1st Report, 2008 (Session 3)

Stage 2 of the 2008-09 Budget Process

CONTENTS

VOLUME 1: FINANCE COMMITTEE REPORT AND EVIDENCE

REMIT AND MEMBERSHIP

THE REPORT

Introduction

Process

Evidence

External meeting

Structure of report

Summary of conclusions and recommendations

National Performance Framework

Performance Monitoring

Reports from Subject Committees

Budgetary Information

Local Government Funding

Efficiency Savings

Sustainability

Equalities

Scottish Parliamentary Corporate Body

Audit Scotland

Overall strategy and priorities

National Performance Framework

Performance Monitoring

Reports from subject committees

Presentation of information

National Performance Framework and Spending Priorities

Efficiency Savings

Timetable for budget scrutiny

Miscellaneous

Budgetary information

Block allocations and further information on funding levels

Capital Spend

Other issues raised by subject committees

Local Government Funding

Ring-fencing

Single Outcome Agreements

Council Tax Freeze

Non-Domestic Rate Income (Business Rates)

Alternative Spending Proposals

Efficiency Savings

Sustainability

Equalities

Scottish Parliamentary Corporate Body

Introduction

Main issues arising from the proposed budget

Parliamentary Commissioners and Ombudsman

Audit Scotland

ANNEXE A – EXTRACTS FROM THE MINUTES OF THE FINANCE COMMITTEE

ANNEXE B – BRIEFING PAPERS

CSR 2007: A Tighter Public Spending Settlement – Paper from the Budget Adviser

Report on the Scottish Budget: Spending Review 2007 – Paper from the Budget Adviser

Interim guidance to subject committees

Guidance to subject committees

Additional information received from the Scottish Government [PDF]

ANNEXE C – FINANCE COMMITTEE ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE

5th Meeting, 2007 (Session 3), 23 October 2007

ORAL EVIDENCE

Bill Howat, Lead Reviewer, Budget Review Group
Bill Hughes, Member, Budget Review Group
Jenny Stewart, Member, Budget Review Group
George Thorley, Member, Budget Review Group

8th Meeting, 2007 (Session 3), 13 November 2007

WRITTEN EVIDENCE

Scottish Parliamentary Corporate Body

ORAL EVIDENCE

Scottish Parliamentary Corporate Body

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Parliamentary Corporate Body

11th Meeting, 2007 (Session 3), 4 December 2007

WRITTEN EVIDENCE

Sustainable Development Commission
Ian Thomson
WWF Scotland
COSLA

ORAL EVIDENCE

Professor Jan Bebbington, Sustainable Development Commission
Maf Smith, Director (Scotland), Sustainable Development Commission
Ian Thomson, Reader, Department of Accounting and Finance, University of Strathclyde
Dr Dan Barlow, Acting Director, WWF Scotland

12th Meeting, 2007 (Session 3), 10 December 2007

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

VOLUME 2: REPORTS FROM OTHER COMMITTEES AND THE SCOTTISH COMMISSION FOR PUBLIC AUDIT¹

VOLUME 3: ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE: OTHER COMMITTEES AND SCOTTISH COMMISSION FOR PUBLIC AUDIT

Please note that Volume 3 is published on the Scottish Parliament’s website only, at: http://www.scottish.parliament.uk/s3/committees/finance/index.htm

ANNEXE M – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – ECONOMY, ENERGY AND TOURISM COMMITTEE

9th Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

Jack Perry, Chief Executive, Hugh Hall, Chief Financial Officer, and Andrew Downie, Finance Director, Group Operations, Scottish Enterprise;

Sandy Cumming, Chief Executive, Forbes Duthie, Director of Corporate Services, and Sandy Brady, Director of Strategy, Highlands and Islands Enterprise;

Philip Riddle, Chief Executive, and Riddell Graham, Director of Strategy, Partnership and Communications, VisitScotland; and

Councillor Alison Hay, Regeneration and Sustainable Development Spokesperson, James Fowlie, Team Leader, Environment and Regeneration, Barbra Lindsay, Strategic Director, Convention of Scottish Local Authorities, and David Valentine, Head of Economic Development, Angus Council and representative of SOLACE and SLAED.

WRITTEN EVIDENCE

Scottish Enterprise
Highlands and Islands Enterprise
VisitScotland
Cabinet Secretary for Finance and Sustainable Growth

10th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Jim Mather MSP, Minister for Enterprise, Energy and Tourism, Chris McCrone, Finance Team Leader, Finance Directorate, and Graeme Dickson, Director, Enterprise, Energy and Tourism, Scottish Government.

WRITTEN EVIDENCE

Scottish Renewables
Scottish Sustainable Energy Foundation

12th Meeting, 2007 (Session 3), 19 December 2007

WRITTEN EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

ANNEXE N – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – EDUCATION, LIFELONG LEARNING AND CULTURE COMMITTEE

10th Meeting, 2007 (Session 3), 21 November 2007

ORAL EVIDENCE

Mark Batho, Head of Lifelong Learning Directorate, Scottish Government; Donald Henderson, interim Chief Executive, Skills Development Scotland; Linda McDowall, Acting Senior Director of Skills and Learning, Scottish Enterprise; Alex Paterson, Director of the Developing Skills Group, Highlands and Islands Enterprise; and Damien Yates, Chief Executive, Learndirect Scotland

WRITTEN EVIDENCE

Lifelong Learning Directorate, Scottish Government

11th Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

David Caldwell, Director, Universities Scotland
Howard McKenzie, Acting Chief Executive, Association of Scotland's Colleges
Roger McClure, Chief Executive, Scottish Funding Council

WRITTEN EVIDENCE

Universities Scotland
Association of Scotland's Colleges
Scottish Funding Council

12th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

Cllr Isabel Hutton, Education, Children and Young People spokesperson, Jon Harris, Strategic Director, and Robert Nicol, Policy Manager, COSLA

Fiona Hyslop, Cabinet Secretary for Education and Lifelong Learning, Colin MacLean, Director, Children, Young People and Social Care Directorate, Liz Hunter, Director, Schools Directorate, and Mark Batho, Director, Lifelong Learning Directorate, Scottish Government

WRITTEN EVIDENCE

COSLA

List of other written evidence

Save the Children

ANNEXE O – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE –EQUAL OPPORTUNITIES COMMITTEE

5th Meeting, 2007 (Session 3), 6 November 2007

ORAL EVIDENCE

Philippa Bonella, EPBPAG member, Equality and Human Rights Commission
Laura Turney, EPBPAG member, Scottish Government Equality Unit

WRITTEN EVIDENCE

Equality Proofing the Budget and Policy Advisory Group (EPBPAG)

6th Meeting, 2007 (Session 3), 27 November 2007

ORAL EVIDENCE

Muriel Robison, Equality and Human Rights Commission
Calum Guthrie, Scottish Council for Voluntary Organisations;
Morag Gillespie, Scottish Poverty Information Unit; and
Angela O’Hagen, Scottish Women’s Budget Group

WRITTEN EVIDENCE

Scottish Women’s Budget Group

7th Meeting, 2007 (Session 3), 4 December 2007

ORAL EVIDENCE

Stewart Maxwell MSP, Minister for Communities and Sport
Yvonne Strachan, Head of the Equality Unit, Scottish Government

ANNEXE P – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – HEALTH AND SPORT COMMITTEE

