Finance Committee – 1st Report, 2008 (Session 3) – Annexe I

Local Government and Communities Committee

Scottish Government Draft Budget 2008-09

The Committee reports to the Finance Committee as follows—

Introduction

1. The Committee is required to report to the Finance Committee on the Draft Budget 2008-09, as part of the annual budget process

2. The Committee took evidence from Stewart Maxwell MSP, Minster for Communities and Sport, at its meeting of 28 November 2007. At its meeting of 5 December 2007, the Committee took evidence from representatives of COSLA and from John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth. The Ministers were accompanied by relevant Scottish Government officials.

general

Outcomes, Indicators and Targets

3. In previous budget documents data was provided to Level 3 headings within the local government and communities budget headings.  In addition data has also been provided detailing GAE allocations for service areas.  Whilst such GAE data only represents notional allocations and does not represent ‘real’ budgets, nevertheless previous Committees found such information a useful mechanism via which to interrogate the local government budget. 

4. The Committee recommends that, in future, budget data is provided at Level 3 and that GAE allocations are also provided on the same basis as was previously the case.

Local Government

Overall Funding Settlement

5. It was the view of the Scottish Government and COSLA that the local government finance settlement came within a tight financial context, compared with previous financial settlements, post devolution. Local government Departmental Expenditure Limit (DEL) monies are forecast to increase by 13.5% compared to 13.1% of overall Scottish Government expenditure over the Spending Review period.  In real terms this represents an increase of 4.9% for local government compared to 4.6% for Scottish Government expenditure overall. While this represents a lower real increase than for any year since 1999, it does, however, represent a marginal increase in the relative share of the total Scottish Government budget that is going to Local Government, unlike recent years when the share going to Local Government fell.

6. The Committee notes that, since the publication of the Scottish Budget Spending Review 2007, the Cabinet Secretary announced additional funding of £37 million in 2008-09, £34 million in 2009-10 and £34 million in 2010-11 to the sums for local government that he had announced previously. That related mainly to additional specific grant funding, police loan charge support and funding from the Department for Work and Pensions for supported employment.

Trends in the Local Government Budget

7. In 2002-03 the share of the total Scottish Government budget going to Local Government was approximately 36.66%, falling to 34.17% in 2006-07, 33.39% in 2007-08 and planned to rise to 33.62% in 2010-11²⁵³. These figures should be treated with some caution as the figures before 2007-08 include assumptions about elements of support to local government that were not previously identified separately.  COSLA was keen, in its evidence, to emphasise the importance of halting the decline of the local government allocation as a proportion of total Scottish Government expenditure, although the Committee is aware that the level of funding to local authorities needs to be considered in the context of their total responsibilities. 

8. The Committee notes the halting of the decline in the allocation of monies to local government as a proportion of Scottish Government expenditure, while noting that the level of funding to local authorities needs to be considered in the context of their responsibilities.

9. The Committee notes the difficulty in making comparisons with previous years and the lack of clarity as to whether funding streams added to the local government settlement were fully funded or not.

Council Tax Freeze

10. The Cabinet Secretary confirmed that £70m pa is available to fund local authorities where they decide to institute council tax freezes. COSLA was clear that a decision to freeze council tax was for each individual Council to take. It is not clear to the Committee whether COSLA has agreed to recommend a freeze in council taxes for the year 2008-09 or for the life of the Spending Review period.

11. The Committee requests information from the Cabinet Secretary as to whether the concordat proposes a freeze in council tax rates for one year or for each of the three years of the Spending Review period.

12. Should local authorities not agree to a council tax freeze then they would not receive their share of the £70m funding. No other penalties were suggested by the Cabinet Secretary in the case of a Local Authority not agreeing to a freeze. It was noted that, while COSLA might advise local authorities to sign Single Outcome Agreements and to freeze their council taxes, it was up to each individual Local Authority to make these agreements with the Scottish Government.

13. It was noted by the Committee that approximately the bottom 20% of households, who did not pay council tax, would not benefit directly from the council tax freeze.²⁵⁴

14. The Committee intends to monitor progress with regard to council tax levels and the proposed council tax freeze.  The Cabinet Secretary commented that he intends to publish a consultation paper on the introduction of a local income tax shortly.  The Committee looks forward to the publication of this consultation paper.

15. The Committee is unclear as to how the Budget proposals will advance the Government’s social objectives and asks the Minister to provide information on the implications for tackling poverty in particular, and whether or not the Budget proposals will advance this objective.

Concordat and Single Outcome Agreements

16. The Concordat between the Scottish Government and COSLA details a range of commitments which both parties agreed to work together to deliver, including a relationship based on mutual respect and partnership and the inclusion of a council tax freeze. In evidence to the Committee the Cabinet Secretary highlighted that negotiations are currently ongoing in relation to these issues.

17. At the date of this report, the principles of the Concordat have not been formally endorsed by any local authority. The Committee notes that COSLA President Councillor Pat Watters has said that Council Leaders unanimously agreed that this is the best possible deal for local government under the circumstances and that the deal would be taken back to Councils by Leaders for local determination.²⁵⁵

18. The Cabinet Secretary announced individual local authority budgets on 13 December 2007.  The Committee understands that the position of individual local authorities will become clear following this announcement. 

19. The Committee intends to monitor which local authorities subsequently agree to the principles of the Scottish Government / COSLA Concordat and it notes that there will be consequences both for authorities which reach agreements and for those which do not. The Committee wishes to ensure that there is a mechanism in place for monitoring the agreements which are made between the Scottish Government and individual authorities.

20. The Budget document states²⁵⁶ that there will be over-riding obligations to deliver value for money across all activities and to deliver the full range of quality services that can be reasonably expected by our citizens, wherever they live in Scotland.

21. The Committee discussed the issue of how the Parliament and Government will be able to scrutinize expenditure and value for money in those areas which are to be part of the Settlement and not ring fenced. There was discussion on whether the Single Outcome Agreements (SOAs) with Local Authorities, and the associated performance framework, were an adequate basis to ensure that Local Authorities act consistently with the Government’s priorities and for the Parliament to monitor and scrutinize the very large sums of money that are to be transferred to Local Authorities. 

22. The Committee recommends that, while noting that SOAs are still to be developed, they should ensure clarity about outcomes but at the same time not become so detailed that they become unworkable, large and rigid documents. 

23. The issue of what accountability mechanisms will be put in place should local authorities fail to meet the terms of their SOA is still to be decided with discussions between the Cabinet Secretary and COSLA expected in the future.

24. The Committee wishes to be kept aware, by the Scottish Government, of how accountability will be built into Single Outcome Agreements.

25. The Committee welcomes the opportunity offered by the Cabinet Secretary to have a role in monitoring the development, agreement and operation of Single Outcome Agreements.

26. The Committee invites the Scottish Government to indicate how other bodies, such as voluntary organisations and community groups, can have a role in shaping these agreements.

27. The Committee asks the Minister to clarify the planning assumptions used for the cost of the outcomes specified in the concordat, such as reducing class sizes. 

Ring-fencing

28. The Committee discussed the advantages and disadvantages of ring-fencing items in the draft Budget, such as: the importance of targeting specific outcomes and outputs (often including those delivered by third-sector or charitable bodies), but countered by the opportunity offered by the reduction in ring-fencing to provide greater budget flexibility to local authorities and thereby improve service efficiency and effectiveness. There were discussions about whether the Scottish Government could re-introduce ring-fencing if it was found that local authorities were considered to be inadequately carrying out relevant functions.

29. The Committee requests information from the Cabinet Secretary as to whether there are any circumstances in which ring-fencing might be reintroduced, where an authority was not meeting the performance targets associated with its Single Outcome Agreement, and what those circumstances would be.

30. The Committee recognises that anxieties have been expressed by voluntary organisations about the possible impact of the removal of ring-fencing of funds by which they are financed. Reassurance was given to the Committee by COSLA’s representatives who said that the distribution of the previously ring-fenced funds that are no longer ring-fenced should continue for the three-year period that we are in. The Committee notes, however, that ultimately this is a matter for individual Councils to determine. Any redistribution would be done over a three year period according to the methodology agreed between Councils and the Scottish Government.²⁵⁷ .

31. The Committee wishes to ascertain the Cabinet Secretary’s rationale for deciding what funding was to remain ring fenced and what was not.

