[Updated text] The figure reported on 24th June 2015 on the budget exchange mechanism for the Scottish Government’s performance was an underspend of £192 Million for the year 2014-15. The actual figure has been a whopping 82% greater than that – £350 Million – as reported today, 2nd October 2015, by the Auditor General, Caroline Gardner.
Finance Secretary, John Swinney underspent by £207m [0.7%] on the resource budget; and by £140M [a substantial 7.6%] on the capital budget.
It is also worth noting that had two departments not overspent – Justice by £12 Million and Rural Affairs by £16 Million, the underspend for this year would have been £378 Million – a sneeze less than twice the £192 Million reported only at the end of June.
- The crisis-mode education service has lost £72 Million.
- The similarly crisis-mode health service has lost £14 Million.
- The social justice budget has lost £51 Million.
- And Scotland’s creaking infrastructure has lost a corking £221 Million.
Mr Swinney’s record on underspending is as follows:
Term 1: 2007-2011
- 2007-08: £42 Million underspend
- 2008-09: £42 Million underspend
- 2009-10: £136 Million underspend
- 2010-11: £12 Million underspend.
Total underspend for first [4 year] term of office: £232 Million [annual average of £58 Million]
Term 2: 2011-201
- 2011-12: £179 Million underspend
- 2012-13: £179 Million underspend
- 2013-14: £145 Million underspend
- 2014-15: £350 Million underspend
Total underspend for 4 of his second and 5 year term of office: £863 Million [annual average of £213 Million – a 316% increase on his first term’s annual average underspend.]
In her report of the management of the 2014-15 budget, the Auditor General identified three areas of significant risk:
- One is a cost increase of 74% at current estimates on a troubled IT project being developed to implementing the new EU Common Agricultural Policy[CAP].Ms Gardner noted that there will be ‘significant financial consequences’ if this situation impacts on payments to farmers.
- Another is the possibility that the Office for National Statistics, having ruled to reclassify Aberdeen Western Peripheral Route as a public sector responsibility [meaning that it will be costed to the government budget], may also so reclassify two more non-profit projects – Dumfries and Galloway Royal Infirmary; and Edinburgh Royal Hospital for Sick Children. The Auditor General points out that these unforeseen new claims on the Scottisih budget could negatively affect future capital budgets and the number of such projects actioned in future.
- The third risk situation is the European Commission’s ongoing suspension of £45 million of payments to Scotland from the European Structural Fund. This article we published in late 2014 may be the source of the problem – which the Scottish Government dismisses as ‘a technical issue’.
Mr Swinney underspent by £42 Million in his first year as Finance Secretary, 2007-08. While he had a relatively mighty blip in his third year of that term, he was back to a very capable safe underspend of £12 Million in its last year, 2010-11.
If he was at that early stage, capable of financial management to underspend as modestly as he did in three of his first four years, the massive percentage jump in underspending in this, his second term, is curious.
Although For Argyll sess these underspends as politically tactical, the Finance Secretary may be overwhelmed by the increasing complexity of managing government budgets. He has had trouble with two small devolved taxes he has been given [Aggregates and Land Fill]; and the Land and Buildings Transactions Tax with which he replaced Stamp Duty looks, on initial performance, unlikely to achieve its tax take targets.
His insights into the reality of the fiscal management of an independent Scotland were painfully sharpened by the interrogations of indyef 1; and by the later analysis of the catastrophic budgetary impact [by David Phillips of the respected Institute of Fiscal Studies] of the Full Fiscal Autonomy which Mr Swinney had noisily been demanding for some time.
Mr Swinney has been unable to challenge Mr Philips’ figures; and has noticeably eradicated Full Fiscal Autonomy from his vocabulary.
The Scottish Government initially had the facility to carry forward any unspent budget to future years – through a process known as ‘end-year flexibility’. This facility was abolished as part of the 2010 United Kingdom spending review. However what is knows as the ‘budget exchange mechanism’ for the devolved administrations allows the Scottish Government limited flexibility to carry forward, from one financial year to the next, a cash underspend of up to 0.6 per cent of its resource DEL budget and 1.5 per cent of its capital DEL budget.
From our calculations, we believe that Mr Swinney’s annual second term underspends have stayed below that level in each instance. This means that he has wasted no allocated funds but has effectively been able to engage in strategic measured stockpiling for political advantage – but since 2011, only to be drawn down from the amount underspent the year before. We do not have the detail to calculate further and so cannot know whether the full underspends in each year since 2011 have been called down to spend in the following year.
Our conclusion that the underspends are deliberate is supported by remarks from Mr Swinney himself.
In his budget address to the Scottish Parliament on 19th June 2013, Mr Swinney said: ‘In 2011-12, we carried forward £179 million fiscal DEL [Departmental Expenditure Limits] in the budget exchange mechanism for use in 2012-13. This year, we will carry forward the same amount—£179 million—to be utilised in 2013-14. In our budget for 2013-14, we had factored into our plans a carry-forward from 2012-13 of £158 million, which was made up of £150 million resource [revenue] DEL and £8 million capital DEL. We have delivered that plan. Accordingly, I am pleased to inform Parliament that the balance of the fiscal DEL underspend—£21 million in capital DEL—will be carried forward in full to augment existing spending plans in 2013-14.’
The Finance Secretary also announced in June 2015 that his markedly hefty underspend has been carried over and will be spent in this financial year – 2015-16 – which coincidentally takes us right up to the Scottish Election in May 2016. [Ed: The following three paragraphs are immediate additions.]
The difficulty with what is either a calculated underspend from the start of each year or the unintended but not unwelcomed consequence of a high degree of caution in budgetary management, is not, however, good management of Scotland’s frontline pubilc services – which are in a poor way.
Education, health and infrastructure are in serious need of strategic spending. The DEL resource [revenue] and DEL capital grants allocated to Scotland each year are, as with both the revenue and capital grants to all of the devolved administrations, not hypothecated. This mean that they are not made up of amounts ringfenced for spending on specific services – like education and health. So money unspent form the internal allocations to education and health in one year which may be drawn down in one further year only – does not mean that all or any of the drawn down underspends last year will be spent on education and health this year.
Mr Swinney has given no guarantee that he will draw down the underspends and spend them to their individual limits on these crisis ridden services alone in the following year. It is quite possible that education and health have been starved of vital funding with the underspends on their budgets paying for the giveaways slathered in modest amounts across the country to creating the feelgood bubble to buy votes for the SNP in mission critical elections and referenda.
Local Labour MSP and Shadow Finance Secretary, Jackie Baillie, points out that, in 2008, Mr Swinney boasted that the days of hundreds of millions in underspends were over.
His performance in the past four years gives the lie to that boast. In fact, at that time, Mr Swinney castigated previous administrations for underspends of £135 and £139 – each of which he has exceeded in each of the past four years, exceeded too in 2009-10 and surpassing himself in major measure last year.
Specific note: For Argyll is puzzled by the Finance Secretary’s reason, given to the Auditor General, for the £12 Million overspend in the Justice department. That is said to have been down to an increase in police and fire pension payments. [Is that increase due in part to an unexpected volume of early retirements from the service?] The puzzle is that such payments in other departments in Scotland – like Health, Eduation and Local Government – are traditionally covered not from resource DEL but from AME – Annually Managed Expenditure. This is the demand-led spending on things like social costs that are forecastable but cannot be predictable. Its amounts are not annually controllable to any precise degree but depend on how may people retire – or die – in a given year; and how many are in or out of work in a given year etc.
It is noticeable in the Scottish Government’s annual budgeting that no AME spend has been allocated to the Justice Department where it is allocated to Education, Health and Local Government.