5th Meeting 2007 (Session 3), 26 September 2007

WRITTEN EVIDENCE

Budget Review Group

ORAL EVIDENCE

Bill Howat and Jenny Stewart, Budget Review Group

6th Meeting 2007 (Session 3) 3 October 2007

WRITTEN EVIDENCE

Budget Review Group

ORAL EVIDENCE

Bill Howat, Budget Review Group

8th Meeting 2007 (Session 3) 14 November 2007

ORAL EVIDENCE

Scottish Association of Alcohol and Drugs Action Teams
NHS Greater Glasgow and Clyde
Angus Council
Grampian Police
Stocktake of Alcohol and Drugs Actions Teams

9th Meeting 2007 (Session 3) 21 November 2007

ORAL EVIDENCE

Alcohol Focus Scotland
Scottish Drugs Forum
UK Drug Policy Commission
sportscotland

SUPPLEMENTARY WRITTEN EVIDENCE

sportscotland

10th Meeting 2007 (Session 3) 28 November 2007

WRITTEN EVIDENCE

Scottish Government
Professor Matt Sutton, University of Aberdeen

ORAL EVIDENCE

Nicola Sturgeon, Deputy First Minister and Cabinet Secretary for Health and Wellbeing; John Swinney, Cabinet Secretary for Finance and Sustainable Growth; Kenny MacAskill, Cabinet Secretary for Justice, the Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

John Swinney, Cabinet Secretary for Finance and Sustainable Growth, the Scottish Government

11th Meeting 2007 (Session 3) 5 December 2007

ORAL EVIDENCE

Nicola Sturgeon, Deputy First Minister and Cabinet Secretary for Health and Wellbeing, the Scottish Government

OTHER WRITTEN EVIDENCE

Audit Scotland

Overview of the Performance of the NHS in Scotland 20004/05

2006 Financial Performance Overview of the NHS in Scotland

ANNEXE Q – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – JUSTICE COMMITTEE

10th Meeting, 2007 (Session 3), 20 November 2007

ORAL EVIDENCE

Chief Superintendent Clive Murray, National President, Association of Scottish Police Superintendents
Chief Superintendent Iain Gordon, Vice-President, Association of Scottish Police Superintendents
Chief Constable David Strang, Chair of ACPOS Criminal Justice Business Area
Doug Cross, Chair of ACPOS Finance Management Business Area.

WRITTEN EVIDENCE

Association of Scottish Police Superintendents (20.11.07)
Association of Chief Police Officers in Scotland (20.11.07)

SUPPLEMENTARY WRITTEN EVIDENCE

Association of Scottish Police Superintendents (27.11.07)
Association of Chief Police Officers in Scotland (28.11.07)
Scottish Court Service (13.11.07)
Association of Scottish Police Superintendents (29.11.07)

11th Meeting, 2007 (Session 3), 27 November 2007

ORAL EVIDENCE

Joe Grant, General Secretary, Scottish Police Federation
Professor Arthur Midwinter, Financial Consultant to the Scottish Police Federation
Mike Ewart, Chief Executive, Scottish Prison Service
Willie Pretswell, Director of Finance and Business Services, Scottish Prison Service.

WRITTEN EVIDENCE

Scottish Police Federation (27.11.07)
Scottish Police Federation (27.11.07)
Scottish Prison Service (20.11.07)

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Prison Service (17.12.07)
Scottish Police Federation (14.12.07)

12th Meeting, 2007 (Session 3), 4 December 2007

ORAL EVIDENCE

Kenny MacAskill MSP, Cabinet Secretary for Justice
Robert Gordon, Director-General, Justice and Communities, Scottish Government
Alastair Merrill, Deputy Director, Police Powers, Performance and Resources, Scottish Government
Ruth Ritchie, Scottish Government Finance Directorate: Justice

WRITTEN EVIDENCE

Kenny MacAskill MSP, Cabinet Secretary for Justice (28.11.07)
Robert Gordon, Director-General, Justice and Communities, Scottish Government (03.12.07)
Scottish Legal Aid Board (22.11.07)
Crown Office and Procurator Fiscal Service (26.11.07)
Ruth Ritchie, Scottish Government Finance Directorate: Justice (30.11.07)

SUPPLEMENTARY WRITTEN EVIDENCE

Kenny MacAskill MSP, Cabinet Secretary for Justice (07.12.07)
Kenny MacAskill MSP, Cabinet Secretary for Justice (12.12.07)

ANNEXE R – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – LOCAL GOVERNMENT AND COMMUNITIES COMMITTEE

11th Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

Stewart Maxwell MSP, Minister for Communities and Sport, Mike Foulis, Director of Housing and Regeneration, Scottish Government and Mike Palmer, Head of Social Inclusion Division, Scottish Government

WRITTEN EVIDENCE

Public Health and Wellbeing Directorate, Scottish Government

12th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

Cllr Pat Watters, President, COSLA, Rory Mair, Chief Executive, COSLA and Martin Booth, Head of Finance, COSLA

ORAL EVIDENCE

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, David Henderson, Head of Local Government Finance, Scottish Government, Ruth Parsons, Director, Public Service Reform, Scottish Government and Graham Owenson, Local Government Finance Team Leader, Scottish Government

WRITTEN EVIDENCE

COSLA

OTHER WRITTEN EVIDENCE

Child Poverty Action Group in Scotland
Energy Action Scotland
Save the Children
Shelter
Scottish Federation of Housing Associations

ANNEXE S – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – RURAL AFFAIRS AND ENVIRONMENT COMMITTEE

8th Meeting, 2007 (Session 3), 21 November 2007

ORAL EVIDENCE

Richard Wakeford, Director General Environment, Scottish Government
John Mason, Director of Environmental Quality Directorate and Director of Climate Change and Water Industry Directorate, Scottish Government
Maggie Gill, Director of Rural and Environment Research and Analysis Directorate, Scottish Government
David Wilson, Director of Marine Directorate, Scottish Government
Peter Russell, Director of Rural Directorate, Scottish Government
Bob McIntosh, Director, Forestry Commission Scotland, Scottish Government
David Dalgetty, Finance Team Leader (Rural Affairs and Environment), Finance Directorate Scottish Government

SUPPLEMENTARY WRITTEN EVIDENCE

Scottish Government Briefing Note

9th Meeting, 2007 (Session 3), 5 December 2007

ORAL EVIDENCE

Richard Lochhead MSP, Cabinet Secretary for Rural Affairs and the Environment,
John Mason, Director of the Environmental Quality Directorate and the Climate Change and Water Industry Directorate, Scottish Government
Ingrid Clayden, Head of the Rural Development Division, Rural Directorate, David Reid, Head of Rural Affairs and Environment Finance, Finance Directorate, Scottish Government.

WRITTEN EVIDENCE

Correspondence between the Convener, Clerk and Director General Environment
Second letter from Director General Environment
Real terms data provided by the Scottish Government

10th Meeting, 2007 (Session 3), 19 December 2007

OFFICIAL REPORT

WRITTEN EVIDENCE

Letter from Director General Environment of 5 December
Correspondence between the Convener and the Director General Environment

ANNEXE T – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – TRANSPORT, INFRASTRUCTURE AND CLIMATE CHANGE COMMITTEE

12th Meeting, 2007 (Session 3), 27 November 2007

Oral Evidence

Garry Clark (Scottish Chambers of Commerce)
Valerie Davidson (Strathclyde Partnership for Transport - SPT)
Iain Duff (Scottish Council for Development and Industry - SCDI)
Dave Duthie (Highlands and Islands Strategic Transport Partnership HITRANS)
Councillor Alison Hay (Convention of Scottish Local Authorities)
James King (Passenger Focus)
Alex Macaulay (South East of Scotland Transport Partnership - SEStran)
Ron McAulay (Network Rail)
Gerard O'Hanlon (First ScotRail)
Neil Renilson (Transport Edinburgh Ltd)
Marjory Rodger (Confederation of Passenger Transport UK - CPT).