32.  The Committee welcomes assurances given by COSLA that the distribution of funds which are no longer ring-fenced will continue, for the three-year Spending Review period, to be distributed between Councils on the existing basis. As noted above, this is a matter for individual councils to determine and the Committee is interested to hear the rationale behind the decisions taken on ring fencing, in terms of determining those funds which remain ring-fenced and those which have been ‘de-ringfenced’. The Committee wishes to monitor how the funding distribution mechanism develops and changes over time.

33. The Committee notes the Cabinet Secretary's commitment to encourage the delivery of full cost recovery.  The Committee is aware that delivering full cost recovery will have significant financial implications for local authorities and therefore the Committee welcomes the Cabinet Secretary's commitment to "provide the Committee with further updates on the steps that have been taken" to achieve implementation of full cost recovery.

Efficiency Savings

34. Evidence from COSLA suggested that there was an operational system for measuring efficiency savings which had been developed during the previous round of efficiency savings and that local authorities were therefore well placed to monitor efficiencies and to report these. COSLA representatives said that the fact that authorities would be able to keep the savings made was an improvement over the previous arrangement.

35. COSLA suggested that the efficiency savings were achievable during the period of the Spending Review.  However, COSLA accepted that they did not think that these efficiency savings could be achieved without there being some reduction in jobs over the period of time, partly because savings from lower paid ‘backroom’ staff would not be sufficient to fund an equivalent number of ‘higher paid’ front line staff, although some of the savings might be used to retain affected staff in new activities. Moreover COSLA noted that whilst achieving 2% efficiency savings over the next three years would be a challenge, it would not be possible to maintain such levels of savings in future years indefinitely. COSLA commented that:

“Our view is that 2% efficiency savings is probably achievable in the shortish term within local government. The big issue will be when we get beyond local government efficiencies and into the business of efficiencies across the public sector. You cannot carry on squeezing out 2 per cent, 2 per cent and 2 per cent simply from within local government. We will have to consider how to become more efficient across local government, the health service, the enterprise network and the other agencies. We will not drive out 2 per cent efficiencies forever simply within our own budgets.”²⁵⁸

36. The Cabinet Secretary accepted that it was likely that there would be fewer local government employees at the end of the spending review period than at the beginning although he did not expect that there would be compulsory redundancies.²⁵⁹

Single status settlements

37. The issue of funding for the costs of single status/ equal pay settlements and liabilities was considered by the Committee. These potential liabilities were the responsibility of local authorities, but it was noted in discussion with the Cabinet Secretary that their scale was uncertain. The council tax freeze and limited reserves in many local authorities meant that these past sources of potential funding for such settlements or liabilities were unlikely to be available to the same extent as had been the case previously. 

38. The Committee is concerned that single status remains a potential pressure for a number of local authorities which remains uncosted.  The Committee, whilst recognising that the Scottish Government position is that this is an issue for local government, asks the Scottish Government to clarify the cost assumptions in the settlement which underlie this issue.

Allocation of funding to local authorities

39. The draft Budget proposes to roll up 43 specific grant schemes into the general settlement for local authorities in 2008-09 and a further 16 remain ring fenced in 2008-09²⁶⁰.

40. The Committee discussed in general the criteria for allocating different, formerly ring-fenced, funds to local authorities. It was noted that these were often based upon components of the Scottish Index of Multiple Deprivation (SIMD) or other measures of need. From the draft Budget it was unclear whether or not the same, or similar, criteria would be used for allocating those funds that remain ring-fenced and funds ‘rolled’ up into the local government settlement. If more general criteria were used for allocating these monies (as for GAE funding to LAs) then there is a concern that local authorities in greater need may lose out and also it would be difficult for local authorities to adjust to potential funding changes.

41. The Committee notes that the Cabinet Secretary said to the Committee that although he believed that the SIMD mechanism had many strengths, he believed that it had a weakness in that it cannot capture small pockets of deprivation, particularly in dispersed populations.

42. Evidence from COSLA suggested that they expected the ring-fenced and ‘rolled’ up fund levels to remain at the current level for the duration of the spending review period. 

43. The Committee welcomes the commitment from the Cabinet Secretary to maintain stability in the distribution mechanism for funding for the next three years.

PPP/PFIs

44. The effect of international financial reporting standards, in particular the International Financial Reporting Interpretations Committee Report 12 (IFRIC 12 published in November 2006) may be to put the costs of many PPP/PFIs on balance sheet. This could clearly have an impact upon the treatment of past PPP/PFI investments, but also on future investments. Guidance from the Treasury on IFRIC 12 is expected. Also the International Financial Reporting Standards (IFRS) are likely to lead to a change in the valuation of assets held by local authorities between historic and current cost bases.

45. The Committee considers that IFRC12 is an issue which has the potential to have a considerable impact upon the ability of local authorities, and indeed the public sector more generally, to fund capital projects.  Therefore the Committee suggests that the Finance Committee should monitor this issue particularly with regard to guidance which is expected from HM Treasury.

Overall

46. The Committee recognises that it was the view of the Scottish Government and COSLA that the local government finance settlement came within a tight financial context, compared with previous financial settlements post devolution. The Committee notes the halting of the decline in the allocation of monies to local government as a proportion of Scottish Government expenditure, while noting that the level of funding to local authorities needs to be considered in the context of their responsibilities.

47. However the Committee is also aware that the Scottish Government / COSLA Concordat introduces a substantial element of change into local government finances and the relationship between the Scottish Government and local authorities.  Whilst there are differing views on the efficacy of the removal of ring fencing from a number of funds, if the Scottish Government is to achieve its stated objectives and targets it is recognised that the new process will require time to ‘bed-in’ before an evidence based assessment of the changed approach can be made.

48. The Committee welcomes the commitment by the Cabinet Secretary to engage in discussions on how the Committee can be involved in the process of monitoring the implementation of Single Outcome Agreements.  This is a process which the Committee is keen to engage with and it looks forward to discussions on this issue in the near future.

Communities and regeneration

Trends in the Communities Budget

49. Housing and Regeneration expenditure is forecast to increase at below the rate of Scottish Government expenditure in 2008-09, but rise significantly higher in 2009-10, but then fall below average in 2010-11. It will fall in cash terms in 2008-09 but rise in the other years.

50. The Minister for Communities confirmed during oral evidence, that there has been a decision to increase the budget available under the budget headings of regeneration and affordable housing. This points to the Scottish Government’s priorities being in these two areas, rather than in any of the areas that have flatline budgets in cash terms.

51. The Committee notes that the budget documents present a revised baseline affordable housing budget for 2007-08. This reflects the transfers made to local government. The Committee received evidence from Shelter, making the case that there is a lack of clarity in the revised figures and that the figures presented may overestimate the budget increases over the Spending Review period. However, the Committee was not able to test this evidence.

52. The Committee requests further clarification from the Minister on how the revised budget baseline for the affordable housing line for 2007-08 has been derived compared to the planned budget in last year's Budget Bill.

Affordable Housing

53. The Committee discussed the implications of the budget for new homes including some issues raised in the Government’s current discussion document "Firm Foundations: The Future of Housing in Scotland".

54. The “Firm Foundations” consultation document includes a challenge to Scotland’s local authorities, developers and builders to increase the rate of new housing supply in Scotland to at least 35,000 homes a year by the middle of the next decade.  The Committee notes that the draft Budget plans for an increase over the period of the spending review in the Affordable Housing Investment Programme to a level of £472.1m.

55. The Committee recognises the priority allocated to the supply of affordable housing in the draft Budget.

56. The Committee notes the work of the Housing Supply Task Force and, during the last few weeks, has taken oral evidence from its members on its work.

Efficiency Savings

57. The consultation document ‘Firm Foundations’ refers to the need to achieve greater efficiencies in the housing investment programme. This includes addressing the increasing level of Housing Association Grant subsidy per house and a lead developer approach which could provide efficiencies of scale in procurement. The Committee discussed the potential impact that these proposals could have on community based housing associations. The Minister stressed that “The benefits of community-based housing associations, for which I have made clear my support, would be maintained.”²⁶¹.

58. Written evidence received from Shelter welcomed the move towards greater efficiencies but it was sceptical about the extent to which this can be taken into account in the budget settlement, for two reasons. Firstly, Shelter said that there is little detail that would allow the scope of potential efficiency savings to be quantified. Secondly, it said that, “it is likely to be well into the three-year period, if not beyond, before the full benefits of any efficiencies are realised”.

59. The Committee endorses the Minister’s aim of seeking greater efficiencies in the housing investment programme, whilst awaiting the outcome of the consultation on the “Firm Foundations” paper, and welcomes the Minister’s continued support for community-based housing associations. The Committee also looks forward to further detail on the efficiency proposals and the levels of efficiencies they will achieve over the Spending Review period.

