 Good morning and welcome to the eighth meeting of the Public Audit and Post Legislative Scrutiny Committee. Can I ask all those present to switch off their electronic devices or switch them to silent mode, so that they do not affect the work of the committee. Item no 1 is invited to take item 3 in private. Item 3 is consideration of evidence received under item 2 on the audit of the Scottish Government's consolidated accounts. Rwy'n credu i chi i ddod yn ymlaen i 3 a ffraith. Yr item 2 er fyddai'n sefyllfa ar y Auditor General for Scotland's report, the 2015-16 audit of the Scottish Government consolidated accounts. I welcome to the meeting, Caroline Gardner Auditor General for Scotland, Mark Taylor, Assistant Director and Gordon Small, Senior Manager at Audit Scotland. I now invite the Auditor General to make her opening statement before I open up to questions. Thank you, convener. The Scottish Parliament's financial powers are increasing, with new responsibilities coming for taxes and spending. The Government's budget and accounts for 2015-16 reflected for the first time the new tax and borrowing powers set out in the Scotland Act 2012. With further powers now flowing from the Scotland Act 2016, our public finances are becoming grade is increasingly complex. Transparency in budgets and financial reporting to support scrutiny and decision making has never been more important. The consolidated accounts are a central component of the government's accountability to Parliament and the public. They cover around 90% of the spending that was approved by parliament in 2015-16, the elements that the government is directly responsible for. They show the amount spent against each main budget heading ac yw'r gwybod yn oed yn dweud o'r ffordd. Mae wedi cyfnod o'r cyfrifiadau, ymlaen o'r cyfrifiadau, ac yn oed yn cyfrifiadau arall, os ydych yn cyfrifiadau. Mae'n gweithio ar y Cynllun 22 yw'r gweithgawr Gwyrddiant a'r cyfrifiadau ar y cyfrifiadau sydd yn dweud o'r cael ei gwybodaeth ac yn unig sy'n gweithgawr Gwyrddiant, i bach o'r gweithgawr Cynllun o'r gweithgawr Gwyrddiant ac y bwysig y byd yw'r gweithio i'r peth yn y gallu. Rwy'n dechrau'r gweithio'r cymhysgol o'r cyfnodol yn dod i'r gweithio Scottish i ddweud o'r ffordd mewn cyntaf, ac mae'r newid o'r cyfan a'n gweithio'r gweithio'r gweithio'r gweithio yn y gweithio'r cyfnodol yn y ddechrau. Mae'r cyfnodol bod yw'r cyfan yn gweithio'r gweithio yn ddechrau'r gweithio'r cyfnodol yn gweithio'r cyfnodol yn gweithio. gyda'r ddegwadau gyda'r ddweud o bwysig ddweudiaeth y ffaith ffynanc gwirionedd. Rwy'n rhaid i'ch cyfnodd y ddyliau gwaith ar hynny. Fy, mae'n fynd i'r ddweud i'r ddweud i'r ddweud a'r ddweud. Mae'r ddweud i'r ddweud i'r ddechrau gyda'r bobl yn y cerddau o'r 2015-16, i gynhyrchu y pryd ddiweddol yn gweithio ar gyferu'r gwneud a gweithio ar gyferu hwyllt providing. The accounts meet the relevant legal and accounting requirements and I welcome the steps the Government is taking to improve its accounts to develop commentary on its financial position and to explain how other accounts like the devolved taxes account prepared by Revenue Scotland are linked. As the new powers are introduced, there is a lot to do to ensure that the Parliament maen nhw defnyddio nhw'n gweld cyfwn mor cywbeth i gyrfaen, a'r gwaith bwysig iawn i gyrfaen i gyd-gofennu'r cyfnod cyfnod cywbeth, eu bethau? Nid yw'r ddych chi'n gyd-gofennu'n gweld chi'n gyrfaen i gyd-gofennu i gyd-gofennu i gyd-gofennu i gyd-gofennu? The committee bydd fydd eich cyfnod i'n gweld ei gynпlynedd lieddiadahol yn yr athegaith gyda'i clywiad am y cyfnod ffoilwrr ddeuilydd cyfan gwahanol i Gyd-gofennu 2018? We will, of course, work with the Scottish Government to support this important process. Secondly, on performance, the consolidated accounts contain a performance report, which complies with the principles of the Government reporting requirements. The emphasis is on financial performance against budget, with signposts to where more performance information is available, for example in the national performance framework. There remains scope for the Government to develop its annual reporting to provide a more extensive analysis of its overall performance. A common theme that comes from my performance audit work is the potential for better alignment of plans and funding with the national performance framework. We also often find that plans for implementing policy and reforming public services lack important measures of progress. More clarity is needed to support Parliament in its scrutiny and accountability role. Finally, convener, I would like to highlight two specific matters arising from the 2015-16 consolidated accounts. First of all, the impact of the Office for National Statistics classification decision on the Aberdeen peripheral western route on the capital budget and borrowing plans in 2015-16. Secondly, the position on the European structural funds programme leading to a permanent loss of grant to the Scottish Government. The committee's evidence session on the Government's consolidated accounts is an important milestone in scrutiny of Parliament's finances. My report on the 2015-16 audit is intended to support this process, as well as scrutiny and accountability in the Parliament's work more generally. The Government has a good record of financial management and reporting. Governance arrangements are generally effective, and the national performance framework is well established. Together, those form a strong basis for the developments that are still needed to meet the challenges ahead. As always, convener, we're happy to answer your questions. Thank you very much, Auditor General. I'm now open to questions. The first question is from Alison Harris. Good morning, Auditor General. Now, this is just out of interest, purely interest. You know, I've noticed that this is an unqualified audit report and it's too unfair in your experience. Has there ever been anything else? I think that for the Scottish Government's consolidated account, for the last 11 years, the opinion has been unqualified. I've been in post for four years, so I'd be struggling to talk to you about the reasons before that, but clearly it's a long track record. Out of interest, I was just asking. Yes, it was really in relation to the performance reporting. Now, obviously, I've noted what you've said. My concern is that there doesn't seem to be an overall picture of the Scottish Government as a whole. How can we monitor and measure the progress, really, without this? Is there anything that you're aware of that's coming into place that might help that? I think the point about how we link what the Government spends with what it plans to achieve and what it actually achieves is one of the key messages coming out of my report on the accounts this year. As I say in the report, the Scottish Government's annual report does comply with requirements in having a performance report in there. That talks mainly about financial performance and then signposts the reader to other sources of information like the national performance framework. Now, that's a decent starting point, but I do think there's scope for bringing the two more closely together. You'll be very aware, as an accountant, that the financial performance is only one-half of a picture and you need to be tying the two together. We think there's more room to be making those links more explicit and drawing out the overall picture, particularly the links between the money that's spent and what it's spent on and the impact on the outcomes that the Government is trying to improve. Yes, that's very true. The other bit that I was looking at was in relation to European funding. Do you have any idea, because what's concerning me, if three out of four were suspended, in fact four out of four ultimately at the end when the fourth was interrupted, sorry, is the correct word to use, to avoid any errors that have been made in the past, have you any idea about any implementation of any management control systems to try and ensure that the Government does receive the full value from the EC projects? Yes, I think it's important to say first of all that the problems that were encountered were encountered a bit further down the spending chain in the bodies that were receiving grant funding and spending money on the Government's behalf. Obviously, it's clear that the Scottish Government does have accountability for the controls that are in place right through the chain. I'll ask Mark to talk you through the action that's being taken there. As the Auditor General explained, the concerns arise from how the whole system has been managed through time. The European Commission has been working with the Government to do two things. One is to address the spending in that period and that's what led to the £14 million estimated loss of grant funding. But also to think about what the control system is going forward and what the control should be going forward. The Government's put in place plans that it thinks to address the concerns of the commission. The system allows the Auditor, in that case it's the internal audit service of the Scottish Government to do some work around that and they've done some work and continue to do some work to help ensure that that new control system, the improvements that are being put in place are the ones that are actually applied in practice. Right, so there are now new controls in place moving forward? There is a new control system in place. The effectiveness of that still needs to be tested. Right, okay. But certainly it should be more effective with it in place than not in place. Okay, thank you. I'm over to somebody else. Thank you. Thank you, convener. I also had some similar interests to Alison Harris around performance and outcomes. Auditor General, in paragraph 54 of the report you talk about potential for greater alignment of resources and actions. I just wondered if you'd saved a little more about that given that we've had a response from Leslie Evans, but what are the opportunities to do this in terms of aligning resources and is there anything in the response that gives you some confidence that there were more on track towards that? We mentioned one example here in the report in paragraph 54 about the link between the Government's economic strategy and the actions and activities undertaken by Scottish Enterprise, Highlands Limers Enterprise and others. It's not easy to link directly through to trace how what the agencies are doing and how they're tracking their progress is expected to improve the outcomes in the Government's economic strategy and what changes are being made if things aren't moving in the right direction. An example that might be closer to the committee's experience at the moment is around the NHS and social care, where in my report last week, one of the common themes was that some of the measures that are being used to hold health boards to account around acute service targets and the annual financial targets aren't clearly linked to the overall aim of having everybody able to live happier, healthy lives at home or close to home, so it's making those links more explicit and recognising that while outcomes often are very long-term changes that may take a generation to have an impact in the short term, you need to know whether you're moving in the right direction or not, so having those interim measures and milestones of where you expect to be across a longer period is what we're looking for. The national performance framework is widely recognised as being a really good development, but I think it won't have its full effect until it's fully linked up to the everyday spending plans and strategies and actions that public bodies undertake to know how those outcomes are improving over time. Do you think that having more and better indicators is an effective way to achieve this? Could we be overloaded by indicators or is there a balance to be struck? I absolutely recognise the concern behind your question and I think one of the concerns in health and social care in the past has been that people have felt overloaded by indicators. For me, it's absolutely not about the quantity of them. It's about saying, we do need to know we're moving in the right direction and making sure that what we're measuring is measuring the right things. That's not always been the case in the past and sometimes there is, as I say, simply a gap, a lack of information to let us know whether we're doing what we intend to do. I think that Mark wants to add to that. Just to add to what the Auditor General was saying there, we think that there's an opportunity to perhaps set out some more of the interim steps and some clarity about what pots of money are being used to achieve in the shorter term in a way in which that contributes to the outcomes that are desired in the longer term and a bit of clarity about that, a bit more clarity both in terms of where there's new initiatives and new projects in place, what the milestones are for those projects, but also more generally as services are being developed, how the money is being spent, what has been used for and what the outputs are expected to achieve that contributes to those overall outcomes. Okay, I'm just looking at an XA which was attached to the response from Leslie Evans. It looks like from what we've been told here that you've welcomed some of the changes, but I was interested to know it's on page 5 of an XA where it says the Scottish Government's made the following improvements to the expenditure reporting and it says other streaming and simplification has been applied to make the accounts more accessible. The changes have been welcomed by the Auditor General. Are you able to say a little about what those changes are and if you are satisfied that's a job done? Absolutely, I'll ask Gordon to talk you through that if I may. Thank you. The accounts themselves, if you've looked at this, a very large document covers a lot of ground. What we noticed this year was, as Auditor General said earlier, a real step-up and improvement in the front end of the accounts that talk about performance, but very much about financial performance. There's a lot more description and analysis of what the financial position is, performance against budget and some key elements of what the accounts contain themselves. We see that as a big improvement. I think it helps to understandability and readability of the accounts. There's a lot covered in the accounts to say it's a complicated document and that's very helpful. I think it's that next stage about what do we do to link that to the performance, the conversation that we've just been having there. I think our sense is that the accounts meet the requirements. There's no doubt about that. It's where that performance is actually reflected. It may be that there's scope to say more than the accounts themselves. It may be that it's somewhere else, but what we really need is that overall picture. I think it's well just adding to what colleagues have said so far. There's something about that whole system as well. So in terms of when the budgets are brought forward, what's intended to happen with the money and how it will be spent, and then coming back with at the end of the year an out turn of whether it's a say in the accounts or elsewhere to say actually how that money was spent in actuality and what was achieved from that. So long way round, but the short answer is improvements, but it's still some way to go. Okay, just one final point from me, convener. In all countries and in all parliaments, politicians throw big numbers about when we're asked about difficult challenges and we see overspending x amount more on any particular issue. Is there an example of best practice in other countries and other jurisdictions where governments do this better? Is there anything we can learn? I'm just wondering, do we ever reach a point where the public really know if we're getting value for money, if life is getting better for people? Is it ever truly possible to learn that from a report? It's a really good question and we're not saying this is an easy thing to do right. We've been looking at examples around the world to make sure that we can play