Finance and Public Administration Committee

Meeting date: Tuesday, November 9, 2021

Official Report 658KB pdf

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Subordinate Legislation

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Budget (Scotland) Act 2021 Amendment Regulations 2021 [Draft]

Agenda item 1 is an evidence-taking session with the Minister for Public Finance, Planning and Community Wealth on the draft Budget (Scotland) Act 2021 Amendment Regulations 2021. I welcome to the meeting Tom Arthur, who is joined by Scottish Government officials Niall Caldwell and Scott Mackay, and I invite him to make a short opening statement.

Thank you very much, convener, and good morning. First, I must apologise for my delay and put on record my gratitude to the committee for being so accommodating.

The autumn budget revision provides the first of two opportunities to formally amend the 2021-22 Scottish budget, and it details the continuation of the Scottish Government’s financial response to Covid-19 alongside regular annual budget changes. The supporting document to the autumn budget revision and the brief guide that my officials have prepared provide background on the changes.

The changes that are detailed in the document are based on the funding that the Treasury confirmed to us following the United Kingdom Government’s main estimates earlier in the year. Further spending for 2021-22 that was included alongside the UK spending review figures has not yet been formally added to our block grant, and the financial position remains at risk of funding being withdrawn or changed later in the year. The UK Government has refused to continue the Barnett guarantee into this financial year.

I will set out the changes in the budget revision in four groups. The first set of changes increases the budget by £1,173.8 million and comprises the majority of the Covid-19 funding, which has been allocated over a number of lines as detailed in the brief guide.

The second set of changes comprises technical adjustments to the national health service and teachers’ pensions budgets. They are non-cash adjustments, but they add £267.2 million to the overall aggregate position. Thirdly, Whitehall transfers and allocations from Treasury have a net positive impact on the budget of £29.4 million, and the final part of the budget revision concerns the transfer of funds within and between portfolios to better align the budgets with profiled spend.

The ABR allocates more than £1 billion of Covid-19 and other funding changes, and it is being funded through £1 billion of Barnett consequentials and Scotland reserve drawdowns. I would highlight that £834 million is being allocated to health and social care through the ABR, with all of it directed at our continuing response to Covid-19, while a further £104 million is being allocated towards maintaining our critical transport networks.

Of the just over £300 million that remains of the total funding that we have received, £250 million is for capital and financial transactions. Although that funding is not formally allocated in the budget revision, it is being held against a variety of commitments that are embedded in our budget position, and funding to meet those commitments and pressures will be formally recognised in the spring budget revision.

As we move towards the financial year end, we will continue in line with our normal practice to monitor forecast outturn against budget and, wherever possible, seek to utilise any emerging underspends to ensure that we make optimum use of the resources available.

With that, convener, I conclude my remarks. I am happy to take any questions that the committee might have.

Thank you very much for that very interesting opening statement. We talked in private session about the spring budget revision. Will that be coming out in January or February? Do we have any indicative dates in that respect?

Yes. As normal, it will come out early in the new year, ahead of the budget.

Thank you. You talked about the NHS and mentioned that the autumn budget revision allocates £834 million to the health budget for Covid-19 response. However, that is reduced to a net increase to the health and social care portfolio as a whole of £473.2 million. Do you believe that the transfers—which include £292.6 million to social justice, housing and local government to support integration, school counselling services, carer’s act, free personal and nursing care and the living wage—fulfil the spirit of why that money was allocated as consequentials in the first place?

I do. As the committee will be aware, our budget resource is allocated to the portfolio that has policy responsibility, and then in year it is transferred where required to the relevant portfolio where delivery takes place. That has been a routine feature of autumn budget revisions for over a decade, as you will be aware, given your tenure on previous finance committees. What we see in the autumn budget revision today is a continuation of that long-standing practice.

I have a couple of other questions before I open it up. Forty million pounds has been allocated as a general revenue grant for local authorities. Is that for anything specific, or is it just to oil the wheels of local authorities by giving them additional money to spend as they see fit?

It is the latter. That money was announced on 18 March as part of the local government finance order, just after stage 3 of the budget. As you correctly identify, that £40 million is a general revenue grant, and how local authorities spend it to meet their own needs and priorities is at their discretion.

