End-year Flexibility
The next item of business is a statement by the Cabinet Secretary for Finance and Sustainable Growth, John Swinney, on end-year flexibility. The cabinet secretary will take questions at the end of his statement, so there should be no interruptions or interventions.
I welcome the opportunity to inform Parliament of the provisional budget outturn for 2008-09. As a clear demonstration of the Government's sound financial management, I am delighted to report that the provisional outturn for 2008-09 is expenditure of £27,944 million against a departmental expenditure limit budget of £27,975 million, which is an underspend of just £31 million.
The end-year flexibility of £31 million that has been generated by the provisional underspend is the lowest recorded total since devolution—lower than the £42 million in 2007-08. It represents approximately 0.1 per cent of our DEL budget, which is equivalent to less than half a day's spending by the Scottish Government. That is in contrast to previous levels of underspend, which peaked at £623 million in 2003-04.
The achievement of such low underspending reflects our proactive approach to budget management and our desire to make maximum use of the resources that are available to us. That has never been more important than at the present time, when the economy is in such difficulty. We have done, and continue to do, all that we can, within the limited powers at our disposal, to stimulate the Scottish economy and to protect jobs, skills, businesses and families during this difficult time.
At the autumn budget revision, we brought forward plans to accelerate the affordable housing investment programme in 2008-09 to the tune of £30 million; and at the spring budget revision, there was further capital acceleration of £53 million for transport, enterprise, the schools estate and the higher and further education sectors. I am delighted to confirm that that money has been spent as intended, and that overall we are recording a capital underspend of only £3 million against a total capital budget that is in excess of £3.3 billion. We intend to carry on that process in 2009-10, and we will continue to demonstrate that the economy remains our top priority. We are determined to use all the resources and powers at our disposal to minimise the current downturn's impact on the Scottish economy.
By once again minimising underspend, we have ensured not only that funds have been used as was intended, but that the end-year flexibility balance—which is held on account at Her Majesty's Treasury and is due to appear in its public expenditure 2008-09 provisional outturn publication in July—will have decreased significantly.
The opening balance of Scottish end-year flexibility at HM Treasury of about £950 million, which was published last July, will have fallen by nearly £280 million to about £670 million. I need hardly remind Parliament that that is Scotland's money, which is intended to be used for the benefit and in the interests of the people of Scotland. We have already shown that we will use the resources that are available to us for the benefit of the people of Scotland.
The unprecedented agreement that I made with HM Treasury as part of the spending review settlement has ensured that we have guaranteed access to £300 million of end-year flexibility in 2008-09; £400 million in 2009-10; and £174 million in 2010-11. That is a total of £874 million, which was factored into our spending plans, as outlined in the spending review document that was published in November 2007.
Outturn against the Budget (Scotland) Act 2008 limits will be published in the Scottish Government's consolidated accounts and is expected to show an underspend of approximately £269 million, subject to audit. That includes the impact of the original budget overallocation of £100 million, variances of approximately £50 million in roads capital charges, £14 million in the cost of capital for Scottish Water and a further £76 million, the largest element of which is a technical accounting adjustment in student loans. Those variances are outside the departmental expenditure limit and have no impact on delivery of our policies or on the resources that are available to the people of Scotland.
The underspend of £31 million represents our headline underspend figure and measures our performance in managing the Scottish block of public expenditure. It will ensure that resources are targeted as necessary to support the Scottish economy during these difficult times. However, in announcing that achievement, we recognise that there is no room for complacency. Efficient and effective management of our budget remains a key characteristic of the Government, and one that will prove to be invaluable as we move into a fundamentally different and fundamentally tighter public spending environment. Any examination of the medium-term perspective on the public finances, or a momentary glance at the level of debt that is now carried by the United Kingdom Government or at the UK current account deficit, demonstrates that any expectation of real-terms growth in public spending is not supported by evidence.
In the recent budget, the Chancellor of the Exchequer indicated a real-terms reduction in total managed expenditure, within which the Government will have to deal with the rising cost of unemployment and social security benefits. The consequences of those actions will be a real-terms fall in the departmental expenditure limit resource that is available to the Scottish Government. Recent estimates suggest that total managed expenditure at UK level will on average decline by 0.1 per cent a year in real terms between 2011-12 and 2013-14, which will produce a consequential real-terms reduction in our DEL of 2.3 per cent a year, as annually managed expenditure increases.
We also know that the Scottish Government will, as a consequence of the chancellor's budget, have £500 million less at its disposal in 2010-11 than was planned in the spending review. That will create a need to change our plans. We have already started to plan for the challenge that that will present in financing public services in Scotland. The Government is in discussions with other parties and will set out its proposals to Parliament in September.
