dental services, money has been saved. Perhaps that gives us a little keyhole view into why money is being underspent in certain areas. Underspending may mean efficiency, but no one is likely to claim that the underspend on dental services is anything other than a failure to manage services effectively. However, I pay tribute to the dentist who yesterday extracted the tooth that I have here. It is still possible to obtain access to dental services and I am extremely grateful to him for his effective and efficient work.
Is the tooth a wisdom tooth?
Fortunately, all my wisdom teeth are not only intact but in perfect working order. I wish that I could say the same of others in the chamber.
I challenged the minister, during his statement, on the difference between cash savings and time savings. I understand that they are different—it is perfectly proper for the minister to say that. However, if they are to be savings, time savings have either to be returned to someone as savings or spent to create a new benefit. They are not just a paper thing—they should have some tangible meaning. For the minister to use my intervention as an excuse simply to attack the SNP—which is always fun for him, as it is always fun for us to attack him—is to reveal his poverty of thinking and understanding about what time savings really are. It has been said that God has the best tunes, but I think rather that God has the best arguments. I remind the minister that, despite rumours, he has yet to convince us that he is God.
The iron chancellor tells us that the UK economy has recently enjoyed the most spectacular continuous growth for more than 200 years. As a result, we have seen a growth in Scottish spending; however, we are the beggars at the door, asking for our share of that supposedly tremendous economic record down south. We are not being given the opportunity to make our own bread and earn our own way in the world.
Christine May tells me that I can go to SPICe and find the value of the infrastructure in which we have been investing. That is very encouraging; however, so far, I find that that is not the case. I have here the draft budget and all the updates. In tables 0.06 and 0.07, there are private finance initiative figures that touch tangentially on the issue of capital. Nevertheless, the reality is that we are given only an income and expenditure statement, as we have been given in previous years. We do not have a proper statement of assets and liabilities, and we do not know the capital efficiency or inefficiency of our investments because the information that would enable us to form a view is not available. I hope that the Finance Committee will work with ministers on that, because that would help ministers to make judgments about future capital spending and to understand the maintenance costs that are associated with capital spending. At the moment, the linkage between those things is imperfect.
Of course, public-private partnerships and PFIs introduce a whole new problem. We have rehearsed on many occasions the interest rate inefficiencies of the contracts that are written, which result largely from the fact that PFI contracts are allocated to single-purpose companies. That means that the risk is captured within the boundary of that company rather than being—as in the SNP's proposals—shared across a portfolio of projects, which would dramatically reduce the overall risk that would be assessed by banks in considering lending to public projects. It is not about bringing things back on to the balance sheet; it is about getting better value from our banks. At the moment, we are probably 64 basis points above the base rate on PPP lending. I know, having asked the people who would have to be involved, that we could probably bring that down to 8 or 10 basis points.
Jeremy Purvis is clearly not an economist. I make no claim to be one either, but I occasionally talk to and listen to economists. A reduction in taxation—be it corporation tax or whatever—does not tell us intrinsically whether the tax take will rise or fall. I draw his attention to the Laffer curve that shows that, in some circumstances and within certain limits, we would increase the tax take by increasing economic activity.
Will the member give way?
I am sorry. I do not have time.
I also direct Jeremy Purvis to the elasticity of demand formulas that govern the way in which the market works. There is not a linear connection between tax rake and tax take.
I close with one or two other observations. We have heard of projects—especially large capital projects—being delayed. The minister must acknowledge and be accountable to Parliament for the fact that, when a project is delayed, its cost rises. That is not simply because of the effects of inflation; it is also because the optimum length for a project is 0.4 of the cube root of the number of man months in the project. If attempts are made to speed up the project, the cost will rise. Equally, if the length of the project increases, with the same amount of effort being made, the cost will rise. The reason is simple: if people have to put the work down and pick it up again, they will have to re-learn and re-do work. That is my understanding of the way in which projects work. The problem is that the Executive has yet to explain the inefficiencies of delaying projects.
I thank the minister for giving us the opportunity to respond on the core issues of what the Executive does with our resources and how we manage those resources to maximise the benefits that we get from them. A range of views and perspectives have been expressed in the debate as we have sought to address the issue effectively.
