 Fonwll i ddod yn gweithio i gyd y 9 maen nhw i'n 2017 o'r Ffnansin Y Ddangoswyr i'w rhanogol i'n mynd i gyngorol i ddod y prifysgol, ac yn ni'n bwysigol i'r ddangoswyr ei ddweud â'u gynllun. Y ddweud ythafn i'r ysgrifennu diolch yn yr agenda, yn gyfnod i ddod to take item 4 in private, our members agreed. The second item on our agenda is to consider the Scottish statutory instrument that seeks to amend the 2016 budget act. Before we come to the motion seeking approval at agenda item 3, we will have an evidence session on the order. I welcome to the meeting there at Mackay, the Cabinet Secretary for Finance and Constitution. Mr Mackay is joined by a couple of his colleagues from the Scottish Government, Scott Mackay, who is the Head of Finance Coordination and Kerry Timon, who is the Deputy Director of Finance and Programme Management. I welcome all our witnesses to the meeting. Cabinet Secretary, I wish to make a short opening statement. Please, convener. The spring budget revision provides the final opportunity to formally amend the Scottish budget for 2016-17. This year's spring budget revision deals with four different types of amendments to the budget. Firstly, a few funding changes. Secondly, a number of technical adjustments that have no impact on spending power. Thirdly, some whitehall transfers. Finally, some budget neutral transfers of resources between portfolio budgets, including a modest budget redirection to ensure that we maximise our available budget. The net impact on all of those changes has an increase in the approved budget of £372.1 million. Table 1.1 on page 5 of the supporting document shows the approved budgets following the autumn budget revision and the changes sought in the spring budget revision. The supporting document to the spring budget revision and the brief guide, prepared by my officials, provide a background on the net changes. The first set of changes comprise mainly of the £100 million capital stimulus allocations announced by the First Minister in September 2016, along with the £23.8 million that has been allocated over a number of lines as detailed in the brief guide. In total, those changes increase the budget by £123.8 million. The second set of changes comprise a number of technical adjustments to the budget. The technical adjustments are mainly non-cash, and therefore budget neutral, as they cannot be redeployed to support discretionary spend elsewhere and have a net positive impact of £221.5 million on the overall aggregate position. It is necessary to reflect those adjustments to ensure that the budget is consistent with the accounting requirements and with the final outturn that will be reported in our annual accounts. The largest of those changes relates to an increase of £50 million required for the non-cash student loans rap charge to better align the budget with actual requirement. Again, that is a technical adjustment to the budget, and this increase in funding cannot be used to support discretionary spending elsewhere. The Scottish budget aligns with the accounting requirements under the Government Financial Reporting Manual. A coronary budget provision is included in the Scottish budget for the financial year to reflect the recognition of relevant health and prison assets within revenue, finance, infrastructure, schemes and according to the accounting requirements. The adjustment to the budget at this spring budget revision is £20.6 million. Other technical adjustments include increased AME budget cover for provisions around impairments and fair value adjustments and other non-cash adjustments to portfolio budgets. With regard to whitehall transfers and allocations from HM Treasury, there is a net positive impact on the budget of £26.9 million. That includes additional funding of £5 million contributions for HM Treasury for both the V&A Museum Dundee and the Burl Renaissance project. The final part of the budget revision concerns the transfer of funds within and between portfolios to better align the budgets with profiled spend. There are a number of between-portfolio transfers as part of the revision process, and they have no overall impact on spending and power. The main transfers between portfolios are noted in the SBR's supporting document and the guide to the SBR. In line with past years, there are a number of internal portfolio transfers that have no effect on portfolio totals but ensure that internal budgets are monitored and managed effectively. As previously mentioned, the committee will wish to note that it is part of a robust budget management process. In line with good practice, we have taken opportunity at spring budget revision to redeploy some budgets to meet emerging pressures. As always, we will proactively manage the flexibility provided under the budget exchange mechanism, agreed between HM Treasury and the devolved administrations. I can confirm, as is in the case with previous years, that it is my intention to make a statement to Parliament on provision allowed to earn in respect to both our Scottish Parliament budget and HM Treasury budget. The brief guide to the spring budget revision, prepared by my official, sets out the background in the details of the main changes proposed and hope that colleagues have found this helpful. Thank you, cabinet secretary. You mentioned a couple of times that the Whitehall transfers and allocations from HM Treasury, can you specify what