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FI/S3/09/R2

2nd Report, 2009 (Session 3)

Strategic Budget Scrutiny

CONTENTS

Remit and membership

Report
Introduction

Background to the inquiry
Aims

The inquiry
Structure of this report
Part 1 - The public finances and the Scottish budget

Scottish budget for 2010-11 – original and subsequent revisions
Longer-term issues and projections

Part 2 - Pressures on the budgets of the Scottish Government and public bodies

The effects of recession
Fixed costs
Costs of certain policy priorities
Longer-term issues

Part 3 - how should government react

Achieving savings across-the-board
A targeted approach to constraining spending
Protecting areas of spending
Re-considering specific spending priorities
Process issues

Conclusions

The public finances and the Scottish Budget
Pressures on the budgets of the Scottish Government and public bodies
How should Government react

Annexe A: Extracts from the minutes of the Finance Committee

Please note that all of the material in Annexes B and C is published electronically only, and can be accessed via the Finance Committee’s webpages, at:
http://www.scottish.parliament.uk/s3/committees/finance/budget/strategicScrutiny.htm

ANNEXE B – PAPER FROM THE COMMITTEE’S BUDGET ADVISER

The UK Budget Position and Strategic Implications for Public Services in Scotland, paper from Professor David Bell

ANNEXE C – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE

10th Meeting, 2009 (Session 3), Tuesday 28 April 2009

WRITTEN EVIDENCE

John Aldridge, former Director of Finance, Scottish Executive
Jenny Stewart, KPMG
CIPFA (Chartered Institute of Public Finance and Accountancy)
Centre for Public Policy for Regions
Government Actuary’s Department

ORAL EVIDENCE

Jo Armstrong, and John McLaren, Centre for Public Policy for Regions;
John Aldridge, former Director of Finance, Scottish Executive;
Stella Manzie, Director-General Finance and Corporate Services, Scottish Government;
Jenny Stewart, Head of Infrastructure and Government, KPMG;
Russell Frith, Director of Audit Strategy, and Caroline Gardner, Deputy Auditor General, Audit Scotland;
Stephen Humphrey, Chief Actuary, Government Actuary's Department;
Angela Scott, Head of CIPFA in Scotland.

SUPPLEMENTARY WRITTEN EVIDENCE

Stella Manzie – supplementary 1
Stella Manzie – supplementary 2
CIPFA – supplementary
GAD – supplementary

11th Meeting, 2009 (Session 3), Tuesday 05 May 2009

WRITTEN EVIDENCE

CBI Scotland
Federation of Small Businesses
STUC
Scottish Enterprise
HIE
Chartered Institute of Housing in Scotland

ORAL EVIDENCE

Colin Borland, Public Affairs Manager, Federation of Small Businesses;
Stephen Boyd, Assistant Secretary, STUC;
Garry Clark, Head of Public Affairs, Scottish Chambers of Commerce;
Nick Fletcher, Head of Policy and Public Affairs, Chartered Institute of Housing in Scotland;
David Lonsdale, Assistant Director, CBI Scotland;
Jeremy Peat, Director, David Hume Institute;
Alf Young, former member of the Financial Issues Advisory Group;
Sandy Brady, Director of Strategic Planning, and Sandy Cumming, Chief Executive, Highlands and Islands Enterprise;
Stephen Gallacher, Managing Director - Commercial & Infrastructure, and Jack Perry, Chief Executive, Scottish Enterprise.

SUPPLEMENTARY WRITTEN EVIDENCE

CBI Scotland
STUC

12th Meeting, 2009 (Session 3), 12 May 2009

WRITTEN EVIDENCE

Aberdeen City Council
Glasgow City Council
NHS Dumfries and Galloway
NHS Lothian
Scottish Water
Universities Scotland
Association of Scotland’s Colleges
Skills Development Scotland
Scottish Council for Voluntary Organisations
Community Care Providers Scotland
Scottish Pre-School Play Association
Scottish Disability Equality Forum
The Rock Trust

ORAL EVIDENCE

Gordon Edwards, Corporate Director for Resources Management, Aberdeen City Council;
Susan Goldsmith, Director of Finance, NHS Lothian;
Councillor Bailie Gordon Matheson, City Treasurer, Glasgow City Council;
Craig Marriott, Director of Finance, NHS Dumfries and Galloway;
Richard Ackroyd, Chief Executive, and Douglas Millican, Finance and Regulation Director, Scottish Water;
David Middleton, Chief Executive, and Frances Duffy, Director of Strategy and Investment, Transport Scotland;
Michael Levack, Chief Executive, Scottish Building Federation;
David Caldwell, Director, Universities Scotland;
Andrew Livingstone, Director of Finance and Audit, Skills Development Scotland;
Chris Travis, Chief Executive, Association of Scotland's Colleges
Kirsten Gooday, Policy and Development Manager, Community Care Providers Scotland;
Ian McLaughlin, Chief Executive, Scottish Pre-School Play Association;
Liz Rowlett, Senior Policy, Information and Parliamentary Officer, Scottish Disability Equality Forum;
Ruchir Shah, Head of Policy and Research Department, Scottish Council for Voluntary Organisations;
Ella Simpson, Chief Executive, The Rock Trust.

SUPPLEMENTARY WRITTEN EVIDENCE

Community Care Providers Scotland

13th Meeting, 2009 (Session 3), Tuesday 19 May 2009

ORAL EVIDENCE

Stella Manzie, Director-General Finance and Corporate Services, and Alyson Stafford, Director of Finance, Scottish Government;
John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, and Alyson Stafford, Director of Finance, Scottish Government.

SUPPLEMENTARY WRITTEN EVIDENCE

Stella Manzie (supplementary 3)
Stella Manzie (supplementary 3 – attachment)
Cabinet Secretary for Finance and Sustainable Growth (supplementary 1)
Cabinet Secretary for Finance and Sustainable Growth (supplementary 2)

Remit and membership

Remit:

1. The remit of the Finance Committee is to consider and report on-

(a) any report or other document laid before the Parliament by members of the Scottish Executive containing proposals for, or budgets of, public expenditure or proposals for the making of a tax-varying resolution, taking into account any report or recommendations concerning such documents made to them by any other committee with power to consider such documents or any part of them;

(b) any report made by a committee setting out proposals concerning public expenditure;

(c) Budget Bills; and

(d) any other matter relating to or affecting the expenditure of the Scottish Administration or other expenditure payable out of the Scottish Consolidated Fund.

2. The Committee may also consider and, where it sees fit, report to the Parliament on the timetable for the Stages of Budget Bills and on the handling of financial business.

3.
In these Rules, "public expenditure" means expenditure of the Scottish Administration, other expenditure payable out of the Scottish Consolidated Fund and any other expenditure met out of taxes, charges and other public revenue.

(Standing Orders of the Scottish Parliament, Rule 6.6)

Membership:

Jackie Baillie (Deputy Convener)
Derek Brownlee
Linda Fabiani
Joe Fitzpatrick
James Kelly
Jeremy Purvis
Andrew Welsh (Convener)
David Whitton

Committee Clerking Team:

Clerk to the Committee
James Johnston

Senior Assistant Clerk
Mark Brough

Assistant Clerk
Allan Campbell

Committee Assistant
Jennifer Bell

Strategic Budget Scrutiny

The Committee reports to the Parliament as follows—

introduction

Background to the inquiry

1. The Scottish Government’s proposed budget for 2010-11 was first outlined in Spending Review 2007. It is the budget for the last year of the current three-year spending review period, and it would, therefore, normally be expected that the 2010-11 Draft Budget would not deviate significantly from the plans set out in Spending Review 2007. For that reason, budget scrutiny in a non-spending review year is usually confined to a detailed examination of the Draft Budget in the autumn by both the Finance Committee and subject committees. In a non-spending review year, there is no ‘stage 1’ of the budget process – i.e. no examination of the fundamental strategic choices behind the comparatively large budget changes which would normally be expected to result from a spending review.

2. However, there are a number of factors which indicate that the Draft Budget for 2010-11 will, in fact, be substantially different from the plans originally published in 2007; that the changes will put considerable pressure on the Scottish Government’s 2010-11 budget; and that the effects of these changes may influence future years. This means that significant challenges and difficult strategic choices will require to be addressed for the 2010-11 budget and for the future course of public spending in Scotland. The Finance Committee, therefore, decided to undertake a strategic scrutiny of future budgets in advance of the formal scrutiny of the 2010-11 Draft Budget.

Aims

3. The Committee agreed that the inquiry would consider and report on the following—

  • the impact of the recession on public sector budgets in Scotland, both immediately in 2009-10 and in future years;
  • in particular, the expected pressures and demands on the Scottish Government’s 2010-11 budget; and
  • the likely implications for the Scottish Government’s budget in the longer term.

4. The inquiry aims to make recommendations to the Scottish Government in respect of both influencing the detailed formulation over summer 2009 of the Draft Budget for 2010-11 and longer-term budgetary strategy and planning. The inquiry is also intended to provide a basis for the Finance Committee itself, allowing it to test whether any cross-cutting and strategic issues it identifies have been addressed in the Scottish Government’s Draft Budget 2010-11, and in longer-term planning. Finally, and particularly, the inquiry also aims to provide a basis for subject committees for their autumn 2009 scrutiny of the Draft Budget.

5. The Committee also agreed that the inquiry offered an opportunity for ongoing consideration of the budget implications of issues such as efficiency plans, the implementation of International Financial Reporting Standards and the application of carbon impact assessment and equalities analysis and monitoring in the Scottish budget.

6. The Committee has not sought to examine any particular sectors or issues in detail. Rather it has sought to provide the basis for subject committees to do this in the autumn. The Committee acknowledges that detailed work on related issues is already being done by some committees – for example, consideration by the Economy, Energy and Tourism Committee of how the Scottish Government is responding to recession.

7. The Committee is also aware that, as a result of agreement during the passage of the Budget Bill in February 2009, the Cabinet Secretary for Finance and Sustainable Growth has established a cross-party group to review public spending.

the inquiry

8. The Committee agreed to take evidence for this inquiry after the UK Budget 2009, with the aim of concluding and reporting in time for the Parliament to debate the Committee’s report before the summer recess. The Committee held four evidence sessions. On 28 April, it took evidence from economists from the Centre for Public Policy for Regions (CPPR), and from a range of witnesses with expertise on the practicalities of how public spending operates in Scotland and on technical issues affecting the budget. On 5 May, it took evidence from representative bodies with different perspectives on the Scottish economy, from economic commentators and from the enterprise agencies. On 12 May, it took evidence from a range of public bodies and other interests representing the health, local government, infrastructure and education and skills sectors, and from voluntary sector representatives. The Committee concluded its evidence programme on 19 May by taking evidence from the Cabinet Secretary for Finance and Sustainable Growth and Scottish Government officials.

9. Many of these witnesses also provided written evidence and supplementary material. The Committee also issued a general call for written evidence and received a number of submissions. The Committee wishes to express its thanks to all those who gave evidence.

10. The Committee also commissioned its adviser on the budget, Professor David Bell, and SPICe to produce initial briefings outlining key issues for the inquiry and is grateful to them for the support provided to the inquiry.

structure of this report

11. This report is split into three main parts:

  • Part 1 provides an outline of the movements which have affected the likely Scottish budget for 2010-11, and sets projected future budgets within the context of the UK public finances. This provides a basis for understanding the immediate budgetary context.
  • Part 2 discusses some of the pressures and challenges on the budget, particularly in 2010-11, as a result of the effects of recession and the impact of other cost trajectories on the flexibility that the Scottish Government and other public bodies will have. This identifies a range of issues which subject committees may wish to consider in their scrutiny of the Draft Budget in the autumn.
  • Part 3 moves on from the scene-setting of Parts 1 and 2, to outline the debate on the form that a strategic response should take. It considers how the Scottish Government and the public bodies it funds should respond to the challenge by looking at spending priorities, how decisions should be approached, and how the machinery of government needs to develop to manage the situation effectively.

part 1 - the public finances and the scottish budget

Scottish budget for 2010-11 – original and subsequent revisions

Plans set out in Spending Review 2007
12. It has been evident since the publication of Spending Review 2007 that the Scottish Government’s budget for 2010-11 would be particularly tight compared with recent experience. Of the three years of budget plans originally set out by Spending Review 2007, the overall Scottish Departmental Expenditure Limit (DEL) budget for 2010-11 was always envisaged as representing the lowest year-on-year increase of the three.1 In comparing budgets from year to year, this report concentrates on the DEL figure, as that is the amount that the Scottish Government has available to allocate to its spending priorities.

