REPORT ON THE EXECUTIVE’S DRAFT BUDGET 2008-2011
DEPARTMENTAL RESPONSE TO KEY CONCLUSIONS AND RECOMMENDATIONS
1. Given the pressing need to raise productivity and living standards in NI, the Committee welcomes the increased focus on economic growth, evident in the draft Programme for Government (PfG) and draft Budget, whilst also being mindful of the importance of the Executive’s other priorities, including investment in infrastructure, promotion of health, tolerance and inclusion, modernisation of public services and protection of the environment. (Paragraph 7)
The Department notes the Committee’s comments.
2. The Committee considers that the new emphasis on the economy necessitates the early publication of a new Regional Economic Strategy which sets out how the Executive’s high level goals will be realised. This should include a cross-cutting implementation plan for taking forward the four productivity drivers of Skills, Enterprise, Innovation and Infrastructure. In addition, it should include challenging and measurable targets and milestones for rebalancing the economy and closing the productivity and income gaps between NI and GB. (Paragraph 8)
The Terms of Reference for the second Varney Review indicate that it will be examining the incentives for growth in Northern Ireland which fall within the responsibility of the Northern Ireland Executive and the UK Government with a view to expanding the private sector and improving competitiveness.
Given the nature of Sir David’s second review the Regional Economic Strategy will be revised after its conclusion. This will ensure that the final RES incorporates not only the priorities as set out in the Programme for Government but also Varney. The revised RES will also detail the policies and programmes that the departments will have in place to deliver the required changes to productivity and competitiveness. The departments specific PSA’s will be provided in an annex to assist in assessing the various departmental policy context.
Information and Process
3. The Committee echoes the call, made by a number of the Assembly statutory committees, for a closer alignment between the revised Budget and the revised PfG than exists in the draft documents; in particular a more visible linkage is required between PfG priorities and goals, Public Service Agreement objectives and the allocations, departmental objectives and spending areas in the Budget. The Committee also considers that there would be benefit, in terms of transparency and scrutiny, from fuller and more standardised information on departments’ bids and their outcomes being published as part of the draft Budget process. (Paragraph 152)
The final Budget document provides a greater linkage with the Programme for Government through, for example, referencing the relevant Public Service Agreements within the Departmental Chapters. The key allocations made at a strategic level to departments and spending programmes also reflect the key priorities agreed by the Executive in its Programme for Government. These linkages were highlighted by the Finance Minister in his Statements to the Assembly on the draft and final Budget proposals.
However, the Budget document is strategic in nature and it is not always possible to link overall allocation in the manner suggested In addition, while departments link their bids for resources to specific prioritised areas of activity, these are often revised once the final Budget allocation has been confirmed.
4. The Committee considers that the future budget process and timetable needs to be settled early in 2008 to enable the Assembly statutory committees to schedule the necessary scrutiny into their work programmes and thereby provide departments with notice in terms of the future information and briefing requirements of committees. (Paragraph 153)
The timetable for the Budget 2008-11 process was later than that followed in previous exercises. However, this simply reflected the fact that the restored Executive needed sufficient time to consider the wide range of complex issues involved ahead of being able to agree a draft Budget for consultation.
The Minister is currently considering the timetable and arrangements for 2008.
Departmental Budget Allocations
5. In terms of the draft budget allocations for individual departments, the Committee recommends that, in finalising the Budget 2008 – 11, the Minister of Finance and Personnel and the wider Executive take on board the conclusions and recommendations contained in the substantive submissions from each of the Assembly statutory committees, which have been included as appendices to this report. (Paragraph 154)
All of the responses submitted as part of the consultation process had a major influence on the Executive as it set about the process of rolling forward the Programme for Government, Investment Strategy and agreeing a revised Budget for 2008-11. However, in light of the number of responses received and the broad range of issues raised it is not possible for any Budget process to address all of the issues raised in light of the level of funding available.
