Meeting of the Parliament

Meeting date: Wednesday, June 29, 2011

Official Report 667KB pdf

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Financial Outturn

The next item of business is a statement by John Swinney on financial outturn. The Cabinet Secretary for Finance, Employment and Sustainable Growth will take questions at the end of his statement. There should therefore be no interventions or interruptions.

15:07

I am grateful for the opportunity to inform Parliament of the provisional Scottish Government budget outturn for 2010-11.

At all times, it is essential that we maximise the value of every public pound as we take forward programmes to support economic recovery and deliver high-quality, efficient public services. As a demonstration of this Government’s sound financial management, I can report to Parliament that the provisional outturn for 2010-11 is expenditure of £28,475 million against a fiscal departmental expenditure limit budget of £28,487 million—an underspend of just £12 million. That sum is in line with the patterns in recent years and represents less than 0.1 per cent of our fiscal DEL budget, which is equivalent to less than half a day’s spending by the Government. The underspend of £12 million represents our headline underspend figure and is a measure of our performance in managing the Scottish block of public expenditure.

The fiscal DEL is now the key control aggregate used by HM Treasury and is made up of the cash resource and capital budgets. The underspend for the resource and capital budgets was £10 million and £2 million respectively. The forecast outturn has been closely monitored all year, with alternative expenditure approved as the forecast underspend position firmed up. That approach ensures that resources are targeted as necessary to support the Scottish economy during these difficult times.

However, in announcing this achievement, we recognise that there is no room for complacency. The efficient and effective management of our budget remains a key characteristic of the Government and will prove invaluable as we move into challenging times for the Scottish budget in the years ahead.

On the other elements of our budget, there is a forecast underspend on non-cash DEL of around £86 million. That is the ring-fenced element within the budget that is intended to cover depreciation, some impairments and other technical accounting movements. A key element of the underspend related to the depreciation charge on the road network. That is determined by the road asset valuation model, which does not provide a final estimate of depreciation until after the end of the financial year, resulting in a downward movement of £68 million. That makes it very difficult for us to tightly control and manage our non-cash budget.

An underspend on this budget cannot be used to buy goods and services. It does not reflect a missed opportunity to spend more on public services.

The 2010-11 provisional outturn white paper is due to be published in July by Her Majesty’s Treasury. In it, the fiscal DEL underspend for the Scottish Government will go on record as being £12 million along with the £86 million non-cash underspend.

I take this opportunity to update Parliament on the processes that surround underspends in our budget. Since devolution, the Scottish Government has been able to carry forward any unspent budget to future years in a process that was known as end-year flexibility. End-year flexibility was abolished unilaterally as part of the 2010 United Kingdom spending review. The Scottish Government had drawn down practically all its unspent end-year flexibility balances in the years leading up to the end of 2010-11. Its cash balance at that stage stood at only £23 million, in contrast with the Northern Ireland Executive’s balance of more than £295 million and the Welsh Government’s balance of £164 million. Consequently, although the Treasury’s unilateral decision to abolish those arrangements and retain all the remaining balances is not welcome, the impact on public expenditure in Scotland is relatively small due to the success of our negotiations with Her Majesty’s Treasury.

A replacement for end-year flexibility—known as the budget exchange mechanism—has been set out by the Treasury. It would allow some scope to transfer budgets to future years and would have to be declared as part of our spring budget revision process. The detailed technical rules that the Treasury has proposed create a risk that some unavoidable underspends would not be available for redeployment in future years. That is clearly unacceptable. Along with my finance minister colleagues from Wales and Northern Ireland, I am continuing to discuss with UK ministers the implications for the devolved Administrations to ensure that we have the right to spend the budgets that are allocated to us in the UK spending review—I want to ensure that they are not lost to Scottish public services. That is especially important at a time when the UK Government is already reducing the total resources that are available to us.

