archive.parliament.scot · evidence on the 2011-12 draft budget and rpp ~ the scottish government.,...

Cabinet Secretary for Finance and Sustainable GrowthJohn Swinney MSP

T:0845 7741741E: [email protected]

lain Smith MSPConvenerEET CommitteeThe Scottish ParliamentEdinburghEH991SP

13 December 2010

Dear lain,

EVIDENCE ON THE 2011-12 DRAFT BUDGET AND RPP

~The ScottishGovernment

., "

Thank you for the opportunity to discuss the draft budget on 8 December. I offeredto provide some further detail to the Committee and I am happy to set this out below.Where appropriate, I have grouped some responses together.

• The number of businesses which have benefitted from, or owe their survival to,the Small Business Bonus Scheme since its inception - see Annex A

• copy of the joint SG/SE announcement of the National Renewables InfrastructureFund - see Annex B

• A reconciliation of the 2010-11 energy budget line compared with the 2010-11forecast outturn figures and an explanation of WATERS etc adjustments;clarification of funding for the WATERS scheme, whether and when funds will betransferred to Scottish Enterprise; and an explanation of the apparent 50%, or £9million reduction in the renewable energy budget line for 2011-12 - see Annex C

• A clarification of the deadlines relating to the M8 schemes - see Annex D• An update on where future capital projects are in the pipeline - see Annex E• Explanation as to why HIE's budget has been cut more than SE and the effect of

the timing of capital expenditure on the figures; as well as cumulative trend dataon Grant in Aid settlements for Scottish Enterprise, Highlands and IslandsEnterprise and VisitScotland since 2007 - see Annex F

As well as the issues raised in your letter of 8 December, I also undertook to providethe Committee with additional information on the Report on Proposals and Policies(RPP). Annex G sets out:

1. Spend proposed in the draft Budget for the area-based Home Insulation Schemeand Energy Assistance Package

2. The assumptions on uptake used to derive the figures in the RPP for emissionsabatement from existing housing

3. Compliance rates with new building standards4. When the evaluation of the home loans scheme will be published

'L~j~JOHN SWINNEY

mailto:[email protected]

Annex A

Small Business Bonus Scheme

As I outlined to the Committee, on 8 December, the Small Business Bonus Scheme(SBBS) has been a very welcome and successful initiative to support the smallbusiness community in Scotland and many businesses have made the point to methat without it they would have struggled to survive. At committee, I was asked ahypothetical question about the number of businesses in that position and inresponse I noted that I would provide the committee with some detailed figures onthe numbers of recipients.

The most up to date data on number of recipients, shows that SBBS has removedthe rates burden entirely for some 64,000 properties in Scotland and provided a billreduction for an additional 11,000.This data, including a breakdown by Local Authority area is published in full at -http://www.scotland .Qov.uk/Topics/Government/local-Qovernment/17999/11199/relief-statistics-2009-10

Average savings under SBBS were £1,400 and these figures, again including abreakdown by Local Authority area, are published at -http://www.scotland .Qov.uk/Topics/Governmentllocal-Qovernment/17999/11199/Scheme/SBBSAvQSave

The committee will also wish to note that following the uplift and expansion of SBBSat this years business rates revaluation, the number of properties potentially eligiblefor SBBS increased by 12% (from 102,000 in 2009-10 to 114,600 in 2010-11). Inlight of this, First Minister has written to some 19,300 individual premises which maybe eligible to raise awareness and encourage take-up.

Scottish Parliament, T4.07, Edinburgh EH99 lSPwww.scotland.gov .uk

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http://www.scotland

http://www.scotland

http://www.scotland.gov

Annex 8

Text of NRIF news release:

First Minister launches National Renewables Infrastructure Fund

A £70 million investment fund to secure Scotland's place at the forefront of the globaloffshore wind industry was announced today (2 November) by First Minister Alex Salmond.

The National Renewables Infrastructure Fund - to strengthen port and manutacturingfacilities and supply chain provision for manufacturing of£"hore wind turbines and relatedcomponents - will leverage significant private sector investment in the next four years andhelp deliver an estimated 28,000 jobs and £7.1 billion in value to Scotland's economy overthe coming decade.

Mr Salmond launched the fund, which is being delivered through a partnership of ScottishEnterprise and Highlands and Islands Enterprise until 2015, at RenewableUK 2010, the windand marine energy industry body's annual conference and exhibition in Glasgow.

The First Minister also reiterated his call for the UK Government to remove the restrictionson immediate access to the £191m of Scotland's Fossil Fuel Levy funds generated north ofthe border to invest in renewable industries.

He said:

"I'm pleased to welcome the renewables industry to Scotland because we are a nation withconsiderable natural and human resources and the political will needed to deliver a greenenergy revolution that can build sustainable economic recovery and reduce Europe's carbonemISSIons.

