COVID-19 Recovery Committee

Meeting date: Thursday, January 19, 2023

Official Report 615KB pdf

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Monitoring Covid-19 Recovery

We will now move on to the substantive business of the meeting. The committee will consider monitoring the Covid-19 recovery.

I welcome to the meeting Álfrún Tryggvadóttir, lead, spending review and machinery of government, Organisation for Economic Co-operation and Development; and Indre Bambalaite, junior policy analyst, Organisation for Economic Co-operation and Development. Both are joining us remotely.

We estimate that the evidence session will run to around 10 past 10. Each member will have approximately 10 minutes to speak to the witnesses and ask questions. I am keen to ensure that everybody gets an opportunity to speak. I apologise in advance, because I may have to interrupt members or witnesses in the interests of brevity if time runs on too much.

I invite Álfrún Tryggvadóttir and Indre Bambalaite to briefly introduce themselves.

Thank you very much for the opportunity to be here with you today. I am a senior policy analyst at the OECD and, as you said, I lead the work on spending reviews, machinery of government and performance budgeting.

Hello, everyone. I work at the OECD on performance budgeting and spending reviews.

Thank you. I will begin the questions.

With the Covid-19 rules and restrictions lifted in Scotland, there has been a reduction in the quantity and the quality of available data, although I know that data is still being published on a weekly basis and that it still offers some insight into Covid-19 trends and cases. Álfrún, what is your view of Scotland’s Covid-19 recovery dashboard during the height of the pandemic and following the lifting of restrictions?

Thank you very much for that very interesting question. We have discussed that issue extensively with the countries that we work with. Unfortunately, we have not been able to work directly with Scotland on a bilateral basis, but we are, of course, quite familiar with the system in Scotland, and we have worked with neighbouring countries, such as Ireland.

The dashboard that you have in place is excellent. It is relevant that the data is updated regularly—that is really good. The dashboard is similar to what many OECD countries have been doing, but most countries do not update their dashboards as frequently any more, because they are heading out of the pandemic and other, more important things have been happening that need to be responded to. That is what we see. That gives members some context of how Scotland compares with other countries.

It was, of course, extremely important to have the dashboard during the peak of the pandemic, but other countries are now focusing a bit less on updating their Covid dashboards and more on what can be learned from the pandemic and how they can recover. The most important thing is how to get out of the pandemic. That is what we see. That gives members the broad context of the issue.

09:15  

I do not know whether Indre Bambalaite wants to add anything to this. It is interesting that we see that countries are focusing on the public finances side. What was spent during the pandemic was one-off expenditure, so how do you find ways to establish whether it is still needed when countries are trying to recover from the pandemic?

Thank you, Álfrún. That is really helpful, and you have also answered my second question with that answer.

In a previous evidence session in September, you gave evidence on the committee’s pre-budget scrutiny, and you mentioned that many nations are now looking at scaling up their spending review process. First, how simple would that process be, and how well placed is the Scottish Government to do that? In order for that to happen, would changes need to come from both the United Kingdom Government and the Scottish Government? Indre or Álfrún, would you like to come in on that?

Yes, we are happy to comment on that. That is a really relevant topic that we are working closely on exploring with many countries.

First, I note that, as we discussed the last time that I met you, the Scottish spending review process, similar to the UK spending review process, is not quite the same as what most other OECD countries have in place. There are pros and cons to the process that you have in place. It is extremely linked to the budget process, as you know. It is basically part of setting the budget. You discuss with ministries or spending entities the fact that you have to find X amount of savings and then you do that. The weakness in the Scottish spending review framework is the lack of focus on baseline or existing expenditure. That definitely needs to be tackled now more than ever. During the 2008 financial crisis, countries extensively used spending reviews to do that.

On the question about scaling up the use of the spending reviews, yes, that would definitely have to come from the Government. I do not know whether “scaling up” is the right expression in the context of Scotland because, as I said, you have an excellent process in place—it just does not focus on what we would say that a spending review should focus on, which is tackling legacy spending. The issue is how you look at the extent of what needs to be reallocated—“waste of expenditure” is not the right term, but you know what I mean, because there are so many spending areas that you could reallocate to a higher priority spending area.

