Hansard

I intend to explain three basic issues: where our EYF money comes from; how we allocated it; and what the results of our allocation process were. I also wish to touch on the broader issues around how we try to manage underspend within the Executive.The resources that were carried forward from our previous expenditure plans can be broken down into five categories. The first category is capital slippage, for example the delays in the roads programme, which accounts for £101 million of the £394 million total for 2002-03 and includes work on the A1, the A8 and the A830 trunk roads, which was delayed by weather conditions.The second category is future spend, which covers the occasions when departments plan to spend less in one year in order to meet future pressures. That category accounts for another £28 million, included in which is £10 million that was set aside to meet the costs of the environmental liabilities of the Glasgow housing stock transfer.The third category is demand-led programmes, which accounts for £33 million. The main elements in that category are the continuing delays in the rural development programme measures, which have been offset by higher-than-expected demand for legal aid. The fourth category is the money that is controlled by arms-length bodies, which amounts to £62 million in EYF and includes £24 million from the health boards. The fifth category is other variances, which accounts for £170 million. One of the major items in this category is an underspend in the European structural funds that was brought about by a delay in approval for European regional development fund objective 2 programme projects.Of course, this year we also have two additional items of windfall income that carry over from 2002-03 to 2003-04. The first is £196 million from Her Majesty's Treasury's reclassification of the Glasgow housing stock transfer and £148 million from additional non-domestic rates income. In many ways, the windfalls have to be seen as one-off benefits.As members are aware from a statement that I made in the chamber, it is prudent to treat those windfall gains differently in order to ensure that we make best use of the resources. We have therefore allocated the windfall money to spread the benefit across the life of the second session of Parliament. We have used the income, along with increased non-domestic rates income from this year and future years, to fund commitments that were made in the partnership agreement.I accept that forgoing the opportunity to spend more money this year is an unusual way in which to allocate our additional money, but I believe strongly that it is the prudent way. It allows us to plan for possible future pressures and to spread our windfall over the life of the second session of Parliament rather than spend it all in one year. That is a sensible way to distribute the resources that we have at our disposal.We have also been equally prudent in allocating the £394 million that is carried forward this year. We always try to ensure that we allocate our EYF in a manner that is efficient and which ensures value for money. As committee members are aware, we have in past years returned 75 per cent of portfolios' EYF back to them, with the remaining money's being distributed across the Executive according to our priorities. This year's process is slightly different in that it was linked to the exercise that we undertook to allocate money to portfolios in order to fund the partnership agreement.We assessed the money that each portfolio needed to meet partnership agreement commitments, how much of that could come from EYF and to what extent additional allocations were necessary. For some portfolios, that means that our EYF allocation covers pressures from 2003-04, for which those departments might otherwise have expected to access the contingency fund.As a result of that process, almost all portfolios have been allowed to retain 100 per cent of their EYF this year. The allocations therefore appear to match the sources of the underspend more closely than they have done in the past and more closely than they are likely to do in future. However, it is not simply a question of returning resources to portfolios without purpose; every portfolio has significant new commitments to meet and all have been through the rigorous process of justifying how much is needed to fund partnership agreement commitments. In some ways, their EYF allocations can be seen as a down payment before consideration has been given to what central resources and funds are needed.At first sight, the communities EYF allocation looks like an exception to the rule. The communities portfolio contributed £53 million to the EYF total, but has been allocated only £25 million. That figure is tied to the Treasury's decision to reclassify stock transfer debt-breakage costs, the effect of which is that the costs are now to be met by Whitehall. Because we had carried forward provision for payment of the debt-breakage costs, the communities portfolio included a significant amount of carry-forward to meet those costs. It is clear that the Treasury's treatment of those costs means that the need for the carry-forward will never arise. That has allowed us to reallocate some resources as part of the partnership agreement process.I want to deal with a point that was raised at a previous meeting of the Finance Committee, which is that our total allocations are the same as our total end-year flexibility—both figures are £394 million. The sum represents 1.9 per cent of the Executive's total managed expenditure for 2002-03 and is a significant decrease from previous year's figure of £643 million. Even if the figure for water were removed from the figures for both years, there would still be a decrease from £529 million to £360 million.I do not want to make too much of the extent of the fall in the EYF figure. As I have said in the chamber, I do not believe that there is a right level of EYF. Efforts to bring down the total to a particular target could take us back to the temptations of quick spend, which EYF was, of course, introduced to remove. In any one year, the number could be inflated by special circumstances. Committee members will remember that last year's amount—£643 million—was partly the result of more than £90 million that was carried forward to help meet the cost of the Glasgow housing stock transfer. Had the transfer date slipped from February this year to April, the figure would have been much higher than £394 million.We have a responsibility to make the best use of all of our resources and not to let EYF get unnecessarily high. We have worked to improve our management of end-year flexibility. We now have a process for releasing during the year funds to worthwhile programmes, when we can safely do so. EYF money is not new money; it is part of a process of making the best of the money that has been made available to us.Because this is not an approach that we have discussed with the committee, I thought that members would welcome some detail. Every month, I receive a monitoring report of spend against budget, with forecasts for the year as a whole. It is inevitable that the forecasts are only an approximation, but they allow my colleagues and me to identify at an early stage whether there is room to redeploy resources in year and within and between portfolios.Most of the headroom is generated by projects that slip back a few months. As projects continue to need to be funded, we cannot take resources permanently away from them. Instead, we look to whether we can bring forward any of the projects that are scheduled for the following year. Most of that happens within portfolios, but some limited moves between portfolios can be arranged centrally. Last year, a further £43 million was committed in that way.The forecasts also allow us to consider the right level of central reserves and whether any genuinely additional spending can be committed in-year. Last year, an additional £70 million was committed. In most cases, we did not need to transfer central resources to the relevant portfolio. Instead, portfolios were able to absorb the resource that was required and thereby reduce their carry-forward. Of course, we needed to compensate portfolios this year when the costs of the projects that generated the underspends fell due. At this moment, it is too early to say whether a similar process will be necessary or possible this year.I hope that that quick overview of where we are gives the committee an insight into the resource, how we have used EYF, the system that we have adopted and of some of the issues that surround end-year flexibility entitlements. I also hope that my statement, combined with the written information that members received earlier, is helpful in allowing the committee to scrutinise our EYF for 2002-03. I look forward to taking questions from the committee.