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Scotland's Public Finances

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Scotland's Public Finances Scotland’s public finances Preparing for the future Prepared for the Auditor General for Scotland November 2009 Auditor General for Scotland The Auditor General for Scotland is the Parliament’s watchdog for ensuring propriety and value for money in the spending of public funds. He is responsible for investigating whether public spending bodies achieve the best possible value for money and adhere to the highest standards of financial management. He is independent and not subject to the control of any member of the Scottish Government or the Parliament. The Auditor General is responsible for securing the audit of the Scottish Government and most other public sector bodies except local authorities and fire and police boards. The following bodies fall within the remit of the Auditor General: • directorates of the Scottish Government • government agencies, eg the Prison Service, Historic Scotland • NHS bodies • further education colleges • Scottish Water • NDPBs and others, eg Scottish Enterprise. Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. It provides services to the Auditor General for Scotland and the Accounts Commission. Together they ensure that the Scottish Government and public sector bodies in Scotland are held to account for the proper, efficient and effective use of public funds. Scotland’s public finances: preparing for the future 1 Contents Summary In 2008/09, the Scottish Government Page 2 achieved its lowest underspend since devolution Key messages The Scottish Government manages Introduction the budget through a range of Page 3 measures Page 18 Preparing for the future Page 5 The Scottish Government must ensure it has the appropriate skills to Part 1. The current public spending meet the challenges ahead environment Page 19 Page 7 Recommendations Key messages Page 20 The recession is having a significant Part 3. Scrutinising, agreeing and impact on the UK economy monitoring the budget Page 21 The Scottish public sector is facing the biggest squeeze on budgets Key messages since devolution Page 8 The 2007 Spending Review took place in a complex environment Scotland’s funding arrangements may change in the future Linking budgets to priorities would provide better information for future Increased demand will affect the spending reviews affordability of public services Page 22 Page 10 The Scottish Parliament has an Public bodies will find it difficult to important role in scrutinising Scottish reduce their costs while maintaining Government spending plans front-line services Page 13 More transparency is needed to support Parliamentary scrutiny The Scottish public sector faces a Page 24 significant challenge in balancing the cost of public services with a Recommendations smaller budget Page 26 Page 15 Appendix 1. Glossary of terms Part 2. Financial management in Page 27 the Scottish Government Page 16 Appendix 2. The National Performance Framework Key messages Page 29 The Scottish Government distributes Appendix 3. The Scottish budget around £26.7 billion to over 200 public 2009/10 bodies each year Page 32 Page 17 2 Summary The public sector is coming under the greatest financial pressure since devolution. Summary 3 Key messages Exhibit 1 The National Performance Framework • Scotland’s economy is in recession and the public sector is under the greatest financial pressure since devolution ten years ago. It will be very challenging to maintain current levels of public services and meet new demands when resources are tight. Purpose (1) • The Scottish Government Purpose targets (9) has strengthened its financial management. But more could still be done to evaluate how Strategic objectives (5) well money is being spent in delivering against government National outcomes (15) priorities and improving public services. National indicators and targets (45) • The Scottish Government’s annual budget is largely Source: The Scottish Government developed on an incremental basis, which involves making adjustments at the margin to Introduction local flexibility in the way they spend existing budgets. This approach the money received from the Scottish is not suitable for budgeting in 1. Since mid-2008, Scotland’s Government. This was achieved a financial downturn because it economy has been in recession. largely through the removal of a does not easily allow informed The full effects of the recession are substantial number of ring-fenced choices to be made about not yet known but it is clear there funding streams. As part of the priorities. will be major implications for the concordat, the Scottish Government public sector. and local government have jointly • The Scottish Government and agreed the development of 32 Single the wider public sector need to 2. The Scottish Government’s overall Outcome Agreements (SOAs). The work together to develop better purpose is to promote and sustain SOAs provide a framework by which