It is with pleasure that I speak on behalf of the Finance Committee in this stage 1 debate on the Scottish Government’s budget bill for 2015-16 and on our draft budget report, which was published last week.
The scrutiny of the draft budget works to a tight and demanding schedule. As members will be aware, we approach budget scrutiny on the basis of four principles: affordability, the wider picture of revenue and expenditure and whether each is appropriately balanced; prioritisation, a coherent and appropriate division between sectors and programmes; value for money, the extent to which public bodies are spending their allocations well and achieving outcomes; and budget processes, the integration between public service planning and performance and financial management.
This year, we have focused our scrutiny on two of the principles: affordability and budget processes. We agreed before the summer recess that our main focus would be on affordability. In particular, we looked at Government proposals for the newly devolved taxes and at whether revenue and expenditure were appropriately balanced. We continued our commitment to scrutinising the preventative spend agenda by considering how public bodies work together to deliver services across Scotland.
We invited the subject committees to structure their scrutiny on the remaining principles of prioritisation and value for money. I thank those committees for their valuable input.
To support our scrutiny of the draft budget, the Finance Committee issued a call for evidence on the introduction of land and buildings transaction tax. We received 20 written submissions in response and took oral evidence from a range of witnesses during the autumn before taking evidence from the cabinet secretary on the Isle of Arran. As part of our Arran visit we held workshops with local businesses, voluntary organisations and public bodies. We heard first hand from them about the impact of public spending on their communities and how that spending should be prioritised.
I place on the record the committee’s gratitude to all those who assisted in our consideration of the draft budget.
Turning first to affordability, the committee considered the need for a balanced budget. As the cabinet secretary has mentioned, the Government is responsible for raising the newly devolved taxes, which are land and buildings transaction tax and Scottish landfill tax, with effect from the 1 April.
The draft budget states that the proposed rates are intended to be revenue neutral and set out the forecast receipts for the two taxes in 2015-16. The committee scrutinised the robustness of those forecasts along with commentary published by the Scottish Fiscal Commission.
On the forecasts for residential transactions, the committee identified a number of ways in which robustness and transparency could be improved. We recommended that a breakdown of expected receipts for each band is provided and published as part of future draft budgets; that the SFC produces an analysis of the behavioural response to the introduction of LBTT; and that, like the Office for Budget Responsibility, the Scottish Government should aim to produce five-year forecasts.
The committee noted the differences between forecasts made by the Scottish Government and the OBR for non-residential transactions. We recommended that updated figures relative to available outturn figures be provided alongside next year’s draft budget. That recommendation was also made in respect of forecasts for revenues raised through Scottish landfill tax.
The committee also considered evidence in relation to the proposed LBTT rates and bands. The evidence was broadly supportive of the proposed structure of the tax as it then was. However, organisations such as Homes for Scotland and the Scottish Property Federation expressed concern that the rates might have a detrimental impact on those considering moving to larger residential properties, particularly those in property hotspots such as Aberdeen or Edinburgh. Proposals for alternative rates and bands were made to address those concerns.
As members are aware, changes to UK stamp duty land tax were announced in the chancellor’s autumn statement. I listened with great interest to what the cabinet secretary said on the subject and look forward to hearing others’ views later in the debate.
The committee expressed serious concern that a permanent agreement between the two Governments has not yet been reached on the block grant adjustment. The topic has been on the committee’s radar for some time—years in fact—and we have previously taken evidence from both Governments on the subject. Indeed, we expressed concern in October 2013 about the lack of available detail, and we found then that
“there remains a considerable lack of transparency in relation to the adjustment of the block grant.”
Almost 18 months on, our report on the draft budget stated that the committee
“finds it unacceptable that the Parliament is being asked to consider the Draft Budget without knowing what impact the block grant adjustment may have on the Government’s spending proposals.”
The committee considered that the adjustment must
“be agreed and fully explained to the Parliament prior to Stage 3 of the Budget Bill.”
I am glad that some progress has been made and the figure of £494 million has been presented to us, but we would like further information in the run-up to stage 3.
