Chamber and committees

I return to this year’s budget. You are concerned about the Government’s pay policy. You mentioned in your report that most NHS Scotland staff will receive a 0.78 per cent pay rise. You clearly do not feel that the Government’s pay policy is sustainable. Is that the case?

:To me, it feels slightly worse than that, though. If it was an existing fiscal flexibility, the Government would be driving to the extremity of that as well. It is because it is not an existing fiscal flexibility that the Government is using it as a real flexibility. If an increased borrowing capability was put in place, the Government would just max that out, wouldn’t it? That is the character of what it does.

:We heard in evidence from the Cabinet Secretary for Finance and Local Government that she does not expect the spending review to last, and we heard evidence last week from various organisations in the public sector that said that they still do not have sight of or certainty about a budget. Is the spending review process performing its function correctly and adding grant certainty to allow public services to budget for their future? On one side, they are being told that the spending review is not going to work, and on the other side it is not giving them much certainty either.

:That brings me back to our earlier conversation about whether the current model is fit for purpose in a world of radical uncertainty. It is not that the data is redundant, but it does not deal with the black swan events that are now far more common.

Is there a different model that the Government could use that would, in the long term, structure the devolved finances in the right way to deal better with the issues of radical uncertainty, given that you are highlighting as an institution some of the very long-term trends on climate change, the rate of technological progress and population dynamics? I would postulate that, globally, those are not results of the radical uncertainty but causes of it. However, what are we doing to shift that balance? Is there a different model that we could probe with the Government in discussing how it could approach the public finances to deal with that uncertainty?

:I empathise with your economics qualification situation. I submitted my economics thesis at the London School of Economics and Political Science four weeks before the collapse of Lehman Brothers, so it felt like I had wasted all the money, frankly. However, all these years on, we are not really dealing with the consequences, so there is more for us to reflect on in that area.

:I have a question about health, so perhaps Jack Gillespie will deal with it. The majority of the savings in the spending review—£1 billion of the £1.5 billion—fall within health. What detail have you had about how those savings will be measured and reported against for Government?

:This question, which is for all the witnesses, is about the process of engagement by the Government with your organisations on the figures that have been set out in the spending review.

We were all struck by figure 6 in the Scottish Fiscal Commission’s report. The graph shows local government spending taking a hard left. There are smaller decreases in other areas, and there are increases in some areas too. Did you have discussions with the Government about that, and if so, what rationale did it set out to you?

:The circumstances in Dundee are unique in the sector. They relate to management practice, people not being able to read management accounts and all kinds of issues. The situation is an absolute disaster and a disgrace.

I am concerned about the SFC’s record in the sector more broadly. You are sounding alarms about the sustainability of the sector at this meeting and the SFC is doing that more generally, but it feels to me as though the SFC has been asleep at the wheel on the matter for years as the sector has become more leveraged and more reliant on risky international funding. We have not heard the Scottish Funding Council tell that story to the public about those precious institutions, which, as you say, are important. What is different about the SFC’s approach now from the approach that steered us into this mess in the first place?

:Was it the SFC that said that you want to go beyond level 2? What would be the counter-argument?

Multiyear funding is a long-term demand of local government, because it wants to be able to plan for the longer term. The committee was a bit concerned, because we do not like to see the number going up considerably over time to meet various needs, but we recognise the challenge because of the funding situation.

However, part of it is surely about getting local government to deal with the reality that is in front of it. If the cabinet secretary came to you and said, “Well, actually, we think that the situation might change—it probably will—and there will be more money,” how would that impact the approach that local government takes to dealing with the hard-line, difficult scenario that it is presented with at the moment? Will you wait and hope that things get better? What is the practical reality?