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Official Report (Hansard)

Session: 2008/2009

Date: 07 January 2009

COMMITTEE FOR FINANCE AND PERSONNEL

OFFICIAL REPORT

(Hansard)

December Monitoring Round

7 January 2009

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann 
Ms Jennifer McCann
Mr Declan O’Loan 
Mr Ian Paisley Jnr 
Ms Dawn Purvis

Witnesses:

Mr Michael Daly ) Department of Finance and Personnel 
Mr Paul Montgomery )

The Chairperson (Mr McLaughlin):

I welcome the officials from the Department of Finance and Personnel. Given the time lapse, I will ask them to take a few minutes to bring us up to speed.

I welcome Mr Michael Daly, who is the head of the central expenditure division, and Mr Paul Montgomery, who is also from that division. Both gentlemen have attended the Committee before. I wish you both a happy new year.

Michael, as time has lapsed since the Minister’s statement, it would be helpful if you gave us a brief update so that we understand the current situation from the outset.

Mr Michael Daly (Department of Finance and Personnel):

Happy new year to you, too, Chairman. As the Committee will be aware, the December monitoring round is, essentially, the last monitoring round during the financial year when substantial reallocations can be made. As with the other monitoring rounds, but most important during that of December, the approach focuses on the need to balance the over-commitment towards the end of the year on the one hand, while, on the other hand, trying to do as much as possible to meet the pressures that Departments have identified.

The December monitoring round needed to consider the economic downturn, which created pressures over and above those that would normally be identified by Departments.

I will turn first to the question of the available resources. Given Workplace 2010 and the fact that the capital assets realisation receipts were not going to come in, the Executive entered the December monitoring round with a £103 million capital expenditure over-commitment, which is higher than we would normally be comfortable with at this time of year. Therefore, reducing that figure as much as possible became a priority.

On current expenditure, the over-commitment of about £65 million at the start of the monitoring round was much more manageable. As part of the initial returns from Departments, about £73 million in current expenditure and £32 million in capital expenditure were declared as reduced requirements. We were able to add an additional £11 million into the pot as a result of the pre-Budget report, although £9·4 million of that was accelerated expenditure from 2010-11.

There was still limited room to manoeuvre to deal with the normal pressures, and at the same time do something about the economic downturn. The Minister asked Departments what else they could do through proactive slippage or by examining what else could be declared. That resulted in further easements of £36·5 million being declared. Overall, about £152 million in reduced requirements were made available; against that, however, Departments made substantial bids totalling almost £350 million.

The package that was announced by the Minister of Finance and Personnel in December included £45 million to focus specifically on the economic downturn. Members will be aware of the elements of that package, so I will not go through them again. A further £24 million was allocated as part of the normal routine December monitoring. A total of £69 million was allocated during the monitoring round for both those strands, which means that the Executive leave the December monitoring round with an over-commitment of £75 million in respect of current expenditure and £10 million in respect of capital expenditure. That is what we are heading into at the end of the year. A lengthy discussion of the December monitoring round covered a great deal of ground.

Mr O’Loan:

Could you repeat the over-commitment figures?

Mr Daly:

As we leave the monitoring round?

Mr O’Loan:

Yes.

Mr Daly:

The Executive left the December monitoring round with an over-commitment of £75 million in respect of current expenditure and £10 million in respect of capital expenditure.

Mr F McCann:

A great deal has been said about those arrangements both inside and outside the Assembly since 15 December. The impression was given by people in the Assembly not that Departments had declared underspends but that budgets had been directly cut, especially in housing. That information was provided in writing. Perhaps this is the wrong channel, but could the Committee be provided with information on how much money had been allocated to Departments during each of the monitoring rounds over the past year, especially on housing?

Mr Daly:

We can provide the Committee with that information, although I do not have detailed figures to hand. The information on the December monitoring round, which provided details on where the money came from and where it was being reallocated, was published by the Minister in a press release on 16 December.

Mr F McCann:

A great deal of debate took place before the cameras, and the impression was given, especially to the housing authorities, not that the relevant Department had declared an underspend but that direct cuts had been made to the housing budget.

I would like to see in front of me in black and white the amounts that have been given specifically to deal with housing issues.

The Chairperson:

I must give a health warning on that request. We can have a consolidated set of outcomes for each monitoring round up to the present, but we must be careful about the direct responsibility of the Committee for Social Development for those issues. The information may be a subheading in the table of figures that you request, and it would be reasonable for this Committee to ask for that.

Mr F McCann:

I accept your wise judgment.

The Chairperson:

We must respect the fact that another Committee has responsibility for those issues.

Mr F McCann:

The issues will be raised at that Committee also.