activity, cost and performance economic growth and it has five councils and their partners, through information. This information strategic objectives: a healthier; Community Planning Partnerships, is needed to enable informed wealthier and fairer; smarter; greener; establish a set of local outcomes. choices to be made between and safer and stronger Scotland. The aim is that these local outcomes competing priorities, and to In 2007, the Scottish Government should be based on the Scottish encourage greater efficiency introduced a new National Government’s national outcomes and productivity. Performance Framework (NPF), which while taking account of local priorities. sets out a number of performance • The Scottish Parliament has an targets for the public sector to work 4. The public sector reports progress important role in scrutinising towards in the form of 15 national against the national outcomes the government’s spending outcomes and 45 national indicators through a new performance reporting plans. Better information linking and targets (Exhibit 1).1 system known as Scotland Performs.2 spending to costs, activities Councils, through Community and service performance, 3. In 2007, the Scottish Government Planning Partnerships, are responsible and a rolling programme of and local government agreed a for local reporting on progress against performance reviews would concordat which gave councils more the related local outcomes. support the Scottish Parliament in fulfilling this role. 1 We have tried to minimise the use of technical language, but in some instances this is unavoidable and we have therefore included a glossary of terms at Appendix 1. We have also included details of the National Performance Framework at Appendix 2, and a breakdown of the Scottish budget at Appendix 3. 2 Performance against the National Performance Framework is reported through the Scotland Performs website: www.scotland.gov.uk/about/scotPerforms 4 5. In 2009/10, the Scottish budget is Exhibit 2 £34.7 billion. Annual spending plans Scottish Government budget growth 2000/01 to 2009/10 are set out in the budget, which is The Scottish Government’s budget has increased by an average of scrutinised and subject to approval by 5.4 per cent each year since devolution. the Scottish Parliament. Around 85 per cent (£29.6 billion) of the 10 Year-on-year budget is allocated to public bodies growth to deliver public services, with the 8 10-year average remaining 15 per cent (£5.1 billion) administered directly by the Scottish 6 Government. 6. The Scottish budget has increased 4 each year since devolution, from £17 billion in 2000/01, with average rate growth Percentage 2 real term increases of just over five per cent (Exhibit 2). 0 7. The Institute for Fiscal Studies 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 (IFS) predicts that real term Year reductions across all UK Government Departmental Expenditure Limits Source: The Scottish Government, Public Bodies Conference (DEL) will be around 2.3 per cent each year between 2011 and 2014.3 It is also predicting that real term growth 10. There is generally limited room for 11. The Scottish Government will continue to be constrained during manoeuvre in adjusting the budgets has prepared a carbon budget 2014 to 2018.4 At this stage, it is in the public sector, at least in the alongside the 2010/11 draft budget, unclear what the actual reduction in short term. This is because most of which provides an assessment of budgets will be. This will depend on the costs are fixed – such as the costs the overall carbon impact of the the depth of the recession and the of salaries and pensions, running government’s proposed expenditure.6 length of time the economy takes costs of buildings, costs of capital This assessment looks only at the to recover. It also depends on UK and essential supplies. In addition, emissions associated with buying Government policy on reducing the ageing population and the effects goods and services – it is anticipated debt levels. of the recession are likely to increase that future assessments will look at the demand for some services. The wider emissions. This is the first step 8. This squeeze will have a significant Scottish Government expects that in the process of developing a carbon impact on the amount of money by 2011, the Efficient Government accounting system, which will be available to the public sector in Programme for the public sector critical in informing future spending Scotland, because Scotland receives will generate a total of £1.6 billion decisions while ensuring that Scotland most of its funding from the UK of cash-releasing savings, based on meets the targets in the Climate Parliament. In turn, the voluntary two per cent of 2007/08 expenditure Change (Scotland) Act 2009. sector and private sector organisations levels. Given the high proportion of that rely on public sector funding will fixed cost in most budgets, it is not 12. In addition, the Carbon Reduction also be affected.
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