The whole issue underlines the problems with the current fiscal arrangements: we have to wait for the UK to decide how Scotland should best manage its own budget; and we are subject to Treasury rules and arbitrary changes to those rules, about which we are not consulted. Given that uncertainty about future arrangements, I am particularly pleased to be able to announce today such a low DEL underspend of £12 million for 2010-11.

I commend the outturn figures to the chamber. They demonstrate once again the firm grip that the Government has on Scotland’s public finances. Since 2007, we have been faced with ever-increasing challenges as a result of the decisions that successive UK Administrations have taken about the public finances. Our response has required competence within government and a commitment to building effective partnerships across the Parliament and more widely across the public sector and civic Scotland. We will not alter from that course as we look to the future.

As all members know, the outcome of the UK spending review places severe pressures on future Scottish budgets. By 2014-15, the Scottish DEL will be £3.5 billion—or 12 per cent—below its 2010-11 level in real terms. Within that, our capital DEL will fall by 35 per cent over the same period in real terms. We will continue to make clear our view that the UK Government is cutting public expenditure too far and too fast. However, it is against that background that we have already published a budget for the current financial year that addresses the cuts of more than £1 billion that have been imposed on us while delivering on key priorities around the economy, the environment and our public services, and we are building majority parliamentary support for our approach.

In the autumn, we will publish our forward spending plans for future years. Those plans will show how we will continue to manage intense budget pressures and how we will use available budgets to deliver on our manifesto commitments and lay the foundations for the future by growing the economy, tackling the carbon challenge and investing in preventative spend to improve outcomes and reduce future costs.

We have already set a clear course on efficiency, pay and public service reform that will continue to ensure the sustainability of our public finances while taking forward our vision for Scotland’s economy and her people. Our approach—and Parliament’s—will be enhanced by the work of the Christie commission on the future delivery of public services. We welcome the report that the Christie commission has published today. The economic climate and challenges in the public finances mean that the need to improve service delivery and redesign services to secure greater value for money is pressing.

The Scottish Government has a strong track record of partnership working, improved alignment across the public sector to deliver shared national outcomes, delivery of our simplification programme and improved cross-sectoral working, drawing on the strengths of the third sector and the private sector.

We are determined to go further in delivering our reform programme. We recognise that doing that requires a co-ordinated view to be taken across Government, and our Cabinet sub-committee on public service reform is already taking forward our plans, which will be shared with Parliament later in the year.

With the help of the Scottish Futures Trust, we will continue to extract maximum value for money out of our infrastructure programme, as we have demonstrated recently with both the new Forth crossing and the M74.

As we set out last Friday, we continue to make the case for changes to the UK fiscal framework, such as early and meaningful borrowing powers, which will help us to deliver Scottish priorities in the face of further real-terms cuts to the Scottish block.

There is consensus across the chamber on the need for substantial capital borrowing powers, and there is an overwhelming case for immediate implementation. We will work with this Parliament to use those powers to their best effect and in line with our unwavering commitment to sound budget management.

As the outturn figures that I have announced today make clear, this Government could have made no greater effort to ensure that we use our existing powers and resources to maximum effect, in the interests of the people of Scotland. However, our vision for the future of this country and its finances goes well beyond what we have so far been able to achieve within the current fiscal arrangements. I invite everyone in the chamber to welcome today’s figures and what they represent, and to support our efforts to deliver the lasting changes that Scotland needs and deserves.

The cabinet secretary will now take questions on the issues raised in his statement. I intend to allow about 20 minutes for questions.

First, I thank the cabinet secretary for his statement. He has made a virtue of securing an underspend of only £12 million and, of course, if the UK Government is going to restrict the potential to use underspend in future years, that is sensible. However, is the key issue not that the Scottish Government should be able to use underspends—underspends that have been sensibly achieved—as it wishes? Indeed, in the past such underspends gave important flexibility in the budget—the cabinet secretary himself has planned to carry over some £130 million of underspend to next year. Can he confirm whether those funds are still to be carried over? Is it not therefore vital that the Treasury revisits its unilateral decision to retain the remaining balances from last year and that the Scottish Government is granted the flexibility that it should have to spend such funds in the future?