I encourage Scotland to look into that, because you can have in place the process that you do—it is good to have that as part of the budget-setting process—and also put in place the other kind of process. It would be really beneficial for Scotland if the Government were to explore something along those lines.

Thank you, Álfrún. That is really helpful. I will move on to Murdo Fraser.

Good morning, and thank you for your evidence this morning. I will pick up a couple of the issues that the convener highlighted at the start.

Álfrún, a moment ago, you mentioned the comparison with 2008 and how countries responded to the financial crisis at the time, and the differences that we have seen. Can you expand on that and say a bit about what lessons we can learn from the responses in 2008? Is a different approach being taken now, either in other OECD countries or in Scotland?

That is an extremely interesting question. At the OECD, we have been analysing and looking into that. It is the important point about learning from crisis. We did not do that extensively after the 2008 financial crisis—we did not look at how to respond to a crisis. That is quite obvious today. At least, that is what we see in different countries.

The main difference between the two crises is that, immediately after the 2008 financial crisis, fiscal consolidation measures were put in place—that happened right away. During Covid, countries have been spending a lot of money, and no one really knows where the money has been going or how it is being used. That is the problem. Now, two or three years after Covid began, countries are waking up and thinking that they really need to do something to respond, because there is no space to respond to any extra public financial needs.

That is, of course, the biggest difference between the two crises. The sharp fiscal consolidation measures that were taken in 2008—I am talking about spending reviews in that context—were used to cut expenditure rapidly. That is not really good, because things were not really done in the correct way, and that really hit countries afterwards.

That is the biggest difference between the two crises. We are afraid that countries will have to take sharp fiscal consolidation measures this year and next year and that they will hit hard. The energy crisis and everything else on top of the Covid crisis will further expand the need for some sharp fiscal consolidation measures.

That is why we are talking to countries about the importance of having good budget practices in place. Countries need solid spending review practices and to be able to analyse baseline expenditure. They need to have a good structure around their budget. It is important to note that the good thing that happened after the 2008 crisis was that many countries really improved their budget structures and implemented medium-term expenditure frameworks, spending reviews and performance budgeting, and all that is proving to be beneficial.

I do not know whether that completely answered your question, but I would be happy to take any further questions.

Thank you. That is really helpful.

In response to a question from the convener, you suggested that there were pre-Covid areas of spending that were not as well targeted as they could have been, but they have just carried on. The Government has not really made an attempt to look at how effectively the money has been spent. Did you have anything particular in mind when you said that? Can you give us any examples of areas of spending that you think needed to be looked at more closely rather than just being rolled forward?

That is a really good question. I am a former budget person in the ministry of finance in Iceland, and I would say that there is waste within every spending area. I do not know whether anything specific can be mentioned in the context of Scotland, but I guess that all countries are similar in that way.

In every OECD country, there has been a gradual increase in every spending area. We really need to take stock and say what we now have to think about. We all have the same discussions and say that there is not enough money in the system, but there are still increases in basically every spending area. Governments need to take stock and ask what can they do to respond if there is an increase in spending and there is still a gap between need and expenditure. Is spending not being used as it should be used? Every policy maker should be asking themselves that question today.

However, I do not know about anything specific. I would just say that there is quite a lot of waste in every spending area. You could find room everywhere.

Okay. I appreciate that that was probably not a fair question to ask you. It is our job to find the waste in the Scottish Government’s budget, not yours.

I have one more question about looking ahead. We have been through the Covid pandemic. We might have more variants or strains of Covid, or we might have another pandemic. Do you think that Governments across the OECD countries, including in Scotland, are doing enough to plan ahead for a potential future pandemic?

My gut feeling is that the answer to that is no. That is what I wanted to mention in relation to the question on the dashboard at the beginning of the session.

The most important thing now is to learn from the crisis. We all agree that, if another pandemic were to hit countries around the world, we would not want to respond in the way that we did the last time, when Covid hit. That is an important point.

