Budget Process 2005-06

– in the Scottish Parliament at 9:30 am on 23rd December 2004.

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Photo of George Reid George Reid None 9:30 am, 23rd December 2004

The first item of business is a debate on motion S2M-2179, in the name of Des McNulty, on the 8 th report in 2004 of the Finance Committee, "Report on Stage 2 of the 2005-06 Budget Process".

Photo of Des McNulty Des McNulty Labour 9:31 am, 23rd December 2004

This is my third speech in the graveyard slot in end-of-year budget debates, but it is the first when I do not have to worry about what Rab McNeil will have to say about me in The Scotsman the next day. Unlike Rab McNeil, I probably cannot promise to be entertaining, but I will try to be thorough. I hope that I will be able to do so without taking up too much time, although I understand that time is not a problem in this debate.

I will begin by dealing with some of the more technical or process issues and then I will deal with some of the more substantive issues that the Finance Committee's report raises.

In its response to the Finance Committee's stage 1 report, the Executive accepted the overwhelming majority of the committee's recommendations. Ministers and their officials continue to work closely with the committee in making important modifications to the format of the budgetary documents, which has greatly increased the transparency of financial management in Scotland. Members may be interested to know that we intend to hold a specialist seminar towards the end of March to highlight what has been achieved and to consider further how we can improve our examination of performance target setting and the measurement of performance.

The chief complaints from subject committees were about the shortness of the timescale for scrutiny and the number of targets in each portfolio. However, I emphasise that the subject committees have also reported continuous improvement in the presentation of budget information and documentation. Partly as a result of those issues being raised, we have agreed further reforms of the budget process that are designed to strengthen further parliamentary consideration of the Executive's budget strategy. I will spell out those reforms shortly.

The Executive is due this year to review formally the agreement on the budget process. The Finance Committee recommends that, as part of that review, the Executive consider how the timetable for the budget could be revised to provide the required flexibility. In particular, we need to ensure that adequate time is available for committee scrutiny following spending reviews, especially when there is—as there was this year—slippage in the process.

The Finance Committee recommended in its stage 1 report that there should in the future be a more streamlined budget process. The Executive has now agreed with us that there should be a clearly differentiated two-year cycle, with the annual evaluation report and longer-term strategy covered only in spending review years; that is, every second year. Therefore, there will be no AER next year.

The presentation of information on a number of issues, such as cross-cutting themes, block grants to health and local government, and efficiency and value for money, remains a concern for the committee. We also have concerns about the way in which the Executive presents portfolio budget priorities in the draft budget document. The committee believes that further improvement in the presentation of the information is required and we will continue our dialogue with the Executive to progress that.

The committee was pleased to note that, in line with its stage 1 recommendations, nearly all 64 process-based targets have been dropped. There has been a significant reduction in the number of performance targets and a qualitative shift from process to output-based measures following the spending review 2004.

In response to recommendations in other recent committee reports, the Executive has provided for significant increases in spending for justice, higher and further education, housing and in capital, as distinct from revenue, spend.

Photo of Brian Adam Brian Adam Scottish National Party

I acknowledge that changes have been made and that many of them are for the better. However, does Mr McNulty agree that more transparency is required not only in respect of the individual silos to which the moneys go, but in respect of cross-cutting issues, particularly matters such as outcomes from moneys that are made available for tackling drugs and, most significant, from the large sums of money that are added into a variety of formulas to deal with deprivation? Does Mr McNulty agree that we ought to have cross-cutting reviews on those matters and that we should also have outcome measures?

Photo of Des McNulty Des McNulty Labour

I think that Mr Adam was a member of the committee when we started down the route of undertaking cross-cutting reviews. The two cross-cutting reviews that we undertook in the previous session of Parliament were very useful; this session's committee has continued the process and we are currently conducting a cross-cutting review into economic growth, which is designed to ensure that we overcome the silo mentality that exists within the Executive and find better ways to ensure that money is being spent sensibly across the board. I will address those issues in more detail in a couple of minutes.

We welcome the Executive's responses to our recommendation that priority be given to programmes that support economic growth. We considered, in the course of our deliberations, whether it was appropriate to ask the Executive to set a numerical target for economic growth. Our conclusion was that it would not be sensible to set a numerical target because worldwide economic performance and the global economic cycle are key determinants of economic outcomes and lie outwith the Executive's control. However, as the Executive has chosen growing the economy as its top priority, we believe that it should clearly link objectives and targets in its spending programmes to economic growth. To do otherwise would be inconsistent with the Executive's approach to financial management, which seeks to link allocations to outcomes.

The committee's view was, having heard from ministers and officials, that Scotland should use a range of indicators to benchmark its economic performance against an appropriate set of comparator regions and nations. A target fashioned in that way might take the form of improvement relative to other countries or economic regions over a designated period. However, as important as setting appropriate targets is identification by the Executive, as explicitly as possible, of the outcomes that it seeks from relevant public expenditure, especially capital investment, in terms of economic growth. If a project is unlikely to deliver against the criteria that are set, it should be reviewed.

The central question is whether spending in areas of expenditure that could contribute to economic growth is properly targeted and delivers the expected uplift. As the minister will be aware, the committee has undertaken a separate inquiry on that. We would certainly welcome a continuing dialogue with the Executive on the development of an appropriate target, and on the other issues that are raised, when our report has been published.

Reports from the subject committees contain a number of comments and recommendations about inflation assumptions. Current Executive practice is to assume that the current budgetary provision will suffice both to meet pay and price movements and to permit service development. As the departmental expenditure limit is a cash control, there is no automatic readjustment for inflation from Whitehall if inflation exceeds current expectations. The committee understands that the current practice is to use the Government's inflation target, which is currently 2.5 per cent, as a broad ballpark figure for departments, in the expectation that variance from that will be managed within the appropriate DEL.

The Enterprise and Culture Committee suggests

"that, in future, inflationary assumptions should be clearly identified".

The Local Government and Transport Committee argues that inflation for local government should be subject to a review if it

"is significantly higher than previously assumed".

The Finance Committee recognises that cost inflation can vary between portfolios and that there are difficulties in the use of the Treasury's gross domestic product deflator to measure spending plans in real terms. However, we also accept the Executive's argument that it would be difficult to include inflationary pressures in the budget because to do so could, among other things, influence wage negotiations because the figures given could end up being the starting point.

If inflation did become significantly higher than the Government's target, budgetary plans might be adjusted, but given the small contingency that is available it would be surprising if supplementary allocations were made rather than programme outputs revised. However, where inflationary pressures reflect Executive decisions—such as the new consultants' contracts in hospitals—it is important that the assumptions that underpin the cost estimates of such changes are properly taken into account in preparing budgets, and are made public for independent scrutiny. The Health Committee reported that

"the information available to it ... remains inadequate for it to reach conclusions about the sufficiency of health resources set against the obligations on local health boards arising from national policy decisions."

That conclusion chimes with Finance Committee concerns that financial memorandums for bills do not always provide a full picture of the costs of new policy within legislative proposals. It should be axiomatic that every major policy decision is properly costed and budgetary provision identified. It would be impractical to incorporate detailed financial analysis of policies within the draft budget, but we are keen to discuss how and where those issues should be addressed, especially where policy change involves substantial expenditure but does not necessarily involve legislation. Although we might all applaud the policy intent of, for example, yesterday's announcement on concessionary travel, it is important that major policy initiatives such as that be subject to full financial scrutiny.

Photo of Alex Neil Alex Neil Scottish National Party

This is intended to be a constructive and helpful intervention, as always, but in the light of what Des McNulty has just said about the need properly to cost the implementation of legislation, is not there a case—there are other reasons why this should be done—for establishing for Parliament an equivalent to the USA's Congressional Budget Office, so that we can get assessments and estimates of cost independent of the Executive? Will the Finance Committee consider that possibility?

Photo of Des McNulty Des McNulty Labour

There is an interesting set of issues in that question. Parliament has been fortunate in having the assistance of Professor Arthur Midwinter over the past three years. His expertise has assisted the Finance Committee greatly in identifying the reality that underlies the budget statements and in interpreting movements and shifts. If we did not have that independent assistance, we would have to consider how it could alternatively be provided. Alex Neil's suggestion could be considered in that context.

I want to talk briefly about equality proofing, because it seems to the Finance Committee that the Executive has perhaps fallen behind in that regard. Last year, the committee praised the treatment of equality in the draft budget 2004-05, stating in its stage 2 report:

"The Committee also welcomes the introduction of a distinctive section on Equality which identifies spending across departments and marks important progress on the equality proofing agenda".

The committee further recommended that

"the Closing the Opportunity Gap and Sustainable Development sections of the portfolio chapters in the Draft Budget should adopt the model used in the Equality section, and identify relevant activities and costs."

We regret therefore that this year's approach represents the other cross-cutting sections' information from previous years rather than the equality model that was introduced last year. Furthermore, the information that has been provided is mainly about uncosted activities, which is of relatively limited use in a budget document. We note the concerns that were expressed by the Equal Opportunities Committee about the inclusion of equality within the closing the opportunity gap theme, which that committee believes has led to a diminution in the treatment of the equality dimension in the document, despite the fact that about 10 per cent of the targets in the document relate to equality groups and issues.

In the spending review process, growing the economy, closing the opportunity gap and sustainable development were used as wider criteria, along with portfolio objectives, for evaluating spending proposals.

Photo of David McLetchie David McLetchie Conservative

So far, in Des McNulty's enlightening remarks, we have heard "cross cutting", "top priority", "growing the economy", "equality proofing" and "sustainable development". Can we look forward, before Des McNulty concludes, to some of the other great favourites, such as "benchmark", "blue-sky thinking" and—of course—"raising our game"?

Photo of Des McNulty Des McNulty Labour

Mr McLetchie may wish to raise his game. I would not deny him that opportunity.

I move on to local government. The health, transport, education and young people budgets, and the tourism, culture and sport portfolios all received relatively big increases this year and will do in subsequent years. In contrast, however, local government has received a relatively low increase of 3.7 per cent compared with a 6.7 per cent average increase. I am sure that I am not alone in my concern that local government's share of the Scottish budget has fallen consistently since devolution, although its grant has increased in real terms. Local government is now responsible for about 30 per cent of the budget. The three-year local government settlement presents considerable challenges to Scotland's local authorities, especially towards the end of the spending review period. Local authorities are major providers of public services and there are a number of pressures on councils, not least the new burdens that are being imposed by Parliament through legislative changes.

The other side of the council funding equation is council tax. Council tax increases in Scotland have averaged 4.8 per cent per annum since 1999 and, although that compares favourably with the 9.2 per cent average increase in England and 9.6 per cent in Wales, we anticipate that the local government settlement will increase council tax bills by above inflation rates this year. It will be a major challenge for local government to hold council tax increases to the Executive's target of 2.5 per cent in each of the two subsequent years.

I recently spoke in Parliament about the problems that are faced by West Dunbartonshire Council, which is to get the lowest rises in aggregate external finance in 2006-07 and 2007-08, without the cushioning effect of the cities fund, which has assisted Glasgow and Dundee. That is despite West Dunbartonshire's having the second highest level of deprivation after Glasgow. It is nearly 10 years since the Conservatives introduced the current funding system for local government, which has in my view survived largely because the Convention of Scottish Local Authorities haves oppose any change in the funding formula that would benefit the have-nots.

The Executive has not, since 1999, forced through a fairer distribution of funding to local authorities, but I believe that that would do more than anything else to close the opportunity gap that blights Scotland. I believe that a fairer distribution formula, which would ensure that local authority areas where there are high levels of deprivation—including West Dunbartonshire, Dundee, Glasgow, Inverclyde and two or three other areas that run the risk of falling further behind if nothing is done—cannot be delayed. I hope that ministers will, when they consider the settlement, take that on board and consider future funding arrangements for local government.

Photo of Brian Monteith Brian Monteith Conservative

I thank the convener of the Finance Committee for giving way. I would be interested to hear his views on redistribution of non-domestic rates income from cities such as Glasgow and Edinburgh to other parts of Scotland. How does that fit in with his view about redistribution of tax receipts?

Photo of Des McNulty Des McNulty Labour

There is a system that links together the redistribution of non-domestic rates and domestic rates. I have made it clear that that system is not particularly fair, but it is a complicated issue. Mr Monteith will realise that it is not simply a question of changing the system to benefit one type of authority, relative to others. Cities would benefit from more straightforward redistribution on the basis of where the revenue comes from, but areas such as Aberdeenshire might lose. I recognise that that would be an unfair change to make on its own. There is need for a re-examination of the system of how we pay for the services that need to be delivered in particular by local authorities that have high levels of deprivation.

