Financial Governance and Outcomes 2005-06
The next item of business is a statement by Mr Tom McCabe on financial governance and outcomes 2005-06. The minister will take questions at the end of his statement, so there should be no interventions.
Presiding Officer, I am delighted to have the opportunity to address the Parliament today, and to reflect on some of what we have achieved during the past financial year.
Today is an appropriate time for this statement, as the provisional outturn figures for the 2005-06 financial year have recently become available. This will allow me to report the outturn position against the budget authorised by Parliament in the spring budget revision back in January.
Full details of the underspend for 2005-06, and the resulting allocations to portfolios that they can carry forward into the next financial year, have been set out in "End Year Flexibility 2005-06", the document that I have published alongside this statement.
Last year, with the agreement of the Finance Committee, we moved away from reporting our outturn against only those budgets in the departmental expenditure limit—commonly known as DEL—and moved to reporting our outturn against all the budgets that are authorised by Parliament. I will focus more directly on those figures in a few moments.
Financial year 2005-06 has been another successful year for the Executive, especially as regards our financial management. Last year, Parliament authorised a total budget of £26.5 billion, which equated to around £5,230 for each person living in Scotland. Since devolution, we have seen the largest sustained rise in public spending in living memory. In recent years, with those remarkable resources, we have achieved much of which we can be proud, including delivering record levels of investment in our public services the length and breadth of Scotland.
Our overall investment is focused on our priorities: growing the economy; delivering excellent public services; supporting stronger and safer communities; and developing a confident, democratic Scotland. The money is delivering results across those priorities and is benefiting every community in Scotland. All of that is underpinned by the Executive's pragmatic and sensible approach to public finances.
As I mentioned, the details of this year's end-year flexibility are set out in the document that I published today, copies of which are available for members in the Scottish Parliament information centre. However, before I explain the numbers, I think that it is worth reminding members why we have the EYF process.
The process originates from the parliamentary principle of authorising budgets annually. When the Parliament approves the Executive's spending plans, it does so only for the coming financial year. If we have not undertaken all the spending by 31 March, we need to return to Parliament to have that expenditure re-authorised in the following financial year. To put that in context, every business, local authority and individual carries forward their money in this way. No one rushes out to spend everything that they have in their bank account before 31 March each year—of course people carry the money forward. EYF simply allows the Scottish Executive to do the same.
The end-year flexibility supporting document shows that in 2005-06 the Executive spent £171 million less than the budget that was approved by the Parliament in the spring budget revision. Arm's-length bodies such as health boards and Scottish Water spent a further £64 million less than their approved budgets. Therefore, our total underspend, from a budget of £26.5 billion, is £235 million. That is the best set of figures since devolution began. The total underspend represents only 0.9 per cent of our total budget.
It is important to stress that those resources are not lost to Scotland. They will be carried forward into this financial year through the EYF mechanism, whereby they can again be approved for use by the Parliament.
If we look at how this year's figures compare with those of previous years, the underspend of £235 million compares well with last year's headline figure of £281 million. I repeat that this year's figure represents the lowest level of underspend since devolution began. If we look at last year's figures for the average level of underspending across all other United Kingdom departments, we see that the Executive's proportionate underspend this year is lower. However, as I have said many times in the past, we fully recognise that there is no room for complacency.
We have come a long way since the advent of devolution. In 2000-01, levels of end-year flexibility peaked at almost £700 million. Back then, we reported those figures in what is known as DEL terms. The equivalent figure that we are reporting today is £139 million. If the figure that we are reporting today is compared with the far larger figure that we reported for 2000-01, today's figure represents just 20 per cent of the 2000-01 figure. That is another example of the steady progress that the Executive has made over the years.