I notice that there is a Whitehall transfer of £24.5 million to increase Scotland’s share of the immigration health surcharge that is collected by the Home Office. Can you tell us more about that?

Certainly. That money is collected centrally and goes to UK Government consolidated funds. It is then distributed to devolved health authorities using the Barnett formula.

I have one other question. You touched on the issue of further decisions on allocations being announced when the spring budget revision comes forward. Can you update us on any change to the balance that is available for deployment and allocation in future with regard to the reserved balance that we have now?

Further consequentials were announced as part of the UK spending review, but we will not have confirmation of that until supplementary estimates are given. The current position, as is outlined in the autumn budget revision document that has been provided to the committee, is that we have to take a balanced view on the question of that additional funding, because ultimately we will not have confirmation of whether we will receive it until later in the financial year, and that is because we do not have the Barnett guarantee that we had in the previous financial year. Therefore, we need to take a balanced and prudent approach to how that funding will be deployed.

Thank you. A number of members are keen to come in. The deputy convener will be first.

One of the largest single increases is to the health budget. We can all understand the various needs of our health service and the demands that are being placed on it; nonetheless, that represents a 5 per cent increase or thereabouts in that budget. Can you provide detail on where that money will be going and what the priorities are for it, given that it is such a large increase in the health budget?

Ultimately, that is about supporting our health service as we continue to face the challenges that are presented by Covid-19, which remains first and foremost a health matter. The additional funding that has been allocated to the health budget involves support for a range of measures, including test and protect, staffing, personal protective equipment and various other requirements that have been identified by health authorities to see us through the pandemic. The resource is there as a general support to the health service to do that.

We have also announced a further additional resource of £300 million as part of our winter plan.

To clarify, has that sum of money been allocated to those categories in advance? If so, do you have any indication of what the allocations are? Otherwise, are you implying that it is a contingency fund that is available for drawdown over the coming months?

The autumn budget revision is retrospective. Clearly, there can be issues around when funds are drawn down, as and when required, but this is general funding to support our health service, as itemised in the supporting document that was provided. It is for the whole range of measures that are required to support the health service as we continue to face the challenges that Covid-19 presents.

Do you have that breakdown?

Can you specify what kind of breakdown you would like? The supporting documents give a breakdown. Do you want more specific information about the allocation of the £700 million?

The figures are quite large. I assume that further breakdowns can be applied to these large sums of money. Seven hundred million pounds is about 4 per cent of overall health spending. I would hope that the NHS breaks down figures a little more finely.

Details are available from health finance about what has been allocated to health boards and how some of that has been split up. We can provide additional information in writing later, although we do not have the allocation figures with us.

We are all aware of the acute pressure that the health service is under. Are contingencies in place for the coming months? We can expect to see an increase in demand, especially in areas such as accident and emergency.

That is an important question. I remind Mr Johnson of my earlier remarks. He has correctly identified a significant uplift in health funding, which has been confirmed by the ABR. An additional £300 million is being committed as part of the winter support package. We have a long-standing commitment to pass on every health consequential that we receive to support our NHS. That commitment is evidenced in the autumn budget revision process.

Minister, you told the convener that some funding would be allocated in the spring budget revision. Can you explain why that cannot be done now?

There is a process for when funds are required. They must be drawn down in a phased manner. Scott Mackay can set out that process and explain how decisions are taken.

The process is retrospective. There is a timing issue. When we prepared the document, we had the main estimates, but we did not have confirmation of the funding that we received alongside the spending review. We have made announcements on the basis of expected funding; the winter health package is an example of decisions being taken in anticipation of funding being confirmed.

As we said earlier, we will only get the final amount of funding for the year when we see the UK supplementary estimate. We are still subject to some risk regarding those confirmed final allocations, despite the fact that decisions about the allocation of funding are taken in advance of that final confirmation to ensure that we are utilising resources.

You also said that there was a Barnett guarantee last year. We knew the minimum that we were going to get. What is the worst case scenario? Is it that all of the extra UK funding would be just a reallocation of existing funding and we would not get any consequentials?

