Scottish Budget 2019-2020

Annex G

Scottish Government Operating Costs

A change in approach

This Budget document changes the way that the operating costs of the Scottish Government are presented. In previous Draft Budget documents, the Administration chapter set out the budget for the core Administration to support the Scottish Government and explained that where Scottish Government staff were implementing and delivering specific public services they were paid for from within individual portfolio budgets. 

In 2019-20, for the first time, the total operating costs for the Scottish Government are aligned with the portfolio budget that they support. The total operating costs for a portfolio are all the core Scottish Government staff and associated operating costs incurred by the portfolio, plus a share of the costs, such as accommodation, IT, legal services and HR, which cannot be readily attributed to a portfolio. 

This new approach replaces the dual system of Administration and portfolio budgets both funding operating costs. This will allow greater transparency and scrutiny of operating costs, particularly over time as we continue to present operating costs in this way in future years. This builds on our Open Government Financial Transparency commitment to clearly explain how public finances operate. 

The approach of having a separate Administration budget has existed since before devolution. Over time, as the role and purpose of the Scottish Government has evolved, this approach no longer supports the most efficient method of allocating and monitoring our staff-related resources. The Scottish Government now carries out an increasingly diverse set of tasks, including more delivery-related functions, which has resulted in more costs being funded through portfolio budgets. 

In previous years, the Administration budget was allocated across the Scottish Government after the Budget was agreed. This new approach allows the allocation of total operating costs to be considered as part of the budget process. As a result of the change in approach, a separate Administration budget no longer exists.

The 2019-20 portfolio total operating costs are summarised in Table G.01.

Table G.01: 2019-20 Total Operating Costs by Portfolio

Portfolio	£m
Health and Sport	53.9
Communities and Local Government	35.8
Finance, Economy and Fair Work	98.1
Education and Skills	37.3
Justice	27.5
Transport, Infrastructure and Connectivity	10.6
Environment, Climate Change and Land Reform	63.3
Rural Economy	89.0
Culture, Tourism and External Affairs	14.3
Social Security and Older People	68.1
Government Business and Constitutional Relations	9.9
Total	507.8

Overall, the total operating costs of the Scottish Government represents 1.2 per cent of the overall Scottish Budget (as measured by Total Managed Expenditure) of £42.539 billion. 

The Administration budget also had a capital element (£13.1 million in 2018-19). In 2019-20, the budget for corporate capital projects is allocated to the Finance, Economy and Fair Work portfolio. 

Our priorities

Through the operating cost budget, we will ensure that the organisation has the capacity and capability to support the delivery of the priority outcomes and objectives set by Ministers and the people of Scotland as well as to support the functions of government. 

In 2019-20, the operating cost budget will support the provision of staff to deliver the key priorities set out in portfolio chapters. 

It will also:

• secure maximum value for public money and invest further in the effectiveness of our people, systems and workplaces, building on significant efficiencies already achieved in procurement, estates, facilities and other operational costs; and
• ensure a high-performing, efficient and engaged workforce which exemplifies our commitment to Fair Work, diversity, flexible working and partnership with the recognised Trade Unions.

Portfolio chapters

This is the first time that total operating costs for the Scottish Government have been set out within each portfolio budget. This will give a clearer picture of the overall resources supporting each portfolio and of changes in these from year to year. This clarity is intended to support the new approach to budget scrutiny by the Scottish Parliament. 

For 2019-20, the introduction of this new approach impacts on the presentation of the tables within the portfolio chapters and there is a break in the time series between 2018-19 and 2019-20. The 2019-20 budget figures include all operating costs. For 2017-18 and 2018-19 the budget figures have not been adjusted and correspond to the budget figures set out in previous Draft Budget documents. This reflects the fact that in these years staffing costs were met from both individual portfolio budgets and the Administration budget. The analysis in the remainder of this Annex is intended to help explain the key changes and to support comparisons between years.

Changing nature of government

Scottish Government workforce numbers are regularly published as part of the Scottish Government Workforce Information^[1] publication. In the year to June 2018, the number of full time equivalent (FTE) staff has increased by 10 per cent. 

Workforce numbers have generally been growing in recent years to reflect the changing nature of Scottish Government’s business and the adoption of a range of new powers and responsibilities, and this is presented in Figure G.01. 

Figure G.01 – Directly employed staff in the Scottish Government, March 2015 to June 2018

The nature of the Scottish Government’s business has evolved from a purely spending organisation into a mature devolved administration that is both raising its own revenues through a range of devolved taxes and delivering public services in new areas such as Social Security. Some key areas of staffing growth within the Scottish Government in recent years are:

• Devolution of social security powers: The Scottish Government is responsible for the complex, multi-year implementation programme to devolve the new social security powers to Scotland. The Scottish Government workforce required to deliver this programme of work has grown in recent years but is expected to peak in 2019-20 and then reduce. The primary driver of the growth in workforce is securing the necessary skills and capacity for the implementation programme on a temporary basis. The temporary additional expenditure on implementation is supported by the transfer of £200 million from the UK Government under the Fiscal Framework to support the devolution of the new powers following the Scotland Act 2016. Social security implementation was always expected to be the largest draw on this transfer. 