I am a member of the Finance Committee. At first, I thought that it was a gulag that members were sent to if they had misbehaved. It has turned out to be an interesting committee that is helping the Executive to become more effective at government. In that context, I welcome members' contribution to the debate over the past year or so.
The debate is about recognising that efficiency matched with investment can impact not just on what is delivered—which is what many members of the Opposition parties have addressed this morning—but on the culture of organisations by changing the mindset and encouraging innovative and new ways of thinking. Funnily enough, the debate has been one of wistful remembrances of times past—à la recherche du temps perdu, in the words of Proust.
The Tories have presented a picture of a Tory legacy that Phil Gallie says is worth remembering. For the first time, I agree with him and I thank him for drawing our attention to that wonderful Tory legacy. The Tories themselves destroyed the myth that they are economically competent. Since 1992, they have been bitterly divided and they are virtually unelectable to be a majority in the Parliament. I thank the Tories for that legacy, which Phil Gallie so proudly presented this morning.
We have also heard a series of key SNP spokespeople make calls for tax cuts not just for businesses but for ordinary taxpayers. Alasdair Morgan suggested that taxpayers be given a financial dividend. He added that we should not create more public services but make the existing public services more efficient. I cannot disagree with that. To cap it all, Fergus Ewing fondly remembered the role of Adam Smith in Scotland's economic history. That is a markedly different tone of language from that which we heard when we first entered the Scottish Parliament in 1999—almost what one might call a retro-nationalism of the 1970s, perhaps wrapped in a shawl but driven by tax cuts. It is what my father euphemistically called a tartan Tory approach.
That approach seems to work until one reads the small print of the key commitments and calls that are made by the SNP's front-bench members. Christine May produced pages of such commitments from the SNP. It ends up being—to mix metaphors—a wish list of North Korean length that relies on Brigadoon economics, although it is Brigadoon without the gentleness and the moments of epiphany.
The speeches of Des McNulty and certain other members have got to the heart of the debate, and some of what Alasdair Morgan and Ted Brocklebank said also shows that there is a reasonable degree of cross-party unanimity, except among members to the extreme left. I will touch on a couple of the issues on which there is cross-party agreement.
The first area of cross-party agreement concerns how we can manage our resources effectively. I welcome the fact that the new Tories acknowledge the need to match our spending in health and education. One characteristic of the election that took place earlier this year was that we managed to shift the debate in British politics, with the Conservatives accepting that they must match the commitments that have been made by the chancellor to health and education—only beyond 2008 would there be the marked difference that has been identified in the Conservatives' figures. That commitment would have been inconceivable in the 1980s, and it is a tribute to Gordon Brown's clever custodianship of the chancellor's job.
The second area of agreement is the commitment to making a difference to the public agencies for which we have responsibility. The Finance Committee's role is to ensure that there is discipline at both ends. There should be discipline and rigour in our analysis of the figures that are provided by the Executive and civil servants. I would euphemistically call examining those figures an interesting experience, but we are exploring the issues and, during the next few months, I hope that we will arrive at firm conclusions that will benefit everyone in Scotland, but particularly those key departments and agencies. We should also send a message of discipline to those agencies. Many people have talked about Scottish Water and that has been helpful to the debate, because there is now much more rigorous discipline at Scottish Water.
We want to move beyond the small but important debate that we have had today on end-year flexibility—although substantial progress has been made on that—to the much bigger debate on what public expenditure should be used for. There are differences between the parties on that issue. I do not agree with those members who oppose the M74 extension, because it is a critically important part of the development of the economic infrastructure of the west of Scotland. It will make us competitive and allow us to deliver much of that agenda. I never thought that I would see the day when Tom McCabe was described as a cheeky colander; I welcome the minister to the politics of the SSP.
We have made progress in the management of our resources. We have legitimate areas of difference about the role of the state in our nation and about the economics of we organise that. The Executive has made progress in the past year. I welcome that and hope that we can continue that partnership.
I am not a member of the Finance Committee and sometimes find these debates a little dry. Today's affair has been rather more lively than usual; it has been quite entertaining in stretches.
Will the member give way?
In a second. Let me make this point. The debate has been enhanced by the length of the speeches; allowing members a little longer to make their speeches improves the debate. That seems to be the point that Mr Morgan was about to make, and I am grateful to him for not taking up time with an intervention.