Strategic and Cross-cutting Issues
6. The Committee believes that the 3% across-the-board efficiency target could present a greater challenge for some departments than for others. The nature and structure of a department’s budget, and the particular demands thereon, will have a bearing in this regard. The Committee also considers that some departments may, conversely, be in a position to achieve efficiencies higher than the 3% target and, therefore, calls on the Department of Finance and Personnel (DFP) to keep under review the comparative impact which the efficiency target is having on individual departments in delivering public services. (Paragraph 160)
At the point of restoration of Devolved Government in Northern Ireland on 8 May 2007, work by Northern Ireland Departments in the context of the Comprehensive Spending Review was already well underway thus the Executive agreed, for the purposes of the Budget 2008-11, to continue to operate on the basis of the 3% per annum efficiency savings target inherited from Direct Rule Ministers.
Departments detail what actions Departments will take to achieve their efficiency target. It is acknowledged that the challenge of the 3% to individual Departments may differ and so this aspect will be kept under review.
7. Given that the targeted efficiency savings on resource spend have already been removed from departmental starting baselines, the Committee is concerned that there will be a risk to spending on frontline services, from any slippage in achieving the planned efficiencies. The Committee understands that it is planned to publish the final departmental Efficiency Delivery Plans alongside the Final Budget. The Assembly statutory committees will therefore have a vital role to play in scrutinising and monitoring the progress by their respective departments in achieving the planned efficiencies. (Paragraph 161)
The Efficiency Delivery Plans set out the actions that Departments will be taking to deliver the 3% per annum target set by the Executive. These Plans provide greater assurance that (a) the targeted level of savings will be achieved and (b) there will not be a negative impact on the delivery of priority frontline services.
8. The Committee recognises the importance to the Budget of the efficiency drive underpinning the programme of Civil Service reform and has been advised that the benefits will be measured using a series of key performance indicators, which will be integrated within departmental business planning. There will be an important role, therefore, for Assembly statutory committees in monitoring the progress on the various reform projects in their respective departments. (Paragraph 164)
The Delivery and Innovation Division (DID) of the Department of Finance and Personnel has developed a two-phased approach to realising the benefits of the NICS reform programmes and projects. Phase 1 involves standardising the approach to benefits realisation across the NICS, and a Benefits Model has been produced which includes measurable benefits.
For Phase 2, a team has been put in place, the Reform Delivery Unit, to provide support and monitor the progress on benefits realisation across the other NICS Departments, and to report to the Oversight Board and Permanent Secretaries Group on the achievement of those benefits. In addition the team will work with Business Areas across DFP to enable departmental business transformation and support the Department’s Business Areas to realise the benefits of Civil Service Reform. This work will involve identifying corporate planning targets for Civil Service Reform Benefits Realisation within Business Areas and incorporating them into the Business Areas’ plans.
9. The Committee considers that there would be a benefit, in terms of monitoring and accountability, from having the projected value-for-money savings from each of the Civil Service reform projects quantified and disaggregated from the overall 3% cumulative efficiency target. (Paragraph 165)
The process of benefits realisation will extend beyond the Budget period as projects are implemented and service delivery is stabilised and consequently qualitative and quantitative value for money savings are expected to materialise over the longer term. The overarching benefits realisation framework currently being developed by the Department can be made available to the Committee following consideration by the Departmental Board and Minister.
10. The Committee sees scope for widening the customer base of the shared service centres beyond the Northern Ireland Civil Service (NICS) to cover Non Departmental Public Bodies and other public bodies. Whilst the Committee accepts that the current focus is on establishing the shared service centres to offer an NICS-wide service, it nonetheless believes that the wider potential should be pursued with a view to maximising efficiencies across the public sector. Moreover, the Committee considers that the contractual arrangements with the providers of the shared service centres should include provision to ensure that NICS shares in the benefits from any future expansion in the customer base of the centres. (Paragraph 166)
The scope to extend civil service shared services across a wider customer base is feasible. However, further work would be required to ascertain both the financial and legal implications of extending coverage in this way. The level of business change, consensus building and change management that would be required to do this should not be underestimated and would require a full scoping exercise to identify the optimal methodology to roll out services and to identify the likely timeframe involved.
