The Scottish Government

End Year Flexibility - A Simple Guide

Thursday June 24, 2004

What is EYF?

End Year Flexibility or EYF is a common sense and prudent approach to financial management. It's a financial system that allows us to carry forward any unspent resources from one year to the next. It's part of a broad approach to public expenditure that allows us to plan spending programmes over the medium term and to avoid wasteful end of year spending. When both the Scottish and the UK Parliament authorises the Executive's spending, they only do so for one financial year at a time. So, if the Executive seeks Parliament's agreement to spend, for example, £10m on a new road, the money must be spent in the same financial year. If for some reason the money is not spent by 31 March - for example, if bad weather delays construction - the Executive has to ask Parliament to approve the expenditure again.

What's the point of the EYF process?

Without EYF we would lose any money not spent at the end of the financial year.Like any household or efficient business, we need to manage our expenditure each year to ensure that the money is spent to best effect. This includes taking advantage of the flexibility open to us at the end of any financial year.

Since 1998 we have been able to carry forward resources from one financial year to the next under End Year Flexibility arrangements, or EYF. We use EYF in a planned way to carry money forward for specific purposes, to handle any slippage in capital projects, and to avoid any last minute pressure to spend at year-end.

EYF ensures that available resources are applied to our priorities. It ensures that resources stay inScotlandand don't return to the Treasury.

What would happen if you didn't have EYF?

Perhaps it would explain the benefits if we looked at what might happen if we didn't operate this system. The incentive for managers and Ministers would be to make sure the budget was spent by the year-end - what it was spent on would be less important. This was what has led in the past to the 'quick spend' by the public sector on equipment, consultants and improvements to buildings and facilities. The public never liked it - they could see if was a waste of money.

Our ability to plan ahead would be hit by a double whammy. Say we were planning ahead for a really big commitment - major infrastructure investment in schools, hospitals, prisons, housing or roads. We might have set aside significant resources for the project - say in the order of £100m. If the project was delayed for some reason and we couldn't spend the money in that financial year, without EYF we would "use it or lose it". So you'd spend the £100m on other, lower priority projects just to make sure the money was spent. When you got to the next financial year you'd in effect be short of the £100m you were going to put into the project - so you'd have to find the resources from other parts of your programme, displacing other priority projects. This would mean that without theEYF process we would lose any money that we had not spent at the end of every financial year.

Doesn't it just mean you can't spend your money?

No. We use EYF in a planned way to carry money forward for specific purposes, to handle any slippage in capital projects, and to avoid any last minute pressure to spend at the end of the year.

The systems we have in place mean money is not lost - the spend is merely delayed until the next financial year.

How much was carried forward from 2003-04?

£403m by the Executive Portfolios and £220m by Arms Length Bodies.

Why would you have unspent resources at the end of the year?

There are five possible reasons why we might have unspent resources at the end of the financial year:

Firstly, provision for future spend: this includes provision that we have deliberately set on one side for future, planned, spending commitments. £119 million in 2003-04;

Secondly, capital slippage: slippage in the implementation of capital projects, for example delays in expenditure on roads due to inclement weather conditions. £114 million in 2003-04;

Thirdly, demand led changes: fluctuations in demand led budgets, for example Regional Selective Assistance, where demand might dip in any one year. £7 million in 2003-04;

Fourthly, other variances: this category is made up of carry-forward on a wide range of disparate programmes across the Executive for which there is no unifying factor. Amongst other things there was carry forward in this section from, slower than anticipated take up of Integrated Transport Fund grants, slippage in Strategic Waste Fund projects and delays in the Corpach Combined Heat and Power (CHP) project. £163 million in 2003-04; and

Finally, budgets controlled by arms length bodies such as Scottish Water and NHS boards.£220 million in 2003-04.

How does 2003-04 EYF compare with the previous year?

Procedures introduced in 2000-01 to monitor and control expenditure successfully reduced the balance of the portfolios' carry forward from £460m in 2001-02 to £332m in 2002-03. While the 2003-04 figure of £403m is higher than the previous year, it represents less than 2 per cent of our total £23bn Budget.

How do you decide what to do with these resources at the end of the year?

Scottish Ministers can decide how each year's EYF should be used. This decision will depend on where the EYF has come from. For example, if the EYF is a result of the final bill for a capital project slipping a few weeks into the next financial year, the bill will still need to be paid. In these circumstances, the portfolio will usually be allowed to carry forward the provision into the new financial year to meet the costs, rather than having to find the provision from elsewhere in their budget. Similarly, where a portfolio has set aside resources to meet future commitments, this is prudent financial management that should be encouraged, and the portfolio is again likely to be allowed to retain such EYF in full. These two categories account for around 60% of the EYF generated this year.

Where EYF is generated as a result of lower than expected demand for a particular service, this is in effect a windfall bonus to the portfolio. For example, if the use of the Legal Aid scheme in a particular year is lower than expected, then the unused provision from one year would not necessarily be required for the following year and this provision could be reallocated to the Executive's other priorities.

What are you using the EYF for this time?

The allocation of EYF can be seen in the tables below:

There is a difference of plus £2m between the EYF generated and the final allocations.The EYF allocations take into account adjustments for any under/over allocation of EYF from 2002-03. Portfolios/Arms Length Bodies will either surrender any surplus EYF or are credited with additional EYF (dependant on their final outturn position relative to provisional outturn). The net difference between the provisional outturn and final outturn figures for 2002-03 was an increase in resources carried forward of around £2m, which has been added to the relevant allocations for this year.