I turn now to the resources that we currently hold at Her Majesty's Treasury. Over the last year, some people have severely misinterpreted that money and cruelly misled the public about how it will be used. I make it clear that the resources that are held at Her Majesty's Treasury are Scottish resources and that we will access them as and when they are required to deliver our commitments and programmes. We will neither rush headlong into excessive expenditure in advance of an election nor shrink from using the resources when they are required. Mr Swinney will be delighted to hear that over the next two years, following discussion and agreement with the Chief Secretary to the Treasury, the Executive will draw down in the region of £800 million. That will leave us sufficient headroom at Her Majesty's Treasury to deliver our ambitions and to cope with the challenges that the next spending review will bring. As is the case in the Scottish Parliament, the total budget for the Scottish Executive that the Westminster Parliament approves should be taut and realistic. With that in mind, we should draw down only the resources that we expect to spend—no more and no less. I further stress that the balance of the funding at Her Majesty's Treasury will be available to us to meet known pressures that have been identified by portfolios and for which resources have been set aside, and to help us to deal with the expected tighter 2007 spending review settlement.
What I have set out in my statement is good news not only for the Parliament, but for the good governance of Scotland. By effectively managing within last year's budget and having the ability to carry forward resources from last year into this year, via the EYF mechanism, we can deliver much more. Since 1998, we have been able to carry forward resources in this way and have ensured that our unspent resources remain ours to spend in Scotland and are not reclaimed by the Treasury.
As members will be aware, the 2006 spending review has been delayed for a year and preparation has started for the 2007 spending review. That review will set out the Executive's spending plans until 2011. As I have said, since devolution public spending in Scotland has been growing at an exceptional rate. It is unrealistic to expect that to continue indefinitely, but it is entirely realistic to expect that the 2007 spending review will consolidate the progress that we have already made. The remaining resources at Her Majesty's Treasury will give us the headroom that we need during that period of consolidation. The ability to use end-year flexibility in that way offers a tool for delivering effective financial management, allows us to put in place sensible long-term planning and sets our finances in good order as we move towards the next spending review.
I look forward to hearing others' perspectives on these matters and will endeavour to answer any questions that members have.
The minister will now take questions on the issues raised by his statement. I will allow up to 20 minutes for that process.
I thank the minister for his statement and for the advance copy of it that he made available to us today. I congratulate the minister on improving the Executive's ability to spend taxpayers' money. I say to him out of courtesy and consensus that he might find the experience of raising money just as enjoyable, if in the Scottish Parliament he had the powers of a normal finance minister.
The minister is quite right to contrast this performance with the lamentable performance in the early years of devolution. The year that he cited as the worst example, however, was 2000-01, when Mr McConnell was the Minister for Finance, so that was not a particularly career-enhancing move.
Will the minister tell us how much money that has not yet been allocated to public expenditure programmes is currently held by Her Majesty's Treasury on behalf of the Executive? Will he also say what plans he has to allocate the budget consequentials that were made available by the Chancellor of the Exchequer and what consideration he has given to using some of that resource to tackle problems relating to the funding of free personal care in countless local authorities in the country? Finally, does the minister accept that, despite all his protests to the contrary, his plan to draw down £800 million from the Treasury over the next two years is just a crude and blatant attempt by the Labour and Liberal Executive to buy its way through the next election, and that that attempt is doomed to failure?
First, I thank Mr Swinney for his warm congratulations to the Scottish Executive on its excellent financial performance this year. I am sure that our colleagues in the press gallery will duly note those congratulations. It is a delight to recognise our consensual approach to such important matters.
Consensus now ends as I say to Mr Swinney that, if I tried to keep pace with the spending commitments of the Scottish National Party I would get an enormous amount of practice at raising money. Not a day goes by without the SNP spraying more money about with not a concern for our economy or where that money would come from.
The reason why our performance this year has been so acceptable is that our approach to the management of finances in Scotland is so different from the irresponsible approach adopted by the SNP. That irresponsibility is reflected in how it tries to deprecate the £800 million that will be applied to the betterment of services and the Scottish economy over the next two years. It is quite remarkable that in this day and age, someone could indicate that that amount of money will somehow be less than useful to our economy.