The Strategic Partnering Agreement for Electronic Human Resource Services (the Contract) provides for a contractual opt in arrangement using formal changes control procedures for all non-departmental public bodies (NDPBs) and any associated bodies and any other Northern Ireland public sector body to receive any or all of the Services provide under the Contract with the consent of the Authority. The charging model is based on banded employee numbers with a decreasing monthly charge per capita for the shared service centre charge. Furthermore the mechanism for securing value for money through Share of Surplus Return on Turnover and Benchmarking is also embedded within the Contract.
Whilst Account NI's initial focus is on the migration and stabilisation of the NICS departments to the new Account NI service, both the Contractor and the Authority (DFP/NICS) would be keen to pursue opportunities to provide this service to other public sector bodies.
11. The Committee recognises the importance of the capital receipt from Workplace 2010 to the allocations in the draft Budget but is concerned that the projected capital receipt has varied considerably in recent months. As such, it is necessary to reiterate the call, made in the Committee’s First Report on Workplace 2010 and Location of Public Sector Jobs, for the Department to obtain an accurate and up-to-date market valuation of the properties to be transferred to the Private Sector Partner, thereby maximising the capital receipt. (Paragraph 168)
The capital receipt from Workplace 2010 continues to be forecast as £175 million at this point in the procurement process. In response to the Committee's first report on Workplace 2010 an independent valuation of a significant sample of the transferring estate was undertaken by Osborne King with a valuation date of February 2008. The results of this valuation were provided to the Department on 14th February. These valuations will be used by both bidders along with a range of other values, including the projected £175 million, in preparing their bids for the Best and Final Offer stage of the competition. On receipt of the bids the Department will conduct a full evaluation after which decisions on the final amount of the capital receipt will be made.
12. Whilst commending the progress in achieving the target of £250m in savings on public procurement in the three years up to 31 March 2008, the Committee calls for a new target to be included in the revised Budget, which should include a monetary value for savings to be achieved by the end of March 2011. (Paragraph 170)
The Procurement Board is responsible for setting targets in respect of procurement performance. The Board has not set an overall financial target for the period 2008-2011 in relation to value for money (VFM) gains from procurement. Rather, the emphasis is on individual Departments targeting VFM gains from procurement in the context of their Departmental Efficiency Plans.
A VFM target to achieve gains of at least 3% of the value of contracts awarded on behalf of customer Departments over the coming 3 year period has been set for the Department’s Central Procurement Directorate. The Directorate and other Centres of Procurement Excellence will also work with Departments, at the request of the Procurement Board, to develop Procurement Plans that will identify value for money gains and will feed into individual Departmental Efficiency Plans.
13. The Committee sees considerable potential in the proposal to establish the Performance and Efficiency Delivery Unit (PEDU), as this could provide the Executive with a tool for driving out additional efficiencies and provide individual Ministers with a means for raising performance and delivery within their departments. However, the Committee recommends that, before launching the initiative formally, DFP should resolve the issues which the Committee has identified to date. These include: the terms of reference within which PEDU will operate, which should ensure that the Unit does not contradict or cut across the work of DFP Supply or the Northern Ireland Audit Office; the protocols to provide for consensus-based engagement and positive relationships between PEDU and departments; approaches to offering incentives to gain commitment from departments; clear accountability arrangements and robust reporting mechanisms and targets that will enable the Unit’s performance to be measured and assessed. (Paragraph 177)
The Department notes the Committee’s comments. The Minister is currently finalising plans for PEDU. Once these are completed officials will brief the Committee on the issues raised.
14. The Committee deems that, in terms of current/resource underspend, the average figure of 2% across departments in 2006/07 is unacceptable and recommends that a target is set for reducing current underspend to an average of not more than 1.5% across departments in 2008/09 and to not more than 1% thereafter. On capital underspend, the Committee accepts that this can fluctuate due to unforeseen delays and matters which can be outside the control of departments. Nonetheless, the Committee would point out that delays in capital projects can add significantly, both directly and indirectly, to overall costs and calls for steps to be taken to ensure the effective planning and management of capital projects, with a view to minimising delays and resultant underspend in this area. (Paragraph 184)
The Department of Finance and Personnel is committed to supporting reductions in the level of end year underspends as part of the broader programme of work to improve financial management in Departments.