I turn to efficient government, which I am sure is a section of the report that other members of the Finance Committee will have something to say about. In its stage 1 report, the committee concluded that it is

"imperative to seek continuous improvement in the efficiency of public expenditure".

We therefore welcomed in principle the Executive's announcement in June that it would introduce an efficient government initiative, a key aspect of which is the adoption of more innovative and effective delivery mechanisms, with the aim of freeing up resources to be diverted to enhancement of front-line services. Unfortunately since then the debate has centred on comparisons being drawn between efficiency targets for Whitehall, and those that have been set here in Scotland. In Whitehall, the target was set at 2.5 per cent per annum, or £21.5 billion over the spending review period, of which at least 60 per cent would be cash-releasing, while other savings would result in gains in "productive time".

After a long period, the Finance Committee has established that the savings identified here in Scotland amount to £745 million, and that there exists the prospect of that amount being increased to about £900 million. I will not go into a narrative about how we sought to establish the level of savings, or the problems that we had in reconciling different statements comparing Whitehall and the Scottish Executive. All of that is set out in our report. Suffice it to say that the Scottish Executive went about the process in an entirely different way from Whitehall—as, of course, it is entitled to do.

The Scottish Executive's way of going about the process has significant advantages. Instead of setting a high bar and considering what savings could be made to meet the target, the Executive has considered where savings can be made and begun to build them up. From my experience of local government, that is the more sensible way.

The committee has a considerable amount of information about the savings that the Executive intends to achieve and, in the new year, we intend to examine more closely the proposals for delivery. In that context, the committee recommends that the arrangements for planning, managing and reporting on efficiency targets and performance be considered jointly as part of the review of the agreement on the budgeting process between the Scottish Parliament and the Scottish ministers, which will take place next year.

Photo of Alex Neil Alex Neil Scottish National Party

Does the Finance Committee agree with Professor Midwinter that the Executive's figures on the savings were mince and that they were fiddled?

Photo of Des McNulty Des McNulty Labour

Professor Midwinter did not use either of those words—what he said is well recorded in our report. He has been meticulous in trying to identify the actual savings as clearly as possible.

I put on record my appreciation of the serious and positive response of ministers and their officials to the various issues that the committee raised during the budget period. I am also grateful for the work of our clerking team of Susan Duffy, Terry Shevlin, Emma Berry and Christine Lambourne and for the support that has been provided by the Scottish Parliament information centre—particularly by Ross Burnside and Jim Dewar—and, of course, by the committee's budget adviser, Professor Arthur Midwinter. All those people have ably assisted the committee in its work. Committee members are greatly indebted to them. I also thank the committee's members, who have worked hard during the year and done a good job.

I move,

That the Parliament notes the 8th Report 2004 (Session 2) of the Finance Committee on Stage 2 of the 2005-06 Budget Process (SP Paper 257) and refers the report and its recommendations to the Scottish Executive for consideration.

Photo of Jim Mather Jim Mather Scottish National Party 9:52 am, 23rd December 2004

I, too, thank my colleagues, our adviser, Arthur Midwinter, and the great team of people—including the clerks and representatives of SPICe—who maintain and support the Finance Committee. This year's stage 2 report is further evidence that the committee and those who advise it will not shrink from challenging that which needs to be challenged. I am proud that the committee has called for a top-level target or forecast on economic growth and that it has exposed the weaknesses in the Executive's claimed efficiency savings, especially its tendency to inflate and multiply claimed savings.

The committee's report is significant; it exposes the Executive's weaknesses in managing economic strategy and in day-to-day operational efficiency. It is also pleasing evidence that SNP arguments continue to bear fruit. We have already forced the Executive to make economic growth its top priority and to acknowledge the dangers that Scotland faces from population and demographic change. Now, as a result of the Finance Committee's report, civic and corporate Scotland will expect a target for economic growth and a material improvement in Government productivity and financial efficiency.

Photo of Tavish Scott Tavish Scott Liberal Democrat

What is the member talking about?

Photo of Jim Mather Jim Mather Scottish National Party

There is more to come—just keep listening.

There is much scope for improving efficiency, openness and accountability, which are not automatic by-products of the Executive's financial management or publications. Members were recently given a copy of the novel "Joseph Knight" to mark the appointment of the Scottish Parliament's writer in residence. The novel was more illuminating than most Executive publications are, for it contained the following quotation from the Nigerian novelist Ben Okri, who wrote in his novel "Birds of Heaven":

"Nations and peoples are largely the stories they feed themselves. If they tell themselves stories that are lies, they will suffer the future consequence of those lies. If they tell themselves stories that face their own truths, they will free their histories for future flowerings."

I am not about to accuse ministers of telling lies, but I will show that Executive spin is producing a story about Scotland that could damage us all and postpone our "future flowerings" dangerously and unnecessarily. I refer to the many basic concerns that we still have about the budget process and about Scotland's economic and financial management. We are still totally unconvinced by the Executive's implicit claim that having virtually no economic powers is a basis on which to improve Scottish living standards to levels that are enjoyed elsewhere. The people do not believe that, the business community does not believe it, most MSPs do not believe it and no neutral observer of Scotland believes it.

The continuing lack of powers is the key reason why ministers seem to lack urgency, passion or a compelling and contagious obsession with Scottish national self-interest and competitiveness. They stand alone in the developed world in clinging to the belief that our budget's expenditure-only approach can work. That might be a touching example of false-hope syndrome, but it could be disastrous for Scotland. The approach has not worked for 40 years or more and it will never work as long as we are competing against countries that have more fulsome economies, where money is spent to save money elsewhere, to build and protect assets, to increase skills and maximise life expectancy and hence to produce sustainable prosperity that is rooted in the country, thus providing better value. Crucially, those countries always aim to maximise their revenue. We are the only country in the world whose Government's strategy is to find a blend of spending to produce better outcomes; everywhere else, the strategy is to continue to create the conditions that produce incrementally better outcomes.

Sadly, our Government compounds the error by highlighting its weakness and failure through continuing to produce the discredited annual "Government Expenditure and Revenue in Scotland"—GERS—report. That grotesque and shameful exercise in negativity and deficit manufacture is wrong, dangerous and damaging for Scotland. The report's effect is equivalent to that of corporate profits warnings, which always result in a company's loss of credibility, value, investors and key staff.

Photo of Des McNulty Des McNulty Labour

Does the member accept that the only reality that the GERS report describes is the one that is most uncomfortable for the SNP? Some of the member's arguments have been entirely discredited, not just by the GERS report, but by much of the evidence that the committee has heard in the past year. People simply do not believe him.

Photo of Jim Mather Jim Mather Scottish National Party

Of course the GERS report is uncomfortable for the SNP; it is uncomfortable for all of Scotland because it is a wooden stake in Scotland's heart that prevents us from making progress.

The GERS report is unnecessary and deliberately ignores the true situation, which is that deficit is more common at UK level. The reported deficit does not stand up to audit. The GERS report would have us believe that the deficit has grown to £9.3 billion, which is 29 per cent of Government income in this country. Dr Goudie has said that the GERS report tells us nothing about independence. An independent Scotland would quickly and readily wipe out the deficit. A quick calculation shows that our oil revenue would wipe away 47 per cent of the deficit; that a proper small-country growth rate would wipe away at least 17 per cent; that our full share of UK revenue would wipe away 8 per cent; that proper and full Gershon savings would wipe away 11 per cent; that social security savings would wipe away another 7 per cent; and that a proper share of civil service jobs and defence spending would wipe away even more. The deficit would be cleared easily. Glib acceptance and augmentation of the deficit is a dangerous hostage to future fortune.

Photo of Wendy Alexander Wendy Alexander Labour

In the spirit of the times I, too, have a helpful question. The SNP is in favour, should it win power, of holding a referendum about Scotland's future status within its first year. I presume that it would like to have data. Given that the GERS report considers the balance between Scotland and England, will the member clarify whether the SNP is opposed in principle to the publication of such a document, or whether it simply does not like the results in that particular document?

Photo of Jim Mather Jim Mather Scottish National Party

Wendy Alexander makes a good point. The GERS report is a useful basis in that it allows us to make progress and to do something about the deficit. It would be more useful if the Government included in the document a statement about the potential to minimise the deficit. However, that is not done; instead, the deficit is inflated. Would a private company do that and watch its share value and competitiveness plummet while good people left the ship? The perpetuation of the GERS exercise could be exceedingly damaging for Scotland. It is a shabby attempt to persuade the people of Scotland that we are a dependent nation that is incapable of Ben Okri's "future flowerings". The danger is that it could have unexpected results in this land of unintended consequences.

Photo of Jim Mather Jim Mather Scottish National Party

Let me finish the point.

The GERS report could repel and export more people and investment, and further reduce growth. It could strengthen claims from other parts of the United Kingdom that the consolidated fund should be cut. It could have this great country sleepwalk into genuine dependence. Happily, however, it will also sweep the current Executive from power, especially given that the true position is that we are doing well and could be doing much better.

Of course, we are still clamouring for a strategic target on economic growth. I have been on that case since I was elected and I am delighted to see that the Finance Committee now supports that call as well. The advisers and the committee members have done the right thing and added weight to the growing number of people of principle who see the need to put Scotland first. Setting this economic growth target would be a positive step toward releasing a unifying sense of purpose in Scotland. If we do not do that, we leave the door open for competitors to allege that we are not serious about growth, which will result in a further diversion of investment and people away from Scotland. Outcome targets of this nature are good and necessary and I reject the suggestion that, because an outcome target could be influenced by external factors, no target should be set. It would be easy—and detrimental—to take that option.

Photo of Jim Mather Jim Mather Scottish National Party

I want to finish this point and make some progress.

Photo of George Reid George Reid None

You do not have a great deal of time left.

Photo of Jim Mather Jim Mather Scottish National Party

Still—I want to keep the momentum of my speech going.

While successful businesses will always take account of seismic external shifts to explain missed targets or over-performance, they will still always set targets in order to concentrate minds, to trigger co-operation and to properly focus resources. Government should be no different. Some commentators have asked whether we should have a Government target or a Government forecast for economic growth. For me, however, those words are synonymous. Not setting a target is just as significant and painful as not making a forecast and exceeding a forecast is just as pleasing as exceeding a target. Without them—and especially without top-level targets for growth—we are rudderless. As Peter Drucker said:

"If you can't measure it, you can't manage it."

Photo of David Davidson David Davidson Conservative

In the blissful world that the member describes—when Scotland becomes independent and Mr Mather, as chancellor, asks himself who creates wealth and gives himself the answer, "Business"—what measures will he put in place in year 1 that would give business a reason to stay in Scotland and create wealth here?

Photo of Jim Mather Jim Mather Scottish National Party

We would have to look at the books. However, declarations of intent and a move towards making this country more competitive than the rest of the UK would be paramount. That has been the Irish model. Ireland did not have to take all the pain up front; it made declarations of intent and incrementally proved itself as it clawed its way up the competitiveness league table.

Scotland is under the scrutiny of the International Institute for Management Development and has a rating on the competitiveness league table. That is the parameter that we would work to; we want to push Scotland up that league table. At the moment, we languish at 29th out of 60—and 21st out of 30 small countries. That is no way to proceed.

In the recently announced efficiency savings, there is a clear lack of any indication that the costs of redundancy and technology have been offset in the calculation of those so-called savings. There have been too many unconvincing answers to tough-but-fair commonsense questions from the committee and from media commentators. Furthermore, there has been the embarrassing farce of treble accounting, the inclusion of the Scottish Water savers and the manifest failure to out-Gershon anyone.

Meanwhile, we have been fed flawed statistics that have made it harder for the people of Scotland to face the truth about their country, which can only further delay the future flowering of Scotland and really has to stop. The committee's report should be seen as being a step in that direction.

Photo of George Reid George Reid None

I call Brian Monteith. You have about 10 minutes.

Photo of Brian Monteith Brian Monteith Conservative 10:03 am, 23rd December 2004

For once, the speaking time in this chamber is as bloated as the Executive's budget. Given my view on the budget, I will probably be briefer than 10 minutes, unless I take some interventions, of course.

I rise with pleasure to speak in this debate on the Executive's budget. For some five minutes, however, I thought that I was here to debate the GERS document. Of course, that comes as no surprise because the Scottish National Party does not particularly wish to challenge the Executive's budget. The SNP supports the Executive's budget—if it has a criticism, it would probably be that the budget does not go far enough and that more spending commitments could be made.