our part in thinking about what Scotland needs with the new financial powers. I think one of the places we've been most impressed by is New Zealand, where, first of all, they do aim to take a preventative approach like the approach here in Scotland and one that's focused on outcomes. But I think in many parts of what they do, they've been able to be very rigorous about using some analysis to identify, for example, if you're talking about the criminal justice system, who are the people, the children who are most at risk, most using services at the moment, what would be needed to help improve their lives in ways that are good for them, but also reduce the demands on the criminal justice system on social work on the health service more widely, and then to use their budget planning process to move resources around to be able to do that. They also do very well in the comprehensive budget information that aligns their programmes in those areas with the way money is being spent and moved between budget headings. And they're very transparent in reporting how their money has been spent at the end of the year, but also with monthly accounts that are published to let people see what's happening during the process. In really interesting ways, it seems to be much less politicised than it is here in Scotland and in the UK, and I'm interested in how they achieve that. But in terms of comprehensiveness and transparency, I think there's a lot we can learn there. That's a very helpful reply. Thank you. Liam Kerr. Thank you. Morning. So just looking through, paragraph 13 is the first thing I want to just enquire about. So you say at that section that the total net expenditure during the year was £33,308 million, which is £392 million less than budgeted. Can you tell me first of all what happens to that underspend? Does it in some way get sent down south? Does it get clawed back? Can it get carried over to the following year? What happens to it? I'm going to ask Mark to talk you through that, and I apologise in advance that it is complicated. So the best exhibit to refer to is exhibit 3 on page 9 of the report, which attempts to answer that question, essentially. It also aligns very much with the provisional out-turn statement that the cabinet secretary gave to Parliament in June. The essential kind of challenges that the consolidated accounts and the budget within Scotland operates the slightly different rules from the Treasury budget, so there needs to be a reconciliation between the two and we explain how that works in the report. Essentially exhibit 3 sets out the different elements of that underspend as how they apply at a whole budget level, and there's then an explanation of how each of those elements are able to be carried forward or not able to be carried forward. In essence, the ones towards the top of the page are the ones that feature in the provisional out-turn statement, and carry forward in relation to net resource del, capital del, and the financial transactions in general can all be carried forward under budget rules. The money that's additional money greater than expected in the devolved tax is able to be carried forward. There's a couple of elements that aren't able to be carried forward around annual managed expenditure and non-cash del. Those are to do with the nature of those expenditure. Essentially, those don't give the Government any additional spending power. Those are technical accounting measures of expenditure and also annual managed expenditure, that the Treasury essentially underwrites. For those reasons, they don't affect the overall spending power under the current arrangements for the devolved Government. We are content that all the money, all the underspend that was able to be carried forward has been carried forward to a number of devices and I'm happy to dip into some of those. I think I've followed. There is a significant element of the £392 million that remains available for use, for employment by the Scottish Government. They can presumably choose. That's not ring-fenced in any way, is it? That could just be applied to a sector that is crying out for money. There is a degree of ring-fencing in that carry-forward. Under the current arrangements, each part of the carry-forward has a certain label on it. The money that is carried forward with that label needs to be used for those purposes. Probably the best way to exemplify that is that financial transactions carry forward. A capital deal financial transactions is a bit midway down the table on page 9. The under-overspend was an underspend of £40 million. There is an ability of the Government to carry forward that money but to use them only for the purposes of financial transactions, which are essentially loans to help business. There are certain rules around that. There is a degree to which the Government can decide to apply different elements of the carry-forward to different things, but there are elements of that that are ring-fenced that it needs to manage within. I understand. If I was to say that there is an extra £392 million that you can apply to the NHS, for example, that would be far too simplistic an analysis. That would be incorrect. That is not able to be done. Another example is if you look at the carry-forward in the cash reserve of devolved tax revenues, that can only be used for a very specific purpose in the next year, which is to offset any under-recovery of tax against those devolved taxes against forecast next year. With the introduction of the Scotland reserve from 1 April 2017, there is much more freedom around how reserves might be able to be used, but there will still be rules around different pots of money and what those pots of money are able to be used for. I understand. At paragraph 25, you talk about the Land and Buildings Transaction Tax, residential Land and Buildings Transaction Tax revenues, being in the lower part of the range forecast, £27 million less than forecast. Purely anecdotally, but there seemed to me up in the north-east to be a drop-off in higher-end sales after the Land and Buildings Transaction Tax came in. Are you able to identify or have you identified why there's been this shortfall in the forecast? Effectively, has this extra tax depressed the market in your view? It's not easy for us to be clear about what's driven changes in the revenues from each of the devolved taxes, and, obviously, we will have more devolved taxes from April next year. The Scottish Fiscal Commission has published a report on the outturn for 2015-16 against the forecast that they endorsed that were produced by the Scottish Government. We can certainly refer you to that very readily after the meeting. I think it's worth saying that the first year of a new tax is always complicated because you don't necessarily have good information beforehand. We did have the situation where the Scottish Government's rates were agreed by the Parliament well in advance in the financial year, and there was a late change in response to measures in the UK Government budget. There was a lot going on in that year, but the Scottish Fiscal Commission has given their best analysis of what was behind the changes in Land and Building Transaction Tax as well as the landfill tax for that year. Do you want to add anything to that, Mark? There's a general point that I'd make alongside that without getting into the specifics of that particular tax and the policy decisions around that, is that what's new this year and that will be a feature of the Scottish budget going forward is that there will be a higher level of forecasting, forecasting of taxes, forecasting of block grant adjustments, forecasting of social security expenditure, ultimately. And inevitably, with forecasts, those are not accurate predictions of exactly what's going to happen. There will be a degree of uncertainty and there will always be that degree of uncertainty, and that's a real shift in the nature of financial management in the public finances in Scotland, and it's managing that will be a big challenge. Forecasts can get better, data can get better, we can do what we can and the fiscal commission will be doing what it can to make as accurate a forecast as possible. There's something underlying about the uncertainty around the forecasting process that it will all need to manage and live with as we go forward. Finally, for me, just staying on that page 10, paragraph 27, you talk about the Aberdeen western peripheral route and I just wanted to understand that a little better. Can you explain this reclassification? I'm coming at this from perhaps a significant level of ignorance. I understood that the initial money for the western peripheral route and these sorts of projects wasn't part of the public budget, the public balance sheet, and then for some reason it had to be reclassified onto the national balance sheet. You're saying here that it was a decision of the ONS, the ONS decided to reclassify it, but I have in my mind that it was something to do with European regulation or procurement or some such. Can you just clarify that for me, please? I'll do our best. Both of your understandings are correct that they're part of the picture. The government had initially intended the Aberdeen western peripheral route and a small number of other projects to be effectively off the public sector of the government's balance sheet and it thought initially that the way its financing had been structured would allow that. That would have meant that all of the costs of the project would be met from the revenue budget over a period of years and there would be no need for cover from the capital budget to get that project and the others under way. The Office for National Statistics has got responsibility for applying the European rules to government projects across the United Kingdom and making sure that they're classified correctly as being either on the public sector balance sheet or off it. They have a programme of projects or initiatives that they intend to review and the Aberdeen western peripheral route came up in the 2015-16 programme for the ONS and their decision of that project specifically was that it should be classified as public sector, should therefore be on the balance sheet and would therefore require budget cover for the British government's capital budget. The government took the decision itself to apply the same approach which they felt was prudent to a handful of other projects which we listed in the report and that led to a fairly significant call on the government's capital allocations in 2015-16 that it hadn't initially expected and we tried to set that out from the report but it is, as you say, a complicated picture. The government had to find, effectively, an extra £392 million that it hadn't budgeted for. I'll ask Gordon to reply to keep me right on the figures but the principle is correct. Yes, that's absolutely correct. As a result, and it's worth taking back a stage in terms of your question, you're absolutely right, there's a system that's recognised across Europe in terms of how countries deal at national accounts level as statistical rather than international financial reporting standards so there's a difference again, another complication in there but as a consequence of that, the roll-down and effected the classification of Aberdeen with some peripheral route and then how that went on. You're absolutely right, the government was faced with a fairly significant task in terms of changing its plans for both capital spending and borrowing in fact and so had to accommodate that additional charge against its budget in year, which, as we say in the report, it successfully did. A consequence of that, and it affects the year that we're talking about, 15-16, there'll be an effect in the current financial year as well as it's still dealing with that. But it does have an actual effect and that is about some of the things highlighted in the report in terms of reprofiling budgets and stopping doing some things, doing spending further down the line so there is an actual effect of this on budgets and, as we say, the Scottish Government has successfully managed that in 15-16. Very quickly, it's presumably a complete coincidence that that figure of £392 million is the same as the one that we looked at earlier, the underspin. Absolutely. Just a very quick question, could that have been foreseen in terms of the reclassification from off-balance sheet to on-balance sheet? Could someone at the planning stage, did no one think when they were putting a risk register or some such together, this could happen? The first thing to point out is that in terms of the accounting and the Scottish Government's accounts that we're considering today, it complies with all the requirements, so that's done properly, just to make that point absolutely clear. These are very complicated transactions and when the rules change, as they did in the European, as I mentioned, the European statistical rules changed, that then has to come through. It then becomes a very intense and very technical assessment of individual projects and, as Auditor General was saying, the ONS has got a programme that it publishes of things that it will look at and measure against the statistical rules to see whether it's affecting national budgets and the like. So it's a very difficult question. It's one that, when faced with this, the Scottish Government had to react to, it went into negotiations because, as I say, a lot of this cannot... There may be no straightforward answer to things. There has to be a discussion about it. It's all about the balance of control of individual projects and where the risks and responsibilities lie. So there are fine judgments in there. So it's a difficult one to answer. I think that, as Auditor General says, I think that the steps that the Government take took off the back of the decision on the Aberdeen, Westworld peripheral route to look at other similar projects and to, if you like, get ahead of that, because these haven't actually been assessed yet, but the Government recognises the similarities and the way in which these projects and plans are put together and has applied the same methodology, if you like, in terms of how it rolls through into its budget. So, but these, as I say, these are a programme of work and there are very fine judgments in there as to whether they're on or off in terms of the national account statistics. I understand. Thank you. Thank you, Liam. On that point, I mean, this happened to colleges. It's happened to the peripheral route in Aberdeen. Could the ONS reclassify anything else? And are you confident that the Scottish Government is looking right across the public sector to assess the potential impact, so we don't see these losses again? It's actually classification. So in the case of the Aberdeen road, there was a classification that wasn't previously this was the assessment for the first time, if you like, based against these new rules that were coming through the European system of accounts. The ONS has got a programme of work. It looks at various things. For example, more recently, it's been looking at housing associations and whether these are public corporations or not and the consequences of that. So the Government, we were well aware of the programme of work that the ONS has got. The Government can look at the way in which the relationships are between itself and these other organisations and between the transactions in itself as we were discussing around some of these capital projects. And there are things that the Government can do to, if you like, adjust the balances between organisations, between transactions in itself, that can affect that very fine judgement in terms of where things sit. There are consequences of that in terms of the balance of accountability and control but that's perhaps for a further conversation. The short answer is that there is a programme of work and the Government has to deal with things that they come up in as Mark was saying. This will become more business as usual for the Government as things tend to arise in the course of business in the normal way. You're saying that the Government can look at this and has the programme of work to