Written evidence

SESTRAN
HITRANS
Strathclyde Partnership for Transport

Supplementary Written Evidence

COSLA

13th Meeting, 2007 (Session 3), 4 December 2007

Oral Evidence

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth; Malcolm Reed, Chief Executive, Transport Scotland;
John Mason, Director of Climate Change and Water Industry Directorate, John Ewing, Director of Transport Directorate
David Reid, Deputy Director of Finance, Scottish Government.

OTHER WRITTEN EVIDENCE

Scottish Association for Public Transport
Freight Transport Association

ANNEXE U – ORAL EVIDENCE AND ASSOCIATED WRITTEN EVIDENCE – SCOTTISH COMMISSION FOR PUBLIC AUDIT

2nd Meeting, 2007 (Session 3), 19 September 2007

ORAL EVIDENCE

Mr Robert Black, Auditor General for Scotland
Russell Frith, Director of Audit Strategy, Audit Scotland

WRITTEN EVIDENCE

Audit Scotland Annual Report and Accounts for the year to 31 March 2007 and Auditor’s Report Thereon
External Auditor’s Management Report for year ended 31 March 2007
Audit Scotland preliminary note on the 2008-09 Autumn Budget Revision
Audit Scotland’s provisional budget estimate for 2008-09

3rd Meeting, 2007 (Session 3), 28 November 2007

ORAL EVIDENCE

Mr Robert Black, Auditor General for Scotland
Russell Frith, Director of Audit Strategy, Audit Scotland
Diane McGiffen, Director of Corporate Affairs, Audit Scotland

WRITTEN EVIDENCE

Audit Scotland’s Budget Proposal for 2008-09 and Autumn Budget Revision 2007-08
Letter from Audit Scotland (dated 12 October 2007), supplementary to evidence at the SCPA meeting on 19 September 2007
Letter from Audit Scotland (dated 31 October 2007) regarding its international work

SUPPLEMENTARY WRITTEN EVIDENCE

Supplementary evidence on Audit Scotland’s proposed budget – correspondence from the Auditor General for Scotland dated 10 December 2007

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:

Andrew Welsh (Convener)
Derek Brownlee
Joe FitzPatrick
James Kelly
Liam McArthur
Tom McCabe
Elaine Murray (Deputy Convener)
Alex Neil

Committee Clerking Team:

Clerk to the Committee
Susan Duffy

Senior Assistant Clerk
Mark Brough

Assistant Clerk
Allan Campbell

Committee Assistant
Katie Packer

1st Report, 2008 (Session 3)

Stage 2 of the 2008-09 Budget Process

The Committee reports to the Parliament as follows—

INTRODUCTION

Process

1. The Parliamentary Budget Process is divided into 3 stages. Stage One normally takes place between March and June each year and involves the Scottish Government producing an Annual Evaluation Report which examines progress against previously set targets and sets out provisional spending plans for the year ahead. Stage Two normally takes place between September and December and it is at this point that the Scottish Government publishes its Draft Budget containing firm spending plans for the year ahead and indicative plans for the subsequent two years. Stage Three of the process is the publication of the annual Budget Bill which is the mechanism by which Parliamentary authorisation is sought for the coming financial year.

2. Underpinning this process there is a Written Agreement between the Finance Committee and the Scottish Government which describes the various stages of the Budget Process and sets out dates by which various budget documents need to be published. In 2005, this Agreement was revised so that there would only be a three-stage process in years when there was a UK Spending Review and that, in non-Spending Review and Scottish Parliamentary election years, there would be no requirement for Stage 1 scrutiny. The reason for this change was that experience had shown that changes made in non-Spending Review years tended to be more limited.

3. At the time this agreement was made, it was expected that the next UK Spending Review would take place in 2006. However, this was delayed by the UK Government until 2007 and, with a Scottish Parliamentary election taking place, this meant that Stage 1 of the Process could not be conducted in 2007.

4. In a normal Spending Review year, the UK Government publishes its findings in July, with a Scottish Spending Review document being published in September and a Draft Budget in October. However, the publication of the UK Spending Review was delayed until October this year. Therefore, the Finance Committee and the Cabinet Secretary for Finance and Sustainable Growth agreed that the timetable for scrutiny at Stage Two of the process would need to be amended to ensure that the Committee and subject committees would be able to have a similar scrutiny period to that afforded to them in previous years. In agreeing to this, the Cabinet Secretary undertook to publish the Scottish Government’s Spending Review and Draft Budget within one month of publication of the UK Spending Review.

5. The UK Spending Review was published on 9 October 2007 and the Scottish Spending Review and Draft Budget were published as a single document on 14 November 2007. Subject committees were asked to submit their reports to this Committee by 19 December and this Committee undertook to publish its own report in early January. Normally, there would be a parliamentary debate on the Finance Committee’s report in December, with the annual Budget Bill being published by 20 January (as set out in the Written Agreement) and the Stage 1 debate on the Bill taking place very soon thereafter. Another consequence of the delay in the process this year is that these debates necessarily had to be rationalised as it was recognised that the Scottish Government would have no time to respond to this Committee’s report before the Budget Bill was published and there was little point in having two separate, but very similar debates in close succession. As there is a requirement under Standing Orders to have a Stage 1 debate on the Budget Bill, then in practical terms, this rationalisation meant there would be no separate debate on the Finance Committee’s report and that instead, this would form part of the Stage 1 debate on the Budget Bill.

Evidence

6. Eight parliamentary committees considered the expenditure plans of the Scottish Government portfolios within their remit and reported their findings to the Finance Committee. These reports, together with links to associated oral and written evidence are attached as annexes to this report. Given the delays in this year’s process, the Finance Committee issued interim guidance to subject committees in September with finalised guidance following in early December. Both sets of guidance are attached as part of Annexe B to this report.

7. On 4 December 2007, this Committee took evidence on local government funding from COSLA, which was represented by Councillor Pat Watters, President, Rory Mair, Chief Executive, and Martin Booth, Head of Finance, and on sustainability from Professor Jan Bebbington, Professor of Accounting and Sustainable Development from the University of St Andrews and Vice-Chair of the Sustainable Development Commission; Maf Smith, Director (Scotland) of the Sustainable Development Commission; Ian Thomson, Reader from the Department of Accounting and Finance at the University of Strathclyde Business School; and Dr Dan Barlow, Acting Director of WWF Scotland. The Committee then took evidence from the Cabinet Secretary for Finance and Sustainable Growth at its meeting in Dundee on 10 December 2007. In addition, the Committee took evidence on the Scottish Parliamentary Corporate Body (SPCB) spending plans on 13 November 2007. The oral and written evidence associated with these sessions forms part of Annexe B to this report.

External meeting

8. In the first two Sessions of the Parliament, the Finance Committee held regular external meetings across Scotland in an attempt to gauge the impact of the then Scottish Executive’s overall expenditure plans at a local level. The Session 3 Finance Committee agreed to adopt this practice and held a meeting at Discovery Point in Dundee on 10 December 2007.

9. Before taking evidence from the Cabinet Secretary for Finance and Sustainable Growth, the Committee held three informal workshops with representatives of local organisations. The workshops focused on issues in the overall budget of particular relevance to the local area, namely Education and Skills, Economic Development and Waste Management. A list of the local organisations who participated in the workshops can be found below.