stipulations are attached to these transfers? Are they essentially ring-fence for the purpose that's outlined, or is there any flexibility at all? No, they're very specific for a particular function as detailed, yes, so, yeah, something that's that. There's quite a number of budget transfers that are recurrent, and would you agree that it would assist in mitigating some of the confusion around the actual position of certain budgets to have those included in the draft budget document if they're on an annual basis recurrent transfers? My view is that, I suppose, there are two categories here. One is where it's recurring and it would make sense to try and incorporate that in at the earlier stage, and I think that that's fair comment, and maybe something that the budget review group will consider, then we can reflect upon. But we have been trying to do that, looking at recurring budget lines and where it makes sense to incorporate them and rather than have this change process. The other category, I suppose, I would describe as one where it might still make sense for the reason that the portfolio holder is essentially commissioning a service and it might still make sense in those cases to keep it that way. I suppose the best example that I can give of that is the training of nurses, where it's essentially, it looks as if it's across two budgets between health and education, but it's a clear function, it's an education function, but obviously it's support and health. I think that there will be some examples where it still makes sense to keep it that way, but where committee may believe that we should try and incorporate more in, then we should do that. I think that there are two categories there, convener, but I'm happy to reflect on it further if the budget review group thinks that it helps around transparency. Maybe someone has to say where it's recurred every year, and there are others where it's specific one portfolio essentially procuring a service from another. Last but not least, from my own perspective, I just wondered if you could talk us through the decision making process for allocating funding changes during the year. Obviously there are members here who have not always been on the finance committee, so understanding what the Government process is and allocation of those transfers would be quite helpful. Maybe the officials can cover some of that. From a political point of view, there will be natural underspends in some places, overspends in other places. That could be across Government within portfolios, within projects, even just managing that overall multi-billion-pound budget. There will be changes within that to reflect actual spend, requirement and delivering on Government's policies at the most basic account and sale level. I suppose that I can wish Kerry, would you like to cover? That's absolutely right. Obviously, we monitor across the Scottish Government very, very closely on an on-going basis, so we're very aware of where projects are slipping or maybe there's additional pressures elsewhere and demand-led budgets, so we're managing everything very, very closely to keep within our overall allocations. Where we see a need emerging somewhere or additionally some underspend emerging, we are effectively matching that to where the need is to make sure that we end the year at a very, very precise position so that we've effectively not lost any spending power for over the year. Okay. Thank you very much. James Kelly. Okay, thank you, convener. Good morning, Cabinet Secretary. I'm just looking at the figures. I was surprised to see an emerging underspend in the housing line, bearing in mind that housing is obviously a major issue and our support across the Parliament for supporting house building, not only in terms of addressing the housing shortage, but also from the point of view of supporting the construction industry. Can you maybe explain the background to that? Convener, that's a fair question. I think there's two elements to that. A smaller element is that it's higher than expected level of receipts from the sale of homes, which is a smaller element. The larger element is how we profile the spend on delivering the housing targets. There's no question that we're working towards our housing target, but how that is profiled and spent within the housing portfolio is being managed. I suppose it's how they have profiled that. We've set out a figure. They're working towards that ambitious target, which runs to 2021. It's simply the way they have profiled to spend it over that period and therefore doesn't all need to be spent in the first year, but, obviously, that will increase as we go into each year to deliver that target. I'm still somewhat surprised at that. Overall, your target is to reach 35,000 by 2021, and recent figures show that you've only got 6,000 forecast completions at this stage. I understand that there will be more spending to push that up, but that would seem to me to be a relatively low figure at this stage in the process. I'm surprised that the underspend wasn't used to be reallocated to other projects within the housing sector. The programme will escalate as we make further progress as we do the necessary preparatory work and investment and build that up. I want to reassure Mr Kelly that we will meet a target. This is how housing has been delivering the spend to meet that target, but there's no question that we're nagging