refer to look at this. Are you satisfied that they are looking at this across the public sector to assess the potential impact of any reclassification? I think that from the evidence that we have and if you take the example, going back to the Aberdeen-Westworld peripheral route again, it moved very quickly to look at the other projects that were structured in a similar way and from a prudent point of view applied them in that way. So it will be very aware of what's happening. It will be looking at what the ONS's programme of work is and trying to anticipate what the outcome of those would be. It's such that, as we see in the report here, in the example that we do have, the evidence that we do have, it can have a very significant impact on capital plans and borrowing so it's really important that they keep on top of that. It's maybe a question you'd like to ask the Government itself about how it keeps an eye on that type of thing as well. Can I just ask that very briefly, convener? You mentioned in your question the question of college reclassification. I think that that's actually a slightly different case from the capital, the infrastructure projects that we've been talking about this morning and indeed housing associations. In the case of the colleges, the ONS decision came as a result of the Government's reform programme on colleges. Again, I think the Government was aware that there was a risk that it would have that effect but it was felt that the increase in control and direction that the Government would have counterbalanced the downside, if you like, of the decision from their perspective. It's a very different but worthwhile question to explore. Thank you very much. Colin Beattie. Thank you, convener. On the general, a fairly positive report, actually, on the whole. I think that one of two things that we've already been discussing are the key issues. Certainly the capital side is a wee bit of a concern. Was the Government right in view of the ONS reclassifying the Aberdeen western peripheral route to voluntarily, if you like, reclassify those other projects? I think that as Gordon was suggesting in his response earlier, there probably isn't a right or wrong answer to these. It is a question of judgment. It's a question of the balance of control in each individual case. The Government felt it was the prudent approach to take, given that the other projects were structured in a very similar way to the Aberdeen western peripheral route and they felt it was worth taking that approach and taking the early budget hit that that would involve in order to remove any doubt. But it may be a question you want to explore with colleagues from the Government later on. My understanding is that there has been some modifications to the NPD model. Will that result in them no longer being classified as public sector projects? My understanding is that the Scottish Futures Trust has been looking at the financing models that it's been developing and the one that was initially put in place for these projects, to make sure that future projects can remain off balance sheet while still achieving the Government's objectives. We don't yet know because the ONS hasn't done its review, as Mark was highlighting earlier, what the impact of that will be on their decision. But there always is that trade-off control and distance from Government that needs to be managed. Mark Wight would like to add to that. Just a little bit of detail on that. There's another class of projects, hubs projects, where the Government redesigned the arrangements and I think that might be what you're referring to. By doing that, it was able to take the risk, lessen the risk of classification to the public sector in that particular set of projects. In terms of standard NPD projects, if there is such a thing, of which the foreign sector set out in the reporter in that class, the Government's now got a range of other options in terms of how it funds capital projects with new borrowing powers and one of the things that are where the Government will be doing is looking at how it uses those range of options and one of the things they might be able to talk to you a little about is where they've got to with that. I was particularly interested because in my own constituency, the new battle high school project I think has been done under the new revised NPD model. I don't know the extent of it, but Jordan Scotland has really looked at that model. The things that I can say about that one is that I'm not entirely sure the status of new battle, but I suspect that it will be one of those hub projects and will be a relation to the new model around hub projects. Our role is not to assess whether that's the right or wrong model and the way in which that works. One of the points that we've made previously is that there needs to be a balance between control for good reasons sometimes and direction and the classification that results from that. That's a judgment for Government to take about what the trade-off between those two things are. It might be helpful for the committee if you've got the information to understand what the new model is, how it's composed. I presume that there's one model only at the moment that's in use as an alternative. I think that there is briefing material available that we can certainly bring to the committee. I think that would be helpful. Obviously, as you already said, this has affected the capital budget and under paragraph 30 you've covered a few of the significant areas in which the Government has sought to cover that. I was interested particularly on bullet point 2, the reprofilling of loans to Scottish Water. What's the implications of that? I'd like to think that it says that when you say that the loans are being delayed, the drawdowns are being delayed to the point where Scottish Water needs a cash funding. I would have hoped in good management that they'd be doing that anyway. What are the implications of that? We'll be keeping an eye on the impact of it on Scottish Water and on the Government's accounts during this year's audit work and in future years. In terms of why the Government felt that was an appropriate decision to close the budget gap in 2015-16 it would be a good question to ask colleagues from the Scottish Government later on. I'd like to know a little bit more about reprofilling of loans because that implies a bit more than just managing more tightly when the drawdowns take place. The relationship between the Government and Scottish Water is a complex one and an important one given the scale investment programme and it's one that we're looking at quite closely. Mark may want to add something to the detail but in terms of looking at the overall impact it's something that we would need to come back to you in future years. The decision was taken in 2015-16. Just to add a little detail which is there's a multi-year commitment to funding for Scottish Water and within that multi-year commitment there's a degree of discretion for the Government about which years individual which years funding is provided in and there's that links to how fast the work's going and when the need, when the requirement is from Scottish Water. There's the ability for the Government to consider what's the best judgment about when those funds are applied in conversation with Scottish Water and one of the opportunities that they took in terms of closing the gap that we've explained that arose from the ONS classification was to think about the exact timing which year some of that funding was in and to make sure that that married up to Scottish Water's needs. The other one is bullet point 4 postponement of uncommitted grants and lower-and-forecast expansion and demand-led capital funding schemes. You've given some examples here of the portfolios but the type of projects that are being affected by this, uncommitted grants has that just been grants that have not been drawn down? More than not drawn down actually have not been committed, people haven't applied and been approved for a grant in that case, so the money is still available for use and in this case the decision was taken to reallocate it. So the Government didn't just put the money away from the projects? It reallocated it from a portfolio or policy area but it wouldn't be people who already had a commitment that they were entitled to the grants and therefore able to spend it. Okay, so nobody was actually deprived of money as such, there was no projects that were actually stopped because of it? I can add just a small piece to that which is my understanding is that some of these projects is about demand-led so it's about lack of people coming forward to take up grants that are available, so an element of that is what the other general says alongside that demand-led element as well, so there's different aspects to it. So what would this cover? Does it cover housing? Part of it in this particular portfolio will be housing and applications from people for affordable housing and the like, that type of thing is one element of that. Was an element of it housing associations? I don't know beyond that other than there are schemes that the Government has that if they do provide money scores against their capital budget there's an element of this, the capacity that they're able to generate to meet the ONS challenge was able to be absorbed by the fact that less people are coming forward for some elements of these grants that are available, but beyond that in terms of individual grants I don't have any detail on that. Can I change tacky wee bit and ask you more about the revenue side and the expenditure side because obviously we're moving in and this is really the first year of us moving into a situation where there are more significant tax-raising powers for the Parliament and obviously that's going to as you said auditor general increase next year. I want to explore a wee bit the role of the fiscal commission because I know it and let me say right away I fully understand the difficulties and the challenges of trying to accurately forecast Government revenue for next month never mind for the next year or the next two or three years so a caveat and qualify in my comments by saying that but the forecast for LBTT and the landfill tax were underestimates by about 13 per cent so two questions really if you look at the OBR which itself is not always got it right to say the least and other forecasting you mentioned New Zealand which I believe is the best fiscal commission type setup is 13 per cent within the kind of acceptable parameters or would you expect and as time goes on and the expertise increases would you expect a more accurate level of forecasting plus or minus and secondly if I were a spending minister if I was still in the Government I was a spending minister I would be asking myself the question in discussions about proposed cuts for the future is this a way of the finance minister deliberately underestimating his revenue swirling away the difference into this new reserve account for a rainy day or is this a genuine is the fiscal commission genuinely independent what resources are available to it has it got an independent view of the Scottish economy or does it just extrapolate the OBR forecast based on the UK Treasury model of the UK economy it seems to me the fiscal commission is now going to play a fairly pivotal role in the management of the public finances of Scotland and I'm trying to get an understanding of just all of that including to what extent the Auditor General examined the robustness of the fiscal commission's deliberations there's an awful lot in that question Mr Neil and I'll do my best and ask colleagues to come in and make sure we've covered as much of it as we can and I'm sure you'll understand there are some bits we probably can't cover in there as well first of all I agree wholeheartedly that this question of forecasting taxes will become central to the Scottish Government's budget in ways that simply hasn't been in the past moving over a very short period of time from about 10% of the money that's spent in Scotland by the Scottish Government being raised in Scotland mainly through council tax and non-domestic rates through to when the Scotland Act 2016 powers are fully in place about 52% from a range of different taxes where both the tax forecast and the block grant adjustments will bring variability and volatility that will need to be managed the forecast will be key to providing some stability to Scotland's public finances in doing that and as Mark said earlier in response to an earlier question there's no such thing as a correct forecast we know that from experience across the UK and globally particularly I think in times of uncertainty like those we're living in at the moment in relation to last year's tax forecast they were endorsed by the Scottish Fiscal Commission and there's no doubt in my mind that in the first year of a new tax there is complexity anyway I think we're still in areas where we don't have good enough data that's Scotland specific to what's happened over a period of time and what may happen in future and we saw an element of that in relation to the two devolved taxes last year and we also saw the uncertainty or the behavioural effects produced by the way the taxes were announced with a relatively early budget compared to the UK budget that allowed some for stalling a move by the UK budget later and a response by the Scottish Government budget produced some changes to the assumptions that have been used by the Government and endorsed by the Fiscal Commission in their original forecasts over time that should improve we will be developing better data we'll need to have better data on things like VAT in Scotland as the Scotland Act 2016 comes in the same I'm sure will be true on Scottish taxpayers for the rate of income tax and there will still be behavioural effects and the effects of political decision making that are hard to foresee at this point you've asked about the finance secretary's use of the budget reserve the current budget exchange mechanism from next year the budget reserve the budget exchange mechanism at the moment as Mark said earlier does have constraints on its use funding which is put into it because of higher than expected revenues from the devolved taxes can only be used at the moment to make up shortfall because devolved tax revenues in future years there's a degree more flexibility from April next year where we move to the budget reserve where instead of there being quite that limitation on how the funds are used there's instead a cap on the total amount that can be carried forward Mark may want to add to that but I think the point I'd like to make is that that volatility needs to be managed and there's a need for much more clarity and transparency about the way all of those streams interact to help you in Parliament make decisions and scrutinise the Government's performance and help people across Scotland to have their say on what matters to them about it Mark, anything you want to add? I think that the area of that is just around your question around the independence of the fiscal commission and how it's been set up and established and resourcing and obviously an issue that's been subject to a great deal of consideration by the finance committee previously I think we very much recognise the importance of that independence and unbiased forecasting we think that that's been the way in which the fiscal commission is proposed to be established will give it the basis for how it operates in an independent manner and we'd expect fully to operate fully independently and robustly in the forecasts that take place I think the other element that's in here that's worth mentioning is increasingly there'll be opportunity for independent commentators and we'll begin to see this already comment on some of the forecasting machinery within Government if you like and how that works there's an opportunity to benchmark some of that it's not our role to second guess forecasts it's not our role to look at the detail of forecasting methodology but as part of our continuing range of work we'll look at how the governance of all these bodies works and how effectively they