The Finance Minister continues to highlight this as an issue of concern and has asked Statutory Committees to take a greater role in the monitoring of expenditure by there respective Departments.
There are no plans, at this stage, to set a specific target across departments as this might be considered a lower limit whilst the incentive should be to go further. In addition, a common target across Departments would not reflect the different circumstances in which Departments operate, which necessarily means that there will be variations in the rates of underspend. The Department is also conscious of the need to avoid creating an environment in which such a target could, in practice, lead to a tension between achieving value for money and the target itself. Rather, the emphasis should be on delivering value for money public services.
15. The Committee accepts the need to reduce overcommitment to provide greater in-year flexibility and capacity to respond to in-year unforeseen pressures. However, the Committee has concerns with the requirement, which applies from 2007/08, for DFP to agree access to the NI stock of current and capital End Year Flexibility (EYF) in each financial year with Treasury. The Committee considers that this restriction on access to EYF attaches uncertainty and risk to monies received originally as an NI entitlement under the Barnett formula. This, combined with the decision to reduce overcommitment, means that there is now an even greater onus on departments to manage public finances in a way which achieves the highest possible level of spend within authorised limits and maximises the impact from available resources. In the view of the Committee, this will require the eradication of the culture of underspend within departments, which has been evident in recent years. (Paragraph 185)
The restriction in our access to End Year Flexibility undoubtedly constrains the ability of NI Departments to fully utilise the resources made available to the Executive from the Barnett formula. However it also important to recognise that EYF restrictions are in place for a purpose i.e. maintenance of the Chancellor of the Exchequer’s Golden Rule with the linkage to macro-economic stability.
The Finance Minister will continue to press the case for the best possible level of access to our EYF stock recognising that the best course of action is for Departments to spend the funding made available to them in the specified time period so that EYF access becomes less of an issue.
Further details regarding the approach to improving financial management and hence reducing the level of underspend are set in the response to Recommendation 16.
16. The Committee believes that DFP should give a high priority to driving forward the financial management agenda across NICS, including implementing the recommendations in the PKF Report, to raise the priority given to financial forecasting and monitoring within departments. The Committee recommends that the Assembly statutory committees should include budget and financial scrutiny as an integral part of their work programmes. In particular, the ongoing scrutiny of the in-year quarterly monitoring rounds – both before the returns are made to DFP and once the results are announced – will, inter alia, enable the committees to gauge the standard of financial management within their respective departments. To facilitate this process departments should provide their committees with the necessary financial information on a timely basis and in an accessible format. (Paragraph 187)
Apart from the heightened interest in routine monitoring of actual spend against budgets, priority has been given in recent months to ensuring that the key recommendations of the PKF Review of Forecasting and Monitoring a re being taken forward in all Northern Ireland departments as part of a wider financial management agenda. A mandatory Senior Civil Service Masterclass on Financial Management was held in November and a more detailed half-day high-level budget management seminar and discussion forum is currently being rolled forward for all non-finance SCS members.
In addition, to ensure departmental ownership and a coordinated approach to improving financial management in the medium to longer term, a finance director workshop was held in December to provide an opportunity for departmental finance directors to discuss ideas and views and to agree a shared vision for the future. A more detailed action plan has been developed and is currently being taken forward.
DFP’s Central Finance Group has also been assisting the Centre for Applied Learning in an overall review of the finance training provided across the NICS.
A further outcome of the finance director workshop in December was the establishment of a finance director sub-group to consider the nature and quality of financial information used by departmental boards.
Separately, newly invigorated training is soon to be launched on relationships with arm’s length bodies for staff in departments and public bodies.
Officials are currently working with the Committee to take forward the recommendation of ensuring that the necessary financial information is received on a timely basis and in an accessible format.
17. Given the level of concern that has arisen regarding the future funding for cross-cutting programmes, such as Children & Young People, the Committee calls for further assurance in the revised Budget that these important spending areas will not lose priority and that any new funding arrangements do not hinder access by the voluntary and community sector. (Paragraph 190)
The Children and Young People’s Funding Package (CYPFP) was initiated by the then Secretary of State, as part of the 2005 Budget process.