Mr Daly:

It is for each Committee to get information from its Department on bids, easements and reduced requirements. As the Chairperson suggested, the information about the Department for Social Development may already be with the Committee for Social Development.

The Chairperson:

It may be.

Mr F McCann:

The broad information can be given to this Committee.

The Chairperson:

Are you looking for the Department’s and this Committee’s information on the incremental effect of the monitoring rounds up to the present?

Mr F McCann:

Yes.

Ms Purvis:

The Executive concluded the September monitoring round with an over-commitment of £65 million; they have concluded the December monitoring round with an over-commitment of £75 million and a capital over-commitment of £10 million. Does that not suggest that the Department allocated money that was not available in the first place?

Mr Daly:

The approach to over-commitment recognises that there will be underspends in Departments, and that is an effort to minimise those underspends while making the best use of resources by allocating them early. There is a policy to reduce the over-commitment progressively, not just during the year but over subsequent years. The issue that you have focused on is that the over-commitment has increased slightly. As I said at the outset, a prudent approach was agreed by all members of the Executive to try to manage the over-commitment and reduce it to zero by the end of the year; the Executive also wanted to do what they could to meet pressing needs during that round.

Ms Purvis:

Are you certain that Departments will declare an underspend?

Mr Daly:

Every year Departments tell us that they will spend their full budget. Paul can tell us the amount of underspend last year.

Mr Paul Montgomery (Department of Finance and Personnel):

One hundred and seventy-six million pounds.

Mr Daly:

However, according to the forecast figures, all the money would be spent. It is inevitable that no matter how hard Departments try, there will always be some underspend. The objective is to get that as low as possible so that we can make the best use of resources; the over-commitment mechanism is one way of doing that. However, it is not an irresponsible approach, whereby Departments are allocated money that we do not have, and then the departmental expenditure limit is breached. That cannot happen.

Ms Purvis:

In the statement the Minister announced a small business rate-relief scheme, but he did not mention that it would be time-bound to three to five years. Why was that not mentioned?

Mr Daly:

I do not have an answer to that at the minute; I will get back to you.

Mr O’Loan:

Thank you for your briefing. You said that there were bids worth £350 million. I am particularly concerned about the problems in the housing sector as a result of the withholding of money that the Department for Social Development requested to make up its budget. DSD was trying to make up what was its intended budget at the start of the year because the non-sale of Housing Executive properties had created a gap in the budget. Did that £350 million worth of bids come under the same category? Were they gaps in the budget that were intended to be spent as part of the budget for the year or were they extra items that had come on stream?

Was there any item that was equivalent to DSD’s need to do what the Executive were committed to and what I think everyone around this table and throughout the political and community sectors wanted to happen — spend money on housing.

Mr Daly:

I do not know whether we have the details on that, but my colleague Paul may know. There will have been many new considerations because the Minister specifically asked for new measures to address the economic downturn.

Mr Montgomery:

In a normal monitoring round Departments outline a broad range of pressures. For example, the Department of Agriculture and Rural Development identified a need for £32 million for its farm nutrient management scheme, while the Department of Education identified £33·6 million of pressures. Those bids are all linked primarily to public service agreements (PSAs). When Departments make bids, we ask them how they are linked with PSAs and hence the Programme for Government.

Mr Daly:

There were two parts to the statement on the December monitoring round. There were measures that focused specifically on the economic downturn, which would have included measures such as the farm nutrient management scheme. There was also the £24 million of normal departmental bids that would have been expected at that time of year. It is a combination of both.

Mr O’Loan:

It is broadly accepted that there is a huge need for housing expenditure. There is massive stress on housing: many people need homes, and our construction industry is in serious trouble. Many small firms across Northern Ireland that specialise in small-scale building and maintenance work are now in a desperate situation.

It was shocking that, at this stage of the year, the Housing Executive made a sudden crisis announcement that only emergency maintenance will be carried out. Firms that had some expectation that work would continue until the end of the year now have to readjust dramatically. Important maintenance schemes that were to go ahead are to be put on hold. Firms will tell their workers — probably this week — that they are likely to be laid off. That is not make-believe; only last evening, I talked to a building firm that will be doing exactly that.

Ultimately, these are political decisions. However, in your perception, to what degree did the need for housing expenditure feature in the discussions on the priorities?

Mr Daly:

The simple answer is that I was not party to the discussions at the Executive’s meetings; all I can talk about are the agreed actions.

Mr O’Loan:

With respect, there must surely have been a great deal of preliminary discussion. When sums such as £30 million are being discussed, a decision is simply not made at one meeting. Although a final decision was made at a meeting on the morning that an announcement was made in the Assembly, I am sure that there was a great deal of discussion between officials and Ministers in the run-up to the announcement. My question is how strongly was the case for housing expenditure made and how seriously it was taken in the discussions before the announcement was made.

