FGN2009/01 financial memoranda that accompany Scottish Government bills
1. This note provides guidance on the preparation of the Financial Memoranda that accompany Scottish Government (SG) Bills. It supersedes Finance Guidance Note 2004/06.
2. Financial Memoranda are required so that the Parliament can have the best possible information on the costs (and benefits) arising from proposed legislation. Estimates of costs and benefits are therefore required regardless of budgetary considerations.
3. In preparing a Financial Memorandum the Bill Team is responsible for ensuring compliance with the requirements set out in Standing Orders and in this Finance Guidance Note.
4. The Bill Team should - in good time - consult interested parties on the provisions that might give rise to costs or benefits and seek advice from relevant areas of expertise, including their Finance Business Partner (or equivalent) and Analytical Services Division.
5. Bill Teams must clear Financial Memoranda with their Finance Business Partner before the draft Bills and accompanying documents are submitted for approval to Ministers, including the Cabinet Secretary for Finance, Employment and Sustainable Growth.
6. Under rule 9.3.2 of the Standing Orders of the Scottish Parliament, a SG Bill must be accompanied by a Financial Memorandum setting out the best estimates of the administrative, compliance and other costs to which the provisions of the Bill would give rise. It must also include best estimates of the time scales over which such costs would be expected to arise, and an indication of the margins of risk and uncertainty in such estimates. The Memorandum must distinguish separately such costs as would fall upon (a) the Scottish Administration; (b) local authorities; and (c) other bodies, individuals and businesses. Other bodies includes those operating in reserved areas e.g. UK Departments.
7. Financial Memoranda are required so that the Parliament can have the best possible information on the costs (and benefits) arising from proposed legislation. Estimates of costs and benefits are therefore required regardless of budgetary considerations such as a budget already being in place. Estimates should be comprehensive and include sufficient detail on the basis of figures to enable the Parliament to come to a view on their robustness. Costings should be provided on both a gross and a net basis together with details of any anticipated benefits on existing costs and any related income.
8. A Financial Memorandum that fails to comply in full with Standing Orders or which is found to be incomplete or inaccurate may lead to the Parliament opposing the Financial Resolution for the Bill. If the Presiding Officer considers that a Financial Resolution is necessary it must be moved within 6 months of the Stage 1 debate in the Parliament or the Bill will fall.
9. In preparing a Financial Memorandum the Bill Team is responsible for ensuring compliance with the requirements set out in Standing Orders and in this Finance Guidance Note. The Bill Team is also responsible for clearing the Memorandum with their Finance Business Partner (or equivalent) before the draft Bill and accompanying documents are submitted for approval to Ministers.
10. The Bill Timetable (Annex 6 of the Bill Handbook), which must be completed by all Bill Teams, contains a number of milestones which relate to the preparation and clearance of Financial Memoranda. Detailed guidance is provided in the Timetable Guidance Notes - available to SG staff on the SG Intranet. The preparation of the Financial Memorandum should begin at a very early stage in the Bill process - an indication of the issues that will need to be reported on in the Memorandum should be included in the Cabinet Memorandum put forward by the lead Minister seeking agreement in principle to the legislation. The Bill Team should - in good time - consult interested parties on the provisions that might give rise to costs or benefits and seek advice from relevant areas of expertise, including their Finance Business Partner and Analytical Services Division (ASD). Finance Business Partners not immediately involved in the preparation of a Financial Memorandum should also be consulted where the provisions of a Bill might impact on the budgets for which they are responsible.
11. Estimating costs (and benefits) can be difficult but rarely if ever impossible. Advice should be sought from ASDs on establishing an appropriate evidence base and baselines, estimating techniques and discounting (where appropriate), the presentation of figures and the extent to which optimism bias adjustments need to be applied to costs. Where possible all costs should be based on market valuations or stated preference surveys.
12. Costings should not be omitted because final decisions have still to be made. Where this is the case a range of costs should be provided reflecting the possible options. Where a Bill proposes powers dependent on secondary legislation (or further primary legislation), it may not be possible to be precise. In these cases, the Memorandum should say so. However, this should be supported by an outline of the SG's current intentions, the financial implications of these intentions, and the effect of varying the major assumptions.
13. In order to assist the Finance Committee's deliberations a Financial Memorandum should, where appropriate, include a table summarising the costs and benefits attached to the Bill, cross-referenced to relevant paragraphs in the main document. Financial Memoranda should also include relevant cross-references to any consultation exercise. The Committee will be particularly interested in consultees' views on the financial implications of the proposed legislation and on where the additional costs will fall.