The Scottish Parliament has condemned the UK Government's refusal to give unrestrictedaccess to Scotland's £191 million Fossil Fuel Levy funds. Together with industry, we mustand we will continue to press the Treasury to release these funds now due to Scotland. Theyremain vital tor the development of of£"hore wind and marine power, tor heat networks andtechnology to deliver our renewable heat targets; and vital too for our communities, so theycan invest in and benefit from the green economy.

However, the offshore wind industry is seeking leadership and immediate support fromgovernment and the Scottish Government is determined to provide that, as we have done forthe last three years. Today I am delighted to announce - and open for business - Scotland's£70 million National Renewables Infrastructure Fund. The fund covers infrastructure relatingto manufacturing and test/demonstration facilities.

Our National Renewables Infrastructure Plan has already established the most immediateneeds. Together with Scottish Enterprise and Highlands and Islands Enterprise, we aredetermined to stimulate the market and act decisively to trigger vital capital investment andlaunch the next phase of Scotland's renewables revolution."

Scottish Parliament, T4.07, Edinburgh EH99 lSPwww.scotland.gov.uk

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http://www.scotland.gov.uk

Scottish Enterprise Chief Executive Lena Wilson said:

''Now is the time to build on Scotland's position as the leader in global offshore winddevelopment. We have more than a quarter of Europe's natural wind resources and unrivalledoff"hore skills thanks to our decades of experience in oil and gas exploration. We now have ashort window of opportunity to capitalise on our strengths and this fund will enable us to turnour offshore wind aspirations into reality.

Companies rrom around the world already recognise the scale ofthe opportunity andScotland's competitive advantage. We need to build upon this by supporting the developmentof port and manufacturing locations with their owners and supply chain companies so thatScotland can reap the full rewards rrom this significant economic opportunity."

Alex Paterson, Chief Executive of Highlands and Islands Enterprise (HIE), said:

"Renewable energy is already playing a significant role in the Highlands and Islandseconomy, and HIE is determined to help the sector grow and flourish here.

As well as the north and west of Scotland having significant planned offshore wind capacity,the Highlands and Islands are at the forerront of the development of marine renewables, bothwave and tidal.

The development of the Highlands and Islands port and harbour facilities and manufacturingcapacity will underpin the commercialisation ofthe marine energy sector in Scotland."

More than 7,000 off"hore wind turbines are expected to be constructed offthe UK's coastover the next decade and the Scottish Government and its enterprise agencies are working tosupport offshore wind farm developers, ineluding by ensuring the provision of Scottish portsand companies able to provide critical manufacturing, operations and maintenance services.

Scottish Enterprise and Highlands and Islands Enterprise will now to work with site ownersand public sector partners to develop key locations to the required specification that willfortifY Scotland's position as a key offshore wind development location and attract theassociated offshore wind inward investors.

2 November 2010


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Annex C

Energy Budget

The 2011/12 budget for Energy has, in effect, increased. Excluding the £12m capitalbudget which was for the WATERS (£10m) and the Boiler Scrappage Schemes,which are now closed, the Energy Budget has gone up from £31.2m to £34.55m.

The 2010/11 budget (level 4) was split between Renewable Energy (£22m), EnergyMarkets (£11.2m) and the Saltire Prize Fund (£10m). The Saltire Prize Fund, £10mis not expected to be paid out until 2017/18 and as a result, it was announced inNovember 2009 that this funding would be redirected to provide additional supportfor renewable energy and it provided funds to support wave and tidal projectsthrough the WATERS grant scheme delivered by Scottish Enterprise. We anticipatemaking the transfer to Scottish Enterprise at the Spring Budget Revision. At thispoint in the year, full spend is anticipated across the Energy budgets.

In relation to the apparent £9m (50%) reduction in the Renewable Energy budget linefor 2011/12, this has been caused by a re-drafting ofthe Energy budget lines. Thereare now five level 4 budget lines instead of the 3 outlined above for last year. Thismeans that there is not a direct comparison between the figures within the draftbudget table. See below, a table with a level 4 breakdown of the 2010/11 and2011/12 budgets.

2010/11 2011/12(£k) (£k)

Renewable Enerqy 22,025 11,350Saltire Prize 10,000 0Energy Efficiency (Energy Markets) 9,380* 12,000Low Carbon Economy 0 10,200SEGEC & Grid Enhancement 0 680Enerqy Resilience and CNI 0 320

TOTAL 41 ,405* 34,550* Budget increased in-year by £2m consequentials for Boiler Scrappage Scheme taking it to the£43.2m published in the draft budget document.