Countries have to learn in many ways, and not just on the budget side. We know that what goes into the budget is really difficult to get out of it. That is the most important thing. How do you really see what the urgent need is for expenditure, and then what needs to be in the system for a longer time?

My intuition is that countries have not been doing enough. They might have done more if we had not had a crisis on top of a crisis. If they had been able to follow through with the Covid lessons and there had not been another crisis on top of the Covid crisis, maybe then they would have done enough. That is where we come in: it is also the responsibility of international organisations such as the OECD and the International Monetary Fund to assist countries in that way.

How is Scotland’s national performance framework linked to policy decisions, if it is at all?

I will start, but I am sure that Indre Bambalaite, who is the performance budgeting expert, will also jump in.

We were looking at the performance framework this week. As I said, unfortunately, we have not worked directly with Scotland, although I hope that we will in the future. Therefore, we have not analysed the framework in the detail that we would like to have done.

You have an excellent performance framework in place. You tick all the boxes. You have good indicators and integrate other aspects into the performance framework, but there is a missing link to the budget—feel free to correct us if that is not right. You have two stand-alone frameworks: the budget process and a really good performance framework. However, for parliamentarians and other decision makers, there needs to be a clear link between the two.

That is the first point that we wanted to make from our analysis.

You appear to be saying that the framework is good and there is a sufficient level of detail in it, but the link with the budget is missing. Is the position similar in other OECD countries or are we an outlier?

You are definitely not an outlier. Some countries have implemented performance budgeting, as you have done, but they directly implement it in the context of the budget, which is good. Other countries, such as Scotland, have two separate frameworks, which means that it gets difficult to take into account what is in the performance framework when budget decisions are made. It is also to be noted that, if you fully integrate the two processes, there is a risk that there will be an overflow of data and it will be difficult to analyse, but you can do it subtly and at least highlight key performance indicators—what drives the big spending areas. It is really important to have that in the budget.

Scotland is not an outlier, but countries are striving to integrate those two processes. I mentioned Ireland. We have been working actively with the Irish on doing exactly that. Many other countries are trying to do the same.

To achieve that, given what you know about our national performance framework, is a further level of detail required, certainly for public display, or is the broad detail that is in it sufficient?

09:30  

You need to dig a bit deeper for the performance information. It is good to have information about the bigger picture and to drill down. We have been working on the level of detail that you need for each performance layer. It would be really good to see, in more detail, the link between the budget allocations and the data on performance indicators. Of course, on top of that, the information on things such as sustainable development goals, which you have in the framework, is excellent, but there would have to be a greater level of detail in order to reflect that information in the budget.

You have said that the way that we use the term “spending review” is a bit different from the way that other countries use it, so I wonder whether we are comparing like with like. From what I can see, for us, a spending review involves looking at the big picture and the overall budget over a few years, whereas, in one of the examples that was given, Germany had a spending review of one part of transport. That seemed to involve looking at one much more specific area in a lot more detail and, as you said, seeing whether the spending was useful. Are we comparing like with like when we use the term “spending review”?

You are correct that you use the term in a different way. When you google “spending reviews”, the first thing that comes up is the framework in the UK, which uses the term. You are talking about the budget-setting process. You set the budget and then you talk about spending reviews. What you noted about the use of the term is correct.

When we hear the term “spending reviews”, we think about analysing existing expenditure. That can be comprehensive. A Government might decide that it needs, for example, to cut 20 per cent of spending and, in order to do that, it might need to analyse areas such as transport, health or education. As you noted, in Germany, spending reviews are more targeted.

Earlier, I was trying to say that the UK and Scotland could have both processes in place. You could implement the more targeted spending reviews that other countries use on top of what you call the spending review and what we would call a budget-setting process.

That makes a lot of sense, because my feeling is that we need both processes. If we take the example of health, which is our largest area of expenditure, we know that we spend too much on reactive health spending, such as hospitals, and not enough on community healthcare, such as general practitioners. The challenge that we find is how to switch spending from one area to the other. Would the type of spending reviews that other countries use help us to do that better?

I definitely think that it could be useful for you to have that process in place, as you said. It is, at least, a way to analyse the big, important spending areas, so that you can target something specific in one area. That is what we see in countries that use that process. The Government that is in place can, depending on its decisions, find ways to identify savings and reallocate them to other spending areas.

