Auditor General: Public sector reform is long overdue

When I met with Auditor General Stephen Boyle in the summer of 2022 three issues loomed large in the conversation: the urgent need for public sector reform, the Scottish Government’s bungled handling of the procurement of two ferries, and its general lack of transparency in financial matters.

In the months that followed, Audit Scotland issued numerous reports that hammered home those very points. In November it said the public sector would have to be quickly reshaped to avoid an unprecedented overspend; in December its audit of the government’s 2021-22 accounts called for greater transparency in public spending; and in April Boyle told Holyrood’s public audit committee it would be “folly” to suggest government estimates on the extra cash Ferguson Marine would need to fulfil its ferry contract were “reliable”.

Unsurprisingly, when Boyle and I sit down in July this year it feels a little like we’re running over old ground, only in some respects things seem to have got worse. Indeed, after Boyle’s April appearance at the audit committee, wellbeing economy secretary Neil Gray confirmed that the Auditor General was right about the ferries, telling parliament that a report had concluded it would be cheaper to scrap one of the ships and start again than to continue with the build. The report, which was carried out by civil servants and external consultants at a cost of £620,000, found that taxpayers’ money would not be wasted finishing the MV Glen Sannox but that the value-for-money case for completing Hull 802 had not been met. Gray used his ministerial powers to say the government would be ploughing ahead regardless.

For Boyle, the decision makes sense from the point of view that starting again would disadvantage the island communities the ferries should already be serving for an even longer period of time. But he is clear that the situation, which has rumbled on since the ferry contracts were awarded to Ferguson Marine in 2015, with numerous delays and cost increases hampering progress along the way, must never be repeated.

“This was not unique, but it was the first ministerial authorisation that has been used in about 15 years, where a civil servant requested authority from a minister because it was their view that [the government] wasn’t going to deliver value for money. It was important that they were clear and that they made that judgement,” he says.

“What we are currently doing is looking at the facts around arriving at that judgement. Of itself it evidences transparency and accountability, and the arrangements allow ministers, if they think there are other factors, such as sustaining jobs in the yard or the project taking longer, to do that, but we want to do our own work on it.

“I base my judgements on the evidence of the chief executive of Ferguson Marine that the Glen Sannox will be delivered towards the end of this year [in late August it was confirmed that this deadline would not be met] and vessel 802 towards the end of 2024, but island communities are continuing to suffer from this. Public services are not there and vast amounts of public money haven’t been well spent. We get requests to intervene to stop this from happening, but the legislation is for me to carry out audit work and report. This has been very, very challenging and the learning needs to come.”

That learning cannot come quickly enough. Boyle points to the Medium-Term Financial Strategy published by finance secretary Shona Robison in May, which forecast a £2bn shortfall in Scottish public finances by 2027-28, and says the government is now in a very difficult financial situation. “Fiscal sustainability is really challenging,” he says. 

The government has suggested the deficit could be made up by tinkering around the edges of tax, with much talk of making those with the broadest shoulders bear an ever-greater burden than they do already. It has already raised the rate of the two highest income tax bands and First Minister Humza Yousaf has indicated he would raise taxes even further to enable the Scottish Government to lift the two-child benefit cap imposed by Westminster.

However, while Boyle says that such moves “might” raise the tax receipts required to close the government’s funding gap, “it’s a lot to place all your eggs in”. For him, the public sector reform Audit Scotland has been calling on for years is a far more viable alternative. But, while he acknowledges that the government has made a commitment to doing that, he says that “getting there is the hard part”.

“This is hard,” he says. “The system exists and it functions. Public services are delivered across 200-odd public bodies and the third-sector provides a huge number of public services through funding arrangements – there’s some private sector too. The case for change and the conditions to make those changes need to be absolutely clear. I genuinely believe that the people working in the public sector want to get the best outcomes for the people of Scotland, but making that change is difficult.

There’s so much overlap in the way public services are delivered but public-sector organisations haven’t moved with the times

“There’s accountability. What measures are used for people in senior roles that say they are doing a good job? Is it that they live within their budget and meet the performance measures for their own organisation? That might have been fine 30 to 40 years ago, but organisations now don’t exist in neat bubbles. There’s so much overlap in the way public services are delivered but public-sector organisations haven’t moved with the times.

