Hansard

Thanks. We are here today to discuss the draft budget 2007-08 and the annexed document that contains the progress report on the 2002 spending review targets. I understand that, in September, the committee had preliminary discussions on the 2007-08 budget process.The committee will be aware that this year's budget process is, again, a two-stage process, as this is a non-spending review year, which means that the draft budget gives people their first opportunity to scrutinise the Executive's proposed budget for 2007-08. Of course, it is firmly based on the spending plans that we set out in the 2004 spending review.Members might find it helpful if I begin by highlighting the main changes that are included in this year's draft budget. The Executive's total planned budget for 2007-08 is £31.28 billion—£596 million higher than the previously published draft budget figure for 2007-08. To look at it another way, the budget is £1.5 billion more, in cash terms, than it was in 2006-07, or £725 million more, in real terms. Members will see those revised figures in table 0.01 and 0.02 on pages 2 and 3 of the draft budget document.The £596 million increase comprises two separate elements of the budget: an increase of £427 million in the departmental expenditure limit; and an increase of £169 million in annually managed expenditure.The main factors that account for the increase in the DEL are: an increase in the transport budget of around £360 million from the Department for Transport to fund Network Rail; and a £200 million increase in revenue support grant, which reflects the equalisation of business rates and revisions to the non-domestic rates income forecasts. That has been offset by a £150 million decrease in the budget as a result of the classification change to European structural funds that was proposed by Her Majesty's Treasury and which means that the receipts now score in the DEL.The increase in annually managed expenditure is made up of four main changes. The first change is the reclassification of European structural funds, which has seen the £386 million common agricultural policy budgets move out of AME into the DEL. The second change is the Treasury's reclassification of the £183 million student loans net new lending from outside total managed expenditure into AME. The third change is the increase of £571 million in the teachers' and national health service pensions schemes. The fourth change involves that increase being offset by the corresponding reduction in the non-domestic rates income forecast of £200 million as a result of the increase to the revenue support grant that I previously mentioned.It has been suggested that the local government aggregate external finance budget for 2007-08 is a standstill budget, as it grows by only 0.2 per cent in real terms. However, as the committee is aware, AEF is not the overall funding picture for local authorities; funding for local government from grants outwith the settlement also contributes substantially to total local government funding.It is also inappropriate to look at simply the line of figures for capital support—the figures need to be looked at in context. Total capital support will be at least £1.6 billion over this year and next year. In any event, capital expenditure is, by its nature, uneven. That can be seen by the inclusion in this year's figures of a one-off sum for e-voting.I have said several times to the Parliament and in wider discussions that I was prepared to re-examine local government funding for 2007-08. That remains the position.The "Draft Budget 2007-08: Final Report on Spending Review 2002 Targets", which accompanies this year's draft budget document, shows that of the 162 targets that were originally set in 2002, the Executive has met or expects to meet 83 per cent, or 135, of them. A further 7 per cent, or 11 targets, were replaced in the spending review 2004. Progress has been made on many of the remaining 16 targets but completion of several of them has been delayed by factors that are outwith the Executive's control. One example is spending on flooding initiatives, which are often delayed by local objections to schemes.The report underlines the fact that we have made real progress against the targets that we set as part of the 2002 spending review. Genuine achievements have been made on all matters and particularly on our key priorities. The report highlights great progress on delivering the transport infrastructure that the business community expects and the highly skilled workforce that it needs. It also underlines the progress that we have made on increasing the availability and quality of affordable housing in Scotland.Nonetheless, it is important to recognise that the targets were drawn up four years ago. We have made significant progress across the board since many of the original SR2002 targets were set. Many of them were superseded or replaced following a recommendation in June 2004 from the committee to drop 64 of the original targets. We took account of that recommendation in setting a smaller number of targets in spending review 2004, but the spending review targets for 2002 had already been published, so our final report on them reports—rightly—against all the original targets.Some criticisms have been offered. The committee adviser's briefing note on the draft budget notes the absence of targets on the cross-cutting themes of sustainable development and closing the opportunity gap while acknowledging that some sustainable development targets are in the portfolio chapters. The Executive believes that the cross-cutting themes are approaches that should inform the policy and delivery work of all portfolios, so it was decided in the 2002 spending review that in the spending review document targets that contribute to sustainable development and closing the opportunity gap should sit with the portfolios that are principally responsible for delivering them rather than separately. However, targets that contributed to promoting social justice were extracted and published in "Closing the Opportunity Gap: Scottish Budget for 2003-2006", which accompanied the main spending review 2002 document.The budget adviser's briefing paper also highlights that there are no comparative data or targets on the Executive's number 1 priority of growing the Scottish economy. The Executive's "Framework for Economic Development in Scotland" does not set targets for particular elements of the Executive's economic vision; rather, it provides the context in which the decisions that face the Executive should be considered. We focus on the fundamental conditions and objectives that are needed to create a responsive and flexible economy. The outcome objectives in the "Framework for Economic Development in Scotland" encompass growth and sustainability objectives.I hope that that information will assist the committee in its scrutiny of the draft budget for 2007-08. I know that members may wish to raise a range of issues and I will do my best to answer any questions. Given the range of issues that could be covered, we might require to write to the committee on several points to provide further information.