 Good morning and welcome to the first meeting of the Public Audit and Post-legislative Scrutiny Committee in 2017. I wish everyone present a very happy new year and ask you to switch off your electronic devices or switch them to silent mode so they do not affect the committee's work this morning. Item 1, our only agenda item today, is an evidence session on the Accounts Commission report entitled Local Government in Scotland Financial Overview 2015-16. We do not normally take evidence on Accounts Commission reports, but previous audit committees found it useful to do so in relation to such overviews, albeit this year's report is in a different format. I welcome to the meeting Ronnie Hines, deputy chair of the Accounts Commission, Fraser McKinley, Audit and Martin McLaughlin, senior auditor both from Audit Scotland. I invite Ronnie Hines to make an opening statement on the overview before I open up to questions from members. As this is the first time the Accounts Commission has provided evidence to us this session, you are also welcome to highlight briefly any aspects of your work or your powers and responsibilities that you think may be particularly relevant. I thank you, convener, and a reciprocal happy new year to the committee from the Accounts Commission is from me. I will make a brief opening statement and then we are happy to take questions from the committee. We welcome the opportunity to discuss the 2016 Local Government financial overview report with the committee. As the independent public watchdog for local government, we publish in the spring of each year our overview of local government. This is the first year that we have complemented that report with a separate analysis on the finances of local government, and that articulates messages mainly from our analysis of councils' auditor accounts and the annual audit reports on them. We intend that report to contribute to and to provide evidence to inform discussion, debate and scrutiny of local government finances. This year, we found that, while councils have again remained within their overall budgets, all councils face financial shortfalls requiring further savings of the use of reserves. We have reported consistently in recent years that council budgets are under increasing pressure from a long-term decline in funding, growing demand for services and rising costs. We expect councils to be undertaking financial and scenario planning to better understand how those pressures will affect them in the longer term. Such planning needs to reflect their strategic priorities, which should form the basis for the decisions to be taken and how they provide services in future years. In 2015-16, councils' total revenue and capital income was £18.9 billion, a real-terms increase of 2.9 per cent from the previous year. More than half of that came from the Scottish Government. In the six years from 2010-11 to 2016-17, Scottish Government funding—that is both revenue and capital for councils—reduced in real terms by 8.4 per cent. Councils net debt decreased slightly for the second year in a row, currently standing at £13.7 billion. Councils currently spend about £1.5 billion a year on the associated interest and repayments on that debt. The proportion of their income that councils spend on servicing debt varies, and that is direct implications for the amount available to spend on services. Although the local government pension scheme deficit has decreased from £10 billion to £7.6 billion in 2015-16, councils and pension funds continue to face challenges from below target or indeed negative returns on investments and increasing administration costs. Overall, we report that councils have managed their finances well in responding to the pressures that they face. There is, however, variation in how those pressures are affecting individual councils. Our audit work shows that there is significant variation in how well-placed individual councils are to address future funding gaps. Councils will need to make further savings or generate additional income, as relying on their reserves is not sustainable. Opportunities to make savings are partly affected by statutory duties, national policy commitments and the cost of servicing their debt. Councils' ability to make savings will also be influenced by the level of savings that they have already made and the extent of their plans for transforming how their services are delivered. Councils need to show how they have appraised all possible options for delivering the broad range of services for which they are responsible. Recent best value audits have shown that councils tend to rely on incremental savings rather than considering service redesign options. The commissioners of the view that this is neither sufficient nor sustainable, given the scale of the challenge that they face. The tough decisions to be taken by councils in reshaping their services will require strong leadership and sound financial management. We are aware that the forthcoming elections will present political pressures that will influence those requirements, but we are clear that all elected members, whether they are leading a council or providing scrutiny of decisions, have a responsibility for providing strategic direction to the council. For our part, we are keen to ensure that our reports provide practical advice to members and officers in helping them to fulfil their responsibilities. In this report, we think that it provides such advice and will continue to report on how well councils are addressing the substantial challenges that they face. As I said, my colleagues and I are happy to try to answer your questions. Thank you very much indeed. I would like to open to questions now. The first question comes from Colin Beattie. I am looking at pages 22 and 23 of the report, and I am particularly looking at the structure of the council debt. I was surprised to see Lobos in there. They are a high-risk element of debt, and they were pushed for some years as being an alternative to borrowing from the public works loan board. Typically, they would come in with a teaser rate below the public works loan board, and then they would screw the councils later on with massive interest rate rises, with the alternative option from the borrower's option of repaying the entire loan, which of course frequently councils couldn't do. I am quite interested in how you value those, because those are very difficult to value. What kind of probability distribution crater did you use to value the low-borrow loans? I am going to defer to either Martin or Fraser to see if they can answer the latter part of that question, but I will say in relation to the opening comment that we shouldn't be surprised to find them in here because this is historic debt. It has accumulated over years and indeed decades, and Lobos remain a valid instrument of borrowing from local government. Whether they are used now to the same extent as they may have been 10, 15 or 20 years ago is open to debate in question, but they are in here because they are part of the historic debt of the councils. I can't comment on the observation that the teaser rate may have been an invitation to treat, and that subsequently the rates that were negotiated may have been advantageous or disadvantageous, but, of course, you will know that the terminology Lobo means that both parties have the opportunity to revisit the rate at the point in the term at which it comes up for that, so it is not necessarily the case that it would all be in the hand of the lender to move that rate at that point in time. Typically the Lobo, the lender's option is the interest, and the borrower's option is to decide not to take that interest and to repay the loan. Depending on the circumstances, the time that that came up might be to the advantage of one or the other party to say yes or no to either of those options. In terms of the latter part of the question, I will see whether Fraser and Martin has any information on that. We did not look at the prop bill distribution on that. That is based on the audited accounts, so what we did, we set out in paragraph 54 onwards the classification within the accounts on how that differs, and we went back using the debt figures from the accounts and asked for a breakdown from auditors and, in fact, checked that with councils themselves as to the value of the constituent parts of their external debt. How the valuation has been done or how the risk analysis is based on any sort of mathematical probability? It will be in line with accounting standards. We can write your technical note if you require it. I would not like to— I would be interested in knowing how it is done, because these are high-risk documents, these are high-risk debts. I would be very interested in knowing also what the interest profile is, what are councils paying now in interest on this. Are they just letting it roll over at increasing rates of interest, or are they actually considering swapping that debt? As I said, we have not been into the detail in this 32. I do not have it to hand. I would be happy to provide something for you. Thank you. Just looking at some of the other borrowing, I was particularly interested in the profile of the PFI debt, which is rather easier to extrapolate what the progression is going to be over the years. Do we have a figure for that for how the PFI is going to impact over the years? Most councils do a projection on that. It is perfectly possible, based on the fact that most of those PFI debts are based on a contract that details how that is going to work. As there is publicly available data from HM Treasury and the Scottish Government that lays out the profile of repayments for both PFI, PPP and the NPD projects for the councils, that is publicly available. Again, I do not have the information to hand that it was not something that we focused on because we were looking at doing some analysis on the breakdown of debt, which had not been done before around Lobos and other elements, but we would be happy to provide that for you. Does the Accounts Commission take any view on the quality of the debt? Quality? The quality. Again, is that specifically for PFI and PPP debts? Related back to the risk. You are asking about PFI and PPP debts? I am asking about, principally, back to my old Lobos here. Just to be clear about debt in its entirety, whether it is PWOB, Lobo or PFI, are you asking if we take a view about the quality of it? Every type of debt has a different element of risk attached to it. It is a question of do you take a view in terms of the high risk? Do you calculate out any sort of risk element in it and do you give feedback to the councils on that? In the annual audit, there will be an overview of all aspects of the councils finances, and that would include their debt schedules and the rest of it. If there was anything that the local auditor considered to be questionable or problematic in any fashion, we would expect to see it coming up for an individual council in that context. There is nothing that I could bring to your attention now that suggests that there is. In overall terms, we did a report a year or two ago into Treasury Management, which is where all this would come together. That report is publicly available, so you are welcome to look at that and see, but the context in which we would be looking at it there would be less a focus if you would like on a specific question of quality that I think you are asking, but more whether they have the proper strategies for dealing with that debt in terms of its renegotiability, the length and the term of it, the rates that were signed up to in the first place. There is an overview of the aspects of Treasury Management in that report, and whether it goes into the specific question of quality that you are asking from memory, I do not recall, but it is worth looking at now. I can maybe help with that a little bit, Mr Beattie. It is fair to say that the commission has not and probably would not make a judgment about whether a particular loan was good, bad or indifferent for the council. That is the council's judgment to make. A particular time? Sure. What the report that the deputy chair referred to did say was that we did not think in terms of borrowing and Treasury Management that councillors always had the best information available to