The Scottish Government's Medium-Term Financial Strategy

Annex B: RSR Update

Context

This Medium-Term Financial Strategy (MTFS) demonstrates that the fiscal environment has become even more challenging than when the Resource Spending Review (RSR) was published (May 2022).

Considering this, and the wider changed landscape, a review of the commitments set out in the RSR has been undertaken to prioritise actions which remain both relevant and likely to have a meaningful positive impact on fiscal sustainability. Following this review, some commitments have been reset, and others deprioritised. A summary is provided for each of the workstreams below.

The fiscal context and drivers for reform and efficiencies are clear, and while effective public service reform is a cornerstone of fiscal sustainability, there is no predetermined savings target for the overall programme. This allows each proposal to be considered on its own merit, with proportionate appraisal and evaluation of the financial case to ensure it contributes to the overarching fiscal sustainability objective.

While it is recognised that many of the activities under the core workstreams and in the major reform programmes will take time to implement and to deliver benefits, it is critical that progress is effectively quantified and tracked. This will include providing regular updates to the Scottish Parliament Finance and Public Administration Committee on the workstreams set out.

Public Service Reform/Public Bodies

The RSR stated that "this review begins a journey of reform to meet the most pressing issues facing Scotland over the medium-term", in reference to both larger-scale reform and smaller, quicker immediate action to drive efficiencies, both of which are necessary to support fiscal sustainability. Reform is an ongoing programme of change to better meet people's needs and reduce demand over time. This will improve outcomes, and support fiscally sustainable public services. The Scottish Government committed to this programme in the recently published Policy Prospectus.

Specific work is underway with Public Bodies being asked to pursue a twin-track approach, working with their sponsors in government to:

• Demonstrate the actions required to increase efficiency and joined up service delivery to meet budgetary allocations in the short term,
• Identify both short and longer-term opportunities for fundamental organisational and service delivery change which directs collective resources towards shared priorities. This includes ongoing collaboration on delivering place based, person-centred public services which improve outcomes and reduce future demand. In the face of ongoing and significant budgetary challenges, this is vital for long-term fiscal sustainability.
• Articulate what barriers must be addressed to enable bodies to deliver efficiency and reform, in both the short and longer-term.

The fiscal context and drivers for reform are clear. Effective public service and public body reform is a cornerstone of future fiscal sustainability. This work will inform the 2024-25 Scottish Budget, informing spending decisions including what will be necessary to support the longer-term reform of our public services. The RSR continued the expectation that public bodies would deliver recurring annual efficiencies of at least 3%. Since the publication of the RSR, the fiscal realities facing public bodies have changed significantly. Rather than maintaining this universal target, it is recognised that public bodies are best placed to assess both the opportunities and action that must be taken to ensure fiscal sustainability, with budgetary allocations providing the parameters for this.

Importantly, this Government's ambitions for public service reform include, but also go beyond, the five areas of focus around efficiencies (as set out below) and the public bodies landscape that were set out in the RSR. Public bodies and their sponsors in government will be considering all options for delivering efficiency in these five areas and in addition revenue raising, managing pay sustainability and service model transformation.

The aim, as set out in the 2023-24 Scottish Budget, is to achieve fiscally sustainable person-centred public services, which over time both improve outcomes and reduce inequalities of outcome across communities in Scotland.

Efficiency Levers

Digital

The RSR recognised the importance of digital reform, and this continues to progress through a programme to deliver digital connectivity and inclusion across Scotland, contributing to sustainable economic growth and the development of a strong digital economy.

Central to achieving this is the Digital Programme, which intends to deliver a new approach that looks beyond individual services and programmes, and considers the overall functioning and capability of the system. This work will create conscious system design and management to enable the delivery of modern digital public services that are easy to access, predictable and effective.

The programme of work is underway through a workstream which will iteratively deliver a common methodology for digital transformation, focused on the design, data, architecture, capability, commercial, and programme and project management components of the change process.