The cabinet secretary also referred to the impending spending review. Given that he chose to delay its publication until after the election, will he publish his future plans at the earliest opportunity? Will he also tell us when the Scottish Government will provide a detailed response to the Christie commission’s important proposals for greater efficiency in the public sector, given their significance for public spending in the future and the urgency of these issues?

The provision for a carryover of £130 million was made in the winter supplementary estimates by Her Majesty’s Government, which involved revising our budget for 2010-11 and inflating our budget for 2011-12. The budget that this Parliament approved in February therefore includes that £130 million carryover, and provision has been made for it under the arrangements that were agreed with Her Majesty’s Treasury.

I endorse Mr Baker’s comments about the importance of the Treasury reconsidering the approaches that are being taken in the budget exchange mechanism. I am very clear about the importance of us having the flexibility to form a judgment in the latter stages of a financial year about whether there is a stronger argument and a stronger case for delaying expenditure, and therefore carrying it forward to a future financial year, rather than spending that money in the short term on a project of lesser priority to ensure that the money gets spent. One of the innovations in public expenditure in the past few years that I think has been helpful is that of enabling a carryover from one financial year to another.

I accept that there must be limits on that. We must have an effective approach to public expenditure so that vast underspends are not built up. There has to be some control over the process, and the Scottish Government would be happy to agree to controls in that respect if we had that flexibility.

The Government will publish the spending review in autumn, and it will address the issues that Mr Baker raised. I expect the Government to consider the Christie commission’s report during the summer recess. We will report to the Parliament on our response to the commission’s findings after the summer recess.

I thank the cabinet secretary for the advance copy of his statement.

I have a few specific questions. First, can the £12 million headline underspend figure be broken down by portfolio, in the way that the cabinet secretary has been able to do on the combined fiscal and non-cash underspends, to identify whether individual portfolios were out of sync?

Secondly, what is the cabinet secretary’s view on having an overallocation for 2012-13?

Thirdly, the Christie commission recommended that

“The Scottish Government should replicate the Office for Budget Responsibility’s ... independent fiscal sustainability analysis in Scotland”.

Does the cabinet secretary have an initial view on that recommendation?

The £12 million fiscal DEL underspend can be broken down. It will take account of decisions that I made in the financial year, in particular in the last part of the financial year, to address areas in which we can maximise the effectiveness of our expenditure. For example, late in the financial year I had the opportunity to bring forward some financial commitments that were made to Network Rail, because of emerging underspends in 2010-11, which avoids a financial commitment in 2011-12. There are instances of financial management and the taking of such decisions to avoid future costs.

I will set out my position on overallocation for 2012-13 when I publish the draft budget for 2012-13 later this year. I point out to Mr Brown that the figures that I announced today originally included an overallocation of £100 million, which has been managed out of the financial performance in 2010-11. Of course, the 2011-12 budget has been set with no overallocation. I want to reflect on the issue, and a judgment that I must make in that regard is about the practicality of any end-year flexibility mechanism that will exist at the time.

In principle, I think that the Christie commission has made a helpful and thoughtful contribution to the debate that supports a number of the areas in which the Government has taken forward arrangements, for example in relation to partnership and collaboration among public sector bodies, particularly through community planning partnerships, and in relation to the focus on single outcome agreements, which might have been controversial in the Parliament from time to time but seem to have captured the attention of public sector partners and the Christie commission.

If I were to take up the point about replicating the Office for Budget Responsibility’s fiscal sustainability analysis, we might get into territory that intrudes on the budget advisory mechanisms that the Parliament has put in place to equip itself with the ability to scrutinise the Government’s budget proposals. However, I will consider all the recommendations in the Christie commission’s report. As I said to Mr Baker, we will give our response to the Parliament in due course.