them when making decisions around some of those things. An important part of that decision making process would be the risk profile related to that particular type of loan. It is also important to point out that the commission has asked us on the back of that borrowing and Treasury Management report, which focused mainly on more traditional types of borrowing to look at alternative means of financing, which would include Lobos, PFI, NPD and other things, as well as some of the other more recent things such as tax-incremental financing and other things. That is a piece of work that we are scoping at the moment, and we would be delighted to share that with you when it is done. Actually, that is a very interesting point that you raised about tax-incremental financing. Where does that appear in the council books? If I am looking at this, would it be an asset or a liability in the council books? I will see if Martin can help with that, and if not, we can come back to it again with the specifics of that. I will be interested to know a little bit more about how it is treated and where, if I am looking at the council debt here, is there something in here that Contra item erat that comes into that that deals with that, and what the size of that is? How popular an instrument has that been? How popular a means of investment has that been? We will come back to you with the details rather than me speculating on some of that, Mr Butie. From memory, there are not that many of them across the country. It is still not a major source of funding for them, but there are some out there, and where they do exist, they tend to be quite significant, so we can come back to you with whatever information we have on that. That would be interesting. Liam Kerr. Thank you. Good morning. I have two or three areas that I just want to explore briefly, and I will jump around a little. First of all, looking at the financial outlook, I want to look at reserves. The usable reserves rose by 5 per cent across local government. Reserves currently standing at £18.9 billion, with debt at £13.72 billion. The interest payments on that debt is £1.5 billion a year, so it rather begs the question, could a decision be taken under which the local authorities just say, we will repay the debt out of reserves, take a hit, but get rid of £1.5 billion of interest repayments each year? Is that possible? Yes, that is possible. What are some of the factors that prevent that decision being taken? Nothing is preventing it. In fact, we say in the report that it is being done. It is one of the reasons why the overall level of debt in local government came down slightly last year compared to the year before. It comes back to the point that I was making in response to Mr Beese's questions about how councils do their treasury management and debt management function generally. Reserves are one aspect of that, and it is a valid decision, and it is taken from time to time to use those reserves to repay particularly the more expensive debt, perhaps debt that was accumulated some time ago before the historic winter estuary that is currently prevailed. That is a valid tool for them to use, and it is used. I notice in the report that councils have been trying to increase the reserves in anticipation of future funding reductions. If that is right, sooner or later the reserves get spent. At that point, you can only spend your reserves once, so does that imply that there is a future situation coming under which at some point in the future the councils could run out of money? It is certainly true that reserves can only be spent once, and that is one of the key messages that we make in this report and in previous reports. We are always counselling against an excessive reliance on debts to meet funding gaps and expenditures of a recurring nature. However, it is also true that, because of other aspects of local governments' budgets and spending, that reserves will be replenished and again referred to in the report. Even the course of the year, because of the plan for it or because it simply happened, the council incurs an underspend, and they can put that underspend into the reserves and therefore the reserves will increase. The status of reserves at any point in time is influx, if you like, and they can go up as well as down, and it is a function of every aspect of local government's income and expenditure that they do so. Things would have to be frozen still, if you like, for the reserves simply to be depleted over time, because nothing else was happening. If I may just briefly come in there, I think that the thing that we are always most interested in or as much as the overall size or amount of the reserve is what it is being used for. We are much more concerned if reserves are routinely used to support day-to-day spending, because that absolutely is not sustainable. What I think is a much more legitimate use of reserves and something we would be keen to encourage are, particularly at the moment, things like invest to save exercises if you are investing in a change programme, if you are investing in new technology that is going to deliver savings later. Those kinds of things are an entirely appropriate use of reserves, so it is important that councils are planning to use reserves for those kinds of things. It is also the case that if councils are planning to increase reserves at the start of the year and they do that as planned, that is a good thing. If they happen at the end of the year to find that they have a few quid in the bank that they did not expect to have and they put that into reserves, that is not so good, because our view would be well presumed that that money was due to be spent on something in the year. For us, there is a qualitative judgment about the nature of both the make-up of the reserve and then what it is being used for. It is as important as the overall size. It is also important to remember, as we set out in paragraph 46, the difference between the usable and unusable reserves. A big chunk of that overall number are accounting adjustments and tied up in things such as the valuation of building, so it is not as simple as just saying that there is a big bunch of cash there that you could use to do things with. It is a slightly more complicated picture than that. Just before I move on, would you be able to comment a notice at page 27 of your report? The Scottish Government provides settlement figures for single years, or has done for the last two years, 16, 17, 17 and 18. There is quite a big emphasis in the report, rightly in my view, on long-term planning. Presumably medium-term planning becomes more difficult if you only have a funding settlement lasting one year. Are you able to comment on that at all? I think that I would agree. It does become more difficult, but it is by no means impossible. The evidence there, of course, is that some councils continue to produce longer-term financial plans, despite the fact that, as you rightly say, for the last two years they have only had one year's certainty in terms of the major part of the funding that comes from the Scottish Government. Yes, it would be better if they had longer-term figures from the Scottish Government to work with them, but we do not think that it precludes them from their own responsibility to take a longer-term view of their own finances. We refer to something called scenario planning as an example of why we feel able to say that. The future is always going to be uncertain. Clearly, not knowing what money is due to you from the central Government or from the Scottish Government makes things considerably more uncertain, but it does not mean that you cannot put some scenarios together to see how things would work out if the money went this way or the money went that way. The value of that is that it is not just about the funding, it is about the other things that we discuss in the report, the pressures that the services are under, because there are factors that drive those as well that have degrees of uncertainty attacks to them, so all of that should come together to underpin their three to five-year financial plans. I would like to change the tax slightly just now. Earlier in the report, page 18 of paragraph 44, which Mr McKinley was in that section earlier on, I am just interested for various historical reasons here about the generation of savings through reducing the workforce. I notice that there will be a more detailed report coming shortly on councils' workforces, but the average cost of exiting staff appears to be about £39,000 per staff member. There is a comment in there about that coming from redundancy or early retirement. Do you have any oversight on what proportion of the 13,000 staff that have left councils through exit packages are from redundant season exit packages? Or is there a significant proportion that is not through redundant season exit packages? We can provide a breakdown by council of exit packages and the way that it is shown in the remuneration reports and the accounts is by banding, so it will show you how many of those packages were for lower paid staff, how many the totality of the package was between 0 and 20,000 and so on and so on. We can stratify it that way. As to the breakdown of how many were through early return, how many were through long-through redundancy, I imagine that we will be able to provide you with something. I do not have the detail to hand. It is worth saying that Exhibit 6 only looks at the people who have received an exit package, which will cover a number of things. There will also be other people who have left under normal circumstances, but that is not what Exhibit 6 is doing. If your question, Mr Kerr, is about the total number of staff or the total number of staff reductions in local government, that is something that we will be picking up in our next report. Some of those will have received exit packages, some will have just left under normal circumstances and may not have been replaced, so there is a wee difference there. The next report that we come to will hopefully help with that a little bit. I am looking forward to that, as I say. I would appreciate the detail if that would be possible, because I am interested in those who get exit packages and what they are getting it for. That leads me to the next point on that. Do you have oversight on why the exit packages are enhanced? Is this a contractual scheme that is in place that every council has to follow? Are there variations between councils? There are variations, is the short answer to that. Different councils will take different judgments at different points in time. When you go back a few years—some of the bigger numbers you see back in 2012—some councils decided to enhance what was on offer in terms of early redundancy, voluntary redundancy schemes in order to generate interest and to help to produce cost quite quickly. We do not take a view on whether that is right or wrong. What we do take a view on is whether the business case is sound and stacks up. If you are offering an enhanced package, it needs to be clear how and when that is going to be repaid in a sense, when you are going to get the money back from that. There has to be a value for money case made, and, really importantly, that has to be monitored as people leave the organisation. It is absolutely legitimate for councils to make those different judgments, but they absolutely need to stack up in terms of a business case, and that is the kind of thing that we would look at. Councils will make those different judgments at different times, depending on what it is that they are trying to do. For example, in the earlier days, you might have seen a pretty wide-ranging offer open to most people in the council. Those days, having done that and having shed some staff, we are seeing more targeted approaches to offering that voluntary redundancy exercise, targeting specific bits of the workforce, for example. A point of the commission that I have been very clear about over the years is the need for that more targeted and better understood workforce planning, because there has been a case in the past few years where people have just let people go without necessarily understanding the impact of that on services, on teams, on experience, on those kinds of things. What we have been saying in the past few