As Ted Brocklebank said, we should not spend too much time congratulating the Executive on the reduction in the EYF figures, because they are still high. It is most worrying that they are highest in enterprise and lifelong learning, with £61 million, and transport, with £93 million. As we have heard on many occasions, it is those two areas of spending that have the most impact on economic growth, which we are always being told is the Executive's top priority. Clearly, there is more to be done.
We welcome the Government's drive for efficient government but it remains to be seen how effective that is going to be. The key point in that came out in several speeches. If the Government is going to save on costs, it will have to tackle the number 1 cost, which is the wage bill. We cannot talk about efficient government unless we are prepared to accept that that will mean a reduction in salary costs. To be fair, the minister has acknowledged that. I say this for the benefit of Jeremy Purvis in case he missed it. In an interview with The Times, the Minister for Finance and Public Service Reform said,
"I have been quite specific - I have said we expect to see an increasing number of people working in the front line, but less people overall."
To those in the other parties who ask how many people we would cut, I say, "You tell us how many jobs you are going to cut," because that is what the minister has made a commitment to do. We have to start reducing the size of the public sector. The point has been made many times before in the chamber. The public sector in Scotland consumes 54 per cent of gross domestic product. It is difficult to have a growing economy with that brake on private sector activity.
Although the savings that are being made by the Executive are welcome, they could be higher. The Executive could do better. Professor Arthur Midwinter says that another £240 million of savings could be found if the Executive applied the Whitehall figures. There is much more to be done.
Does the member agree that the Scottish Executive efficiency programme is not predicated on job losses? If the Tories were to adopt the full Gershon review, which is predicated on job losses, what would their targets be for job losses?
It is extraordinary for Mr Purvis to say that the Executive is not suggesting that there will be job losses when I have just quoted the minister saying that there will be job losses. Perhaps Mr Purvis should get in touch with the minister and listen to what he has to say.
We should not forget the Executive's past performance. Since 1999, there has been a £50 million increase in administration costs; the number of Scottish Executive staff has increased by 1,057 and the number of other civil servants has increased by 556; an additional £137 million has been spent on quangos; and, of course, the Parliament building was £390 million over budget—and it does not even have a proper system of temperature control, as we have found out during the past few days. If the Executive is genuine about efficient government, it will have our support, but there is much more to be done.
If the Executive has too much money and there is a yearly underspend, it should return that money to its taxpayers. Governments have no money and no right to money. They only have the right to tax the people for the money that they need to spend on their programmes. Every penny over and above that need is stolen from the people and should be returned; otherwise it will be spent in areas that are, by definition, not priorities. We know that the Parliament has limited powers of taxation—I am not going to go down that road this morning—but it could cut the council tax by giving more money to local authorities, and it could cut business rates.
This week, the Scottish Chambers of Commerce launched a new campaign for a return to the uniform business rate. We have made that point many times in the past. The Chambers of Commerce likened the business rate differential to
"being asked to run a high hurdles race with lead weights attached to their feet".
It is interesting to watch the way in which a political consensus is developing on that issue. We have been talking about cutting business rates for many years now. The SNP has now started talking about doing that, and the contenders for the Liberal Democrat leadership are now talking about doing it. Perhaps Mr Rumbles will take the crown this afternoon.
Will the member give way?
I am sorry, but I am in my final minute.
If Mr Rumbles takes the crown this afternoon, he will tell his partners in the Executive to make the cut, or perhaps it will be Mr Stephen who wins—whoever it is, there will be a strong voice in the Executive for a cut in business rates. It will be interesting to see who the new Minister for Enterprise and Lifelong Learning will be. If it is Mr Stephen, or even Mr Rumbles, will we have a minister who is on the record as saying that business rates should be cut? We await that with pleasure. However, I suspect that the new minister responsible for enterprise will be a Labour member, because Labour members of the Executive will not want to take the risk of leaving that portfolio in the hands of a Liberal Democrat. I hope that the Executive will listen to all those voices and support a cut in business rates.
I will start by offering Des McNulty the analogy of an annual general meeting. If someone turns up at an AGM and criticises the company for its turnover and financial performance, they are deemed to have criticised the management of the company and not the company itself. That is exactly the stance that we take with Scotland.