10. One MSP from each group then reported back on the key issues raised in the workshops in a formal meeting of the Committee. Members then drew on the conclusions and recommendations from the workshops during the evidence session with the Cabinet Secretary. The main themes arising from the workshops are summarised below. The Official Report of the meeting, which includes the reports back from the workshops and the evidence session with the Cabinet Secretary, can be found at Annexe C of this report.

Education and Skills

11. The issue of funding for higher education was raised in the Education and Skills workshop. It was noted that the potential removal of the cap on top-up fees in England could result in a divergence of funding between Scottish and English institutions. Coupled with this issue, the point was made that salaries for university staff are negotiated on a UK-wide level, meaning that Scottish universities would potentially have to meet increases from other budgets, which could in turn impact on research funding. Participants did not suggest that top-up fees should be introduced in Scotland, but that the Scottish Government should be mindful of this issue, and particularly the potential impact on research.

Economic Development

12. The Economic Development workshop discussed various factors affecting growth of the economy in Dundee and Tayside, including tourism, the planning system and the need to emphasise spending on research and development. The group identified transport as being potentially the most important driver of economic growth for the area. Participants stressed the importance of fast transport links in attracting jobs to Dundee and to enable Dundee to interact with the rest of Scotland and the UK. It was felt that both the internal and external connectivity of Dundee could definitely be improved, in particular with regard to road and rail links.

Waste Management

13. Participants in the Waste Management workshop raised various issues that could impact on Councils’ ability to meet the targets for reducing the amount of waste sent to landfill, and increasing the amount of waste that is recycled. It was noted that Dundee (in common with other cities) has a high number of high-rise and tenement properties, which made kerbside recycling challenging. The treatment of food waste was also raised as a major issue. The workshop concluded that, if recycling of waste was to improve further, then major investment was needed for vehicles, receptacles for collection, and plant. Alongside this, it was recognised that waste management should be viewed from two sides – both the collection of waste that is produced but also the need to encourage people to produce less waste.

Removal of ring-fencing

14. One over-arching theme that emerged from all three workshops was the issue of the Government’s intention to remove ring-fencing from 43 funds totalling £2 billion (approximately 12 per cent of the total resources for local authorities) and to incorporate that funding into the overall local government settlement.

15. In the Education and Skills workshop, the point was made by the Dundee City Council Education Department that the proposed removal of ring-fencing could be seen as both a threat (as the level of funding the Department receives could go down) but also an opportunity (for example to transfer the large numbers of temporary staff into permanent employment). In addition, there was agreement that it would benefit those involved if the amount of reporting and auditing around funds that will remain ring-fenced could be reduced.

16. There was some concern in the Economic Development workshop over the potential impact of the removal of ring-fencing on economic growth. In light of the plans for a new relationship between central government and local government set out in the Scottish Budget: Spending Review 2007 document and the Concordat², the group felt that it was important for the Scottish Government to set out its priorities regarding economic growth, not only through the Concordat, but also by defining clear national outcomes.

17. In the Waste Management workshop, discussion on ring-fencing focussed on the Government’s decision to remove ring-fencing from the Strategic Waste Fund. Again, participants were of the view that the decision to remove ring-fencing could be viewed from two perspectives: that its removal would give councils more flexibility to come up with solutions tailored to local problems; but that if ring-fencing was maintained it would provide a strong national focus for waste management.

18. The subject of ring-fencing is discussed later on in this report.

19. The Committee would like to thank everyone who participated in the workshops and also expresses its thanks to the staff of Discovery Point for assisting in the organisation of this meeting.

List of workshop participants

20. The organisations that participated in the workshops are as follows:

Education and Skills

• University of Dundee
• Angus College
• CXR Biosciences
• Scottish Trades Union Congress
• Dundee City Council Education Department
• BioDundee

Economic Development

• Scottish Enterprise Tayside
• Dundee Chamber of Commerce & Industry
• Scottish Trades Union Congress
• Dundee City Council Economic Development Department
• Angus Council Economic Development Department
• Axis-Shield
• Perth and Kinross Council Economic Development Department

Waste Management

• Dundee City Council Waste Management
• Dundee Energy Recycling Limited
• Scottish Environment Protection Agency
• Friends of the Earth Scotland
• Ninewells Hospital
• Recycling Market Development (REMADE)

structure of REPORT

21. The Committee’s report is structured as follows:

• Summary of conclusions and recommendations
• Overall strategy and priorities
• National Performance Framework
• Performance Monitoring
• Reports from subject committees
• Budgetary information
• Local Government funding
• Alternative Spending Proposals
• Efficiency Savings
• Sustainability
• Equalities
• Scottish Parliamentary Corporate Body
• Audit Scotland

SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

National Performance Framework

The Committee believes the Scottish Government should where practicable, further elaborate how the Strategic Objectives which support the delivery of the Scottish Government’s purpose are related and what weight will be attached to each. The Scottish Government should also make clear the order of priority given to its objectives and the basis on which this order has been decided (paragraph 37).

Performance Monitoring

The Committee believes that the new National Performance Framework is a step in the right direction but recognises there is still limited evidence linking expenditure to outcomes and this leaves open the question of whether there should be hard, fixed targets or “direction of travel” targets. This is echoed by many subject committees. Regardless of the debate over fixed or direction of travel targets, the Committee recommends that baseline information should be published for all SMART targets. The Committee welcomes the fact that there will be annual reporting on progress against targets. It appreciates the practical difficulties involved, but believes that such progress reports should be published earlier than 2009 if possible. The Committee signals its intention to scrutinise this issue on an on-going basis (paragraph 45).

Reports from Subject Committees

General

The system of all subject committees appointing their own advisers and working with this Committee’s budget adviser appears to have worked well and the Committee recommends this approach be adopted and developed in future years (paragraph 47).

National Performance Framework and Spending Priorities

The Finance Committee believes that, without more information and a firm commitment from the Government and councils regarding continuing investment in RTPs, there is a level of uncertainty now surrounding the future of RTPs.The Finance Committee recommends that the Scottish Government facilitates further discussions with local government to address these concerns (paragraph 54).

The Finance Committee draws attention to the concerns raised by the Education, Lifelong Learning and Culture Committee in relation to both the overall three year funding and within that, the year-to-year funding for higher education (paragraph 55).

The Government has stated that £10 million will be removed from the college capital lines in the budget and given to universities but there is no reference to this in any budget documentation. The Education, Lifelong Learning and Culture Committee also recommended that the Government clarify this point. The Finance Committee accepts the need for clarification (paragraph 56).

The Committee would draw attention to the relevant sections of the Rural Affairs and Environment Committee’s report regarding waste management. There were a number of issues that need to be addressed and specific recommendations for the Scottish Government to consider, namely that future budget documents include:

• an assessment of progress towards meeting national and EU waste targets; and
• a detailed breakdown of how the Zero Waste budget has been allocated to specific initiatives (paragraph 57).

The Rural Affairs and Environment Committee recommended that a significant proportion of the Marine Management budget line should be set aside in the first year of the Spending Review to support the fishing industry and the Committee recommends that the Scottish Government should give full consideration to this proposal (paragraph 58).

A number of the subject committees raised concerns about the adequacy of national targets and indicators (paragraphs 52 to 63) and the Committee intends to scrutinise these issues on an ongoing basis and in doing so, will explore the issues raised by subject committees (paragraph 63).

Timetable for budget scrutiny

Committees have raised concerns about the timetable available for scrutiny of the budget process. Following a resolution of the Parliament, there will be a review of the entire budget process and, given its pivotal role in the process and the Written Agreement between the Finance Committee and the Scottish Government, the Committee would intend to take a leading role and a range of issues, including the timetable for budget scrutiny, will undoubtedly form part of any such review. The Committee recognises this will be a fluid process but hopes that significant progress can be made in time for next year’s budget (paragraph 68).