Our report highlighted the need for greater transparency from both Governments and sufficient time for effective parliamentary scrutiny of adjustments to the block grant. We noted that both Governments have agreed that an interim adjustment will be put in place for 2015-16 only and we have made clear our disappointment at the lack of a long-term solution. However, as there is now no alternative, given the pressing deadlines for considering the draft budget, we recommended that there should be a reconciliation with outturn receipts.
The committee shared the cabinet secretary’s concerns about the proposed inclusion of a “constraining factor”, which would attempt to calculate what the devolved taxes would generate up to 2030 and adjust the block grant accordingly to ensure that neither Government was any better or worse off. The committee agreed that that would totally defeat the point of devolving the taxes. That concern and others that have been expressed about the slow pace of progress on the adjustment become even more important in light of the expected devolution of further fiscal powers following the deliberations of the Smith commission. We look forward to discussing that and related issues in our evidence session with the Chief Secretary to the Treasury next Wednesday.
We considered the preparation for the collection of devolved taxes in detail. The committee has taken a keen interest in the progress that has been made towards ensuring that Revenue Scotland and its partners are fully prepared for the devolved taxes going live, and we will continue to monitor that closely as we approach 1 April.
Regarding prioritisation, we invited the subject committees to consider whether there was a coherent and justifiable division between sectors and programmes. Audit Scotland said that a priority-based approach should focus on delivery of priority outcomes and allocation of money to services that make the greatest contribution to delivering those outcomes. For that reason, we recommend that subject committees continue to focus on prioritisation as part of their budget scrutiny. That should include the extent to which public bodies within their respective remits are adopting a priority-based budgeting approach.
A related subject is ensuring value for money in achieving outcomes that have been designated as Government and public agency priorities. The committee’s consideration of last year’s draft budget focused on the national performance framework. Our expectation is that public bodies should be able to demonstrate how their aims, objectives and activities contribute to national outcomes. We heard in evidence from Audit Scotland that the NPF is a major step forward and that there is evidence of its impact in the alignment of resources and action across different parts of the public sector in certain policy areas.
However, Audit Scotland also considered that
“the Scottish Government needs to demonstrate a more systematic approach to implementing its outcomes approach by clarifying the links between longer-term outcomes, its priorities and performance measures across all policy areas.”
The committee endorsed that view. We believed that there is much scope for the Parliament and its committees to use the data in Scotland performs to hold the Government and public bodies to account for the delivery of outcomes. On a related theme, we recommended that much greater emphasis be placed on examining the impact of spending on outcomes.
I wish to touch on the committee’s continued scrutiny of the Government’s commitment to
“a decisive shift towards prevention”,
which is a subject that we have taken an interest in for several years now, and which the cabinet secretary touched on earlier. In addition to the previously announced funding for change funds, including those related to the early years, care for older people and reducing reoffending, the Government stated that community planning partnerships would play a “decisive role” in the shift towards prevention.
Nevertheless, we remain concerned by the lack of progress that has been made to date on driving public sector reform in that respect. We support the Government’s intentions in seeking that “decisive shift” and we recognise that there has been progress, particularly in relation to integrated working. However, we expect to see significant progress over the next year. I am heartened by Mr Swinney’s comments earlier today.
The committee also considered a variety of issues from the impact of welfare reform and fuel poverty to the Government’s progress towards achieving its climate change targets and realising predicted savings through its police reform programme.
When we visited Arran, we heard about the impact of the lack of broadband connectivity on businesses in rural and island communities. We also heard about issues to do with the availability of affordable housing. The Government is well aware of the importance of those matters, which the relevant committees have addressed in greater detail in their reports. I am sure that members will pick up on some of those themes later in the debate.
As I said, the committee’s budget scrutiny focused on affordability, although we also sought to monitor progress in relation to preventative spending, prioritisation and value for money. I hope that I have succeeded in giving a flavour of the broad range of subjects that we considered. I look forward to the Scottish Government’s response and to hearing members’ speeches.
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