We know how the budget process works: rather than focusing on the entirety of the spending that is in place, Governments always focus just on the margins and the additional money that is needed to tackle the issues that spending entities have. Spending reviews as I have described them allow Governments to do that. I would definitely encourage Scotland to look at ways of implementing such a process. That is the only tool that Governments have to analyse existing expenditure. There is always room to find savings in the system.

Can you give us examples of any countries that have undertaken such a review that has led to major changes in how they do things? I am particularly interested in preventative spending: spending more to prevent things from happening, whether that be ill health or crime, for example. We struggle—I think that this is the same for other countries—to disinvest in secondary expenditure.

The point about prevention is really interesting. If you tackle a certain area, would you have to analyse whether there is a need to spend more on it? Is that what you are asking?

Across the political parties in Scotland, most of us agree that we should allocate more to prevention and that spend should be less reactive. However, because we already put money into hospitals and prisons, for example, we find it difficult to change that approach.

Exactly. You want to be proactive rather than reactive. That is the nature of budget processes in most OECD countries. The mode is one of constant reaction; you react to crisis all the time and there is no chance to analyse where the need is.

We have some examples of that, and we would be happy to send you more details on those after the meeting. Canada is an example of a country that, after the 2008 crisis, analysed its spending in detail.

Spending is a tool that allows you to be proactive. Analysing spending areas allows you to see areas in which there is no longer a need to spend and other areas in which the need is greater.

We have plenty of examples that we can share, including those from Canada and Scandinavian countries. Norway and Denmark have been extremely good at doing that. Ireland was quite active after the 2008 crisis, and it has used spending reviews differently. Many countries have good processes in place to do that.

Unfortunately, however, spending reviews that are carried out as a result of a crisis kind of fade away when that situation goes away. They do not fade away as such; they have a different purpose. They look more into effectiveness and value for money, rather than being proactive. At times of crisis, Governments tend to think that they have endless amounts of money that they can spend on whatever, as we mentioned earlier.

As I said, we would be happy to send you more details on those countries, if that is needed.

Thank you. That is helpful.

I will move on to Covid specifically. The Scottish Government’s intention is to bring its Covid strategy to an end this summer. Is that too soon? Should the period of recovery from Covid be longer, or should we put that aside and deal with general problems from now on?

My gut feeling is that that is a bit soon. We have not been able to analyse the situation in detail, but, in order to learn from the pandemic, the smartest thing to do might be to shift a bit. It is a question of learning from the pandemic and looking at how we can react, because countries are still trying to get out of the pandemic.

We were analysing the recovery strategy this week. It would be good for the period to be a bit longer. As I said, we see that happening in other countries. It is about learning a bit more from the pandemic and taking lessons from it to prevent the same things from happening again.

Thanks very much.

Good morning. I thank the witnesses for their evidence. I will follow on from my colleague’s line of questioning. We understand the front-line cost of dealing with Covid—we know what the investment in that was—but I am interested in the spending required for the fallout from Covid.

We know that the cost of Covid was higher because of our poor health report card. A lot of people who suffered from Covid and tragically lost their lives were dealing with other issues, such as obesity, type 2 diabetes and heart conditions. However, in dealing with Covid, we had to drop our focus on such conditions. Should OECD countries prioritise conditions such as long Covid and non-Covid-related diseases and other issues that were affected by Covid restrictions, such as cancers, elective surgery, mental health issues, obesity and physical fitness? Will we need to reinvest in addressing those conditions as we deal with the fallout from Covid?

Yes. After the Covid pandemic, many OECD countries are thinking about issues such as mental health, which is a big issue for many countries.

However, as we said earlier, the problem is that countries have not been able to take stock and think about what needs to be done to tackle the issues that have resulted from the Covid pandemic, because there has been crisis on top of crisis. The general feeling is that Governments are in reactive mode at the moment, so it has been difficult to tackle those issues. With the energy crisis and everything else, it has been really difficult for countries to focus on those issues, unfortunately.