Mr Daly:

As I said, I was not party to the discussions. Those decisions were taken at the Executive meeting on the morning in question, and I was not at it. The matter was, as the Minister said in the Assembly, agreed unanimously. I do not think that it is for me to give my perception —

Mr O’Loan:

I pointed out that the decisions are political, and I am not inviting officials to enter the political arena.

The Chairperson:

Officials may explain policy decisions, but it is up to politicians to defend their decisions.

Mr O’Loan:

Absolutely, but we want decisions to be based on rational evidence. One would imagine that there would be a considerable amount of discussion, paperwork, making cases and movement backwards and forwards, particularly when such large sums are involved. It was that activity that I was asking about. I am surprised that I cannot get an answer. I have asked the official twice, and he has made his point.

You said that the February monitoring round is unlikely to be as productive as the December one, although there is some expectation that there will be adjustments in it. At the start of last year, a commitment was made to give the Department of Health, Social Services and Public Safety first claim on the first £20 million of resources that became free. It would help the construction industry enormously if a similar statement was made that gave the housing budget first claim on any money that becomes free in the February monitoring round. How likely is it that further capital will emerge in February? Would it be feasible to make a commitment to give the housing sector first claim on that money if there was sufficient political will to do so? If that happened, DSD and the Housing Executive could provide reassurance to the construction industry and keep some momentum going in the sector.

Mr Daly:

The priority in the February monitoring round will be to reduce over-commitments. There will always be some allocations made at the February monitoring round, but, as Committee members know from previous years, they are constrained by the Estimates position. Once the Supplementary Estimates have been completed, there comes a point where, depending on how their budgets are structured, money could be allocated to Departments but they would not be able to spend it. Therefore money can technically be allocated in the priorities agreed by the Executive.

Mr O’Loan:

I will return to the issue to try to establish the Committee’s position on it, although it might be helpful to do that now. If we had an agreed position, the Committee could write to the Department asking for a commitment that housing would be a priority in the February monitoring round. However, such a letter would depend on how far the Committee is prepared to go. There is universal support for the idea of assisting the construction industry, and asking for such a commitment would be a practical method of advancing that goal.

Mr Paisley Jnr:

That is the most ridiculous thing that I have ever heard. Are we supposed to look at issues with blinkers on and concentrate on only one Department, the Minister for which happens to be the member’s party colleague. Not only is that selfish, it is ridiculous. Do we ignore the health crisis and the major pressure on hospital beds and instead agree to the member’s half-baked notion because it suits the SDLP? I have never heard anything so ridiculous in all my life. We should look at the entire picture and the entirety of the figures and make a judgement on that basis, not with blinkered views that concentrate on one Department and one need.

The Chairperson:

Declan raised two issues: although one of them could be regarded as a selfish — albeit legitimate — interest, the broad point about providing support and assistance to the construction industry is an agreed Executive position. Therefore the Committee can use its remit to advance that goal. Advocating the case for a housing budget over all the other priorities is outwith the responsibility of the Committee; we might be forced to reconsider such a position if other representations emerged. We should therefore think about how we can address the issue, although perhaps not as directly as Declan would, understandably, wish us to.

Nevertheless, an issue exists about the broad economic scenario and the ability of the Executive — within finite resources — to provide support for the construction industry.

Mr Hamilton:

It may be a new year, but it is the same old story. The Committee would be unwise and would be stepping outside its remit by pinpointing a particular budget. I could make a party-political case about a failure in the allocation of resources that does not benefit a member of my party; for instance, the Department of Education, for which a capital bid was not allocated because of the Department for Regional Development, which itself failed to submit capital bids, all of which — had they been granted — would have assisted the construction industry.

I encourage the Minister to consider what might be done in later monitoring rounds to help the construction industry, which the Department of Finance and Personnel sponsors. There are many ways in which that industry might be assisted: however, pinpointing a Department in order to make a petty political point is unfortunate and regretful. I urge Declan to reconsider his proposal in the light of what has been said. The Committee can unite to encourage its Department and all other Departments to do what they can to assist the construction industry in general rather than suggest that it can be done in a particular way.

Mr O’Loan:

The Chairperson’s comments were constructive. The most positive elements of what has been said, particularly by Simon, suggest that progress can be made.

The Chairperson:

Therefore whatever cross-cutting applications apply, must the focus be on providing support to the construction industry in the present circumstances?

Mr O’Loan:

I am satisfied with whatever form of words is agreed.

