The Scottish Government

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End Year Flexibility 2005-06

Provisional Outturn and End Year Flexibility 2005-06

This note reports provisional outturn figures for public spending within the remit of the Scottish Executive for 2005-06. In other words, it reports spending by the various portfolios and arms length bodies against the budgets approved by the Parliament in the Spring Budget Revision (the Budget (Scotland) Act 2005 Amendment (No. 2) Order 2006 - SSI 2006/162). All portfolios, departments and arms length bodies are reported as they were constituted at the end of the 2005-06 financial year.

Under the Scotland Act 1998, the approval of expenditure by Scottish departments is the responsibility of the Scottish Parliament. This responsibility requires the Parliament to set a limit on both the total amount of cash and the total level of resources that the Scottish Executive can use.

As of April 1, 2001, Government spending moved from being accounted for on a cash basis to an accruals basis, known as Resource Accounting and Budgeting (RAB). RAB matches all payments and receipts to the time period in which they are used, or the benefits are felt (rather than the time of actual payment) and it recognises the non-cash costs of government activity, for example the depreciation of assets, and the opportunity cost of investment in assets (cost of capital).

The cash and resource requirements of the Scottish Executive, as approved by the Scottish Parliament, are met from the Scottish Consolidated Fund (which was established on April 1, 1999). The provision held within this fund comes mainly from the Scottish block grant. This grant is calculated using the Barnett Formula and is paid directly into the Scottish Consolidated Fund by the UK Government.

Through the budget process the Parliament is informed of the Scottish Executive's spending plans and objectives for the use of its resources. The primary purpose of the Budget process is to provide the means by which the Executive seeks from Parliament sufficient resources and Parliamentary authority for its own expenditure each year. Approval for the final 2005-06 budget was sought in the Spring Budget Revision laid in January 2006.

The variances for each portfolio are calculated on the basis of the difference between their final budget (i.e. following the Spring Budget Revision) in any year and their provisional spend against these budgets. The "variance" is simply the difference between the approved budget and the actual expenditure.

This means that, the provisional outturn numbers take into account variances on all of the budgets detailed in the Spring Budget Revision (including AME and Other budgets) rather than just against the Departmental Expenditure Limit (DEL) budgets. It should be noted that in practice any under/overspends against Annually Managed (AME) and Other budgets are received from/returned to the UK Exchequer, cannot be carried forward, and that breach of these budgets has no knock-on impact on the Scottish Block.

In total, the Executive has spent £171 million less than the budget approved by the Parliament for 2005-06 in the Spring Budget Revision.

Arms-length bodies within the overall budget have spent a further £64 million less than their approved budget.

Together, this £235m total represents less than 1 per cent of the total approved Budget. The following table sets out, by Portfolio, the differences between the approved budgets and their actual expenditure.

Table 1: Variances against SBR 2005-06 ( £m)

There are four main reasons why the Executive might have unspent resources at the end of the financial year:

• Firstly, demand led changes: fluctuations in demand led budgets, for example, the Criminal Injuries Compensation Scheme where demand might dip in any one year. Total -£64 million in 2005-06 (see Table 2 below)
• Secondly, 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. A detailed explanation of the reasons behind these carry forwards is set out in Annex A of this paper. Amongst other things there were delays in the implementation of the Private Water Supplies Grant Scheme. Total -£107 million in 2005-06 (see Table 2 below)
• Thirdly, capital slippage: slippage in the implementation of capital projects, for example delays in expenditure on roads due to inclement weather conditions. The definition of capital for this purpose is that used in the Executive's Infrastructure Investment Plan. Total ( net) £0 million in 2005-06 (see Table 2 below)
• Finally, budgets controlled by Arms Length Bodies such as Scottish Water, Forestry Commission and NHS boards.
  Total -£64 million in 2005-06.

Table 2: Variances against SBR 2005-06 by Category ( £m)

KEY

(a) Slippage in committed capital projects

(b) Fluctuations in demand led expenditure

(c) Other Variances

Ministers accept that avoidable delays in spending result in delayed improvements to public services, and the Executive therefore aims to keep variances to the minimum required for sound financial management. More detailed explanations of the variances for individual programme budgets is detailed in Annex A.

Whenever a breach of an individual DEL or Scottish Parliamentary Control limit occurs, the usual corrective procedures will be applied, including an investigation of the causes of the breach, an examination of the financial procedures of the department or body concerned and, where appropriate, a reduction in the corresponding limit in the following year.

Comparison with previous years

As noted above, the Executive is reporting provisional outturn against the Spring Budget Revision (prior to 2004-05, only the DEL element was reported). For purposes of comparison, we have restated below the 2003-04 & 2004-05 final outturn numbers on the same basis.

Table 3: Comparison between 2003-04 to 2005-06 (Executive Portfolios) ( £m)

1. Based on figures taken from adjusted accounts.

Table 4: Comparison between 2003-04 to 2005-06 (Arms Length Bodies) ( £m)

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