Earlier, I said that the remaining money held at Her Majesty's Treasury is Scottish resources. It is available when we need it; it will assist us as we cope with the next spending review; and it will ensure consolidation of the remarkable progress that has been made in public expenditure in the years since devolution.
I also thank the minister for the advance copy of his statement. Those who are more cynical than I am might fear that the £800 million is a pre-election bribe. To lay our minds at rest, will the minister tell us about the timing of that spending and how much of it will happen before next May's election and how much afterwards?
Given the genuine concerns expressed by the minister about the cruel deception that I presume he attributes to Mr Swinney—I would be very disappointed if Mr Swinney were cruelly deceiving the Scottish people and I ask him to put that beyond doubt—will the minister clarify not just how much money is deposited with HM Treasury, about which he gave some figures to the Finance Committee last year, but will he provide in tabular format the changes in those figures year on year since 1999 and the uses to which the money has been put? Will he also clarify whether the Chief Secretary to the Treasury has any right to withhold that money, or whether it is entirely up to the Scottish ministers to draw it down as and when they see fit?
Mr Brownlee made a number of points. He asked for detailed information that I thought he might be aware of, as it has been published annually in the appropriate accounts documentation both at Westminster and in Scotland. If he refers to that documentation, published by the Public Accounts Committee at Westminster, he will find the information that he requires.
I said that we will draw down, over the next two years, in the region of £800 million. We will apply that as appropriate to meet our commitments over the remaining period of the current spending review. It is intended to meet the commitments that we have made and the programmes that are already set out.
I made it clear in my statement that we will not rush headlong into unnecessary expenditure before an election. We will do what is right for Scotland—we will spend money when it is right to do so and to the best possible effect.
I join John Swinney in congratulating the minister and the Executive on spending taxpayers' money, but I add my congratulations on spending it wisely, which I noticed Mr Swinney forgot to say.
In considering bids from the various departments of the Executive, will the minister look to encourage bids for measures such as the improvement of safety in our town centres so that we can once again make them strong and thriving places to which businesses will locate?
It would be wrong of me to give specific commitments in advance of our spending review discussions, but I can reassure the member that the thread of public safety runs through everything that the Executive does. I referred earlier to building safer, stronger communities, and public safety in our town centres and the smaller communities in our towns is extremely important to the Executive. Public safety and people's belief that they are safe in their own town and their own locality is central to what we are trying to achieve. The Executive has a range of initiatives—not least our antisocial behaviour initiatives—that are designed to address safety issues and provide increased reassurance to the population of Scotland. I give the member an absolute assurance that we will continue in the same vein over the period of this spending review and the next.
I welcome the latest figures from the minister, which show that we are down to low levels of cash carryover. The minister highlighted the massive increase in revenue expenditure, but major capital projects are now coming to fruition, thankfully. Is there a danger of inflating costs, particularly in the construction industry, because of the large amount of capital works that are under way? I refer specifically to Scottish Water.
We do not think that that is the case, and we have taken specific action to try to ensure that it is not the case. One of the most notable actions is, of course, our infrastructure investment plan, through which we have tried to pull together, over a much extended period, the capital works that will be available to the market. We have engaged with major Scottish construction businesses and financial houses to ensure that the market is aware of the opportunities that are coming along and that it can gear up for them. We have also engaged with a variety of institutions south of the border. For example, we held a seminar last year at the headquarters of Ernst and Young Global Ltd. We want to ensure that the market has the widest possible knowledge of the opportunities that are available because of the record levels of capital expenditure in Scotland. We are doing our best to ensure that the market can take the opportunities and prepare in a way that avoids the kind of situation that Mr Arbuckle highlighted.
I am grateful to the minister for making his statement available to members in advance. Clearly, end-year flexibility is necessary for the good governance of Scotland, but I am concerned about the levels of demand-led underspend that are shown in the Executive's figures. The unclaimed £50 million that was allocated to common agricultural policy market support and rural development programmes certainly rings alarm bells. Can the minister ensure that, in order to reduce future underspends, appropriate steps are taken to ensure that potential recipients of that funding are not only aware of their entitlement, but have all the information necessary for making applications? Can he also ensure that the timing of the application process does not conflict with peaks in the farming calendar?
