Financial Issues

– in the Scottish Parliament at 2:30 pm on 24th June 1999.

Alert me about debates like this

Photo of Lord David Steel Lord David Steel Presiding Officer, Scottish Parliament 2:30 pm, 24th June 1999

We now move to the next item, which is a ministerial statement on financial issues. There will be no interventions during this statement because the minister will take questions at the end.

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour 3:15 pm, 24th June 1999

I wish to make a statement on two aspects of our financial affairs: first, the procedures for this Parliament to approve expenditure by the Executive, for our accounting to Parliament for that expenditure, for the auditing of those accounts, and for the accountability of officials undertaking the expenditure; secondly, the infrastructure required to support the tax-varying power of the Scottish Parliament.

Moving on from the debates and disagreements of the past four weeks, I am pleased to have this opportunity to address our financial affairs. As Minister for Finance, I want to develop an open and constructive dialogue with the new Parliament and its committees. We have huge financial responsibilities to spend our money wisely, to decide our priorities openly, and to account for our use of the nation's resources through this chamber to the people of Scotland.

We should seek to ensure minimum waste and maximum output, minimum duplication and maximum partnership in our financial dealings. Scottish taxpayers rightly expect the new Executive and this Parliament to spend money wisely and to try to extract more from the pot that we inherit. As Minister for Finance, I intend to do all I can to achieve that goal.

The legislative programme announced by the First Minister last week included a bill on financial procedures and auditing. Indeed, the Scotland Act 1998 requires this Parliament to legislate on those matters. However, the act does not go into great detail. It sets out a framework-no more than that. It is for this Parliament to decide on its own detailed procedures. That is, of course, right. As the First Minister said in his statement, the bill "will go to the heart of the relationship between the Parliament and the Executive".-[Official Report, 16 June 1999; Vol 1, c 407.]

In that relationship, we want the Parliament to be constructive, but we also want our decisions as an Executive to be transparent and sure of Parliament's support. I am particularly keen to endorse the new political system that we are developing here in Scotland and, to emphasise that new approach, I propose that the draft bill on financial procedures and auditing arrangements be named the accountability, budgeting and audit bill, to reflect that.

We also want the Parliament to have a world-class financial management system. We want a framework that helps to ensure that the Parliament's budget is spent to the best possible effect. We must have a system that encourages Parliament and the Executive constantly to secure the most from our financial resources. At the same time, we have to ensure that at all times the people's money is handled with the highest standards of honesty and integrity. I hope that, in time, other Parliaments will look to us when searching for the best ways in which to manage the financial affairs of government.

On this matter, we cannot afford delay. The transitional financial arrangements under which we are operating expire next March. We must have our own system in place well before then if we are going to be able to continue to spend money. Fortunately, we have a flying start. In February last year, the financial issues advisory group was established as a sub-committee of the consultative steering group. Its task was to make proposals that "the Scottish Parliament might be invited to adopt for handling financial issues".

Over the following 12 months or so, that group of finance professionals and other experts developed ideas that address the range of financial issues to be faced by this Parliament. The group's report covers everything from setting budgets to value for money audits.

The group's recommendations were endorsed by the CSG and have been welcomed by specialists and lay people alike. I would like to add my thanks to the members of the group. Their work has been critical to the future success of this Parliament, and I am very pleased to welcome members of the group here today to view the debate on this statement.

The group's recommendations give us the chance to take financial issues away from the preserve of the specialists and to make them accessible to the Parliament and the people of Scotland. The new Scottish Executive has considered the group's report in the light of Parliament's need to set up a sound system of financial management, and this Executive warmly welcomes accountability for its stewardship of taxpayers' money. Holding the Executive to account is a basic function of any Parliament, one which goes far beyond the day-to-day knockabout of party politics, which we saw this morning. We intend to broadly accept the report and will be considering, with the Finance and Audit Committees, how best to implement the recommendations.

Before we finalise our proposals for legislation, I will this weekend place before the Finance and Audit Committees a memorandum setting out our proposals to accept the recommendations of the financial issues advisory group, and proposals for their detailed implementation. My officials and I will be available to the committees before the recess, so that they can discuss the details with us. Among the matters that I want to draw to the committees' attention are the advantages and disadvantages of primary and secondary legislation for budget approvals and amendments, and the management of and responsibility for public audit in Scotland.