The Committee Clerk:

The Committee may decide to agree a form of words today rather than wait a week. The proposal is that:

“The Committee calls on the Minister to take the opportunity of the February monitoring round to re-examine the practical measures which can be taken to further support the local construction industry.”

Mr O’Loan:

I am content with that.

The Chairperson:

Are members content?

Members indicated assent.

The Chairperson:

Simon, do you have a question?

Mr Hamilton:

Regular reasons given for delaying projects are slippage, delays or re-phasing. Discussions in previous monitoring rounds suggested that a performance-management framework would be put in place involving OFMDFM and DFP; although I do not think that it was agreed by the Executive. It was awaiting clearance, possibly in the Executive’s hiatus.

Has that framework been agreed? Will performance against that framework be used by a strategic stocktaker for the purpose of other monitoring rounds and for provisional out-turns?

Mr Daly:

There may be two issues involved in that. While Mr Hamilton was speaking, I was thinking of the delivery-tracking system for construction projects. Those lead to most slippage.

However, in the interim, we are still monitoring that on an ad hoc basis as part of the monitoring rounds.

Mr Hamilton:

Is there an update on the estimated underspend at this stage? You said that you are told that there will be no underspend, but we should be getting a clearer picture.

Mr Daly:

At this point, all we can go on is the formal position — the forecast out-turn that goes to this Committee every month and more or less shows that each Department will spend all its money. We must simply use our judgement, based on experience of recent years. One might expect that the underspend will be much lower this year — for example, the additional flexibilities afforded to the Department of Health, Social Services and Public Safety have created an expectation that its underspend will be reduced because the Department will be able to move money around more. The Departments started off the year in a much tighter position, but we were able to squeeze out a bit more during the December monitoring round. I cannot give a figure for what I expect the underspend to be, but the general feeling was that we left this monitoring round with a prudent over-commitment, so we are expecting that at least.

Mr Hamilton:

It would be true that the likely underspend would be worse had there not been the slippage and delay that was mentioned, such as with sale of assets or surplus land.

Mr Daly:

I am sorry; are you saying that the underspend would be worse?

Mr Hamilton:

It would be worse at the end of the year, would it not?

Mr Daly:

I am sorry; I did not quite follow the question.

Mr Hamilton:

If Departments had not sold the assets or land or if some of the projects progressed, the underspend —

Mr Daly:

If projects do not slip, Departments will spend the money.

The Chairperson:

Capital investment projects can be proposed but then suffer slippage or delays; however, this may be considered an exceptional circumstance. At the beginning of the year, receipts were anticipated from the sale of surplus assets, but because of changing market conditions those receipts were not realised. The question is clear: had those receipts been realised, would that have resulted in much higher underspend declarations?

Mr Daly:

Realising the receipts would have allowed projects to progress. If those projects slipped, there would be a bigger underspend; however, the issue is more complex than that. If a Department sells an asset, it will get the receipts that allow it to proceed with a project; however, if a project slips for some other reason, the Department is left with the receipts.

The Chairperson:

It is possible to go round in circles discussing this issue, but the question is whether any Departments are reporting to DFP that projects were held up because the Departments did not get the receipts from sales; or, coming towards the end of the financial year, were Departments operating at a level of expenditure that still reflected an underspend that would have been even higher had they been selling off surplus assets? Does the fact that they could not sell off the surplus assets mask underperformance in their management of the resources that they bid for at the start of the year? That is a critical question.

Mr Montgomery:

There will be an element of both. However, a high gross expenditure would suggest that underperformance had not been masked and Departments have still had to manage their resources. It is a complicated issue because it is difficult to tell whether, if the assets had been sold and resources had consequently become available, those resources would have been reallocated to other projects throughout the year, which would not have —

The Chairperson:

OK, but that situation did not arise because the sales were not realised. We would expect to be able to identify projects that either could not progress or that had to be slowed down because there were insufficient resources. If that was not the case, that leads to the conclusion that there was overbidding — Departments requested more money than they could spend.

This is the first year of real financial management of projects. We are trying to reach the point, over a reasonable time, where we are measuring projects against stated targets and are identifying underperformance, poor management standards and any lack of accountability. Changing circumstances have directly affected the goal that we stated at the beginning of the financial year; our ambitions to dispose of surplus assets could not be realised because of the change in market conditions.

However, that should not prevent us from factoring that into any analysis of how well Departments are managing their projects and their budgets.

Mr Montgomery:

That will be reflected in the reduced requirements, because Departments have two options: they can either proactively slip projects, as the Department of Health, Social Services and Public Safety said that it was doing because it did not sell the Belvoir Park site, which was worth £50 million; it simply said that it would proactively reprogramme —

The Chairperson:

That is what I am getting at: were there reprogramming consequences?