We have many problems in the Executive, but getting people to claim money is seldom one of them, particularly in the area to which Mr Ballard referred. However, I assure the member that we are as committed as anyone else to ensuring that the people who should receive the funding do receive it. We believe that we have had a good working relationship with the agricultural sector for a number of years, which continues. I am not aware of the specific circumstances behind the figure to which Mr Ballard referred, but I give the assurance that we will do all that we can to ensure that the maximum number of potential recipients make a claim for the money.
I would like to focus on the underspends in the Enterprise and Lifelong Learning Department and Scottish Water. Given the problems at Scottish Enterprise, what scope is there to avoid forced discontinuities of service and delays in venture funding, particularly given that the Executive is jointly and severally liable for the failure to get to grips with the resource accounting and budgeting system at Scottish Enterprise?
On Scottish Water, I note that the under-borrowing is less than in previous years, but I also note that there is still considerable carry-forward from prior years' underspend. Will that money be fully available to Scottish Water in the period 2006-10? Further, will the Executive respond to the latest paper by Jim and Margaret Cuthbert—it will be published in the Fraser of Allander institute's quarterly economic commentary tomorrow—as it delivers yet more proof that the Executive and the water industry commissioner for Scotland contrived to have Scottish Water overcharge its customers, under-borrow, and understate its profits?
Mr Mather refers to a paper to be published tomorrow, so I am at a bit of a disadvantage. When we get the paper, we will consider what response, if any, we will give.
As Mr Mather knows, there is both a cash and a non-cash underspend at Scottish Enterprise. Under resource accounting and budgeting, that must be taken into account. The board of Scottish Enterprise has already indicated its plans for the next year. It has liaised closely with my colleague the Minister for Enterprise and Lifelong Learning, and he has ensured as best he can that the priorities set by the Scottish Executive are being adhered to by the Scottish Enterprise board.
I thank the minister for his statement, which—unlike other members—I did not see in advance.
The minister seems to be dressing up end-year flexibility as a cunning way of keeping our own money. The Executive's explanation of end-year flexibility suggests on the one hand that we are really obliged to return any excess to the Treasury—and I am sure that the people of Scotland will take a dim view of giving money back to London—and on the other hand that the Executive, fearful of wasting the money, should keep a hold of it for future years. Does the Executive not rather fail the acid test of effectively and efficiently spending money where the people of Scotland want to see it making a real difference?
The underspend of £235 million, announced this afternoon by the minister, follows a cumulative underspend over the past three years of something like £1 billion. Will the minister accept that there is no room for complacency, and will he therefore reconsider the answer that the First Minister gave me last week when I suggested that the Executive consider funding the national minimum wage helpline in Scotland? The helpline helps tens of thousands of people who, illegally, are paid below the national minimum wage. Reinstating the helpline would cost just £36,000.
When Mr McCabe was Deputy Minister for Health and Community Care, he told us repeatedly that Scotland could not afford the £40 million to cover the costs of the abolition of prescription charges. Does he now accept that that is utterly incorrect, given what he has said today? Is the minister really saying that money is not available to help the low paid, to help patients or to help children with, for example, free school meals?
Over the past minute or so, I have been convinced that Mr Fox has only a tenuous grasp of the issues. To say the least, the links that he makes between issues are strange.
I do not think that, by any objective test, or by any "reasonable person" test, anyone would think that an underspend of £235 million, when set against an overall budget of £26.5 billion, is anything other than good and sensible financial management. We need a facility to carry money forward. Back in the dim and distant past, that facility was not necessarily available to Scotland, but it is now. Resources carried forward are held for us at Her Majesty's Treasury. That is done for a very good reason: this is a devolved Administration and we have a part to play in the macroeconomic management of this country. We are happy and proud to play that part.