on it or we're moving back. It's just how we've profiled it. Again, Kerry can give more technical detail. I think that what I would say in terms of reallocating that funding to other housing projects, obviously the vast majority of housing projects require quite a long lead-in time in terms of planning, procuring. The cabinet secretary is absolutely right. What we will do in this reallocating is ensure that the targets will be met and the funds will be made available in the following year, but what we will do is reallocate it to an area that can use it within the year, because what we don't want to do, the worst-case scenario, is reallocate it to another large capital or housing project and then that in itself slip and then we get to the year end and we've had almost a double slippage and that funding is lost. We're very careful to make sure that when underspends are emerging we can reallocate those where they can actually be used. To be clear, where the £21.5 million, where was that actually reallocated to? It's part of that full reallocation that's set out in the brief guide. So there's a whole list of... Yeah, I've seen it. So it's going against one of the projects like the farmers' payments or something like that. It wouldn't be farmers' payments because that's financial transactions, but it would have been one of the other capital reallocations there. So can you give... There's obviously a list on the table. I've given one example. You said it's not going there. Can you give an illustration of where it might have gone? I think we just need to make clear it's not as if a specific line goes from one project to another. It will contribute to the overall capital contribution. So it's not possible to say it's gone from project A to project B specifically. Yeah, I understand. Just the overall funding. I understand that. You can see in the table there are obviously credits and debits, and monies come out underspends and get any other projects. Obviously the farmers' loans is one of the main beneficiaries of that. You've said that it hasn't gone there. So am I right in saying that it's gone across the other lines? For example, policing fire pensions, Angus Groes, is that fair to say? I get it. It's probably not as simple as that. I mean, as we've said, it may have gone to other capital projects that have then released financial transactions to put against the farmers' loans. We may have re-evaluated how we're scoring things and exactly how projects are being funded. So there's no direct read across here to where it's gone. I understand there's no direct read across in the sense that you're not transferring 21.5 million into a discrete project, but there's not that many projects on that table. So I've given one example and you said it's not gone there. Is it fair to say it's been reallocated across the others? Yeah, I think it's fair to say it will have funded the rest of the capital programme. Yeah, it's a global figure. Okay, I think I've finished that convener, but I think the point does remain certainly a concern to me as a committee member and as a regional MSP for Glasgow that the housing budget hasn't been fully spent in this year. Can I ask you questions for overall to understand? I don't have it in front of me, so forgive me. The housing budget and the draft budget, what did that amount to? If I remember rightly, it was close to £700 million. Overall... We're trying to understand the scale of the 21.5 against the overall scale of housing that's been spent. 3.3 million overall, so it is a very small percentage. Again, for our large capital projects, we would always expect there to be some shift in timing of it. Okay, that's how we understand the perspective. James, you have a second question. James. Sorry to the cabinet. Just again, give the reassurance, we have housing targets. We will meet them, but we'll meet them in a profile spend. Housing belief is the right thing to do, so we won't just spend the money because that's the figure we've set. That's the requirement that they believe they've had to spend in that year to deliver on the overall commitment, but in that year, obviously that means escalation going forward. We're not talking about future years budgets, but that would be reflected in future years. Okay, moving on to another issue then, just in terms of the justice portfolio, there's been a transfer from the police change fund to £52.6 million to the SPA. Can you give me a bit more detail around that? That's a continuation, please. Okay, so it's the continuation of the funding for police transition reform, VAT, that's again just the continuation of that approach. So in terms of the police change fund, what has been sacrificed to take £52.6 million out of there and moved into the SPA? What was planned as expenditure in that line and is now needed or can't take place? That line is specifically for the police change programme, so it's every year it was set up explicitly for that function, so it's reform money that sits within the Scottish Government, within that line, and then transfers in year. The reason it wasn't initially put into the SPA line is because they look every year at what the amount that is required is and then accordingly pass that amount across. So it was never intended for any other purpose than police reform. So it sits in the police change budget and it's transferred over? Yes, right. Based on requirement that has