Mr Montgomery:

That is what Departments told us. The test will be in the level of reduced requirements. For example, in capital for the year to date, the level of reduced requirements is about £50 million or £60 million compared to about £150 million last year. That suggests that Departments are better at delivery than they were in 2008.

Mr Paisley Jnr:

The Department of Finance and Personnel does not tell Departments that if they are not spending on a project they must hand back the amount agreed for it. Each Department identifies where there is an underspend, produces the figure of underspend and suggests that it can hand that amount back. Is that correct?

Mr Daly:

There are guidelines for each monitoring round, which Paul mentioned. If Departments have a reduced requirement — in other words, they simply cannot spend the money on the purposes for which it was allocated by the Executive — that money must be handed back, subject to some de minimis thresholds.

Alternatively, a Department may say that it wants to complete a certain project but that it does not have enough money to do so but that it will proactively reduce another project and look to the Executive to pass that across. The initial submissions will come to the Department of Finance and Personnel, and our colleagues in supply will challenge the Departments on those figures in order to make sure that the figures are robust. Perhaps the figures should be higher or something has been put forward under one category when it should be in another.

You are right that DFP does not go into Departments to get the figures, but it has a challenge function, and that is one of the main jobs of our colleagues in the DFP supply branch.

Mr Paisley Jnr:

Therefore there is a duty on each Department to identify reduced requirements.

Mr Daly:

Where there is a reduced requirement —

Mr Paisley Jnr:

Therefore to characterise the return of underspends as smash-and-grab is nonsense.

Mr Daly:

A reduced requirement does not even have to be approved by a Minister: it must go back. Without that ground rule, our room to manoeuvre in monitoring rounds would be much reduced. An important element of monitoring rounds is considering the resources that have become available whereby a Department can still do what it set out to do at the beginning of the year, but it can now do it with less money. If a project has slipped into another financial year, the Executive could consider the funds that were allocated to that project and decide whether those funds should be reallocated.

The other aspect is the proactive management reduction that Mr Montgomery mentioned, where a Department will consciously decide, if the Executive allow money to be reallocated, that it will proactively slip a project. The Executive will regard that as a package. They would not take the proactive reduction and allocate it to another area; it is taken as a package.

Mr Paisley Jnr:

If there is a reduced requirement of, say £10 million, it seems that Departments will make an additional bid in more or less the same region. One Department has returned £38·7 million only to ask for £85·2 million back. It appears that the original calculations that that Department made in its budget were completely skewed. I am referring to the Department for Social Development.

That is an incredible miscalculation on its part. Other Departments perhaps handed back £15 million or £20 million, and then made bids for similar sums of money. The Department for Social Development made a bid for three times the amount of money that it handed back.

Is there any way that you could inform a Department about a level of mismanagement or incompetence that results in inaccurate figures? Handing back £38 million and then demanding £85 million is extreme, and it is an incredible way to run a Department.

Mr Daly:

It is not possible for me to go through each Department’s position today, but I do not think that there is a direct link between what a Department surrenders and the amount for which it bids. Basically, a Department will surrender what it no longer needs and it will bid for what it thinks it will need. If a Department bids for significantly more than what it surrendered, it is a question of studying why the Department bid for that amount.

It is not just a matter of surrendering £10 million and bidding for £10 million; the submission must be studied to ascertain why the money was surrendered and what the Department now seeks. As was often the case in this monitoring round, the additional requirements could be for new projects — Departments were encouraged to come up with new ideas to address the economic downturn. Alternatively, it could simply be because there are large capital receipts. It is not possible to make a general broad-brush assessment. One needs to investigate each bid.

Mr Paisley Jnr:

In the real world, if a person told their accountant that they were unable to spend their money in a certain area, but had a huge shortfall that happened to be three times the amount that they did not spend, the accountant would probably accuse that person of cooking the books. When the Department for Social Development’s figures are studied, it appears that there is an effort to try to cook the books.

Mr Daly:

All that DFP will do is take the bids and challenge them at face value — that is it. Apart from DFP scrutiny, I assume that the Committee for Social Development studied that bid. Currently, we take the information that we receive, and we scrutinise and challenge it. When the bids of all of the Departments are made, the DFP central finance group will assess those.

Mr Paisley Jnr:

In an earlier answer, you mentioned the issue of the failure to obtain capital receipts. From the Department for Social Development’s figures, my calculation is that it failed to realise something like £54 million in capital receipts. One was a failure to complete on a sale in my constituency. Another was a failure to complete on a sale in Belfast, just off the Ormeau Road, where the Department had identified land and property that was for sale, had those agreed and then — perhaps due to a level of incompetence — the Department failed to complete on those.