We hope that the committees will be able to give an initial response before the summer recess. That will enable the Executive to adjust its proposals, if that is necessary, before going out to wider consultation over the summer. It is our intention to introduce a bill immediately after the summer recess, with a view to seeking the approval of the Parliament by Christmas. That timetable will result in the Parliament's having sufficient time to consider the Executive's spending proposals for the year 2000-01.

Expenditure decisions on Government and public service priorities here in Scotland are a central feature of our new devolution settlement. It is vital that citizens of Scotland are aware of, and are included in, our annual deliberations on the Scottish budget. I therefore intend to invite the Parliament's committees to comment on proposals for wider public consultation at an appropriate stage in our budget decision-making timetable. Transparency and accountability do not stop at the doors of this chamber. We must integrate our deliberations into the lives of Scots, who experience the impact of our decisions in their daily lives.

I now turn to the Executive's proposals for the tax-varying power-the power to vary the basic rate of income tax in Scotland up or down, by a maximum of 3p in the pound. On 6 May, the Scottish electorate said that it did not support the use of that power, and we are determined to focus our efforts on maximising the benefits to Scotland of planned increases in spending that have already been announced.

The comprehensive spending review has delivered a very generous overall settlement for Scotland. By 2001-02, public spending in real terms on programmes for which this Parliament is responsible will be at a record high. However, we have made it clear-in the partnership agreement and subsequently-that we will not use the tax-varying power during the lifetime of this Parliament and will not impose a new income tax burden on ordinary Scots.

Against that background, we have nevertheless been considering what level of infrastructure, if any, we should maintain to take account of the possibility that a future Scottish Executive might decide to use the tax-varying power. We have concluded that it would be financially irresponsible and politically unacceptable to abandon all the implementation work that has already been done. If we were to do that, it would mean that a new Administration would have to wait up to three years before it could implement the power-obviously, we would not want to deny the Scottish National party that opportunity should it ever succeed in forming an Administration. The period would have to be spent painstakingly-and expensively-repeating all the implementation work that has already been done, but that quickly will go out of date if it is not maintained.

In close consultation with Inland Revenue, we have devised an option that would allow the tax to be introduced in the financial year immediately following a Scottish election that was held on the normal cycle-that is to say, in the April following a May election. In practice, that is the first opportunity at which the tax-varying power could be used, as changes cannot be introduced in mid-financial year.

The option will involve Inland Revenue, and to a lesser extent the Department of Social Security, in maintaining internally a range of supporting systems, including, in the case of Inland Revenue, a database of Scottish taxpayers. Those systems can be updated and activated quite quickly if a decision is taken to use the tax-varying power. We estimate that, once all outstanding implementation costs have been incurred-those fall mainly in the current year-the option will give rise to an annual running cost of around £2 million to £2.5 million.

However, we have decided to halt all other preparations, including the appointment of the additional staff that would have been necessary in other circumstances. That is a prudent decision, which will save vital resources and avoid waste. Indeed, it means that over the lifetime of this Parliament we can expect to realise savings of around £20 million on the provision for implementing and running the tax that was previously included in forward budgets.

Our decision to pursue this option will mean that employers of Scottish taxpayers will face significantly less work and cost in preparing for the tax. A typical small employer, for example, will face no additional work or costs until the rate has been varied. Where a computerised payroll is operated, minor changes will be required to keep in step with the Inland Revenue's IT changes, but set-up costs will be less than half of those previously estimated.

In conclusion, the course that we are proposing to maintain an infrastructure for the tax-varying power is sensible and pragmatic. Our decision not to use the power in the course of this Parliament will mean lower levels of income tax in Scotland from April 2000, a much-reduced administrative burden for the estimated 91,000 UK employers who have employees who are Scottish taxpayers, and a saving of around £20 million on the tax's implementation and operating costs over the lifetime of the Parliament.

We intend to make those resources, which are available as a direct result of our decision not to use the tax-varying power, available for the Holyrood building project. As the First Minister promised, other budgets will not be affected to meet the Holyrood contract.

I therefore commend these proposals.

Photo of George Reid George Reid Scottish National Party

The Minister for Finance will now take questions on the issues raised in his statement. If there are sufficient questions, I will allow about 15 minutes for that, after which we will move on to the next item of business.