The Right to Buy

60. The Committee discussed the implications of the proposal in the consultation document “Firm Foundations” on the proposals to end tenants’ right to buy on new social housing and what is meant by a ‘forced move’. The Committee recognises that the consultation process is on-going and looks forward to engaging further with the Minister on the principle of the proposals to end the right to buy for new tenants and its budgetary implications. 

61. The Committee asks the Minister to quantify what the impact of the proposal will be, bearing in mind the impact which the cost floor rules would have on the number of houses which could be bought under the existing right to buy scheme over the next ten years.

62. The Committee seeks clarification from the Minister on what will be meant by a “forced move” in the context of tenants who have an existing right to buy.

Homelessness and housing for rent.

63. The Minister stated that he did not think that 30,000 homes for rent are necessary, as many stakeholders have claimed is required, in order to reach the target that all unintentionally homeless people will have the right to a home by 2012. The Minister stated that, “In our opinion, that claim appears to be based on a specific interpretation of Professor Bramley's assessment of affordable housing need, which the previous Administration published last year, and does not take account of the important roles of low-cost home ownership and private renting in meeting affordable housing need. Nor does it reflect the scope that often exists for housing need to be met across local authority boundaries in wider housing market areas”.²⁶²

64. The national indicator 27 as set out in the concordat with local government is “to increase the rate of new housebuilding”. However, the Committee remains unclear as to how many houses of different types (social, council, private rental housing etc.) are expected to be built as a result of the budget. 

65. The Minister explained that until the consultation on "Firm Foundations" has ended and further discussions have taken place with relevant bodies “it would not be helpful to set a target for or to put a number on the number of houses for rent that are needed.”

66. The Committee seeks clarification on when the Minister expects to produce detailed estimates of the tenure breakdown which the affordable housing investment programme will achieve.  The Committee seeks information on how much funding is allocated to socially rented housing.

67. The Committee also seeks information on the Minister’s views on the extent to which low-cost home ownership and the private rented sector can contribute to meeting outstanding housing needs.

Communities Scotland

68. The Committee notes that the Scottish Government has proposed to abolish Communities Scotland but that a housing regulator will nevertheless be created. The spending plan for running costs for Communities Scotland and post abolition arrangements is £25.1m in cash terms for the next three years.

69. The Committee seeks more detail on the Scottish Government’s spending plans in this area and, in particular, on the estimated costs of establishing the proposed new regulator.

Fuel Poverty

70. The Minister stated at the Committee’s meeting of 28 November 2007 that an additional £7 million for the Central Heating Programme was announced a week earlier and that additional funding for the programme had been announced during the summer. Therefore, instead of spending £45.9 million, which is the amount indicated in the draft Budget, the spend for 2007-08 will be £59.9 million. The original target was 12,000 installations this year; the new target is 15,000 installations this year.

71. However, according to information from Communities Scotland, the Committee understands that there had been approximately 8,000 installations by 30 November 2007. This implies that more than another 7,000 installations are required before the end of the financial year, to hit the new target. This implies an installation rate of approximately 1,750 per month over the last four months of the financial year.

72. The Committee requests the Minister to confirm the Committee’s understanding of the targets for central heating installations, and the progress in achieving those targets.

73. The Committee requests the Minister to update it at regular intervals on progress towards, and achievement of, the target of 15,000 installations by the end of the financial year. The Committee asks that this information should be broken down by new and replacement installations.

74. The Committee requests information on what are the installation targets for the three years covered by the Spending Review period.

75. The Committee notes that the funding for subsequent years remains at £45.9m which implies a real terms decline each year. This would appear to constrain the options for the current review of fuel poverty schemes and the number of installations carried out.

76. The Committee requests clarification from the Minister on when it is anticipated that the current internal review of the fuel poverty schemes will be completed and when it will report.

77. The Minister referred on 28 November to "the additional £7 million that was announced last week, [and also that] we announced, back in the summer, additional funding for the central heating programme this year".²⁶³  The Committee also understands that an extra £14m had been announced for fuel poverty programmes in "All Our Futures: Planning for a Scotland with an Ageing Population" in March 2007.²⁶⁴ 

78. The Committee seeks clarification regarding these announcements of additional funding.

79. The Committee wrote to the Minister on 26 October 2007 raising a number of issues in connection with the Central Heating Programme, the Warm Deal Scheme, etc. Although the Minister replied with a letter dated 22 November, many of the points raised and questions asked in the Committee’s letter have, at the time of agreeing this report, yet to be addressed. In particular, the Minister undertook, at the Committee’s meeting of 28 November, to respond on the question of waiting times.

80. The Committee is seriously concerned that it does not yet have the information requested from the Minister which would enable it to comment further on these matters.

Regeneration Grants and Funds

81. The draft Budget includes an additional £33 million for key strategic regeneration initiatives, especially the pathfinder urban regeneration companies. That means that at least £66 million will be available for those initiatives over the three-year period. The Minister confirmed that these urban regeneration companies would remain as ‘stand alone’ and not be subsumed into the community planning process.²⁶⁵

New fund to tackle poverty and deprivation

82. The draft Budget states that “Scotland’s social deprivation is concentrated in particular areas and we will support targeted action to regenerate the most deprived communities in Scotland, focusing on key factors like employability and access to jobs and services.” (p. 15).

83. The draft Budget states that the Government will “provide a new fund deployed by Community Planning Partnerships, to tackle poverty and deprivation and to help more people overcome barriers and get back into work, amounting to £145 million a year within the local government settlement” (p25). This figure was confirmed by the Minister for Communities and Sport at the Committee’s meeting on 28 November 2007. According to pp74-75 of the Draft Budget, the Community Regeneration Fund, the Community Voices Programme (on behalf of Community Planning Partnerships), and Working for Families are to be merged and ring fenced.

84. The Committee understands however that there are in fact seven funding programmes combining to make up the unified poverty and deprivation fund (along with their 2007/08 budgets) as follows—

(Information from Scottish Government to SPICe 7/12/07)

85. The Committee seeks confirmation from the Cabinet Secretary that the new unified poverty and deprivation fund will comprise the seven existing programmes set out in paragraph 84 of this report.

86. The Committee also requests the equivalent figures for these funds in 2006-07.

Supporting People

87. The biggest element of expenditure that has been rolled up into the local government settlement is the Supporting People Grant. Planned expenditure in 2007-08 was £401m. This represented a decrease of 12% in real terms since 2004-05, as shown below—

88. The Committee discussed the resources for the Supporting People programme. These were previously ring fenced but have now been rolled up into the local government settlement. Written evidence from SFHA and Shelter expressed concern about the removal of ring fencing from the Supporting People budget. SFHA stated that it “is a programme which had particular beneficial impact for those in the affordable housing sector” and suggested that “because Single Outcome Agreements are expected to be in place with Councils during 2008-09, ring fencing should be retained for the next financial year at least”. On the other hand written evidence from COSLA welcomed the removal of ring-fencing and the flexibility that this would bring.

89. The Minister stressed that he did not consider that the removal of ring fencing would have any negative effect on housing support services and did not consider it necessary to re-introduce ring fencing.²⁶⁶ 

90. The Committee notes the Ministers assurances that the provision of housing support services will not be affected by the removal of ring fencing. The Committee also seeks assurances that there will be sufficient monitoring of the programme to ensure that the programme is being delivered. 

Child Poverty

91 The draft Budget (p29) states that “In partnership with Community Planning partnerships across Scotland, we will work towards the eradication of child poverty.” Within the technical notes associated with the draft Budget there is a commitment that: “The Scottish Government is committed to doing everything in its power to eradicate child poverty by 2020, in partnership with the UK government.”²⁶⁷

92. The Committee would welcome information on what discussions have taken place with Community Planning Partnerships and with the UK Government to fulfil this commitment.

93. The Child Poverty Action Group, in its evidence paper on the budget, called for, amongst other things, the setting of interim targets (eg with the UK government, to halve child poverty by 2010) and a commitment to "maintain indicators to ensure progress in reducing child poverty continues to be measured, analysed and subject to the attention of Scottish ministers on an annual basis"

94. The Committee seeks clarification from the Minister on what targets and indicators are to be set concerning child poverty in Scotland.

Policing

95. The Committee recommends that the Finance Committee bring forward proposals as to how an extra 500 police officers by April 2011 could be resourced over and above those additional officers funded as part of the local government concordat.