“There is so much demand and pressure on public services. Take the NHS: they have budget challenges. No one disagrees with the principle of shifting the bulk of health and social care out of hospitals but moving resources and changing the system is incredibly hard. You can’t stop doing operations and if people present at A&E you have to treat them, but what’s the medium-term plan and the longer-term plan? We’ve got audit work planned through our NHS overview for 2024. We’ll look at where the NHS is and how it’s going to evolve.”

As Auditor General, Boyle gets to pick which areas of the public sector to focus on in any given year and, having been concerned about the backlog of court cases that built up during the pandemic, chose to examine the justice sector in the last financial year. The work highlighted, he says, that there are pockets of good practice that could be replicated in other areas. 

“We did a report just before recess on the court backlog,” he explains. “If we reflect back to 18 months ago, we were still emerging from Covid and the justice sector had challenges. I felt it needed some audit work, but that’s been a good news story. We’ve been saying for years that there needs to be better use of data and technology and the Scottish Courts and Tribunals Service did that and did it well.

Court of Session, Edinburgh
“They used data really early to anticipate demand and reallocate resources – there were cinema courts and the remote balloting of jurors. Some of the legal profession is more traditional, but they have adopted technology more quickly than some other areas of the public sector have. There are still challenges in terms of waiting times for more serious cases to get to court, but they are progressing and others could learn from this. Data has not played a prominent enough role. With disappointing regularity there are so many audit reports that say either ‘we can’t reach a conclusion’ or ‘we didn’t have enough data to tell if we’re getting value for money’.” 

With that £2bn black hole looming, getting value for money is now far more pressing than ever before. Though the Scottish Government is able to borrow £450m via the UK Treasury each year to support capital expenditure, the fact it can only borrow a total of £3bn in the context of an annual budget that fluctuates between £40bn and £50bn means in reality the sum is vanishingly small. A recently announced doubling of the resource borrowing limit from £300m to £600m will make little difference in the £2bn context and, unlike the UK Government, the Scottish Government  cannot access the capital markets to raise additional funds, meaning its costs are going to have to be managed instead.

“The budget this year will be key,” Boyle says. “Coming out of the pandemic, the cost-of-living crisis, the after-effects of Covid, looking at the fiscal strategy demands really difficult choices from the government and Scotland is going to require difficult choices in the here and now. 
“Scotland is still a rich country. There are huge public spending resources at its disposal. Nothing is fixed – we can deliver public spending in any way we want, but it requires a plan. Minsters and civil servants need to come up with a plan to get from 2023 to 2028.

“I think it’s disappointing that Scotland hasn’t embraced shared services more than it has. Almost all public bodies will have their own back office functions – all have IT teams, finance departments. There hasn’t been enough progress on that front. Everybody is doing a good job, everyone is working hard and no one wants to give up their financial security, but it will take that level of leadership to say that with the advancement of technology we don’t all need to do what we did 15 or 20 years ago. We’re thinking about that.”

With that bringing us back to the question of public sector reform, Boyle is clear that the government must act now but that “if we are going to move to a sustainable fiscal position in the budget with that £2bn gap it will require ongoing transparency from government”. The government has committed to reform but has not yet set out what that will entail. Several new bodies have been created in the past few years, including Consumer Scotland and Redress Scotland, and if plans for a National Care Service are brought to fruition even greater change will lie ahead. With “so many moving parts”, Boyle says the government will have to ensure it is pressing ahead with the public fully on board.

“We have said repeatedly, with too much regularity to be honest, that there’s a need for clearer connections between the budget, what’s actually been spent and what’s been delivered for that – what did we get for that money and what difference did it make to people? There are some signs of progress, but what the government will have to factor in in the next few years is how they support transparency with all the other challenges they are facing, such as climate change.

“Climate change is the defining mission of our time. Inevitably there will be fundamental changes to how we live our lives and how public spending decisions are made. There will be big changes to infrastructure and resilience planning. Resilience tends to be looked at in terms of pandemics but the effects of climate change are with us now. What Scotland doesn’t have is a climate budget – other parts of the UK are introducing climate budgets and there’s room for the Scottish Government to do that.

“We did a paper in April on the Scottish Government’s arrangements for implementing net zero ambitions and we found that how they were managing risk wasn’t good enough. Their ability to deliver was compromised. We were looking at whether we were in a good enough place to deliver what will be a very challenging agenda and we weren’t.”