operate within the overall system I think it'll be useful at some point convener for this committee to get a presentation from the fiscal commission because it'll be so important I think maybe sometime in the new year might be the appropriate time but I do think we should have a detailed understanding of all of the aspects of this can I just mine a wee bit deeper into the new reserve is there any limitation as to how much can go into the reserve obviously there's a limitation in how much can be forward for spent for the following year under the current arrangements but what are the limitations on the reserve what are the basic rules around the reserve you're testing my knowledge of the detail of course and we'll be happy to provide the detail but in a broad sense there's a limit on how much can be put in and taken out in individual years and there's a limit on how much can be held in total can you tell us what those limits are so we'll come back with a detail I think from memory the overall limit 700 million by government might be able to confirm that today and we'll come back with a detail on that so what happens then supposing there is an underestimate of the revenue say to the tune of 13% as there was last year and you're already at 690 million how quickly do you know the under because tax you're not sure until the end of the tax year really where your final tax take is sometime after the end of the financial year before you know the final figure so how does all that reconcile I'm going to help mark out because his memory was very good and we can complete the picture now for you Mr Neil you might recall that we published at the beginning of this session of parliament a short briefing paper on Scotland's new financial powers that aims to set out some of these questions the limits on the use of the reserve 350 million pounds going into it and an overall limit of 700 million pounds as mark said and you're right in a theoretical situation where the reserve was butting up against that 700 million pound limit there would be a limit to how much more could go in during that financial year and that's why this ability to strategically manage the government's finances to see the whole picture to see what's happening with the revenue budget with tax receipts coming in with capital spend as well is so important that the government wouldn't want to end up in a position where it has an underspend of which a chunk could not be put into the reserve and that's why that big picture we think is so important and can I ask you, I mean as I understand it there are now three elements in the new Scottish reserve there is any excess if I can put it that way tax revenue beyond what had been forecast but I take it that the finance minister is not obliged to put it into the reserve they can use it for additional spend if they so wish but at least for the purposes of this assume they put it into and play a very prudent game so they put this excess revenue into the reserve they put revenue underspend into the reserve and they can put capital underspend into the reserve is that right? there are three elements now in terms of when you come to want to spend the reserve if you put X amount for capital reserve in can you only spend that amount on capital and simultaneously with revenue question number one and question number two is the excess tax if I can call it that for the purposes of this suggestion element of the reserve can that be spent on either capital or revenue spend or not you're helping us very successfully demonstrate the complexity of this and I'll ask Mark to answer the two specific questions you have I think that there's two parts to the answer one is the detail of how it will work in practice has still been worked out between Treasury and Scottish Government the principle however around all of that is that there is a range of new powers to give the Government much more flexibility in how it manages the whole picture the reserved one element of that borrowing powers are on another element of that and how the two work together will be one of the big issues in the future and the point that the Auditor General makes is about managing all that there's a need for a well thought through principle based strategic approach to what the Government wants to do in terms of managing its risk and complexity around all that as it goes forward okay so we it's obviously a kind of changing goal post type situation until we get the final detail really I suppose isn't it? I think we're all in a situation where as we go on there's more decisions are made and more things become clear one other question which is not particularly related to that it's a very simple and straightforward question is does the 5% rule still apply whereby no more than 5% of revenue could be used to support borrowing or PDP projects? I think that's very much a question for Government because the 5% rule in a sense isn't a rule in the same way that the elements of the fiscal framework are it was a commitment made by Government that it would keep the revenue consequences of capital investment made through things like the non-profit distributing model to no more than 5% of the Dell budget and as far as I know it's not contained within the fiscal framework it may still be a prudent approach that Government wants to take to managing its budget longer term but it's a question for Government about what their position on that commitment now is. It's not a statutory requirement it's a treasury understanding basically. I think it's straightforwardly a Government commitment itself, a Scottish Government commitment. Great, thank you sir. Thank you. Can I ask first of all about the underspend in education it immediately struck me as quite large there's been so much debate on education recently and it had the largest departmental underspend of 196 million Auditor General, you explain that it's due to technical accounting adjustment related to student loans does that account for the whole underspend? I will ask one of my colleagues Gordon will give you the details on it but you're right the bulk of the underspend relates to the way in which the value of the student loans book is calculated each year depending on the likely repayment levels from it. Gordon. That's the short answer. Within that there's about 82 million pound relates to that reassessment of the student loan book. Another complicated methodology which is used to value the total amount of student loans that are outstanding to the Government so that's a large element of that. The accounts themselves have got more detail in terms of the portfolio differences in budget in the portfolio but that's the bulk of that one. I don't have any other detail to hand. You said 82 million can be accounted for by the student loan adjustment so we're still talking about 110 million underspend in education. Sorry. Have you got the account? We're doing a team job between us. The accounts themselves break it down into more detail of the total and 82 million relates specifically to the loan book. The other significant figures in there are advanced learning and the Scottish Further Education and Higher Education funding council at 46 million and learning at 30 million but you may want to explore with the witnesses who follow the detail of what comes into that. There are notes in the accounts as well and Mark is going to pick that up for you as we do team tag here. One of the things that the accounts do in detail is significant variances are explained in the accounts on pages 68 and 69 of the accounts, sets out some of the detail of what the other reasons behind the education position are and I'm sure the Government will be able to talk you through some of that. You said 46 millions due to funding council underspend and 30 million on learning. The big ones I have in front of me today is 30 million underspend on learning and 13 underspend on children and families 87 on higher education student support which is the student loans issue that Gordon talked about and 46 million on further and higher education funding council. It's quite significant is it not in a department? There are obviously very big numbers in absolute terms and I think our starting point is that all government spending is intended to achieve positive outcomes significant in that sense. On the other hand in the context of a budget of some 34 billion pounds they are relatively small numbers and I think it's important for us to keep that proportion in account there. It's one of the largest underspend areas in the budget but each of the numbers themselves I think are relatively small worth exploring with colleagues in a moment. Thank you. On appendix 1 page 22 I know pension pots are very difficult to predict but just out of interest there's 23 million underspend on teachers and NHS pension schemes. Do you know why that is or is it just quite a regular occurrence? I don't have the direct answer to that again I think it's worth looking at the figure in the context of the overall spend across the NHS and teacher schemes which are the big ones that are there and the other thing to point out is that what we're looking at today is the consolidated accounts which are separate to this and cover a whole range of work but it's worth reflecting the fact that there are many underpinning sets of accounts including separate accounts for each of these major pension funds that maybe give more insight into that but I think in my own view would be in the context of these numbers that are over 3 billion pounds 23 million is a relatively small amount of area as you say but it is in pensions. Can I ask about the previous audit committees have called on the Scottish Government to produce accounts that would cover the whole of the public sector for the benefit really of us new members on the committee auditor general could you explain really the practical benefits of producing whole public sector accounts? I know that committee members are always looking for additions to your reading load given your commitment always here I commend to you a report we published back in 2013 which is called developing financial reporting in Scotland which was our starting point for why this matters in brief terms though I think that against the backdrop of the greater volatility the greater opportunities and risks that the new financial powers bring to the budget of the Scottish Government and the Parliament's role in approving that budget and then scrutinising how it's been spent at the end of the year we think there is room for bringing together the whole of the public sector into one place to give you that overall picture and just one example of why that's so important those financial statements would include a balanced cheetah statement of financial position that would go beyond what you have in front of you today to include the pensions liabilities and all of the other public sector pension schemes and give that overall picture of the liability and how it's changing over time it would also give a picture of the total borrowing across the Scottish public sector with the Scottish Government's new borrowing powers but also the borrowing that local Government has been able to do over a number of years now and give you that picture again of how that's changing and where the risks and opportunities might be either potentially to invest more in Scotland's infrastructure or indeed to recognise that there might be risks in an environment where interest rates start to rise again after a long period of very low rates that's just one example of why we think it's so important it's bringing that whole picture together so that you, people across the Parliament and people across Scotland have got in one place a single picture of what Scotland's public finances look like it's worth noting we do have a whole of Government's accounts at a UK level which includes Scottish information we just don't have that national picture for Scotland itself and I think it's time that we should have okay, thank you very much my colleagues have touched on this already this morning but I wanted to ask a bit about performance reporting what is your view on the Scottish Government's written submission which sets out its plans to develop financial and performance reporting I very much welcome the commitments that are set out in the permanent secretary's letter it feels to us I think that it covers the right areas and as always it's often not until you start to see the prototypes and the examples of how it works in practice that you can see how far it will fulfil the needs of the Parliament and people with an interest more widely we're committed to working closely with colleagues in Government to give our views as they develop but I think I'd have to reserve an opinion on how well they fulfil what I think is needed until we've got something that's slightly more worked up than the commitments that the letter includes from what they've set out about the preventative agenda do you think from what they've set out they're likely to give us the information that we need to work out if that preventative agenda and spend on it is actually working I think it's very much a question of how it's done the areas that are covered could well cover the areas that would enable you to get that picture and as I described in response to an earlier question in New Zealand there is more information available about what prevention means in specific portfolio areas and even more in relation to specific groups of people and communities and I think as I say in my report as I recommend in my report it is that linkage between a commitment to improving an outcome and what particular strategies and plans are in place and the way money is following that but I think has got room for more development in Scotland what the permanent secretary sets out in her letter could achieve that and I'd like to see more development in practice so we'll have to wait and see really how it goes my biggest concern in the reports paragraph 76 which indicates that there's a permanent loss of £14 million grant to the Scottish Government which it cannot now recover can you make comment on that please yes I think Gordon's best place to talk you through what's behind that figure of £14 million the report describes the process that's been happening in terms of suspensions and interruptions of the individual programmes and in normal circumstances if you like over the period of these programmes that run for quite a while over the period of six or seven years what would happen is if there are problems emerging in a particular programme what's available to governments and the supplies across the whole of Europe is that they can actually withhold the claim they're making but recycle it as we describe it here in other words say that they agree that there's been some problems here we're going to put them right and then over time use the money that's then available for other projects the problem with this particular point this year is that we're coming to the end of that particular scheme that ended in 2013 they are complicated and they take quite a long time to if you like come to a final conclusion and in fact it's worth noting that the final accounting for 2017-13 programme will not really happen until the spring of next year at that point a line is drawn right across the whole of the programme and then we'll know the whole position what the government's seen here in terms of looking at what it had to do to get the suspensions lifted in a practical sense that means that the money can start flowing from Europe to Scotland in this case they had to make that correction to the previous claims for eligible expenditure that was accepted by Europe the suspensions were lifted and therefore the funds were able to start flowing again into Scotland but because where we are in the programme there's no opportunity to recycle and therefore the accounting that's been done here is to reflect that lightly permanent loss of grant the suspensions are because there are problems here in Scotland yes absolutely why are there problems here in Scotland the suspensions and interruption process that the EC put in place is cutting through it's really to protect