Chamber
Plenary, 17 Dec 2003
17 Dec 2003 · S2 · Plenary
Item of business
Budget Process 2004-05: Stage 2
The pre-Christmas budget debate promises new treats as well as old favourites this year. As last year, Rab McNeil will have to strap himself into his seat to endure 11 minutes from me on the Finance Committee's budget report. However, I am pleased to say that we will not be without a contribution from David Davidson, who is a fixture in the calendar as reliable as the "Morecambe and Wise Christmas Special", and possibly just as dated. There is a special bonus: Fergus Ewing will be winding up the debate. Members of the Finance Committee have been running a Fergus bingo competition in recent weeks to see how often he manages to introduce the Holyrood building into contributions on other subjects. I hope that people have got their pencils ready; the first person to shout, "Holyrood House", on hearing five separate references, wins this year's star prize.
I shall begin by highlighting issues raised by Donald MacRae of Lloyds TSB Scotland and Peter Wood of DTZ Pieda Consulting in their evidence to the Finance Committee about the priority that they felt should be given to promoting economic growth. Donald MacRae felt that there was a risk that the increases in public spending in the budget would
"make Scotland's overall economy more dependent on the public sector."—[Official Report, Finance Committee, 28 October 2003; c 370.]
Peter Wood felt that the political priority given to growing the economy was not adequately reflected in allocations to the enterprise and lifelong learning budget and expressed his concern over the lack of a rationale for the increases between different portfolios.
That concern about the lack of rationale was not confined to those experts. In their joint submission about resource allocation and budget prioritisation, the Justice 1 Committee and the Justice 2 Committee made a similar point. That report recognised that the allocation of resources is not the sole indicator of priority, but said that it seems clear that, if, as the budget grows, any increasing proportion of that budget is allocated to a specific activity, that activity is a priority. On the other hand, if, as the overall budget grows, the proportion allocated to an activity, even when widely defined, struggles to maintain a constant proportion of that budget, that activity cannot be classed as a priority.
Our two economic experts were not arguing against more public spending. Their first concern was that, if growing the economy is the top priority, that should be reflected in budget allocations, not just to the enterprise portfolio but across other portfolios as well. Secondly, they argued that we need to ensure that how the money is spent produces what Alf Young calls revenue payback, in the form of a more prosperous and vibrant Scottish economy.
Particularly when there have been year-on-year expenditure increases—at levels that are unprecedented in my lifetime—with more money for services such as health and education, we must ensure that money is invested in securing longer-term gains, whether that is done by taking advantage of research and technological change; by upgrading transport, hospital and school infrastructure; or by regeneration prospects that deliver a transformation in an area's social and economic circumstances.
Both the committee's experts felt that we need to change the balance between capital expenditure and revenue expenditure at this stage in the economic cycle, because of the importance of capital spending to economic growth. That is a complex issue, into which the committee will delve further. For the moment, however, we recommend that the relative priority that is given to capital expenditure in relation to revenue expenditure in the 2004 spending review be reviewed. We recommend that more should be allocated to targeted capital expenditure such as transport improvements, property and housing-led regeneration and other major infrastructure improvements.
To be fair to the Executive, progress has undoubtedly been made in taking forward major capital projects. The school regeneration projects that are being implemented throughout Scotland, the implementation of ambitious acute care strategies such as the greater Glasgow scheme, the Executive's commitments to the M74 link and the Clyde waterfront project are all steps in the right direction. However, given the lead-in time for major capital projects, we must use the opportunity that we have now to secure lasting benefits, not only in the physical infrastructure but through the economic stimulus that capital expenditure on such a scale can have to the Scottish economy as a whole.
The Finance Committee feels that considerable progress has been made over the past two years in securing greater transparency in the presentation of budget information. In particular, we commend the Executive for its positive response to the previous Finance Committee's recommendation regarding new spending proposals, which are now presented in a discrete section headed "New resources". The committee welcomes the introduction of a distinct section on equality, which identifies spending across departments and marks important progress on the equality-proofing agenda. It also welcomes the absence of cumulative accounting from the budget discussions that we have held with ministers. We recommend that the "Closing the opportunity gap" and "Sustainable development" sections of the portfolio chapters of the draft budget should adopt the model used in the "Equality" section and identify relevant activities and costs.