Central funds by their nature are intended to provide short term funding, pending evaluation of the underlying projects and programmes funded.
Rather than continue to earmark funding separately for such important issues, which experience has shown can lead to delays in the roll out of programmes and associated spending, the Draft Budget proposed that all such measures should be fully integrated within departmental budgets.
Ministers in the relevant lead departments are currently taking decisions on the extent to which they will fund the associated programmes, taking account of issues such as relative prioritisation and effectiveness.
The integration of the funding for the projects previously supported by Central funds into departmental budgets is not intended to hinder access by the voluntary and community sector. Decisions regarding the provision of public services should be based on efficiency and effectiveness, to deliver the best possible level of service to all the people of Northern Ireland, rather than the location or source of funding.
18. The Committee recommends that DFP considers further the scope for modifying the industrial derating scheme in the longer term to encourage increased business activity in areas which lead to higher productivity (e.g. research & development, export marketing). In the event that the scheme cannot be modified directly without contravening EC state aid rules, the Committee would support the approach, suggested in the Economic Research Institute of Northern Ireland (ERINI) report, of the Executive taking the opportunity of the review of industrial derating to build a new concordat between industry and government, which will specify what each can expect from the other in obligation and support. (Paragraph 194)
Industrial Derating would almost certainly contravene EU State aid rules if introduced today. It is allowed to continue by virtue of the fact that it is pre-accession aid (predating the UK’s entry into the Common Market in 1973). Any amendment to the scheme, for example through targeting it at specific sectors, is likely to contravene such rules.
The Department agrees that an Industry-Government Concordat could provide a useful forum to discuss the wider issues affecting business.
In the first instance, however, it would seem more appropriate that this is an issue which is taken forward by DETI, given their more direct responsibility for industry. The Finance Minister has however indicated that he would be happy to contribute to such a forum as and when appropriate.
19. The Committee welcomes the assurance from DFP that the focus of Capital Realisation Taskforce will be as much on improving the use of the existing asset base – through, for example, identifying public land for social housing – as it will be on identifying assets for disposal. The Committee calls for consideration to be given to the scope for permitting departments to retain a share of the proceeds from disposals of their excess assets. Such an approach would act as an incentive for proactive engagement by departments whilst also ensuring that the Executive’s priorities are addressed. The Committee also calls for appropriate engagement with local communities, both in terms of the social impact of the sale of individual sites and also on the identification of under-utilised sites for alternative public use. (Paragraph 201)
On the issue of an incentive, it could be counterproductive if additional funding raised from the disposal of assets were to be ring-fenced for the use of the department which formerly ‘owned’ the asset as the departments with the greater need for additional funding are not always those with the greatest potential to realise capital assets. To avoid such a scenario all monies arising from the disposals of assets are a matter for the Executive to consider either as part of the budget or in-year monitoring processes.
The Department accepts that there should be an appropriate level of engagement with local communities.
20. The Committee considers that there is insufficient detail in the draft Budget document (and in the Investment Strategy) on the financing of the planned capital investment. The Committee recommends that, in the interests of transparency, the revised document should include information on the extent to which overall capital investment will be based on anticipated PFI, the extent to which the capital allocations for individual departments will draw on Reinvestment and Reform Initiative (RRI) borrowing, together with details of accumulated debt under RRI and the projected level of loan charges during 2008 – 11. (Paragraph 203)
The Capital allocations in the Budget are based upon continued access to the £200 million borrowing facility available as part of the RRI in each of the Budget years. The NI Executive’s ability to utilise this facility has been greatly enhanced as a consequence of negotiations with the Treasury to allow a significant change to the original RRI agreement.
The level of PFI by departments is dependent on the outcome from a value for money assessment in respect of individual projects. These are often not completed at the time of the Budget and hence it is not possible to provide this information as part of the Budget.
21. The Committee believes that the ongoing debate on the options for funding devolution in Scotland also has the potential to open up the issue of the future of the Barnett formula for NI. As such, the Committee considers that the Executive should assess the implications of this scenario and prepare accordingly. (Paragraph 205)
The Department notes the Committee’s comments. This issue will be kept under consideration.