the European money to make sure that the money that Europe wants to spend on these projects is used for the purpose intended and it's a sequence of events involving the Scottish Government right the way down through partners such as councils out into the individual projects in communities to do with infrastructure projects and it might be to do with helping people into working that type of thing and where there are problems that emerge from that for example if audit trails are not kept of how money was spent they're not as good as they should be if some of the rules around things like procurement are not being followed they then lead to what would be called through the audit process errors and these errors are then looked at on a sample basis across the population and then that leads to the European commission in this case suspending the projects until things are put right so it's a complicated process but I hope that gives some sense of the key elements of it You talk there about a whole chain of places where an error could occur from Scottish Government right down to local authority grant funding and do you have any sense of where, is there any pattern of where these errors are occurring I'm just concerned, I mean communities like mine and Dundee have received structural funds and there'll be members representing communities around the country that potentially lost some of this money Do we know where the errors are occurring? The errors will be done by identifying through audit sampling of individual projects and I don't have the detail of that what's important though is the effect on the programme overall and to use that phrase that ultimately the responsibility rests with the Scottish Government in the technical sense of the managing authority as it's called for the project so it really has to deal with the responsibility indeed the financial risks that come out if there are errors in the system You're absolutely right to ask the question convener I think to summarise what we're saying here and it is a complex picture on the whole the money will still have been spent for the benefit of communities the problem is that the Scottish Government isn't able to recover that 14 million of the total budget that was available and therefore that money isn't available for other purposes across the Scottish budget Yes but this isn't new is it in 2010-11 said there was a loss of European funding to Scotland and this arose because Scottish Government procedures at the time did not meet the standards required to ensure the use of funds complied fully with EU legislation so that was six years ago so are you saying there hasn't been an improvement since then I don't think we are saying that there certainly was mentioned in the audit report in 2010 and you'll forgive me that I can't comment on that detail on it because I wasn't actually I wasn't in Scotland at the time but I certainly wasn't ordered to general at the time I think what we're seeing in this instance in the 15-16 report is actually specific problems that were identified with the projects in place at that time through the audit process as Gordon said earlier the Government has been working with the European Union to make sure that the controls in place for the next project from 2014 to 2020 are robust and will meet the European Union's requirements but that the failings have led to a loss of grant of 14 million in 15-16 for the previous programme up to 2013 so I wouldn't say there have been no improvement but certainly problems were identified in 15-16 for the previous programme there's certainly not been sufficient improvement that we've managed to resolve this and to make sure that we receive all the money allocated to us by the EU Do you think there are long-term institutional weaknesses with the way the Scottish Government deals with EU funding? I'll ask colleagues to come in in a moment if I may. I would say that I think your characterisation of this has been quite a long chain is an accurate one and there are always risks in doing that that the Government is deliberately and intentionally passing European funding through often to quite small community organisations spending on important community-based projects with people who aren't used to complying with significant audit requirements that's not an excuse but I think it is a reflection that this isn't as straightforward as it might appear on the face of it Gordon, do you want to add to that? I think that that really covers it the important point here is about the Government having the right management processes in place and making sure that these are enforced down through the system it is a complicated, we've described a complicated chain of events that comes in individual projects that manifest themselves back up through in terms of suspensions and interruptions it ultimately stops with the Government the Government has to deal with the financial consequences of that Is there a problem? We don't want to go into too much detail on this about the CAP programme but there are huge problems with the CAP implementation and delivery in the Scottish Government and we're seeing this money disappearing through structural funds is there a problem dealing with EU funding? I've said the two issues are quite separate ones and what we're seeing here is a specific problem with controls at a local level that have led to the Government being unable to recover that £14 million in grant Can I thank the panel very much indeed for your evidence this morning, I suspend the meeting for two minutes for a comfort break Please Good morning I now welcome to the meeting Leslie Evans, permanent secretary Alison Stafford, director general for finance Aileen Wright, deputy director for finance Nicola Richards, director of people and Annie, how do I pronounce it? Moises Hello Annie, chief information officer from the Scottish Government I welcome you all this morning the permanent secretary will make an opening statement and open up to questions I don't have very much to say convener at all, just that I think it's important that we recognise and you will have heard some of this from your previous discussions I'm sure the very special moment that we're in at the moment in financial terms in fiscal terms and particularly in how we explain an account for our spend and our earn the balance of funding and income for the Scottish Government will be changing consistently over the next few years in 15-16 of around 12% to something nearer two thirds of our income by the financial year 2019-20 so much of what we may want to concentrate on this morning is how we are preparing the Government for that kind of landscape both institutionally and in terms of our practices our reporting and the information that we share with you, with Parliament but also with the people of Scotland Thank you very much indeed I'm going to now open to questions from members, Monica Lennon Would you like to kick off? Good morning panel We talked a lot in the earlier session with the Auditor General and her team about performance and having a sense of outcomes and I think you've covered quite a lot of that in your statement and I asked the Auditor General about that but I wonder if you can give us an update I think you talked about the new Government arrangements that were in place or went live from the beginning of October it's only November indeed, except but could you give us an update on that and how things are going? Yes, I could maybe give you an update on those two elements because although they're linked, they are distinct so in performance terms one of the things that we've been looking at is refreshing the national performance framework which you will be familiar with with the 16 outcomes of what else it is that the Government is focusing on and its ambitions so for example we've been looking at introducing new material around fair work around biodiversity and the environment and also about communities in the place of communities so there's some very specific work on the national performance framework itself but as importantly and particularly in this context I asked Alison Stafford to take over last year and refreshed this year aboard which is looking at performance and priorities for the whole of the Scottish Government and how the outcomes are explained what the milestones are to us achieving those outcomes she's been doing some work with each director in the Scottish Government that has a responsibility for a national performance outcome and looking at the lines of accountability the budget the specific projects and actions which you are leading to progress which is monitored as you know on the website Scotland performs there'll be more information as well and the draft budget about how each of our 16 outcome measures are being articulated and what is contributing to those and Alison might like to say a little bit more about that so there is a lot of work on the actual performance reporting and the way in which we measure long term outcomes by the inputs and efforts that we're making day to day week to week I think there's another point of discussion which is how we ensure that this sits alongside the accounts which is a highly technical set of information and makes those two as real as possible we're taking some steps around that as well to ensure that we're explaining to the wider public as well as to Parliament how these two interact and what the cause and effect of this is again Alison may like to say a little bit more about that if you want me to talk about the Government's side I instigated when I first became Permanent Secretary a fresh look at our Government's arrangements there are a couple of reasons why I did that one of those is its good practice and indeed the Cabinet Office down south recommend about every five years or so which is roughly the same as the period of time since we last look at our Government's arrangements I think the other reason was I'm acutely aware of the future for the Scottish Government and the challenges and opportunities that are presented by new powers tax being some of them but by no means those but also a whole range of other external context and factors some of which we've been listening to and experiencing over very recent weeks and even recent days so Government can't stand still we need to ensure that the Government's arrangements that we have operate with due transparency and aid clear decision making make that effective and make sure that we're clear about performance and clarity of direction and the changes I've introduced if you'd wish me to Thank you, I think I would be interested to get an understanding of the different options that are available to Government in terms of indicators and milestones I touch on this with the auditor general because there's a sense that there's perhaps a lack of indicators but just as importantly about quantity it's also about having the right indicators and I just wondered I'm sure there's a whole menu of different options you know what are some of those options and which ones are maybe sort of preferable I mean the national performance framework as you know is now enshrined in law and I mean Scotland is in a very special position being a leader in this area we are the first Government to introduce a wholly outcomes focused approach and others are following us in fact I was in Northern Ireland just last week and they are just following their outcomes approach based very much on our model drawing on our model but interestingly they are looking slightly differently at how they use indicators and measures to show people where those long term outcomes because they are usually long term how we are moving along and what is helping us to move along that route so what we're looking at at the moment is the accountabilities in particular areas for example we've done some great work where the justice strategy lays out very clearly what the specific strands of work will be that will contribute to the outcomes that have a justice implication or indeed contribute to other outcomes which you wouldn't call justice but are still important so children having happy and healthy lives there is a justice element to that that model works very well and we are encouraging other parts of the organisation and Alison is working with directors at the moment or another might enable us to have a consistent approach to share that information at the right times during the year and indeed as part of the draft budget and the information you'll see in the draft budget in a few weeks time will give you an increased element on all of those 16 outcomes Alison I don't know if you want to talk about that Yes, yes certainly so last year and there's a model here and obviously we can make sure if the committee wants to see this there was actually a material that was provided alongside the draft budget last year that not only provided a trail of indicators the trend material that's really important but also some explanation of where you can see the connection between the outcomes that are set out in the national performance framework and the actual activities that are taking place and how that links to the budgets now obviously money isn't the only thing that a government can do to ensure an outcome is delivered and there's a whole broad range of things that even if we looked at environmental issues we would know there would be societal issues, public attitudes, changes in technology so I think there's something about actually being able to see these various contributing factors clearly the national performance framework is our absolute benchmark around these areas that was designed actually building on best practice that was available at the time when it was established roughly nine years ago 10th anniversary next year and obviously what the community empowerment act last year said that it actually it would be four administrations of the day every five years to really be doing a refresh so over the next few weeks there will actually be at the start of a dialogue and consultation process that will actually be then taking a good hard look to make sure that actually these indicators are fit for purpose for the future given our different span of responsibilities that the parliament will have as well as the government going forward we'll be using Carnegie UK and Oxfam Scotland actually to be able to engage with people across Scotland as well as the sort of usual suspects of those that will have an academic view or a technical view around these things actually to make sure that we reach out in that way one of my observations is working with directors on this and particularly looking at the justice model that the permanent secretary has already mentioned is that actually there can be a huge gap between the overarching outcomes and some of the indicators and the real connectivity into what it is that people have to do differently to see the outcomes we want to see and I think the work in justice has shown actually about building a community of interest actually that whole system approach has been one of the major areas and actually I'm really pleased to say that there are other directors that are now seeing that as a method you know how we do these things is important as what we state as the outcomes we want to do so there's a particular work around environment, climate change and land reform that particular portfolio has actually produced a draft portfolio wide basket of outcomes and priorities and are working with their communities to actually make sure that that line of sight can be seen there and to see how those changes are really going to make a difference in the things we want to see also the national improvement framework in relation to education that has been aligned to the national performance framework a number of these things obviously have been post the election in May and seeing the programme for government published on the 3rd of September these are actually providing methods and ways of actually making sure that the ambitions that have been set out equally alongside the outcomes of a line of sight to see how those are being developed just to say a little bit more about what will come in the draft budget so obviously