• Increased devolution of powers from the UK Government: In addition to social security, significant tax powers alongside a range of other powers such as consumer protection, tribunals and the Crown Estate have been devolved in recent years. The implementation of all these powers has introduced additional responsibilities for the Scottish Government including developing new policy and legislation, establishing new public bodies and introducing new processes. In the area of taxation, for example, the Government has set up teams to provide tax policy advice to Ministers, and established the necessary arrangements to deliver the devolved taxes. This has included setting up the Scottish Fiscal Commission and Revenue Scotland and putting in place a service level agreement with HMRC for the administration of Scottish Income Tax. 

• Preparation for EU exit: There are now significant numbers of staff engaged in complex tasks preparing for the UK leaving the European Union, where substantial operational work is required alongside legislative preparations. In late summer 2018, around 420 people (FTE) in the Scottish Government were spending more than 50 per cent of their time on EU exit-related work. We anticipate further growth in staff time dedicated to EU exit over the remainder of the year and will pick this up in future monitoring exercises. There will also be a significant number of people who are carrying out EU exit-related work alongside other duties but not to the extent that it is over half their role. We are supporting vital preparations in several ways:
  • the operating cost budget for 2019-20 includes funding for work on EU exit, based on the needs identified across a range of teams, giving Scottish Government greater human capacity and flexibility to respond to EU exit. With the ongoing uncertainties, we are keeping the resourcing position under review;
  • building up an international trade and investment policy function and doubling Scottish Development International’s presence in Europe to help support the Scottish economy; and
  • ensuring that skilled legal staff are in place to deliver a functioning devolved statute book upon EU exit. 

Comparison of operating costs over time: consistent time series

We recognise that there may be an interest in producing a time series for previous years on the same basis as the 2019-20 figures. 

Table G.02 sets out outturn figures for operating costs for 2016-17 and 2017-18 as well as the provisional outturn for 2018-19 (this is the anticipated net end-year position for 2018-19, which includes Autumn Budget Revisions and proposed Spring Budget Revisions). These are our best estimates and have not previously been published. 

Table G.02: Operating costs – time series 

	2016–17[2] Outturn £m	2017–18 Outturn £m	2018–19 Provisional Outturn £m
Scottish Government Operating Costs	369	390	452
Administration	165	161	170
Portfolio	204	229	282

This shows the growth in operating costs in recent years. A significant driver of changes in operating costs will be the changes in the Scottish Government workforce described previously, with the full-year impact of in-year changes in workforce being in the following year’s operating costs budget. 

As a result of the UK Government’s spending on preparations for the UK’s exit from the EU, the Scottish Government received consequentials in 2018-19 and will do so again in 2019-20. In 2018-19 significant funding for EU exit preparations was provided to areas through Autumn Budget Revisions. In 2019-20, the operating cost budget already includes funding for work on EU exit, based on the needs identified. In allocating resources, we are prioritising areas that will be heavily impacted by EU exit such as Rural Economy and International Trade, as well as the implementation of new devolved social security powers.

Table G.03 shows how the 2018-19 Administration resource budget set out in the 2018-19 Draft Budget was allocated across portfolios. Scottish Government staff implementing and delivering specific public services were paid for from individual portfolio budgets where appropriate.

Table G.03: 2018-19 Administration Budget by Portfolio 

Portfolio	£m
Health and Sport	–
Communities and Local Government	15.4
Finance, Economy and Fair Work	25.3
Education and Skills	14.9
Justice	8.1
Transport, Infrastructure and Connectivity	2.9
Environment, Climate Change and Land Reform	6.7
Rural Economy	1.5
Culture, Tourism and External Affairs	6.4
Social Security and Older People	10.7
Government Business and Constitutional Relations	4.9
Support for all portfolios[3]	68.1
Total	164.9

Table G.04 sets out the comparison of operating costs by portfolio with the provisional outturn position in 2018-19. The 2018-19 portfolio figures are modelled to reflect the operating cost approach set out in this Annex for 2019-20, as the 2018-19 budgets are not held in this way. The area of greatest growth in operating costs is within the Social Security and Older People portfolio, enabling the devolution of social security powers.

Table G.04: Operating costs – 2018-19 (modelled) and 2019-20

Portfolio	2018-19 Provisional Outturn £m	2019-20 Budget £m
Health and Sport	51.6	53.9
Communities and Local Government	32.5	35.8
Finance, Economy and Fair Work	90.5	98.1
Education and Skills	36.8	37.3
Justice	25.7	27.5
Transport, Infrastructure and Connectivity	8.7	10.6
Environment, Climate Change and Land Reform	62.0	63.3
Rural Economy	85.3	89.0
Culture, Tourism and External Affairs	13.9	14.3
Social Security and Older People	36.6	68.1
Government Business and Constitutional Relations	8.1	9.9
Total	451.7	507.8

Footnotes

1 https://www.gov.scot/publications/workforce-information/

2 Data prior to 2016-17 are not available on a comparable basis. Prior to this, staffing budgets, apart from those funded through the Administration budget, were managed within portfolios. New, enhanced reporting processes were introduced in 2016-17 to support a consistent central overview of all staffing budgets.

3 Some corporate costs such as accommodation, IT, legal services and HR cannot be readily attributed to a portfolio. In 2018-19, they were largely funded from the Administration budget. In 2019-20, they are funded as part of total operating costs.