I will give an entirely different view, which is what one would expect the Opposition party to do. I will consider the Finance Committee's report, but I will also offer some opinions on where the Executive is going wrong in its budget.

Photo of Alex Neil Alex Neil Scottish National Party

In the light of an intervention that Mr Monteith made yesterday, and in the interests of clarifying Tory policy on spending commitments, will the member say whether he is in favour of the introduction of identity cards or, like Mrs Thatcher, against it?

Photo of Brian Monteith Brian Monteith Conservative

I have absolutely no difficulty in answering that question, because my views are on record. If I have such a record, I should hold to it. My personal position is that I am against identity cards and I do not dissemble in any way in that regard. However, that is not a decision that we have to take in the Scottish Parliament. If it were, we might be having a fruitful debate today.

Like my colleagues, I would like to comment on the Finance Committee's findings. I would also like to comment on the context in which the committee's work must be placed.

Not for the first time, the Finance Committee has done the Parliament a service by finding a degree of consensus across its members that is surprisingly critical of the Scottish Executive's budget or budget process. That is surprising because, after all, the committee has a majority of members from the Executive parties and, within that cohort, there are four former ministers, two of whom could still be expected, with good cause, to harbour ambitions to hold office again. Yet that consensus around a critical analysis of the Executive's position has been achieved, which is a credit to the committee. [Laughter.] Members were extremely slow in working out what I meant when I said that only two of the former ministers were worthy of promotion.

The Finance Committee has drawn to Parliament's attention some concerns about the process, the target setting, the timing, the unavailability of material and the obfuscation of the Executive. Of course, those issues are not new and the committee has made points about them regularly. Although, occasionally, progress is made in relation to those points, we want more progress to be made.

The Finance Committee, helped by the submission from the Local Government and Transport Committee, has voiced concern about council tax increases and the pressures that local authorities face. Naturally, the committee is concerned about the fact that those council tax increases are above inflation.

The committee was unable to take into account in its report the recent announcement on efficiency savings, but we can see already, from the discussions that the committee has had on that matter, that the committee will be a source of critical analysis in that regard. Across the parties, we all want those efficiency savings to be achieved in the name of good government and value for money for everyone who pays taxes. However, can the Executive's efficiency targets be achieved? Are the targets real? Can more be done? Those are questions that I look forward to the Finance Committee asking.

There is much to commend in the report. For that reason, I welcome it and acknowledge the work that the committee's members did to produce it, and I share the convener's expression of support for the committee's advisers. However, we must consider not only what the report says, but the context in which it must be placed.

There are at least two elements to that context. The first is the effect that the Executive's budget has on the Scottish economy and the second is the effect that the Chancellor of the Exchequer's spending plans, which fund the budget, have on the British economy, which is, obviously, linked to the overall Scottish economic performance. Those are two areas in relation to which the members of the Finance Committee would find it far harder to reach consensus, but they are no less important to the debate than those on which they can reach consensus, because they relate to the sustainability—I am sure that David McLetchie would be disappointed to hear me use that word—of economic growth, which will have direct consequences for future budgets and, therefore, the provision of the public services that members of all parties hold dear. Surely we all agree that, if the wheels come off the Executive's wagon or if the chancellor's juggernaut veers off course, it will be the poorest people—those who are most dependent on public services—who will suffer the most.

It is not only my opinion, but that of many reputable economists that the proportion of public sector spending by the Executive in the Scottish economy is a contributory factor to the relatively poor performance of Scotland when measured against various UK averages or particular regions of England. The creation of new businesses, the profitability of businesses, job creation and corporate tax revenues all suffer from the suffocating effect of that large proportion of Executive spending, which is now about 54 per cent of its spending in Scotland, on the sustaining of an enterprising culture, which there is a degree of consensus in the Parliament to support.

Furthermore, the heavy taxes that are required to sustain such spending can and do suppress productivity gains, entrepreneurship and risk taking, which are vital if individuals are to drive the private economy towards the prosperity that feeds the public services that we support.

Photo of Alasdair Morgan Alasdair Morgan Scottish National Party

I am trying to follow the member's logic. Of course, the problem that we have is that total Government expenditure in Scotland is determined not by the Government in Scotland but by the Government at Westminster. How does Mr Monteith propose to reduce the percentage of the total spend to which he refers? The only way that is open to him without making Scotland independent is to use the up-to-thruppence reduction in income tax that this Parliament can decide to make. Is that what he proposes?

Photo of Brian Monteith Brian Monteith Conservative

I am not proposing anything today, and I do not mind that being drawn out of me. I am merely observing what is in the Finance Committee report and the budget documents and the effects that they might have. I will make some comments on the point that the member raises, but I point out that the Parliament, in addition to having the power to vary income tax, has the power to vary business rates. It also has other tools regarding charges, such as the graduate tax.

Given the overall context, I do not believe that ministers have any right to feel as pleased with themselves as they do today and have done in the past. They might enjoy making the spending announcements that they dole out regularly to their constituents or to larger constituency groups, but they continue to sow the seeds of the nation's economic ruin. The Executive believes in intervening in all sorts of personal addictions, such as addictions to tobacco, alcohol and foods, but it does not recognise that it is hooked on the easy headlines of spending other people's money. Its economic flatulence will have to be cleaned up by other politicians in years to come. That is the sorry prospect for our sons and daughters and the generations to come, and we must wake up to the prospect now if it is to be avoided.

The situation occurs because ministers do not feel the pain of the Scottish taxpayer—Alasdair Morgan will like this bit—or enjoy the bounty from a buoyant economy. Our Scottish Government is intravenously fed its daily fix of taxpayers' pounds by a Chancellor of the Exchequer who sits in a different Parliament and is accountable to no one here, and certainly not to our Finance Committee. In the short term the situation causes delirium, but in the long term it will deliver economic destitution and the certain downfall of this devolved institution. A more direct relationship between the money that we spend and the money that we raise must evolve—that is the key word—if we are to comprehend the economic effects of the decisions that we take.

That leads me to discuss the British budget situation and the predictable but disappointing news that the chancellor's juggernaut is veering off course. Earlier this week, we learned of the worst monthly borrowing figure since records began. In November, the figure was £9.4 billion, which is £2.5 billion more than the figure for the same month in the previous year and greater than the pessimistic prediction of city analysts. Chief United Kingdom economists describe the UK's finances as "simply dreadful" and "horrible" and the list of bodies that expect the chancellor to increase taxes even further includes the leading banks' economists, the Organisation for Economic Co-operation and Development and the Institute of Fiscal Studies. Soon, no doubt, that list will include the International Monetary Fund, which is poring over the Treasury's books to see whether the figures stack up; that is relevant because that institution funds the announcements that the Minister for Finance and Public Service Reform makes.

When taxes go up and public services fail, the poorest in our society pay the most. Taxes will have to go up or services will have to be cut, and the Executive will have to defend that situation. I commend the work of the Finance Committee but I cannot commend the work of the Executive, which produced the budget, because it has sown the seeds of problems that we will have to face later in the day. Those who cannot recognise and face up to those problems will subject the poorest people in our society to problems that none of us wants them to face.

Photo of Wendy Alexander Wendy Alexander Labour 10:15 am, 23rd December 2004

The members who are here this morning are the hardy few. They are a bit like the shepherds in the Christmas story: the poor souls who are still at work when everyone else has gone to rest or to play.

I will dwell on the Christmas theme this morning, because the Christmas season is typically associated with generosity, gift-giving and largesse. Given the generosity of recent budget settlements, Christmas is perhaps a fitting time for the Parliament's budget debate. The budget is certainly in keeping with the Christmas spirit, with every department getting more. However, perhaps as we look ahead to a tightening fiscal climate—this comment might find favour with Mr Monteith—we should move the annual budget debate to January to engender a climate that is more conducive to belt-tightening, tough choices and restraint. In the days before Christmas, our task, like that of the shepherds of old, is to be watchful, but not for stray wolves or stars: we must be watchful about whether the budget represents the best possible shepherding of Scottish services.

I start, as I must, with the Opposition and the alternatives that are before us. The poor Conservatives are, of course, destined always to be the Scrooges in the Christmas story. They object to budgetary gift-giving in principle, and we were not disappointed this morning. They are about to fight an election on cutting taxes and cutting spending.

Photo of Phil Gallie Phil Gallie Conservative

As politicians, we can all be generous, but we are generous with other people's money. That is what we are talking about.

Photo of Wendy Alexander Wendy Alexander Labour

Give me a moment and I will come to that.

For the Conservatives, gift-giving is guaranteed to end in all areas that are not health and education—transport, crime reduction, the environment and many other worthy causes are under threat. Indeed, if the Conservatives were to win the general election, Santa's loaded sleigh of this year would be downsized to a small stocking by next year.

To dwell on Mr Gallie's theme, I can say without fear of contradiction that at no point during the almost 300 days since the spring budget heralded both largesse in budget gift-giving and belt-tightening efficiencies, have I seen or read a single solitary SNP press release acknowledging that there might be a case for efficiencies, far less offering a single suggestion about how they might be achieved. The silence has been as eerie as any silent night.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

I am grateful to the member for giving way, because I can give her a timely example. Yesterday, the Justice 1 Committee considered a statutory instrument that proposes to increase by 3.7 per cent the fees that are payable to sheriff officers. It also proposes that they should be recompensed for postage. No explanation was provided of that Executive-sponsored increase in the costs of one part of our community. Where does the 3.7 per cent figure come from? Can the member tell me? No explanation was proffered of why the more than a dozen headings should be uniformly increased, and that is a regular occurrence. When the Executive starts to manage the pennies, I will believe that it can manage the pounds, but it is not doing that.

Photo of Wendy Alexander Wendy Alexander Labour

In the spirit of the season, I think that we have just heard the first and only example of an SNP efficiency. It is Scotland's Government—the coalition—that is uniquely committed to both serious gift-giving and significant efficiencies.

Before Christmas comes advent, which is the season when the light emerges from the darkness. This year, we in the Finance Committee took advent rather seriously. With the expert help of Arthur Midwinter and the clerks, we tried to throw our own light on some peculiarly Scottish darkness. At this point, I can hear some colleagues—perhaps including the Minister for Finance and Public Service Reform—hoping that I will just leave things there. Of course, I am tempted to do so, but the whole point of advent is to prepare the way for the wise men.

This year, the wise men—and wise women—in the Scottish Executive have followed not a star in the east but our friends in the south. Not in some bleak midwinter but in the balmy days of summer, we pledged—to our colleagues in Government, to the people of Scotland and to ourselves—that we would commit to an efficiency programme that was "as ambitious" as the UK Government's and which would

"seek to secure comparable or greater gains in efficiency."—[Official Report, Written Answers, 27 October 2004; S2W-10531.]

That simple spending review promise was no fluffed line in an interview; it was considered, consulted upon, ratified by the Cabinet, made to the country and repeated to the Parliament. It is a promise that we have still to keep.

This Christmas, nine months after it was clear from the basic arithmetic that Scotland would need to find almost £2 billion a year by the end of the process if it was to stay in step with the rest of the UK, we are still committed to only half the efficiency gains that have been promised elsewhere. Even our most ambitious aspirations, which I endorse completely, take us only three quarters of the way there.

In an answer to a parliamentary question that was hurriedly answered last night after hours, the Executive has stated that

"it would serve no useful purpose to draw a direct comparison"—[Official Report, Written Answers, 22 December 2004; S2W-12912]

with other places. If, as we have been told, comparisons "serve no useful purpose", why did we in Scotland choose at our own hand to make promises in comparative terms that mentioned that we would match savings elsewhere and release as much for front-line services?

Does any of that matter? After all, it is Christmas. Do the people of Scotland want their politicians to be watchful about who said what and when? In one sense, they probably do not. Do they care that, when we tot up every ha'penny of promised savings, we are still £700 million light, which means that we are not yet committed to trying to save the equivalent of one and a half Scottish Parliament buildings over the next three years? I suspect that it is not that the people of Scotland do not care, but that they just do not know. That is why we need to be watchful on their behalf.

The issue is not simply about some lack of clarity in reporting or an arid accounting convention, but about our convictions and what we believe in. It is about our willingness to come to the chamber to defend those decisions as right in principle. We need to explain to Scotland why we have chosen to commit ourselves to only half, and to consider only three quarters, of the efficiency savings that are planned elsewhere. We need to explain why it is right in principle not to use the spending review and budget process as the way to move resources into the front line and why we are not making Scottish departments and Scottish ministers individually responsible for planned shifts to the front line.