we have a publication date for that on the 15th of December the material that you will have seen from last year will go on a stage further and it will actually be pulling in the roles and activities of public bodies because this was obviously designed around what was in the scope of the things within the Scottish Government but as we have just said we all know that things are delivered actually through arms length bodies community groups and a whole range of contributors to make a difference in Scotland so that's what you will see will be a further development of this as we go forward for the draft budget in December I hope that sort of answers some of the areas that you've been interested in It's very helpful, thank you I wonder, I know that your team you've been working very hard in it that the Scottish Government directors had been meeting over the summer there's always been a lot of discussion and thinking I just wonder during those discussions does there come a point where directors and senior managers are able to point to policies and initiatives that perhaps are not working as well as they should be or not as effective in contributing to outcomes as ministers might expect or indeed the public might expect because I'm quite new to this committee and we've looked at a number of reports from Audit Scotland but sometimes it is very difficult to know where this a weak point is or sometimes we know but it doesn't really appear like the policy is revisited so I just wonder from those discussions in recent months is there anything that's jumping out that maybe needs to be looked at again If I can mention in general terms the responsibilities of directors to work with them and support them particularly analysts and statisticians their role is to ensure that we are continuing to pursue evidence to base policy that's a very important part so policies shouldn't be coming into being without a clear understanding of what their impact is likely to be and the evidence that shows the timing and the impact over a period of months or a period of years depending on the ambition of the policy I think the other thing to be born in mind is we often end up testing out policies I mean pilot is a word that is used very frequently within the public sector and those tests are usually with very good reason we think we have evidence as to why this is going to work and the evidence may tell you it is how it is implemented how people respond to it and how it interacts with what I call the real world does not always follow through whether a policies evidence is showing rationally that that is working but actually the implementation the behaviours that it's producing or unintended consequences that will always be a dial that directors and the policy colleagues that they're working with will be attending to and looking at so nothing is set in stone and it is part of good policy making to ensure that decisions and the impact of policies at arms length and the real world are constantly being monitored and checked to see if those work or not I appreciate that general picture but are there any examples through all that sort of monitoring the valuation of policies perhaps that are not working as effectively as they should be or is everything brilliant? I can't I will endeavour to come back to you with some examples I can't think of anything about it but there are examples from my own time in policy making and so on where shifts have been made where emphasis have been changed and I can think actually of an example which perhaps might illustrate the justice position years ago the intention and this was even around the time when the first outcomes were making their baby steps we would have a group of people who were working all part of the justice system the issue about the justice system was the interaction between the cause and effect between the justice system and that was the issue which we needed to address and make sure that we were pursuing in the leadership of those organisations in the way those people worked together and in the fact that they saw themselves as part of a whole system so although that isn't a policy per se it's quite an important element of how we introduce change to achieve outcomes on the table both metaphorically and in reality to say if I do this in my part of the system what's it going to make to your part of the system and the public that we're all serving but I will come back to you with a bit more time to think and give you an example or two I would appreciate that again I'm mindful that some of the points that have been raised by the Auditor General in her report have been accepted and addressed in your letter to the committee but I'm aware that it was highlighted in the Auditor General's report last year that there was still scope for the Government to develop and improve on its annual reporting you did say in your opening remarks that with more powers coming to the Scottish Parliament there is that issue around readiness so I think given that there's been some improvement already made and we're still working towards that and we have the additional powers coming to the Parliament I wonder if you can give us an update on how well the Government is prepared at this moment and where we need to get to I'll ask Alison to come in on this but I suppose the main issue from our point of view is the institutional landscape and readiness that we've already put in place so the fiscal commission and some of the other work that we're doing on ensuring that our budget reporting is as timeliness and as fulsome as it needs to be on finance reporting per se some of the activity that Alison was referring to earlier on has enhanced and will continue to develop what we share the detail of what we share and to make connections between new parts of our responsibilities so for example Revenue Scotland will be producing report on the taxes last year and we will making cross references to that so that we're not seeing that in isolation from other parts of the finances state if you like I think the other thing that's important here is for us to ensure that the accounts will always be we can make them more streamlined we can make them more accessible we can make them more simpler there will always be a highly technical document accounts are you will know this better than I the other thing from our point of view is to ensure that we do what we can to make them accessible and simple but we also ensure that the surrounding suite of documentation or references connects into those accounts to make those more transparent and easier to navigate process so some of the information that Alison was referring to earlier on that will accompany the draft budget and will come out before the end of the financial year should give some hot facts some clarity which is but perhaps easier to navigate and a bit less technical in the nature of accounts which will always have a particular they have some constraints and some compliance issues which will never make them the best bedtime reading but it is going to be more important that we are facing outwards and that we are accountable to the public on the kinds of facts and figures that they need to know I am just taking Monica Lennon's point a slightly further transparency is absolutely vital going forward so what really has been done to strengthen transparency and indeed sustain it going forward could you give me some examples please I suppose the first one is obviously the role of the fiscal commission which will be the it is the responsible body for scrutinising and considering our intentions and the targets that we are setting for creating income through taxation so they are another part of the institutional landscape that gives at armed length and in fact independent from the Scottish Government an assessment of how our tax raising in that circumstance our tax raising powers are being executed and whether or not we are fulfilling those there will be as I mentioned earlier on additional material going out to the public which we will be showing in a more transparent and obvious way what it is that we are doing, how we are doing and what those facts and figures tell us and indeed as part of the draft budget there will be additional information as I mentioned earlier on about the performance framework so all of those things will be giving people the opportunity to understand and see the connectivity and the new elements of the financial responsibilities that the Government has now taken on I don't know if you want to add to that so as the permanent secretary has said there is actually a broad church of individual organisations now that are actually part of the architecture that supports the greater fiscal responsibility that Scotland has right now so obviously what we have done is and it's really important to point out that there is actually a Scottish consolidated fund that is the place where there is an account of all the income that is raised in Scotland to then be dispersed so we have actually set out in that a greater exposition of where the different income sources come that actually ultimately then sit behind the Scottish budget at the end of the day and in that respect there are then a number of players that are equally producing financial information so we've mentioned Revenue Scotland we already also know that our tax in this current financial year involves the Scottish rate of income tax that will actually bring in to that mix reporting from HMRC because the collection and administration of that tax is actually by HMRC so they have already set out in their accounts that they published certain elements that we're referring to the business that they are now preparing for for carrying out that administration and collection of tax in Scotland then that they will produce an extract as well because actually that will become one of the more material figures in our current budget this year the figure for income tax that's raised in Scotland is estimated at 4.9 billion and for next year because of the changes under the Scotland Act 2016 that will be a much more material figure so it's really important that I think we continue to bring in to scope the transparency that we not only will be honouring ourselves because that's important we've actually made a pledge around open government so that is in with the bricks that is part of how we will be continuing to do business but equally we will want to see that sort of transparency from those other partners that are actually now part of our fiscal responsibility landscape the things specifically that you can see that will be different over the next period so before we actually publish the draft budget that I've mentioned that's on the 15th December we will actually put out a short guide that actually is more for the general public and also as far as that would be helpful to Parliament as a whole to actually understand what this changing landscape is because it's going to feel very very different to us and actually the importance that that places on us actually having sustainable economic growth is part of that and we'll need to link in heavily to the strategy that was published earlier this year about sustainable growth and the inclusive growth here in Scotland by the 31st December we will actually set out a statement for the out turn report for the whole of the Scottish Administration for the last financial year at that point all the accounts that actually utilise some of the Scottish budget that comes to us will all have been set out in the public domain and we will distill that together and be able to produce that so that Parliament can see that in January we will publish then a snapshot of the 2016 position that will start to bring the information in a more accessible format that is in our accounts is in all of these other bodies accounts but start to pull it together so that actually you can see what's been changing on the assets the investments we've been making in Scotland what are the things that are changing around the liabilities these again was within the boundaries of the Scottish Administration it will not bring local funding at that point but it will be certainly covering all the other areas of within the budget so that will be in January and then obviously we can say a little bit more about what our further steps are I just wanted to go back I'm sorry Can I ask members and the panel to keep their answers a bit questions and answers a bit shorter and sharper because I want to get through all members questions if that's okay just to go back to what you said about the form of brochure produced that will be posted out to everyone did I understand that correctly it will be an accessible guide I wasn't expecting necessarily to post it out to everyone because of the overhead costs of that but a guide that will be there for parliament and it's something that we will put on our website so that actually there is material there that people can start to use so that people the only way they will use it is if they actually know to go and look it up because I'm just getting at this actually people appreciate the huge change that's coming to Scotland and I misunderstood I thought they were going to be given some further information but you know what's going to be up to us to sorry I didn't mean to interrupt I think the intention is that it will be done online but I think the sign posting for that which the parliament is a huge element of course but there are other things that we can do to ensure that people are aware that that's where you go to find out information Thank you Liam Kerr So there was a significant underspend on the budget last year which understands an element of which can be carried forward or spent by the government so what analysis is done as to what that extra or what the underspend is going to be when does that analysis happen such that how soon does the government know how much it's going to have in its pot that it hadn't anticipated So as you would expect we're tracking or Alice and her team are tracking spend the whole time throughout the year in fact we have monthly reports to the executive board which has been introduced as part of our governance changes I was referring to earlier on so there's a constant monitoring about spend a lot of spend goes out as you might expect at the very beginning of the financial year and then there is a whole range of policy driven reasons why we might be delaying or delaying spend across the year we have a very significant milestone around October when all directors are given a thorough support in checking that their spend is where we think it will be and not all spend of course is profiled equally across the year as I mentioned earlier on but we have an in year now which we've introduced an in year check that the forecasts which individual directors and their teams are making about spend are accurate we cannot afford people to be thinking I might or I might not spend this at a time of such constraint so we've introduced a very robust but supportive and challenging process to allow people to say actually I think this might be different I think we might be spending a bit more or a bit less we have many of our bigger budgets are demand led and you will know from some of the work on pensions that for example some of those pensions actually are part of the budget rather than the Amy and that is real cash going out so we're having to constantly be anticipating what that demand might be about that's not just about what we choose to spend it's what we might have to accommodate so there's a constant scanning process and using that Alison will be forecasting and giving ministers and myself as principal accountable officer a forecast of what we think the out turn is likely to be and it is a bit like landing a helicopter a postage stamp it is an art and I have to say the fact that we're now in terms of the Her Majesty's Treasury budget figure which we measure our under spending on 0.5% is pretty good and it's better than last year which is 0.7% but Alison might like to say something about what happens nearer the time at the end of the year when we understand that we have an under spend and what we're doing with things like