The Finance Committee would welcome greater clarity in future end-year flexibility announcements, which were delayed this year in order to factor in money that was used to implement elements of the partnership agreement. In particular, we want the Executive to work with the Finance Committee to develop time-series data on budgetary trends, ideally over a 10-year period, so as to allow a much more structured appraisal of performance across portfolios, as well as within them. There were some differences of view in the committee about how far down the levels it might be feasible to apply such a time-series analysis. Personally, I feel that we would need data at levels 1 and 2. Our goal of a 10-year period might not turn out to be technically feasible, depending on the number of baseline revisions that would have to be taken into account. However, I think that all committee members are agreed in principle that trend data are crucial if we are to have a meaningful strategic overview of the budget and if an informed debate on the choices before us on spending decisions is to take place.
We have had a long dialogue over the past year with Andy Kerr, the Minister for Finance and Public Services, and his deputies, Peter Peacock and Tavish Scott, regarding future arrangements for examination of the budget. There is a clear need to rationalise the overlap in documentation between the annual expenditure report and the draft budget. We are pleased that ministers are suggesting a way forward for 2005-06, especially with regard to performance reporting, which was a key recommendation of the previous Finance Committee's review of the budget process.
Our view is that the revised AER should take into account the changing fiscal context before committees make recommendations on spending priorities at stage 1 of the process, and that the term "annual expenditure report" should be dispensed with, reflecting a revised stage 1 of the process involving an assessment of past performance and a discussion of strategic priorities, both of which are important developments. We believe that the revised documents at stage 1 of the process should include an assessment of progress on spending priorities, including health and local government budgets, in the proposed performance report on progress against targets. That report should give specific, measurable information on such progress.
A clear and unambiguous response from ministers to the committee's spending recommendations in each portfolio chapter of the draft budget should be provided in the formal response to committee reports at stage 1. We recognise the importance of the biennial spending review, as opposed to the annual budget process, in determining changes in spending priorities. We are currently considering how the Finance Committee and subject committees might be most effectively involved in examining options and influencing decision making.
The Finance Committee remains concerned about the number of targets that are set by ministers and how they are selected. A recent report by the Westminster Public Administration Select Committee concludes that ministers need to choose and communicate clear priorities, rather than set too many targets; to concentrate on key national priorities rather than micromanagement; and to move from targets to trends as the basis for measuring progress. Our view is very similar. We think that there are too many targets and that some of the targets obscure rather than clarify what the Scottish Executive is trying to achieve. We believe that there is too much focus on activities, rather than outcomes, and that the use of targets within portfolios is all too frequently an impediment to progress on cross-cutting priorities.
We are not arguing that there is no place for targets. When they are used, targets must be properly quantified to ensure not only that spending departments are meeting their targets but that such targets are improving public services. In that way, it can be assessed whether or not better outcomes are being achieved. We are keen that effort should be concentrated on areas where progress is possible—for example, linking allocations directly to outputs—and that the Executive should concentrate on developing and meeting strategic targets, rather than departmental activity measures. The use of targets should also promote effective management, by building in incentives for those who achieve efficiency savings. Our recommendation is that the Executive should evaluate the impact of targets in practice, including assessing the delivery of improvements to public services, with a view to rationalising and simplifying the process prior to the 2004 spending review.
The final issue that I want to highlight is the scrutiny of block allocations to health and local government. As a former councillor and member of a health board, I am very sensitive to the need for local autonomy in decision making, including the allocation of resources between different priorities in line with local needs and circumstances. However, the policy and financial assumptions that underpin allocations to health boards and local authorities should be made explicit, especially when new resources are being allocated.
It used to be said that only three people understood the way in which grant-aided expenditure was allocated—one was mad, one was dead and the other was Professor Arthur Midwinter. The Finance Committee is privileged to have Professor Midwinter as its budget adviser. That has greatly assisted us in understanding what is going on in the block allocations. However, we believe that the grant formulas should be made explicit in the draft budget, so that everyone can have access to this information.
I thank the clerks to the Finance Committee, who have done a terrific job for the committee in a very pressured period since it came into being, and Arthur Midwinter, who did a terrific amount of work in bringing together a huge mass of information that has allowed us to write such a comprehensive budget report. I also thank Executive officials and ministers who have co-operated with us in meeting our objectives, and everyone else who has been involved, especially other members of the committee.