14. The questionnaire provided in the attached Annex A has been developed to assist Bill Teams in the preparation of Financial Memoranda. Bill Teams should submit a completed questionnaire along with the draft Financial Memorandum when seeking clearance from their Finance Business Partner.
15. Where Ministers consider that putting information on costs into the public domain at the point when Bills are introduced to the Parliament would, for example, prejudice negotiations with commercial service providers or unions such information may be submitted in an "in-confidence" appendix to the Financial Memoranda. The Finance Committee appreciates the need for sensitivity when dealing with such matters, but is firmly of the view that potential costs or a range of potential costs should be provided. The Committee would however be prepared, exceptionally, to consider information submitted on this basis in private and withhold it from publication at least until the period of sensitivity had passed. Bill Teams should agree in advance with the clerk to the Committee on what information would be appropriate for inclusion in an "in-confidence" appendix.
Statement of funding policy
16. Advice on whether or not financial implications for UK departments or agencies would have any impact on the budget for the Scottish Administration under the terms of the Statement of Funding Policy should be sought from the Finance Co-ordination Team within the SG Finance Directorate. It should be noted in this respect that fluctuations in revenue as a result of Scottish legislation are not covered by the Statement of Funding Policy and would therefore have no impact on the Scottish Block.
Clearance by finance and ministers
17. Bill Teams must clear Financial Memoranda with their Finance Business Partner (Bill Timetable milestone number 18) before the Bill Management Meetings and prior to the draft Bills and accompanying documents being submitted for approval to Ministers, including the Cabinet Secretary for Finance, Employment and Sustainable Growth. When submitting draft Memoranda - together with completed questionnaires - to Finance Business Partners for clearance sufficient time should be allowed for further consultation on costings and full scale revision of Memoranda in response to comments raised.
18. Submissions to Ministers covering Financial Memoranda must either state that formal clearance has been obtained from the relevant Finance Business Partner or, where clearance has been withheld or qualified, explain why the Memorandum does not comply in full with relevant guidance. The submissions should be copied to DG Finance, in addition to other interested parties.
Bill Management meetings
19. As part of the preparation of the Bill for introduction the Bill will be assessed on its state of readiness for introduction. As a first step officials from the Constitutional and Parliamentary Secretariat, the SG Legal Directorate (SGLD), the Office of the Scottish Parliamentary Counsel (OSPC) and Finance will meet with the Bill Team to consider the full range of readiness issues, including financial matters, identify areas of concern and agree on appropriate corrective action. The outcomes from this meeting will form the agenda for the subsequent Ministerial Bill Management Meeting.
20. At the Ministerial Bill Management Meeting the lead Cabinet Secretary or other appropriate subject Minister will present the proposed Bill for scrutiny and discussion with the Lord Advocate (and/or the Solicitor General) and the Minister for Parliamentary Business. Issues covered will include ensuring that any financial implications have been properly addressed. A suitably senior Finance official is also required to attend such meetings. The Minister for Parliamentary Business has made it clear that a Bill will not be signed off for introduction until the Financial Memorandum has been finalised. If a Bill is not ready for introduction on time it may lose its place in the legislative programme.
21. Financial Memoranda are subject to pre-introduction scrutiny by the Parliament's Legislation Team during the period (at least 21 days) between Bills and accompanying documents being sent to the Presiding Officer and the Bills being introduced to the Parliament. The Legislation Team will raise issues relating to compliance with Standing Orders - and with the content of Memoranda more generally - with the Bill Teams. Any substantive changes made to Memoranda at this stage to address concerns raised by the Legislation Team must be cleared in advance by the relevant Finance Business Partner and the Cabinet Secretary for Finance, Employment and Sustainable Growth.
22. The Finance Committee may require persons to attend its proceedings for the purpose of giving evidence. Any official likely to be called before the Finance Committee to answer questions about Financial Memoranda should therefore be comfortable with the content of the Financial Memoranda and be prepared and able to explain the basis of figures and defend their robustness. Witnesses should be able to differentiate between start up and ongoing costs.
Supplementary / revised financial memoranda
23. Where substantive amendments are made at Stage 2 or, following Stage 2, where new/updated financial information becomes available that substantially alter the cost implications of a Bill, a supplementary or revised Memorandum should be prepared by the Bill Team. A supplementary Memorandum should normally be sufficient but a revised Memorandum may be appropriate in circumstances where the amendments or new/updated financial information would have a very wide ranging impact on the original Memorandum.