Is there any way in which that can be factored into the Department? DSD should be told that it cannot keep running round, looking to be bailed out every time that it makes a mess of its management.

Mr Daly:

Those judgements will be made by the Executive in the monitoring round when they consider the bids from all of the Departments. When I and my colleagues receive all of the bids, all that we can do is scrutinise and challenge them, and try to make a robust assessment as to their validity. We will then put them forward on that basis.

Ms J McCann:

To a degree, you have answered part of the question that I planned to ask in relation to the issue of forward planning by Departments. In most of the monitoring rounds this year, there have been many underspends and reduced requirements across quite a number of Departments. I know that we talked about a system being put in place with a penalty so that Departments are encouraged to spend what they bid for. The economic downturn will obviously have an effect on priorities.

Was the Performance and Efficiency Delivery Unit (PEDU) established for that reason? How is that body progressing? You mentioned a £150 million reduced requirement across Departments. Will you update the Committee on that matter?

The Department of Finance and Personnel is encouraging Departments that have underspends or reduced requirements to deposit extra money, which the Executive will prioritise and allocate, to a central pool. I am conscious that some important bids have been submitted, yet only some money has been allocated. Overall, less money has been allocated than was bid for. Does any money remain in that central pot?

Mr Daly:

There is no central pool of resources. December monitoring has shown that the Executive — as Ms Purvis said — have overcommitted. During the February monitoring round, our first priority will be to try to reduce that overcommitment, because, at the end of the year, the Executive will be unable to reach their departmental expenditure limit ( DEL). Subject to the constraints of the spring Supplementary Estimates, there will be scope for further allocations. However, at this point in the year, resources must go towards balancing the Executive’s books.

Although I do not have specific details of PEDU’s work, it has done much work in planning, which the Minister perhaps mentioned. Ms McCann mentioned penalties and encouraging Departments to spend. As we have mentioned at previous Committee meetings, it is difficult to know whom to penalise. If a Department does not spend, should we reduce its budget? Such a measure will penalise citizens, because it will reduce expenditure. We want to improve financial management and encourage Departments to seek value for money. It is emotive to talk about penalties.

Ms J McCann:

I am not talking about taking money away from communities. I want the money to be delivered correctly to communities. Given the amount of underspend and reduced requirements, that cannot be happening. As the Committee has discussed previously, Departments do not seem to plan in advance. Do Departments submit bids that are higher than necessary? Do they not manage their budgets properly? Are Departments deliberately asking for too much money?

Mr Daly:

It is a complex issue. As we have outlined to the Committee during the past year, our approach is to try to improve financial management and planning, and the Department of Finance and Personnel is taking the lead on a programme of work to that effect. I doubt that Departments deliberately bid for twice the amount of money that they require. They bid for the amount that they believe they can spend. However, during the year, reasons may arise that prevent that spending.

The Chairperson:

That programme aims to educate Departments. I think that the previous Finance Minister Peter Robinson — I may be incorrect on that fact — discussed incentives, awards and sanctions. He talked about sanctions at departmental or organisational levels and at individual senior management levels.

Is work being taken forward on that? We must address the target of raising the standard of project, financial and programme management. Education is a key element, but we also need to hold people to account and reward those who meet our expectations.

Mr Daly:

Education is aimed at dealing with organisational matters. Sanctions must be imposed in a way that does not adversely affect the people that we are trying to serve. My colleagues have explained to the Committee what may or may not be built into the contracts of individual senior civil servants. Under my personal performance agreement, I am required to minimise underspends in my area. I do not know what is contained in other people’s contracts.

Dr Farry:

Where do the December and February monitoring rounds stand in relation to the Budget stocktake statement that we expect to be made shortly? Presumably, the Budget stocktake will deal with allocations in the next two financial years? Is there any prospect of the statement addressing the tail end of the current financial year?

Mr Daly:

The stocktake is focused solely on next year and the year after. The next monitoring round deals purely with the current financial year.

Dr Farry:

In a sense, the stocktake statement will act as a glorified monitoring round. Changes that would undermine Departments’ baselines will not be made.

Mr Daly:

The stocktake statement will set out the Finance Minister and the Executive’s assessment as we move into next year and the year after. The statement will provide an opportunity for debate and discussion on the issues that will be addressed as part of the monitoring rounds in the coming year. Committees and Members will have an opportunity to express their views well in advance of those monitoring rounds. Under the normal arrangements, a statement is made after a monitoring round is completed. In this case, Members and Committees will have an opportunity to feed into the debate at an early stage.