years is, by all means, make that decision. It is a useful management tool that can save money in the long term, but it will be absolutely clear about what the implications of those decisions are. Final question on this point. In your March 2017 report, will there be some kind of breakdown as to bonuses? You will be looking at people leaving the organisation. Will you also be looking at, for example, senior management bonus schemes, if any? I do not think that we have any specific plans to do that. I am not aware of those being prevalent in local government. We would expect to see from individual audit reports or individual councils if that were the case. However, I am happy to take on board the suggestion that we should at least ask the auditors to inform us whether there is anything that they are aware of and that it would be worth reporting in an overview report in 2017. As I said, the use of bonuses in local government does not seem to us to be a very high-profile issue, because it is not that prevalent. It would be interesting to know, but I am sure that it is. Quick final section. Since the report has come out, we have now had a draft budget that would appear to continue what seems to be a rather long term decline in funding of local government. Are you able to comment on the practical impact of the draft budget so far as you are looking at it? No. The purpose of the report is to seek to inform the debate that always occurs around local government funding, particularly at this time of the year, but it is not appropriate for the Accounts, Commissions and Independent audit body to be drawn into what is still a live discussion about policy as well as other aspects. We hope that the report is useful in informing that discussion, but we are not in a position to talk about the current state of play in terms of local government settlement and the negotiations around that. Let me ask a supplementary question to that question. You say that your work is retrospective as we know audit is. In the last financial year, in the last budget that local government faced, I think that it was correct me from wrong cuts of £350 million. From your audit position, given the work that you have done looking at council budgets, are council budgets sustainable in face of reductions such as that? As we see at the very beginning of the report, there is nothing coming out of the audit process that suggests that any council in Scotland faces financial difficulties to the extent that it would not be sustainable. However, we recognise that the trend that we describe in this report and in others is such that, unless it were to change, there has to come a point where you look seriously and councils will be doing this. What it means to make the kind of savings that they are being required to make. However, we have no reason at all to suggest at this point in time that local government is in any kind of financial crisis or that any individual council is not able to make the savings that have so far been demanded of them. That leads me to another point that I am concerned about. The report points out that spending on statutory obligations such as social work and education are being protected. Your report says that that could be to the detriment of other services. How worried are you about that? It does not matter how worried I personally am about it, but I think that you are right. The report is trying to suggest that one of the perhaps unintended consequences of the level of savings that have been required to local government and the way in which local government has had to go about making them is that there has been a higher degree of protection for various reasons afforded to some services, and it has to be at the expense of others. It is a zero-sum game, if you like, in that respect. You might be thinking about the presentation at Exhibit 4, which shows in high-level terms what the impact over a five-year period has been of various local government services. It is easy to see from that that the services towards the top of that histogram comprises things such as roads and transport, environment, leisure and recreation and so on—important public services—that they have borne a bigger share. I am not saying an unfair share, I am just saying a bigger share of the savings that have had to be made. Now, if that were to continue indefinitely, then I think that everybody would be looking and the public should be looking to ask what is the likely long-term impact of that for the services that they value. Did you consider the whole agenda of preventative spend in your considerations in this report? This is something that I have raised with the Auditor General before, but those services that you just highlighted, such as leisure and cultural services, are very much considered to be part of preventative spend when you are looking at library, sports services and all those things that give cohesion an activity for our communities. There is evidence to show that participation in those activities can reduce reduction on statutory services such as social work and criminal justice systems. Did your report consider the preventative nature of those services and the financial pressure that they are under in local authorities? No, we do not do that explicitly in this report. That is for a very dedicated purpose and that would not be part of it, but in other aspects of our work and indeed the Auditor General's work, you are right to say that we are interested in that. Perhaps one connection between that and the content of this report is the point that I made in my opening remarks about what we call transformational approaches to the delivery of services in the face of an on-going requirement to make financial cuts. Preventative expenditure in our terms would be part of that transformation. If you can prevent problems arising in the first place, particularly around the areas to do with social care and so on, you might hope that the pressure on the front-line budget for social care would be somewhat alleviated as a result of that. Therefore, when we talk about a desire and a need to move away from incremental approaches to dealing with the situation to something more transformative, that would be the kind of thing that we would have in mind. Given the budget settlement for last year that you have just reviewed in that report, do you think that that kind of transformation is achievable? I cannot sit here and say for sure, but I can see that there are various streams of activity that should lead towards that. If you take, for example, health and social care integration, that should be a prime example of a transformative approach, because you do not need to spell out what it is intended to achieve. However, if there is better collaborative working between the different public agencies that have responsibility in that particular area of care, you would hope that that would have a preventative effect on some of the issues that have to be dealt with in an acute fashion, either in hospitals or somewhere else in the care system. Therefore, there is no reason to think that we are aware of that there is not any intent in being the means by which to do that. What we think is that there has to be a more concethered effort, particularly in relation to local government, which is our area of focus, to get on to that footing. We fully recognise the difficulty. I am not going to sit here and pretend that it is easy to continue to maintain services on a daily basis, while in the background, if you like, you are trying to change entirely how they are delivered. However, that is what has to be done, and everyone recognises that. We would all recognise that on the committee as well. My question to you is, do you think that there is sufficient funding there to achieve that, from the local government point of view? First of all, I draw your attention to your statement in paragraph 14, where you say that, over the last six years, the reduction in local authority funding has been approximately in line with the reduction in the Scottish Government's total budget over the same period. I take it that you stand by that, that local government has not received an unfair reduction in terms of the overall reduction in funding that is available to the Scottish Government. We have not said whether it is fair or otherwise, but we stand by the figures, yes. Broadly, the percentage reduction is the same as the overall reduction in funding for the Scottish Government. To clarify, I recognise that other analyses are possible and, indeed, have been made in this regard. We are not saying that this is valid and they are not. It really depends on the purpose of the analysis and what point of view you are trying to demonstrate or what question you are trying to answer. The approach that we have taken to this is to ask ourselves what is the comparison if you strip out from both sides, i.e. from the Scottish Government's funding side and local Government's funding, what we would call the discretionary elements of their overall funding. In the case of councils, that would be council tax. We do not include council tax in this comparison that you are drawing attention to. In the case of the Scottish Government, for the same reason, we do not include non-domestic rates, because that is at their discretion. If we take the significant discretionary elements out of the overall funding equation and concentrate on what is left, you get the figures that we have provided here. I mean very clearly the performance of local government, the efficiency of local government, the value for money provided by local government is now going to be even more important than what it has been in the past, as it is for all of central government, all the quangos, everybody, because the resources available against a background of substantially increasing demand, not least in health and social care and in education, to the biggest budgets the local authorities face, as well as the Scottish Government. It might be out with the scope of this particular report, but it seems to me that the drive for increased efficiency in local government is, broadly speaking, with some notable exceptions, pretty sporadic, unsystematic, lacking ambition and so on. I represent an area where I can see massive waste in the local authority. I live in an area, another local authority area, where we can see massive waste in the local authority's delivery of services. What is the Accounts Commission doing about improving efficiency, reducing waste, improving performance and value for money? How and when are you going to report on that? You are right, that takes as well beyond the remit of this report. The answer would be that we do a wide range of work that is intended to illuminate debate on that. We will do performance audit studies, as does the Auditor General, in our case, focusing primarily on local government. We will look at aspects of a particular service to see whether we can identify good practice and not-so-good practice and to report publicly on that so that the difference is visible and the invitation, if you like, and the recommendation is there for those who are not doing quite so well to learn from those who are doing better. We do that kind of work routinely, year-on-year-out, and we have a performance audit programme, which covers a range of topics and changes from time to time on which we consult with local government and other interested parties. I would also say that we strongly support local government's own activity in this regard. The most prominent example is probably the benchmarking initiative that they have had running for four or five years now, where they gather a great deal of information—some of it is quite detailed—on the different services that each council provides, and they use that as the basis of making the kind of comparisons that I have just described. You do see some quite significant variations in cost and performance when you look at that data. Local government is fully aware of that, and the injunction from us to them, and indeed from them to themselves, is to make better use of that data so that councils who could benefit from adopting a different practice or providing a service in a different way—because someone else has done it successfully—have the information and the incentive to do