For the immediate future to counteract the timetabling difficulties, the Committee recommends that subject committees give some thought to incorporating specific financial scrutiny into any inquiry work undertaken during the year. In that way, it might then be possible to focus on particular areas of spending and to take evidence prior to the Draft Budget being published. Such evidence-based work could then feed into committee consideration of the Draft Budget (paragraph 70).

Budgetary Information

General

The Committee sought further budgetary information from the Scottish Government which it received. The Committee considers that the Scottish Government should have attached the subsequently produced table of changes as an Annexe to the Draft Budget and recommends that for future years, any such presentational changes should be stated clearly, either in an Annexe or by way of a footnote in the Draft Budget. While the Committee appreciates that the Budget documents had to be put together quickly this year, it also recommends that, having regard to the principle of co-operation and agreement inherent in the Written Agreement between the Finance Committee and the Scottish Government, in future significant changes in presentation should be agreed with the Finance Committee (paragraph 78).

Block allocations and further information on funding levels

In his response to the Finance Committee, the Cabinet Secretary stated that he would be happy to explore improvements to the presentation of health board allocations which would meet and support the Committee’s needs and the Committee intends to pursue this with the Scottish Government (paragraph 80).

The Health and Sport Committee made a number of recommendations for improvements which, although they are primarily an issue for that Committee, could be worthy of consideration. The recommendations are that:

• the division of the budget between the territorial health boards as a group and the special health boards as a group be included in the draft budget;
• the calculation of the Arbuthnott Formula be brought forward to the summer so that individual territorial health board allocations can be published in the Draft Budget;
• the publication of the blue book be brought forward to September so that recentexpenditure and activity trends for health boards can inform the Health and Sport Committee's budget scrutiny, and
• that individual health board spending plans be incorporated in the Draft Budget (paragraph 81).

The Finance Committee believes that Level 3 budget lines should be split into capital and revenue. On the issue of having a further spending breakdown, the Committee appreciates the difficulties faced by subject committees but if all information required by subject committees beneath Level 4 were provided, then the Draft Budget would become unwieldy. However, where any committee requests such supplementary information, the Finance Committee would expect that the relevant directorate in the Scottish Government should supply it. The Committee will ensure that this issue is covered in future guidance to subject committees (paragraph 91).

The Committee recognises the concerns expressed by all subject committees as a consequence of the changes in the presentation of information in the Draft Budget (paragraphs 82 to 90), particularly:

• Level 3 budget lines now rolled up into the local government settlement;
• GAE totals;
• the distribution of capital grants;
• the splitting of Level 3 budget lines into capital and revenue.

Adhering to the principles in the Written Agreement of co-operation and agreement to allow effective scrutiny, the Committee invites the Cabinet Secretary to jointly review the presentation of information and to agree with the Committee a way forward for future years, with particular reference to:

• the presentation of level 3 budget lines;
• the identification of relevant local authority GAE totals;
• the relationship between expenditure and Single Outcome Agreements;
• transitional arrangements to allow comparison to be made between past and future years; and
• ensuring transparent tracking on expenditure patterns at all levels (paragraph 92).

Capital Spend

The Committee recommends that an estimate of capital spending by the private sector and estimated payments under PPP contracts should be provided in the Draft Budget in future years (paragraph 93)

Other issues raised by subject committees

The Committee notes the concerns about using a GDP deflator to forecast growth and notes that the Atkinson review looked at measuring prices in the public sector and that the Scottish Government is continuing to undertake work in this area. The Committee will monitor developments (paragraph 94).

The Committee agrees with the Economy, Energy and Tourism Committee that allocations should be provided on a cash and real terms basis in future budgets (paragraph 95).

The Committee appreciates that the enterprise network reform is in a transitional phase at the moment but would expect that the relevant budgetary information and figures will be published as soon as this transitional period comes to an end and included in future budget documents (paragraph 96).

Local Government funding

Ring-fencing

The Committee notes the arguments both for and against the reduction in ring-fencing of funds and considers that the key to addressing any remaining concerns lies in the structure and monitoring of Single Outcome Agreements (paragraph 118).

Single Outcome Agreements

The Committee is supportive of Single Outcome Agreements (SOAs) in principle. However, it is crucial that their format and the monitoring arrangements are fit for purpose to ensure they can work on a practical level. The Committee recommends that the Cabinet Secretary clarifies the potential format of SOAs, including the issues to be captured by them and the level of detail they will be expected to provide (paragraph 121).

The Committee seeks clarification on whether there would be any circumstances in which ring-fencing might be reintroduced where a local authority was not meeting the performance targets associated with its Single Outcome Agreement and what those circumstances would be (paragraph 126).

The Committee recommends that the Cabinet Secretary provides full detail on the proposed reporting and review process for SOAs (paragraph 129).

In anticipation of the review process, the Committee makes the following recommendations in relation to the tracking of spend and the monitoring process to ensure that proper scrutiny can take place:

• As part of its annual reporting process, local authorities should be required to produce a statement explaining any significant changes in expenditure patterns – this would apply to the entire budget and not just to those monies which were previously ring-fenced;
• Baseline information should be provided for the indicators and targets as they will be applied to local authorities so that progress can be monitored;
• Local authorities should provide any other information that they see as relevant to monitoring their SOA.
• To this end, given that local authorities are currently subject to Best Value Reviews conducted by the Accounts Commission and that the new National Performance Framework and SOAs may change current scrutiny arrangements, the Scottish Government should arrange urgent discussions with the Accounts Commission, the Auditor General for Scotland and COSLA to consider how the monitoring and reporting of targets will be carried out under these new arrangements (paragraph 130).

The Committee requests clarification on whether the overall figure of £70m to be distributed to local authorities would be adjusted if not all councils agree to the freeze (paragraph 135).

The Committee notes the statements by both the Cabinet Secretary and COSLA over the level of funding provided to fund the council tax freeze and while these apparent disagreements can be viewed as an integral part of any negotiation, it is clear that this will be an ongoing issue (paragraph 139).

The Committee appreciates the reasons why research has so far not been carried out on the impact that a reduction in business rates would have on economic growth. However, it signals that it will take an interest in any research which may be carried out in the future (paragraph 146).

Alternative Spending Proposals

The Committee recommends that the Scottish Government bring forward proposals setting out how, over the period covered by the spending review, the level of police recruitment can be increased beyond that currently planned, and what changes will be required to the 2008-09 Budget as a result (paragraph 149).

The Committee recommends that the Scottish Government considers whether there is scope to increase the reductions in business rates applying in 2008-09 beyond those stated in the Spending Review as the first stage of the acceleration of the reductions, and what changes will be required to the 2008-09 Budget as a result³ (paragraph 151).

There were a number of other proposals considered where were not agreed. Full details of these proposals and the votes that took place are contained in Annexe A (as part of the Minutes of the Committee’s meeting on 15 January 2008) (paragraph 152).

The Committee seeks clarification of what proportion of efficiency savings will be deducted at source and from where, and what will be redistributed. The Committee also seeks clarification on whether there are contingency plans should the 2% efficiency savings not be achieved (paragraph 154).

The Committee echoes the concerns of the previous Finance Committee and Audit Scotland that it is vital that robust baseline information is provided and recommends that the Scottish Government collaborates with the relevant public sector bodies to produce such information (paragraph 161).