13. The SPICe briefing for this inquiry provides more detail on the figures.2 The original plans show DEL resource spending of £26,677 million and DEL capital spending of £3,662 million – a total DEL budget of £30,339 million. Due to differing views over the appropriate baseline from which the increases should be measured, there was disagreement in 2007 about the actual percentage increases that the cash settlements for the spending review period represented. However, it is clear that the originally-proposed real terms increase for 2010-11 is considerably smaller than any experienced since the inception of the Scottish Parliament.

Changes since Spending Review 2007
14. The overall Scottish spending plans for 2010-11 have changed considerably since first set out. Some revisions have resulted from consequential changes to Scottish allocations (calculated with reference to the Barnett formula) as a result of UK Government spending decisions since 2007. Other revisions have arisen from budget allocation decisions by the Scottish Government. These revisions are outlined briefly below.

15. The Scottish Government announced in August 2008 that it was re-profiling £100 million of capital expenditure, adding £30 million to affordable housing in 2008-09 and £70 million in 2009-10, and reducing that budget line by £100 million in 2010-11. These changes have a zero net effect on the total Scottish budget as the re-profiled money was simply ‘borrowed’ from the spending plans for other budget lines and will be restored to them in 2010-11.

16. As a result of in-year changes and consequences of the UK Budget 2008, by the time the Scottish Government’s Draft Budget 2009-10 was presented in September 2008, the plans for 2010-11 had been revised to show DEL resource spending of £26,861 million and DEL capital spending of £3,613 million – a total DEL budget of £30,474 million.3

17. In connection with changes made by the UK Chancellor in the Pre-Budget Report statement in November 2008, the Scottish Government announced an acceleration of capital expenditure to allow it to focus the budget on economic recovery. As a result of this and subsequent decisions, a total of £347 million has been accelerated from 2010-11 to 2008-09 (£53 million) and 2009-10 (£294 million). Compensating reductions will require to be made in the 2010-11 capital budget, meaning that they have a zero net total effect over the period. The Committee notes that no information is yet available on the extent to which the accelerated capital can actually be spent in the years to which it has been allocated. A SPICe briefing details the effects of these shifts on specific spending portfolios.4 The 2008 Pre-Budget Report had also resulted in Barnett consequentials for Scotland of an additional £5.2 million in 2010-11 (as well as an additional £5.7 million in 2009-10).

18. The Pre-Budget Report also announced plans for £5 billion of efficiency savings in the resource budget for 2010-11. The exact Barnett consequential effect on Scotland depends on how the impact is distributed among UK Departments. The Committee’s budget adviser estimated that, if these savings are shared equally across DEL budgets, the consequence of the Barnett formula would be that the Scottish Government’s 2010-11 budget would fall by £380 million, recurring in subsequent years. In the UK Budget 2009 announced on 22 April 2009, the immediate details for 2010-11 budgets have become clearer. The reduction for Scotland as a consequence of the £5 billion efficiency savings is £391.7 million. This is partly offset by positive Barnett consequentials of £24.7 million for 2010-11 (as well as an additional £79 million in 2009-10).

19. The Pre-Budget Report also announced a reduction in the Department of Health’s capital budget of £1.3 billion in 2010-11. This is not a re-profiling and the consequence of the Barnett formula will mean a recurring reduction of £128.6 million in the Scottish Government’s capital budget from 2010-11 onwards.

20. To compensate, at least in part, for the £128.6 million reduction as a consequence of reduced health capital spending, the Treasury has said that the Scottish Government can access remaining end-year flexibility (EYF) monies held at the Treasury on the Scottish Government’s behalf (i.e. the balance of underspends accumulated up to March 2010, beyond those amounts previously agreed to be drawn down as part of Spending Review 2007). In Spending Review 2007, the Scottish Government received Treasury approval to draw down EYF over the three years of the review period, largely exhausting the accumulated balances. The amount drawn down for 2010-11 at that point was £174 million.

21. It is not yet clear how much total further EYF is expected to be available for 2010-11, whether it will be sufficient to cover the £128.6 million capital reduction, or what the position will be in years beyond 2010-11. However, the Committee notes that the Treasury stated in July 2008 that the remaining EYF amount available to be drawn down by the Scottish Government was £78 million.5 This sum might be expected to increase once the outturn figures for 2008-09 are finalised. The Scottish Government will also have to consider how it wishes to apply the EYF balance. It should be noted that the allocation of EYF to capital and resource spending is not at the discretion of the Scottish Government: a proportion must be spent on capital projects, reflecting the original intention of the funds.

Current picture of the 2010-11 Scottish budget
22. Stella Manzie, Director-General Finance and Corporate Services at the Scottish Government, stated that the overall picture for 2010-11 is a cash increase of 0.5% on the preceding year, and that applying the deflator gives a real terms reduction of 1%.6 However, she also acknowledged that, if the effects of capital acceleration – a decision made at the discretion of the Scottish Government - were excluded from the Scottish Government’s DEL budgets for both 2009-10 and 2010-11, then the growth in real terms between the two years would be 1.3%. She stated that the net result of the 2008 Pre-Budget Report and the 2009 UK Budget is that the Scottish DEL total for 2010-11 is “reduced below original plans by £496 million”.7

23. The funds available in 2010-11 are further reduced by the requirement to compensate for the planned accelerated capital expenditure totalling £347 million. The Cabinet Secretary acknowledged that comparing only the revised resource spend between 2009-10 and 2010-11 showed a real terms increase.8 The CPPR acknowledged that the re-profiling of capital spending means that “there is a steeper decline the next year than there would have been under the UK figures”. However, it suggested that consideration of the budget needs to focus not on the year-on-year change but on the funds actually available to public bodies in 2010-11.9 The SPICe briefing shows the detail of the various shifts and their effects on the totals for each year.10

24. The picture of a budget reducing compared to original plans is partly offset by changes in inflation. Lower inflation than originally envisaged has meant that the deflators used by the Treasury have changed, which means that the real terms picture for 2010-11 is slightly better than might otherwise have been the case, implying that the cash total will have greater spending power than originally thought. The deflator used by the Treasury to compare the real terms picture in 2010-11 with 2009-10 is now 1.5%, compared to the 2.75% originally used in Spending Review 2007.

25. One further factor complicates the picture. As part of its Spending Review 2007, the Scottish Government announced that it would make a “prudent over-allocation” of £100 million, £100 million and £24 million in each of the three years of the spending review period respectively to reduce the risk of significant underspends arising. This increases the total figures for DEL presented in Scottish budget documents compared to Treasury publications and, therefore, slightly changes the basis of comparison year-on-year as compared with the Treasury figures. This over-allocation should be discounted from the baseline for the purposes of comparison.

26. The year-on-year comparison of budgets is now highly complicated by the various changes which have been made. As well as the addition of various Barnett consequential changes, different interpretations of comparative changes in Scottish spending emerge depending on how re-profiled capital spending, the application of end-year flexibility and the planned over-commitment in budgets are represented. Also, in-year movements that arise from budget revisions have not been included in the figures used in this report.

27. Evidence heard by the Committee suggests that, partly due to the acceleration of capital funding from 2010-11, 2009-10 is likely to be seen as the peak year for public spending for some years to come. Although there is an increase in DEL between 2009-10 and 2010-11, it is acknowledged that the cash available to the Scottish Government in 2010-11 is lower than originally envisaged in Spending Review 2007. This raises short-term issues about budgetary planning for 2010-11 – both by the Scottish Government centrally and by individual public bodies. It was widely agreed by witnesses to the inquiry that the budget process for 2010-11, therefore, takes the Scottish Government and Parliament into new and potentially challenging territory.

Longer-term issues and projections

Budget baselines
28. A reduced total for spending plans in 2010-11 also raises implications for decisions in future spending reviews. It is not yet clear how the Treasury may treat accelerated capital spending and end-year flexibility when deciding the future baseline. However, the year selected for the baseline calculations in the next spending review is most likely to be the most recent for which data is available – 2010-11. If, for whatever reason, spending is unusually low in that year, future allocations may be adversely affected. It is not yet known when the next UK spending review will be conducted or the format this will take. The Scottish Government stated that, in particular, it is not clear whether the Treasury will count the re-profiled capital spending back into 2010-11 totals when calculating the baseline for going forward.11

29. Similarly, the ability of end-year flexibility to contribute to sustaining spending in the years from 2011-12 onwards is likely to be limited compared to the preceding three years. The allocation of £174 million of EYF to 2010-11 makes the spending total that year higher than it would otherwise be, and increases the prospect of future years’ spending looking comparatively lower as there are expected to be much reduced EYF balances available to cushion future budgets. The element of ‘over-allocation’ in each of the three years to 2010-11 will also have an effect on the prospect of further EYF being generated to be available in the future.

Future budget projections
30. Aside from issues about the baseline for future spending, the position of the UK’s public finances now indicates the potential for comparatively tight public spending constraints for a number of years. In its Green Budget 2009 publication in January 2009, the Institute for Fiscal Studies analysed the Pre-Budget Report 2008 and stated that the UK Government was projecting much slower growth in public spending over its next spending review period than over any of its previous reviews.12

31. However, the picture changed further after that publication. The CPPR emphasised that “public sector accounts deteriorated a lot between the [November 2008] pre-budget report and the [April 2009] budget”.13 This is due in part to the consequences of public expenditure on a fiscal stimulus to combat recession, partly due to the cost of support to the financial sector, and partly due to reduced taxation receipts as a consequence both of the recession and longer-term structural imbalances.

32. The 2009 UK Budget estimates a current budget deficit of £137 billion for 2010-11, and a net borrowing requirement at historically high levels - £175 billion in 2009-10 and £173 billion in 2010-11. The scale and pace of change is illustrated by the fact that these estimates were £73 billion, £118 billion and £105 billion respectively in the Pre-Budget Report. This revision has radically affected assumptions about public spending as the Treasury looks at what is required both to support recovery from recession and to return to fiscal balance in the longer term.

33. This debt position will have a very significant effect on public spending as future management of public finances will have to make good the shortfall in tax revenues brought about by the recession. Many economists predict both that future taxation is likely to be more onerous and that UK public spending can be expected to grow at a more modest rate, if at all, in the medium to long-term.

34. The Chancellor’s 2009 Budget speech outlined public spending projections to 2013-14 as the UK Government seeks to move back towards fiscal balance. He estimated an average real terms growth in current public spending of 0.7% between 2011-12 and 2013-14. The Cabinet Secretary stated that his analysis of the 2009 Budget suggested that, when this current spending growth was combined with capital spending reductions, it meant a real terms reduction of 0.1% in total public spending over the same period.14

35. However, the key point is that neither of these figures appear to differentiate between DEL and annually managed expenditure. Because of the priority that will need to be given to meeting substantial increases in budget lines classed as annually managed expenditure (which include, for example, debt repayment, social security and tax credits, etc), projections for DEL spending are likely to be significantly lower than any overall changes in total spending. The Institute for Fiscal Studies has projected an 8.4% rise for debt costs, a 1.7% rise for social security and a 1.9% rise for other annually managed expenditure over the 2011-12 to 2013-14 period.15 Figures from the Office of National Statistics show that debt interest payments in 2008 were £32.5 billion. The Chancellor has projected that the UK net debt in 2013-14 will be double what it was in 2008-09 (£1,582 billion compared to £794 billion).16 This means that, even if interest rates remain unchanged, debt interest payments will increase very significantly over the period. If the growth in total spending is low, these figures imply real pressure on the DEL available.