In relation to planning for the next pandemic, are you saying that we are being reactive and that Governments are looking at what is in front of them right now, rather than at what is coming down the line, so the whole preventative agenda has been parked? Do we need to try to lift our heads and look further down the track?

Definitely. In 2022, countries were in reactive mode and were just trying to figure out how to deal with crisis on top of crisis. We hope that, this year, countries will take stock and think about how we can learn from the pandemic. We spoke about spending reviews. We want countries to dig a bit deeper and to be proactive instead of reactive.

The preventative agenda has not been parked—well, maybe it has been parked for a bit. That is because most Governments have not had to deal with such big issues before. I am not saying that the issues that you mentioned are not big—they definitely are—but Governments have not been able to tackle how to prevent them and to learn from the pandemic.

I do not know whether people in Scotland feel the same, but the general feeling that we get is that there is definitely a willingness from Governments of OECD countries to learn and to do better if something like the pandemic happened again. Unfortunately, in most countries, there has not been the scope to deal with all of the issues.

My last question on that subject is about the collection of data. Are we collecting the right data to be able to detail the impact of Covid not only on the population but on non-Covid-related conditions? Are we able to disaggregate the data to be able to plan ahead?

The issue of data is at the centre of what needs to be tackled. My feeling is that we do not have the data on the specific issues that you mentioned. It is really important to have that data, so countries need to focus on that.

Many countries struggle in general with access to data, how to gather data and how to use data in the budget process. As we talked about in relation to the performance budgeting framework that you have in place, how do you reflect the correct data? Do you have a sufficient information technology structure to create user-friendly dashboards?

That is definitely a big issue that needs to be tackled. You have to gather the correct data to be able to analyse and learn from the crisis.

Thank you.

09:45  

I have listened to all the questions and answers, which has given me a very splattered picture of where we are. We have a spending review that is not actually a spending review—it is a forward plan—but we are not looking back to see whether we have spent the money wisely. You will have to bear with me, because I am trying to piece all this together as I go along.

In response to Murdo Fraser’s questions, you talked about the fiscal consolidating that was done in 2008. During Covid, we spent money regardless—it was just paid for—but lessons were learned from the 2008 crisis. I know that this is a big ask, but if we take the war in Ukraine and the energy situation that that created out of the picture, could the current cost of living crisis, which has been exacerbated, have been predicted from applying the lessons of 2008 to the massive spend during Covid, when economies stopped working? It is a wee bit like putting a dam in water—once you lift the dam, the water flushes out. Should we have known what the effects would be? Could we have better predicted the cost of living crisis, given the spending that we racked up during Covid?

We could definitely have told ourselves that it would happen, regardless of what is happening in Ukraine. Interest rates were very low in many countries during Covid, so we thought that money was free. We know what happens after crises when Governments spend a lot; there is a payment day when you really have to look at what you have been spending.

Setting everything else aside, yes, the current crisis could have been predicted; everyone knew what was about to happen. I do not know whether Governments did not want to tackle the situation because there was too much to tackle at that moment. Economists around the world said, “There will be a day when you need to pay it back.”

You ask a good question. In the first year of the pandemic, money was flowing everywhere. Governments were spending money not only on health—it was much bigger than that. The way in which central banks responded to the crisis was quite different from how they reacted to the 2008 crisis.

Everyone should have known that we would be in this situation in 2023. I do not know whether it is a good shield to say that other things happened, which means that it is now more difficult to tackle the crisis. That is my response.

There is a feeling that we could have planned ahead better, which leads me on to a further source of confusion—there is a lot of that in this evidence session, I have to tell you.

We have an excellent performance framework, but a link to the budget is missing. Other countries link the two. What other countries do it the way that Scotland does it? Why is it done in that way, rather than by linking the budget to the performance framework?

I am sorry—I am not asking you to look at the issue from Scotland’s point of view. I am asking about what happens in other countries that you deal with; I know that you have not had a direct link to Scotland.

I can give an example. The Netherlands used to have quite a good link between the performance framework and the budget documents, but that has now faded away. I do not know why; maybe that was not the political way to do it or maybe it was too much to do. I do not know whether Indre has any examples of countries that do it in a similar way to Scotland.