Another key aspect of the programme which is currently being scoped is to establish Scottish Government level control of digital investments through a prioritisation process, based on business need and contribution to digital public services. This would deliver a portfolio of programmes and projects which is right-sized to available funds and capability. Progress continues to be made in individual public bodies, such as Disclosure Scotland where Robotic Process Automation is being progressed to reduce the manual administrative burden and innovate using more cost effective AI techniques. The Independent Living Fund Scotland is an early adopter of the Scottish Government's Digital Payments Programme, which is intended to roll out to additional partners over the coming year.

Shared Services

The RSR committed the Scottish Government to working with public bodies to consider where a more collaborative approach to service delivery could drive efficiencies as well as capitalising on the experience of partnership working throughout the COVID-19 pandemic. This work is ongoing, as it is recognised that the most significant scope for 'quick wins' lies through such collaborative working, realising opportunities for more efficient joint operations and joined-up service delivery that directs collective resources towards shared priorities. That work takes place in the context of wider considerations about public body reform supported by the Scottish Government.

The response to the work with public bodies set out in section 2 has been positive about the opportunities for bodies to work together on common ambitions. For example, Scottish Enterprise, Highlands and Islands Enterprise and South of Scotland Enterprise have been working together to identify options for greater inter-agency collaboration, more collaborative and shared approaches to common functions, collaborative procurement, shared delivery and shared services. The Scottish Delivery Bodies Group is also taking forward a shared service feasibility review, considering where savings, improved performance and improved service delivery can be achieved, through shared approaches.

The Scottish Government remains committed to the prioritisation of the in-flight programme that will transform its own delivery of shared services including HR, Finance and some payment functions. Reliance on outdated systems to produce data on people and finances is neither efficient nor effective, hence the actions to make this a strategic priority for 2023 and beyond. That will produce benefits for both the Scottish Government and over 30 bodies that take those services. The HR function is due to be implemented during 2023-24 with the Finance function coming on-stream towards the start of 2024-25. Changes to working practices are part of that complex programme of transformation, aligned to workstreams that will use cloud-based services, increasing the resilience, and ease of updating HR and Finance functions. A significant programme to support this large change programme is ongoing with that support to external customers being a priority.

Public Sector Estates

The RSR reaffirmed the Scottish Government commitment to minimise cost and maximise best value in relation to the public sector estate. A Single Scottish Estate programme of work is underway that supports this commitment to enable a more efficient approach to public sector property management to deliver value for money, save public funds, reduce the public sector property footprint and support progress towards net zero estate targets. The work will build on existing good practice and further collaborative estate management to deliver the right size and quality of estate in the right places across all publicly funded bodies in Scotland.

This estates programme of work will support publicly funded bodies to work across organisational boundaries to co-locate, share on-site services wherever possible, make best use of technology and changes in working practices to optimise the estate footprint and release surplus space. For example, Registers of Scotland hybrid working has reduced their required footprint enabling them to sub-let space to other public sector organisations and provide an estate management service for all tenants.

The Scottish Government is also progressing co-location opportunities, working with organisations across the Scottish Ministers' estate. This includes Scottish Children's Reporter Administration, Police Investigations & Review Commissioner for Scotland and Scottish Courts Service sharing one building in Hamilton, using their combined strength to achieve a cost effective lease and working well together in the building. The Scottish Government's Glasgow office project is also progressing, involving the consolidation of the office estate of Scottish Government and four of its public bodies that would see the Glasgow estate reduce from five separate buildings to a new single, net zero carbon building, making significant savings on space and costs.

A place based approach, working with stakeholders, will continue to identify opportunities for short, medium and longer-term improvements. Governance to oversee this work will shortly be introduced and stakeholders updated on this work.

The Scottish Government will continue to deliver expert advice and lead pathfinder solutions as the programme builds on existing work to innovate, transform and improve Scottish Ministers' estate.