36. The Institute for Fiscal Studies broke those projections down by considering what was likely to be left after addressing costs such as debt servicing and unemployment benefits, and estimated an average 2.3% decrease per year in DEL for each of the three years to 2013-14. It also estimated that, if all future fiscal tightening is found from spending constraints rather than tax rises, there could be expected to be an average of no more than 0.5% per year real growth in current spending for four more years beyond 2013-14.

37. It is not yet clear what the effect on capital budgets will be. However, the Treasury estimates that net investment will reduce from 3.1% of GDP in 2009-10 to 1.3% in 2013-14.17 The Cabinet Secretary stated that this represented a 9.3% real terms reduction in capital spending over the period.18 Any Barnett-determined cut in Scotland’s capital allocation will not be decided until a future spending review. However, the effect may be significant, given that capital currently comprises approximately 10% of the Scottish DEL total.

38. The CPPR applied variants to the assumptions to give a range of three possible scenarios for Scottish spending, depending on how the Scottish budget was affected as the Barnett formula worked through from different possible funding distributions amongst UK spending departments. Its scenario C projects the most positive outlook of the three for Scottish Government spending. As a result of the worsening public finance picture outlined in the UK Budget 2009, each of the CPPR’s three projection scenarios are now about 2.3% lower than they had been when based on the Pre-Budget Report. Its most optimistic scenario for 2011-12 is now -2.4% in real terms for Scottish DEL, with -1.8% in real terms projected for both 2012-13 and 2013-14. It suggested that planning needs to be based on an assumption that the outcome is not as positive as this optimistic scenario.

39. The CPPR stated that, “By 2013-14 the [Scottish] budget will be between roughly £2 billion and £4 billion lower in real terms than it is at its peak in 2009-10. That represents a 7 to 13 per cent real terms cut over that four to five-year period.”19 The CPPR also stated that in the period forward to 2017-18 it expects “a return to positive, but very low, real-terms growth of perhaps around 1 per cent”.20 This compares with its estimate of an average of 6 per cent per year growth in the Scottish budget over the first six or seven years of devolution.

40. As discussed above, it should be noted that these are indicative projections and are subject to decisions yet to be made in the next UK spending review and subsequent UK budgets. The CPPR also highlighted the Institute for Fiscal Studies’ longer-term projections beyond 2017-18. The Budget 2009 indicates that net UK debt will still be over 70% of GDP in 2017-18. If the UK Government wants this to return to 50% or 40%, the IFS estimates that it will require constrained public spending into the 2020s or early 2030s respectively, by which time the CPPR suggests that the fiscal costs of demographic change will also be significantly apparent.21

Risks
41. As well as uncertainty about the future political choice of the balance between spending constraints and tax rises, there is considerable economic uncertainty beyond 2010-11. The CPPR stated that the risks in the current public finance assumptions are mainly on the down-side longer term.22 It cited three main risk factors. Firstly, many analysts appear to consider that the Treasury’s economic growth forecasts in the 2009 Budget may be on the optimistic side, and are certainly highly contingent. Alf Young, a former member of the Financial Issues Advisory Group, argued that the nature of the current economic circumstances means that, “There is almost no economic model out there that is capable of forecasting future trends on growth.”23 Lower growth than forecast would put additional pressure on tax receipts and thus on future public spending. The CPPR suggested that the impact of the Treasury’s projections being too optimistic would be that the situation would move from its most positive scenario towards its most pessimistic.

42. The second factor highlighted by the CPPR is that the cost of debt interest payments to be met from annually managed public spending could be higher if the current low interest rates move up, taking a greater share of total public spending and thus inevitably creating further pressure to constrain departmental spending. The Committee’s budget adviser stated that, “Any significant increase in interest rates could have a dramatic effect on debt interest payments, which would further squeeze UK public spending with inevitable consequences through the Barnett formula on the resources available to the Scottish Parliament.” The level of indebtedness of the UK Government risks erosion of market confidence and a consequent increase in debt servicing costs.24

43. Thirdly, losses to the Treasury from the financial sector could increase. The briefing from the Committee’s budget adviser details the level of Treasury exposure to banking risk and the potential cost, and notes that the International Monetary Fund’s risk estimates are higher than those of the Treasury. Again, higher losses than currently factored into the projections would put additional pressure on future public spending.

44. As well as speculating about future budget trends in the longer term, uncertainty about the fiscal position over the next few months also means that it is possible that spending totals for 2010-11 will be further revised, not least as a consequence of UK Government announcements in a Pre-Budget Report in late 2009 and a Budget in Spring 2010. The Finance Committee and subject committees will need to be prepared for that possibility as they consider the Draft Budget 2010-11 in due course.

45. The CPPR stated that, “The message for the Scottish Government is to start planning now, for the next 5 years in particular, but also for longer term tightness in the Budget. This is especially true as the International Monetary Fund warn of a further serious fiscal threat from unfavourable demographic trends emerging over this longer term period.”25

46. That strategic planning also has to be based on the perspective that the position may get yet more difficult than currently projected and so a robust range of contingencies is needed. Jeremy Peat, Director of the David Hume Institute, said, “Anyone who bases policies on one forecast is dotty. We have to…be ready for that range of scenarios…The one thing we can say with certainty is that the central case will be wrong.”26

Summary
47. While it is not possible to make predictions with any certainty, the central point in the context of the Scottish Government’s budget is that it is clear that a challenging budget process is not going to be a one-off for 2010-11. The Scottish Parliament is now in a very different environment for spending. Budgetary decisions for 2010-11 have, therefore, to be placed in the context of understanding their strategic effect for the years beyond that. This is difficult in the context of no formal spending allocations being available beyond 2010-11. However, budgetary decisions for 2010-11 have to be made with the explicit recognition, where at all possible, of the effect they will have in future years when spending is expected to be constrained.

Part 2 - Pressures on the budgets of the scottish government and public bodies

48. Part 1 outlined the overall size of the expected budget for 2010-11, and the possible future trends. The implications of the available budget for public services depend on understanding some of the parameters and constraints which bear on the budget.

49. Various fixed pressures on the budget affect the flexibility available to public bodies to deliver services. These pressures help to determine whether the cash available in 2010-11 – whatever the changes in the applied deflator and whether the cash total is interpreted as providing an overall real terms increase or not – is capable of buying the same service levels as in previous years or implies cuts.

50. A number of factors are likely to have an effect on this picture for 2010-11 and the following years:

  • the effects of the economic recession on the income streams of public bodies and demands for public services, and the effective inflation rate applicable in certain sectors;
  • changes in certain fixed costs; and
  • the trajectory of costs expected to be required for certain policy priorities.

51. The Committee has not received any overall assessment of the total effect of these influences, and it is not possible for it to quantify the total positive and negative impacts on the planning assumptions for 2010-11 and future budgets. This report aims simply to highlight some of them on an illustrative basis. The purpose of doing so is to alert subject committees to the need to identify the effects of these factors in their own portfolios, and to provide them with a basis for scrutinising how these have been taken account of in the planning assumptions for the Draft Budget 2010-11. In its own scrutiny, the Finance Committee will also be looking for evidence of robust analysis of, and strategic responses to, the overall impact of these factors.

The effects of recession

52. The full effects of the recession were not foreseen at the time of Spending Review 2007, or even when the Draft Budget 2009-10 was published in autumn 2008. The Committee heard evidence on a range of effects, some adding to and some easing the pressure on budgets.

Revenue and capital income streams
53. Several local authorities stated that the housing market slowdown has meant that normal increases in the Council Tax base and take cannot be assumed. Income from business-generated sources, such as non-domestic rates, commercial waste collections, etc is also expected to be affected. In Draft Budget 2009-10, the Scottish Government anticipated a total of almost £4 billion from non-domestic rates and Council Tax. Any shortfall in these two income streams will have to be met by the Scottish Government and local authorities respectively, and by the Department for Work and Pensions in respect of Council Tax Benefit. While it has been suggested that these will come under pressure, the Committee has not received evidence which quantifies these effects at either a local or national level.

54. As well as these two main national taxation schemes, parts of the public sector rely at least to some extent on income from other fees, asset disposals and other non-grant sources for parts of their budgets. For example, Scottish Enterprise has budgeted for well over 10% of its annual income to come from asset sales or rents.27 The Committee heard evidence that certain income streams are under particular pressure during the recession.

55. Public bodies which have previously relied on capital receipts from asset sales to fund some activities may be avoiding such disposals at present or are being forced to dispose at sub-optimal rates. Both local authorities and health boards said there was considerable difficulty and slowing of the realisation of capital receipts, which have been important to many public bodies both to balance budgets and to fund new infrastructure projects. In the same way, the recession is having an impact on fee and user charge income in sectors such as planning and development, and public bodies’ commercial property interests and services.

56. Glasgow City Council said that it estimates its asset sales income to be down £60 million over three years, and that planning income is down by £2 million.28 Aberdeen City Council also said that it was writing down approximately £30 million in the value of its asset management and property portfolio and anticipated capital receipts, and that income through planning and building standards was 16% below budget in 2008-09.29 It said that it had not now budgeted for any capital receipt income in 2009-10, having previously assumed £5 million. Highlands and Islands Enterprise (HIE) said that its ‘other income’ – for example, from capital receipts and income from property – would be about £6 million (one-third) down on budget in the current year, and budgets for the next few years would need to make prudent assumptions on such income.30

57. A related effect is that difficult credit conditions may also be affecting the feasibility of securing private sector credit for public sector capital projects. Aberdeen City Council stated that it had incurred extra financial and legal advice costs and had to provide interim loan finance itself after a financier of a schools PPP project ran into difficulty.

58. NHS Dumfries and Galloway also said that the value of its endowment portfolio is down 20%, although it is not clear what immediate effect such movements have on service activity as these are long-term investments. The Association of Scotland’s Colleges said that reduced investment income meant an average loss of £107,000 per college.31 Universities Scotland also said that it had recognised that investment targets set for 2010-11 would not be achieved, and that there was a serious risk that income generated from work with industry may reduce during a recession.32

Demands on services
59. The Committee heard evidence of increased demand for certain public services as a result of the recession - particularly social work services, social housing and debt and money advice. NHS Dumfries and Galloway said that it would be particularly concerned to monitor the demand on primary care and mental health services. Given that some of these demands are related primarily to increased levels of unemployment which generally lag behind other immediate effects of recession and last longer, any increased demand for services might also be expected to lag behind other recession effects. This means that some of the effects suggested by public bodies are still relatively speculative assumptions, but they will be more quantifiable over coming months, and can be expected to be more of an issue the longer the recession lasts.33

60. Local authorities suggested that, as the economic difficulties persist, social care services will face greater demand in general, and the transfer of additional costs as, for example, people using services such as residential care are less able to contribute to costs. They are also seeing increased homelessness presentations, increased demand for social housing and Housing Benefit claims and reduced income from right to buy sales.34 Voluntary sector representatives also said that extra demand is being experienced in services such as debt advice and employability support.35 East Ayrshire Council suggested that there may also be some savings due to reduced demands for business grants and related services.36

61. The Association of Scotland’s Colleges said that local colleges are experiencing unprecedented demand, both from school leavers and people who have been made redundant, with some startling percentage rises in demand for certain courses and colleges. Universities Scotland also said that demand for university programmes is up 5% on last year.37

Inflation and other effects
62. The course of price inflation has already differed substantially from the projections underpinning assumptions made in both Spending Review 2007 and the Draft Budget 2009-10 about the real spending power of funding allocations. Consumer price inflation (CPI) in April 2009 was 2.3% and retail price inflation (RPI) was minus 1.2% – the lowest on record. This may mean that the Scottish Government will be able to purchase some goods and services much more cheaply than previously anticipated and, as noted at paragraph 24 above, the Treasury has revised the deflator for 2010-11 which has the effect of increasing the theoretical real purchasing power of the cash settlement. It is obviously not yet known what impact inflation will actually have through the 2010-11 financial year. However, the Committee’s budget adviser has noted that the inflation rates are widely expected to increase from current lows over the medium term.