I end by encouraging the Executive to be inspired by the light of Christmas to keep its summer promises. As long as we are committed to just around half of what is promised elsewhere, there is a risk—and it is only a risk—that we will get only half the benefits of the reforms. The fear is that, whereas elsewhere there will be electronic patient records, appointment bookings and prescriptions, we will get only half the benefits that will come from such reforms. In schools up and down the country, the hard-pressed teachers who are trying today to finish up for the new year do not want just half the benefits of less reporting and form filling. They want all the benefits. On our streets, Scots want all the benefits of the full 1,000 extra police officers that could be released for front-line duties rather than just 500.

On Christmas night, the shepherds' watchfulness was repaid. I hope that the watchfulness of the Finance Committee and of the Parliament will be repaid by an Executive that not only tells out the good news—it is very good news—about its budget plans, but resolves to say what it means and mean what it says. In politics, saying what one means and meaning what one says is the equivalent of carrying the light of Christmas into the new year.

Photo of Murray Tosh Murray Tosh Conservative

We move to open debate. Speeches should be of six minutes.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party 10:25 am, 23rd December 2004

I will play the grumpy old man to Wendy Alexander's spirit of Christmas. After all, when I were a lad, Christmas was a working day. My general practitioner father's sole concession to Christmas was that he held no evening surgery on Christmas day.

In answer to Wendy Alexander's accusation that the SNP has not cared about cutting costs, I have already given one example, but I will give two more, since she suggested that my first example was the only one. First, earlier this year, I opposed the blanket increase in planning fees that were to be implemented by local authorities because, if we manage the pennies, we will look after the pounds. Secondly, as far back as when Richard Simpson was a minister, I opposed the Scottish statutory instrument that increased the fees for licensing bingo halls and casinos. Now, that is something to be cheerful about. Therefore, I am no Johnny-come-lately to the cost-cutting agenda; I have been promoting that agenda since I came to the Parliament. However, where is Wendy Alexander's zero-sum budgeting today?

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

Oh, come on. Earlier, Brian Monteith claimed:

"I am not proposing anything today".

Is he about to start doing so?

Photo of Brian Monteith Brian Monteith Conservative

No, I am not about to start proposing anything. I simply want to ask Stewart Stevenson whether he can explain how a council not increasing its planning charges would be an efficiency gain. Would that not simply be a reduction in the revenue that the council receives?

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

I suggest that Brian Monteith read the Official Report of the relevant committee meeting to see the interesting response that I received from the minister. I argued that, given that we had passed a power of well-being to councils, we should not tell them what to charge for planning applications but allow them to set the charges for themselves. In that way, the efficient councils would deal with such applications more cheaply and efficiently, whereas the inefficient ones would lose by charging more. The response from the then Deputy Minister for Communities, Mary Mulligan, was that we cannot have councils competing with each other. The SNP stands for a competitive Scotland that can compete with its neighbours. That is what we will always stand for.

As one who spent his working life in business, I sometimes feel that I entered something of a time warp in coming to Parliament. The way in which we deal with our numbers here is at least—to be generous—a decade behind business practices when I retired five years ago. Accountability is one example. I remember going to the Bank of Scotland's board to get some £25 million for a project. At the end of the board's discussion—which did not last long, as people had been briefed—the chairman said, "Stewart, can you deliver?" I was required to say the one important word: "Yes." That meant that, notwithstanding the fact that I am a computery person who was introducing a computer project, I had to achieve the savings in the operational parts of the bank that would justify the expenditure on the computer system. The boundaries between departments were of no relevance to whether I was judged a success or failure.

One difficulty that I find in what we do in government is that while I can see the political accountability, I cannot see the operational accountability. Even ministers tell me privately that they have difficulties in getting civil servants to say, "I personally carry the responsibility for implementing your plan, minister, and I will be judged on my success or failure." We will move forward when there is accountability not just of ministers, but of civil servants.

There is something else missing from the way in which we examine our numbers: assets and liabilities. It is all very well having a statement that indicates the revenue picture year on year—indeed, for years into the future—but if we do not see the assets and liabilities we cannot make a judgment on whether we are sweating our public assets. One or two of the accounts deal honestly with some of those issues. I am not often in the position of praising the Scottish Prison Service, but the service was at least honest in including a contingent liability in its accounts for the issue of slopping out and certain court cases to which I will not refer directly. However, we do not see much more of that.

Another issue is long-term planning. I have asked parliamentary questions about how many dentists we will need in 10 years' time, but the Executive does not know. If we do not know what the world in the public services will look like in 10 years, how the heck will we get there? It takes 10 years to persuade someone to go through all the necessary training and to come out as a dentist. That is only one example.

We can manage the pennies in committees and the Parliament. When we do so, we manage the pounds. I have made a start as an individual member; other colleagues have done the same. In the coming years, we will challenge at every opportunity when the Executive is not getting value for money for the public pursue. We cannot rely on members from other parties to do that, as they have no suggestions. Only the SNP will stand up for the interests of Scotland and Scotland's people.

Photo of Murdo Fraser Murdo Fraser Conservative 10:32 am, 23rd December 2004

I will address two specific issues before moving on to more general points. The first is council tax. Des McNulty was gracious enough to mention that local government's share of the budget has fallen since devolution. He would know, as he was involved in local government in a previous life. We know that council tax has increased substantially since 1997, perhaps by 50 per cent or a similar figure. It represents a major burden, especially on people with low incomes. For people such as pensioners, who have fixed incomes that do not increase annually, the increases in council tax are becoming severe. All members know that from their mailbags.

Photo of Des McNulty Des McNulty Labour

As the member mentioned, I was involved in local government. I was there in 1996-97 and 1997-98, when the rate of council tax increase that the Conservative Government imposed was way above what we have seen since. The Tories, in particular, shifted the burden on to council tax. I applaud the Executive for allowing council tax to increase less than it increased under the Tories and less than it has increased south of the border in recent years.

Photo of Murdo Fraser Murdo Fraser Conservative

Of course, council tax continues to increase at a rate above inflation. Mr McNulty's point is that we started from a higher base. However, that is no consolation to pensioners if council tax continues to increase at a rate above inflation and they cannot afford to pay the bills. If the Executive wants to play Father Christmas, it should do something about the level of council tax. It has identified substantial efficiency savings from the budget—£700 million in three years. Why does it not use some of that money to reduce council tax bills and to give our pensioners a Christmas present?

My second specific point relates to business rates, an issue that I have raised on many occasions in the chamber. We know that over the past three years the Executive has over-collected business rates. In 2002-03, it collected £140 million more from businesses than it expected when it set its budget. That figure would have been enough to restore the unified business rate between England and Scotland. Scottish businesses have suffered for far too long. Anyone in business would tell members that business rates are a severe burden.

A few weeks ago, the minister made a statement on the setting of the rate. He announced proudly that the rate would not represent an additional burden and that he would engage with the business community if the rate continued to be a problem. However, just last week, the rate poundage for England was set. The result is that the gap between Scotland and England has widened once more. It had narrowed to 7 per cent, but it has now widened to around 9 per cent. That makes a mockery of the Executive's claim that it is pro-business and that growing the economy is its top priority. If it wants to play Father Christmas to the business community, it should do something about the widening gap between north and south of the border.

This is the last full debate in the chamber in this calendar year, so it is appropriate that I reflect on broader issues. I will add to some of the points that my colleague Brian Monteith made. In her entertaining speech, Wendy Alexander referred to the spirit of this time of year—the Christmas spirit of giving. However, as we are all aware, this is also the pantomime season. I say that not to seek to cast Mr McCabe and Mr Scott in the role of the ugly sisters, or Ms Alexander in the role of principal boy, or Mr Monteith in the role of Buttons, or Mr Raffan—who is sadly absent this morning—in the role of the owner of the flying carpet, but because this debate is a pantomime. It is a mockery of a real budget debate in a real Parliament with real financial powers.

Apart from on the setting of the business rate and the extent to which the Executive has control over council tax, it makes no difference to the amount of money that is available to the Executive who the finance minister is. If the finance minister were Mr Mather or Mr Monteith, that would make no difference to the size of the budget. Ministers go around Scotland celebrating the distribution of largesse to the populace. Earlier this week, £27 million was made available to remove tolls from the Skye bridge. Yesterday, a scheme of concessionary fares for buses was announced. All that money is being spent, but the Executive is not responsible for the size of its budget. It is deciding merely how to divvy up the cake.

There is no connection between the income and revenue base of the Parliament and the state of our economy. As Mr Monteith indicated, many people throughout Scotland have expressed concerns about the growing size of the public sector in Scotland, which now accounts for 54 per cent of the economy, and its brake effect on economic growth. However, there is no incentive for the Executive to do anything about that. Even complete economic collapse in Scotland would not stop the money rolling in—the Executive would still have the same budget to spend. That cannot be a healthy situation.

Before I excite members from other parties or, indeed, my own, I make it clear that I am not making a plea for fiscal autonomy or even fiscal devolution or fiscal federalism. However, I am making a plea for a Parliament that is more responsible for the money that it spends and more accountable for how it spends it. I have an entirely open mind about the mechanisms for achieving that, but it is clear that we have a problem and must deal seriously with it.

At this time of year, it is traditional to look back on what has gone before and to make resolutions for the future. I hope that we can all resolve to work for a more accountable, more responsible Parliament and for a new consensus to build a better Scotland. We will not do that with a pantomime Parliament with limited powers.

Photo of Donald Gorrie Donald Gorrie Liberal Democrat 10:38 am, 23rd December 2004

I hope that in due course members will hear from my colleague Jeremy Purvis, who is very active in the Finance Committee. Unfortunately, he was called away on a subject that is even more important than the Scottish economy—the Borders railway line.

Photo of Donald Gorrie Donald Gorrie Liberal Democrat

No.

I am not a financial pundit, so I will focus on one point—the issue of efficient government, about which the convener of the Finance Committee spoke, and best value in goods and services. I refer to an enlightened, intelligent view of best value, rather than the purely cash-based vision into which we are in danger of slipping.

I understand that there is pressure on councils, health boards, the police, the fire service and all sorts of similar organisations to join together in a national bulk-purchase organisation. There are occasions when bulk purchase is a good idea; if other things are equal and money can be saved, it is fine. However, we have to examine carefully whether other things are equal. Short-sighted decisions can be made to save a few pounds because some competitor has made a cheaper tender, but those decisions can be extremely destructive in other ways.

There is a serious risk that, in a few years, every organisation in Scotland will end up with one supplier. That would be a disastrous position to be in for all sorts of reasons. We have to study how to provide equal opportunities for small local enterprises. We are all supposed to believe in equal opportunities. I am not asking for cheating to be done on behalf of those small local enterprises; I am asking for a level playing field so that those companies can compete on equal terms with the big boys, because the cards are stacked in favour of the big boys. The purchasing officers understand the big boys and do not understand the small local companies, which might require a little more intelligence in the way in which they are dealt with.

We have to remove the obstacles that prevent community and social enterprises, small start-up businesses and small community businesses from competing for contracts. The rules often favour big businesses and discriminate against small businesses, so we have to get the rules right. We then have to educate the purchasing officers who interpret those rules so that they understand and take into account all the implications of their purchasing decisions.

We have to make the procedures more accessible to small businesses that might be frightened off from tendering. Those businesses need advice, mentoring and help to enable them to compete effectively and to get their due share of the market.

If a need for bonds or guarantees is hampering small businesses, guarantee societies and local community organisations could be formed, based on the model of chambers of commerce, to supply those bonds and guarantees collectively. If that was well done, the failure rate would be small and demands could be met.

The argument is sometimes advanced that European directives make it compulsory to stick to rules that sometimes favour big companies, but that is not the case for small contracts. If the bigger contracts are broken down into relatively small, local contracts, the European rules do not affect them. We can learn from the United States, where rules compel state Governments to specify what percentage of their purchasing is from local producers and services. There are many ways in which we could make it possible for a co-operative of local parents, for example, to compete to provide school meals, as opposed to the lorries that thunder up and down Britain full of very bad food.

We could also develop community recycling of goods and services. I have visited several organisations in central Scotland that recondition electrical goods, furniture and so on and provide them to councils and other organisations. There is a huge opportunity in that area, for which the community is especially well suited.