Funding for disabled children

96. The Committee recommends to the Finance Committee that it seeks information from the Cabinet Secretary as to whether the Barnett Consequentials from the Comprehensive Spending Review announcements for disabled children in England and Wales form part of the grant settlement for local government in Scotland. If so, where are the funds located and how will their use be monitored through Single Outcome Agreements?

Kinship Care

97. The Committee recommends to the Finance Committee that it seeks information from the Cabinet Secretary as to what funds have been put into local government budget lines in respect of Kinship Care.

EXTRACTS FROM MINUTES OF THE LOCAL GOVERNMENT AND COMMUNITIES COMMITTEE

3rd Meeting, 2007 (Session 3), Wednesday 12 September 2007

Budget scrutiny – appointment of adviser: The Committee agreed to seek approval for the appointment of an adviser in connection with its scrutiny of the Scottish Budget 2008-09 and agreed a remit and person specification for this post.

7th Meeting, 2007 (Session 3), Wednesday 24 October 2007

1. Decisions on taking business in private: The Committee agreed to take items 2, 3 and 4 in private.

2. Budget Process 2008-09 (in private): The Committee agreed its approach to the budget process.

3. Budget Process 2008-09 (in private): The Committee considered a list of candidates for the post of adviser and agreed a short leet.

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

Budget process 2008-09: The Committee took evidence on the budget from—

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

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

Also in attendance: Prof. Ron McQuaid (Adviser) (items 3, 5 and 6)

1. Decisions on taking business in private: The Committee agreed to take items 6 and 7 in private.

2. Budget process 2008-09: The Committee took evidence from—

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

5. Budget process 2008-09: The Committee took evidence from—

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

6. Budget process 2008-09 (in private): The Committee considered the evidence heard today and at its previous meeting.

13th Meeting, 2007 (Session 3), Wednesday 12 December 2007

Also in attendance: Prof. Ron McQuaid (Adviser) (item 3)

1. Decision on taking business in private: The Committee agreed to take item 3 and all future items relating to the draft report on the Scottish Government’s Draft Budget 2008-09 in private.

3. Budget process 2008-09 (in private): The Committee considered a draft report to the Finance Committee on the Scottish Government’s Draft Budget 2008-09. 

14th Meeting, 2007 (Session 3), Wednesday 19 December 2007

Apologies were received from Jim Tolson.

In attendance: Prof. Ron McQuaid (Adviser)

4. Budget process 2008-09 (in private): The Committee considered a draft report to the Finance Committee on the Scottish Government’s Draft Budget  2008-09. Various changes were agreed to (some by division) and the report was agreed to.

Record of divisions in private

Johann Lamont proposed the following new paragraph:

69. The Committee therefore recommends that a number of new specific grants be created by top-slicing and ring-fencing the necessary fund from the Local Government Resource Grants line.  These are:

·           The Barnett Consequentials of £34m from the CSR announcements for disabled children in England and Wales.  This funding will empower disabled children and their families, improve access to childcare for families with disabled children, and deliver a significant increase in short breaks for severely disabled children

·           £6m per annum for Kinship Care to be added to the £4m provided by the Administration and ring fenced as a specific grant;

·           £30m per annum for an Additional Support Fund for children with additional support needs.

Kenneth Gibson proposed the following amendment to Johann Lamont’s proposal:

69. Delete all after “The Committee” and insert:

“notes with concern that the announcement of such an amendment was made at First Minister’s Question Time, having, at no stage in any shape or form been discussed by the Committee or raised in evidence to it; believes that this amendment goes against the very grain of Devolution by expecting ‘Barnett Consequentials’ to be spent according to London’s priorities; accepts that there is no appetite in Local Government for top-slicing and ring-fencing, which goes against the spirit of the Concordat; acknowledges that COSLA have already made clear in evidence that budgets currently ring fenced will be distributed exactly as they were previously; is aware that the money being allocated in England is broadly in line with what is in the concordat; is concerned at the implication that local government is somehow insensitive to the needs of vulnerable people and agrees that local government is best placed to decide how to spend additional resources with care and for the benefit of people in their local communities.”

The amendment was disagreed to by division: For 3 (Alasdair Allan, Bob Doris and Kenneth Gibson), Against 5 (Robert Brown, Patricia Ferguson, Johann Lamont, David McLetchie and Duncan McNeil) Abstentions 0.

Johann Lamont’s proposal was disagreed to by division: For 3 (Patricia Ferguson, Johann Lamont and Duncan McNeil) Against 5 (Alasdair Allan, Robert Brown, Bob Doris, Kenneth Gibson and David McLetchie), Abstentions 0.

Paragraph 69 of the report was then agreed to without division.

Finance Committee – 1st Report, 2008 (Session 3) – Annexe J

Rural Affairs and Environment Committee

Report on Scottish Budget Spending Review 2007

The Committee reports to the Finance Committee as follows—

Introduction

1. In this report, the Rural Affairs and Environment Committee comments on those aspects of the Scottish Government’s budget document, the Scottish Budget Spending Review 2007 (SBSR), that relate to the Committee’s remit.

2. One of the challenges the Committee faced was that the presentation and content of the SBSR document are significantly different from those of budget documents published in the previous two sessions of the Parliament.  In addition, the understandably late publication of the document – in mid-November 2007 rather than September, partly in consequence of delays in the UK comprehensive spending review – has given subject committees limited time to take evidence and formulate their views. 

The Committee’s approach

3. The Committee agreed in September to seek authority to appoint a budget adviser to assist it with this scrutiny.  Jan Polley was subsequently appointed, and we are grateful to her for the guidance she has given, particularly in view of the tight timescale. 

4. Prior to publication of the SBSR, the Committee agreed an approach to its budget scrutiny.  This involved in particular:

• examining the £10 million new entrants scheme for farmers, and how this money was to be spent;
• establishing those aspects of the budget where Ministers have discretion (as opposed to aspects where budgets are set to meet obligations, for example from EU legislation);
• understanding more about total spend – how much is underspent each year, and how much is available for re-allocation – and whether the department targets spending effectively.

5. Overall, it was recognised that a key aim in relation to the first budget of a new administration is to establish meaningful links between budgetary allocations and policy objectives – to establish, in other words, what outcomes Ministers hope to achieve from the spending they are authorising – as a baseline for reviewing performance against objectives in later years and establishing whether budget priorities need to be adjusted for the future.

6. In considering its approach to budget scrutiny, the Committee noted the report of the Budget Review Group, Choices for a purpose: review of Scottish Executive budgets – commonly referred to as the “Howat report” after the chair of the group, Bill Howat – and in particular its analysis of potential “headroom” (or scope for efficiency savings) in the budgets set by the previous administration.  While the Committee decided not to take oral evidence from members of the Budget Review Group, we understand that they helpfully discussed their analysis with Jan Polley, and we are grateful to them for their cooperation in this way.

Evidence

7. The Committee took evidence on 21 November from the following Scottish Government officials:

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

8. Then on 5 December, we took evidence from Richard Lochhead MSP, Cabinet Secretary for Rural Affairs and the Environment, together with the following officials:

• John Mason, Director of the Environmental Quality Directorate and the Climate Change and Water Industry Directorate;
• Ingrid Clayden, Head of the Rural Development Division, Rural Directorate; and
• David Reid, Deputy Director, Finance Directorate.

9. Each of these sessions of oral evidence gave rise to a number of specific follow-up questions from Committee members.  These were communicated to the Scottish Government in writing, and much useful additional information was provided in response.  We are grateful to officials for the information provided – particularly in view of the short timescales within which all parties have been operating throughout this process.

measuring Performance

10. Chapter 8 of the SBSR document sets out the Scottish Government’s “National Performance Framework”. This consists of an overarching national purpose for the Scottish Government, which is underpinned by eight high-level “purpose targets” and five strategic objectives (Wealthier and Fairer, Smarter, Healthier, Safer and Stronger, Greener – the last being the cross-cutting responsibility of the Cabinet Secretary for Rural Affairs and the Environment). 

11. These targets and objectives are to be measured by 15 “national outcomes” which describe what the Scottish Government wants to achieve over a ten year period, together with 45 “national indicators and targets”.  Nine of these (36-44 inclusive) appear particularly relevant to the Committee’s remit.  However, the Scottish Government’s view is that its rural affairs and environment spending – particularly on Rural Development; Research, Analysis and Other Services; Marine and Fisheries; and Environment Protection – will contribute directly to 26 of the 45 indicators and targets²⁶⁸. The Committee is concerned that the national targets and indicators are not sufficient to give precise measures on which to be able to rely to ensure services meet national priorities.