The Scottish Government has managed, and intends to continue to manage, the budget effectively in the best interests of the people of Scotland. However, it is beyond doubt that we will have to overcome significant obstacles, which are put in our way by the financial arrangements under which we operate and by the budget decisions of the UK Government.
The Scottish Government has today announced the lowest-ever underspend by a Scottish Administration. It bears testimony to our sound and prudent financial management and demonstrates our intention to use all the resources that are available to us for the benefit of the people of Scotland.
I welcome Parliament's comments on the record low underspend figure of £31 million in 2008-09, which will follow this statement.
The cabinet secretary will now take questions on the issues that were raised in his statement.
I welcome the cabinet secretary's statement and thank him for having provided advance copies. I note that on page 4 he talks about the departmental expenditure limit falling in real terms. I simply remind him of the recent exchange of letters—which I am sure he saw—between the Finance Committee and his director-general of finance and corporate services, Stella Manzie, who admitted that the Scottish Government's departmental expenditure limit spending increases next year by 1.3 per cent in real terms. However, let us not be churlish.
Too late.
Mr Adam said, "Too late." He would know.
I welcome the direction of travel on end-year flexibility. However, I point out that a large part of the underspend in previous years related to some fairly major capital projects. It is certainly true that the pipeline of capital projects has run dry under the present Government, but be that as it may.
Mr Swinney said that he had agreed a £300 million draw-down for this year although, in an answer to a parliamentary question from my colleague Jackie Baillie, he said that the actual draw-down was £313 million. Has he spent all the £313 million and, if so, in which budget lines does the extra money appear? Will he also spell out from where the £31 million underspend for this year has come?
I will endeavour not to be churlish on this occasion. I gently point out to Mr Whitton that, if he looks at page 4 of my statement, he will see that I was referring to the financial years 2011-12 to 2013-14. The correspondence between the director-general of finance and corporate services and the Finance Committee, which I know Mr Whitton followed avidly, related—if my memory does not let me down—to budget year 2010-11. Mr Whitton will understand that, in that part of my statement, I tried to set out as dispassionately as possible that, in the period 2011-12 onward, whatever our dispute—[Interruption.]—and whatever gymnastics Jackie Baillie wants to perform, the medium-term financial position will involve real-terms reductions in public spending. No reading of the chancellor's publication in April would in any way lead us to question that assessment.
Mr Whitton commented on capital projects. I have given Parliament reassurance that the Government has spent to within £3 million of its £3.3 billion capital expenditure on traditional capital expenditure projects. Of course, a range of projects are in the pipeline, such as the M74 and M80 projects and the Airdrie to Bathgate rail link, not to mention the emerging schools, the Forth replacement crossing and the Southern general hospital in Glasgow.
Mr Whitton asked about draw-down from the Treasury. As I said in my statement, that is factored into our planning for the spending review period so, in essence, it makes up an element of the resources that we have set out. A publication with further details on the breakdown of the departmental expenditure limits, which sets out the background to the composition of the £31 million underspend, is available in Parliament.
I, too, thank the cabinet secretary for the advance copy of his statement. It refers to the unprecedented agreement with HM Treasury in relation to the spending review period. What additional flexibility in relation to end-year flexibility for later years has the Treasury granted since then?
On the broader strategy on use of end-year flexibility money, the significant draw-down of funding in the current spending review period has compensated for the fact that growth in the spending totals through the block grant was much reduced from that in previous years. Significant sums are being drawn down and spent under the plans. Given what the cabinet secretary and the governor of the Bank of England have said about the profile of public spending in the future, rather than drawing down and spending all the money now, might it be an appropriate time to reflect on and to consider whether it is sensible to build up an extra reserve to cushion further spending reductions that might be in the pipeline?
In approaching the spending review in 2007, I took the view that the change in the profile of public expenditure increases was so sharp in comparison with the previous spending review that we had to manage the transition. That is why I negotiated an agreement with the Treasury to draw down £874 million over three years.
As Mr Brownlee appreciates, once we have drawn down that money, our remaining resource in end-year flexibility in the UK Treasury will be relatively modest. The amount is not quite at the front of my mind, but it must be just less than £100 million, as a consequence of the announcements that I have made today.
The only other commitment that we have, beyond the three-year arrangement for this spending review, is that the Treasury has made it clear to us that we may use end-year flexibility to compensate for one change that arises from the chancellor's April budget—the reduction, which totals £129 million in 2010-11, in our capital baseline as a consequence of reductions in the UK Department of Health's capital baseline. On current form, the Government will have sufficient resources on deposit at the Treasury to make good that shortfall, but we are entitled to use those resources only once.