If we had an intelligent purchasing programme based on giving a fair deal to local community organisations, we could do a lot to develop communities; we would help to create more employment, to reduce disorder that arises from unemployment and to give self-confidence and lasting prosperity to communities.

Photo of Mark Ballard Mark Ballard Green 10:44 am, 23rd December 2004

I am grateful for the opportunity to reflect and comment on the Finance Committee's report on stage 2 of the budget process.

Des McNulty described this debate as the graveyard slot. As well as being finance spokesperson for the Green party, I am the party's representative on the Parliamentary Bureau. Although I agree that it is vital that we properly scrutinise the budget process in all its stages, I will be asking the bureau whether a session of this length is appropriate for this annual finance debate. Some of the speeches have been stretched and their timings indicate that there has not been the expected interest in the debate. The bureau should consider that matter.

Photo of Phil Gallie Phil Gallie Conservative

I am usually a stranger to this debate, but I still believe that the way in which our finances are spent is exceptionally important for the future of Scotland. I regret that Scottish Socialist Party members are not in the chamber to join in. Does the member share that regret?

Photo of Mark Ballard Mark Ballard Green

I regret that there are not more members from all parties in the chamber to take part in the debate.

I pay a qualified tribute to Des McNulty and all members of the Finance Committee, whose report covers a lot of ground and whose points are largely well made. Unfortunately, the report is notable for what it fails to address. Economic growth is prominent in the report, whereas sustainable development, on which all future economic activity depends, is very much a poor cousin.

However, I will not just criticise the report. During an earlier budget debate, I supported calls for the annual evaluation report to be scrapped in spending review years. I am delighted that the Finance Committee recommended such a move and that the Executive has accepted that recommendation. That will improve and streamline the scrutiny process.

Although I echo much of what the report says, there are areas where I must take a different approach. For example, as we have heard, the committee has discussed the idea that the Executive should set a numerical target for economic growth. My feelings on that are well known. I believe that the focus on economic growth risks blinding Scottish ministers to the potential negative impacts of growth. Setting targets is unlikely to help matters. We need growth that benefits our society, our economy and our environment in a truly sustainable way. The current fixation with GDP will never achieve that.

I hope that the chamber will permit me, at Christmas, to offer a counter-recommendation. If the Finance Committee believes that some form of target is appropriate, let it be one that separates sustainable growth from unsustainable growth. Let us have a target for genuine domestic progress—that would give a GDP that we could all support.

As Des McNulty commented, at a recent meeting of the Finance Committee an eminent economist gave evidence on Scotland's economic development. In his opening remarks, he spoke of the need to consider outcomes not outputs. I agree entirely with that remark. We must look not at the arithmetic of economic growth, but at the ways in which that growth benefits or disbenefits the people of Scotland. I do not mean, as the Tories seem to imply, that we should consider how much cash people have in their pockets; I mean how much their lives and their prospects have been affected by Government spending.

The move away from comparative cost pricing to best value is significant. We need to move away from a purely financial analysis and consider the benefits and disbenefits of Government choices. We need more spending that benefits local economies and the kind of business that Donald Gorrie was talking about—social enterprises and enterprises that have a community-led and community-managed orientation.

I very much welcome the move towards best value in local government, but we need a wider vision for best value in national Government in Scotland. That is why I do not agree with the Finance Committee's recommendation that the Executive should prioritise programmes that encourage economic growth. I believe that Scotland's economy would be better served over the long term by programmes that encourage sustainable development.

I was disappointed that the Finance Committee's report said virtually nothing about where the money comes from. As other members have said, Scottish ministers do not have to justify their spending to Scottish taxpayers. The Scottish block grant is fixed by the Barnett formula and is not connected to the Executive's decisions. Until Scotland has greater fiscal autonomy, the current inefficient system will continue. I urge the Finance Committee to investigate, as a priority, ways of making the Scottish Executive more financially accountable to the Scottish people.

Photo of Brian Adam Brian Adam Scottish National Party 10:50 am, 23rd December 2004

Like Des McNulty, I am concerned about the local government settlement, particularly as it affects the area that I represent. Aberdeen City Council is about to receive the lowest percentage share of the increase in the coming three-year cycle. Aberdeen's rate support grant is already the lowest per capita in Scotland. I concur with the widespread view among members that the current financial arrangements for local government are unsustainable in the long term. Even over the three-year period, the increase in rate support grant—the AEF—is barely in line with inflation; it is certainly a lot less than that when the new burdens on local authorities are taken into account.

It has finally been recognised throughout the north-east that the police service in the area has had a poor level of support in the past. However, the additional cost of the increase that will go to Grampian police, half of which will have to come from the council tax payers of the north-east, has not been reflected in the additional rate support grant allocation. Moreover, the settlement does not take account of a further series of additional burdens.

I plead with the ministers to take a broader approach to the budget and to reconsider how they assess the value of all the additional weightings that are given. They should look again at all their many formulas for providing finance—whether to the health service, the police or local government—and, indeed, for the special funds of which they are so fond. There seem to be no readily available outcome measurements for the public, let alone politicians or academics, to grab hold of to assess whether the additional weightings and funds are delivering the changes that they are supposed to deliver.

There is widespread recognition of the significant disparity in our society. The Government has, as usual, a nice catchphrase for how it will go about trying to address disparity; it calls it "closing the opportunity gap". However, that gap still exists and, rather than narrowing, it is widening in many ways. In the past week, there have been two reports on inequalities in health. Although deprivation funding has been added for many years to local health authorities' allocations in order to address that need, it appears to me—I am happy to be corrected by either of the ministers present, if they care to listen—that there is no obvious mechanism for measuring the outcomes. It is high time that we had such a mechanism.

We need to measure not only outcomes for deprivation funding, but value for money from the funds that go into addressing, in a cross-cutting way, drug use and a variety of other matters. We need to be able to dig down into the budget and ascertain whether the inputs deliver outcomes that significantly close the opportunity gap. I suggest that idea to the Finance Committee for its forward work programme. Many members are concerned about outcomes. There is a whole series of Government initiatives, ranging from social inclusion programmes, which are about to be wound up and replaced by alternatives, to the better neighbourhood services fund, the changing children's services fund and a string of others. I am delighted that we have such programmes, but I am concerned that we do not appear to have measurements of the outcomes.

Photo of Jeremy Purvis Jeremy Purvis Liberal Democrat

I have considerable sympathy with what Brian Adam has said, but I wonder whether what he suggests would be more appropriately done as part of the audit remit of the Audit Committee and the Auditor General. Audit Scotland could determine the quality of services and the disparity between them within the best-value audits that it is carrying out across Scotland.

Photo of Brian Adam Brian Adam Scottish National Party

I am not suggesting that I have the absolute answer. We might have to try a series of pilots to assess whether we can make changes. Indeed, we can build on best practice, as happens from time to time. However, we need a mechanism for assessing outcomes. We cannot continue to have a situation in which one in three of our children are born into poverty and are never able to break out of that cycle.

The idea that everyone is looking for a handout is just not true. People are looking for a hand-up and we should measure whether the hand-ups are working. I am not convinced that they are working. If they were, we would not continually need to address deprivation in, for example, west central Scotland. Des McNulty referred to a range of authorities there that have to address deprivation. However, deprivation exists right across Scotland, although it is more concentrated in some parts of the country. I am not convinced that the current way of dealing with deprivation is bringing about change. I commend to the ministers and to the Finance Committee a work programme that would investigate outcomes, so that we can measure whether the programmes that are in place are successful or otherwise.

Photo of Phil Gallie Phil Gallie Conservative 10:57 am, 23rd December 2004

As I commented to Mark Ballard, I am disappointed that Scottish Socialist Party members, who have a habit of suggesting numerous ways of spending money, are not present to debate the Finance Committee's report and, indeed, to consider elements of the minister's budget.

I share the view of a number of colleagues, including Jim Mather, Wendy Alexander and Brian Monteith, that the budget that is set in Scotland is based entirely on rules and regulations that are set at Westminster and on the generosity, as Wendy Alexander put it, of the Chancellor of the Exchequer. Mark Ballard said that he had concerns about what the Finance Committee's report does not say. My concern is that the report does not look into the future and consider what could happen, irrespective of the outcome of a general election and who the Chancellor of the Exchequer is.

Speaking of generosity, I recollect that the Scottish block grant in 1997 stood at £14 billion; today, the expected figure is £28 billion. That is a 100 per cent increase in eight years. It would be strange indeed if the Government of Scotland, given such financial generosity, could not boast of many advantages that had come about from the setting up of the Parliament and the Executive.

However, what benefits have the public at large seen? Have we seen massive differences in the health service? Have we seen waiting lists slashed? No. We have seen the waiting lists extended in many ways. We have seen, perhaps, an extension in school buildings, but when I look at that extension in school buildings and at the plans ahead, I have great concerns. The chancellor and the Executive have hitched on to my party's plans for the private finance initiative—the hated PFI, which, pre-1997, was an issue that was just not to be considered by any of the other parties. However, we are now totally committed in Scotland to the PFI principle. Given that, we should not just be concerned about the budget that we are considering today; we must also look to the future. I am rather surprised that, as far as I can see, the Finance Committee has not addressed that important issue.

Some would say, "Well, he's a Tory and he would say these things." However, I believe that the chancellor's generosity has been possible only because, as Tony Blair acknowledged in 1997 at the Amsterdam Council of Ministers, the UK's economy was at that time the prime economy in Europe—top of the league. Perhaps it is still fairly high up in the European league, but that is no credit to the UK. It is simply condemnation of the way in which the European Union has conducted its affairs and economy over recent years.

Whether we like it or not, the money that the Scottish Executive has to spend at present derives from the range of tax increases that the chancellor has imposed over the past seven to eight years. Those tax increases are paid by every citizen in Scotland and they are paid, to my mind, at an excessive rate. Those are the things that affect individuals. When we consider the amount of money that the Executive claims credit for spending, we must remember that that money is not the Executive's but, as I said to Wendy Alexander, the people of Scotland's. With respect to the SNP, I suggest that it is English taxpayers as well who are helping to fund our higher-than-normal levels of public expenditure. Indeed, as Murdo Fraser said, public expenditure has reached 54 per cent of GDP in Scotland over the current period. That reliance on public expenditure gives me anxieties about employment prospects.

Looking ahead, we must consider the Scottish budget that we could have if the chancellor attempts at some time in the future to balance his budget south of the border, taking into account the problems that he faces with the balance of trade and so on. I think that the Finance Committee would do well to anticipate that and to consider what can be done to ensure that the efficiency savings that the minister has talked of are met and are perhaps increased, so that at least we have a fallback to meet the likely budget shortfalls in the not-too-distant future.

Photo of John Swinburne John Swinburne SSCUP 11:03 am, 23rd December 2004

One feature of the Finance Committee is the enormous amount of reading material that every member is engulfed with on a weekly basis. If I were to quote from 0.05 per cent of that material today, I would be on my feet for many hours. The financial data and information are overwhelming, and the committee members are indeed fortunate to have back-up staff of the highest quality to digest, analyse and present an appreciation of the subject matter in the most clear, concise and cogent manner. Professor Arthur Midwinter also has the happy knack of putting into layman's terms countless pages of statistics in an elementary and logical manner. The relevance of output measurement in the Scottish budget is something that only Arthur could succeed in breathing life into, and he does that diligently. Ross Burnside and Jim Dewar are another source of information that proves to be invaluable, and Susan Duffy, Terry Shevlin and their team are second to none.

When we consider that the block allocations to such areas as health, police, education and the 32 councils account for more than 96 per cent of last year's total budget of around £25 billion, that leaves a sum in the region of £750 million within the direct control of the Parliament. That is still a vast amount of money, and due diligence must be applied by members of the Finance Committee and by others at all times to ensure that transparency and accountability prevail. Nevertheless, in the greater financial scheme of things in Scotland, that boils down to just over 3 per cent. Unelected quangos such as health boards wield far greater powers. That may be unpalatable, but it is factual.

The 32 councils, which are under the control of elected councillors, receive billions of pounds in each financial year. Sadly, those huge resources are, in many areas, not ring fenced. All too often, we see situations arising whereby, for example, one council in the Highlands recognises and pays, through its social work department, for kinship carers who care for looked-after children, whereas Glasgow City Council simply ignores the situation and has never paid out a penny to kinship carers. In the event of a poorly run council failing to collect up to 9 per cent of its council tax, the burden of that disgraceful shortfall impacts unfairly on senior citizens and others on fixed incomes.