If members ask short questions and the cabinet secretary gives short answers, I hope to be able to get everyone in.

The cabinet secretary touched on the problems that will be posed by the budget exchange mechanism. Does he agree that the issue strengthens the case for Scotland to have full control of her finances, which would remove the need to enter into complex and technical negotiations with the UK Treasury and ensure that we had access to and control over our resources?

There are strong arguments for the point that Mark McDonald advances, and he makes his case on end-year flexibility well. As I explained to the Scotland Bill Committee yesterday, the issue fits into the important question of having a framework of financial responsibility. I will always accept that it is essential that we have such a framework in place. I could cite other examples, such as the fossil fuel levy. If Her Majesty’s Government had a different set of accounting regulations or was willing to act pragmatically in the area, we could open up that source of investment to support our development of renewables in Scotland. Obviously, we are continuing to pursue that issue with Her Majesty’s Government.

I have questions in response to the cabinet secretary’s answer to Gavin Brown. Which projects were brought forward for funding from next year to this year? What is the value of those projects and the subsequent savings in relation to next year’s budget? Is one of those projects the first foot scheme, which the cabinet secretary recently announced? How does he intend to spend the £130 million end-year flexibility money that he has been able to carry forward? In light of the Christie commission report, will he look at funding preventative spending measures, such as reinstating the healthy living centres?

I can give examples of projects that have been brought forward. I increased some of the expenditure to support college places and bursaries in the previous financial year. I have already mentioned Network Rail, but I also made additional provision for the potholes fund for local government and Transport Scotland and brought forward some capital expenditure in the housing sector into the bargain. Those are just some examples of the expenditure that was brought forward.

Rhoda Grant asked about the utilisation of the £130 million end-year flexibility money. That is all factored into the budget that was approved in Parliament in February this year. I cannot identify precisely where in that budget the £130 million was sent, but it is within the overall control totals that members approved in that budget, together with the accompanying statements that I made in the stage 3 debate, which will have to flow through into the budget revisions during the financial year.

Like the Finance Committee in the previous session, Christie has given us substantial encouragement to intensify our efforts to concentrate on preventative spending, and we will, of course, examine and explore opportunities to enable us to do that.

The cabinet secretary is be congratulated on his husbandry of the nation’s finances, but he will be aware that the budgets for local authorities and some non-governmental organisations include the sale of underutilised and non-utilised assets. In view of the impact that the success or otherwise of that approach has on national finances, will he seek an urgent appraisal of the actual versus the planned outcomes for the previous financial year and seek a review of the asset disposal plans of those bodies in this year?

Mr Brodie raises the substantial issue of the utilisation of our country’s asset base. Local authorities are self-governing institutions, so my ability to scrutinise their asset management plans is limited. However, they are entitled to do that of their own volition.

It is apposite that Mr Neil has just joined me on the front bench, as he is leading work with the Scottish Futures Trust to examine the asset bases of different public sector organisations. The aim of that work is to find opportunities for us to operate more efficiently through the use of those capital asset bases and to dispose of assets that we do not require in order to enable us to invest in the capital infrastructure that we require in the years to come. That piece of work, which involves collaboration between the Government and the Scottish Futures Trust, is under way.

Under the previous Labour-led Administration, level 4 budget figures were published as a matter of course. That gave the Parliament and its committees the detail that was necessary to fully scrutinise the budget. In the interests of transparency, will the cabinet secretary reverse his decision to withhold level 4 information and ensure that MSPs, parliamentary committees and the wider public are better placed to assess the impacts of underspending and of the budget as a whole?

I do not want in any way to sound as if I know too much about the intricacies of every line of the budget, but I recollect that the previous Administration did not publish level 4 budgets as a matter of course. My budget publications have contained the same amount of detail as those of my predecessors. Indeed, I seem to remember that some of my predecessors stood here and vigorously refuted the need for us to have level 4 budgets—in the interests of completeness, I dare say that I was standing on the other side, arguing for the opposite.

