Scottish Government

5 GENERAL PROGRAMME ISSUES

5.0 INTRODUCTION

5.0.1 This chapter outlines a range of issues that affect portfolios/programmes and gives some examples/illustrations. There is some degree of overlap with the corporate issues described in Chapter 4, and our suggestions for improvements must be read in conjunction with that chapter. More detailed examples and commentary are given in Chapter 6, dealing with the portfolios/programmes in turn.

5.0.2 We are aware of a range of pressures on the Scottish budget, some of which relate to commitments newly or soon to be implemented. There are also areas where the budget is planned to increase in future. We have called this 'negative headroom'. We have not sought to quantify this, but recognise that these pressures are one of the reasons for our review.

5.1 LEGACY SPENDING

5.1.1 We found a significant proportion of the total budget could be described as legacy spending, by which we mean based on priorities and/or commitments that pre-date the PA/ BABS2 (Box 7). In most cases, they are not covered by the PA because of its focus on change or new ideas/policies (4.2.4). The extent of legacy spending is difficult to determine because it is not a factor identified in classifying spend. We suggest a more rigorous approach to classifying spending needs to be done before the conclusion of SR 2007. We would also suggest that the process of defining and refining any future PA should include analysis of legacy spending, with emphasis on 'proofing' all of it against the new PA/priorities through the Challenge Function.

Box 10

5.2 LOCK-IN

5.2.1 Legacy spending need not continue, but the ability to reduce it is often limited by 'lock-in', through statutory or contractual commitments. Simple examples would be PPP payments, where there is a legal contract to pay usually over long periods, or major capital projects where contracts have been signed. There are, inevitably, less clear cut areas such as grants to NDPBs where up to 70% of spend could be on staff - with significant redundancy costs arising from any reduction. Again we suggest a more detailed and rigorous analysis be done before the forthcoming spending review is concluded, and certainly ahead of any further PA. In the long run, all spending can be cut or realigned. The timescale is, however, determined by the basis of the legacy and the time needed to unlock the spend. In our view, both issues need greater clarity and both should be analysed and considered in the context of developing and improving the challenge function.

5.3 CYCLES AND REVISED PRIORITIES

5.3.1 A further complexity is the many different cycles affecting portfolios/programmes. Examples of different cycles, all with different effects, include electoral, financial, spending review and external (e.g. EU budgetary cycle). It is impossible to find a 'base date' where every portfolio/programme is at 'steady state'. Moreover, moves to improve financial planning and accounting procedures are adding to the complexity, e.g. asset management plans will determine many future spending decisions. We can see no easy solution to this issue, which also affects the legacy and lock-in factors, other than to suggest it be included in the analysis we propose above. It also needs to be considered in developing the challenge function, as the discontinuities created by different cycles can often lead to revised priorities within a spending review period. Such revisions need to be proofed against the PA priorities, and any major changes agreed and tracked.

5.4 INITIATIVES

5.4.1 A major source of change in terms of priorities and spending has been the number of initiatives launched within each spending review period. Some initiatives flow from the PA commitments or BABS objectives and targets. Many are introduced to counter unexpected problems. We found little evidence that new initiatives (however worthwhile) were properly assessed against current priorities. Moreover, many involved ring-fenced budgets with very specific outputs and little evidence of consideration of clear outcomes or longer-term spending implications. There is a need to have a clear understanding of how effectiveness, against objectives and targets, will be measured and to have a clear evaluation methodology. Many of our 'external' consultees expressed concerns about the way such initiatives were introduced and managed. In some cases, initiatives raised expectations of long term funding or services that could not be delivered , thus effectively adding to cost pressures, e.g. central heating grants, concessionary fares, free personal care for the elderly.

