The Scottish Government

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INTRODUCTION

This document sets out the Executive's spending plans for 2006-07. The figures given here reflect the resources which were allocated to portfolios as a result of Spending Review 2004, as well as subsequent additions and transfers.

The high-level strategy for the Scottish Executive's Budget for 2005-08 was published in Building a Better Scotland: Spending Proposals 2005-2008: Enterprise, Opportunity, Fairness on 29 September 2004. This document introduced new targets for the Spending Review period, as well as setting out the priorities for each portfolio. It also emphasised the Executive's commitment to the cross-cutting themes of growing the economy; closing the opportunity gap/promoting equality; and sustainable development. More information is given on these themes later in the Introduction, as well as in each portfolio chapter.

Public spending

The Executive's Total Managed Expenditure ( TME) amounts to £29.2 billion in 2006-07, a real terms increase of 3.9% over 2005-06. This funding derives from three sources. Around 90% is Scotland's share of UK government spending; 7% comes from business rates; and 2% is from Europe, through Structural Funds or schemes such as Common Agricultural Policy market support. The majority of funding from the UK government is calculated using the Barnett formula. This gives Scotland a population-based share of changes in planned spending on comparable UK programmes. The Executive is then free to allocate the funding as it sees fit to meet Scottish needs and priorities.

Table 0.01 sets out TME by portfolio from 2002-03 to 2007-08. Table 0.02 presents the same information in 'real terms' at 2005-06 prices. Figures for other years have been calculated using HM Treasury's GDP deflators as at 30 June 2005. All numbers in the Draft Budget are presented on a full resource basis, and so include depreciation and cost of capital charges where necessary. This gives a more accurate assessment of the rate at which resources - in particular capital assets - are being used. The rate at which cost of capital is calculated was changed in 2003-04 from 6% to 3.5%.

TME is made up of the Departmental Expenditure Limit ( DEL) and Annually Managed Expenditure ( AME). DEL makes up 85.6% of the Executive's budget. It is the element of the budget which is determined by the Barnett Formula and is set in the Spending Review for the next three years. AME makes up the remaining 14.4% of the budget. It is set each year and contains those elements of expenditure that are not readily predictable - such as demand-led programmes under the Common Agricultural Policy. From 2003-04, resources for cost of capital and depreciation moved into DEL, with the exception of the cost of capital for Scotland's trunk road network which remains in AME. Tables 0.03 and 0.04 set out DEL and AME by portfolio from 2002-03 to 2007-08.

DEL is split between operating and capital budgets. To meet the Executive's investment targets, portfolios are free to move funding from operating to capital budgets, but not from capital to operating. Tables 0.05 and 0.06 show the operating and capital budgets from 2002-03 to 2007-08.

Table 0.01 Total Managed Expenditure by portfolio

Note:
1. Figures include grants for School Buildings/ PPP which are not included in the Finance and Public Service Reform numbers.

Table 0.02 Total Managed Expenditure by portfolio in real terms (2005-06 prices)

Table 0.03 Departmental Expenditure Limits

Table 0.04 Annually Managed Expenditure

Table 0.05 DEL operating budget

Table 0.06 DEL capital budget

The public sector procurement of assets is also supported by Public Private Partnerships ( PPPs). Table 0.07 shows the capital spending equivalent of signed PPP deals. Table 0.08 shows the estimated payments to be made under PPP contracts.

Table 0.07 Estimate of capital spending by the private sector (signed deals)

Table 0.08 Estimated payments under PPP contracts

Note:
1. These figures comprise PPP projects undertaken by local authorities from a 1998 bidding round and so include waste management and early schools PPP projects. The schools PPP projects from the 2001 bidding round appear under the Education and Young People section.

End Year Flexibility

End Year Flexibility ( EYF) enables the carry-over of money not spent in the previous financial year. It stops wasteful spending at the end of the year and is, therefore, an essential part of sound financial management. EYF is applied to all DEL. At the end of 2004-05, the Executive carried forward £254m - just under 1% of the total budget.

Table 0.09 shows the additions for EYF in 2005-06. These allocations are not included in the detailed numbers provided in the portfolio chapters to allow a comparison of budgets on a consistent basis. Details of how EYF will be allocated within portfolios will be set out in the forthcoming supporting documents to the Autumn and Spring Budget Revisions.