I move,
That the Parliament notes the 4th Report 2003 (Session 2) of the Finance Committee, Stage 2 of the 2004-05 Budget Process (SP Paper 62).
I shall begin by highlighting issues raised by Donald MacRae of Lloyds TSB Scotland and Peter Wood of DTZ Pieda Consulting in their evidence to the Finance Committee about the priority that they felt should be given to promoting economic growth. Donald MacRae felt that there was a risk that the increases in public spending in the budget would
"make Scotland's overall economy more dependent on the public sector."—[Official Report, Finance Committee, 28 October 2003; c 370.]
Peter Wood felt that the political priority given to growing the economy was not adequately reflected in allocations to the enterprise and lifelong learning budget and expressed his concern over the lack of a rationale for the increases between different portfolios.
That concern about the lack of rationale was not confined to those experts. In their joint submission about resource allocation and budget prioritisation, the Justice 1 Committee and the Justice 2 Committee made a similar point. That report recognised that the allocation of resources is not the sole indicator of priority, but said that it seems clear that, if, as the budget grows, any increasing proportion of that budget is allocated to a specific activity, that activity is a priority. On the other hand, if, as the overall budget grows, the proportion allocated to an activity, even when widely defined, struggles to maintain a constant proportion of that budget, that activity cannot be classed as a priority.
Our two economic experts were not arguing against more public spending. Their first concern was that, if growing the economy is the top priority, that should be reflected in budget allocations, not just to the enterprise portfolio but across other portfolios as well. Secondly, they argued that we need to ensure that how the money is spent produces what Alf Young calls revenue payback, in the form of a more prosperous and vibrant Scottish economy.
Particularly when there have been year-on-year expenditure increases—at levels that are unprecedented in my lifetime—with more money for services such as health and education, we must ensure that money is invested in securing longer-term gains, whether that is done by taking advantage of research and technological change; by upgrading transport, hospital and school infrastructure; or by regeneration prospects that deliver a transformation in an area's social and economic circumstances.
Both the committee's experts felt that we need to change the balance between capital expenditure and revenue expenditure at this stage in the economic cycle, because of the importance of capital spending to economic growth. That is a complex issue, into which the committee will delve further. For the moment, however, we recommend that the relative priority that is given to capital expenditure in relation to revenue expenditure in the 2004 spending review be reviewed. We recommend that more should be allocated to targeted capital expenditure such as transport improvements, property and housing-led regeneration and other major infrastructure improvements.
To be fair to the Executive, progress has undoubtedly been made in taking forward major capital projects. The school regeneration projects that are being implemented throughout Scotland, the implementation of ambitious acute care strategies such as the greater Glasgow scheme, the Executive's commitments to the M74 link and the Clyde waterfront project are all steps in the right direction. However, given the lead-in time for major capital projects, we must use the opportunity that we have now to secure lasting benefits, not only in the physical infrastructure but through the economic stimulus that capital expenditure on such a scale can have to the Scottish economy as a whole.
The Finance Committee feels that considerable progress has been made over the past two years in securing greater transparency in the presentation of budget information. In particular, we commend the Executive for its positive response to the previous Finance Committee's recommendation regarding new spending proposals, which are now presented in a discrete section headed "New resources". The committee welcomes the introduction of a distinct section on equality, which identifies spending across departments and marks important progress on the equality-proofing agenda. It also welcomes the absence of cumulative accounting from the budget discussions that we have held with ministers. We recommend that the "Closing the opportunity gap" and "Sustainable development" sections of the portfolio chapters of the draft budget should adopt the model used in the "Equality" section and identify relevant activities and costs.
The Finance Committee would welcome greater clarity in future end-year flexibility announcements, which were delayed this year in order to factor in money that was used to implement elements of the partnership agreement. In particular, we want the Executive to work with the Finance Committee to develop time-series data on budgetary trends, ideally over a 10-year period, so as to allow a much more structured appraisal of performance across portfolios, as well as within them. There were some differences of view in the committee about how far down the levels it might be feasible to apply such a time-series analysis. Personally, I feel that we would need data at levels 1 and 2. Our goal of a 10-year period might not turn out to be technically feasible, depending on the number of baseline revisions that would have to be taken into account. However, I think that all committee members are agreed in principle that trend data are crucial if we are to have a meaningful strategic overview of the budget and if an informed debate on the choices before us on spending decisions is to take place.