12. During our budget scrutiny, “technical notes” were published, explaining in detail the methodology behind the national performance framework.  We believe these go some way to providing an objective and measurable basis for measuring the extent to which the national indicators and targets have been met.  That said, even the technical notes fail to explain how key issues of national importance, such as flooding, will contribute to national indicators and targets. What will be more difficult, however, is relating such measurement to expenditure since, as the Scottish Government has explained in written evidence, each budget line impacts on multiple outcomes, targets and indicators.

13. In oral evidence, the Cabinet Secretary acknowledged (cols 304-5) that it was not easy to say how the “success” of his budget decisions would be measured, given his wide range of responsibilities and the number of budget lines and targets for which he is responsible.

14. As a result, the Committee remains unclear how the Cabinet Secretary expects to measure the effectiveness of spending within his portfolio towards meeting these indicators/targets.

15. The Committee recommends that future budget documents should show closer links between spending plans and the National Performance Framework.  This might in particular include clear indications of where any failure to meet a particular national indicator or target (or inadequate progress towards meeting such a target) has prompted adjustments to particular budgetary allocations.

Budget Presentation

16. The SBSR document combines capital and resource spending within individual (level 3) budget lines.  This approach makes it difficult to identify whether changes made to specific budgets are to cover one-off capital projects (such as the provision of new premises) or alterations in resources to support the delivery of a particular policy.

17. In response to the Committee’s request, the Scottish Government has now provided more detailed data that separates out the capital and resource elements in most budget lines²⁶⁹.  While we are grateful for this additional information, it was a significant challenge to assimilate the extra data at a relatively late stage in what was already a time-pressured process. 

18. It would also have been helpful if the SBSR document had contained a clearer explanation of the impact of one-off technical changes in the treatment of certain items – such as pensions-related provision for the staff of the Scottish Agricultural College and the Scottish Agricultural and Biological Research Institutes (SABRIs).  Without the detail, it has been difficult for the Committee to assess the pattern of funding going to these organisations and whether it is adequate to maintain or enhance delivery.

19. The Committee therefore recommends that future budget documents include a breakdown between capital and resources from the outset, together with more detailed explanations of significant technical changes for each relevant budget line.

20. In the SBSR document, the budget for rural affairs and environment for 2007-08 is given as £529.6m.  When compared with a budget of £615.9m for 2008-09, this gives the impression that the rural affairs and environment budget was “the big winner” in the spending review with a 16.3% cash (13.3% real-terms) increase from this year to next.

21. A more meaningful baseline figure for 2007-08 is in fact £610.6m. This is derived by taking the budget figure for 2007-08 from the previous spending review (in this case SR2004) and then discounting the amounts that, in the current spending review, are being re-allocated to local government, as set out in Table 1 below.  We note that this reconciliation differs from that shown in Annex A of the SBSR 2007 Report.

Table 1²⁷⁰

22. While the Committee welcomed the prompt clarification of this matter by officials, we remain perplexed as to why these more accurate figures could not have been included in the SBSR document, to avoid misleading inferences being drawn.  It still remains unclear to us how the figure of £529.6m in the document was arrived at.  Indeed the relevant official could only say that it was based on “a range of assumptions” that he himself had “not quite fathomed yet”, and that the presentation in the document was “unfortunate” and “artificial” (col 270). 

23. The Committee therefore recommends that, in future years, where the actual rural affairs and environment budget total for the current or subsequent budget year is known to be significantly different from the figures used in the budget documents, the actual budget figures are identified clearly and prominently in the budget documents.

portfolio analysis

Overview of the rural affairs and environment budget

24. Having clarified this baseline information, we were able to establish the following points about the overall rural affairs and environment budget:

• Comparing likely spend in 2007-08 with the budget for the end of the Spending Review period in 2010-11, the rural affairs and environment budget will rise by only 6.5% in cash terms compared with an increase over the same period for the Scottish budget as a whole of 11.8% (col 270).
• Taking inflation into account by using the GDP deflator, the rural affairs and environment budget for 2010-11 represents a reduction of 1.4% from current spending levels. The total Scottish budget over the same period will increase by 3.4%²⁷¹.
• The Rural Development budget line will be a significant loser with Scottish Government expenditure between 2007-08 and 2010-11 falling by over £9m (6.5%) in real terms²⁷². Over the same period, funding for this budget from European Union modulated funds and from other EU match-funding receipts is forecast to increase by £31m (103%) in real terms. Taken together, the net effect is to increase the rural affairs and environment budget by 12.6%²⁷³.
• The Environment Protection, Sustainable Development and Climate Change budget appears from the SBSR document to be one of the main “winners” across the whole of the Scottish Government with expenditure increasing by 46% between 2007-08 and 2010-11, even after inflation is taken into account.  However, we understand from Scottish Government evidence that spend in 2007-08 is likely to be much higher than the budget would suggest. Once this is taken into account, expenditure in this area is likely to fall in real terms by 2010-11. 

25. In evidence provided to the Committee, the Scottish Government pointed to a number of factors relevant to explaining these figures, including:

• significant underspends in previous years, where high budgets were set but not then fully spent²⁷⁴. Throughout this year’s budget, the Scottish Government has aimed for much lower contingencies and hence a closer correlation between budgets and expected expenditure;
• increased real-terms EU funding²⁷⁵, enabling the Scottish Government contribution to be correspondingly reduced;
• a more cross-cutting approach to Cabinet responsibilities for delivering on strategic objectives, with the result that spending under other portfolios can also be expected to contribute to the delivery of rural affairs and environment outcomes;²⁷⁶
• an expectation that all directorates will find reductions in some budgets, for example through efficiency savings.²⁷⁷

26. The Committee accepts that, because of the relatively modest increase in the financial settlement from the UK Treasury, it was always likely that any increases in portfolio budgets would also be modest. In addition to the spending review settlement, the Treasury has agreed to release some £900m of funds held for Scotland at the UK level for use during the spending review period, giving some additional flexibility, particularly in capital spending. However, the Committee remains unclear as to why the Scottish Government’s contribution to the rural affairs and environment budget has decreased in real terms.    

Local government expenditure

27. As can be seen from Table 1, a total of £122.6m has been reallocated from the rural affairs and environment budget to local government for the delivery of various schemes, primarily for the Strategic Waste Fund and flood prevention.  This reallocation is part of the Scottish Government’s concordat with CoSLA, and will apply for the duration of the spending review period.  Another significant element of the concordat is the removal of “ring-fencing” in a number of areas – including waste and flood prevention.  Until the content of single outcome agreements is known, there is no guarantee that local authorities might not divert funds earmarked centrally for these purposes towards other priorities.

28. This is a significant change of approach, but we have found it difficult to establish what impact it will have in practice.  Much will depend on the extent to which local authorities are committed to achieving certain targets, and the means by which they are to be held accountable, by the single outcome agreements that have yet to be negotiated. 

29. The Committee understands why, given the timescale within which the concordat with CoSLA was agreed, it was not possible also to have single outcome agreements in place at the time the SBSR document was published.  However, we expect future budget documents to include details of the relevant GAE totals for local authorities and the distribution methods used for revenue and capital, together with information about their progress towards meeting any targets set in their single outcome agreements.  

Waste management

30. Of the £132m budget allocated by the previous administration for waste initiatives (including the Strategic Waste Fund) in 2007-08, £65m has been reallocated to local government, £41m has been retained by the Scottish Government in a new Zero Waste budget, and the remaining £26m has been reallocated to other budget priorities²⁷⁸.  The Strategic Waste Fund is to be wound up by the end of the current financial year.  The budget retained by the Scottish Government will be used to support the work of other national delivery bodies such as Waste Aware Scotland and the Waste and Resources Action Programme²⁷⁹, but it is not yet clear how funding will be allocated.

31. This approach, taken together with the removal of ring-fencing for local authorities, is difficult to reconcile with the conclusions reached by Audit Scotland in its recent report on sustainable waste management.  That report points out that recycling becomes increasingly expensive as recycling rates rise, and estimates that council spending on waste will need to rise from £351m in 2005-06 to £580m by 2020, with spending on recycling alone rising from £89m to £271m in that period.  Without increases in spending of this magnitude, we find it difficult to see how Scotland will meet the Scottish Government’s own targets and those imposed by EU legislation. The Cabinet Secretary’s responses did not reassure the Committee that he was fully appreciative of the consequences that the change in policy might have and the potential implications for contributing to a failure to meet Scottish and/or EU targets.²⁸⁰

32. Further, the Committee is concerned about whether the new proposals for distributing funding take sufficient account of past practice in the distribution of funding, whereby some local authorities have been able to make significant progress while others have yet to benefit from significant investment, and where their practices lag markedly behind the practices of the best performing.