that. There is quite a lot of activity both at their own hand and through us, we think, to provide not just the information but the incentive to do that. I think that there is evidence that, in fact, it has been happening. If you look at trends over the past four or five years in terms of productivity, as I would call it, the cost to the performance ratio of your like, you can see that there is a discernible trend of improvement across local government as a whole and within individual councils. It is not uniform, and I certainly scope for it to go quicker and further, and that would be recognised by local government. I would probably take issue with a suggestion that there is indifference out there. I do not think that there is, but there is certainly scope for more improvement than we have seen so far. I would suggest quite a lot of scope. If you look at the figures that you have later on in the report, for example, on the percentage of council tax revenue that is actually raised and Perth and Cunroth stands out as the best performer in the whole of Scotland, as an example, if every council in Scotland was as good as Perth and Cunroth at raising council tax, how much additional revenue would that bring in? I do not know the answer off hand, but we can look at that and tell you. It raises an interesting and useful point, Mr Neil, because in the report that we produced last March, the sister report to the civilike, which looks more widely at performance. For the first time, we made an explicit comment on staff absences about the kind of improvement in performance and reduction in cost that councils might see if everyone operated at the level of the top quartile, I think, was the figure that we chose. That is quite a challenging approach to take, because the response that it invites is that Perth and Cunroth circumstances are not the circumstances of North Lanarkshire, and I think that there is some validity in that. However, the point is to get beyond that initial response and say that yesterday there may well be, because there are contextual factors, socioeconomic and other factors, which have a bearing on some aspects of service. That is probably why we chose staff absences deliberately, because some of those factors you would think are less relevant in different parts of the country. However, for the provision of education or transport services, I think that it is valid to make that kind of comment. However, you can get beyond that and still ask, is it not still possible that in this case Perth and Cunroth are just doing something better than the rest of us and shouldn't we know about that and shouldn't we all adopt it? I think that that is exactly the right attitude and the one that we want to encourage, which we think local government itself is very aware of. If you pick the example of education, one of the complaints that I get in my constituency, and I know other colleagues get it as well in certain council areas, from head teachers, is the number of people who are employed in, if you like, the education bureaucracy, the central bureaucracy within the council. Literally, people plucked out the classroom and transferred into the central bureaucracy without being replaced in the classroom. It's not just the council I represent, the council I live in, the same criticism is made by teachers and so on. No where have I seen in the 18 years I've been in this place any analysis in terms of where the money we spend in education through local authorities actually goes. Given the recent report on Scottish education and how we're allegedly falling behind, local authorities have a huge responsibility for that because they are responsible for delivering education. It gives me a great deal of concern that we're spending a large amount of money in education quite rightly, but the way in which that money is being spent is not maximising educational performance. If you take some of the central services that councils obviously have to provide, the shared services agenda is almost non-existent. The amount of shared services in education is absolutely, totally minuscule compared to the total provision of shared services that are required. Is it not about time that the Accounts Commission put some foot on the accelerator on this stuff as part of improving value for money, but also in this case as part of the overall drive that we all want to make to improve the educational performance in Scotland? I'll take the latter, probably confusing why you want to comment on the earlier observation about how the money is actually spent, whether it's in education or some other part of the council's accounts. You have to be in mind what the commission is. It's not a regulator, so we're not in a position to say this is how it should be done, so go and do it that way. So we use the tools at our disposal, public reporting being perhaps the key of them, and any influence that we have to do, we can bring to bear, such as I've already described. Taking the shared services as an example to try to illustrate what I think I mean by saying that, wherever we are able to find good practice in sharing services between councils, and there are some examples of it, we will highlight that in any way that we find possible if we're looking, for example, at a best value report on an individual council, and they have embarked on a shared services venture with surrounding councils or someone else, and that seems to be working well and producing results, then we will certainly say that in the report. So the reports are critical, they're intended to hold councils to account, but they're also intended to identify and support improvements. It's a very important aspect of our business, so we do that, and we believe that that means that it puts us in a stronger position when we go to other areas and report in best value terms on them, and nothing of that sort is happening, because we're able to demonstrate that it is happening somewhere else and why it is not happening here. So that's the kind of thing that we do, and I think that that does make a bit of a difference to how councils do their business, but we're not in a position to insist that they use shared services. Can you give me two examples of shared services? First of all, in terms of Waste, the Clyde Valley Waste project where there are five councils involved, it's been a dreary failure, it hasn't delivered, it's taken years and years to get to nowhere, and if you look at the education set shared services project between Clack Manning Council and Stirling Council, that's collapsed, is my understanding. Now, can you give me examples of where there's been shared services in education, for example, significant shared service agreement in education between any two local authorities or more local authorities in Scotland that's actually working? Can you just give me one example of that? Off the top of my head, I can't think of anything that directly relates to education. That's because it doesn't happen. It could just be failure of memory in my part, but I'm not pretending to remember everything that happens. Can any of the panel give us an example? So I don't think you'll find many examples of shared services in education. I would agree with that. Do you find any examples? Well, again, I don't know. We can check and... I tell you the answer. No, you can't, because it doesn't exist. What are you doing about it? And the fact that we haven't come across some suggests that there probably aren't any. With all due respect, producing report after report's fine, but if you don't follow up on the report and then report on what's actually happening, then it's a bit of a waste of time and a waste of resource. Well, in fact we do that. It's part of our strategy that we do follow up reports on councils and on some of our best value work as well. So if we're not satisfied as a commission that the council is performing sufficiently well, then we will ask the controller to come back with a further report in 18 months' time or two. You've been rightly preaching the need for shared services for years now. Education is by far, 40 per cent of the average council expenditure is on education. And you haven't done anything on actually making these shared services happen. And you haven't highlighted the fact, you know, you've produced reports that say they should happen and reports that say these are the benefits. But when you can actually use your influence, now realise you're not a regulator and you can't force local authorities into agreements because you don't have the power to do that. But you are part and parcel of the overall machine for trying to influence and get councils to actually get their act together. And education is a very good example where we are falling behind according to these international studies and local authorities are responsible for the delivery of education and they are failing. And you know, part of the responsibility of the accounts commission is to help John Swinney and the education quangos and everyone else to try to address this. And we all know one way to address it is getting better value for money and improving the delivery of, for example, shared services. Okay, so there's a lot in that. We'll try and unpick some parts of it. I'm not aware of any evidence that says that shared services by themselves would make a specific contribution to the issue you're raising about educational attainment. I'm not saying there isn't, but I'm just not aware of it. So it's not obvious to me that shared services would be any part of a solution to that. So are you saying that shared services is not a priority in education? No, no, let me finish. So that's the first thing that I would say. The second thing is that there are examples of shared services in local government. We're not saying that there are enough of them and we're not saying that they're all successful. You rightly drawn attention to two that were tried and foundered. That's regrettable, but it doesn't mean that it shouldn't be tried again. Is there an example of a successful shared service? Well, for example, there's a shared road service in the Tayside area that has been going for quite a number of years now. A shared road service in Ayrshaws has been a disaster. Yes, for example, something that was working. So there is an example of something that is working and there are examples elsewhere up further north of people trying to share services for finance functions. So it does happen. Our point is about the scale and the ambition to make sure that it's sustainable because you're right to say it's one thing to try it, but if you fall over at the first hurdle, then you haven't really achieved the area back. So we're trying to identify what it means to have a successful venture in that regard and to put that out there. The last point that that would make is that in relation to education, as well as other services, I go back to my point about shared information. It might not just be about shared services. If a particular council is able to demonstrate that the level of attainment for say the most deprived pupils in that area is increasing faster than it is for Scotland as a whole and there are instances of that happening, there I think it's incumbent on the other councils who are interested in trying to emulate that to ask what it is that that council is doing and how they could follow it. Doesn't it mean that they have to share an education service? It just means that they have to share an approach. We would all agree that they should be able to do that. North Lanarkshire Council can't even accurately count the number of teachers they have, let alone engage in performance, you know, in reaching the extra-entrature level of performance. I mean, what kind of staff is that? And what's the accounts commission doing about that? I think that this conversation rightly started around the question of value for money. I think shared services might be one approach to that. I think that what the commission has said in the past is that there are lots of others. You mentioned the question of is there waste within councils and we think that there is as much benefit to be gained from looking to standardise ways things are done. Your good point, Mr Neil, about if everyone got even to the average, that would make a big difference. I think that