Once that has been done, and notwithstanding any underspend that is generated in 2010-11, the Government does not expect to have fresh resources on deposit at the Treasury, so the circumstances to which Mr Brownlee's question relates will not necessarily arise. Of course, if the opportunity is available, resources can be accumulated to protect public expenditure in more difficult circumstances. However, I am sure that Mr Brownlee understands, after following intensely this morning's debate, that the Scottish Government would not have control over such a resource under the current arrangements, so such a prospect would be rather undesirable.
I, too, thank the cabinet secretary for the advance copy of his statement and for an interesting element of the technical notes that are associated with it. The technical notes show clearly, with regard to the overallocation of £100 million that was put into the spending review period, that the Government presents in its calculation this year an overallocation balance of £80 million. When discounted, that shows an underspend on the DEL across the portfolios of £116 million and not £31million. A bit more clarity from the Government about how the overallocation in the table to which I referred has been used would be welcome.
Does the underspend figure relate to arm's-length organisations? The directly comparable figure when the Government took office was the provisional outturn in 2007, which was £106 million, excluding arm's-length organisations. The comparison was £106 million when the Government took office; this year, the figure is £116 million.
How robust are the provisional figures, which turn into the published accounts? The Government's accounts for the year ended 31 March 2008 were published in September last year. The last provisional statement by the cabinet secretary showed an underspend of £42 million. The DEL and capital underspend in the consolidated accounts that were published last September for that same year was £130 million, not £42 million. Will the cabinet secretary make a statement on the publication of the consolidated accounts and the provisional accounts? The most recent figures in those documents varied by nearly £100 million.
Overallocation is intended to encourage a process to avoid unnecessary underspends. Essentially, the Government has overplanned, so it has managed to deliver a lower underspend during the year.
Mr Purvis has invited me to make a comparison between actual expenditure and the level of overallocation, although he knows full well that I am required to make a comparison between actual spending and the departmental expenditure limit—that is the discipline according to which I have to deliver results. The realistic comparison is between actual spending and the departmental expenditure limit, which is my control total for public expenditure in Scotland.
Of course we published the consolidated accounts—otherwise, Mr Purvis would not have access to that information—but the information that Mr Purvis gave was not provided on a like-for-like basis. In my statement to Parliament today, I have provided a calculation of the provisional allocation in the same way as all my predecessors. Of course accounting adjustments are made when the consolidated accounts are completed, but the comparison that I have given Parliament today is entirely consistent with the approach that was taken by all my predecessors.
I congratulate the cabinet secretary on achieving the lowest underspend since devolution. That is yet further evidence of the prudent way in which he is managing the Government's finances.
As the cabinet secretary will recognise, it is not in the best interests of the people of Scotland either that billions of pounds of Scottish taxpayers' money languish in Her Majesty's Treasury's accounts, or that our account down there has zero pounds and zero pence in it. Will he advise us how he believes he can achieve the right balance to ensure that sufficient resources are available to be used at the right time by the Scottish Government?
Mr Matheson makes a fair point, which picks up on Derek Brownlee's question about the instruments of financial management that we have at our disposal. I can certainly see an argument for trying to create some form of reserve that could be utilised to deal with particular challenges within any given budget year, but my difficulty with that proposition is that we would be unable to control it. The reserve would need to be held at Her Majesty's Treasury, so any use of it would be dependent on agreement with the Treasury. Given that we are about to enter a public spending period in which the Treasury is likely to take a much greater interest in the scale of end-year flexibility and use of those resources, an arrangement such as I was able to negotiate in 2007 might not be available because of wider pressures on public expenditure resulting from the current economic circumstances and the condition of the UK's public finances.
I am trying, in my budget management strategy, to maximise the resources that we can deploy to deal with the challenging times that we face today and to manage pressures in-year. The outturn report will show exactly how we have managed those pressures. It is essential that we continue to deploy such stringent management in order to guarantee that we utilise resources effectively and fully in the interests of the people of Scotland.
I welcome the cabinet secretary's statement. I am not sure why he mentioned gymnastics, but I can tell him that the somersaults that he performs in the chamber are always interesting to witness.
The underspend of £31 million takes the total EYF available for 2010-11 to £270 million. That consists of the £174 million that was previously agreed with the Treasury, the unallocated £65 million and the £31 million that he has announced today. Let me repeat David Whitton's questions. Has the £313 million for 2008-09 been fully spent? How did the £31 million underspend arise? Those are questions of interest.
Looking to the future, has any of the £174 million for 2010-11 been allocated? Does the cabinet secretary have plans for that money? Does he agree that, with the prospect of £270 million of EYF in the pot, the funding is more than sufficient to cover the £129 million of capital that is required to counter the reduction in Department of Health spending?
I fear that more gymnastics are yet to come.