33. The Cabinet Secretary pointed out that the 2008 recycling target had already been exceeded, and that moving towards a “zero waste society” will require a range of measures, including reducing the generation of waste in the first place as well as recycling. He also pointed out that the waste budget has been substantially underspent in previous years – for example, the Cabinet Secretary stated that (col 282) during the last spending review period only 69% of the Strategic Waste Fund budget was actually spent – and that the £349m allocated to waste during the next three-year spending review period represents a substantial increase on the £284m spent during the last such period (col 283).  However, he conceded that this increase might still fall short of what was identified as necessary in the Audit Scotland report.

34. Given the evidence, it is difficult to assess whether councils will have the resources they need to meet increasingly demanding landfill-reduction and recycling targets over coming years. 

35. To enable us to monitor progress in later years, we recommend 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.

Flood prevention and coast protection

36. In considering the funding for flood prevention and coast protection the Committee noted that this year’s baseline was approximately £42m (provided to local authorities). Officials confirmed (col 257) that in the coming three year period the budget to be allocated to local authorities is £126m, or £42m each year, which represents no increase in funding in the budget.  The Scottish Government is retaining £1.7m in each of the next three budget years.

37. Table 2 shows the amounts already committed to flood prevention schemes in the current and future budget years.

Table 2 (col 258)

*This figure was updated following the oral evidence session (see RAE/S3/07/10/14)

38. The amounts already committed represent 80% of the eligible costs identified in tenders for flood schemes already under construction within seven local authorities.  The Scottish Government has said (col 257) it will honour all such schemes approved by the previous administration (in addition to schemes that it has itself approved).  Uncosted information was also provided²⁸¹ about a number of further schemes that local authorities wish to pursue, some of which could be added in, thus increasing the proportion of committed funds. The Cabinet Secretary also confirmed (col 300) that where money allocated to local authorities is unspent, it will remain with local authorities (where it could be reallocated to other priorities) rather than being returned to the Scottish Government.

39. The mechanism for distributing uncommitted funding has not yet been agreed but is to be discussed with CoSLA in the near future.  In written evidence, it was explained that such funds were expected to be allocated to cover 80% of the estimated cost of confirmed schemes which are under construction; confirmed schemes which are due to go to tender; and schemes submitted by the “Spending Review date” (14 November).  Remaining funds in any year would be distributed by reference to each Council’s exposure to flooding risk.²⁸²

40. The Committee is unclear about how the reallocation of funding to local government will be calculated given the very uneven distribution of spending need across local authorities, and some members of the committee are concerned that a calculation that will meet this need may not be achievable.  Flood management schemes can be extremely expensive and individual authorities’ annual shares of a national budget allocation might not be sufficient to fund the schemes needed in their areas.  The Committee has considerable concerns about how large-scale strategic flood management schemes will be funded under these arrangements.

41. Until we know what levels of funding will be allocated to each local authority, it remains unclear how the differing demands of each local authority will be addressed. With so little money being retained by the Scottish Government, it must be questionable whether single outcome agreements are sufficient to ensure a strategic approach is adopted on an issue which does not respect local authority boundaries.

42. We also note that none of the 45 national indicators and targets are specific to the issue of flooding. While we recognise the connection made by the Cabinet Secretary (col 296) with more general targets related to “keeping communities safe” and “tackling climate change”, it remains unclear how the effectiveness of spending on flood management is to be measured in the absence of specific targets.

43. On the basis of these concerns and in the light of the major inquiry into flooding the Committee has instituted, the forthcoming introduction of a bill on flooding and coast protection policy and administration and the recent publication of the Pitt Report, the Committee invites the Scottish Government to reconsider making such a fundamental change in funding policy at this time.

Rural Development Contracts

44. The Committee noted the aggregation under the single heading of Rural Development Contracts of around a dozen separate schemes and measures.

45. Officials explained (col 262-4) that many of the existing “legacy” schemes are being wound down in favour of a more demand-led approach in which applicants would have more choice as to the schemes under which they could apply for funding.  The Scottish Government was therefore keen not to pre-judge those choices by setting out estimates of how funding was likely to be allocated.  Nevertheless, officials had to provide an indicative breakdown according to these measures when the seven-year Scottish Rural Development Programme was notified to the EU Commission. 

46. The Cabinet Secretary and his officials said that regional priorities will be determined by 11 regional “proposal assessment committees” (PACs) involving staff from relevant agencies and local authorities. All applications will be judged against three main criteria – contribution to regional priority outcomes; value for money; and management of risk.  There will not be 11 separate “pots” of money.  Instead, a Programme Monitoring Committee will continuously monitor the programme and there will also be a National PAC to co-ordinate any action necessary to identify and tackle any areas of over or under spend²⁸³.

47. The Committee notes this regional approach but remains unconvinced that it will be possible in practice to avoid substantial unmet demand, especially in areas like agri-environment.  We are also uncertain how progress can be measured when spend is grouped together in this way and how value for money can be achieved if there is not a clear link between national and local priorities.

48. The Committee recommends that in future budget documents, the Rural Development Contracts budget line is accompanied by forecasts of the spending breakdown between individual programmes.  By comparing this in later years with actual spending patterns, it should be possible to assess the validity of forecasting methods, and adjust future spending plans accordingly.  This should also make it clearer how budget allocations are expected to be tied to national targets and indicators.

New Entrants Scheme for farmers

49. The Committee has taken a particular interest in the new entrants scheme for farmers, to which £10m was allocated in the seven-year SRDP.  While we support the initiative in principle, we did not know at the time we were taking evidence how this money will be spent, since the Tenant Farming Forum is still consulting on the criteria. Nor did we find it clear from the SBSR document where the £10m allocation sat within the rural development budget, or whether other aspects of that budget had been reduced in consequence.  Officials told us that the new entrants funding is included within the budget line for Rural Development Contracts (Rural Priorities). The Cabinet Secretary then stated that the £10 million “is ring fenced for the new entrants scheme” (col 288). While this largely addresses our initial concerns over the budget allocation, we believe it would have been more helpful if the position had been clear from the documents. 

50. The Clerk to the Committee wrote to the Tenant Farming Forum on 12 November 2007 regarding the outcome of its consultation, and we expect to examine in due course how this scheme will operate, whether it is able to demonstrate value for money and whether it will achieve its stated objectives. Subsequent to the Committee’s evidence sessions, it appears that criteria have been made public. The Committee is still awaiting details of the criteria from the Scottish Government.

Research, analysis and other services

51. In considering this component of the portfolio the Committee discovered that some of the apparent increases in individual budgets lines was as a result of funding for capital projects, including a new visitor facility at the Royal Botanical Garden in Edinburgh, a new campus for the Scottish Agricultural College (SAC) in Ayr and the merger and relocation of the Rowatt Institute with Aberdeen University.

53. Given all the changes to this budget line it wasn’t initially clear whether the 2% efficiency saving Ministers were expecting across the budget applied to the research bodies.  In evidence the Cabinet Secretary confirmed that the funding for the SABRIs has remained static over previous years and would continue to be so but he remained confident that its ongoing “good work” in achieving efficiency savings would enable them to “fulfil their roles adequately within their current budgets” (col 281).

54. In future years, we will expect to see evidence of the actual efficiency savings the research institutes have achieved, so we can assess whether the level of funding available to them for their important work has in fact been maintained as envisaged.  We also note, more generally, that the Scottish Government’s efficiency delivery plans are to be published early next year.

EU Common Agricultural Policy (CAP) support for farmers

55. The Committee noted that there was no change in the budgets for this portfolio over the next four years, with the exception of the new budget line for Payment and Inspections Administration Costs, which decreases over the spending review period from £7.4m in 2008-09, to £6.5m in 2009-10 and £5.7m in 2010-11.  This relates to the establishment of the Rural Payments and Inspections Directorate, as a result of which £23.9m a year will be transferred from the Administration “CAP Support” budget to the rural affairs and environment budget.  As this transfer does not take place until 2008-09, costs will continue to be met from the Administration budget in the interim. 