Photo of Andrew Wilson Andrew Wilson Scottish National Party

I begin by formally congratulating Mr McConnell on his appointment. I and my party support the appointment of a Minister for Finance to the Scottish Parliament. That is a key role, which I hope Mr McConnell performs successfully. I commend the outstanding FIAG report. I also commend the aim of the minister's statement: for us to become a world leader in how we treat public financial management. It is right to pursue that goal and I await the substance of how the Government intends to deliver it.

Photo of Andrew Wilson Andrew Wilson Scottish National Party

I am coming to it. I am sure that we will all welcome the fact that, before the recess, Mr McConnell will appear before committees. I understand the reason for the tax decision, and in the current context I accept and support it.

Some key questions arise from the report and need to be answered. Can the minister confirm whether any aspects of the report were announced before his statement to the Parliament? In his statement, he commented that the comprehensive spending review had delivered a record high for public spending in Scotland. Does he agree, however, that, in the first three years of the Labour Administration, the Scottish budget has been cut by £1.1 billion compared to the last three years of the Conservative Administration? Will he recognise that, in the coming three years, the Barnett squeeze means that, in the relative areas of the budget, the increase will be two and a half times faster in England than in Scotland? That is according to Brian Ashcroft, not me. Does he therefore recognise the existence of the Barnett squeeze, and what does he intend to do about it?

Photo of Keith Raffan Keith Raffan Liberal Democrat

He should ask questions relating to the statement.

Photo of Andrew Wilson Andrew Wilson Scottish National Party

It is entirely relevant to the statement, if Keith would stop interrupting.

The minister's point of clarification on the tax structure being used to pay for the Holyrood project and the changes to it is welcome. Will he now explain how he intends to find the extra £80 million of spending announced in the partnership agreement?

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

I welcome Andrew Wilson's comments about the work of the Minister for Finance, and I look forward to a constructive and positive relationship with him. I hope that the first half, rather than the second half, of his questions-in the form of a statement-sets the tone for the way things might continue. It is important that we try as parties to work together in this Parliament to secure the best financial accountability. I look forward to that process unfolding.

On Mr Wilson's specific questions, no elements of my statement on the specific details of the FIAG report or any other elements of my statement were pre-announced. I cleared the press release only about half an hour ago-if that is a helpful clarification. The only element of my statement to which I referred in advance of today was not in the FIAG report: my proposal to extend consultation outwith this Parliament to the public of Scotland. I hope that Mr Wilson will appreciate the Scottish public being aware of that.

I hope that Mr Wilson will, in due course, accept that the Government's budgets in the past two years-and indeed for this year-are larger than those estimated by the previous Conservative Government, and that the budget totals in Scotland in three years' time will indeed be at a record high. I await his welcoming of that with interest and anticipation.

On the subject of the Barnett formula, I welcome the decision of the Finance Committee this week to look at the formula and decisions associated with it. Brian Ashcroft's report today states again that public expenditure in Scotland will be moving towards a record high level in three years' time-it is important to note that. When we are discussing financial matters, the Parliament should accept two principles from the outset: that we will not compare everything that we do to what is happening south of the border but have our own debates and make our own decisions in a mature and responsible way; and that we will accept that, across the United Kingdom, budgets are, and should be, determined on the basis of need and we support the continuation of that principle.

On the fourth point that Mr Wilson raised, I intend to make a statement in the autumn on the financial expenditures announced in the partnership agreement and on other supplementary estimates that will have to be dealt with at that time. I intend to deal with them as a complete package because I want our budgeting to be as sensible and as comprehensive across departments as possible.

Photo of David Davidson David Davidson Conservative

Excuse me, my throat is a bit sore-it is not for the want of counting the money that is going through this system. I welcome Mr McConnell's statement today, particularly what he said about the relationship with the committees, which is very important. Following my question to the Finance Committee on Monday morning about the early establishment of protocols on the relationship and information flows between him and the committee, may I assume that this will be expedited at an early date?

I agree with the philosophy of minimum waste and maximum output. When does the minister intend to apply that to the rest of government spending, both locally and through government agencies? I congratulate FIAG on its work, which is a superb start to the working of the Parliament. I am, however, a little concerned about Mr McConnell's phrase "We intend to broadly accept the report".

Perhaps he will detail the parts he does not accept? Is the part about parliamentary controls one of them?