there are lots of other ways of delivering value for money before you get to the shared services question. I think that you mentioned Clyde Valley and there were others. I think that there were lots of useful lessons about the kind of shared services that may or may not work. That's not to say that we let them off the hook or that we say that it's not important or that we say that they shouldn't try, but I do think that there is something about saying that, given the amount of investment that that kind of shared service requires, you want to be absolutely sure that it's going to work and it's going to deliver value. Given the history of the ones in education and some of the big Clyde Valley-type exercises, I think that, understandably, people are saying that maybe there's a different approach. We wrote to the local government committee last year, but I think that back in October, with some examples of some other shared services, not an education, admittedly. Obviously, we can share that with the committee too, because there are examples of smaller scale, maybe one or two or three authorities in Brooklide and others, for example, around things like roads. In terms of education, the commission published a report, I think, a couple of years ago on education, and while it didn't focus specifically on shared services, it did talk about the amount of money that was spent, how that money was spent. We did our best to break down the kinds of staffing that there is in the education service, what had happened to classroom assistance, for example, what happened to the quality improvement function, for example, different ratios, those kinds of things. I think that that got quite a lot of traction, and I think not that we're claiming that that report led to what has been happening in education over the last three years, but I do think that it was part of the part of the debate. What happened? Well, I think that, to be fair, the classroom assistance has been signed all over the place. In looking more broadly about education, I think that there's enormous amount happening in terms of how education is run in Scotland, and there's something... What I did value, the report was a very good report. I remember the report, but my point is that the follow-up to the report has been practically non-existent in terms of the improvement at local authority level. So I'm not sure I would agree with that. We happily send the committee the impact report, so after every one of our national reports, about 12 months, 18 months after we've published it, we do an impact report, which tries to assess what's actually happened. On that one, in particular, my team were out doing presentations to the vast majority of councils in the land. Now, I don't think that you would necessarily see improvements in attainment, for example, yet through that you can directly link back to our report, but what I can say is that it generated a lot of interest. It raised the issue, for example, of just saying, yeah, we know that deprivation is an issue, but it's not a defining issue. It's not a given that if you happen to be living in a deprived area that educational attainment is bad, because there are parts of the country that are bucking that trend. So I think that, as Ronnie said, what we do there is shine that light on that issue. We then go and engage with councils and elected members, and that then, I think, does generate activity locally. Whether you're seeing that yet flowing through to delivery on the ground is a slightly different question, and that's why we need to continue to work harder as you say, making sure that the work that we do is actually having an impact and making a difference on the ground. I think that we have got more to do that. Do you consider the evidence of your added value in relation to education? I'm very interested to read it. I think that just finally on the education thing, convener, it is worth bearing in mind that education is an important bit, but it is one bit of the Accounts Commission's remit, and the Accounts Commission's remit around education is primarily about the money. There is Education Scotland, of course, which is responsible for looking at the quality of education and provision. It must be money-related performance. At the moment, one of the constant criticisms of the Finance Committee and here-make of the Scottish Government and with justification, and it has improved down the years as a result of the pressure, is that we've had a terrible habit in Scotland of reporting on the money separately from reporting on performance. The two should be brought together, and I suggest that, maybe in the future, you should look at, in one document, bringing together performance and money. Looking at one without the other, we're not maximising our ability to properly scrutinise the value for money. At the end of the day, it's not just the money going in, it's for the performance coming out or the other end, and that's what's important, and that doesn't tell us anything about performance. I realise that you do other reports on performance, but I think that the Accounts Commission needs to get up to date with everyone else of trying to pull the information, reports and analysis on money and performance into one document instead of having them spread all over the place. It's certainly making it easier for us to look at whether we're getting value for money from local authorities or what the added value of the commission is. I refer to my opening remarks where I said that this is a departure from our previous practice, so we have always produced a report in march of the each year that looks at local government in the round, and that includes finances and performance and delivery of services. The reason for pulling this report out at this point time is the one that I stated earlier. It's not intended to supplant what we've done before, it's intended to complement what we continue to do, so we will produce a report in march of this year that looks at local government in the round, and that will include some aspect of the finances but not in the more forensic detail that this includes, because this is for a particular purpose. We will do the best that we can to bring together any assessment that we can bring to bear on how well local government is performing with the money that it receives. It's the whole value for money question, as Fraser said, so we continue to do that. We haven't departed from that at all. Ross Thomson Thank you very much, convener. To go back to some earlier question about the statutory duties that are placed on councils and of policy, the scope that they have—as I now look at their budgets to potentially make savings and, as a convener, intimated that sometimes falls in places such as sports facilities, libraries and other places that can make a contribution and actually take pressure for their services. In terms of an average council, looking at the duties that they have in social care and education such as statutory, and then when you have policy decisions coming on, such as nursery provision and the hours of nursery provision, which means capital investment, recruiting staff. For an average council, what kind of percentage of their budget is determined by those statutory requirements and what's the proportion of their budget? Is there actually that flexibility to make decisions and bring forward options for savings? My colleagues might want to add a little bit to this, but all I would say is that it's more difficult than you might think to differentiate the services that are provided because of statutory from those that are not. There's just a continuum there, if you like, so it really is hard to make that distinction hard in fast terms. If it were that easy, we would probably try to do that analysis in a report like this, so what we do instead is what you see in the report. We try to show that services that enjoy a higher degree of protection for the want of a better work while it's because there's a significant amount of statutory underpinning to them or because of policy decisions that local government has made or signed up to, that they can be differentiated to a degree from other services that have less of that, so it's not black and white, it's not guess or no, it is a kind of continuum. That's the best that we can do. You can't really draw a hard line between statutory and other, but because we think the question that I think you're getting at is an important one, i.e. where is the squeeze most keenly felt? We've tried to provide an analysis that we think gets at that in the best way that we can. If I can just add briefly, I think that this is a debate that happens a lot in local government and it is worth bearing in mind that lots of services are statutory, but councils are required to provide a library service. The question then is how you provide the service and exactly the same applies to education, so there is a requirement to deliver education to young children and young people up to a certain age. How that's delivered, there's actually quite a large degree of discretion for councils and indeed lots of councils do it differently across the country. So while it is important to recognise that when effectively two thirds of council spend is going on education and social care and if you're protecting those areas of spend, whatever cuts are coming through are disproportionately affected in other bits, I think we're also keen to avoid sending a message that therefore they can't be touched. We've just had a conversation about what might be done in education and exactly the same applies to social care. So I think we need to be a wee bit careful that in trying to define statutory, non-statutory that we inadvertently send a message that well in that case there's nothing that can be done with those things and we need to focus all of our attention over here. There just has to be given the size of those services and how much money they're spent on or there has to be change and transformation and how those services are delivered, that both improve the way those services are delivered and improve outcomes and also that it's done more efficiently. Forgive me convener, I should declare an interest as a serving councillor on Aberdeen City Council. In relation to that and apparently in relation to transformation, as we see clearly from the report, we've had declining budgets that local authorities are having to deal with in challenging circumstances and are looking at projects for transformation but also looking at raising income in different ways in more innovative ways sometimes. Now that sometimes push councils down routes where they work with development partners in Aberdeen just as an example where you sell land and in partnership with Aviva, you develop Marshall Square or something, exhibition and conference centre, looking at using energy to again raise income. That also brings new challenges when councils do things differently to bring in that income and sometimes that affects public confidence as well because they see different deals being done, they think how much transparency is there, how much accountability is there and a lot more councils are now being forced down that sort of route. In terms of your role, how are you keeping on top of these new and different ways that councils are trying to raise income but also ensuring that level of scrutiny and accountability is there to ensure that one, it's all above board but also the public can have confidence in what councils are doing? That's a challenging question. The starting point would be that the commission asks the local auditors to be their eyes on the ground if you like. The best way for us to find out in a reliable fashion what any individual council might be doing in that regard would be to get information from the local auditor, so we get that routinely. It's not just a once-a-year exercise where they produce another report for the controller and for the council, it's an on-going intelligence gathering exercise, so we would expect to be cited pretty early on any significant development, particularly one of the sort that you're describing, which has some challenges and probably some risks attached to it and consequently reputational damage in public confidence and so on. We expect to see that, and we will ask questions