We have had a long dialogue over the past year with Andy Kerr, the Minister for Finance and Public Services, and his deputies, Peter Peacock and Tavish Scott, regarding future arrangements for examination of the budget. There is a clear need to rationalise the overlap in documentation between the annual expenditure report and the draft budget. We are pleased that ministers are suggesting a way forward for 2005-06, especially with regard to performance reporting, which was a key recommendation of the previous Finance Committee's review of the budget process.
Our view is that the revised AER should take into account the changing fiscal context before committees make recommendations on spending priorities at stage 1 of the process, and that the term "annual expenditure report" should be dispensed with, reflecting a revised stage 1 of the process involving an assessment of past performance and a discussion of strategic priorities, both of which are important developments. We believe that the revised documents at stage 1 of the process should include an assessment of progress on spending priorities, including health and local government budgets, in the proposed performance report on progress against targets. That report should give specific, measurable information on such progress.
A clear and unambiguous response from ministers to the committee's spending recommendations in each portfolio chapter of the draft budget should be provided in the formal response to committee reports at stage 1. We recognise the importance of the biennial spending review, as opposed to the annual budget process, in determining changes in spending priorities. We are currently considering how the Finance Committee and subject committees might be most effectively involved in examining options and influencing decision making.
The Finance Committee remains concerned about the number of targets that are set by ministers and how they are selected. A recent report by the Westminster Public Administration Select Committee concludes that ministers need to choose and communicate clear priorities, rather than set too many targets; to concentrate on key national priorities rather than micromanagement; and to move from targets to trends as the basis for measuring progress. Our view is very similar. We think that there are too many targets and that some of the targets obscure rather than clarify what the Scottish Executive is trying to achieve. We believe that there is too much focus on activities, rather than outcomes, and that the use of targets within portfolios is all too frequently an impediment to progress on cross-cutting priorities.
We are not arguing that there is no place for targets. When they are used, targets must be properly quantified to ensure not only that spending departments are meeting their targets but that such targets are improving public services. In that way, it can be assessed whether or not better outcomes are being achieved. We are keen that effort should be concentrated on areas where progress is possible—for example, linking allocations directly to outputs—and that the Executive should concentrate on developing and meeting strategic targets, rather than departmental activity measures. The use of targets should also promote effective management, by building in incentives for those who achieve efficiency savings. Our recommendation is that the Executive should evaluate the impact of targets in practice, including assessing the delivery of improvements to public services, with a view to rationalising and simplifying the process prior to the 2004 spending review.
The final issue that I want to highlight is the scrutiny of block allocations to health and local government. As a former councillor and member of a health board, I am very sensitive to the need for local autonomy in decision making, including the allocation of resources between different priorities in line with local needs and circumstances. However, the policy and financial assumptions that underpin allocations to health boards and local authorities should be made explicit, especially when new resources are being allocated.
It used to be said that only three people understood the way in which grant-aided expenditure was allocated—one was mad, one was dead and the other was Professor Arthur Midwinter. The Finance Committee is privileged to have Professor Midwinter as its budget adviser. That has greatly assisted us in understanding what is going on in the block allocations. However, we believe that the grant formulas should be made explicit in the draft budget, so that everyone can have access to this information.
I thank the clerks to the Finance Committee, who have done a terrific job for the committee in a very pressured period since it came into being, and Arthur Midwinter, who did a terrific amount of work in bringing together a huge mass of information that has allowed us to write such a comprehensive budget report. I also thank Executive officials and ministers who have co-operated with us in meeting our objectives, and everyone else who has been involved, especially other members of the committee.
I move,
That the Parliament notes the 4th Report 2003 (Session 2) of the Finance Committee, Stage 2 of the 2004-05 Budget Process (SP Paper 62).
In the same item of business
The Presiding Officer (Mr George Reid):
NPA
The next item of business is a debate on motion S2M-716, in the name of Des McNulty, on behalf of the Finance Committee, on stage 2 of the 2004-05 budget pro...