Procurement

The RSR recognised the need for a Procurement Strategy for Scotland, and this was published in April 2023. It sets out that the focus of procurement is not only on efficiencies and savings. It is on maximising the impact of spend on sustainable outcomes. Compliance with the sustainable procurement duty is the mechanism through which public procurement contributes to and tracks its contribution to Scottish Government's overarching purpose with each contracting authority required to set out in its procurement strategy how it intends to comply with the duty, and report annually on progress.

Further improvements are being delivered through the Scottish Government led 'Plan for the Future' programme, governed by the cross-sector Public Procurement Group. This covers a number of national and Scottish Government programmes and workstreams to drive and underpin improvement, including:

• Future e-Procurement Strategy to maximise efficiency, effectiveness and reporting capability across Scotland
• Maximising the Impact of Procurement Programme, aimed at using the full flexibility of the rules to deliver on Scottish Government priorities and underpin continuous improvement
• Milestones and progress reports tracked through Scottish Government PMO, reporting regularly to the governance board, steering group and key stakeholders.

Grant Management

The RSR identified a cross-cutting opportunity to improve the management of grants, with work ongoing to review value for money within grants. It is critical that all expenditure is managed in a transparent and effective way, and grants are no exception to this.

In the initial stages of the review, the opportunity themes identified are:

• Improved Data and Management Information
• Aggregation of similar funds
• Collaborative relationship management

A long term program of improvement aligned to Scottish Government-wide improvement activity is being undertaken to support better impactful outcomes for the expenditure within grants issued by Scottish Government.

Where grants are issued by public bodies, individual bodies are also enhancing their approach to grant management, for example partnership activity is underway between Creative Scotland, Event Scotland and City of Edinburgh Council to explore the alignment of funding, contracting and monitoring processes with Edinburgh's Festivals.

Revenue Raising

The RSR recognised that fiscal balance can be achieved by focusing on both spending and revenue raising opportunities. The unprecedented challenges facing public finances require the consideration and use of all levers at the disposal of Scottish Government and public bodies in order to secure stable and proportionate funding to invest in and maintain public services.

The commitment for Scottish Government to work with public bodies who can charge for services to explore ways to recover more of their costs, and to identify options that should be prioritised, is being progressed as part of the wider programme of Public Service Reform.

Initial discussions were held between Scottish Government and public bodies during 2022-23 to identify opportunities and understand barriers to progress. The programme of work was then formally commenced through a further meeting in May 2023.

Guidance and a robust decision-making process have been developed to support public bodies in considering, developing and implementing new revenue raising ideas, and to ensure full appraisal of any impacts on individuals and businesses is carried out. The outputs from this programme of work are intended to support the funding position for the 2024-25 Scottish Budget and subsequent budget allocations.

Pay Sustainability

The RSR included commitments to hold the total public-sector pay bill (excluding Local Government) at around 2022-23 levels, whilst returning the overall size of the public sector broadly to pre-COVID-19 levels. We have since evolved our approach.

We published a Pay Strategy in March 2023 emphasising the link between pay, workforce, reform and fiscal sustainability. This built on the 2023-24 Budget which set out that it is for individual public bodies – in dialogue with their respective Trade Unions - to determine the target operating model for their workforces and to ensure workforce plans and projections are affordable in 2023-24 and over the medium term, and reflect the continued commitment to no compulsory redundancies. Strategic partners – Trade Unions and employers across the devolved public sector in Scotland – are central to the delivery of fair, affordable, and sustainable bodies, including their workforces.

This change recognised the relative size of public bodies within the devolved public sector – in particular, around one third of employment (headcount) in the devolved public sector is in the NHS. The NHS workforce has grown, by almost 13,500 FTE (over 9%) between December 2019 and December 2022, and is likely to require further growth to respond to the changing demographic and health and care needs of the people of Scotland.

Pay and workforce must more than ever be explicitly linked to both fiscal sustainability and reform to secure the delivery of sustainable and effective public services over the medium term, while supporting wellbeing and the principles of Fair Work.