The final position is based on equivalent UK departmental allocations for devolved responsibilities. If UK departments offer up savings as part of the supplementary estimate process, a negative consequential would flow to us from that. There have been examples of that in the past. Until we see the details of the supplementary estimate position, we are juggling a range of financial risk. We are taking decisions on funding in advance of that confirmation being available.

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It is important to remember that supplementary estimates come so late in our cycle—I think that it is normally around February—that, were we to be faced with negative consequentials, we would have a very small window in which to try to reconcile them before the end of the financial year. Therefore, as part of prudent budget management, we have to be able to manage any emerging pressures. Unfortunately, that is simply a reflection of the way in which the current system operates.

So the UK budget and spending review have an impact on 2021-22 as well as on 2022-23.

Yes. Additional consequentials were identified but, ultimately, what materialises will not be confirmed until later, so we cannot take it for granted that all that money will feed through in the end. That is why the Cabinet Secretary for Finance and the Economy and I have called, and continue to call, for the Barnett guarantee. It gives us certainty and allows us a more assured budget planning position.

My first question follows on from one of the convener’s questions on the £40 million extra for local government. I think that you said that that was just being given to local government for it to spend as it wishes. Last week or the week before, a pay settlement was proposed—I think that it was reported as being worth about £30 million. Is that additional money that will go to local government or will it have to come out of the £40 million that has been allocated in the budget revision?

I draw your attention to the fact that the autumn budget revision was published in late September, so it predates that announcement. The budget revision is retrospective in nature. As I mentioned in my answer to the convener, that £40 million was announced on 18 March and has been distributed. I reiterate that it is at the discretion of local authorities to spend that money as they see fit to meet their own needs and priorities.

Will additional funding go to local government to pay for the pay offer or do local authorities have to find that money themselves?

Am I correct in saying that that money will come via the spring budget revision, Scott?

Yes, there will be an adjustment in the spring budget revision.

Has the £40 million been allocated to local government already? Do local authorities have it in their accounts?

Yes.

My next question concerns education and skills. I refer to page 43 of the papers.

I beg your pardon, was that page 43?

Yes. The table on that page shows that there is a cut of approximately 33 per cent to the spending on learning. Is that fair, or is that money being spent elsewhere within the budget? The committee received a lot of evidence that we have a big skills shortage in Scotland.

I ask Mr Lumsden to refer to the specific budget line.

I am just looking at the overall proposed change from the original budget of £448 million to £299 million.

It is important for context to look below at the specific budget lines. The money is being deployed through a range of interportfolio transfers. For example, look at the additional funding to local government for education recovery and additional teacher support. That relates to the point that I made about how, although resource is allocated to the portfolio where decisions are taken, it can then be allocated to another portfolio in which delivery takes place. That is reflected in those figures.

So there is no overall reduction in the amount of funding for education and skills. Is that correct?

Yes. It is revenue neutral.

Yes. It is about the policy ultimately being delivered through local government. The funding is still being spent on the same purpose.

It is just now being seen in another line in the budget.

Yes, because of the role that local authorities play in the delivery of education. Education is the policy lead, but the money goes to local government for the delivery, so it goes to the local government line to be allocated to local government.

Is that the same with housing, for example? I think that there is a 20 per cent cut—£205 million. Has the money been allocated to another department for it to spend on housing instead?

Yes, that is correct. If I remember correctly, that money might have been transferred to the net zero, energy and transport portfolio to better align with our energy policies. Is that correct, Scott?

Yes. The largest element of that was a transfer to align the funding with the rest of the energy budget in the NZET portfolio.

We might look at that and think initially that it is a cut to the housing budget, but it is not really that. Money has been allocated to another department to spend on that area.

Absolutely. It helps to ensure that budgets align more clearly. I appreciate that there is an element of complexity in approaching the autumn budget revision for the first time, but the approach increases transparency, because we can see where the policy decision has been taken and where the money has been allocated for the delivery of that policy decision.

My last question is about health and social care. There have been a large amount of Barnett consequentials—I think that a total of £700 million is shown—and there is an extra £24.5 million from the Home Office. It seems that not all of that money is being spent on health and social care and that it is being moved to other budgets. Is that correct?