That point logically brings me to the most draconian, regressive tax imposed on citizens since the mediaeval tax on windows. Council tax is paid by only 40 per cent of the electorate, many of whom are senior citizens. They are called upon, with the approval of the Executive, to pay for a whole range of services and also to make up for the shortfall in council tax collection and various other misadministrations by the councils. All too often, senior citizens will spend up to 18 per cent of their total income on council tax. Meanwhile, 60 per cent of the electorate pay nothing. At the same time, a next-door neighbour earning in excess of £50,000 per week would be exempt from paying council tax because they live with their parents—and we all thought that the poll tax was unfair.

Councils boast that the increase in council tax plus water rates will be held to between 4.5 and 5 per cent, and they think that that is good news. It is certainly not good news for the pensioner who has received only the cost-of-living increase of marginally more than 2 per cent. Pensions have risen by only 40 per cent since the inception of the council tax, which has increased by 81 per cent in the same period.

Photo of Phil Gallie Phil Gallie Conservative

John Swinburne mentioned the poll tax. Does he agree that the poll tax was actually a boon for the elderly in particular?

Photo of John Swinburne John Swinburne SSCUP

I can say that the only thing wrong with the poll tax was the fact that it did not take people who could not pay out of the system in the way that council tax currently does. If that had been written in, it would have been far fairer than the existing council tax, because everyone would have paid. That is the point.

We are part of the fourth richest economy in the world, and yet we have winter-related deaths among senior citizens at increasing rates year in, year out, despite praiseworthy central heating schemes. What right has the Executive to allow its senior citizens to be even more financially disadvantaged due to council inefficiencies? Okay, so in 18 months' time, they will be able to enjoy free concessionary travel, and that is definitely a great thing, especially in the summer. However, if they are too cold in the winter time, perhaps a warm bus will be the only place for senior citizens to go to help the country to bring down the rate of winter-related deaths.

Ross Finnie put a 2 per cent cap on the increase in water rates for small businesses. Why does not the Executive put a similar cap on senior citizens' council tax and water rates? By the way, pensioners are proud people who pay their council tax. North Lanarkshire Council is still trying to collect Maggie's poll tax from some residents.

The Finance Committee should be empowered to scrutinise the financial allocation of all Government funding, including funding for health, education, police and councils. Unless that happens, the committee will have to content itself with scrutinising the 3 per cent or so of the budget that the Parliament controls.

Photo of Trish Godman Trish Godman Labour

You must finish now, Mr Swinburne.

Photo of John Swinburne John Swinburne SSCUP

I forgot to mention our excellent and impartial convener, Des McNulty, who does a first-class job and even manages, most of the time—

Photo of Trish Godman Trish Godman Labour

This convener is not as kind as Des McNulty. I call Jeremy Purvis.

Photo of Jeremy Purvis Jeremy Purvis Liberal Democrat 11:10 am, 23rd December 2004

Mr Swinburne will have a welcome on the Tory benches to my right after making his comments on the poll tax.

We debate a budget that is bigger than its predecessor, as every budget has been since the Parliament was established. The fact that the budget will pay for the commitments in the partnership agreement—matched with the fact that different political decisions are being taken north and south of the border—demonstrates that devolution is working. Notwithstanding the expenses of members of the Scottish Parliament and the associated hand wringing that we have witnessed from members at the top of the list, who explain that they are the hardest working MSPs, and members at the bottom of the list, who explain that they are the most efficient MSPs; and notwithstanding the recent legal challenge in relation to the construction of the Parliament building, devolution is working.

Only this week, the Liberal Democrat Minister for Transport announced the abolition of the Skye bridge tolls, which were the most expensive tolls in Europe. This morning I convened a meeting of the Waverley railway partnership with the same minister—I apologise to members whose speeches I missed because I was at that meeting. Those two proposals could not have been progressed had not political decisions been taken in the Parliament and had not there been a budget that could deliver them.

Last night, as I watched part of the British comedy awards on television, I noticed a theme that ran throughout the awards. The comedy actors who received awards often did so because they delivered the lines with which their writers provided them with good timing and a good ear for a catch phrase. In that vein, I associate myself with other members' appreciation of the Finance Committee's clerking staff, who often draft our reports, SPICe staff and the committee's adviser. I am a member of the committee and I am pleased that it has done good and interesting work, which is rightly highly regarded by commentators and colleagues. The committee has tackled serious issues since the elections last May and it has challenged the Executive in a number of ways. The Executive has been prepared to respond positively and it is fair to say that the committee had a constructive relationship with Mr Kerr. I am sure that we will have such a relationship with Mr McCabe.

However, there is most interest not in the Finance Committee's budget considerations but in other areas of its work, whether those are to do with relocation of civil service jobs, Scottish Water or efficient government. Our deliberations on the Scottish Executive budget are often met with benign indifference. We could travel round the country asking interest groups and councils whether they would like to have more or less money, but I suspect that that would be a fruitless exercise. I do not think that we would be met by the refrain, "We do not need the money; give it to someone else".

Earlier this year, I published my pamphlet, "Fiscal Federalism: A new model for financing the Scottish Parliament within the UK", in which I outlined my concern that there is a direct democratic deficit between the members of Parliament who represent Scotland and in effect set the budget, because the Westminster Parliament controls the main fiscal levers that affect Scotland, and the MSPs who divide up the budget—politicians who are elected at different times and to different institutions. In the long term, that is not sustainable. Given its tax varying powers and powers over local government, the Scottish Parliament can exercise control over around 19 per cent of total managed expenditure. I proposed reforms to increase that percentage.

I do not accept that the budget in Scotland is the result of a generous Treasury, as Mr Gallie said. Historically, we receive our allocation through grants that are adjusted by a formula. I reject the argument for fiscal autonomy, just as I reject nationalism.

Photo of Jim Mather Jim Mather Scottish National Party

I feel suitably rejected. In a recent paper in the Allander series, "The Economic Case for Fiscal Federalism in Scotland", the authors proposed a protracted period of investigation, followed by a royal commission, followed by five-yearly reviews to ensure that Scotland was still roughly on track with the rest of the UK. Is that a workable solution?

Photo of Jeremy Purvis Jeremy Purvis Liberal Democrat

I submitted my pamphlet to the authors, and I suspect that my proposals would speed up the process considerably.

The Scottish National Party has been rejected not just by me but by the country, time and time again, because nationalism is a political movement that is based on identity and boundaries rather than on philosophy. It has no real philosophical resonance or heritage. Nationalism cannot be related to a fiscal system; it is a diverse movement that is based on the premise that some people are better than others because of their national identity. According to nationalism, a sense of community can be achieved only by birth, rather than by aspiration or by individual worth. Einstein said:

"Nationalism is an infantile sickness. It is the measles of the human race."

In an attempt to steal some devolutionist clothes, former MSP Andrew Wilson argued for fiscal autonomy. Although I reject nationalism absolutely, it is fair that the SNP should campaign for it. The SNP espouses financial independence for Scotland because it espouses independence, and SNP members should call it by that name. No other devolved or unitary state in the world operates under a system of fiscal autonomy. No academic paper exists to support such an argument. In a published letter in response to my pamphlet, the Federation of Small Businesses said:

"After five years of political point scoring on the fiscal powers of the Parliament, Jeremy Purvis' analysis of greater fiscal devolution is to be welcomed".

Of course, it is not welcomed by Mr Mather, who said in a published letter that he was singularly unimpressed by my proposals and that he had promoted the idea of fiscal independence. Let us hear no more calls for fiscal autonomy, which is a shibboleth. Fiscal autonomy has not been tried anywhere else and the policy is intellectually flawed and unworkable.

As I said, it is not sustainable for the Parliament to be responsible for massive public expenditure when it does not have the responsibility for raising most of its revenue in a manner for which it is accountable to the electorate. The Parliament should move from its current system of tax varying powers to a different, more flexible fiscal system with increased powers, to allow us to raise different levies and charges. The system should perhaps be revenue neutral, to allow for the implementation of some of the proposals that have been made by Mr Gorrie, the Green party and other members. There should be a more flexible approach, but it must be an honest approach—unlike the approaches of nationalism or of fiscal autonomy.

Photo of Trish Godman Trish Godman Labour

We move to wind-up speeches.

Photo of Elaine Murray Elaine Murray Labour 11:17 am, 23rd December 2004

The debate has been much more entertaining than I expected it to be. Des McNulty welcomed the fact that Rab McNeil is not in the gallery and I must admit that I am quite pleased about that, too, much as I was entertained by his columns. If he had been here I would doubtless have been subjected to the usual canine comparisons in tomorrow's edition of The Scotsman. Rab McNeil is not the only journalist who has upset me; Tom Gordon upset me very much last week when the Finance Committee's report was published, because he did not include me in his club of bad ex-ministers—I am quite offended about that.

Jim Mather started his speech by telling us that all the good ideas in the report came from the SNP, which was quite refreshing, because normally our good friends the Liberal Democrats claim that the good ideas are all theirs. However, he went on to make his single transferable speech about the constitution.

Brian Monteith, Murdo Fraser and Phil Gallie made an important political point about the proportion of public spending. There is a genuine political argument about public versus private spending and I would welcome that debate. However, I was disappointed that Brian Monteith went on to say:

"I am not proposing anything today".

That seemed a bit pointless.

Wendy Alexander made a number of impressive Christmas analogies. It struck me that the Finance Committee's budget adviser is particularly appropriately named in relation to reports that are published at this time of year, but I hope that he does not feel bleak when he has to attend committee meetings.

Mark Ballard seemed disappointed that economic growth features so much in the committee's report. However, the committee was scrutinising the Executive's budget and as economic growth is the Executive's top priority the report was bound to focus on that.

Phil Gallie, who is no longer in the chamber, made the point that the report is not forward looking, but the report's purpose is not to be forward looking but to scrutinise the Executive's proposals.

I am disappointed that Ted Brocklebank is not in the chamber, because he could have fed into the debate from his experience. I hope that he is not unwell—

Photo of Elaine Murray Elaine Murray Labour

I am relieved to hear that.

I am happy to associate myself with John Swinburne's remarks about the budget adviser, SPICe and the clerking team. I was interested to hear him express his support for the poll tax—I suspect that that will come back to bite him.

Photo of John Swinburne John Swinburne SSCUP

I was clarifying the fact that the poll tax encompassed every member of the electorate, whereas the council tax applies to only 40 per cent of people—60 per cent of people do not pay it at all. I am surprised that the member thinks that that is fair on pensioners.

Photo of Elaine Murray Elaine Murray Labour

Pensioners are able to get council tax benefit and housing benefit if they are on low incomes. That is a debate for another day.

We must welcome the important developments in the budget scrutiny process, which is producing better budgets. That is a result of co-operation between the Finance Committee, the other committees and the Minister for Finance and Public Service Reform; the fact that more committees are employing independent experts as budget advisers is also extremely helpful. I wonder whether we could structure contact between different committees' budget advisers in a helpful way; they could form a panel of independent experts, for example.

The template helped with the co-ordination of committee responses this year and allowed the Finance Committee to analyse those responses more effectively. I give credit to Jim Mather for that, because it was his idea.

We welcome the reduction in the number of targets and the fact that the number of process-based targets has been reduced to 20 per cent of the total number of targets. However, we believe that the number of such targets could be reduced further. We suggest a hit list of another 16 process-based targets that could be removed.

The committee noted that further improvements in the presentation of information would be possible. Some of the priorities that are presented in the budget document are not actually budget priorities, because no costs are attached to them. We suggest that a different format could be adopted—the non-budget objectives could be included in a more general section of the budget, while the budget priorities could be contained in a separate section.

A perennial difficulty that we face in scrutinising the budget is the proportion of spend that is at the discretion of other agencies. We suggested that the grant-aided expenditure that the Executive provides for education, social work, roads and transport should be published in the draft budget, just as the expenditure that it provides for police and fire services is. That would assist committees in examining the Executive's allocations.

Des McNulty and Wendy Alexander referred to the planned efficiency savings. If the Executive saves £166 million on health in year 1, I do not mind it saying that, after three years, £498 million that would not otherwise have been provided will have been put into front-line services. What I object to is the fact that that three-year aggregated saving was converted into a percentage of this year's one-year budget. It was not mathematically correct to do that. I cannot believe that the First Minister saw that because I am sure that, as a former maths teacher, he would have reached for his red pen and crossed it out. That resulted in an erroneous comparison with Gershon. As Des McNulty mentioned, the Executive's approach, which is about identifying what is achievable rather than specifying a rigid percentage, has advantages. No large-scale redundancies are planned. The Executive should have been proud to argue for its approach; a claim should never have been made about equivalence with the UK.