Had the 2011/12 budget lines remained the same as 2010/11, the RenewableEnergy budget line would have totalled £22.55m, made up of, Renewable Energy(£11.35m); Low Carbon Economy (£10.2m); SEGEC & Grid Enhancement (£0.68m)and Energy Resilience and CNI (£0.32m). The Renewable Energy budget linetherefore shows an increase of some £500k and the Energy Markets line hasincreased by some £2.62m.


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Annex D

Deadlines relating to the M8 schemes

Baillieston to Newhouse

Subject to a decision to proceed with the M8 Baillieston to Newhouse scheme beingannounced shortly we would expect to make the principal orders and seekParliamentary approval for the scheme early in 2011. If Parliament gives its consentwe would make the remaining orders, following which there would be the normal sixweek challenge period in the Court of Session during which any aggrieved partycould mount a challenge to the orders.

On that basis that there was no challenge the M8 would then be clear of the statutoryprocess by early summer 2011.

M74 Raith Interchange

We plan to include the M74 Raith Interchange and M8 Associated NetworkImprovements (ANI) schemes with the M8 in a single NPD contract. The statutoryprocesses for both Raith and ANI are expected to be complete early in 2011.

We intend to start procurement for the combined scheme in 2011/12 as set out in therecent draft budget statement.

We anticipate that land would be purchased in financial year 2012/13 enablingconstruction to get underway during 2013/2014


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Annex E

Future capital projects

The future projects currently listed as future deals on the Scottish Governmentwebsite are projects which have reached a reasonably mature point in theirdevelopment. The Scottish Government's draft budget lists details (at page 42) arange of additional Transport, Health and Education projects totalling some £2.5billion that are intended to be financed under the Non Profit Distributing Model.These will be added to the website in due course.


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Annex F

Scottish Enterprise, Highlands and Islands Enterprise and VisitScotland

The Committee asked why the HIE budget had been cut more than the SE budget.The apparent difference in the proposed cash budget settlements between SE andHIE is entirely as a result of the re-instatement in SE's budget of capital that wasremoved during 2010-11. HIE's 2011-12 capital budget of £7.3m is unchanged from2010-11 although there is a reduction is in its cash resource budget of £6.1 m(-12.9%). SE's 2011-12 capital budget has however increased from £7.7m to £34.2malthough its cash resource budget has reduced by £27.7m (-14.8%).

The Committee also asked for cumulative trend data and this is shown in the threetables overleaf:


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Scottish Enterprise 2007-08 2008-09 2009-10 2010-11 2011-12£'000 £'000 £'000 £'000 £'000

Starting Budget (SR07) - Grant in aid 445,481 418,981 404,181 401,781 194,357Difference from previous year -5.95% -3.54% -0.60% -51.63%Baseline Transfers:Transfer to Skills Development Scotland (146,993) (142,120) (140,450)Transfer to local authorities (Business Gateway) (12,158) (13,431) (13,988)Transfer to FutureSkilis Scotland (1,162) (1,008)Balance of Local Regeneration (4,383) (3,878) (8,500)Transfer to fund pressures (2,000) (8,500)ICAS and IACC 1,355Sub-total 445,481 255,447 241,590 230,690 194,357Difference from previous year -42.66% -5.43% -4.52% -15.75%Impact of accelerated capital 5,000 30,000 (35,000)Sub-total 445,481 260,447 271,590 195,690 194,357Difference from previous year -41.54% 4.28% -27.95% -0.69%

Other In-year adjustments 66,158 (2,709) 14,010 13,229 Note 1Revised (final) Grant in aid 511,639 257,738 285,600 208,919 194,357Difference from previous year -49.63% 10.81% -26.85% -6.97%

As a percentage of 07-08 baseline - 50.37% 55.82% 40.83% 37.99%

Highlands and Islands Enterprise 07/08 08/09 09/10 10/11 11/12£'000 £'000 £'000 £'000 £'000

Starting Budget (SR07) - Grant in aid 88,979 77,779 74,779 74,279 48,359Difference from previous year -12.59% -3.86% -0.67% -34.90%Baseline Transfers:Transfer to Skills Development Scotland (16,070) (15,700) (15,050)Crafting Commission Development 175 175Business Gateway (2,631 ) (2,296)Ordnance Survey Costs (4) (4)Transfer to fund pressures (2,600)Sub-total 88,979 61 ,709 56,619 54,504 48,359Difference from previous year -30.65% -8.25% -3.74% -11.28%

Other in-year adjustments 11,771 5,279 2,104 3,990 Note 1

Revised (final) Grant in aid 100,750 66,988 58,723 58,494 48,359Difference from previous year -33.52% -12.34% -0.39% -17.33%

