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SCOTTISH EXECUTIVE

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Financial Issues Advisory Group Report
 
 
2. INTRODUCTION
 
2.1 This report sets out the final conclusions reached by the Financial Issues Advisory Group (FlAG) in relation to the financial procedures which, subject to Consultative Steering Group's (CSG) views, the Scottish Parliament might be invited to adopt following devolution. These recommendations build on the interim proposals FlAG put forward to the Consultative Steering Group in July (CSG(98)37 refers). They take account of the comments made by CSG members on that occasion and further work by FlAG, including consultation on the public audit arrangements for a devolved Scotland.
 
Background
 
2.2 To assist The Scottish Office in offering advice to the CSG on financial aspects of its remit, the Secretary of State established the Financial Issues Advisory Group in February 1998. This is because the Scotland Bill requires the Scottish Parliament to make rules to cover the preparation of its accounts, procedures for independent audit and arrangements for the submission of reports to the Scottish Parliament. In addition, there is a need to consider the procedures which the Parliament should adopt for approving expenditure, for using the tax varying power, for overseeing the work of the auditors and for scrutinising the outputs obtained from the expenditure. FlAG's remit is as follows:
  • "To assist The Scottish Office in developing for consideration by the Consultative Steering Group (CSG), proposals for the rules, procedures, standing orders and legislation which the Scottish Parliament might be invited to adopt for handling financial issues, taking account of the deliberations of the CSG and contributing to the draft report which the CSG is to submit to the Secretary of State by the end of 1998 to inform the preparation of draft standing orders."
 
2.3 FlAG considered the possibility of making recommendations on local government budgeting and accounting arrangements. However, it was thought that this would duplicate the work of the McIntosh Commission which is presently considering the workings of local government. In view of this, FlAG elected not to look at this matter.
 
2.4 Although FlAG's remit does not explicitly cover the inter-action between the Scottish Parliament and the Scottish Executive, the Group agreed it was essential to look at the wider picture.
 
2.5 The Scotland Act 1998 provides for the setting up of a Scottish Consolidated Fund (SCF); and for the Secretary of State for Scotland to make payments into it. The Act does not say how the amount of these payments is to be determined. The White Paper "Scotland's Parliament" explained that the total budget available to the Scottish Parliament (before the use of the tax varying power) will be determined administratively, using the so-called "Barnett Formula". FlAG envisages that the operation of this formula and thus the determination of the Parliament's budget, will become more transparent. Although the operation of the formula is largely automatic, there will probably be discussions between officials around the margins. At any event, FlAG expects that an explanation of how the budget has been determined will be available to the Parliament.
 
2.6 FlAG also notes that the budget determined under the Barnett Formula will not be the same as the funds paid by the Secretary of State into the SCF. Provision for local authority capital expenditure will, for example, count against that budget; but will not mean payments into the Fund. And various payments from the European institutions could be paid directly to the Scottish Executive. The amount of payments into the Fund by the Secretary of State will therefore depend on the allocation decisions made by Parliament itself. FlAG therefore observes that there will have to be effective liaison amongst officials both in the Scottish Administration and the UK government on the relationship between total budgets and the amount paid out in cash.
 
Approach
 
2.7 In its deliberations, FlAG has been guided by the key aims of the CSG. These are that:
  • the Scottish Parliament should embody and reflect the sharing of power between the people of Scotland, the legislators and the Scottish Executive;
  • the Scottish Executive should be accountable to the Scottish Parliament and the Scottish Parliament and Executive should be accountable to the people of Scotland;
  • the Scottish Parliament should be accessible, open, responsive and develop procedures which make possible a participative approach to the development, consideration and scrutiny of policies and legislation; and
  • the Scottish Parliament in its operation and appointments should recognise the need to promote equal opportunities for all.
 
2.8 FlAG also agreed to adopt a number of key objectives which have been endorsed by CSG in relation to the proposed financial procedures for the Parliament as follows:
  • to ensure probity in the handling of the public funds under the Scottish Parliament's control;
  • to help maximise the cost effectiveness of the expenditure under the Scottish Parliament's control;
  • to provide the information which the Parliament needs to make properly informed and timely decisions and to judge the probity and wider value of the actions of the Executive;
  • to provide the Scottish people with understandable, consistent, relevant and timely information; and
  • to contain the overhead and compliance costs associated with the procedures.
 
2.9 A list of Group members is at Annex B. The recommendations listed in this report are collective views.
 
2.10 FlAG has studied the financial systems of both the UK Parliament and overseas legislatures with the aim of identifying best practice. The Group has met 10 times (and CSG has had sight of FlAG's agendas). In addition, a sub-group met with members of the Expert Panel on Standing Orders (EXPSO), and a joint seminar was held in October with CSG, EXPSO, the Expert Panel on Information and Communications Technology and the Commission on Local Government and the Scottish Parliament.
 
Terminology
 
2.11 FlAG has established that those working in public finance in the UK make extensive use of specialist jargon. The Group has concluded that this tends to makes it difficult for the lay person (or those whose accountancy experience does not extend to central government work) to understand. Therefore FIAG recommends that in future, simpler, more widespread terms are used. This report is written using these. A glossary which compares the existing terms used in public finance with those recommended by FIAG is at Annex A.
 
Legislative requirements
 
2.12 A basic piece of legislation will be needed to set out the relationship between the Parliament and the Executive in relation to financial matters and to make provision for the Parliament to establish rules of financial procedure and practice. The Scotland Act 1998 requires that provisions required are made by or under an Act of the Scottish Parliament on the following matters:
  • for the making of payments from the Scottish Consolidated Fund;
  • for proper accounts to be prepared by the Scottish Ministers, the Lord Advocate and others to whom sums are paid out of the Scottish Consolidated Fund;
  • for the Scottish Ministers to prepare an account of payments into and out of the Fund;
  • for the Auditor General for Scotland to exercise, or ensure the exercise by other independent auditors, of his statutory audit and vfm functions;
  • for members of the staff of the Scottish Administration to be designated as answerable to the Parliament in respect of the expenditure and receipts of each part of the Scottish Administration;
  • for access to such documents as may reasonably be required for the purposes of audit;
  • for the publication of accounts and reports and for the laying of such documents before the Parliament; and for standing orders to provide for consideration of accounts and reports.
 
2.13 This is not intended to be exhaustive. Instead it sets out the minimum and soleaves the Parliament the maximum freedom to determine its own procedures. FlAG believes that Scottish Parliament will certainly want to go further than the bald list above.
 
2.14 A timetable of the Scottish Parliament's key tasks to the 1 April 2000 is set out at Annex K for information. The schedule is very tight. Transitional arrangements will require to be in place when MSPs are elected and the Scottish Parliament will require to make its rules and legislation in relation to payments from the Scottish Consolidated Fund by the end of December 1999 at the latest. This is to allow sufficient time for the approval of allocations in accordance with the rules to be made in the period before 31 March 2000. Other priorities will include the appointment of the Auditor General for Scotland and setting down standing orders for consideration of accounts.
 
The Existing System
 
2.15 In order that FlAG's proposals can be compared with the current UK system, the details of the Westminster system have been set out in Annex D.
 

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