Finance minister set to reveal underspend of £600m

Published on Sunday 20 June 2004 02:45

TAX-weary Scots will be told this week that £600m of public cash was left unspent in government bank accounts last year, a 50% increase on the underspend from the previous 12 months, Scotland on Sunday can reveal.

The revelation leaves ministers facing fresh claims that, despite widespread evidence of a strain on public services, they are simply awash with taxpayers’ money which they cannot get round to spending.

Of the 600m underspend, which is expected to be unveiled by finance minister Andy Kerr this week, more than 200m comes from the accounts of the much-criticised Scottish Water.

The quango has enforced rocketing rates on homeowners and businesses to pay for the 1.8bn repair of Scotland’s antiquated water and sewage network, yet the new figures show that it has failed to spend a significant amount of that cash on improvements.

Instead, much of the job has been delayed, meaning that the extra funds raised from taxpayers are still waiting to be spent.

The underspend at Scottish Water has now triggered a furious row between the Scottish Executive and water chiefs.

Furious ministers are privately attacking the "incompetence" of the quango’s bosses, whom they blame for the delays, and for creating bad publicity on the underspend announcement.

But Scottish Water bosses are understood to be angered at being cast as scapegoats, and instead point the finger at red tape within government departments.

Ministers are also blaming civil servants for other parts of the underspend, which includes money for services which has not been spent because of internal bureaucracy.

One senior Executive source said: "It is down to sheer incompetence of Scottish Water and civil servants. We are talking about capital projects and about services.

"Andy [Kerr] has got to go and stand up this week and explain this. The fact is that it is their fault for not getting things moving quickly enough."

The annual underspend announcement has become a major headache for ministers, who bitterly resent accusations that they have more money than they know what to do with.

Their budget is now some 24bn a year, an amazing 8bn more than in 1999, following Labour’s massive extra investment programme.

Much of the underspend figure is made up of funds which are deliberately held back from the budget to spend on projects in the next financial year.

But ministers also concede that a substantial chunk of the cash should have been spent, but has remained in the bank, often because of red tape or inefficient delivery.

This year’s 600m-plus underspend - known as ‘end-of-year-flexibility’ - is a blow to finance minister Andy Kerr, as it bucks the trend for reducing the figure in recent years. It also comes as the Scottish Executive is under fire over the crisis at Scottish Opera, which wants a relatively miniscule 1m extra a year to help it survive. One Scottish Opera source said: "It is unbelievable that they can have this money lying around, and yet not give the company 1m more."

In 2001, 718m was left over in accounts, before falling to 643m in 2002 and then 394m in 2003.

Kerr said last year: "We have put in very rigorous systems to ensure our end-year flexibility is reduced to acceptable levels which we can justify to the Parliament and to the people of Scotland."

Both he and deputy finance minister Tavish Scott are therefore understood to be deeply unhappy with Scottish Water’s performance, which they blame for the rise in the figure.

Critics, however, said it was wrong to lay the blame at the quango’s door.

SNP finance spokesman Fergus Ewing said that ministers had laid down too many obstacles in the path of Scottish Water, preventing them from rolling out their investment.

"This is no one’s fault but the Executive’s own.

"The Executive has clearly set the financial regime and the Executive is responsible for the regulatory regime which has become a tourniquet on development.

"The fact that Scottish Water has underspent by 200m means that ratepayers have paid 200m that they needn’t have. Their charges could have been far lower."

Scottish Conservative finance spokesman Brian Monteith added: "Our Scottish government must begin to learn that it is clearly taking too much of the people’s money out of the economy. Rather than come up with new smarter ways of spending this money that is not theirs, it should be returned to the public as a rebate in their council tax and business rates."

A spokeswoman for Scottish Water insisted that there had in fact been no underspend this year, because the group was working to a four-year timetable that remained on track.

"In the last year [2003/2004] 389m has been invested. The speed of investment is now being accelerated. We have a challenging timescale to deliver all the work we have to do but we have the right team in place to make that delivery."