Des McNulty (Clydebank and Milngavie) (Lab):
Lab
The pre-Christmas budget debate promises new treats as well as old favourites this year. As last year, Rab McNeil will have to strap himself into his seat to...
Jim Mather (Highlands and Islands) (SNP):
SNP
About three years ago, when I started to take the SNP economic case around the committee rooms and board rooms of Scotland, a director of one of our major ci...
The Deputy Presiding Officer (Murray Tosh):
Con
I now call Brian Monteith to close—sorry, to open—for the Conservatives. That was wishful thinking, Brian.
Mr Brian Monteith (Mid Scotland and Fife) (Con):
Con
I assure you, Presiding Officer, that despite the fact that I normally wind up, today I will be opening, although I suspect that my speech might also end up ...
The Deputy Presiding Officer:
Con
I call Dr Elaine Murray to open for the Labour party.
Dr Elaine Murray (Dumfries) (Lab):
Lab
I see that Rab McNeil is still in the press gallery. He might be bored by Des McNulty, but he thinks that I am a dog.
Mr Monteith:
Con
A pedigree, surely.
Dr Murray:
Lab
I might be a bit of a mongrel, actually.Anyway, I welcome the opportunity to speak in today's debate, which is about the presentation and the process of repo...
Mr Monteith:
Con
Will the member give way?
Dr Murray:
Lab
I will just finish the sentence before giving way.Opposition members often say that it is their job to oppose, but their job is not just to oppose but to pro...
Mr Monteith:
Con
I wholly agree with the member that it would be beneficial for the Parliament to have alternative budgets to discuss at some stage, but does she agree that t...
Dr Murray:
Lab
I will refer to some of that later, but part of the point that I was making was about the difficulties for Opposition parties.It is clear that some form of s...
Mark Ballard (Lothians) (Green):
Green
I thank the committee for the opportunity to comment on the Scottish budget process. We are fortunate that we have the chance to scrutinise Scotland's draft ...
Christine May (Central Fife) (Lab):
Lab
This is my first year in the Parliament, so it is the first opportunity that I have had to participate in the budget process. I was quite excited about it. M...
Fergus Ewing (Inverness East, Nairn and Lochaber) (SNP):
SNP
If the SNP said that it would not spend £500,000 on hedgehogs and £401 million on Holyrood, would the member agree with us?
Christine May:
Lab
I would like the SNP members to say anything with which I could agree—or disagree—but they have not. They have not said how they will fund any of their propo...
Mr David Davidson (North East Scotland) (Con):
Con
The member mentioned Peter and Paul. Does not that describe the Arbuthnott formula that the Executive uses to fund our health boards?
Christine May:
Lab
No. In the debate last week, the Tories said that they would take money from the national health service and from schools to fund private care. They said tha...
Mr Monteith:
Con
Although she is new to the Parliament, the member will know that the official report tries hard to ensure that all quotes and examples that members give in s...
Christine May:
Lab
My understanding of what was said last week is that money would be removed and used for the purpose that I suggested.The Greens are too busy hugging trees to...
Mark Ballard rose—
Green
Christine May:
Lab
I ask the member to let me finish the point. To pretend otherwise to that point of view is to practise deceitful, duplicitous and discreditable behaviour, li...
Alex Neil (Central Scotland) (SNP):
SNP
I share Christine May's aspiration that she should make a better speech next year. She started by saying that she had looked forward to the debate with excit...
Members:
Oh!
Alex Neil:
SNP
To be fair to Des McNulty, ever since Jack McConnell sacked him as a minister, he has been somewhat animated—so much so that I began to think last week that ...
Christine May:
Lab
Would the member like to give the chamber two examples of the Executive lying and of fiddled figures?
Alex Neil:
SNP
I would be absolutely delighted and I will give more than two examples. When the identifiable public expenditure per head in Scotland is compared with that f...
The Deputy Presiding Officer:
Con
Nobody seemed to disapprove of that speech too much, but I ask the remaining speakers to address—even if just occasionally—the budget for 2004-05. I call Jer...
Jeremy Purvis (Tweeddale, Ettrick and Lauderdale) (LD):
LD
I shall endeavour to get back to the debate in hand. I am also a new member and, as such, I echo the comments that were made by Dr Murray and the committee c...