The Scottish Government

Page: [1] [2] [3] [4] [5]

Guide to End Year Flexibility 2004-05

Note: This page contains a guide to EYF, while the following four pages contain a report on Provisional Outturn & End Year Flexibility 2004-05. They can be accessed by clicking on the page numbers at the top and bottom right-hand section of the page.

What is EYF?

End Year Flexibility 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 Parliaments authorise 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 in Scotland and 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 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 it 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 the EYF 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 2004-05?

The total level of unspent resources against this year's Spring Budget Revision budgets for the Executive Portfolios was £183m and a further £98m for arms length bodies. Compared to a total budget of over £24 billion, this represents about 1.2%, or three working days' spending. Over £23.8 billion was spent in the financial year on public services.

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, capital slippage: slippage in the implementation of capital projects, for example delays in expenditure on roads due to inclement weather conditions. £140 million in 2004-05;

Secondly, demand led changes: fluctuations in demand led budgets, for example Regional Selective Assistance, where demand might dip in any one year . £37 million in 2004-05;

Thirdly, 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 due to delays in grant applications, in receiving planning permission and in recruiting staff. £6 million in 2004-05; and

Finally, budgets controlled by arms length bodies such as Scottish Water and NHS boards.

£98 million in 2004-05.

How does 2004-05 EYF compare with the previous years?

In agreement with the Parliament's Finance Committee, this year the way in which we measure the level of unspent resources has changed. We now measure the difference between the total budgets that we publish in our Spring Budget Revision and the total expenditure against these budgets. Previously we measured the difference between the Departmental Expenditure Limit budgets and their corresponding expenditure. This means that we cannot directly compare this year's figures with the figures that we announced last year (£332m for 2002-03 & £403m for 2003-04). We have therefore restated the prior year figures on this new basis to give a rough guide for comparative purposes. Roughly speaking, the total variance on this new basis for Executive portfolios for 2002-03 was £402m, the figure for 2003-04 was £515m and the figure for 2004-05 is £183m.

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 stages of a capital project slipping a few weeks into the next financial year, the invoice 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. This category accounts for around 77% 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 table below:

There is a difference of £27m between the total underspend against the Spring Budget Revision budgets and this year's EYF allocations. This is as a result of EYF allocations being calculated on a Departmental Expenditure Limit (DEL) basis and the underspend figures including other budgets that do not form part of DEL.

Page: [1] [2] [3] [4] [5]