The Committee also signals its intention to scrutinise on an on-going basis the Scottish Government’s efficiency initiative by examining the first report to be published in March 2008 and any reports made by Audit Scotland (paragraph 162).

With regard to embedding sustainability in policy-making and helping to improve the linkage between strategic objectives, targets and indicators and between them and budget decisions, the Committee will assess and forward to the Scottish Government any suggestions from its witnesses on sustainability. The Committee would recommend that the Scottish Government examines these, together with the relevant Official Report and submissions as part of its work on carbon accounting (paragraph 171).

The Committee recognises that the National Performance Framework has just been established and that the Draft Budget reflects this, but would ask the Scottish Government to consider whether, in future years, information and spending allocations with regard to equalities issues can be made more specific in the context of this new framework (paragraph 175).

The Committee concurs with the Equal Opportunities Committee’s recommendation that its membership should be extended to include senior representation from the Finance and Sustainable Growth directorate (paragraph 176).

The Committee is pleased to note that the Equal Opportunities Committee believed that the section on equalities in the final guidance to subject committees was helpful and will take on board its comments for its guidance in future years (paragraph 177).

The Committee notes the Equal Opportunities Committee’s recommendation that the extent to which any subject committee advisers could be asked to brief committees on equal opportunities issues should be considered (paragraph 178).

The Committee encourages the SCPB to continue its rigorous approach in relation to the scrutiny of commissioners and ombudsman spending plans, particularly in light of the variations in approaches to certain costs that are apparent between the relevant office-holders (paragraph 195).

The Committee notes the Scottish Commission for Public Audit (SCPA) recommendation that Audit Scotland’s budget proposal be approved (paragraph 200).

overall strategy and priorities

22. The background to the Spending Review and Draft Budget was the 2007 UK Comprehensive Spending Review (CSR) published in October 2007. This was a spending review with the lowest percentage growth rate of this decade. Previous reviews had increased public spending more rapidly than the growth rate of the economy as a whole. The UK Government took the view that such increases were no longer feasible, because of the implications for increased taxes and/or borrowing.

23. The 2007 CSR proposes real terms increases in UK public spending of 2.1% in the period 2007-08 to 2010-11. This compares with a 4.2% annual increase in CSR 2004 and a 5.2% annual increase in CSR 2002.

24. The CSR 2007 allocation to the Scottish Government is determined by the Barnett formula. The allocation largely determines the path of public spending in Scotland over the next three years. It shows a cash increase in Scottish Departmental Expenditure Limits (DEL) of £3.7bn from £26.1bn to £29.8bn between 2007-08 and 2010-11.

25. There is disagreement about the percentage increase that this cash increase represents. This arises because there is a debate as to what is the appropriate baseline from which the increase should be measured. Whichever baseline is used, the increase in DEL allocation to Scotland is smaller than the increase to the UK as a whole. The UK Government estimates that the real growth rate of DEL across all UK departments is 2.1%. Its estimate of the real growth rate of DEL in Scotland is 1.8%. The Scottish Government is estimating a real growth rate in DEL of 0.5%.

26. The lower growth rate in Scotland is the result of the "Barnett squeeze", whereby the proportionate increase in DEL allocations is smaller for areas such as Scotland. The implication is that Scotland will not be able to match the overall increases in per capita spending in England between 2008-09 and 2010-11 where public spending per head Scotland is already above the UK average.

27. Against this background, the Scottish Government produced its Spending Review and Draft Budget in November 2007. A number of adjustments have to be made to reconcile some figures in the Scottish Government's proposed budget with those contained in CSR 2007. These include:

• the addition of depreciation, which is not included in CSR 2007
• the draw down of £1.5bn of End Year Flexibility (EYF) by the Scottish Government during the course of 2007-08 and the Spending Review period. EYF is the accumulated past underspend on Scottish Executive budgets, that is held by Her Majesty's Treasury. The allocation of EYF to capital and resource spending is not free: a proportion must be spent on capital projects, reflecting the original intention of the funds.

28. Table 1 shows the allocation of Totally Managed Expenditure (which consists of Departmental Expenditure Limits and Annually Managed Expenditure⁴) by portfolio for the period 2007-08 to 2010-11 in real terms. Table 2 shows the same information for Departmental Expenditure Limits.

29. he figures in these tables are taken from Annex C of the Spending Review which are based on a GDP deflator of 2.7% (the Treasury GDP deflator for 2008-09 onwards is 2.75%). It should be noted that the deflator is used as a mechanism to forecast growth in general terms, but in each portfolio a different rate of inflation will apply to the cost base, thus affecting the real growth rate during the Spending Review period.

30. There has been some confusion over the estimated growth rates. For example, the Rural Affairs and Environment Committee asked for clarification on the baseline figure for the rural affairs and environment budget as it appeared that this budget was increasing in real terms to a greater degree than was actually the case. Clarification from officials which gave a more meaningful baseline figure showed that the real terms budget increase was less than implied by the figures in the Draft Budget

31. The real growth in Total Managed Expenditure (1.1%) will be less than that of the Scottish economy as a whole over the next three years. Thus, this is the first time this century that GDP has grown faster than the growth in public expenditure.

32. Nevertheless, there will be a real increase in spending in most portfolios during the Spending Review period. One exception is Administration which will shrink by 0.7%, while the resources available to Audit Scotland and the Scottish Parliament will only grow by 0.3% over the period.

33. Other portfolios, including Health and Wellbeing, will grow in real terms much more slowly than they have in recent years. This will require managers to carefully monitor their cost base if they are to keep within budget. Improved service quality will largely have to rely on improved productivity.

NATIONAL PERFORMANCE FRAMEWORK

34. The Spending Review and Draft Budget document sets out a new National Performance Framework. This is based on the outcomes-based model used in Virginia in the United States. The Scottish Government has set out as its over-arching purpose – “to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing economic sustainable growth”. Underneath this overall purpose sit a number of high level or “Purpose” targets, grouped together under the headings of Economic Growth, Productivity, Participation, Population, Solidarity, Cohesion and Sustainability which, according to the Spending Review document, “define the characteristics of the economic growth that we want to see”.

35. In the budget documents, the Scottish Government states that its Economic Strategy is central to the delivery of its overall Purpose and that it sets out how it will work collaboratively with the private, public and third sectors in pursuit of increasing economic growth. The Scottish Government has set an immediate growth target to raise Scotland’s GDP growth rate to the UK level by 2011.

36. There are five Strategic Objectives to support the delivery of the Scottish Government’s purpose. These are to make Scotland “Wealthier and Fairer”; “Smarter”; “Healthier”; “Safer and Stronger” and “Greener”. The Strategic Objectives are in turn supported by 15 National Outcomes which describe the aims of the Scottish Government over a ten year period. These 15 National Outcomes are to be measured by 45 national indicators and targets. Subsequent to the publication of the Spending Review and Draft Budget, the Scottish Government has published a series of technical notes which aim to set out the detail of how each of the purpose targets and the 45 national indicators and targets will be measured. They also provide detail on the sources of data used to monitor progress and specific details of methodology.

37. he Spending Review, Draft Budget and Technical Notes set out objectives, targets and methodology. However, they do not indicate the relative importance of the strategic objectives or discuss how conflicts between the objectives might be resolved. The Committee believes the Scottish Government should, where practicable, further elaborate how the objectives are related and what weight will be attached to each. The Scottish Government should also make clear the order of priority given to its objectives and the basis on which this order has been decided.

PERFORMANCE MONITORING

38. A key part of the new performance management framework is the Single Outcome Agreements which will be agreed between the Scottish Government and local authorities and eventually community planning partnerships. These are discussed in more detail in the “Local Government” section of this report.