63. Evidence also suggests that different sectors are subject to varying inflationary pressures, some of which may be due to the wider economic context while others are more persistent and particular to those sectors.38 NHS Lothian stated that inflation for public bodies tends to mirror CPI rather than RPI, and that prices of the main NHS commodities increased by 3.49% over the 12 months to January 2009. NHS Lothian said that its current funding uplift of 3.73% in 2009-10 plus its internally generated 2% efficiency savings were fully required to meet cost pressures from pay awards, prescribing and new technology etc. before service developments are considered.

64. Local authorities also highlighted current inflationary effects on their costs. Aberdeen City Council cited significant increases in catering costs and some increase in fuel costs still feeding through to budgets, and other local authorities reported similar effects. NHS Lothian also said that exchange rate movements had seen the price of key imported commodities and supplies rise, with textiles up by 33.5%.

65. Some downward cost pressures are also evident. Procurement benefits may be realised if public bodies are in the financial and contractual position to take advantage of them, although the benefits may not become evident immediately. The Scottish Building Federation and the Chartered Institute of Housing in Scotland (CIH) both emphasised that it is currently possible to get excellent value in the construction market, although the CIH said that “there might not be a big window of opportunity”.39

66. A number of witnesses highlighted the inflationary pressures which are inherent in the fact that a large proportion of public spending goes on salary costs. This was estimated by the Scottish Government to be around 60% of the DEL resource budget, although there are different estimates depending on whether some contractual rather than salary costs (such as those for general medical practitioners) are included. Other estimates put pay costs at up to 70% of the total budget.40

67. The Scottish Government recently published its public sector pay policy for 2009-10. This suggests that basic awards should be no more than 1.5%, with a total pay bill increase (i.e. including the cost of progression and other structural reforms) of 3%. New multi-year deals will be considered, but should provide for no more than 1.5% per year. 2010-11 is the last year of three-year deals for several large public sector staff groups, with the basic increases all running at 2% or above. This would suggest that wage bill growth might still be expected to put pressure on the overall Scottish Government budget in 2010-11. The actual impact of the unexpected downturn in price inflation on the real value of the Scottish budget is, therefore, at best uncertain.

Summary
68. Although the evidence heard is far from a definitive statement on the effects of recession or the totality of the pressures, it suggests that the current 2009-10 budget assumptions, and the 2010-11 ones, are likely to be under even more pressure than the bare numbers imply. The effects are very variable and their future course is unpredictable. They can be expected to be alleviated as the recession eases. It is not yet clear to what extent these fluctuations are of a significantly different order to the normal pressures that need to be considered in any budget planning round. The key point is that the longer these effects persist, the less sustainable it is for public bodies to absorb them through efficiency measures or use of reserves.41 Subject committees may wish to scrutinise whether appropriately robust analysis and contingency strategies are in place in their portfolios to address this issue.

Fixed costs

69. Evidence to the Committee has highlighted a number of fixed cost commitments. Any rising trajectory of these costs reduces the room for manoeuvre in the remainder of the budget. Two areas of fixed costs, and one other issue of budgeting uncertainty, were highlighted to the Committee.

Employer costs
70. A number of witnesses highlighted the cost of public sector pensions. Many of the benefits paid out for various public sector pension schemes are classed as annually managed expenditure and do not, therefore, directly affect the immediate budget available to the Scottish Government to allocate. Variations in their costs do not have to be compensated for by changes elsewhere in the Scottish budget.

71. However, the current pensions overhead costs (that is, employer contributions for current employees) are met from DEL and are subject to some cost pressures. While these costs are a significant part of the budget in all portfolios given the proportion of the budget that is focused on salary costs, they are not separately identified in budget documents and no overall figure is apparent. The Government Actuary’s Department (GAD) and the Scottish Public Pensions Agency (SPPA) emphasised that projections of scheme costs are heavily dependent on a variety of factors. The employer rates vary across different schemes and, with effect from April 2009, some rates have risen and some fallen. Information from the GAD and the SPPA suggests that employer contributions in 2010-11 for the Scottish Teachers and Scottish NHS schemes are projected to be £31.5 million higher than in 2009-10, and a further £40 million higher again in 2011-12.42 Any overall increases will have to be met from current resource budgets.

72. Audit Scotland confirmed that the most recent actuarial valuation was at 31 March 2008, and resulted in an increase in its employer contribution rates for each of the three financial years from 2009-10. The significant recent fall in the stock market will not have been reflected in the 2008 valuation, and will not become material until the next triennial valuation and its application from 2012-13. Whether or not greater budgetary pressure from pensions arises as a result of that valuation will depend on market conditions over the coming years.

73. On other employer costs, the Scottish Government stated that increases in the rate of employer national insurance contributions are estimated to add £30 million to the total Scottish Government pay costs in 2010-11.43

Unitary charges for PPP/PFI projects
74. The profile of the unitary charge payments for established PPP/PFI projects also rises for 2010-11 and the coming years. Draft Budget 2009-10 stated that the total payment in 2010-11 would be £787 million, an increase of £107 million over 2009-10. At the time of the Committee’s inquiry into the methods of funding capital investment projects, the Scottish Government stated that unitary charges on existing deals create a stream of commitments to 2041-42, increasing further in the years beyond 2010-11 and only beginning to decline significantly after 2032-33.44

International Financial Reporting Standards
75. In previous inquiry work and budget reports, the Committee has noted the potential effects of the application from 2009-10 of International Financial Reporting Standards to the accounts of central government and many of the bodies it funds. One likely area of change is the public sector accounting treatment of PPP/PFI assets. There is currently a lack of clarity as to the likely impact of this accounting change on budgets, depending on whether the Treasury ensures that the changes are cost neutral. The Cabinet Secretary has previously stated that any other outcome will involve significant implications for the Scottish budget. Audit Scotland told the Committee that, while “the intention is that the Treasury will cover any changes to budgets that are brought about as a direct result of IFRS implementation”, negotiations are not as yet concluded.45

Summary
76. The evidence heard by the Committee covers only a selection of fixed cost issues and does not, therefore, provide a definitive picture. However, the Finance Committee will seek clear information on the effect this type of cost factor will have on future budgets. Subject committees may also wish to scrutinise the effects on budgets at a portfolio level. The Finance Committee will also continue to seek updates in due course on the way in which application of IFRS will affect budgets.

Costs of certain policy priorities

77. Many witnesses also highlighted government commitments to a number of policy initiatives which have a high profile, and the costs of which may have a particular impact on the room for flexibility in the remainder of the budget, particularly if they are demand-led. Some of the initiatives are not separately identifiable in budget documents, and so it is not possible to consider their costs even for 2010-11. There are also no collective projections available for beyond 2010-11, as the budget documents contain details only for the duration of the current spending review period, of which 2010-11 is the last year.

78. In terms of specific policy areas on the current expenditure side of the budget, most comment to the Committee focussed on the extension of universal entitlements under various policy initiatives. Prescription charges are due to fall to £3 per prescription in 2010-11 at a cost of £32 million, and to be free in 2011-12 at an estimated cost of £57 million. Concessionary travel is expected to cost £189.4 million in 2010-11. Although a separate cost for free personal care is difficult to identify, it is largely a demand-led budget and is rising (with £40 million additional funds provided to local authorities in the current year).

79. The Scottish Government has allocated £70 million to fund a Council Tax freeze in each year of the spending review period. The small business bonus scheme has been costed at £165 million in 2010-11, an increase of £39 million over 2009-10. There are also likely to be costs in terms of income foregone as a result of the Scottish Government reacting to business concerns by allowing local authorities to permit businesses to defer a portion of the proposed 5% increase in business rates due from April 2009 until 2010-11 and 2011-12.46

80. In addition to these specific policy priorities, certain budget lines were projected in Draft Budget 2009-10 to increase significantly between 2009-10 and 2010-11. For example, Motorways and Trunk Roads, Student Awards Agency, Scottish Prison Service and Environmental Protection lines all show substantial proposed increases year-on-year. In overall terms, the Concordat with local authorities committed the Scottish Government to provide an increase of 3.7% for local authority revenue spending between 2009-10 and 2010-11 (an additional £391 million over the 2009-10 plans, although Draft Budget 2009-10 showed this to be even higher).

81. In some policy areas pressures may in fact ease as demand may be expected to fall in the medium term. Scottish Water indicated that its next investment programme (2010-2014) was always planned to be at a lower level than the current one, and is likely to provide for investment at around £500 million per annum, rather than the current c.£700 million. This will result in a lower demand from Scottish Water for borrowing from the Scottish Government. Scottish Water estimated this as a likely reduction from £182 million to just under £150 million per year for 2010-11 to 2013-14. That figure is, however, contingent on final decisions about Ministerial priorities and determinations about charges. Although reducing, it will still be a fixed cost in an uncertain financial context. In reaching final agreement, Scottish Water would presume that the Scottish Government will commit to providing the agreed level of borrowing throughout the four-year investment period.47

82. On capital expenditure, pressures are perhaps easier to manage by modifying the timetable for delivery of specific projects. However, spending on some projects has already been committed, and spending on others such as the Commonwealth Games is time-critical and will cut across the next spending review period in particular. The plans for the Games show the costs being split 80:20 between the Scottish Government and Glasgow City Council. The projected £306 million running costs to be funded by the Scottish Government are likely to require to be met in one or two financial years at a time when the overall Scottish Government budget is expected to be under continuing pressure.

Summary
83. Again, the evidence heard by the Committee does not provide an overall assessment of the total projected costs of different policy priorities. It does, however, demonstrate that these need to be understood clearly at both an overall and portfolio level if the remaining budgetary choices are to be considered. Subject committees may wish to seek detailed information on those which affect their portfolios.

Longer-term issues

84. The Committee also heard evidence about some further trends which will increase demand pressures, and potentially weaken revenue streams, in the longer term. Both the briefing of the Committee’s budget adviser and evidence from the CPPR focused on the issues of demographic change and action to implement emissions reduction measures. The CPPR stated that they will begin to be felt over a timescale within which public spending is still likely to be constrained.

85. The Committee has not sought to consider these in any detail. The key issue is simply that the uncertainty of different economic recovery scenarios for the public finances has to be placed alongside the cost scenarios associated with different patterns arising from demographics or emissions reduction priorities.

86. The current context demands a very clear understanding of the future cost trajectories for various commitments and policy streams. The Finance Committee wishes to highlight the importance of subject committees being fully aware of the factors relevant to their portfolios when considering the Draft Budget for 2010-11. The Committee recommends that subject committees should pay particular attention to seeking, where appropriate, robust further detail on expected budgetary trends in areas of particular importance and should bear in mind the need to request longer-term projections notwithstanding the fact that 2010-11 is the last year of the current spending review period. Subject committees may also wish to examine the extent to which spending departments can demonstrate evidence of longer-term thinking.

Part 3 - how should government react

87. As has been noted above, the wide range of variable factors means that the Committee is not in a position to quantify precisely the scale of the budgetary challenge in 2010-11. The Cabinet Secretary simply emphasised that the three-year spending review settlement had given a clear picture of the available investment over the period on which the Scottish Government and public bodies had planned. As less money than planned will now be available, adaptation strategies need to be developed.48

88. Individual public bodies are clearly aware of the situation and its effects. Aberdeen City Council suggested allowing exploration of alternative approaches to incentivising income generation, such as tax increment financing at local authority level. The Council said that this issue – on which the Cabinet Secretary has previously responded favourably to the Finance Committee – could be developed without damaging policy outcome targets.49 Glasgow City Council said that even if it received an inflationary uplift in its budget, it would require to make £30 million of savings in 2010-11 to fund pressures including pay awards. However, it said that the Cabinet Secretary had “indicated that the public sector should assume a cash standstill in 2010-2013.” If it was to receive a stand-still budget, it would be required to save at least a further £38 million.50 NHS Ayrshire and Arran said that the impact of the reduced Scottish Government 2010-11 budget plans implied that its uplift for 2010-11 may be in the order of 1% rather than the 3% the original budget indicated.

