The Scottish Government

This item was published during the term of a previous administration that ended in April 2007

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Future spending plans explained

11/09/2003

The Executive today outlined how it will fund the priorities set out in the Partnership Agreement.

Finance and Public Services Minister told the Parliament that the priorities aim to build a better Scotland by delivering greater economic prosperity, better public services, and an improved standard of living.

The Executive, he said, was taking a prudent and common sense approach to its finances to ensure these pledges are met. How they will be delivered is laid out in the draft Budget for 2004-2005 which sets out the detailed spending plans.

A key element of this approach to public finances is End Year Flexibility which is designed to ensure maximum value for taxpayers' money.

The carry forward of resources from the expenditure plans for 2002-03 was £394 million, a reduction from the 2001-02 figure of £643 million.

Mr Kerr said:

"In May we signed the Partnership Agreement setting out the Scottish Executive's programme for the four years of this Parliament. We will work to encourage and stimulate economic growth, work to tackle poverty and disadvantage, work to improve and sustain our environment - and to help all our communities live in safety.

"We have set out our vision for a Scotland designed to deliver greater economic prosperity, better public services, and an improved standard of living for the people of Scotland where opportunity really does exist for all. It is vital that Scotland has the confidence to face the challenges of a global society.

"A lot to do - but my announcements today demonstrate we have the money to do it and that Scotland's money is safe in our hands.

"I am adding an additional £148 million, £160 million and £217 million over the next three years to portfolio budgets. That's an extra £525 million in total to help fund the next three years.

"This means money for more teachers and more police officers. More money for the NHS and an extra £65 million across portfolios to combat anti-social behaviour - all areas where the Executive's priorities are Scotland's priorities.

"I can also confirm that the resources carried forward from expenditure plans for 2002-03 was £394 million which represents just 1.9 per cent of our total budget of £21 billion. This is down from last year's figure of £643 million. I said we would reduce that sum this year and we have.

"EYF is a common sense and prudent way of looking after our finances and helps us plan for the future - gone are the old days of "use it or lose it'' when money was simply shovelled out the door before the end of the financial year.

"Now that we have EYF we can take the money not spent at the end of the financial year, sit down and carefully plan how best to use the valuable resources available to us. This must be a better way. After all, this money comes from individuals, families and businesses.

"In addition we also have a £196 million windfall from the reclassification of the Housing Stock transfers and £148 million additional income from non-domestic rates. These sums of money are additional to the money carried forward from the expenditure plans for 2002-03.

"I have also published the Draft Budget for 2004-05. The Draft Budget is a detailed account of next year's spending plans setting out the proposed allocation of resources within portfolios."

The announcements today form a vital part of the annual Scottish Budget cycle. The Draft Budget precedes the Budget Bill the Executive will lay in Parliament early next year seeking Parliamentary authority for the budget for 2004-05.

This process is designed so that Parliament, other interested parties and the Scottish people can play a full part in the budget process through consultation and discussion.

Detailed background briefing by Finance Minister Andy Kerr

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 Parliament authorises the Executive's spending, it only does 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?

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 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.

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 2002-03?

£394 million.

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

We have discussed with the Finance Committee the five reasons why we might have unspent resources at the end of the financial year. We have agreed with them that we will set out our final EYF position at the end of a financial year in relation to these five elements:

Firstly, future spend: finance put aside against future, planned, spending commitments. £28 million in 2002-03.

Secondly, capital slippage: slippage in the implementation of some, mainly capital projects, for example delays in expenditure on roads due to the impact of foot and mouth disease. £101 million in 2002-03.

Thirdly, demand led changes: fluctuations in demand led budgets, for example Regional Selective Assistance where demand might dip in any one year. £33 million in 2002-03.

Fourthly, other variances including our modest contingency reserve and delayed project implementation, for example the money returned to our budget due to the closure of manufacturing plants. £170 million in 2002-03.

Finally, budgets controlled by other bodies such as water authorities and NHS boards. £62 million in 2002-03.

Anything else?

Besides EYF from our budgets, this year we've benefited significantly from 2 other sources. These amounts are excluded from the £394 million, because they do not come from any underspend on portfolio budgets:

A windfall of £196 million because the Treasury accepted the responsibility for funding more of the Housing Stock transfer. So that additional money will be carried forward also.

A proportion of non-domestic rate income is set aside for the cost of appeals. Income has been buoyant (up £148 million despite the freeze in rates) so this can now be made available for use now or later.

How does 2002-03 EYF compare with the previous year?

Procedures introduced in 2000-01 to monitor and control expenditure successfully reduced the balance from £718 million in 2000-01 to £643 million in 2001-02. The 2002-03 figure of £394 million represents just 1.9 per cent of our total £21 billion Budget. This is a significant reduction from last year's figure of £643 million.

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

Ministers can decide how EYF is used. This decision will depend very much on where the EYF has come from. For example, if the EYF is the result of the final bill for a project slipping a few weeks into a new financial year, the portfolio will usually be allowed to carry the provision forward to meet the cost - rather than having to find this money elsewhere within its budget. Where EYF is a result of less demand for a particular service than expected, the money can be reallocated to the Executive's priorities. This year, most portfolios have received 100% EYF to allow them not only to meet those costs that have fallen into the new financial year, but also to take forward the Partnership Agreement. These EYF amounts were then taken into account in determining the additional allocations to allow portfolios to meet all the Partnership Agreement commitments announced in the Finance Minister's statement on 11 ^th September.

What are you using the EYF for this time?

It is separate from the total of £525 million over 3 years being allocated today to portfolio budgets, and to the reserve for known future pressures on the budget. The allocation to each portfolio is set out in Table 0.09 of the Draft Budget 2004-05, which was published today, as follows:

Why was the EYF announcement not made before the summer recess?

With the election and the Partnership Agreement process, it was not possible to make an announcement before the recess and fulfil our commitment to telling Parliament first.

There were two main drivers here. Firstly, much of the financial out-turn data is not available until some months after the end of the financial year, for example, as external bodies complete their draft accounts.

Secondly, it is also usual to present information on the amount of carry-forward at the same time as setting out how the Executive intends to use these resources. With the election and Partnership Agreement process, Cabinet decisions on how carry-forward would be used were not finalised until mid-August.