Table 0.09 End year flexibility

Central Unallocated Provision

Central Unallocated Provision (the CUP) was introduced at Autumn Budget Revision 2004. The CUP enables portfolios to set aside part of the current financial year's budget to meet known pressures in future years and also allows Ministers to pursue options to bring forward spending, if they wish to do so.

Table 0.10 shows transfers to the CUP made by portfolios for 2005-06. These figures are not included in the detailed numbers provided in the portfolio chapters to allow a comparison of budgets on a consistent basis.

Table 0.10 Transfers to Central Unallocated Provision by Portfolio

Portfolio chapters

The tables in the portfolio chapters set out in detail the Executive's spending plans up to 2007-08. The plans are largely the same as those published in Draft Budget 2005-06, with explanations given for any significant changes. Where spending is described as increasing by £10/20m this means that, in comparison to the allocations in Draft Budget 2005-06, spending will increase by £10m in 2006-07 and by £20m in 2007-08. There are increases in some budget lines in 2005-06. Where this is the case, spending is described as increasing by £5/10/20m - that is, by £5m in 2005-06, £10m in 2006-07 and £20m in 2007-08.

Where relevant, portfolio chapters contain tables showing figures for Grant Aided Expenditure ( GAE) related to the portfolio. These numbers do not form part of portfolio expenditure, but are included to provide a more complete picture of expenditure on core services supported by the Executive. However, it should be noted that GAEs are not budgets, but rather a basis for distribution of grant through Aggregate External Finance ( AEF). Local authorities are free to allocate the available resources to each service on the basis of local needs and priorities.

The portfolio chapters also give more information on what our allocations mean - showing what we will invest in and what we will deliver in return.

Efficient Government delivery

The Scottish Executive's Efficient Government Plan, published on 29 November 2004 ( Building a Better Scotland: Efficient Government - Securing Efficiency, Effectiveness and Productivity) contains a series of commitments by Scottish Ministers relating to efficiency savings, including measures to deliver at least £745m of annually recurring cash-releasing efficiency savings and at least £300m of recurring time-releasing efficiency savings by 2007-08.

The Efficient Government Plan also states that "we will make Efficient Government central to the organisational arrangements of the Executive and public bodies, locking in continuous improvement. Individual project plans will be integrated into the annual round of business and improvement planning, and into the Executive's performance management systems. Departmental plans will set out how Efficient Government will be taken forward across the Scottish public sector, and will include expectations for efficiency gains from each and every public body".

An efficiency improvement is any activity which improves the ratio of outputs to inputs. This can either be achieved by producing the same outputs with fewer inputs or by producing more or better outputs for the same inputs. Producing the same outputs with fewer inputs is generally termed as a "cash-releasing" efficiency saving and producing more or better outputs for the same inputs is generally classed as a "time-releasing" efficiency saving.

Efficiency savings should have a clear baseline and a well defined methodology for measuring them and expressing the value of efficiency improvements in cash terms. This requires both inputs and outputs to be measured in order to demonstrate that a genuine efficiency improvement has been made and that service has not simply been cut or compromised.

Continually seeking more efficient ways of working should be a key strand of work for all public sector organisations. We are working with public sector organisations across Scotland as part of our ongoing efforts to identify where there is scope for more efficiency, and to deliver savings which can be reinvested in improving other public services.

The completed technical notes for identified cash-releasing savings were published on 31 March 2005. Completed technical notes for identified time-releasing savings and for further cash-releasing savings will be published in mid-2005.

Cross-cutting themes

Growing the Economy

Growing the economy is our top priority. A successful economy is key to future prosperity and a pre-requisite for building first class public services and social justice.

The Executive's vision for economic development is set out in The Framework for Economic Development in Scotland ( FEDS). FEDS identifies productivity as the critical factor in improving Scotland's economic growth and living standards and sets out the five key elements in raising productivity as:

• education and skills;

• R&D and innovation;

• entrepreneurial dynamism;

• electronic and physical infrastructure; and

• managing public resources more efficiently.

The Executive's role is to create the right environment for business to flourish and to facilitate economic growth by providing the necessary physical, human and electronic infrastructure.