I will finish on a more cheerful note. I welcome the progress that is being made in the way in which the budget is reported. It is not an easy task to reconcile level 3 departmental budget lines with the Executive's overall priorities. The interrelation of targets is complicated—they do not necessarily relate to just one objective.

Photo of Elaine Murray Elaine Murray Labour

Progress is being made and I am sure that it will continue to be made in future years.

Photo of David Davidson David Davidson Conservative 11:23 am, 23rd December 2004

It is good to be back with the Finance Committee for the sixth year in a row for this important debate. I congratulate members of the committee, its staff and, in particular, Arthur Midwinter on their efforts to move away from the traditional arguments about process and to start to consider the meat of our budget.

There is one area on which I would like drastic improvement to be made. Members of the committee should stand on the line, shoulder to shoulder, and say to the Executive, "We see where your spending is going, but what are the outcomes—what are you getting from every budget?" That is the next stage that the committee should be moving towards. Every document that the Executive sends to the Finance Committee for scrutiny should specify not just what the output will be, but what outcomes are expected. Targets have a role, but I agree with Elaine Murray that there is too much target chasing in the Scottish Parliament.

As well as being told what outcomes are expected, the committee should be provided with comparisons with outcomes from previous years; it has argued for that for years. In health, for example, although expenditure has increased by about 42 per cent between 1999-2000 and 2003-2004, there has been a falling-off in the number of treatments. That represents a decrease in efficiency. I know that ministers are giving careful consideration to changes in that area, but the people in the street do not want to look at the techno-speak that is in the budget documents; they want to know that the public services that they expect to receive will be delivered efficiently when they need them and that the people who provide those services—whatever profession they come from—will be freed up to deliver them. The Finance Committee has an important role to play in moving that argument further on.

The report contains some interesting comments. Today's debate has been quite entertaining. I see that Wendy Alexander is back in the chamber. I say to her that our sleigh will not be smaller and less laden with gifts; it will just be more sustainable and affordable.

Some good points have been made by members of many parties, but I suppose that I must deal with the SNP—we have to do that occasionally, to make it feel wanted. It interesting that the SNP never gives responses to the questions that it is asked, such as what its first move would be, if it had independence, to free up business and create wealth. This is the sixth year that we have been waiting for an answer; perhaps we will get one when its spokesman winds up the debate. What would the SNP's first three moves be if it got independence? No member seems to know what the SNP would do.

Economic growth is supposed to be the thrust of the work of the coalition partnership, but I do not see much in the budget on economic growth. All that is said about business rates is that they are too high; they are not compared properly with the rates in rival economies.

My colleague Brian Monteith mentioned the graduate tax, which is turning off many students. If the Executive wants to improve access to education, it should abolish—

Photo of Bristow Muldoon Bristow Muldoon Labour

Does the member not acknowledge that an increase in the budget for further and higher education of 30 per cent and the biggest ever transport budget for Scotland will be major factors in improving Scotland's competitiveness?

Photo of David Davidson David Davidson Conservative

When we see the proof of the pudding—when the outcomes are delivered—we might all agree with Mr Muldoon. We hear fine notions and are told about money being signed off, but we are not getting delivery. I notice that although the Deputy Minister for Finance and Public Service Reform's colleague, the Minister for Transport, is considering doing certain things, we have not been told what he will do with the increased budget that Mr Muldoon has just referred to.

Water rates and charges represent a big hit on Scottish businesses, but little in the way of relief is being offered. We must invest in upgrading our water and sewerage systems, because their condition is holding back development. Housing plans cannot go through in areas in which housing is needed because of the system's lack of capacity and its inefficiencies.

What are we doing with all the new money? Why are we not looking forwards? We seem to produce only two or three-year budgets. What will the demographics be in 20 or 30 years' time? The Executive needs to consider whether it is planning the budget properly to deal with such factors. The Finance Committee has picked that up. I want the minister to tell us what he is doing on long-term planning. I am not talking about quick fixes for an election, as we need sustainable, long-term planning to assist the growth of wealth creation in Scotland and to ensure that we have efficiency in our public services.

I will not repeat what other members have said during the debate. Many members hovered around the council tax, which continues to rise. If the Government was serious about controlling it and did not want people to pay huge amounts of council tax, it would not just set a target, but would put a cap on it. Then it would have to ensure that the burdens that it gave local government matched the funding. Brian Adam made a good point when he said that money for deprivation is not traceable in the budget; it never has been and I suppose that it never will be. The figure is notional—no one can find it. That is what Duncan McNeil argued in a Health Committee meeting just the other day.

In conclusion, there has been a much more enlightened debate today and there has been humour. I wish the Presiding Officer and my colleagues in the chamber a merry, happy and contented Christmas and new year. However, I hope that when the Finance Committee gets back to work in the new year, it will pay attention to things that it should demand of the ministers in future.

Photo of Alex Neil Alex Neil Scottish National Party 11:30 am, 23rd December 2004

I echo what Elaine Murray said about this being a good debate. There have been interesting and worthwhile contributions. For my money, Wendy Alexander made by far the most interesting speech. On the efficiency savings figures, she said that the Executive was "£700 million light". For the word "light", read words such as "out" or "wrong". We could use words such as "cheating", "fibbing", "con", "dishonest", "duplicitous" or "deceptive". That is what Wendy Alexander—

Photo of Trish Godman Trish Godman Labour

Watch your language, Mr Neil. I am not happy with the word "dishonest".

Photo of Alex Neil Alex Neil Scottish National Party

The language that I am using is well within parliamentary language. That is what Wendy Alexander

Photo of Trish Godman Trish Godman Labour

I will decide what is parliamentary language, Mr Neil. Just be careful.

Photo of Alex Neil Alex Neil Scottish National Party

I do not think that I have strayed, Presiding Officer, and I do not intend to stray.

Wendy Alexander's accusations about the Executive's efficiency savings were a devastating indictment of the Executive's accounting procedures. Perhaps the figures are similar to those produced by companies such as Enron. Wendy Alexander said that the Executive, in estimating savings of just over £700 million, had got the figures out by £700 million. She also said that when the Executive announced those figures, Jack McConnell and the Minister for Finance and Public Service Reform said that their key objective was to beat the UK Government's savings. However, it was said yesterday in reply to a parliamentary question that such comparisons are not worth the paper that they are written on. One cannot set beating the UK Government on savings as a key objective one week and say two weeks later that such a comparison is totally worthless. Beating the UK Government is either a valid objective or a worthless comparison. It cannot be both.

Wendy Alexander's words will ring throughout Scotland. The interesting fact is that the people who produced the £700 million error in the figures are exactly the same people who compile the GERS report. They stand up and defend the GERS report, which has as much credibility as the efficiency savings estimates—none whatever.

That was emphasised by Professor Midwinter, who was on "Newsnight Scotland" just before the Deputy Minister for Finance and Public Service Reform. As Des McNulty said, Professor Midwinter is the most reliable source in Scotland for the figures. Professor Midwinter said that the Executive's figures were absolute nonsense, that they did not add up and that they were irreconcilable. One only had to see the performance of the Deputy Minister for Finance and Public Service Reform in the same programme. He wriggled about and did not believe the figures himself. He could not explain where the fiddle was.

We should not have any nonsense about the reliability of Executive figures. Indeed, Wendy Alexander's accusation is in itself justification for the Finance Committee to consider establishing a parliamentary budget office so that there can be genuinely independent and objective assessment of Executive figures on efficiency savings as well as of GERS and other matters. At the end of the day, if we do not get the figures right, the Parliament's credibility will be destroyed.

A parliamentary budget office could also take up the Finance Committee's recommendation to benchmark the performance of the Scottish economy in relation to the economies of other countries and those of countries that are similar to Scotland. In an otherwise excellent contribution, Phil Gallie said that the UK was top of the list in respect of economic performance internationally. However, we are not even in the top 10 in respect of GDP per head, although eight of the 10 countries that are in the top 10 are independent countries that are around the same size as Scotland. There is a lesson there about the relationship between the constitutional status and the economic performance of any country. I say to the Parliament and the Finance Committee that we should consider how we can benchmark ourselves, but we should do so with a reliable outfit that is independent and—unlike the Executive—not prepared to fiddle the figures.

Merry Christmas.

Photo of Tavish Scott Tavish Scott Liberal Democrat 11:36 am, 23rd December 2004

And a merry Christmas to Mr Neil.

I will pass on to Rab McNeil all the warm words that have been said about him when I meet him for a new year's dram in Lerwick over the festive period. He will be fascinated by the warmth of the responses to his earlier contributions to The Scotsman. I am reminded of a phrase along the lines of, "He has gone back to my constituency to prepare for Christmas." I thank Mr Mather for quoting so fully from Ben Okri's entertaining "The Joys of Storytelling", which is a text that has an appropriate title for the SNP. I will give another quote that the SNP might want to hold on to:

"The acknowledged legislators of the world ... dislike mysteries, for mysteries cannot be coded, or legislated, and wonder cannot be made into law."

Perhaps Mr Mather will hold on to that thought.

Photo of Tavish Scott Tavish Scott Liberal Democrat

I would like to finish my introductory points.

I was taken by Wendy Alexander's spirit of Christmas and certainly by Stewart Stevenson's recollection that Christmas day was a working day. It is disappointing that he did not share with members what job he had on Christmas day. After all, there are many that he can choose from.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

: I will tell the minister about three jobs. On Christmas day, I acted as a receptionist for my father's practice from time to time. Occasionally, I worked for the Post Office. In recent years, I have worked in a hotel serving lunch on Christmas day to bring cheer to the many people who choose to go out on that day.

Photo of Tavish Scott Tavish Scott Liberal Democrat

I knew that I should not have said what I did; we all bow to Mr Stevenson's range of work-life experience.

I thank Mr Fraser for his new year resolutions. However, it would be helpful if the Tories made a new year's resolution to be consistent on lower taxes and cutting public services. We did not get that resolution from them today, although that would have been more honest of them.

I thank Mr Ballard for his appreciation of all things Scottish socialist. It always seems to me that he is not in the right party, although he may get back into it one day. He is a closet socialist in sandals if ever there was one.

Mr Gallie is no longer in the chamber, but I was disappointed that he did not work the ills of the European Union constitution into his speech. That was missing.

Elaine Murray rightly mentioned Mr Swinburne's great adulation of the poll tax. We look forward to his submission to the independent review of local government finance.

We welcome back David Davidson every year. He has now made speeches about the budget for six years. He must be worried about being portrayed as a bit like Banquo's ghost in such debates.

I read the Finance Committee's report with considerable interest and have listened to this morning's deliberations with keen attention. I include what Mr Adam said. I assure him that we caught every word and I will return to a couple of things that he mentioned.

I recognise that council tax and efficient government proposals are of great interest to members, but I remind them that the debate is about the draft budget process, which is part of the annual consultation process that leads to next month's Budget (Scotland) Bill. The focus of debate might better have been the Executive's spending plans for 2005-06.

The Finance Committee report—for which I thank Mr McNulty and his colleagues—is largely positive about the draft budget process, and it contains much that is positive for the Executive. There are many examples of how we have worked and are working with the Finance Committee to enhance the quality of the budget documents and the processes that we use to scrutinise them. I was particularly pleased to note the committee's positive response to the introduction of the central unallocated provision and its acknowledgement of the Executive's prudent financial management in setting aside resources to meet pressures in future years.

As always, the Finance Committee feels that there are areas in which the Executive could improve. I acknowledge that—it is to be expected. We will continue to develop and enhance the way in which we work, and we are always keen to hear the committee's recommendations.

I will respond to some of the issues that have been raised in the debate, particularly on the reform of budgetary processes and on the recommendations on streamlining those processes. The aim is to have a clear, differentiated two-year cycle. We are happy to agree with the committee on that point. The new cycle will recognise the central phase of the spending review in the setting of spending plans. It will be a transparent, straightforward cycle, which will aid the clarity and scrutiny undertaken by subject committees and the Parliament. As a result of that recommendation, I am pleased to confirm that there will be no annual evaluation report next year. That will reduce repetition and will ease the burden on committees.