89. However, as has also been noted in previous sections, the fact that budgetary decisions for 2010-11 have to be set in the context of anticipating several years of tight budgets demands a strategic response. Alf Young emphasised that the new era of budget pressures requires sophisticated strategic thinking, rather than reducing the debate to “one that is simply about numbers, jobs, losers and winners”.51 Several witnesses emphasised the need to consider all options and to rule nothing in or out at this stage. The Committee heard evidence on a number of issues that such a response must grapple with.

Achieving savings across-the-board

90. A lot of evidence focused on the extent to which an across-the-board approach to achieving savings would be suitable or sufficient. Stella Manzie suggested that the Scottish Government “would like to focus [savings] on efficiencies as far as we possibly can”.52 Jeremy Peat also emphasised that, “the more that can be achieved through efficiency savings, the less that activities must be cut, so my first priority would be to do everything possible to maintain quality and services at a lower cost”.53

91. However, Jeremy Peat acknowledged that, even with a significant improvement in efficiency, there are going to have to be reductions in services. He said, “I believe that it will be necessary to consider whether it is possible to reduce the cost of certain central policies while largely retaining the benefits that the policies are delivering.”54

92. The Committee heard some areas of particular concern about an across-the-board approach. NHS Lothian said that the application of the national resource allocations committee (NRAC) system meant that it was making efficiencies from a lower cost base than under other systems, and said that a differential approach needed to be taken.55 It and other NHS boards also said that the degree of ring-fencing in the health budgets compromised their ability to manage budgets flexibly.

93. Other witnesses were more sceptical about the future contribution of general efficiency programmes and suggested a more targeted approach. The CPPR suggested that, while significant efficiencies have been delivered through a general programme in recent years, “continuation of that seems unlikely to be possible if services are not to be challenged”. NHS Dumfries and Galloway described it as “the balance between efficiencies and disinvestment”. Scottish Enterprise stated that efficiencies have, to date, not had an impact on its service delivery. However, the CPPR argued that, “The current approach of saying, “We must continue with a 2 per cent cut – you decide how it is done” will not continue to cut the mustard.”56 It argued that structural change is required rather than the continuation of short-term measures, and suggested that Ministers should examine whether they can focus on specific areas that may be susceptible to reform that will realise more substantial savings. Glasgow City Council said that it does “not apply a salami-slice approach to efficiency savings; we focus on our priorities”, and argued for that approach across the public sector.57

94. The STUC stated that, “Most of the quick wins in public sector efficiency have already been won”, and argued that separating out so-called back-office functions for savings is a false distinction.58 NHS Dumfries and Galloway also said that, as the required efficiencies increase, protecting front-line services becomes more problematic and said that it would “have grave concerns about stepping up to 4 per cent on a recurring basis, although we could perhaps do it as a one-off”.59 NHS Lothian said that year-on-year efficiency demands need a strategic overview of three to five years.

95. SEPA said that, in the absence of the ability to undertake fundamental review of services, “incremental cost reduction and marginal efficiency ‘squeezing’ drove unhelpful lack of focus on real change and real priorities”.60 The Scottish Chambers of Commerce also said that untargeted efficiency savings “in some cases could see irreversible damage being done to key sectors in the Scottish economy”.61 The CIH argued that it is important to assess not just the savings that can be achieved, but the wider impact they will have on the Scottish economy.62

96. Audit Scotland also suggested that, as well as the general efficiency programme, “because of the scale of change we should not lose the opportunity to consider whole systems of public services more widely”.63 It suggested that considering whole service systems (such as social care) across organisational boundaries could identify reasons for huge variability in costs and find ways of spending less money and improving the quality of care. It has not yet been able to take this approach to systemic studies in areas other than health and local authority services.

97. Responding to these issues, the Cabinet Secretary said that an increased percentage efficiency savings target was one option, but that no decisions had been made as yet. It is not clear to what extent the Scottish Government has made an assessment of the potential contribution, and potential downsides, of this approach. The Cabinet Secretary acknowledged that assumptions about easy options to pursue reduce over time as an efficiency programme progresses, and as pressure to deliver higher savings grows. He stressed that both efficiency savings and public service reforms would need to be used to manage the challenge.64

Summary
98. The evidence indicates a finely-balanced debate over the potential additional savings that could be achieved through additional across-the-board targets, and the potential implications that such an approach may have for service delivery. The Finance Committee has maintained a continuing interest in the delivery of the efficiency programme. During scrutiny of the Draft Budget 2010-11, subject committees may wish to examine carefully any assumptions that are being made about across-the-board savings.

A targeted approach to constraining spending

99. The Committee heard evidence on a variety of ways in which savings efforts could be targeted at certain areas.

Overhead costs
100. One specific strand is the search for savings in specific processes. The Cabinet Secretary cited the central electricity supply contract recently agreed for the public sector, which is expected to save £10 million on a spend of £200 million per year.65 John Aldridge, a former Director of Finance at the then Scottish Executive, stated that the e-procurement system was also an example of a large system change which had produced large efficiency savings.66

101. Evidence suggested that there may be further areas where there is scope for savings, although these may also raise some issues about the accountability of individual public bodies. NHS Lothian said that the public sector does not yet appear to benefit from smart hedging against the impact of inflationary or exchange rate pressures. The Cabinet Secretary cited software licensing, other utilities and procurement reform as key areas.67 However, no details have been given to indicate that the potential savings have been realistically quantified, or an assessment made of the kind of implementation timeframe which would be required to realise them.

102. SEPA said that the Scottish Government could make savings in the medium and long term by investing more now in green sectors. However, the tight financial position suggests that the ability to undertake ‘spend to save’ measures will have to be assessed very carefully. Aberdeen City Council also suggested a move to suspend or remove some areas of regulation to allow more flexible service delivery and investment.

Public services reform
103. Several witnesses said that the tight public spending context offered the opportunity to consider new ways of thinking about which services are delivered, how and by whom - whether radically new models of delivery by the public sector or an extension of delivery by other sectors.

104. HIE argued that, “We are only starting on the journey of making real economies” in terms of co-locating services, integrating delivery across agencies and sharing support services – although it did not quantify the potential savings.68 It noted the progress that has been made in Scottish Government rural services, but it is not clear whether there are similar initiatives in other sectors. The Accounts Commission’s reports on the performance of local authorities show slow progress on shared services.69 SEPA also said that, while there are already partnership initiatives, “the pace of change is relatively slow, the deliverables/ timescales uncertain and the efficiency/effectiveness criteria not always clear”.70 However, the STUC argued that shared services undermine the democratic accountability of organisations, and are in any event, likely to require initial investment and only likely to result in savings in the longer term.71

105. Glasgow City Council said that there may be significant savings available by looking at the delivery of services in areas such as transport, but that would require the ability to consider the service in a perspective beyond any one council department or area and across different public bodies.72 Jenny Stewart (a partner at KPMG, who was a member of the Howat Review of public spending) also suggested that, in a country the size of Scotland, there should be scope for economies of scale through more national bodies, albeit with a strong local presence.73 This would imply significant consideration of governance issues in public bodies.

106. The Institute of Directors said that the reduction in planned budget for 2010-11 was of a manageable proportion, and “could be the catalyst and stimulus for more determined leadership and innovation”. It argued for consideration of new options, rather than “more or less of the same”.74 CBI Scotland said that there should be a shift in public service provision towards the public sector more often taking a commissioner rather than provider role, and several other witnesses suggested that there could be benefits from increasing competitive pressures and contestability in public services.75

107. Both the CPPR and other witnesses cited the 40% efficiency savings said to have been made in the operation of Scottish Water as indicating a model that could perhaps be applied more widely. Jeremy Peat stated that the David Hume Institute had studied the Scottish Water model and concluded that some lessons might be learned for other sectors, such as waste management, social housing and social care. The STUC, however, disputed whether this level of savings was possible while maintaining a sustainable business model.76

108. Scottish Water said that the benefits of its regulatory model were that it “sets targets and applies sticks and carrots to improve performance”, and can compare performance against other similar providers. The wider applicability of the model depends on the availability of robust data and the ability to make meaningful comparisons across similar organisations. Nonetheless, it argued that the efficiencies “generated since economic regulation was introduced are a quantum leap ahead of what was generated before”.77

109. The Cabinet Secretary emphasised his desire to encourage “a great deal more integration and collaboration” in the public sector and said that a “significant opportunity for undertaking public service development at local level still exists in Scotland”. However, he acknowledged that, even if good performance is delivered on this agenda, a big challenge remains.78 The Committee is not aware of any overall assessment of the potential savings that might be achieved through public service efficiency, how long it would take to realise any savings or the different mechanisms which would be required to ensure quality of provision.

110. Some witnesses raised issues about whether comparison of different delivery models – and bidding processes – can be approached on a level playing field. CBI Scotland suggested that private bidders have concerns about pension costs and the application of Freedom of Information legislation.79 Voluntary sector representatives also expressed concern as to whether in-house bid costs from local authorities properly include management costs and other overheads.80

111. More fundamentally, various voluntary sector organisations questioned whether competitive tendering delivers genuine overall cost savings once commissioner and bidder costs are taken into account. Community Care Providers Scotland (CCPS) and the Rock Trust also said that retendering reduces the relationship to a purely financial one, risks putting finance ahead of service quality for no discernible gain and disconnects service provision from co-operative partnerships on strategies.81 The Scottish Council for Voluntary Organisations (SCVO) said that there is already evidence of voluntary organisations subsidising contracted services through other non-contract income, which is under increasing pressure in the recession. CCPS also said that there is evidence of local authorities explicitly excluding contracted voluntary sector providers from inflationary uplifts – and thus the opportunity to make appropriate pay awards – as a direct means of offsetting other budgetary demands.82

112. Several voluntary sector organisations stressed their role as providing part of the solution to economic difficulties through the types of support services and community engagement they provide. While they acknowledged the possibility of the recession and public spending pressures being “the mother of invention” for new forms of delivery, they emphasised that the circumstances should not be used to mask poor decision-making or “as a smokescreen” for cuts in public spending.83

113. There is also a significant question in how quickly substantial new initiatives on service delivery can contribute to easing immediate budgetary pressures. Jenny Stewart stated that it takes 6-18 months for major change to come to fruition and that, after 18 months, only a portion of the possible savings identified at the outset will have been realised.84 John Aldridge emphasised that moving beyond current efficiency targets may imply service changes which would require significant up-front investment.

Summary
114. Evidence to the Committee highlights a number of broad potential areas through which a targeted approach to achieving savings might be pursued. During scrutiny of the Draft Budget 2010-11, committees may wish to seek evidence of comprehensive and realistic evaluation of what can be achieved by different approaches, along with an understanding of the potential up-front costs, timescales for implementation and any difficulties that may arise.

Protecting areas of spending

115. The debate about how savings should be achieved through service reform sits alongside considerable evidence to the Committee on areas of spending that witnesses thought should be protected. Some were considered to be priorities because they are core to the Government’s policy priorities, and some because they are central to recovery from recession.

116. Stella Manzie said that the Scottish Government had “tried to bend the existing budget in the direction of supporting initiatives to combat the economic downturn.”85 The Cabinet Secretary stated that providing funds to freeze the Council Tax for a further year is an important part of supporting people in economic uncertainty.86 Several witnesses emphasised other ways in which support for the economy should be continued and strengthened.