5.4.2 We suggest there should be a presumption against such initiatives in future spending reviews and, where they are proposed, they should be subject to rigorous scrutiny through the challenge function. Each should also have a clear path mapping out their future, especially relating to exit strategies or a move into core funding. Based on an integrated evaluation strategy, this path will, of course, depend on the results of the evaluation, but it should be planned on positive and negative scenarios. Where legislation is involved or required, a 'sunset clause' should be considered.

5.5 DEMAND LED PROGRAMMES

5.5.1 There are some programmes in the Scottish Executive budget where spending is responsive to demand, such as Legal Aid or welfare foods, i.e. where the overall budget is not capped but is dependant on the number of eligible claims against it. Some also represent legacy spending and have considerable lock-in. Nonetheless, we suggest that such programmes should be subject to regular challenge and scrutiny on Best Value principles.

5.5.2 This would include:

• challenging whether the function is still required;
• asking whether the programme is being delivered effectively and efficiently;
• determining the fit with current priorities; and
• ensuring that any relevant cross-cutting themes are properly considered.

5.5.3 Demand led budgets, whether legacy, such as free personal care, or more recent examples, such as concessionary fares, can still be managed to some degree. However, open-ended commitments and universality can reduce the overall future spending flexibility.

5.6 EXTERNAL/INDIRECT COST PRESSURES

5.6.1 Many portfolios/programmes are subject to growing cost pressures from external sources directly or indirectly. Examples include:

• increasing standards and scrutiny/inspection from regulatory bodies such as the Health and Safety Executive, Care Commission, Commission for Racial Equality, Medicines Control Agency and others;
• increased administration costs from new legislation such as Freedom of Information, Disability Discrimination Act and others; and
• European Union Regulations and Directives.

5.6.2 Such pressures are becoming more evident and pressing throughout the public sector. Unlike other factors in this chapter, the SE is more limited in its ability to control or influence them, particularly in those agencies outwith its remit. We suggest the Scottish Executive should consider the following issues when taking forward the forthcoming spending review:

• Try to identify the extent to which each programme is affected by such factors.
• Ensure any regulatory bodies or inspection agencies under Scottish Executive control are aware and take cognisance of the pressures/costs they are imposing (challenge function).
• Lobby external agencies: EU, UK and if necessary international bodies to recognise this issue.
• Consider the extent to which external pressures/costs should be accounted for in any efficiency savings (as a counter balance).

5.7 PROGRAMME MANAGEMENT

5.7.1 We found that the level of management resource is not always in proportion to the size of the budget. Programme management is too often based on inputs, i.e. the focus is on spending the amount in the budget, rather than on what is being provided for the money.

5.7.2 In-year movement of funds between budgets may be a result of unrealistic programme planning. It means that there is little incentive not to spend the allocated budget and expose it for comparison with priority areas in other portfolios. This allows areas to be funded, whether new priorities or not, without a central challenge on the respective need for the spend.

5.7.3 We found that the Executive retains management of some budgets, which would be more appropriately transferred to delivery agents for detailed management. Micro-management is better carried out at an operational level than at the strategic level of the Executive. The Executive could then focus on the monitoring of performance and delivery.

5.7.4 Recommendations

• Focus on specifying clear outcomes, that can be translated into specific targets and measured by performance indicators, then work back to the required budgets.
• If any programme budget is not being spent, and not simply due to project slippage, the resources should be reconsidered against the current priorities and not recycled within the portfolio
• Supporting information on programme budgets should show as a minimum the split between capital and resource and an analysis of expenditure separately identifying statutory and discretionary spend. Further analysis of legally committed expenditure e.g. certain grant schemes; contractually committed expenditure e.g. PFI/ PPP payments; and politically committed expenditure (e.g. PA commitments) would also promote a better understanding of the Executive's budget and help to make the best use of resources.
• The SE should establish, and keep under review, a minimum [and maximum] level of funds and responsibilities for budgets at level 3 to avoid wide disparities.
• The Executive should reduce its micro-management. It should focus on strategy and policy. Management should be carried out at the operational level, e.g. local authority, NHS Board, agency or NDPB.