Major reform programmes

Specific larger scale reform programmes underway are an integral part of a wider 10-year Public Service Reform programme. This includes, for example:

• The Education Reform Programme to deliver a revised Target Operating Model for the New Education Agency, New Inspectorate and the New Qualifications Body. It is expected that these will be considered over the coming months, reflecting specific dependencies on the outcomes of the Independent Review of Qualifications and Assessment and the Review of the Skills Delivery landscape. Thematic projects are being established and defined with an aim to deliver the common areas of work required, including Digital, Roles and Responsibilities, HR, Operational Services, Organisation Design and Culture, Finance, and Comms & Engagement.
• Tackling child poverty through the second delivery plan (to 2026), Best Start, Bright Futures, which sets out ambitious action to provide immediate support to families, and to deliver progress in the medium and longer-term to break the cycle of poverty in a sustainable way for children, parents, households and communities. Given the importance of delivering equality for all in Scotland this programme makes an important contribution to the policy prospectus. As part of this, pathfinders are developing and learning is already emerging, highlighting the potential for transformational change in public services and outcomes for parents. Modelling (from March 2022) suggests that child poverty levels would be around 10 percentage points higher in 2023-24 in the absence of Scottish Government policies, however the modelling also forecasts a gap to close from 2026 to meet the statutory 2030 target – the next annual progress report will be published before the end of June, providing a detailed update. It is critical that work continues to focus on interventions that will make the biggest impact on the targets in the short, medium and long term, including through the use of place based person-centred tests of change.
• The Scottish Government is committed to keeping The Promise by 2030. In March 2022 the Promise Implementation Plan was published setting out the actions and commitments that will be taken across portfolios. These include the introduction of the Children's Care and Justice Bill (presently progressing through Parliament): supporting prevention through investment of £500 million in whole family wellbeing; and work underway to review the Children's hearing system, due to report in Spring 2023. In addition, change in support of children and young people who are care experienced is being progressed through education, justice and health reform.
• The National Strategy for Economic Transformation (NSET), published in March 2022, is a 10-year strategy to transform the Scottish economy and maximise the opportunities to achieve our vision of a wellbeing economy. Delivery plans for each of the strategy's six programmes of action were published in October 2022 and progress is being made on each of the programmes, including the launch of the Techscaler Network (November 2022) and the opening of six of the seven techscaler hub locations. Annual reports will be published outlining the progress in delivering the strategy, with the first of these due in early summer this year.
• Scottish Government is committed to delivering a National Care Service to secure a system that is genuinely accountable to people, embeds Human Rights at the heart of support and improves quality, fairness and consistency of provision that meets the needs of Scotland's people. The National Care Service (Scotland) Bill is progressing with a revised timetable to allow further engagement to reach consensus on the way forward. At the same time significant investment and improvement activity is underway to ensure people and staff see the benefit of change now.
• The Scottish Government remains committed to delivering a New Deal for Local Government in partnership with COSLA, as set out in the Policy Prospectus. This will include a fiscal framework, enable better collaboration to jointly deliver shared priorities, to tackle the collective challenges faced, and to improve outcomes for people. The New Deal will provide the framework for working in partnership with Local Government on a wide range of policies and programmes, including public service reform. Constructive engagement between Scottish Government and COSLA is ongoing with a focus on the co-design of the new deal.
• The Justice Vision, published in February 2022, sets out the Government's Transformative Vision for the justice sector for this parliamentary term and beyond. This included a year one delivery plan, focussing on the collaborative work being taken forward across the justice sector in 2022-23. This work continues, with transformational change programmes set up for each of the priority areas, better serving justice for women and children, hearing victims' voices, and shifting the balance between use of custody and justice in the community. Two key bills are currently being progressed through Parliament, The Victims and Witnesses and Justice Reform Bill, and the Bail and Release from Custody Bill. A full progress report will be published in the summer, including a measurement framework.