the transfer over into following years so we don't lose any of that under spend so yes that tracking is a dynamic process it obviously needs to take cognizance of what's happening across the whole of the landscape the important thing to note is that our make up here for the Scottish Parliament and the Scottish Government control regime is that we have to live within the budget we cannot overspend it so just to be really clear there will always be a level of under spend and obviously these numbers whilst they in absolute terms do sound large and relative to the whole budget we're working within extremely tight margins and because we cannot overspend then obviously there is an element of just making sure that we do get just the right side of the line the sorts of things that contribute to that dynamic environment is areas where the budgets are relying on people actually demanding we use the phrase demand led but actually that people do take up or the case is made for people to utilise particular budgets each year is taught and realistic to what we expect the demands to be so we do track that really carefully we have very tight margins again under each element of budget to work within from the point of view of being able to carry forward funds from one year to the next I can absolutely assure you it has been every Cabinet Secretary for Finance's passion and equally the DG for Finance's passion to make sure that there is no money whatsoever that's lost to Scotland so that is part of the tracking and the decision making but we do have to work and I'll give you the percentages for this year we have to work within 0.6% of our Del budget, our resource budget and if there's anything more than that then we wouldn't be able to carry it forward and it would be lost but we won't be in that position the limit on our capital is one and a half percent and on the financial transactions it's slightly larger but it's larger on a much smaller number those are the levels of fine-tuning that we have to work to and within those margins we are allowed to carry forward to the next year explain your is that an answer to your question Liam sorry I'm just I'll move on okay so thanks for that answer I'll move on to a slightly different area on land and buildings transaction tax being significantly lower the revenues from that have been significantly lower than forecast I think 13% was mentioned earlier on what analysis is being done on those figures and the impact of the tax on house sales what analysis has been done on future revenues and projections and at what point will a decision be taken on whether the end game of the tax has been achieved I'll ask Allison to talk a little bit more about the technical element of this but there will be and there is analysis the first year as you know of any tax can be quite volatile depending on what the tax is behaviours and the way people respond to that and we had some slightly different interventions just as we were bringing the tax into being as you know from the UK Government we will be analysing we are analysing Revenue Scotland and our housing policy colleagues will be analysing what the information is that we can discern from the first year of the tax and that will continue to inform policy and our future intentions and indeed it will be information that the Scottish Fiscal Commission will be using as well as part of their test of the reasonableness of future forecasts Can I say panel can you please keep your answers as tight as possible because we are really running short of time this morning there's just one thing just to be really clear last year's tax receipts actually exceeded the forecast so there was a net positive receipt to Scotland of £74 million just to be clear on that point you happy Liam? Colin Beattie Secretary you've mentioned both in your letter to the committee and also in the Audit Scotland report mentioned about the new governance arrangements that they went live in October so presumably they've been in place since the beginning of October can you give us some feel as to what those changes in governance comprised of what actually has been put in place so we've changed the structure of the accountability within government about who reports to whom or what reports to what more likely which is the structure that we had previously we've most importantly deepened and strengthened the knowledge base of our non executives to be able to enable them to challenge us and to bring in an independent and different perspective into the way we take decisions and the way we run our business within the Scottish Government so although we're actually reducing down the number of non execs we're strengthening their role and they are twinned there will be two non execs general so Alison will have to each director general will have to so that the knowledge of the business if you like is strengthened in our non execs I was particularly keen to increase the challenge function within the organisation so we really get the benefit of those people who are who are there to act as critical friends there are changes to the structure of the board as well and I can let you have a little map of that which we've been using and also about how we manage risk so we have changed some of our risk processes too but that's a quick overview a quick snapshot in mind of convenience question to be asked but as the other general pointed out an essential part of that is really a cultural and behavioural change as well how is that being managed we've been engaging with staff because actually how they support these boards will be really important we engaged with the non execs from a very early stage when we were introducing the changes and asked them to give us a view of how the behaviours we're working would help or act as a drag or a push on these changes we've actually done quite a lot of work on the behaviour culture as a whole in the organisation under a change programme which I introduced when I came in as permanent secretary last summer which is called SG2020 which is very much about the organisation we need and want to be by 2020 but we will also have to test whether this is working or not so we have a six month review which I have in place asking the director general who is the crown agent who is not involved in this process to come in with a couple of colleagues and test whether or not the changes that we've set ourselves and the tests we've set ourselves have been achieved but much of it will be to do with whether we behave differently within it, more frank, more open conversations and we're getting feedback on that at each of our meetings which makes for a rich seem of information just to quickly move on to a slightly different thing I've been talking to the previous panel about the O&S reclassifications and the consequences arising from that one of the consequences in the auditor general's report in paragraph 30 is the reprofiling of loans for Scottish water and I wanted to understand what the consequences of that were when you're talking about reprofiling you're not simply talking about as the auditor general said here being drawdowns of loans there must be a fundamental change in the structure Yes, I'll ask Alison to speak about that for me So within a particular period for Scottish water and obviously that has an interface equally with the water industry commissioner there's an investment programme that's determined and on the basis of that there is a loan profile that's set out over that period What happened in 2015-16 is that we worked with Scottish water to understand how they were delivering on that programme overall and also the mix between actually how they were going to support that investment, the extent to which they actually had cash to utilise and the extent to which they continued to need all of the loan that was penciled in for them for that particular year What we were being able to do is actually see no diminution at all in the delivery of infrastructure investment that Scottish water needed to take place in that year and we were able to change the mix of the extent to which they use their own cash and the extent to which they use loans from Government The full loan contribution from Government over the period will be there and will be honoured and we were able to actually just do this which made best use of public money at that time to be able to continue to do what Scottish water needed to do for their programme and to make sure that those key investments were under the NPD programme the Aberdeyn Western periphery route and the various others ones within the NHS that actually could go ahead Clearly the impact of the re-classification was unwelcome in terms of the budget Are we satisfied now that we understand the implications of the O and S re-classification that that is reflected throughout the Government's budget and that we have a full understanding of what they are going forward what the O and S require So in terms of those NPD projects at the time where there had been a change at short notice in terms of the rules that were being applied there had been a change from ESA 95 to ESA 10 so in terms of understanding the implications of that those have all been taken into account both in the financial year that we are looking at with the accounts and also for the subsequent budget both for this year and also for 2017-18 that's the trajectory of those major projects that were under that scheme of their life where it will actually have a budget tree implication So that has been assessed and it has been taken into account and has been managed as part of the whole capital programme Certainly in relation to the other aspects and this was all part of three and a half billion pounds that was actually put into this new arrangement for actually being able to bring additional capital investment into Scotland We had to do that because in 2010 the main capital budget for Scotland was cut by over a third and that was a response to what would have been happening with the financial markets around 2008-9 There was obviously commitments that had been made to communities across Scotland to expect these investments to take place and the NPD programme was set up to be able to deliver that Most of that, a lot of that delivery had already taken place and therefore we needed to find a way of accommodating these things but your specific question about have we now taken that into account so in relation to these schemes yes we have the contractual arrangements for the hub have changed so that those remain as a private classification and therefore we are still getting additionality from that One of the things that I initiated was actually to make sure that there was a more direct line of sight to the Office of National Statistics up till then it had been the preserve just of treasury to manage that relationship and I insisted that actually we needed to have a line of sight and have a regular dialogue so that happens we have a structured arrangement that happens on a programmed basis for us to engage with the O&S both to get a forward look on what they are doing in their programme they actually now publish their programme on a periodic basis as to what will be there and we are able to work with that we do that in concert with the Scottish Futures Trust as well and we also have built through all these processes the appropriate relationships into Eurostat as well so that gives us the best possible intelligence not only of when changes are coming but actually what this has shown and the interpretation that these various statistical bodies can place on what are pretty dry rule books that come out in relation to these things Alex Neil Just a few fairly quick factual questions to ask the first one is obviously a bone of contention for some time now is the fact that Police Scotland and I think from memory the fire service in Scotland unlike the equivalent services in the rest of the UK are charged fat in terms of last year how much did that cost the Scottish Government I don't know if I have the exact figure Alison may have it I do know because I was involved in it when I was director general for justice and learning that we had constant contact through finance and ourselves so I'm happy to advise the committee of the precise figure just as an order of magnitude it was around maybe just under 30 million but we'll get the precise figure for you so very significant figure indeed which are we still fighting the case or are we giving up and fighting HMRC and the UK Government on this we continue and particularly every time there has been a sort of change of of personnel within the Treasury to do that so I've been up regularly with my counterpart at various opportunities and obviously with the sign of that revenues it makes even less sense in that there before it the second very quick question I have is there's a 5% rule still being applied so that no more than 5% of revenue is used to support capital repayment so yes there is still that necessary and prudent regime to ensure that the exposure in any one year of the Government compared with its budget for those revenue financed investments is in place that's something that we have published since September 2013 and again the latest update will be in the draft budget on 15 December and given the importance of capital investment and given the previous discussion would it still be prudent to increase that to 6% say there's no plan at this stage to revisit that that's not the question I asked the question is would it still be prudent what would be the impact would be disastrous to increase that to 6% would it? I think we would have to assess what was appropriate we'll have a very changing risk landscape as we go forward at the moment apart from in terms of the year that we were looking at 2015-16 around 12% has come from income elsewhere and the rest has come through block grant that comes in as we need to draw it down on a very predictable and measured basis we have to predict a month in advance how much cash we're going to need each day and we refine that as we get to that point that's a very structured way as soon as any administration moves to having a more mixed economy of the receipts coming in from different tax sources in different schedules and also the sorts of decisions that will mean we will need to take in that we will move into a very different financial risk landscape so I wouldn't necessarily be advising on changing the risk parameter around that with that kind of context okay thank you why is there a 192 million underspend in education I think the majority of that is to do with student loans I will confirm that with my colleagues but I know there will be some other small pockets of very small in context of the overall budget which will probably be to do with money which has not been drawn down or which project has been delayed so it's not lost to the education budget but I don't know if colleagues want to say something more about the split between and the portfolio spend so the most material element within the underspend is an 82 million this is on page 69 of the account so equally on 68 there's commentary on the same portfolio as well that relates to lower than anticipated write down of a particular element of the student loan book that is evaluation change and that money the most important thing is that money cannot be used for anything else so that could not be redirected to many other aspects of education that 82 million how about the 46 million underspend for the funding council so that was to do with a release of cash reserves the large element of that was £50 million so that was utilising that in a way that it would be better used across the whole portfolio sorry can you explain to me what that means so it was actually historical timing differences that had taken place between how the funding council was funded on a particular financial year and how that sits with a particular academic year and that had actually generated a level of cash reserve that actually then wasn't going to be able to be used in any other way so that actually was more appropriate for to be released at that particular time okay so that 46 million pounds is still sitting there to be used no