Sound financial management by the partnership between the Labour-led Scottish Executive and the Labour Government at Westminster has led to record amounts of money being spent on public services in Scotland. I welcome that; long may it continue.
When the minister considers bids from the various departments to reallocate the money, will he ensure that the Scottish Executive's efforts to reach its targets for homelessness by 2012 are recognised and that money is made available for social rented housing?
It would be inappropriate for me to pre-empt the decisions of the next spending review. However, I assure the member that we will pursue with vigour the policies that we have set out—particularly with regard to homelessness.
I note that one of the significant expenditure shortfalls is in the justice account. More specifically, there has been a £33 million underspend on the prisons estate. Is that a tacit admission on the part of the Executive that the much-vaunted sentencing bill will not reduce but will increase the number of prisoners who are released early? If not, why was that money not committed?
It is a tacit admission that we are doing substantial and remarkable things with our justice budget. People in Scotland can see that substantial progress has been made on the reform of our court systems. In any situation that involves a capital programme, slippage can occur for a range of reasons, but the capital programme to which the member refers will be delivered.
I congratulate the minister on his financial statement and on the fact that he has £235 million, more or less, to spend. I have just left a meeting of the cross-party group in the Scottish Parliament on ME, which is a condition that costs the United Kingdom around £4 billion per annum. Will the minister consider using some of the surplus money to help to find a cure or a solution to what is an extremely vexed problem?
As I have said, we will consider all the bids that are made during the next spending review. I have no doubt that the Minister for Health and Community Care is as concerned as anyone else about people who are unfortunate enough to suffer from ME. Our health service has received record resources and is producing record results. I am sure that it is just as determined to tackle that condition as it is to tackle any other.
The minister must be aware that the amount of end-year flexibility is greater than the Scottish Executive's entire budget for free personal care for the elderly. When the Executive's policy was announced in Parliament four years ago, the amount that was to be spent per person per week on free personal and nursing care for the elderly was £210. The figure is still £210 today. Will the minister consider asking other members of the Cabinet to review the situation and to consider upgrading the payment so that it does not wither on the vine?
We must remember that before the introduction of free personal and nursing care, many individuals were already in receipt of such care. Some time ago, we decided to ensure that that benefit would be available to all. If the member thinks about the totality of expenditure on people who require nursing and personal care, he will realise that that figure is substantially in excess of the amount of underspend that I have announced today.
I am glad that the picture is improving, but what is the extent of the resources that remain available at the Treasury for the minister to draw on? He did not answer John Swinney's question about that.
I think that the minister said that since devolution we had experienced the largest sustained rise in public spending in living memory. That might be down to the Barnett formula. What message does Mr McCabe have for those people south of the border, such as Joel Barnett the former Labour minister, who are trying to dismantle that formula? Over time, the Barnett formula will squeeze the amount of money that is available for public expenditure in Scotland.
It is already well known that about £1.4 billion is available at Her Majesty's Treasury. I have announced today that we will draw down about £800 million. I am reluctant to give a specific figure because the process that goes on is dynamic—there are transactions going on all the time. If I tried to pin down a specific figure, I would be in danger of misleading people, which I do not want to do.
The phenomenal increase in the provision of public resources that has taken place since 1999—a budget of around £17 billion in 1999 will have increased to £30 billion by 2008—is down to Tony Blair and Gordon Brown. The Labour Government is determined to ensure that there is stability and proper economic management and that people in this country will not have to face mortgage rates of 15 per cent or an unemployment figure of more than 3 million people. Those things have been eradicated. As a result of that financial management, we live in a country that has the highest levels of employment in a generation and the second highest number of economically active people of all the 25 countries of the European Union. That has come about as the result of prudent and sensible financial management by the Government at Westminster.
Finally, I turn to Mr Crawford's question on the Barnett formula. Anyone who stepped out of their particular political allegiance and made an objective examination of how Scotland is served by that formula would slip into the background and be a lot quieter than they have been over the past few days.