Again, that goes back to the issue of delivery. For example, I know that the committee has previously raised the question of the transfer from the health line to education for the delivery of nursing and midwifery. That is a reflection of the earlier point that we made about policy decisions being taken in a portfolio and funding being allocated to the portfolio in which the responsibility for delivery lies.

I do not know whether there is anything further to add to that.

Those amounts are factored into the overall health spending plans at the start of the year, and they are regular transfers for specific purposes. The key point about the policy responsibility is that the ultimate decision on the quantum of the funding and the delivery mechanism still rests within the health portfolio. There is not a reduction in spending on health or social care because some transfers are to local government for social care; that is more a reflection of where the policy responsibility lies initially.

Therefore, when we see an increase of £724 million and the proposed budget going up by only £473 million, that does not mean that the NHS has been short-changed by a quarter of a billion pounds; rather, the money is simply being spent by other departments almost on behalf of the health and social care department. Is that correct?

Yes, that is a fair assessment.

I have two questions for clarification. One of the transfers from the health and social care budget to education and skills is £5.2 million in respect of additional medical student places. Is that for the 190 extra medical places that the Scottish Government said in 2016 would be provided by 2021?

I do not have that specific detail in front of me. Would you be content if I were to write back to the committee about that?

Yes. I am interested in the strong commitment that the Scottish Government gave on extra medical places five years ago. It said that, in the intervening five-year period, we would have those extra 190 places in medical schools. I am interested in whether that £5.2 million is part of that commitment or is something new.

I will confirm with my officials whether we have that information.

I do not have that specific information. I am sorry.

We do not have that detail in front of us. I apologise.

In the £30.2 million in the education budget, there is £20 million for post-Covid improvements. Can you break that down a little, minister? Is that specific to any sector in education? I do not see very much for higher education spending.

What page are you referring to, Ms Smith?

That is on page 13 of our paper, under “Education and Skills”. There is a total of £30.2 million, and there is a line for

“Additional funding to support Education Recovery”.

What does that consist of?

I apologise. I am struggling to identify the specific budget line to which you are referring.

I might be on a different page. It is on page 13 of the Scottish Parliament information centre briefing. Under the heading “COVID-19 AND OTHER FUNDING CHANGES” are social justice, finance and the economy, and there is a section for education and skills that contains £20 million.

Scott Mackay might have the specific detail on that. Ms Smith, would you be content if I were to write to you to provide more information? I want to reflect on the matter.

Yes.

Education has been prioritised as a big part of the recovery—certainly according to many of the witnesses who have attended the committee. That is quite a large chunk of money within the education and skills portfolio, so I am interested to know whether it is for the further and higher education budget. If I could get some information on that, I would be grateful.

Because it is an aggregate figure, I want to disaggregate and itemise it for you. That might take a bit of time because of how the data is presented.

Thank you.

It seems that there are no further questions from committee members, so I will ask one or two more, if I may.

Some considerable changes have been made to the net zero and transport budget, but there is not a lot of detail. For example, on rail services, page 66 of the budget revision document just says,

“Additional funding to support rail services”,

for which it shows £77.3 million. We also see increases for buses, airports and light rail, but the percentages vary significantly. For example, rail gets 5.3 per cent, buses get 1.2 per cent, Highland and Island Airports gets 8.1 per cent, and light rail gets 4 per cent. What is the reasoning behind those differences? What detail can you give on additional funding to support rail services, for example?

The additional funding to support rail services was required to cover a revenue shortfall that was suffered by the franchise. Services are demand led, which goes some way towards explaining the variation between budgets. Ultimately, the addition is in recognition of a fall in demand; we are seeking to provide support to fill that gap.

To be fair, I point out that I anticipated that that would be the answer. However, would it not be easier if that information was included in those lines in the reports? Another sentence to explain that would be helpful. That is why I asked the question.

I was going to ask you something else, but I cannot read my own writing, although I wrote it down only two minutes ago. I apologise—it might come to mind in the next minute or so. Oh! I see what it is, now.