It is clear to me that not only does the Executive not take that attitude but it has no profit-and-loss-account or balance-sheet mentality. It is difficult to achieve efficiency in a spending-only vacuum. I was happy to hear the minister mention further steps and I hope that we will hear more about that in the weeks and months to come.
The proposition that we have in front of us is unlikely to impress any financially autonomous legislatures. It is also clear that no amount of constructive dialogue or improvement is likely to be enough on its own to transform the Scottish economy and achieve the true efficiencies that are necessary.
Of course, EYF is better because it means spending the money rather than losing it, but it simply means business as usual elsewhere. It is not a true investment and revenue-boosting strategy. It is a limited, short-term strategy that will not generate meaningful growth.
Andrew Arbuckle provided evidence that the growth gap between Scotland and the rest of the UK not only continues but continues at a higher level than has been the trend over the past 30 years, so the outlook is not as good as it might be.
The position of Scottish Water has been consistently boosted by some members, who have welcomed its frugality in liberating money for EYF, but that puts Scottish Water's position in the frame once more. I stick to my proposition that Scottish Water is successful in as much as it is an Executive tax, which is the position that was espoused in the minority report back in 2004. The evidence for that is to be seen in Scottish Water's accounts for this year, which show that its £527 million capital spend has been 85 per cent financed by water charge payers, so that anomaly continues. Given the further £18 million that Scottish Water has liberated today, the total amount that it has liberated back to the Executive over the past four years is £374 million, which represents £75 per head of population in Scotland. No doubt there is more to come, so this issue will not go away.
On efficient government, of which we had much talk earlier, there are clearly a considerable number of flies in the ointment. That was exposed by the well-argued concerns of my colleague Alasdair Morgan and by Fergus Ewing's powerful case studies, which I think should persuade most fair-minded people. The issue that comes to the fore for me is the funding of Scottish Water, which is, as I said, an issue that will run beyond now.
Perhaps the key fly in the ointment for the Executive's efficient government initiative is the position that has been taken by Audit Scotland. It has deep concerns that the Executive is
"double counting some efficiency gains, and associated development costs are largely omitted from savings calculations."
In fact, both the Minister for Finance and Public Service Reform and his deputy have told the Finance Committee that many of their figures for savings were not net of depreciation and redundancy costs. We will no doubt hear more from Audit Scotland as the weeks and months go past, as some non-departmental public bodies have confirmed in conversation with us.
A major fly in the ointment for the efficient government initiative is what I might call the numeric oscillation that has taken place. Savings that were first given as £500 million were then changed to £650 million and then to £745 million. After Scottish Water was taken out of the figures, the total dropped back again, but additional NHS efficiencies were then added in. Today, I think that the figure is £731 million over three years, although the total becomes £1.5 billion if the time-releasing efficiencies are included. The figures are all over the place. What we need from the minister is a structured, tabular audit trail of how we got to this point.
However, the biggest fly in the ointment is the question mark that hangs over the savings. The risk is that the savings might simply be exported to other budgets and that we will potentially have false economies in procurement and in stockholding costs. Changes in procurement could even have an impact on the top priority of economic growth if they result in orders being placed outwith Scotland and outwith local areas.
The question mark over efficient government was highlighted by Richard Parry, who is a reader in social policy at the University of Edinburgh. His written evidence to the Finance Committee states:
"Historically, public bureaucracies and especially the British civil service periodically go through cuts exercises in which the cost of the operating the public sector, untested by day-to-day market forces, is subject to cuts targets usually presented as attack on ‘waste' or a shift to ‘front-line' activities … The targets are seldom fully investigated retrospectively and eventually the heat comes off."
He throws in a bit of humour by quoting "Yes, Minister":
"I can't resist quoting a memo written by Sir Humphrey Appleby to his colleague … ‘am hoping it will be like all the other government economy drives – three days of press releases, three weeks of ministerial memos, then a crisis in the Middle East, and back to normal again'".
Unfortunately for the Scottish Executive, as a devolved Administration, there will be no such distraction. The heat will stay on because there is evidence that, by creating false expectations, ministers have created a rod for their own backs.
