The Scottish Government

Simple Guide to End Year Flexibility

END YEAR FLEXIBILITY - A Simple Guide

Your questions answered

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 2005-06?

The total level of unspent resources against this year's Spring Budget Revision budgets for the Executive Portfolios was £171m and a further £64m for arms length bodies. Compared to a total budget of £26.5 billion, this represents less than 1 per cent, or two working days' spending. Over £26.2 billion was spent in the last financial year on public services.

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

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

1. Firstly, demand led changes: fluctuations in demand led budgets, for example Regional Selective Assistance, where demand might dip in any one year . £64 million in 2005-06
2. 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. Amongst other things there was carry forward in this section due to delays in the implementation of the Private Water Supplies Grant scheme. £107 million in 2005-06
3. Thirdly, capital slippage: slippage in the implementation of capital projects, for example delays in expenditure on roads due to inclement weather conditions. Total (net) £0 million in 2005-06
4. Finally, budgets controlled by arms length bodies such as Scottish Water and NHS boards. £64 million in 2005-06

How does 2005-06 EYF compare with the previous years?

Last year, we announced that the Executive had carried forward £183 million, and the Arms-length Bodies £98 million - a total of £281 million. This year's headline numbers are £171 million for the Executive and £64 million for the supporting bodies - a total of £235 million.

These figures will inevitably rise and fall across the years - since they are driven by factors outside our control including the weather (which can impact on how fast progress can be made on capital projects), and the extent to which arms length bodies chose to use their discretion.

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.

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 £214m between the total variance against the Spring Budget Revision budgets and this year's EYF allocations. This is as a result of two main factors:

• Firstly, EYF allocations are calculated on a Departmental Expenditure Limit (DEL) basis and the underspend figures including other budgets that do not form part of DEL, which accounts for around half of the difference
• As a result of changes between last years EYF figures and the figures that appeared in the audited accounts for 2004-05, we have to apply an adjustment to the 2005-06 EYF allocations. This accounts for the majority of the remaining difference