Jackie Baillie is right in her calculation of the numbers regarding the £275 million that will be available in 2010-11. Some £174 million of that has been allocated already—in the spending review in 2007. The spending review numbers that I published in 2007 incorporate £174 million. Where is it allocated? It is allocated into the profile of public expenditure, but it is a part of what I published in the indicative allocations in 2007.
The £100 million that is currently available, which is not subject to the 2007 deal with the Treasury, can be used to offset the change in the capital baseline because of the reduction in the Department of Health's capital baseline, but that can be used only for 2010-11. Essentially, £129 million of the £500 million, which I know commands such affection among Labour members, can be compensated for by use of end-year flexibility, but only in 2010-11. Of course, a new £500 million comes off again in 2011-12.
Jackie Baillie repeated some of Mr Whitton's questions. Of course, the drawdown of £300 million in 2008-09 was—just as the money has been factored into the spending plans for 2011—factored into the budget and was spent as part of the control total that I have set out.
Has it been spent?
Jackie Baillie is asking questions while I am answering. It has been spent insofar as we have an underspend of £31 million.
I add my congratulations to the cabinet secretary on his sound management of Scotland's finances, which has ensured that Scotland's budget is being used to Scotland's maximum benefit in these difficult times.
The Treasury has proposed that we fund the construction of the new Forth bridge by, among other things, allowing end-year flexibility to build up over a number of years and drawing down a lump sum. Does the cabinet secretary believe that allowing such a build-up would be a wise course of action, given the current economic circumstances?
The Treasury's suggestions about how we could pay for the Forth replacement crossing demonstrate clearly to any casual observer that there is no substance to anything that the Treasury has suggested.
The Treasury's plans were sensible.
Mr Whitton alleges that the plans were "sensible." I am sure that he will live to regret that remark.
The Treasury suggested that we should use the end-year flexibility of £130 million—that is what it will probably reach by 2010-11—to pay for part of the Forth crossing, but it is also telling us to spend it on compensating for the reduction in the Department of Health's capital baseline. We are all aware that we cannot spend money twice.
There are two real points to be made about payment for the Forth replacement crossing. One is that we have said that the Government will take the project forward under traditional capital procurement in order to ensure that we guarantee its delivery. That is exactly what we will do. The second is that projects of that nature would be enhanced if we could undertake prudent and prudential borrowing, which we discussed in Parliament this morning at length.
I agree with the cabinet secretary that, at this time, it is important to get the most out of the Government's resources. From that point of view, there is the opportunity for the stated objective of the Scottish Futures Trust to generate savings of between £100 and £150 million per year to make a positive contribution to the budget. How much in savings did the Scottish Futures Trust generate in 2008-09 and how much does the cabinet secretary forecast it will save in 2009-10?
I am glad that Mr Kelly is now beginning to change the tone of the Labour Party's contribution to the debate on the Scottish Futures Trust. We are now moving into an area of discussion in which we can focus on some of the practical benefits of the Scottish Futures Trust. He may be away up there in the back benches, but I am glad that that James Kelly is giving some leadership to members on the front bench—indeed, I am delighted. Long may it last. A role reversal would not go amiss.
The question was on the Scottish Futures Trust. Obviously, the SFT was established during the course of 2008-09 and now has a significant workload to undertake on the hub projects and school estate projects that are now under way. We will, of course, report to Parliament on the savings that we can expect.
The advantage of the Scottish Futures Trust is that we can reinvest the savings as the projects develop instead of losing access to resources. Some of the constraints of the financial arrangements within which we operate also make that somewhat more difficult.
I have real concerns on the Calman proposal to devolve 10p of income tax to Scotland, which could lead to an unexpected drop in income tax revenue. That, coupled with very limited borrowing powers, would leave the Scottish Government not with an underspend, but with a shortfall to report. Does the cabinet secretary agree that those proposals would leave Scotland in an extremely vulnerable position? Surely the Scottish Government would be forced to initiate swift spending cuts or have the prospect of being beholden to the Treasury for a last-minute bailout?
I am pretty certain that any reading of the Calman commission recommendations would leave that impression. If the Scottish Government were to take that approach, there would be no question of a last-minute Treasury bailout. After all, responsibility for management of Scotland's finances would have passed to the Scottish Government.
Linda Fabiani marshalled her arguments well in speaking in the debate this morning. Although there are advantages in having control of Scotland's income tax rates, if we are to give value to those powers, we have also to have control over allowances, criteria and the circumstances under which income tax is levied. Crucially, we would also have to be able to manage the consequences of a shortfall in income tax revenue. In order to do that, a broader range of financial powers would have to be made available to Parliament, which is why we are putting forward a compelling argument for fiscal autonomy—which has its supporters in different parts of the chamber and among members of all shades of opinion around the chamber. I look forward to Linda Fabiani's wise counsel prevailing on the issue, as it did in the debate this morning.