That rod for their own backs will take the form of the desire for outcomes. If we are to have £1.5 billion extra from savings, we need a baseline for what the outcomes would previously have been and we need a baseline for what outcomes will be achieved with that additional money. The difference that the savings will make needs to be spelled out. Audit Scotland's endorsement of that approach as a rational thing to do can be read in the Official Report.
Beyond that, I support Alasdair Morgan's amendment because Scotland has been rated by the International Institute for Management Development as 57th out of 60 for its management of public finances. The IMD believes that the management of public finances over the next two years is likely to deteriorate. Being 57th out of 60, Scotland is down there with Venezuela and Argentina. Taken together with Audit Scotland's caveats, that justifies our approach. The fact is that we have no outturn numbers, so we are not in a position to applaud any outturn that might have been achieved. Therefore, I am very happy to support Alasdair Morgan's amendment.
Tom McCabe's opening remarks set out a number of pointers that demonstrate the growing maturity of our financial discussions. Indeed, when I was asked to sum up, I recalled that I was present in 1999 when the Parliament's first Minister for Finance attended his first Finance Committee meeting. That minister was, of course, none other than Mr Jack McConnell, whose birthday it was that day, if I recall correctly.
I have been impressed by the good-natured spirit in which members from all sides have approached the debate. In fact, until a particular part of Des McNulty's speech, I was slightly worried that I had intruded on a mutual appreciation society involving the Finance Committee and the Minister for Finance and Public Service Reform. Although Andrew Arbuckle commented that he could not pat himself on the back, it is clear that the Finance Committee has done well. As Tom McCabe mentioned, its achievements were recognised at the politician of the year awards. Indeed, I may even draw one or two lessons to take back to the Education Committee when I next appear before it—although it might be going a stage too far to suggest that we could abolish stage 1 debates in the education world.
I will start by drawing members' attention to some of the details—some of which have already been highlighted by others—that are set out in the supporting document that was published for today's debate. I will then try to respond to the points that members have made. Members will have seen that our provisional outturn data show that, in 2004-05, the Executive spent £183 million less than was approved by the Parliament in the spring budget revision. Arm's-length bodies such as health boards spent a further £98 million less than their budgets, which were approved at the same time. It is worth pointing out that those figures are provisional, as the final figures will not be available until our accounts are published at the end of the year.
Taken together, that shortfall represents only 1 per cent of the approved budget. To put that another way, it represents less than three working days' spending. As members will know, such resources are not lost because the system of end-year flexibility allows us to carry those amounts forward into the next financial year, subject to the Parliament's approval through the normal in-year revisions to the budget act.
Will the minister give way?
I will do so in a minute, but let me make just one further point.
For example, although my department underspent its £786 million allocation by 2 per cent—equivalent to about four days' expenditure—some £11 million of that was due to a lack of local authority calls on the changing children's services fund and some £5 million was due to slippage in development of the secure estate. I should point out for the benefit of some members that if we simply removed that £16 million of non-recurrent expenditure by paying it out into people's salaries, none of the money would transfer to the following year, so we would have taken away money from children's services and from secure estate development. Indeed, I also refer members to the effect that that would have on the early years review, which will report in the autumn.
Bearing in mind the constructive view towards savings that the Executive is taking, I note that the European funds were overspent last year. Will the minister confirm that some of those funds were wasted in a pursuit to equip ourselves for the euro? Will he assure me that he will now abandon any such moves?
Expenditure under the European structural funds has been immensely important. That should be obvious to Mr Gallie as a member for the South of Scotland, where some £44 million has been made available over the past six years. Some of us look to secure that type of investment in the future by whatever channel is appropriate.
Will the minister give way?
I must make progress, but I will come back to the member.
I want to spend a little bit of time on some comparisons. Members will want to know how our spend against the 2004-05 budget compares to performance in earlier years. Some will recall that the headline figure for the Executive's carry-forward at the end of 2003-04 was just over £400 million. Members should be aware that the numbers are not directly comparable. Following discussions with the Finance Committee, the Executive changed the basis on which the numbers are presented in order better to reflect the decisions taken by the Parliament, rather than routinely following the historical format used by Westminster. Those members who are not members of the Finance Committee may welcome a brief explanation of those changes.