Dr Farry:

The wider issues facing the construction industry — particularly pump-priming and delivering on capital — are relevant to the process.

Mr Daly:

Those issues are relevant to both the next monitoring round and the next financial year. There can be difficulties with in-year assessments of construction projects, for example. There can be artificial distinctions when comparing the current financial year and the next financial year. In reality, the difference is sometimes only a matter of weeks. For example, failure to let a contract in March looks bad, but that contract could be let in April, which is a different financial year. That will feed into the stocktake process.

The Chairperson:

There are examples of that happening through agreements negotiated with Departments at Executive level.

Dr Farry:

In their bids, the Housing Executive specified the need to address the £36 million shortfall in Housing Executive capital sales receipts. Today, we have been given correspondence in relation to the loss of £175 million of Workplace 2010 receipts. The correspondence states that that matter was to be addressed in the December monitoring round, but that is not reflected in the figures.

Mr Daly:

Such shortfalls result in an overcommitment of capital and that has been dealt with.

Dr Farry:

Am I correct then that such shortfalls are absorbed into the system and that the Department of Finance and Personnel does not have to make a formal bid?

Mr Montgomery:

The Workplace 2010 shortfall was taken account of in advance of the monitoring round. It was identified in the Minister’s September monitoring round, so the Department was not required to make a bid.

Dr Farry:

The other issue that arises from the figures is the expenditure on fuel credit. Some £15 million is currently allocated to DSD for fuel credit, and, this month, the Assembly will consider emergency legislation that would enable that £15 million to be spent.

The legislation would give the First Minister and the deputy First Minister the discretion to decide how that money is allocated and spent. How does that draft legislation stand alongside the allocation of £15 million that has been set aside for DSD? Do the figures in the monitoring round settle the issue of which Department will deliver fuel credit, or could that subsequently be overturned by the emergency legislation?

Mr Daly:

The question of the delivery mechanism for fuel credit is still under discussion. At the time of the December monitoring round, I anticipated that it would be delivered by DSD. Now, I am not sure. I am not involved in discussions that are taking place between DSD and OFMDFM.

Dr Farry:

Therefore, in that sense, that is a draft figure — a provisional allocation — which could, eventually, be superseded by decisions that are made elsewhere?

Mr Montgomery:

It is a definite allocation. The matter of which Department receives the allocation is still under consideration.

Dr Farry:

The information that has been presented to us is that £15 million will be allocated to DSD.

Mr Montgomery:

That was the understanding at the time, and is the most likely outcome.

Dr Farry:

Therefore, it is, in a sense, a provisional allocation based on an expectation?

The Chairperson:

The Budget figure is a fixed allocated sum. The question that must be resolved is the Department to which it will be allocated.

Mr Daly:

The matter of how it will be delivered must also be resolved. Several delivery mechanisms could be used.

Dr Farry:

The report that has been tabled states that the allocation will go to DSD. Can you clarify whether it will go to DSD or whether it has been allocated to DSD provisionally and could, perhaps, go to another Department?

Mr Daly:

That depends on the final decision on how fuel credit is delivered. The allocation could go to another Department. The main issue, however, is that it will go to the recipient. The matter that is currently being discussed is the mechanism by which it will be delivered — the best mechanism by which to do that. The allocation of £15 million will not change.

Dr Farry:

I appreciate that. My final question relates to out-turn figures that have also been tabled today. Basically, all Departments claim that they will spend their entire Budget allocations by the end of the year. In some cases, overspend is anticipated. Is that cause for concern? I appreciate that, in practice, those are mythical figures and there will, in fact, be massive underspend. However, some Departments anticipate overspend in both capital and revenue.

Mr Montgomery:

The total forecast out-turn figures were provided to us by 9 December. That preceded the December monitoring round. Therefore, the DE figure of £14·5 million, for example, does not account for the fact that DE has offered up as proactive slippage the purchase of the Clooney site. Therefore, in the latest forecast, which is due in the next couple of days, we expect the total forecast out-turn for DE to be reduced to £200 million.

Dr Farry:

Can the revised figures from the December monitoring round be circulated among Committee members?

Mr Daly:

Revised figures are sent to the Committee as a matter of course each month.

Dr Farry:

Of course. As regards the out-turn figures and actual figures for November and, presumably, until the end of December, what percentage of the Budget has been spent up to the present, compared with that of other years? That percentage can give us an indication of the likely degree of expenditure by the end of the financial year.

Mr Montgomery:

We can get you those figures. My reading is that the overall percentage is broadly similar to that of previous years. Generally, there tends to be an end-of-year splurge.