As a percentage of 07-08 baseline 66.49% 58.29% 58.06% 48.00%


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VisitScotland 07/08 08/09 09/10 10/11 11/12£'000 £'000 £'000 £'000 £'000

Starting Budget (SR07) - Grant in aid 43,350 47,350 46,800 43,900 39,250Difference from previous year 9.23% -1. 16% -6.20% -10.59%

In-Year adjustments 5,000 2,750 2,670 1,150 Note 1Revised cash baseline 48,350 50,100 49,4 70 45,050 39,250Difference from previous year 3.49% -1.27% -9.81% -14.78%Cumulative change from baseline (2007-08)year 103.62% 102.32% 93.17% 81.18%

Note 1: The material impact that in-year adjustments have on the total budget exacerbates the differential between 10-11 and 11-12.


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Annex G

Additional Information on the Report on Proposals and Policies

This annex provides additional information requested by the EET Committee on theReport on Proposals and Policies (RPP). The points covered are:

1. Spend proposed in the draft Budget for the area-based Home Insulation Schemeand Energy Assistance Package

2. The assumptions on uptake used to derive the figures in the RPP for emissionsabatement from existing housing

3. Compliance rates with new building standards4. When the evaluation of the home loans scheme will be published

1. Spend proposed in the draft Budget for the area-based Home InsulationScheme and Energy Assistance Package

The Fuel Poverty and area based Home Insulation Scheme will continue next yearThese programmes are within the HAR level 3 budget line 'SupportingSustainability'. This budget in was £104.6m in 2010/11 and for 2011/12 is £83.9m.

The Minister for Housing and Communities has written to key stakeholders on thebudget and stated:

'We remain committed to improving the energy efficiency of Scotland's housing,addressing fuel poverty in Scotland and helping to meet our climate change targetsand obligations. The Home Insulation Scheme and the Energy Assistance Packagewill continue next year and we will look to maxi mise the impact of all ourprogrammes in this area to ensure that they join up as effectively as possible (like,for example, the recently launched Home Energy Scotland campaign, which joins uppromotion of HIS, EAP and other schemes)."

The EAP and HIS budgets will be announced shortly.

2. The assumptions on uptake used to derive the figures in the RPP foremissions abatement from existing housing

A Technical Appendix was published alongside the draft RPP, detailing theassumptions made in estimating the potential emissions abatement and costs of theproposals and policies. This is available from http://www.scotland.qov.uk/rpptech .The assumptions used to estimate the abatement from existing housing are given inparagraphs 59 - 80 of the Technical Appendix.

In summary, UK Government programme delivery in Scotland (CERT, CESP andpost-CERT energy company obligation) is drawn from sharing UK-wide "illustrativemixes" to Scotland and extending them forward to 2020. Scotland is assumed toreceive a pro-rata share of measures installed. The Department of Energy andClimate Change are currently agreeing an illustrative mix of the measures that will beinstalled under Green Deal and Energy Company Obligation and once availablethese will be used as the basis for future modelling of the effects of UK policies andproposals in Scotland. It is also assumed that Scottish fuel poverty and insulationschemes will continue to supplement UK action.

http://www.scotland.qov.uk/rpptech

3. Compliance rates with new building standards

Carbon and energy performance of buildings built to Scottish buildingregulations

A small number of research projects within the UK have investigated and found agap in performance between buildings as designed and as constructed. This isconsistent with the perceptions of the majority of consultees in a recent ScottishGovernment consultation into compliance. However, there is not a sufficientevidence base available at present to quantify the extent to which buildings may notperform to the levels expected by building regulations. The Scottish Government isnot complacent about 'compliance' and the recommendations from the consultationare now published in the Compliance consultation report, available from the ScottishGovernment website. The Committee should note that initial steps are being takento make improvements in this area, include air-tightness testing of new buildings andalso through the appointment process of building standards verifiers, bothcommencing in 2011.

It should be stressed, however, that the figures identified within the RPP for newenergy standards in Scottish building regulations are conservative. They representan assessment of emissions and energy use based upon UK average climate data(for dwellings) and Glasgow climate data (for non-domestic buildings), this being thebest information available from the building regulation calculation methodologies,which are used throughout the UK. Since this assessment was carried out for theRPP, it should also be noted that the fuel emissions factors intrinsic in themethodologies and set by the Department for Energy and Climate Change (DECC)have been reviewed and are now generally higher. This further contributes to thecautious approach taken in the RPP as to the expected levels of emissions avoidedby improving building regulations.

4. When the evaluation of the home loans scheme will be published

The Scottish Government recently funded the Energy Saving Scotland Home Loanpilot, giving interest-free loans for energy efficiency works. The pilot scheme hasnow been evaluated, and the evaluation report will be published before Christmas.


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