I welcome the comments on public consultations, but ask for a guarantee that the bill will go back to committee before it comes to this chamber. I notice that Mr McConnell made a comment about ordinary Scots. Is he saving some tax-raising powers for extraordinary Scots? He claims to be saving £20 million. Is the use of that money on the Holyrood project the best possible use of it? He could save £10 million on maintenance by scrapping the scheme, instead of leaving it hanging over Scottish taxpayers. It is refreshing to hear that he accepts the cost to business of taxation and extra bureaucracy. Will that be the first of a series of steps by which he will reduce the burden on business in Scotland that is imposed by government bureaucracy?

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

I repeat my earlier comments to Mr Wilson in relation to a working relationship with Mr Davidson. If we include Mr Watson, the Convener of the Finance Committee, and Mr Raffan, the back-bench finance spokesperson for the Liberal Democrats, and if we have regular informal discussions about financial matters, our meetings could be quite entertaining. I welcome Mr Davidson's comments and I hope that we can have a constructive relationship.

I understand that a time has been set for a joint meeting of the Finance and Audit Committees and that it will take place before further public consultation over the summer. That will be followed by a statement to the Parliament after the summer on our specific proposals for a bill, which will then go into the decision-making stages in committee where it can be looked at in detail. My target for completion of that process will be the end of the year. It is important that we have completed the passing of this bill when we discuss next year's budget in Parliament in January 2000, so that the procedures that we are working with have a statutory basis.

I am very keen to expand the principles of best value to different levels of government. At the moment, we impose those on local government more than on central government. During the summer, I intend to look over the whole process of the modernising government agenda, and I will report back to this Parliament as early as possible with a way forward for the Executive to modernise systems of government and ensure best value operations in government.

I now address the issue of the tax-raising power and whether we would end all preparations to use it. Given the record of the former Conservative Government between 1992 and 1997, when there were successive tax hikes, I suspect that the comment that I made earlier about the Scottish National party being keen to have the tax-raising power available to it in the year 2003 may apply to the Conservatives too. We will keep a basic infrastructure in place. That is right because it is democratic. In 2003, the people of Scotland will have the right to choose between parties that want to raise taxes and those that do not. If they vote for parties that want to raise taxes, they have a democratic right to expect those parties to implement those plans.

Photo of George Reid George Reid Scottish National Party

I have been indulgent in the two opening interventions. I now ask members please to keep their questions tight. There are about eight minutes remaining.

Photo of Donald Gorrie Donald Gorrie Liberal Democrat

I offer Mr McConnell my best wishes in his important task. Will he give us his view on how we can ensure that the best use is made of money by the many independent organisations that use Government money-taxpayers' money-to provide their services? Such organisations include health boards, universities, local authorities, colleges, and independent voluntary organisations that provide public services. We want to enable those organisations to be independent, to develop their own policies, but we want to ensure value for money. Hitherto, I have had the feeling that public auditing has tried to ensure that money has been wasted legally. Can Mr McConnell give us an example of a more enlightened way of getting best value from those arm's-length organisations?

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

There are many examples, both in central Government agencies and in local government, of best value initiatives. They are producing not only better use of resources, but better performance in public services. I would like to think that this Administration-and I take this on board as a responsibility during the summer and autumn-will examine the activities of central Government and its various agencies, in particular from a best value perspective.

The UK Government produced a white paper in March, "Modernising Government", which does not cover the devolved Administrations in Scotland and Wales. One of the issues that I intend to address in the first half of the recess, during what I hope will be a busy July for me, is that white paper. I hope that we can start afresh in Scotland, and I will consult with colleagues and other agencies on taking that agenda forward.

Photo of Mike Watson Mike Watson Labour

I cannot guarantee that the Finance Committee will be entertaining under my convenership, but it will certainly be lively and I am sure that those who are involved will be inquisitive.

The minister mentioned the FIAG report, which everybody has welcomed, including myself. It is an excellent document, and I am pleased that the Executive has given it broad approval. That report raised the issue of budget approvals. Both the Audit Committee and the Finance Committee will be asked to examine primary versus secondary legislation to make those approvals. I ask the minister to clarify that that means the endorsement of some sort of amendment bills by order. Can he assure me, on behalf of the Finance Committee, that that will not preclude any kind of consideration? FIAG set out a fairly elaborate three-stage process for the approval of the budget bills themselves. Will the amendment bills, if not using the same process, at least have adequate Finance Committee consideration? Of course, the final decision will rest with the Parliament as a whole.