Dr Farry:

Therefore, there has not been any sense of a change in the profile of expenditure due to the current economic situation? Essentially, Departments continue to spend money with a similar profile to that of the past several years.

The Chairperson:

That includes the end-of-year splurge.

Dr Farry:

The end-of-year splurge will undoubtedly come.

My final comment is that institutions almost give out a mixed message on expenditure. On one hand, there is a temptation — or a hope, in some respects — that there will be underspend to deal with planned overcommitments. On the other hand, by the same token, the message is put out that money must be spent in order to pump-prime the economy, both with revenue and, particularly, with capital. It is important to try to reconcile those messages, because it appears that Departments work towards two contradictory goals.

Mr Daly:

I appreciate that point.

Mr Montgomery:

We hope for an appropriate level of underspend. We hope that there is some underspend, but that it does not exceed 1·5% or 2%.

The Chairperson:

The financial assistance Bill is being considered by the Committee of the Office of the First Minister and the deputy First Minister. Does the Bill have implications for the role and function of the Department of Finance and Personnel?

Mr Daly:

We must consider that matter. The Financial Assistance Bill might commit organisations to expenditure, so, given that Budget implications are a matter for DFP, the Department will be involved somewhere along the line.

The Chairperson:

The Bill will give the Executive significant new powers to provide direct assistance in exceptional circumstances. How does DFP envisage that assistance being funded?

Mr Daly:

Although the Financial Assistance Bill will be designed to provide the necessary powers to make expenditure through schemes at short notice, the budgetary consequences of any expenditure are matters for the Finance Minister and the normal budgetary and monitoring-round processes — determining such consequences is not a separate process — and those processes will provide the vehicles for allocating expenditure.

The Chairperson:

Could the new powers be used, for example, to take pre-emptive measures, such as those that I put to the Minister in my December statement on behalf of the Committee? In addition, given the inevitable squeeze that the Treasury will apply to end-year flexibility in response to changing economic circumstances, are contingency measures being considered to avoid having to resort to that marketplace? Will the Financial Assistance Bill provide the Executive with greater flexibility and scope?

Mr Daly:

It will provide additional flexibility by providing the Executive with powers to address crises. However, if underspends emerge, subject to estimate constraints, there are already wide-ranging powers to encourage expenditure. The purpose of the Financial Assistance Bill is to deal with specific circumstances in which powers are inadequate or do not exist. One must remember that the Executive already have wide-ranging powers to encourage expenditure.

The Chairperson:

Although the Bill will provide additional powers that will enable the Executive to direct assistance in a way that they cannot now do, we have, nevertheless, surrendered underspend money to the end-year flexibility marketplace, and, in the current circumstances, we have received assurances about access to that money. In the past, that was — and in the future it will become — more problematic. Will the additional powers in the Bill provide us with an exceptional ability to ensure that less or no money is surrendered back to the Treasury, and do we have access to that end-year flexibility money?

Mr Daly:

Any money that is surrendered through end-year flexibility goes into EYF stock, which is parked for a couple of years and must be renegotiated with the Treasury. In exceptional circumstances, the Financial Assistance Bill will allow the Executive to allocate and spend money in areas in which it does not currently have power, and that is precisely how it will be used to pay fuel credits. The objective of the Bill is not to reduce underspends; in this instance, it is to pay fuel credits.

The Chairperson:

No, I do not think that that should be the objective, but it might well be the outcome, if it became apparent that resources remained unused against the backdrop of a societal crisis that would have to be addressed under the aegis of the proposed Financial Assistance Bill. Can you, as one Minister described it, raid those budgets, rather than surrender the money into the end-year flexibility process?

Mr Daly:

The proposed Financial Assistance Bill is not about raiding budgets; it is about providing a legislative vehicle to make payments and a scheme that allows payments to be made. If, for example, we had neither the statutory powers to make payments in a certain circumstance nor a Financial Assistance Bill, there were sufficient other calls that would have used that money up, as some members have mentioned. I do not think that it would have a big impact on underspend; it is aimed at allowing the Executive the flexibility to respond urgently to a crisis in circumstances in which they have inadequate powers.

The Chairperson:

I am not sure whether you are giving us a guarantee that money will never again be surrendered to end-year flexibility.

Mr Daly:

No. As I said earlier, there will always be some degree of underspend. That is the nature of the business. The emphasis is on trying to make that underspend as small as possible, so that, without breaching the departmental expenditure limit, as much money as possible is released so that it can be put to good use.

The Chairperson:

Thank you for your assistance, Michael. You have had every member of the Committee asking questions on this subject.

Are members content that the associated tables that have been provided be copied and distributed to the other Statutory Committees for information?

Members indicated assent.

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