56. It was also explained that the CAP administration budget has exceeded its budget over the last three years largely due to the significant ongoing costs of the IT investment needed to implement necessary changes in the CAP framework (col 269). The allocations of £7.4m, £6.5m and £5.7m are to redress that shortfall in funding over the past three years, and the decreasing amount reflect the expectation that the Rural Payments and Inspections Directorate will generate significant efficiency saving over the next three years.

57. It remains unclear from the evidence provided whether these efficiency savings are as significant as they appear or if this is as a result of the singling out of a small part of the administration cost of this service. The Committee would welcome greater clarity in future budget reports of the basis upon which these savings are to be achieved.

Marine and Fisheries

58. Written evidence²⁸⁵ provided to the Committee explains that the budgets for the Fisheries Research Services (FRS) and the Scottish Fisheries Protection Agencies (SFPA) have not in fact risen, by comparison with 2007-08, as much as the baseline figures in the SBSR document imply.  For example, with FRS, the actual budget for 2007-08 was £29.9m, rather than the published baseline figure (from SR2004) of £26.4m.

59. FRS will also receive additional capital resources of £2m, £6m and £4.3m over the period from 2008-09 to 2010-11 towards the £15m cost of the new Fish and Veterinary Aquarium project in Aberdeen, with the remainder of that cost being met from efficiency savings and reallocations from elsewhere in the Marine and Fisheries budget. It was also explained that, in future years, part of the Marine Management budget could be transferred directly into the FRS budget to reflect an expansion of its core aquaculture and fisheries research to include a wider marine monitoring role²⁸⁶.

60. The Committee also noted that the FRS and SFPA are obliged to deliver 2% per annum efficiency savings and the growth in the budgets is limited over the subsequent 2 years accordingly.

61. The SBSR document includes a new budget line for Marine Management starting at £7.0m in 2008-09 and rising to £8.7m in 2010-11. In oral evidence, officials explained (col 268) that this is intended to cover preparatory work for the forthcoming Marine Bill and implementation of the legislation once it is passed. However, there are formal limits on spending in advance of legislative authority, and given the uncertainty about the timing and content of the forthcoming Bill, it remains unclear to the Committee what this spending will achieve or how its effectiveness can be assessed.

62. The Committee has heard evidence in its work on fishing that there are many technical measures available to the fishing industry to minimise by-catches and reduce discards but these measures are not always adopted by the industry. The recent agreement on fishing quotas for 2008 allow increases in numbers of days at sea for parts of the industry, if they adopt better technical measures. In light of this and the lack of specification of the need for the sums sought under the Marine Management budget-line, particularly in the early years of the spending review period, the Committee recommends that a significant proportion of this 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 in taking forward its commitment to sustainable fisheries by, for example, adopting the best available gear to reduce by-catch and discards.

Environment Protection, Sustainable Development and Climate Change

63. Budget lines for climate change are now divided between the rural affairs and environment portfolio and that for Finance and Sustainable Growth, although the overall approach is to “mainstream” responsibility for tackling climate change across all Ministers and departments.  The main measures for tackling climate change are the Climate Challenge Fund; investment in public transport; the Zero Waste Fund; additional funding for community renewables and microgeneration; and funding to farmers and other stakeholders in the rural community to reduce emissions from land management practices²⁸⁷.

64. Officials acknowledged that setting realistic short-term targets for climate change was difficult (col 252). The Scottish Government’s target to reduce carbon emissions by 80% by 2050 would require at least 3% per annum average reduction in emission year on year; but the short-term priority was to prepare the ground for longer-term reductions, rather than to hit short-term targets. 

65. It was explained²⁸⁸ that the Scottish Government intends to introduce a system of cross-compliance to ensure that spending decisions use available techniques and information to assess the carbon impact of policy options during the appraisal process. In that way decisions would be based on the most effective, climate change-sensitive, sustainable and feasible option.

66. Given that climate change falls outside this Committee’s remit, we leave it to others to comment in detail on this overall approach.  However, we believe it would be useful if future budget documents contained an assessment of progress to date in meeting climate change targets, and of where spending across portfolios has made the most effective contributions to that progress.

Forestry

67. In oral evidence, Scottish Government officials explained that the forestry sector has a major role to play in meeting the climate change targets by planting trees to absorb carbon; increasing the amount of wood that is used as a renewable energy source or fuel; and increasing the amount of timber that is used in sustainable construction projects.

68. In order to assist in meeting climate change targets, the Forestry Commission is to invest £15m in new woodland as the first step towards increasing forest cover from 17% to 25% over the next 70 years. The £15m is to be raised from the sale of existing woodland and is on top of the budget which has been identified for woodland creation under the SRDP.  It is expected that around 5-6,000 ha of land and forests will be sold to raise the £15m and that this will fund the purchase and replanting of at least 2,000 ha of land.  As a result, over the next three years, there will be a net reduction of 2% in the size of the National Forest Estate²⁸⁹.

69. Given that the strategy begins with a reduction in the NFE, it is not currently clear what will count as satisfactory progress towards the 70-year target increase.  However, officials told us that that targets for tree-planting and wood-for-fuel are currently being developed and should be published by the end of the current financial year. The Committee would welcome clarification of the criteria for the sale of Forestry Commission land. The Committee believes that it is important that the long term targets for increasing forest cover are met.

summary of conclusionsand recommendations

Measuring performance

70. The Committee is concerned that the national targets and indicators are not sufficient to give precise measures on which to be able to rely to ensure services meet national priorities. (paragraph 11)

71. The Committee recommends that future budget documents should show closer links between spending plans and the National Performance Framework.  This might in particular include clear indications of where any failure to meet a particular national indicator or target (or inadequate progress towards meeting such a target) has prompted adjustments to particular budgetary allocations. (paragraph 15)

Budget presentation

72. The Committee recommends that future budget documents include a breakdown between capital and resources from the outset, together with more detailed explanations of significant technical changes for each relevant budget line. (paragraph 19)

73. The Committee recommends that, in future years, where the actual rural affairs and environment budget total for the current or subsequent budget year is known to be significantly different from the figures used in the budget documents, the actual budget figures are identified clearly and prominently in the budget documents. (paragraph 23)

Portfolio analysis

74. The Rural Development budget line will be a significant loser with Scottish Government expenditure between 2007-08 and 2010-11 falling by over £9m (6.5%) in real terms. Over the same period, funding for this budget from European Union modulated funds and from other EU match-funding receipts is forecast to increase by £31m (103%) in real terms.  Taken together, the net effect is to increase the rural affairs and environment budget by 12.6%. (paragraph 24)

75. On waste management, the Scottish Government’s approach (involving substantial reallocation to local government), taken together with the removal of ring-fencing for local authorities, is difficult to reconcile with the conclusions reached by Audit Scotland in its recent report on sustainable waste management.  The Cabinet Secretary’s responses did not reassure the Committee that he was fully appreciative of the consequences that the change in policy might have and the potential implications for contributing to a failure to meet Scottish and/or EU targets.  Further, the Committee is concerned about whether the new proposals for distributing funding take sufficient account of past practice in the distribution of funding, whereby some local authorities have been able to make significant progress while others have yet to benefit from significant investment, and where their practices lag markedly behind the practices of the best performing. (paragraphs 31 and 32)

76. To enable us to monitor progress in later years, we recommend 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 35)

77. In relation to flood prevention and coast protection, the Committee is unclear about how the reallocation of funding to local government will be calculated given the very uneven distribution of spending need across local authorities, and some members of the committee are concerned that a calculation that will meet this need may not be achievable.  Flood management schemes can be extremely expensive and individual authorities’ annual shares of a national budget allocation might not be sufficient to fund the schemes needed in their areas.  The Committee has considerable concerns about how large-scale strategic flood management schemes will be funded under these arrangements.  (paragraph 40)

78. On the basis of our concerns and in the light of the major inquiry into flooding the Committee has instituted, the forthcoming introduction of a bill on flooding and coast protection policy and administration and the recent publication of the Pitt Report, the Committee invites the Scottish Government to reconsider making such a fundamental change in funding policy at this time. (paragraph 43)

79. The Committee recommends that in future budget documents, the Rural Development Contracts budget line is accompanied by forecasts of the spending breakdown between individual programmes.  By comparing this in later years with actual spending patterns, it should be possible to assess the validity of forecasting methods, and adjust future spending plans accordingly.  This should also make it clearer how budget allocations are expected to be tied to national targets and indicators. (paragraph 48)

80. The Committee recommends 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 in taking forward its commitment to sustainable fisheries by, for example, adopting the best available gear to reduce by-catch and discards.  (paragraph 62)

81. The Committee would welcome clarification of the criteria for the sale of Forestry Commission land. The Committee believes that it is important that the long term targets for increasing forest cover are met.  (paragraph 69)

EXTRACTS FROM MINUTES OF THE RURAL AFFAIRS AND ENVIRONMENT COMMITTEE

4th Meeting, 2007 (Session 3), Wednesday 19 September 2007

Also present: Jim Hume, Nanette Milne and Tavish Scott.