The Government has made level 4 figures available to committees—such as the Justice Committee and the Economy, Energy and Tourism Committee—that have asked for them. I will reflect on the issue now that Margaret McCulloch has raised it today.

I reiterate the need for short questions and short answers.

I am not surprised that the Scottish National Party has spent almost all the money, considering its pre-election spending spree. The SNP has successfully delayed the bulk of the decisions on public services, using the Christie commission as an excuse.

Could we have a question, please?

One would think from listening to the finance secretary that he had already delivered the bulk of that report. When will he abandon his plans for a single police force and bring forward plans for the early intervention revolution that the Christie commission recommends?

I am not sure that Mr Rennie is in the strongest position to talk about a revolution; he might encourage some insurrection among members on his back benches at the rate he is going.

On Mr Rennie’s point, I spent some of the money that I spent in the past financial year because I reached an agreement with his colleagues in the previous session of Parliament about the importance of investing more than I had originally planned in college places and bursaries. I would have thought that the fact that we had done that and delivered on those things would have been welcome.

On the question of a single police force and the Christie commission, we will bring forward our proposals later in the year. I say to Mr Rennie and to Parliament that the largest single budget reduction in a year has taken place between the previous financial year and this one. I set a budget for this financial year before the election while facing the steepest fall in public expenditure that any finance minister has had to face. I do not think that Mr Rennie is on strong ground when he talks about a revolution or suggests that I have delayed important decisions.

As the MSP for Aberdeen South and North Kincardine, I warmly welcome the Scottish Government’s commitment to introduce a funding floor for local authorities to ensure that none receives less than 85 per cent of the average. Can the cabinet secretary provide more detail about how and when that will be implemented?

The Government gave a commitment that that would be implemented for the financial year 2012-13. We will honour that commitment and set out the details and arrangements around it as part of the spending review later this year.

The cabinet secretary’s so-called prudence is a triumph of luck over judgment: an unintended consequence of running down reserves to plug the black hole in expenditure that Sir John Elvidge recently highlighted. What discussions has the cabinet secretary had with Sir John regarding his view that the Scottish Government’s current spending plans are, effectively, unsustainable?

I am very interested in Mr Pentland’s observation about my utilisation of end-year flexibility, which is what I suppose he means by “running down reserves”. If I had not spent, in a careful and planned way over a four-year period, the resources that were in the end-year flexibility, Mr Pentland and his colleagues would be in this chamber today telling me what a mess I had made of the public finances by not spending the money to which we are entitled.

I point out to Mr Pentland that if I had not taken the careful decisions that I took over the past four years, we would not have a cash balance at the Treasury—which we would now have no access to—of £23 million. We might be in the situation in which Northern Ireland finds itself of having a cash balance that it cannot access of £295 million, or the Welsh Government, with a balance of £164 million. Vindication of our decision can be seen in those actions.

On my discussions with Sir John Elvidge, I always found Sir John to be a man who gave considered advice to ministers. I do not think that it would be appropriate for me to divulge to Parliament the detail of the advice that he gave me in his capacity as permanent secretary.

I call Paul Wheelhouse and ask him to be very brief.

What savings is the Scottish Futures Trust providing to the public purse in these difficult financial times?

In its first year of reporting, the Scottish Futures Trust set out savings of more than £110 million. As I said earlier, the trust is now involved in a range of activities, such as taking forward the non-profit distributing capital investment programmes, on which it is working with different ministers, and the asset management issues, on which it is working with Mr Neil. I am confident that we are now seeing the full benefits of the strength of the Scottish Futures Trust and I am glad that those resources are available to the Government in managing a very difficult financial climate.

I thank the cabinet secretary and apologise to Margo MacDonald—I am afraid that we completely ran out of time.