39. The previous Finance Committee had consistently raised concerns over performance monitoring systems and targets. It believed that there were too many targets and that a large number of them were process-based. In its Session 2 Legacy Paper, it noted that the previous Executive had strategic priorities for the budget but no strategic targets. It further noted that the Executive’s view on, for example, not having a target for economic growth was that it was impossible to link changes in budgets to changes in economic output, because of the range of intervening variables which could influence the result. Whilst the previous Committee recognised that this highlighted some problems with outcome budgeting, it recommended that there should be a concentration on strategic targets which an administration could expect to influence through public spending. It further recommended that there should be a number of sub-targets for each portfolio under such strategic over-arching targets.

40. The system proposed by the Scottish Government is not unlike that recommended by the previous Finance Committee. This Committee recognises that there will still be a debate over whether public spending can be precisely linked to outcomes, given that factors external to government intervention can have an impact on some (eg, the development of more effective drugs in relation to the outcome “we live longer, healthier lives”). However, this should not prevent the Scottish Government trying to be as rigorous as possible in evaluating the impacts of its own policies.

41. The Committee noted that some of the 45 national indicators and targets by which the national outcomes are to be measured were SMART (specific, measurable, achievable, relevant and timebound) eg, reduce the number of Scottish public bodies by 25% by 2011; reduce to 1.32 million tonnes of waste sent to landfill by 2010 - whereas others were not SMART in that sense eg, improve the quality of healthcare experience and increase the social economy turnover.

42. When questioned about this, the Cabinet Secretary acknowledged that there is a continuing debate over whether, to be effective, targets should be numeric and specific or whether they should instead indicate a “direction of travel”. He went on to say that “hard” targets were more likely to be put in place where, for example, there is an issue over compliance - such as the reduction in the amount of waste sent to landfill. However, he was “persuaded that the fewer such targets the better, because such an approach tends to lead to more enlightened policy making locally, which delivers progress on outcomes”.⁵

43. The Cabinet Secretary also seemed to suggest that “direction of travel” targets were more likely to be employed when government intervention or policy alone might not address the situation eg, “Reduce the rate of increase in the proportion of children with their Body Mass Index outwith a healthy range by 2018” as opposed to “60% of school children in primary 1 will have no signs of dental disease by 2010”. This again raises the question over whether government spending can always be precisely linked to outcomes. The Cabinet Secretary was also asked how frequently the Scottish Government intended to report to the Parliament on progress against targets and the format such reports would take.

44. The Cabinet Secretary responded that it was his intention to report annually and that the likely format would be based on the technical notes produced to accompany the Spending Review. As set out above, these technical notes set out the methodology to be used in assessing each of the targets and indicators and the Cabinet Secretary suggested that performance could be assessed against the stated methodology. He also indicated that the first such progress report might be published by Autumn 2009, although that was dependent on when the relevant data became available.

45. The Committee believes that the new National Performance Framework is a step in the right direction but recognises there is still limited evidence linking expenditure to outcomes and this leaves open the question of whether there should be hard, fixed targets or direction of travel targets. This is echoed by many subject committees, as outlined in the next section of the report. Regardless of the debate over fixed or direction of travel targets, the Committee recommends that baseline information should be published for all SMART targets. The Committee welcomes the fact that there will be annual reporting on progress against targets. It appreciates the practical difficulties involved, but believes that such progress reports should be published earlier than 2009 if possible. The Committee signals its intention to scrutinise this issue on an on-going basis.

REPORTS FROM SUBJECT COMMITTEES

46. Due to the delay in this year’s process, the Finance Committee issued interim guidance to subject committees in September, followed by final guidance early in December. In its guidance, the Committee recognised that it had always been seen as desirable for subject committees to scrutinise the entire portfolio they effectively “shadow”. However, it also appreciated the difficulties this can cause, particularly when timescales are tight and, therefore, the guidance indicated that committees could concentrate on one or two areas of considerable budgetary significance within the appropriate portfolio. This approach has been adopted by a number of subject committees this year. The Committee also notes the new approach adopted by the Health and Sport Committee, Justice Committee and Local Government and Communities Committee who undertook joint scrutiny of the drugs and alcohol budget, given that it cuts across the remits of all three committees.

47. Another innovation in budget scrutiny this year was that all committees who report to the Finance Committee appointed specialist advisers to help them with the process. Meetings were set up before and after the publication of the Draft Budget between the Finance Committee’s adviser and subject committee advisers to look at common approaches to scrutiny and budgetary information. This appeared to work well and the Committee recommends this approach be adopted and developed in future years.

48. The guidance asked subject committees to address questions in four areas: the presentation of information in the draft budget; the new National Performance Framework; efficiency savings and alternative spending proposals.

49. This Committee will concentrate on these areas in subject committee reports together with any other issues which are within this Committee’s remit. The Scottish Government will provide a corporate response to the Finance Committee’s report (and therefore, to any recommendations that are proposed by the Finance Committee). Any portfolio specific recommendations which are not considered in this report will be addressed in individual responses to subject committees by the relevant Scottish Government directorate.

Presentation of information

50. In its guidance, the Finance Committee asked subject committees to consider the presentation of information in the Draft Budget and to comment on whether the changes in presentation compared to previous budgets have affected their ability to scrutinise the budget or to consider alternative spending proposals.

51. All committees, to varying degrees, raised concerns and questions over the level and type of information provided in the Draft Budget. The majority of the comments concentrated on Level 3 budget lines which were rolled up into the local government settlement and identifiable Grant-Aided Expenditure (GAE) totals. These and other issues raised are covered in the section on “Budgetary Information”.

National Performance Framework and Spending Priorities

52. Subject committees were invited to comment on the adequacy of the targets set for their area of interest and on whether Ministerial priorities have been reflected in spending decisions. Generally, the National Performance Framework was welcomed as a step in the right direction.

53. The Economy, Energy and Tourism Committee recognised that spending across the budget portfolios could contribute to the Scottish Government’s overall purpose of sustainable economic growth. The Committee supports the Scottish Government’s purpose but states that it is too early to say whether this budget will deliver on the Purpose. Additionally, the Committee stated that it did not think the Draft Budget presented any link between expenditure and outcomes and, with 60% of the budget being allocated in block grants to local authorities and health boards, it did not believe it was possible to assess the economic impact of the Draft Budget as a whole.

54. The Transport, Infrastructure and Climate Change Committee heard evidence on the importance of transport investment for the promotion of sustainable economic growth and the majority of the Committee welcomed the Scottish Government’s commitment to proceed with the existing set of major transport projects. That Committee did, however, take evidence on the impact of changes to funding for Regional Transport Partnerships. A key issue raised was the removal of the dedicated budget line from government to finance capital projects of the RTPs, with RTP capital projects henceforth to be met from the general local government settlement. Only the administration costs of the RTPs are to be met directly by the Scottish Government. The Finance Committee believes that, without more information and a firm commitment from the Government and councils regarding continuing investment in RTPs, there is a level of uncertainty now surrounding the future of RTPs. The Finance Committee recommends that the Scottish Government facilitates further discussions with local government to address these concerns.

55. On a casting vote, the Education, Lifelong Learning and Culture Committee said it was not satisfied that the Draft Budget reflected the Scottish Government’s overall Purpose of achieving sustainable economic growth given that the higher education sector plays a key role and a low level of priority had been given to it. Additionally, the Finance Committee draws attention to the concerns raised by the Education, Lifelong Learning and Culture Committee in relation to both the overall three year funding and within that, the year-to-year funding, for higher education.