Budget adviser:  The Committee agreed a person specification for the post of budget adviser and agreed to consider the prioritisation of candidates in private at its meeting on 24 October 2007.

6th Meeting, 2007 (Session 3), Wednesday 24 October 2007

Budget adviser (in private): The Committee ranked a list of candidates for appointment as adviser in connection with its consideration of the Scottish Government’s budget for 2008-09.

The meeting closed at 11.44 am.

7th Meeting, 2007 (Session 3), Wednesday 7 November 2007

Also present: Jan Polley, budget adviser.

Scottish Government’s Budget 2008-09: The Committee agreed its approach to scrutiny of the Scottish Government’s budget proposals for 2008‑09.  It agreed to invite Scottish Government officials to give evidence on 21 November, and to invite the Tenant Farming Forum to provide a written update on progress with its consultation “Helping New Entrants into Agriculture”.

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

In attendance : Jan Polley, budget adviser.

Scottish Government’s Budget 2008-09: The Committee took evidence on the Scottish Budget Spending Review 2007 from the following Scottish Government officials—

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

The Committee agreed that it might be necessary to hold an additional meeting in the afternoon of Tuesday 4 December in order to take further evidence from relevant officials.  A final decision would be taken on the basis of members’ indications of the issues requiring further exploration, taking account of any supplementary written material provided by the Scottish Government.

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

Also present: Sarah Boyack

In attendance: Jan Polley, budget adviser

Budget Process 2008-09 (Stage 2): The Committee took evidence on the Scottish Budget Spending Review 2007 from—

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, Ingrid Clayden, Head of the Rural Development Division, Rural Directorate, and David Reid, Head of Rural Affairs and Environment Finance, Finance Directorate, Scottish Government.

The Committee agreed to consider a draft report to the Finance Committee in private at its next meeting.

It was agreed that members seeking further information from the Scottish Government on budgetary issues should provide details to the clerks as soon as possible.

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

In attendance: Jan Polley, budget adviser

Scottish Government’s Budget 2008-09 (in private):  The Committee considered a draft report to the Finance Committee. Various changes were agreed to (one by division); other proposed changes were disagreed to (one by division).  Subject to finalisation after the meeting of the passages to be emphasised as principal conclusions and recommendations, the report was then agreed to.

Finance Committee – 1st Report, 2008 (Session 3) – Annexe K

Transport, Infrastructure and Climate Change Committee

Report to the Finance Committee on the Budget Process 2008-09

The Committee reports to the Finance Committee as follows—

Introduction

1. The Transport, Infrastructure and Climate Change Committee is required to report to the Finance Committee on its consideration of the Scottish Government’s Budget for 2008-09

Budget timetable and documentation

2. The compressed timescale for the current budget scrutiny process following the UK Comprehensive Spending Review and the Scottish Government’s Budget Spending Review processes is extremely tight. The extent to which the Committee could scrutinise the budget in detail was, inevitably, affected by this timescale. It was only possible to schedule two sessions to hear evidence from witnesses. More time would have enabled a fuller consideration of the complex matters arising from the budget. The Committee is grateful to the witnesses who were able to give evidence within the tight timescales imposed by the budget process.

3. In relation to the budget documentation, the Committee notes that the Finance Committee raised concerns with the Cabinet Secretary for Finance and Sustainable Growth regarding the availability of ‘Level 3’ funding information. The Committee also notes that changes this year to budget headings in the documentation has, in some cases, made comparisons between years more difficult.

Witnesses

4. The Committee took evidence from John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, at its session on 4 December 2007. Mr Swinney was accompanied by relevant Scottish Government and Transport Scotland officials. At its meeting of 27 November 2007, the Committee took evidence from the following individuals:

• 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).

5. The Committee also received written evidence from SEStran, HITRANS, SPT, the Scottish Association of Public Transport, and the Freight Transport Association. Supplementary written evidence from Cllr Alison Hay, COSLA, was also received.

CONTEXT AND INHERITED POSITON

Inherited position

The transport budget in Scotland has increased by around one third in real terms since 2001. Although this in part reflects the general uplift in public expenditure levels over this period, this increase also reflects the previous administration’s desire to increase relative spending on transport as part of its economic and social priorities, through measures such as the introduction of the national concessionary fares scheme, and significant investment in Scotland’s railways. A note of caution, however, is that this figure also incorporates expenditure on the rail network in Scotland, previously administered by the UK Government.

Overall budget situation through CSR 2007

7. The budget for transport in Scotland is planned to increase by just 0.72% in the first year, but by 14.3% by 2011. The transport portfolio has therefore secured a better position than other budget headings, in large part because of the Government’s decision to continue with the inherited capital projects programme (including Edinburgh Trams, following the debate in Scottish Parliament on 27 June 2007). This overall picture hides significant variation between different transport headings, however, as the table below illustrates:

Source: Professor David Bell’s paper to SP Finance Committee.

8. Notable “winners” are motorways and trunk roads, for which the budget and programme of inherited schemes appear (relatively) secure, and ferry services, in line with the Government’s Cohesion commitment to reduce the peripherality of islands communities. “Losers” are air services, due to the withdrawal of revenue support for new air route development, concessionary fares, bus and rail services which all see an overall decline, and “Other Transport Directorate Programmes”, which suffer the largest percentage decline at an average of -5.7%. This figure is significant, as it reflects the move in capital funding for Regional Transport Partnerships (other than SPT), from this heading to the wider local government settlement. Rail’s overall position is understated by the headline figures, since many significant new investments (such as all or part of the planned Edinburgh – Glasgow electrification and enhancements, the Glasgow Airport Rail Link, the Airdrie-Bathgate reopening and potentially the Borders Railway) will be funded through borrowing against Network Rail’s Regulated Asset Base (RAB), with the costs to be repaid by the Scottish Government over the several years.

9. The concordat agreed between the Scottish Government and COSLA means that the total level of expenditure devoted to transport across Scotland is now uncertain. Local Authorities remain responsible for a range of transport functions, including management and maintenance of the local road network, to many walking, cycling and transport information projects. Added to this are the impacts of the further implications of the concordat with respect to ringfencing – the Committee heard several witnesses’ views on the potential impacts of the relaxation of ringfencing of local authority expenditure on the level of investment that might be devoted to transport in future. Experience from the last reduction in ringfencing in 1996 suggests that transport might be a significant loser given other pressures on local authorities, especially those services with significant pay budgets.

DETAILED CONSIDERATION OF ISSUES ARISING FROM COMMITTEE HEARINGS AND SUBMISSIONS

Structure of findings

10. The remainder of this report highlights the key issues arising from the evidence heard by the committee, noting areas where the committee supports the decisions made by the Scottish Government with respect to those budget headings falling within the Committee’s remit, but also those areas where budget assumptions and allocations raise significant concerns.

11. Analysis of the evidence heard is grouped into three cross-cutting themes:

• Budget stability and continuity in transport project implementation;
• Governance issues and changing funding streams;
• ‘Softer’ measures and interventions to tackle climate change.

Budget stability and continuity in transport project implementation

12. The Committee heard evidence from the Cabinet Secretary regarding the strategic decisions taken to inform the overall levels of finance available for the transport and related thematic areas in the Budget. The Committee noted the attention paid to mapping inherited and new spending commitments to the Government’s 5 key objectives; and also the potential for improved joint working between transport and related public services, especially education and health.

13. The importance of investment in transport, especially in new and upgraded transport infrastructure, was an important recurring theme. The Committee heard evidence from several witnesses pointing to the importance of transport investment for the promotion of sustainable economic growth. SPT told the Committee, for example, that ‘it is important that transport contributes to economic growth in the west of Scotland’.²⁹⁰ The representative from SCDI explained to the Committee that SCDI members ‘feel that transport is a crucial contributor to our economic competitiveness’.²⁹¹

14. The Committee strongly agrees with the overall sentiment that transport investment is one of the most important mechanisms through which Government can stimulate economic growth. The Committee also heard evidence from the Cabinet Secretary that the overall budget had been carefully constructed and balanced to provide the most appropriate means of achieving the Go