24. The following principles should apply in relation to the preparation of supplementary or revised Financial Memoranda:
- supplementary / revised Memoranda should be provided only after Stage 2 - substantive changes to information in the original Financial Memoranda identified during Stage 1 should be addressed through correspondence with the Finance Committee;
supplementary or revised Memoranda should address objectively both SG and non-SG amendments even where the SG may seek to remove or revise the non-SG amendments at Stage 3;
- supplementary / revised Memoranda may be provided even where no amendments have been made to a Bill at Stage 2;
- where supplementary / revised Memoranda are required as a result of amendments made to a Bill, changes relating to new/updated financial information may also be included;
- changes in revised Memoranda (except the correction of spelling errors etc.) should be indicated by sidelining in the right margin in the same way that amendments are indicated in Bills; and
- the publication of supplementary / revised Memoranda will be notified to MSPs by means of an announcement in Section G of the Business Bulletin (in the same way that the publication of an "As Amended" print of a Bill and its accompanying documents is announced).
25. Supplementary or revised Financial Memoranda should still comply with rule 9.3.2 of Standing Orders and the deadlines that apply where supplementary / revised Memoranda are required should generally be taken as applying where such Memoranda are being volunteered. The Parliament has requested that the deadline for provision of final versions of documents (4 sitting days prior to Stage 3) should be adhered to if at all possible.
26. Clearance by Finance and Ministers should be essentially the same as for the original Memoranda but taking into account the very limited amount of time that may be available. SGLD and OSPC will need to clear supplementary / revised Memoranda before they are submitted to the Parliament.
Scottish Government Finance Directorate
Questionnaire for completion by Bill teams in the preparation of financial memoranda
Have all the provisions in the Bill that might give rise to costs or benefits, however marginal, been identified? The Finance Committee will expect all relevant matters to be addressed.
Have all potential costs or benefits, except those of a genuinely marginal nature, been quantified - including those likely to arise from secondary legislation?
Where costs or benefits are described as marginal has an indication been provided of the scale of the amounts involved?
Have start-up / transitional costs or benefits and ongoing costs or savings been separately identified and quantified?
Have any possible staffing issues been fully addressed? These might include redundancies, pensions, recruitment, training and accommodation / relocation.
Is sufficient detail provided on the basis of estimates to enable the Finance Committee to come to a view on their robustness? Costings included in Financial Memoranda should not normally be subject to further consultation or refinement.
Has advice been sought from the relevant Analytical Services Division on the basis of estimates, estimating techniques, optimism bias and the presentation of figures?
Have clear indications been provided for the timescales over which individual costs and benefits are expected to arise and the margins of risk and uncertainty involved?
Have costs been shown under the correct headings? For example costs falling directly on an NDPB should be shown under "Other bodies, individuals and businesses" rather than under the Scottish Administration. Executive Agencies and non-ministerial departments however are part of the Scottish Administration.
Have views expressed by those parties on which costs will fall - in particular local authorities - been included and have any material disagreements over estimated costs been addressed?
Has consideration been given to the content of the standard questionnaire (reproduced in the attached Annex B) issued by the Finance Committee?
Have the consequences of estimated income not being achieved been addressed?
Have any costings that the SG would argue should not be put into the public domain for the present time been fully addressed in an annex? This might include sensitive information that could prejudice negotiations with commercial service providers or unions.
Has the source of funding required to meet the costs been identified and agreed with Finance?
Are stakeholders aware of costs that will have to be funded from existing budgets?
Has Local Government Finance been consulted on the possible impact on Single Outcome Agreements of costs likely to fall on councils?
Scottish Parliament Finance Committee questionnaire
This questionnaire is being sent to those organisations that have an interest in, or which may be affected by, the Financial Memorandum for the Name of Bill (Scotland) Bill. In addition to the questions below, please add any other comments you may have which would assist the Committee's scrutiny.
1. Did you take part in the consultation exercise for the Bill, if applicable, and if so did you comment on the financial assumptions made?
2. Do you believe your comments on the financial assumptions have been accurately reflected in the Financial Memorandum?
3. Did you have sufficient time to contribute to the consultation exercise?
4. If the Bill has any financial implications for your organisation, do you believe that these have been accurately reflected in the Financial Memorandum? If not, please provide details.
5. Are you content that your organisation can meet the financial costs associated with the Bill? If not, how do you think these costs should be met?
6. Does the Financial Memorandum accurately reflect the margins of uncertainty associated with the estimates and the timescales over which such costs would be expected to arise?
7. If the Bill is part of a wider policy initiative, do you believe that these associated costs are accurately reflected in the Financial Memorandum?
8. Do you believe that there may be future costs associated with the Bill, for example through subordinate legislation or more developed guidance? If so, is it possible to quantify these costs?