The Finance Committee made suggestions for improvements to the format and presentation of information in the budget documents. It sought clearer information on priority areas for new resources. We support the committee's aims in that regard and will consider how to make those improvements. Our plans, as set out in "Building a Better Scotland" and the draft budget, show how each portfolio will deliver against our cross-cutting themes. We note what the committee has said about how we present cross-cutting information, and we will work with it to improve that for the next budgetary year.

The committee's report makes a number of comments on equality proofing the budget. I do not regard this year's approach as a retrograde step. In accordance with the committee's recommendations from last year, we have improved the consistency of information on equality work across all portfolios, and we are continually looking for ways to improve the quality of our equality information. We will continue to work with the Equal Opportunities Committee in that regard.

I regret that the time that the Finance Committee has had in which to scrutinise the draft budget has been more limited on this occasion. Spending review years are somewhat busy for all in the Executive as well as in the Parliament, and I wish to make it clear that the delay to the spending review announcement was due to the publication of the Fraser inquiry report. Time needed to be set aside to debate that. Despite what has been suggested, that had nothing to do with negotiations on the partnership agreement, which were completed a year earlier. An effective scrutiny process is in all our interests, and we will aim to ensure that committees are given the maximum possible time in which to consider our proposals the next time round.

I am pleased to see that the report acknowledges the improvements that we have made to our key performance targets. As the committee suggested in previous reports, we have substantially reduced the number of targets so as to focus on issues of greater importance and more relevance to people throughout Scotland, which really make a difference to individuals' lives. That means that we will measure our progress on the things that matter most. We are committed to improving the quality of our targets, making them as outcome focused as possible. The emphasis is on what we actually achieve, not on the process behind the policies.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

In my speech, I raised the matter of a number of pieces of secondary legislation that simply raise costs to the public by the rate of inflation. Will the minister respond to that by considering adopting for next year a system using a zero-base budgeting approach, rather than a simple hike-by-inflation approach? That would be a true measure of whether or not the Executive was getting a grip of government efficiency.

Photo of Tavish Scott Tavish Scott Liberal Democrat

The appropriate time to consider what would be quite a fundamental change would be in a spending review period. We would be happy to consider any committee recommendations in that or other areas in the context of the preparatory work that has already begun for the spending review of 2006.

We will not now change the targets that we have set. That would only cause confusion, and we would undoubtedly be criticised for doing that. We will review the small number of targets that were highlighted by the Finance Committee as being process based to ensure that they reach the high standards that we have set for all our spending review 2006 targets.

The committee's report commends the priority that we have given in the draft budget to programmes that support economic growth. That has been the subject of some discussion this morning, and I want to deal with the points that have been made. We are committed to creating the conditions for higher growth in Scotland. The draft budget shows that commitment, with major investment in areas such as transport and further and higher education. As the committee's report concludes, economic growth depends on a wider range of factors than those concerned with the Executive's own programmes. The actions of the private sector, the business cycle and conditions in the global economy, to name but three, are also important.

To reach meaningful conclusions on the achievement of sustainable economic growth requires more than just three years' worth of figures. I will deal with Jim Mather's comments in that regard. The Finance Committee concluded at paragraph 33 of its report:

"The Committee ... recognises that this need not be a precise percentage, but that it should use comparative growth and growth-related indicators as benchmarks for improvement. For example, the target could be an improvement relative to other countries or economic regions on a range of economic indicators over a four year period."

We are happy to consider and develop that. That is our approach under our commitment on the OECD comparators. I suggest that Mr Mather, despite what he said earlier—he must have been reading a different report—has convinced neither the Finance Committee nor seasoned and senior economic commentators on the approach to take. Perhaps Mr Mather will rest defeated on that point—although I suspect not.

Photo of Jim Mather Jim Mather Scottish National Party

I will neither rest nor be defeated on that. Whether the minister agrees or disagrees with what I said, and whether he accepts or rejects the need to adopt a specific target, he must recognise that that will now happen, courtesy of the International Institute for Management Development of Switzerland. Next year's "IMD World Competitiveness Yearbook" will include Scotland, benchmarked against other countries. I suggest that accepting that and being on the forward foot would be better for the Executive and for Scotland.

Photo of Tavish Scott Tavish Scott Liberal Democrat

The context in which we will take forward those matters is that of the OECD comparators. We are happy to look at the Finance Committee's other suggestions and recommendations; I simply do not recognise what Mr Mather is saying in the context of the committee's report, to which he, a committee member, signed up.

There is a constant desire to compare in exact terms the financial management of a country's budget and that of a business's budget. They are not the same. Mr Neil mentioned Enron. To make such a simplistic comparison is profoundly misleading. In fairness, I agree with Mr Monteith on one point. For Scottish businesses and businesses located in Scotland, which will grow the economy, it is the Government's job to set the framework so that they can succeed.

We recognise the importance of measuring our progress on growing the economy. We have set targets in the current spending review on areas that promote economic growth, for example in the delivery of major transport infrastructure projects, to improve productivity and to increase business investment in research and development. In "A Smart, Successful Scotland", we made clear our objective to get into the top quartile of OECD countries for GDP per head.

I turn to local government issues. I appreciate the points that Des McNulty, Brian Adam and others made in relation to the current settlement. It is a challenging one. However, it builds on the large increases that were provided to councils in previous settlements. By the end of the current settlement period, core funding through AEF will have increased by 55 per cent since 1999-2000, and total funding of around £30 billion over the next three years will allow local authorities to increase spending to record levels. I would point out to Mr McNulty, Mr Adam and other members who may have concerns in this regard that, as Tom McCabe said on 8 December in relation to the local government settlement, we will listen to the Convention of Scottish Local Authorities and local government. The process between 8 December and the passing of the order confirming the settlement in February is one of consultation, and that gives the opportunity for proper discussion on the issues and for representations to be made. I reiterate that ministers will engage with local government on that.

I will deal now with the arguments that some members made that we should allocate the £12 billion of pre-budget consequentials to local government. As I am sure members know, we do not automatically allocate in that way, according to the very good principle that such matters are for ministers and the Parliament to scrutinise. Moreover, that figure—which is for just one year—would be enough to bring the average council tax down by just £5.76. I respectfully suggest that the matter needs to be considered in that context. I have not been able to deal with all the other points that were made, but I will write to members whose points I have not dealt with.

Growing the economy, which is the Executive's overriding approach, was the key objective in the spending review of 2004. The key areas of Government expenditure benefited most from the spending review, because they are central to that objective. Spending review 2004 made considerable provision for further and higher education, which is to increase by 30 per cent by 2007-08. In transport there will be an average increase of 14 per cent or £1.4 billion by 2007-08. In an overall tight settlement, that meant that all departments received a real-terms increase, but some received less than others.

Who is up and who is down is a favourite game in the scrutiny that the Finance Committee carries out, but spending reviews are about priorities. This Government has invested for the long term. We have a 10-year transport plan, which is set out in our approach, and we will add to it by publishing the capital investment plan in the new year.

Those are just a few of the key improvements that our spending plans will deliver in meeting the commitments made in the partnership agreement, using our resources wisely and productively for the long term, getting the best value possible for every pound that we spend, delivering the priorities for the people of Scotland and investing for a better Scotland.

Photo of Alasdair Morgan Alasdair Morgan Scottish National Party 11:51 am, 23rd December 2004

Although this is the usual trite nonsense that members say on these occasions, this has genuinely been a good debate—after it recovered from Des McNulty starting by saying that this was the graveyard shift. Although I am a regular participant in these debates, I have not responded on behalf of the Finance Committee before, so I will try hard to be consensual and non-partisan, as always.

I echo the thanks to everyone who has contributed to our deliberations, the witnesses who came to our event in Cupar, our adviser, the clerks and other staff. The tribute that I pay to the staff is in no way influenced by the fact that we are having lunch with them, because the parliamentarians are paying. However, if one were to believe the Scottish newspapers, it is the Scottish Parliamentary Corporate Body that is paying for the lunch, because of the alleged subsidy. All I can say is that as far as I understand the finances, the more one eats, the less the subsidy and the more Des McNulty and I and the rest of the committee will have to fork out. I therefore invite everyone who is coming along to help themselves.

The complexity of the report means that it is difficult to cover it all, but I will do my best to cover the salient points. We sign up to the good point that Des McNulty made—which those of us who have been involved in the Finance Committee for some years know—that the budget scrutiny process has improved markedly over the years as a result of positive interaction between the committee and the Executive. Jim Mather and Alex Neil managed to stimulate a bit of debate by attacking the Scotland Office's GERS publication. I have my own views on that subject, but suffice to say that the Finance Committee has not considered the document, far less reached a conclusion on it.

There were interesting contributions from the Conservatives. Brian Monteith highlighted some of the problems affecting an Executive that has the totality of its budget largely determined for it. I do not think that he came up with a solution, but I suspect that he was considering service reductions, which were lurking somewhere. The trend in Conservative thinking became clear when Mr Monteith's friend Murdo Fraser spoke after him. There is certainly a section of thinking among the Tories, the logic of which is taking them towards an independence position, albeit that they do not call it that.

Stewart Stevenson made the useful point that time after time in the chamber and in committees we pass Scottish statutory instruments that automatically increase charges, often from Government bodies, that are passed on to the public. The relationship between that and the Government's drive for efficiency is that the bodies that are automatically given inflationary increases each year have no real incentive to achieve the efficiency that we all seek. Although this will not mean much to members who were not in the chamber at the time, I say to Jeremy Purvis, who expressed concern about measles, that there are vaccinations available for it.

The Finance Committee and the subject committees have a duty to investigate generally how effective we are at spending the large sums that are now in the Scottish budget, which will be more than £30 billion by 2007-08. We have a duty to determine how effectively that money is being spent in achieving the Executive's targets, especially the top priority of economic growth. The committee returns to that frequently, because it is an important target and it is not by any means clear how that vast spend is going to contribute to economic growth in Scotland.

Another issue that the convener of the Finance Committee and others raised was the large expenditure undertaken by local authorities, much of which is consequential to Government legislation, most of which is paid for by Government finance, although flexibility is provided through the council tax. There is no doubt that the expenditure that local government is being expected to undertake over the next few years and the increases in that expenditure will not be matched by the increased contribution from the central authority. We are going to see an increase in council tax above the rate of inflation, matching a pattern that was set in recent years. The Finance Committee is concerned that that will bear disproportionately on low and fixed-income households that are on or above the rebate thresholds.

We are also concerned that the efficiency review savings have been treated in a different manner in relation to local authorities than in relation to Government departments. The baselines for Executive departments do not include any reduction in respect of cash savings that are expected to be made, but the local government settlement does include such a reduction. In other words, if local government does not make the savings that are targeted for it, it is short of cash. If a central Government department does not make the savings that have been targeted for it, it will not be short in the same sense, although it will not be able to expand other services as far as it might wish. We feel that all portfolios should have been treated the same way insofar as cash-releasing efficiency targets are concerned.

The issue of efficiency savings came up towards the end of the budget process and the committee will spend some time on it in the coming months. We are fully supportive of moves that will ensure that the Executive's priorities are delivered more efficiently, but that needs to be demonstrated, which is not an easy task. The issue of determining whether extra cash has been realised, as opposed to money simply being shuffled from one budget line to another, will take up a considerable amount of the committee's time.

Wendy Alexander made a good speech. She used the biblical and seasonal metaphor to great effect and pursued in the same way that she has done through parliamentary questions and interventions in committee some of the inconsistencies in the Executive's presentation of its efficiency savings. I do not think that we have heard the last word on that topic.

Over the years there has been a degree of engagement between the Finance Committee and the Executive in terms of the Executive's being willing to give the committee the type of information that it requires in order properly to scrutinise the budget, of which the Executive is in charge. Progress is not always necessarily made. The presentation of the efficiency review was the occasion of a step backwards from what might otherwise have been two steps forward over the years. I hope that the committee strictures on that matter, which were agreed unanimously, will send the Executive a signal that it needs to be clear and consistent about the nature of the information that it provides.

On occasion, we on the Finance Committee run ourselves down as being financial anoraks, but it is a fundamental necessity of the democratic scrutiny of the Parliament that the committee concerns itself with the figures that represent the public finances and with how those figures are presented. It is not good enough for ministers to come before the committee and say, when members complain that the figures do not make sense, that they will be entirely meaningful to the Scottish people. We need a clear and consistent presentation that does not allow of exaggeration by the Executive or of accusations of exaggeration by the Opposition. That will help not only the committee, but the Executive and Scottish politics generally. I commend to Parliament the Finance Committee's report on the Scottish budget.