about that. Mr Beattie asked earlier about Lobos. I can remember conversations quite recently where having seen some information that's coming through in the accounts, we've asked, well, what more can you tell us about the particular nature of what's going on in that particular council in relation to how they're going to finance this, and the same would be true for some of the development projects that you're talking about. We're cited on that and we're also aware of the fact that those pressures are likely to bring more of that to the surface because a council that's trying to cope with this in anything other than an incremental way ought to be looking at things that are different. We see, for example, south of the border, and clearly it's out of our remit. We see that a number of councils down there are taking part in quite high value and potentially high risk development, property development types of activity because that will generate an income flow to them, perfectly understandable and legitimate as it stands. Again, if we were auditing that, we'd be looking carefully at the due process, the diligence and whether the skill set is available within the council to do that properly. Although that is not so pressing at the moment in Scotland, we can recognise the way the trend is going here, so we are careful about that and we're asking questions all the time about where that might be even starting to be talked about. Never mind before we get to contracts being signed. Touching on a point that was made by Alex Neil about fat, I know that in Aberdeen, as the lowest-funded council, any low-hanging fruit is gone and any fat has been cut to the bone. They're doing things differently, like a bond now, £350 million through the London Stock Exchange. First, councils in Scotland are doing it. Other authorities in Scotland are very interested in the implications of that, particularly since it will be for capital investment. Again, that will bring new challenges for you. What has been your analysis already of what the city has been doing? Again, from your point of view, in terms of accountability and scrutiny, what work have you done in relation to that and the implications that it could have for other Scottish authorities if they choose to go along that line? That was obviously very early days for the Aberdeen bond, but it is in our way there. I think that Fraser might know a bit more than I do about what the current state of play is from our point of view. We are very interested in it, as you can imagine. As you say, Aberdeen has been the first city to do it. We do not have any sense that other councils are rushing to the markets so far, but we will keep a very close eye on that. Interestingly, the auditor has looked at it in Aberdeen City and reported on it this year in his annual audit report. Interestingly for us—this is why it is also quite interesting—the auditor has a role in the process, because the credit agency has looked for a view from the auditor about our experience of auditing the council. It is quite new territory for all of us, and we are doing a piece of work at the moment to understand exactly what the full implications of it are for our work going forward. We will absolutely, in the same way that we had a discussion with Mr Bt-Eller about different and alternative means of financing. That is another new one that we will want to keep a very close eye on. Work and analysis is done around local authorities who are struggling to sometimes recover debt. For example, we have to write it off. I think that Aberdeen is sorry to be Aberdeen Cendria, but I apologise, but I know that it will be similar to other authorities. Over the last five years, more than £11 million has been written off, having a real knock on effect to council budgets. There may be a number of reasons for that in terms of something that is really unrecoverable, but there are also Government decisions about, for example, community charger. How much analysis have you put in relation to analysing what kind of knock on impact that has also had to councils when they are trying to manage a difficult financial situation? I do not think that we have done a huge amount of analysis specifically on debt write-offs. No, we have been carried out at each individual council during the audit process, but, as far as I am aware, we have not done something to look at it as a whole for the 32. Obviously, I know from a local perspective, but it would be quite interesting to see at, to Scotland, my perspective, the level of debt write-off that we are looking at. A number of councils, such as Edinburgh and Aberdeen, raise quite a lot in business rates and their non-domestic rates. Especially when they tend to have low funding settlements, it is really important that they can generate that revenue. Looking at the draft budget, there is, coming down the line, increases to business rates. A number within the north-east of businesses have expressed concern that that will potentially send them to the wall. Therefore, if they go to the wall, we cannot collect their business rates. That is given the fact that the rateable value is still based on a 2015 level when our economy, in particular, was hot. Now it is not, and you could say that it is fairly unfair. Again, what work will you be carrying out in relation to that and the impact of NDR, particularly in the north-east of Scotland for me? I have understood the thrust of the question and the answers from the council commission's point of view. Nothing immediately comes to mind because those decisions are made by the Scottish Government. The collection of the rates is the responsibility of the councils, but the decisions around the levels, reliefs and so on are out of the council's hands. It would not be a matter of focus from the council commission's point of view in the audit of council's accounts. Do you take into account the 85 per cent funding floor for local authorities and the funding formula behind that as well? In the local government finance distribution, you mean? When you say, take account of it, no, because the question for us would be in what way is that an audit matter. We would see that as part of an overall policy approach to the funding of local government, so the floors and the ceilings and the distribution mechanism that is entirely, as we see at the current moment, as a matter of on-going discussion and debate between the Scottish Government and councils, it represents a policy issue from our point of view, so we would not have any audit comment that I can think of to make on whether that 85 per cent was a right figure or whether it should be a floor in the first place. That is interesting because there is a debate right now in relation to the circular about the formula behind it. There is uncertainty whether or not it includes all 32 local authorities. It looks like a number of me may be excluded and the figure is actually 80 per cent, not 85. It was just to try and tease some of that out, but I appreciate that it is something for policy and not for yourselves. Statutory duties were mentioned and it was said that councils have a statutory duty to provide things like libraries. What if the leisure services are now provided by an arms-length organisation as there is still a statutory duty upon them? The statutory duty remains and it would be on the council, so it is the council's decision how to best meet that duty, how best to deliver that service as they have chosen to do it through an arms-length organisation. That is a valid decision for them to make. It does not change their statutory responsibility. That is fine, I just wanted to get it clear. In paragraphs 40 and 41, you use the word conversely because we talk about social work budgets being some of them hugely overspent and then a third of councils several underspent against their social work budgets as well. You go on to speak about the city of Edinburgh council and it is overspent. I take it that the additional funding of £9.8 million came from central government. It also says then that it underspent its total budget by £3.4 million. Where does that £3.4 million then go? Is the £9.8 million alone? Does it need to be paid back? Just if you could explain that paragraph a little bit. Part of my correct me if I'm wrong there, but I think that the answer to the question where the money comes from, that £9.8 million would be a decision made by the council to put more money into social work, presumably reflecting what we say about the overspend in previous years, so that's what we would expect to see. You don't disregard the outcome from a previous year when you're setting the budget for future years, so I think that money came from within the council into social work. On that point then, a lot of councils have medium to long-term financial plans, but I think that there were three that didn't and Highland in my area was one of them. Is there any disadvantages of not having a medium to long-term financial plan? Disadvantages of not having one? We are strongly at the view that there should be medium to long-term financial plans. If I make a little proviso at the beginning, which is to try and recognise the reality, for a given council it may well be it's a cyclical issue, they may have decided that they want their strategic plan, council plan or community plan for that matter to cover a given period for say the next five years. Another council might take a view that there should be three years. If either of those then says that a financial plan should be aligned with that, then the financial plan is going to come up for renewal of you like at a point in time when it might all be coming up for renewal somewhere else, so the proviso is valid for them to make that decision locally, that's why you've got local councils. What we say is that they should be taking a forward enough view about their finances even if it means that they have to get out of alignment with, say, their community plan, because that's not up for renewal this year. They should still be looking two to three years down the road about their own finances, so while it would be nice if everything all slotted harmoniously together, if for good reason locally that can't be the case, we still think it's an important enough principle to be taking a long-term view about your finances and I can't honestly think of any downside to doing that. I recognise fully the challenges and the difficulty, but I think that the benefits are manifest. Just to follow up on the reserves question that was asked earlier, certainly I know as well from my own experience about using Highland Council, I've used quite a lot of their reserves, mostly for their voluntary redundancy scheme. There was talk and it was mentioned again here about planning ahead then to increase that reserves again over time, but given the tens of millions of pounds worth of savings that councils have to make, how on earth can they possibly plan to increase the reserves? Where's that money going to come from? Well, Fraser might want to come in on that, but the answer would be again it's a decision that they're entitled and able to make locally, so if this is just a hypothetical scenario because I don't know the situation in Highland in close quarters, but if they were taking the view that they thought that next year is going to be difficult, but two years beyond that are going to be much more difficult, then I think a legitimate aspect of how the cope in that situation might be to say, let's try to augment our reserves next year, even though we're going to have to make savings just to balance the books. You can just go further and make more savings, and that for us would be a good example of the kind of benefit of long-term planning, because you can imagine a scenario if they don't do that. They cope with a difficult situation in gear 1, and then they find an horrendously difficult situations around the corner in gears 2 and 3, and hey ho, the reserves are no use to them because they've just used them for gear 1, so it's exactly the kind of thing that we think they should be doing if they're taking that view. How hard it is for them to do it depends on their local circumstances. We say, among other things, if councils have already had to make really deep savings in particular areas to get to where we are