117. Jeremy Peat emphasised the importance of several industrial sectors which are capable of being strongly competitive in an international environment, and suggested that the time between now and the 2010-11 budget should be used to prioritise actions that will enable these sectors to lead the post-recession environment.87 The David Hume Institute has established a series of seminars bringing together stakeholders in the key sectors. Other witnesses emphasised the importance of renewable energy, life sciences, financial services, engineering, food and drink, tourism, etc. Universities Scotland said that, “when we eventually come out of the recession, our economy will look substantially different from how it looked before”, and argued for a focus on providing workforce skills that would make Scotland well-placed for recovery.88

118. The STUC also said that a targeted wage-subsidy programme, similar to the ProAct initiative in Wales, should be used to support the retention of jobs and skills in key industrial sectors.89 The Minister for Energy, Enterprise and Tourism, Jim Mather MSP, said on 21 May that the Scottish Government is “actively considering options for wage subsidy” to help combat the effects of recession.90

119. In the economic context, several witnesses said that it would be unfortunate if spending on skills was to be allowed to suffer.91 The CBI Scotland suggested that a greater proportion of funding should go on skills development and infrastructure, and the Institute of Directors stated that the amount and focus on skills investment in Scotland is weak compared to other countries. Even on the original plans set out in Draft Budget 2009-10, the budget of Skills Development Scotland is expected to drop from £188 million in 2009-10 to £182 million in 2010-11.

120. Even once the effects of capital re-profiling are discounted, and even before the effects of reduced asset income and sales are considered, the enterprise agencies’ budgets for 2010-11 are lower than for 2009-10. Scottish Enterprise acknowledged the particular reduction in its innovation and investment streams – which were planned before the further pressures on the Scottish Government’s budget for 2010-11 and beyond were known. While acknowledging the planned reduction in their budgets for 2010-11, the enterprise agencies emphasised that they are targeting resources to increase provision in ways that are priorities in the economic context, that do most to stimulate economic growth and that can lever in additional private investment.92

121. The Cabinet Secretary emphasised the additional focus on modern apprenticeships which had been agreed during the passage of the Budget Bill in February 2009, but agreed to consider this issue further.93 Skills Development Scotland said that the levels of funding noted above did not include resources to support the £16 million for modern apprenticeships, which was a commitment which would also require additional funding in future years.94

122. The Association of Scotland’s Colleges said that the increased level of demand on colleges “is such that no amount of wiggling around the edges will soak up all the individuals who are looking for college places”.95 The demand for full-time places meant that school leavers waiting for exam results may struggle to get places. It argued that “investment in the college sector needs to take place now, before the end of the current session” and made a case for allocation of Barnett consequential funds for 2009-10 to be targeted at the sector.

123. Other witnesses argued for continuing support for interventions that will support business – such as the manufacturing advisory service, and managed client accounts by the enterprise agencies. The CBI Scotland suggested delivering contracts in small packets to enable smaller Scottish businesses to bid, although this would be contrary to the direction of initiatives to achieve savings such as the centralised electricity supply contract.96 Glasgow City Council suggested that regulatory easing should also be considered – for example, that state aids rules should be examined carefully to consider the scope for support to private enterprise in the recession.

124. Jenny Stewart also raised a general question about whether, if the effects of recession are still evident in 2010-11, it is helpful for capital spending to be going down that year.97 The Scottish Building Federation acknowledged the demands on public spending, but emphasised the need for certainty to allow the private construction industry to plan its business and retain jobs where possible. It said that, in the next six months, £1 billion worth of public projects would be completed but “there are no projects to replace them”.98 Scottish Water is currently at a peak of investment, but will be reducing construction work in the economy by around £200 million per year from 2010-11, coinciding with less other public capital funding being available.

125. The CIH expressed concern that, should capital spending be reduced, the loss of jobs in the construction industry will be accelerated to the point where its ability to assist economic recovery will be seriously compromised. It highlighted the particular effect on the affordable housing budget line for 2010-11 of the Scottish Government’s capital re-profiling measures, and suggested that this was not the right time for such a reduction in investment. It argued for the £53.8 million of Barnett consequentials which it said were derived from housing budgets to be allocated for that purpose in Scotland, smoothing the fall in investment. The CIH also suggested examining specific measures such as reviewing in the current investment climate the contribution that Housing Association Grant subsidy levels (which had been cut by the Scottish Government in June 2008) can make to stimulating building and levering in private finance.99

126. With it being the last year of the current spending review period, the option to further re-profile spending from future years to 2010-11 is not available. The Cabinet Secretary acknowledged that spending could be shifted from resource to capital budgets, but that would obviously put additional strain on other areas.

127. Aside from considering how support for certain policy areas can be sustained in the medium term, some witnesses raised the immediate issue of how the £79 million Barnett consequentials for 2009-10 (which are additional to the budgets previously planned and allocated to priorities for that year) should be prioritised. The Cabinet Secretary said that the Scottish Government is currently considering how to use those funds and would hope to announce decisions “well in advance of summer recess so that there is clarity for organisations”.100

128. The extent to which funds for particular purposes should be protected if possible, the way in which they should be directed and the effects on other portfolios, will be key issues for all subject committees in the scrutiny of the 2010-11 Draft Budget. For example, the best use of available funds to support economic recovery is an ongoing concern of the Economy, Energy and Tourism Committee.

129. The formal allocation of the 2009-10 Barnett consequential funds will not be in the Draft Budget 2010-11, but rather would be expected to be made in an Autumn Revision to the 2009-10 budget, which would normally be considered by the Finance Committee around November. This is a statutory instrument which is not normally considered by subject committees. However, when considering their budget portfolios in due course, subject committees may wish to examine how the additional consequential funds have been allocated, and consider in particular how the distribution fits into and supports the longer-term strategic choices that are required. The Committee notes that discussions on the allocation of the funds are already underway. Given the evidence heard during the inquiry, the Committee encourages the Scottish Government to announce decisions on allocation as soon as possible.

Re-considering specific spending priorities

130. The converse of seeking to protect some areas of spending is discussion on areas that can be cut and the process that should be followed in making rational decisions. The CPPR summarised the perspective of much of the evidence when it stated that the sum effect of the budgetary pressures is that, “Current spending levels are not sustainable”.101 Aberdeen City Council said, “What are the priorities? Can we afford to deliver them all? Probably not. We need to revisit them.”102

Public sector pay
131. One specific cost area in which commitments were questioned by witnesses was public sector pay. Some of the expected pay rises in 2010-11, and the consequent additional employer’s on-costs arising from pension contributions, are described in previous sections. Jenny Stewart said that, in a context of lower inflation and constrained spending, public bodies faced with already-agreed pay settlements would feel like that amounted to being forced to make cuts.103 She suggested that pay costs can be restrained without cutting jobs by considering job-sharing or reduced hours, or by revisiting pay settlements. She and some other witnesses said that such measures are being increasingly used in the private sector to help avoid redundancies.104 NHS Ayrshire and Arran also said that there may be a need to revisit the third year of the national three-year pay settlement.

132. Glasgow City Council proposed that, notwithstanding current pay agreements and the central bargaining machinery for local government staff, a pay freeze should be considered for those above its £7 per hour living wage level. This would contribute £21 million to its budget for 2010-11.105 The CPPR stated that the overall budget effect is that each “1 per cent freeze on wages would save about £140 million or £150 million” per year.106

133. The Scottish Government, however, emphasised that 2010-11 is the last year of three-year wage settlements for several large public sector staff groups, including police, teachers, some parts of the NHS and central Scottish Government staff. It said that “public bodies are aware that they must honour these pay agreements within the budgets available to them”.107 As noted at paragraph 67 above, the recently-announced public sector pay policy for 2009-10 also allows for multi-year awards, provided they do not exceed a 1.5% per year basic award.

Other specific issues
134. Several witnesses said that the budgetary situation requires re-examination of policy areas – particularly those where universal benefits are provided, and consideration of whether it is still an appropriate and affordable priority to provide them as general benefits as opposed to targeting them at those most in need. Some of these policies, as described in paragraphs 78-82 above, provide universal relief from charges and others provide universally-accessible spending programmes.

135. Although acknowledging that the Scottish Government would need to look at all possible charging and revenue streams in future years, the Cabinet Secretary indicated that the focus of pressure to balance the budget would be on the spending side. He did not, however, make any commitments that revenue-suppressing measures (such as the Council Tax freeze or various reliefs from charges) would continue beyond 2010-11, but did say that he could not foresee circumstances that would encourage the Scottish Government to use the power to vary income tax.108

136. Some specific policy areas were highlighted to the Committee as potential areas for savings. For example, the STUC questioned whether the funds devoted to the small business bonus scheme should be better targeted.109 Alf Young questioned whether universal concessionary travel without any means-testing is a suitable priority. On a slightly different tack, Jenny Stewart and others suggested that mutualisation of Scottish Water would release “some £371 million in 2010 and subsequent years to spend on other priorities”.110 In a similar vein, several NHS boards suggested that, without additional resources, the increasing pressure to achieve waiting time targets may need to be reconsidered, at least in terms of the timetable for achieving them.

137. However, rather than the specifics of any particular policy, the key point was the suggestion of several witnesses that it is inevitable that the Scottish Government will have to be willing to examine the principles and priorities that currently underpin these universal public services as it considers the tighter financial position.

Summary
138. The Committee has heard limited suggestions on areas of spending that might be targeted for savings. When considering the Draft Budget 2010-11, subject committees may wish to examine in more detail the options in their portfolios, the timescales and up-front costs of pursuing these and their impact on service delivery. In the current public spending context in particular, there is a heightened need for the connection to be made between budget priorities and growing the economy, and to focus on how the budget is deployed to combat the effects of the recession.

Process issues

139. Much evidence to the Committee understandably focused on the interests of particular sectors of public spending. However, two process issues ran as threads through the whole inquiry, highlighting how a strategic response to spending constraints must be handled:

  • whether an adequate evidence base exists to support appropriate prioritisation of spending decisions;
  • whether the machinery of government is set up to manage the difficult spending choices.

Understanding what works, and linking budgets to outcome targets
140. The first fundamental issue which ran through all the evidence was whether or not an adequate evidence base exists to support an appropriately strategic prioritisation of resources. If it is accepted that across-the-board approaches to making savings have weaknesses or are insufficient for the challenge, the key to making choices is evidence to understand what works, to refine objectives and to link budgets to outcome targets, thereby ensuring the efficacy of targeting spending and savings more selectively.

141. Many witnesses emphasised the importance of clear prioritisation, and the need for all policy initiatives to be fully costed prior to agreement and implementation. The CPPR argued that, “there is not enough evidence and information gathering to say what would be the right thing to do”.111 Jenny Stewart said that, in her previous involvement in the Howat Review of public spending, “in many cases independent evaluation of what we were getting for our money was limited”, and she emphasised that there is scope for undertaking greater evaluation of individual programmes.112 SEPA also suggested that there is insufficient ability to assess relative priorities, or to analyse the impact on service users of organisational changes.

142. This concern connects to the Finance Committee’s role in scrutinising the assumptions underpinning the Financial Memoranda which accompany Bills. However, many policy initiatives do not require primary legislation, and there is a need for both the Finance Committee and subject committees to seek evidence of robust costing of initiatives during consideration of the budget and in the course of other inquiry work. This is increasingly likely to be so in the coming years.

143. The CPPR argued that, in all areas where targeted reform is suggested, there is an over-riding need for absolute clarity of objectives for public services from Government. The Scottish Government has produced a budgetary and performance framework which focuses more than previously on outcomes. However, Jeremy Peat stated that, “My impression is that there is a considerable disconnect” between policy priorities and budgetary choices.113 Clear objectives are necessary before consideration of alternative delivery models is possible (such as whether a model of competitive pressure or effective economic regulation and appropriate incentives would assist in ensuring efficient delivery).114

144. In thinking about clarity of objectives, some witnesses questioned whether the framework of objectives set out by the current Scottish Government to date is sustainable. Jeremy Peat and Alf Young both suggested that a defining purpose which focuses on comparisons of GDP growth may not be appropriate for the current climate. They argued for a broader definition of economic welfare or well-being rather than simply a growth measure, and suggested that policy priorities need to be evaluated against not simply immediate targets, but against longer term environmental and demographic challenges.115 This may lead to a more substantial focus on distribution of resources and sustainability.