it has been released so that it could be used across the whole area so that's all part of taking into account releasing one thing with another across what whole area so that the whole area of the Scottish budget right so it's lost to higher and further education no because higher and further education have actually all had their grants allocated over the academic years that they've been required okay forgive me I don't completely follow so this 46 million has been underspent from education and has been reallocated right across the Scottish budget but they've not actually lost it so in terms of the allocations from the funding council to the various sectors that require it in any academic year then what has been committed to those areas have actually been fulfilled so this is actually a technical area where that particular body had actually accumulated cash that it couldn't actually use because it actually had allocated the budget that was actually available to it so it is a technical point it's probably something that's better for me to write to the committee about and I'm very happy to do that that would be useful that would be useful how about the 30 million underspend in learning so again this is an area where there is an element here that's related to demand led so as you can see from the explanation actually in the account there was slower than anticipated requirement by local authorities for free school meals sorry I'm not hearing you very well there were slower than anticipated what demand that came forward from local authorities for free school meals okay they took up the opportunity to get funding rather slower than we might have anticipated someone more ready than others so that demand will still be there just that it wasn't enclosed entirely in that financial year so we can't stop that demand we still have to be able to to fulfil it it's just that the profiling of the spend which we had thought would have taken place within a whole financial year has not in the case of that policy the initial tranche of funding for the attainment fund does that come under the learning budget so yes it does is the short answer because attainment would come from learning portfolio okay so is there any underspend on the attainment budget what I'm asking is can any of that 30 million underspend be attributed to underspend on the attainment fund I think we need to go through it absolutely quickly but the attainment fund is separate from that these are not parts of the attainment fund that has been recently set up it's my understanding so I would need to confirm that so I'm not giving you the wrong information sorry I thought you just said the attainment fund comes under the learning sorry the attainment fund comes under the portfolio of learning so it's part of the responsibility that the cabinet secretary for education and learning would have responsibility for and therefore overall the overall budget the attainment fund is a specific part of that and the threads which you see in children and families are from one directorate portfolio that gives particular support to very early years including as you can see their issues to do with preschool meals and to do with kinship care so if you're talking about the attainment fund specifically as opposed to attainment across the portfolio that is a discrete fund so that's not accounted for in this budget so where would the attainment fund the separate attainment fund appear it would be in education and lifelong learning and the underspend which to my knowledge that have been identified in higher education in the funding council or in children and families perhaps it's easiest if we write to you and confirm and clarify that so it's quite clear what we're talking about when we're talking about a portfolio when we're talking about a fund and what we're talking about underspend in specific parts of that portfolio that would be useful because yeah I don't know if colleagues agree with me but the question really is for reference to what you're going to write to us about is where does the attainment fund fall under all of these headings is it split across these headings and how do we get to the point where we know if there has been an underspend on the attainment fund if you could write to us as soon as possible on that and the attainment fund is new of course so it wouldn't necessarily feature within this set but happily do that I kind of felt that the first tranche of money might feature in this but if you could clarify that for us as well so the 13 million underspend on children and families you're not sure if that does include attainment fund money or not I just want to be absolutely clear in technical terms that I'm not giving you the wrong information it may well be that some of those threads are included in some elements of how the attainment fund was set up so I just don't want to be to give you the wrong information I think it's much better if we give you the accurate detail in writing I mean overall excluding the 82 million which I think if it's technical problems with student loans or adjusting or whatever 46 million for the funding council 30 million under learning and 13 for children and families are all areas which have experienced quite significant cuts over the last few years I mean are you concerned that this underspend is too hefty Alison might want to talk about underspend I think in the context of the overall budget it is relatively small sums but I think you heard earlier from Alison our efforts to try to make sure that we squeeze every single pound out of our allocated funding within each year is a high priority for us that's not always at our hand it's not always possible when people are not ready or are not able to take down funding from grant schemes that we're producing and so on but I don't know if you want to say something more about it no I think that's the distinction between areas that have funds that are allocated to support the running of services and those obviously go out on a regular profile and those areas where we are actually reliant on uptake whether that's from communities or local authorities or particular interest groups and I think that's some of the dynamic that we always have to work through with any budget in any one year whether that's at the aggregate level overall or for those portfolios that actually have particular areas that you've focused on yourself okay thank you I'd like to move to EU structural funds paragraph 76 identifies that £14 million being permanently lost to the Scottish Government's budget can you make any comment on that I understand what's said in the report I think we're not clear yet whether that £14 million will be lost there are two reasons around that one is the complete reconciliation doesn't actually take place until 2018 so this is part of a seven year programme and we would need there's quite a lot of work being done not just by us but by Europe still to happen next year so we won't know for sure what the final outturn for this programme and therefore what the reconciliation is until 2018 by Europe that's interesting because Audit Scotland seem quite clear they say in the report that a provision of £14 million to reflect of grant to the Scottish Government which it cannot now recover the other point that I was going to make it may be possible though we don't know yet so we don't know what the final figures will be we don't know yet whether we may be able to claw back some elements of that funding although we can't be sure about that at the moment but from the project sponsors so not from the projects themselves but the project sponsors who are responsible for overseeing how these programmes are carried out, how they're managed and so on so there may well be that we're able to reclaim some of that funding through there but we're not sure at the moment we're working on that at the moment so the £14 million is there as a marker which we don't want to assume we wouldn't need to draw down but it may not be that amount of money Audit Scotland are in their opinion are saying it's not recoverable quite clearly from their report but you're saying it might be the evidence we heard on this earlier from Audit Scotland they were talking about the chain of places where this money is drawn down from Scottish Government through local authorities, through grants and all these different organisations are you aware of where the errors are occurring that this money is going astray? We know where most of them are occurring they are occurring very much at the front line it's quite a long chain which involves Europe which involves the Scottish Government which involves project sponsors so as you say local authorities and so on and actually the projects themselves which are the ones doing the work at the front line and providing some very important and impactful work so we have to be aware in working with all that part of the chain of who needs to know what and what skills need to be available actually some of the work that we're doing for the new programme is very much intended to learn from what didn't go very well in the 14-20 programme we do know for example that it's very rare in terms of the audit material that we're seeing that people are deliberately trying to use the money for unintended consequences unintended purposes what we do know is often it's to do with recording particularly to do with things like recording people's time so when you're working half on a project which is ESF funded and half on a project which might be getting funding from your local authority or another source you have to be able to show Europe how that split takes place recording that information and being able to produce that paperwork digitally or otherwise on the day that the auditor appears is how you are tested of whether or not you're complying with some of these quite rigorous policy isn't it to put these arrangements in place to make sure this reporting is being done properly it's our responsibility to ensure that programme sponsors and indeed projects are able to and aware of their responsibilities so for the next set we are doing a lot more work now on the training and the guidance that is required for project sponsors and for the projects themselves so they understand what they're taking on in these projects and secondly we're doing more on checking and audit visits so we know earlier on and thirdly we're going to be looking earlier on in the pipeline about whether or not the quality of information that's being recorded and shared is actually available for the audits when they come in because they come in at various times during the year and their random samples of course Ms Evans with respect you said exactly the same to the committee last year you said it is my role to make it very clear that the receipt of the funding that they must continue to put in place the measures that are required to ensure there is accountability to that funding and that the public pound is tracked I mean have you seen any improvement in this over the last year since you said that? I have seen I've heard that there is greater understanding of what the role is I think the issue is that we're coming to the end of a set of projects now so we're now actually looking at closing these projects down as we have been doing for the work that's been described in the report and creating the next set of projects learning from people's skills and capacities to be able to manage European funding we spoke to all of the key personally and in writing last year to all of the key programme managers which included people like Glasgow Council Scottish Enterprise big establishments about their capacity to ensure that their projects which they had initiated could comply with what are quite onerous and rightly so because it's public money onerous responsibilities and recording so we will continue to remind them of their responsibilities the other thing we've done Do you think there has been an improvement though over the last year? I think there is a greater awareness of the responsibilities and requirements now As you mentioned, Glasgow City Council Scottish Enterprise would want to lose such significant sums of money Indeed and in fact when we worked with Scottish Enterprise and I spoke to the chief executive personally about it when I first came in as permanent secretary last year she had taken some very rapid and robust steps to improve the governance and the recording of the projects under their auspices I mean this is a problem that dates back to when it was identified as a problem in the Auditor General's report then I mean, why hasn't this got better over six years? Well, we won't know what the final outturn of course in terms of the final errors and therefore penalties that may have to be paid for a little bit longer we don't know that yet and we also know that we may have the opportunity to recoup some of this money so the final outturn is still awaiting I don't think we can deny that it is challenging and tough for very small organisations often some of them embedded in communities that have not The Glasgow City Council and Scottish Enterprise are not small organisations They are not but the projects that they are managing are very frequently very small some of them will be in your own constituencies and as I said doing some splendid work but if you've got small groups of people who are doing really important work on the front line they won't necessarily have either the time or the experience of collating and producing information that is suitable for a robust audit that is what the programme sponsors have been encouraging their projects to understand and learn So you're saying that there are occurring in small organisations but also large established organisations like Glasgow City Council and Scottish Enterprise Well, there is a slightly different relationship where the project sponsors tend to be the big institutions there are a number of projects that they will have as sponsors many of which will be very small The project sponsors have to be convinced when they take those projects on and when they agree to the funding that those often small scale projects are able to have the have the experience and the capacity to be able to make the kind of recording that allows the project sponsors to make their returns to us and to Europe It looks to me as if there are long term institutional weaknesses with the way the Scottish Government deals with EU funding, would you agree? No, I wouldn't Why are we losing £14 million? So we will still the jury is out on whether that's the case or not and in fact every project that is funded by Europe under ESF does lose some element of funding anyway some of them in Europe up to 40% I think our record is we retain at least 90% of our funding I think the UK as a whole is between 80 and 90% I'm not saying that we are complacent there is no room for that What I am saying is it's important that we learn from the most recent project that we put that into place in revised conditions practices, guidance and expectations and importantly one of them will be we will know earlier on if there are issues coming up in these small projects because the audit process will be highlighting them earlier on in the system before it comes to the reporting end of the reporting end of the programme by which time it's almost too late to say with the progress that's been made on this over the last six years I can't comment on the last six years I've been responsible for this for the last year I think there is more to be done undoubtedly but I think people have a greater understanding of their expectations not least working very closely with internal auditors about what is expected of the capacity and also the quality of reporting that needs to be available I'm interested in the point that you think is coverable could you write to the committee when you receive information about that and let us know how much you've managed to recover could you also follow up on the attainment issues that I've raised are there any further questions from members can I thank you very much indeed for your evidence this morning and now move the committee into private session as previously agreed