I will jump in. Countries that have completely separate performance frameworks are striving to establish the link with the budget. It is likely that countries that had separate performance frameworks in the past are now trying to find the right link with the budget. For example, countries such as Greece and France are really striving to find the right link in order to decide what data is the right data to put in the budget and how it should be presented.

It is better to look at the countries that managed to establish that link and to have decision-making tools so that the information is within the budget. If you look at Ireland—your neighbours, basically—you will see that they have a lot of performance information in the budget, but whether the right information is included in the budget is another question. We always talk to countries about the fact that they should be very selective about the information that is included in the budget, because if you just take your framework and include all the information in the budget, the question is whether that is usable and whether parliamentarians and committees such as this one can make sense of it.

There is also the question of who develops that information. Is it, for example, the ministry of finance? Who develops the performance information to be included in the budget? We always talk to countries about the fact that it should be the standing entities that develop that information. They should have ownership of that information, and that is where the accountability angle comes in. I have shifted away from the main question, but let me know if you want me to continue.

You have actually led me very neatly on to my next question by talking about what data is included. Brian Whittle stated that we had a bigger cost during Covid because of our particular health challenges. Is that correct? Has Scotland had to pay more during Covid because of our particular health challenges? Has it cost us more, financially, than other countries because of Scotland’s health challenges?

Are you asking whether the health cost has been higher in Scotland because of the previous challenges in the healthcare system?

Yes.

I would say no. You are facing exactly the same challenges as most other countries. The problem area in most countries is health spending.

We are talking about looking ahead to another pandemic. We want to plan for another pandemic and we want to tackle our current health problems, but we also want to put money into preventative spending. If I was a finance minister looking at that right now, I would be saying that I would have to quadruple my budget in order to make all those things happen. How does a Government take all the data, information and challenges and make that fit? How do you do that?

It is not a trick question—it is a genuine question.

If I was a finance minister, I would say to other ministers, “Isn’t there any way to find some savings among all the money that you have in place?” That is linked to the importance of data. Are the needs of citizens the same as they were in 1990, for example, given what has happened in many areas?

As I said, what goes into the budget rarely comes out of the budget, so if you really look into the budget in Scotland or any other country, I think that you will find that there is quite a lot of room to make some spending cuts. A finance minister would rather ask the question, “Can we find some informed spending cuts?” That is where spending reviews come in handy, because you never get to analyse across-the-board spending cuts; it is about where you can really make the savings. That is the question that I would ask. I know that that is easier said than done. We can all find some savings within our envelopes.

Your point that what goes into a budget never comes out of it again is a really interesting one. In other words, once it is tied in, it is baked into future spending so that the money is never lost. Speaking anecdotally, local authorities will spend money at the end of a financial term in order to get rid of it, so that they do not lose it out of the budget. We have forward spending reviews, but you are saying that we could help to tackle those issues by having previous spending reviews to look at how the money was spent and whether that gave us value for money. Is that what you are saying? I am putting it in very simplistic terms.

Yes, definitely—that is one way of saying it. You can look at how spending has performed over time. That is one way of using spending reviews. As you say, there is that December fever. Every spending entity says, “We have to spend everything so that the ministry of finance doesn’t think that we don’t need the money next year.” There are no incentives for underspending. It is really important to have those. How can you bring that to the table?

One thing that we learned from the 2008 crisis is that countries tried to implement new frameworks around budgeting that tried to put in place some incentives for more accountability on the part of spending entities and incentives to really—[Inaudible.] However, that is really the problem: if you focus on the margin, you will always think that you need more and you will never think about how you are spending all the money that you have in place.

That is hugely interesting. Thank you very much.

That brings our questions to a close. I thank Álfrún Tryggvadóttir and Indre Bambalaite for their evidence and for giving us their time. If you would like to provide any further evidence to the committee, you can do so in writing, and the clerks will be happy to liaise with you on how to do that.

I will briefly suspend the meeting to allow for a change of witnesses.

09:57 Meeting suspended.  

10:01 On resuming—