145. However, there was no suggestion that the Scottish Government is considering fundamentally whether targets need to be revised. Stella Manzie stated that the role of officials in the current budgetary context is to advise how to manage expenditure in an orderly and effective way while maintaining the balance of not damaging delivery of the Scottish Government’s core economic purpose.116 The Cabinet Secretary said that, “In the current economic context, that purpose assumes even greater importance”.117 He did not accept that the current financial context implies the need to change targets or revisit frameworks such as the Concordat with local government.118

146. Even before the current budget situation, the Finance Committee has questioned on several occasions over the last 10 years how the Scottish Government’s policy priorities (and evidence from its performance framework) are linked to budget allocation. Glasgow City Council suggested that there is a need to tease out the extent to which certain spending commitments or policy priorities – such as reduction of class sizes - are related directly to outcomes rather than inputs, and questioned whether support could continue to be mobilised for the costs of certain commitments. It argued that, “If the focus remains on outcomes, we can secure more agreement.”119 Evidence to this inquiry raises again a concern that, at the moment, it is not yet sufficiently clear how well policy priorities such as the primacy of economic growth can work through into determining spending priorities.

147. The Committee has in the past acknowledged the progress that the Scottish Government has sought to make in this area, and the reporting of progress against outcome targets through the Scotland Performs framework. However, the Committee has noted that this framework is not yet in a position where it can provide a basis for prioritising budgetary decisions on the basis of delivering outcomes, not least because of gaps in the data set and lags in data collection. Several witnesses indicated that they still saw a significant need for improvement. The Scottish Disability Equality Forum also emphasised the need in the current circumstances to take a budgetary approach which can account properly for the effects decisions have on different populations.120 The Cabinet Secretary said that further refinement will be considered as the performance system develops, and emphasised that the aim is to “focus on how we use public money to make a difference on outcomes”.121

148. It is clear from evidence to this inquiry that significant further development of the concept of outcome budgeting is required if difficult decisions on the prioritisation of funds are to be made on a rational basis. Evidence indicated that there is a need for improved evaluation of individual programmes and greater connection between policy priorities and budgetary choices. During scrutiny of the Draft Budget 2010-11, committees may wish to seek evidence that the Scottish Government has considered how it can make speedy progress on further improving the information and performance management systems which are essential to support decision-making.

The machinery of government
149. The Committee heard evidence on how adjudication of spending decisions can best be managed within government. The CPPR stated that, while it would be a useful feature in any spending context, a difficult public expenditure environment demands reform to the machinery of government. It argued that “any organisation in which there are perceived conflicts of interest will experience difficulties”122 and suggested that a ‘budget office’ is required within the Scottish Government to take on the role of providing a robust internal challenge in the process of deciding spending commitments. It said that this should be the most important office within Government and should be headed by a Minister who was largely free of any spending responsibilities, which has not been the case to date with the Finance Minister in Scotland since devolution.

150. Other sources of challenge to spending decisions have a different role in the process, particularly at the point at which the Parliament scrutinises the budget and the point at which Government seeks to communicate with the public on the principles and priorities which should be followed in budget setting.123 The CPPR suggested that independent think-tanks and bodies such as the Council of Economic Advisers have a role to play in this, both in terms of immediate issues and in assisting the Government to identify and prioritise action on the longer-term pressures such as demographics. However, it said that a robust challenge to budget holders is required within Government, particularly when all services cannot remain funded at current levels.124

151. This clearly relates to the previous section on the adequacy of the performance framework to support decision-making. The CPPR stated that, “There will always be areas in which the evidence is weak on whether to continue expenditure, and others that are sacred cows, in which cuts cannot be made. An independent budget office would be given the challenge of ensuring that the evidence was strong enough to support the continuation or extension of programmes.”125 Being in a separate office would mean that officials “would have a slightly different mindset and a slightly different objective would be set for them”.126

152. Jeremy Peat argued that, “They [expenditure departments] need to be asked why expenditure is necessary, exactly what it is intended to achieve, how it will fit in with policies and how it will work under the different circumstances that might pertain.”127 CIPFA also said that a way needed to be found to move on from the annualised budget process to facilitate budgeting in the context of long-term strategic planning.

153. The Scottish Government, however, disputed the idea that this discipline does not already exist. Stella Manzie stated that “people underestimate the extent of everyday challenge in Government”.128 The Cabinet Secretary also emphasised that many internal challenge functions already exist – including the work of the efficient government team to test the way spending is deployed, the habitual challenge pursued as a routine responsibility of the Scottish Government’s Director of Finance, and the rigour demanded by the Cabinet process for approving proposals.129 He did not appear to accept the argument for any structural reform of government. Neither did he consider that as a Minister he may have a conflict of interest with his spending responsibilities. He said that the junior ministers in his department can play a challenge role, even though there are large areas of his spending responsibilities which are not covered by the remits of his junior ministers.

154. CIPFA also said that the core of the idea of a challenge function is the professionalism of the finance function in an organisation, the role within leadership that it is given, and the financial competence of various governance layers including elected members and non-executives.130 Audit Scotland stated that, at all levels, the finance function has to assist in analysing and reporting, and focusing on the strategic issues that the Government faces. Within central Scottish Government, the appointments of a Director-General Finance and Corporate Services and a Director of Finance were suggested as elements of such a focus.131 CIPFA emphasised that structures should encourage and empower finance professionals to provide the active challenge to spending decisions.

155. These process issues are central to managing the immediate public spending context in a way which is also appropriate for the medium and longer term. The Committee received evidence which suggested that there is a need for a more robust challenge function within Government. It is, therefore, critical that the Scottish Government demonstrates how it has achieved that strong challenge function.

conclusions

The public finances and the Scottish Budget

156. Evidence heard by the Committee suggests that, partly due to the acceleration of capital funding from 2010-11, 2009-10 is likely to be seen as the peak year for public spending for some years to come. Although there is an increase in DEL between 2009-10 and 2010-11, it is acknowledged that the cash available to the Scottish Government in 2010-11 is lower than originally envisaged in Spending Review 2007. This raises short-term issues about budgetary planning for 2010-11 – both by the Scottish Government centrally and by individual public bodies. It was widely agreed by witnesses to the inquiry that the budget process for 2010-11, therefore, takes the Scottish Government and Parliament into new and potentially challenging territory.

157. While it is not possible to make predictions with any certainty, the central point in the context of the Scottish Government’s budget is that it is clear that a challenging budget process is not going to be a one-off for 2010-11. The Scottish Parliament is now in a very different environment for spending. Budgetary decisions for 2010-11 have, therefore, to be placed in the context of understanding their strategic effect for the years beyond that. This is difficult in the context of no formal spending allocations being available beyond 2010-11. However, budgetary decisions for 2010-11 have to be made with the explicit recognition, where at all possible, of the effect they will have in future years when spending is expected to be constrained.

Pressures on the budgets of the Scottish Government and public bodies

158. Although the evidence heard is far from a definitive statement on the effects of recession or the totality of the pressures, it suggests that the current 2009-10 budget assumptions, and the 2010-11 ones, are likely to be under even more pressure than the bare numbers imply. The effects are very variable and their future course is unpredictable. They can be expected to be alleviated as the recession eases. It is not yet clear to what extent these fluctuations are of a significantly different order to the normal pressures that need to be considered in any budget planning round. The key point is that the longer these effects persist, the less sustainable it is for public bodies to absorb them through efficiency measures or use of reserves.132 Subject committees may wish to scrutinise whether appropriately robust analysis and contingency strategies are in place in their portfolios to address this issue.

159. The evidence heard by the Committee covers only a selection of fixed cost issues and does not, therefore, provide a definitive picture. However, the Finance Committee will seek clear information on the effect this type of cost factor will have on future budgets. Subject committees may also wish to scrutinise the effects on budgets at a portfolio level. The Finance Committee will also continue to seek updates in due course on the way in which application of International Financial Reporting Standards will affect budgets.

160. The evidence heard by the Committee does not provide an overall assessment of the total projected costs of different policy priorities. It does, however, demonstrate that these need to be understood clearly at both an overall and portfolio level if the remaining budgetary choices are to be considered. Subject committees may wish to seek detailed information on those which affect their portfolios.

161. The current context demands a very clear understanding of the future cost trajectories for various commitments and policy streams. The Finance Committee wishes to highlight the importance of subject committees being fully aware of the factors relevant to their portfolios when considering the Draft Budget for 2010-11. The Committee recommends that subject committees should pay particular attention to seeking, where appropriate, robust further detail on expected budgetary trends in areas of particular importance and should bear in mind the need to request longer-term projections notwithstanding the fact that 2010-11 is the last year of the current spending review period. Subject committees may also wish to examine the extent to which spending departments can demonstrate evidence of longer-term thinking.

How should government react

Achieving savings across-the-board
162. The evidence indicates a finely-balanced debate over the potential additional savings that could be achieved through additional across-the-board targets, and the potential implications that such an approach may have for service delivery. The Finance Committee has maintained a continuing interest in the delivery of the efficiency programme. During scrutiny of the Draft Budget 2010-11, subject committees may wish to examine carefully any assumptions that are being made about across-the-board savings.

A targeted approach to constraining spending
163. Evidence to the Committee highlights a number of broad potential areas through which a targeted approach to achieving savings might be pursued. During scrutiny of the Draft Budget 2010-11, committees may wish to seek evidence of comprehensive and realistic evaluation of what can be achieved by different approaches, along with an understanding of the potential up-front costs, timescales for implementation and any difficulties that may arise.

Protecting areas of spending
164. The extent to which funds for particular purposes should be protected if possible, the way in which they should be directed and the effects on other portfolios, will be key issues for all subject committees in the scrutiny of the 2010-11 Draft Budget. For example, the best use of available funds to support economic recovery is an ongoing concern of the Economy, Energy and Tourism Committee.

165. The formal allocation of the 2009-10 Barnett consequential funds will not be in the Draft Budget 2010-11, but rather would be expected to be made in an Autumn Revision to the 2009-10 budget, which would normally be considered by the Finance Committee around November. This is a statutory instrument which is not normally considered by subject committees. However, when considering their budget portfolios in due course, subject committees may wish to examine how the additional consequential funds have been allocated, and consider in particular how the distribution fits into and supports the longer-term strategic choices that are required. The Committee notes that discussions on the allocation of the funds are already underway. Given the evidence heard during the inquiry, the Committee encourages the Scottish Government to announce decisions on allocation as soon as possible.

Re-considering specific spending priorities
166. The Committee has heard limited suggestions on areas of spending that might be targeted for savings. When considering the Draft Budget 2010-11, subject committees may wish to examine in more detail the options in their portfolios, the timescales and up-front costs of pursuing these and their impact on service delivery. In the current public spending context, there is a heightened need for the connection to be made between budget priorities and growing the economy, and to focus on how the budget is deployed to combat the effects of the recession.

Process issues
167. It is clear from evidence to this inquiry that significant further development of the concept of outcome budgeting is required if difficult decisions on the prioritisation of funds are to be made on a rational basis. Evidence indicated that there is a need for improved evaluation of individual programmes and greater connection between policy priorities and budgetary choices. During scrutiny of the Draft Budget 2010-11, committees may wish to seek evidence that the Scottish Government has considered how it can make speedy progress on further improving the information and performance management systems which are essential to support decision-making.

168. These process issues are central to managing the immediate public spending context in a way which is also appropriate for the medium and longer term. The Committee received evidence which suggested that there is a need for a more robust challenge function within Government. It is, therefore, critical that the Scottish Government demonstrates how it has achieved that strong challenge function.

Annexe a: extractS from the minutes of the finance committee

5th Meeting, 2009 (Session 3), Tuesday 24 February 2009

Decision on taking business in private: The Committee decided to take item 5 in private.

5. Strategic budget scrutiny (in private): The Committee considered its approach to strategic scrutiny of the Scottish Government's budget for 2010-11 and for future years. The Committee—

  • considered and agreed a remit and objectives for the inquiry;
  • considered and agreed an oral evidence programme for the inquiry;
  • agreed to issue a general call for written evidence; and
  • agreed to delegate to the Convener responsibility for arranging for the SPCB to pay, under Rule 12.4.3, any expenses of witnesses in the inquiry.