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

I can give Mr Watson a firm assurance that the final decisions will always rest with the Parliament. The most significant of a number of points that I want to raise in the Finance Committee is that, if during the year we were to go through a system of budget amendment bills as well as a main budget bill early in the year, a four-week period would be required-after those amendment bills had been agreed in this Parliament-during which the Law Officers could refer them to the Privy Council.

Whether or not that ever happens, that four- week delay may be something that this Parliament would not want to happen when its budget decisions are being implemented. That is a specific point that the committees might want to consider. There would be no reduction or removal of rights over financial decision making in this chamber; it would be a way of ensuring that the Parliament's financial decisions could be implemented as quickly as possible if we choose to go down that road.

Photo of George Reid George Reid Scottish National Party

I shall take three more quick questions.

Photo of David Davidson David Davidson Conservative

On a point of order, Mr Deputy Presiding Officer. I asked the minister to clarify whether, when he used the phrase "broadly accept the report", he meant that there were other parts of the report that were not accepted.

Photo of Keith Raffan Keith Raffan Liberal Democrat

I welcome the minister's statement and his commitment to openness and a constructive dialogue with Parliament and its committees.

I have two points. First, how lengthy and complex does he expect the proposed accountability, budgeting and audit bill to be, and is he satisfied that there will be sufficient time for pre-legislative scrutiny, bearing in mind that we are working to a very tight timetable?

Secondly, I also welcome the FIAG report. In setting out the budget process, it makes clear that consideration of strategic priorities for the financial year 2001-02 cannot begin until the current financial year, 1999-2000, ends next April. That obviously means that consideration of spending for the next year, 2000-01, will be severely curtailed, as the Parliament has only just come into existence. We have already lost two months. Will Mr McConnell comment on that and say when he expects to be able to publish a preliminary draft budget for 2000-01?

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

I would like to answer Mr Davidson's point because the issue of broadly accepting the report is important. In my statement I specifically mentioned the two issues on which I want to consult with the committees: one is the use of primary and secondary legislation and the other is the future of public audit arrangements in Scotland. That information was in my statement and I furnished Mr Davidson with a copy in advance, so I hope that he was able to look at it.

I am happy to confirm that we will have time for adequate pre-legislative scrutiny. The FIAG report has been in the public domain for some time now and we have already had a lot of feedback on its contents. The bill will be based on that report.

I am conscious that, based on the FIAG report, we are two months behind schedule at this stage on the budget for next year. I hope that we will be able to apply some creative effort to ensuring that Parliament is able to consider, both in committees and here in the chamber, proposals for next year's budget at the earliest possible date after the summer recess.

Photo of David McLetchie David McLetchie Conservative

Will the minister confirm, notwithstanding the terms of his statement today, that the tartan tax is not dead and that what we have heard is an uncharacteristic temporary respite care for Scottish taxpayers? Will he confirm that the members of the Lib-Lab Administration believe in the tax-varying power and do not rule out its application to Scottish taxpayers in the future if we have the misfortune to return them at another election?

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

It must be a matter of great regret for Mr McLetchie that the Administration has taken this decision in a united and unanimous way. We are sure that we will spend the resources of this Parliament and this Executive well during the next four years.

When it comes to financial matters, there is a duty on all four main parties and on the others represented in this chamber not to make financial matters merely a political football during the next four years, but to ensure that we go into the detail of the budget, identify savings and spend resources on the priorities of the people of Scotland.

Photo of Andrew Welsh Andrew Welsh Scottish National Party

If I heard Mr McConnell aright, he said that the memorandum on the bill would be made available to the Finance Committee and the Audit Committee by this weekend. Why not today?

Will he also tell us what time scale he envisages for the creation of Audit Scotland?

Photo of Rt Hon Jack McConnell Rt Hon Jack McConnell Labour

The issue of the creation of Audit Scotland is one of the matters on which I want to report in detail to the committee.

The memorandum cannot be made available today because I was not prepared to finalise its contents until I had heard feedback from members in the chamber this afternoon. This evening, I intend to finalise the memorandum on the basis of comments that have been made today, so that any new points can be taken on board. The memorandum will be circulated first thing tomorrow morning.