I want to ask about the spring revisions. Many of the changes arise from changes in portfolios following the First Minister’s realignment of Cabinet and ministerial portfolios. Do you anticipate significantly fewer changes in the spring and subsequent revisions because of that, and that the next time we have a revision, there will be only relatively minor changes, as the pandemic eases?

I do not want to forecast. The autumn budget revisions have come about as previous autumn budget revisions have, following realignment of the Cabinet and changes to ministerial portfolios. That is captured in table A in the supporting document, which reconciles the new portfolios with the previous ones, as outlined in the budget. What is in the spring budget revision will reflect the financial position as it develops in the coming months.

Sure—but I was asking about a specific issue. The changes that have been made this time are significant and the pandemic has contributed to them.

Transport is an obvious area where additional resources have had to be put in—for example, to make sure that the railways could continue to run when the number of passengers diminished. In what areas of the budget have savings been made—not because of cuts, but because the budget that was allocated is no longer required? What areas in the budget have been most able, because of the pandemic, to provide funding for the Scottish Government to reallocate?

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The question is broad; I touched on some of the answer in my statement to Parliament in June on the provisional outturn. We had slippage because construction, for example, could not take place during the prolonged lockdowns, so that had an impact on the capital budgets that were available, which were taken back to the centre and redeployed.

For budgets that are demand led, it is intrinsically more difficult to forecast how much will be required in total. When demand does not, ultimately, meet expectation, the money is available for redeployment. That is captured in a number of areas of the budget.

Scott Mackay wants to respond to a previous question.

There are quite a number of changes in the spring budget revision, but that is more about processing changes that flow through closer to the year end. As we gain a clearer idea of the likely outturn of demand-led budgets, we realign budgets in order to maximise resources. However, you do not see the regular changes that we have had all the discussion about, such as the funding changes for student nurses.

We see such regular changes in the autumn budget revision, whereas the spring budget revision contains allocations of additional funding that we have confirmed for supplementary estimate and realignment of budgets, in line with what our budget monitoring and management tells us.

You mentioned capital, and we understand that there have been huge increases in material and labour costs at rates that are higher than inflation. Given that, how is the Scottish Government planning its capital investment? Because of the changes, does it look as though we will get less for the same amount of money? Given that our capital budget’s buying power is decreasing, is the Scottish Government looking to increase its capital budget in order to do the same with more money?

We monitor the situation continuously and we reassess and reappraise budgets as required. That is part of our on-going budget monitoring process.

More generally, my ministerial colleague Ivan McKee engages regularly with the construction sector and other sectors that have been especially impacted by the increasing costs of materials and by supply-chain challenges. He is working in a practical way to help to resolve matters.

As part of our on-going budget monitoring process, we take account of all such factors.

Ultimately, the extent to which we can flex our capital budgets in response to increasing prices is constrained because we have Treasury budget limits and limited borrowing powers for capital.

The committee is aware of that; we have discussed the issue in recent weeks. Is it fair to say that the Government has concerns about the matter?

It is fair to say that. That is reflected in our asks for the fiscal framework review. I am sure that the convener has noted that our capital borrowing limits do not take into account inflation. We could improve the situation in a range of ways, and the fiscal framework review provides an opportunity to do that.

To echo what the Cabinet Secretary for Finance and the Economy said when she appeared before the committee, I say that I hope that the Government can count on the support of the committee and the Parliament for productive engagement with the UK Government to resolve issues and ensure that our fiscal framework meets our requirements for delivering our priorities.

I thank the minister and his officials for their evidence and my colleagues for their questions.

Agenda item 2 is formal consideration of the motion, which I invite the minister to move. Members have no further comments, so I will put the question. The minister has not moved the motion yet.

Motion moved,

That the Finance and Public Administration Committee recommends that the Budget (Scotland) Act 2021 Amendment Regulations 2021 [draft] be approved.—[Tom Arthur]

Motion agreed to.

I thank the minister for coming. We will, in due course, publish a short report to Parliament setting out our decision on the regulations.

Our next panel of witnesses will be ready to start at 10 past 11, so I suspend the meeting.

11:05 Meeting suspended.  

11:10 On resuming—