56. The Education, Lifelong Learning and Culture Committee also said it was very concerned at the lack of clarity of the intention of the Scottish Government to rebalance the 50/50 split of capital funding between the college and university sectors. The Government has stated that £10 million will be removed from the college capital lines in the budget and given to universities but there is no reference to this in any budget documentation. The Committee also recommended that the Government clarify this point. The Finance Committee accepts the need for clarification.

57. The Committee would draw attention to the relevant sections of the Rural Affairs and Environment Committee’s report regarding waste management. There were a number of issues that need to be addressed and specific recommendations for the Scottish Government to consider, namely that future budget documents include:

• an assessment of progress towards meeting national and EU waste targets; and
• a detailed breakdown of how the Zero Waste budget has been allocated to specific initiatives.

58. The Rural Affairs and Environment Committee recommended that a significant proportion of the £7m Marine Management budget line (some members of the Committee suggested around £3m) should be set aside in the first year of the Spending Review to support the fishing industry. The Committee recommends that the Scottish Government should give full consideration to this proposal.

59.On the National Performance Framework, the Education, Lifelong Learning and Culture Committee commented that it believed the further and higher education sectors were central to the achievement of many of the national outcomes, but that it was not clear that the indicators proposed were sufficient to track the “international competitiveness of Scotland’s universities, or the quality of provision on both further and higher education.”⁶ Similarly, while the Committee welcomed the use of the key principles of the Curriculum for Excellence in the national outcomes, it was not clear whether the proposed indicators measured progress against outcomes in the areas of early intervention and reducing inequalities.

60. The Health and Sport Committee was concerned that some health priorities were not adequately reflected in the new National Performance Framework although it was reassured that the fuller range of indicators in the HEAT system for the NHS will continue to be used. However, it did recommend that national outcome indicators for drugs and alcohol misuse should be developed as a matter of urgency. The Committee also noted that if the Health Directorate were to move towards a single outcome agreement model it would wish to see a more generous direct settlement for NHS boards.

61. The Health and Sport Committee also echoed the previous Finance Committee’s concerns about the difficulties in linking spending to priorities and cross-cutting themes. This also links into the debate, mentioned previously, about whether it is possible to link spending to outcomes precisely. The Health and Sport Committee sets out its concerns over cross-cutting scrutiny in the section of its report entitled “Cross-cutting consideration of drugs and alcohol budget”.

62. Like the Education, Lifelong Learning and Culture Committee, the Rural Affairs and Environment Committee was concerned that national targets and indicators were not sufficient to give precise measures on which to be able to rely to ensure services meet national priorities. It also shared the Health and Sport Committee’s concerns about the linkage of resources to priorities and recommended that future budget documents should show closer links between spending plans and the National Performance Framework. It suggested this could include clear indications of where any failure to meet a particular national target or indicator has prompted adjustments to particular budgetary allocations.

63. The Committee intends to scrutinise these issues on an on-going basis and in doing so, will explore the issues raised by subject committees.

Efficiency Savings

64. The guidance asked subject committees for their views and comments on plans for making efficiencies within the appropriate portfolio. Overall, those committees who responded implied that the savings target of 2% was challenging, that there were differing views on the target but that they appreciated the commitment of various bodies to work achieve those savings.

Timetable for budget scrutiny

65. Some of the subject committees were concerned about the limited timescale available to take evidence, consider alternative spending proposals and produce their reports. While the process was delayed this year, the amount of time available to subject committees was comparable to previous Spending Review years when the Draft Budget was published in October with subject committees being asked to report to the Finance Committee by mid-November. However, this year’s process has highlighted that the time available is tight for scrutiny and for evidence-taking and consideration of alternative spending plans.

66. The Committee appreciates the many difficulties faced by subject committees in trying to ensure they have sufficient time to carry out thorough scrutiny. However, aside from the problems this year, the crux of the matter is that the annual Budget Bill must be approved and enacted before the start of the new financial year and, under normal circumstances, the Finance Committee needs to report to the Parliament in December to allow time for the Scottish Government to consider the Committee’s recommendations and publish its response before Stage 1 consideration of the Budget Bill.

67. It could be argued that if the Finance Committee were to report to the Parliament in January, as it has done this year through necessity, this would build in significantly more time for subject committee scrutiny. However, as the opening section of this report notes, this would mean that the Scottish Government would not be able to respond to the Committee’s report in time for Stage 1 of the Budget Bill. This delay in the response has been inevitable this year but the Committee would argue that this is not an ideal situation.

68. Following a resolution of the Parliament, the Standards, Procedures and Public Appointments Committee has agreed that a review of the budget process will be included in its work programme. Given its pivotal role in the process and the Written Agreement between the Finance Committee and the Scottish Government, the Committee would intend to take a leading role and a range of issues, including the timetable for budget scrutiny, will undoubtedly form part of any such review. The Committee recognises this will be a fluid process but hopes that significant progress can be made in time for next year’s budget.

69. In its legacy paper the previous Finance Committee suggested that subject committees might wish to give some thought to incorporating specific financial scrutiny into any inquiry work undertaken during the year. In that way, it might then be possible to focus on particular areas of spending and to take evidence prior to the Draft Budget being published. Such evidence-based work could then feed into committee consideration of the Draft Budget.

70. The Committee appreciates that, because of the election, it would not have been possible for subject committees to undertake this type of work this year. However, it recommends this be done in the future.

Miscellaneous

71. The Local Government and Communities Committee raised concerns about whether assumptions about the cost of implementing the Single Status Agreement were made in the local government settlement. It also raised the issue of the accounting change suggested by the International Finance Reporting Interpretations Committee Report in relation to PPP/PFI projects and the potential impact on the ability of local authorities to fund capital projects, and recommended that the Finance Committee should monitor this issue. The Finance Committee is undertaking an inquiry into the methods of funding capital projects and this issue will no doubt be examined during the Committee’s consideration.

72. A majority of the Economy, Energy and Tourism Committee, in light of concerns over the budgetary information available to it with regard to the Enterprise Networks and the transfer of funds to the new skills agency and local authorities, recommended to the Finance Committee and the Scottish Government that time should be set aside for a debate on a further report from the Economy, Energy and Tourism Committee on the issue. This is primarily a matter for the Economy, Energy and Tourism Committee to take forward.

BUDGETARY INFORMATION

73. Aside from the fact that the Spending Review and Draft Budget have been published as one document (which is as a result of time constraints), the information in the Draft Budget has been presented differently to previous Draft Budgets. The main difference is that the figures are now presented on a Directorate-General basis rather than on the previous Departmental basis, reflecting the revised structure within the Scottish Government.

74. Draft Budgets have always recorded expenditure at different levels – Level 1 is portfolio expenditure (eg, Education), Level 2 is at sub-portfolio level (eg, Student Awards Agency) and Level 3 records expenditure in greater detail (eg, Grants and bursaries and HMIE). Annexe A of the Spending Review/Draft Budget document provides a reconciliation between 2007-08 and 2008-09 at Level 1 and Annexe B provides comparative figures back to 2002-03, again at Level 1.

75. There are some other differences apart from the change to Directorates-General. The main ones are:

• that spending has not been specifically identified as Level 2 and Level 3;
• a new section in each chapter entitled “Budget changes”;
• some budget lines have been transferred into local government and there are no longer tables showing Grant-Aided Expenditure (GAE) to local authorities within specific portfolios;
• a number of capital grants have been rolled up into the local government settlement for distribution to local authorities.

76. Due to the fact that some budget lines had been transfe