been assessed? It was always intended for that purpose. Okay, there was a split of it. Some £34.8 million was revenue and 17.8 was capital, but in the transfer across it appears it's all been allocated to revenue. What's the thinking there? That's it. That's a technical adjustment to do with the way that arm's length bodies budgets are presented in the Scottish budget documents. SPA, for the purposes of the budget document, is all recorded as revenue because it's not reflected in Scottish Government accounts as a direct capital expenditure. So it's still effectively a capital grant, but it's an indirect capital grant as far as the core Scottish Government is concerned. So it's not a change against our treasury budgets, but it is presented as such in the Scottish budget documents. So it doesn't mean that that's not going to be spent on capital, but it presents slightly differently in the document. So within the SPA budget, are you saying there's not a capital line that's all revenue? In terms of how it's shown in the Scottish budget documents, the budget document has to align to the presentation that we show in our accounts. In our accounts, we only record capital expenditure that is directly undertaken by the core Scottish Government. That doesn't include capital expenditure that's undertaken by arm's length bodies. So it shows as revenue within the Scottish budget documents, but against our treasury control aggregates, it is still recorded as capital. So it's a technical presentational difference rather than a substantive move between capital and revenue. So are you saying that although it's presented as revenue, that £17.8 million in the end will actually be spent against capital, albeit in arm's length body? Yes. Thank you. Good morning. I've got a couple of questions in two distinct areas. The first relates to the capital stimulus funding of £100 million that was brought forward. In the current financial year, based on an underspend from the previous year, can you give us an update on how much of that £100 million has now been spent? My understanding is that it's either been spent or very much on track to be spent. So that's as clear as that. It's been spent or is on track to be spent, yes. So you expect it all to be spent by the end of the financial year? Expect it to be spent, yes. There are some elements where there might be not total payment. We expect it all to have been passed across to the relevant bodies by the end of the year and the projects to be virtually completed. Obviously, we will be assessing that when we come to do the final accounts and the provisional out-turn for the final spend. Okay, thank you. Given that capital stimulus funding intended to stimulate the economy, do you do any assessment as to the impact of that on the wider economy? It's a good question. We haven't done an assessment on the impact post-decision, but to arrive at that £100 million, we went through an assessment of how the resource could be best used and there was a range of facts on how quickly the money could be spent, geographic interest, return on investment. So we went through an approach to make sure that it would be well spent, which I'm happy to share with the committee, but we haven't done a post-spend analysis. Okay. I think there's interesting lessons in it, for us all, of course, about determining spend and what gives greatest value, but we used a particular approach using our economists, as well as a range of other factors to arrive at that. I think it'll be helpful to show us that. I also think that it might be interesting if the Government had the capacity to do some work post the event to see whether the spending has a desired outcome in line with expectations. Sure. Again, I think that that's a very fair point. It's £100 million within clearly a much more substantial spend, but I'll take the point forward on assessing Government expenditure in achieving the impacts and what gives us greatest return. Okay, thank you. I want to move on to a different issue, which is the question of farmers' loans, which is in the funding adjustments showing a financial transaction of £48.5 million. Have I read that correct? Is this to do with the failures in the CIP-IT system that this figure has appeared? This is the issue around CIP payments where, yes, they haven't been delivered in a fashion that the Government would like. This is not new. Mr Ewing has reported this to Parliament, but, yes, this is a financial transaction that allows us to make the loans in advance of farmers getting their payment, which was, of course, warmly welcomed by the farmers in having that certainty and payments from us in advance, so that's used at the FTs to do that, yes. That's correct. Okay, thank you. Now, as I've seen, looking at the transfers, there's been a transfer of £7.5 million from the economy jobs and fair work portfolio to the rural economy and connectivity portfolio for loans to farmers. Have I read this correctly? Part of that £48 million is £7.5 million taken out of the economy for department funding. If I read that right, that means that the economy funding is down £7.5 million that could have been spent on other things because of the failures in the IT system. Is that right? You can cover the detail of the budget line transfer, but in terms of FTs, that has been deployed from FTs underspend and targeted for this purpose because the cap loans, when the cap