Will the minister concede that there are certain areas where the underspend will be a shock to some people—particularly demand-led dental services, where there is an underspend at a time when an increasing number of people cannot get dental treatment?
I will come back to that point in a moment, when I have completed what I was going to say. The first advantage of the new presentation is that we now present outturn against the budgets approved by the Parliament, not in relation to Treasury control aggregates, which are calculated on a different basis. Secondly, the provisional outturn data that we have published today are now provided on the same basis as the final outturn data that are published in our accounts at the end of the year. Thirdly, the provisional outturn is now against budgets that we fully intended to spend when the spring budget revision was laid. Where we have spent less than that budget, that is all due to spending taking place later than intended, and we can have a sensible debate about the reasons for such slippage without first having to untangle elements that we never intended to spend in that financial year.
As Tom McCabe made clear, it would be fair in some ways to say that we have moved away from a presentation carried over from before devolution to one that is more appropriate to our Scottish context. I want to make one point about comparisons. Despite what Jim Mather was saying, comparisons are useful. By comparison with our 1 per cent underspend against budget, the European Commission underspent its budget by 5.5 per cent in 2003-04, while across Whitehall the average carry-forward in the same year was about 10.6 per cent. This year's numbers are not yet available for any of those bodies, so our Parliament has the earliest possible access to the numbers.
Of course, the closer we bring our outturn against budget, the greater the possibility that individual Executive departments will exceed their budget limits. As the supporting document shows, the Development Department and the Justice Department are in that position this year. For both those departments, exceeding the limit is a technical breach, and it would not be fair to suggest in either case that there has been any failure of the department's systems to manage its budget properly. In both cases, our annual accounts procedures have identified specific items of spending that were not included in the budget, for which we now believe that parliamentary authorisation was required. Further details are in the supporting document and ministers will be discussing that with the Finance Committee and the Audit Committee in due course.
Several members mentioned the need for transparency, and we need to look at underlying obstacles to greater transparency. The key is that we now work under three different but parallel financial control frameworks. I do not particularly want to go into the details of all that, because it is a bit dry, but—
We like that stuff.
If Alasdair Morgan likes that stuff, perhaps I will leave it for his deliberations at the Finance Committee. There is some value in considering whether we should have those three forms of currency and whether we should move to a simpler set of measures in the future.
In the two or three minutes remaining to me, I would like to respond to some of the points that have been made. I am sorry that I will not be able to cover all the points that have been made. First, I want to comment on Phil Gallie's point about levels of personal debt, which must be a matter of concern. I think that it is more a function of the availability of credit, which is not a matter for this Parliament. Jeremy Purvis mentioned the Rosetta Road office in Peebles, which combines front-line services and ensures good delivery of services to the public.
Much mention was made of the transport budget, and it is important to recognise that £87 million was underspent, with the M74 extension, at £43 million, accounting for the main bulk of that. There was also a major scheme at Auchenkiln, on which there was a £15 million underspend. The Minister for Transport recognises the point about the delivery of smaller schemes, such as the ones that Elaine Murray mentioned.
Can the minister respond to my argument that, although there are some schemes that can and will be brought forward, there are not enough schemes, because there is not a sufficient preparation pool?
You are in your final minute now, minister.
As I have less than a minute, I will point out to Fergus Ewing that I am not too sure that he is right. It is a question of preparing a large number of schemes, and I see no shortage in the number of desirable schemes around Scotland. However, the Minister for Transport will no doubt want to take up the points that Fergus Ewing has raised.
I turn briefly to the question of job losses. Members must understand that there is a major difference between the departments in Whitehall and what we have here. Whitehall departments are working on a UK basis and they also deal with England and Wales, so they are bigger departments. One element of the debate that has been completely missed is the demographic element. The Executive has embarked on careful workforce planning for the future, so simply talking about job losses in the short term is not a sensible way of proceeding. We must consider what the needs of the workforce will be not just over the next couple of years but over 10, 15 or 20 years. The Executive is busily involved in that, and my department and the Health Department have made major efforts in that direction.
I have a minute left, so—
No, you have not. You must wind up now, minister.
I have enjoyed the opportunity of intruding into matters that the Finance and Central Services Department and the Finance Committee have investigated in the past, and I look forward to the possibility of doing so again in the future.