now, it's just that much harder for them to do it going forward. They're not all in the same position there, and I don't know offhand how difficult Highland's position would be compared to others. The report that it says in 2017 about equal pay settlements, is that coming out with the March report, or is that going to be a separate report? That's a separate report focusing specifically on equal pay in local government, and that's going to be coming out towards the end of May, June time. Thank you. Monica Lennon. Thank you, convener. I'd also like to draw committee's attention to my register of interests, as I'm an elected member in South Lancer Council, although my comments will be general across the board. I think that this has been a really useful discussion this morning. Sometimes these kind of reports can be very dry, but I think today we've got into some of the issues, for example education, which illustrates how important audit and scrutiny is, because the outcomes that we're seeing in terms of educational attainment are very challenging. Of course, it is the Government's top priority to close that attainment gap, but I just wonder if, with those reports and even the way that we've discussed it today, how can we improve the public's understanding of what's actually happening? We've used some quite provocative language today around bureaucracy, for example. I'm not sure there's been a mass exodus of teachers shifting from classrooms into administrative roles. If there's evidence of that, it would be good to know, but we do know that there's been a huge reduction in classroom assistance additional support needs teachers. The education team, which is required in a classroom environment, has diminished educational psychologists who perhaps count as central office bureaucracy have reduced by 10 per cent across the board. I'm wondering, as I sit here, as to what extent we know what impact national policy is having on some of those decisions and also looking at the other way around what's happening at a local level. How is that impacting on Scottish Government in terms of trying to deliver on national objectives? I think that there's a temptation for all of us to look at local government and central government in isolation and try and compare performance, but all in the day is part of the same picture. I just wonder if there's variation in terms of reporting, but if you're a resident in Scotland, do you really have enough information to know how well your local council and Government is performing? I wonder if you can answer that. I'll have a go first. I'm sure that my colleagues will want to say something as well. All of us can better contribute to an improved understanding on the part of the public about some of the issues that you've raised. I go back to basics of your life. There is a duty on councils to report publicly. Heather, too, the commission's role in that has been to stipulate a set of indicators, as we call it, and report on those. We departed from that strategy a number of years ago because we took the view, with all respect to ourselves, that we might not be the best judges of what is relevant to people locally and that councils ought to have a better handle on that than we should. We've put the matter into the whole Government's hands and they largely now determine what fashion they want to fulfil that statutory responsibility. That's really just the baseline, because councils can fulfil that responsibility by saying things over and above what their statutory requirements are. They can do a better or worse job of that, and the commission and the auditors who work on our behalf look at that and ask the question, how good is that council at reporting to the public? It's not an easy question to answer, but there's information there that can inform a judgment about it, and we tend to look at that quite carefully. One of the things that we're keen to do in the approach that we'll be taking to best value from this year onwards is to bring the public's perspective more to bear on the work that we do and, through that, what the councils are doing to report their own performance. The kind of thing that I might not quite sure yet how to do it, but it's a high-level objective of the audit approach. The kind of thing that we could be talking about is using some kind of people's panel ourselves to try and get their perspective on the council, which is always an interesting exercise, and I don't need to tell you that, because I'm a local councillor. Also, asking the question, what's the council doing about this? How well are they gauging the public mood and the public perception of the way they deliver services, which I think goes back to some of the points that Mr Neil was making earlier. We know already that some councils will have a better answer to that question than others, but this is my last point before I hand over. We think that it's increasingly important that councils face further reductions, because that's the trend that we see—that they communicate openly and, honestly, transparently with their public about this in a way that helps them to understand the decisions that they feel that they have to make. We think that, as part of our best value approach, that's an interesting area for us to pursue. I'm not saying here that you'd get a better set of budget reductions as a result of doing that, although I would hope that you would do, but, at the very least, you've got an explanation to offer for otherwise. I think that you're right. It might be inexplicable to members of the public. Why are there not any classroom assistants in my classroom any more? The better the job that the council can make of explaining why they've had to do that as they see it, the better they'll come out of a best value audit from us. Obviously, we'll look at other things, too. Very briefly, convener, on the best value approach that the deputy chair has just described, just to say that the commission has asked me to report on every council at least once in the five-year cycle of this audit appointment. That would be one way in which local people will see at least that one set piece report around the council delivering best value or not. Very briefly, on your question about national and local, that's one of the things that Audit Scotland can do on behalf of the Auditor General and the Accounts Commission reporting to this committee, because we're able to report on issues that span both national policy and local delivery. A good example of that coming up will be the report that we've got on the stocks around childcare early years provision, which is looking at the national commitments around that, and then what the challenges are delivering it locally, and that will come to the committee in the usual way. Very briefly, just to touch on integrated joint boards, we think you made a point earlier, Mr Hind, about transformational change. We've looked at this before in the committee, so we're all very hopeful and optimistic, but at the same time there are concerns, because we've had previous witnesses tell us that it's very difficult to set budgets, to align budgets, to agree priorities between councils and health boards. What's your role, or the commission's role, in scrutinising that and flagging up any potential problems? The commission's role is that we appoint the auditors who audit the IJBs, but jointly with the Auditor General we've already done a piece of work looking at the very earliest stages of health and social care integration and how the IJBs, in their first few months, were shaping up to the task. That report is already in the public, so I won't take up the committee's time by going through the key points here, but you wouldn't be surprised to read it and find that, at that early stage, there were a number of unanswered questions to do with governance, accountability, strategy, workforce planning and so on. Our intention is to do two further reports, again jointly with the Auditor General, on that and to come at it at what we think will be useful points in time. So sometime later this year we'll see how well they're faring after getting on from 18 months of activity and sometime perhaps a year to 18 months after that, are they getting closer to delivering the outcomes for which this policy was intended. So that's our strategy in terms of looking at that area. Paragraph 24 says that there's a service income that has increased from education roads and transport. Can you tell me what the service income from education is? Do we have that? Are you looking for the exact figure? I'm looking for where the income comes from. Income comes from. It is a challenge in the accounts because we are very careful and referred to as service income fees and charges because of the element of that where there's specific grant funding from either the Scottish Government or another source that is recorded in the accounts as income alongside fees and charges. If I had to give you a breakdown of examples of education income, some of that will be rental income from renting out areas of school for community use or other means. There will be charges in between councils for providing different education services. That's not happening. Do you have examples? That's a general example for when you're looking at services and incomes, so there will be an element of recharges in between authorities. So there are charges between authorities for education income? Yeah. Okay. Do you want to come in? I presume that, for example, some authorities don't have facilities for disadvantaged children and they have to be facilitated elsewhere. I think that's the kind of thing that you're referring to. Is that the make-up of the service income? Yes. I wouldn't like to be drawn on the specifics of each of the 32 education incomes because I genuinely don't have that information to hand, but there will be, as I said, common examples such as rental income. There will be fees and charges in intra-authority transactions. Okay, thank you. Some councils might charge for that. Home to school transport as well. That would be fees and charges income. Okay. Would it be possible to send the committee further information on that? I think that you also committed, if I can just go back to send us some information that Mr Kerr raised. You were looking... Severance payments and exit packages. Can we have that as well, please? And also the rental income. If everybody was as good as Bethan, you can roast with a rental income. Can you send us that as well? Yeah. Was that a council tax? No, sorry, council tax, yes. I would say that we're recovering council tax in more detail in the March report and I believe we'll be carrying out some of that analysis. I will check. If not, then we'll provide it. If we are, we'll encourage you that it will be included in the March report. That's fine, thanks. Mr Kerr asked about severance payments. Mr Hines, are you satisfied with the governance around severance payments in local authorities? Again, that takes us beyond this report, but yes, using the local auditors, if there was any evidence that councils weren't following some kind of due process and they're all different, the local auditors would be reporting that in the first instance to the council and to the controller and we'd be picking it up in some general fashion in a report like this. Would the auditors actually be reporting on the governance? We found so far this session that that's often not the case, the auditors report on the bare statistics and perhaps not on the governance structures around them. I've given that impression then. I apologise because that's not what I tend to communicate. No, that's the impression that I've gathered from other evidence that we've heard so far during this parliamentary session. From where you're sitting, are you satisfied? Certainly in my local authority area there are press stories around severance payments and how generous they are, especially to senior managers. I'm sure colleagues might share that experience in local authorities across the rest of the country, they're all nodding. From the governance arrangements that you've looked at for those payments, are you satisfied that they are robust enough? Yeah, the local audit is done to the standards that are set out in the code of audit practice. That's very wide-ranging, it