Our commitment to growing the economy is driven by the vision set out in FEDS and extends across all policies and programmes. It is reflected, for example, in the increases in funding allocated to our colleges and universities to enhance skills and knowledge, and in the investment in transport to improve our rail and road infrastructure and promote business and economic growth. Further details of the actions we are taking to support economic growth are given in each portfolio chapter.

Closing the Opportunity Gap

We are committed to tackling poverty and disadvantage by Closing the Opportunity Gap - increasing access to services and opportunities for all in society and closing the gap between our most disadvantaged communities and the Scottish average. Our key objectives were announced on 12 July 2004 and are:

• to increase the chances of sustained employment for vulnerable and disadvantaged groups - in order to lift them permanently out of poverty;

• to improve the confidence and skills of the most disadvantaged children and young people - in order to provide them with the greatest chance of avoiding poverty when they leave school;

• to reduce the vulnerability of low income families to financial exclusion and multiple debts - in order to prevent them becoming over-indebted and/or to lift them out of poverty;

• to regenerate the most disadvantaged neighbourhoods - in order that people living there can take advantage of job opportunities and improve their quality of life;

• to increase the rate of improvement of the health status of people living in the most deprived communities - in order to improve their quality of life, including their employability prospects; and

• to improve access to high quality services for the most disadvantaged groups and individuals in rural communities - in order to improve their quality of life and enhance their access to opportunity.

Our objectives are supported by ten more detailed targets announced on 9 December 2004, ranging across Ministerial portfolios. Further details can be found at www.scotland.gov.uk/closingtheopportunitygap.

Our aim is to build a Scotland of strong, inclusive communities, where child poverty is a thing of the past, and where everyone, young or old, whatever their circumstances, can live with dignity. This document explains how each portfolio is working to extend opportunity and to allow people to fulfil their potential.

Equality

Equality underpins everything done by the Scottish Executive. Promoting equality and tackling discrimination and inequality is of fundamental importance to growing Scotland's economy; delivering excellent public services; supporting stronger, safer communities; and developing a confident, democratic Scotland. This budget document reflects the work being undertaken across the Executive on equality, and this is highlighted in the specific portfolio chapters.

We are continuing to mainstream equality across the Executive and the public sector. On budgeting, an important part of this work is being taken forward in conjunction with the Equality Proofing Budgets and Policy Advisory Group. This Group includes representatives from equality organisations and Executive officials and looks at how we should consider equality in the budget process.

We are working with the Group to develop tools for gender analysis of the budget, and there are two pilots underway - starting with the issues of smoking cessation and prevention and sport with specific reference to young people in Scotland. The work has focused on whether there are gender differences in response to initiatives in both these areas and on making connections that underline the cross-cutting nature of inequality. In addition, the pilot work will track the process of policy formulation and resource allocation with respect to these two initiatives. More information about this work is contained in the portfolio chapters on Health and Community Care and Tourism, Culture and Sport. The work of the pilots will be outlined in an action plan to be published separately. There will be regular updates within the budget documents tracking progress.

Sustainable development

Every portfolio makes a contribution towards sustainable development. Our goal - to enable all people throughout the world to satisfy their basic needs and enjoy a better quality of life without compromising the quality of future generations - was set out in the UK's shared framework for sustainable development One future - different paths. This Draft Budget explains how each portfolio is putting sustainable development concerns at the heart of public policy. Our commitment extends across all policies and programmes, and will contribute directly to the achievement of targets within the priority areas, for instance by promoting more sustainable and healthier lifestyles.

Scottish Variable Rate

The Agreement between the Executive and the Parliament's Finance Committee on the budget process requires the Scottish Ministers to give an indication of whether or not they plan to use the tax varying powers in the following financial year.

As set out in the Partnership Agreement, the Executive has made clear that it will not use the powers to vary the rate of income tax in this Parliament. In order to avoid pre-empting decisions on this issue by any subsequent administration, the Executive has agreed with the Inland Revenue that the infrastructure necessary to use the tax-varying powers will be kept in a condition where, after a May election, the powers could be introduced from the start of the new financial year the next April. Following the initial investment made during the last Parliament to bring the infrastructure to this condition, the cost of maintaining this state of readiness is £50,000 a year.

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