10th Meeting, 2009 (Session 3), Tuesday 28 April 2009

Decision on taking business in private: The Committee agreed to consider the evidence heard to date on its strategic budget scrutiny inquiry in private at this and future meetings, in order to inform the drafting of its report.

Strategic budget scrutiny: The Committee took evidence from—

Jo Armstrong, and John McLaren, Centre for Public Policy for Regions;

John Aldridge, former Director of Finance, Scottish Executive;

Stella Manzie, Director-General Finance, Scottish Government;

Jenny Stewart, Head of Infrastructure and Government, KPMG;

Russell Frith, Director of Audit Strategy, and Caroline Gardner, Deputy Auditor General, Audit Scotland;

Stephen Humphrey, Chief Actuary, Government Actuary's Department;

Angela Scott, Head of CIPFA in Scotland.

Strategic budget scrutiny (in private): The Committee considered the evidence heard to date, in order to inform the drafting of its report.

11th Meeting, 2009 (Session 3), Tuesday 5 May 2009

Strategic budget scrutiny: The Committee took evidence from—

Colin Borland, Public Affairs Manager, Federation of Small Businesses;

Stephen Boyd, Assistant Secretary, STUC;

Garry Clark, Head of Public Affairs, Scottish Chambers of Commerce;

Nick Fletcher, Head of Policy and Public Affairs, Chartered Institute of Housing in Scotland;

David Lonsdale, Assistant Director, CBI Scotland;

Jeremy Peat, Director, David Hume Institute;

Alf Young, former member of the Financial Issues Advisory Group;

Sandy Brady, Director of Strategic Planning, and Sandy Cumming, Chief Executive, Highlands and Islands Enterprise;

Stephen Gallacher, Managing Director - Commercial & Infrastructure, and Jack Perry, Chief Executive, Scottish Enterprise.

Strategic budget scrutiny (in private): The Committee agreed to take further evidence from the Scottish Government’s Director-General Finance at a future meeting.

12th Meeting, 2009 (Session 3), Tuesday 12 May 2009

Strategic budget scrutiny: The Committee took evidence from—

Gordon Edwards, Corporate Director for Resources Management, Aberdeen City Council;

Susan Goldsmith, Director of Finance, NHS Lothian;

Baillie Gordon Matheson, City Treasurer, Glasgow City Council;

Craig Marriott, Director of Finance, NHS Dumfries and Galloway;

Richard Ackroyd, Chief Executive, and Douglas Millican, Finance and Regulation Director, Scottish Water;

David Middleton, Chief Executive, and Frances Duffy, Director of Strategy and Investment, Transport Scotland;

Michael Levack, Chief Executive, Scottish Building Federation;

David Caldwell, Director, Universities Scotland;

Andrew Livingstone, Director of Finance and Audit, Skills Development Scotland;

Chris Travis, Chief Executive, Association of Scotland's Colleges;

Kirsten Gooday, Policy and Development Manager, Community Care Providers Scotland;

Ian McLaughlin, Chief Executive, Scottish Pre-School Play Association;

Liz Rowlett, Senior Policy, Information and Parliamentary Officer, Scottish Disability Equality Forum;

Ruchir Shah, Head of Policy and Research Department, Scottish Council for Voluntary Organisations;

Ella Simpson, Chief Executive, The Rock Trust.

Strategic budget scrutiny (in private): The Committee considered the evidence heard to date, in order to inform the drafting of its report.

13th Meeting, 2009 (Session 3), Tuesday 19 May 2009

Strategic budget scrutiny: The Committee took evidence from—

Stella Manzie, Director-General Finance and Corporate Services, and Alyson Stafford, Director of Finance, Scottish Government;

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Alyson Stafford, Director of Finance, and Gary Gillespie, Head of the Office of the Chief Economic Advisor, Scottish Government.

14th Meeting, 2009 (Session 3), Tuesday 26 May 2009

Decisions on taking business in private: The Committee agreed to consider a draft report on its strategic budget scrutiny inquiry in private at its next meeting.

15th Meeting, 2009 (Session 3), Tuesday 2 June 2009

Strategic budget scrutiny inquiry (in private): The Committee considered a draft report and agreed to consider and agree a further draft by correspondence.


Footnotes:

1 Scottish Government. (2007). Scottish Budget Spending Review 2007. Available online at: http://www.scotland.gov.uk/Publications/2007/11/13092240/0 [Accessed 26 May 2009]

2 Scottish Parliament Information Centre. (2009) Strategic Scrutiny of the Scottish Government’s Budget – Scoping Paper

3 Scottish Government. (2008). Draft Budget 2009-10. Available online at: http://www.scotland.gov.uk/Publications/2008/09/12140641/0 [Accessed 26 May 2009]

4 Scottish Parliament Information Centre. (2009) UK Budget 2009. SPICe Briefing 09/26. Available online at: http://www.scottish.parliament.uk/business/research/briefings-09/SB09-26.pdf [Accessed 26 May 2009]

5 HM Treasury. (2008) Public Expenditure 2007-2008 Provisional Outturn, Cm 7419. Available online at: http://www.hm-treasury.gov.uk/d/1(10).pdf [Accessed 2 June 2009] Table 6, page 14, shows that as of 31 March 2008 the figure stood at £952 million. In Spending Review 2007 the Scottish Government received permission to draw down £874 million over the three-year period, leaving a balance of £78 million.

6 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1123.

7 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1123.

8 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1305.

9 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1109.

10 Scottish Parliament Information Centre. (2009) UK Budget 2009. SPICe Briefing 09/26, Table 3. Available online at: http://www.scottish.parliament.uk/business/research/briefings-09/SB09-26.pdf [Accessed 26 May 2009]

11 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1131.

12 Institute for Fiscal Studies. (2009) The IFS Green Budget 2009 Available online at: http://www.ifs.org.uk/publications/4417 [Accessed 26 May 2009]

13 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1100.

14 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1304.

15 Gemma Tetlow, The Institute for Fiscal Studies. (2009) Budget 2009 – Public Spending. Available online at: http://www.ifs.org.uk/budgets/budget2009/public_spending.pdf [Accessed 2 June 2009]

16 HM Treasury. (2009) Budget 2009. Table C4. Available online at: http://www.hm-treasury.gov.uk/bud_bud09_repindex.htm [Accessed 2 June 2009] and Office of National Statistics: United Kingdom Economic Accounts

17 HM Treasury. (2009) Budget 2009 Tables C3, C4 and C5. Available online at:
http://www.hm-treasury.gov.uk/bud_bud09_repindex.htm [Accessed 26 May 2009]

18 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1300.

19 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1100.

20 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1100.

21 Centre for Public Policy for Regions. (2009) Briefing Note 28 April 2009 – Post-Budget 2009 update of ‘The Scottish Government’s Budget – Growth Scenarios up to 2013-14’

22 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1101.

23 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1195. The Financial Issues Advisory Group (FIAG) was established by the Consultative Steering Group to consider and make recommendations on the arrangements for financial scrutiny for the Scottish Parliament.

24 Professor David Bell. (2009) The UK Budget Position and Strategic Implications for Public Services in Scotland

25 Centre for Public Policy for Regions. (2009) Briefing Note 28 April 2009 – Post-Budget 2009 update of ‘The Scottish Government’s Budget – Growth Scenarios up to 2013-14’

26 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1205.

27 Scottish Enterprise. Written submission to the Finance Committee.

28 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1223.

29 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Cols 1224-5.

30 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1218.

31 Association of Scotland’s Colleges. Written submission to the Finance Committee.

32 Universities Scotland. Written submission to the Finance Committee.

33 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1124.

34 For example, see written submissions to the Finance Committee from Glasgow City Council and East Ayrshire Council.

35 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1281.

36 East Ayrshire Council. Written submission to the Finance Committee.

37 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Cols 1255 and 1262.

38 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1134.

39 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1188.

40 Scottish Government. Supplementary correspondence from Stella Manzie, Director-General Finance and Corporate Services to the Finance Committee, dated 13 May 2009.

41 East Ayrshire Council. Written submission to the Finance Committee.

42 The Government Actuary’s Department and the Scottish Public Pensions Agency. Supplementary written submission to the Finance Committee.

43 Scottish Government. Supplementary correspondence from Stella Manzie, Director-General Finance and Corporate Services to the Finance Committee, dated 13 May 2009.

44 Scottish Parliament Finance Committee. Official Report, 27 May 2008, Col 562.

45 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1150.

46 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1169.

47 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Cols 1244-5.

48 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1298.

49 Aberdeen City Council. Written submission to the Finance Committee.

50 Glasgow City Council. Written submission to the Finance Committee.

51 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1192.

52 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1135.

53 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1191.

54 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1203.

55 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1233. The NHSScotland Resource Allocation Committee (NRAC) was established in 2005 to improve the current method used to divide the NHS budget among the NHS Boards by evaluating new sources of evidence to determine healthcare need in different groups of people.

56 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1105.

57 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1231.

58 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1186.

59 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Cols 1226 and 1229.

60 SEPA. Written submission to the Finance Committee.

61 Scottish Chambers of Commerce. Written submission to the Finance Committee.

62 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1186.

63 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1148.

64 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Cols 1301, 1311 and 1319.

65 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1312.

66 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1124.

67 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1312.

68 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1212.

69 For example, see Audit Scotland for the Accounts Commission. (2009) Overview of the local authority audits 2008. Available online at: http://www.audit-scotland.gov.uk/docs/local/2009/nr_090226_local_authority_overview.pdf [Accessed 26 May 2009]

70 SEPA. Written submission to the Finance Committee.

71 STUC. Written submission to the Finance Committee.

72 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1229.

73 Jenny Stewart, KPMG. Written submission to the Finance Committee.

74 The Institute of Directors. Written submission to the Finance Committee.

75 CBI Scotland. Written submission to the Finance Committee.

76 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1174.

77 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Cols 1242-3.

78 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1300.

79 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1167.

80 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1275.

81 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Cols 1271-4 and 1284.

82 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1271.

83 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1273 and written submissions from CCPS and SCVO.

84 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1137.

85 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1134.

86 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1297.

87 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1194.

88 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1263.

89 STUC. Written submission and supplementary submission to the Finance Committee. The STUC describes ProAct as a selective pilot scheme which provides training assistance, including wage cost subsidies, to businesses that are suffering during the economic downturn, but which otherwise were inherently viable.

90 Scottish Parliament. Official Report, 21 May 2009, Col 17698.

91 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1133.

92 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1210-11.

93 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1315.

94 Skills Development Scotland. Written submission to the Finance Committee.

95 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1258.

96 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1169-70.

97 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1131.

98 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1246.

99 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1178.

100 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1310.

101 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1102.

102 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1230.

103 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1128.

104 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1127.

105 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1238.

106 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1113.

107 Scottish Government. Supplementary correspondence from Stella Manzie, Director-General Finance and Corporate Services to the Finance Committee, dated 13 May 2009.

108 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1299.

109 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1186.

110 Jenny Stewart, KPMG. Written submission to the Finance Committee.

111 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1102.

112 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1127.

113 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1196.

114 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1106.

115 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Cols 1193-4.

116 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1295.

117 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1297.

118 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1314.

119 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1240.

120 Scottish Parliament Finance Committee. Official Report, 12 May 2009, Col 1278.

121 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1310.

122 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1102.

123 In the course of this inquiry the Committee has not considered the role of the Parliament in scrutiny of spending choices. That has been the subject of a separate inquiry reviewing the parliamentary budget process.

124 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1104.

125 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1102.

126 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1120.

127 Scottish Parliament Finance Committee. Official Report, 5 May 2009, Col 1205.

128 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1139.

129 Scottish Parliament Finance Committee. Official Report, 19 May 2009, Col 1320.

130 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1156.

131 Scottish Parliament Finance Committee. Official Report, 28 April 2009, Col 1158.

132 East Ayrshire Council. Written submission to the Finance Committee.