includes things like governance. But I will say this, the assurance that we get from the local audit process in a matter like that of necessity is going to be at that kind of high level, it's going to be that a report was presented to the council, there were figures disclosed in that report, members had the information they required, they asked questions, they got answers, a decision was made, that's what we're talking about when we talk about governance and practice here. That's not to say that in any particular instance someone, whether it's in councils or somewhere else, might not receive a payment that with hindsight they should not have received. So I don't expect auditors to be into the detail of every single payment, after all councils are letting hundreds of staff go every year, but they have to have a set of procedures that govern that, that pass muster in terms of our code of audit practice, and the answer to your question in those terms is yes, they do. So are you saying with that answer that it's your job to accept what the auditors tell you and perhaps if you were, has it ever crossed your mind or your intention that actually the severance payments that you've heard about anecdotally are through the press are too generous and you should dig a bit deeper than what the auditors are presenting you with? Of course, it's our job to rely on audit evidence, that's the evidence that we have to go on, that's the nature of the beast, but it doesn't mean to say— But if you're not going to dig any deeper then what's the point in the accounts commission? Well I haven't said that we wouldn't do that, what I'm saying is that we rely on that evidence because that's our stock and trade, but the nature of our role is to question the audit evidence as we see fit, so a phraser brings a status report to us, as it says, all as well in the state of X. Our role is to query that, to ask questions of the controller and the auditors who kind out the work, satisfy ourselves on any aspect of that council's business that we think we need satisfaction on. That might include in any particular case are the overpaying, in fact we had a recent best value report for one council where you could see the level of payment in these terms was above the average for Scotland, so we asked very hard questions about what's their policy, has that been properly reported to the council, do we monitor locally whether the payments have been made in accordance with that policy? That's our role, we ask those questions and we get the answers. Are we satisfied with those answers? Yes, because the local audit intelligence is what we have to go on. Okay. Mr Kerr. Just very interesting the line of question because it's exactly what I was concerned about earlier on. I accept entirely what you say, but somebody, whether it's the Accounts Commission or the audit, somebody is making a judgment about whether or not a payment is appropriate, and that judgment is either being made against a set of criteria which have been laid down, which doesn't sound like it's happening because you said earlier that there's variation in how these things are decided, or it's being made by somebody without any form of benchmark against which to say that this is a reasonable payment or that this is not a reasonable payment, is that correct? That there is no standard benchmark, so someone's just having to make a call about whether payments are appropriate or not? No, Goffy Fraser will come in on this, I think, but to repeat what he said earlier, we would expect to see things like a proper business case for either an individual severance payment if that's what we're talking about, or a range of them if the council's letting a number of people go because of budget pressures or whatever. We'd expect to see business cases without getting into the whole detail of it. We'd expect to see some payback period, so if such and such a payment is to be made and that post is then not filled, will it take two years or three years or ten years before there's a break-even in this? That's the kind of thing that we mean by business case. All of that constitutes some of the arrangements that we expect to see in place in terms of governance of this. Personally, no, because the local auditor would ask for that information if they had any reason to think that it was necessary. They would follow where the audit evidence leads. If they weren't getting that information, they'd flag it up to you and you'd make further investigations, is that right? We have unrestricted access to the council's accounts and the information that the managers can provide, so there's very seldom a case where they come back and say that we can't get the information. Fraser MacKinlayne. Thanks, convener. I've just to add a little bit. Specifically around severance packages, the audit work operates at two levels. If there's a general scheme, as there has been in lots of councils, auditors will look at that scheme and gain assurance that the way in which it's implemented is in line with the scheme. To come to your specific point about appropriateness, Mr Kerr, I'm not sure auditors, if you mean appropriate, as in do we think it's the right level or the wrong level, that's not the conclusion we're asking auditors to make, that's for the council to decide. The council makes a decision about the terms of that scheme and in doing so, you would expect them to look at other schemes around about and what is reasonable from that point of view. It's not for us to make a judgment or a conclusion ourselves about whether we think that is, in vetercom, as appropriate or not. If I can just say— It's not audit Scotland's role, but is it the accounts commission's role? No, because I think it's important, as a democratically elected sovereign body, that the council are the people who make that judgment and our interest is if the way in which that scheme has been implemented does not look correct. That's the scheme level. The second level is that all councils are required to disclose in their remuneration report in the accounts payments made to individual staff members over a certain level, senior people, and auditors will look at those specific things. If senior people have left in the year, there's a specific piece of work to look at those individual cases. Again, not for us to judge whether we think that's too much or too little, what we're interested in is to make sure that the process of decision was in line with the policy that the council has. In terms of the specifics of the process, all of that comes in to me through Daniel Audit reports as controller of audit, and then it's my job to report on to the accounts commission if there are any concerns. Over the years, I have done some reports on specific cases of departures that really weren't right, so it does happen. Okay, thank you. Final question. The attainment money. A big priority is my colleagues have raised for Government. A lot of money has been allocated. There's no mention, unless I've missed it, of the attainment money in the report. Is there a specific reason for that? Well, this is the first time that we've ventured into this territory and tried to explore in a bit more detail the maze that is local government finance, so I'm quite happy to take on board the suggestion that a significant element of, if you like, earmark to ring fence money, was just what I think you're referring to, might feature in future versions of this report, but for this version we wanted to try to illuminate as well as we can do some of the mysteries that are on local government finance and bring that to be on a useful way. There's a question about how much added value you get if you get into more and more detail, but the attainment fund is a significant sum of money and it's got a particularly important purpose, so we could look at that for future versions. So is it your understanding, Mr Hines, that the attainment money is ring fenced? Well, I used the words ring fenced or earmarked. I used something that's not seen as part of the general grant, the driving support grant, a line with an on-the-basic rates that constitutes the sixty-odd per cent or the fifty-seven per cent of local government funding. You've heard from other witnesses how there's different gradations of separation to that. I see the attainment fund as being slightly up with that because it's got a dedicated purpose. Will you be doing this report again next year? We'll reflect on this experience amongst others, but we hope that it's been helpful and we hope that it will, as we say, inform the debate, so the plan at the moment is just to do that. If you do do that report next year, will you cover the attainment monies? There's just a very acute significance and interest to, I think, all elected members, especially given some of the school results that have been reported recently, as Mr Neil referred to. I think that the national attainment fund is a bit of a hybrid between central government and local government because, particularly now that the original proposal to recycle the 100 million is aware, if I can put it that way, has been dropped and central government money is now being used to fund the attainment fund. It kind of fills between presumably the auditor general and the Accounts Commission because, at a national level, since it's a central government fund, I presume that it's an auditor general function to look at that, but then it's being disbursed to local authorities and then it becomes an Accounts Commission function, so maybe we need to look at how, I mean, we would want to see the attainment fund because it really doesn't matter whose responsibility it is. We want to see nationally is it working and locally is it working and obviously we need it reported in such a way that we can do that. Absolutely. I mean, it's my understanding, Mr Neil, that the auditor general is to report on the attainment fund this summer, but I think that it would be useful if this report is to be repeated next year if we could have a sense of your take on it from the Accounts Commission point of view. It's one of my concerns that, actually, attainment money is being used to backfill statutory spending that should be covered by other budgets, so I would really like a local government perspective on the moneys. I think that there's a kind of not identical parallel, but there is a bit of a parallel with the social care partnership money where the two streams of money are coming through the health board, which is not part of the Accounts Commission function, and then the money going through the local authorities. I think that what we need to do is to look at how we are actually going to, and is it auditor general, or is it Accounts Commissioner again, hybrid, how do we actually scrutinise the effectiveness and the value for money, et cetera, of the health and social care partnerships? Because, you know, if we're looking, continue to look separately at the local authority input, separate from the health board input, then we won't get a total picture. We need to look at how we get a total picture. I think that the points are well made in response to your question, convener. I'm happy to look at it. The reason I'm being a bit hesitant is because it depends on what interest there really is. In a report like this, there will always be a limit to how much we can say about even a six or some of money like £100 million for an attainment fund, because we're talking about the totality of £19 billion worth of expenditure. There might be better ways to skin that cat depending on what the interest is, but we're happy to take away between the Accounts Commission and not in general the interest that the committee has in the use of that fund and think about the best way to satisfy that interest through this or some other report that we've produced. Thank you very much. In your reflections on whether you're going to repeat this next year, we found it very useful if that feeds into your decision making. Thank you, all three of you, for your comment. There was a promise that some information would come forward about TIF, LOBO and the PFI. You've got four separate pieces of information that you committed to send in. Yes, I'm sure they will. Thank you very much indeed for your evidence this morning. I now close the formal session of the committee.