Arthur Midwinter: Spinning country off course

A thorough scrutiny of the Scottish Government’s budgetary plans is being hindered by party agendas, writes Arthur Midwinter

In recent months, I have expressed concern over the extensive use of spin in the presentation of official reports on the constitutional reform issue. With the recent passage of a new budget, with only minor modifications to the initial Spending Review 2011 report, it is appropriate to evaluate this report also, as it sets out the Scottish Government’s budgetary objectives and priorities until 2014-15.

Although covering the period 2011-12, the document opens by setting out figures for 2010-11. The reason is not made clear, but it allows the government to use a high baseline in drawing out its arguments. The figures have been tabulated for the Scottish Departmental Expenditure Limits (DELs), and show that in real terms, the brunt of the block grant reductions took place this year, with a cut of £1.257 billion in revenue, and £848 million in capital, or 7 per cent overall, with much smaller – but still difficult – reductions in the following three years.

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The review also repeats a long-term estimate of Scottish spending from 2009-10 to 2026-27, to show that it will take that long for spending to return to 2009-10 levels. This figure is completely meaningless, as no plans exist beyond 2015-16, and current plans have already been revised upwards, so the calculation of £39bn resources lost is frankly, spin run amok.

A second table in the annex of the report allows us to assess priorities on the basis of budget shares. Basically, these continue a long-term pattern.

Health’s share of the DEL grows from 40.5 per cent to 42.2 per cent, whilst local government’s falls from 32.3 per cent to 30.3 per cent. Most departmental budget shares are falling, except for education and infrastructure. It is difficult to see how these plans are prioritising “sustainable economic growth”.

The budget process in Holyrood was designed to promote improved transparency and scrutiny of Scotland’s spending plans. In recent years, however, these objectives have been ignored, as the Scottish government has used its executive power to control the budget agenda and the accounting information provided. The SNP has used its political majority to ensure the annual finance committee report supports its line, rather then scrutinising its plans, priorities and assumptions.

In the current year, the SNP’s political control of the process made it difficult for opposition members to contribute to scrutiny, leading to a minority report of dissent for the first time. The SNP’s spinmeisters oversold its plans and over-claimed their potential impact. The budget was described by the finance secretary, John Swinney, as a budget for growth, which would accelerate economic recovery and support employment, but he has consistently failed to validate such claims, and no progress has been made against economic performance indicators set out in 2007.

Indeed, despite the First Minister’s rhetoric of “aligning policy and finance”, independent appraisal by a series of advisers has consistently identified the lack of clear links between strategy and allocations.

A second assertion is that the SNP government has acted to support employment, by prioritising capital expenditure which provides work in the private sector. The finance secretary has claimed his capital budget has been cut by £6.7bn in real terms over four years by the UK Treasury, before the recent supplementary allocation of £587m in budget consequential as a result of increased Whitehall spending.

How this figure of £6.7m was arrived at was not made clear, but it obviously reflects more dodgy accounting. The fact is that the annual capital budget is being reduced by only £1.7bn over the period 2010-11 to 2014-15, from £3.4bn to £2.1bn. This smacks of treble counting.

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The finance secretary made choices to supplement capital spend by transferring £200m from the resource budget, and to establish a private finance programme of £2.5bn, most of which will not be spent until after 2014-15, with only £100m allocated in the current year. This is not a fiscal stimulus.

A further example of financial spin is to be found in the Scottish Government’s claim to be sustaining public employment to aid recovery, by maintaining health resource spending in real terms as the NHS is a major employer. In fact, health spending has consistently been the top priority, although it is difficult to see how this is prioritising growth, when most of such spend is on elderly patients.

This economic argument would apply even more so to local government, whose staffing levels of 301,900 far exceed the NHS total of 162,600. In fact, both institutions lost staff in the current 2011-12 budget, 4,200 from the NHS and 13,300 from local government.

The heavier cuts in local government are caused by the council tax freeze. In practice, this is a cut in real terms, which so far has taken £350m out of services. The finance secretary’s spin that he is protecting local government’s share of the budget is the direct result of the freeze.

Funding for services has been falling each year. Ironically, had council tax moved in line with inflation, additional resources would have accrued through council tax benefit.

From 2007-11, spending on health grew by 2.5 per cent in real terms, whilst spending on local government services fell by 3 per cent. This is not a strategy to sustain public employment, when together health boards and councils employ 97 per cent of devolved public sector staff. The funding gap caused councils to lose 14,000 staff before the coalition government’s funding squeeze began.

The new spending plans face one major financial risk, the reliance on unidentified efficiency savings of £1.6bn to balance the books. These targets are now set for all budgets, not just specific efficiency projects as under the former Scottish executive.

In fact, parliament has not received a statement of how these would be delivered. There is therefore no audit trail for monitoring, and one suspects the savings may be simply being “managed out” as they were intended to be in the case of the new parliament building.

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As a consequence, the parliament has no meaningful basis for scrutinising the realism of the efficiency savings, and ought to in future make it clear it will not agree to a budget which fails to identify and cost all savings. Audit Scotland has consistently advised parliament it cannot provide assurances over the reliability of the efficiency savings.

This combination of information gaps and presentational spin have thwarted proper scrutiny of the budget. The finance committee cannot be relied on to fulfil its crucial role of questioning plans, priorities and assumptions. This is further evidence of the need for a Scottish Office for Budget Responsibility to ensure parliament can hold the Scottish Government to account.

In its election manifesto, the SNP claimed that it had demonstrated a clear capacity not only to manage Scotland’s money effectively, but more effectively than any previous administration. In fact, they have failed to target priorities effectively, or to account properly to parliament.

This matters because unemployment continues to rise, and requires a serious response from government, not more rhetoric. First, the SNP could accelerate its private finance capital programme to provide a stimulus now. Secondly, if it is serious about sustaining public employment, in a context of declining block grant, then it needs to increase income from taxes and charges in compensation, dropping the unsustainable council tax freeze as soon as practicable.

Arthur Midwinter is a visiting professor at the Institute of Public Sector Accounting Research, University of Edinburgh