loans are paid, that recovers the money for financial transactions. So there's a timing issue here about whether it's paid within this financial year or the next financial year, but because of our budget exchange mechanism, the rules around FTs and the limit that we were allowed to carry forward was actually increased by UK Government at our request. In terms of FTs, there is essentially no loss because it's paid back and we can redeploy financial transactions. I'm looking at the internal transfer from the economy jobs of fair work to the rural economy and connectivity, which is £7.5 million. Is that on the main document that you're referring to, Mr Fraser? I'm looking at the spice brief, let me see if I can find it in your document. If you look at page 13 of your document, is that right? I'm looking at the spice brief. Page 2 of the Government's supporting document. It's just one point of reference. Yes, convener, just to be clear, there's no loss of money. It's just a policy reallocation. What you mean is that money goes out from economy to the rural payment site and the event that will come back in once the loans are repaid. Is that effectively what you've described? Funding will be recycled as the loans are repaid. As the Cabinet Secretary and my colleague referred to earlier, this is about maximising the budget, the effective use of the budget over the piece. So it's about drawing funding from emerging underspends across a range of different areas and redeploying them to maximise their effectiveness in line with emerging pressures. My only observation has been given the importance of the economy both in terms of the Government's objectives and the wider economic interests of Scotland. 7.5 million from the economy portfolio is a very chunky sum of money and that's money not available to spend in relation to that department because it's being transferred over to deal with this issue for loans for farmers. I'm just checking that it is the financial transactions element and some of the nature of financial transactions is some of its demand-led, of course, around particular schemes. But yes, it has been a priority of the Government to ensure that in the understanding of the camp payments that we assist farmers, so that money has gone into the economy, albeit the rural economy, and that's been a policy decision, yes, to respond to that. But some of the FTE lines are demand-led, so there may not have been demand for certain budget lines which then made it available for us to use for this purpose, which clearly is a priority. Are you able to provide the committee perhaps in writing with some more information as to how this underspend would have arisen in the economy department? On the FTEs, yes. Yes, I can do that. Thank you, that would be helpful. I mean, there's just to note that any transfers into the rural economy were certainly welcome in my part of Scotland. Cabinet Secretary, the spice paper refers on page 9 under the hearing of local government to a net positive increase allocation of about £22.8 million, which is very welcome. Could you clarify that on top of the £160 million that's actually allocated to local government? Is the nature of the adjustments of the £22.8 million, please? Those budget revisions are for the financial year that we're currently in, so they add to... As is the case with local government, there are additions over the course of the year. Again, some of that is from portfolios, some of that might be spending decisions, but it does relate to as we've described in previous debates around local government finance decisions that are taking subsequent to draft budget or from portfolios. Is there any? It doesn't relate to the £160 million, of course, because that's for determined for the next year. Is there any stipulations within those adjustments, though, as local government-free tattoos, how it deploys those various funds and adjustments that it receives? Of course, there's a range of funds that go towards local government from the overall grant settlement, then ring-fence funds, and then again. In the same way that I described earlier, specific portfolio issues will have determined a policy decision and then it funds local government, and that can be a range of actions covering a number of local government functions. If it's useful, the two key transfers with a £10 million for maintaining teachers' numbers and £5 million for support for the one-plus-two-language policy, you'll be aware of the discussions around the bulk of the transfer. The detail will be in the fuller document under the community section. There's a list of the individual transfers that make that up. Thank you very much. There are no further questions. We'll now move to agenda item 3, which is consideration of the motion on the order. That is to move motion S5M-04150 that the Finance and Constitution Committee recommends that the Budget Scotland Act 2016 amendment regulations 2017 draft to be approved. I move. Do members have any further comments? There are no further comments. The question is that motion S5M-04150 be agreed to or are we all agreed? We're agreed. I thank the cabinet secretary and his officials. We will now prepare a short report for the Parliament setting out our decision on the order in the coming days. As agreed at the start of the meeting, we'll now take the next item of business and private and now close this public part of the meeting.